New York Attorney General’s Case against Trump University to Proceed: Huge Shift in State Powers

While Donald Trump is impacting the political scene with his run for the White House, his litigation involving the now defunct for-profit Trump University is making a huge impact on the powers of the New York Attorney General. Recently, the First Department of the New York Appellate Division ruled that the New York Attorney General’s lawsuit against Donald Trump individually and the Trump Entrepreneur Initiative, LLC (f/k/n Trump University) for false advertising could proceed, overturning a 2014 ruling on statute of limitations.

While the decision has received much publicity because it involves claims against Trump for consumer fraud, the real story is how much the decision strengthens the New York Attorney General’s powers.

In August 2013, New York brought a special proceeding against Trump individually and Trump University alleging that Trump University intentionally misled more than 5,000 consumers into spending as much as $35,000 to participate in seminars and mentorship programs to become successful real estate investors. The state alleged that the University’s ads misrepresented that Trump himself handpicked the real estate experts, that Trump developed the curriculum, and that Trump would make personal appearances, and that free workshops were bait and switch programs. The state alleged consumer losses of approximately $40 million.

The state brought claims under a variety of theories, including claims under Executive Law § 63 (12). Executive Law § 63 (12) states, in relevant [art: "Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the state of New York, to the supreme court of the state of New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts [and] directing restitution and damages... and the court may award the relief applied for or so much thereof as it may deem proper." Moreover, the provision defines "fraud" as "any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions." The trial court dismissed the state’s claim finding that the action was untimely based on the statutory three-year statute of limitations.  

On appeal, the Appellate Division found that even though the state was asserting statutory claims (which generally have a three-year statute of limitations),  the six-year statute of limitations for common law fraud applied to the state’s claims. Although the court applied the common law fraud standard, the Appellate Division, however,  held that the scienter and reliance required for a common law fraud claim need not be proven by the Attorney General in an action under New York Executive Law  §63(12). 

Take away: The decision empowers the Attorney General with the benefits of a longer statute of limitations applicable to a fraud claim without the higher burden of proof.

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