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High Road Holdings, LLC v. Ritchie Bros. Auctioneers

February 15, 2008

HIGH ROAD HOLDINGS, LLC, AN ILLINOIS LIMITED LIABILITY COMPANY AND CALLAGHAN PAVING, INC., AN ILLINOIS CORPORATION, PLAINTIFF,
v.
RITCHIE BROS. AUCTIONEERS (AMERICA), INC., A WASHINGTON CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Judge Joan H. Lefkow

MEMORANDUM OPINION AND ORDER

Plaintiffs, High Road Holdings, LLC ("High Road") and Callaghan Paving, Inc. ("Callaghan") (collectively, "plaintiffs"), bring this action against Ritchie Brothers Auctioneers (America), Inc. ("Ritchie") alleging four counts: I) breach of contract; II) breach of fiduciary duty; III) negligent misrepresentation; and IV) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"). Ritchie removed this action to federal court from the Circuit Court of Cook County pursuant to 28 U.S.C. § 1332(a).*fn1 Before the court is Ritchie's motion to dismiss with prejudice Count IV of plaintiffs' complaint. Ritchie argues that plaintiffs do not meet the pleading requirements of Federal Rules of Civil Procedure12(b)(6) and 9(b) and therefore do not state a claim under ICFA. For the following reasons, the court agrees and grants Ritchie's motion to dismiss Count IV [#9] with prejudice.

BACKGROUND

The following facts are taken from plaintiffs' complaint and assumed to be true for the purpose of resolving this motion to dismiss. This action stems from the sale at auction of a parcel of land in Chicago Heights, along with buildings, equipment, machinery and a lifetime operating permit for an asphalt manufacturing facility (together, "the property"). High Road owns the land, while Callaghan owns the improvements, equipment, machinery and the permit.*fn2

Both High Road and Callaghan are family-owned businesses. Callaghan operated an asphalt manufacturing plant on the land for years. It had only three competitors within a 30-mile radius: K-5 Construction, Gallagher Asphalt, and Lincoln/Alpha Paving. Ritchie is an auction house that specializes in no-reserve auctions.

Callaghan decided to leave the asphalt business in 2005. During the spring, summer, and fall of that year, plaintiffs had several meetings and numerous communications with George Krug of K-5 Construction in which Krug expressed interest in buying certain assets of the property for $5 million. Krug then stopped communicating with plaintiffs. Plaintiffs allege on information and belief that Krug's son began calling Ritchie directly to inquire about when an auction would be held. Complaint at ¶ 12. Also in mid-2005, Charles Gallagher of Gallagher Asphalt contacted the plaintiffs to express interest in buying the property but later broke off discussions.

Having been unable to close a sale through private means, plaintiffs retained Ritchie to sell the property by means of a public auction. They chose Ritchie as auctioneer based at least in part on statements on its company webpage describing its expertise, including claims that Ritchie "knows the market better than anyone" and that its auction process "can maximize the return on your trucks and equipment." Complaint at ¶ 15.

The parties entered into an oral contract under which Ritchie agreed to advertise and hold a public auction, requiring at least three genuine bidders to register in advance and to post $1 million in earnest money to ensure competitive bidding. The parties agreed on a $3 million asking price. Ritchie also agreed to inform plaintiffs of the identity of bidders in advance of the auction so that they could be sure that there would be real competitive bidding and that the promotion done by Ritchie had generated sufficient interest. Ritchie insisted that the auction be without recourse and that it be given complete control over the process. Finally, Ritchie prepared the contract for the sale of the property before the auction and asked plaintiffs to sign it in blank in order to save time.

Country House Group, LLC was formed on November 1, 2005. According to documents on file with the Illinois Secretary of State, Country House's managers are George Krug (of K-5 Construction), Charles Gallagher (of Gallagher Asphalt), and Bruce Arquilla (of Lincoln/Alpha Paving). Its registered business address is the address of Gallagher Asphalt. Plaintiffs allege on information and belief that the managers of Country House took certain steps to prevent competitive bidding and to induce other potential bidders to stay away from the auction. Complaint at ¶¶ 20-21. For example, George Krug called the management of D Construction, another potential bidder and asphalt industry player, and told it not to bid. D Construction, which according to Ritchie was a registered bidder that had posted its $1 million earnest money deposit, did not attend the auction.*fn3

The auction was originally scheduled and advertised for November 21, 2005 but did not actually take place until May 31, 2006. Ritchie sought the delay and represented to the plaintiffs that it would generate more interest from the asphalt industry. This representation was based in part on a buzz created by Country House and the appearance that Country House would enter the bidding in competition with Gallagher, K-5, and others.

At the auction, there were many lots on sale and over 1,800 bidders in attendance. Ritchie failed to provide plaintiffs with the bid registration documents before the auction, so plaintiffs do not know who the registered bidders for the property were. They assume that Country House was a registered bidder. Plotke Construction was supposedly a registered bidder but did not make any bids. Plaintiffs allege on information and belief that Plotke registered for the sole purpose of ensuring that Ritchie and/or the plaintiffs would see a sufficient number of registered bidders to go ahead with the auction and that it did not post earnest money. Two other entities, Illinois Truck and Equipment and Palumbo Construction, did bid at the auction, although plaintiffs allege that they did not post the required earnest money. Complaint at ¶¶ 23, 25.

Bidding for the property opened at the $3 million asking price. There were no bids until the price was dropped to $500,000. Junior Palumbo then bid once or twice and Illinois Truck and Equipment made at least one bid. The auction was won by Country House for $1.3 million. Plaintiffs believe that there were several incongruities at the auction: before the auction, Junior Palumbo "fed" Ritchie a comment that he and Dan Plotke were "going to have some fun" at the auction and Ritchie repeated this comment to plaintiffs without making any inquiries about Palumbo or Plotke's real intentions; George Krug, Charles Gallagher, Bruce Arquilla, and Dan Plotke arrived at the auction together, stood together in an unobtrusive location at the back of the auction room, and talked to each other before and during the bidding; and after the auction, George Krug shouted at a Ritchie employee for letting Illinois Truck and Equipment bid against Country House. At the time, plaintiffs did not know that Country House existed or that Gallagher was bidding on behalf of Country House because Ritchie had failed to provide them with that information.

Plaintiffs have refused to complete the sale of the plant to Country House.*fn4 They allege that the $1.3 million price is so low that it is fraudulent and that the permit alone is worth more than that amount. The equipment ...


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