Ive been assured on multiple occasions that upgrades should go to elites before they go for sale.
Here is a response i received from facbook inquiry i made when the fare basis requirement for paid upgrades was removed
I spoke with Rick Rasmussen (Director Loyalty Marketing) this morning about your first post... We have a very clear policy that we do not sell paid upgrades to anyone if there is an MVP, MVP Gold or MVP Gold 75k traveling on a paid ticket waiting for a First Class upgrade. We upgrade all elite customers on revenue tickets before we will sell any paid upgrades.
This was from late 2012 but hopefully nothing has changed and that you got a rogue agent