An Appeals Court Says the $464 Million Fine in Trump's Civil Fraud Case Violated the Eighth Amendment
The decision overturns a staggering "disgorgement" order that was based on dubious math.
In a civil fraud case last year, New York County Supreme Court Justice Arthur Engoron ruled that Donald Trump's habit of exaggerating his wealth justified "disgorgement" of nearly half a billion dollars in "ill-gotten gains" and interest. A state appeals court overturned that staggering penalty last week, saying it violated the Eighth Amendment's ban on excessive fines.
The decision upholds New York Attorney General Letitia James' authority to sue Trump for violating Section 63.12 of the state's Executive Law by systematically overstating the value of his assets when borrowing money and buying insurance. The majority also thought Engoron rightly concluded that Trump had committed "fraud" within the meaning of that statute. But the court said Engoron's calculation of Trump's profits from his misrepresentations was fatally flawed and resulted in a "grossly disproportional" penalty.
"While harm certainly occurred, it was not the cataclysmic harm that can justify a nearly half-billion-dollar award to the State," writes Justice Peter Moulton in an opinion joined in full or part by four other judges. "It is a virtue of the statute that the Attorney General may act, as she did in this case, before a potential catastrophe occurs, to deter further fraudulent business behavior by defendants specifically, and to police market behavior generally. However, having achieved these goals the State is not entitled to compound its victory with a massive punitive fine."
James argued that banks would have charged Trump higher interest rates on loans if he had accurately reported his financial condition. But crucially, the money that Engoron ordered Trump and the other defendants to pay would have gone to the state rather than any alleged victim of his dishonesty. The disgorgement order was not designed to compensate anyone Trump had harmed. Rather, it was supposed to deprive him of his "ill-gotten gains" and thereby deter him and others from engaging in "repeated fraudulent or illegal acts."
Given the nature of the payment, the appeals court had little trouble concluding that it qualified as a fine under the Eighth Amendment. "The inquiry centers on whether the payment in question is punitive, rather than remedial," Moulton writes. A punitive aim can be inferred, he notes, when "'payment [is] to a sovereign as punishment for some offense' as opposed to a payment of recompense to a victim" or when a civil sanction "can only be explained as also serving either retributive or deterrent purposes." He also notes that Engoron imposed joint and several liability, another indication that the order was punitive.
Based on those factors, "the instant disgorgement order constituted a fine," Moulton says. "The remaining question is whether the disgorgement levied against the defendants in this case is an excessive fine barred by the Eighth Amendment. We believe that it is."
In addition to noting the disconnect between the amount of the disgorgement and the extent of the harm caused by Trump's misleading statements of financial condition (SFCs), Moulton questions the calculations that Engoron accepted. "A fine cannot be proportionate to the offense unless it is reasonably calculated to encompass only the actual proceeds that defendants realized from their fraud," he writes. "To obtain disgorgement, the Attorney General bears the initial burden of establishing 'a reasonable approximation of profits causally connected' to defendants' violations. Where both legal and illegal conduct is implicated, the Attorney General 'must distinguish between the legally and illegally derived profits.'"
James failed to do that, Moulton says. "The Attorney General did not carry her initial burden," he writes. "Indeed, the calculation of the disgorgement in this case was far from a reasonable approximation."
Moulton cites two examples that together accounted for "$194.8 million of the disgorgement awarded plus a substantial amount of interest": the 2022 sale of the Old Post Office (OPO) in Washington, D.C., which Trump had converted into a hotel, and the 2023 sale of a license to operate a golf course at Ferry Point Park in the Bronx. Moulton says Engoron erred by concluding that all of the profits from those transactions were subject to disgorgement.
"As with so many Trump real estate deals," Engoron wrote, "the Old Post Office contract was obtained through the use of false SFCs (no false SFCs, no deal). Thus, the net profits received on its sale were ill gotten gains, subject to disgorgement."
Not so, Moulton says. "The Attorney General maintains that without submission of SFCs to Deutsche Bank, there would have been no OPO Loan and defendants thus would have been unable to develop the property and sell it at a profit," he writes. "However, the profit realized upon sale of the lease was also causally connected to other legitimate factors, such as defendants' experience in hospitality and in developing high end real estate. Thus, for the sale of the OPO lease there is no readily separable rendering of legal profits from ill-gotten gains."
That conclusion amplifies a point that Cato Institute scholar Walter Olson made after Engoron's verdict last year. "The judge found Trump used faked-up statements of financial condition to swing the necessary financing on his Old Post Office hotel project in Washington, DC," Olson noted. "As a result, the judge ordered the former president to disgorge the entire $126,828,600 in profits he made over the five years he owned the project. This kind of reasoning leaves fortunes to hang on the web a prosecutor can spin with but-for arguments."
Moulton suggests that Engoron's treatment of the profits from selling the Ferry Point golf course license was even more dubious. Those profits, he says, "should not have been subject to disgorgement as there was no finding of liability by defendants arising from the license or its sale, and no colorable calculation of 'ill-gotten gains' associated with this transaction."
Engoron concluded that Trump "was able to secure a windfall profit by selling the license to Bally's Corporation" only because he had "maintain[ed] the license agreement for Ferry Point, based on fraudulent financials." But "the Ferry Point License did not require submission of SFCs to the City," Moulton notes. "Rather, it required the submission of 'no material adverse change' letters." Since James tied her allegations to the submission of SFCs, he says, "the claims predicated on the Ferry Point License are deemed abandoned." In any case, he adds, "the no material change letters were not material to the license because the only remedy for a default was an increase in the security deposit."
Engoron also concluded that Trump enjoyed about $168 million in "ill-gotten interest savings" by offering personal loan guarantees based on fraudulent SFCs. Moulton's opinion does not address that calculation. But in a partial dissent, Justice David Friedman argues that most of those alleged savings derived from "time-barred transactions" completed before July 13, 2014, the cutoff set by the relevant tolling agreement. Friedman, in any event, thinks James' lawsuit was fundamentally misguided, relying on a loose definition of fraud that "turns section 63(12) on its head."
Although Trump claimed "TOTAL VICTORY" and averred that the judges "said this was a fake case," the majority vigorously disagreed with Friedman's assessment. But the appeals court's decision does confirm the suspicion that Engoron's jaw-dropping disgorgement order was based on faulty legal reasoning—faulty enough to qualify as a constitutional violation.
