Heritage Auctions Lawsuit

[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?

[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.

[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.

[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.