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Antitrust Claims Survive Motions to Dismiss in the New Jersey Tax Lien Bid-Rigging Class Action

The plaintiffs’ antitrust claims in the New Jersey municipal tax lien auction bid-rigging class action may proceed, the federal judge presiding over the litigation has ruled.

New Jersey municipalities hold public auctions of tax liens for unpaid property taxes. Each auction opens with the interest rate that the property owner must pay on the debt set at 18 percent. Subsequent competitive bids reduce the interest rate. The plaintiffs in In re New Jersey Tax Sales Certificates Antitrust Litigation, No. 12 Civ. 1893 (D.N.J.), are property tax debtors who allege that the individual and corporate defendants conspired to eliminate competition amongst themselves by dividing up the various liens being auctioned. The operative complaint lists forty-nine auctions at which certain defendants discussed and allocated liens. The New York field office of the Department of Justice’s Antitrust Division has separately investigated and indicted many of the defendants to the class action, some of whom have already pled guilty to Sherman Act violations.

After Judge Michael A. Shipp dismissed the first consolidated complaint in the action without prejudice in October 2013, the plaintiffs filed an amended consolidated complaint alleging four counts: (1) violation of Section 1 of the Sherman Act; (2) violation of the New Jersey Antitrust Act; (3) violation of the New Jersey Tax Sale Law; and (4) unjust enrichment. Various defendants then filed motions seeking to dismiss the complaint for failure to state a valid conspiracy under the antitrust laws, failure to state a claim under the Tax Sale Law, failure to state a claim of unjust enrichment, and for lack of standing. One individual defendant who has already pled guilty to antitrust violations in a separate proceeding, Michael Mastellone, also moved to stay the class action until after his sentencing.

Judge Shipp declined to dismiss the antitrust claims. He first determined that the plaintiffs had properly alleged a Section 1 claim, noting that they had sufficiently pled the dates, locations, and participants in each alleged instance of collusion. Judge Shipp also held that the complaint sufficiently alleged a statewide conspiracy, including alleging details about its operation and the criminal proceedings brought against various co-conspirators. Although the moving defendants had emphasized that they were not present at the relevant auctions, Judge Shipp concluded that “it is equally plausible, under the terms of the alleged conspiracy, that a Defendant’s absence from a particular auction was a direct result of the understanding reached among the Defendants that certain liens were to be allocated and not to be bid upon by co-conspirators.” (Op. at 14.) He also denied motions to dismiss by a set of defendants who were allegedly involved with collusion at only two auctions, and by another set of defendants who argued that their roughly seven-year gap in attending auctions rendered participation in the conspiracy implausible.

Judge Shipp dismissed, however, the plaintiffs’ claims under the Tax Sale Law and their claims for unjust enrichment. With respect to the Tax Sale Law, he observed that none of the moving defendants owned a tax lien that was redeemed by a plaintiff, a necessary component of a Tax Sale Law claim. See N.J. Stat. § 54:5-63.1 (stating that a holder of a tax lien may not charge “any fee or charge in connection with the redemption of any tax sale certificate owned by him” (emphasis added)). Similarly, the plaintiffs’ unjust enrichment claim failed because the moving defendants had not purchased any of the plaintiffs’ liens.

Next, Judge Shipp rejected certain defendants’ argument that the plaintiffs lacked Article III standing. He concluded that the plaintiffs have standing even though the moving defendants had not purchased any lien connected to the plaintiffs’ property, because the plaintiffs sufficiently alleged a statewide conspiracy. Finally, Judge Shipp denied defendant Mastellone’s motion to stay the case until after his sentencing, noting that Mastellone has already pled guilty and that the issue that Mastellone argued was most relevant to his sentencing, the scope of his cooperation, was largely unrelated to the salient issues in the class action.