A Settlement for Donald Trump and Stephanie Clifford?


Will we see a settlement of the ongoing legal conflict between Donald Trump, the US president, and Stephanie Clifford, the adult film actress and director known as Stormy Daniels? Might resolution of their dispute serve as a precursor to the resolution of other disputes swirling around Mr. Trump that allege improper, unofficial actions before he was elected?

In the background of the present conflict involving Mr. Trump and Ms. Clifford is an October 2016 confidentiality and non-disclosure agreement. The agreement, which contains an arbitration clause, provided a $130,000 payment to Ms. Clifford. The agreement was finalized just days before the 2016 election victory for Mr. Trump. Whether the payment violated federal campaign reporting requirements and tax laws remains to be determined.

The $130,000 payment was not known publicly until it was revealed in a January 2018 news story. The next month, an arbitrator issued a temporary restraining order against Ms. Clifford to bar any further disclosures, including in media reports or in court filings. Ms. Clifford was not given advance notice that the order would be sought, a procedure permitted by the 2016 agreement, but potentially at odds with California civil procedure and arbitration laws.

A week later, Ms. Clifford responded with a lawsuit in California to invalidate the settlement agreement, including its arbitration provision, and the restraining order. A new attorney, Michael Avenatti, has aggressively advanced Ms. Clifford’s case, not just in court but through the media.

Ms. Clifford’s main claim is that an agreement was never completed because Mr. Trump, using the pseudonym David Dennison under the agreement, never signed it. Ms. Clifford did sign, as Peggy Peterson, the name she was given in the agreement. California law expects parties to sign agreements releasing claims and ending legal proceedings.

In the latest procedural twist, the state court action has been removed to federal court in Los Angeles. In that proceeding, several issues will be on the agenda, including whether the 2016 settlement agreement is valid, and who will make that determination, a federal or state court, or an arbitrator.

Given this setting, it would make sense for both Mr. Trump and Ms. Clifford to decide that the brewing battle is not worth pursuing if there is another way out. Of course, settlements of all kinds are predicated on parties acting sensibly, and not in a way that is self-destructive.

Having assisted as a mediator in the negotiated resolution of many hard-fought and high-value legal conflicts, the author believes that the Trump-Clifford dispute can and should be settled given the substantial uncertainties and risks that arise from the legal proceedings. How so?

Each side faces greater problems if the present legal conflict continues. For Mr. Trump, whether in arbitration or in court, the litigation could persist for months if not years, leaving the misconduct alleged in the complaint unresolved.

A core dispute is whether an enforceable contract with an arbitration provision has been formed. Consent is a basic element of a valid contract in California. Even if the dispute over contract formation shifts from court to private arbitration, an outcome that is possible although not likely under state and federal legal precedent, Mr. Trump will face potential exposure in contesting facts related to the underlying settlement agreement.

There is a real chance, for example, that the federal court will conduct a jury trial under Section 4 of the Federal Arbitration Act on the basic question of whether a contract exists with an enforceable arbitration provision.

If this happens, Mr. Trump will have to testify in a deposition and at a trial to describe his role in connection with the settlement agreement and his previous relationship with Ms. Clifford. For now, through representatives, Mr. Trump has denied having a relationship with Ms. Clifford or any involvement in the settlement agreement and the $130,000 payment.

Mr. Trump’s long-time attorney, Michael Cohen, negotiated the settlement agreement and states that the payment was Cohen’s alone. Is it believable, however, that Mr. Cohen acted without Mr. Trump’s knowledge and approval, and, by so doing, could have violated ethical norms governing client communications in settling disputes? Would $130,000 be paid to Ms. Clifford out of Mr. Cohen’s personal funds to buy the silence of someone who never had an intimate relationship with Mr. Trump?

It is doubtful that Mr. Cohen’s account will be credited once the circumstances surrounding the agreement are carefully examined. This prospect contributes to Mr. Trump’s troubles.

Additionally, Mr. Trump faces further personal embarrassment and concern that relationships with his wife and some of his children may be at a breaking point. It is possible that Mr. Trump told Mrs. Trump in years past about a relationship with Ms. Clifford, but will she learn more than he shared? And what will his youngest child think about his father?

Beyond Mr. Trump’s family, the ongoing litigation with Ms. Clifford, whether in arbitration, in court, or, eventually, on appeal, will be disruptive for Mr. Trump’s ability to govern and for his prospects in future elections.

If these concerns are not sufficient to prompt Mr. Trump to seek a settlement with Ms. Clifford, add to the mix the more recent allegations about threats and coercion to secure Ms. Clifford’s earlier agreement. If Mr. Trump prevails in a private arbitration, it also is likely that the record of the proceeding will eventually be disclosed through leaks in the media, or in a subsequent court proceeding to vacate the award.

Any victory for Mr. Trump could be jeopardized as well if an award violates public policy embodied in campaign, tax, or other statutes. Aside from the issue of consent, the 2016 agreement with Ms. Clifford could be invalid if it is found to have lacked a lawful object.

Compounding these problems for Mr. Trump are other cases that made headlines on March 20. These cases will result in Mr. Trump facing heightened pressure about his past relationships with women other than Ms. Clifford.

One headline concerns a defamation lawsuit initiated by one of the many women who, during the presidential election campaign, accused Mr. Trump of predatory sexual behavior. Mr. Trump in widely-public, derogatory remarks said that her accusations, and those of other women, were untrue. A New York state court, also on March 20, denied Mr. Trump’s motion to dismiss the action. Unless litigation is stayed by a higher court, Mr. Trump could face a second front of civil discovery.

Another case involves a suit by a former Playboy model, Karen McDougal, who seeks release from a non-disclosure agreement with a media company that paid for her story of a relationship with Mr. Trump, but did not publish her account.

How these cases unfold can be a particular danger for Mr. Trump if long-time political support, already of modest size, starts ebbing away, not only among those women who have remained on his side, but for other voters who are troubled by Mr. Trump’s persistent association with discord and scandal.

For Mr. Trump, it is worth recalling that President Clinton all but confessed to perjury, and only barely was able to avoid an impeachment conviction and removal from office. Is Mr. Trump ready for a replay, a possibility that is looming as the country approaches the 2018 midterm elections and a possible change in congressional control?

Mr. Trump has weighty matters of national and international affairs to deal with: North Korea, the Russia investigation, immigration reform, gun control, an addictive drug epidemic, and budget deadlines, to name several. Mr. Trump would be making a mistake to allow litigation conflicts to continue, and potentially to expand with other cases, since, almost inevitably, any wrongdoing will be stark and easily understood when compared to the more complicated facts of the unfolding Russia investigation.

If Mr. Trump resolved his personal legal battles one at a time to clean the slate, it probably would be of benefit for Mr. Trump, and, dare I say, for us all.

Ms. Clifford faces risks as well. Litigation, in court and in the public eye, will require significant funds. If she loses, she could be ordered to pay Mr. Trump’s legal fees under the arbitration provision in the 2016 agreement. From descriptions of her life and work, she does not appear to be judgment-proof.

While there is uncertainty about the legal status of the underlying 2016 agreement, if upheld, it provides for substantial liquidated damages for each violation. The removal notice alleges that multiple confidentiality violations by Ms. Clifford are already at the $20 million mark.

Ms. Clifford, through her attorney, has been testing the waters with disclosures about her past relationship with Mr. Trump, but, at some point, whether before or after a highly publicized interview on the 60 Minutes news show, a reviewing court or an arbitrator could enter the fray to silence Ms. Clifford and her counsel.

Additionally, Ms. Clifford reportedly has substantial film and business interests that require her attention. Although the publicity surrounding her dispute with Mr. Trump may yield short-term financial success in her field of work, the publicity could be damaging in the long term, while also presenting difficulties for her and for her husband and child.

Ms. Clifford, a Republican, once considered running for office in Louisiana. Perhaps a future candidacy would be made more difficult by protracted litigation with Mr. Trump, an individual favored by many Republicans. Some commentators have been harshly critical of Ms. Clifford, observing that she admits signing off on the 2016 agreement and accepting the $130,000 payout, while wondering whether this dispute is really prompted by a desire for greater financial reward.

Ms. Clifford, having offered to return the funds, has maintained, through Mr. Avenatti, that her real goal is to have the truth be told. That goal is attainable.

In this setting, a negotiated settlement may be the wisest option for the parties. In staying the course, the best alternative to a settlement for Mr. Trump would be a private arbitration proceeding, but there are difficult hurdles in getting there, and an unpredictable outcome with drawbacks.

For Ms. Clifford, the best alternative to a settlement would be litigation that relieves her of confidentiality obligations and exposure to significant damages, but that, too, is a path that entails uncertainty and risk. For both, the roll of the dice will be huge.

Taking the respective interests of Mr. Trump and Ms. Clifford into account, what would a settlement look like? The terms and conditions often used to settle civil litigation in our system can provide direction.

A key, basic feature would be Mr. Trump admitting his past intimate relationship with Ms. Clifford and apologizing for any hurt caused to others. Concessions are not what we have come to expect from Mr. Trump, but the crisis he faces, and the terms sought by Ms. Clifford, require no less. The language of Mr. Trump’s statement would be negotiated by the parties, to be released in written form, either separately or as part of a joint statement with Ms. Clifford.

Such a statement, brief but clear, could permit Mr. Trump to explain that he resisted disclosure of the affair with Ms. Clifford in order to protect his wife and family from further embarrassment based on his conduct that was in the news in October 2016.

A statement also would need to include Mr. Trump’s denial that he intended to evade any campaign or tax laws. In doing so, he could accept responsibility for Mr. Cohen’s actions on his behalf and admit his readiness to pay any fine or tax resulting from the $130,000 payment.

Is there a risk of prosecution for Mr. Trump from accepting moral and financial responsibility? Probably not, if he concedes frankly and fully, and sooner rather than later, given the other substantial concerns on the national agenda.

Finally, a statement from the parties would acknowledge that they have settled on a confidential sum of money to be paid by Mr. Trump to Ms. Clifford. The statement would describe the amount as sufficient to compensate for any suffering experienced by Ms. Clifford. An added, decent feature would be a large contribution by Mr. Trump for allocation by Ms. Clifford to worthy organizations in the women’s movement. Mr. Trump, a very wealthy man, can afford to pay a settlement along these lines.

Other standard terms would be included in a settlement agreement. One would be denials by both parties of wrongdoing or liability. Another would be the withdrawal and dismissal of claims made in arbitration and litigation. The agreement also would provide for the mutual release of known and unknown claims.

With a settlement of this nature, Mr. Trump presumably could stop fighting the battle with Ms. Clifford, opening the door to resolutions with other litigants, with settlements permitting him to move forward as president. For her part, Ms. Clifford could go forward in her family life and in the film industry, with her credibility intact and a substantial sum to assist her in that enterprise.

Settlements happen when parties are ready. It probably is time for Mr. Trump and Ms. Clifford to seek a real resolution.

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