Is Going After Trump’s Businesses Under State Law Such a Good Idea?–Some Criticisms To Consider

As regular readers of this blog are aware, although I share the concern that the Trump family’s extensive private business interests pose significant corruption risks, I’m skeptical that existing federal law supplies the tools needed to attack this problem. Some of the most important federal conflict-of-interest laws don’t apply to the President, and some of the creative attempts to sue the President in federal court for alleged violations of the Constitution’s Foreign Emoluments Clause face what I fear are insurmountable legal obstacles. Several commentators have proposed reforms to federal law that would deal with the presidential conflict-of-interest problems more effectively, and some Members of Congress have introduced such legislation. But as a practical matter, given Republican control of Congress, these proposals—whatever their symbolic value—are not going anywhere.

If federal law isn’t going to help, might state law be the answer? Shortly after Donald Trump tweeted critical comments about Nordstrom’s department store’s decision to drop his daughter Ivanka’s clothing line, ethics expert Norm Eisen suggested that this tweet might be a violation of California’s unfair competition law (UCL), which prohibits “any unlawful, unfair or fraudulent business act or practice.” Around the same time, Fordham Law Professor Jed Shugerman wrote a lengthy blog post, which got quite a bit of well-deserved attention, suggesting that state corporate law tools could be used to go after alleged violations of the Emoluments Clause by Trump’s businesses. Picking up on some of these suggestions, I argued in previous posts that the California UCL, or others with similarly broad phrasing, might be a viable basis for an Emoluments Clause suit, and further that states could amend their UCLs, consumer protection laws, business organization laws, and anticorruption laws in ways that would make it harder for businesses owned or controlled by the President of the United States (or his immediate family) to leverage political power for private commercial gain in ways that would adversely affect the interests of the states’ citizens.

The idea that state (or local) laws might be used in this way is not purely hypothetical or speculative. A couple of lawsuits are already invoking UCLs as a basis for going after allegedly unlawful overlap between the Trump family’s business interests and their political power. First, a Washington, D.C. restaurant brought a private suit alleging that Trump’s ownership interest in the Trump International Hotel in Washington, D.C., which occupies a building leased from the federal government’s General Services Administration (GSA), violates the terms of the lease, and that this in turn gives rise to a violation of D.C.’s UCL. (That suit, however, was dealt a major blow when the GSA ruled—implausibly—that Trump is not in violation of the lease.) Second, a San Francisco clothing retailer has sued Ivanka Trump under California’s UCL, alleging that various actions by Donald and Ivanka Trump, and others, to promote Ivanka’s brand have unlawfully hurt competitors such as the plaintiff. And in what many took as an encouraging sign, the New York State Attorney General Eric Schneiderman recently hired former Assistant United States Attorney Howard Master, who handled public corruption prosecutions under recently-fired U.S. Attorney Preet Bharara, and news reports indicate that Mr. Schneiderman is looking into the possibility that Trump’s alleged Emoluments Clause violations also put him in violation of state law.

I’m cautiously optimistic about this line of attack, particularly if state attorneys general and state legislators get involved, and I’m currently working on developing some more concrete proposals along these lines. (As the modern cliché goes, “Watch this space.”) At the same time, though, I’ve talked to a number of smart, thoughtful people who are skeptical that pushing for state-level responses—particularly by aggressive state attorneys general—is such a good idea. While these criticisms haven’t yet convinced me to change my mind, they’re important enough that those of us attracted to the state law approach ought to take them seriously and reflect carefully before we charge ahead. So, let me try to summarize what I take as the three most important arguments against trying to use state law tools to make it more difficult for the Trump family to profit from the presidency:

  • The state law strategy won’t work, and will divert scarce resources from other critical tasks. Perhaps the simplest, and in some ways the most compelling, objection to calling on state attorneys general to sue the Trump Organization is that the odds of success are relatively low, given that the laws in question weren’t really designed for this situation and courts may be reluctant to get involved. Yet state attorneys general have a lot on their plate right now—and indeed, those state AGs who are most likely to take on Trump are probably the busiest trying to resist the Trump Administration on other fronts, such as more aggressive immigration enforcement, rollback of environmental, consumer, and labor protections, and so forth. Some have suggested to me, quite plausibly, that state AGs should stay focused on those tasks, rather than taking on a quixotic anticorruption mission. The same general argument applies, though perhaps with somewhat less force, to efforts by state legislators to enact new laws to make it more difficult for politically-connected businesses to exploit their unique advantages: Such legislation may be unlikely to pass and might divert attention from other problems that require state legislative action. Furthermore, since at least some of the legislative proposals folks like me are developing might provoke constitutional challenges, the state’s litigation resources would be taxed further defending such laws. (The concern about resource diversion doesn’t apply in the same way to private suits, but there we have a different problem: Such suits are even less likely to succeed, and their failure may undermine the larger attempt to call attention to the seriousness of the conflict-of-interest problems.)
  • If the state law strategy starts to work, the federal government will intervene in ways that make things worse. It’s always important to keep in mind that, in the U.S. system, the federal government has considerably more power than do the states. Yes, it’s true that states take the lead in many areas, and some believe that, as a matter of constitutional law, the federal government’s power take over regulatory functions from the states or to displace (“pre-empt”) state laws ought to be narrower than it is. But as things currently stand, a quite broad conception of the federal government’s legislative powers, coupled with the Constitution’s Supremacy Clause, means that if it so chooses, the federal government could adopt laws or regulations that curtail or eliminate state-level UCLs, consumer protection laws, corporate law, etc. Even before Trump, some groups had already been lobbying for federal action to curtail the (alleged) “abuse” of “overly broad” state-level UCLs. Given this backdrop, it’s been suggested to me that if state AGs started to use these state laws effectively to go after Trump-connected businesses, or if state legislatures were to enact new laws to make such actions easier, the Republican-controlled federal government would step in—not only to stop these particular anti-Trump actions, but to cut back on state power in these areas more generally.
  • If the state law strategy does work, it will just make the larger problem worse. Finally, at least one person I’ve talked to about this made the following point: Suppose a bunch of states where Trump does a lot of business (such as New York and California) pass and/or enforce laws that make it harder for Trump businesses to operate profitably (or operate at all) in those states. People like me hope that the result will be a change in Trump’s behavior, for example that he’ll divest his assets and set up a genuine blind trust. But it’s also possible that a consequence of making it harder for the Trump Organization to reap domestic profits will just make Trump all the more dependent on its foreign operations. This is even more problematic from a corruption/conflicts standpoint. To put it crudely: If we’re concerned that Trump’s businesses are secretly propped up by loans from Russian oligarchs and deals with Chinese princelings, then hitting Trump’s bottom line in the U.S. is just going to make him even more dependent on loans from Russia and deals in China (and other places).

I’m ultimately not persuaded that any of these arguments is a good reason to abandon the state law line of attack, for reasons I may develop at greater length in a future post. I’ve listed them in which I think is ascending order of seriousness and descending order of plausibility. I’m actually not too worried that, in the unlikely event that state AGs and state legislators in a handful of states actually manage to make it hard for Trump businesses to operate that this will worsen the problem of Trump’s dependence on foreign sources of money—both because this is already (probably) a big problem and because it appears that Trump’s domestic holdings are actually one of the main conduits for cash infusions from foreign sources. I’m also not too worried about federal preemption of state laws, though I acknowledge this is a concern worth taking seriously. Democrats still have enough votes in the Senate to filibuster, and Trump is sufficiently unpopular—both with independent voters and with Members of Congress from his own party—that I’m not convinced that even a Republican-controlled Congress would want to stick its neck out to protect Trump’s business interests from state laws. (To the extent that federal agencies in the executive branch can take action that would pre-empt these laws, though, that’s another story.) The biggest question for me is whether this approach has enough of a chance of success to make it worth the resources pursuing it would require. I’m still chewing that over. As noted above, watch this space.

3 thoughts on “Is Going After Trump’s Businesses Under State Law Such a Good Idea?–Some Criticisms To Consider

  1. The GSA decision in the DC UCL case is utterly implausible. However, I did not understand why the other party to the lease agreement’s statement that the lease agreement was not being violated has an impact on the local restaurant’s case. Let’s say I am the landlord of a building in a city in which you cannot have a fire pit in your backyard. The rental agreement says “no setting fires in the backyard”. The lessees light fires anyway and the neighbors bring suit against them. I, however, like my lessees and so I say “they never set any fires”….what then? I assume there is a simple answer to this question, but I’m having trouble grasping it.

    On another note, I see something of a parallel between the DC case and your second point about the potential for federal preemption. The GSA is headed by somebody who’s a Trump underling. Understandably, that person will do whatever Trump wants him to do if he wants to keep his job. However, while many Republicans are willing to serve at Trump’s will (e.g. Nunes), they do sit in a separate branch and might not step up to pass sweeping legislation in order to cut off state law cases against a President who is decreasingly likely to influence their own re-election campaigns. In short, I think I agree with your evaluation of that particular criticism against state law challenges.

    • On the first question, you’re right (I think) that the GSA decision is not necessarily fatal to the lawsuit, but it’s a bit blow, because I believe (though I’m not an expert here) that a court would typically be unlikely to declare that party X had breached a contract with party Y (in a suit brought by third-party beneficiary Z) if party Y says that in its view X is in full compliance with the terms of the contract. And you can layer on top of that the fact that, much as courts are usually deferential to a government agency’s interpretation of its own rules, courts are also likely to be deferential to a government agency’s interpretation of something like a lease agreement. I confess I’m not an expert in government contracting law, so I could well be wrong about this, but that was my thinking. I hope I’m wrong!

      On the second point, this is definitely a concern. It’s especially a problem in those cases where a federal agency could preept state law via regulation, without the need for Congress to pass a new statute.

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