Non-Disclosure Agreements: Trump, the Stormy Daniels NDA, and the Future of NDAs

Episode Notes

Transcript

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J. Craig Williams: Former President Trump in particular is known both for being litigious and for breaching contracts and pushing the limits of contractual relationships so, it is not surprising that we learn upon his becoming a political candidate and then assuming the presidency that he considers it a normal business practice and his entitlement to require employees to sign non-disparagement and non-disclosure agreements.

Intro: Welcome to the award-winning podcast Lawyer 2 Lawyer with J. Craig Williams bringing you the latest legal news and observations with the leading experts in the legal profession. You’re listening to Legal Talk Network.

J. Craig Williams: Welcome to Lawyer 2 Lawyer on the Legal Talk Network, I’m Craig Williams coming to you from Southern California.

I read a blog named, may I please the court, after a book sale titled, ‘How to Get Sued in the Sled.’ Well, a nondisclosure agreement better known as an NDA is an agreement in contract law that certain information will remain confidential. As such, an NDA binds the person who has signed it and prevents them from discussing any information in the contract with any non-authorized party. Very interesting definition.

Well just recently, a New York arbitrator ruled against former President Trump and his campaign in favor of former White House adviser Omarosa Manigault Newman in regards to a 2018 lawsuit stemming from an NDA and Omarosa’s tell-all book unhinged. Well, according to an article in The Daily Beast, the arbitrator found that the NDA went too far when Omarosa was forced to never say anything remotely critical of Mr. Trump, his family or his family members, businesses for the rest of her life. So do NDA’s often go too far and does this ruling set a precedent for future cases in Trump’s world?

Today on Lawyer 2 Lawyer, we’ll talk about non-disclosure agreements, we’ll take a look at former President Trump’s use of NDAs, this recent ruling, the constitutionality of NDAs, the future of these types of agreements and an actual Trump NDA from his campaign. And to do that, we have Professor Mark Fenster, the Stephen C. O’Connell chair at the Levin College of Law at the University of Florida. His legal research has focused on governmental transparency, legal intellectual history and constitutional limits on governmental regulation.  He is the author of the book, ‘The Transparency Fix. Secrets, Leaks and Uncontrollable Government Information’ from Stanford University Press published in 2017. He currently teaches contracts, payment systems and statutory interpretation. Welcome to the show, Mark.

Mark Fenster: Thanks Craig, it’s great to be here.

J. Craig Williams: Well, we’re discussing in particular Trump’s NDAs but just generally, what is a non-disclosure agreement and what are the typical environments where they’re used?

Mark Fenster: A nondisclosure agreement is an agreement not to disclose to be tautological about it. It is usually either a standalone contract or a contractual provision by which the parties in exchange for consideration agree not to talk about certain things. It most typically comes up in employment relations but it can come up really anywhere. These days, it can be a free-standing contractual provision so the contracts could merely have its only subject matter the duty not to disclose information in exchange for some sort of valuable consideration or in an employment context, it could come up as part of a larger employment agreement.

J. Craig Williams: Right. And what is it that you’re not supposed to be disclosing? I mean is it like company secrets and formulas and you know, the Coca-Cola formula?

Mark Fenster: Well, the beautiful thing about a non-disclosure agreement is that it is merely a boilerplate and the parties can fit in whatever it is they feel like fitting in. So the contractual agreement could specify precisely what it is that the parties are agreeing not to disclose. It could be a blanket covering particular periods of time. It can run the gamut depending upon the kind of relationship that the parties have. Now oftentimes, in an employment setting it can be part of a series of agreements that the employee is making that could include the agreement not to compete with the employer for a particular period of time ranging for a particular geographical area and it usually and most specifically comes up in the trade secret area, whether it is specifically a trade secret or it could be other sorts of confidential information that might not get trade secret protection. The point for the employer is to make sure that the employee isn’t taking from the workplace some valuable information that could help a competitor or hurt the employer.

J. Craig Williams: Well, here in California, non-disclosure agreements between companies and non-salaried employees have been outlawed and so, the workaround that lawyers use is to do what’s known as a trade secret agreement. So how’s the trade secret agreement different than an NDA?

(00:05:00)

Mark Fenster: Well, a trade secret agreement would be much tighter than an NDA and NDA would extend to whatever it is that the employer includes within the contractual provision which could really be anything that they might want to try to include. A trade secret agreement would be a more technical sort of been the Venn diagram of information that an employee could receive. It’s a smaller portion of that that extends only to things that fall within the parameters of trade secret law.

J. Craig Williams: Right. Well then I guess that’s why they’re used this way. Now, also in California, non-disclosure agreements are allowed between executives and the company but that’s because there’s a more equal bargaining power I believe?

Mark Fenster: Right, and California is on the forefront of legislation that is prohibiting — they keep on expanding the variety of non-disclosure agreements that are prohibited by law.

J. Craig Williams: Right. Well, let’s take a look in particular at former President Trump’s use of non-disclosure agreements. Now, it’s probably not at all unexpected in the corporate environment where he was to see those kinds of things, was it?

Mark Fenster: No, not at all. I mean my sense and again, because these are non-disclosure agreements that are themselves not only is the subject of the non-disclosure agreement not to be disclosed, but the non-disclosure agreement might not be disclosable. That is to say the existence of the non-disclosure agreement might itself be a secret that cannot be disclosed. The upshot of that is that we have no real way of knowing the extent of the usage of non-disclosure agreements. There are certain ways of finding them from SEC filings and the like but otherwise, with respect to just your common average employee and employment agreement, it can be difficult to figure out just how widespread they are but it is the case that in the corporate environment, there are reasons both good and bad for employers to require employees to sign this non-disclosure agreements.

Now, former President Trump in particular is known both for being litigious and for breaching contracts and pushing the limits of contractual relationships so, it is not surprising that we learn upon his becoming a political candidate and then assuming the presidency that he considers it normal business practice and his entitlement to require employees to sign non-disparagement and non-disclosure agreements.

J. Craig Williams: So how does that work in the government which is supposed to be presumably open and available for inspection? Can you use an NDA in the government?

Mark Fenster: Well you can in certain circumstances. I mean, you run into First Amendment issues because when the government is attempting to enforce a non-disclosure agreement, they are the state that is limiting the free expression of individuals. The best example of an enforceable non-disclosure agreement that the government uses is in the national security area where certain employees within national security agencies, most famously the CIA, are required as part of their employment to agree not to disclose confidential information, classified information in particular and when they are going to publish or speak on any sort of aspect of their job that might conceivably relate to classified information. They have to seek review of their comments, a review of their writings beforehand.

But more extensively to say to any employee that they must sign a non-disclosure agreement that is specific to an individual like the president, that is deeply troubling and problematic and likely to be unenforceable. Not least because the fealty of any employee of the federal government is not to the president, it’s to the government. And so, the president should not be allowed to and cannot in fact enforce a non-disclosure or non-disparagement agreement against one of his employees.

J. Craig Williams: I would get that if the agreement was between the United States and the employee. But what happens in the situation where the agreement is between Trump himself as an individual and the person that’s working for the federal government? I’m going to let you in my inner circle and I’m sometimes going to be talking about something like corporate stuff because apparently, he kind of also ran his corporations while he was president. But is anything like that even remotely enforceable?

Mark Fenster: Well, it only goes to the extent of who the employer is. For example, when an employee of Donald Trump as president is employed by his political campaign, his political campaign is a private entity and not a government entity. And so, against an employee of the campaign to re-elect Donald Trump, it’s a different analysis than it would be if the employee was in the White House, was a member of the White House staff or was part of an administrative agency.

(00:10:00)

J. Craig Williams: And there’s famously been a few books that have been written, in particular Ms. Omarosa who was in a fight with President Trump over the NDA.

Mark Fenster: Right. And she ended up winning and he has extended — I mean like anyone, he does not particularly like those who are critical of him or who would give him bad press and he has found that he has not been particularly lucky of late in trying to press his non-disclosure agreements, whether against government employees or against his niece. So that has been an ongoing problem for him we can say.

J. Craig Williams: Right. Well, let’s put the non-disclosure agreement up against the standard of constitutionality. How does it fit into the constitution or does it?

Mark Fenster: The First Amendment doesn’t affect a contractual relationship between two private parties who agreed to disclose or not to disclose certain things. There’s no state action there so there’s no constitutional concern with a non-disclosure agreement. State Contract law might limit that non-disclosure agreement and as we’ve already discussed, California by legislation has curved the ability for parties to contract in this area. And in other jurisdictions, it could be legislated. It could be common law. The analysis changes though when it’s a government entity who is requiring silence of a private individual. That is where the First Amendment protection starts to kick in for individuals and their non-disclosure agreements face a tougher battle because of the constitution.

J. Craig Williams: As this, in particular Ms. Omarosa’s NDAs been upheld or as rather struck down by the courts and the arbitrator here, what does that mean for the rest of them? Are they similar enough that they’re all going to fall and we have a floodgate of information flying about Trump from not only his government time but also his private time?

Mark Fenster: Well, we already have sort of a floodgate it seems like whether individuals are stuck under NDAs or are otherwise intimidated from disclosing information. The information about President Trump seems to be I wouldn’t say comprehensively available but widely available. And I think one of the things that’s happened and Stormy Daniels sort of led the way in this is that, NDAs can serve as a kind of paper tiger often that they appear and they feel to those who signed them to be extremely scary things where in addition to potentially having to give back whatever money was given to you in signing a non-disclosure agreement, you would face the potential for litigation, the possibility for excessive liquidated damages awards which are awards that are stipulated by contract.

And so, people who sign NDAs feel intimidated from trying to speak up from reaching their contract. But one of the problems with NDAs is that when the existence of an NDA is made clear and when some of the content of the NDA is made clear, the party who’s seeking secrets runs the risk if they try to litigate the issue, try to enforce the contract against the breaching party of bringing more attention to the NDA itself.

So this was part of the problem that Harvey Weinstein faced was that for years, he was able to intimidate all of his victims who agreed to NDAs but once a few people stood up, more and more people stood up and it became increasingly difficult, if not, impossible for Weinstein who was trying to retain his public position as well as his public reputation to attempt to fight this flood of information that was being disclosed. And I think the same thing to an extent is happening with Donald Trump. The NDAs to the extent that an individual who signed them is willing to run into conflict with Donald Trump, the NDAs are often times not worth enforcing once the information gets disclosed.

J. Craig Williams: Right. Well, that’s the interesting part of it. I mean, do we really care? Do we really care about the information that flows from the floodgates? I mean, all the people that come out and we have information about President Trump which I guess we suspected all along, we have information about Harvey Weinstein which I guess we suspected all along.

Mark Fenster: Well, I’m not so sure about Harvey Weinstein. I mean, I think there were rumors within Hollywood and oftentimes, with these sort of serial NDA people, they’re often rumors about their bad behavior, whether it is employers or as engaging in sexual assault or rape or the like but that doesn’t make it more broadly. And so, while there is deniability for Harvey Weinstein and for his enablers for a long period of time, once that deniability goes away because of the floodgates then the hope would be, not only Harvey Weinstein faces ultimately criminal charges and he’s in prison as a consequence of that, but one would hope that it would also lead others and especially lead the bar to second-guess using NDAs as broadly and as sort of aggressively as they apparently have been used over the last couple of decades.

(00:15:13)

J. Craig Williams: Right. And well Michael Cohen did it for Trump and a number of Hollywood lawyers have done it for the ones here but let’s talk about Hollywood’s use of NDAs. Is it kind of free reign to then be able to just engage in some level of sexual harassment and pay off the person and silence them through an NDA?

Mark Fenster: Well, the NDA is one tool among many. Part of it is the power that individuals wheeled within an industry including especially Hollywood where the mythology as well as the reality of certain individual’s ability to get movies made and to have them be successful allows them a significant amount of power. And so, even in the absence of NDAs, there has been sexual violence and assault and domination throughout the history of Hollywood but NDAs just provide an additional layer of protection for the wrongdoers who are trying to keep their reputations intact and keep their practices going if you will against additional victims.

J. Craig Williams: I pulled up President Trump’s or in this instance, Donald J. Trump for president, the standard non-disclosure agreement that was used during his campaign. It provides for arbitration. It provides for prevailing attorney’s fees. It provides for a consent to an immediate injunction. It defines family members fairly broadly, it includes almost all of the Trumps and their spouses and grandchildren and everybody else. How do courts consider these kinds of things when they’re so broad?

Mark Fenster: Well, I think that’s the problem that Trump is beginning to have and the fact that these practices have become more widely known. I mean that was in part one of the issues with the Omarosa arbitration. It was in part some of the issues that he’s faced in suing his niece with the extent to which courts are going to read these agreements very narrowly are going to look at for example, excessive liquidated damages clauses that will find them unreasonable if they are unreasonable. In the Stormy Daniels contract which is an especially bad one, the liquidated damages clause was a million dollars per breach which by the time she made it onto 60 minutes would start going into the nine figures probably. So the more aggressive these clauses get and these agreements get, the more difficult it will be I think for courts to uphold them and to enforce them. You know, it’s a sort of typical business practice it seems and legal practice of President Trump that he sort of overclaimed and overextended himself with these contracts in order precisely to be as intimidating as they possibly can be to anyone who signs them.

J. Craig Williams: Well, I’m reading this one and it’s certainly intimidating. It’s one I don’t think I would ever draft as an attorney. One of the provisions in it says that you cannot offer any competitive services to another candidate. So it’s essentially stifling your First Amendment right to, and for that matter, your right to vote. Can you actually do that?

Mark Fenster: Can you require someone to sign away the right to vote? Is that part of the contract?

J. Craig Williams: Well, it says until the non-compete cutoff date, you promise and agree not to assist or counsel directly or indirectly for compensation or as a volunteer any person that is a candidate or exploring candidacy for federal or state office other than Mr. Trump and prevent your employees from doing so. So no, it doesn’t cut off the right to vote but it does cut off your right to be able to freely express or freely associate.

Mark Fenster: Right. That would be true of any non-compete agreement. So in that regard, it’s no different from, although in concept, it’s no different from any sort of non-compete agreement. In practice, it sounds unreasonable. I mean the idea that you could not consult with an employee, someone, a candidate for state office or even lower federal office seems rather excessive. So both in geography and potentially in terms of time. But more importantly, I think for Mr. Trump, it would mean that anyone who was a consultant of any reputation would be hesitant to sign onto that because it limits their ability to find work from someone else and unless the Trump campaign is offering them an enormous amount of money, it would be crazy to sign it.

J. Craig Williams: Right, because it’s for a federal or a state office other than Mr. Trump so any kind of figure, you’re permanently banned from working.

Mark Fenster: Virtually, it seems like it. That seems like a terrible idea. It might explain the extent to which Trump has worked outside the usual parameters of his party’s apparatus of electoral campaigns.

J. Craig Williams: Right. Because I don’t think anybody who reads these things ahead of time would even consider signing them.

(00:19:59)

Mark Fenster: No. I mean, he tends to get many of his own employees who have worked with him or who he found otherwise rather than the typical beltway or political consultants that you usually see working for other Democrats or Republicans.

J. Craig Williams: What about the provision extending this non-disclosure agreement to all of Mr. Trump’s children, grandchildren and spouses?

Mark Fenster: That is extremely broad. I don’t know if a court would — I mean I think it would depend upon the extent to the connection between the person and Mr. Trump but that seems like an excessive provision. But I don’t think it’s the sort of provisions that courts would in and of themselves refuse to enforce unless there was no notice for the party signing it and then for the party disclosing information about someone in the extended universe of the Trump family and Trump industries.

J. Craig Williams: Right. Because it includes family member companies including anybody who creates one. So it seems as if Trump could enforce it at will and pretty much pull any provision from here and throw it against the wall.

Mark Fenster: Exactly. Right. And I think my guess would be that would be one of the more attenuated clauses that Trump would use against someone who spoke out. My guess would be there would be other aspects of any litigation that Trump would file that would, on top of that, seem unreasonable in its effort to try to enforce the agreement.

J. Craig Williams: So here’s the classic law school professor question about this contract.

Mark Fenster: Okay.

J. Craig Williams: Given these kind of oddball provisions, do you think that an arbitrator jurisdiction here is in New York according to this thing would consider blue lining this and striking out individual clauses or would you just void the whole thing?

Mark Fenster: That’s an interesting question. I think it depends upon the kind of claim that Trump is bringing. As we’ve seen with Omarosa, arbitrators in New York are following closely what New York courts are doing with respect to enforcing non-disclosure agreements. And so, my sense is that given how overwritten this contract is, the arbitrators will, as with the courts, refuse to enforce them and not just blue line them.

J. Craig Williams: So if it wasn’t that bad, you might lose a clause or two but keep the whole agreement.

Mark Fenster: Right. I mean this goes to the strategy of drafting a contract, right? Which is, if your goal is to intimidate then you want to write as strong a contract as possible in order to throw it in the face of anyone to whom you are sending a demand letter to shut up. And in doing so, you could point to an excessive liquidated damages clause and note the fact that Mr. Trump is a known litigator and note that at minimum, they would have to return whatever money they were given as part of the consideration of the contract. So, for maximum intimidation, you would write a contract like that. For maximum success in litigation however, you would want to try to write a more reasonable contract and the direction of legislators and the direction of courts now suggest as much to the bar.

J. Craig Williams: Well, then here’s the end of it which is kind of the interesting twist to this whole thing. The interpretation and representation by counsel provision says the agreement has been drafted on behalf of Trump only is a convenience but may not be his reason of such action construed against Trump. And it says then, now you’ve had the opportunity to consult with counsel, you can’t claim that you haven’t. But what it doesn’t say is that that counsel that you’ve consulted with has had an opportunity to affect the draft.

Mark Fenster: Right, exactly. Which one would presume given the fact that this is a standard form that you’ve downloaded from the campaign website, the idea that this is in any way negotiable seems kind of a laugh.

J. Craig Williams: Right. You wouldn’t think so.

Mark Fenster: Right.

J. Craig Williams: It’s just an amazing, overreaching kind of contracted as an attorney. I mean, I’ve seen NDAs throughout my career and I’ve never seen one this this broad.

Mark Fenster: No. I used to teach. I stopped this year because I’m not sure how relevant it is to one else. But I used to teach the Stormy Daniels NDA that Michael Cohen had drafted the first day of their law school careers. And it is one of the worst documents that I’ve ever seen because it does what you are describing for the campaign but does it in an incredibly infantile, almost man Earth poorly written, poorly crafted, poorly spelled, poorly numbered. I mean, it’s just poorly laid out and it’s a great exercise for the students who have had no law school classes before to look at a contract and to scratch their heads and say why would anyone write something like this? And to be able to, as in fish in a barrel, be able to find all the errors extremely quickly, not all of them, but many of the errors extremely quickly.

(00:25:01)

J. Craig Williams: Does it seem as though President Trump tried to draft it himself based on a bunch of cobbled together notes and former contracts?

Mark Fenster: It seems like that’s what Michael Cohen did. I don’t see that Mr. Trump would have ever had the patience or I wouldn’t want to say skilled but certainly patience and discipline to sit down and try to cobble together contractual provisions from different parts of boilerplate.

J. Craig Williams: That’s so interesting. Well, here’s the question about Stormy Daniels contract. How can it even be legal in the first place since the act itself that she’s trying to keep quiet was illegal?

Mark Fenster: Oh, well, that’s an interesting question. I assume that she’s never conceded that she was paid for sex. I assumed that it was merely just a liaison between the two. It’s possible that Mr. Trump paid for certain things but it was not an exchange for these sex act, it was exchanged for her companionship and for his enjoyment of hanging out with her.

J. Craig Williams: Wink-wink, nudge-nudge.

Mark Fenster: Exactly. Well, wink-wink, nudge-nudge, it’s not unimportant.

J. Craig Williams: No, but so in that instance, let’s go down that path. What happens in the instance where she does admit I received a hundred and thirty thousand dollars for the sex act? Can the NDA even be valid at that point?

Mark Fenster: No. At that point, it would be — well again, the contract isn’t for the sex act itself, it’s for keeping secret the existence of the sex act. I mean, that would be — now that sounds like an interesting fact pattern.

J. Craig Williams: Criminal?

Mark Fenster: True, but it’s only about the information about it. It’s not a contract to have illegal sex to pay for sex. It’s a contract to talk about that. So, interesting question. I’d have to do some research.

J. Craig Williams: How do NDAs play when there are legitimate legal processes? Say in this instance, take for example what did not happen yesterday. Steve Bannon not showing up for his appearance before Congress so now they’re proceeding criminally against him. What happens in that instance when Steve Bannon sits down Congress? He’s obligated under the law to tell the truth but yet, we can assume he’s bound by this Trump campaign NDA or at least something very much like it. Can he talk?

Mark Fenster: Yes, he can. The non-disclosure agreement can’t stop him from talking if required by Congress, even if the agreement doesn’t state as much. A court still could command him to talk notwithstanding the contractual agreement.

J. Craig Williams: Unless you’re willing, like some people have in the past, to spend some time in jail under contempt charges for failing to testify.

Mark Fenster: Exactly. I mean, similar to a reporter who is unwilling to disclose their sources because of a non-contractual agreement to but just an ethical agreement with a source to protect their identity.

J. Craig Williams: Right. Well, it looks like we’ve just about reached the end of our program. It’s time to wrap up and get your final thoughts as well as your contact information so I’ll toss it over to you to do that.

Mark Fenster: Final thoughts on this is just what the future of NDAs will look like and whether me too and the aftermath of what happened to Harvey Weinstein suggest a world in which lawyers and their clients are less willing to enter into NDAs or view this as merely a bump in the road, whether California’s enactments that prohibit NDAs in certain contexts will have a wider reaching effect than in California and will affect practice or whether the lawyers will find a workaround to prohibitions against NDAs. My contact information, you can reach me at the law school. You can find me at the University of Florida Levin College of Law where I’m a professor. I tweet only occasionally and usually funny things rather than professional things, but occasionally relating to NDAs or other law or academic-related things. And my handle is mfenster21. So first initial, last name and the number 21.

J. Craig Williams: Great. Well, as we wrap up today, we’d like to thank our guest, Professor Mark Fenster, for joining us today. It’s been a pleasure having you on the show.

Mark Fenster: My pleasure Craig. Thanks so much.

J. Craig Williams: And for our listeners, if you like what you heard today, please rate us on Apple Podcast or your favorite podcasting app. You can also visit us at legaltalknetwork.com where you can sign up for our newsletter. I’m Craig Williams, thanks for listening. Please join us next time for another great legal topic. Remember, when you want legal, think Lawyer 2 Lawyer.

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