Is Returning The Money Enough To Rescind An NDA?

The short answer is no...

Stormy Daniels

In case you’ve been living under a rock, Stormy Daniels (whose real name is Stephanie Clifford) claims to have had an affair with President Trump in 2006 and 2007. Shortly before the presidential election in 2016 (and around the same time other women were coming forward with stories of sexual encounters with Trump), Daniels was apparently going to speak to the media about the purported affair.

Before she went public, however, attorney Michael Cohen (Trump’s personal attorney and former top lawyer for the Trump Organization) allegedly prepared a nondisclosure agreement (NDA) which prohibited Daniels from discussing the alleged affair and sent it to Daniels’s attorney. After the agreement was finalized, Cohen is alleged to have wired $130,000 to Daniels’s lawyer in exchange for Daniels signing the NDA, which she did mere days before the 2016 election.

The media learned about the existence of the NDA in January 2018 and the details started to slowly emerge. Daniels subsequently decided that she wanted to be released from or otherwise rescind the NDA so that she could tell her story. She’s now filed a lawsuit (Case No. 2:18-cv-02217 if you want to pull the filings from PACER) against Trump and others for declaratory relief to have the NDA declared invalid. (FYI, she’s also included a claim against Cohen for defamation.) Daniels has also publicly offered to repay the $130,000 she received in exchange for release from her nondisclosure obligations under the agreement.

I’ve been involved with employment settlement agreements involving alleged sexual misconduct and/or harassment. But I’ve never had a client or opposing party ask to be released from or to rescind such an agreement after it was signed and the money paid. The parties practically always just want to move on with their lives after entering into a private settlement agreement or NDA.

Given the recent discussion around the use of NDAs in sexual misconduct cases paired with Daniels’s lawsuit and offer to repay the settlement monies, I started thinking: What would a party to such an agreement have to do to be released from it? Is it enough to just repay the money? I honestly wasn’t sure.

The short answer is no, simply repaying the money is not enough to be released from one’s obligations under a typical NDA or settlement agreement.

Sponsored

That’s because NDAs and settlement agreements are really just basic contracts between parties. At their core, these agreements are promises that one party will pay the other money to (1) either not sue the paying party or drop an existing lawsuit, and (2) not talk about the case or the underlying allegations.

In case you, dear reader, are not a litigator, let me tell you that courts are huge fans of parties settling disputes among themselves. That’s why mediation is mandatory in practically every case before practically every court. It should therefore come as no surprise that courts are very reluctant to nullify NDAs and settlement agreements after the parties have entered into same. Judges are incredibly busy and they’d rather not revive a dispute that’s already been resolved.

Courts will thus only invalidate an NDA or settlement agreement for certain reasons. Let’s see if this non-exhaustive list gives you flashbacks to 1L contracts: (1) an (express or unequivocally implied) agreement among the parties to rescind the agreement; (2) material fraud by a party during the negotiations; (3) material breach by a party; (4) duress; (5) mistake (unilateral or mutual); (6) unconscionability; (7) lack of authority to enter into the agreement; (8) inadequate consideration; (9) impossibility/frustration of purpose; and (10) violation of public policy. (Some jurisdictions may allow other grounds as well, and some may not allow all of the above.)

It’s therefore clear that a party cannot simply return the proceeds received under an NDA or settlement agreement and automatically be entitled to rescission or invalidation of the agreement. Facts satisfying one or more of the above grounds will have to be present, although a party who received a monetary payment as consideration for the agreement will almost certainly have to repay those monies as well.

Stormy Daniels’s complaint alleges four grounds for invalidation of the agreement: (1) lack of signature on the agreement by Trump; (2) lack of consideration from Trump (as Cohen stated that the $130,000 was paid out of his personal funds); (3) lack of consent from Trump; (3) unconscionability; and (4) violation of public policy.

Sponsored

While it remains unclear how the Stormy Daniels case will shake out, it has provided a great lesson to anyone who has entered into or may in the future consider entering into an NDA or settlement agreement: A change of heart and a return of the proceeds will not be enough to get out of one’s obligations under such an agreement.


evan-gibbsEvan Gibbs is an attorney at Troutman Sanders, where he primarily litigates employment cases and handles traditional labor matters. Connect with him on LinkedIn here, or e-mail him here. (The views expressed in this column are his own.)