Charlie Sheen is famous for his long-running celebrity status, his playboy antics, and at least one unfortunate public meltdown. In 2015, a source close to him leaked his HIV-positive status to a tabloid. The story revealed that Sheen required all of his sexual partners to sign a non-disclosure agreement.
Sheen’s NDA says that anyone close to the actor cannot reveal any of his personal information to any entity. Whatever might come up in the normal course of a friendship or romantic relationship is protected. Further, it strips the individual from rights like copyright and courtroom litigation and lays a heavy fine for breach of contract.
The NDA is unusual, too, because it governs Sheen’s private life, and NDAs typically are drafted for business relationships. The example raises the question of whether it’s possible to contract integrity in either context. In analyzing Sheen’s non-disclosure agreement below, we can see the strengths and limitations of NDAs in establishing honest and trustworthy relationships.
Questions in this Episode
- What are the problems in Charlie Sheen’s NDA?
- How can drafters make disclosure sections more transparent?
- When should you use liquidated damages?
- Is the arbitration section of this document effective for its purpose?
- Are NDAs a proxy of trust?
The Background of this NDA
This is an NDA from Charlie Sheen that’s very specific to people who knew him in a personal sense and not necessarily in a business sense. The purpose of this agreement is to maintain confidentiality between the people he is spending time with and associating with.
When working with hairdressers or other persons who will have access to your house, you will see personal situations with clients. However, because they are an employer or a contractor of yours, it is still a commercial relationship. NDAs make sense in such situations, but this explicitly says “in consideration for the opportunity to spend time and associate with…”
In consideration for the opportunity to spend time and associate with You, for Your agreement to forego the right to resolve disputes between Us before a jury of Your peers in a public court proceeding, and in consideration of Our mutual agreement to resolve any disputes between Us by confidential Arbitration, and for other good and valuable consideration the receipt and sufficiency of which are hereby aknowledged, We agree as follows:
In the first paragraph, Charlie Sheen makes things clear regarding the rights of a person who spends time or associates with him. It states that you are giving up not just the right to speak about Charlie Sheen, but also the right to have a jury of peers resolve the matter.
Section 1.3 prohibits participating in books or articles without Charlie’s advance express written consent. When it comes to business NDAs, you don’t want to conflate copyrights in NDAs. If you are transferring copyrights, you should do it in a single agreement.
What’s noteworthy about this is that it states that if you write anything or talk to anyone, especially if you write a book, you automatically transfer the copyright to Charlie Sheen.
1.3 No Participation in Books or Articles. Without Your advance express written consent, I will not give or participate in any interviews, write, or be a source for, any articles, books, programs, or stories about You or the Related Parties, whether truthful, fictionalized, on the record, or “off the record.” If I breach these promises, My copyright in any such unauthorized material shall be automatically and immediately transferred by Me to You as of its creation and in perpetuity, and this Agreement shall constitute a valid transfer of copyright.
Consider this situation: You’re dating Charlie Sheen. He gets you a Rolex watch, which is a kind gesture. You write a book and just mention it once. Now, Charlie Sheen owns the copyright to your book, which doesn’t really fly.
The definition of confidentiality is incredibly broad and includes information about his friends. Who are his friends? How do you know when you’ve been in a place with a person that he says is a friend?
To Disclose or to Not Disclose?
This NDA states that when it comes to permitted disclosures in response to subpoenas, you should not divulge anything willingly.
When drafting NDAs, there are usually extra steps to follow. Notifying the party, drafting a protective order, and paying the attorney fees. It would also state that if you have not heard from the concerned party within a specific number of days, the other party is free to disclose.
2. Permitted Disclosures, Responding to Subpoenas, Etc. I may disclose Confidential Information in confidence to My attorneys as required for the rendition of their professional services, or as is otherwise required by law. If I am compelled to disclose Confidential Information pursuant to valid legal process (e.g., a subpoena), I shall first provided You with reasonable advance written notice before making any such disclosure. I will not volunteer to disclose Confidential Information. Confidential Information shall continue to be subject to this Agreement even if it is wrongfully disclosed by Me or by Third Parties.
It is important to mention the process in the agreement, especially because it involves a celebrity, as persons may be sued and subpoenaed more frequently in these cases. It’s also significant since judges frequently ask for information.
Is there Real Damage?
When it comes to liquidated damages, you should apply them when the objectives are breached.
For example, if someone was due to build a road but was a month late, they would be awarded $100,000 in liquidated damages. However, this contract expressly states that for each breach or threatened breach of this agreement, you may disclose something that does not actually harm you. A role can be disclosed in a really wonderful, intimate narrative. Except for you and Charlie, no one knew. And it may paint Charlie in a good light. He could be invited to talk about it on TV shows since he did something wonderful. But, are you truly damaged simply because there was a disclosure?
3.1 Liquidated Damages. My actual or threatened breach shall cause You substantial damages and injury, the precise amount of which would be extremely difficult or impracticable to determine even after We have made a reasonable attempt to do so. I therefore agree that, in addition to Your other remedies, I will be obligated to pay You the sum of One Hundred Thousand Dollars ($100,000) as a reasonable and fair amount of liquidated damages to compensate You for loss or damage resulting from each actual or threatened breach. We agree that this sum bears a reasonable and proximate relationship to the actual damages You will suffer from each actual or threatened breach, and that it is not a penalty. You will have the right to seek actual damages instead of liquidated damages; and
The Effectiveness of the Arbitration Section
The arbitration section is oppressive.
4. Arbitration of Disputes. We recognize the mutual benefits of voluntary alternative dispute resolution by binding confidential Arbitration and therefore agree that the exclusive manner of resolving any and all disputes, claims or controversies between Us of any kind or nature whatsoever shall be by mandatory BINDING Confidential Arbitration. Arbitration. Arbitration shall take place before JAMS under the JAMS Comprehensive Arbitration Rules and Procedures (including Interim Measures) (“JAMS Rules”) in Los Angeles, California, and will be heard and decided by a sole, neutral arbitrator (“Arbitrator”) selected either by Our mutual agreement or JAMS Rules. We have the right to conduct discovery in accordance with California Code of Civil Procedure §1283.05 et seq., and written discovery requests and discovery results shall be deemed Confidential Information. Whether a dispute is arbitrable and issues regarding enforceability of this Agreement shall be determined by the Arbitrator and not by any court. The Arbitrator may impose any and all legal and equitable remedies that would be available to any Party before any governmental dispute resolution forum or court of competent jurisdiction. If a request for immediate provisional relief is filed and no Arbitrator has been appointed, JAMS shall appoint an Arbitrator who shall determine the request as soon as possible. The Arbitrator so appointed shall be determined by JAMS in its discretion not to have any material disclosure as to any Party or counsel, and We waive their rights to formal disclosure and to disqualify the Arbitrator so appointed as otherwise permitted by California law. We understand that these waivers are intended to effectuate Our agreed process of immediate determination of a request for provisional relief. Arbitration shall not apply to any claims necessarily excluded by law. The Arbitrator shall issue a written opinion containing his/her factual and legal reasoning. The prevailing Party may seek to have the Arbitrator’s award entered as a judgment in any court of competent jurisdiction. If the prevailing Party files a petition to confirm the Arbitrator’s Award and/or if any Party seeks to vacate an Award, any documents containing Confidential Information filed with any court shall be filed under seal to the greatest extent permitted by law in order to maintain confidentiality of Confidential Information. BY AGREEING TO ARBITRATION, WE ARE GIVING UP ANY RIGHTS WE MAY HAVE TO A TRIAL BY JUDGE OR JURY WITH REGARD TO THE MATTERS WHICH ARE REQUIRED TO BE SUBMITTED TO MANDATORY BINDING ARBITRATION. WE UNDERSTAND, ACKNOWLEDGE AND AGREE THAT THERE IS NO RIGHT TO AN APPEAL OR A REVIEW OF AN ARBITRATOR’S AWARD AS THERE WOULD BE OF A JUDGE OR JURY’S DECISION.
What courts are grappling with now is where one party has such a significant advantage over the other, i.e., the Harvey Weinstein of the world employment context.
The arbitration clause is problematic given the purpose of this NDA. Maybe if it were two Fortune 500 companies sharing information, then it's a different conversation. - Shavon Smith #ContractTeardown Click To Tweet
The Big Picture of this NDA
People typically want ironclad NDAs since they are discussing XYZ and are unsure about sharing a great idea with another person. If that’s the case, it’s better to not disclose the idea. A document will not make a person trustworthy if you do not trust them.
It’s ok to communicate your idea, but you don’t have to reveal the secret sauce. And you don’t want to run into a door with an NDA every time.
You should use your business judgment and discernment in terms of who you do business with before you put an NDA. - Shavon Smith #ContractTeardown Click To Tweet
If you just don’t trust yourself to trust people, then develop the internal mechanisms of what that looks like. If you are a business owner, you can create a checklist of who you would do business with or not.
Charlie Sheen once had his sexual partners sign a non-disclosure to ensure his private information didn’t get leaked. Unfortunately, it didn’t work, and the world learned about his HIV status after a source close to the actor leaked it to a tabloid. Join us as business attorney Shavon Smith tears down Sheen’s infamous NDA and tells us how effective these are for establishing trust in both business and personal relationships.
THE CONTRACT: NDA Contract
THE GUEST: Shavon Smith is the principal of The SJS Law Firm, PLLC where she counsels business owners, start-ups, and entrepreneurs in the District of Columbia, Maryland, and Michigan on a range of legal issues. She serves a diverse client base across multiple industry segments, including franchisees, government contractors, professional service organizations, technology, construction, and design firms, to name a few. Her clients seek her for guidance on entity formation, commercial real estate lease and acquisitions, business financing, and end-to-end contract support. Additionally, she represents and counsels her clients on a range of employment issues, including compliance, drafting non-disclosure agreements, non-compete agreements, drafting and training on employee handbooks, and dispute resolution.
THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.
If you are interested in being a guest on Contract Teardown, please email us at firstname.lastname@example.org.
Mike Whelan Shavon, how are you today?
Shavon Smith I am excellent and so excited to be here.
Mike Whelan I’m a little pumped about this because we get to mix the world of contract nerdiness with TMZ-style drama mama stuff and you know, that’s everybody’s favorite. So I’m going to show them this document. Everybody, look at this thing. This is an NDA. And we are going to talk about this NDA because it’s a beautiful, crazy, big picture, toxic thing that we’re going to talk about the modern world. So, Shavon, before we dig into this, what is this document? When are we going to run into this kind of thing?
Shavon Smith So this is an NDA from Charlie Sheen. Some may say he’s a celebrity from long ago, but many see reruns of his shows all the time. And it was very specific to people who knew him in a personal sense and not necessarily in a business sense.
Mike Whelan Yeah, by personal it’s people he has sex with. That’s the TMZ level of this thing that’s going to be great. Okay, Shavon, before we get into the drama mama, what is your background? What brings you to this kind of document? Do you see these a lot?
Shavon Smith Absolutely. So I am an attorney. I have a practice representing all small businesses in the D.C. area, serving as their outside general counsel. I see NDAs all the time, but typically in a context of, a business is going to share their financials to purchase another business; or we’re hiring this employee who will have access to all of our data; or we are teaming with another company. So very much so in a business context and not in the context that Mr. Sheen is using.
Mike Whelan Yeah. I mean we had a conversation, as an aside, recently with Patrick O’Malley about NDAs more on that business side. And one of the things that he said is like NDAs are explicitly not for this purpose. This is sociologically not why we created these things. So it’s a bit fun to go back and look at this. Before we dig into the actual text of it, tell me the background. You mention that this is Charlie Sheen. This is—I guess he’s handing this out to women at the dinner table? I don’t understand how this works. What is this thing?
Shavon Smith People who—it says “spend time and associate.” So it’s people he is spending time with and associating with.
Mike Whelan Okay so like literally anybody. I guess back in, whatever it was, seven years ago or something, it came out that he was HIV positive. And a company called In Touch Weekly, which I guess is a TMZ-like media company, went and got this thing from, I guess, one of the people that he had talked to. Got this document. And so that’s where we’re pulling it from is this article. When I’m thinking about the use of an NDA, and maybe we’ll revisit this in the big picture part at the end of this conversation, an NDA is a non-disclosure. You’re trying to define what confidential information is and what people can do with it. This thing, he’s applying it—I’m assuming you’re not seeing it much in this purpose, where a guy is using it as a way to silence a person, a consumer, you know, an individual?
Shavon Smith No. I mean, I think if Charlie Sheen were working with a realtor who was going to have kind of personal access to his information, that will make a lot of sense to perhaps sign an NDA. But this seems like a very personal situation. I definitely see it in clients, maybe you are dealing with hairdressers or kind of other people who are going to have access to things in your home. But it’s still a business relationship, because they’re an employer or a contractor of yours. And so it makes sense in those instances when celebrities have those agreements. But this purely says, “In the consideration for the opportunity to spend time and associate with.”
Mike Whelan Yeah, I love this. Let’s dig into the document. This first paragraph is so great: “In consideration for”—you know, you got to put that stuff at the top or whatever—”In consideration for the opportunity to spend time and associate with you”—you, here, being Charlie Sheen— “In consideration of the opportunity to hang out with Charlie Sheen for your agreement to forgo the right to resolve disputes between us, before a jury of your peers in a public court proceeding and in considering—.” There’s all these like statements of consideration, which is awesome law school stuff. Like the word consideration never came up since law school. What do you think of this introduction section and what he’s trying to do with setting the terms here in the beginning paragraph?
Shavon Smith Yeah, I mean, I think he’s making it clear that there is consideration here because I think maybe there will be some…fight about whether there was consideration here and then also the “foregoing the right.” So in the end, there’s a very long arbitration clause and just kind of putting that upfront to people, that not only are you giving up the right to talk about me, but you’re giving up the right to have, you know, a jury of peers decide the matter as well.
Mike Whelan Yeah. And if you say the word consideration enough….
Shavon Smith [Laughs] It becomes consideration, right.
Mike Whelan Let’s jump down to 1.3. This section called No Participation in Books or Articles without Charlie’s advanced express written consent. I’m not going to give or participate in any interviews or books, and if I do, I get in trouble. What do you think about 1.3 and using that information to go out to the world and sell a book?
Shavon Smith Yeah. I mean, I think when you’re talking about NDAs in the business sense, you don’t really want to conflate copyrights and NDAs. It’s like, if you are transferring copyrights, you want to do that in one agreement. So what’s interesting about this, it says if you write anything, talk to anyone, especially if you write a book, you automatically transfer the copyright to that book to Charlie Sheen. So think about it this way. You are dating Charlie Sheen. He buys you a Rolex watch, which is a nice thing to do. You write a book and you mention it on one page, the way this is drafted, now Charlie Sheen has the copyright to your book, which doesn’t really fly. And I think even thinking about the definition of confidentiality, it’s incredibly broad. It includes information about his friends. Who are his friends? How do you know when you’ve been in a place with a person that he says is a friend? So the broadness of the definition and then these rights that are being given up. You know, I think there’s just a lot of problems with—.
Mike Whelan Yeah. Well, and I would point back to one, back to the confidentiality, the definition of confidential information. It’s a pretty exhaustive list, obviously, at the beginning where it’s emails, instant messages, it puts it in scare quotes because nobody’s heard of these things. Text message, contracts, correspondence, faxes—look out lawyers!—tapes, CD-ROMs, USB flash drives, SIM cards, photographs, negatives, moving or still images, audio, video. But then it goes in, and it says basically, like he makes a bucket, which is basically anything that people don’t already know about Charlie Sheen. If you say anything about Charlie Sheen that people don’t already know about—his favorite color is red and people don’t know that—then you get in trouble. So it’s a very broad definition. And then obviously to transfer that to books or whatever to to pass that copyright over is a—that’s a whole thing. Well, let’s jump down to two. It talks about permitted disclosures responding to subpoenas. You see this in NDAs a lot, where it’s basically like, okay, but if a court tells me you, you know, I got to say something, then I got to say something. What do you think about the way two tackles that issue?
Shavon Smith I mean, it essentially says you won’t say anything voluntarily. Typically, when I’m drafting these, you have more steps about what to do. Like you will notify us, we will draft a protective order, we’ll pay your attorney’s fees. If you don’t hear from us in a certain amount of days, then you are free to disclose. So it’s a little light on process. And for a person like Charlie Sheen, who I presume maybe gets sued a lot, if you get sued, people get subpoenaed, it seems like you have a little more process about, well, what do I do if someone comes to ask me for this information and that person is a judge who is asking for the information?
Mike Whelan Yeah. Yeah. And that’s common in these things. There’s there’s remedies in here. And the one that I want to focus on is this liquidated damages bit. It says that if you have to go after it, sometimes it’s hard to be able to get value back for reputation damage. So we’re going to set the number at $100,000 plus any actual damages. What do you think about the liquidated damages section on here?
Shavon Smith Yeah, I mean, personally, in my own practice just this week, two opposing counsel have struck these out of kind of non-compete or confidentiality agreements. And I get it because liquidated damages sometimes you want to use when that breaches objective. Like, I was supposed to build this road, we were a month late in building this road, we set these liquidated damages. Here, $100,000, and it specifically says for each breach or threatened breach of this agreement, you can disclose something that actually doesn’t damage him. You know, you could disclose this role as an example in a very lovely story that was confidential. No one knew that but you and he. And it could show him in a favorable light. He could get booked on TV shows to talk about it. But, you know, because, oh, he’s done something nice. And so are you really damaged just because there was a disclosure?
Mike Whelan Well, the last thing I wanted to talk about was this arbitration clause. You know, we’ve talked about arbitration a bit in this show. And obviously, this is a hot—you know, it’s going before the Supreme Court, some of these cases. What’s going on with arbitration. Whatever the purpose of this document is, adding arbitration to it and a person surrendering their, you know, right to go to a court to sue for their rights. Courts don’t love these things. And to see it in this kind of a document, which probably is a public policy issue anyway, it’s a long paragraph. Do you think it’s effective? What do you think about section four in the arbitration?
Shavon Smith Yeah, I definitely think it’s oppressive. I mean, I’m not a huge fan of arbitration agreements. I understand why a person like Charlie Sheen would have that, because you want to buy some confidentiality if you are litigating these issues and you get that in arbitration. But that being said, I think what courts are grappling with now are in these contexts where one party has so much of an upper hand of the other party, i.e., you know, the Harvey Weinsteins of the world, employment context. Where is that really how we want, you know, our contractual law to move, is in this way? So I do think this arbitration clause is problematic given the purpose of this NDA. Maybe if it were, you know, two Fortune 500 companies sharing information, then that’s a different conversation.
Mike Whelan Yeah. Yeah. Well, and as we wrap up, I want to sort of step out to that and think about the big picture. And, you know, NDAs, just as an aside, you contract lawyers, like, you guys all hate NDAs, but you all write NDAs all the time because this is how bills get paid. People are just churning out NDAs and debating them and going over that. And I think about the NDA as, you know, a proxy for trust. And you and I talked about this a little bit before. I’m going to put this in the NDA because I’m nervous. I’m nervous something is going to happen. It’s going to harm me more in the long run than filling this thing out, even if I’m not sure if this thing is even enforceable. So whatever an NDA is supposed to do, and the reason that we have this thing in the universe, this seems like a particularly gross use that is really rooted in, He doesn’t trust this person that he’s in this relationship, whatever the relationship is, he doesn’t trust this person in the relationship. Tell me about NDAs maybe big picture as a proxy for trust. And do you think this is a good use of it or should we just burn all these down. Should we just burn all these down? I’m trying to lean you toward, We should burn all these down.
Shavon Smith So, you know, people often come to me. NDAs in contracts in general, but especially NDAs, like, we need to ironclad NDA because we’re sharing X, Y, Z, and we’re just not sure. Or have this great idea, and I want to share it with this person, but I’m not sure. Then don’t share with them. Like if you do not trust a person, a document is not going to make it—the person—trustworthy. It is not a way to make a person you know a better person just because they sign this NDA. So I always encourage people, you know, share your idea. But there is a secret sauce that you don’t have to reveal necessarily when talking to people about things. So you don’t necessarily want to go running in a door with an NDA every single time. You want to use your business judgment, your discernment in terms of who you do business with before you put an NDA out.
Mike Whelan But let me push back a little bit, maybe. I recently read a book called The Lonely Century, which is an interesting idea about, you know, how a lot of the systems that used to stand in for trust. So I can trust John because he’s my neighbor. I can trust Sally because we go to church together. I can trust Susan because she’s my friends friend’s friend. But as social networks become more virtual, more detached, you know, people don’t have these long-term relationships. The law is an interesting sort of stand-in for that. It has always been a stand-in for, We’re going to generate trust between two people who are not part of the same tribe, have really no reason to trust each other. And so we’re going to be this proxy for trust. Now, the idea in that book and I think there might be some merit to, is that while businesses actually understand their long-term relationships better, people are becoming less and less attached, right. They’re becoming more and more detached from these large social systems. And can law—we’re doing this clumsy bludgeon of law to try to stand in for that as a proxy for trust. Is there a healthy way to use law, whether it’s an NDA or some other way to sort of create trust in these relationships? Do you think if I’m doing a hookup on Tinder, I don’t know what any of that sentence means, but apparently it’s the thing the kids do. If I’ve got a hookup on Tinder, I mean, we do the same with an Uber driver now where an Uber driver is basically we trust Uber, therefore we trust this person. There’s—we know there’s contract in there somewhere. Is there some stand-in for that, for the Charlie Sheens of the world, that they just want to spread their seed, you know, how can law help the poor Charlie Sheens of the world?
Shavon Smith I mean, I think that’s an interesting point. And I think it’s very true that you’re using this to stand in as the trust. So I think it’s twofold. I think it is—maybe it is an NDA, but it’s a carefully-drafted NDA. Maybe it’s not super broad. But I also think it is, you know, this is going to go off the deep end of not being law, but you need to develop your internal mechanisms of, When do I trust a person? Like if you just don’t trust yourself to trust people, then develop the internal mechanisms of what does that look like? And if you are a business owner, you can create a checklist of like, Who do we do business with? Who do we not do business with? And so I think, you know, as a single person not on Tinder, you know, I have to develop my checklist of like, what are the signals for me to, you know, go out with someone and not have to show up with an NDA to have a first date with this person that I went out with?
Mike Whelan Charlie Sheen, just go to therapy. Charlie Sheen. Okay, go to therapy, work your stuff out. I’m sorry, lawyers. I did just try to create a whole new market for you of Tinder NDAs to get you a whole new bit of business. But Shavon killed it. Shavon, thank you for hanging out with us. We appreciate it. If people want to reach out to you and learn more about what you do and the businesses you serve, what’s the best way to connect with you?
Shavon Smith Sure. My website is thesjslawfirm dot com. I am on Instagram at Shavon J Smith. People can always email me, Shavon at the SJS law firm dot com or follow me on LinkedIn, I’m all over the socials.
Mike Whelan On the socials! Well, we’ll have links to all that and this contract and this story over at Law Insider dot com slash resources. Also, if you want to be a guest on The Contract Teardown Show, just email us. We are at community at law insider dot com. We’d love to chat with you. Shavon, thank you again. You guys have a good day. We’ll see you next time.
Shavon Smith Thank you so much.