We have recently watched around-the-clock coverage of CNN and MSNBC legal “experts” criticizing Donald Trump’s tempestuous turn on the witness stand during the litigation brought by New York Attorney General Letitia James. She seeks to drive Trump out of business and win damages of $250 million based on Trump’s personal financial statements containing allegedly overvalued assets, provided as background documents to various lenders.
To moderates, liberals, and independent voters, Trump embodies his familiar role of a bumptious ignoramus, flouting the rule of law as well as courtroom decorum. But is this a fair assessment of Trump’s reaction to legal procedures that he claims are themselves illegal? Put differently, is Letitia James, through the compliant Judge Arthur Engeron, pushing a case that applies the law illegally? And are Trump’s protests, however undiplomatic and plain-spoken, actually correct on the law? Let’s examine who should wear the legal “dunce cap” and be sent to the corner.
Let’s start with the statute James uses, New York Executive Law § 63 (12), which forbids “fraudulent or illegal” business practices. James says the Trump Organization is “fraudulent” when it uses Trump’s personal financial statements, which overstate asset values.
Here is the first problem James and Judge Arthur Engeron ignore in this claim. A statement cannot be “fraudulent” unless (a) the communicator knows it is false and intends to induce reliance on another party and (b) the counterparty relies on the statement to its detriment and damage.
Certainly (b) is not met because world-class lenders in asset-based financing rely on their own valuations and appraisals of the assets securing the loans, in any case not on the borrowers’ personal financial statements, which typically do not include the value of the asset not yet purchased. So, on that fact alone, there can be no fraud.
Recommended
And because Trump and his sons know the industry, they know the particular financed asset, which the lender values through its professional appraisers, is the true basis for the loan, and therefore, they intend no reliance. So, both prongs are not met for fraud, and most assuredly, (b) is woefully lacking.
Based on the above, no “fraudulent” activity has occurred as defined by New York law. But Letitia James, counterintuitively, contends that “intent” and “reliance” are not required under this statute, even though the statute requires “fraudulent” conduct, and fraud depends on both intent and reliance. This is an absurd position that has not apparently bothered Judge Engeron, who is rolling with James’ absurd statutory interpretation.
But let us accept her position for argument, that is, that overvaluation is “fraudulent” without any proof of intent or reliance, even though it contradicts hundreds of years of Anglo-American jurisprudence. Judge Engeron has already accepted this ignorant view of what is “fraudulent” and issued a summary judgment claiming that there is a violation of the statute. In short, “false” does not equal “fraudulent”, but James and Judge Engeron conflate the two terms.
Now in the present penalty stage of trial, James seeks $250 million in damages, which are allowed by the statute with proper proof; and (b) forfeiture of Trump’s business licenses in New York state, an extreme remedy not required but permitted if appropriate under all the circumstances.
There are big problems with these remedies applied to Trump’s case because they are based upon shamefully ignorant and incorrectly applied principles of law.
Every business litigator reading this piece knows that the measure of damages for fraud is “out of pocket” loss. For New York law, see Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 (1996). It is key under this rule how much the victims lost, not what they would have made via another, better agreement, had the fraud not happened. It is not a measure of damages that, had the victims not been defrauded, they woulda, coulda, shoulda done much better deals. But yet, that is the basis for James’s “expert” to claim Trump has caused over $200 million in “damages,” that is, the lenders woulda, coulda, shoulda charged more if they knew, for example, that Mar-a-Lago was only worth $18 million, as Judge Engeron so ignorantly opined, based on its tax assessment.
This, in short, is ignorant stuff being peddled by James and swallowed whole by Judge Engeron, but CNN and MSNBC “experts” have not told us this. Why not? Can you say “biased media”?
It is no wonder that no Trump lenders have come forward to say they were victims of fraudulent statements. But even if they did, they would not have “out of pocket” damages to claim. That is so because they lost no money by the admission of all but, apparently, James and Judge Engeron.
Now, to the second shoe to drop after Engeron hits Trump with over $200 million in damages that aren’t damages. Letitia James expects, and Judge Engeron clearly intends, a ruling that Trump must forfeit his business licenses in New York state, effectively putting him out of business in this jurisdiction.
However, neither Attorney General James nor Judge Engeron appear to be familiar with the prohibition against “excessive fines” in the Eighth Amendment to the United States Constitution applied to the states through the Fourteenth Amendment. The great Justice Ruth Bader Ginsburg just recently applied this principle in Timbs v. Indiana, 139 S. Ct. 682, 687 (2019), a case in which the government seized a defendant drug dealer’s auto worth $42,000 used in the crime, for an offense carrying a maximum fine of $10,000. The court held that this forfeiture was an excessive fine and reversed it. Ginsburg specifically warned that, “Excessive fines can be used, for example, to retaliate against or chill the speech of political enemies.” The Court also held that the delicate need not be cash but can be forfeited property. This is precisely what is occurring in the Trump case, in which the anodyne puffery of a company’s braggadocious owner is being used to rob the booming business of its hugely valuable assets, with not one lender claiming to be a “victim.”
Finally, we must remark on another breach of legal propriety. The statute of limitations for the relevant statute, New York Executive Law § 63 (12), had been three years as of August 24, 2019, meaning that only conduct after August 24, 2016 could be considered. By that time, Trump had put his interests in trust. Moreover, James did not file the suit until September 21, 2022, meaning that in ordinary circumstances, the conduct reached could go back in time only to September 21, 2019, when Trump was ensconced in office and clearly not running the business (there does appear to have been a legal “tolling” of the statute for about two years, thereby extending the statute back to around July 13`, 2017, when Trump was, again, in office and not running the business). But James, who ran for Attorney General on the promise to get the likes of “male, pale and stale” citizens, explicitly focusing on Donald Trump, importuned legislators to extend that statute to six years, effective August 25, 2019.
Now James claims the statute is “retroactive,” that is, to get Trump she can revive a dead claim and go back to July 13, 2014, over eight years before her September 2022 lawsuit, in search of her prey. This should be troubling to all honest citizens. Principled, engaged individuals wishing to ensure that the law is followed will, unfortunately, not hear any of this on legacy media. After all, it might mean that the Progressive-despised former President is the subject, yes, of a “witch hunt.”
Josef Stalin’s henchman, Marshall Lavrentiy Beria, boasted, “Show me the man, and I will show you the crime.” Letitia James is following Beria’s playbook, although legacy media will not hear that comparison. The great libertarian economist and philosopher Friedrich Hayek noted that truly liberal societies feature the rule of law, not rule by law, the latter when those in power use the law as a weapon against political enemies.
Indeed, Trump can be a bull in a china shop, sometimes unhinged, always boisterous, ignoring legal properties. But just as most American citizens sympathized with “Chicago Eight” defendant Bobby Seale when, during his 1969 prosecution, Judge Julius Hoffman ordered Seale bound and gagged to avoid further verbal outbursts, many citizens who do not like Trump sympathized with his treatment during this highly biased “show” trial.
We all admired outspoken lovers of freedom in the 1960s and 1970s. Still, CNN, MSNBC, and their ilk now seem to delight in the persecution of an ex-President who is expressing very valid protests, consistent with centuries of Western jurisprudence, about destroying his business for political purposes.
Those who dislike Trump should punish him the old-fashioned, democratic way: they should vote against him. But those same citizens should be appalled by this gross miscarriage of justice, gleefully chronicled by those media upon whom we rely to report the truth but who instead support two public officials who are laying waste to our justice system.
John D. O’Connor is a former federal prosecutor and the San Francisco attorney representing W. Mark Felt during his revelation as Deep Throat in 2005. O’Connor is the author of the books Postgate: How the Washington Post Betrayed Deep Throat, Covered Up Watergate and Began Today’s Partisan Advocacy Journalism and The Mysteries of Watergate: What Really Happened.
Join the conversation as a VIP Member