Dissolving Trump’s Businesses Likely to Be Hit With Barrage of Legal Questions

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There’s a good chance Tuesday’s bombshell ruling, which ordered swaths of the Trump empire to be dissolved and properties handed over to a third party, will open up an extremely messy legal appeal.

Rather than putting properties owned under business certificates tied to alleged fraud under a receiver who would liquidate them, former President Donald Trump and his associates are likely to appeal the ruling and could wind up settling with New York State Attorney General Letitia James to keep his company afloat, according to real estate attorneys. Either way, Trump and company are almost certain to pocket the money from an ultimate selloff of his properties. 

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“In the history of New York, there’s never been a more likely chance that a party was going to appeal a decision,” attorney Paul Golden, a partner at Coffey Modica, told Commercial Observer. “I believe you can call this a historical decision, and the appeal is likely to be historical as well. There’s no other choice — unless they want to settle, which seems unlikely.”

Earlier this week, New York State Supreme Court Judge Arthur Engoron ruled in favor of the attorney general in her yearslong case to prove that the Trump Organization had committed fraud by inflating the value of properties, such as 40 Wall Street and Trump Seven Springs, by as much as $2.2 billion. The AG is seeking a penalty of about $250 million in the case. 

The former president’s attorneys on Wednesday asked for clarification on the ruling, which did not state what the role of the receiver would be or which properties need to be given to the receiver. Trump will have 10 days to recommend three potential receivers. 

Spokespeople for the Trump Organization and James’ office did not respond to requests for comment.

Canceling the business certificates could trigger a default on the loans tied to the properties, making the acquisition process, including getting title insurance, more difficult, according to Adam Leitman Bailey, a real estate lawyer at his eponymous firm.

“If you cancel the LLC of a property — let’s say 40 Wall Street or Trump Plaza — you then make the property unsellable, and if you can’t sell the property, then you’re violating the U.S. Constitution and the Fifth Amendment,” Leitman Bailey said in an interview with Commercial Observer. “It just doesn’t provide a remedy that can work under New York law. So what’s going to have to happen is the judge is going to have to reform this order, or, more likely, the defendants should apply for a stay and appeal a decision.”

A trial next week will explore if the order should be broadened to other entities controlled by the Trump Organization, at which point Leitman Bailey believes there could be revisions to the order in which a receiver is appointed but the business certificates are not canceled.

“If I was Donald Trump and the family and the defendants, I would settle with the attorney general right now and work on a sale of the properties over a 12-month period,” Leitman Bailey added.

While Golden agreed Trump was likely to appeal the decision, he wasn’t as optimistic as Leitman Bailey about Trump’s success in front of an appellate judge. Golden saw the ruling as a carefully crafted thing that would discourage any attempt by the defendants, or the Appellate Division, to overturn the decision.

If the properties eventually head to a receiver, proceeds from the sale will still go to the beneficiaries — the Trump family — of the LLCs for the properties. But, even without being tied up in a civil investigation, 40 Wall might not be fetching a premium price.

Last month, Fitch Ratings downgraded part of 40 Wall’s security to a junk credit rating because of “performance concerns” of loans for the 40 Wall and three other properties, Crain’s New York Business reported.

At 40 Wall, occupancy dropped to 83 percent at the end of last year — a decrease from 86 percent in 2021 and 94 percent in 2018 — while new tenants have delayed moving in, Crain’s said. Trump also gave major concessions to keep tenants in the building during the pandemic, cutting the average rent to $37.34 per square foot, almost a third below other rents in the neighborhood.

James’s long case against Trump — who has repeatedly called her investigation a “witch hunt” — gained ground in November 2022 when Engoron placed an independent monitor on the Trump Organization.

In May 2022, Trump tried to take his case to the federal government, appealing to a judge to end the investigation by James’s office. That move was ultimately unsuccessful.

The investigation also had implications for Trump’s past associates, such as Cushman & Wakefield, which was subpoenaed as well as held in contempt of court when it didn’t turn over documents pertaining to appraisals. C&W and the courts later arranged an extension to avoid fines.

Mark Hallum can be reached at mhallum@commercialobserver.com.