This story makes no sense to me.
I very much doubt that Mr Brown's event was arranged at the last minute and very much doubt anyone was downgraded for his party.
Seems that the airline flew the first sector with empty seats, having adjusted the numbers in the cabin and then these filled up before the aircraft left for the second sector.
So unlikely Mr Brown's party took anyone's seats, the airline just oversold the cabin.
In my opinion, when this happens, the airline should have to refund the fare paid and then provide the same class of travel on the next connection to the pasengers end stop, regardless of whether the flight is with their company or not.
It can't be right that the airline knowlingly oversells a cabin because of 'no shows' and then punishes the innocent, who turn up for their flight.