The post below from my friend and co-blogger Steve Calabresi says a lot about Judge Engoron’s ruling in the civil suit brought against Donald Trump and his business entities. I don’t want to reply to everything. And I have no particular opinion as to whether the New York State Attorney General was wise in filing this lawsuit. However, it is unclear what exactly is legally reversible in Judge Engoron’s ruling.
I’d like to start with a big-picture idea that Steve raised, which I’ve seen repeated widely, that Trump’s actions are (as Steve puts it) “victimless.” The lawsuit against Trump is unfair because it is a crime. Based on this idea, the banks that lent money to Trump were not harmed by Trump’s lies. Perhaps the lie is a sign of how promiscuous New Yorkers are in doing business. As Steve argues, this is “apparently standard practice in the New York State real estate market, where borrowers often overstate the value of their properties.” And what harm would it do if the bank that loaned him repaid the loan?
As you consider this question, I thought it would be helpful to say a few words about the New York state law at issue. This is my understanding (I hope readers will correct me if I’m wrong). New York state law requires businesses to register with the state. Registration is effectively a license to do business. And one of the state attorneys general’s 16 statutory duties is to provide equity to companies that “repeat fraudulent or illegal conduct or demonstrate persistent fraudulent or illegal conduct in the carrying on of their business, operations, or trade.” It is to bring legal action. The equity action seeks “an injunction enjoining the continuation of such business activity or fraudulent or tortious conduct, directing compensation and damages, and, in appropriate cases, requiring its rescission.” [business] certificate submitted[.]”
Does it matter that the particular lies upon which the Attorney General’s actions were based were to obtain a loan that was successfully repaid? I think the basic idea is similar to when a state suspends a driver’s license for a DUI. The state granted the person a driver’s license based on the belief that the person would drive reasonably safely. However, if a driver is found to be driving dangerously, the state will intervene and revoke their license. Importantly, this is true even if the person who drank and drove was able to return home safely on that trip.
I can imagine that someone who drinks and drives but doesn’t get into a crash might think it’s unfair to have their license revoked. It’s a victimless crime, they might say. No one was hurt that night. But I think we’re used to the idea that an established risk of harm, rather than actual harm, is a plausible reason to revoke a license. A person may have managed to get home safely last night, but it might not be a bad idea to take away the keys for a bit so they don’t do the same dangerous thing again tomorrow night.
I think the lawsuits against Trump and his entities were in some ways the business equivalent of that. President Trump and his business associates committed numerous lies and deceptions, the judge concluded. And, as the judge said, their credibility on the stand was seriously undermined. Yes, they were able to repay the loan, but without the lies they would not have been able to get the loan. And they made huge profits by lying, Judge Engoron concluded, allowing them to make deals at impossible interest rates that would never have gone through if they had told the truth. It is called Noda. As Chancellor of Equity, Judge Engelon will require President Trump and his companies to give up their ill-gotten gains, prohibit President Trump from operating his New York businesses for three years, and impose other equitable relief. are doing.
Steve repeatedly claims that the law has never been used “that way.” I don’t know what “that way” means. However, based on a quick search on Westlaw, we found opinions regarding other equitable enforcement actions that Attorney General Letitia James has brought against other companies under this law. For example, in recent months, we’ve heard comments like: Person by James v. Richmond Capital Group LLC.80 Misc.3d 1213(A) (NY 2023) (ordering enforcement actions against usurers, a long list of equitable remedies, including cancellation of contracts). James vs. Mashinsky Person79 Misc.3d 1237(A) (NY 2023) (brought by James against the CEO of a cryptocurrency company based on a fraudulent scheme to induce investors to deposit digital assets through false and misleading statements) The company (now a bankrupt company) refuses to dismiss the lawsuit. james vs score79 Misc.3d 1118 (NY 2023) (prohibiting towing companies from participating in predatory towing practices).
As I stated at the outset, I have no particular opinion as to whether AG James should have brought this case in the first place. I also don’t like when the state steps in and prevents someone from doing business in the state, especially when everyone knows that person isn’t being truthful. So if that opinion is wrong and reversed, I don’t care at all. However, since the state filed the lawsuit, it is not clear to me what part of Judge Engoron’s 92-page decision is legally incorrect. In any case, I am not an expert on this New York law, so if there are any specific issues that readers or others have, I would love to hear from you. If you could cite the page with the error and explain the problem, I’d love to hear about those specific objections.