As much attention as legal proceedings involving Donald Trump receive, so much of the focus is on Mr. Trump’s in- and out-of-court antics that the legal underpinning of different matters is often easy to lose sight of.
For instance, in coverage of the recently completed trial in New York regarding civil fraud allegations against Mr. Trump and a variety of related individuals and organizations, it is only occasionally adverted to that the presiding judge, Justice Arthur F. Engoron, already granted partial summary judgment in favour of the Plaintiff, the People of the State of New York, by Letitia James, Attorney General of the State of New York (“NYAG”) because the Defendants persistently submitted false and misleading Statements of Financial Condition (“SFCs”).
Ontario practitioners may have more than a passing interest in learning what Mr. Trump and his co-defendants were already found liable for and how process differs from Ontario law.
Justice Engoron’s September 26, 2023 decision (the “Decision”) makes for interesting reading. There were actually two motions to be determined. The Defendants’ (Mr. Trump and others) motion for summary judgment sought to dismiss the complaint in its entirety and the NYAG alternatively sought a partial summary judgment on the first cause of action, namely, fraud under New York Executive Law s 63(12), which reads as follows:
- 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 New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, directing restitution and damages and, in an appropriate case, cancelling any certificate filed under and by virtue of the provisions of section four hundred forty of the former penal law or section one hundred thirty of the general business law, and the court may award the relief applied for or so much thereof as it may deem proper. The word “fraud” or “fraudulent” as used herein shall include any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions. The term “persistent fraud” or “illegality” as used herein shall include continuance or carrying on of any fraudulent or illegal act or conduct. The term “repeated” as used herein shall include repetition of any separate and distinct fraudulent or illegal act, or conduct which affects more than one person. (Emphasis added).
The breadth of the above statute may be startling to Ontario lawyers. As noted by Justice Engoron, Executive Law s 63(12) is a “broadly worded anti-fraud device” reflecting New York’s “quasi-sovereign interest in protecting the integrity of the marketplace.”
It is important to note that prosecution by the NYAG under Executive Law s 63(12) is not something new or exclusively used to target Mr. Trump and his co-defendants. As can be seen from a review of the Decision, there is a developed body of case law both interpreting and applying Executive Law s 63(12).
For instance, in dismissing Mr. Trump’s motion for summary judgment, Justice Engoron quotes People v Northern Leasing Sys., Inc., for the proposition that the “test for fraud under Executive Law s 63(12) is whether an act tends to deceive or creates an environment conducive to fraud.”
Furthermore, whether the act creates an environment conducive to fraud does not turn on whether “the challenged act or practice ‘was misleading in a material way.’” Therefore, Justice Engoron was confidently able to state that “[i]t is settled that a standalone cause of action under Executive Law s 63(12) does not require a demonstration of materiality but merely that an ‘act has the capacity or tendency to deceive, or creates an atmosphere conducive to fraud.’” (Emphasis added)
In fact, even on the question of remedy, “where…there is a claim based on fraudulent activity [under Executive Law s 63(12)], disgorgement may be available as an equitable remedy, notwithstanding the absence of loss to individuals or independent claims for restitution.”
To cite but one example, regarding Mr. Trump’s Mar-a-Lago property, Justice Engoron found that the NYAG had “demonstrated liability for the false valuation of Mar-a-Lago as it appears in the SFCs from 2014-2021.” The NYAG, he concluded, met the test of establishing a breach of Executive Law s 63(12) by showing, through documents alone, that valuations in Mar-a-Lago’s SFCs did not reflect land use restrictions Mr. Trump had entered into and overvalued the property by 2,300% compared to appraisals of the Palm Beach Country Assessor.
Whether Mr. Trump and his co-defendants will be found liable for the other complaints brought by the NYAG and the extent of the penalty imposed for violation of Executive Law s 63(12) remains to be seen. However, it is interesting to consider whether any of the impugned practices found to violate Executive Law s 63(12) would be actionable in Ontario.
Obviously there are private law remedies where a specific individual or entity has been defrauded through deceptive business practice, such as the tort of deceit. But that cause of action requires a plaintiff to show that:
- the defendant made a false representation of fact to the plaintiff;
- the defendant
- knew the representation was false;
- had no belief in the truth of the representation; or
- was reckless as to the truth of the representation;
- the defendant intended that the plaintiff should act in reliance on the representation;
- the plaintiff did act on the representation; and
- the plaintiff suffered a loss by doing so.
One of Mr. Trump’s arguments, rejected by Justice Engoron, was that no contractual counterparties acted in reliance on or were, in fact, injured as a result of the SFCs under scrutiny. Mr. Trump argued that banks and other sophisticated entities would never have reasonably relied on statements in the SFCs because those counterparties would have done their own independent due diligence before extending loans. If that is in fact the case, or if acting on the representation (or loss) could not be proven by a plaintiff, it would seem to preclude deceit as an available cause of action.
Whether New York’s Executive Law s 63(12) achieves its legislative objective of protecting the integrity of the marketplace would take a much broader analysis than the Trump case. It is worth asking, however, why it is that persistently deceptive business practices are effectively condoned if no one can prove harm. As a matter of private law, concerns over floodgates and vexatious litigation weigh in favour of maintaining narrower availability for private actors to seek relief. As the Decision illustrates, New York State has taken the approach that there is a broader public interest at stake and provided a public body a specific statutory tool to address persistent fraud.
That other jurisdictions do not have similar legislation is interesting in and of itself.
Michael Crampton