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Paul Zimmerman

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Legal Storm Enveloping Trump “University” Highlights Potential Advertising Pitfalls

Among his many business ventures before seeking the republican nomination for President, Donald Trump created “Trump University,” a for-profit “school” that claimed its students would be empowered with the secrets of real estate success and “insider information.”  Among his many claims, Trump represented that he, or one of his “hand-picked professors,” would share this invaluable information with students that paid a fee for the course(s). Trump and his school have become the target of at least three lawsuits, including one filed by New York Attorney General Eric Schneiderman, alleging that the school was nothing more than a get-rich-quick scheme for Trump and that the advertising used to attract students was false and misleading.  Among the alleged misrepresentations is Trump’s claim that he personally selected the instructors/professors.  Trump has argued, with regard to a separate California class action, that he cannot be held personally liable because he did not run daily operations at the “University” once it was set up.

In response to mounting criticism of Trump University which, under pressure from the New York Attorney General, changed its name to Trump “Entrepreneur Initiative” before shuttering, Mr. Trump (or his advisors) created the website.  The website claims, among other things, that 95-98 percent of former “students” gave positive evaluations of the school.  Plaintiffs allege in one of the class actions that the claim is false and misleading because the evaluations were done only after the initial free introductory seminar — not after the $1,495 three-day seminars or the more expensive “elite” programs costing $10,000 or more.  The plaintiffs also claim that the website fails to disclose that reviewers were told that in exchange for positive reviews, they would or might receive discounts on future courses.  Failure to disclose that endorsers were compensated and not neutral would at least arguably qualify as a deceptive act under the Federal Trade Commission Act.  Trump has also claimed that the University received the highest Better Business Bureau (BBB) rating, an assertion refuted by the BBB.

Article 5 of the FTC Act, and the regulations promulgated to enforce the Act (including Endorsement Guides, 16 CFR 255), require endorsers who are compensated in some manner to disclose the nature of the relationship and the fact of compensation, including where, as here, a consumer receives a free product or discount in exchange for an endorsement or positive review.  The Guidelines also make clear that material connections between the endorser and the product must be disclosed:

“When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed.”  (16 CFR 255.5)

The FTC Act also clearly prohibits deceptive and unfair advertising, requiring among other things that claims be factually correct.  An act or practice is deceptive where (1) a representation, omission, or practice misleads or is likely to mislead the consumer; (2) a consumer’s interpretation of the representation, omission, or practice is considered reasonable under the circumstances; and (3) the misleading representation, omission, or practice is material.

Regardless of politics, Trump’s claims, including those made on the website, regarding his now defunct “Entrepreneur Initiative” (aka, Trump University), would likely fare poorly if viewed through the prism of the FTC Act (provided that the candidate’s claims are not deemed "political speech").  First, falsely asserting that the “Entrepreneur Initiative” received a high or the highest BBB rating would likely violate Section 5 of the Act if the University remained in business.  The representation (1) is likely to mislead a consumer into thinking the institution received consistently high favorability ratings from the BBB; (2) is likely to cause a consumer interpretation or expectation that is reasonable under the circumstances; and (3) would probably be deemed “material.” 

Second, failing to disclose that the endorsers were compensated (or believed they would be compensated) if they gave favorable reviews/endorsements, would almost certainly violate the Section 5 Endorsement Guidelines, which require such compensation to be disclosed.  It remains to be seen how these separate lawsuits, and Trump’s associated defamation counter-suits, will play out in coming months, but one thing is clear: Trump’s misleading representations likely violate the spirit, if not the letter, of the FTC Act and its regulations. Comments made subsequent to the school closing would generally not run afoul of the FTC Act, but may be seized upon by plaintiffs in the aforementioned lawsuits.

Regardless, the potential perils of Trump’s “Entrepreneur Initiative” are a reminder to universities and businesses that use consumer endorsements:  Any sort of quid pro quo relationship with an endorser must be disclosed.  Moreover, when touting positive reviews, approval ratings, or consumer agency reviews, it is imperative that entities not knowingly inflate rankings to materially enhance public perception of their goods and services. Similarly, care must be given to statements regarding BBB or other approval ratings.  What some might dismiss as mere boasting could in fact be actionable under the FTC. 

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.