Doe v. Trump Corp.

• Citation: 385 F.Supp.3d 265
• Decision Date: 24 July 2019
• Docket Number: 18 Civ. 9936 (LGS)
• Parties: Jane DOE, et al., Plaintiffs, v. The TRUMP CORPORATION, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

385 F.Supp.3d 265

Jane DOE, et al., Plaintiffs,

v.The TRUMP CORPORATION, et al., Defendants.

18 Civ. 9936 (LGS)

United States District Court, S.D. New York.

Signed July 24, 2019

Alexander J. Rodney, John Charles Quinn, Joshua Adam Matz, Matthew J. Craig, Roberta Ann Kaplan, Kaplan Hecker & Fink LLP, Emily Carrie Cole, Kaplan & Company, LLP, Andrew G. Celli, David Benjamin Berman, Katherine R. Rosenfeld, Matthew D. Brinckerhoff, Ogilvie Andrew Fraser Wilson, Emery Celli Brinckerhoff & Abady, LLP, New York, NY, for Plaintiffs.

Joanna Calne Hendon, Cynthia Chen, David Spears, Spears & Imes LLP, Bradley Philip Pollina, New York, NY, Andrew Lawrence Kincaid, U.S. District Court, District of Mexico, Santa Fe, NM, for Defendants.

ORDER

LORNA G. SCHOFIELD, District Judge:

This case concerns an alleged fraudulent scheme to promote certain third-party companies offering multi-level marketing and training programs. The Amended Complaint (the "Complaint") asserts racketeering and conspiracy claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"). The Complaint also asserts various state law claims. Defendants Donald J. Trump ("Trump"), The Trump Corporation, Donald Trump, Jr., Eric Trump and Ivanka Trump move to dismiss the Complaint for failure to state a claim and lack of subject matter jurisdiction under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).

As discussed below, Defendants' motion to dismiss is granted in part. The RICO claims are dismissed because the Complaint does not sufficiently plead that Defendants' conduct was the proximate cause of Plaintiffs' losses. Defendants' motion to dismiss the state law claims is denied because the Court has subject matter jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d) ("CAFA").

I. BACKGROUND

The following facts are taken from the Complaint and are accepted as true only for purposes of this motion. See Doe v. Columbia Univ. , 831 F.3d 46, 48 (2d Cir. 2016).

A. Defendants' Promotion of Third-Party Companies

For over a decade, Defendants operated a complex enterprise through which they promoted third-party companies offering consumer-facing business opportunities and training programs. The companies included two "multi-level marketing" programs, ACN Opportunity, LLC ("ACN") and TTN, LLC (d/b/a "The Trump Network"), and a "live-seminar program," Business Strategies Group, LLC (d/b/a "The Trump Institute") (collectively, the "Third-Party Programs").

In 2005, Defendants agreed to promote and endorse ACN. ACN is a company offering products and services through independent salespeople known as "Independent Business Owners," or "IBOs." In order to sell these products and services, IBOs must pay an initial sign-up fee and an annual renewal fee. From 2013 until 2016, these fees were $499 and $149, respectively. IBOs can earn commissions for selling ACN products and services, and can receive additional bonuses when they meet certain sales targets. IBOs can also earn money by recruiting others to sign up as IBOs. When an existing IBO recruits a new IBO, the recruit becomes part of the existing IBO's "downline," and the existing IBO becomes part of the recruit's "upline." IBOs can receive a commission on the sales generated by members of their downline.

Key to ACN's recruiting operation are small group events hosted by IBOs in their own homes or at local hotels and event spaces. These meetings are the primary mechanism through which consumers are recruited to become IBOs. ACN also stages ticketed multi-day events, often billed as "Training Events" or "International Conventions." These events function as motivational rallies and are a substantial source of revenue for ACN.

In exchange for financial inducements that were never disclosed to the public, Defendants promoted and endorsed ACN in promotional videos, in print and online media, at ACN events and in episodes of The Celebrity Apprentice , a television program hosted by Trump that featured Ivanka Trump and Donald Trump, Jr. Through these channels, Defendants deliberately misled consumers regarding the nature of ACN's business. First, Defendants misled consumers into believing that ACN offered a reasonable probability of commercial success. Defendants accomplished this by misrepresenting (a) the risk inherent in the ACN business opportunity, (b) the profitability to consumers of the ACN business opportunity and multi-level marketing programs in general and (c) the market for ACN's products and services. Second, Trump falsely represented that the reason he supported ACN was because it offered a reasonable probability of commercial success. He never disclosed that he was being paid millions of dollars for his endorsement. Third, Defendants falsely represented that Trump's endorsement was predicated on appropriate due diligence, inside information and personal experience with ACN.

ACN's association with Trump and the Trump brand was "extremely powerful in the minds of investors." In published testimonials, "IBOs attributed their decision to join ACN to Trump's endorsement."

ACN was not the only third-party company to be promoted and endorsed by Defendants. In the mid-2000s, a company affiliated with Defendants, Trump University, LLC, entered into a licensing agreement with Business Strategies Group, LLC to form "The Trump Institute." The Trump Institute was a live-seminar program that purported to teach Trump's "secrets to success" in the real estate industry. In 2009, Defendants entered into a licensing agreement with Ideal Health, a multi-level marketing company. Pursuant to this agreement, Ideal Health was officially rebranded "The Trump Network." As they had done with ACN, Defendants disseminated a series of knowingly false statements regarding The Trump Institute and The Trump Network: (1) that the programs offered consumers a reasonable probability of commercial success, (2) that Trump endorsed the programs because they offered a reasonable probability of commercial success and (3) that Trump's endorsements were predicated on extensive due diligence, inside information and personal experience.

B. Plaintiffs' Investments in ACN

1. Plaintiff Doe

Plaintiff Doe, a citizen of California, was invited to attend her first ACN meeting by a friend who told her that the company "was a great opportunity for them both to make money." At the meeting, a promotional video prominently featuring Trump was played. It was Trump's endorsement of ACN that "sold [Doe] on the opportunity."

Doe paid the $499 sign-up fee to become an IBO. Shortly thereafter, senior IBOs told Doe that attending an ACN convention in Palm Springs "would be a great way to begin her career with ACN," and they implied that Trump would make an appearance. Doe decided to attend the convention for several reasons, but the most important reason was that she wanted to meet Trump. At the Palm Springs convention, Trump was prominently featured, but he did not appear in person. Doe's cumulative expenses from the convention totaled almost $1,500.

After the convention, Doe remained fully committed to ACN. Senior IBOs told her that she had to attend ACN meetings in order to be successful. Each meeting cost $20, and Doe often attended two meetings per month. Doe felt "substantial pressure" to attend these meetings, which often caused her to miss shifts at work.

Approximately six months after she signed up as an IBO, Doe attended a national ACN convention in Cleveland, Ohio. Senior IBOs told Doe that the convention "could not be missed," emphasizing "the community, the training and, importantly, that Trump might be there as a special guest." Doe's total investment in attending the Cleveland convention was approximately $2,000. Doe also attended a multi-day event in Detroit, Michigan, again investing substantial amounts of money to attend in the hopes of seeing or meeting Trump.

Trump's support for ACN -- including specific statements touting ACN -- had encouraged Doe to join and persevere with ACN. But eventually, during her second year as an IBO, Doe came to the realization that ACN did not provide average IBOs a realistic chance of making a profit. Doe cut her losses and ceased to participate in ACN. She had earned only $38.

2. Plaintiff Loe

Plaintiff Loe, a citizen of California, was invited to attend an informational meeting about ACN by a co-worker at the Salvation Army. The meeting was held at a hotel in Los Angeles, and began with short speeches by ACN representatives, followed by a promotional video prominently featuring Trump. Trump's endorsement "was the key factor" that induced Loe to join ACN. When he joined and while he was associated with ACN, Loe heard and relied on specific statements from Trump, which are detailed in the Complaint.

Loe had very limited success with ACN. During his time with ACN, he was able to recruit only one other IBO. Loe sold ACN services to friends, in one instance registering services in his own name for a friend who promised to pay him back, but who never did.

Loe attended twenty-five to thirty ACN meetings, each one costing $10 to $20. Loe felt "substantial pressure" to attend these meetings, and when he missed one "he was criticized and shunned by more senior IBOs." Loe also attended three larger ACN events -- the national convention in Cleveland and two multi-day events in Palm Springs and Detroit. Loe borrowed money from his team members to attend these events, "hopeful that if he continued investing in pursuing the ACN business opportunity he would ultimately recoup his initial investment."

But Loe ultimately concluded that ACN "was not a good moneymaking opportunity." When the time came for his annual renewal, he chose not to pay the renewal fee. Despite his efforts, Loe never received any income from ACN.

3. Plaintiff Roe

Plaintiff Roe, a citizen of Maryland, learned about ACN from an IBO who told him that "he had a business opportunity for him." The IBO showed Roe an ACN magazine and gave...