No arbitration for Trump in pyramid scheme class action | Courthouse News Service
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No arbitration for Trump in pyramid scheme class action

The Second Circuit on Wednesday advanced a suit over the former president's endorsement of a multilevel-marketing enterprise where only a select few at the top reap profit off the backs of lower-tier cogs.

MANHATTAN (CN) — Investors who sign up with American Communications Network must sign an arbitration agreement, but the Second Circuit ruled Wednesday that such covenants mean nothing for individuals like Donald Trump and his adult children who were paid millions to make ACN look credible.

The decision is a boon to the federal class action that says the Trumps perpetuated a yearslong fraud by promoting the ACN pyramid scheme on "The Apprentice" and at business conventions.

As the Trumps did not sign the arbitration contracts given to investors, theirs was a steep climb to establish coverage from the contract. Writing for a three-judge panel Wednesday, U.S. Circuit Judge Robert D. Sack said they didn't make it.

“There was no corporate relationship between the defendants and ACN of which the plaintiffs had knowledge, the defendants do not own or control ACN, and the defendants are not named in the IBO agreements between ACN and the plaintiffs," the 43-page opinion states.

Trump and three of his children — Donald Trump Jr., Eric Trump and Ivanka Trump — appeared from 2005 to 2015 in promotional television ads, at events and in magazines touting American Communications Network, a telecommunications company that offers business seminars and encourages enrollees to bring in new recruits.

In a 2018 federal class action, four investors who said they lost hundreds or thousands of dollars investing with ACN sought damages from the then-first family and their corporate entity, the Trump Organization, saying they concealed that ACN paid them handsomely for their endorsements.

After U.S. District Judge Lorna Schofield denied a motion from the Trumps to compel arbitration, the Second Circuit affirmed Wednesday.

A representative for ACN told Courthouse News on Wednesday the company "categorically denies the allegations made in the lawsuit against it and its business."

"It is unfortunate that ACN’s name and business have been impugned in connection with this politically-motivated and funded lawsuit," a representative for the company said, reiterating that ACN is not a party to the underlying lawsuit.

In court filings, Consovoy McCarthy attorney Thomas R. McCarthy had argued for the Trumps that they should benefit from ACN's arbitration agreement with plaintiffs since they were clearly intertwined.

The Second Circuit rejected that equitable-estoppel argument, however, finding the Trumps failed to establish that the relationship was close “such that it can reasonably be inferred that the signatories had knowledge of, and consented to, the extension of their agreement to arbitrate to the non-signatories.”

Sack, a Clinton appointee, was joined in the decision by Obama-appointed U.S. Circuit Judges Denny Chin and Raymond Lohier.

Roberta “Robbie” Kaplan, the New York City-based attorney representing the class, applauded the ruling.

“We are very pleased that the Second Circuit has affirmed Judge Schofield’s decisions and are excited to resume discovery in this important case about a years-long consumer fraud on hard working Americans perpetrated by Donald Trump and three of his adult children," Kaplan saod in a statement Wednesday.

Kaplan, a partner at Kaplan Hecker & Fink, noted that they look forward to receiving the documents sought by pending subpoenas, as well as tapes from "Celebrity Apprentice" where ACN promotion work occurs.

“And we similarly intend to press the Trumps to complete their document production so that we can begin taking depositions as soon as possible," the attorney added.

Judge Schofield advanced fraud, false advertising and unfair competition claims against the Trumps in July 2019, but also rejected racketeering charges that could have put the family on the hook for treble damages.

In refusing to dismiss the class’s state-law claims for fraud, unfair competition and deceptive trade practice, Schofield noted that the case likely involves more than one hundred plaintiffs and $5 million in damages.

According to the complaint, ACN charged investors $499 to register with the promise that they can earn commissions from selling products to customers at small “motivational rallies." The enterprise works by having recruits identify leads by hosting small events for family and friends, and “small motivational rallies" where a DVD is shown to encourage investment. Multiple versions of the DVD included Donald Trump’s personal endorsement. 

Investors allegedly made back less than 10% of their investments.

As Trump closed in on the White House in 2015, however, as the Republican frontrunner, he claimed to “know nothing about the company” and denied he was paid for his endorsements. But the complaint noted that ties between ACN and the Trumps remained. 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.

Representatives for the Trumps and ACN did not immediately respond to requests for comment Wednesday afternoon.

Earlier this month, the Manhattan district attorney’s ongoing probe of the Trump Organization resulted in long-expected tax fraud charges against the company and its chief financial officer, Allen Weisselberg.

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Categories / Business, Consumers, Law

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