Joint Bidding Good; Bid Rigging Bad

Auctions are becoming an increasingly popular method to sell land. Many real estate brokers view auctions as a quick and efficient process to obtain fair market value for a parcel of real property.

Colorado court decisions involving auction disputes are relatively rare. However, a recent decision from the Colorado Court of Appeals provides useful guidance on how to avoid improper "bid rigging." In Amos v. Aspen Alps 123, LLC, the Court of Appeals specifically analyzed the distinction between unlawful "bid rigging" and lawful "joint bidding."?

The Amos Court first held that "bid rigging" was a per se violation of the Colorado Antitrust Act. The Court explained that "bid rigging" occurs when two or more competitors coordinate their bids to a third party. "Joint bidding," on the other hand, occurs when bidders pool their resources to place bids on property that they would otherwise be unable to afford individually.

To draw a clear distinction between "bid rigging" and "joint bidding," the Amos Court revisited ?Love v. Basque Cartel. In Love, a Wyoming District Court found that the group bidding at an auction of a 90,000-acre ranch constituted permissible "joint bidding." The bidding occurred in several rounds: in the early rounds of bidding, bids were taken on individual subdivided parcels; in the last round, bids were taken on the ranch as a whole.

The Love Court explained that by three bidders pooling their resources to submit a joint bid on the entire ranch, those bidders had encouraged competition and facilitated the purchase of the entire 90,000-acre ranch. Without pooling their resources, no one of the three bidders would have been able to purchase the entire parcel. Because the bidders had pooled their resources when bidding on the entire ranch, which promoted competition, the Love Court determined their group bidding approach was legal "joint bidding."?

In Amos, three bidders agreed to stop bidding against each other and to instead form a jointly-owned entity to acquire the single condominium unit being auctioned. Unlike the bidding process in Love, the bidders in Amos did not need to pool their resources to purchase the condo which was valued in excess of $1,600,000. In fact, one of the bidders had the resources to purchase the unit without assistance from other bidders.

The Amos bidders specifically intended to end the competitive bidding process and agreed to stop bidding the price higher. Because the bidders intended to eliminate competition and did not need to pool their resources to purchase the condo, the Amos Court found that the bidders engaged in "bid rigging," which violated the Colorado Antitrust Act.

After finding violation of the Colorado Antitrust Act, the Court considered the appropriate remedy for the violation. Generally, the Colorado Antitrust Act contemplates money damages for private violations. However, in light of the fact that the "bid rigging" occurred during the bidding at a foreclosure sale, the Court permitted equity to intervene, voided the purchase of the property, and directed the public trustee to conduct a new foreclosure sale.

The important lesson to take away from Amos is the distinction between "joint bidding" and "bid rigging." Permissible "joint bidding" occurs when parties pool their resources together in order to competitively bid on real property that would otherwise be unavailable to a single bidder. This process often involves individual bidding on subdivided parcels and then joint bidding on the entire parcel in the last round. Impermissible "bid rigging" occurs when a group of bidders do not need to pool their resources to purchase certain real property and instead cooperate in a way that artificially lowers the price of the real property. Such conduct invites civil liability and may lead to monetary damages or equitable relief as the circumstances require.