failure to state a claim

The Donald J. Trump Foundation, a private foundation incorporated in 1987, was formed “exclusively for charitable, religious, scientific, literary or educational purposes”,  and as stated in the Certificate of Incorporation, shall not be for propaganda or participating or intervening in “any political campaign.”  The Foundation’s president and founder, is Donald J. Trump.

Donald J. Trump Foundation logo.pngThe Attorney General of the State of New York filed suit against the Foundation, Mr. Trump and the Board members, alleging breaches of fiduciary duty, waste, wrongful party transactions and dissolution of the Foundation.  The basis?  The petition claims that the Foundation and Board members engaged in illegal and abusive transactions over the years, violated corporate and statutory rules for fiduciaries, and misuse of charitable assets including self-dealing.  Significantly, the petition alleges that Mr. Trump used donated money to purchase personal items, advance his presidential election campaign and settle certain legal obligations.  The petition attaches many emails, photos, contribution lists and other supporting documentation.

Respondents moved to dismiss the petition in its entirety, alleging a variety of defenses, ranging from lack of jurisdiction under the Supremacy Clause of the U.S. Constitution, statute of limitations,  and failure to state a claim.  Justice Saliann Scarpulla, in a well-reasoned decision, denied the motion to dismiss all of the claims, except for the sixth cause of action seeking injunctive relief.  As to that claim, the court held that the injunctive relief sought was moot in light of the Respondent’s attempt to voluntarily dissolve the Foundation.

A key ruling was on statute of limitations, specifically, Respondents argued that the transactions at issue occurred more than six years ago.  They also argued that inquiry into any of the transactions occurring more than three years before the petition was filed is barred since the relief sought for those was primarily monetary.  Noting that movant on a motion to dismiss bears the initial burden of establishing untimeliness,  that burden then shifts to plaintiff to establish timeliness or an applicable tolling.  Here, Justice Scarpulla found that since the claims arose out of a fiduciary relationship, the limitations period is tolled until the fiduciary “opening repudiated his or her obligation or the relationship has been otherwise terminated.”   The court also applied the “continuing wrong doctrine“, noting that it applies in many types of cases, namely, breach of contract, breach of fiduciary duty and statutory violations.  The petition itself alleges continuing, pervasive failure to manage and operate in accordance with applicable rules and law.  That, coupled with the mixed relief sought — injunctive and monetary — led the court to apply the six-year statute of limitations, finding that the conduct at issue was not barred “as a matter of law” at this threshold stage of the case.

When wrongs occur over a substantial period of time — like those alleged here — a detailed pleading, demonstrating the continuity, relatedness and pervasiveness is essential to survive dismissal.  The petition here lays out in detailed fashion a continuous timeline.  Such careful pleading makes it very difficult for a defendant to overcome the “continuing wrong” doctrine.  It remains to be seen, however, after discovery and a likely motion for summary judgment, whether the alleged acts of misconduct are indeed “continuous”  and sufficient to overcome the statute of limitations defense.  The court here made it clear in denying the dismissal motion based on statute of limitations that the Respondents could not demonstrate untimeliness “at this pre-answer stage of the proceedings.”  Stay tuned for future developments!

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