Misleading marketing....

Appeals court deals setback to Trump in fraud suit

Federal judges rejected the former president’s effort to force arbitration in a case alleging misleading marketing for the business services firm ACN.

By JOSH GERSTEIN

A federal appeals court has rejected an attempt by former President Donald Trump and three of his children to force arbitration in a class-action lawsuit accusing him of fraud during the decade he spent as a pitchman for ACN, a business services company featured on “Celebrity Apprentice.”

The New York-based 2nd U.S. Circuit Court of Appeals ruled Wednesday that the Trump Organization, the former president and his children could not take advantage of an arbitration clause ACN placed in its contracts with so-called independent business owners who signed up to sell telephone and other services to other businesses.

A federal lawsuit filed against the Trumps and their company in 2018 accused the real estate tycoon of repeatedly making false public claims about ACN and failing to disclose that he was paid millions of dollars to endorse the multilevel marketing company. The plaintiffs in the suit say they signed up to sell ACN’s services and paid significant sums of money for the opportunity but saw virtually no income.

The suit, backed by a nonprofit group critical of Trump, did not name ACN as a defendant but did seek documents from the company by subpoena.

The 3-0 decision from the 2nd Circuit said that third parties can sometimes avail themselves of arbitration, which is generally seen as friendlier to large businesses than the courts, but that Trump’s role here did not call for applying the arbitration clause to cover him, his children or his company.

“Central to the plaintiffs’ theory of fraud is that the defendants misled the plaintiffs to believe that the defendants and ACN were independent of one another and that the defendants were endorsing and promoting ACN based on an objective outside assessment of the value of ACN’s business opportunity,” Judge Robert Sack wrote in an opinion joined by Judges Raymond Lohier and Denny Chin. “Consistent with this understanding, there is no evidence to suggest that the plaintiffs treated the defendants as if they were effectively parties to the … agreement.”

Indeed, the contracts signed by those who agreed to market for ACN said that the agreement was only with ACN and not any of its service providers or “other party with whom ACN transacts or contracts business.”

Sack was appointed by President Bill Clinton. Lohier and Chin are appointees of President Barack Obama.

The appeals court panel also rejected ACN’s effort to use the arbitration clause to refuse to turn over documents in the case.

Spokespeople for the Trump Organization did not immediately respond to messages seeking comment on the decision. They could ask the full bench of the 2nd Circuit to hear the case or seek review at the Supreme Court.

ACN said in a statement that it had been unfairly pulled into a lawsuit fueled by politics.

“ACN is not a political organization and is proud to welcome individuals from all walks of life,“ the firm‘s statement said. “ACN’s business relationship with Mr. Trump started and ended before his run for national office. It is unfortunate that ACN’s name and business have been impugned in connection with this politically-motivated and funded lawsuit. To be clear, ACN categorically denies the allegations made in the lawsuit against it and its business.“

The lead counsel for the plaintiffs, Roberta Kaplan, hailed the appeals court’s ruling.

“We … are excited to resume discovery in this important case about a years-long consumer fraud on hard working Americans perpetrated by Donald Trump and three of his adult children,” Kaplan said in a statement. “We have pending subpoenas out to ACN and MGM and look forward to receiving the documents and Celebrity Apprentice tapes responsive to those subpoenas. And we similarly intend to press the Trumps to complete their document production so that we can begin taking depositions as soon as possible.”