Donald Trump’s Arbitration Conundrum

Adult film actress Stephanie Clifford just sued Donald Trump to declare that their purported Hush Agreement is invalid, and one of the relevant hush documents contains an arbitration clause.  News reports indicate that Trump’s attorney (consigliere or fixer, a la Mr. Wolf from Pulp Fiction, is probably a better description) recently initiated an arbitration proceeding against Clifford.  Click here for a copy of the lawsuit and the agreement containing the arbitration clause, which is an exhibit to the lawsuit.

If defendant Trump, and/or the defendant shell company created by Trump’s consigliere for the purpose of paying the hush money, sought to compel arbitration in the lawsuit, then Prima Paint’s separability doctrine from arbitration law may kick in.  The plaintiff is challenging the entire agreement as unconscionable, and under the separability doctrine, arbitrators determine challenges to the contract as a whole.  Instead, to avoid the separability doctrine, the plaintiff must attack the arbitration clause specifically, as opposed to the entire contract.  Another possible way to avoid the separability doctrine, recognized by some courts in the wake of the Supreme Court’s Buckeye opinion, is for the plaintiff to argue that the contract was never formed.  But the unconscionability argument, applied to the entire agreement, should be heard by an arbitrator under the separability doctrine.

What is interesting is that the arbitration clause is only between two individuals, purportedly Clifford and Trump, not the company formed to pay the hush money.  If Trump claims he has a right to arbitrate and if he moves to compel enforcement of the arbitration clause, he in effect admits that he was a party to the hush agreement containing the arbitration clause.  I’m not an expert on election law, but if the hush payment was illegal, and if Trump was a party to this agreement, Trump in effect admits that he violated election law if he moves to compel arbitration (unless he makes the obscure argument using Prima Paint that he is only admitting to the validity of the arbitration clause within the hush agreement, and nothing more.  Prima Paint is a technical, legal fiction that probably wouldn’t fly in the court of public opinion).  Another possible procedural move is for the company to move to compel arbitration under an equitable estoppel or third party beneficiary theory.  But the company would have to argue that the hush agreement was formed between Clifford and Trump, and they intended the contract to benefit the company.  Either way, if the hush payment violated election law, then this lawsuit and the procedural dilemmas concerning the enforcement of the arbitration agreement have placed Trump in a catch-22 situation if he or the company seeks to compel arbitration.  By trying to enforce the arbitration agreement, it would appear as if Trump is admitting he was a party to the hush agreement.

If Trump tries to hide behind presidential immunity (which shouldn’t even apply to events before he was president), he arguably waives the arbitration clause.  Whether Trump or the defendant company asks the court to compel arbitration presents a procedural dilemma.  I’m guessing Trump or the defendant company is probably trying to convince the arbitrator to rule on the arbitrator’s jurisdiction as quickly as possible in an attempt to foreclose open battles and admissions in court regarding the formation of this hush agreement.  It will be interesting to see how all of this plays out from a procedural perspective.

A few years ago, if presented with this hypothetical, I would say this is a crazy, extreme law school hypothetical that would never occur in real life, but this hypothetical would be perfect to explore many different intricacies of arbitration law in my arbitration class or on a final exam.  (There are other arbitration issues lurking in this fact pattern too, involving: the Supreme Court’s Volt and Mastrobuono decisions and the applicability of different possible states’ arbitration laws through a choice of law clause by which Donald can choose from 3 possible jurisdictions, and this Volt/Mastrobuono issue is itself subject to conflicting court decisions; FAA preemption; whether the parties can waive judicial review of an arbitration award in the wake of the Supreme Court’s Mattel case, another issue dividing courts.)  This hypothetical would have been beyond the realm of reality a few years ago.  But almost on a daily basis since last November, shock and jaw-dropping chaos from the White House have become the new norm.

Be the first to comment

Leave a Reply

Your email address will not be published.