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Nathanson v. Grand Estates Auction Co.

November 23, 2010


The opinion of the court was delivered by: Seybert, District Judge


On June 10, 2010 Plaintiff Barry Nathanson ("Nathanson" or "Plaintiff") commenced this action against Grand Estates Auction Company ("Grand Estates" or "Defendant"). Plaintiff's Complaint alleges causes of action pursuant to New York General Business Law §§ 349, 350, common law fraud and deceit, breach of contract, "breach of duty", negligence, misrepresentation, and tortious interference with Plaintiff's prospective business advantage.

Pending before the Court is Defendant's Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(7), requesting that the Court dismiss the Complaint in its entirety and Fed. R. Civ. P. 12(b)(6), requesting that the Court dismiss each cause of action for failure to state a claim upon which relief can be granted. For the following reasons, Defendant's motion is GRANTED. Plaintiff's Complaint is dismissed with leave to re-plead his fraud claim.


In 2009, Plaintiff, a resident of Great Neck, New York, was in the market for real estate. Defendant, which is in the business of auctioneering deluxe real estate, markets and conducts auctions in the State of New York. (Compl. ¶¶ 2-5.)

All of Plaintiff's causes of action concern an auction for real estate located in Matinecock, New York (hereinafter referred to as "Property"). The auction, held at the Property on November 17, 2009, was advertised by the Defendant (in its role as the seller's agent) as a so-called "absolute" auction, or an auction "without reserves." (Compl. ¶ 10.) These terms of art denote that the subject of an auction will be sold to the highest bidder whether or not the seller's ideal price, or even the prevailing market price, is fetched. (Compl. ¶ 13.) Defendant's advertisements for the auction spelt out in layman's terms the meaning of an absolute auction, alerting potential buyers that the auction would constitute the "only opportunity to purchase [Property] at your own price." (Compl. ¶ 13.)

An appreciation of the auction's basic rules is vital in assessing Plaintiff's claims. To participate in the auction potential buyers had to comply with certain rules provided by Defendant. Every bidder on the Property, for example, was required to preregister and present a certified check for $50,000 on pain of being excluded. (Compl. ¶ 14.) For those participants who wished to place bids remotely via telephone, certain additional requirements were imposed, including the submission of a complete "Bidder Statement", signed preliminary terms and conditions, and a filled out phone-bidding procedure slip. Only upon receipt of these documents would a remote bidder be empowered to participate in the auction. (Compl. ¶¶ 15-16.)

Immediately after being declared the auction's winner, the highest bidder would be required to place a ten percent down payment on the Property with the balance due in cash at closing, which would take place within thirty days of the auction. No real estate contract would be signed before a winner be declared. (Compl. ¶ 17.)

At around 2 p.m. Defendant began crying the auction. Despite the presence of more than a dozen bidders competing for several rounds, Plaintiff proved the highest bidder with a sum of $4,000,000. Even as Defendant aggressively exhorted the others to top Plaintiff's bid, the "live" bidders blinked at the price. To all participating in the auction it became clear that Plaintiff's bid entitled him to the Property; the rules of an absolute auction dictated that no other result was possible. (Compl. ¶¶ 19-24.)

At this moment a remote, unidentified bidder phoned in. Though the prevailing highest bid was $4,000,000, the mysterious caller bested it with an offer of $5,000,000 -- a full million dollars over Plaintiff's and unprompted by competitive counterbids. This bidder, who had not registered to participate in the action and failed to submit the requisite $50,000 registration fee, was promptly declared the winner by Defendant. The bidder neither submitted the ten percent down payment required by the Defendant's rules, nor executed a real state contract with the seller. The seller never closed on the property with the winning bidder. (Compl. ¶¶ 25-37.)

Sometime thereafter the seller sold the Property outside the auction for an amount in excess of $6,000,000 to an unidentified buyer. (Compl. ¶ 48.)

The gravamen of Plaintiff's Complaint is that the winning bidder was a shill (a fictitious bidder), acting on behalf of the Defendant, whose final bid of $5,000,000 was designed either to spur Plaintiff to increase his bid or to enable Defendant impermissibly to withdraw the Property from an auction billed as one without a reserve price.

Although Plaintiff alleges that Defendant's commission consisted of 7.5% of the purchase price (Compl. ¶ 18), which would plainly amount to no commission at all in the case of a fictitious bidder, he also alleges that by engineering this deception Defendant was unjustly enriched in some unspecified way. (Compl. ¶ 60.)

Never clearly set out in the Complaint, the monetary loss sustained by Plaintiff as a result seems entirely to consist of the rough difference between his $4,000,000 bid for the Property and the approximate price (more than $6,000,000) at which it was eventually sold several months after the rigged auction. (Plaintiff's $50,000 registration fee was returned.) In other words, Plaintiff requests that he be placed in the position he would have been in had his contract*fn2 with the seller not been breached.


I. Standard of ...

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