On Oct. 4, 2017, the New Yorker, in collaboration with ProPublica and WNYC, reported that Ivanka and Donald Trump Jr. were subjects of an investigation by the Manhattan District Attorney’s office relating to them allegedly “misleading prospective buyers of units in the Trump SoHo, a hotel and condo development that was failing to sell.” Per this report, Donald Jr. told a magazine that 55% of the units in the Trump SoHo had been bought. Ivanka later said that 60% had been sold. According to the 2017 news report, “None of that was true.”
The article goes on to detail negotiations between the Trumps’ lawyers and the Manhattan District Attorney that resulted in no charges being filed. These details led to followup stories, headlined, for example, “The Time Ivanka Trump and Don Jr. Were Nearly Indicted For Real Estate Fraud.”
I’d like to focus for a minute on one of the details that may have gotten lost in the shuffle because I think it has some broader application to fraud litigation.
During these negotiations, two of the Trumps’ lawyers sent a letter to the prosecutor’s office in which they “acknowledged that the Trumps made some exaggerated statements,” but argued that these statements were “mere ‘puffery.”
“Puffery” is a legal term that means “sales talk” or harmless exaggeration.In general, puffery cannot form the basis of a fraud claim. If you’re told that you’re buying the ‘world’s greatest mattress” or the “sports sedan of the future,” your disappointment with a lumpy mattress or an ordinary car will not make those statements fraudulent.
“Puffery” is a legal term that means “sales talk” or harmless exaggeration.
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There’s at least two reasons courts treat puffery as a legal defense. First, fraud must be based on false statements of fact. Courts have found that descriptions like “world’s greatest” or “best ever” do not qualify as statements of fact. Second, courts are wary of putting the chill on speech and commerce by making everyday sales patter subject to litigation.
Let’s look more closely at exactly what Donald Jr. and Ivanka said to their investors. In addition to the representations about the numbers of units sold, they were quoted as saying that the Trump SoHo’s sales were to “largely foreign buyers” and that, generally, “It’s great for us in high-end real estate.” Donald Jr. also said in a New York real estate publication that “real estate has always been a great investment.”
In 2010, people who bought units in the Trump SoHo sued, alleging that they were defrauded. According to the plaintiffs’ lawyer, speaking to the New York Times, his clients “relied on [the Trumps’] misrepresentations to their detriment.”
Which Trump statements could have formed the basis of a fraud claim, and which were puffery? A statement about the percentage of available units sold is typically actionable, because that statement is factual. The plaintiffs would have to plead (and prove) that the speaker knew the statement was false and intended to deceive them, but crying “puffery” is not going to be a defense.
…plaintiffs would have to plead (and prove) that the speaker knew the statement was false and intended to deceive them.
On the other hand, statements that sales are going “great,” that Trump SoHo sales were to “largely foreign buyers,” or that buying a Trump SoHo unit is a “great investment” are more likely to be considered puffery. These are exaggerated opinions on which no reasonable person would rely in making their decision whether to purchase a condo.
Check out the legal history of TV salesman Kevin Trudeau, sentenced in 2014 t0 a 10-year sentence for his long history of fraud. In 1999, Trudeau used puffery as a legal defense in an argument against the Federal Trade Commission. Trudeau argued that his weight-loss infomercial claims fell under the puffery category. He stated that “the FTC shouldn’t be able to call him a liar for simply speaking his mind.” The court did not agree with him.
The Trump SoHo was not the subject of an in-depth, joint New Yorker-WNYC-ProPublica investigation simply because it was a typical case of sales fraud. The Trump SoHo story, however, shares a characteristic of a typical sales fraud case: In almost every case, actionable misrepresentations — if any were made — are going to be mixed in with obvious puffery and sales talk. Puffery is the omnipresent background noise of the sales transaction. It’s always there, and after you’ve spent enough time in the environment, you may not even hear it anymore.
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In a sales fraud case, then, the defendant is always going to try to use puffery as a legal defense. There will have been at least some sales talk; the argument that it was all sales talk is nearly automatic. What separates a strong plaintiff’s case from a weak one is the ability to identify misrepresentations of fact and to filter out the puffery. A good lawyer will identify the alleged factual misrepresentations directly and simply in the complaint, and will build his or her case around establishing their falsity and the fraudulent intent of the speaker.
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