Will Trump have to pay his huge fraud judgment? Appeals court probes if suit went too far

This story was updated to add new information.

Lawyers for former President Donald Trump and New York Attorney General Letitia James' office squared off Thursday at a state appeals court over whether a trial court's February $454 million civil fraud judgment against Trump – which has grown to more than $478 million with accruing interest – should be overturned.

Several of the five judges in Manhattan who are hearing the appeal expressed interest in clarifying the limits on the attorney general's authority to sue businesses under the fraud statute that was used against Trump. Trial Judge Arthur Engoron concluded that Trump violated the statute by misleading lenders for years with sometimes-huge overvaluations of his assets, which got him better loan terms.

Only one of the five judges, Judge David Friedman, appeared to clearly believe that the lawsuit against Trump was improper.

Friedman interrupted the lawyer arguing for James' office, Judith Vale, six words into her first sentence about the case to read a pre-prepared question on whether the attorney general had ever sued "to upset a private business transaction" in similar circumstances. He said the valuations of properties and businesses that Engoron concluded were sometimes hugely inflated are "inherently subjective," and he questioned whether they caused anyone harm.

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Vale responded that, by inflating the value of his assets, Trump created risks for lenders. She also said the fraud statute in the case was meant not just to protect such lenders, but also to show concern for “the honest business people who don’t do the misconduct and therefore don’t get the kind of benefit that they got here.”

Questioning scope of attorney general's power

Judges beyond Friedman were also interested in defining the scope of the attorney general's power to sue under the fraud statute, but they didn't so clearly signal they thought the lawsuit against Trump had exceeded that scope.

Judges John Higgitt and Dianne Renwick asked whether there were any limits to what the attorney general could sue over to prevent corporate fraud.

“What are the guardrails?” Higgitt asked.

“If the threat of harm – or whatever the ripple effect – is so remote, how remote does it have to be for the AG to follow through, or until it’s outside the scope of the statute?” Renwick asked.

Vale said the statute was written broadly in order to protect honesty and integrity in the marketplace, and to prevent engaging in fraud and illegality.

Renwick also questioned Trump's lawyer, John Sauer, about the breadth of the statute, pointing out that the law explicitly authorizes the attorney general to sue when someone engages in repeated fraud or illegal acts.

"So why isn't the language of the statute here – referring to the repeated and fraudulent illegal acts, or persistent fraud or illegality – why doesn't that define the scope of the statute?" she asked.

Sauer responded that the appeals court had held in a previous case that the fraud statute only applies when the defendant has shown a capacity or tendency to deceive, or where there was "an atmosphere conducive to fraud." He said in Trump's case there were no victims or complaints, and lenders did their own due diligence before providing loans.

"All that is powerful evidence that there was no capacity or tendency to deceive," Sauer said.

At one point, Judge Peter Moulton told Vale that she was hearing several questions about the scope of the attorney general's authority because there must be some limit. “So what is the limiting principle?” he asked.

Vale said the attorney general can only sue when there is illegality. In addition, the fraud at issue has to be relevant to the business and must – as Sauer had noted – have the capacity or tendency to deceive.

What is at stake for Trump?

Even as he has faced four criminal cases, Trump has shown strong interest in the state's lawsuit: He attended many days of the months-long trial last fall and winter, and has attacked Engoron with blistering words on social media. Although Forbes and Bloomberg have placed Trump's net worth in the billions in 2024, he decried having to post a bond worth the full judgment during the appeal, arguing it was "a practical impossibility."

The appeals court later stepped in to help the Republican presidential nominee, reducing his appeal bond amount to $175 million. He and several co-defendants posted that bond in April, averting the threat of his assets being seized before his appeal is over.

Trump's appellate legal team says the entire judgment should be thrown out because James brought her lawsuit too late and, in reality, he greatly undervalued his assets.

"President Trump’s estimates of his net worth were very low and conservative, not high—the exact opposite of what (James) alleges," according to Trump's brief to the Manhattan appeals court.

In their own brief to the Manhattan appeals court, lawyers for James' office cited specific examples of what they described as persistent fraud on Trump's financial statements, such as tripling the size of his Trump Tower penthouse and disregarding the effects of deed restrictions on the value of his Mar-a-Lago club.

Trump and his co-defendants "created and used financial statements rife with blatant misrepresentations and omissions to maintain loans worth more than half a billion dollars and to generate over $360 million in ill-gotten profits," the James legal team wrote.

In addition to the $454 million judgment that was handed down against Trump and some of his entities, Engoron also imposed about $10 million in liability against former Trump Organization executive Allen Weisselberg and the two oldest Trump sons – Don Jr. and Eric. The total February fraud judgment of more than $464 million against all the defendants has now grown to more than $489 million with interest, which accrues at a rate of 9% per year.

Reducing Trump and co-defendants' $489 million bill?

Judge Peter Moulton at one point on Thursday suggested the size of the fraud judgment might in itself be a cause for concern.

“The immense penalty in this case is troubling,” he said to government lawyer Judith Vale. "So how do you tether the amount that was assessed by (the trial court) to the harm that was caused here, where the parties left these transactions happy about how things went down?"

Vale said the fraud judgment simply required Trump and his co-defendants to cough up the benefits they reaped through fraud, and it's a large number because there was a lot of fraud. She said it impacted the interest rates on the loans the defendants received by 4-8% across seven years.

"That is an enormous benefit that they got from the misconduct, and it is not an excuse to say, 'Well, our fraud was really successful so we should get some of the money,'" Vale said.

What is Trump arguing on appeal?

Trump is raising a handful of arguments as he tries to get an appeals court to throw out the judgment or significantly reduce it.

One of Trump's main arguments is that it's impossible to violate the New York fraud statute if the alleged perpetrator didn't hurt anyone – and Trump maintains he didn't. In particular, his lawyers have emphasized that the Trump Organization repaid Deutsche Bank hundreds of millions of dollars in loans that the bank provided after receiving the financial statements that Engoron deemed fraudulent.

The representations on the financial statements "involved no victims, no complaints, no evidence of causation, no injuries, no losses to any business or consumer, and no impact on any public interest," according to the Trump brief.

James' office responded that the statute isn't just in place to address past harm; one of its purposes is to prevent future harm.

"A core focus of (the fraud statute) has thus always been protecting both the integrity of the marketplace and honest market participants from the risks of misconduct—even if those risks have not yet come to pass," lawyers from her office wrote in their brief.

Trump is also arguing that James brought her lawsuit too late when it comes to most of her allegations. He says that if the correct time limit under New York law is applied, nearly $351 million of the more than $464 million total February judgment in the case would be eliminated.

Engoron rejected that argument, ruling that the window for the lawsuit was extended because Trump continued to submit fraudulent financial statements to lenders after the relevant loan transactions and, during James' investigation, Trump and his co-defendants had agreed to further extend her time limit to file suit.

If Trump loses, can New York seize his assets?

If Trump loses his appeal and fails to pay the full judgment, James could start moving in on his bank accounts and real estate quickly.

The judgment automatically becomes a lien on Trump's real estate in Manhattan because Manhattan is in the same county that the judgment came from. But James could also go after property elsewhere. Different jurisdictions have different laws about foreclosing on properties.

James would also have the ability in New York to get rental payments from tenants in Trump Organization properties redirected to pay his judgment, and she could get bank accounts in New York frozen quickly.

This article originally appeared on USA TODAY: Appeals court probes limits of $478 million fraud case against Trump