Antitrust Law Daily Wrap Up, ANTITRUST—S.D. Fla.: Bid rigging, auction collusion claims in Miami property bankruptcy sale lacked specificity, (Aug 5, 2016)

By Linda O’Brien, J.D., LL.M.

A complaint against a number of companies and individuals for allegedly conspiring to artificially depress the sales price of four valuable parcels of land in downtown Miami, Florida, sold during bankruptcy proceedings, represented a "shotgun pleading" that had to be dismissed, the federal district court in Miami has ruled (JAWHBS, LLC v. Arevalo, August 4, 2016, Gayles, D.).

In July 2013, bankruptcy trustees sought to sell the four parcels of land in downtown Miami, Florida, through a bankruptcy sale. A real estate developer and his companies ("the Botero Group") negotiated an agreement to buy the parcels for $19.5 million to build a condominium project. A second developer ("the Arevalo Group") was also interested in the parcels and agreed not to compete against the Botero Group in exchange for a share of the project profits. The agreement fell apart before the sale could be completed, however, and the Arevalo Group submitted its own offer of $22 million for the parcels. This bid also fell through, however, because an investor ("the Cronig Group") refused to finance Arevalo Group’s bid and subsequently under-bid the Arevalo Group with an offer of $21.5 million. Due to a hard deadline to prevent foreclosure, the bankruptcy trustees accepted the $21.5 million sales price.

The trustees and bankruptcy estate assigned their claims arising out of the sale and bidding of the parcels to JAWHBS, LLC and creditor SLS Properties Three, LLC. In November 2015, JAWHBS and SLS filed suit against the developers, alleging bid rigging and auction collusion in violation of Section 1 of the Sherman Act. The plaintiffs asserted that the defendants conspired to artificially depress the sales price of four parcels of land and, as a result of the significantly below market value sales prices, they were deprived of receiving the highest possible sales price for the parcels. The defendants moved to dismiss the complaint.

Procedural arguments. As a preliminary matter, the court rejected the defendants’ arguments that the claims by JAWHBS, as assignee of the bankruptcy trustees, should be dismissed for lack of standing and res judicata. According to the court, the defendants provided no authority to support its argument the plaintiffs’ claims—acquired after the bankruptcy was filed—were not property of the bankruptcy estate. They failed to establish that both the bankruptcy proceeding and current case involved the same causes of action to bar JAWHBS under the doctrine of res judicata. Furthermore, JAWHBS’s claims were not in existence at the time of the bankruptcy petition because the petition predated the alleged unlawful activities by several months.

However, SLS, as a mere creditor alleging harm as a result of the bid rigging did not have standing to bring its claims, the court noted. SLS alleged that the trustees stood to financially benefit from the highest possible sale price for the parcels but did not allege any facts of a particularized, direct injury arising from the defendants’ actions.

Substantive arguments. In dismissing the complaint on substantive grounds, the court found that the complaint was a "shotgun pleading" in violation of Federal Rule of Civil Procedure 8(a)(c). Here, the complaint "clearly impermissibly incorporates every allegation by reference into each subsequent claim for relief." The court noted that one count of the complaint incorporated the preceding 126 paragraphs, spanning 21 pages, and many of the allegations could not possibly be material to that count. Consequently, the court and the defendants were required to "sift through the facts presented and decide for themselves which [were] material to the particular cause of action asserted," which would be a "difficult and laborious task."

The case is No. 1:15-cv-24176-DPG.

Attorneys: Adam J. Breeden (Breeden & Associates, PLLC) and Jerrold Alan Wish (The Wish Law Firm) for SLS Properties Three, LLC and JAWHBS, LLC. Lawrence Dean Goodman (Devine Goodman Rasco Watts-Fitzgerald & Wells) for Jorge E. Arevalo.

Companies: JAWHBS, LLC; SLS Properties Three, LLC

Cases: Antitrust FloridaNews