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.