[Introduction: In Part 1 of my series on the absurd and surreal (yet actually happening) legal tussle between adult film / porn actress, Stormy Daniels and President Donald Trump, I examined exactly what Ms. Daniels claimed as the legal basis for having the contract declared unenforceable. To re-cap, her arguments were as follows: (1) that Donald Trump did not sign the contract or provide consideration for it, and his signature was an express condition to making the contract binding; (2) that the contract is illegal, as it violates campaign finance laws; and (3) it is unenforceable as against public policy. In this installment, I will evaluate the first argument, and turn to the following two in later posts.]
The saying “offer plus acceptance equals a contract” is probably second only to “possession is nine-tenths of the law” when it comes to clichés everyone knows about legal principles they may have no clue about. But when it comes to understanding the claims of Stormy Daniels, this statement of the formula for a contract will get you pretty far down the road. Offer and acceptance is pretty much it when it comes to a two-party contract. It can get a bit more complicated when the contract is between and among more than two parties. Here, we have three parties – at least in name: David Dennison (revealed in a separate agreement – also not signed by Donald Trump – to be Donald Trump); Peggy Peterson (revealed in that separate agreement to be Stormy Daniels, whose given name is Stephanie Clifford); and EC, LLC (revealed in the separate agreement to be Essential Consultants, LLC). According to news reports, Essential Consultants, LLC was a limited liability company set up for a brief time to make a payment to Stormy Daniels, and then immediately dissolved.
As a starting point, let’s look at the contract itself. While even I may resort to calling it a hush money agreement, in fact, the contract purports to address and resolve several issues. The title of the agreement lists most of them: “Confidential Settlement Agreement and Mutual Release; Assignment of Copyright and Non-Disparagement Agreement.” What this means is that the agreement (1) effectuates a settlement and mutual release of claims; (2) assigns copyrights to some tangible work (video, pictures, audio recordings – use your imagination …. Or don’t); and (3) binds the parties to not disparage one another going forward. I would also add to this title, “non-disclosure agreement” because the agreement absolutely attempts to impose confidentiality obligations on certain information.
However – as you might imagine if you stopped to think about it for a minute – the obligations of the parties are not proportional - nor do they need to be. Let’s break this down in a simple way by looking at what each party is obligated to do, and what he/she/it is entitled to receive.
What he receives: an assignment of tangible and intangible information that is confidential (i.e., that relates to his alleged affair with Ms. Daniels), including the copyrights to such materials, as well as all communications between himself and Ms. Daniels in her possession, all communications Ms. Daniels had with any third party about their relationship. He receives the benefit of non-disclosure obligations to bind Ms. Daniels and prevent her from discussing the matter or disclosing information related to it, and the benefit of non-disparagement obligations to bind Ms. Daniels from saying anything about Donald Trump. He receives a release of all claims that Ms. Daniels may have against him. Mr. Trump is also the beneficiary of many one-sided and heavy-handed remedies in the event of violations of the non-disclosure, confidentiality, and non-disparagement terms, such as disgorgement of any profits Ms. Daniels may make as a result of violating the agreement, a $1 million per instance of breach liquidated damages provision.
What he must give: Mr. Trump releases Ms. Daniels and covenants not to sue her for any and all claims (however, the recitals of the contract indicate that Mr. Trump believes he has claims and has been damaged by Ms. Daniels threats to go public about the “confidential information” [i.e., their alleged affair]). Mr. Trump is also obligated to keep the terms of the agreement confidential.
What she receives: $130,000 from EC upon signing the agreement; a release and covenant not to sue from Donald Trump.
What she must give: all of the items Donald Trump receives.
What it receives: nothing. EC, LLC receives no performances from anyone. In fact, it is not even a party to the arbitration clause. The agreement is explicit that only matters arising between Mr. Trump and Ms. Daniels must be submitted to arbitration.
What it must give: $130,000 to Stormy Daniels.
This analysis is a bit methodical, but it illustrates one important thing – that EC, LLC is only there to pay money. It has no further obligations, and it certainly is granted no rights as against any other party (indeed, it looks like the inclusion of EC, LLC was an afterthought).
While not necessarily common, third parties occasionally discharge the financial obligations of a party to a contract. The most common place where this occurs is where insurance covers the loss. Sometimes it is easy to handle this by using language to the effect that the defendant or party “will pay or cause to be paid…” some amount of money. This Daniels-Trump agreement takes a step that is, in my opinion, unusual insofar as EC, LLC is added as a party even though it is in reality just a third-party payor to the contract. Given the obvious realities about EC, LLC, it is hard to see this company as anything other than a stand-in for Mr. Trump, providing financial consideration to Ms. Daniels in his stead.
In this light, Ms. Daniels’ acknowledged receipt of the payment of $130,000 seems like a problem. She did receive a substantial part of the consideration bargained for. However, she has not received the release by Trump of claims against Daniels, which is a material term of the agreement and is not something that EC, LLC can provide. Thus, viewed as a question of whether Mr. Trump has completely performed under the contract – it is clear he has not – the success of Ms. Daniels’ claim may depend on whether, under California law, incomplete performance allows a party who has not received the full benefit of the contract to void the contract, or does it merely give rise to a breach of contract claim and a remedy other than the voiding of the contract.
I have to believe that it only gives rise to a breach of contract claim, because that is not how Ms. Daniels’ lawyers are positioning the claim. They say there is no meeting of the minds, and hence no contract with Mr. Trump. Now consider why including EC, LLC (rather than just saying Mr. Trump would "pay or cause to be paid" the $130,000) is such a strategic blunder. There is nothing from the contract showing Mr. Trump ever agreed to this contract. Moreover, news reports have suggested that Mr. Trump denies even knowing about it. And without his signature on the document, it is easy to argue that this agreement was made without his knowledge. In spite of that, had Mr. Trump been obligated to pay or "cause to be paid" the $130,000, the making of that payment could be deemed partial performance by Mr. Trump, and proof of his assent to its terms. He would not necessarily be out of the woods; among other things, he may be found to be in breach of the agreement, but he would have more room to argue for the continuing enforceability of the nondisclosure provisions.
But with EC, LLC as a party to the agreement and having payment obligations, that argument is all but foreclosed. Therefore, I believe that Ms. Daniels argument that no contract was formed is remarkably strong, and certainly, stronger than I initially thought before really digging into this.
Like so many things in commercial and business litigation, so much about winning the case is about how you frame the issue before the court. You must fight to put the battle on the terrain of your choosing, and have the court look at the issue the way you are looking at it. If EC, LLC and/or Mr. Trump’s lawyers succeed in making this case about incomplete consideration, the contract will probably be upheld and some remedy short of voiding of the contract will be fashioned (expect Mr. Trump’s legal team to be shedding crocodile tears if the court orders the contract deemed signed by Mr. Trump effective as of a date certain). If, however, Ms. Daniels’ lawyers succeed in making this case one about whether a meeting of the minds occurred, they will be well on their way to showing that this contract never came into existence and establishing that she is not bound by any of the agreement’s terms. I don’t think this is a slam dunk for either side, but I do think Ms. Daniels’ legal team has the advantage here.