Auction Company Not Liable to Owner for Property's $8,000 Sale Price
A federal appeals court has considered whether an auction company can be liable to a property owner for allegedly misrepresenting the price a property would sell for at an auction when the property, which had previously been under contract for $1.8 million, was sold for $8,000 at an auction conducted by the company.
Merrill Kearney ("Owner") owned 80 acres of waterfront property in Lubec, Maine. He had purchased the property from the prior owner for $90,000. The Owner put the property up for sale, running ads in both national and international newspapers. He eventually negotiated a $1.8 million sale price with Donald Long ("Long"). Before the agreement between Long and the Owner was formalized, Michael Keracher of J.P. King Auction Company ("Auction Company") contacted the Owner about the property, having seen one of the Owner's advertisements. Allegedly, Keracher told the Owner over the phone that he thought that the Owner could get more than $1.8 million for the property. The Owner received permission from Long to engage in further discussions with the Auction Company. Keracher flew to Maine and spent approximately one hour looking at the property, which was covered with 20 inches of snow at the time. Following his review of the property, Keracher allegedly stated that he thought the property would go for between three to ten million dollars at an auction.
Keracher and the Owner then met with Long after viewing the property. Long was skeptical that an auction could bring in more than the $1.8 million Long had offered. Keracher explained to the Owner and Long that the property was unique because of its size and waterfront location. He stated that the Auction Company had past success in selling premier properties, and he gave the Owner a list of clients who had sold their property through the Auction Company. Keracher also allegedly stated that the Auction Company's auctions attracted "heavy hitters" who like places that are isolated. Following the conclusion of the meeting, Long agreed to let the Owner out of his informal agreement to sell the property to him.
The Owner then agreed to allow the Auction Company to auction his property. There were three types of auctions available to him. The first was an auction with a reserve, which allows the owner to accept or reject the highest bid made at the auction. The second type of auction is one with a published reserve, in which the owner publishes the minimum amount for which the property will be sold. The final type of auction is an absolute auction, where the property will be sold no matter what the final price is. Keracher stated that although the absolute auction contained the most risk, it also attracted the most interest from bidders. The Owner agreed that the auction would be an absolute auction, and he signed the Auction Company's standard auction agreement. The agreement contained a disclaimer that the Auction Company did not guarantee that the auction would produce a specific price.
Materials advertising the auction were distributed nationwide, and the ads received responses from about 130 people. However, only two people showed up at the auction to bid on the property and one of the two dropped out after the price went over $100. The winning bid was $8,000. Following the conveyance of the land to the successful bidder, the Owner sued the Auction Company for misrepresentation and breach of its fiduciary duty to him. A combination of rulings by the trial court and a jury verdict resulted in judgment being entered in favor of the Auction Company on all of the Owner's allegations. The Owner appealed.
The United States Court of Appeals, First Circuit, affirmed the judgment in favor of the Auction Company. The court first considered the misrepresentation claims made by the Owner. The Owner argued that the Auction Company was liable for Keracher's misrepresentation that the auction would bring in between three and ten million dollars, and also that the Auction Company's auctions were attended by "heavy hitters." Looking at Maine law, the court found that the general rule is that someone cannot be liable for a statement concerning a future event, as those types of statements are only considered an opinion and not actionable. The exception to this rule in Maine is when the party who makes the alleged misrepresentation has exclusive control over critical information and conceals this information from the other party. Applying this rule to the alleged misrepresentations made by Keracher, the court ruled that neither statement constituted a misrepresentation because both statements could have easily been investigated and assessed by the Owner. The court further stated that "dealer's talk" about the potential for high sale value did not amount to fraud in Maine. Therefore, the court affirmed the trial court's ruling on the misrepresentation claims.
The court next considered the Owner's challenge to the jury verdict in favor of the Auction Company on the breach of fiduciary duty claims. The issue was whether the trial court had properly not allowed the jury to consider the two statements that the Owner's misrepresentation claims had been based on. The trial court had not allowed the jury to consider these statements, ruling that they were made before the agency relationship was established between the parties and thus these statements were irrelevant to the beach of fiduciary duty allegations. The trial court had ruled that the agency relationship did not begin until sometime after the meeting between the Owner, Keracher, and Long. The Owner conceded that the statements were made before an agency relationship had arisen between the parties, but argued that the Auction Company had a duty to correct any misunderstandings that had arisen prior to the commencement of the agency relationship. The court ruled that the Owner had failed to properly make this argument before the trial court, and so this argument was now waived on appeal. Thus, the trial court's ruling that the statements were not relevant to breach of fiduciary duty allegations because the statements were made before an agency relationship arose between the parties was affirmed. Therefore, the court affirmed the judgment entered in favor of the Auction Company.
Kearney v. J.P. King Auction Co., Inc., 265 F.3d 27 (1st Cir. 2001).
That underlined part is kinda scary - it seems to say, "Well, yeah - but you didn't bother making that argument in the trial court, so we're not going to allow you to make it here."
I'm glad I'm not a lawyer (litigator) - that's got to be one of the most difficult jobs ever. No matter what, one of the two lawyer's client's gets shafted (or feels that they did - they wouldn't be there arguing their case if they didn't think they were right).