Debbie Does Damages: the Stormy Daniels Contract Clusterf*ck
There's been a lot of poorly informed reporting about the Stormy Daniels contract litigation, including in some quite reputable publications, but by reporters who just aren't well versed in legal issues. For example, I've seen repeated reference to an "arbitration judge" (no such creature exists!) or to a "restraining order" (there's no enforceable order around as far as I can tell. So what I'm going to do in this blog post, as a public service and by virtue of some tangential connection to our blog's focus, dealing with arbitration agreement (to satisfy Sergeant-at-Blog Lawless), I want to clarify some things about the Stormy Daniels contract litigation and engage in a wee bit of informed speculation based on tantalizing clues in the contract. As a preliminary matter, though, I apologize for the clickbait title.
Let's start with the facts as we know them.
(1) There is a purported contract among three parties: Peggy Peterson, David Dennison, and Essential Consultants, LLC (EC). The contract says that these aren't the parties' real names, but that their real names are revealed in a side agreement.
(2) Peggy Peterson is really Stormy Daniels (the nom-de-porn of Stephanie Clifford). EC is a shell company created by Michael Cohen, Donald Trump's lawyer and fixer. And David Dennison is allegedly Donald J. Trump.
(3) The contract says is a settlement agreement in which Peterson (PP) and Dennison (DD) engage in a mutual release of litigation claims and Essential Consultants kicks in $130k to Peterson. In other words, PP is supposed to give DD a litigation release in exchange for a litigation release from DD and $130k from Essential Consultants.
(4) The contract provides that disputes between PP and DD are to be resolved in confidential arbitration.
(5) The contract provides that DD may obtain a preliminary restraining order against PP to prevent her from breaching her obligations of confidentiality under the releases.
(6) The contract provides for DD having the option of either actual damages or stipulated damages of $1 million if PP breaches.
(7) The only public copy of the contract is signed by PP and EC, but not by DD. The signatures are notarized, indicating the date on which they were signed.
(8) Stormy Daniels was paid $130K by EC. The ultimate source of the funds for EC LLC remains unclear.
(9) EC commenced an ex parte arbitration action to obtain a preliminary restraining order against PP. An arbitrator granted the request, but there does not appear to be any court order confirming the award.
(10) Stormy Daniels brought suit in California state court seeking a declaratory judgment that the contract was void as unconscionable/against public policy and unenforceable because it lacks a signature from David Dennison.
So what are we to make of this mess?
First, it's important to note that this is not the classic bilateral contract situation: there are three, not two contractual parties. The contract does refer to Dennison and Essential Consultants "on the one part" and Peterson "on the other," but Dennison and Essential are very clearly not the same party, and the contract does not specify anything about their relationship.
Second, the choice of names here is amusing, but I don't think it's coincidental. Why on earth would someone use the names Peggy Peterson and David Dennison? I think it is law-school-note shorthand for Plaintiff (PP) and Defendant (DD). If I'm right, I'm guessing that this is not the only contract that Michael Cohen (the principal of Essential Consultants and Donald Trump's lawyer) has written with Peggy and Dennison. Indeed I'd wager that Stormy Daniels isn't the only "Peggy Peterson" out there, particularly as some the terms of this contract don't seem to have any relation to the claims (as far as we know them) that Stormy Daniels might have about Trump, such as claims about "unacknowledged children". There's a tantalizing hint here that there might be another Trump settlement agreement regarding paternity claims.
Is the contract enforceable?
Certain contracts are subject to states' Statutes of Frauds, which are requirements that there be a writing that indicates a contract that is signed by the parties. I'm pretty sure the Statute of Frauds applies here both because of the dollar amount of the contract and because it cannot be performed in a year as it involves a permanent obligation of confidentiality. There's no statutory exception for partial performance, but in at least some other contexts California courts have found a partial performance exception to the statute of frauds. So maybe Stormy can't win on a Statute of Frauds argument, but she can still argue that there was no agreement ever formed because of the lack of a signature by DD.
It's axiomatic that parties have to assent to a contract. The signature goes to the question of whether there is any indication of assent to the contract by DD. One way to express assent would be a signature, but it's absence is not inherently fatal. Another way of showing assent would be performance. Has DD taken any actions that indicate performance? It's not clear. There's no way to tell if litigation claims have been released by DD because all that means is that DD wouldn't bring litigation--but that's also consistent with retaining the claims and choosing not to act on them. But DD might have taken receipt of pictures, text messages, etc. under the contract. The acceptance of a benefit might be enough to indicate acceptance. And then there are estoppel type arguments that DD/EC could raise against PP. The facts aren't clear, but I think Stormy has at least a plausible case that there is no enforceable contract with DD. (This assumes that there isn't another copy of the contract signed by DD, but if so, there's a question of when it was signed...)
What about the argument that Michael Cohen was Trump's agent and was signing for him. Cohen could have signed for Trump as his agent, but there's no indication that he did. The signature is for EC LLC, not for DD. Cohen can sign in multiple capacities, of course, but he didn't. EC LLC could be signing for Trump, but if so it creates a serious campaign finance law violation problem as it would mean that the $130K payment was a payment on behalf of Trump (which of course it was). Given the political benefit to Trump of keeping Stormy quiet (and the timing of the agreement, on the eve of the election), this would readily be seen as a campaign contribution, and if so it would have been above legal contribution limits (violation by Cohen), and it would be undisclosed, another violation (by Trump). EC LLC/DD are kind of precluded from raising this argument, then, without creating more problems for themselves with the campaign finance laws.
Note, btw, that even if there's no contract, it doesn't mean that Stormy gets to keep the $130k. She should be returning the $130K and EC/DD would return any items they took from her.
There's also Stormy's void-as-against-public policy argument. I'm not going to opine on that--everything gets weird when dealing with the public's interest in the Presidency.
What about the arbitration proceeding?
EC LLC brought an arbitration proceeding against PP to get a preliminary restraining order. As a starting matter, let's be clear about terminology. Arbitration is before an arbitrator, not a judge. That's just a private party delegated to resolve a dispute. Even if the arbitrator happens to be a retired judge (as was the case here), it's still an arbitrator, not a judge. And that means that the arbitrator has no power herself to enforce any arbitration award. If you win an arbitration award, you still have to go to court to get the court to enforce the order, and that creates an opportunity for the losing party in the arbitration to challenge the award. The grounds for challenging arbitration awards are pretty limited and narrow--a simple mistake of law or fact by the arbitrator isn't going to do it--but if the arbitrator lacked authority to arbitrate in the first place, it's a different matter.
As far as I can tell, there has been no attempt to enforce the arbitration award of the preliminary restraining order. In other words, EC (Michael Cohen) got an ex parte award from an arbitrator, but no court order to enforce it. My search for dockets on Bloomberg Law involving "Peggy Peterson" or "EC LLC" didn't turn up any actions to enforce the award. And frankly, I'm not surprised. I don't think this award is enforceable because the arbitrator had no authority to even hear the matter, much less grant the relief she granted. The arbitration provision governs only disputes between PP and DD, not disputes involving EC, and the preliminary relief provision is only for DD, not for EC. EC has as much standing to seek preliminary injunctive relief via arbitration as Sasquatch.
Wait, you might say, isn't EC LLC a third-party beneficiary of the arbitration rights? Nuh-uh. EC is a named party to the contract, so it gets the benefits spelled out in the contract and nothing more; a third-party beneficiary is, by definition, not a party to the contract.
Ok, but isn't EC LLC really just the same thing as David Dennison/Donald J. Trump? Isn't it an agent/alter ego/creature of Trump? Well, yeah, of course it is, but just as above, Michael Cohen/EC LLC can't run with that argument because it sets up some pretty serious campaign finance law violations, the sort of thing that cost John Edwards his law license and which carry real criminal penalties.
In other words, what's happened is that Michael Cohen made some threats but hasn't attempted to follow through by seeking to confirm the arbitrator's award, probably because it's not likely to be confirmable and also because it isn't likely to do any good at this point.
fwiw, if Stormy wants to challenge the arbitration clause, she needs to do so specifically, rather than challenging the entire contract or else the contract should go to the arbitrator to decide on enforceability, although, as Mark Weidemaier notes, the contract lacks a provision specifying that the arbitrator makes that decision. I believe that even in its absence under Buckeye Check Cashing that the arbitrator still makes that decision, but it's possible that Buckeye Check Cashing assumed the existence of such a delegation clause.
What comes next?
So where we're left is the question of whether Donald Trump et al. will even respond to Stormy Daniels complaint in her lawsuit or will take a default judgment. My money is on the default judgment. Trump's likely to lose if he litigates, and doesn't really have any upside to winning. He can't put the genie back in the bottle at this point. (What more does she have to reveal? She's already said that they had boring sex one time, that's it. Some have speculated, based on the agreement, that there are pictures, but I think that's just boilerplate or holdovers from other Trump settlements. If Stormy had nude pictures of Trump, she'd have been paid a helluva lot more than $130k for them.) The more he fights, the more attention Stormy gets. I'm not sure what Trump's end-game is here, but at this point it seems that trying to enforce the contract is kind of beside the point. Stormy's going to tell her tale, and Trump's best move is to hope that we're all so inured to scandal that it's a yawn.