Faculty News & Research

Michigan Ross Business Law Scholar: Allegations in NY Civil Suit Against Trump Detailed, though Delays Likely

By Jeff Karoub, Michigan News

White-collar crime expert Will Thomas says the lawsuit filed recently by New York’s attorney general against former President Donald Trump, his family and their various business organizations contains allegations that are “detailed and factually specific.”

Still, the assistant professor of business law at the Ross School of Business says starting from a “very strong legal position” may not be enough to overcome Trump’s history of “delaying and deflecting legal proceedings for as long as possible.”

Thomas, a lawyer who once focused on securities litigation and white-collar enforcement matters in private practice, discusses where things stand with the lawsuit and where they might — or might not — go from here.

What is the essential case here?

Thomas: At its core, this lawsuit alleges all the defendants have for years perpetrated “persistent,” “repeated” acts of fraud and illegality against the people of New York in carrying out Trump’s various real estate businesses. New York Attorney General Letitia James’ complaint identifies over 200 separate incidents in a 10-year period, ranging from falsifying records, tax fraud, insurance fraud and criminal conspiracy.

Is this a criminal lawsuit? Is it related to New York’s criminal lawsuit against Trump?

Thomas: This is a civil lawsuit that is separate from the criminal charges being brought against the Trump Organization and its former CFO, Allen Weisselberg. Although some of the same issues will arise in each proceeding, there is likely to be very little overlap in terms of information shared by lawyers for New York. Grand jury proceedings are secret, so the AG’s office will likely go out of its way to avoid even the appearance that it is getting information from prosecutors.

Will it result in a criminal lawsuit?

Thomas: The AG’s complaint alleges the defendants committed multiple New York state and federal crimes — allegations include falsifying business records, conspiracy, insurance fraud, and tax fraud. Because this is a civil lawsuit, the AG won’t have to prove beyond a reasonable doubt that any of these crimes occurred; civil lawsuits have a much lower standard of proof.

At the same time, losing this lawsuit wouldn’t result in any of the defendants being found guilty of a crime, and it wouldn’t even necessarily mean that they would be criminally prosecuted. On the other hand, neither does this lawsuit rule out the possibility of future criminal charges. And although not strictly part of this lawsuit, AG James went out of her way during a press conference to say that her office had sent its findings to the federal government, in case its prosecutors wanted to pursue criminal charges for tax fraud.

Why does it matter that AG is suing?

Thomas: New York state law allows its attorney general to bring a lawsuit against a person engaged in “repeated fraudulent or illegal acts.” Because this statute exists to protect the people of New York from deceptive business practices, it does not require the attorney general to prove the sort of intentional or willfulness elements that often stymie many other fraud lawsuits.

Nor does she need to prove that specific individuals were harmed or injured by the fraud. As a result, the attorney general is likely starting from a very strong legal position in this lawsuit. (This is not to suggest that James won’t be able to prove willful fraud and illegality occurred — the complaint clearly alleges that it did — but just that the AG doesn’t necessarily need to clear that hurdle to prevail.)

There are other advantages that the AG brings to the table. State law gives the attorney general broad investigatory powers, including the ability to subpoena documents and compel witness testimony, which made it possible for her to have already gathered ample evidence to support the case spelled out in its 200-plus page complaint.

Moreover, the AG can pursue different remedies than a private party could, which could spell serious trouble for Trump, his family, and his businesses.

How strong is the case?

Thomas: The allegations are detailed and factually specific, suggesting the attorney general’s office has gathered lots of evidence to support its claims. Real estate valuations are notoriously fickle, which is why it can be difficult to prove that valuations were fraudulent, as opposed to just mistaken or innocently optimistic.

Anticipating this challenge, the complaint focuses first and foremost on objectively probable falsehoods. For example, the AG claims that Trump lied about the size of his penthouse in Trump Tower, tripling the square footage of the unit in a manner that led him to value the property at a staggering $327 million.

One additional reason why it matters that this lawsuit is civil, rather than criminal, is that Trump and Weisselberg have both refused to testify in response to subpoenas from the attorney general’s office. (Several of Trump’s children reportedly testified on their own behalfs.) But while the Fifth Amendment prevents someone’s silence from being used against them in a criminal case, that same silence can be interpreted against the defendant in a civil lawsuit.

Accordingly, Trump may already have missed his opportunity to argue that certain records or valuations were harmless. A judge or jury can be expected to draw a negative inference from his prior refusal to testify during his scheduled deposition last spring.

What could happen if Trump loses?

Thomas: The complaint is asking for a court to impose dramatic penalties, including disgorgement of about $250 million in past profits and proceeds, the dissolution and winding up of Trump’s New York businesses, and a five-year ban on Trump and has family members serving in executive positions for other companies.

These are draconian remedies, and a court’s willingness to impose them will turn on how convincing the attorney general’s eventual case proves to be at trial. For example, courts are historically reluctant to forcibly dissolve an existing corporation, even though they have the legal power to do so. Expect a court to insist on strong evidence of ongoing, future harm to the public before it entertains this possibility.

What might come next?

Thomas: The attorney general’s announcement comes after public reporting that her office was unable to reach a settlement with Trump and the other defendants. However, a settlement is still possible—filing this complaint might have served to provide the AG’s office additional leverage in negotiations.

Meanwhile, Trump has consistently demonstrated a strategy of delaying and deflecting legal proceedings for as long as possible, including by reaching out to other judicial actors to intervene. Expect that something similar will happen here, including a request by Trump to have a federal court intervene and stop these proceedings.

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Will Thomas
  • Assistant Professor of Business Law