Maryland's Highest Court Holds Auctions that Charge Admission Fee are Private Sales

Auto Finance

On March 1, the Court of Appeals of Maryland, answering a question of law certified to it by the U.S. Court of Appeals for the Fourth Circuit, held that the sale of repossessed automobiles at an auction where individuals had to pay a refundable $1,000 cash deposit was a “private sale”, and not a “public auction,” under the provisions of Maryland’s Creditor Grantor Closed End Credit Act (CLEC). Gardner v. Ally Fin. Inc., Misc. No. 10, 2013 WL 765013 (Md. Mar. 1, 2013). The court determined, based on legislative history, that one purpose of 1987 amendments to the CLEC was to protect the debtor against “favored buyer private sales that are not . . . commercially reasonable.” The court held that although the sale of the automobiles in this case was publicly advertised and open to the public for competitive bidding, the admission fee, which was charged to all participants, even those who merely wanted to observe the proceedings, “obscured transparency” and “shielded the process used to sell [the] cars from observation and, thus, could not constitute a ‘public auction’ under CLEC.” Thus, the court held that the creditors were subject to the more stringent post-sale disclosure requirements required for “private sales” under the CLEC.