U.S. v Joyce (9th Cir 2018) 895 F3d 673

Bid rigging at foreclosure sales is per se illegal under §1 of the Sherman Act.



A Rule of Reason in Unreasonable Situations?

According to the Ninth Circuit opinion in this case, the defendants violated §1 of the Sherman Act by refraining from bidding against one another, by designating which of them would win an auction, and then deciding on payoffs to the others through second, private auctions among themselves.

According to defendant Joyce’s appellate brief, he wanted to offer evidence that the foreclosing banks suppressed competition at their trustee sales by refusing to offer any relevant evidence regarding the properties being sold, and by setting opening bid prices, which thereby deterred outside bidders on 85 percent of the properties being sold, which thereby allowed the banks themselves to buy these properties at their own opening bid prices, which completely dominated the market, and left just 15 percent of it for defendants to bid on, meaning that their behavior had no real effect on the market. None of those contentions was refuted, but instead, they were held not to matter under the Sherman Act’s per se rules against horizontal price fixing, agreements not to compete, and divisions of markets.

Had a rule of reason analysis been held to have been applicable here, I would have added that true competitive bidding is impossible at trustee sales because bidders, before making their bids, also generally do not receive preliminary title reports, usually cannot (or do not) conduct physical inspections of properties, must bring and pay all cash when bidding, cannot include contingencies in their bids, and do not have title insurance companies standing behind them at the auctions. With such formidable obstacles, it is little wonder that most rational investors elect not to compete at those auctions, leaving the bidding for the more nonaverse risk preferrers who, unsurprisingly, play by rougher rules. It is doubtful that eliminating one bad feature of these trustee sales (bid rigging) will have much of an effect on the other baleful consequences of such sales.

P.S. Defendants’ strategy could also get them in trouble under state law. See Lo v Jensen (2001) 88 CA4th 1093 and CC §2924h. —Roger Bernhardt

Reprinted from 41 Real Property Law Reporter 125 (Cal CEB Sept. 2018), copyright 2018 by the Regents of the University of California. Reproduced with the permission of Continuing Education of the Bar - California (CEB). No other republication or external use is allowed without permission of CEB. All rights reserved. (For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit our website - CEB.com)