Overview
In a decision July 24, Judge Schofield dismissed civil RICO claims against the Trump Organization and Trump family members, while allowing the remaining putative class claims to proceed. The case (see our previous coverage here) alleged that Donald J. Trump, the Trump Organization, and members of the Trump family falsely promoted the multi-level-marketing scheme ACN, reaping millions of dollars in secret payments to promote the scheme that led to would-be entrepreneurs losing millions of dollars.
Judge Schofield dismissed the civil RICO claims in the suit, but allowed related state law claims to survive under the Class Action Fairness Act (CAFA). According to Judge Schofield, the plaintiffs had failed to show that the defendants were the proximate cause of their injuries, as required for their RICO claims:
[T}he Complaint seeks to certify a “Nationwide Damages Class” of individuals who suffered net monetary losses from their association with ACN . . . . The loss for purposes of analyzing causation is therefore determined by reference to both amounts Plaintiffs paid to ACN, and the revenues, if any, that Plaintiffs received through it. The Complaint fails to plead proximate causation because it does not allege a direct relation between Defendants’ conduct and Plaintiffs’ losses. Numerous intervening factors may account for Plaintiffs’ inability to recover their investments in ACN. Plaintiffs’ lack of success could be attributable to the inherent challenges of multi-level marketing, Plaintiffs’ capabilities as salespeople and the extent of Plaintiffs’ existing networks to whom Plaintiffs could sell ACN products and recruit new IBOs. The losses may also be attributable to the market for ACN products in the Plaintiffs’ localities and ACN’s business practices -- legitimate or otherwise -- separate from Defendants’ role. These factors, contributing in whole or part to Plaintiffs’ losses, make the question of Defendants’ responsibility the sort of “intricate, uncertain inquir[y]” that the proximate cause requirement is intended to avert. The absence of a direct relation in this case can be illustrated by the following hypothetical. Suppose that two class members each paid $1,000 to ACN in registration fees and expenses, induced to invest by Defendants’ endorsements. The class members are identical in all respects except for one -- Class Member A earned $700 in revenue from participating in ACN, but Class Member B earned only $200. As to each class member, what is the loss attributable to the Defendants’ conduct? As the loss is the extent to which Plaintiffs did not recover their investments in ACN, conceivably Defendants could be charged with having caused a $300 loss to Class Member A and an $800 loss to Class Member B. Yet, if Plaintiffs’ inability to recover their investments is attributable to their own sales capabilities or the extent of their existing networks, this would unmoor the loss from the Defendants’ conduct. The $500 difference in Defendants’ liability to Class Member A and Class Member B could not be imputed to anything that Defendants did, contravening the principle “that the compensable injury flowing from a RICO violation necessarily is the harm caused by the predicate acts.”