Practicing Safe Text: Drafting Tips From The Stormy Daniels NDA

Over the past few weeks, the non-disclosure agreement ("NDA") allegedly between Stormy Daniels and Donald Trump1 has dominated the news not only in the United States but around the world. Commentators of all political stripes have had a field day offering opinions about the meaning and enforceability of the NDA, often, it seems, without having actually read the document. As entertaining as the speculation may be, and regardless of where your sympathies lie, there are many lessons to be learned from the way in which the NDA is drafted.

The NDA came to light when counsel for adult film actress Stormy Daniels launched a complaint asking a California court to find the NDA invalid - ostensibly to confirm that she was free to speak publicly about an alleged 2006 sexual affair with Mr. Trump. The complaint asserts that the parties to the NDA, who were given pseudonyms David Dennison "DD", Peggy Peterson "PP" and EC, LLC "EC", are, respectively: Donald Trump; Stephanie Clifford aka Stormy Daniels; and Essential Consultants, LLC, a company incorporated by Mr. Trump's personal lawyer. Pursuant to the NDA, EC is the entity required to pay (and which presumably did pay) $130,000 to PP in exchange for a transfer to DD of intellectual property rights and confidentiality obligations owed to DD, in respect of PP's alleged affair with DD.

The highly public nature of this dispute presents an opportunity take a closer look at the unforeseen legal complexities that can often arise out of what might initially seem like a straightforward deal. Agreements that are ambiguous, hastily-assembled or ill-conceived can too easily become fodder for litigators, and morph into disputes that keep the parties tied up in courts for years. This particular controversy has seen lawyers, judges, scholars, commentators, pundits and even social media scrutinizing every detail and clause of the NDA, many of whom take contradictory positions on what the NDA actually says. As we discuss below, there are several lessons that can be learned from taking a closer look at the NDA and the ambiguity around it.

Some disclaimers: first, we are Canadian lawyers not qualified or equipped to comment on American jurisprudence, electoral finance laws, California or federal court practice, or Delaware corporate matters. Second, any agreement that is put to the same scrutiny as the NDA will inevitably reveal its typos and drafting glitches, and so we will largely ignore those (keeping in mind that such things can, indeed, be important if they create ambiguity!). Last, we do not purport to opine or comment on the substance of the complaint made by Ms. Daniels or the likelihood or outcome of the case. Our commentary relates to the application of Canadian common law (relatively non-jurisdictional) issues, leveraging the public scrutiny to highlight issues that lawyers and their clients should consider when drafting agreements generally.

Who are the Proper Parties and How Can Confidentiality be Achieved?

Mr. Trump's counsel has claimed that DD was not a party to the NDA, or at least not a required party, and has pointed to the fact that the agreement was never signed by DD. On the flip side, Ms. Daniels' legal team argues that because DD, a named party to the NDA, never signed the NDA, the NDA is therefore not effective. Both sides point to the language of the NDA to advance their opposing views.

While it may seem obvious, an important first step in drafting any agreement is to determine the proper parties. Failure to do so can have serious consequences, particularly for confidentiality obligations. This is certainly true when there may be more than one person involved in a relationship because lawyers must consider inter-party and intra-party issues; it is often a mistake to simply insert another party to a contract without carefully considering how that party fits into each provision.

For example, where three parties are involved, one cannot simply draft a contract that assumes that all rights and obligations are...