Heritage Auctions Lawsuit

[Wesley]

Another day, another lawsuit against an auction house. This one involves a former Heritage employee accusing Heritage of shill bidding.



The back of Heritage catalogs' terms and conditions read: "The Auctioneer or its affiliates may consign items to be sold in the Auction, and may bid on those lots or any other lots." So for years disclosures about this type of bidding have been clearly spelled out by Heritage.

I think this policy is shady, even with the disclosures, so I am glad someone is calling them on it.



(Please no great guy/good guy jokes, Peter and Jeff. )

[Peter_Spaeth]

Wes YOU are a great guy.

Seriously though, if they disclose it, there is no deception, and I have no issue with it. If someone doesn't like it, they shouldn't bid. I thought Greg Rohan came across pretty well in that story.

[barrysloate]

The disclosure issue aside, why would they have a rule that allows a consignor to bid on his own lots? Wouldn't it be prudent to put in writing that consignors may not under any circumstances bid on their own lots? What kind of policy is that?

[Jim VB]

I didn't understand this quote from Heritage:

""There's nothing illegal or unethical about us placing a bid prior to the auction starting," Rohan says, adding that Heritage doesn't compete or bid during auctions."


Huh? How do you place a bid prior to the auction starting? Do they mean they place the first bid at some level they are comfortable with, and that works as a hidden reserve as others bid?

I think that needs more explanation, not just disclosure.

[barrysloate]

The first bid may be a hidden reserve.

[Wesley]

Barry, As someone is the business, you know the hard part is getting the consignments, and if you have the right cards, then the buyers will come. Maybe sometimes the only way to attract consignors is to give them assurances that they will not lose their shirts with these terms.

Peter, I am NOT a great guy! But I do agree with you in that Heritage seems to be in good shape with it's written disclosures. Not sure where the plaintiff is going with this aside from creating some leverage for the seven figures that he believes he is owed. One thing I did find interesting in the blog article is the accusation that Heritage bids on items and then retracts it's bids. If that is the case then perhaps the intent is not to win the item back, but rather to just drive up the prices. In any event, allowing the consignor or the auction house to bid is a terrible policy for Heritage bidders.

[Jim VB]

Originally Posted by barrysloate

The first bid may be a hidden reserve.

That was my first thought, Barry. But then they say "that Heritage doesn't compete or bid during auctions."

If their bid was designed to be a hidden reserve, they would have to use their bid to up the price once other bids were in, even if it was done automatically. To me, that's "bidding" during the auction.

[barrysloate]

Wes- I agree that giving a consignor a certain minimum guarantee is an accepted practice, and many times it's the prudent thing to do.

But a house bid that protects a lot should be placed only by the auction house. If I understand Heritage's policy, they are letting consignors place the bids themselves as they see fit? It's hard to imagine that is a good policy.

[Exhibitman]

Steve Bruno, the government relations officer at the Texas Department of Licensing and Regulation, says Heritage is allowed to bid in its own auctions -- even if it uses a false name -- provided that it's announced. "As long as they've said that their people will be bidding, then they're allowed to do that."

The [Texas Department of Licensing and Regulation] regulates auctioneers, not auction houses. So while Heritage is required to hire licensed auctioneers to conduct its auctions, the company's practices as an auction house are not regulated. A statement from Tom Kelley, a spokesman for the Texas Attorney General's Office, says "nothing in the law addresses the licensing of auction houses."

Yet Rohan says the identity of Gresham isn't hidden, and "everybody down to the beginning clerk knows that it's us." In fact, Rohan claims that Hendershott not only knew about N.P. Gresham, he was Gresham when he was buying Civil War items for Heritage. "He knew all about it from the very beginning. He knew that we placed bids on stuff because he was one of the ones that bid."

Sounds like a POS fish-slapping dance of a case.

[oldjudge]

Heritage's current sports signature auction has a seperate special catalog for the first forty lots. I believe most of these forty lots were purchased in the last year or so at, what seemed to be, extremely high prices. I wonder how much protection will be provided for these lots.

[Peter_Spaeth]

Originally Posted by barrysloate

Wes- I agree that giving a consignor a certain minimum guarantee is an accepted practice, and many times it's the prudent thing to do.

But a house bid that protects a lot should be placed only by the auction house. If I understand Heritage's policy, they are letting consignors place the bids themselves as they see fit? It's hard to imagine that is a good policy.

If it helps them with consignors and doesn't hurt them with buyers, why isn't it a good policy?

[dennis]

it's OK to shill, if you tell the bidders you are doing it in the fine print. now i know why, in a down economy, they get such great prices for consignments.

[Matt]

I'm curious how this works - what happens if the consignor wins the lot? Does he/she just get the item back with no fees? Does the underbidder get a call saying they couldn't collect from the winning bidder?

[Jim VB]

Originally Posted by Peter_Spaeth

If it helps them with consignors and doesn't hurt them with buyers, why isn't it a good policy?

Peter and Adam,

Aren't you guys making the point that what Heritage is accused of doing leaves them firm footing LEGALLY?

If so, I don't think most of us are disputing that. I'd like a better understanding of exactly what it is they're doing, but I do think they are probably within the letter of the law.

However, if this pseudo-bidding is functioning as a hidden reserve, then I think it needs to be spelled out more clearly.

It doesn't sound to me like this lawsuit will go anywhere, but it may have exposed something most bidders were unaware of.

[paul]

The final page of the online article has a separate window with the complaint that was filed in court. According to the complaint (around paragraph 16 or 17), Heritage places bids on lots until the reserve is met, and then stops bidding.

Heritage's catalog uses the word "opening bid" to describe the starting bid, not the word "reserve." So it's possible that there is a higher, secret reserve price that has been agreed to by Heritage and the consignor. I don't like that practice, but I believe it is common. Certainly, ebay allows for that practice.

Based on this, I don't see any basis for the plaintiff's claim that he was harmed. If he was bidding on a lot, but didn't meet the secret reserve price, then the consignor keeps the lot and the plaintiff/bidder gets nothing. If Heritage keeps bumping up the lot until the reserve is reached, the bidder gets the lot for the minimum price that the buyer was willing to sell it for. As long as Heritage does not keep bidding beyond the reserve, it simply is not true that the plaintiff paid extra for the lot due to Heritage's bidding. He paid the minimum that the seller was willing to sell it for.

Again, I don't like the practice, but I don't see that the plaintiff has anything to complain about. Now, if there was some kind of "floating" reserve -- a goal post that the seller or Heritage could keep moving -- that would be a different story. But if that was going on, there would be a real risk that Heritage would accidentally win a lot of lots. Presumably, Heritage would then offer the lot to the underbidder (the high legit bidder). And the underbidder would likely be paying much more than he should have. I haven't heard of that going on. And if it was, I assume it would be in the plaintiff's complaint that he filed in court.

[3-2-count]

Since were on the subject of hidden reserves a consignor may have an agreement with on with a specific auction house to protect their investment, is it every ones thoughts that this practice is okay as long as the auction house is the only party placing the next bid until it reaches the agreed reserve they may have together, and is it okay by most here for this not to be disclosed? Would like to hear other board members opinions on this subject.

[barrysloate]

Peter- the auction house needs to be in control of a reserve bid; if the consignor asks for minimum $1000, then the house bids up to $1000 only.

If you let consignors bid on their own lots the auction house loses control of the sale. I might consider having reserves in certain situations, but I would never allow my consignors to do whatever they want.

[barrysloate]

Tony- auction houses placing a house/reserve bid, when it is an open policy that some lots do have a reserve, is an accepted practice. A lot of bidders don't like it, but it's not illegal.

[Peter_Spaeth]

In my opinion very few people if any would decline to bid on a card they really wanted or "needed" for a set just because they might get run up by the house. Even with all the allegations swirling around Mastro, who here "voted with his feet," to quote Lenin?

I commend Heritage for disclosing what goes on anyway in most auctions.

[paul]

I just looked at Heritage's terms and conditions in the back of their Catalog. Paragraph 13 says that consignors may set a "minimum bid" in writing, and that this bid is "generally" listed on the website a few days before the close of the auction. This appears to be what we usually call a reserve -- in this case, a temporarily secret reserve.

Paragraph 21 says Heritage may bid on items it consigns or other items.

I agree with Jim VB that it would be much better to disclose this more clearly. A nice "how our auction works" introduction at the beginning of the catalog would help. And I don't really think it would sound that bad: "To protect our consignors, we allow them to set minimum bids in writing. To encourage bidding early, we don't post the minimums until near the end of the auction. To avoid the situation where a willing buyer and willing seller still won't result in a sale, we reserve the right to place bids until the minimum bid is met."

Edited to add: Now that I think about it, something still doesn't make sense. If the reserve is eventually posted, then any bidder who wants the item can bid the reserve amount, even if no one else is willing to bid anything close to the reserve. This eliminates any legitimate need for the auction house to bid. So I'm not sure what's going on.