Badly handled all round.
As stated
//So what went wrong here?
It appears to have been a series of errors. A group of flight crew needed to be in Louisville, properly rested, in order to operate the next morning's plane. Had they not been able to get there, then many more passengers would have had their plans messed up. The big mistake the airline made was allowing all the fare-paying passengers on board, and then trying to entice enough people off.
It would have been far better to conduct the auction at the gate; physically preventing someone boarding is less harmful than dragging them kicking and screaming from their seat.//