Time Runs Out on Attorney General’s Fraud Suit

Schneiderman vs. Trump creates good headlines but little benefit for New Yorkers

New York State Attorney General Eric Schneiderman (Photo by Andrew Burton/Getty Images)

In a new ruling, a judge denuded Eric Schneiderman’s claims against Donald Trump. (Andrew Burton/Getty Images) Andrew Burton/Getty Images

In February, the Observer detailed Eric Schneiderman’s use of power, prestige and resources with the New York attorney general’s office on some questionable cases. My story leveled serious accusations of misconduct, particularly with regard to the attorney general’s suit against Donald Trump’s real estate seminars. (The original story included a disclosure that the Observer‘s publisher, Jared Kushner, is Mr. Trump’s son-in-law.) The attorney general’s very able spin doctors leaped into overdrive to attack the story and the Observer‘s motives, but never meaningfully challenged a single factual claim in the paper’s 8,000-word story.

Now, the suit that Mr. Schneiderman filed against Mr. Trump is finally winding its way through the courts and the news reveals severe ineptitude in the office of the state’s highest law enforcer. Supreme Court Judge Cynthia Kern has issued two decisions dismissing most of the case against the Trump Entrepreneur Initiative (TEI), Mr. Trump and others. The first, in late January, was described in our original story. The court’s second ruling, issued on October 8, but publicly reported only last week, denied the attorney general’s petition for summary judgment on every claim but one (the least important one).

Lawsuits like this are inherently stacked in favor of the state, so in my view, this was a stunning reversal for Mr. Schneiderman. Nevertheless, some initial reports, including in the Post and the Daily News, inexplicably characterized the result as a victory for the attorney general. That’s just wrong, and it shouldn’t take years of successfully practicing as a lawyer (which I’ve done) to understand why. A simple read of the judge’s entire decision (which I’ve also done) makes it clear that this was a near total win for Mr. Trump.

Not surprisingly, the attorney general’s office sees it differently. Press Secretary Matt Mittenthal told the Observer, “The decision by the court to grant summary judgment on our claim that Mr. Trump and the Trump Entrepreneur Initiative violated New York State’s education laws is an important victory in our effort to ensure justice for those who fell victim to the fraudulent and illegal behavior outlined in our case. We look forward to proving the rest of our case at trial.”

But proving the case at trial is exactly what Judge Kern just made much more difficult.

The Observer initially reported that the defining feature of the case would be the three-year statute of limitations that applied to all the attorney general’s statutory claims. A tolling agreement effectively moved the filing date of the attorney general’s petition up to May 31, 2013, but TEI had concluded its seminars with nearly all 5,000 customers before May 31, 2010. This is a bad miss for the attorney general.

Yet the Daily News headlined its story “Judge Finds Donald Trump liable for running an unlicensed school,” quoting just one sentence from Judge Kern’s 37-page decision: “It’s undisputed that Mr. Trump never complied with the licensing requirements.” That one claim, for operating without a license by the State Education Department, is the only basis for granting the attorney general summary judgment.

No one knows what the “damage” could be to customers of the seminars run between June and December 2010, but they cannot be more than a sliver of the $40 million in damages the attorney general claimed at the outset of the case. So what happened to all the blockbuster charges that TEI was a “sham university,” “a scam from top to bottom,” “a classic bait-and-switch scheme” and “despicable”?

Though the attorney general’s office told the Observer yesterday that it is “still seeking the entire $40 million that we originally sought and discussed,” my analysis reveals a recovery anywhere near that amount—if any—to be impossible.

Mr. Schneiderman’s office blew the statute of limitations on all of those claims. If those claims had any merit, the attorney general’s office frittered away the legal protections available to New York consumers. In place of those statutory claims—with their low burdens of proof, statutory damages, and rights to summary adjudication—the attorney general is stuck with common-law fraud, which has a six-year statute of limitations.

The court denied all forms of summary-judgment relief for the attorney general on fraud claims. That means that in addition to other elements, the petitioner would have to “prove individual justifiable reliance on behalf of each student customer.” This is why those statutory protections are so important to consumers. How can the attorney general prove individual justifiable reliance for 5,000 customers? In other words, someone from Buffalo—or Alaska—would have to travel to New York City to testify about losing his $400, and would then face cross-examination from Mr. Trump’s lawyers, who would in many cases be holding a scorecard in which the plaintiff had rated the program “outstanding.” It’s a high burden, which is the reason the petition did not allege common-law fraud in the first place.

The court repeatedly slammed the attorney general for deficiencies in providing such proof. For example, it threw out 27 of 28 affidavits by the petitioner because they related to events prior to May 31, 2010. And then the court questioned the sole remaining affidavit: “Indeed [it] does not present prima facie evidence that the three-day seminars were in fact a bait-and-switch tactic.” Having 27 affidavits dismissed and the 28th challenged is hardly a win for the attorney general.

The court also attacked the sloppiness of Mr. Schneiderman’s presentation. The judge declined to consider evidence presented by the attorney general “that was not submitted in admissible form.” All but seven of the complaints submitted with the petition on one statutory claim “are unsigned and unverified and are thus, inadmissible. The remaining seven complaints contain only boilerplate acknowledgement that false statements are punishable by law.” The court refused to consider 39 affidavits filed with the attorney general’s reply because “it is well-settled that a movant cannot remedy basic deficiencies in his moving papers with new evidence on reply.”

The court even gave the attorney general a chance to clean up the sloppy work: “At the preliminary conference in this proceeding on April 8, 2014, this court gave petitioner the opportunity to amend its petition in order to address any evidentiary deficiencies but it is undisputed that petition declined to do so.”

To summarize, Mr. Schneiderman has seen his lawsuit whittled from a total of six claims to two, and those two are limited to students who participated in the school’s programs only in the window between May 2010 and December 2010. This eliminated the possibility of damages for more than 95 percent of all TEI students.

What’s more, according to the school’s records, of the approximately 1,000 students whose claims remain, only 121 are from New York State, and they spent approximately $105,000 total on Trump programs. Even if the attorney general somehow prevails in all those cases—and there’s zero evidence to suggest he will—the maximum damages Mr. Schneiderman can recover will be a tiny fraction of the $40 million the attorney general bandied about when he trumpeted his lawsuit on a tour of morning shows.

Missing a statute of limitations is a major screw-up. So is filing faulty affidavits and so is declining to fix those affidavits even when given the opportunity. It almost makes you wonder if the real point of this lawsuit was never to recover money on behalf of New Yorkers who were supposedly wronged, but instead to take on a high-profile defendant in a way that would surely generate headlines and television appearances.

That’s called spin, and that’s the thing that Mr. Schneiderman’s office really is good at. But it’s not good for New York.

Last week, the Adirondack Daily Enterprise joined Newsday, Crain’s, the Observer, and the Syracuse Post-Standard in endorsing the attorney general’s opponent. Going against a Democrat incumbent in a blue state, especially one viewed as vindictive, takes some courage, so it’s worth examining what made the Daily Enterprise join the anti-Schneiderman parade. “We worry that Mr. Schneiderman wants to follow his predecessors, Andrew Cuomo and Eliot Spitzer, to become governor. He has been nowhere near as good an AG as they were, and we think he would be terrible as the state’s chief executive. It’s time to thwart his ambition rather than enable it with a second term. … Eric Schneiderman has done a poor job as attorney general, and New Yorkers are fortunate to have a solid alternative in John Cahill.”

They don’t mince words up there in the mountains. The rest of New York State ought to take notice.

Time Runs Out on Attorney General’s Fraud Suit