Ms. Daniels’ Complaint seeks to have the NDA held invalid primarily because Donald Trump never signed it. His attorney, Michael Cohen, signed the NDA only on behalf of a limited liability Delaware corporation (“Essential Consultants, LLC”) that was formed only to facilitate execution of the NDA. Additionally, Trump also failed to sign the side letter that was an exhibit to the NDA and which purported to reveal the true identities behind the aliases used in the NDA. These omissions may or may not be sufficient to invalidate the NDA. Ms. Daniels’ acceptance of $130,00.00 for her silence is no doubt an obstacle for her cause.
The arbitration clause in this NDA is especially one-sided in Trump’s favor. It grants very broad jurisdictional authority to the arbitrator and allows Trump to select the arbitration forum as well as the arbitration’s procedural rules. The arbitrator may grant injunctive relief to stop any pre-arbitration hearing disclosure of information identified in the NDA, an action that the arbitrator has already taken. Ominously, the arbitrator is also authorized to enforce the draconian liquidated damages provision of NDA Sec.5.1.2 that specifies a one-million-dollar penalty for each NDA violation. The arbitrator must also award attorney’s fees and costs to the prevailing party. These expenses alone are likely to run into hundreds of thousands of dollars. The above so strongly favors Mr. Trump that one wonders what Ms. Daniels’ initial attorney was thinking.
In addition, in this arbitration, a single person, the arbitrator, would decide every issue of fact and law all behind closed doors. There would be no jury or public scrutiny of the arbitrator’s conduct of the arbitration proceeding. Although Trump was not President of the United States when the conduct triggering the NDA allegedly occurred, he is President now. The actual and perceived power of his status is likely to affect the arbitrator’s decisions, whether consciously or unconsciously. None of the above can possibly be of advantage to Ms. Daniels.
At present, it would seem that the next procedural decision will be made by a U.S. District Judge in California. This court should decide whether the case will proceed in arbitration, or, instead, in a public trial. It is also likely that whichever party is the loser of this issue will appeal to the 9th Circuit Court of Appeals. Of course, the already massive publicity surrounding this imbroglio will likely continue. Who will this benefit most? Certainly not Trump.
As a collateral matter, the perception of arbitration as a fair dispute resolution process has already been further tarnished by this mess. There is nothing remotely even-handed about this NDA arbitration clause. If this tawdry dispute is ultimately arbitrated, there will likely be no transcript of the arbitration hearing or other record and the reasons for the arbitrator’s final award may never be explained. Ms. Daniels may rue the day she signed away her procedural rights for so little consideration.
Gregg Bertram M.A., J.D., LL.M is one of the most experienced and successful mediators in the U.S. He is the founder and CEO of Pacific ADR Consulting, LLC, a Pacific Northwest mediation and arbitration service provider. Gregg and Pacific ADR's panelists mediate and/or arbitrate in every area of civil litigation at the highest professional level. In Washington state, he has mediated or arbitrated a number of cases involving defamation and media law.