Stormy Daniels, USA Gymnastics and the Power of a Non-Disclosure Agreement

Shh!By Dan Portnov

With the recent revelation that then-candidate Donald Trump’s longtime attorney Michael Cohen used his “own personal funds to facilitate a payment of $130,000” to adult movie actress Stormy Daniels in 2016, we may be moving closer to finally getting confirmation of one of the President’s worst kept secrets: that Trump and Daniels had an affair in 2006.

Cohen’s revelation – acknowledging the payment but without further details such as his motivation or plan for reimbursement from his client – prompted Daniels’ manager to respond that the actress now believes Cohen has voided any non-disclosure agreement (NDA), and she is free to tell her side of the story. Neither Cohen nor President Trump have indicated whether the latter will preemptively seek enforcement of the agreement.

NDAs have always played a role in resolving civil lawsuits. But now they may play a role in more criminal cases.

Indeed, as the Daniels story developed throughout January 2018 with tabloid-worthy details, a more emotional story unfolded in a Lansing, Michigan courtroom – the sentencing of Larry Nassar for criminal sexual conduct in the abuse of over one-hundred female gymnasts and athletes. Of the 156 victims who spoke of his abuse at the sentencing, one, Olympic gold medalist McKayla Maroney, violated an NDA with USA Gymnastics (“USAG”) by coming forward.

Maroney had previously resolved her claims against USAG, stemming from Nassar’s abuse, for a payment of $1.25 million and with both sides agreeing to non-disclosure and non-disparagement provisions. According to these settlement conditions revealed by Maroney during Nassar’s sentencing, she faced a $100,000 penalty (liquidated damages) for speaking out about the underlying abuse or the settlement.

Trump and USAG make unlikely bedfellows,[1] as the existence of their respective NDAs is as equally embarrassing and damaging to their “brand” as the conduct that was to be kept confidential. More important, the revelation of the tawdry details subject to these provisions, and the methods used to obtain them, suggest NDAs may be functionally useless in certain instances.

A few thoughts on what these recent developments will mean for our fellow litigators and white-collar practitioners:

  1. Sealed (or confidential) filings in civil suits are disfavored and granted in extremely limited circumstances. Lawsuits commenced entirely under seal (like qui tam actions) are even rarer and later subject to unsealing. Therefore, a party’s suit upon a breach of an NDA will serve to confirm its existence and likely its underlying terms.
  2. If a party to the NDA understands that legal (and therefore public) enforcement is unlikely for the above reason, the best deterrent to disclosure is a liquidated damages provision. A liquidated damages provision, plus a claw-back of all consideration paid, plus payment of attorney’s fees spent in any resulting lawsuit, would likely have kept Daniels from coming forward with the salacious details thus far. (Maybe. This situation obviously has a few unusual elements, such as the current job title of the other party.)
  3. Criminal, regulatory and judicial subpoenas will supersede the NDA. Even the most restrictive NDAs leave open the possibility that one party may be compelled by legal process to share otherwise confidential details with regulators, law enforcement, or even in a deposition. Government lawyers now ask counsel for potential witnesses if their clients would prefer a subpoena to a voluntary interview. (The answer is almost always in the affirmative.) The most the parties can do in these instances is require notification of the compulsory process to the other party so that it may take appropriate steps, such as a motion to quash, to protect confidential information.

For example, should the Federal Election Commission commence an investigation into Cohen’s payment to Daniels prior to the 2016 election, the Trump administration will have opportunity to assert whatever privileges it feels are necessary over the documents and testimony of Cohen, and possibly even Daniels.

The post-script to the USAG/Maroney NDA turned out a non-event. As its board of directors and officers resigned in disgrace, the organization quietly affirmed that it would not take any action against Maroney for her victim impact statement. Even had USAG threatened suit, a number of supporters offered to pay any penalty for which Maroney would be liable. Justice, and the “market,” valued her story and healing over what remains of USAG’s reputation.

The Daniels/Cohen imbroglio, like the rest of President Trump’s personal and professional affairs, promises to revisit front pages and television screens for the foreseeable future. Even before the story broke of Cohen’s payment, a complaint had been filed with the FEC alleging the payment violated the Federal Election Campaign Act.

Here, too, the market will have the last word. If a news outlet or publisher values Daniels’ story at a higher amount than the sum of her prospective legal costs, the NDA will no longer serve an impediment. Maybe one of the President’s friends will step in to buy the rights to Daniels’ story, only to bury it – a tactic that has had similar results to an NDA, but without the stigma of hiding a wrongful act.

NDAs will continue to be part of our legal and business landscape. Their recent “failings” – as evidenced by the Daniels and USAG cases – serve to remind us that the NDA is only as strong as its calibration of interests and compensation.

[1] Pun intended.

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