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Leonard is James's gangster friend. He looks like Gene Hackman (not in this movie, though), and he likes to bet on sports.
They meet when Leonard threatens to beat James up, and James stands up to him. James's bravery, if you can call it that, seems to be more than enough to earn Leonard's eternal respect. "I don't know if you're the stupidest f*** I ever met or the bravest" (1.5.150), says Leonard. Leonard also respects James's toughness during the gruesome dental procedure.
James, not surprisingly, resists Leonard's friendship at first (what doesn't James resist?), but Leonard tells him, "You'll get tired of being an Asshole and you'll get tired of not having any friends and you'll talk to me" (1.8.283). This proves to be true.
Leonard and James are different in a lot of ways. James was raised by well-off parents, while Leonard was an orphan who was taken in by a guy named Michelangelo or "Mikey the Nose" (2.1.136) and his wife Geena. Leonard says, "They gave me a life, they gave me a home, they gave me a future, and they gave me love" (2.1.138). Leonard wants to pass these things along to James, too, despite their differences.
When James decides to kill himself, Leonard convinces him to take 24 hours to think about it. During those 24 hours, James ends up changing his mind.
James ends up latching on to Leonard's relatively simple life philosophy: "The most important is that when you get down, or you don't think you can f***ing do this anymore, just hold on, and sooner or later, the s*** is gonna get better" (2.4.177). This can be shortened to two words: hold on. (Allegedly some fans even had this phrase tattooed on their bodies. We bet the ones who just settled for a T-shirt are relieved.)
By the end of the book, we learn that Leonard may have pulled some strings to lessen James's prison sentence. He even asks James to be his son… because James has already proven to be such a model child. This may, of course, be more of a godfather/godson relationship, considering Leonard's alleged mob ties.
In the epilogue, James tells us that Leonard has died from complications due to AIDS, something that's never brought up during the course of the book. It's possible that James is trying to whet our appetites for his sequel, My Friend Leonard. Or maybe Leonard is just made up.