Storm(y) Front, Part 3: Debunking Some “Hot Takes” On The Daniels Lawsuit Against Trump – Fraud In The Inducement

The second hot take I’ve seen out there is that the theory being advanced by Stormy Daniels as to why the nondisclosure agreement is unenforceable is that she was fraudulently induced into signing it.  This is not a legal theory spelled out in her Complaint, but as with the notion that Ms. Daniels was relying on statute of frauds, it is understandable that people would interpret her contentions this way.  It is logical to infer that Ms. Daniels expected Mr. Trump to sign the document, and only signed the contract herself in reliance on that expectation.  I obviously have no insight into the thinking of Ms. Daniels’ counsel, but I would guess that looking at his facts, he felt that the theory of the failure to fully form an agreement was a path of lesser resistance than fraud.

Contrary to how it is all too frequently done, fraud is, in fact, a very difficult and technical thing to plead correctly.  This is due principally to Federal Rule of Civil Procedure 9(b) and its state counterparts (Ohio and Kentucky both have their own Rule 9(b)) which require fraud to be pleaded with “particularity” in the complaint.  In short, this rule requires specific pleading of the specific false statement of fact made, the person making it, the time and place of the making of the false statement, and what was given up as a consequence of the fraud.  This is more demanding than even the “Twombly / Iqbal” pleading standard in federal court.  In fact, plaintiffs often fail to plead sufficient detail when alleging fraud, so a motion to dismiss under Rule 9(b) should almost always be evaluated when a fraud claim is alleged. 

The pleading requirement is bad enough, but then comes the arduous task of proving the allegations.  There are a lot of ways to defend fraud claims because of some of the implicit demands of the claim.  For example, in pretty much every state, the basic elements of a fraud claim are going to consist of some formulation of the following:  

  • a representation of fact;
  • the representation is false;
  • the false representation is material to the transaction at hand;
  • the person making the representation knew it was false or stated it with such disregard for the truth that knowledge of falsity may be inferred;
  • the person making the representation intended to mislead the other person to rely on the false representation;
  • the reliance on the false representation was justifiable; and
  • that the person relying on the false representation was damaged by relying on it.

Just from these elements, there are some obvious lines of attack for any fraud claim.  For example, was the misrepresentation one of present and knowable fact?  Or, was it a sales projection that turned out to be incorrect?  Did the person hearing the misrepresentation rely justifiably on it, or were they aware they were talking to a renowned liar and exaggerator like, say, Joe Isuzu?

In many states, fraud also requires the party claiming fraud to prove their case to a higher degree of proof.  Ordinarily in civil cases, claims or defenses must be proven by a preponderance of the evidence.  Basically, the jury must find something is more likely than not.  Typically, fraud must be proven by “clear and convincing evidence,” a higher standard.  Note, however, some states apply different burdens of proof to fraud claims based on the objective of the claim.  In Ohio, for example, claims of fraud seeking recovery of damages (i.e., being tricked out of money) need only be proven by a preponderance of the evidence, and it is only where the claim is a means to effectuate the avoidance, or setting aside, of a contract that Ohio requires proof by clear and convincing evidence.  See Household Fin. Corp. v. Altenberg, 5 Ohio St.2d 190, 214 N.E.2d 667, syllabus (1966); Andrew v. Power Marketing Direct, 2012-Ohio-4371, 978 N.E.2d 974, ¶ 47 (10th Dist.).

In this circumstance, Ms. Daniels is trying to avoid enforcement (a/k/a set aside) the contract.  Even if California made distinctions between different types of fraud claims like Ohio, her objective in asserting fraud would subject her claim to this higher standard of proof.

In addition, it would be difficult for Ms. Daniels to show how she suffered damage by reliance on any representation that Donald Trump was going to sign the contract.  She was paid the money called for, and there is no indication that Donald Trump did anything inconsistent with the obligations under the agreement that he would have been signing up for, had he signed the agreement. 

So, considering all that comes with alleging fraud and then proving it, where the same facts give rise to the contract being unenforceable for reasons that are easier to plead and prove, it is understandable why fraud was not alleged.