ARE NDA AGREEMENTS NO LONGER WORTH THE PAPER THEY ARE PRINTED ON?

Stormy Daniels. Now the most famous porn star in the country, if not the world. Great for water cooler conversation, but very few lawyers ever envisioned her issues with President Trump would have any real legal significance. But her recent lawsuit against the President has brought forth an interesting question: Can a party effectively invalidate a nondisclosure agreement (“NDA”) just by bringing an action to contest its enforceability?

Let’s lay out the basic facts. Ms. Daniels purportedly entered into an Agreement with the President, or at least his personal counsel. The Agreement contained a clear payment of monies, as well as an agreement not to disclose the nature of their relationship. It does not appear in dispute that (a) Stormy Daniels received compensation, and (b) there was an agreement not to disclose certain information. What exactly she received, what she agreed to not disclose and who paid her is still unclear from the recent news reports.

This purported “pay-off” has been the subject of tabloid rumors for months, if not years. Ms. Daniels has appeared on various talk shows recently. In doing so, she has not denied the existence of a nondisclosure agreement or said pay-off. Nevertheless, she has been careful not to detail the exact nature of the alleged relationship.

Recently she filed a lawsuit in California seeking Declaratory Relief that the nondisclosure agreement is invalid. In doing so, she sets forth various factual allegations regarding the nature of her prior relationship with the President, as well as the terms of the nondisclosure agreement. In doing so, she has essentially made the nondisclosure agreement irrelevant. Win or lose, her allegations and the agreement’s terms are now a matter of public record. If she is successful in the lawsuit, Ms. Daniels will be free to talk about her purported relationship with the President as much as she desires. If she loses, she may be restricted, but the allegations still exist and are, and will remain, public – i.e., the damage has already been done. The primary benefits of the NDA no longer exist.

The effects of this lawsuit are more far reaching than just the substance of the Daniels case. Employers, business owners and individuals often pay settlements to keep the terms of their relationships and potential liabilities private. The ability to keep these terms confidential are often worth the payment made to the party, even if the claim itself has little or no validity.

Daniels’ attorneys are attempting to create an effective “end run” around the terms of the NDA; disclosing the terms as a matter of public record in connection with bringing a lawsuit to argue the validity of the NDA. Either way, the party loses the benefit of the confidentiality they paid for. Undoubtedly, the President’s attorney will counter-claim for re-payment of the money paid under the NDA, along with other damages. They very well may succeed, but either way, the loss of the NDA terms is monumental. If the Court does not force Daniels to pay the money back, or pay other damages, she will effectively have avoided the entire basis for the NDA. It literally could turn the world of NDAs upside down.

Stay tuned. How this plays out will be very interesting.

If you have any questions about your NDA, please contact partner, Jeffrey Ettenger at 631-777-2401.

The best way to protect your business from any lawsuit is to be proactive. Check out our blog post on 8 Actions You Can Take to Protect Your Business from Litigation.