Why the Million-dollar Sanction Was Imposed Against Trump

In 2022, President Donald Trump filed a lawsuit against dozens of defendants, including Hillary Clinton, making several claims, including two under the Racketeer Influenced and Corrupt Organizations Act (RICO) and three under Florida law. The District Court ultimately found that all of these claims were “frivolous” and that the conduct of Trump and his attorney, Alina Habba, were so egregious that they were ordered by the District Court to pay nearly $1 million to the defendants as sanctions (penalties) for how they brought and pursuing such a meritless case. The 11^th Circuit Court of Appeals affirmed the penalty.

The purpose of this note is not to talk about the actual merits of the case, such as they were, but instead to show how many ways a plaintiff can screw up their own case.

The most difficult, yet extremely important, course your first semester of law school is called “Civil Procedure.” It outlines in great detail all of the rules you must follow in pursuing your case. It is not unusual to not understand how the rules all work together until two-thirds of the way through the course. However, unless you understand these rules, you are simply not qualified to practice law in the courts.

To appreciate why the million-dollar sanction was imposed, we will look as the exceptionally basic ways in which Trump and Babba violated the rules of civil procedure.

First, a case must be brought in a timely manner. The Statute of Limitations outlines how long you have to file a case, which varies depending on the type of case. The complaint against Clinton et al was filed after the Statute of Limitations had expired. That by itself was enough to kill the case.

Second, when a complaint is filed, the allegations must be “clear and concise.” If your complaint simply throws everything against the wall hoping something will stick, this is called a shotgun pleading. There is an easy way to avoid this problem. If you are claiming different reasons to win, you file these reasons in separate counts. Here, there were five theories, hence five counts.

To make things easier for the court, and to keep the complaint from becoming incredibly long, relevant fact paragraphs from the first count are often “incorporated by reference” in subsequent counts. The key here is that you only incorporate relevant facts into later counts. In this case, count three incorporated 633 paragraphs from the previous counts, whether or not they were relevant to the third count. This is classic shotgun pleading.

Third, a complaint is often amended to add additional information or to correct misstatements from the original complaint. The amended complaint failed to correct a number of misstatements in the original complaint, even though these errors had been brought to the plaintiffs’ attention.

 Fourth, once sanctions have been imposed, any objection to those sanctions must be filed according to specific rules. Plaintiffs failed to follow those rules.

Fifth, once you decide to appeal, the appeal must state ALL of the errors you believe were committed by the district court judge. Any arguments not presented in your appeal documents are considered “waived.” Trump and Babba decided to argue a few of the waived arguments on appeal, which is a basic no-no.

Sixth, supporting arguments on appeal generally have the following format. Appellants (Trump and Babba) file their initial brief in support of their appeal. This brief contains all of their arguments. Appellees (Clinton et al) file their brief in opposition. Appellants then may file a Reply Brief to address arguments made by appellees. Here, Trump and Babba raised entirely new arguments in their reply brief, something that appeals courts view with derision.

Committing even one of these errors is enough to cause the ire of a judge. Commit all six of these (including numerous minor errors that I haven’t bother to mention), and the judges can easily determine that your case is frivolous and brought in bad faith.

When all of these procedural errors were considered, along with ludicrous nature of the underlying arguments, The appellate court had little difficulty in concluding that the District Court judge properly exercised his discretion in imposing the sanction on Trump and Babba.

 

Was the $355 million judgment against Trump “fair”?

When Kary Tur on MSNBC asked this question of legal analyst Lisa Rubin, the mere question caused outrage among some who thought the question was inappropriate. It is a legitimate question that deserves an answer.

The difficulty of addressing the question is that the legal issues involved in the case are not ones that we normally encounter. Further, the reason for the amount of the judgment may seem to be counterintuitive.

In a typical civil case that requests money damages, the focus is on the amount of loss suffered by an injured party. So, for example, if someone breached a contract with me, I would be entitled to receive what the wrongdoing cost me. This is not that kind of case. Instead, this case comes from a New York statute that evaluates the improper benefits to an individual who gained that benefit through fraud. Recovering that money is called “disgorgement.’ It is not necessary to show, for example, that a bank suffered due to nonpayment of a debt. It is sufficient to show that the conscious manipulation of valuations gave an individual better contract terms than if he had been honest with values.

Try this analogy. I am applying for a mortgage on my home. My credit score is 500. A bank would charge me 7% interest based on that credit rating. However, I have fraudulently convinced the bank that my credit score is 780, entitling me to an interest rate of 5%. During the course of the loan, I made all the payments on time; never defaulted. The financial result to me is that I saved thousands of dollars in interest and the bank, though making some money, did not get what they would have been entitled to had I been honest in my application. Furthermore, having gotten away with it in my home mortgage, I used the same fraud to get more favorable rates on a series of rental properties. Since there is no question that I saved a lot of money by my fraud, I have received an improper benefit. When the case of disgorgement comes to court, I am liable for my ill-gotten gains. In addition, since I am showing no remorse for doing this, the court imposes punitive damages, recognizing that unless I am penalized, I will continue that same fraudulent conduct.

During the course of a six-week bench trial before Justice Engeron (no jury trial is available under the statute), Engeron listened to and evaluated the credibility of numerous witnesses. He heard notable examples of fraudulently inflated property values. He learned that Trump’s New York apartment of 10,000 square feet was valued as though it was 30,000 square feet. He also found out that the Florida Mar-a-Lago property, though restricted by deed forever as a “social club,” was valued as though it was a personal residence.

Justice Engeron’s 93-page decision is fastidious in recounting the testimony of all the witnesses and his rationale for determining the witnesses’ credibility. His conclusion was that Trump and his family, business associates and companies engaged in pervasive misrepresentation of property values over a number of years. The Judgment amount calculated the benefit they received as a result of their fraud.

So was the damage amount “fair”? According to the rules set forth in the New York statute, it was certainly defensible, though the total amount can always be reduced on appeal.

I have two side comments.

One contrarian argument about the case is that the statute had never been used before where there was no established loss to another party, Hence, it was ”selective enforcement.” This is a garbage argument. Consider that Al Capone’s conviction for tax evasion was the first time the tax laws were used to convict a crime boss. Just because a statute is infrequently used does not mean that it has any less value in a particular case.

Reluctantly, I also need to make brief mention of Trump’s legal representation in this case. Excusing for the moment Aline Habba’s disregard for courtroom decorum, she made some mistakes about admitting evidence that would make a first-year law student cower in embarrassment. Her actions will dramatically harm rather than help any attempted appeal.

FAQs About the New York Judgment Against the Trump Organization and Family

There is a lot to unpack from Judge Engoron’s 39-page opinion and order yesterday finding fraud by the Trump Organization and its principals. Due to the multiplicity of issues, I’m going to use a “frequently asked questions” format. 

What is this case all about?

The New York State Attorney General filed a civil suit against the Trump Organizations, some of its related companies and individuals who were officers in those companies, including Donald Trump, Donald Trump, Jr. and Eric Trump. Ivanka Trump has been excluded as a defendant due to a prior appellate court decision. 

The suit claims that all of the defendants “committed repeated and persistent fraud by preparing, certifying and submitting to lenders and insurers false and misleading Statements of Financial Condition,” all for the benefit of Donald Trump. Although there is a great deal of accounting wiggle room in determining the value of property, the Attorney General claims that the defendants’ overvaluations were “egregious.” 

Did this opinion and order come after a trial?

No, we are still in the pretrial stage of this. There has previously been an injunction issued against the Trump Organization (upheld on appeal twice) to prevent it from transferring or otherwise disposing of property. 

The current matter concerns Motions for Summary Judgment, one filed by the Attorney General and the other by the Trump Organization. A Motion for Summary Judgment usually claims that the facts are clear enough that it is not necessary to go through an entire trial to establish them. Defendants in their motion claimed that “there is nothing here” and that the suit should be dismissed. The Attorney General asked for Summary Judgment on only one of the claims, the one alleging fraud. 

Why is this case going to a bench trial where the judge makes the decisions rather than by a jury?

Since Donald Trump is claiming in the media that this judge is biased against him, you would think he would be demanding a jury trial where 12 people would decide the case. There is a limited time after a case is filed in which to demand a jury trial. For reasons I am at a loss to explain, the defendants’ lawyers did not make a timely demand and the period to demand a jury trial has expired. Therefore, Judge Engeron is hearing the case because of a decision (or lack thereof) by the defendants. 

Who prevailed in the Motions for Summary Judgment?

The Attorney General did. Defendants’ Motion for Summary Judgment was denied. The Court found that the defendants committed fraud, the Trump Organization’s certificate to exist in New York is revoked, defense attorneys were fined, and the only matter remaining on the first count of the lawsuit is how much the State of New York is going to be owed. 

Why were the defendant’s attorneys each fined $7,500?

Judges hate it when lawyers do two things: continue to argue matters that have already been decided (here, TWICE on appeal) and make legal arguments that misquote cases. 

The first analogy that comes to mind is when someone contends that the Bible says: “There is no God.” Though that is an accurate quote, the phrase preceding it says: “The fool has said in his heart.” Defendants did the exact same thing in quoting one of their supporting cases. Really, really bad form. 

Isn’t pulling a corporation’s certificate to operate a truly severe action?

Yes, and it does not happen often. Judge Engoron noted that civil cases do not offer the same remedies as criminal ones, such as jail. When everything else has been tried and nothing else worked, only extreme measures are left. 

Some parts of the judge’s opinion have led to some talking points by the defendants. 

“How can there be fraud if we have never defaulted on a loan resulting from the financial statements?”

This is worth a Lawdromat article of its own. We usually think of money damages as restitution to the person harmed. If I am guilty of fraudulently obtaining $1,000 from you, I owe you that money back. This is restitution. 

The Attorney General here is asking for up to $250 million under a completely different, but well established, legal principle called disgorgement. Disgorgement focuses on the gain to the wrongdoer rather than the loss to the victim. As a previous New York case said: “Disgorgement aims to deter wrongdoing by preventing the wrongdoer from retaining ill-gotten gains from fraudulent conduct. Accordingly, the remedy of disgorgement does not require a showing or allegation of losses to consumers or the public; the source of the ill-gotten gains is ‘immaterial’.” 

It therefore makes no difference whether there was a default or not so long as there was fraudulent activity. 

“Even wrong valuations aren’t fraudulent because there was a disclaimer about the accuracy of the numbers.” 

From the opinion:

In his sworn deposition, Donald Trump said: “Well, they call it a ‘disclaimer.’ They call it a ‘worthless clause’ too because it makes the statement ‘worthless’.” Donald Trump goes on to say that “I have a clause in there that says, don’t believe the statement, go out and do your own work. This statement is ‘worthless;’ it means nothing.”

In finding that the “worthless” claim was indeed worthless (judge’s words, not mine), the judge cited a New York case finding that disclaimers are not effective when the facts are “peculiarly within the defendant’s knowledge.” The judge goes into much greater detail, but you get the point – disclaimers cannot be used to cover up misconduct that you create. 

“Mar-a-Lago is not overvalued. If anything, it is UNDERvalued.”

Mar-a-Lago was one example the judge used to show defendants’ fraudulent use of overvaluation. It is contained in pages 25-27 of the opinion. It makes little sense to go into the weeds about the judge’s analysis here. 

What is curious, however, is that the defendants’ current post-decision comments are not referencing (as far as I have seen) the court’s other detailed overvaluations: Seven Springs Estate in Westchester County, NY; Trump Park Avenue, 40 Wall Street, The Trump Tower Triplex, Aberdeen in Scotland; and U.S. golf clubs. These analyses cover twelve pages of the opinion. 

What is coming next?

The Summary Judgment only dealt with Count I of the complaint. The remaining counts will require additional evidence at a trial that is scheduled to begin next month. You can also expect the defendants to appeal yesterday’s order. It is never wise to predict what an appellate court will decide, but decisions such as this one, exhaustively annotated, are seldom overturned.

What Happens When You Ignore the Rules of Discovery – Rudy Guiliani

We have all seen those movies where people are frantically running papers through a shredder to destroy a “paper trail.” We normally associate that with criminal activity. Lawyers, though, immediately relate that to the rules of evidence because once there is even a threat of litigation, you are under a duty to keep potential evidence from being destroyed.

Once any litigation starts (civil or criminal), the first step in preparing for trial is to find out what the side has in terms of physical documents. If materials are not voluntarily turned over to the other side, as the prosecutor typically does for a defendant in a criminal matter, you can get access to documents by “discovery.” A paper is filed with the court, asking the other side to produce a variety of records that you believe are relevant to the case.

The other side may ask to limit the request if seems too all-encompassing, but they will ultimately turn appropriate material over or face penalties if they refuse. Yes, some of the material turned over may be harmful to one’s case, but the entire purpose of discovery is to make sure that the trial is based on all the facts.

So what happens if someone does not turn over those documents? The impacts increase in severity. First, the court will ask you politely to comply. Second, the court will tell you firmly to comply. Third, the court will impose financial penalties, including attorney’s fees. Fourth, the court may completely hammer your case: as a plaintiff, dismissing the case entirely; as a defendant, enter a judgment against you without even going to trial. 

Today, Rudy Guiliani got the hammer. Guiliani had been sued by two election workers in Georgia, claiming that they had been defamed by his comments. These plaintiffs repeatedly asked for documents, and even after a number of court proceedings, little was produced. Even the award of damages and attorney’s fees (which still have not been paid) had no effect. The judge had no alternative but to proceed to the next stage.

The judge’s 57-page order noted that Guiliani did not claim ignorance of the rules of evidence, having stated in Court that “he ‘understand[s] the obligations’ because he has ‘been doing this for 50 years’.” Guiliani’s total course of conduct, according to the judge, “demonstrated utter disregard for the court’s deadlines by employing tactics plainly intended to do nothing more than delay the resolution of this matter.” 

The judge, having exhausted every other means to get compliance, entered a default judgment against Guiliani, effectively finding that he did indeed defame the election workers. A jury will still meet, however, with the limited job of deciding how much Guiliani will owe the plaintiffs in punitive damages. 

As part of the jury instructions, the judge said that the jury will be instructed “that they must, when determining an appropriate sum of punitive damages, infer that Guiliani is intentionally trying to hide relevant discovery about his financial assets for the purpose of artificially deflating his net worth.” 

When the fines, attorney’s fees and punitive damages are added together, this will be a most expensive case. The failure to comply with the discovery rules also made it almost completely avoidable. 

Note: this post was written to show the importance of complying with the rules of discovery. A number of components of this particular case have been omitted for purposes of clarity.

Why You’d Want to Move Your Case in Georgia to the Federal District Court

A number of defendants in the Georgia state racketeering case against Donald Trump and 18 others are attempting to have the case removed (or transferred) to the Federal District Court.

There is no question that the charges against these 19 individuals are for violations of Georgia state law. It made sense, then, that the prosecutor filed the charges in the state court.  As of this writing, at least two of the defendants have asked that their cases be transferred to the Federal District Court because there are federal law issues that arise from their conduct.

Here is where it gets a bit complicated. As a general rule, purely state law violations are tried in state court. Similarly, federal law violations are tried in the federal courts. The defendants are suggesting that there are state AND federal implications to their charges. As such, the only proper place to hold the trial (if the case is not dismissed) is the Federal District Court. That argument is correct. A state court does not have jurisdiction (or the authority to hear the case) when there are Federal law issues, but a federal court properly takes jurisdiction if there are both federal and state issues.

In order to have the case removed to federal court, defendants must show that their conduct raised federal law issues that were not considered when the charges against them were brought. Those federal issues are, according to the argument, essential to their defense.

As a defendant, I am telling the court that even if everything in the indictment against me is true, I still should not be found guilty because I have a complete federal excuse for what I did. Federal law provides many protections for individuals who are serving in a federal office, including being immune (free) from prosecution if what they did was part of their job. This is an important and legitimate safeguard.

The problem for defendants is that they cannot even raise the federal defense issue in the state court. Therefore, the defendants in the Georgia state case have asked the Federal District Court in Georgia to take the case to raise them. 

What the district court judge needs to decide from the outset is whether there truly is a federal issue. This is not an automatic decision. The judge must determine whether there is an actual federal issue or whether the defendant is simply trying to get the case moved to the federal court to get it out of the state court. In other words, is this a legitimate defense.

There are a number of reasons why a defendant would want the case transferred to the federal court.

The best outcome is a finding that the defendant has a complete federal defense to his or her actions. The case is then dismissed before a trial even takes place. Even if the judge rules against the defendant on the federal arguments, the case does not then go back to the state court. The federal court retains jurisdiction.

If the case goes to trial, I want it heard in the federal court. Here are a few of the many reasons.

First, delay. If one of my goals is to stretch out the process, removing the case to the federal court adds additional procedural steps before trial, and each of these take time. Some federal issues (if decided against the defendant) can be appealed even before a trial occurs. Also, due to the federal court calendar, trials will often be scheduled later.

Second, there is a larger pool of qualified attorneys to defend you. The federal rules of evidence and procedure are generally universal (with some notable exceptions). Rules and procedures in the state courts vary substantially. Therefore, lawyers who practice in the federal courts anywhere in the country have a degree of familiarity on their side.

Third, the jury pool for the district court is larger and presumably more diverse. This is especially helpful in geographic areas where the state court populace is not particularly favorable to your side. The goal of every defendant is to have jury members who do not think alike and are even antagonistic to each other.

Fourth, if you lose, you generally are processed through the federal incarceration system where conditions are generally better (a relative term) than state prisons.

With all that said, there is one “benefit” to a federal court trial that is absent when a case is removed from the state court—pardons. Federal convictions can generally be pardoned by the president; state convictions cannot. However, since the federal court is ultimately hearing a case on state issues, any pardoning options remain the same as if the trial were held in the state court.

  

What You May Not Know About the Right to a Speedy Trial

Individuals have many familiar Constitutional rights. Freedom of Speech and the Fifth Amendment protection against self-incrimination are notable. Nobody but the individual may claim or waive those rights. So, for example, I cannot appear in court and demand that you testify against yourself.

The right to a speedy trial is an exception to that rule. This right applies to individuals AND to society. The courts have repeatedly held that justice is best served when a defendant’s trial occurs as soon as reasonably practicable. The benefits to society of a speedy trial are many and varied. A delayed trial may affect the availability of witnesses and memories of particular events. In more egregious cases, it limits the amount of time a defendant can use to intimidate witnesses or to attempt to try the case in the media.

Interestingly, the ability (and duty) to schedule a trial as soon as practicable is one of the most valuable arrows in a judge’s quiver. In some cases, it is impractical to hold a defendant in jail pending trial. Assessing fines for improper conduct may not deter wealthy individuals. And, most significantly, issuing a gag order may arguably violate the defendant’s free speech rights.

In cases where the alternatives are ineffective, society is protected by having the trial date accelerated. A judge frequently asks both the prosecutor and defendant for a proposed trial date and, absent a clear abuse of discretion, the judge’s determination will stand.

Sometimes defendants desperately want a trial delayed. Well-disciplined prosecutors can short circuit many delay attempts. Consider what the prosecutors in the DC case against Donald Trump did.

First, they only named one defendant. The more defendants there are in a case, the more individual delay arguments that can be raised.

Second, they limited the charges to those that have a strong history of judicial interpretation, even though there were other potential charges available to them. Many delays are caused by a defendant claiming that the charges they face are “unique.”

Third, they provided trial evidence (often called “discovery”) to the defendant promptly and well outlined, giving them more time to prepare a defense. 

Parenthetically, you will hear that there are millions of pages of discovery that have been turned over. Defendants claim that it will take years to read it all. This is a red herring. The state-of-the-art in reviewing discovery is to use computer-aided, key word searches. The idea that there are paralegals actually sitting down and reading millions of pages harkens back to a bygone era. It is simply unnecessary and no longer happens in the real world. Sounds good, though.

On August 28, the judge is scheduled to hear arguments about when the trial should begin. Prosecutors will argue in favor of a speedy trial, suggesting a highly aggressive date of January 2, 2024. Defendants will counter with a date of April 2026 or the Rapture, whichever occurs first.

The judge will set the trial date based largely on the elements discussed above.

What Is Missing From the Georgia Indictments?

Lawyers read legal filings differently from the general public. Whereas most people (including the talking heads) react to what is there, lawyers are more interested in what is omitted. The Georgia indictment handed down in today’s early hours is no exception. 

Unlike the DC court indictment which reads like a crime novel, the Georgia indictment is intricate and tedious. Such is the nature of a racketeering case. The first count of the indictment lays out, in sequential order, the 161 acts that constituted the “criminal enterprise.” All of the 19 named defendants participated in the alleged criminal behavior at some point or another, with some of the cast of characters appearing at different times. 

There are at least two important things missing from the indictment. 

First, detail. An indictment is not required to recount in excruciating detail what the evidence is that support each of the 161 criminal acts. Therefore, at this point we do not know exactly what happened on each of these occasions. That evidence will come out later. All that is required in the indictment is to lay out the bare bones of the criminal activity. 

Second, and here’s where it gets interesting, there are 30 unindicted co-conspirators mentioned in the indictment. What this means is that there were not “just” 19 people who engaged in the criminal activity; there were 49. 

The remaining 30 individuals are most likely people who have cooperated in the investigation (or were minor characters) and have therefore not been charged. The testimony that cooperating witnesses provide at trial will help the prosecutor prove the case. Should they fail to continue cooperating, there is nothing to prevent the prosecutor from adding them as defendants at a later date. 

The existence of unindicted co-conspirators generally points to a much stronger case. It is one thing for an independent witness to recount what “they” did (and then to have their credibility challenged on cross-examination). It is entirely another to have someone testify what “we” did. 

So, what is the takeaway from the “missing” parts of the indictment?  Of the 49 people who allegedly were part of the criminal enterprise, at least some of the 30 unindicted co-conspirators are likely cooperating with the investigation in some manner. In other words, they have already flipped. Does this mean that all of the remaining 19 will go to trial? Not likely. As the strength of the evidence against them increases, expect some of the remaining defendants to change their pleas in exchange for testimony and/or a reduced sentence. If that occurs, any criminal enterprise that existed will implode on a limited number of people. 

Note that my comments are first impressions. The case is exceptionally complex, and a lot of unexpected twists and turns are likely to occur before any trial takes place.