MANHATTAN (CN) — Lawyers for the Trump family appeared at the Second Circuit on Tuesday to fend off a class action that seeks to hold the first family liable for their close affiliation with a purported pyramid scheme.
From 2005 to 2015, Donald Trump and his children appeared in promotional television ads, at events and in magazines endorsing American Communications Network, a telecommunications company that offers business seminars and encourages enrollees to bring in new recruits.
In recent years, the president has claimed to “know nothing about the company,” but a group of former ACN recruits claimed in a 2018 federal class action that it was Trump’s status and reputation for business that led them to invest millions in the multilevel marketing scheme.
U.S. District Judge Lorna Schofield advanced fraud, false advertising and unfair competition claims against the Trumps last year but also rejected racketeering charges that could have put the family on the hook for treble damages.
Tuesday’s arguments at the U.S. Circuit Court of Appeals stem from a ruling in April where Schofield denied a motion to compel arbitration.
Representing the family, Consovoy McCarthy attorney Thomas R. McCarthy said the Trumps should benefit from ACN’s arbitration agreement with plaintiffs since they were clearly intertwined.
“The alleged duping was all happening with ACN-branded materials, with ACN,” McCarthy said. “This is them in bed next to each other.”
But class counsel Roberta Kaplan said the opposite is true. By keeping payments from ACN to the Trump family a secret, and saying his own lawyers had vetted the company, Trump positioned himself as independent of ACN.
“That’s what gave the endorsement its power,” Kaplan said.
Plus, Kaplan said, the Trumps had a pattern of using their name and access to Trump’s reality show, “Celebrity Apprentice,” to endorse companies.
That practice wasn’t started by ACN, Kaplan argued: “It was created by the fraudster, Donald Trump, and his children.”
In addition to the Trump Corporation, the 164-page complaint names as defendants the president and three of his children: Donald Trump Jr., Eric Trump and Ivanka Trump. It does not name ACN itself.
McCarthy suggested that omission was a deliberate attempt by the plaintiffs to avoid arbitration.
U.S. Circuit Judge Robert D. Sack, a Clinton appointee, asked McCarthy if the court should consider that argument in its decision.
“Yes, if they’re trying to evade arbitration, then that matters,” McCarthy said, adding that the plaintiffs make hundreds of references to ACN in their complaint.
The plaintiffs were recruited to ACN as “independent business owners” who could earn commission both by selling the company’s products to customers, and by recruiting new participants, on whose sales the recruiter would also earn commission.
Kaplan said the plaintiffs are “working-class or below-working-class people,” who include a hospice caregiver, a worker for the Salvation Army and food delivery driver. One of the plaintiffs was homeless at one time, Kaplan noted Tuesday.
The plaintiffs say ACN charged $499 to register, and $149 per year to renew involvement — but that investors made back less than 10% of their money.
Recruits are asked to identify leads by hosting small events for family and friends, according to the complaint, and hold “small motivational rallies,” which would typically include showing a DVD to encourage investment.
Multiple versions of the DVD included Donald Trump’s personal endorsement.
In 2015, however, as he became the top Republican presidential candidate, Trump claimed to “know nothing about the company” and denied he was paid for his endorsements.
Still, ties between ACN and the Trumps remain, according to the complaint. In 2017, ACN sponsored a hole at the Eric Trump Foundation’s annual golf tournament, Curetivity, and held a celebrity golf tournament of its own at Trump National Golf Club in Moorseville.
During Tuesday’s arguments, McCarthy yielded half of his time to an ACN attorney, Benjamin C. Glassman, who said that the anonymity of the plaintiffs prevented ACN from going after them in arbitration.
ACN has not been sued, but its dispute with the plaintiffs is still tangible, Glassman said. “We need the District Court’s assistance to compel arbitration,” he said, making the case that ACN is lawful and is not liable for payments by the plaintiffs.
Kaplan explained that the plaintiffs sued pseudonymously because “it felt like a very different world” when the complaint was brought. The year 2018 saw the people suing the president or his family “subject to a barrage of media” and public attention. Kaplan said her team was prepared to reveal her client’s identities to ACN if they would agree not to make them public through means like social media.
As for why the Trumps let 16 months pass after the complaint was filed before they sought arbitration, Kaplan was critical.
“It’s very hard, if not impossible, to believe that they didn’t seriously consider whether or not plaintiff’s claims were arbitrable” before that time, Kaplan said.
McCarthy cited precedent under two cases, Rush v. Oppenheimer and Sweater Bee By Banff v. Manhattan Indus., under which he said the Second Circuit found a motion to compel arbitration timely even after extensive litigation.
The Trumps’ lawyer also argued for precedent under Contec Corp v. Remote Solution Co., which “requires that equitable-estoppel and timeliness issues to be referred to arbitration,” according to a reply brief filed in September.
In her own brief and in court, Kaplan contested that equitable estoppel applies here, since the plaintiffs did not have a clear agreement with the defendants; only with ACN. “There is no contract between [the plaintiffs] and Donald Trump,” she said Tuesday.
U.S. Circuit Judges Raymond J. Lohier Jr. and Denny Chin, both Obama appointees, rounded out Tuesday’s panel. The judges adjourned without making a decision on the appeal.
“It was a privilege, as always, to appear before the Second Circuit, and to appear on behalf of the brave plaintiffs who continue to pursue justice in this case,” Kaplan said in an emailed statement. “We appreciate the panel’s careful consideration of the issues and look forward to the Court’s decision.”
McCarthy did not respond to a request for comment.