The Trump Organization’s Shake Down of Capital One

The Trump Organization is trying to shake down Capital One. And they’ll probably succeed. The Trump Organization has sued Capital One for closing its accounts in January 2021, allegedly because of Donald Trump’s political views. (Or, put differently, Capital One decided that it was not good business to continue being associated with an entity connected to the January 6 insurrection.)

As a legal matter, the Trump Organization's complaint is risible; Capital One should be able to easily get the case dismissed. But that might not matter because the Trump Organization has them over a barrel: if Capital One doesn’t pay up, the implicit threat is that the Trump administration will move to block the Capital One-Discover merger and generally make life unpleasant for Capital One. (Of course, if the Trump administration were really clever, they wouldn’t have dropped the CFPB suit so fast, but that’s probably just that the right hand didn’t talk to the left.) That’s gangster capitalism and underscores the incredible conflicts of interest that continue to exist for Trump.

In terms of the legal issues, Capital One’s defense starts with the caption of the suit: the Trump Organization has the wrong defendant, lol! They sued “Capital One, N.A., a Virginia corporation”. No such entity exists. Capital One is a federally chartered bank (that’s what the N.A. means!) that just happens to be headquartered in Virginia. (It does count as a Virginia entity for purposes of diversity jurisdiction.)

Going beyond that, “debanking” is not a recognized tort. Accordingly, the Trump Organization has to try to cram its claim into various state consumer protection statutes. What’s weird is that it invokes the North Carolina, Nebraska, New Jersey, and Minnesota consumer fraud acts, despite alleging no connection whatsoever to those states in the facts. There are SO many problems with the complaint in this regard.

First, the Nebraska statute expressly exempts “actions or transactions otherwise permitted, prohibited, or regulated under laws administered by … any other regulatory body or officer acting under statutory authority of … the United States.” That seem to mean that it does not apply to a national bank like Capital One, N.A.

Second, the Trump entities aren’t based in Nebraska, NJ, or Minnesota, and neither is Capital one, and the debanking did not occur in those states. Instead, the Trump Organization alleges that those laws are applicable because “Capital One’s unlawful and deceptive de-banking practices, which terminate banking relationships based on a consumer or business' political views that are contradictory to those held by Capital One, are a matter of significant public interest to the residents of [Nebraska/NJ/Minnesota].” No actual effect on consumers in those states is alleged, however. There is generally a presumption against extra-territorial applications of state laws plus possible dormant commerce clause issues if there were extra-territorial application. Here it is hard to see how an extra-territorial application of any of those states laws could stand when no nexus to those states whatsoever is alleged. (If these laws can apply without any conduct next, then plaintiffs’ attorneys are going to have a field day: the NJ and Minnesota statutes in particular have some powerful provisions.)

Third, even there were an extra-territorial application of those laws, it’s hard to see how they’ve been violated. Banks are not common carriers. They do not have an obligation to serve all comers. As long as they do not violate laws prohibiting discrimination against protected classes, they are free to tell anyone to take a hike or to stop doing business with them, including based on a political disagreement. A bank does not have to provide services to the KKK or to the ACLU (lehavdil!), for example. The exception would be if Capital One made representations that it would not discriminate based on politics, but no such representations are alleged here.

Fourth, Capital One would have a plausible preemption claim to the application of state consumer fraud laws to its closing of accounts, even under Cantero. But I don’t think it would even need to go there to win.

Finally, remedies. Nebraska requires a showing that the practice affects the public in order for a remedy to attach, while Minnesota requires that the plaintiffs show that the suit benefits the public at large. Both would be challenges here, as there is no evidence of wide-scale politically-based debanking, as opposed to debanking because of risks attendant to particular lines of business.

So all that leaves is the Trump Organization’s declaratory relief claim under Florida law that Capital One improperly terminated its accounts. But that requires the court to have some metric for determining if the termination was proper. There’s no contractual hook alleged, and there’s no tort identifiable here, so it’s only the underlying consumer fraud claims. If the Trump Organization cannot prevail on the underlying consumer fraud claims, I’m not sure how they could prevail under a declaratory relief claim.

All in all, this seems like an open-and-shut Rule 12(b)(6) dismissal, if Capital One wants to litigate.

The real question here is whether Capital One is going to fight this, and, if so, how hard. Capital One should win this one if it litigates, but it will likely come at the cost of their merger with Discover. Paying a few million to the Trump Organization in a settlement is a very low cost for greasing the wheels for the merger. 

It’ll be interesting to see whether Capital One caves immediately or at least starts to litigate. If they're going to litigate, one would expect the first move to be a motion to remove the case to federal court on diversity jurisdiction grounds (ironically, there is complete diversity here)…unless they’re worried that they get Judge Aileen Cannon. Given how fast we’ve seen media companies fold in the face of a Trump shake-down, I’m not expecting Capital One to stand strong on this. But if Capital One pays up despite have an incredibly strong case and its merger is then approved, it's going to be hard to avoid the impression that the settlement payment was a bribe to secure merger approval.

Comments

[Bob Lawless]

On top of all the other mean-spirited, discriminatory, and moronic things our new corporate overlords have done, they now have me rooting for Capital One.

[Bob Lawless]

Adam, two other thoughts occurred to me. First, surely Capital One can force this into arbitration. Capital One credit card accounts famously don't have an arbitration provision, but I think its deposit account agreements do. These also would have been commercial accounts. Second, what could the Trump Organization's damages possibly be? About the only thing the Trump Organization can get is declaratory relief, and I am not even sure this dispute meets the grounds for it.

[Adam Levitin]

Bob is right as always. CapOne should be able to remove this to arbitration. Think of it as Mike Pence's revenge (he cast the deciding Congressional Review Act resolution vote on the CFPB's arbitration rule).

Bob's comment gets me wondering why the Trump Organization even filed a lawsuit--a demand letter ought to have done the trick.

Also, the mistake about the scope of Nebraska law is potentially sanctionable: you can't file claims that are facially unsupportable because you failed to do basic legal research.

[Robert Hobart]

If Capital One didn’t close these accounts for political reasons it seems like a simple defense might be to state why they did close these accounts.

[Adam Levitin]

Robert Hobart:

I suspect CapOne did close the account for political reasons. And it is allowed to. Capital One is allowed to close accounts for whatever reason it wants provided that it isn't discriminating against a protected class (race, gender, etc.). But it is free to discriminate on political views--this is just a version of Masterpiece Cake Shop.

Even if CapOne had some other motivation, the last thing it wants is to let this turn into a discovery morass, which is what will happen if the defense is based on a factual dispute.