Donald Trump’s favorite hammer in his bully-boy toolbox is the nondisclosure agreement, backed by million-dollar penalties for each violation. His legal team uses it to cow less sophisticated or less wealthy adversaries into silence.
Take the case of Stormy Daniels, the porn actress who says she had an affair with Trump in 2006. Trump lawyer Michael Cohen said he negotiated an agreement with Daniels in October 2016 in which he paid her $130,000 and required she not disclose any details of the alleged affair or otherwise disparage Trump. The “hush agreement,” as Daniels aptly calls it, is backed by a so-called “liquidated damages” provision, which purports to require she pay $1 million for any and all breaches.
So Daniels goes on Jimmy Kimmel and stops just short of admitting to an affair with Trump — does that mean she now owes $1 million? Well, according to court papers formally joined by Trump and his lawyers, she has breached the hush agreement as many as 20 times (no details were provided) — so make that $20 million.
And yet despite this court filing, Daniels will appear on “60 Minutes” Sunday night to give an extended interview to Anderson Cooper. Now imagine how many millions she could be sued for! More than enough, taunts Cohen, for him to take an “extended vacation.”
Trump and Cohen’s Bronx bluster notwithstanding, the “liquidated damages” clause in Daniels’s hush agreement is a far less potent tool then they want her to believe. Indeed, it is not enforceable.
Contract law is pragmatic: It permits actual damages for breach, but not punishment. The breaching party is responsible for making the non-breaching party whole — nothing more.
There is a legitimate place in a contract for the “liquidated damages” clause. For some contracts, it is very hard for the parties to determine in advance the fair measure of damages in the event of a breach. In such a setting, the parties can include a clause that sets out what the damages will be.
However, and crucially, the set amount must be a reasonable forecast of the anticipated or actual harm from a breach. A party cannot simply name an arbitrary, exorbitant figure as the presumed “damages” from a breach, even if the other party agrees. If the law were otherwise, the breaching party would be locked in even when performance was inefficient or unfair, and the non-breaching party would reap a windfall.
When courts see a party using a liquidated damages clause to punish or deter a breach, they will condemn it as a “penalty” and strike it out of the contract.
How does this standard analysis apply to Trump and Cohen’s attempt to silence Daniels?
First, this does seem to be a situation in which it would be hard for the parties to determine in advance the fair measure of damages in the event of a breach. Assume, for example, that Daniels had gone public days before the election. The question of normal damages — how to put Trump back in the position he would have been if no breach had occurred — is hard to conceptualize, let alone calculate in terms of money.
So, now we come to the pivotal question: Is the $1 million per breach — any and every breach (including under the agreement, any “public disparagement” of Trump unrelated to the affair) — a “reasonable forecast of the anticipated or actual harm”?
The answer is plainly no. The initial breach, had it occurred when the election was on the knife’s edge, could indeed have been cataclysmic, incalculable even. But subsequent breaches, whenever they would have occurred, would have been old news, and any additional damage would have been marginal at best.
Thus, the provision for all breaches of any type — the 2nd, 3rd, and 100th — to require the same $1 million payment fails the legal test of being a reasonable forecast of the anticipated or actual harm. It therefore is an impermissible penalty and should fall away, exactly as if it were never in the contract. The court (or, in the event, the arbitrator, who also should apply contract law) would then calculate the actual damages from Daniels’ breach, ignoring the outlandish penalty Trump hoped to impose.
It is far from clear that Trump would suffer significant actual damages from Daniels’ un-muzzling. He already stands accused by dozens of women of being a serial adulterer and sexual offender (allegations he denies), so how much more damaging is one more claim?
Moreover, when Daniels’ accusation surfaced in January 2018, Cohen poo-pooed it as “an old and debunked story” that had already been published in 2011. So cast, the revelation looks to have caused only modest independent damage.
And that’s what makes this story all the stranger. Trump’s legal team is waging a vigorous battle to keep hidden details that are largely already known. Indeed, it’s hard to believe at this point that even ardent Trump supporters would be surprised to learn that the affair may have occurred.
Yet when the full story is aired — as it may be Sunday night — their energetic resistance will have given it that much more salience. If Daniels now seems first among equals in the cascade of accusers, it is principally because Trump’s legal team has fought her so hard.
All in all, the law should provide a satisfying end to the battle of the President v. the Porn Actress. The bullies lose their bludgeon. Daniels pays, at most, reasonable damages. And the public learns the truth.