NY Appeals Court Rules Trump Must Stand Trial for Fraud
Attorney Oscar Michelen
This presidential election season just got crazier. The First Department (the NY Appeals court covering Manhattan) ruled today that the lawsuit brought by the Attorney General of the State of New York against Trump University and Donald Trump can move forward to trial. The Donald and his lawyers had sought to dismiss the suit because they argued a three year statute of limitations had applied and the conduct alleged occurred more than three years prior to the filing of the suit. Further they argued that the law the AG brought the case under did not allow the AG to bring a fraud action for damages but only allowed the AG to bring an injunction to stop the fraudulent activity.
In deciding that the applicable law (NY’s Executive Law section 63(12)) is governed by a six year statute of limitation and that it does indeed authorize an independent special proceeding by the AG to prove fraud and collect damages, the court clarified some esoteric legal points that will likely make this case an important one in the annals of consumer law. But far more damaging than the court’s ruling that the matters now move forward to adjudication is the court’s language regarding the shenanigans behind Trump University and Trump’s involvement in it. No doubt Marco Rubio and Ted Cruz will be reading this to whomever they can get to listen today – Super Tuesday.
The first problem with the University according to the allegations is that it was not a licensed University and therefore could not call itself “Trump University” under NYS Education Law. When this was brought to Trump’s attention in 2005, he quickly formed a Delaware LLC and told the State Ed Dept that he would not conduct any business or do any seminars in NY and that the school had relocated to Delaware. But it hadn’t. When it got caught in 2009 holding seminars and conducting business in NY State, Trump got another letter from State Ed. This time he simply changed the company’s name to Trump Entrepreneur Initiative (TEI). The third letter from State Ed then stated that while this was all well and good, TEI would still need a license to operate as an educational institution in NY State. Trump responded by advising State Ed that the business was closing down at the end of 2010.
That may have satisfied the State Education Dept but Attorney General Eric Schneiderman picked up the ball in 2011 when he began investigating for-profit universities and trade schools for fraud. His office issued a subpoena to TEI that revealed some damaging information. The AG’s office claims that not only was TEI operating in NYS as an unlicensed, illegal university, but that it had operated a serious bait-and-switch program to get students to enroll in ever more expensive seminars. The complaint alleges that through various fraudulent practices, TEI intentionally misled more than 5,000 students nationwide, including over 600 New York residents, into paying between $1,495 to $35,000 each to participate in live seminars and mentor programs that the students thought were part of a licensed university. That’s a whopping fraud claim of between a low of $52 Million and a high of $175 Million in fraud, in just damages alone, never mind interest and penalties. So you could see why Donald wanted this thrown out.
How was the fraud allegedly perpetrated? By a simple bait-and-switch program that has been time-tested since the days of traveling snake oil salesman. Per the complaint, Trump University and later TEI started by representing in advertising that real estate experts “handpicked” by Trump himself would teach his strategies and techniques for real estate investing, and that these strategies would lead to success. One advertisement offered a free workshop and referred to “Donald Trump’s handpicked experts.” The same advertisement bore a quotation attributed to Trump, stating, “I can turn anyone into a successful real estate investor, including you.” Similarly, a direct mail solicitation sent to prospective students read, “In just 90 minutes, my hand-picked instructors will share my techniques, which took my entire career to develop” and went on to state, “Then just copy exactly what I’ve done and get rich.”
The Attorney General noted that at the free seminars, instructors played a video featuring Donald Trump telling prospective students, “We’re going to have professors that are absolutely terrific — terrific people, terrific brains, successful, the best” and noted that they were “all people that are handpicked by me.” Sounds like his Presidential campaign stump speeches, no? However, the Attorney General’s complaint alleges, Trump did not handpick the instructors;indeed, only one of the live event speakers for Trump University had even ever met Donald Trump. Similarly, Donald Trump never participated in the creation of any instructional content and never reviewed any curricula. The Attorney General further claims that the instructors had been inadequately vetted and in fact had little or no experience in real estate investing, instead having prior work experience such as food service management and graphic design. In other words, every promise was a total sham. As I said, sounds like his Presidential campaign stump speeches, no?
But it gets worse: According to the complaint, the free seminars were merely an instrument through which instructors would induce students to enroll in increasingly expensive seminars, starting with a three-day $1,495 seminar. Although Trump University speakers represented that the three-day seminar would teach students “all they needed to know” to be successful real estate investors, the instructors then told students that they needed to attend yet another seminar for an additional $5,000 in order to learn more about particular lenders. Instructors at the $5,000 seminars are also alleged to have engaged in a bait-and-switch by then urging students to sign up for “Trump mentorship packages, which ranged anywhere from $10,000 to $35,000” and supposedly provided “the only way to succeed in real estate investment.” But wait – you said the $1495 seminar was all I needed to get rich like Donald! So some of these sycophants ponied up the $35K to be like Donald. Guess how that worked out.
Trump tried to get out of the suit filed against him personally saying he should have no personal exposure as he always operated through a corporation. But that argument failed as well for a number of reasons: The complaint alleges that Trump was personally involved with the founding of Trump University;Trump conceded that he had “significant involvement with both the operation and overall business strategy of Trump University,” including “attending frequent meetings” to “discuss Trump University operations;” Trump’s photographs and signature appeared on all of Trump University’s advertising; and Trump personally reviewed and approved all the ads that were in the newspapers. That was enough evidence, if proven, the court said, to hold him personally liablefor fraud under the law.
Wow. Reading the decision provides an outline of Trump’s entire persona: Promise big, promote your greatness, claim personal involvement, say you’ll hire the best, then run for the hills. Let’s hope he doesn’t do to the voters (much less the country) what he did to the poor saps who enrolled in Trump University. Expect his political opponents to try an dmake as much use of today’s decision as they can. You can read the full decision HERE
Follow me on twitter @oscarmichelen
H/T to Eric Turkewitz at NY personal injury attorney blog
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