Legal Lessons from the Stormy Daniels NDA

In October 2016, just days before the presidential election, attorney Michael Cohen paid Stormy Daniels $130,000 to stay silent about an alleged affair with Donald Trump. The NDA used pseudonyms ("David Dennison" for Trump, "Peggy Peterson" for Daniels), funneled money through a shell company, and included a $1 million liquidated damages clause.

By 2018, the agreement had collapsed entirely. Daniels sued to void it, Trump's team abandoned enforcement, and Cohen went to prison partly for campaign finance violations related to the payment. The case offers critical lessons for anyone drafting or signing a privacy agreement.

The Key Mistake: Trump Didn't Sign

The most glaring problem with the Stormy Daniels NDA? Donald Trump never signed it. The agreement was executed by Stormy (as "Peggy Peterson") and by Michael Cohen on behalf of Essential Consultants, LLC. But Trump's signature line sat empty.

Could Trump Still Enforce It?

Technically, maybe. Under California agency law, Cohen could have bound Trump as his principal. And Trump might qualify as an "intended third-party beneficiary" since the agreement was clearly for his benefit. But:

• The ambiguity hurt him. The contract said it was between Essential Consultants, LLC "and/or" David Dennison. That "and/or" made it unclear who the actual party was.
• It created a narrative problem. Stormy could credibly say, "He didn't even sign - it's not a real deal."
• Trump tried to have it both ways. His lawyers later argued he wasn't a party (to avoid paying Stormy's legal fees). A judge rejected that, noting the evidence clearly showed "David Dennison" was Trump.

The $1 Million Per-Breach Problem

The NDA included a liquidated damages clause of $1,000,000 per breach. Trump's lawyers later claimed Stormy owed $20 million for 20 alleged violations. This kind of penalty clause often backfires.

Why Courts Hate Excessive Penalties

California (and most states) will only enforce liquidated damages if they reasonably estimate actual harm. A $1 million penalty for a single statement - when actual damages might be minimal - looks like a penalty designed to punish and intimidate, not compensate for real loss.

Courts routinely strike down such clauses as unconscionable. In the Omarosa case (a similar Trump campaign NDA), an arbitrator found the agreement "too vague and unenforceable," and the Trump campaign had to pay her legal fees instead.

What Made the NDA Fail

Beyond the signature and penalty issues, several other problems contributed to the agreement's collapse:

1. Pseudonym Problems

Using "David Dennison" and "Peggy Peterson" was meant to provide deniability. But the side letter identifying the real parties may never have been properly executed by Trump. This created arguments about whether there was ever a valid "meeting of the minds."

2. One-Sided Terms

The NDA let Trump's side pick the arbitration location, contained minimal carveouts for Stormy, and had asymmetric obligations. California courts can void contracts that are procedurally and substantively unconscionable - meaning both unfair in process and unfair in content.

3. Campaign Finance Exposure

The payment was later deemed an illegal campaign contribution. A contract formed as part of an illegal scheme can be void on public policy grounds. Stormy argued the NDA's purpose was to illegally influence an election.

4. Cohen's Public Statements

When the Wall Street Journal broke the story, Cohen publicly discussed the payment. Stormy's team argued that his disclosure "nullified" any confidentiality obligations on her end. If one side breaches confidentiality, they can't demand the other stay silent.

5. The Streisand Effect

By aggressively enforcing the NDA with a secret arbitration order, Trump's team turned a private matter into a national news story. Sometimes the best enforcement strategy is no enforcement at all.

Lessons for Your Own NDA

Whether you're drafting a relationship NDA, a settlement agreement, or any confidentiality contract, here's what the Stormy Daniels case teaches:

• ✓ Get all parties to sign. Don't rely on agency theories or third-party beneficiary status when you can simply have everyone execute the agreement.
• ✓ Use reasonable damages clauses. Courts enforce compensation, not punishment. A $5,000-$25,000 per-breach clause is more defensible than $1 million.
• ✓ Be clear about party identities. If you use pseudonyms, have a properly signed side letter identifying everyone.
• ✓ Avoid "and/or" in party definitions. This creates ambiguity about who is actually bound.
• ✓ Include standard carveouts. Allow disclosures to attorneys, therapists, and law enforcement. Courts won't enforce gag orders on legally protected speech.
• ✓ Balance the obligations. Extremely one-sided agreements are vulnerable to unconscionability challenges.
• ✓ Consider enforcement strategy upfront. Will pursuing a breach create more publicity than staying silent? Sometimes walking away is the smart move.
• ✓ Comply with all applicable laws. An NDA can't shield illegal conduct. If the underlying payment or purpose violates law (like campaign finance rules), the whole agreement may be void.

Post-Stormy: How the Law Changed

The Stormy Daniels case accelerated legislative changes around NDAs:

• California's STAND Act (2018) - Bans confidentiality provisions in settlement agreements involving sexual assault, harassment, or discrimination claims
• Silenced No More Act (2021) - Extends protections beyond just sexual harassment to all forms of workplace harassment and discrimination
• Federal Speak Out Act (2022) - Voids pre-dispute NDAs and non-disparagement clauses for sexual assault/harassment claims
• Ending Forced Arbitration Act (2022) - Lets accusers choose court over arbitration in sexual assault/harassment cases

These laws don't apply to purely personal relationships (like an affair), but they reflect growing skepticism of NDAs used to silence victims. Draft with this trend in mind.