The BUSKLAW August Newsletter: Lessons from the Court's Rejection of the Trump Family Non-Disclosure Agreement

Consider the ubiquitous non-disclosure agreement ("NDA"): every business (and the White House) has one, and it's often employed for dubious ends. To cover-up criminal activity. Or to keep a lid on the President's past sexual shenanigans. Most recently, President Trump's brother, Robert Trump, tried to use a family NDA from 2001 to stop the publication of Mary L. Trump's book entitled, Too Much and Never Enough. How My Family Created the World's Most Dangerous Man. (Mary Trump is Donald Trump's niece.)

But the attempt to weaponize that NDA to ban Mary Trump's book failed. It was released on July 14 and is #1 on the bestseller list. So let's see where this NDA went wrong according to Judge Greenwald. And perhaps the Court's opinion (issued 7/13/2020) will help NDA drafters avoid some of the pitfalls that plagued the Trump family NDA. (This post doesn't discuss the constitutional issues decided by the Court.)

First some context. The NDA at issue was part of a 2001 Agreement and Stipulation (the "Stipulation") signed by various Trump family members, including Donald, his brother Robert and sister Maryanne, and Mary Trump, the daughter of Donald's deceased brother, Fred Trump, Jr. The Stipulation settled two complicated inter-family lawsuits involving Donald Trump's parents' estates and a maze of corporations, limited liability companies, and partnerships. Mary Trump received money for her signature on the Stipulation. The Stipulation included a number of provisions commonly found in NDAs. 

Let's start with the basic confidentiality clause as quoted by the Court: Without obtaining the consent of...Robert S. Trump...Mary L. Trump shall not...cause to be published, any...account...concerning their [her] relationship with the "Proponents/Defendants" [Robert S. Trump].

The Court struggled with the meaning of this clause, wondering how a promise to keep the 2001 settlement of lawsuits concerning the Trump family assets confidential would be relevant to Robert Trump's action to prevent publication of a book about Donald Trump's "character and fitness" to be President in 2020. The Court found this clause to be so overbroad as to be ineffective, declaring that "the cost of the litigation that was settled [in 2001] should have been finalized with more specifics, more clarity, if the current situation was even comprehended, at the time the Stipulation was signed."

Drafting Lesson #1: Try to specifically describe the information covered by the NDA rather than vague references to accounts of relationships. 

  

The Court next addressed whether the book's publisher, Simon & Schuster ("S&S"), was bound by the NDA as Mary Trump's agent. A finding of agency was essential to justify the Court issuing an injunction against S&S to stop the book's publication. But there was no evidence of an agency relationship between S&S and Mary Trump. The mere fact that S&S signed an agreement to publish the book with Ms. Trump didn't establish an agent-principal relationship. The elements of an agency relationship were lacking, including Ms. Trump's right to control S&S's publication and distribution of the book. There was also no evidence that S&S knew about the NDA when it signed the publishing agreement with Ms. Trump in 2019. 

Drafting Lesson #2: If you want to bind someone to an NDA, make them a named party to the Agreement.

 

The Court then discussed whether Ms. Trump received something of value (in lawyerspeak, consideration) to make the NDA portion of the Stipulation binding on her. According to the Court, "there was no specific consideration given to anyone for confidentiality. The consideration [the money paid to Ms. Trump] was provided to settle disputes. The parties agreed to keep the settlement under seal. That's it."

Drafting Lesson #3: NDAs are like any other contract. There must be consideration exchanged between the parties to make the contract valid and enforceable. Some lawyers think that all they have to do is throw in the phrase, "In consideration of...." and that's enough to establish consideration. In truth, you can recite consideration until the cows come home, but if there was no actual consideration, you have no contract. That's why there's no need to recite the term "consideration" in a contract.

The Court next considered Robert Trump's argument that he was entitled to an injunction to stop the book's publication because the NDA included Mary Trump's agreement that Robert would suffer irreparable harm if the NDA were breached. But the Court found that "irreparable harm must be demonstrated, it is not obtained via a contract clause." And that Robert failed to meet his burden of demonstrating that the book's publication would cause irreparable harm to him. (Remember that Donald Trump was not a party to of this lawsuit.) 

Drafting Lesson #4: Including language in an NDA that any breach will result in irreparable harm to the party whose confidential information was disclosed and thus the court must grant injunctive relief doesn't make it so. There must be persuasive actual proof of that harm. 

Finally, the Court observed that the NDA provisions had no sunset date. The Court decided that this fact also made the NDA harder to defend, and Robert Trump was not likely to succeed on the merits. 

Drafting Lesson #5: NDAs should have a fixed term. I usually go with 5 to 7 years for confidential information that doesn't qualify as a trade secret. (Trade secrets are covered under statutory law.) If your NDA doesn't have a fixed term, a court is unlikely to enforce it beyond what the judge subjectively decides is a "reasonable time." 

Do your NDAs suffer from these flaws? Do you use a boilerplate NDA that could use a fresh look? Is your NDA written in plain English? Does it fit the circumstances surrounding your disclosure or receipt of confidential information? I'd be happy to work with you to avoid a situation like the Trump-family NDA failure! 

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