The Excessive Fines Clause Meets Executive Law § 63(12): Appellate Division Vacates Disgorgement, Affirms Injunctive Remedies in People v. Trump

Introduction

People v. Trump, 2025 NY Slip Op 04756 (Appellate Division, First Department, Aug. 21, 2025), is a landmark and highly fractured decision arising from the New York Attorney General’s civil enforcement action under Executive Law § 63(12) against Donald J. Trump, his companies, and several executives. The case centers on years of Statements of Financial Condition (SFCs) that the Attorney General alleged materially overstated assets and net worth to obtain better loan terms and insurance placements. After an 11-week bench trial, Supreme Court (Engoron, J.) entered sweeping injunctive relief and ordered disgorgement totaling roughly $464.6 million (including interest), while also sanctioning defense counsel.

On appeal, a divided First Department:

Vacated all disgorgement awards in their entirety;
Vacated sanctions against defense counsel;
Otherwise affirmed Supreme Court’s liability findings and extensive injunctive relief.

No single opinion commanded a majority on most legal questions. Justice Moulton (joined by Presiding Justice Renwick) would affirm liability and vacate disgorgement under the Eighth Amendment’s Excessive Fines Clause; Justices Higgitt and Rosado would order a new trial but joined the decretal “for the sole purpose of ensuring finality” and permitting review by the Court of Appeals; Justice Friedman would dismiss outright. Despite this fractured posture, the court’s decretal leaves a binding result: disgorgement and sanctions are vacated; injunctive remedies stand.

Summary of the Judgment

Attorney General’s authority: A majority of the court, as a matter of result, allowed the § 63(12) action to proceed and otherwise affirmed liability on fraud and “illegality” predicates (Penal Law falsifying business records, issuing false financial statements, insurance fraud, and related conspiracies).
Standard and elements: The lead opinion (Moulton) applied a preponderance-of-the-evidence standard for § 63(12), adopted an objective materiality framework (TSC Industries, Inc. v Northway), and held that disclaimers and counterparty due diligence do not defeat § 63(12) liability when valuations rest on undisclosed false facts and assumptions.
Statute of limitations: The lead opinion treated each post-tolling SFC as a separate, timely “repeated or persistent” act under § 63(12). The Higgitt writing read the prior interlocutory appeal (Trump I) differently and would have excluded large swaths under the law-of-the-case.
Disgorgement: The court’s decretal vacates disgorgement entirely. The lead opinion reasoned that the awards were punitive, violated the Eighth Amendment, and failed to meet equitable limits (including reasonable approximation and causal nexus). Other writings questioned causation, timeliness, and duplication, providing separate grounds to vacate.
Sanctions: The court unanimously vacated sanctions against defense counsel, finding the arguments were colorable and not frivolous.
Injunctive relief: Broad, forward-looking injunctive remedies—corporate officer bars, loan application restrictions with DFS-regulated institutions, continuation of the independent monitor, and installation of an independent compliance director—were affirmed as a proper exercise of remedial discretion under § 63(12).

Analysis

Precedents Cited and Their Role

Executive Law § 63(12) lineage and scope: The lead opinion leans on the statute’s broad anti-fraud purpose and its interpretive kinship with the Martin Act. It cites People v. Greenberg (21 NY3d 439) and People v. Coventry First (13 NY3d 108) to reaffirm that § 63(12) dispenses with common-law reliance and scienter and exists to secure “an honest marketplace.” It situates § 63(12) among prophylactic market oversight tools.
Materiality standard: Drawing from the Martin Act’s adoption of the federal proxy/securities formulation (TSC Industries, Inc. v Northway, 426 U.S. 438; State v. Rachmani Corp., 71 NY2d 718), the court applies an objective, reasonable-investor standard, sensitive to context and “total mix” of information.
Disclaimers and due diligence: The court distinguishes cases like HSH Nordbank AG v UBS AG (95 AD3d 185) and Danann Realty Corp. v Harris (5 NY2d 317), explaining that § 63(12) is not a private reliance tort. Disclaimers do not sanitize valuations derived from undisclosed, false foundational facts/assumptions and cannot insulate § 63(12) violations.
Eighth Amendment Excessive Fines: Building on Austin v. United States (509 U.S. 602), Alexander v. United States (509 U.S. 544), Kokesh v. SEC (581 U.S. 455), Liu v. SEC (591 U.S. 71), Timbs v. Indiana (586 U.S. 146), and United States v. Bajakajian (524 U.S. 321), the lead opinion concludes disgorgement here was punitive and “grossly disproportional” to the gravity of the offenses, falling afoul of the Excessive Fines Clause. It also emphasizes Liu’s equitable limits (victim restitution orientation and no joint/several without justification) and demands a reasonable approximation causally connected to the violation.
Law of the case and limitations: The court revisits Trump I (217 AD3d 609). The lead opinion reads that appeal as not foreclosing post-tolling SFC-based claims; the Higgitt writing interprets it to bar recovery for transactions “completed” (i.e., closed) before July 13, 2014, and would have ordered a new trial limited to timely matters.
Sanctions standards: 22 NYCRR 130-1.1(c) and cases counseling leniency where parties present colorable arguments in good faith (Gordon Group v. Kugler) supported vacatur of sanctions.

Legal Reasoning

1) Authority and Public Nexus under § 63(12)

The lead opinion reaffirms broad Attorney General standing to police “repeated or persistent fraud or illegality” in business, rejecting the idea that sophisticated counterparties and private, bilateral transactions fall beyond § 63(12). It stresses the state’s sovereign interest in market integrity and prevention, noting that counterparties may not complain when incentives align, and emphasizing prophylaxis in credit and insurance markets. The Friedman writing dissents sharply, viewing the case as an unprecedented, selective extension of § 63(12) into arm’s-length deals with no consumer-facing impact, warning of First Amendment “viewpoint” risks and policy overreach. Those constitutional critiques were not adopted by a majority and—importantly—were not advanced by appellants as a primary ground for relief at this stage.

2) Burden of Proof: Preponderance

Adopting the default civil standard, the court holds § 63(12) claims—fraud or illegality—require proof by a preponderance of the evidence. The heightened “clear and convincing” burden is reserved for proceedings implicating liberty or comparable interests (e.g., SORA risk levels, civil commitment), which are not at issue here.

3) Materiality and the Lens of Sophisticated Counterparties

While § 63(12) does not codify common-law fraud, the court deems materiality relevant—and applicable here—through the Martin Act analogy. Using TSC Industries’ “total mix” test, materiality is assessed objectively and contextually. Key holdings include:

When SFCs are delivered to banks and insurers, the “reasonable person” is a sophisticated counterparty, but the statute still does not import reliance or a due-diligence defense.
Quantitative magnitude (e.g., 17%–38% net worth disparities) strongly supported materiality.
Contractual language made SFCs objectively material: guarantees recited reliance, mandated annual SFC submissions, and made misstatements defaults.
Evidence of insurer underwriting (Zurich and HCC) showed balance sheet items, litigation representations, and liquidity figures were important inputs.

4) Disclaimers and “Due Diligence” Are Not Defenses to § 63(12)

Detailed disclaimers and “compilation” caveats did not absolve defendants where valuations rested on undisclosed false facts and contrary-to-reality assumptions (e.g., valuing Mar-a-Lago as unrestricted residential when deed restrictions and development rights extinguishment constrained uses). The court emphasizes § 63(12)’s statutory text targets the wrongdoer’s conduct, not the counterparty’s diligence.

5) Statute of Limitations and Accrual

The lead opinion treats each SFC use within the six-year period (as tolled) as a separate, actionable “repeated” act (“Whenever any person shall engage…”), permitting claims pegged to SFCs submitted after July 13, 2014. The Higgitt writing—construing Trump I—would cut off claims tied to pre–July 13, 2014 “completed” transactions (e.g., Doral, Chicago) and require a new trial due to the permeation of time-barred material at trial. The decretal, however, does not adopt that limitation, and the liability findings were otherwise affirmed.

6) Penal Law “Illegality” Predicates and Intent

For the “illegality” branch of § 63(12), Supreme Court found, and the appellate court largely sustained, Penal Law violations (falsifying business records, issuing false financial statements, insurance fraud, and conspiracies), with intent inferred from patterns of conduct, knowledge of restrictions and appraisals, and certifications. The appellate court defers to the trial judge’s credibility determinations, notwithstanding sharp criticism in a dissent regarding the testimony of Michael Cohen. The standard remains preponderance; “intent to defraud” does not require proof of counterparty reliance or loss.

7) Disgorgement: Eighth Amendment and Equity

The dispositive holding (by decretal) is that disgorgement is vacated in full. The lead opinion’s analysis, while not commanding a majority signature, will likely be persuasive statewide:

Disgorgement payable to the State without victim restitution, imposed jointly/severally, and aimed at deterrence is punitive, qualifying as a “fine” under the Eighth Amendment.
Under Bajakajian, the awards were “grossly disproportional,” especially where the evidence did not show catastrophic harm and the State’s preventive goals had been met by injunctive relief.
Equity requires a reasonable approximation of ill-gotten profits causally connected to the violations (First Jersey; Liu). The record failed that test—e.g., profits on later sales (Old Post Office, Ferry Point) were not separated from legitimate factors like development and hospitality performance; Ferry Point claims were effectively abandoned or not timely; “interest-rate savings” belonged to pre-2014 closings in large part and were not tethered to post-2014 SFC conduct with a proper causal chain.

Other writings supplied alternative grounds to vacate (timeliness, duplication, lack of nexus), but all five Justices agreed disgorgement could not stand.

8) Sanctions and Injunctive Relief

Sanctions: Unanimously vacated. Defendants’ submissions were colorable; repeating arguments at different stages (injunction, dismissal, summary judgment, trial) with expanded records and distinct standards did not constitute frivolous conduct.
Injunctive Relief: Affirmed as a measured remedy to prevent future violations—temporary officer/director bars, loan application restrictions through DFS-regulated entities, continued monitorship, and a mandated independent compliance director. The court emphasized defendants’ persistent conduct, post-monitor lapses, and lack of adequate internal controls. Structural compliance remedies were preferred to punitive transfers of wealth.

Impact

Although fractured, the decision has immediate and practical effects:

§ 63(12) remains a potent enforcement tool in purely private, sophisticated transactions where the State can demonstrate a public marketplace interest. Disclaimers and “everyone does their own diligence” will not immunize deceptive practices.
Materiality is back at center stage for § 63(12) fraud in financing/insurance contexts, through a TSC/Rachmani lens, focusing on objective significance to the “total mix”—all without importing reliance or damages.
Eighth Amendment constraints now loom over disgorgement in § 63(12) cases. While reasoning about the Excessive Fines Clause did not garner a majority opinion, the court’s decretal eradication of disgorgement will force future enforcers to:
- Define and quantify a reasonable approximation tethered by causal nexus;
- Prefer restitutionary constructs (where feasible) and avoid joint/several across broad groups;
- Expect courts to question the proportionality of massive, penalty-style awards disconnected from victim loss.
Remedial focus shifts to compliance architecture. Expect more monitors, independent compliance directors, training, certifications, and transaction-specific controls as primary remedies—especially where counterparties are sophisticated and market harm is systemic but diffuse.
Timeliness fights will persist. Practitioners should brief accrual in § 63(12) cases both ways—“whenever” repeated acts vs. “completed” transactions—and preserve Trump I–style law-of-the-case arguments. Appellate clarification from the Court of Appeals is likely.

Complex Concepts, Simplified

Executive Law § 63(12): A New York statute letting the AG sue “whenever” someone repeatedly or persistently engages in fraud or illegality in business. It is broader than common-law fraud (no reliance or scienter required) and often analogized to the Martin Act.
Statements of Financial Condition (SFCs): Annual personal financial statements, often compiled (not audited), that estimate asset values and net worth. Compilation means the accountant assembles client-provided numbers without verification; audited financials are tested and opined on for GAAP conformity.
Materiality (TSC/Rachmani): A misstatement/omission is material if there is a substantial likelihood a reasonable decision-maker would view it as having significantly altered the “total mix” of available information. It is not about actual reliance or outcome determinativeness.
Excessive Fines Clause (Eighth Amendment): Applies to punitive civil sanctions (including disgorgement) that are essentially penalties. Courts ask whether the fine is “grossly disproportional” to the gravity of the offense and whether it complies with equitable limits (e.g., reasonable approximation, causal nexus, and restitutionary orientation).
Law of the Case: A discretionary doctrine: a court generally won’t revisit its own prior rulings in the same case, absent clear error or new law/evidence. Here, it animated differing views on how Trump I’s statute-of-limitations language should channel the trial and remedies.

Conclusion

People v. Trump is a watershed decision in New York’s public enforcement jurisprudence. It clarifies that § 63(12) can reach sophisticated, private financing and insurance transactions when the State can show a market-integrity nexus; that materiality matters and is judged objectively in context; that disclaimers and counterparties’ diligence do not shield deceptive valuation practices; and that structural compliance remedies are not only available but favored in policing repeated fraud and illegality.

Equally important, the court’s decretal—vacating disgorgement and sanctions—announces a practical constraint: penalty-like monetary remedies in § 63(12) actions must survive Eighth Amendment scrutiny and equity’s demands for a tight causal fit. Even without a majority rationale, the signal to enforcers and courts is unmistakable: disgorgement must be restitutive in character, reasonably approximated, and proportionate—or it will not stand.

With split opinions on key points (limitations accrual, the precise role of materiality, and the constitutional analysis), this decision invites further clarification by the Court of Appeals. For now, its holding redraws the remedial map: robust injunctive and compliance-based orders remain the centerpiece of § 63(12), while expansive disgorgement, unmoored from causation and proportionality, faces constitutional headwinds.