Illinois appellate court rejects “sharp bidding” in sale of assets as not just and equitable

An Illinois appellate court condemned the practice of “sharp bidding” in First Merit Bank, N.A., v. McEnery, 2020 IL App (3d) 180287 (April 14, 2020). Where the terms of the sale of assets to satisfy a judgment require each side to submit their highest and best offers in writing by sealed bid, it was not just and equitable to award the bid to the bidder who simply submitted an overbid. i.e. an amount over the highest bid.
The Bank, a judgment creditor, served a citation to discover assets on a judgment debtor. Four and a half years later it learned the assets were in the possession of the third party respondent, which was storing the assets for the debtor. In response to the Bank’s third-party citation, the respondent admitted he came into possession of the assets two years earlier but said it had a storage lien on the assets pursuant to an agreement with the debtor. However, the agreement was not in writing, the respondent had not filed a proof of claim in the debtor’s bankruptcy, and there was no evidence of a lien on the assets.
When the Bank moved for a turn-over order, the respondent answered that the motion was premature because the court had not held an evidentiary hearing on the its claim for possessory storage lien. The trial court ordered the turn-over of the assets and the respondent appealed.
The court also directed the assets to be sold in a commercially reasonable manner and the proceeds applied to the Bank’s judgment. The Bank directed the bidders to submit their highest and best offers in writing by sealed bid. Respondent submitted a bid for $41,100. The ultimate winning bidder bid “$3500 over the next highest offer” and was awarded the assets. The respondent argued the sale should go to him because the winning bid was no bid at all, according to Webster v. French, 11 Ill. 254 (1849). The trial court denied the motion, and respondent appealed that order also.
Regarding the first appeal granting the turn-over, the appellate court affirmed concluding that when the Bank served the citation on the debtor, the Bank’s citation lien attached to the assets and its lien was deemed “first in time”. No hearing was necessary because the respondent never filed a claim asserting the purported lien. And liens can only be created by agreement or by statute, anyway.
The appellate court, however, reversed the trial court denial of the respondent’s motion to reject the ultimate buyer’s bid. The law cited by the respondent condemns “sharp bids”, or concealed over bids where the sale terms stipulate the highest offer by sealed bid. Sharp bidding by itself is not fraudulent, but concealed sharp bidding was a fraudulent practice.
“Under this precedent, the $3500 over bid, or sharp bid, was not a valid bid.” Where there were competing offers and the Bank specifically asked those parties to submit their best offers in writing by sealed bid by a specified deadline, the practice of accepting a bid that was not for a specific dollar amount was not just and equitable. First, it was as likely as not that the winning bidder submitted his “best offer”; if he had submitted a specific dollar amount, it may have been a higher amount so that his bid would be successful. Second, the process unfairly preferred one bidder over another. Since the terms of the sale were not just and equitable, the appellate court directed the Bank to issue the bill of sale to the bidder who submitted the highest specific bid—respondent.

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