Sex, Lies, and Constitutional Law: The Stormy Daniels Settlement Agreement

There is, it turns out, more to the Stormy Daniels Affair than meets the eye.

[UPDATE 3/20: For those of you who are interested in the issue I raise at the end of this post concerning enforceability of arbitral award in cases involving speech restrictions, you might want to take a look at Bruce Wessel's article in the ABA Journal on "Preliminary Injunctions Enforcing Contractual Nondisparagement Clauses" (scroll down to p. 20)]

Here's what we now know: First, that Ms. Daniels (aka Stephanie Clifford) was paid $130,000 a few weeks before the 2016 election. Michael Cohen, one of the Trump lawyers, has admitted making that payment—though he insists, risibly, that he did so out of his own pocket! {File Under: "Not remotely credible!"}

Second, we now know that there was a written contract between Daniels and Trump*—entitled "Confidential Settlement Agreement and Mutual Release; Assignment of Copyright; Non-Disparagement Agreement."

* To be fair, we can only be 98% certain that Trump was actually a party to this contract. It's all very cloak-and-dagger; you can read it for yourself here.

On its face, the Agreement purports to be between "Peggy Peterson" and "David Dennison." But the Agreement goes on to state that these names are "pseudonyms whose true identity [is] acknowledged in a Side Letter." The Side Letter, in turn, says that "the person referred to as Peggy Peterson in the Settlement Agreement is Stephanie Gregory Clifford, aka Stormy Daniels." It then idenfies the person referred to as "David Dennison"—but that name has been blacked out (at least, in the publicly-available copies of the Side Letter that I have seen).

So I suppose that it could be somebody other than Trump; Mr. Cohen might have had another client who was willing to pay Daniels $130,000 in late October 2016 to keep quiet about something. But as far as I'm aware, nobody (including, notably, Mr. Cohen) has made that suggestion, and I am proceeding on the assumption that Mr. Trump—our president, and the Leader of the Free World—is the guy wearing the wig and fake mustache and calling himself "David Dennison."

And third, we now know exactly what the Agreement said, because Daniels has put it into the public record, appending it to a Complaint she recently filed in CA Superior Court seeking a declaration that the Agreement is invalid and unenforceable [more on this suit below].

The Agreement makes for very interesting reading; I recommend it. It's a pretty complicated and strange-looking little legal animal that Mr. Cohen cobbled together—complicated enough so that it makes one suspect that this was not the very first time Mr. Cohen had occasion to put a deal like this together, though I admit that is just rank speculation on my part.

The gist of the Agreement is that:

1. Daniels receives $130,000, in exchange for which she promises never to disclose, to anyone "any information pertaining to [Dennison/Trump] and/or his family . . . and/or friends," including any Dennison/Trump-related

"business information, familial information, any of his alleged sexual partners, alleged sexual action, or alleged sexual conduct, related matters or paternity information [uh-oh!], legal matters, contractual information … private social life, personal lifestyle, [or] private conduct."

2. To the extent that any of that information is in tangible form—"letters, agreements, documents, audio recordings, images, electronic data, photographs, canvas art, . . . or art in any other form or other media"—Daniels also promises to transfer ownership of all such property, and ownership of all the intellectual property rights in such property, to Dennison/Trump.

3. Daniels also promises not to "disparage" Trump or his family, to anyone, ever.

4. Dennison/Trump, for his part, in addition to promising to hand over the dough, agrees that he will not sue Daniels for any efforts she may have made "to sell, exploit and/or disseminate" this information prior to the date of the Agreement.

Oddly, the Agreement requires Daniels to identify by name, in the Agreement itself, all persons to whom she had made a prior disclosure of any confidential information about Dennison/Trump. [See Sec. 4.2] She did so, listing four individuals, whose names are clearly legible on the copy of the Agreement filed by Daniels and now publicly posted: Mike Mosney, Angel Ryan, Gina Rodriguez, and Keith Munyan. I assume I'm not the first person to wonder how much of Daniels' story these folks can corroborate.

5. For any breach by Daniels, Trump can, due to the "irreparable nature of the injury he would suffer" in the event of such breach, claim "liquidated damages" from Daniels in the amount of $1 million per item disclosed.

6. The parties agree to "mandatory binding confidential arbitration," before an arbitrator who shall have "the right to impose all legal and equitable remedies that would be available to any of the parties in . . . any court of competent jurisdiction," to resolve all controversies under the Agreement. The parties—and this is in bold-faced type in the Agreement—have "no right of appeal or review of" the arbitrator's decision. (See Sec 5.2). One and done.

What to make of all this?

Well, just for the record we should note one other thing we now know: that Trump has been lying to us about this all along—when he denied that any "hush money" was paid, or that he was involved in any sort of deal with Daniels.

I know, I know—who cares about that anymore? Such a silly old norm: "telling the truth." Trump is, as we all now, a norm-disrupter, and he doesn't have to do things like telling the truth. He didn't have to "tell the truth" on The Apprentice, and look at the ratings he got there! But I'm going to continue to cling to the quaint notion that our public servants should tell us the truth.

And where, by the way, are the zealous guardians of the public morality heretofore so vocal in the Republican Party? Can you imagine—I mean really, can you actually imagine?!—what their reaction would have been had they discovered that Barack Obama had had an extramarital affair with a porn star and paid her $130,000, two weeks before the 2008 election, to keep quiet about it?! The silence on the part of the Republicans here is deafening. I suppose there are, historically speaking, more egregious examples of mass hypocrisy on this scale—but not many.

But beyond all that, there are some interesting little legal wrinkles here; you could easily spend a couple of weeks in a Contract Law class digging into this Agreement, and I'd bet it will make its way as an exam hypothetical in law schools all over the country later this spring.

Take Ms. Daniels' lawsuit, for instance. It asserts that the Agreement is invalid, and therefore of no force and effect, because one of the parties—Trump—didn't sign it.

It does indeed look like he didn't sign it; there's no signature next to the "David Dennison" signature blocks, on either the Agreement itself or the Side Letter (at least in the copies posted by Daniels).

But as every first-year law student knows, the general rule is that contracts are valid and enforceable without a signed writing. There are exceptions to that general rule: contracts that fall within the so-called "statute of frauds"** must be in writing and signed by the parties.

** Referring, as we generally do, to this requirement (viz., that certain contracts are invalid if not memorialized in a signed writing) as the "statute of frauds" is something of a confusing misnomer. In the U.K., there is an actual "Statute of Frauds," enacted in 1677, setting forth the writing requirement for, e.g., marriage contracts, certain contracts by estate executors, contracts transferring ownership of real property, and some others. [This statute, as it happens, was repealed in 1954]. In the US, this has long been considered part of the general common law, inherited from the British, which each individual State may modify (and has modified, either by statute or by decisional law or both). There are also dozens of other "statutes of frauds" scattered throughout the law; federal copyright law, for instance, provides that a transfer of copyright is not valid unless it is in writing and "signed by the owner of the rights conveyed," the Uniform Commercial Code requires a signed writing for all transfers of goods over $500, certain securities transactions must be in writing, and so on.

Though I won't pretend to any particular expertise on the matter, I am somewhat skeptical (as are other commentators) about Daniels' argument that Trump's signature was required under California's statute of frauds, and that the Agreement is therefore invalid and unenforceable.

However …

1. While the Agreement may be valid and enforceable without Trump's signature, I don't believe it is valid and enforceable if Trump didn't know anything about it. Contracts do not always require a signed writing; but they do always require that the parties voluntarily undertake to enter into an enforceable agreement. [It's one of the reasons you can't enter into a contract with a 3-year old, a monkey, or someone who is non compis mentis.]

This puts Trump on the horns of a dilemma. If he says, under oath, what he has said publicly—that he didn't know anything about this arrangement with Ms. Daniels, and that it was just Michael Cohen acting on his own—then he plays right into Daniels' hands; if one of the parties didn't know there was any agreement among them, how can it be binding on anyone?

On the other hand, if he admits that he was a party to this contract, and knew of its existence and its basic terms, then he is exposed as a liar. It sets up the classic cross-examination question: "So which is it, Mr. Trump? Were you lying then, or are you lying now?"

And while we're at it, notice that the Agreement (Sec. 8.6) has one of those absolutely ridiculous provisions that lawyers sometimes insert as "boilerplate" into contracts like this one:

"Each of the Parties represents, acknowledges, and declares that … she/he has carefully read this Agreement, knows and understands this Agreement's contents, and signs this Agreement freely, voluntarily, and without either coercion or duress."

It's not the worst thing in the Agreement (see below), but it is pretty awful. It is not only ridiculous; it is of no legal force whatsoever because it is completely devoid of meaning. Suppose one of the parties has, in fact, not read or understood the contract; a representation placed in the very contract that he hasn't read or understood stating that he has read and understood it, is incoherent nonsense. Think about it: Suppose you're signing this contract because someone has a gun pointed at your head; what possible meaning could your representation that you're acting "without coercion or duress" have? You're only making that representation for the same reason you're signing the contract: because you have a gun pointed at your head. It reminds me of the hostage or prisoner-of-war videos, where the prisoner, hands tied behind his back, says "They're really treating me very well—and I'm saying that of my own free will."

2. There are many ugly things in this Agreement, but for my money, the ugliest is in Sec 4.3.6:

"Fore (sic) greater clarity [Daniels] will never discuss with anyone the contents of this Settlement Agreement, nor will she voluntarily confirm the existence of this Settlement Agreement."

This amounts to a contractual obligation on Daniels' part (though not on Trump's) to lie. It's very Trumpian in that respect; while he doesn't need to be contractually obligated to lie (because it comes so naturally to him), he imposes the obligation on others. To comply with this provision, presumably Daniels must say "No" when asked "Did you enter into a settlement agreement with Mr. Trump?" [And Trump's lawyers will no doubt assert that her filing the lawsuit (and appending the Settlement Agreement to her pleadings) is itself a violation of this provision.]

3. And that brings us to the First Amendment.

"Wait a minute!," I hear you cry. "The First Amendment? The First Amendment has no bearing on any of this. This matter involves private parties acting pursuant to private contracts, and everybody knows that the First Amendment only contrains the government from doing certain things (like abridging the freedom of speech), not private parties."

True enough—but let's think this through for a moment.

Trump's lawyer has now invoked the mandatory arbitration clause in the Agrement and obtained an order from an arbitrator stating that Daniels "is precluded from disclosing … or actively inspiring anyone to disclose" any of the "Confidential Information" as defined in the Settlement Agreement, as well as from "disclosing … or actively inspiring anyone to disclose the fact of the commencement or pendency of this Arbitration and any details relating thereto." (emphasis added)

[There it is again: an order to lie, issued on behalf of the President of the United States].

The arbitrator's order calls itself a "Temporary Restraining Order." This, too, burns me up. It's not a "Restraining Order" at all. Private arbitrators do not have the power to "restrain" people; that is a power reserved for courts and public authorities. Calling it a "Temporary Restraining Order"—in hopes, perhaps, that we (or Ms. Daniels) would confuse it with the familiar legal process that goes by that name (and which even has a nickname: the "TRO")—doesn't make it a Restraining Order; you can call a duck a dog, but it's still a duck.

A true "Restraining Order," temporary or otherwise, is a court-issued and court-enforced injunction; if you violate it, you can be held in contempt of court and actually "restrained"—i.e., thrown into jail. If it's a true Restraining Order, banks will hand over your money as directed therein, because they, too, face the prospect of "restraint" if they don't do as directed. Not so, however, just because some arbitrator has ordered you to pay money, and arbitrators cannot (yet) throw you or bank officers in jail for defying their orders; even if the arbitral agreement purported to give the arbitator the power to imprison you should you breach the contract, that provision would be deemed void on grounds of public policy (and the 13th Amendment prohibition on involuntary servitude).

An arbitrator's order, of course, can become a real, honest-to-goodness "Restraining Order," but only by enlisting the assistance of a court in the enforcement of the arbitrator's order. And of course, courts do frequently provide that assistance, and developments in the law over the past decade or so have made it easier to obtain enforcement of arbitration decisions.

And there's the rub—at least, for this particular order ("You may not speak about Donald Trump, and you must, if asked, lie about the existence of a Settlement Agreement"). It would be obviously and blatantly unconstitutional as a violation of the First Amendment if issued, say, by an executive government agency, or by the police. And if instead of it being an executive agency or the police ordering Ms. Daniels not to speak it were a federal or state court, why is that any less unconstitutional? The courts are part of the government, aren't they? So they have to abide by constitution restrictions on government action, don't they?

[Students of constitutional law will recognize this argument as coming from Shelley v. Kramer (334 US 1), a 1948 case in which the Supreme Court unanimously struck down enforcement of racially restrictive covenants in private homeowners' association contracts:

"Private agreements to exclude persons of designated race or color from the use or occupancy of real estate for residential purposes, standing alone, do not violate any rights guaranteed by the Fourteenth Amendment. [B]ut it is violative of the equal protection clause of the Fourteenth Amendment for state courts to enforce them." [Emphasis added]]

I don't think a President of the United States can go to court and obtain an injunction against Ms. Daniels ever saying a disparaging word against him, because I don't think the First Amendment would countenance it. Mr. Trump cares little for the First Amendment, but I don't think that view is shared, by and large, by our courts.