A federal judge in Manhattan on Wednesday issued an order that will require President Donald Trump, his adult children and the Trump Organization to continue litigating a class action lawsuit they face in federal court.
The Trump defendants had asked the court to force the plaintiffs into arbitration, but Judge Lorna Schofield of the Southern District of New York declined and observed that the Trumps were improperly wielding the Federal Arbitration Act (FAA) “as a vehicle to manipulate the rules of procedure.”
The lawsuit, filed in 2018, accuses the Trumps of deceiving people who invested in a multi-level marketing company called ACN Opportunity by claiming it was a legitimate and promising business venture while not disclosing that they were being paid by ACN for its promotion. The plaintiffs’ contractual agreements with ACN required arbitration, and although the Trumps were not party to those contracts, they sought to have their lawsuit bound by the same arbitration clause.
“The gravamen” of the lawsuit, wrote Schofield, “is that Defendants made untrue, misleading and unfair statements to induce Plaintiffs to enter the Agreements.” In their motion to compel arbitration, the Trumps argued that they should be treated just like ACN for contract purposes, since they were indeed affiliated with the company when it paid them to advertise it. But the crux of the lawsuit, the judge noted, was that “Plaintiffs were not aware that ACN was paying Defendants to promote and endorse the company, and, consistent with that understanding, Plaintiffs did not treat ACN and Defendants as at least somewhat interchangeable.” Thus, the court held, the Trumps could not ride along on the arbitration clause agreed to by AGN and the plaintiffs.
Schofield’s order also had critical words for the Trumps’ treatment of the federal court by squeezing benefit from it before arguing it was the wrong forum: “Defendants aggressively litigated in this judicial forum for eight months before informing Plaintiffs of their intent to arbitrate the surviving claims. Defendants obtained the benefits of litigating in federal court—dismissal of the racketeering claims, a stay of discovery while the motion was pending, and the issuance of numerous non-party subpoenas that would not have been available in arbitration. … Now that Defendants have extracted what they can from the judicial proceedings, they seek to move to a different forum. … Such tactics undermine a fundamental purpose of the FAA to support the economical resolution of claims.”