In Idaho, Oral Agreement Not To Bid at Public Auction is an Illegal and Unenforceable Restraint on Competition.

The Supreme Court of Idaho in  Pines Grazing Ass'n v. Flying Joseph Ranch, LLC, 151 Idaho 924 (Idaho 2011) held that oral agreement not to bid constitutes illegal bid rigging under both Idaho Code (I.C. )§ 48-104 and Section 1 of the Sherman Act. Therefore, such oral agreements not to bid lacks enforceability.

In Pines Grazing Ass'n, a Real Estate Purchase and Sale Agreement(“PSA”) was entered between Pines Grazing Association (“Pines Grazing ”) as seller and J.C. Investments as buyer of the nearly 4,000 acre Pines Ranch in the Pahsimeroi Valley. Joseph Clark owns Flying Joseph Ranch, LLC and J.C. Investments (collectively hereinafter “Flying Joseph”). Pines Grazing, was a ranching corporation which is now dissolved. Ben Yates, Judd Whitworth, and Steve Bauchman were share holders of Pines Grazing. Yates signed the PSA on behalf of Pines Grazing, and Clark signed on behalf of Flying Joseph with closing to be on April 29, 2005. In the PSA they contemplated that some of the land would be leased back to the Pines Grazing for grazing. After learning that a portion of the acreage used by the ranch belonged to the Lemhi County, the Pines Grazing attempted to purchase the county-owned land and resell it to the Flying Joseph. The parties then discovered that the county-owned land could be sold only at public auction. The Flying Joseph orally agreed to pay $ 20,000 to the Pines Grazing not to bid. Pines Grazing refrained from bidding and Flying Joseph purchased the land.  However, Pines Grazing did not receive the agreed amount.

Then Pines Grazing filed a complaint seeking enforcement of the oral contract.   Pines Grazing alleged that Flying Joseph breached the oral agreement entered into at public auction by failing to pay Appellant for refraining from bidding. Flying Joseph also filed its answer denying any breach of contract. The case was tried by the jury.  The jury returned a special verdict, finding that  Flying Joseph did not breach the PSA purchasing the  Ranch property at public auction but jury found that Flying Joseph breached the oral  agreement not to bid by failing to pay Pines Grazing the agreed amount.

Later Flying Joseph submitted its Motion for Judgment Notwithstanding the Verdict and for a New Trial (“Motion for JNOV”).  In the motion, Flying Joseph argued that: 1. the oral agreement not to bid violates the statute of frauds; 2. there was insufficient consideration to support the alleged oral agreement not to bid; 3. the oral agreement not to bid is illegal for stifling competition at a public auction; 4. the jury's verdict awarding $ 20,000 payment to Pines Grazing constitutes an unauthorized brokerage commission under Idaho law; and 5. Lemhi County never agreed in writing that Pines Grazing should be paid a commission for its services. The district court denied Flying Joseph motion for JNOV and new trial. Against this Flying Joseph appealed.

The Supreme Court in deciding whether or not the contract is illegal referred to its decision in   Trees v. Kersey, 138 Idaho 3, 6, 56 P.3d 765, 768 (2002): “Whether a contract is illegal is a question of law for the court to determine from all the facts and circumstances of each case. An illegal contract is one that rests on illegal consideration consisting of any act or forbearance which is contrary to law or public policy. The general rule is that a contract prohibited by law is illegal and unenforceable.  A contract which is made for the purpose of furthering any matter or thing prohibited by statute is void. This rule applies on the ground of public policy to every contract which is founded on a transaction prohibited by statute. The Idaho Court of Appeals has suggested that where a statute intends to prohibit an act, it must be held that its violation is illegal, without regard to the reason of the inhibition or to the ignorance of the parties as to the prohibiting statute.” Pines Grazing Ass'n. 151 Idaho 928, (Idaho 2011). (citing Trees V Kersey , 123 Idaho 3, 6 56P3d 765,768(2002) ).

The court in the present case found that in analyzing illegality of contract the district court did not consider the federal or Idaho statutes which prohibit restraints on trade or commerce.  Id. Under federal law, the Sherman Antitrust Act, 15 U.S.C. §§ 1 to 7 (the Sherman Act), prohibits unreasonable restraints on trade and commerce. Section 1 of the Sherman Act provides, in relevant part: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."Id. Idaho law also prohibits unreasonable restraints on trade or commerce. Idaho Code § 48-104 provides: "Unreasonable restraint of trade or commerce. A contract, combination, or conspiracy between two (2) or more persons in unreasonable restraint of Idaho commerce is unlawful." Id.

The Supreme Court also noted that, generally, "‘to establish a claim under § 1 of the Sherman Act, the plaintiff must show (1) that there was a contract, combination or conspiracy among two or more entities (2) that unreasonably restrained trade and (3) that the restraint affected interstate commerce.’” Id. (quoting Wanachek Mink Ranch v. Alaska Brokerage Int'l, Inc., 2009 U.S. Dist. LEXIS 43816, 2009 WL 1342676, at *2 (W.D.Wash., May 05, 2009)). The primary question as to whether there was a contract, combination or conspiracy, is whether the anticompetitive conduct stems from an agreement, tacit or express, as opposed to stemming from an independent decision. Id.  An agreement unreasonably restrains trade if the agreement has anti-competitive effects. Id. at 928-929. (Internal citation omitted)

The court noted that the United States Supreme Court has deemed bid rigging activity as presumed to be an unreasonable restraint on trade and illegal because of  its 'pernicious effect on competition and lack of any redeeming virtue’. Id. at 929 (citing N. Pac. Ry. Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958).) '"[C]ourts have repeatedly held that a simple agreement not to bid is itself a per se antitrust violation, even in the absence of prior price fixing."' Id. (quoting United States v. Seville Indus. Mach. Corp. 696 F. Supp. 986, 989 (D.N.J. 1988).) The court further found that "’[a]ny agreement between competitors pursuant to which contract offers are to be submitted to or withheld from a third party constitutes bid rigging per se violative of 15 U.S.C. § 1’".Id. ( quoting United States v. Portsmouth Paving, 694 F.2d 312, 325 (4th Cir. 1982)).

In the case at hand, the Supreme Court found that the parties do not dispute to the fact that Pines Grazing promised to refrain from bidding at the public auction in exchange for Flying Joseph's promise to pay $ 20,000 to Pines Grazing. The parties also agree that they entered into the agreement not to bid in order to prevent them from bidding against each other out of the concern that doing so would drive up the price of the property. Id.

In light of the above, the court found that the oral agreement not to bid constitutes illegal bid rigging under both I.C. § 48-104 and Section 1 of the Sherman Act. The Supreme Court refused to enforce the oral agreement not to bid and overturned the jury verdict awarding Pines Grazing $ 20,000 for Flying Joseph's breach of the agreement not to bid. This holding leaves the parties as they are with respect to the oral agreement not to bid. Id.