Adult film star Stormy Daniels has filed a civil action against Donald Trump, asking a California court to declare that the nondisclosure agreement between them is not valid because Trump never actually signed it.
The complaint alleges Daniels had an intimate relationship with Trump between 2006 and 2007. Years later, during Trump's presidential campaign, he and his attorney Michael Cohen "aggressively sought to silence" Daniels, allegedly to assist Trump's presidential campaign. Daniels says she was pressured into signing a nondisclosure agreement and that she was paid $130,000 for her silence.
An increasing number of contracts contain an arbitration clause, requiring the parties to give up their right to bring claims in a public courts, and forcing them to litigate their claims privately in arbitration with a private judge. This keeps disputes out of the public eye, and the public rarely knows how these claims are resolved.
The law does not mandate arbitration of disputes; arbitration is only required if the parties agree to it in a contract. If a contract contains an arbitration clause, the courts will decline to hear a complaint and will order the parties into arbitration. For that reason, lawsuits over arbitration clauses tend to focus on whether a contract between the parties is valid, or whether it is unenforceable. If that is the case, then the arbitration clause is invalid as well.
Stormy Daniels' lawsuit does not seek money or other damages. Instead, it asks the court for declaratory relief — for a finding that the nondisclosure agreement was either never formed or that it is unenforceable. The purpose of such a declaratory judgment is to help the parties avoid future litigation over their rights, and to give them some assurance that they can take certain steps in the future without subjecting themselves to legal liability. Daniels' seeks to have the court clear up whether this contract really forces her to remain quiet. That could be important if Daniels seeks to profit by telling her story about her alleged relationship with Trump.
Because the nondisclosure agreement between Daniels and Trump contains an arbitration agreement, the court's decision on the validity of the contract will likely also determine whether Daniels' case even belongs in court.
Trump’s attorney Michael Cohen has denied that Trump had a relationship with Daniels. The Trump team has already sought to place this case in arbitration, and went to an arbitrator to obtain a restraining order to prevent Daniels from violating the nondisclosure agreement. In other words, to compel her silence about her affair with Trump. The agreements attached to the complaint contain mandatory arbitration provisions with penalties for noncompliance.
Arbitration clauses are increasingly criticized as an unfair means of resolving disputes for individuals like Daniels. The high costs, secrecy, limited discovery and denial of court access are just a few of the many complaints about the proliferation of these clauses, which inherently favor corporations and deep pockets over individual plaintiffs.
If the court determines the contract between Daniels and Trump to be valid, then it will likely conclude the case belongs in arbitration, not in court, and Daniels' claim will disappear from the public eye. On the other hand, if the original contract and arbitration clause either never existed or is now unenforceable against Daniels, then Trump can't force her into arbitration — and he can't force her to keep quiet. Daniels will be able to give interviews, and even profit from her story by writing a book or giving her story to a media outlet.
Daniels' primary argument is that Attorney Cohen was the one who signed the agreements, and not "David Dennison" — Trump's alias in the contracts attached to the complaints. The signature lines for Trump/Dennison in the documents are blank. According to the allegations in Daniels' complaint, this was not an oversight, but instead was a deliberate choice so that Trump could deny knowledge of the agreements if they surfaced publicly. If true, this was a tactical gambit by the Trump team that could now prove fatal to the contract.
Even if Cohen or another attorney for Trump had signed for Trump/Dennison, a court could still determine that the attorney's signature was not sufficient because the agreement compromised a substantive claim. In this case, nobody signed for Trump. The Trump team will likely argue that because the company that they set up to make the payments and Trump/Dennison were aligned, the signature of one is effective for both, and that Trump's actual signature was never required. The Trump team might also argue that because Trump performed his part of the bargain, and Daniels accepted the contract payments, she cannot now deny the agreement's existence or fail to perform her obligations under it. Daniels seeks to rescind the agreement as well, and has offered to return the monies she received.
This case is already famous because of the parties involved, but it illustrates the problems that can occur when one party is compelled to sign a contract with an arbitration clause in it. If you are entering into a contract, think carefully of the kind of disputes that might arise and how you prefer to resolve them before you agree to an arbitration provision.