If your California facility does its own lien sale auctions, you could be
running afoul of recent changes in the law. Until recently California self
service storage facilities enjoyed an exception to the auctioneer's law
requiring licensing and bonding. Last October's repeal of the 'Auctioneers
and Auctions' chapter of the Business and Professions Code canceled the
exemption given to the storage operators.
The new Civil Code laws regulating auctions do not contain any storage operator
exemption, meaning that any self service storage facility conducting its
own lien sale auctions arguably must comply with all of the new requirements
for auctioneers. Because these changes in the law occurred in the regulations
for auctioneers, rather than in California's Self-Service Storage Act, many
facility owners are unaware of the new requirements. This could lead to
serious civil liability, and potential criminal liability.
Even though on its face the new law applies to self service storage lien
auctions, it's unlikely that it poses any immediate threat of criminal prosecution.
Enforcement is left to local counties, and most district attorneys have
bigger fish to fry than errant or unbonded auctioneers. The new law itself
is somewhat confusing, and a good legal case could be made that it does
not apply to the occasional auction conducted by a self service storage
facility on its own behalf. Although the definitional terms of the statute
are very broad and inclusive, the remaining language of the chapter clearly
describes a regulatory scheme intended to apply specifically to dealers
in property. Without clear legislative guidance, it is unlikely that a local
district attorney will want to pursue a conviction against a self storage
facility, unless spurred on by a persistent complainant.
The practical problem for storage operators is that it will take litigation
before anyone knows whether the courts will follow the intent of the law,
which was to regulate real auctioneers, or the letter of the law, which
could include storage lien sale auctions. Most likely any litigation arising
out of the new law would come from a disgruntled tenant following a claimed
lien sale loss. Therefore, provided lien sale provisions are properly followed,
statistically the chances that any one facility will be hit with a suit
on the new law is relatively remote. However, that offers little solace
if your facility ends up as the test case for the new law. Naturally, the
decision whether to comply will require that each facility weigh the costs
of compliance with the risks of possible liability exposure.
Under a 'worst case scenario' interpretation of the new provisions of the
Civil Code, anyone in California, including storage operators, wishing to
conduct auctions must comply with all of the requirements of the auction
law. These requirements, designed for dealers in property, are significant,
and can be found in Civil Code Sections 1812.600 through 1812.608. Among
other procedural items, an auctioneer must maintain a $20,000 bond, and
file a copy with the Secretary of State, along with a filing fee. Although
setting up the bond is not prohibitively expensive and can usually be obtained
from your insurance broker, many facilities, are unaware of the changes
and have been conducting lien sale auctions without following the new rules.
As mentioned earlier, although it is unlikely that criminal sanctions would
be applied in a self storage context, the language of the law states that
failure to comply with the requirements of the new statute can result in
a misdemeanor conviction and a fine of up to $1,000, to be paid to the county
district attorney's office. Additionally, and more relevant to the storage
industry, the code provides that any person may bring a civil action for
enforcement of the duties required by the code and recover their damages,
attorneys fees and a penalty of $1,000. In the civil context, the attorneys
fees and penalties add an incentive to potential plaintiffs' attorneys,
if there is a potential claim for improper lien sale, and if they recognize
that the auction provisions may apply. Unfortunately many self-service operators
may unknowingly already be violating the law, and so possibly increasing
their civil exposure.
Along with the bonding requirement, auctioneers covered by the new law must
conduct the auctions specifically as required by the code. This includes
new requirements on what must be included in your advertisements; specified
signage at the auctions stating that the auction is being conducted in compliance
the applicable laws; posting or distributing the auction terms to the audience;
maintaining specified auction records; reporting and accounting requirements;
and various notifications and deposit requirements. A complete list of these
procedural steps is set forth in Civil Code Section 1812.607. Additional
requirements which can result in criminal penalties are listed in Section
1812.608, and include such things as the obligation to collect sales tax;
the need to disclose any existing liens on items sold; a prohibition on
misrepresenting auctioned goods; and the requirement that any auction of
goods be pursuant to a written contract between the auctioneer and the owner
or consignor. A quick review of these additional obligations shows that
most of these requirements are intended for those engaged in the business
of selling personal property and make little sense applied to self service
storage lien sales. Nonetheless, compliance is a way to minimize a facility's
liability in the event of a tenant dispute over lien sale procedures.
Since these laws are new and have not yet been tested by the courts, there
is no sure way of knowing how the law will ultimately be interpreted and
applied in a self service storage context. There is a danger that a self
service storage facility conducting its own auctions could erode the protections
of the Self Service Storage Act in the event that it failed to follow the
new law. If nothing else, a sharp plaintiff's counsel could use the law
to strengthen any lien sale claim, and obtain the extra penalties and attorney's
fees provided under the law if there were any irregularities in auction
procedures.
How can self service storage operators protect themselves? The easiest way
is to farm out your lien sales to bonded auctioneers. This adds extra costs,
though, and you still must coordinate with the auctioneer to insure that
all of your bases are covered. (For example, your auction advertisements
must include the name and bond number of the auctioneer, so you'll need
to coordinate the advertising to be sure you meet all of the requirements
for the auction law and the self service storage law.) Storage facility
operators can still do their own lien sale auctions and stay safely within
the law if they maintain the required bond and follow all the new code requirements.
If your facility is a fairly sophisticated operation, and you are not intimidated
by the additional duties, you can minimize auction costs and continue to
perform your own auctions. However, because of the changes in the law, it
is important for facilities who "go it alone" to do a thorough
review of their internal auction policies, both to insure compliance and
to minimize the potential for liability on auction procedures. It may also
be a good time to review your insurance coverage, particularly on the issue
of lien sales and disposal. Since compliance costs, in terms of hiring an
auctioneer or bonding and complying with the law are the primary factors
to consider, it finally comes down to a business decision. Storage facilities
will have to evaluate these costs, weigh the risks to determine whether
or not they want to respond to the new legislation. If you determine to
stay safely within the law you'll need to decide whether the additional
work to comply is worth the effort, or whether to bring in an outside auctioneer.
The important thing is to make your response a conscious choice, to weigh
the risks and costs involved and not to find your facility stumbling blindly
into civil liability, penalties or even a conviction, because you didn't
know about the new law.
Copyright © Alta V. Walters 1994
The Law Offices of Alta V. Walters
Phone (510) 834-8750
Fax (510) 380-5188
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