# People v. Trump

> Appellate Division of the Supreme Court of the State of New York · August 21, 2025 · 2025 NY Slip Op 04756

URL: https://www.frixlaw.com/law-library/cases/11124810

## Case

- **Court:** Appellate Division of the Supreme Court of the State of New York
- **Decided:** August 21, 2025
- **Citations:** 2025 NY Slip Op 04756
- **Precedential status:** Published
- **Opinion:** Opinion by Moulton
- **Cited by:** 1 later opinions in the Frix Law Library

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## Opinion text

People v Trump (2025 NY Slip Op 04756)
People v Trump
2025 NY Slip Op 04756
Decided on August 21, 2025
Appellate Division, First Department
MOULTON, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: August 21, 2025
Dianne T. Renwick, P.J., Peter H. Moulton, David Friedman, John R. Higgitt, Llin é t M. Rosado
Index No. 452564/22|Appeal No. 2834-2835-2836|Case No. 2023-04925, 2024-01134, 2024-01135|
[*1]People of the State of New York, by Letitia James,
Attorney General of the State of New York, Plaintiff-Respondent,
v
Donald J. Trump, et al., Defendants-Appellants.
Robert & Robert, PLLC, et al., Nonparty-Appellants.
Jeffrey Supinsky, Witkoff, Rubin Schron, Haim Chera, South Carolina Attorney General on behalf of South Carolina, Alabama, Alaska, Florida, Iowa, Louisiana, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Utah, West Virginia, New Civil Liberties Alliance, Professor Philip Hamburger, Grant Cardone, Cardone Capital, Job Creators Network Foundation, The American Center for Law and Justice, Manhattan Institute for Policy Research, Citizens United, Citizens United Foundation, The Presidential Coalition, LLC, America's Future, Gun Owners of America, Inc., Gun Owners Foundation, Gun Owners of California, Free Speech Coalition, Free Speech Defense and Education Fund, U.S., Constitutional Rights Legal Defense and Education Fund, The Republican National Hispanic Assembly of New York and Tim Brown, Amici Curiae.
Defendants and certain
nonparties appeal from a Judgment, Supreme Court, New York County (Arthur F.
Engoron, J.), entered February 23, 2024, pursuant to an order, same court and
Justice, entered September 27, 2023, which, among other things, denied
defendants’ motion for summary judgment, granted plaintiff’s motion for partial
summary judgment on its first cause of action for a violation of Executive Law §
63(12) and granted plaintiff’s separate motion for sanctions against defendants’
counsel, and a posttrial order, same court and Justice, entered February 16,
2024, which, following a bench trial, found defendants liable under the second,
third, fourth, fifth, and seventh causes of action for violations of Executive
Law § 63(12), predicated on violations of New
York’s Penal Law, found defendants Allen Weisselberg and Jeffrey McConney liable
under the sixth cause of action for a violation of Executive Law § 63(12),
predicated on a violation of New York’s Penal Law, and awarded disgorgement in
the amount of $363,894,816, plus prejudgment interest, for a total amount of
$464,576,230.62, and extensive injunctive relief, the continuation of an
Independent Monitor, and the installation of an Independent Director of
Compliance.
Robert & Robert, PLLC, Uniondale (Clifford S. Robert and Michael Farina of counsel), James Otis Law Group, LLC, St. Louis, MO (Dean J. Sauer of the bar of the State of Missouri, admitted pro hac vice, of counsel), Continental PLLC, Tallahassee, FL (Christopher M. Kise of the bar of the State of Florida, admitted pro hac vice, of counsel), for President Donald J. Trump, Donald Trump Jr., Eric Trump, The Donald J. Trump Revocable Trust, The Trump Organization, Inc., Trump Organization LLC, DTJ Holdings LLC, DJT Holdings Managing Member, Trump Endeavor 12 LLC, 401 North Wabash Venture LLC, Trump Old Post Office LLC, 40 Wall Street LLC and Seven Springs LLC, appellants.
Habba Madaio & Associates, LLP, New York (Alina Habba and Michael Madaio of counsel), for President Donald J. Trump, Jeffrey McConney, The Donald J. Trump Revocable Trust, The Trump Organization, Inc., Trump Organization LLC, DTJ Holdings LLC, DJT Holdings Managing Member, Trump Endeavor 12 LLC, 401 North Wabash Venture LLC, Trump Old Post Office LLC, 40 Wall Street LLC and Seven Springs LLC, appellants.
Morian Law PLLC, New York (Armen Morian of counsel), for Allen Weisselberg, appellant.
Pollack, Pollack, Isaac & DeCicco, LLP, New York (Brian J. Isaac of counsel), and Law Offices of Michael S. Ross, New York (Michael S. Ross of counsel), for Robert & Robert, PLLC, Clifford S. Robert, Michael Farina, Continental PLLC, Christopher M. Kise, Armen Morian, Morian Law PLLC, Habba Madaio & Associates, LLP and Michael Madaio, appellants.
Letitia James, Attorney General, New York (Barbara D. Underwood, Daniel S. Magy, Judith N. Vale and Sarah Coco of counsel), for respondent.
Meister Seelig & Fein PLLC, New York (Stephen B. Meister of counsel), for Jeffrey Supinsky, Witkoff, Rubin Schron and Haim Chera, amici curiae.
Golden Law, Inc., New York (Andrew D. Cherasky of counsel) and Alan Wilson, Attorney General of South Carolina, Columbia, SC (Joseph D. Spate of the bar of the State of South Carolina, admitted pro hac vice, of counsel), for the States of South Carolina, Alabama, Alaska, Florida, Iowa, Louisiana, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Utah, West Virginia, amici curiae.
New Civil Liberties Alliance, Washington, DC (Gregory Dolin of the bar of the District of Columbia, admitted pro hac vice, of counsel), for New Civil Liberties Alliance, Professor Philip Hamburger, amici curiae.
Lucia Maria Ciaravino, Old Westbury, for Grant Cardone and Cardone Capital, amici curiae.
Murray-Nolan Berutti LLC, New York (Ronald A. Berutti of counsel), and America First Legal Foundation, Washington, DC (Reed D. Rubinstein, Andrew J. Block and Ryan T. Giannetti, of the bar of the District of Columbia, admitted pro hac vice, of counsel), for Job Creators Network Foundation, amicus curiae.
Law Offices of Alexander Lonstein, Ellenville (Alexander Lonstein of counsel), and American Center for Law & Justice, Washington, DC (Jay Alan Sekulow, Jordan A. Sekulow, Stuart J. Roth, Andrew J. Ekonomou, Walter M. Weber, Benjamin P. Sisney and Nathan J. Moelker of counsel), for the American Center for Law and Justice, amicus curiae.
The McBride Law Firm, PLLC, New York (Joseph Daniel McBride of counsel), and The Manhattan Institute for Policy Research, New York (Ilya Shapiro of counsel), for The Manhattan Institute for Policy Research, amicus curiae.
Harfenist Kraut & Perlstein, LLP, Lake Success (Steven J. Harfenist of counsel), William J. Olsen, P.C., Vienna, VA (William J. Olson and Jeremiah L. Morgan of counsel), Patrick M. McSweeney, Powhatan, VA, Mark J. Fitzgibbons, Manassas, VA, Law Office of Joseph W. Miller, LLC, Fairbanks, AK (Joseph W. Miller of counsel), Integrity Law Firm, PLLC, Lynchburg, VA (Rick Boyer of counsel), Citizens United, Washington, DC (Michael Boos and Daniel H. Jorjani of counsel) and Schilman, Leroy & Bennett, P.C., Nashville, TN (John I. Harri III of counsel), for Citizens United, Citizens United Foundation, The Presidential Coalition, LLC, America's Future, Gun Owners of America, Inc., Gun Owners Foundation, Gun Owners of California, Free Speech Coalition, Free Speech Defense and Education Fund, amici curiae.
Jed Rubenfeld, New Haven, CT and Alan Dershowitz, Cambridge, MA for The Republican National Hispanic Assembly of New York and Tim Brown, amici curiae.
Judgment, Supreme Court, New York County (Arthur F. Engoron, J.), entered February 23, 2024, pursuant to an order, same court and Justice, entered September 27, 2023, which, among other things, denied defendants' motion for summary judgment, granted plaintiff's motion for partial summary judgment on its first cause of action for a violation of Executive Law § 63(12) and granted plaintiff's separate motion for sanctions against defendants' counsel, and a posttrial order, same court and Justice, entered February 16, 2024, which, following a bench trial, found defendants liable under the second, third, fourth, fifth and seventh causes of action for violations of Executive Law § 63(12), predicated on violations of New York's Penal Law, found defendants Allen Weisselberg and Jeffrey McConney liable under the sixth cause of action for a violation of Executive Law § 63(12), predicated on a violation of New York's Penal Law, and awarded disgorgement against defendants Donald J. Trump, the Donald J. Trump Revocable Trust, The Trump Organization, Inc., Trump Organization LLC, DJT Holdings LLC, DJT Managing Member, Trump Endeavor 12 LLC, 401 North Wabash Venture LLC, Trump Old Post Office LLC, 40 Wall Street LLC, and Seven Springs, jointly and severally, in the amount of $168,040,168, plus prejudgment interest related to interest rate savings, awarded disgorgement against defendants Donald J. Trump the Donald J. Trump Revocable Trust, The Trump Organization, Inc., Trump Organization LLC, jointly and severally, in the amount of $126,828,600 plus prejudgment interest related to the sale of a lease, awarded disgorgement against Donald J. Trump, the Donald J. Trump Revokable Trust, The Trump Organization, Inc., Trump Organization LLC, jointly and severally, in the amount of $60,000,000 plus prejudgment interest related to the sale of a license, awarded disgorgement in the amount of $4,013,024 against each defendant Donald Trump Jr. and Eric Trump related to the sale of a lease, awarded disgorgement in the amount of $1,000,000 against defendant Allen Weisselberg related to an employment separation agreement, modified, on the law, to vacate the disgorgement awards in their entirety, to vacate the sanctions imposed on defendants' counsel, and otherwise affirmed, without costs. Appeals from aforesaid orders, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
Renwick, P.J and Moulton, J., concur in an Opinion by Moulton, J., Higgitt and Rosado, JJ., concur in part, and dissent in part in a separate Opinion by Higgitt, J., Friedman, J. concurs in part and dissents in part in a separate Opinion.
MOULTON, J.
(concurring)
Defendants appeal from two decisions (and the resulting judgment) holding that defendants violated Executive Law § 63(12) by repeatedly submitting deceptive business records to banks, insurance companies, and the New York City Parks Department.
Presiding Justice Renwick and I find that Supreme Court correctly found defendants liable. We agree with Supreme Court that the Attorney General acted well within her lawful power in bringing this action, and that she vindicated a public interest in doing so. We also find that Supreme Court properly ruled only on claims that are timely under the applicable statute of limitations. However, we would modify the remedy ordered by Supreme Court. While the injunctive relief ordered by the court is well crafted to curb defendants' business culture, the court's disgorgement order, which directs that defendants pay nearly half a billion dollars to the State of New York, is an excessive fine that violates the Eighth Amendment of the United States Constitution.
This decision is one of three issued by this Court today. Presiding Justice Renwick and I agree with our colleagues on certain points. Most importantly, we agree with Justice Higgitt, who is joined by Justice Rosado, that the Attorney General is empowered by Executive Law § 63(12) to bring this action. However, our remaining disagreements with our colleagues' decisions are profound. In sum, Justice Friedman finds that Supreme Court's rulings are infirm in almost every respect and would hold that the Attorney General had no power to bring this case under Executive Law § 63(12). He would dismiss the complaint outright. Justice Higgitt, while agreeing that the Attorney General had the power to bring this lawsuit, finds that errors made by Supreme Court require a new trial limited to only some of the transactions in question.
Respectfully, Presiding Justice Renwick and I cannot harmonize our approach with that of our colleagues. Justice Friedman's decision runs athwart our prior rulings in this case and misconstrues Executive Law § 63(12) and the case law that has interpreted that statute. While he justly criticizes comments made by the Attorney General about defendants when she was running for that office, he ignores that this issue has already been considered, and rejected, by this Court. Justice Higgitt's decision contains cogent criticisms of aspects of Supreme Court's two written decisions. However, this Court has the power to independently analyze the record made below in evaluating those decisions. That record amply justifies Supreme Court's findings of fact and conclusions of law. Returning this action to Supreme Court for a new trial as urged by Justice Higgitt is both unnecessary and likely terminal. It is difficult to imagine that a trial could proceed while one of the principal defendants, and a central witness, is President of the United States. The inevitable elapse of time and the attendant difficulties in recreating a vast record of testimony and documents — an exercise that is both Sisyphean and unneeded, because an extensive trial record already exists — would likely consign this meritorious case to oblivion.
Because none of the three decisions garners a majority, Justices Higgitt and Rosado join the decretal of this decision for the sole purpose of ensuring finality, thereby affording the parties a path for appeal to the Court of Appeals. Like Justice Friedman, we commend them for doing so. Unlike Justice Friedman, we do not find that this necessary measure is unfair to defendants. This Court previously imposed a stay on the judgment, a stay that defendants can seek to extend pursuant to CPLR 5519(e) until the Court of Appeals rules.
Procedural History
The Attorney General launched an investigation into the Trump Organization in March 2020 in the wake of Congressional Testimony by Michael Cohen, a former senior executive and attorney for the Trump Organization. [FN1] In this testimony, which was heavily covered in the press and social media, Cohen claimed, among other things, that President Trump "inflated his total assets when it served his purposes, such as trying to be listed amongst the wealthiest people in Forbes," and deflated them on other occasions when it was to his business advantage. [FN2] Cohen claimed that executives at various Trump entities essentially reverse-engineered President Trump's financial records to reflect valuations chosen by President Trump. Cohen submitted three years of President Trump's personal financial statements, which are referred to as "statements of financial condition," to support his testimony (Cohen's Oversight Committee Testimony at 10, 13), and he noted that inflated statements were provided to financial institutions such as Deutsche Bank ( id. at 10, 13, 39) to obtain better loan terms for Trump entities.
President Trump's statements of financial condition (referred to herein as SFCs) are at the heart of this litigation. As a private person leading nonpublic business entities, President Trump's SFCs were not publicly available. However, Cohen's very public testimony changed that, and thrust hitherto private business practices of President Trump and the Trump Organization into the public arena. [FN3] Justice Friedman correctly points out that Cohen is a "convicted perjurer," but many investigations, whether civil or criminal, begin with just such a compromised, implicated, and knowledgeable insider. Certainly, Cohen's information led to avenues of investigation.
In August 2020, the Attorney General initiated a Special Proceeding in Supreme Court to compel production of documents and testimony, and to oversee compliance with her investigatory subpoenas (the Special Proceeding). The Special Proceeding was assigned to Justice Arthur F. Engoron in Supreme Court in Manhattan.
After reviewing millions of pages of documents and interviewing more than 65 witnesses, the Attorney General commenced this action in 2022, claiming that defendants engaged in a decade-long pattern of financial fraud. Defendants are President Trump, the Trump Organization, several LLCs, DJT Holdings Managing Member, and the Donald J. Trump Revocable Trust (of which President Trump is the sole beneficiary). The Attorney General also sued the following individuals in the Trump Organization: executives Donald Trump, Jr. and Eric Trump, former executive vice president Ivanka Trump, Chief Financial Officer Allen Weisselberg, and Controller Jeffrey McConney. The matter was assigned to Justice Engoron as a related case.
According to the complaint, defendants' fraudulent actions entailed submitting President Trump's inflated SFCs to lenders and others for the purpose of obtaining favorable business deals in New York. The complaint alleges that the SFCs inflated President Trump's net worth by as much as $2.2 billion per year, employing various deceptive strategies that inflated the "estimated current value" of President Trump's assets. The complaint also alleges that defendants violated United States generally accepted accounting principles (GAAP).
All causes of action in this lawsuit are based on Executive Law § 63(12). Passed by the New York State Legislature in 1956, Executive Law § 63(12) is a "broadly worded anti-fraud provision[]" ( People v Greenberg , 21 NY3d 439, 446 [2013]). It applies to all fraudulent or illegal business activity within New York State ( see National Coalition on Black Civic Participation v Wohl , 661 F Supp 3d 78, 132 [SD NY 2023]). The statute provides the Attorney General with the authority to regulate businesses in New York "in the interest of securing an honest marketplace" ( People v Coventry First LLC , 52 AD3d 345, 346 [1st Dept 2008], affd 13 NY3d 108 [2009]). As discussed at length below, the statute does not require proof of all the elements of common-law fraud.
Less than one month after filing the complaint, the Attorney General moved for a preliminary injunction against certain defendants and for the appointment of an independent monitor to oversee the Trump Organization. In opposition, defendants argued, among other things, that the Attorney General lacked standing and capacity to bring this action pursuant to Executive Law § 63(12), and that the SFCs contained disclaimers which precluded a finding that the commercial counterparties had reasonably relied on them.
On November 3, 2022, Supreme Court entered a preliminary injunction order (the Preliminary Injunction Order) that directed the appointment of a monitor and prohibited defendants from selling, transferring, or otherwise disposing of non-cash assets without notice to the Attorney General and the court ( see People v Trump , 2022 NY Slip Op 33771[U] [Sup Ct, NY County 2022]). The court found that the Attorney General had standing and capacity to bring this action, reasoning that the Legislature had specifically empowered her to bring the suit by enacting section 63(12) and that disgorgement was an available remedy even in the absence of individual losses incurred by counterparties to the relevant deals. The court also concluded that the Attorney General was likely to succeed on the merits. Defendants did not appeal the Preliminary Injunction Order.
Shortly thereafter, defendants separately filed five pre-answer motions to dismiss the complaint on various grounds, including the Attorney General's lack of authority, the statute of limitations, and lack of personal jurisdiction. On January 4, 2023, Supreme Court contacted the parties by email regarding potential sanctions against defendants' counsel for repeating arguments relating to the Attorney General's standing, capacity to sue, and authority to seek the remedy of disgorgement. The court viewed those issues as already decided by the Preliminary Injunction Order.
By order entered January 6, 2023, Supreme Court denied defendants' motions to dismiss ( see People v Trump , 2023 NY Slip Op 30027[U] [Sup Ct, NY County 2023]). The court did not sanction defendants' counsel. However, with respect to defendants' arguments that the Attorney General did not have capacity to sue, the court noted that these arguments were "borderline frivolous" the first time they were made in opposition to the motion for a preliminary injunction and that Executive Law § 63(12) was "tailor-made" for enforcement actions such as this one ( id. at *3).
In denying defendants' motion to dismiss, the court found that the complaint was not time-barred against any defendant because the continuing wrong doctrine "potentially" applied to the case. The court rejected Ivanka Trump's argument that she should be dismissed from the action, concluding that the Attorney General had sufficiently alleged her involvement in defendants' fraudulent and illegal scheme. The court also rejected defendants' argument that the claims should have been subject to the heightened pleading requirement for common-law fraud, noting that Executive Law § 63(12) claims are "premised on deceptive acts or practices that do not include intent or reliance as an element of those claims" ( id. at *6 [internal quotation marks omitted]).
By order dated June 27, 2023, this Court modified Supreme Court's order but allowed the case to proceed ( see People v Trump , 217 AD3d 609 [1st Dept 2023]) ( Trump I ). Trump I dismissed as time-barred the claims against Ivanka Trump. In addition, Trump I dismissed the claims against the remaining defendants subject to an August 2021 tolling agreement to the extent that they accrued prior to July 13, 2014, or, if defendants were not subject to the agreement, dismissed the claims to the extent that they accrued prior to February 6, 2016 ( id. at 611-612). [FN4] This Court modified the caption to reflect that Donald J. Trump, Jr., was sued both personally and in his capacity as trustee for the Donald J. Trump Revocable Trust, and otherwise affirmed ( id. at 612).
On August 30, 2023, the Attorney General filed a motion for partial summary judgment as to liability on the first cause of action for violation of Executive Law § 63(12). The Attorney General's motion was limited to defendants' submission of allegedly false and misleading SFCs and certification of their accuracy "to defraud banks and insurers." The Attorney General submitted evidence regarding five loans (three loans from Deutsche Bank, one loan from Ladder Capital Finance LLC, and one loan from Royal Bank of Pennsylvania/Bryn Mawr). She also submitted evidence regarding a surety bond program from Zurich (the Zurich Policy) and Directors & Officers insurance (the D&O Policy) from Tokio Marine HCC (HCC). Defendants (who no longer included Ivanka Trump) opposed the motion, moved for summary judgment dismissing most claims as time-barred based on Trump I, and sought dismissal of the remaining claims on other grounds. Among other things, defendants argued that the Attorney General abandoned her arguments regarding the Ferry Point License, which was executed in 2012, and was not mentioned in her summary judgment papers. Defendants also argued that the evidence conclusively established that there was no legal or factual basis to maintain an Executive Law § 63(12) claim, because the counterparties to the transactions never complained or viewed defendants' submissions as fraudulent, and because the record was devoid of evidence of harm. The Attorney General opposed, but did not respond to defendants' argument that the contract for the Ferry Point License was time-barred.
On September 5, 2023, the Attorney General filed a separate motion for sanctions against defendants' counsel for raising arguments on summary judgment that were previously rejected below or on appeal. Defendants opposed, asserting that the standard of review and the evidence available when they had opposed the preliminary injunction motion differed from the standard of review and evidence available in the later summary judgment motion. According to defendants, the evidence proffered on summary judgment demonstrated that the Attorney General could not establish fraud, entitlement to relief, or a legitimate statutory interest under Executive Law § 63(12).
By order entered September 26, 2023, Supreme Court granted the Attorney General's motion for partial summary judgment on the first cause of action and denied defendants' motion for summary judgment dismissing the complaint ( see People v Trump , 2023 NY Slip Op 33314 [U] [Sup Ct, NY County 2023]) (the Summary Judgment Order). The court found that the Attorney General demonstrated that defendants "repeatedly submitted fraudulent financial documents to obtain financial benefits which otherwise they would not have received" in their business dealings by fraudulently overvaluing assets between $812 million to $2.2 billion ( id. at *5, *19).
In the Summary Judgment Order, Supreme Court reiterated its prior holdings that the Attorney General had standing and capacity to bring the action, and that disgorgement was available notwithstanding defendants' arguments that there was no default, no complaint about the deals from any of the counterparties, and very few claims that were timely under the applicable statute of limitations. Concerning the statute of limitations, the court rejected defendants' argument that the claims accrued when the parties initially entered the transactions, i.e., when the loans closed. Rather, relying on the continuing wrong doctrine, the court reasoned that because a review of each SFC would require a separate exercise of judgment, a new claim would accrue each time defendants used a separate SFC. The court additionally reasoned that the "plain language" of Executive Law § 63(12) supported the conclusion that the claims accrued when each SFC was used because each statement involved a separate and distinct fraudulent or illegal act ( id. at *18). Because Supreme Court also found that all remaining defendants were bound by the Tolling Agreement, it concluded that all claims based on SFCs submitted after July 13, 2014, were timely.
As a result of these violations, the court ordered the cancellation of corporate certificates filed under General Business Law § 130 for Trump entities and directed the parties to recommend potential receivers to manage the dissolution. The court also ordered the continuation of the independent monitorship. Finally, the court sanctioned counsel in the Summary Judgment Order in the amount of $7,500 per each counsel for raising frivolous arguments which intentionally disregarded controlling authority and law of the case. The court reserved for trial the issue of liability on the second through seventh causes of action and the amount of disgorgement.
In an emergency appeal to this Court, defendants sought to delay the trial and suspend the cancelation of corporate certificates. This Court declined to delay the trial, but it did place a stay on cancellation of the corporate certificates. That remedy was ultimately not ordered by Supreme Court and is not at issue herein.
From October 2, 2023, to December 13, 2023, Supreme Court presided over an 11 week bench trial which included testimony from 40 witnesses, hundreds of exhibits, and almost 7,000 pages of trial transcript. On February 16, 2024, the court issued a posttrial order (Posttrial Order) (2024 NY Slip Op 30493[U] [Sup Ct, NY County 2024]). The court found that defendants violated five of the six remaining Executive Law § 63(12) claims, which all concerned Penal Law violations discussed below (falsifying business records, issuing false financial statements, conspiracy to falsify business records, conspiracy to issue false financial statements, and conspiracy to commit insurance fraud). Supreme Court also determined that Weisselberg and McConney were liable on the sixth cause of action for a violation of Executive Law § 63(12), predicated on the Penal Law's insurance fraud prohibition. As discussed below, proving the elements of such Penal Law violations is how the Attorney General may demonstrate "illegality," as opposed to fraud, "in the carrying on, conducting or transaction of business" under Executive Law § 63(12).
Supreme Court awarded disgorgement in a combined amount of $464,576,230.62 ($363,894,816.00 of what the court called "ill-gotten gains" and $100,681,414.62 in prejudgment interest). Because the court found that defendants were likely to commit future misconduct, it issued broad injunctive relief. The court cited to evidence that defendants had engaged in repeated and persistent fraud and illegality, that violations persisted even after the appointment of the monitor, that defendants lacked adequate corporate governance or internal controls to prevent fraud, and that defendants would not accept responsibility for their misconduct. Accordingly, Supreme Court (1) enjoined President Trump and the corporate defendants from applying for loans from any financial institution chartered by or registered with the New York State Department of Financial Services for three years, (2) barred President Trump, Weisselberg, and McConney from serving as corporate officers or directors in New York for three years, and barred Donald Trump Jr. and Eric Trump from doing so for two years, (3) permanently prohibited Weisselberg and McConney from serving in financial management roles in New York, (4) extended the independent monitor's term for three years, and (5) required the Trump Organization to retain an independent director of compliance. Supreme Court modified its Summary Judgment Order to the extent of removing the language ordering the cancellation of business certificates, finding that this relief was no longer necessary, and that the "restructuring and potential dissolution of any LLCs shall be subject to individual review by the Court appointed Independent Director of Compliance" ( id. at *89) in consultation with the court appointed monitor.
Judgment was entered on February 23, 2024, in favor of the Attorney General in the amount of $464,576,230.62 and included the Posttrial Order injunctive relief (the Judgment). This appeal ensued.
By notices dated February 26, 2024, defendants appealed from the Posttrial Order and the Judgment. Two days later, on February 28, 2024, defendants moved by order to show cause for a stay of enforcement of the Judgment pending their appeals. Among other things, defendants maintained that it would be impossible to secure a bond covering the full amount of the Judgment and that defendants would be irreparably injured if forced to sell their real estate holdings in a fire sale to secure the bond. The Attorney General opposed the motion.
On that day, a single justice of this Court denied the stay with respect to enforcement of the money judgment but granted an interim stay of the Judgment to the extent, inter alia, that defendants could not serve as corporate officers or directors in New York. On March 25, 2024, a full bench granted a stay with respect to the bulk of the Judgment, including to the extent the Judgment ordered disgorgement to the Attorney General of $464,576,230.62. The stay was conditioned on defendants posting an undertaking in the amount of $175 million and perfecting the appeals for the September 2024 Term. Defendants posted the bond and timely perfected the appeals.
By order dated March 14, 2024, this Court denied a motion by defendants' counsel to sever the sanctions appeal from defendants' appeal of the Summary Judgment Order. After more motion practice, in a June 25, 2024 order, this Court consolidated the appeals from the Summary Judgment Order, the Posttrial Order, and the Judgment into this appeal. The parties filed briefs and a record that spans 49,280 pages. [FN5]
Discussion
A. The Scope of Executive Law § 63(12)
Executive Law § 63(12) gives the Attorney General extensive powers to police commercial transactions in New York State. As previously explained, Executive Law § 63(12) is a "broadly worded anti-fraud provision[]" ( Greenberg , 21 NY3d at 446) that applies to all fraudulent or illegal business activity within New York State (s ee Wohl , 661 F Supp 3d at 132). The statute provides the Attorney General with the authority to regulate businesses in New York "in the interest of securing an honest marketplace" ( Coventry First LLC , 52 AD3d at 346). As discussed below, the statute does not require proof of all the elements of common-law fraud.
Before setting forth the elements of an Executive Law § 63(12) claim, and applying those elements to the factual record established below, we must first deal with a fundamental question of the statute's reach raised by defendants in their motion for summary judgment.
Defendants and Justice Friedman assert that the Attorney General exceeded her powers and misused the Executive Law in continuing this action after it became clear from discovery that defendants did nothing wrong. Because all of the transactions that underlie this case were private bilateral deals between sophisticated parties who were satisfied with the results, defendants argue that the transactions are beyond the scope of Executive Law § 63(12), which is a statute that can only be used to vindicate a public interest. According to defendants, because the private deals at issue did not affect the public, the Attorney General has no power to scrutinize them. Defendants depend on this premise to argue, variously, that the Attorney General lacks standing, or capacity to sue, and/or that the complaint fails to state a claim.
We agree that the Attorney General must demonstrate a public nexus before invoking her broad powers under Executive Law § 63(12). Executive Law § 63(1) provides that the Attorney General "shall . . . [p]rosecute and defend all actions and proceedings in which the state is interested . . . in order to protect the interest of the state."
However, this Court has already ruled in Trump I that the facts of this case warrant the application of Executive Law § 63(12), and that the Attorney General is vindicating the public interest in challenging the transactions in question ( see People v Trump , 217 AD3d at 610). The law of the case doctrine "is designed to eliminate the inefficiency and disorder that would follow if courts of coordinate jurisdiction were free to overrule one another in an ongoing case" ( People v Evans , 94 NY2d 499, 504 [2000]). This Court departs from the doctrine only when a prior holding is clearly erroneous, or where there has been a change in law or evidence ( see Gliklad v Cherney , 140 AD3d 598, 598 [1st Dept 2016]). None of those circumstances are present here. Defendants cannot relitigate the issue of the scope of Executive Law § 63(12) under the guise that Trump I that was decided at the motion to dismiss stage (where the Attorney General is entitled to the presumption of the truth of her allegations and the benefit of all favorable inferences), as opposed to the summary judgment stage (where the Attorney General is held to the record evidence). Both stages involved the same alleged facts: "sophisticated, private parties" who engaged in the same "complex, bi-lateral commercial transactions." If defendants' arguments pertaining to the scope of Executive Law § 63(12) were persuasive, we would have dismissed the complaint in Trump I because the Attorney General would not have had the standing or capacity to pursue the case and would not have alleged "facts in support of an element of the claim" or "an enforceable right of recovery" ( Connaughton v Chipotle Mexican Grill, Inc ., 29 NY3d 137, 142 [2017] [motion court properly dismissed the plaintiff's complaint for failure to state a fraudulent inducement claim because actual harm was an element of the tort and the plaintiff's claims did not involve any out-of-pocket losses]).
In a futile attempt to discard the ruling in Trump I , which is now law of the case, Justice Friedman advances three arguments. First, according to Justice Friedman, Trump I does not bind us under that doctrine because that appeal involved a pre-answer motion to dismiss. Second, he argues that Trump I does not bind us because it did not "state" that the Attorney General could ultimately prevail without establishing some sort of state interest. Third, he argues that Trump I does not bind us because it did not "state" that it was the Court's intention to relieve the Attorney General of her burden to "prove" her standing under the common-law doctrine of parens patriae (which, like Executive Law § 63[12], permits a state to commence an action to protect the public interest).
That Trump I resulted from the appeal of a pre-answer motion to dismiss is of no moment. Standing "is a threshold issue" ( Saratoga County Chamber of Commerce v Pataki , 100 NY2d 801, 812 [2003], cert denied 540 US 1017 [2003]). [FN6] Supreme Court recognized that "legal standing and capacity to sue are threshold litigation questions of justiciability" when it rejected defendants' standing and capacity arguments ( see People v Trump , 2023 NY Slip Op 30027[U], *3). It is therefore no surprise that defendants' appellate brief in Trump I addressed this threshold issue, asserting that "the Complaint fails to identify any quasi-sovereign interest in the public's well-being, much less one that touches a substantial segment of the population, and neglects to vindicate any right that is separate and apart from the interests of private corporate titans," and that "the Complaint makes clear the only involved parties are a select few major banks and insurers who engaged in a discrete number of complex, bi-lateral transactions . . . [which are] simply not a 'substantial segment of the population,' nor can any alleged wrongdoing against a limited subset of sophisticated private parties to complex commercial agreements possibly implicate the public interest."
In rejecting defendants' very prominent arguments regarding the Attorney General's lack of authority to litigate this case, Trump I affirmed Supreme Court's denial of defendants' standing and capacity arguments, holding that:
"The Attorney General is not suing on behalf of a private individual, but is vindicating the state's sovereign interest in enforcing its legal code — including its civil legal code — within its jurisdiction ( see Alfred L. Snapp & Son, Inc. v Puerto Rico ex rel. Barez , 458 US 592, 601 [1982]; see also People v Coventry First LLC, 52 AD3d 345, 346 [1st Dept 2008] [finding that claims including a claim under Executive Law § 63(12) 'constituted proper exercises of the State's regulation of businesses within its borders in the interest of securing an honest marketplace'], affd 13 NY3d 108 [2009])" ( Trump I , 217 AD3d at 610).
We agree with Justice Friedman that we must not close our eyes to the fact that the parties are sophisticated or that the transactions involve complex bilateral commercial agreements ( HSH Nordbank AG v UBS AG ,95 AD3d 185, 207 [1st Dept 2012] [common-law fraud claim brought by sophisticated German bank was dismissed for legal insufficiency]). Clearly, Trump I did not ignore what the complaint made plain from the outset of this case nearly three years ago: that the section 63(12) claims have always involved "sophisticated, private parties" engaged in "complex, bi-lateral commercial transactions." These facts did not change because, as Justice Friedman argues, we now have a "fully developed evidentiary record" which is "tens of thousands of pages." That record still centers around the same "sophisticated, private parties" engaged in the same "complex, bi-lateral commercial transactions."
Justice Friedman's reliance on People v Grasso (11 NY3d 64, 69 n 4 [2008]), for the proposition that the Attorney General must "prove" a quasi-sovereign interest distinct from that of a particular party under the common-law doctrine of parens patriae, fares no better. There, the existence of a quasi-sovereign interest was determined at the outset of the case by reviewing the allegations in the complaint ( see id. at 66-67). The Court of Appeals used the word "prove," but the decision did not cite or consider any evidentiary proof ( see id . at 69 n 4). In fact, Grasso relied on Alfred L. Snapp & Son, Inc. v Puerto Rico (458 US 592, 607 [1982]), which like Grasso , determined the existence of a quasi-sovereign interest at the outset of the case by reviewing the allegations in the complaint ( see Alfred L. Snapp & Son Inc. , 458 US at 609). In lieu of using the word prove, Alfred L. Snapp & Son, Inc. used the words "articulate" or "express" to explain the common-law doctrine of parens patriae:
"In order to maintain such an action, the State must articulate an interest apart from the interests of particular private parties, i.e., the State must be more than a nominal party. The State must express a quasi-sovereign interest. Although the articulation of such interests is a matter for case-by-case development — neither an exhaustive formal definition nor a definitive list of qualifying interests can be presented in the abstract — certain characteristics of such interests are so far evident. These characteristics fall into two general categories. First, a State has a quasi-sovereign interest in the health and well-being — both physical and economic — of its residents in general. Second, a State has a quasi-sovereign interest in not being discriminatorily denied its rightful status within the federal system" ( Alfred L. Snapp & Son, Inc. , 458 US at 607). [FN7]
Even if Trump I had not already rejected defendants' argument, we would have no problem doing so at this juncture. It is simply not the case, as defendants and Justice Friedman argue, that if the counterparties to a financial transaction do not complain or bring suit, then there is no role for a governmental actor such as the Attorney General empowered by appropriate legislation to scrutinize the transaction in question in order to protect the market in which the transaction is embedded. Defendants' argument appears to rest on the premise that market actors will police themselves and, if sophisticated parties in a business transaction walk away happy, governmental intervention of any kind is illegitimate. If that were the case, we would have no antitrust law, no Securities and Exchange Commission, and no Martin Act, to cite three examples among many. In some circumstances fraudulent or illegal business conduct occurs in the absence of any harm to a counterparty. It might be too costly for the counterparty to pursue a claim. Additionally, a counterparty may have little incentive to pursue a claim because its interests are aligned with the fraudster's, rather than with the public's. Justice Friedman questions how a counterparty could be defrauded if its interests are aligned with the fraudster's. Notably, this question overlooks the purpose of Executive Law § 63(12) which is to protect the public at large from fraud and illegality.
A governmental entity with a legislative mandate may determine that it needs to intervene precisely when sophisticated counterparties reap gains with no evident effect on the public, if one or both of the counterparties do so by engaging in fraudulent or illegal behavior that could cascade in subsequent transactions into disaster. We have, in the not-too-distant past, the wreckage of the residential mortgage-backed securities market in the first decade of this century and the ensuing Great Recession as examples of government's failure to attend to market hygiene. Faced with the very public Congressional testimony of Michael Cohen, the Attorney General had the power under the Executive Law to investigate whether the transactions in question were infected by fraud or illegality, and, if they were, to seek redress from the actors responsible for the fraud and illegality. This power to deter defendants, and others, from engaging in future malfeasance in New York's credit markets, is within the core purpose of the statute. [FN8] The Legislature could find that prophylactic intervention in markets can avert harm to the public at large.
According to Justice Friedman, all we have before us are "run-of-the-mill transactions," allegations from Michael Cohen that "were no different than those made in hundreds of business tort actions filed in this state every year," and Michael Cohen's testimony about the SFCs that were "no more compelling than the allegations in hundreds of lawsuits pending in New York County." We disagree. Given the context in which this case arose nothing here was "run-of-the-mill." Once Cohen testified before Congress, and alleged that President Trump inflated his assets in conducting New York business, the Attorney General's "interest of securing an honest marketplace" in which to conduct business in New York was implicated ( Coventry First LLC , 52 AD3d at 346), as well as her interest in securing a "marketplace that adheres to standards of fairness" ( New York v Amazon.com, Inc. , 550 F Supp 3d 122, 131 [SD NY 2021]).
Defendants and several amici argue that the Attorney General's use of Executive Law § 63(12) constitutes too broad a conferral of power, and that this case represents an exercise of governmental overreach that will have a severely negative effect on New York's business environment. It is not the role of courts to determine the wisdom of economic oversight and intervention allowed by the Legislature, so long as such interventions do not run afoul of the state or federal constitutions. The Lochner era in the early years of the twentieth century provides a cautionary example of damage caused by court-made economic doctrine. [FN9] Our job here is simply to determine if the legislature gave the Attorney General power to use Executive Law § 63(12) as she did herein. Courts "must read statutes as they are written and, if the consequence seems unwise, unreasonable or undesirable, the argument for change is to be addressed to the Legislature, not to the courts" ( People v Kupprat , 6 NY2d 88, 90 [1959]; see also Morales v County of Nassau , 94 NY2d 218, 224 [1999]; Jensen v General Elec. Co ., 82 NY2d 77, 84 [1993]). Thus, "[w]here the practical construction of a statute is well known, the Legislature is charged with knowledge and its failure to interfere indicates acquiescence" ( Engle v Talarico , 33 NY2d 237, 242 [1973]).
It is not surprising that the amici supporting defendants have a different view. Their predictions of future harm to New York's business communities, and thus to the public interest, are based in general preferences for less governmental intervention in markets. That is not to say that their point of view is invalid; only that their predictions are based in a certain economic agenda and not in undisputed fact. If New York's business communities are concerned that the Executive Law gives the Attorney General too much power, then their remedy is to persuade the Legislature to cabin that power. It is worth noting that the Legislature has long been aware of section 63(12)'s critics, who, like defendants, have claimed that the statute gives the Attorney General too much power. [FN10] Notably, the statute has never been amended to circumscribe the Attorney General's power. [FN11] As Justice Friedman points out, Executive Law § 63(12) cases have predominately involved the interests of consumers or investors. However, the statute does not textually limit the type of case that the Attorney General may bring "in the name of the people of the state of New York" (Executive Law § 63[12]).
Justice Friedman finds, in conclusory fashion, that certain statements made by the Attorney General before she assumed that office demonstrate that "this action certainly appears to constitute an instance of selective enforcement of section 63(12) in retaliation for President Trump's exercise of his First Amendment right to participate in the political process." These statements included criticisms of President Trump, asserting that he was "incompetent," and "ill-equipped to be president." She also stated, among other things, that she had her "eyes on Trump Tower" and on the business practices of defendants. One can reasonably question whether a candidate running for the top law enforcement position in statewide government should make such pointed statements. However, soon after her election, the Attorney General was confronted by Michael Cohen's Congressional testimony. Refusing to investigate because of any appearance of bias that may have been caused by her earlier campaign remarks would have been a derogation of duty. In all events, this Court has already put this issue to rest.
Justice Friedman exhumes this constitutional argument even though we previously rejected it in the Special Proceeding and on the prior appeal of the motion to dismiss. Defendants did not make this argument on their motion for summary judgment, or at trial, or on this appeal. "It is well settled that an appellate court's scope of review is generally limited to those issues that have been appealed" because litigants should not "be blindsided by a decision based on issues not even raised or addressed in their briefs, as to implicate due process concerns" ( McHale v Anthony , 41 AD3d 265, 266-267 [1st Dept 2007]; see also Williams v State of New York , 235 AD2d 776, 777 [3d Dept 1997], lv denied 90 NY2d 806 [1997] [constitutional issues not raised on appeal are deemed abandoned]). [FN12] Moreover, constitutional issues not raised at summary judgment or at trial are unpreserved for appellate review ( see Matter of East 85th Garage LLC v New York City Dept. of Bldgs ., 233 AD3d 535, 536 [1st Dept 2024] [constitutional argument based on the Eighth Amendment of the United States Constitution was not raised at an OATH hearing, and therefore was unpreserved for appellate review]). [FN13]
The evidence relied upon by Justice Friedman is the same evidence that defendants proffered in support of their motions to quash various subpoenas in the related Special Proceeding. On their appeal from Supreme Court's denial of their motions to quash, defendants referenced, as Justice Friedman does here, "the many inappropriate public statements made by Ms. James [that] demonstrates her unrequited bias," and that those statements demonstrated that she acted with "malicious[,] bad faith intent" and the intent to "inhibit or punish [defendants] constitutional rights—namely those afforded under the First Amendment—since it is clear that she impermissibly targeted them based on their political views, affiliations, ideologies and/or beliefs, which are diametrically opposed to her own."
However, this Court rejected that argument, holding that:
"To the extent a selective prosecution claim may, in some circumstances, defeat a subpoena in a civil investigation, the court properly rejected appellants' arguments. A claim of selective prosecution requires a showing "that the law has been administered 'with an evil eye and an unequal hand'" ( People v Goodman , 31 NY2d 262, 269 [1972], quoting Yick Wo v Hopkins , 118 US 356, 373-374 [1886]). A party must show that it was selectively treated, compared with others similarly situated, and that such treatment was based on impermissible considerations ( see Bower Assoc. v Town of Pleasant Val ., 2 NY3d 617, 631-632 [2004]). OAG began its investigation after public testimony of a senior corporate insider and reviewed significant volumes of evidence before issuing the subpoenas. Appellants have not identified any similarly implicated corporation that was not investigated or any executives of such a corporation who were not deposed. Therefore, appellants have failed to demonstrate that they were treated differently from any similarly situated persons ( see id . at 632; compare Matter of 303 W. 42nd St. Corp. v Klein , 46 NY2d 686, 696 [1979] [the petitioner established selective prosecution by showing at least 21 similarly situated entities that had been treated more favorably])" ( Matter of People v Trump Org., Inc ., 205 AD3d 625, 626-627 [1st Dept 2022]).
Defendants again raised a selective prosecution argument in this action when they moved to dismiss the complaint. This was proper given that the issue was previously decided in a different context: that is, in opposition to a prelitigation investigation. In the instant action, defendants again argued that the Attorney General misused Executive Law § 63(12) "as applied" to defendants because she selectively prosecuted them in violation of the Equal Protection Clause of the United States and New York State Constitutions. Bower Assoc. v Town of Pleasant Val . (2 NY3d 617 [2004]), which was cited in Matter of People v Trump Org., Inc . (205 AD3d at 627), is instructive. In Bower Assoc. , the Court of Appeals opined that "a violation of equal protection arises where first , a person (compared with others similarly situated) is selectively treated and second , such treatment is based on impermissible considerations such as race, religion, intent to inhibit or punish the exercise of constitutional rights, or malicious or bad faith intent to injure a person" (2 NY3d at 631). Whether someone is similarly situated depends on "whether a prudent person, looking objectively at the incidents, would think them roughly equivalent" ( id . [internal quotation marks omitted]). However, even if someone is similarly situated, "[w]hat matters is impermissible motive: proof of action with intent to injure—that is, proof that the applicant was singled out with an evil eye and an unequal hand, so as practically to make unjust and illegal discriminations between persons in similar circumstances" ( id. [internal quotation marks omitted]).
Given this relevant standard, defendants argued in their motions to dismiss that the Attorney General singled them out with "an unequal hand," because she had not previously intervened in private transactions to enforce the contract rights of sophisticated parties, and that she did so with "an evil eye," as proven by her statements as a political candidate to fulfill a personal and political agenda. However, Trump I , which is now law of the case, did not dismiss the complaint when faced with these arguments. That is not surprising because 1) a novel application of a statute is not evidence that defendants were treated differently than a similarly implicated person or organization and 2) no facts changed between the decision in Matter of People v Trump Org., Inc . and Trump I to show that defendants "were treated differently from any similarly situated persons" ( Trump Org., Inc. , 205 AD3d at 627).
Defendants also raised and lost a First Amendment argument in federal court. Attempting to outflank the Attorney General's investigation, defendants brought a declaratory judgment action in the Northern District of New York against the Attorney General, alleging, among other things, that she commenced the Special Proceeding against them in bad faith and without a legally sufficient basis in violation of the due process clause of the Fourteenth Amendment and in retaliation for President Trump's political views in violation of the First Amendment ( see Trump v James , 2022 US Dist LEXIS 95250 [ND NY, May 27, 2022, No. 1:21-cv-1352 (BKS/CFH)]). The District Court dismissed the complaint based on, among other things, defendants' failure to establish that the bad faith exception to the Younger abstention doctrine applied. [FN14] The District Court found that "the subpoena enforcement proceeding has a legitimate factual predicate" noting, among other things, that "the investigation was opened" following the Congressional testimony of Michael Cohen ( id . at *38). The federal court also reasoned that "[w]hile [the Attorney General's] public statements make clear that she disagrees vehemently with Mr. Trump's political views, Plaintiffs do not identify what protected speech or conduct [the Attorney General] allegedly retaliated against them for or demonstrate any causal connection between any such protected activity and the decision to commence the subpoena enforcement proceeding" ( id . at *39). Consequently, that case was dismissed.
If the constitutional arguments had any merit, defendants and their sophisticated counsel would have placed the issue squarely before us. In any event, defendants' argument that this case does not implicate a public interest does not, in turn, implicate constitutional concerns. Defendants concern about future viewpoint discrimination only implicates the constitutional concern that we, as judges, do not render advisory opinions, especially where the issues are not before us.
Justice Friedman invokes Gonzalez v Trevino (602 US 653 [2024]), but that case does not support his position. The plaintiff in Gonzalez, a recently elected office holder, alleged that her First Amendment rights were abridged by a retaliatory arrest orchestrated by her political opponents. The general rule in retaliatory arrest cases is that a plaintiff must plead and prove the absence of probable cause for the arrest. Gonzalez involved an exception to that general rule, known as the " Nieves " exception, articulated in Nieves v Bartlett (587 US 391 [2019]). Under the Nieves exception, the presence of probable cause does not defeat a plaintiff's constitutional claim if the plaintiff "presents objective evidence that he was arrested when otherwise similarly situated individuals not engaged in the same sort of protected speech had not been" ( id. at 407). The Nieves exception was created because officers can use their discretion not to arrest someone where probable cause exists and "an unyielding requirement to show the absence of probable cause could pose a risk that some police officers may exploit the arrest power as a means of suppressing speech" ( id. at 406 [internal quotation marks omitted]). Gonzalez merely clarified that the Nieves exception does not demand "virtually identical and identifiable comparators" ( Gonzalez , 602 US at 658).
Justice Friedman seizes on Gonzalez's reasoning that a plaintiff is more likely to fall within the Nieves exception where "the criminal prohibition is longstanding and the conduct is not novel" yet the officer exercises his or her discretion to arrest the plaintiff but not the similarly situated comparators ( id . at 658). In Justice Friedman's view, because this case involves a new application of Executive Law § 63(12) and because defendants' conduct is not novel but "typical" of the real estate industry, the Attorney General must have brought this action in retaliation for defendants' exercise of their First Amendment rights.
Justice Friedman's invocation of Gonzalez fails for several reasons. First, Justice Friedman's argument is based on his view that this case does not involve a public interest. Four Justices of this Court disagree, as well as the panel in Trump I . Second, Gonzalez is a case that concerns the burden of proof in pleading a retaliatory arrest case, which is not at all what this case is about. The Nieves exception was created because in retaliatory arrest cases the plaintiff usually has the burden to plead and prove the absence of probable cause. Here, no one argues that defendants bear the burden to plead and prove the absence of a public interest. Third, unlike Gonzalez , defendants have not produced evidence that they were treated differently from any comparators. Here, the unusual application of the statute is readily explained by the unusual facts of this case, which includes Michael Cohen's testimony before Congress. Finally, Justice Friedman's position overlooks that "[w]here false claims are made to effect a fraud or secure moneys or other valuable considerations, say, offers of employment, it is well established that the Government may restrict speech without affronting the First Amendment" ( United States v Alvarez , 567 US 709, 723 [2012]).
Justice Friedman also speculates, as defendants do, that the position of a majority of this panel will "inevitably make the use of the statute so selective and arbitrary as to create serious doubts as to its constitutionality, as applied, under the First Amendment to the United States Constitution" and that "we may expect" that the statute will be used as a tool of viewpoint discrimination. It has long been established that courts of this state "do not give advisory opinions" which "is not the exercise of the judicial function" ( Self-Insurer's Assn. v State Indus. Commn ., 224 NY 13, 16 [1918] [Cardozo, J.]). This principle "is not merely a question of judicial prudence or restraint; it is a constitutional command defining the proper role of the courts under a common-law system" ( New York Pub. Interest Research Group v Carey , 42 NY2d 527, 529-530 [1977]).
In this appeal, we have before us an actual record which demonstrates clearly that defendants committed fraud and illegality squarely within the ambit of Executive Law § 63(12). We do not have before us some hypothetical future misuse of the statute. The record also refutes Justice Friedman's implication that the judicial system is being used for "political ends" in this litigation. The antithesis is true. Given the evidence uncovered during the Attorney General's investigation, which is discussed at length below, the "political" choice would have been to not bring this case, thereby avoiding a fight with a powerful adversary. Her allegations have been tested at every stage of this maximalist litigation and for the most part have been upheld. We now have before us the evidence the Attorney General amassed and it demonstrates that defendants engaged in a decade-long pattern of financial fraud and illegality.
We next turn to the specific findings of Supreme Court below. Because the parties' respective evidentiary burdens vary at summary judgment and trial, it is necessary to analyze the Summary Judgment Order and Posttrial Order separately, even though there was a great deal of overlap in the evidence presented by the parties in both procedural postures.
At the outset, we find that the proper burden of proof for claims under Executive Law § 63(12), whether based in fraud or illegality, is preponderance of the evidence. We agree with Justice Higgitt that the case law cited by the parties on this point is not "particularly compelling." It may be that this dearth of authority comes from courts' assumption that the preponderance of the evidence standard applies because it is the default burden of proof in civil cases. Certainly, we have found no state appellate authority that has adopted in Executive Law § 63(12) cases the heightened "clear and convincing" burden of proof, which is the burden urged by Justice Friedman. The few lower court decisions that specify a burden under Executive Law § 63(12) have adopted the preponderance of the evidence standard (s ee e.g. People v Exxon Mobil Corp. , 65 Misc 3d 1233[A], 2019 NY Slip Op 51990[U] [Sup Ct, NY County 2019]; People v Nationwide Asset Servs., Inc. , 26 Misc 3d 258, 278 [Sup Ct, Erie County 2009] [applying the clear and convincing burden to common-law fraud, and the lesser burden to Executive Law § 63(12)]).
Justice Friedman cites only two inapposite cases in support of his argument that Executive Law § 63(12) claims must be proven by clear and convincing evidence. Neither case concerns Executive Law § 63(12). People v Wyatt (89 AD3d 112 [2nd Dept 2011, lv denied 18 NY3d 803 [2012]) involves the People's burden of proof under the Sex Offender Registration Act (SORA) to show a sex offender's likelihood of reoffense or danger to the community. Addington v Texas (441 US 418 [1979]) involves the burden of proof under a Texas civil commitment law. These two cases require a heightened burden of proof because they involve both the stigma of branding a person a continuing risk to society and the deprivation of that person's liberty. [FN15] Here, defendants are accused of financial malfeasance, and face remedies that do not curtail their physical liberty. There is no analogy.
In any event, even if we were to apply the clear and convincing burden of proof, we would find that the evidence presented by the Attorney General on summary judgment and at trial amply satisfies that standard.
B. The Summary Judgment Decision
The proponent of a motion for summary judgment must "make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case" ( Winegrad v New York Univ. Med. Ctr ., 64 NY2d 851, 853 [1985]). The evidence must be viewed in the "light most favorable" to the nonmoving party ( Branham v Loews Orpheum Cinemas, Inc. , 8 NY3d 931, 932 [2007]). "It is not the function of a court deciding a summary judgment motion to make credibility determinations or findings of fact, but rather to identify material triable issues of fact (or point to the lack thereof)" ( Vega v Restani Constr. Corp ., 18 NY3d 499, 505 [2012]). Only after a prima facie showing is made does the burden shift to the party opposing summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action ( see Zuckerman v City New York , 49 NY2d 557, 562 [1980]).
Supreme Court correctly awarded partial summary judgment to the Attorney General, and correctly denied defendants' motion for summary judgment, after determining that the Attorney General proved that there were no triable issues of fact concerning the Executive Law § 63(12) cause of action insofar as it was based on fraud (not illegality). This type of section 63(12) claim is sometimes called a "standalone claim" because it is not predicated on violation of another statute.
The record before the court on summary judgment was voluminous. However, volume does not inevitably demonstrate the existence of issues of fact. For the reasons set forth below, we find that the record made on summary judgment clearly demonstrates defendants' liability under Executive Law § 63(12). Moreover, as discussed in section C below, even if Supreme Court erred in granting summary judgment to the Attorney General, the record at trial overwhelmingly supports Supreme Court's finding of liability for violations of the Penal Law.
1. Elements of an Executive Law § 63(12) Fraud Claim
As currently amended, Executive Law § 63(12) states that:
"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, directing restitution and damages and, in an appropriate case, cancelling any certificate filed under and by virtue of the provisions of . . . [General Business Law § 130], and the court may award the relief applied for or so much thereof as it may deem proper."
Executive Law § 63(12) was modeled on the Martin Act, which was originally passed in 1921 ( see Mem of Atty Gen Louis J. Lefkowitz to Governor, Bill Jacket, L 1965, ch 666 at 3, 1965 NY Legis Ann at 30) and is New York's version of federal "Blue Sky" laws ( see People v Credit Suisse Sec. [USA] LLC , 31 NY3d 622, 630 [2018]). The Martin Act applies to fraudulent conduct in the limited context of securities, whereas Executive Law § 63(12) applies to fraudulent conduct in a much broader context.
In 1965, Executive Law § 63(12) was amended to "equate the meaning of the words 'fraud' and 'fraudulent' as used in the statute with the provisions of the Martin Act" ( Credit Suisse Sec. [USA] LLC, 31 NY3d at 633). Thus, courts look to the Martin Act for guidance in interpreting Executive Law § 63(12) because the definition of "fraud" and "fraudulent" under Executive Law § 63(12) "is virtually identical to language found in section 352 of the Martin Act" ( id.; see also State of New York v Rachmani Corp. , 71 NY2d 718, 721 n 1 [1988]).
This definition of fraud does not incorporate all the elements of common-law fraud. [FN16] Executive Law § 63(12) and the Martin Act expand liability beyond that recognized under common-law fraud and dispense with the common-law fraud requirements of justifiable reliance and fraudulent intent ( see Matter of People v Trump Entrepreneur Initiative LLC , 137 AD3d 409, 417 [1st Dept 2016] ["the Attorney General may rely on [section] 63(12) for a cause of action and need not limit itself to claims for common-law fraud only"]; Credit Suisse , 31 NY3d at 632 [the Martin Act "expands upon, rather than codifies, the common law of fraud" and "imposes numerous obligations—or 'liabilities'—that did not exist at common law"]; State of New York v Sonifer Realty Corp ., 212 AD2d 366, 367 [1st Dept 1995] [the "fraudulent practices targeted by the [Martin Act] need not constitute fraud in the classic common law sense"]).
Defendants and the Attorney General agree that to establish a violation of the statute, the SFCs must have had "the capacity or tendency to deceive, or create[d] an atmosphere conducive to fraud" ( People v General Elec. Co ., 302 AD2d 314, 314 [1st Dept 2003]). However, as discussed at greater length below, the parties disagree on how to apply the test under the facts of this case, and whether the Attorney General must establish materiality in connection with this test.
In support of her motion for partial summary judgment the Attorney General relied primarily on the SFCs and other documents, as well as defendants' deposition testimony, to prove her prima facie case. The Attorney General did not rely on expert testimony. She may have done this to avoid even the appearance of a "battle of the experts," as courts, sometimes reflexively, often find that dueling expert opinions demonstrate issues of fact that preclude summary judgment. By contrast, in opposing the Attorney General's motion and in advancing their own, defendants relied heavily on expert testimony. As discussed at greater length below, this expert testimony did not rebut the Attorney General's prima facie case and create an issue of triable fact because it relied solely on general business concepts that are untethered to defendants' actual business practices as revealed in the documentary evidence and the undisputed facts established by the record submitted on summary judgment.
2. The SFCs' Content, Use and Preparation
Based on the documentary evidence, the Attorney General carried her prima facie burden to show that the 2014-2021 SFCs fraudulently inflated the estimated current value of President Trump's assets. Defendants repeatedly and persistently used the SFCs in conducting business in New York, employing deceptive strategies that varied from year to year to inflate the estimated current values of President Trump' s assets ( see e.g. People v Greenberg , 95 AD2d 474 [1st Dept 2012] [scheme converting insurer's underwriting loss to a capital loss was per se deceptive under Executive Law § 63(12)], affd 21 NY3d 439 [2013]; Matter of People v Orbital Publ. Group, Inc. , 169 AD3d 564 [1st Dept 2019] [solicitations were per se materially misleading under Executive Law § 63(12) despite disclaimers]; Matter of Lefkowitz v Bull Inv. Group , 46 AD2d 25 [3d Dept 1995] [an investment group's promotion of the Golden Book of Values was prima facie fraudulent and the dealership franchise plan was inherently fraudulent under Executive Law § 63(12)]).
The Attorney General identified the following primary deceptive strategies, among others, used by defendants to improperly inflate assets:
1. Cash, Cash Equivalents, and Marketable Securities. Between 2013 and 2021, defendants included "cash" holdings of as much as $93.1 million for President Trump's minority stake in Vornado Partnership Interests (Vornado). Defendants did so even though President Trump did not control the partnership, and thus did not have the right to use or withdraw funds held by Vornado. [FN17]
2. Trump Park Avenue. Defendants valued Trump Park Avenue, a residential building in Manhattan, between $90 million and $350 million between 2011 and 2021, despite an appraisal of only $72.5 million. The appraisal, unlike defendants' valuations, correctly accounted for many of the unsold residential units as rent-stabilized units, not market rate units. Rent-stabilized units are less valuable than market rate units.
3. 40 Wall Street. Defendants valued 40 Wall Street between $525 million and $796 million between the years of 2011 and 2021, despite appraisals ranging between $200 million and $540 million.
4. Seven Springs. Defendants valued Seven Springs, a 212-acre parcel of land in Westchester, between $261 million and $291 million between 2011 and 2021, despite a 2000 appraisal reflecting that the "as-is" market value for residential development was only $25 million.
5. The Triplex. Defendants misrepresented that President Trump's condominium apartment in Trump Tower (the Triplex) occupied 30,000 square feet, instead of its actual 10,996 square footage and inflated the price per square foot, resulting in valuations ranging between $80 million and $327 million from 2011 through 2021, and inflating its value by up to $200 million through 2017. In October 1994, President Trump executed a consent to the First Amendment to the Declaration of Trump Tower Condominium that reflected the Triplex was 10,996.39 square feet. It was only after Forbes published a May 2017 article entitled "Donald Trump has Been Lying About the Size of His Penthouse," which estimated the value of the Triplex as $64 million, that SFCs from 2017 through 2021 used the correct square footage although the price per square foot continued to be inflated.
6. Mar-a-Lago. Defendants' valuations for Mar-a-Lago did not consider land restrictions and limitations that were agreed to and signed by President Trump, and which precluded the use of the property for anything other than a social club in exchange for reduced real estate and income tax benefits. As discussed at greater length below, each SFC between 2014 and 2021 overvalued Mar-a-Lago as if it could be sold as an unrestricted private residential property, contrary to the reality that Mar-a-Lago's use was restricted to a social club.
7. Aberdeen. Defendants valued the Aberdeen golf property in Scotland as if over 2,500 private residences could be constructed and sold, when defendants obtained approval to develop less than 1,500 accommodations — most of which were unprofitable short-term rentals. Subsequently, defendants based their valuations on the assumption that 2,035 private homes could be developed and sold despite the Trump Organization's application to reduce the project to 550 residences due to lack of profitability, which was approved. From year to year, the SFCs inflated the value of this property between $59 and $283 million.
8. Brand Premium. Defendants inflated the values of golf club properties between 15% to 30% based on the value purportedly associated with the Trump brand name, even though the SFCs provided that "goodwill attached to the Trump name has significant financial value that had not been reflected in the preparation of this financial statement."
The inflation of these assets varied sometimes from year to year, but the court correctly found based on the documentary evidence that the SFCs for 2014 through 2021 fraudulently inflated President Trump's net worth by material amounts, ranging between $812 million and $2.2 billion.
Because the SFCs are at the center of this case, it is important to first understand how they were prepared. The SFCs, which reflect President Trump's net worth as of June 30 of each relevant year, were prepared using the format of the single authoritative source of nongovernmental GAAP known as Accounting Standards Codification (ASC) 274. President Trump was responsible for "the preparation and fair presentation" of the 2014 and 2015 SFCs in accordance with GAAP, and the Donald J. Trump Revocable Trust (the Trust) bore that responsibility for the 2016 through 2021 SFCs. [FN18]
President Trump's personal accountants only "compiled" the SFCs based on information given to them by the Trump Organization. [FN19] McConney, and later junior Trump Organization employee Patrick Birney, forwarded the valuations to the outside accountants with supporting documents and excel spreadsheets denominated as "Jeff's supporting data" or "Jeff's supporting schedule" (referring to McConney). The distinction between "compiled" and "audited" is significant. An audited statement provides the highest level of assurance to a user because the accountant is obligated to, among other things, ensure that the financial statements and information provided by management is reliable and GAAP-compliant ( see William Iselin & Co. v Mann Judd Landau , 71 NY2d 420, 424 [1988]). By contrast, as defendants and their experts acknowledged, a compilation provides the lowest level of assurance to the user because the accountant is not required to perform any procedures to verify the accuracy or completeness of the information provided by management, and the accountant has no obligation to assess fraud risk. [FN20]
Mazars, which compiled all but one of the SFCs, ultimately became so concerned with the reliability of SFCs that they terminated their long-term relationship with the Trump Organization by letter dated February 9, 2022, citing "a non-waivable conflict of interest." The letter also advised the Trump Organization that, in light of the Attorney General's litigation and Mazars's own investigation based on internal and external sources, the "Statements of Financial Condition for Donald J. Trump for the years ending June 30, 2011 - June 30, 2020, should no longer be relied upon and you should inform any recipients thereof who are currently relying upon one or more of those documents that those documents should not be relied upon."
In her motion for partial summary judgment, the Attorney General demonstrated that defendants used the false and misleading SFCs in connection with five loan transactions:
1. A $125 million Deutsche Bank loan issued in connection with purchasing and developing the Doral Golf Resort and Spa in Miami, Florida, which closed on June 11, 2012 (the Doral Loan).
2. A Deutsche Bank loan issued in connection with refinancing an existing $130 million loan for Trump Chicago, a hotel owned and managed by Trump entities, which closed on November 9, 2012 (the Trump Chicago Loan).
3. A $170 million Deutsche Bank construction loan issued in connection with redeveloping the Old Post Office in Washington, D.C. into a luxury hotel, which closed on August 12, 2014 (the OPO Loan).
4. A Ladder Capital Finance LLC loan issued in connection with refinancing a $160 million mortgage for the Manhattan building known as 40 Wall Street, which closed in November 2015 (the 40 Wall Street Loan).
5. An $8 million loan from Royal Bank of Pennsylvania (later acquired by Bryn Mawr Bank), to Seven Springs LLC, which closed sometime in 2000, and was modified in 2014 and 2019 (the Seven Springs Loan), for a parcel of land in Bedford, New York.
Each of these loans required recourse in the form of a personal guaranty from President Trump. The SFCs were required components of the guaranties, and, as discussed at greater length below, the loan documents required the annual submission of the SFCs during the lives of the loans. With respect to the three Deutsche Bank loans, by personally guaranteeing the loans President Trump was able to apply to Deutsche Bank's Private Wealth Management Division for loans with significantly lower interest rates than would otherwise have been available from the bank's Commercial Real Estate Division.
The Attorney General also submitted evidence that defendants used the false and misleading SFCs in connection with the two insurance transactions at issue herein: the Zurich Policy underwritten between 2007 and 2021, and the D&O Policy underwritten by HCC starting in December 2016.
The documentary evidence supports Supreme Court's conclusion that the Attorney General made a prima facie showing that each defendant participated in the fraudulent scheme. The following evidence is gleaned from the summary judgment record.
Weisselberg was Chief Financial Officer of the Trump Organization from at least 2011 until he resigned and became a Senior Advisor to the Trump Organization in August of 2022, after pleading guilty to charges of tax fraud. Weisselberg had a primary role in preparing the SFCs together with McConney and Birney, both of whom reported to him. Weisselberg was not a Certified Public Accountant and, as he stated at trial, he only "[knew] of GAAP" having "heard the term used before, but I — that's about it."
After January 2017, Donald Trump Jr. and Weisselberg, as the co-trustees of the Trust, were ultimately responsible for the preparation and accuracy of the SFCs. From 2014 through 2020, Weisselberg signed letters to Mazars representing that the asset valuations in each of the corresponding year's statement were accurate and that no relevant information was withheld.
McConney was Controller of the Trump Organization from the early 2000s through at least 2022 and he led the preparation of all SFCs since the 1990s. As noted above, McConney was responsible for assembling the SFC documentation and sending it to the accountants along with his supporting data spreadsheets.
President Trump controls and has beneficial ownership of approximately 500 entities that do business as the Trump Organization, including ownership of the assets listed in the SFCs, which are owned through the Trust. He was also responsible for the 2014 and 2015 SFCs. Weisselberg testified in his deposition that he would provide the SFCs to President Trump for his review, editing, and approval. McConney similarly testified in his deposition that President Trump would have "the final review" of the SFCs with Weisselberg.
Since 2011, Donald Trump Jr. and Eric Trump were Executive Vice Presidents in the Trump Organization. In January 2017, they became co-chief executives of the organization and acted as agents with power of attorney to execute certificates of compliance for the loans on behalf of President Trump. Donald Trump, Jr. signed the representation letters to the outside accountants for the SFCs from 2016 through 2021, along with Allen Weisselberg, representing to the accountants that the asset valuations in the statements were accurate and that no relevant information was withheld. He also signed guarantor compliance certificates for the loans, as attorney-in-fact for his father, certifying that the 2016, 2017, 2018, and 2019 SFCs "present[] fairly in all material respects the financial condition of Guarantor at the period presented." Eric Trump signed guarantor compliance certificates in connection with the loans, as attorney-in-fact for his father, in October 2020 and October 2021. In 2019, Eric Trump signed a loan modification agreement in connection with the Seven Springs Loan, in his capacity as President of Seven Springs LLC, and an agreement as attorney-in-fact for President Trump reaffirming his obligation as guarantor on the loan. The entity defendants participated either through the conduct of their officers or trustees (including President Trump, Donald Trump Jr., Eric Trump, Allen Weisselberg, and Jeffrey McConney), or as a borrower on one of the loans.
3. The SFCs' Capacity and Tendency to Deceive and Create an Atmosphere Conducive to Fraud
Defendants and the Attorney General agree that to establish a violation of the statute, the SFCs must have had "the capacity or tendency to deceive, or create[d] an atmosphere conducive to fraud" ( General Elec. Co ., 302 AD2d at 314). However, as discussed at greater length below, the parties disagree on how to apply the test to the facts of this case, and whether the Attorney General must establish materiality in connection with this test. According to defendants, the deceptive nature of the SFCs must be viewed through the lens of a sophisticated bank or insurance company. The Attorney General disagrees, arguing that the question is properly viewed from the lens of an ordinary person, including the "ignorant, the unthinking, and the credulous." We agree with defendants.
To support her argument, the Attorney General cites People v General Elec . Co. ,a consumer case brought by a previous New York State Attorney General alleging deceptive practices in the marketing and sale of dishwashers in violation of Executive Law § 63(12) and General Business Law § 349. To determine whether the conduct was fraudulent under section 63(12), the General Electric Court looked to "whether the targeted act has the capacity or tendency to deceive, or creates an atmosphere conducive to fraud" (302 AD2d at 314). Of course, that is the standard we apply here, but the business context in General Electric, which involved unsuspecting consumers, was different from the one herein. The General Electric Court held that section 63(12) protects not only the average consumer, but "the ignorant, the unthinking and the credulous who, in making purchases, do not stop to analyze but are governed by appearances and general impressions" ( Guggenheimer v Ginzburg , 43 NY2d 268, 273 [1977]).
Because Executive Law § 63(12) is modeled on the Martin Act, and not General Business Law § 349, it makes no sense to view the test through the lens that the Attorney General proposes. Contrary to the Attorney General's position, the capacity or tendency to deceive sophisticated banks and insurance companies cannot be equated with the capacity or tendency to deceive the average consumer, let alone one who does stop to think when making purchases. Accordingly, we agree with defendants, Justice Friedman, and Justice Higgitt, and find that the test must be viewed in the context of commercially sophisticated counterparties.
Viewing the SFCs through the lens of a sophisticated counterparty, however, does not mean that common-law fraud principles such as due diligence and justifiable reliance are then engrafted on the statute. Notably, defendants and Justice Friedman share the view that even if the estimated current values were calculated based on undisclosed false facts and fallacious assumptions internal to the Trump Organization, a fraud claim under Executive Law § 63(12) would still fail because sophisticated counterparties are obligated by New York law to perform their own due diligence and must protect themselves from fraud ( see HSH Nordbank AG , 95 AD3d at 193-195). Justice Higgitt also adopts the concept of due diligence but finds that evidence of "[r]ecorded property restrictions and the availability of independent assessment" raises issues of fact. We disagree with these arguments.
Executive Law § 63(12) does not tie the determination of whether a defendant commits "fraud" or "fraudulent" acts in carrying on, transacting, or conducting New York business to whether a counterparty exercised due diligence or justifiably relied on the fraudulent conduct or whether the practice in the counterparty's industry is to conduct due diligence. The statute does not mention the conduct of the counterparty that is the subject of the fraudulent or illegal acts or industry practices. Rather, the statute is violated "[w]henever 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." Because only the conduct of the person alleged to have violated the statute is relevant, due diligence has no relevance to a section 63(12) claim.
Moreover, we disagree with Justice Higgitt's reasoning that issues of fact are raised considering the sophisticated counterparties' "means and inclination to test [the SFCs] accuracy." Common-law fraud principals are inapt in the application of Executive Law § 63(12) for good reason. As illustrated by HSH Nordbank AG , even a sophisticated counterparty with the means and inclination to test the risks of a transaction can incur huge losses (there, allegedly $500 million), because the counterparty is "lax" in protecting itself ( HSH Nordbank AG , 95 AD3d at 188-189, 197 [internal quotation marks omitted] [common-law fraud claim asserted by a German commercial bank with assets of � billion was dismissed for legal insufficiency because the bank could have protected itself from the alleged misrepresentations through the exercise of due diligence]).
As noted above, Executive Law § 63(12) and the Martin Act expand liability beyond that recognized under the common law ( see Matter of People v Trump Entrepreneur Initiative LLC , 137 AD3d at 417 ["fraud under [section] 63(12) may be established without proof of . . . reliance," and "the Attorney General may rely on [section] 63 (12) for a cause of action and need not limit itself to claims for common-law fraud only"]; see also Credit Suisse , 31 NY3d at 632 [the Martin Act "expands upon, rather than codifies, the common law of fraud" and "imposes numerous obligations—or 'liabilities'—that did not exist at common law"]; Sonifer Realty Corp ., 212 AD2d at 366, 367 [the "fraudulent practices targeted by the [Martin Act] need not constitute fraud in the classic common law sense"]). The two anti-fraud statutes dispense with the common-law fraud requirement of justifiable reliance ( see Matter of People v Trump Entrepreneur Initiative LLC , 137 AD3d at 417 ["fraud under section 63 (12) may be established without proof of . . . reliance"]; see also Credit Suisse , 31 NY3d at 632 [the Martin Act similarly dispenses, among other things, with any requirement that the Attorney General prove justifiable reliance on the part of investors]). We are not permitted to "rewrite the plain words of the statute by adding, through judicial gloss, a . . . new element not provided by the Legislature" ( People v Nelson , 11 Misc 3d 126(A), *2, 2006 NY Slip Op 50201[U], *2 [App Term 1st Dept 2006], lv denied 7 NY3d 760 [2006]).
The Attorney General established, prima facie, that the fraudulent SFCs had the capacity and tendency to deceive a sophisticated party (i.e., a sophisticated bank). [FN21] The SFCs had this deceptive quality because the inflated estimated current values were calculated based on undisclosed false facts and fallacious assumptions known to the Trump Organization but kept from its counterparties. To illustrate just one example of how the estimated current values were inflated in a way that would not be apparent to a counterparty, we turn to the estimated current values for Mar-a-Lago.
Because the Trump Organization believed that Mar-a-Lago was too expensive for one individual to own and maintain, in the early 1990s it commissioned a report for the Town of Palm Beach Building and Zoning entitled "The Mar-a-Lago Club: A Special Exception Use and Preservation Plan" (the Use and Preservation Plan). The report, which was received by the town on March 12, 1993, proposed a private social club as the property's only viable use. Because the use was not residential, the operation of a private social club would significantly reduce Mar-a-Lago's real property taxes. Months later, the Palm Beach Town Council approved the Use and Preservation Plan as a special exception use to the area's residential zoning.
On August 10, 1993, the Mar-a-Lago Club, Inc., Donald J. Trump, as Owner, and the Town of Palm Beach executed a Declaration of Use Agreement (Use Agreement) governing Mar-a-Lago's use as a social club. The Use Agreement, which runs with the land, bound President Trump and the Club to the Use and Preservation Plan, including the preservation of certain "Critical Features." It also contained a provision that "the use of the Land shall revert to a single family residence and the ownership of the Owner" in the event that the Club is "intentionally abandoned at any time" or "unintentionally abandoned" after one year of operation. It additionally required that the documents relating to Club membership include a provision "agreeing to the reversion of the Land to the Owner and its return of the Land to use as a single family residence."
In March 1995, President Trump signed a Deed of Conservation and Preservation Easement (the Deed of Conservation and Preservation) in favor of the National Trust for Historic Preservation in the United States (the National Trust), which enabled him to obtain an income tax benefit. The Deed of Conservation and Preservation conveyed "a conservation and preservation easement . . . in perpetuity with respect to the Critical Features and the Property of the nature and character and to the extent hereinafter set forth." It prohibited "constructing or erecting new buildings and structures within and upon" the areas described as Critical Features. The deed's restrictive covenants were "deemed to run with the land in perpetuity and to burden the Critical Features and the Property in perpetuity." It additionally barred actions that were not attached to, part of, or contained within, the Critical Features without the approval of the National Trust, which could be "withheld or conditioned in [the National Trust's] sole discretion" including barring "new permanent structures" and "the right to subdivide the property." The Deed of Conservation and Preservation also prohibited any amendments that would negatively affect the "perpetual duration" of the easement or "adversely impact the overall architecture, historic, scenic, and open spaces protected by this Easement."
Seven years later, the Mar-a-Lago Club, LLC (formerly the Mar-a-Lago Club, Inc.), Donald J. Trump, and the National Trust executed a Deed of Development Rights, recorded on October 17, 2002 (the Deed of Development Rights). The deed refers to the intent of President Trump and the Club "to extinguish their right to develop or use the Property for any purpose other than club use." Consequently, President Trump and the Club "[did] hereby transfer, grant, bargain, sell, alien remise, release, convey and confirm unto the National Trust . . . any and all of their rights to develop the Property for any usage other than club usage." The Property (i.e., the real property known as Mar-a-Lago) is described in Exhibit A to the Deed of Development Rights.
The Deed of Development Rights describes President Trump as the "holder of a contingent reversionary interest in the Property," which is a reference to the Use Agreement's provision that "the use of the Land shall revert to a single family residence and the ownership of the Owner" upon intentional abandonment of the Club at any time, and the provision that Club Bylaws require that members agree to "the reversion of the Land to the Owner and its return of the Land to use as a single family residence."
The deed also reaffirms that the earlier Deed of Conservation and Preservation "limits changes to the Property including, without limitation, division or subdivision of the Property for any purpose, including use as single family homes, the interior renovation of the mansion, which may be necessary and desirable for the sale of the Property as a single-family residential estate, the construction of new buildings and the obstruction of open vistas." It further concludes that because the Deed of Conservation and Preservation "required the approval of changes that would be necessary for any change in use" it "therefore confines the usage of the Property to club usage without the express written approval of the National Trust."
Even if the status of Mar-a-Lago as a social club in perpetuity was not clear in the Deed of Conservation and Preservation, by executing the Deed of Development Rights, President Trump gave up his reversionary interest under the Use Agreement allowing him to intentionally (or unintentionally) abandon the Club use and have the use of the land revert back to a single family residence and President Trump's ownership. Justice Friedman wrongly concludes that the Deed of Development Rights did not extinguish President Trump's contingent reversionary interest. The contingent reversionary interest provided for in the Use Agreement states that "the use of the Land shall revert to a single family residence and the ownership of the Owner" only "if the Club use is unintentionally abandoned for a period of 1 (one) year after the Club has been in operation or, is intentionally abandoned at any time." The Use Agreement also provides that the Club members shall specifically agree "to the reversion of the Land to Owner, and its return of the land to use as a single family residence, in the event of intentional or unintentional abandonment of the Club Use."
Justice Friedman concedes that the Deed of Development Rights transferred "any and all . . . rights to develop the Property for any usage other than club usage." He effectively reads out of existence this language (despite acknowledging it) by contending that President Trump still holds a contingent reversionary interest in the Land. This interpretation impermissibly rewrites the Deed of Development Rights, as it would allow President Trump to intentionally abandon the Club at any time, and as defendants argue, close the Club, which contrary to the clear statement that "the Club and Trump intend to forever extinguish their right to develop or use the Property for any purpose other than club use" and to the undeniable purpose of the Deed to confine "the usage of the Property to Club usage."
Although Mar-a-Lago's value was substantially depressed by these restrictions, the SFCs for 2014 through 2021 inflated the property's estimated current value on the fallacious assumption that the restrictions had no effect. The deception was accomplished by lumping Mar-a-Lago into a group of more than a dozen properties categorized as "Club Facilities and Related Real Estate" with a total combined estimated current value for all properties. [FN22] Note 3 to the SFCs discloses that the valuations in this category were made either by President Trump or the Trustees and discloses that in "those cases where a residential component exists, comparable sales were utilized in arriving at their values." While note 3 briefly describes Mar-a-Lago, and its use as "an exclusive private club," it does not break out the property's individual value, it does not disclose the fact that the property was valued as if it could be sold to an individual who could use the property as an "exclusive private residence," and it does not disclose the fact that the "unique" property, one which presumably would have no comparable sales, was valued by using sales of other Palm Beach residential properties that had no use restrictions to generate a "Value per acre" which defendants then multiplied by the total acres of Mar-a-Lago, even though the Club occupies the "Land." [FN23]
Contrary to Justice Friedman's view, this valuation is deceptive because the per-acre value was generated based on values of unrestricted Palm Beach residential properties even though Mar-a-Lago is a heavily restricted property. It is also deceptive to multiply a per-acre value by the total acreage of Mar-a-Lago, because much of the property is occupied by Club amenities and is used by Club members. The record describes many of Mar-a-Lago's Club amenities which include a pavilion building, a kitchen building, guest cottages, a main dining hall, a 20,000 square feet ballroom, beach cabanas, a large pool, tennis courts, a croquet lawn, and a spa. Even if defendants could sell Mar-a-Lago's "exclusive private residence," their valuation fails to account for the "non-exclusive" nature of the property upon which that residence sits. Assuming that someone could and would buy Mar-a-Lago to reside only at the mansion house, preserve the Critical Features, abide by other building restrictions, and overlook the up to 500 Club members (and their guests) using the "Land" on a daily basis, the plain language of the Deed of Development Rights completely undercuts Justice Friedman's argument that Mar-a-Lago was correctly valued. In supporting his position, Justice Friedman points to the evidence that in 2019 a 4.72 acre unrestricted property sold at the fair market value of $105 million, and he notes that Mar-a-Lago has "more than 16 acres." He also contends that defendants' valuations are conservative because Mar-a-Lago cannot be "recreated in terms of size." His argument might have had merit if someone could purchase Mar-a-Lago and use all of the Land, but that is not the case because the Land is occupied by the Club and used on a daily basis by up to 500 Club members and their guests.
The Attorney General also established, prima facie, that the SFCs created "an atmosphere conducive to fraud," the second, disjunctive, portion of the fraud test under Executive Law § 63(12). Because defendants' accountants only compiled the financial information they were fed by their clients, they were not required to perform any procedures to verify the accuracy or completeness of the information provided to them by management. Relying on the compilation method, the Trump Organization created an atmosphere conducive to fraud by concealing the assets' inflated estimated current values from view ( see e.g. Matter of People v Northern Leasing Sys., Inc ., 193 AD3d 67, 77 [1st Dept 2021] [the defendants "chose methods for procuring [equipment finance leases] that created an enterprise conducive to fraud," thus violating Executive Law § 63(12)], lv dismissed 37 NY3d 1088 [2021]; Matter of People v Compact Assoc., Inc ., 22 AD2d 129, 131 [1st Dept 1964] ["the method by which sales were induced . . . and concealment of the nature of the product until the sales talk developed — created an atmosphere conducive to fraud"], affd 17 NY2d 758 [1966]).
4. The Record Establishes That the Valuations in The SFCs Were Objectively Material to Loan and Insurance Transactions
The Attorney General argues that a showing of materiality is not required to establish a standalone fraud claim under Executive Law § 63(12). By contrast, defendants, Justice Friedman, and Justice Higgitt assert that the Attorney General must demonstrate materiality, which is relevant to whether the SFCs have the tendency or capacity to deceive or create an atmosphere conducive to fraud. [FN24]
We agree with defendants, Justice Friedman, and Justice Higgitt that the Attorney General must establish materiality, (among other things) to establish a violation of a section 63(12) standalone claim in this case. Because the definition of "fraud" and "fraudulent" under Executive Law § 63(12) "is virtually identical to language found in section 352 of the Martin Act" ( Credit Suisse , 31 NY3d at 633; see also Rachmani Corp ., 71 NY2d at 721 n 1), we look to the Martin Act for guidance. Under the Martin Act, the determination of whether conduct has the tendency to deceive or mislead the purchasing public necessitates that the Attorney General establish, among other things, a material misrepresentation or an omission of a material fact ( see e.g. Rachmani Corp ., 71 NY2d at 725-726; E. F. Hutton & Co. v Penham , 547 F Supp 1286, 1297 [1982]). To decide what constitutes "a material omission which would be actionable under the Martin Act," the Rachmani court adopted the federal standard articulated in TSC Indus., Inc., v Northway, Inc. (426 US 438 [1976]) ( Rachmani Corp. , 71 NY2d at 726). Defendants, Justice Friedman, and Justice Higgitt agree that this is the standard that applies here. [FN25]
In TSC Indus. , a shareholder sued the defendants for allegedly violating Securities and Exchange Commission (SEC) proxy solicitations rules barring "the use of proxy statements that are false or misleading with respect to the presentation or omission of material facts" ( TSC Indus ., 426 US at 440). The shareholder maintained that the defendants' joint proxy statement, which described the degree of control that one corporation had over another corporation, and recommended a stock exchange, was incomplete and materially misleading ( id . at 441-443). Because the federal court decisions were in conflict, the United States Supreme Court determined that it was necessary to set "the definition of a material fact under those rules" and to address "the appropriateness of resolving the question of materiality by summary judgment in this case" ( id. at 440). [FN26]
In formulating the standard of materiality under SEC Rule 14a-9, the United States Supreme Court held that "[t]he question of materiality . . . is an objective one, involving the significance of an omitted or misrepresented fact to a reasonable investor" (426 US at 445). TSC Indus. further held:
"An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote . . . It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available" ( id . at 449).
Thus, "it is well-established that a material fact need not be outcome-determinative; that is, it need not be important enough that it 'would have caused the reasonable investor to change his vote' . . . [r]ather, the information need only be important enough that it 'would have assumed actual significance in the deliberations of the reasonable shareholder'" ( Folger Adam Co. v PMI Indus., Inc ., 938 F2d 1529, 1533 [2d Cir 1991] [internal quotation marks and citation omitted]).
Materiality is often decided by a trier of fact because "[d]oubts as to the critical nature of information misstated or omitted will be commonplace" ( TSC Indus ., 426 US at 448). Nevertheless, "particularly in view of the prophylactic purpose of the Rule and the fact that the content of the proxy statement is within management's control, it is appropriate that these doubts be resolved in favor of those the statute is designed to protect" ( id .). Consequently, "[o]nly if the established omissions are 'so obviously important to an investor, that reasonable minds cannot differ on the question of materiality' is the ultimate issue of materiality appropriately resolved 'as a matter of law' by summary judgment" ( id. at 450 [internal citation omitted]). [FN27]
Applying this standard, the SFCs were objectively material to the Doral Loan, the Trump Chicago Loan, the OPO Loan, the 40 Wall Street Loan, and the Seven Springs Loan as a matter of law. We know this because the plain language of the loan documents tells us so. For the Doral Loan, the Trump Chicago Loan, and the OPO Loan, President Trump signed a guaranty representing that he submitted the SFCs "[i]n order to induce [Deutsche Bank] to accept this Guaranty and to enter into" the loan and that the loan was "conclusively presumed to have been created in reliance" on the guaranty and its representations, including the representations that each SFC presents "fairly" Trump's financial condition. Additionally, the loan documents required defendants to provide SFCs every year during the life of the loan. The guaranties required President Trump to certify that each annual SFC presents "fairly" in all material respects his financial condition. The loan documents further provided that defendants would be in default if they provided an SFC that misrepresented the guarantor's financial condition.
Further confirmation of the SFCs' materiality comes from Deutsche Bank's actions after some of the discrepancies contained in the SFCs came to light in 2020. Deutsche Bank requested further information from the Trump Organization regarding the SFCs and warned that the submission of misleading valuations could result in the loans being placed in default. While the loans were never placed in default, the Trump Organization never responded to Deutsche Bank, and the bank ultimately stopped doing business with the Trump Organization.
The 40 Wall Street Loan similarly provided that the "[l]ender is not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees" the loan, which was "an inducement to make the Loan." The 40 Wall Street Loan also required submission of annual financial statements prepared in accordance with GAAP and the guarantor's certification that they were "true, correct and complete and fairly presenting the financial condition and results of such Guarantor." The loan documents included, as an event of default, the guarantor's submission of a financial statement that "shall have been false or misleading in any material respect as of the date such representation . . . was made." Thus, the plain language of the 40 Wall Street Loan objectively demonstrates the importance and significance of SFCs "fairly" presenting the Guarantor's financial condition, satisfying the materiality test.
Supreme Court's finding of liability was also properly predicated on the Seven Springs Loan, which was guaranteed by President Trump. The original loan was procured in 2000, but the maturity date was extended by loan modifications in 2014 and 2019. In connection with the modifications, President Trump reaffirmed his guaranty, signing a Consent and Joinder providing that it was made "[i]n order to induce" the lender to modify the original loan. The 2014 and 2019 SFCs were submitted in connection with the modifications. Although the 2019 loan modification permitted defendants to modify the loan without providing a personal guaranty, defendants opted not to do so because that would have required additional escrow money at closing and would have increased the interest rate by about half a percentage point per annum. Defendants fail to point to any countervailing evidence undermining the objective materiality of the SFCs to the Seven Springs Loan.
The loan documents' insistence on the annual submission of accurate SFCs is definitive objective evidence of the SFCs' materiality. The quantitative factor (which Justice Higgitt refers to as the "magnitudes of disparity") is also objectively material to the loans as the disparities ranged between $812 million to $2.2 billion, or 17.27% to 38.51% of President Trump's net worth, depending on the year. The objective materiality test in securities fraud cases considers both qualitative and quantitative factors ( see ECA & Local 134 IBEW Joint Pension Trust of Chicago v JP Morgan Chase Co. , 553 F3d 187, 204 [2d Cir 2009]). Supreme Court considered only the quantitative factor. The "context" in ECA , was that an investment bank's alleged $2 billion mischaracterization in its financial disclosures was not "staggering" (and thus, not quantitatively material) because $2 billion amounted to approximately 0.3% of the bank's total assets of $715 billion ( id .). Indeed, as ECA noted, the federal courts have used a "five percent numerical threshold [as] a good starting place for assessing the materiality" of a misstatement or omission ( id .). Here, placed in context, the disparities were quantitatively material as a matter of law as the amounts were significatively over the five percent numerical "starting place." [FN28]
The SFCs were similarly objectively material to the Zurich Policy, but for different reasons. Between 2007 and 2021 Zurich North America underwrote a $6 million (single) and $20 million (aggregate) surety bond program for the Trump Organization. Under the surety bond program, President Trump was required to personally indemnify Zurich for any claims paid under the program and to disclose his SFCs to Zurich annually in an "onsite" review, where documents could be reviewed but not copied or taken from the meeting.
Zurich underwriter Claudia Mouradian started working on the Trump Organization account in October or November 2017. She testified at her deposition that in reviewing President Trump's 2018 and 2019 SFCs onsite, she wrote notes on the amount of cash that was reflected in the SFCs. She testified that the amount of available cash was important because Zurich looks to an insured's cash assets for repayment on claims. She explained that it would have been important for her to have known that President Trump did not control approximately $24 million that the SFCs included as cash because then "the true amount of cash held by the Trump Organization would be less, less than what is stated." Mouradian further testified that during her review, Weisselberg told her that the real estate valuations in the SFCs were done by professional appraisers, which was important to her because she might not have relied on the valuations in the same way had she known that the statement was not true. Based on her onsite review of the 2018 and 2019 SFCs, Zurich renewed the Trump Organization's coverage for 2019 and 2020 with the same premium.
Contrary to defendants' arguments, Mouradian's testimony supports the conclusion that the SFCs were objectively material to the surety bond program. Defendants argue that the SFCs were not material because liquidity was more important to Zurich than assets, because the Attorney General claimed that $24.7 million was fraudulently included as cash, which left sufficient "undisputed" liquidity, and because Zurich was "pleased" with the relationship. However, as previously explained, the objective materiality test only requires that the material fact or omission is important enough or has significance, which is established by Mouradian's testimony.
The SFCs were also material to the D&O Policy, underwritten by HCC, which commenced in December 2016. Michael Holl was the underwriter for HCC who attended a January 10, 2017 meeting wherein, among other things, the agenda included review of the most recent SFC. Holl specifically recalled that Weisselberg was at the meeting along with other Trump Organization employees. Because Holl's review was only onsite, as soon as the meeting concluded, he prepared and sent an email to two HCC employees memorializing the information that he obtained during the meeting. In that email, which is in the record, Holl stated that he "[s]aw very few financials, but did see the balance sheet for year ends 2015 . . . [t]hey have total assets of 6.6 BB. cash of 192 mm," reflecting the inflated numbers in the 2015 SFC.
Holl explained that the cash figure was "a meaningful, useful figure" in his analysis. This testimony supports the conclusion that the 2015 SFC was objectively material to the D&O coverage. Defendants' argument that the misstatement concerned "only a tiny fraction of the cash on the balance sheet" does not negate the significance of the misstatement. Holl further testified that he was informed that there was no material litigation or inquiry that could lead to a claim under the D&O coverage. However, there was an ongoing investigation by Attorney General into the nonparty Trump Foundation and the Trump Organization directors and officers. Based on this false and material information, HCC offered the Trump Organization $10 million in D&O coverage with a premium of $295,000, which the Trump Organization accepted. In January 2019, the Trump Organization submitted a claim to its insurers, including HCC, for D&O coverage for an enforcement action arising out of the Attorney General's investigation of the Trump Foundation. When the D&O Policy expired, HCC offered to renew the policy for a premium of $1.6 million, more than five times the existing premium, and the Trump Organization declined.
Faced with evidence of the materiality of the loans and the insurance transactions, defendants pivot and attempt to reframe the objective materiality test adopted by the Rachmani Court as one based on "impact." According to defendants, the Attorney General must establish that the inflated estimated current values had an "impact on the deals," had an "impact on any business decision," or "affected the terms of any agreement."
This "impact" test is an invention of defendants. It finds no support in the statute or caselaw. Defendants do not trouble themselves to define "impact" or explain how to determine when impact occurs. Does the impact test contemplate that the Attorney General bears the burden to demonstrate justifiable reliance or causation? Does the impact test contemplate that the Attorney General must establish damages? We do not know. In any event, whatever defendants had in mind with this test, the only applicable standard is the objective materiality standard adopted by the Court in Rachmani. As previously established, the valuations in the SFCs were certainly objectively material to the loans, and were objectively material to the insurance transactions.
Defendants make other attempts to skew the objective materiality test. Defendants point to testimony from defendants' witnesses that Deutsche Bank considered other factors "in the mix" in determining whether to make the loans, such as President Trump's prior real estate experience and Deutsche Bank's desire to cultivate a relationship with the Trump family. However, the "total mix" formulation refers to "facts that are important enough to assume actual significance," not "facts that are so important that they would change an investor's decision whether to consummate the transaction" ( Folger Adam Co., 938 F2d at 1533). Materially misleading facts or omissions do not have to be so important that the result is "outcome-determinative" ( id .). Thus, even if other factors had objective importance and significance "in the mix," that would not lessen the objective importance of President Trump truthfully reporting his net worth.
Defendants also fail to undermine the materiality of the SFCs based the testimony of David Williams, Deutsche Bank's managing director. According to defendants President Trump "would have easily qualified for recourse loans (at the same interest rates) if his net worth had been $1 billion or less . . . or even $100 million." However, Williams only testified that President Trump reported a net worth that was "well in excess of our minimum requirements" (which were a net worth in excess of $100 million and $10 million in liquid assets). Meeting the bank's minimum requirements is not the equivalent of being qualified for any loan that the bank makes. [FN29] In fact, the record establishes that the Trump Organization vetted other commercial real estate loans, but the Doral Loan, the Trump Chicago Loan, and the OPO Loan offered the best terms. Those loans required a minimum net worth of $2.5 billion in assets and $50 million in liquid assets, not a net worth of $100 million and $10 million in liquid assets. [FN30] In any event, defendants' argument misses the mark because it fails to undermine the objective importance and significance of President Trump's net worth to the loans that he guaranteed.
Justice Friedman's view that President Trump's "undisputed billionaire status" and "undisputed extraordinary wealth" demonstrate that "any overstatement of his net worth in the SFCs had [no] effect on the terms of the transactions" also fails to undercut the objective materiality of the estimated current values of his assets in the SFCs. Justice Friedman also adopts defendants' argument that the Attorney General found by her "own estimation" that President Trump's net worth "was never less than $2 billion." However, the argument is irrelevant to the objective materiality test. In

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11124810. Public record. Not legal advice.