President Donald Trump, Donald Trump Jr., Ivanka Trump, Eric Trump and the Trump Organization just suffered a major defeat in federal court–losing a battle to have a years-old so-called “racketeering enterprising” lawsuit against them decided via secret arbitration. Those claims are now all but certain to be litigated publicly.
The class action plaintiffs originally filed suit in October 2018, alleging the Trump family members and their family-owned business promoted and endorsed a multi-level marketing, or pyramid, scheme known as ACN Opportunity, LLC.
But those business ventures clearly didn’t pan out.
Essentially, the plaintiffs claim, ACN was a classic American “get-rich-quick scheme” that relied on Trump and his family “conn[ing] each of these victims into giving up hundreds or thousands of dollars.”
The plaintiffs contend that the Trump family falsely endorsed and promoted ACN by insisting that the enterprise “offered a reasonable probability of commercial success.”
The filing notes how the plaintiffs relied on those representations:
Between 2005 and at least 2015, Defendants promoted and endorsed ACN through videos, print and online media, at ACN events, and during episodes of The Celebrity Apprentice, a television program hosted by Trump and featuring Ivanka Trump and Donald Trump, Jr. Defendants’ endorsement of ACN was crucial to Plaintiffs’ decisions to become [Independent Business Owners (IBOS)] for at least two related reasons. First, Plaintiffs considered Trump and his family highly successful in business. Second, Plaintiffs believed that the endorsement was independent of ACN.
In reality, those publicity efforts and solicitations were made by the Trump family because ACN was paying the Trumps for the exposure–and this was apparently not public knowledge.
“Defendants and ACN did not disclose that ACN was paying [the Trump family] to promote and endorse the company,” the Wednesday ruling in the Southern District of New York (SDNY) notes.
The class, represented by a Jane Doe, sued on various state and federal charges–including “racketeering and conspiracy to racketeer” claims. The two federal claims were dismissed by the court after the Trump family filed for a broad dismissal in January 2019.
A footnote explained the remaining claims controlled by the court:
Count 3 asserts the dissemination of untrue and misleading public statements under California law. Count 4 asserts unfair competition under California law. Count 5 asserts unfair and deceptive trade practices under Maryland law. Count 6 asserts unfair and deceptive practices under Pennsylvania law. Counts 7 and 8 assert common law fraud and negligent misrepresentation.
In July 2019, the Trumps informed the plaintiffs they would seek to force arbitration over those remaining and variegated state law claims. Wednesday’s decision tidily foreclosed against that effort:
Defendants seek to compel arbitration of the dispute in this case based on the arbitration agreements between Plaintiffs and ACN, to which Defendants are not a party. At issue on this motion is whether Plaintiffs agreed to arbitrate with Defendants, on a theory of either equitable estoppel or agency. The Court finds that Plaintiffs did not agree to arbitrate with Defendants. A second issue in the alternative is, if there was such an agreement, did Defendants waive their right to compel arbitration of these claims. The Court finds that they did. The motion to compel arbitration is therefore denied on each ground independently.
The ruling by U.S. District Judge Lorna G. Schofield contained some fairly harsh language directed at the Trumps.
“Defendants suggest that Plaintiffs knew that ACN and [the Trump family] were aligned such that a contractual obligation to one should be construed as a contractual obligation with the other,” the judge noted before explaining why that wasn’t exactly possible.
“Plaintiffs here not only were unaware of the affiliation between [the Trump family] and ACN, but the business relationship was expressly hidden,” she writes.
The court also dinged the Trumps for trying to game the system:
Defendants aggressively litigated in this judicial forum for eight months before informing Plaintiffs of their intent to arbitrate the surviving claims. Defendants obtained the benefits of litigating in federal court — dismissal of the racketeering claims, a stay of discovery while the motion was pending, and the issuance of numerous non-party subpoenas that would not have been available in arbitration. These wins and benefits on the defense side represent defeats and prejudice on the Plaintiffs’ side. 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. Such tactics undermine a fundamental purpose of the FAA to support the economical resolution of claims.
“For the foregoing reasons, Defendants motion to compel arbitration is DENIED,” Schofield concludes.
[image via TIMOTHY A. CLARY/AFP via Getty Images]