Beware The “Lawyer Acquaintance”: How Fifty-Six Words May Have Just Sunk Trump and Cohen In The Daniels Litigation

donald_trump_president-elect_portrait_cropped790px-A_Streetcar_Named_Desire_(1951)President Donald Trump’s struggle with the Stormy Daniels scandal has become Washington’s version of A Streetcar Named Desire . . . without the gritty charm. Rather than shutdown this litigation over a sordid alleged affair, the President has been left looking like Stanley Kowalski declaring to Blanche DuBois that he has “a lawyer acquaintance” who can “study these out.” For Trump, that “lawyer acquaintance” was Michael Cohen, a fix it lawyer who has become infamous for threatening women connected with Trump with financial and legal ruin. Until, that is, former porn star Stormy Daniels (the Blanche DeBois of this drama) called his bluff. Now, Trump’s fix it man has a fix it man, David Schwartz, who proclaimed that he also has “studied things out” and has threatening both Daniels and her lawyer with ruin. The problem is that Schwartz may have just cratered the case for both his client, Cohen, and Cohen’s client, Trump. Schwartz has finally declared that Trump was never aware of the agreement negotiated for him by Cohen. That could spell serious trouble not only for Cohen but also Trump. Instead of a final scene screaming “Stella!,” it may be “Schwartz!” that is heard throughout Foggy Bottom.

In what is now the most famous non-disclosure agreement in history, Cohen sought to silence Daniels with a $130,000 payment just days before the election. He drafted a flawed agreement that magnified the problems for his client. The agreement is entitled “Confidential Settlement Agreement and Mutual Release; Assignment of Copyright and Non-Disparagment (sic) Agreement.” If Cohen hoped to avoid “disparagment,” he could not have gone about it more ham-handedly. Cohen created the shield company Essential Consultants LLC and used anonymous identities for Daniels (“Peggy Peterson”) and Trump (“David Dennison”). However, Trump never signed. Instead, Cohen signed as EC LLC, which appears to be simply Cohen.

The agreement is fraught with errors, including the fact that the arbitration provision seems to be an option for Trump rather than EC LCC. Nevertheless, Cohen (aka EC LLC) filed for arbitration and demanded $20 million in damages (as part of an excessive damages provision allowing for $1 million for every disclosure or even threatened disclosure by Daniels).

Now that Cohen’s counsel has confirmed the lack of knowledge or consent by Trump, the potential fallout from this agreement has become even more apparent and more serious.

Michael Cohen

When this agreement first came to light, I wrote that Cohen would face very serious ethical questions over his conduct. First there was the fact that Cohen paid for the $130,000 out of his own pocket – a highly usual and troubling mixing of his personal and professional interests. Second, if Trump was not aware of the agreement, Cohen could be alleged to have made false representations to an opposing party as well as failing to meet his duty of conferral with a client.

Cohen and Schwartz have been cagey about Trump’s knowledge and whether he is a party to the agreement. Charles Harder, Donald Trump’s new personal attorney, recently joined Cohen in seeking to move the matter to federal court. However, Schwartz has now declared to CNN that Trump never agreed to the agreement:

“The president was not aware of the agreement. At least, Michael Cohen never told him about the agreement. Michael Cohen left the option open. That’s why he left that signature line, the option open to go to him. He chose not to. He chose to bind the LLC, EC LLC and Stormy Daniels into the contract.”

In just 56 words, Schwartz may have sent both Cohen and Trump over the side of a legal abyss.

If Trump had no knowledge and did not agree to the agreement, Cohen is in serious ethical trouble. More importantly, it is hard to see how Daniels is bound by an agreement that Trump never agreed to. The agreement has obligations running both ways and Trump apparently not only did not pay the money but did not agree to the conditions. Indeed, it is hard to see why Harder is intervening in a case over an agreement that Trump does not appear to be a party to.

What is left is litigation without a purpose for Trump. Cohen has said that he wants to tag Daniels for millions and take a vacation on the proceeds. However, that is hardly in the interest of his client. Trump could well be pulled into depositions under the discovery provision of the agreement. Furthermore, with the story out in the public, Trump has little to gain and much to lose from continued litigation. Cohen could be accused of using a client (who did not agree to the agreement) to seek a financial windfall in a legal holdup. The New York bar is unlikely to look kindly on that role – or Schwartz’s repeated (and baffling) defense that Cohen’s role is hard to define as friend, fixer, and lawyer. Having an ambiguous or unclear relationship with a client is not the basis for a defense but the basis for a charge under ethical codes.

Donald Trump

On one level, the denial of any knowledge of the agreement would seem to protect Trump from the demand of Daniels’ lawyer for a deposition. If it gets that far, Trump could offer written answers and stipulations to avoid such an embarrassing step based on his lack of knowledge. However, shielding Trump from discovery could leave him more exposed in other areas, including the Special Counsel investigation.

While I have been skeptical of the case for criminal charges against Trump for collusion with the Russians, I stated from the outset that the Daniels scandal could present a serious threat for Trump. The $130,000 looks a lot like the type of “in-kind” campaign contribution that led to the indictment of former Democratic Presidential candidate John Edwards. In that case, third parties paid money to Edwards’ mistress in the midst of the presidential campaign.

Here is the problem with Schwartz’ statement. If Trump did not agree to a payment to Daniels, the $130,000 looks more and more like an in-kind contribution from a supporter as opposed to a litigation payment from a lawyer. That could force both Cohen and Trump into an interview with Mueller who has already indicted people like Trump’s former campaign chair, Paul Manafort, for crimes totally unrelated to the campaign.

Worse yet, Mueller is famous for flipping witnesses who are exposed legally. If Cohen is facing possible criminal charges for campaign finance violations or false statements, he would be a nightmare for the Trump team as a cooperative witness. The last guy you want to see behind the prosecution table is your fix it man.

What is clear is that this is only going to get more difficult for Trump’s legal team in the wake of comments by Cohen and Schwartz. As Blanche advised Stanley before he spoke with his “lawyer acquaintance,” he might want to hand over any documents “with a box of aspirin tablets.”

104 thoughts on “Beware The “Lawyer Acquaintance”: How Fifty-Six Words May Have Just Sunk Trump and Cohen In The Daniels Litigation”

  1. One can see from Professor Turley’s analysis here, that the Daniels case is going to be an irritant for some time. The little scratch that gets infected and requires careful attention.

  2. A number of commenters on this story have suggested that third party beneficiary law ought to have a role in the litigation. I have been waiting for a lawyer to explain why this is not a third party beneficiary case. Since no one has come forward, I guess I’ll take it on.

    The quick answer is that the third party beneficiary rule only applies to third party beneficiary contracts. In its simplest form, a third party beneficiary contract is an agreement between two people which expressly provides that it is intended to benefit an identified third party, meaning someone who is not one of the contracting parties. In other words, one cannot be both a party to a contract and a third party beneficiary under it.

    In the contract at issue, Donald Trump is one of three named parties. The fact that he did not actually execute the agreement (assuming that is true), does not magically convert him into a third party beneficiary. Of course, the agreement could have been drafted as a third party beneficiary contract, but it was not. Nor can Trump’s lawyer argue that he actually intended to create a third party beneficiary contract. First, unilateral intent is meaningless. Second, there is the old rule that the meaning of a contract is not determined by reference to what the parties intended, but by what they actually said.

    Trump’s lawyer Cohen drafted a three-party contract. I see no ambiguity in its terms. If he had no intention of having Trump actually sign the contract, he committed fraud. If, as now insisted by Cohen’s lawyer, he drafted the contract without Trump’s knowledge or consent, he committed fraud and additionally subjected himself to bar disciplinary proceedings. In either case the contract is not binding on Stormy Daniels.

    It is possible that Trump could ratify the agreement after the fact by signing it, but that will not happen. His best interests lie in permitting Cohen to take the fall and avoid the potential pitfalls of the discovery process. Were I representing Trump and he informed me that he neither authorized nor had any advance knowledge of Cohen’s actions, I would recommend that he immediately denounce the agreement and terminate his relationship with Cohen.

    But what about the $130,000.00 Cohen admittedly paid to Daniels? Should he get that money back? Maybe not. It was, after all, an unauthorized and voluntary payment made pursuant to a scheme to commit fraud. His best bet might well be to attempt to negotiate a stipulated dismissal of all pending claims, walk away from the dispute and hope he can manage to keep his law license.

  3. Professor, your analysis ignores intended third party beneficiaries within third-party beneficiary contracts, and the UCC, which has application in both loci in quo, i.e., Texas and California.

    Trump doesn’t have to sign a contract where he is an intended third party beneficiary for the contract to be binding, and the UCC will imply a contract from the actions of the parties. In this case if Daniels cashed the check, a valid contract as between the LLC and Daniels was formed, either in fact, or via the UCC.

    That said, I also think that Cohen will be found guilty of a felony and disbarred, via making an in-kind contribution above $5,000, so I agree with your analysis regarding the ethical issues and criminal repercussions.

  4. Somehow I don’t read it the same way as JT, as far as this being worse for Trump.
    The representations being made now are that Trump did not know about the agreement and that is why he did not sign it.
    So, if that story can be maintained, i.e., no one breaks that house of cards, Trump can say almost anything.
    Even if Cohen is fukt on ethics inquiries, it would still seem that Daniels still entered into a valid agreement with him or his corp.
    It would seem that as far as FEC concerns go, Cohen was acting like an independent PAC, which is not constrained by campaign donation limitations.
    Yes, there are always the wild cards of random discovery popping up something juicy, the deposition of Trump and the flipping of witnesses by Mueller, low quality witnesses that have publicly lied. But that is not the situation now.

    There is a high stakes game of chess being played out here.

    1. It was a three party contract which was never executed. The obligations assigned to trump were part of the consideration. If he didn’t agree to perform, then there is no valid contract. There is a specific provision that it will be effective upon execution by all parties.

  5. Turley wrote, “Worse yet, Mueller is famous for flipping witnesses who are exposed legally. If Cohen is facing possible criminal charges for campaign finance violations or false statements, he would be a nightmare for the Trump team as a cooperative witness. The last guy you want to see behind the prosecution table is your fix it man.”

    I’m pretty sure that a man who borrows $130,000 from his home equity account to pay for his employer’s paramour’s silence about their extra-marital affair will gladly go to jail for that employer rather than enter into a plea-deal to become a cooperating witness against his employer. Even so, Michael D. Cohen would be an absolute nightmare witness against Trump if Mueller could get Cohen to flip. And that’s the only halfway plausible reason for Mueller to show any interest in Cohen’s dilemma. I doubt that Mueller would want Cohen to testify against Trump on any legal issues other than Trump’s suspected financial crimes. If so, and if Mueller exploits Cohen’s dilemma to bargain for Cohen’s testimony on Trump’s suspected financial crimes, then the implication might be that Mueller does not yet have sufficient evidence to make a case against Trump for any suspected financial crimes without Cohen’s testimony. Conversely, if Mueller overlooks Cohen’s dilemma, then the implication might be that Mueller already has sufficient evidence to make a case against Trump for suspected financial crimes. Of course, since more evidence would be better than whatever evidence Mueller might already have, Mueller might try to flip Cohen, anyway. But I still don’t see Cohen cutting a deal with Mueller. It would be totally out of character for Cohen to turn on Trump. Or not.

    1. I tend to agree, that if was willing to take out a personal loan to shield Trump from sordid details and knowledge, rig up a contract w/o Trump’s signature, he would likely be willing to go to jail for him also.

      1. Thanks Gary T. I’ll take agreement whenever, wherever and from whosoever I can get it. So long as I don’t have to pretend to happy about it.

  6. Welcome to the common room in Bedlam. It used to be called the Oval Office in the White House.

  7. Here’s the real Stormy Daniels being interviewed. Much more credible than Stephanie “Dilated Pupils” Clifford and her big-mouthed, but small-minded shyster Michael Avenatti, who “swears” that Clifford’s pupils were enlarged because of benadryl, which never in the history of pharmacology has ever caused such pupil enlargement. Maybe with cocaine and/or methamphetamines, but never so enlarged with benadryl.

  8. Dang it I miss the Bill Clinton Presidency!

    “Hell, if you work for Bill Clinton, you go up and down more times than a whore’s nightgown.”
    —James Carville

    “As with mosquitoes, horseflies, and most bloodsucking parasites, Kenneth Starr was spawned in stagnant water.”
    —James Carville

    “Drag a hundred-dollar bill through a trailer park, you never know what you’ll find.”
    —James Carville, responding to Paula Jones’ sexual harassment allegations against Bill Clinton

    source: http://www.jokes4us.com/celebrityjokes/billclintonjokes/jamescarvillejokes.html

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