Fraudulent Comic Auctions -- A Legal Analysis

[Mr. Kabotz-migration]

I’m an attorney, and I have been following with great interest discussions about restored comics and the resulting potential fraud claims, especially regarding certain comic restoration specialists on eBay. The question that finally piqued my interest was expressed in this post regarding the case study of burntboy:

 

Why was Comic-Keys so agreeable to refunding $18,000(!!) to burntboy for books that were certified by CGC to have restoration?

 

This is a huge chunk of change to send back to a buyer. I have a theory, and the legal analysis that it takes to get to the answer may be of interest to you folks that have been documenting this saga.

 

HYPOTHETICAL SCENARIO:

Seller, who has the user name “Key-Comic$” on eBay, offers a raw, virtually unimprovable Silver-Age comic book on eBay, graded by Seller at 9.8. The ad states in clear terms that the book is "unrestored." Seller has extensive auction history for selling comic books, although the bidders cannot see feedback for Seller. The final ending auction price is $10,000, plus shipping costs of $20. After receiving the book, Buyer sends the book to CGC, at a total cost of $75, and it comes back with the dreaded "moderate restoration" purple label with a grade of 9.6.

Buyer estimates that, if the restoration had not occurred, the book would have graded at 9.0. The raw book unimproved at 9.0 would be worth about $1,000. Using the published Overstreet formula for calculating the restored value of Silver-Age comics (value 9.0 condition ($1000) + value of 9.6 condition ($6,000) divided by 3), the value of the restored 9.6 book that was purchased is actually about $2,000. Buyer’s important numbers are:

$10,000 -- actual purchase price;

$95 -- incidental costs;

$2,000 -- actual value of restored book.

Buyer learned that Seller has a history of selling restored comic books, which Buyer learned from internet discussions after Buyer received the book back from CGC. Buyer also knows that Seller willingly issues complete refunds for those buyers that demonstrate restoration through CGC grading. Buyer wants to bring a cause of action against the Seller for fraud and fraudulent misrepresentation. What are Buyer’s chances of success?

 

LEGAL ANALYSIS

The legal elements of fraud very from state to state. Buyer, as the plaintiff in a lawsuit against Seller, would need to prove the following elements in most jurisdictions:

(1) a false, material representation;

(2) the speaker's knowledge of its falsity or his ignorance of its truth;

(3) the speaker's intent that it should be acted upon by the hearer in the manner reasonably contemplated;

(4) the hearer's ignorance of the falsity of the statement;

(5) the hearer's reliance on its truth, and the right to rely thereon; and

(6) proximate injury, resulting in damages.

This multi-part test is applied to the facts of the hypothetical case, in the form of the following questions.

 

1. Did the Seller make a false, material representation?

Yes.

 

The test of materiality of a representation is an objective one, to be evaluated by the facts and circumstances of the transaction in question. A misrepresentation is material if it is likely to induce a reasonable person to agree, or if the maker knows it would be likely to induce the hearer to do so. The misrepresentation need not be the sole inducement to act; it is sufficient if it is a material factor in the decision.

 

In our hypothetical case, Seller advertised the book as “unrestored.” "Unrestored" is a term of art to comic collectors, and means that there have been no improvements to the book, and the book is in its natural state as originally printed with naturally occurring printing defects and naturally occurring damage over time. The representation that the book was unrestored was certainly material to the Buyer’s decision to bid, as well as the higher bid for the advertised excellent 9.8 condition. The fact that the restoration elevated the grade of the book, and thus the final bid, also demonstrates the materiality of the representation.

 

2. Did Seller know that the book was restored, or was Seller ignorant of this fact?

Seller probably knew, but this would be an issue of fact that Buyer must prove in the case.

 

In our hypothetical case, the Seller has a history of selling comic books advertised as “unrestored” and simply issuing refunds for those buyers that can prove (through CGC restoration check) that restoration had occurred. Therefore, the Buyer could probably prove that the Seller knew that the book was restored. This would be an issue of fact in the case, however, and the Seller would certainly claim that he was ignorant of the restoration at the time the book was offered for sale. The burden of proof would be on the Buyer to prove that the Seller knew that restoration had occurred. Evidence that the Seller had previously engaged in restoration of comic books would be useful and highly relevant. Evidence that Seller maintains “private” eBay feedback may be additional relevant evidence that Seller has engaged in a fraudulent sale.

 

3. Did the Seller intend that the advertisement of “unrestored” would be acted upon by the Buyer in the manner reasonably contemplated?

Absolutely. However, this would also be an issue that Buyer would need to prove in his case. The actual wording of the full advertisement would be important. Other similar ads used by Seller in other auctions would be relevant.

 

4. Was the Buyer ignorant of the falsity of the statement that the book was “unrestored”?

Yes.

 

5. Did the Buyer rely on the statement that the book was “unrestored”?

Yes. Otherwise, the final bid would have been about one-fifth of the final ending auction price. Buyer should easily be able to prove through testimony that he relied on the statement that the book was unrestored.

 

6.a. Was there proximate injury to the Buyer?

Yes.

 

In order for a false representation to be actionable, there must exist a causal connection between the misrepresentation and the harm allegedly sustained. It must appear in an appreciable sense that the damage flowed from the fraud as the proximate and not the remote cause, and the damage must be such as is the natural and probable consequence of the fraud.

 

The book is actually worth $8,000 less than the final purchase price. The difference between the final auction price and the actual value is related exclusively to the restoration and the representation that the book was unrestored.

 

6.b. What are the Buyer’s damages?

Ah, here’s where the discussion gets interesting! Buyer was clearly damaged. If Buyer elects not to rescind the transaction, in a successful lawsuit Buyer may be able to recover damages and keep the book. If Buyer rescinds the transaction, he would be entitled to recovery of full purchase price plus interest, but he would need to return the book.

 

Many states are committed to the “benefit of the bargain rule” as a method of arriving at damages in a case of fraud and deceit. It allows a defrauded party to be awarded the difference between the actual value of the property and what its value would have been if it had been as represented. The damages are measured at the time of the transaction. There are numerous examples of sales in which damages amounting to the difference between the value of the property as represented and its actual value were allowed, such as fraudulent lease of mining rights, fraudulent sale of automobiles, fraudulent sale of securities in company retailing automobiles, the purchase of cattle, the sale of a business, and the list goes on. The benefit of the bargain rule does not apply where the purchaser rescinds and returns the property received or where he received nothing of value. In such case, he may properly recover the amount he paid with interest from the date of payment, plus incidental losses and expenses suffered as a result of the seller's misrepresentations. Loss of profits is a claim typically not allowed under the benefit-of-the-bargain standard.

 

If Buyer rescinds the transaction, he would be entitled to the original $10,000 purchased price plus interest and the $95 incidental costs. If Buyer rescinds, he would have to return the book.

 

If Buyer sues and prevails, Buyer would be entitled to $8,075 plus interest, and possibly attorney’s fees and punitive damages, and he would get to keep the book. $8,000 is the difference between the actual value of the book and the final ending auction price. $75 is the cost to Buyer to conduct the restoration check and grading by CGC. Punitive damages are awarded where defendant's conduct is outrageous, because of evil motive or a reckless indifference to the rights of others. A very high burden of proof would be on Buyer to prove that Seller intentionally and knowingly engaged in comic book restoration with an evil motive to intentionally defraud the buyer at auction. If Buyer meets the standard for punitive damages and attorneys fees, the return could be multiples of the actual ($8,075) damages.

 

STRATEGIC CONSIDERATIONS and other interesting thoughts

 

If Buyer were able to mount an aggressive case against Seller in this hypothetical scenario and demonstrate that Seller repeatedly engaged in comic book restoration with a repeated intent to auction restored comic books for a much higher sale price than actual value, this would be the type of case that could return “benefit of the bargain” damages, plus interest, plus attorney’s fees and punitive damages, and still get to keep the book so he could mount it on his wall as a testament to the pursuit of justice. If Buyer were able to submit evidence in his case that other buyers of Seller’s books discovered restoration after the book was advertised as “unrestored” in the auction advertisement, this would certainly help his case. Certain discovery techniques would likely be available to learn the identity of Seller’s other comic buyers in this case, including subpoena of eBay records.

 

In our hypothetical case, if Seller willingly offers a full refund of the final auction price, it might be that he has received legal advice from his attorney regarding the “benefit of the bargain rule.” The fact that the benefit of the bargain rule allows a buyer to keep the goods purchased would probably weigh heavily in the decision to promptly offer full refunds for those buyers that can demonstrate restoration through a reputable third-party grading service. Seller’s advice from his attorney might sound something like this: “If you get sued and lose, you’ll have to pay the buyer the difference between the restored value and the final purchase price, and he gets to keep the book. If you offer a full refund, you get the book back, you’re back to even, and you can try to sell the book again for a profit. As your attorney, I highly recommend that you give the full refund and sell the book again, so that you can pay my fees!”

 

There are numerous other considerations not discussed here, such as where to file the lawsuit (Buyer’s or Seller’s state, or possibly the state where eBay conducts its business), the cost of paying an attorney to mount this attack, and the likelihood that the lawsuit will result in an award of Buyer’s attorney’s fees against Seller. Other topics for another day. In this hypothetical scenario, it would take only one well-funded plaintiff to establish the precedent and possibly shut down Seller’s fraudulent practices. If Buyer could identify other defrauded buyers through discovery tools, additional plaintiffs could certainly pool their resources in one lawsuit against Seller.

[tth2]

Thanks for the detailed analysis. For a moment, I felt like I was back in Contracts or UCC Art 2 class in law school, but I'm sure the non-lawyers on the boards will find it helpful.

 

But more importantly, what state do you practice in and are you interested in taking cases on a contingency fee basis for various forum-ites who have been burned?

[Red Hook]

Thank you Mr. Kabotz! Very, very helpful! Hope you'll stick around. Welcome!

 

I have another question. What, if any, is E-Bays liability here, assuming that they have been informed, and have full knowledge of sellers fraudulent practices, and continue to let him operate? Their refusal to take action with regards to Comic-Keys' undeniably illegal sales practices and in fact thier protection of him, seems illegal on it's own. I wonder how they would respond to contact from an attorney.

[OldGuy]

Nice. Thanks for posting that.

[uclapeterg]

Well, so far, to my knowledge, Ebay has won every case it has been a party to. I feel that they will get hit witrh a case they aren't going to win one of these days.

[BassGMan]

BUMP. I thought this post was well worth getting put at the top of the heap again. One of the best posts I have read in a while and I appreciate the poster's time put into creating it. ----Sid

[Mr. Kabotz-migration]

Unfortunately, I won't be taking on any contingency fee cases, but I am tempted to purchase a book that may have restoration, get it slabbed, and test my theory... I would still be in a position to honestly claim that I had no prior knowledge of restoration, and that I relied on the seller's advertisement that the book is unrestored.

 

I, too, was almost a victim of the infamous seller, but his answer to my e-mail inquiry was just too curious to make a serious run at the book I was watching. I asked Comic-Keys where he continually gets such high grade material (this was long before I found this forum and learned of his practices). I was genuinely curious about his source, thinking that he had connections with dealers that trade in super-high grade books, or he bought off the shelf as a kid and saved the books in excellent storage conditions, or something like that. His answer was a bunch of babble about the fine quality of his comics, with super-sharp corners, perfectly centered staples, lack of ink bleeding, the microcalifragalistic printing process, etc. My instincts told me that something was odd, so I didn't bite. What I later learned in this forum never even occurred to me -- serious, repetitive, intentional fraudulent auctions.

 

I will be looking into eBay's practices and policies regarding knowledge of fraudulent sellers. I checked the Official eBay Manual book (title was close to this) at the bookstore, and it made only the briefest mention of eBay's policy regarding fraudulent auctions. Summarized, the book stated that eBay's policies prohibit the sale of goods that "substantially" differ from the description. So the question is likely this: is the advertisement of an "unrestored" comic "substantially" different from the same comic with restoration?

 

Although the answer to comic collectors is obvious, there's probably more to the story buried in the eBay user agreement that each of us accepted when we opened our eBay accounts. Just upon an initial glance, I notice that the introduction states: "We may amend this Agreement at any time by posting the amended terms on the Site." This presents the users with a potential shifting target regarding eBay's knowledge of fraudulent auctions -- in other words, the policy can change at eBay's discretion upon the advice of their attorneys. There's also a carefully worded "Release" in the policy, which probably plays an important part of any claim against eBay.

 

I'll post what I uncover.

[Red Hook]

Thanks Mr. K.

 

Again, very informative.

[Foolkiller]

great analysis, but I echo the sentiments of another lawyer on the board... thought I was back in contracts and corporations... started breaking out in a cold sweat believing I was going to be called on.

[Ares]

Unfortunately, I won't be taking on any contingency fee cases, but I am tempted to purchase a book that may have restoration, get it slabbed, and test my theory... I would still be in a position to honestly claim that I had no prior knowledge of restoration, and that I relied on the seller's advertisement that the book is unrestored.

 

I, too, was almost a victim of the infamous seller, but his answer to my e-mail inquiry was just too curious to make a serious run at the book I was watching. I asked Comic-Keys where he continually gets such high grade material (this was long before I found this forum and learned of his practices). I was genuinely curious about his source, thinking that he had connections with dealers that trade in super-high grade books, or he bought off the shelf as a kid and saved the books in excellent storage conditions, or something like that. His answer was a bunch of babble about the fine quality of his comics, with super-sharp corners, perfectly centered staples, lack of ink bleeding, the microcalifragalistic printing process, etc. My instincts told me that something was odd, so I didn't bite. What I later learned in this forum never even occurred to me -- serious, repetitive, intentional fraudulent auctions.

 

I will be looking into eBay's practices and policies regarding knowledge of fraudulent sellers. I checked the Official eBay Manual book (title was close to this) at the bookstore, and it made only the briefest mention of eBay's policy regarding fraudulent auctions. Summarized, the book stated that eBay's policies prohibit the sale of goods that "substantially" differ from the description. So the question is likely this: is the advertisement of an "unrestored" comic "substantially" different from the same comic with restoration?

 

Although the answer to comic collectors is obvious, there's probably more to the story buried in the eBay user agreement that each of us accepted when we opened our eBay accounts. Just upon an initial glance, I notice that the introduction states: "We may amend this Agreement at any time by posting the amended terms on the Site." This presents the users with a potential shifting target regarding eBay's knowledge of fraudulent auctions -- in other words, the policy can change at eBay's discretion upon the advice of their attorneys. There's also a carefully worded "Release" in the policy, which probably plays an important part of any claim against eBay.

 

I'll post what I uncover.

 

What options do International Bidder have when scammed by a US Seller

[tth2]

great analysis, but I echo the sentiments of another lawyer on the board... thought I was back in contracts and corporations... started breaking out in a cold sweat believing I was going to be called on.

 

C'mon, admit it, you were one of the first row helium hands that us back-rowers loved to make fun of!!!

[FFB]

You can sue him in any court that has subject matter jurisdiction over the lawsuit and personal jurisdiction over the scammer. If he defrauded you on ebay and accepted payment sent from where you are, you could probably sue him in your local court, obtain a judgment, and simply apply to the court in his home state afterward to have your foreign judgment recognized there. Then you get to execute on the judgment.

 

Unfortunately, I won't be taking on any contingency fee cases, but I am tempted to purchase a book that may have restoration, get it slabbed, and test my theory... I would still be in a position to honestly claim that I had no prior knowledge of restoration, and that I relied on the seller's advertisement that the book is unrestored.

 

I, too, was almost a victim of the infamous seller, but his answer to my e-mail inquiry was just too curious to make a serious run at the book I was watching. I asked Comic-Keys where he continually gets such high grade material (this was long before I found this forum and learned of his practices). I was genuinely curious about his source, thinking that he had connections with dealers that trade in super-high grade books, or he bought off the shelf as a kid and saved the books in excellent storage conditions, or something like that. His answer was a bunch of babble about the fine quality of his comics, with super-sharp corners, perfectly centered staples, lack of ink bleeding, the microcalifragalistic printing process, etc. My instincts told me that something was odd, so I didn't bite. What I later learned in this forum never even occurred to me -- serious, repetitive, intentional fraudulent auctions.

 

I will be looking into eBay's practices and policies regarding knowledge of fraudulent sellers. I checked the Official eBay Manual book (title was close to this) at the bookstore, and it made only the briefest mention of eBay's policy regarding fraudulent auctions. Summarized, the book stated that eBay's policies prohibit the sale of goods that "substantially" differ from the description. So the question is likely this: is the advertisement of an "unrestored" comic "substantially" different from the same comic with restoration?

 

Although the answer to comic collectors is obvious, there's probably more to the story buried in the eBay user agreement that each of us accepted when we opened our eBay accounts. Just upon an initial glance, I notice that the introduction states: "We may amend this Agreement at any time by posting the amended terms on the Site." This presents the users with a potential shifting target regarding eBay's knowledge of fraudulent auctions -- in other words, the policy can change at eBay's discretion upon the advice of their attorneys. There's also a carefully worded "Release" in the policy, which probably plays an important part of any claim against eBay.

 

I'll post what I uncover.

 

What options do International Bidder have when scammed by a US Seller

[burntboy]

geez, who knew i was going to be Famous for being such a [!@#%^&^]?!?!?!

 

fantastic summary of the situation MrKabotz - cudos to you

 

quite frankly, i was so relieved to be getting my money (actually $28,000) back after 18 months, that the pursuing of legal action was only going to be considered as a last resort.............

[spidermanbeyond]

Great post. I hope you take up the cause. No one seems to be able to do anything because of the prohibitive cost of lawyer fees. I think everyone has been hoping for a comic fan who is an attorney to take up the cause. "All that is necessary for Evil to triumph is for good men to do nothing."

[sterlingcomics]

Thanks for the info! Very informative and enlightening...I look forward to any updates...