Could an overlooked theory help Stormy Daniels win her case?

When I first learned the details of the Stormy Daniels case, I was both intrigued and concerned. As a civil lawyer with over 40 years' experience, I have litigated quite a few contracts. But this was the first time I ever heard the theory on which Daniels, aka Stephanie Clifford, based her original declaratory relief action in which she sought to rescind the settlement agreement. Critically, she seeks to keep her case in court despite the fact that it contains an arbitration clause. Her lawyer, Michael Avenatti, is hell-bent on taking the depositions of Donald Trump and Michael Cohen. But if the arbitration clause is enforced, he may not be able to do that, and he could also be subject to a gag order.

Clifford's basic theory is that because Donald Trump did not sign the agreement, it is not enforceable. This sounds logical when it's said on television, but in my view (and that of several other senior litigators), it is not a viable theory to disclaim or rescind a contract.

The statute of frauds (California Civil Code Section1624) pertains to contracts required to be in writing to be enforceable. One of the exceptions to the statute is: "(D) There is a note, memorandum, or other writing sufficient to indicate that a contract has been made, signed by the party against whom enforcement is sought or by its authorized agent or broker." (Emphasis added).

The cases decided under this rule are legion. Donald Trump did not need to sign the agreement to make it enforceable against Clifford. The fact that she understood it, signed it, and accepted consideration is sufficient to enforce the agreement against her. There is no legal basis to invalidate the agreement stated in her original complaint.

In the first amended complaint, Clifford adds new claims. The first of these is that the agreement is unconscionable. This is based on an allegedly unfair liquidated damages provision, an unconscionable one-sided arbitration provision, and the argument that the entire agreement is void ab initio because it violates public policy. This last theory, pleaded as an alternative, alleges that the agreement was entered with the illegal purpose of circumventing federal campaign finance law because it contained an illegal campaign contribution (the payment of $130,000) for the purpose of influencing the 2016 presidential election, because it violates public policy by suppressing free speech on a matter of public concern about a presidential candidate, and because it was entered into in violation of the New York Rules of Professional Conduct based on the public statements of Micael Cohen, Trump's lawyer. (There is a new cause of action for defamation against Cohen, although this would not affect the validity of the settlement agreement.)

There are serious problems with each of these additional claims. The unconscionability arguments fly directly in the face of long-standing legal precedents that favor the enforcement of arbitration clauses as a matter of national policy, including Preston v. Ferrer, 552 U.S. 346, 349 (2008); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); and of course, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), among others. The unconscionability arguments are so complicated it is difficult to follow them, and in any event, they contain suppositions a court may find hard to accept and legal authorities not usually found in complaints that are subject to alternative interpretations.

Clifford's basic problem is that she signed the agreement, she was represented by counsel, she accepted the $130,000 consideration, and she conducted herself in accordance with her obligations under the agreement without objection for 16 months afterwards. Thus, the agreement was ratified.

Another problem is that many cases have held the issues raised in Clifford's first amended complaint must be decided by the arbitrator, not the court, unless the challenge is directly to the arbitration clause itself. But that is not essentially what the complaint alleges. The crux of the complaint is a challenge to the agreement as a whole.

The new claims in the first amended complaint are collateral attacks -- they inherently accept Clifford's consent to the terms of the contract, arguing instead that the contract is void or should not be enforced either because it is either unconscionable or illegal -- while one or more of these arguments might ultimately succeed, the case could still wind up in arbitration.

The motion to enforce the arbitration clause is set for hearing May 14, and it has a good chance of being granted. The defamation claim against Cohen is not arbitrable but has no bearing on the enforceability of the agreement or the arbitrability of the claims concerning the agreement.

Surprisingly, Clifford's attorney seems to have overlooked one theory that goes directly to the heart (based on her "60 Minutes" interview) of an obvious claim -- that is, she entered the contract under duress. Clifford stated in her interview that she was threatened by Trump's people, and that she signed the agreement out of fear. The argument that she signed the contract under duress goes directly to whether there was any real agreement in the first place; it could get her out from under the arbitration clause, and permit her to depose the defendants.

Civil Code Section 1689 provides in relevant part: "(b) A party to a contract may rescind the contract in the following cases: (1) If the consent of the party rescinding, or of any party jointly contracting with him, was given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party."

Ramirez v. Superior Court, 103 Cal. App. 3d 746, 756 n.3 (1980), held that no agreement exists unless the parties signing the document act voluntarily.

If what she said is true, Clifford should seek leave to amend her pleading to assert this theory, before it is too late. No argument her counsel could make based on the current pleading would be more effective.