Appeals Court judges shed light on Tish James' vastly sprawling case against Trump

Consumer protection law is intended to protect the public from unscrupulous business practices. It was never intended to make government bureaucrats the arbiter of all transactions between private parties, let alone sophisticated financial actors.

That was the clear message that emerged from last week's appeals court hearing in Attorney General Letitia James' blatantly politicized civil fraud case against Donald Trump.

As readers will recall, Judge Arthur Engoron, an elected Democratic scribe in robes, ordered the former president to pay nearly half a billion dollars in fraud damages… even though there were no fraud victims at all.

James could edge out her fellow progressive Democratic Trump tormentor, Manhattan District Attorney Alvin Bragg, for what we might call the Lavrentiy Beria Award — named after Stalin's most notorious Soviet secret police chief, who coined the phrase, “Show me the man.” and me. “I’ll show you the crime.”

After running for office and promising that if elected she would find a way to use her power against the Democrats' nemesis, James did the unprecedented: She invoked a consumer protection law – Executive Law §63 – against Trump (12) – which was enacted to protect the public from “persistent fraudulent practices.”

The intent of the Legislature was to authorize the Attorney General to take action against fraudsters who defraud the public broadly but do not harm any individual consumer sufficiently to make the prohibitive costs of an individual lawsuit worthwhile.

Even in its intended application, the law is vague: the AG can sue even if the alleged plan is not criminal, as long as it believes it is misleading in some way.

But Section 63(12) was never intended to make the AG what James wants it to be: the over-regulator of all business done in the Empire State.

In particular, it was not intended that the state government intervene in business transactions between financial professionals that do not involve criminal activity.

Trump's case shows the monstrosity of §63(12) when stretched the way James stretched it.

Trump is a longtime international real estate and business tycoon who has decades-long relationships with banks and insurance companies. James alleged that he committed sustained fraud in conducting transactions with these counterparties over a decade.

She claimed he did this by increasing the value of his assets to obtain cheaper interest rates and coverage premiums. Nevertheless, none of these opponents were cheated; her instead made Money.

Even if we assume that Trump overstated some of his assets (e.g. tripling the size of his luxury Manhattan apartment), Trump's financial report cautioned counterparties to conduct their own due diligence on any loans or contracts.

He didn't even have to do that, since his counterparties were top financial professionals for whom price risk was king. These banks and insurers also have top-notch legal representation and the financial resources to fund litigation. If they are cheated, they complain.

However, they continued to do business with Trump.

Since there were no fraud victims, James was left to negotiate fraud damages.

Coddled at every turn by Engoron – who had already dutifully held Trump liable on the ongoing fraud charge before the trial began – James introduced testimony from a credit union expert who came up with a formula that counterparties with higher interest rates would have charged Trump if he had accurately stated his assets – even though there was no evidence that any of these financial experts had actually relied on Trump's assets.

How arbitrary was that? James initially sought $250 million in damages for “fraud.” At the end of the three-month trial, in which she did not prove fraud, she nevertheless increased her damages claim to $370 million.

As night followed day, Engoron gave her what she wanted; Combined with interest charges that continue to rise, the result is a staggering total of almost $500 million – a death sentence for companies.

Well, as the old saying goes, the mills of justice grind slowly, but they grind exceedingly fine. Trump has appealed, and at oral argument last week, a five-judge panel of Appellate Division judges appeared concerned about James' case.

More often than not, the justices worried loudly that the AG had overstepped its jurisdiction and had no business regulating private transactions between sophisticated financial players.

Most justices appeared unimpressed by the state's flimsy claim that Trump's lenders must have treated the public less favorably because of the risks involved in dealing with Trump.

A hearing is not always a reliable indicator of how a court will decide. In this case, however, the punishment imposed is so disproportionate to Trump's alleged injustice that it creates the impression of a violation of the US Constitution's prohibition of cruel and unusual punishment.

It would be a stretch to predict a comprehensive Trump victory at this point, but I think a significant reduction in the ridiculous penalty is very likely.

Remember: If a malicious partisan prosecutor can do this to Trump, she can do it to any person, company or thing that offends progressive Democrats.

That's fine with James, but fortunately the appeals court has realized that New York City cannot survive as the world's commercial center if these are the new rules.

Andrew C. McCarthy is a former federal prosecutor.