Rose v. National Auction Group, Inc.

• Decision Date: 09 July 2002
• Docket Number: Docket No. 116600, Calendar No. 2.
• Citation: 646 N.W.2d 455,466 Mich. 453
• Parties: George ROSE and Frances Rose, Plaintiffs-Appellees, v. The NATIONAL AUCTION GROUP, INC., Andrew Bone, William Bone, Donald Boozer, Eddie Haynes and Eddie Haynes, Inc., Defendants-Appellants, and Randall R. Hall, Defendant.
• Court: Michigan Supreme Court

646 N.W.2d 455

466 Mich. 453

George ROSE and Frances Rose, Plaintiffs-Appellees, v. The NATIONAL AUCTION GROUP, INC., Andrew Bone, William Bone, Donald Boozer, Eddie Haynes and Eddie Haynes, Inc., Defendants-Appellants, and Randall R. Hall, Defendant.

Docket No. 116600, Calendar No. 2.

Supreme Court of Michigan.

Argued November 6, 2001.

Decided July 9, 2002.

Reeves & Fried, P.C. (by Hillard Fried), Okemos, MI, and James M. O'Briant, Corpus Christi, TX, for the plaintiffs-appellees.

Campbell, O'Brien & Mistele, P.C. (by Lloyd G. Johnson and Joseph Crystal), Troy, MI, and Daniel W. White, Alpena, MI, for the defendants-appellants.

TAYLOR, J.

This case arises from the auction of an island formerly owned by plaintiffs. In short, plaintiffs contend that defendants induced plaintiffs, by fraud and misrepresentation, into surrendering their contractual right to withdraw the property from the auction by offering and agreeing to use a false or "shill" bidder at the auction and, thus, plaintiffs should not have to honor their earlier negotiated contract with defendants. The trial court granted summary disposition in favor of defendants on all claims. The Court of Appeals reversed the judgment of the trial court, holding that some of plaintiffs' claims should go forward. Unpublished opinion per curiam, issued March 7, 2000 (Docket No. 210666). We disagree and reverse the judgment of the Court of Appeals in part. In particular, this case implicates the "clean hands" doctrine in light of plaintiff George Rose's acknowledged agreement to engage in an illicit shill bidder scheme.

I

Plaintiffs George and Frances Rose owned an island in Lake Huron, known as "Crooked Island," which they had decided to sell. Mr. Rose approached defendant National Auction Group (NAG) through its agent Andrew Bone about selling the island at an auction. There were extended contacts between Mr. Rose and representatives of NAG over the course of approximately one year. Mr. Rose periodically had legal counsel in these discussions. At one point, William Bone, another of NAG's agents, met with Mr. Rose at the island, discussed NAG's experiences in selling Lake Huron island property, and told Mr. Rose that it would be no problem to obtain Mr. Rose's desired price of $850,000 for the island.¹ To gain familiarity with NAG's approaches to the auction process, during the course of this year, at NAG's invitation, plaintiff attended four Michigan property auctions conducted by NAG.

Plaintiffs thereafter signed a one-year listing agreement with NAG on July 11, 1996. This agreement expressly provided that the island was to be sold at an auction with no guaranteed minimum selling price, a circumstance that is also described as an absolute auction with no reserve. The agreement stated:

The National Auction Group, Inc. will sell the Property at absolute auction with no minimums or reserves. The Property will be sold to the highest bidder(s) regardless of the bid price and Seller understands and acknowledges that he relinquishes any right to place any minimum or reserve on the bidding with respect to the property.²

The agreement qualified this submission to auction by providing that Mr. Rose "has [the] right to withdraw property prior to auction." As to any guarantee concerning the ultimate selling price, the agreement included an acknowledgment that NAG "has made no representations or promises as to the price that may be bid at the auction and ... has in fact stated it has no opinion as to the value of the property or of the price it will bring at the auction sale." Finally, the listing agreement at two points included language that specifically precluded oral modifications of the agreement.

Eventually, after the circulation of brochures announcing the auction by NAG (which advertised that the auction would be an "absolute auction," i.e., a "no reserve auction" without any set minimum bid³), the contemplated auction was held. At the auction, Mr. Rose was concerned that only five bidders, including those participating by telephone, had registered, and he indicated to William Bone that he wanted to withdraw the property from the auction as was his right under the agreement. William Bone, in an attempt to reassure, told Mr. Rose that the auction could go forward, but that he did not need to be concerned that the price would be less than he wanted. The reason was that if the bidding was too low, a NAG shill would make a phony bid. Only NAG agents and Mr. Rose would know the bid was not to actually buy the property, but instead to deprive the true high bidder of the property. Notwithstanding the obvious perfidy of this scheme, Mr. Rose agreed to it and, accordingly, the auction proceeded.

As the auction proceeded, bids were few and were stalled at $175,000. At this point, a recess was called. Mr. Rose then met with the NAG representatives, saying that $175,000 was unacceptable and that he wanted at least $850,000 for the island. For their part, the NAG representatives attempted to convince Mr. Rose that $175,000 was a fair bid, but he did not agree and directed NAG to reconvene the bidding and implement the shill bidder scheme. Once reopened, whether through bungling or yet more chicanery, the promised NAG shill did not enter the bidding and, thus, the bidding closed at $175,000. Mr. Rose was, needless to say, dismayed with this outcome, but did eventually sign a purchase agreement for the sale of the property for $175,000 plus a six percent auction fee to be paid to NAG by the high bidder.⁴ Mr. Rose now seeks to use the courts to settle the score with his unfaithful confederates.

Plaintiffs filed this suit against NAG and the affiliated individual defendants, essentially seeking reimbursement for the commissions paid to them pursuant to the listing agreement as well as damages to put them in the place they would have been had the shill performed. Plaintiffs alleged two types of claims.⁵ The first were "precontract" claims of fraud, misrepresentation, and breach of fiduciary duty covering the time before the execution of the listing agreement. The second were "postcontract" oral claims springing out of the shill scheme agreed to at the auction. These also sounded in fraud, misrepresentation, and breach of fiduciary duty, and asked the trial court to act in equity to void the purchase agreements and to divest NAG of the commission paid to it.

Defendants moved for summary disposition under MCR 2.116(C)(7) and (10). Defendants argued that the alleged precontract representations were not actionable because they were mere "puffing" as was made clear by the fact that the listing agreement, not once, but twice specifically disclaimed that defendants had made any representations concerning the value of the property or the price at which it might sell. Regarding the postcontract claims, defendants argued that any oral agreement alleged by defendants would contravene the "no oral modification" clause of the written agreement as well as the applicable statute of frauds. Defendants further argued that because the use of shill bidders was illegal that plaintiffs should not be able to invoke the court's equity powers to enforce this illegal contract.

The trial court ruled in favor of defendants, holding that with respect to the precontract claims, the express language of the written agreement and the accompanying disclaimer specifically refuted those claims and that the precontract statements allegedly made by defendants "constitute either puffing, mere opinion, or are statements pertaining to future events ...." Regarding the postcontract claims, the trial court held that the oral understanding allegedly arrived at by the parties was illegal because it would require the use of false bidders, it would be in violation of the statute of frauds, and it would violate the written agreement that specifically required any changes to be in writing and signed by the parties.

A unanimous Court of Appeals affirmed the trial court regarding the "precontract" claims, but, by a two-to-one vote, reversed regarding the "postcontract" claims. As to the postcontract claims, the majority essentially concluded that, while the oral agreement contemplating the use of a shill bidder was void as against public policy, this did not necessarily preclude plaintiffs from maintaining an action for fraud or misrepresentation or for negligence or breach of fiduciary duty in order to recover certain types of damages from defendants. The Court further reinstated certain claims by plaintiffs related to defendants' efforts in publicizing and conducting the auction. We granted defendant's application for leave to appeal regarding generally the postcontract issues.

II

This case arises from the trial court's grant of summary disposition in favor of defendants under MCR 2.116(C)(10). We review this issue de novo. Maiden v. Rozwood, 461 Mich. 109, 118, 597 N.W.2d 817 (1999). In reviewing such a decision, we consider the affidavits, pleadings, depositions, admissions, and other documentary evidence submitted by the parties in the light most favorable to the party opposing the motion. Quinto v. Cross & Peters Co., 451 Mich. 358, 362, 547 N.W.2d 314 (1996). Summary disposition under MCR 2.116(C)(10) is appropriately granted if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law. Id.

III

Before us then are the "postcontract" claims. Plaintiffs, in their fraud and misrepresentation claims are seeking, by the invocation of the court's equity powers, to retrospectively revoke their obligations to NAG under the written contract for the holding of the auction. That is, they argue they would have canceled the auction had it not been for the lure of the shill bidder scheme.

Yet, Mr. Rose's reason for not canceling the auction was because he chose to enter into an agreement with NAG to surreptitiously deprive the bidders of the no reserve...