GEORGE ROSE V NATIONAL AUCTION GROUP
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Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
C hief Justice
Justices
Maura D. Cor rigan
Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman
Opinion
____________________________________________________________________________________________________________________________
FILED JULY 9, 2002
GEORGE ROSE and FRANCES ROSE,
Plaintiffs-Appellees,
v
No.
116600
THE NATIONAL AUCTION GROUP, INC,
ANDREW BONE, WILLIAM BONE, DONALD
BOOZER, EDDIE HAYNES and EDDIE
HAYNES, INC.,
Defendants-Appellants,
and
RANDALL R. HALL,
Defendant.
____________________________________
BEFORE THE ENTIRE BENCH
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 Unpublished opinion per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
2
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.
that
the
island
was
to
This agreement expressly provided
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
1
Our recitation of the facts either presents such facts
as are undisputed or, in case of a dispute, attempts to
present the disputed matters in a light favorable to
plaintiffs.
We use this approach because in reviewing a
decision on a motion for summary disposition brought by
defendants, we are required to consider the factual record in
a light most favorable to plaintiffs. Quinto v Cross & Peters
Co, 451 Mich 358, 362; 547 NW2d 314 (1996). We also note that
all the individual defendants who are parties to this appeal
were apparently employees or other agents of NAG.
2
Notably, an alternative paragraph in the form used to
draft the contract that contemplated the possibility of a
seller setting a “reserve” or minimum selling price for the
auction was crossed-out.
3
prior
to
ultimate
auction.”
As
selling
price,
acknowledgment
that
NAG
to
any
the
“has
guarantee
agreement
made
no
concerning
the
included
an
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
3
The cover page of the brochure, which also included
listings for the auctioning of other property besides the
island presently at issue, was entitled “Absolute Auction.”
Further, in the part of the brochure with a relatively
detailed description of Crooked Island, it was expressly
stated, “Selling regardless of price.”
4
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
4
Mr. Rose now seeks to use
Mrs. Rose refused to sign the purchase agreement, but
the Court of Appeals has held that her refusal did not
invalidate the agreement. The propriety of that ruling is not
before us.
5
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
2.116(C)(7) and (10).
for
summary
disposition
under
MCR
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
5
Plaintiffs also named Randall Hall, the good-faith
purchaser of the property, as a defendant. However, Hall’s
motion for summary disposition was granted, and he was
dismissed from the suit. Plaintiffs do not raise any claims
with respect to Hall in this appeal.
6
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.
that
because
the
use
of
shill
Defendants further argued
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.
7
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
application
for
the
leave
auction.
to
appeal
We
granted
regarding
defendant’s
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 NW2d 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 NW2d 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.
8
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 auction
that had been advertised.
It cannot be doubted that even
those with no business world experience would understand that
it is wrong to advertise one thing and then secretly plot to
never deliver on the promises.
Our law follows this norm as
it is undisputed that the use of a “shill” or false bidder
unbeknown to the sincere bidders at an auction is contrary to
our public policy.
long
ago,
Under common-law principles articulated
agreements
to
stifle
competitive
generally contrary to public policy.
bidding
are
See Detroit Trust Co v
Agozzinio, 280 Mich 402, 405; 273 NW 747 (1937); Leland v
Ford, 245 Mich 599; 223 NW 218 (1929).6
6
Given improper
To similar effect, see MCL 446.58, wherein the
Legislature banned the use of shills in personal property
auctions.
9
conduct by Mr. Rose, plaintiffs’ equitable claims of fraud and
misrepresentation7 are barred by the bedrock principle that
the preservation of the integrity of the judicial system means
no court acting in equity can allow its conscience to be moved
to give such a plaintiff relief.
Indeed, the maxim that one
“who comes into equity must come with clean hands” is “the
expression
of
one
of
the
elementary
conceptions of equity jurisprudence.”
and
2 Pomeroy’s Equity
Jurisprudence, ch I, p 90, § 398, 92 (1941).
this state have held similarly.
fundamental
The courts of
Justice Cooley wrote for a
unanimous Court in Rust v Conrad, 47 Mich 449, 454; 11 NW 265
(1882):
[I]f there are any indications of overreaching
or unfairness on [an equity plaintiff’s] part, the
court will refuse to entertain his case, and turn
him over to the usual remedies.
Writing even more pointedly and echoing Pomeroy, we have
reiterated this rule more recently, stating in a succinct
formulation of the doctrine “that one who seeks the aid of
equity must come in with clean hands.” Stachnik v Winkel, 394
Mich 375, 382; 230 NW2d 529 (1975), quoting Charles E Austin,
Inc v Secretary of State, 321 Mich 426, 435; 32 NW2d 694
(1948).
The Stachnik Court aptly described the scope and
7
See Flood v Welsh, 334 Mich 583, 591-592; 55 NW2d 104
(1952) (describing the cancellation of an executed contract on
the basis of fraud as a power of a court of equity).
10
purpose of the clean hands doctrine as
“a self-imposed ordinance that closes the doors of
a
court
of
equity
to
one
tainted
with
inequitableness or bad faith relative to the matter
in which he seeks relief, however improper may have
been the behavior of the defendant. That doctrine
is rooted in the historical concept of the court of
equity as a vehicle for affirmatively enforcing the
requirements of conscience and good faith.
This
presupposes a refusal on its part to be ‘the
abettor of iniquity.’ Bein v Heath, [47 US] 6 How
228, 247 [12 L Ed 416 (1848)].”
Precision
Instrument
Manufacturing
Co
v
Automotive
Maintenance Machinery Co, 324 US 806, 814; 65 S Ct
993; 89 L Ed 1381 (1944). [Id., at 382 (emphasis
added).]
Further, relevant to the instant case, the clean hands
doctrine has been applied to deny equitable relief to parties
to a fraudulent contract:
If a contract has been entered into through
fraud, or to accomplish any fraudulent purpose, a
court of equity will not, at the suit of one of the
fraudulent parties,—a particeps doli,—while the
agreement is still executory, either compel its
execution or decree its cancellation, nor after it
has been executed, set it aside, and thus restore
the plaintiff to the property or other interests
which he had fraudulently transferred. [2 Pomeroy
supra, § 401, p 105.][8]
8
Unquestionably, the most famous illegal purpose
contract case is the legendary and perhaps supposititious
“highwayman’s case,” that generations of law students have
trained on. There, one criminal unsuccessfully attempted to
invoke equity to sue another for a share of their ill-gotten
booty. Our Court in 1956 discussed this case, quoting from
Pothier on Obligations, in a fashion that cannot be improved
upon, as follows:
“There is a tradition that a suit was
instituted by a highwayman against his companion to
account for his share of the plunder, and a copy of
11
Accordingly, while plaintiffs emphasize the alleged improper
behavior of defendants in devising the shill bidder scheme and
using it to induce Mr. Rose to continue with the auction, this
does not change the fact that plaintiffs are barred as a
matter of law by the clean hands doctrine from advancing their
equitable claims of fraud and misrepresentation in connection
with that scheme.
In
concluding
that
plaintiffs’
fraud
and
misrepresentation claims in connection with the shill bidder
scheme were not barred as a matter of law, the Court of
Appeals concluded that “an issue of fact exists whether
plaintiffs
reasonably
relied
on
.
.
.
defendants’
the proceedings has been published as found amongst
the papers of a deceased attorney. It was a bill
in the Exchequer, which avoided stating in direct
terms the criminality of the engagement, and is
founded upon a supposed dealing as copartners in
rings, watches, et cetera, but the mode of dealing
may be manifestly inferred. The tradition receives
some degree of authenticity, by the order of the
court being such as would in all probability ensue
from such an attempt. The order was, that the bill
should be dismissed with costs for impertinence,
and the solicitor fined 50£. The printed account
is accompanied by a memorandum which states the
particular times and places where the plaintiff and
defendant were afterwards executed.”
[Manning v
Bishop of Marquette, 345 Mich 130, 133-134; 76 NW2d
75 (1956), quoting 2 Evans’, Pothier on Obligations
(3d Am ed), pp 2,3.]
Fortunately for the present parties, Michigan law tends to be
far less harsh than the early common law in England.
12
representations that they would use a false bidder to prevent
plaintiffs’ property from being sold below their minimum
price.”
In this regard, the Court noted that plaintiffs
contended that they were unaware that use of a false bidder
was illegal.
While acknowledging the general rule that
ignorance of the law cannot prevent its enforcement, the Court
stated that “when a mistake of law is predicated on an
affirmative misrepresentation by one who acts in a fiduciary
capacity, the law is more forgiving.”
The Court quoted the
following from Tompkins v Hollister, 60 Mich 470, 480; 27 NW
651 (1886), in support of this analysis:
It is true . . . that mistakes of law cannot
usually be a ground of relief, when standing alone.
The current of authority runs in that direction
most strongly, although in some states even such
relief has been granted.
But it is also true that there are cases of
fraudulent misrepresentations or concealments of
matters of law by those holding confidential
relations to the person wronged thereby which
equity will relieve against. Where one relies upon
another, and has a right to so rely, and the person
relied upon omits to state a most material legal
consideration within his knowledge, of which the
other is ignorant, affecting his rights, and the
person thus ignorant acts under this misplaced
confidence and is misled by it, a court of equity
will afford relief, especially if such action is to
the advantage of the person whose advice is taken,
even though no fraud was intended[.]
[Emphasis
added.]
We conclude that, in its consideration of Tompkins, the
Court
of
Appeals
failed
to
13
appropriately
consider
the
emphasized
language
that
allows
a
claim
of
fraud
or
misrepresentation related to a point of law only where the
plaintiff “has a right to so rely” on the advice.9
Stated
more plainly, a person cannot avoid the clean hands doctrine
by “relying” on advice or inducement to engage in a course of
conduct where it is plainly evident that the conduct is
illegal or unethical.
We note the following from 3 Pomeroy,
supra, § 891, pp 509-510:
Any representation, in order that one may be
justified in relying upon it, must be, in some
degree at least, reasonable; at all events, it must
not be so self-contradictory or absurd that no
reasonable man could believe it.
Moreover, even underhanded conduct that does not rise to the
level of being legally prohibited can nevertheless require
application of the clean hands doctrine:
Misconduct which will bar relief in a court of
equity need not necessarily be of such nature as to
be punishable as a crime or to constitute the basis
of legal action. Under this maxim, any willful act
in regard to the matter in litigation, which would
be condemned and pronounced wrongful by honest and
fair-minded men, will be sufficient to make the
hands of the applicant unclean. [2 Pomeroy, supra,
§ 404, p 143.]
It appears that no previously reported Michigan case squarely
addresses the point, but we believe our conclusion that a
party has no right to rely on advice to engage in blatantly
9
In light of our analysis, it is unnecessary to decide
whether defendants actually owed any fiduciary duties to
plaintiffs.
14
unethical
conduct
jurisprudence.10
is
in
harmony
with
our
equity
We believe that this is a reasonable rule.
While it is appropriate for a party to secure the services of
an expert for advice about legal, technical, or complex
matters, we see no reason that the explicit or implicit advice
of such an expert should allow a party to violate basic
ethical norms that are obvious to any sentient person.
Thus,
contrary to the possible implication of the Court of Appeals
opinion, even if a party fails to appreciate the illegality of
certain conduct, that does not necessarily preclude the fact
that
the
party
engaged
in
such
conduct
from
requiring
application of the clean hands doctrine.
In sum, the clean hands doctrine bars the present claims.
No person capable of understanding the advertising that Mr.
Rose caused to be published, as Mr. Rose certainly was, could
have felt that the use of a shill bidder was ethically
acceptable conduct.
Thus, application of the clean hands
doctrine is justified because the claims in question are
inextricably tied to Mr. Rose’s agreement to a fraudulent
10
See Stachnik, supra (denying equitable relief to
parties who misrepresented facts related to a purported
purchase agreement on the basis of the clean hands doctrine);
Isbell v Brighton Area Schs, 199 Mich App 188; 500 NW2d 748
(1993) (holding that, under the clean hands doctrine, the
plaintiff was not entitled to the equitable relief of ordering
the school district to issue a high school diploma where she
was denied a diploma on the basis of unexcused absences from
school and that she had forged excuse notes).
15
shill bidder scheme, and Mr. Rose will not be heard to claim
he had a right to rely on advice that he and NAG could get
together to swindle the very individuals they had advertised
to attract.
In the trenchant and stinging words of Justice
Smith in Manning v Bishop of Marquette, 345 Mich 130, 131; 76
NW2d 75 (1956), “A rogue does not appeal to our conscience.”
Justice Cavanagh agrees with our rejection of plaintiffs’
equitable claims, but finds it anomalous that, given the
defendants’ alleged initiation of the treacherous agreement at
the auction, NAG will nevertheless be able to retain its
commission secured from plaintiffs’ proceeds for the sale of
the island.
reflective
While this is an understandable reaction, the
answer
is
that,
unlike
plaintiffs,
NAG’s
entitlement to the commission is based in law rather than
equity and, thus, the clean hands doctrine, which is only
relevant in equitable actions, cannot be invoked to deny NAG
its commission from the completed sale.
Finally, Justice
Cavanagh discusses doctrines asserted to be applicable to NAG
that would preclude its entitlement to a commission because
the commission was the product of an illegal contract.
This
argument is off-target, however, inasmuch as the commission
derives
from
the
initial
auction
contract,
which
all
acknowledge was legal, rather than the later “shill bidder”
agreement, which was not.
Accordingly, in our view, Justice
16
Cavanagh’s conclusions predicated on the illegal contract
doctrine are unpersuasive because they misapprehend the origin
of NAG’s entitlement to the commission.11
IV
The Court of Appeals also reversed the trial court’s
grant of summary disposition in favor of defendants on the
basis of plaintiffs’ claims of negligence and breach of
fiduciary duty in connection with defendants’ conduct in
suggesting the shill bidder scheme. However, we conclude that
the trial court correctly granted summary disposition in favor
of defendants on these claims.
With regard to the negligence claim, a necessary element
to establish such a claim is showing breach of a duty owed to
the plaintiff.
NW2d 17 (2000).
Case v Consumers Power Co, 463 Mich 1, 6; 615
In allegedly suggesting the shill bidder
scheme, defendants did not breach any duty to plaintiffs. The
public policy against secretly stifling competitive bidding at
an auction is obviously for the protection of sincere bidders
11
We are also unpersuaded by Justice Weaver’s partial
dissent.
While she would mitigate the straightforward
application of the clean hands doctrine, we believe that, even
assuming the doctrine she invokes should be recognized in this
state, Mr. Rose and NAG were of substantially equal moral
fault with regard to the alleged shill bidder scheme (assuming
as we must for present purposes that such a scheme was
actually devised). They mutually agreed to a scheme that was
blatantly fraudulent in seeking to deceive legitimate bidders
and, accordingly, we see no reason to depart from the clean
hands doctrine in this case.
17
at the auction, not for the protection of sellers who may be
willing to engage in such a scheme.
said
that
there
was
any
breach
Further, it cannot be
of
duty
in
defendants’
“failure” to follow through with the alleged shill bidder
scheme because there cannot be a legal duty to commit an
illegal act.
While we would agree with the partial dissent
that, as a general proposition, an auctioneer owes a basic
duty of competence and fairness to a seller, this duty does
not extend to protecting a seller against its own willingness
to engage in fraudulent conduct. Thus, plaintiffs’ negligence
claims fail because there is no evidence of a requisite breach
of duty to plaintiffs.
Plaintiffs’ breach of fiduciary duty claim must likewise
fail.
A breach of fiduciary duty claim requires that the
plaintiff “reasonably reposed faith, confidence, and trust” in
the fiduciary.
Beaty v Hertzberg & Golden, PC, 456 Mich 247,
260; 571 NW2d 716 (1997) (emphasis added).
For the reasons
discussed in the preceding section of this opinion, plaintiffs
could not reasonably have believed that it was appropriate to
engage in a shill bidder scheme or reasonably have expected
that they were legally entitled to have defendants follow
through with such an illegal scheme.
not
support
plaintiffs’
breach
of
Thus, the evidence does
fiduciary
duty
claim
regardless of whether defendants actually owed any fiduciary
18
duties to plaintiffs.12
V
The Court of Appeals in conclusory terms also reinstated
other claims of negligence and breach of fiduciary duty
brought by plaintiffs.
These claims amount to allegations
that plaintiffs did not adequately publicize and conduct the
auction.
However, plaintiffs failed to provide evidence of
how specifically defendants were allegedly deficient in this
regard.
It is not enough to create a genuine issue of
material fact to provide conclusory statements that a duty was
breached.
See Quinto, supra at 371-372 (holding that an
affidavit that provided “mere conclusory allegations and was
devoid
of
detail”
was
insufficient
disposition under MCR 2.116(C)(10)).
to
avoid
summary
Thus, we conclude that
the trial court properly granted summary disposition in favor
of defendants on these claims.
VI
The decision of the Court of Appeals in this case is
reversed in part to the extent that it is inconsistent with
12
Because it is unnecessary to the resolution of this
case, we respectfully decline to address the partial dissent’s
conclusions regarding the scope of the fiduciary duties that
auctioneers owe to their principals. Whatever those duties
may be, plaintiffs still cannot have a cognizable claim for
breach of fiduciary duty under these circumstances because
they could not reasonably have relied on the shill bidder
scheme.
19
this opinion.
The circuit court’s orders granting summary
disposition in favor of defendants on the relevant claims are
reinstated.
CORRIGAN , C.J., and YOUNG and MARKMAN , JJ., concurred with
TAYLOR , J.
20
S T A T E
O F
M I C H I G A N
SUPREME COURT
GEORGE ROSE and FRANCES ROSE,
Plaintiffs-Appellees,
v
No. 116600
THE NATIONAL AUCTION GROUP,
INC., ANDREW BONE, WILLIAM BONE,
DONALD BOOZER, EDDIE HAYNES, and
EDDIE HAYNES, INC.,
Defendants-Appellants,
and
RANDALL R. HALL,
Defendant.
___________________________________
CAVANAGH, J. (concurring in part and dissenting in part).
The majority holds that plaintiffs’ equitable claims are
barred by the clean hands doctrine and in so doing affirms the
trial court’s order awarding the commission to defendants.
The majority also holds that plaintiffs’ negligence claim must
fail because no duty to conduct the auction in a negligent
free fashion was owed to plaintiffs, and that plaintiffs’
breach of fiduciary duty claim cannot stand because it was
unreasonable as a matter of law for the plaintiffs to believe
defendants would execute an unlawful scheme.
plaintiffs
are
barred
contract
claims
However,
I
would
from
asserting
reverse
recovery
fraud
the
and
trial
on
I agree that
their
equitable
misrepresentation.
court’s
award
of
commission. Further, I think it is clear that defendants owed
a
fiduciary
duty
to
plaintiffs
and
thus
the
auctioneer claim should not be dismissed.
negligent
Therefore, I
respectfully dissent.
I
Plaintiffs’ claims arise from a contract that is void as
against public policy. Courts may grant one party restitution
even though such an agreement violates public policy.
Farnsworth, Contracts, § 5.9, pp 75-76.
II
This is rare because
courts often leave parties as they find them when they enter
into an illegal contract.
forfeiture
would
Exceptions are made (1) where
disproportionately
affect
a
party
whose
conduct does not warrant such a harsh result, (2) where a
claimant may be excusably ignorant of facts that the other
party is not, or (3) where the parties are not equally wrong.
Id. at 76-78.
I agree with these principles and would hold
that the parties should be left where the courts found them.
Because this is an illegal contract, I would reverse the trial
court’s award of $29,050 in commission to defendants.
2
It is
not just to deny all relief to plaintiffs and simultaneously
award the defendants their commission when they are arguably
more culpable than the plaintiffs, if the alleged facts are
found true.
The defendants allegedly tricked their principal
(the plaintiffs) by concocting an illegal shill scheme.
That
the defendants failed to execute the alleged scheme does not
make them less culpable.
The majority attempts to do justice
by applying principles of equity, but fails by dismissing the
effect of the trial court’s decision to order payment of the
commission.1
abused
its
Therefore, I would hold that the trial court
discretion
in
awarding
the
defendants
their
commission.
If the defendants wish to file an action to recover the
commission, a factfinder must first determine whether the
alleged shill scheme was used to induce the plaintiffs to go
forward with the auction. If the evidence presented convinces
the factfinder that defendants acted unlawfully or without
good faith, the defendants’ claim for commission should be
barred.
1
The majority erroneously concludes that the second
agreement is wholly separate from the original contract, and
that the original contract remains legally enforceable and
untainted by the shill scheme. This ignores the fact that, as
a result of the alleged shill offer, Mr. Rose refrained from
exercising his right to withdraw his property from the auction
as permitted by the original contract. To conceive of the
parties’ agreements separately fails to recognize the true
nature of the alleged shill offer and leads to an unjust
result.
3
II
The majority confidently asserts no duty is owed to
plaintiffs because the public policy prohibiting shill bids is
concerned
only
proposition
with
the
erroneously
treatment
assumes
the
of
bidders.
auctioneer’s
This
duty
is
exclusive.
Under Michigan law, a fiduciary relationship will arise
“only when there is a reposing of faith, confidence and trust
and the placing of reliance by one upon the judgment and
advice of another.” In re Jennings Estate, 335 Mich 241, 244;
55
NW2d
812
(1952).
Other
courts
have
applied
this
fundamental concept to hold that auctioneers owe fiduciary
duties to their principals.
In Cristallina, SA v Christie,
Manson & Woods Intl, Inc, 117 AD2d 284, 292; 502 NYS2d 165
(1986), the court held:
The auctioneer is the agent of the consignor.
As an agent, Christie’s had a fiduciary duty to act
in the utmost good faith and in the interest of
Cristallina,
its
principal,
throughout
their
relationship. When a breach of that duty occurs,
the agent is liable for damages caused to the
principal, whether the cause of the action is based
on
contract
or
on
negligence.
[Citations
omitted).]
Similarly, in Greenwood v Koven, 880 F Supp 186, 194 (SD NY,
1995) citing, inter alia, Restatement 2d, Agency, ch 1, § 13
(1958) (“An agent is a fiduciary with respect to matters
within the scope of his agency”), the court held:
To
begin
with,
it
4
is
indisputable
that
Christie’s acted in the capacity of an agent on
behalf of Koven. It is also clear that an agent
such as Christie’s is required under the law to act
in a fiduciary capacity on behalf of its principal.
Several treatises assert the same.
It is also the duty of the auctioneer to
maintain and exercise the utmost loyalty and good
faith to his principal.
He must not acquire or
have antagonistic interests. He must not deal with
the property on his own account without his
principal’s full knowledge and consent.
He must
not avail himself of his situation to make profit
for himself at his principal’s expense, and he must
give the principal timely notice of any matters
coming to his knowledge material for the principal
to know for the protection of his interests. [2
Mechem, Agency (1914), § 2334, p 1918.]
Another class of agents are Auctioneers, of
whom I shall merely observe here, that they are
considered as agents for both parties, so that
writing down the name of a purchaser at a sale is
sufficient memorandum within the statute of frauds,
and binds both buyer and seller. But this must be
taken secundum subjectam materiam; for though he is
agent to some purposes, he is not so to all. He is
an agent to each party in different things, but not
in the same things. When he prescribes the rules
of bidding, and the terms of the sale, he is the
agent of the seller; but when he puts down the name
of buyer, he is agent for him only. [1 Livermore,
Principal & Agent and Sales by Auction, (1986
reprint), p 77 (emphasis added).]
According to these principles, it is clear that an auctioneer
has the power to bind the seller while exercising total
control
auction.
over
the
seller’s
property
interest
during
the
Thus, an auctioneer’s powers provide him with a
significant amount of control and discretion, creating a duty
on the part of the auctioneer to act with loyalty and in good
faith toward his principal. Therefore, with regard to matters
5
within the scope of their relationship, the defendants owed a
duty to the plaintiffs.
Unlike the majority, I cannot conclude as a matter of law
that the plaintiff did not reasonably rely on the defendants
to lawfully and in good faith communicate with him about the
impending auction. After learning of plaintiff’s intention to
withdraw the property from the auction block, the defendants
allegedly induced the plaintiff to go forward by offering to
illegally rig the event.
Thus, I would permit the trier of
fact to determine the reasonableness of Mr. Rose’s reliance on
the alleged offer.
The holding of the Court of Appeals on the negligence
claim should, therefore, be affirmed. Nonetheless, the wisdom
of pursuing the issue rests with the plaintiffs as they should
consider the effect of comparative negligence on their claim.
III
For the reasons stated above, I would reverse the trial
court’s order awarding defendants’ commission.
In addition,
I would affirm the judgment of the Court of Appeals reversing
the
trial
court’s
order
granting
summary
disposition
defendants on the negligent auctioneer claim.
respects, I concur with the majority.
KELLY , J., concurred with CAVANAGH , J.
6
to
In all other
S T A T E
O F
M I C H I G A N
SUPREME COURT
GEORGE ROSE and FRANCES ROSE,
Plaintiffs-Appellees,
v
No. 116600
THE NATIONAL AUCTION GROUP,
INC., ANDREW BONE, WILLIAM BONE,
DONALD BOOZER, EDDIE HAYNES, and
EDDIE HAYNES, INC.,
Defendants-Appellants,
and
RANDALL R. HALL,
Defendant.
___________________________________
WEAVER, J. (dissenting in part).
I respectfully dissent in part from the majority opinion
because I would grant the plaintiffs limited equitable relief.
Specifically, I would not require plaintiffs to pay the
defendants a ten-percent commission and six-percent auction
fee, totaling $29,050.
I agree with the majority that we must respect the usual
rule that “who comes into equity must come with clean hands”.
The general rule is that when two parties are in pari delicto,
both involved in an illegal or fraudulent transaction, the
court will not grant the plaintiff relief.
rule
is
not
meant
to
be
applied
However, that
inflexibly.
In
the
exceptional circumstances of this case, the Court should apply
the equitable principle that when both parties were involved
in the fraudulent or illegal transaction, “the one whose wrong
is less than that of the other may be granted relief in some
circumstances.”
27A Am Jur 2d § 132. It has long been
recognized that the courts may interfere from motives of
public policy.
“Whenever public policy is considered as
advanced by allowing either party to sue for relief against
the transaction then relief is given to him.”
Boatright, 195 Mo 693; 93 SW 934, 938 (1906)1.
Hobbs v
See also Grim
v Cheatwood, 208 Okla 570; 257 P2d 1049 (1953)2 and Baltimore
1
In Hobbs, the defendants enticed plaintiff to enter
into a scheme to defraud other persons in a rigged footrace.
Plaintiff agreed to the scheme, put up $6,000, and ultimately
discovered that he had been the victim of the swindle. The
court took notice that this was an ongoing fraud by the
defendants, not a unique event.
The court held that even
though the plaintiff had participated in an illegal contract,
plaintiff would be allowed to sue for relief.
2
Plaintiff was induced to enter into a pretended and
fixed poker game, with marked cards, planned by defendants and
his confederates. Plaintiff was thus defrauded of a sum of
money, and executed mineral deeds in satisfaction of the loss.
When plaintiff discovered the fraud, he brought an action to
cancel the deeds. The court allowed the plaintiff to proceed
in equity because the parties were not in pari delicto, and
“equity will intervene in the protection of one less guilty,
notwithstanding his unclean hands.” Grim, supra, p 572.
2
& O R Co v Carman, 71 Ohio App 508; 50 NE2d 358 (1942)3.
Here the defendants moved for summary disposition under
MCR
2.116(C)(7)
and
(10).
Thus,
all
reasonable
inferences should be drawn in plaintiffs’ favor.
factual
Considering
the pleadings in the light most favorable to the plaintiffs,
one can conclude that the defendants did indeed induce the
plaintiffs to enter into the illegal shill bidding scheme, and
that the defendants did so for their own purposes. Given that
defendants instigated the illegal scheme, it would be unjust
to allow defendants to receive the auctioneer’s fee and
commission that were gained by their wrongdoing. Accordingly,
I would reverse the order of summary disposition to allow the
plaintiffs the opportunity to pursue limited equitable relief,
to
the
extent
of
not
requiring
commission and auctioneer’s fee.
plaintiffs
to
pay
the
I would do this not because
the plaintiffs deserve the relief, but because the defendants
should not be allowed to profit from their shenanigans.
Any
other result would reward the defendants for enticing the
plaintiffs into the shill bidder scheme.
3
In Baltimore & O R Co, p 513, plaintiff brought an
action to quiet title. Where plaintiff’s failure to have the
leased lands transferred to its name contributed more to
causing the delinquent tax land sale than defendant’s failure
to act expeditiously in securing and recording a deed to
himself, the court awarded defendant equitable relief, relying
on the rule that “[i]f the parties appear not to have been in
pari delicto, the one whose wrong is less than that of the
other may be granted relief in some circumstances.”
3
Therefore, I would reverse the Court of Appeals in part
and hold that if the trier of fact finds that the defendants
induced the plaintiffs to participate in the shill bidder
scheme, the plaintiffs should be given limited equitable
relief to ensure that the defendants do not profit from their
bad acts. In all other respects I concur in the result of the
majority.
4
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