Integrity of the bidding process

By

Mike Brandly
1 August 2017 - 12:25pm

Our topic today specifically regards bankruptcy auctions, but applies equally and reasonably to any type of auction anywhere in the United States. What we’re discussing is the finality [integrity] of the bidding process — i.e. “Does “Sold!” mean “Sold!?”

We’ve written and been able to confirm that there is no such thing as a “tie bid:”​ https://mikebrandlyauctioneer.wordpress.com/2016/07/28/terms-which-say-there-are-tie-bids/ We’ve also explored the concept of a “missed bid” which is in fact a “misplaced bid” at best: https://mikebrandlyauctioneer.wordpress.com/2017/01/26/missed-or-misplaced-bids/

Today we explore the integrity of the bidding process in regard to tie bids, missed bids and/or late bids as examined by addressing part of what we found in an article about 363 sales (sale of a debtor’s assets authorized under section 363 of the Bankruptcy Code:) http://www.pepperlaw.com/publications/upset-bids-in-section-363-sales-2013-10-03/.

Here’s the material part relating to our discussion today:

Integrity and finality in the sale process – also receives serious attention from the courts and, functionally, is integral to the sliding scale approach. “Accepting a late bid may mean more money for [sellers] in the short run, but by upsetting the expectations of those who thought the bidding was at an end, it may in the long term undermine confidence in sales and discourage prospective purchasers from making their best offers in a timely manner.” Ironically, the integrity of the process and respect for bidders’ reasonable expectations is generally consistent with the goal of asset maximization, as most courts have found that the risk of an upset bid stifles aggressive bidding and ultimately results in lost value to the estate.

Despite this same article’s authors (Francis J. Lawall and Erik L. Coccia noting in their conclusion that the right to reopen after, “Sold!” should remain an option in these 363 cases, we noted that Bankruptcy Judge James M. Peck of the United States Bankruptcy Court (now an attorney with Morrison & Foerster) said that finality is of central importance. That complete article is here:https://mikebrandlyauctioneer.wordpress.com/2012/03/19/court-auctions-does-money-trump-principle/

Our opinion as an auctioneer who’s been in this business over 35 years, conducting auctions all over the United States — and a witness and consultant in dozens of auction litigation cases — is that the integrity of the auction process trumps almost every specific auction’s goal to maximize proceeds by reopening the bid after, “Sold!” We contend by reopening the bid, confidence is absolutely lost in that auction and damages future auctions (and all auctions everywhere) by lessening faith in the process.

We hardly take this assertion lightly.

We’ve had numerous calls from consumers from all parts of the country recounting that after, “Sold!” the auctioneer cited a higher bid, a mistake, a missed bid, a software problem or some other issue… and the current bid (what was thought to be the final bid) was reopened. These “reopens” have surprisingly taken place minutes, hours, days — and even in one case — nearly a month later.

Our response to these inquiries has consistently been that unless that higher bid was a bid that was “made while the hammer is [was] falling in acceptance of a prior bid” (per UCC 2-328 (2) that the reopen may be improper and possibly actionable. However, what’s even more important here is that our phone rang… and we had a disgruntled bidder/buyer long before I answered my phone.

And for those who say that the seller is damaged when the bid is not reopened, we respectfully submit that we’ve yet to encounter a request from a seller for assistance in pursuing damages due to their auctioneer not reopening the bid. Further, we can tell you that plaintiffs as sellers in cases such as this are quite rare compared to bidder/buyer plaintiffs in these same circumstances.

As well, for those who say that the “other” bidder is damaged when the bid is not reopened, we’ve yet to encounter a request from a bidder for assistance in pursuing damages due to the auctioneer not reopening the bid. Here too, plaintiffs as bidders in cases such as this are quite rare compared to bidder/buyer plaintiffs in these same circumstances.

Some argue that the terms & conditions of the auction can (and should) dictate that the auctioneer has discretion, and can reopen the bid after, “Sold!” for a variety of reasons — maybe [virtually] any reason whatsoever … in other words, the auctioneer/seller has absolute unilateral right(s) to void this contract while the current buyer must remain committed to buy?

While I concede that terms and conditions are important for the protection of every auctioneer/seller, these particular clauses are both inherently unfair as there is no provision that the buyer can withdraw from this same contract — and we believe such an imbalance is absolutely manifestly unreasonable (as we further explored here:​ https://mikebrandlyauctioneer.wordpress.com/2017/03/01/auctions-that-are-manifestly-unreasonable/).

As an auctioneer, if you want to avoid litigation regarding this issue, there seems to be an easy path to follow; if we as auctioneers want to help preserve integrity in the auction process in the United States, there seems to be an equally easy path to follow. If you’re going to say, “Sold!” and expect to bind the buyer, expect to bind your seller as well.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, AuctioneerRES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and Faculty at the Certified Auctioneers Institute held at Indiana University.