Trump Family Suffers Setback in Fraud Lawsuit
Skip to main content
Watch Our Live Network Now

Trump Family Loses Big Appeals Court Fight to Force Fraud and Deceptive Practices Lawsuit into Secret Arbitration

Eric Trump, Ivanka Trump, President Trump, Donald Trump, Jr.

Former president Donald Trump, his prized family business, the Trump Organization, and three of his adult children, Donald Trump Jr., Ivanka Trump, and Eric Trump, all suffered a significant legal setback in a federal appeals court opinion issued Wednesday morning.

For years the Trump family and its namesake entity have fought to keep a potentially ugly pyramid scheme lawsuit from being litigated in the public sphere. The 45th first family’s weapon of choice to keep those details under wraps was private and compelled arbitration clauses.

In a 43-page opinion, the U.S. Court of Appeals for the Second Circuit denied the Trump family’s request to settle the numerous complaints against them behind the veil, and with the help, of arbitrators.

“The truth or falsity of the plaintiffs’ allegations is not before us,” Circuit Judge Robert D. Sack wrote. “We neither express nor imply any views with respect to them. The only question before us is whether this case should be resolved before the district court or an arbitrator.”

An attorney for the plaintiffs praised the court’s decision via Twitter.

“We look forward to resuming discovery in this case about a fraud on hard-working Americans perpetrated by Donald Trump and three of his adult children,” Roberta Kaplan tweeted. “We’re eager to receive the documents etc. requested from ACN, MGM and the parties so that we can begin taking depositions ASAP.”

Procedural in nature, the ruling is still a solid victory for the plaintiffs. And, though the court insisted the merits were not at stake, the alleged facts and details of the case loom large in the panel’s decision here.

Asserting myriad claims including “racketeering,” conspiracy and fraud, several class action plaintiffs originally sued the Trumps in October 2018 alleging the defendants – by way of “videos, print and online media” – promoted and endorsed a sure-fire loser of a multi-level marketing, or pyramid, scheme known as ACN Opportunity, LLC.

Those endorsements came, the anonymous plaintiffs allege, even though the various Trumps at issue failed to conduct due diligence about the likelihood of economic losses and the slim probability of commercial success from such schemes. And, as it turns out, each of the plaintiffs produced evidence to show that the vast majority of people who were convinced to become “Independent Business Owners” for ACN went on to suffer losses or earned minimal profits.

Instead, the plaintiffs claim, the Trump family simply parroted ACN’s allegedly untrue claims because they were being paid millions of dollars. And those pay-for-play payments to the Trumps were not publicly disclosed at the time their endorsements were made.

From the court’s opinion:

The four pseudonymous plaintiffs are persons of modest financial means who maintain that they fell victim to the defendants’ allegedly fraudulent scheme to induce consumers to invest in ACN by making false and misleading promotional statements about ACN’s business. The defendants allegedly concealed the fact that they were paid handsomely by ACN for what purported to be unsolicited endorsements.

More specifically, the plaintiffs allege that in exchange for millions of dollars in secret payments from ACN to the defendants between 2005 and 2015, the defendants fraudulently promoted and endorsed ACN as offering legitimate business opportunities that were likely to afford IBOs success. The defendants allegedly misled consumers, including the plaintiffs, to believe that: (1) IBOs would have a reasonable likelihood of commercial success if they invested in ACN; (2) the defendant Donald J. Trump was independently promoting and endorsing the ACN business opportunity because he thought that it offered a reasonable probability of commercial success for investors; and (3) Mr. Trump’s endorsement was predicated on the defendants’ due diligence, familiarity with ACN and its business, and personal experience with ACN. The defendants conveyed this message in various forums, including at ACN events, in ACN recruiting publications and videos, and on two episodes of “The Celebrity Apprentice” television show, where contestants seeking a job at the Trump Organization promoted ACN. The defendants’ message was critical, the plaintiffs assert, in convincing consumers – including them – to invest in ACN as IBOs.

“This message, however, was allegedly materially false,” Sack’s opinion goes on. “Contrary to the defendants’ representations that ACN’s business opportunity was a low-risk entrepreneurial venture that offered investors a viable source of income, investigations by regulatory agencies allegedly have demonstrated that ACN’s business was high-risk and that investors had a minimal likelihood of commercial success.”

The alleged facts are only cited by the court as relevant background to explain the basis of the legal claims. And, again, the merits (or lack thereof) viz. those allegations are not really what the court relied on here. This is, at the present stage, a procedural battle. But those facts are important to note because of the case’s procedural history.

At first, the Trumps litigated the lawsuits in the court system and successfully batted away a few of the causes of action–including the headline-generating racketeering claim. After winning those victories, however, and failing to secure a motion to dismiss, the Trumps moved to have the remaining claims settled by secretive arbitration.

Last April, a district court in New York City declined to allow the arbitrators newfound purview over the matter.

“These wins and benefits on the defense side represent defeats and prejudice on the Plaintiffs’ side,” Judge Lorna G. Schofield noted. “Now that Defendants have extracted what they can from the judicial proceedings, they seek to move to a different forum. This conduct is both substantively prejudicial towards Plaintiffs and seeks to use the [Federal Arbitration Act (FAA)] as a vehicle to manipulate the rules of procedure to Defendants’ benefit and Plaintiffs’ harm.”

The next month, a judge on the U.S. District Court for the Southern District of New York refused to stay the decision pending appeal. So, the lawsuit moved forward.

On appeal, the Trump family and business and ACN moved to have the arbitration clauses enforced based on the theory of equitable estoppel. ACN also claimed the district court lacked jurisdiction. The appeals court rejected those claims for both sets of defendants.

“[W]e conclude that the defendants are not entitled to have the district court enforce the arbitration agreement under equitable estoppel principles or otherwise and that the district court lacked an independent jurisdictional basis over ACN’s motion to compel,” the opinion notes. “We therefore affirm the district court’s orders denying the defendants’ and ACN’s motions to compel arbitration.”

Read the full opinion below:

[image via TIMOTHY A. CLARY/AFP via Getty Images]

Have a tip we should know? [email protected]

Filed Under:

Follow Law&Crime: