October 5, 2022 - New York Attorney General Letitia James' massive fraud lawsuit is a significant development in Donald Trump's legal battles, leading some commentators to believe it is the game-changer that may finally bring him down.
However, I would advocate a more cautious assessment of this case. Three main challenges will likely complicate James' ability to prosecute the former president and his co-defendants (including his New York companies) successfully.
A protracted timeline
Register now for FREE unlimited access to Reuters.com
First, it may take years for James' sprawling complaint to be tested, since she has filed it as a civil case in state Supreme Court in Manhattan, a severely congested venue. Moreover, because the state system allows many interlocutory matters, such as motions and discovery disputes, to be appealed to a higher court, it is vulnerable to abuse by parties bent on procrastination and delay.
Trump, of course, is a master at such tactics. He could conceivably bottle the case up in court even past the 2024 presidential election. That sloth-like pace could drain the case of much of its power and importance.
A checkered history
Second, it is no easy task to successfully prosecute "white-collar"-type cases, criminal or civil, involving complex allegations of fraud. For example, the Manhattan District Attorney's criminal case against Trump, which may have covered some of the same ground as James' case, was aborted before indictment.
James herself overreached several years ago when, following a four-year investigation, she sued Exxon Mobil for alleged fraud in its public reporting of the costs of climate change regulation. James brought the massive case under the Martin Act, the securities-law counterpart of the Executive Law provisions under which she sued Trump. Both statutes confer broad powers on the Attorney General to prosecute "persistent" schemes to defraud.
After a trial in 2019, the trial judge rejected James' accusations, which he labeled "hyperbolic." He explained that the Attorney General had presented no testimony that the company had made any misrepresentations that would have misled a reasonable Exxon Mobil investor.
A trial of Trump and his fellow defendants could dwarf the Exxon Mobil trial in size and complexity, testing again her office's ability to prevail in such a case.
The ambiguous status of Deutsche Bank
Third, the centerpiece of James' suit is on the allegations that Trump induced Deutsche Bank to loan on favorable terms approximately $340 million on the strength of his grossly inflated Statements of Financial Condition. According to the AG, Trump's deceptions saved him between $85 million and $150 million in interest charges on the loans, which implies that the bank was misled by his actions.
This last allegation is a nod to the legal requirements applicable to the AG's suit. Under the Executive Law, James need not prove the elements of common-law fraud in order to prevail, but she must show the schemes in question have "a capacity or tendency to deceive," in the words of one case.
However, even this diluted showing may be a stretch in the case of a sophisticated financial institution such as Deutsche Bank. Banks typically do their own due diligence before extending credit, and debtor cash flow, not the value of its collateral, is usually their principal concern.
It is worth noting that, according to the complaint, the Trump debtors repaid nearly $300 million of the outstanding loans by the end of May 2022. Deutsche Bank presumably made the internal calculation that it stood to be amply rewarded with fees and interest if it issued these loans, and that calculation appears to have been largely if not entirely correct.
Even if the Deutsche Bank allegations go to the jury, these facts could play out favorably to the defense in a number of ways, depending on how James presents her case. Trump could stress that, at bottom, the bank received the benefit of its bargain and no one was injured. He could also argue that Deutsche Bank likely suspected Trump's financial statements were exaggerated but looked the other way because of its own due diligence, its calculation of the fees and interest at stake, and the overall business value of the Trump relationship.
In each of these scenarios, the AG might have a difficult time establishing that its case really sounds like fraud. The jury could draw the conclusion that her case was (as the Exxon Mobil judge said) "hyperbolic" and decide against the government on that basis.
James has crafted an impressively detailed complaint. Enough complications lay in her path, however, to make her ultimate success far from assured.
Kevin J. O'Brien is a regular contributing columnist on trial practice for Reuters Legal News and Westlaw Today.