More on Stormy/Trump Arbitration Saga

Stormy’s attorney just filed a motion for a trial under the FAA and for expedited discovery.  (Here’s a copy of Stormy’s motion and a copy of Stormy’s legal brief).

As for discovery, discovery regarding the making of an arbitration agreement is generally permitted within a court’s discretion.  Stormy has asked the court for permission to take a deposition of Trump and his attorney Cohen, as well as permission to issue some targeted document requests to Trump and Cohen regarding the making of the arbitration agreement.  There is authority for a court allowing limited discovery in connection with the enforcement of an arbitration agreement when the making of the agreement is in dispute.  It will be up to the court now to determine, in its discretion, whether to allow this discovery to occur.

Regarding the jury trial, section 4 of the FAA allows for a jury trial when the making of the arbitration agreement is at issue.  When the FAA was enacted during the 1920s, there was a concern that the statute violated one’s constitutional right to a jury trial (if you are forced to arbitrate, you will not have your day in court, which potentially raises concerns about one’s 7th amendment right to a jury trial.)  To help alleviate concerns about the FAA’s constitutionality and to help satisfy one’s constitutional right to a jury trial, the FAA’s drafters added language to section 4 of the statute providing for a jury trial on the narrow issue of the making of the arbitration agreement, if the making of the agreement is in dispute.  As a result of this language, no one could argue that they were being denied their constitutional right to a jury trial by being forced to arbitrate against their consent.

In deciding motions to compel arbitration and whether a jury trial should occur on the making of the arbitration agreement, courts typically employ a summary-judgment-like standard.  If there is a genuine conflict regarding the making of the arbitration agreement, the court will not immediately compel arbitration and instead allow for a jury trial, should the parties demand one.  What’s unusual about Stormy’s motion for a jury trial is that typically, the defendants would ask the court to immediately compel arbitration, while submitting evidence that no jury trial is necessary because there is no genuine dispute regarding the making of the agreement.  In other words, Trump’s team would typically make the first move to ask the court for an order compelling arbitration, together with proof that an agreement to arbitrate was made.   Here, however, Stormy made the first move as an attempted preemptive strike and submitted some evidence that there is a dispute regarding the making of the arbitration agreement (e.g., the White House denies any involvement with the hush agreement or any relationship between Trump and Stormy; Cohen indicated the hush agreement was made without Trump’s knowledge or involvement.)

The provision regarding a jury trial is found in section 4 of the FAA, which allows for a court order compelling arbitration.  However, there is another provision of the FAA, section 3, which allows for a court to stay a pending litigation when there is an issue in the litigation referable to arbitration.  Interestingly, the language regarding a jury trial is missing from section 3 of the FAA.  In other words, I would expect that Trump’s team would have steered clear of section 4 of the FAA and instead filed a motion to simply stay the lawsuit under section 3 of the FAA (without asking for a court order compelling arbitration under section 4.) If Trump would have made the first move and relied carefully and solely on section 3 of the FAA, then arguably – under a textual, literal reading of section 3 – he may have avoided a jury trial on the making of the arbitration agreement.  By moving first and preemptively, which is not common with arbitration fights, Stormy’s team is attempting to frame the dispute about arbitrability under section 4 of the FAA.  (regarding this section 3/section 4 distinction: The FAA is not a paragon of ideal draftsmanship.  I would argue that the various provisions of the FAA were intended to be construed as a unitary whole, and as a result, the jury trial should exist whether one moves for an order compelling arbitration under section 4 or an order staying litigation under section 3.  However, a literal reading of the statute does not support this interpretation.)

Will a jury trial occur on the making of the arbitration agreement?  It depends on whether the judge thinks there is a genuine dispute regarding the making of the arbitration agreement.  As discussed in my prior posts, there are many legal issues cutting both ways.  For example, I imagine Trump can argue that there was an agreement, at least between Stormy and the shell company, and through this agreement, there was an intent to give Trump, perhaps as a third party beneficiary, the right to arbitrate.  Moreover, under the arbitration rules of ADR Services, Inc. (one of the arbitration providers named in the hush agreement), the arbitrator may rule on his or her own jurisdiction.  In other words, the parties purportedly agreed to arbitrate whether they agreed to arbitrate; they purportedly delegated this issue of arbitrability to the arbitrator.  As I’ve mentioned before, if a judge wants to avoid this arbitration headache, the judge can simply order arbitration about whether the parties agreed to arbitrate, but there are counter-arguments regarding the delegation of arbitrability to the arbitrator.

UPDATE: March 29, 2018: The federal judge just denied Stormy’s motion earlier this morning, without prejudice.  The court viewed Stormy’s motion as premature because Trump’s team has not moved to compel arbitration yet, and Trump’s future motion to compel arbitration may resolve some of the issues raised by Stormy’s preemptive motion.

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