Over the course of an auctioneer’s career, they regularly hear the same question from both clients (sellers) and from customers (buyers):
“What happens to the stuff that doesn’t sell?”
Sellers will often ask who is responsible for cleaning up things that might not have any value or sell at any price. In a business closing situation, it’s very common to have items that are too big, too old, too expensive to move, or simply too useless to spark any interest with buyers on auction day. These items are often referred to in the industry as “no sales” or “past lots.” It happens to every auction firm at some point, and the contract with the seller will typically dictate how you answer the question when they ask “what happens to the stuff that doesn’t sell?”
Sometimes buyers want to know what didn’t sell because they were unable to attend the auction sale, and the treasured machine they wanted just might have been passed over. This is the very same (potential) buyer who—when they learn the machine did sell—will go on to tell you how much more they were willing to pay than what you sold it for; that if the buyer stiffs and does not pay to call them—they’ll take it; or ask you to send their information to the buyer, and so on. These situations are usually accommodated relative to the sale circumstances and the people involved. The reality with these types of buyers is if they really wanted the machine, they would have found a way to participate in the auction, and would have been the successful bidder on sale day.
But we’re not talking about the desirable stuff here, this is about the stuff that really won’t sell—the things that really shouldn’t sell for anything more than scrap value; the kind of equipment we cringe at on the initial walk-through of the facility; the strange, one-off, purpose-built items made just for that widget press, and that widget press only.
Some buyers are scrappers, and will gladly take things away, paying a nominal sum and providing the labor, tools, and equipment to extract expired assets from the facility. From hand tools to torches to bulldozers, we have seen varying methods to clear these types of assets from the building. There is an exchange of money from the buyer (scrapper) to the seller, and hopefully when the truck crosses the scale the scrapper has made a tidy profit for his labor and expertise. Trustworthy scrappers are often a welcome insurance policy to help clean up an industrial auction site.
Curious about what they might do with their collateral, I was recently asked by a bank to inspect a facility owned by one of their borrowers. This place had run afoul with the EPA for various violations and had been shut down. As I watched the Tyvek-suited EPA specialists working away, I was a bit concerned for my safety. “Do we need safety gear,” I asked. “Er, no. These guys are just over-reacting. It’s the government you know. They are here to help,” the owner said with a thick layer of sarcasm. Not planning on eating (or touching) anything, we progressed through a multi-acre, multi-building site that was stuffed with industrial surplus and countless tons of various chemicals (hence the EPA).
That was the moment I realized I had stumbled upon what can only be termed as an auction graveyard. I had discovered that mysterious place where items that no one could possibly want went when the auction was over. This was not a scrap yard, not a dump, but this was a vast graveyard of cast-off equipment. Cyclones, old welders, tanks of all shapes and sizes, ovens and dryers, conveyors and fryers, an old bicycle frame and dozens of dead forklifts. Like Rudolph’s Island of Misfit Toys, this was a place full of the unwanted. It was fascinating.
“That’s a crawler conveyor from a coal mine, I got it for $300,” the owner said as we strolled past a hulking pile of rusty parts covered in overgrowth. Perhaps he only paid the seller $300, but then he paid to rig it, ship it and unload it. And here it sits—a rusty old pile of iron covered with weeds, no salvageable parts visible. Why didn’t this just go to the scales and get cut up? Why was the owner so proud he only paid $300 for this conveyor when it simply sits, rusting away in the elements year after year? Where is the economic gain?
Industrial hoarding is not unlike personal hoarding. Imagine the hoarder that medics found expired in her home; a home packed so tightly with stuff they had trouble navigating the piles to locate the body. “Somewhere in the tons of old magazines, boxes of cotton balls salvaged from pill bottles, piles of empty egg crates, junk mail piled to the ceiling, eight-track tapes and brand new clothes piled high but never worn; Mrs. Jones expired with her belongings,” read the obituary. Dumpster load after load of items the deceased felt she just had to have.
“I got this one from a sale at XYZ Company. It’s some kind of heat tunnel. I understand it cost them $27,500 but I got it for $2,000,” he beamed with pride. When I asked what he was going to do with this particular piece of equipment, he was certain he could dry powders with it. Yet there it was—unplugged and idle—the only dry powder around being the accumulation of dust provided free of charge by father time.
It seems that deciding which belongings to keep, and which to throw out, makes many hoarders anxious. Hoarders worry they will make the wrong decision and might discard or waste something that could prove useful one day. In an unconscious effort to avoid the anxiety, they do nothing, allowing their stuff to continue to pile up. Some hoarders might refuse to throw items out because they anticipate the grief that will follow the loss of the item. While it is true that people with hoarding problems often see value in things that other people don’t, the real problem is the volume of possessions—and how they are organized—not their actual value.
This is what I encountered on my journey through the auction graveyard; the volume of items that had accumulated was astounding. I’ll suggest the industrial hoarder also sees value in things that other people don’t, with the express hope that someday – somewhere – there will be a buyer for the these things. Like the individual hoarder, the real problem becomes the volume of things accumulated as the “no sales” simply pile up.
However, the mere accumulation of equipment without an express path to a profit was not what brought this particular company into the sights of the EPA. They were also accumulating chemicals, over 10 million pounds according to EPA reports. Various chemical manufacturers would sell off-grade compounds and chemicals to this firm, who—in theory—would then repackage and/or re-sell them to overseas buyers. “I can sell one supersack of that product and pay for a whole truckload of it from ABC Cosmetics” is the intended business model. The hoarder then stores the remainder of the truckload as potential profit. The EPS’s involvement was not sparked by the act of selling off-grade compounds and chemicals, but the remainder of the truckloads that never got sold. These became part of the collection that grew like a cancer.
According to EPA reports that discuss the clean-up effort, various chemical manufacturers who sold their off-specification compounds to this company had “voluntarily” picked up 6 million pounds of chemicals they had thought were gone forever. One would assume that “voluntary” was under the impending liability hammer of the EPA, a point that is not typically intimated in the reports. Corrosive and flammable liquids—which made up some of the more than 5,500 drums and small containers found—were removed, and more than 2,800 tons of chemicals were disposed of off-site by the EPA. After all this, an estimated 7 million pounds of hazardous materials remain: sacks of biphenyl A; titanium dioxide pigment; polyvinyl alcohol; and countless packages and drums of unknown chemicals still being tested in makeshift onsite labs set up by the EPA.
In 1997, the same owner and company—operating from a different location—was the subject of a federal EPA cleanup project. Between 1997 and 1999 the EPA supervised a $6 million emergency project to dispose of 21,000 drums of chemicals. How can this happen twice?
If the EPA can strong-arm voluntary recovery of chemicals in this case, can the same theory be extended to an auction company that might have sold a drum of what was believed to be hydraulic fluids, or a piece of equipment later deemed to have handled an environmentally sensitive substance in a prior life? Can the auction company be in the crosshairs of the EPA hammer in situations like these? According to business attorney Garry Graber of Hodgson Russ, a significant differentiator is whether or not the sale was a principal deal (owned by the auctioneer) or a commission sale. Clearly, when the auctioneer owns the things that are transferred at the auction sale there is a chain of title that won’t go away with an “as-is, where-is” declaration by the auctioneer. In such cases it is more probable the auctioneer could be held liable to some extent. When these types of substances and/or items are sold as a result of a commission sale, things can get murky. Along with clear declarations of the agency relationship between the seller and auctioneer, Graber suggests tight language in the auction agreement with the seller that indemnifies the auction company from any environmental liability that might stem from conducting the auction sale. Even then, if the auctioneer had knowledge, or even reason to have known there might be an environmental problem, there could be liability to the auctioneer. Under certain circumstances, professionals can be held to higher standards, and later attempting some type of ignorance defense might not be a good strategy. You cannot consciously avoid knowledge of relevant environmental conditions that should have been known to a professional had they asked the questions prior to the offering.
“This one…this is a hammer mill I bought from the New York Chocolate factory in Fulton, NY,” he lamented.
I knew. I sold it to him on September 15, 2010. “Lot #1263 – Disassembled Micro Pulverizer / Hammer Mill – Located In Bldg. #58 2nd Floor – 2280 RPM, 40 HP Motor” reads the catalog. He paid $1,500.
The auction graveyard is full of stories, good and bad. The items of utility having been resold years ago yield to the skeletons of clutter that define industrial hoarding. Industrial auctioneers should take a longer view on just who it is that is taking those misfit toys from their auction site. In the case of the subject company, such diligence might have saved some of the untold millions of dollars these two EPA projects have cost the public. Careful consideration now could prevent a very expensive and unwanted surprise should your buyer run afoul of the EPA or similar agency.
Auction Graveyard was originally published in “The Podium,” Fall 2017, official journal of the Industrial Auctioneers Association. David Fiegel is the founder of Blackbird Asset Services, a boutique auction and appraisal firm that specializes in secured creditor and bankruptcy auctions and appraisals, particularly in the industrial sector. Blackbird is a proud member of the Industrial Auctioneers Association (among others). You can reach David at 716-632-1000 or by email at firstname.lastname@example.org.