Group purchases in REA, Mastro

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Posted By: CoreyRS.hanus

Phil-NY,

A couple of thoughts.

First, in the example you give, there is serious question how good the intentions were when the group was formed. You describe each member as being interested in the lot. So presuming each member had the financial means to acquire the lot and, in the absence of the group forming, would have bid aggressively to win, IMO the group's agreement to designate one member to bid on the lot constitutes illegal collusion.

Second, in regard to what I think you're asking -- how do you really know if the group's intention upon formation was sufficiently benign so as to not constitute illegal collusion -- that is a terrific question. Proving intent is an issue of fact, and many factors can be considered. For example, if it could be shown that each member simply doesn't have the means to afford what the lot would reasonably be expected to fetch, then that should be adequate to rebut an allegation of illegal collusion. If, though, AFTER THE FACT (i.e., a month after the auction), the group took actions inconsistent with initial benign intent (e.g., sold all the items which constituted the lot and divided up the profits), then I would think the presumption would be the intent behind the formation of the group constituted illegal collusion. Or, to put it another way, intent could be inferred from subsequent actions. And should that happen, the burden of proof would shift to the group to rebut that presumption.

I might add that the group could still successfully rebut the negative inference caused by its subsequent actions. For example, showing that (1) the sale of the lot after the auction came about through an unsolicited and unanticipated offer, and (2) there exists a sequence of emails among the members prior to the group forming which evidences their benign intent, could suffice to successfully defend against an allegation of illegal collusion when forming the group.

Third, I think once its been established that the group's formation did not constitute illegal collusion, then after-the-fact suspicious actions will not suffice to make illegal what was at the time legal.