Part 2: The Legal War Rages On Over Stormy Daniels

Earlier this week, we discussed the non-disclosure agreement which allegedly sought to prevent Stormy Daniels (real name Stephanie Clifford) from disclosing details of her relationship and extramarital affair with President Trump. The penalties under the agreement are hefty, with fines of $1M for every violation. This agreement has led to a legal maelstrom over what Ms. Clifford can say and do.

While President Trump’s attorney Michael Cohen vehemently argues that the entire affair needs to be handled in confidential arbitration under the non-disclosure agreement, Ms. Clifford argues that none of the agreement is enforceable in the first place as Trump never signed it–even under his pseudonym in the agreement “David Dennison.”

As we mentioned in the last article, both sides have moved forward assuming they’re right. Mr. Cohen has gone through arbitration to silence Ms. Clifford while Ms. Clifford has turned to the courts to rule the non-disclosure agreement null and void. Let’s look at the legal proceedings and their chances moving forward.

The Arbitration

As soon as word of the affair started to surface and Ms. Clifford made it clear she wanted to come forward about her experience, Cohen and “Essential Consultants” (an LLC created a few weeks before the agreement with Ms. Clifford to act as a proxy) acted in Trump’s interests and began ex parte arbitration proceedings–proceedings with no notice to Ms. Clifford–to prevent Ms. Clifford from making any statements or releasing any materials related to “Confidential Information.”

In late February of this year, they went before the retired Judge Jacqueline Connor and were issued a restraining order to this effect. This is not a long-term restraining order, but rather was an interim order until the issue was hammered out between the parties.

This was immediately followed by a comment from White House press secretary Sarah Sanders describing the arbitration proceeding as a win for the President–a bit of an odd statement as up this point the White House had maintained that the non-disclosure agreement was not referring to Trump. Even after this arbitration, Mr. Cohen continues to hold that the agreement was entered into without the knowledge of President Trump or his campaign and was agreed to avoid scandal as opposed to any truth to Ms. Clifford’s allegations.

Ms. Clifford’s attorney’s have been extremely critical of the idea of arbitration proceedings where only one party shows up and no notice is given that the proceedings are even taking place. However, the non-disclosure agreement does allow for ex parte for injunctions–if not more substantial proceedings. Arbitration provisions in contracts are generally enforceable.

Arbitration agreements are sometimes ruled unconscionable and unenforceable when the balance of power in an agreement is too far towards one side–usually in an employer-employee context. However, there’s not much indication here that one party had an upper hand over the other in negotiations. Arbitration agreements are also occasionally struck down where they favor one side too substantially over the other. However, this is an extremely hard argument to make in court.

Arbitration rules generally allow for ex parte arbitrations on an emergency basis offering temporary relief. This being said, there have been more than a few cases where courts have refused ex parte arbitrations where more substantial relief was sought.

This means that the arguments that have the most weight for Ms. Clifford are the arguments brought in her complaint, that the agreement is unenforceable because it was not signed by President Trump. In general, the validity of unsigned arbitration agreements can vary by state. There are court rulings both allowing arbitration agreements where one party didn’t sign and refusing to accept such an agreement as valid. There is a very valid debate over whether the lack of a valid contract undermines the ability to enforce arbitration. A contract generally needs an offer, acceptance, and consideration to be valid. The consideration was certainly sent in the form of $130,000.

A signature from all parties is not always necessary for acceptance, however Cohen will likely have to find another way to show valid acceptance of all parties–especially in light of his argument that one party to the agreement–one David Dennison aka President Trump–never knew of the agreement at all.

The Complaint

Ms. Clifford’s complaint was filed on March 6th, about a week after the arbitration approved a temporary injunction. As we’ve discussed, it primarily argues that there is no agreement binding Ms. Clifford since it was not signed by Trump–either under his real name or under the “DD” pseudonym. Everywhere he was meant to sign is instead completely unsigned or initialed by Essential Consulting, LLC.

Although Cohen argues Trump never knew about the agreement, emails have been produced showing that Cohen used his Trump Organization email to arrange payment to Ms. Clifford. This makes it even more unlikely President Trump or his Organization had no knowledge of the agreement.

The complaint will argue that if they knew about the agreement that means Trump actively chose not to sign to maintain plausible deniability. This active choice not to sign would support a lack of acceptance and undermine the validity of the agreement.

The complaint itself says that Clifford first decided to come forward about her experiences–which she describes as consensual if motivated by a desire to be on “The Apprentice”–after a recording of Trump came out where he described attempting to seduce a married woman and said he would kiss the woman they were about to meet, commenting that “when you’re a star, they let you do it, you can do anything.”

This led many women to come forward regarding President Trump’s treatment of them and Ms. Clifford thought she should come forward as well. This came to the attention of Mr. Cohen and led to the agreement discussed above shortly after.

The crux of the complaint, as mentioned, is that this agreement is not enforceable. It leans on the allegations that Trump intentionally chose not to sign so he could “later…publically disavow any knowledge of the agreement.” The complaint asks the court to rule that the contract is either unenforceable and void or unconscionable.  The latter argument is a bit of a stretch, but the former has a real chance of success.

Where Will the Case Go from Here?

While Ms. Clifford may have a real case, it is certainly going to be an uphill battle. The lack of signatures certainly doesn’t by itself render the contract necessarily invalid.

What’s more, the case is brought in California and both the California Supreme Court and the US Supreme Court have previously chosen to treat arbitration clauses independent of a larger contract unless there is an attack on the arbitration clauses validity by itself.

This means a court might rule that the validity of the contract has to be handled in confidential arbitration. It’s very likely that such an arbitration would not work out particularly well for Ms. Clifford. This adds another wrench to the works of an already uncertain case.

There is an additional argument Ms. Clifford has yet to bring which may help her cause, although it has a questionable chance of success. The arbitration agreement contained within the contract could be interpreted to require “David Dennison” to invoke it.  The clause was instead invoked here by Essential Consultants and Cohen. This argument is a long shot at best.

If the case moves forward, an enormous if at this point, the discovery will likely show the source of the $130,000. If this money in fact came from Cohen, this is no issue. However, if it came from a more official source it could be a substantial problem for the Trump administration.

Speaking of Mr. Cohen, one thing that is certain going forward is that Cohen has landed himself in a tremendous amount of hot water. His own assertion that he entered into an agreement on his client’s behalf with no knowledge or approval from his client is a professional ethical violation that could see him receive a punishment that could include revoking his license to practice law. If Trump did know about the agreement, then Cohen may have committed fraud–another punishable offense.

Ms. Clifford, however, potentially faces her own share of troubles soon. While we’ve seen from her 60 Minutes interview that she has not been silenced, at $1M per violation of the non-disclosure agreement she may be facing a hefty penalty in her future– recent estimates already have put the damages under her non-disclosure agreement at upwards of $20M.

Jonathan Lurie is a Founding Partner of The Law Offices of Lurie and Ferri (Contact Info). He primarily handles business law, employment law, and intellectual property issues, but works with all types of civil matters. He is a Vice-Chair of the Sports and Entertainment Interest Group of the California Intellectual Property Section and has won awards for his knowledge of intellectual property, start-up business issues, and California civil procedure.