In a no-holds-barred interview with the Law&Crime Network, attorney David Schwartz probably wanted to end with a bang. He said that his client, attorney Michael Cohen, who in turn represents Donald Trump and/or various Trump interests, would extract “every single penny” from Stormy Daniels for breaking her nondisclosure agreement. The problem for Schwartz is that Schwartz may have just made it easier for Stormy Daniels to win the war, even if she loses a couple of battles along the way.
As we reported earlier, here is what Schwartz said about his client Michael Cohen’s doggedness in going after Daniels:
If Stormy’s watching right now, when the lights are gone and the cameras are off, and we all can go on with our lives, just know that this violation is blatant, and this violation . . . there will be justice, because he will go after every single penny. He will not rest until he collects millions of dollars in liquidated damages and punitive damages.
Financial punishment might sound scary, but if I were Stormy, I would probably be breathing easy right now. That’s because, as a general rule, punitive damages are not available in contract law. Unless there’s some funky quirk of which I am unaware in California, Arizona, or Nevada, punitive damages aren’t available in this case. (Those three states are named under a choice-of-law provision in the original nondisclosure agreement.)
Let’s unwind how this might play out in court. The original contract called for a $130,000 payment to Daniels in return for her silence. If she talked, it also called for a $1 million liquidated damages payment each time she talked. Donald Trump didn’t sign the agreement, but as I’ve suspected for more than a week, Schwartz argued it wouldn’t matter, because the agreement between Daniels and a company called Essential Consultants, LLC would remain intact. Cohen signed on behalf of the company. Daniels sued on the signature and on a theory that the contract is unconscionable (in other words, unreasonably excessive). My guess is that she loses on the signature part of the claim and that the contract is valid. However, the damages clause might be unconscionable, and here is why.
Legally, several types of damages are available in the event of a contract breach. One type of damages is liquidated damages. It is a dollar amount the parties agree during contract talks will be paid in the event of a breach. In other words, “if I mess up, I am agreeing up front to pay you this amount.” The reason parties like this is because it saves either the parties or a court from having to calculate out all of the other types of damages, which can get tricky.
Generally, though, liquidated damages clauses are only enforceable if the following two things are legally clear: (1) any financial damages were difficult to estimate or determine from the outset, and (2) the dollar amount agreed upon was at least a reasonable forecast of what the damages might probably be should a breach occur. Usually, liquidated damages clauses are used in personal services contracts where the services are of peculiar value: it would be really hard to guess how much the New England Patriots might lose if Tom Brady decided to just not show up next season, but the parties might be willing to agree on an estimate when they’re inking a deal.
Here’s the kicker: if a liquidated damages clause looks like a penalty, walks like a penalty, and quacks like a penalty, a court will rule that it is a penalty. Because penalty clauses are generally not enforceable under contract law, a court will construe an excessive liquidated damages clause as a penalty clause and will simply not enforce it.
In the Stormy Daniels case, the $1 million liquidated damages clause arguably looked, walked, and quacked like a penalty clause, and a court is almost certainly going to hone in on that when examining the agreement for unconscionability. However, now that Michael Cohen’s attorney more or less admitted that Michael Cohen wanted — or wants — to penalize Daniels, a court doesn’t have to apply much guesswork as to what the multiple $1 million payments are really supposed to do. A court, therefore, might not fret as much about invalidating that part of the agreement. Thus unencumbered, who knows what Stormy might say.
[Photo of Stormy Daniels by Ethan Miller/Getty Images.]