Friday, May 20, 2011

Trump University loses early round in fraud claim

Makaeff v. Trump University, LLC, 2011 WL 1872886 (S.D. Cal.)

Another early loss for Trump. (This discussion of Trump’s real estate misrepresentation woes ends with a lawyer’s response that is, let’s say, unlikely to work. Stick to the procedural posture and some general disappointment/anticipation of the full day in court!)

This is a putative class action by people who enrolled in “Trump University” seminars “and now maintain they learned a much different lesson than they bargained for.” Plaintiffs claimed fraud and violation of various state consumer protection laws.

The court dismissed the claims for violation of New York's General Business Law § 349(a) with leave to amend because the complaint didn’t indicate that the misconduct alleged took place in New York. The seminars weren’t taken in New York. Though the law doesn’t only cover New York residents, it’s directed at deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in New York. Trump University offered and conducted seminars and “coaching sessions” in NY, the court only looked at named plaintiffs’ claims, and none of them took classes in NY. TU (rhymes with something, I’m sure) also used its New York address to send correspondence to Plaintiffs and putative class members nationwide, but that’s not enough for §349 to apply.

The fraud/misrepresentation claims were pled with sufficient particularity for most of the named plaintiffs. TU argued that plaintiffs couldn’t have relied on any alleged misrepresentations because they were made after plaintiffs already paid for the seminars. However, plaintiffs sufficiently alleged that the misrepresentations were used to “upsell” customers to the next level. TU also claimed that the statements were mere opinion or puffery and that plaintiffs didn’t explain why the statements were false. (So, apparently one of the subtler Iqbal/Twombly consequences is defendants’ idea that plaintiffs have to explain what makes an allegedly false claim false, though I haven’t seen this idea get very far in the opinions I’ve read. Alleging that a specific factual statement is false is generally the kind of thing that I expect courts are to take on the face of the pleadings even after Iqbal.)

Anyway, with the exception of one plaintiff who failed to specify the allegedly false claims adequately, these arguments failed to launch, much like Trump’s presidential campaign.

Tarla Makaeff alleged that Trump University speaker Tiffany Brinkman persuaded Makaeff to sign up for a $35,000 seminar by falsely "guaranteeing" her that her first real estate deal would earn her enough to pay for the seminar. Ed Oberkrom alleged that in order to persuade the students in his class to sign up for a $25,000 seminar, the speaker told them that "the first students to sign up ... would be the first to get the best properties on a list, and access to get the best buyers," as well as “first access to an exclusive website of properties hand-picked by Donald Trump." In fact, he alleged, the properties were not handpicked by Donald Trump, and the website was not exclusive but was accessible to anyone for $39 a month. Brandon Keller alleged that a speaker falsely told his class that if they signed up for the $1,500 seminar and brought five to ten real estate leads, Trump University trainers would call the leads, and that they were guaranteed to make $5,000 to $10,000 within 30 days.

These allegations satisfied Rule 9(b) and negated TU’s argument that the timing of the misrepresentations precluded reliance. The court had already in a previous opinion rejected TU’s argument that plaintiffs expressly disclaimed reliance on any guarantees when they signed up for the seminars. (One legacy of the 1960s/1970s push for specific consumer protection law was to blunt the effect of integration clauses and the like used to disclaim promises made by salespeople that were contradicted by the ultimate sales contract. Recognizing that consumers reasonably rely on many such promises, regardless of what the fine print says, consumer protection law generally treats the advertising/sales pitch as actionable if it is (1) misleading and (2) effective. Defendants don’t like this rule, but it is often still applicable.) Maybe some of the statements were puffery, but TU didn’t raise the argument until its reply brief and didn’t identify which ones anyway.

In addition, Makaeff stated a false advertising claim under California law (Business & Professions Code §17500) by alleging that TU’s oral misrepresentations constituted false advertising.

Breach of contract claims also survived, and the court denied TU’s motions to strike several allegations. Most notably, though an elder abuse cause of action was no longer in the case, allegations regarding TU’s targeting of senior citizens help give a full understanding of the complaint and may still be relevant. In addition, statements made by a person named Noah Herrara were not immaterial, though TU argued that Herrera was not its agent or employee. But Makaeff alleged that a TU instructor facilitated a deal between Hererra and Makaeff, which ended badly for Makaeff in part because Hererra committed fraud. The deal, and the instructor’s failure to disclose an alleged conflict of interest, supported the claims that TU misrepresented the quality of its seminars in violation of the CLRA.

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