Donald Trump, left, with his children, from left, Eric, Ivanka, and Donald Jr.(AP Photo/Charles Rex Arbogast)

U.S. President Donald Trump and his children cannot force arbitration in a lawsuit alleging that they, and the Trump Corp., had illegally profited from promoting doomed products and services to unsophisticated investors across the country, a Manhattan federal judge ruled late Wednesday.

U.S. District Judge Lorna G. Schofield of the Southern District of New York said in a 16-page opinion that Trump and his children, Ivanka, Eric and Donald Jr., could not avail themselves of arbitration agreements the unnamed plaintiffs had entered in to with ACN Inc., the multilevel marketing company at the center of the allegations.

In any event, Schofield wrote, Trump and his family had waived any right they may have had to resolve the dispute in private, after waiting eight months and securing the dismissal of federal racketeering claims by the proposed class of investors.

"Now that defendants have extracted what they can from the judicial proceedings, they seek to move to a different forum," Schofield wrote.

"This conduct is both substantively prejudicial towards plaintiffs and seeks to use the [Federal Arbitration Act] as a vehicle to manipulate the rules of procedure to Defendants' benefit and plaintiffs' harm. Such tactics undermine a fundamental purpose of the FAA to support the economical resolution of claims," she said.

The lawsuit, filed in October 2018, alleged that Trump had lent his name to promote a number of businesses, knowing there was little to no chance that the money unsavvy investors paid to participate in seminars and training opportunities would ever be recouped.

The complaint specifically highlighted Trump's relationship with ACN, which Trump had endorsed and featured on his reality television show, "The Celebrity Apprentice."

According to the lawsuit, Trump claimed to have prior experience with the products ACN was pushing on investors, saying he had done substantial research and that he wasn't being paid for his endorsement. In reality, however, Trump and his company reaped millions of dollars to promote the firm.

ACN is not a party to the dispute.

On July 24, Schofield dismissed racketeering claims against the Trump family, but ruled that she had jurisdiction over state claims for negligent misrepresentations, common-law fraud and unfair and deceptive trade practices. But it wasn't until July 11, more than eight months after the suit was filed, Schofield said, that defense lawyers told the plaintiffs that they would seek to compel arbitration on any surviving claims.

While the agreements at issue did not include Trump, his children or the Trump Corp., Trump's Spears & Imes attorneys said that his ties to ACN made it clear that the contractual obligations governing arbitration would extend to the defendants.

But Schofield on Wednesday said that argument essentially "turns the amended complaint on its head."

"The amended complaint alleges the opposite—that from the objective perspective of the plaintiffs at the time they signed the agreements, defendants and ACN did not reveal themselves as financially and professionally tied, much less associated in a way that would cause plaintiffs reasonably to predict that their contractual obligations to ACN would create the same obligations with defendants," she said.

Roberta Kaplan, who represents the plaintiffs, said in a statement that Schofield's ruling removed "a number of remaining obstacles" and cleared the way for "proper discovery" in the case.

"We look forward to continuing to gather the evidence to deliver justice for our brave clients, and thousands of others like them who were defrauded by the Trumps," said Kaplan, founding partner of Kaplan Hecker & Fink in Manhattan.

Joanna Hendon, a partner with Spears & Imes, did not immediately respond to a call Thursday seeking comment on the decision.

 

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