Story first appeared in USA TODAY.
It's a business challenge fit for The Celebrity Apprentice, the reality TV hit starring real estate mogul Donald Trump: A broker helps land a lucrative licensing deal for a high-profile executive, who in turn allegedly cuts off payments to the broker.
What would The Donald do?
A New York State Supreme Court may decide, because the executive starring in this real-life lawsuit is Trump himself.
His company hired ALM International, a New York City-based firm, in 2003 to seek clothing industry licensing deals for the Trump brand, court records in the case show. ALM helped arrange a meeting that ultimately led apparel giant PVH, formerly known asPhillips-Van Heusen, to license Trump's name for a line of dress shirts and formal neckwear.
ALM, now known as ALM Unlimited, argues that Trump improperly halted payments on the agreement in 2008 after 11 consecutive quarters in which the world-famous executive personally signed checks to the firm for its work.
ALM attorney Jay Itkowitz said part of the art of the deal is to comply with the deal, to fulfill your responsibilities, pointedly invoking the title of Trump's signature business book. He said they argue that he hasn't done that. He added that he thinks if this little problem was presented on his TV show, somebody might get called down to the boardroom.
Trump said that this lawsuit is without merit and is very insignificant. His lawyer has moved to dismiss the case.
Testifying in pretrial depositions, Trump and two of his business lieutenants gave contradictory statements on whether ALM should have been paid anything at all. Trump said the nearly three years of payments were a mistake because he wasn't aware of them, and he doesn’t feel that these people did very much, if anything, with respect to this deal.
Trump attorney George Ross, an adviser seen on the Apprentice series, said ALM was entitled to far less than it got before the cutoff. But Cathy Glosser, Trump's executive vice president of global licensing, said Ross told her to see to it that ALM got paid.
The previously unpublicized lawsuit offers a colorful inside glimpse of Trump's management style — one in which he portrayed himself in his deposition as signing foot-high stacks of payment checks while only occasionally checking the invoices.
Additionally, the case is one of several civil lawsuits nationwide that allege that improper Trump actions in licensing or other business deals collectively cost clients, buyers or associates millions of dollars in losses. Coming after Trump this year flirted with a White House campaign for weeks before opting to continue with his TV series, some business experts and lawyers say the combined legal impact could jeopardize his brand's value — a conclusion Trump emphatically disputed.
According to Trump's deposition, he began licensing about 10 years ago. He said it started with buildings, and then it went over to many other products after the Apprentice series became a success, adding that it was his idea.
And that idea, Glosser said in her deposition, was terrific quality, at a great price point.
Today, fans who want to get their Trump on have a wide array of products to choose from. Trump video games. Trump chocolate. Trump tea. Trump ice. Trump furniture. Trump mattresses. Trump lighting. Trump home fragrance. Trump crystal. Trump eyewear. Trump cuff links and tie clips. Trump belts and small leather goods. And Trump business suits.
Although Trump said he didn't recall his first product licensing deal, the one with PVH was among the earliest apparel agreements. And it was profitable, producing more than $3.2 million in royalties for Trump from 2005 through 2007, according to ALM's amended court complaint. PVH declined to comment on sales of the Trump line.
Court records show ALM's agreement initially called for Trump to pay the firm 22.5% of royalties he received from apparel licensing deals the broker helped secure. A subsequent amendment that extended the deal's length and also covered any extensions of previously approved Trump licensing agreements with apparel firms cut ALM's percentage to 10%.
Accordingly, ALM received more than $300,000 in fees until 2008, when the Trump Organization cut off payments to the firm on the continuing apparel licensing deal. As Trump recounted it in his deposition, it was his insistence on signing all payment checks that detected what he termed the ALM payment mistake.
Trump said he still uses the old-fashioned method and he signs his own checks, but he signs so many of them over the course of a week or over the course of a month that it's a long, arduous process.
So arduous that he has thousands of checks that he signs a week, and he doesn’t look at very many of the checks; and eventually he did look, and when he saw the ALM checks he stopped paying them because he knew it was a mistake or somebody made a mistake.
According to his deposition, Trump questioned whether he should have paid ALM anything, because the only agreement with the firm was a memorandum of understanding that never became a signed contract.
Trump acknowledged he signed that agreement. But he said he didn't realize it called for automatic renewals.
Ross said in his deposition he refused to advise Trump to sign a contract with ALM because the firm's payment percentage and lack of a termination clause were too high. But Ross said he didn't convey that to ALM representative Jeff Danzer in writing, because that might have created a situation where he would kill the PVH deal, and he thought he was devious enough to do that.
Instead, Ross said in his deposition, he told Danzer that after the apparel deal was finalized, theye will sit down like gentlemen and work out what they should be entitled to. Ross added that he told Glosser exactly the same thing.
But Glosser in her deposition offered a far different recollection of her conversations with Ross. She said he told her after she probed many times to find out if he had a signed deal with ALM … that ALM was entitled to payment and to see to it that they got paid.
Itkowitz, ALM's attorney, offered his own conclusion stating that this situation seems to be a case where a financially strong person is attempting to use economic power to get a better deal, namely to pay less than he's required to under the agreement. He added that if there are situations where it gets out that you're not going to fulfill your part of the deal, it creates the risk of damage to your reputation.
If so, the risk may have been heightened by other lawsuits against Trump.
Lawsuits in other deals
•In 2005, Trump and Tampa officials announced plans for a 52-story condominium, one that would have been the city's tallest building. But the project, Trump Tower Tampa, slid into bankruptcy in 2008.
Would-be buyers allege in a Tampa federal court lawsuit they collectively lost nearly $8.5 million in deposits and interest. Defense attorneys argued in court filings that Trump wasn't the developer and had absolutely no responsibility for the project's failure or the losses. But the prospective buyers contend Trump misled them into believing he was deeply involved in the project.
•Trump Ocean Resort Baja was marketed in 2006 as a $200 million hotel condominium in Baja California, Mexico, with 526 luxury suites that owners could offer for rent when they weren't using them. The project, which the court complaint argues was to be a Donald Trump development, with Donald Trump participating as a developer, collapsed before construction began.
Scores of would-be buyers argue in a Los Angeles Superior Court lawsuit that they lost about $25 million. Both Trump and his partners in the deal contend they weren't the actual developers and thus bore no legal responsibility for the project's demise. Trump also argued unsuccessfully that the court lacked jurisdiction over a project in Mexico.
•A federal lawsuit in Palm Beach charges that many prospective buyers lost money when they placed deposits on units at the Trump Ocean Club, a 70-story, sail-shaped condominium-hotel in Panama that opened this month.
Court papers filed by the would-be buyers argue the Trump Organization originally said it would provide 70% financing to investors who put down 30% deposits. The buyers argue they were also told that those who bought two condo units could resell one at a profit before they would be required to close on the first purchase.
Both incentives were withdrawn, said Roderick Flynn Coleman, the lawyer who filed the case against Trump. Coleman said Trump also canceled plans for his organization to manage the hotel and a casino at the site.
The court dismissed the case based on Trump's argument that the purchase agreements included a stipulation that any dispute … will be subject … to the courts of Panama. The ruling, which Coleman is appealing, allows the would-be buyers to refile the case if the Panamanian legal system deprives them of any chance to recover alleged damages.
•Trump is also being sued by former students of Trump University, now known as the Trump Entrepreneur Initiative. They argue they were defrauded of as much as $35,000 each by promises they would learn secrets of real estate success from teachers handpicked by Trump. Arguing the former students suffered no harm, Trump moved to dismiss the case. But a California federal judge in May ruled parts of the lawsuit should proceed. The court has scheduled a conference with both sides next month.
A luxury brand
To be sure, Trump has licensed his name to successful deals in real estate and other ventures. In Toronto, he has partnered with one of Canada's wealthiest businessmen on a luxury tower expected to open this year. That and successful projects in Las Vegas, Chicago and elsewhere have given Trump a strong reputation as a luxury brand in the hotel-condo sector, said Sean Hennessey of Lodging Advisors, a New York consultant for hotel investors. He said, Trump should consider extra measures to guard his brand, such as taking more of an investor and management role in his deals.
Branding expert O'Flaherty suggested Trump should decide what his brand is and be more judicious in his licensing deals. He said what he stood for — the American dream — is slowly being drained away by overextension, putting his name on everything from real estate to mattresses.
But Trump, in a pretrial deposition for the Tampa case, said he carefully guards his name. Citing a recent surge in demand for units at Trump Towers in Sunny Isles Beach, Fla., a licensing deal slammed by the recession, Trump added in the telephone interview that the brand has never been hotter than it is today.
