The scandal surrounding Stormy Daniels, the adult film actress who claims to have had an affair with Donald Trump, just got worse.
It started when David Schwartz, an attorney for Donald Trump’s attorney Michael Cohen, appeared on CNN last night. Schwartz told CNN’s Erin Burnett that Trump “was not aware of” the non-disclosure contract signed by Stormy Daniels and “wasn’t told about it.”
This is a big problem for Trump. Daniels’ attorney, Michael Avenatti, argues that the absence of Trump’s signature on the non-disclosure agreement renders the contract invalid. But while this might be true, it is not a slam-dunk argument. You can have a binding contract without any written document. But there are three core elements to a binding contract: 1. offer, 2. acceptance and 3. consideration (something of value).
While you can have a binding contract without a a signature you cannot be a party to a contract that you don’t even know about — knowing about the contract is literally what being “a party to a contract” means. That is because you have to have knowledge of the offer and knowingly accept the offer. Trump, by Schwartz’s own admission, did neither of those things.
Schwartz’s argument is that there was a binding contract between Daniels and EC LLC, the shell corporation set up by Michael Cohen, and Trump was a “third party beneficiary” of the contract.
The problem for Schwartz, Cohen, and Trump is that the contract was not constructed in a way to make that possible. Part of the inducement for Daniels to sign the contract, explicitly, were things that only Donald Trump himself (referred to in the contract, and by Schwartz, as “DD”) could provide.
The contract explicitly states, in Section 4.3, that as a “material inducement” for Daniels to sign the contract Trump agrees not to sue Daniels in civil court or provide her name to the authorities unless asked. This relates to any claims Trump might have against Daniels for the dissemination of “the Property” — defined as photos, videos or other evidence of their alleged affair.
It explicitly notes that “each Party” is “executing this Agreement in reliance thereon.” In other words, the promise by Trump to release Daniels from legal liability is not a trivial part of the contract. This is the “consideration” part of the contract. It’s essential.
But if Trump is not a party to the contract — and Schwartz has admitted he was not — Trump cannot provide such a warranty. Thus, Daniels was “materially induced” to sign a contract with a false promise. In other words, Schwartz’s definitive statement that Trump was not a party greatly increases the chances that a court will invalidate this contract.
Even if a court decided the contract is valid somehow, Schwartz’s claim that the president is not a party to it does significant damage to Trump. The case is now in federal court. Trump and Cohen are seeking to avoid having to sit for a deposition, or be subject to additional discovery, by pushing the dispute back into secret arbitration.
But the contract only allows Trump, not Cohen’s shell corporation, to resolve disputes in arbitration under section 5.13 and 5.2 of the agreement. Trump can’t take advantage of an arbitration agreement that he is not a party to and knows nothing about.
This problems all stems from Cohen’s attempts to thread this legal needle. He wanted to create a contract that prevented Daniels from talking about her alleged relationship with Trump, but also wanted to simultaneously claim Trump wasn’t involved at all.
But binding your client to an agreement, and paying $130,000 to seal the deal without telling him or her about it, is a violation of a lawyer’s professional responsibility — and could result in Cohen being sanctioned or disbarred.
So now Cohen has a lawyer of his own and he’s trying to protect his client by claiming Cohen did not bind Trump, but just created a separate agreement between a shell corporation and Daniels.
This isn’t working out well and may end up making Trump’s problems much worse.