Stormy Daniel's Three-Way (Contract) & Donald Trump's ...

I want to return to the Stormy Daniels-Donald Trump-Michael Cohen Three-Way Contract.  It's actually really interesting from a contract doctrine perspective (besides being of prurient interest). The continued media coverage and scholarly commentary seems to be missing a key point, namely that this is a contractual ménage à trois, not a typical pairing. The fact that there are three parties, not two to the contract actually matters quite a bit doctrinally.

 

Let’s start with a point on which I think everyone agrees.  For there to be a contract, there needs to be mutual assent. This assent may be manifested in different ways—it may be manifested expressly, say through a signature, or implicitly, say through performance or, in rare cases, through silence. 

 

The complication we have in this contract is that it is a 3-party contract, not the standard 2-party contract.  That’s a problem because basically everything in contract doctrine is built around 2-party contracts.  Traditional contract doctrine is monogamous and doesn't really know what to do with three-ways, especially when one party has a performance problem.  It's not, for what it's worth, that multi-party contracts are rare--they're not. In fact, they're the common arrangement in corporate finance where a contract will involve numerous affiliates. But traditional contract doctrine developed in an era in which these multi-party contracts were rarer (indeed, look at how the Bankruptcy Code is not drafted with the contemplation of multi-entity debtors!) and there's always been a wink-wink, nod-nod about the separateness of corporate affiliates. 

 

 If Trump & Stormy had a monogamous contract

If Stormy (Peggy Peterson=PP) and Donald (David Dennison=DD) had a traditional, monogamous contract, this would be very easy.  Let’s imagine that's the case:  DD paid PP $130k and gave her certain releases in exchange for her providing him with a release (teehee...).  In that case, under the Restatement (Second) of Contracts the fact that DD didn’t sign wouldn’t matter a whit in terms of his ability to enforce the contract against PP because there would be assent through performance by Dennison in the form of the $130K payment.  The lack of a DD signature would matter, however, to the extent PP wanted to enforce the contract against him because it would raise a Statute of Frauds problem (this is not a contract that can be performed within a year as the obligations are on-going), as the party to be charged didn’t sign the contract. (See also California Civ. Code § 1624). I don’t think any of this is controversial analysis.

 

 

The problem is that this is a 3-party contract.  It calls for EC to pay PP; PP to give DD releases and turn over certain materials to DD; and for DD to give PP releases.  

 

Notice that EC only contributes to the deal, but does not receive any benefit. Yes, there is language that indicates that EC and DD are on "one side" of the contract, and PP on the other, but I don’t think that really does anything—presumably DD would have been able to sue EC if EC had failed to perform.  Likewise, EC cannot provide PP the litigation releases she was supposed to get in the contract; only DD can provide them.  And PP can only give litigation releases to DD, as she has no claim against EC. I think it’s hard to run away from the fact that EC and DD are separate entities and that this is a 3-way contract, although I'll return to an agency law argument below.    

 

Here’s why that matters.  It seems that EC and PP both performed their legs of the contract. But David Dennison/Donald Trump has a “performance problem.”  There’s nothing that indicates that DD performed.  In this case performance (release of litigation claims) is not distinguishable from non-performance (retention of litigation claims).  The only way that DD/Trump could clearly provide those releases would be by executing the contract, but he didn’t.

 

So this forces us to answer the question of whether PP’s acceptance of EC’s component of the consideration is enough to bind her to a 3-way contract with both EC and DD? This is the question that I have not seen adequately addressed in existing commentary, perhaps because there isn't a clear answer from existing law.  

 

My own 2¢ are that we do not have enough here for a contract, but I emphasize that there really isn’t clear law on this. My thinking is that from PP’s perspective, the deal was a package—$130K plus litigation releases in exchange for her releases and compromising materials.  We know that she assented to a package deal, not to just one component of the deal, and that the assents were supposed to be a mutual exchange.  Her only revealed preference was for the package deal.  Her assent was conditioned upon the assent of both of the other parties, not just EC's assent. As it happened, she got EC’s assent and the $130k, but there is no indication that she ever got DD’s assent or the litigation releases from him.  Thus, I think Stormy has a quite plausible argument that there was never a contract formed because there wasn’t assent from all the parties.  Doctrinally I think this makes sense—if there is a to be a contract among A, B, and C, it would not be sufficient for just A & B to agree to the contract, even if they exchanged value, if the deal were dependent upon C's contributions; instead, C would have to assent for the deal to be effective.  

 

Ah, but what about the fact that Stormy took the $130k?  The fact that she took it doesn’t mean that there is a contract because we aren't in a two-party contract situation. But it also doesn’t mean that she gets to keep the money.  In theory, EC/Cohen could recover the $130k as unjust enrichment (provided that Stormy got back her compromising materials), but that’s an equitable claim, and EC/Cohen does not have clean hands in this contract given how it was engineered from the get-go to give Trump plausible deniability.  

 

 Could Cohen/EC Be Trump/DD’s Agent? 

 

A number of folks have argued that Cohen/EC is Trump’s agent. If so, then TeamDonald should probably win on the issue of whether there is a contract. (There’s still public policy issues, but that’s a separate question).  As a factual matter, that’s gotta be right.  But I think it is a loser of a legal argument for two reasons.  First, it isn’t clear on what grounds EC/Michael Cohen would be acting as DD’s agent.  There’s certainly no express authority (indeed, Cohen has disclaimed it), and any argument about implied authority or apparent authority isn’t going to prevail on a motion to dismiss, which means Stormy is going to get to discovery.  Second, and more importantly, if EC/Michael Cohen is acting as DD/Trump’s agent in the contract, then there’s a serious election law problem (and if Stormy's isn’t the only one around, but is part of a larger patterns, perhaps a RICO issue as well). Oh, and if there’s a criminal election law violation, that payment to Stormy would be either wire fraud or mail fraud. I don’t think TeamDonald wants to go anywhere near this argument.