Trump/Daniels Arbitration Fight Moves to Federal Court

It was just reported that Donald’s shell company removed Stormy’s state court lawsuit to federal court earlier on Friday, with Donald consenting to the notice of removal.  The notice of removal (click here for a copy) indicates that the shell company plans to ask the federal court to compel arbitration.  The notice of removal also states that Trump will “consent to the arbitration of the claims in this action.”  This removal to federal court was probably a good move on Trump’s part.  I believe federal courts in California are more likely to compel arbitration than California state courts.  Also, there is some squirrelly California state procedural law regarding arbitration which could allow the state court to block the arbitration more easily, and by removing to federal court, Trump may be trying to avoid this California state procedural law.

I anticipate that the shell company will move to compel arbitration in federal court as a non-signatory to the arbitration clause, with Trump delicately joining in to the motion to compel.  It is not entirely clear, and we have to wait and see exactly what Trump’s arguments regarding arbitration will look like.  But as a part of his delicate, awkward dance compelling arbitration, Trump may try to claim that he is not admitting that he is a party to the original agreement.  Trump may seek to have his cake and eat it too by suggesting in the notice of removal that he “will” be consenting to join the already-pending arbitration.  (Also, in the notice of removal, Trump does not really admit outright that he is the “DD” set forth in the arbitration clause; the notice of removal simply recognizes that Stormy is alleging that Trump is “DD”.)  In other words, based on the carefully-selected language in the notice of removal, Trump may argue he is now willing to consent, after the fact, and make a new agreement to join the already-pending arbitration proceeding, without having to admit that he was a party to the original agreement.   This have-your-cake-and-eat-it-too type of argument is just a clever smoke screen on Trump’s part because the non-signatory shell company should still have to demonstrate an arbitration agreement was properly formed between Stormy and Donald if the non-signatory shell company wants to compel arbitration.

There are some strategic considerations as to what happens next.  If I were representing Stormy, I would consider moving for an injunction in federal court to block the pending arbitration on the grounds that there was never a meeting of the minds with Trump.  Then, if Trump tries to have his cake and eat it too by not admitting to the original agreement while still seeking to compel arbitration, Stormy can argue in support of her injunction that Trump has not submitted any evidence demonstrating that he was a party to the original agreement with Stormy.  In other words, when filing for an injunction, Stormy can submit proof, perhaps an affidavit with detailed facts, supporting the notion that there was never a meeting of the minds at all with Trump.  (Notice, that by fighting over arbitrability, the parties will in effect be arguing the merits of the case, whether there is a valid hush agreement formed with Trump.)  Then, if Trump does not submit clear evidence regarding a meeting of the minds to the original agreement, the court should issue an injunction in favor of Stormy and blocking the arbitration because of no meeting of the minds.  To the extent that Trump explicitly claims he was a party to the original agreement (an argument Trump will likely be hesitant to make because of its possible implications regarding federal campaign law violations, especially in light of the notice of removal which appears to be carefully drafted to avoid this direct admission by Trump), Stormy should seek discovery through the federal court and notice a deposition of Trump regarding the making of the arbitration agreement to show that there was no proper meeting of the minds. Courts have allowed for discovery regarding the making of an arbitration agreement.  I believe Stormy would have Trump in a good check by filing for an injunction and arguing there was never a meeting of the minds (but not an absolute checkmate, because the court may try to quickly wash its hands of this arbitration mess by holding that an arbitrator should determine arbitrability.)  The upside to this strategy for Stormy in asking the court to enjoin the arbitration: Stormy will get to frame the debate; Stormy would be the first mover in presenting the arbitrability issue to the judge as one involving a failure to form an agreement.  The potential downside to asking the court to enjoin the pending arbitration: typically a judge, not a jury, decides whether to grant injunctive relief.

Another possible strategic move is for Stormy’s attorney to wait until the defense moves to compel arbitration.  The downside for Stormy with this option is that the defense gets to frame the issue for the court, and perhaps the defense will frame the issue as a contract was in fact formed between Stormy and the shell company, with Trump as a some type of third-party beneficiary of their agreement.  The upside for Stormy in waiting for the defense to file a motion to compel is if the defense uses section 4 of the FAA when compelling arbitration, section 4 provides for a jury trial, as opposed to a bench trial by the judge, on the making of the arbitration agreement, if the making of the arbitration agreement is at issue.

 

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