The Fourth District Court of Appeals, Division 3, has a new opinion, Falcon Brands v. Mousavi & Lee L.L.P. (case no. G059477, filed 1/27/22), that adds to our knowledge of one of the more opaque issues in legal ethics: when does a lawyer’s demands to settle become extortion?
The leading case in California is the almost legendary decision Flately v. Mauro (2006) 39 Cal.4th 299. Michael Flately was an Irish entertainer, famed as the “Lord of the Dance” for his shows featuring Irish traditional dance. D. Dean Mauro was an Illinois attorney who represented a woman who alleged that Flately raped her in a Las Vegas Hotel. Among other things, Mauro sent Flatley a letter demanding a settlement of $100 million dollars and threatening to do a number of things as described by the Supreme Court:
“The first paragraph of the third page of Mauro’s letter refers Flatley to a “settlement of $100,000,000.00” awarded as punitive damages in an unidentified case. The second full paragraph then states that an investigation into Flatley’s assets for purposes of determining an appropriate award of punitive damages will require “an in-depth investigation” and that any information would then “BECOME A MATTER OF PUBLIC RECORD, AS IT MUST BE FILED WITH THE COURT, as it will be part of the bases of several of our expert’s [sic ] testimony.” The third paragraph states in its entirety: ”Any and all information, including Immigration, Social Security Issuances and Use, and I.R.S. and various State Tax Levies and information will be exposed. We are positive the media worldwide will enjoy what they find.” After a paragraph describing the potential testimony of two other experts, John Lombardi and David K. Hirshey, apparently with respect to the failure of the Las Vegas hotel in which the alleged rape occurred to “provide requisite safeguards for our client,” the fifth paragraph again warns that “all pertinent information and documentation, if in violation of any U.S. Federal, Immigration, I.R.S., S.S. Admin., U.S. State, Local, Commonwealth U.K., or International Laws, shall immediately [be] turned over to any and all appropriate authorities.” The final paragraph warns that once the lawsuit is filed additional causes of action “shall arise” including “Defamatory comments, Civil Conspiracy, Reckless Supervision” which are “just the beginning” and that “ample evidence” exists “to prove each and every element for all these additional causes of action. Again, these actions allow for Punitive Damages.”
At the top of the final page of the letter is the caption: ”FIRST & FINAL TIME-LIMIT SETTLEMENT DEMAND.” Beneath it, a paragraph warns that there shall be “no continuances nor any delays. If we do not hear from you, then we shall know you are not interested in amicably resolving this claim, and we shall immediately file suit.” At the bottom of the page, beneath Mauro’s signature, a final paragraph warns Flatley that, along with the filing of suit, press releases will be disseminated to various media sources, including but not limited to “Fox News Chicago, Fox News Indiana, Fox News Wisconsin, and the U.S. National Fox News Network; W.G.N. National U.S. Television; All Local Las Vegas Television, radio stations, and newspapers; The Chicago Tribune, The Chicago Southern Economist, The News Sun, The Beacon News, The Daily Herald, The New York Times, The Washington Post; ALL National U.S. Television Networks of N.B.C., A.B.C. and C.B.S.; as well as INTERNET POSTINGS WORLDWIDE, including the BRITISH BROADCASTING COMPANY, and the Germany National News Network Stations.”
Flatley did not pay but did file an action against Mauro for civil extortion, intentional infliction of emotional distress and wrongful interference with economic advantage. Mauro fought back with an anti-SLAPP motion that was denied by the trial court, a decision upheld by the Court of Appeal on the grounds that Mauro’s letter was criminal extortion as a matter of law, not protected speech entitled to the anti-SLAPP remedy. Undeterred (as you might expect), Mauro appealed to the California Supreme Court, which quite easily came to the same conclusion as the Court of Appeal (as you also might expect.)
In the course of its long walk down an easy road, the High Court noted the peculiar aspect of the crime of extortion:
”Extortion has been characterized as a paradoxical crime in that it criminalizes the making of threats that, in and of themselves, may not be illegal. ”[I]n many blackmail cases the threat is to do something in itself perfectly legal, but that threat nevertheless becomes illegal when coupled with a demand for money.” (Philippine Export & Foreign Loan Guarantee Corp. v. Chuidian (1990) 218 Cal. App.3d 1058, 1079 [citation omitted].) The extortion statutes “all adopted at the same time and relating to the same subject matter, clearly indicate that the legislature in denouncing the wrongful use of fear as a means of obtaining property from another had in mind threats to do the acts specified in section 519, the making of which for the purpose stated is declared to be a wrongful use of fear-induced thereby.” (People v. Beggs (1918) 178 Cal. 79, 83, 172 P. 152.) ”It is the means employed [to obtain the property of another] which the law denounces, and though the purpose may be to collect a just indebtedness arising from and created by the criminal act for which the threat is to prosecute the wrongdoer, it is nevertheless within the statutory inhibition. The law does not contemplate the use of criminal process as a means of collecting a debt.” (Id. at p. 84, 172 P. 152; People v. Tufunga (1999) 21 Cal.4th 935, 955, 987 P.2d 168 [In Beggs “we explained that because of the strong public policy militating against self-help by force or fear, courts will not recognize a good faith defense to the satisfaction of a debt when accomplished by the use of force or fear”]; Lindenbaum v. State Bar (1945) 26 Cal.2d 565, 573, 160 P.2d 9 [For purposes of extortion “[i]t is immaterial that the money which petitioner sought to obtain through threats may have been justly due him”]; Gomez v. Garcia (9th Cir.1996) 81 F.3d 95, 97 [“The law of California was established in 1918 that belief that the victim owes a debt is not a defense to the crime of extortion”].).”
Flatley is an entertaining read because of the celebrity angle and Mauro’s way over-the-top demand letter. It is also a scholarly opinion with value in discussing the anti-SLAPP law and the litigation privilege. But mostly because Mauro’s actions were so outrageous, it isn’t as useful as a measuring stick in examining the conduct of other lawyers making demands not so far out in the outrage-o-sphere. Other decisions cited in the text, such as the Philippine Export case, are also limited. The Court of Appeal in that case noted that “Those types of threats pose the most difficult problems in the law of blackmail and the contract law of duress, because they are threats to take actions which are legal under many circumstances. For instance, a person, generally speaking, has a perfect right to prosecute a lawsuit in good faith, or to provide information to newspapers. Language can be found in many decisions that it is not an illegal threat for a person to do” ‘what he has a legal right to do.'” Philippine Export at 1079.
Falcon Brands helps to understand where the line is and tees the issue up nicely in its opening line: “Lawyers argue for a living. Some do more than argue. They lace their settlement demands with threats. When does such activity cross the line and become professional misconduct? That is the fundamental question presented in this case.” Again, the vehicle for considering the problem is anti-SLAPP, Falcon Brands appealing the striking of the causes of action in its cross-complaint under Code of Civil Procedure section 425.16. The opinion is helpful because the lawyer engaged in an escalating series of demands that ultimately crossed the line.
The case began when Falcon terminated an employee who hired the lawyer, Mousavi, to prosecute his wrongful termination claims. In her initial email, Mousavi asked for records from Falcon.
About a month later, with no response, she emailed Falcon again and stated that she would be contacting another business that was in the process of acquiring Falcon Harvest) and that Harvest would also be named as defendants in the wrongful termination action. The letter then segued into a discussion of Falcon’s alleged illegal conduct in violation of Bureau of Cannabis Control (B.B.C.) regulations, including an allegation of bribing a deputy district attorney. No link was drawn between the B.B.C. violations and the termination of the employee. Mousavi closed the email by stating that she would notify the buyer of her client’s claims if there was no response.
Now there was a response by Falcon’s counsel and a warning that contacting the buyer would be regarded as an “a tortious to interfere with Falcon’s contract and prospective economic advantage,” and pointed out that while “Harvest may or may not in the future acquire Falcon,” it was not yet an owner of Falcon and thus would not be a proper party to any claim. Falcon’s counsel later submitted a declaration averring that Mousavi told him a telephone conversation that she would inform Harvest of Falcon’s illegal conduct if her client’s claims were not settled.
A few days letter Mousavi emailed Falcon’s counsel and stated, “I have put the attorneys for Harvest Health & Recreation Inc. (‘Harvest’) on notice about Mr. Honard’s claim for wages, without disclosing other issues mentioned in my letter of October 8, 2019. However, Harvest has requested that I forward the demand letters I have sent you. I am planning to email those letters on Tuesday. Please call me if you have any questions. Thanks.” (Italics added.) After Falcon’s counsel replied and accused Mousavi of trying to extort a settlement, Mousavi replied with one last email: “I have been providing you with [an] opportunity to resolve this matter, but all I get from you are threats and evasiveness. I waited patiently to no avail. As stated, I will proceed accordingly. If you want to resolve this matter, now is the time.”
The trial court concluded Flatley was distinguishable because Mousavi’s “threat was to inform only one entity that would be directly affected by the threatened lawsuit when the merger [was] completed. Unlike the situation in Flatley, the threat to contact Harvest was not ‘entirely unrelated’ [to] the Cross-defendants’ claims. Accordingly, it has not been indisputably proven that Cross-Defendants’ sent the prelitigation letters with the intent to extort money by fear. Thus, extortion cannot be found as a matter of law.” As noted by the Court of Appeal, “there is nothing in Mousavi’s emails to suggest she planned to pursue settlement negotiations directly with Harvest. Instead, she repeatedly stated her plan was to serve the lawsuit, naming both Falcon and Harvest, if her settlement demands were not satisfied.”
The trial court examined the escalating nature of the demands.
“Applying these rules to the current facts, we believe Mousavi’s initial
communication with Falcon on September 6, 2019, as described above, was innocent.
Her next email sent on October 8, 2019, is a closer call when considered by itself. That
email contained at least an implicit threat, as Mousavi specified the crimes Falcon had
allegedly committed, though she never directly linked her settlement demands to them.
Instead, she explained how she had calculated her client’s damages without directly referencing the alleged criminal misconduct. A skeptical observer might reasonably wonder why Mousavi referenced the “B.B.C. Violations” at all within that demand. Indeed, we share that curiosity. We nonetheless conclude the October 8 correspondence standing alone may not have crossed the line into misconduct.
But the October 8 email must be considered in context along with the
October 11, 2019 email. In that email, Mousavi informed Falcon’s counsel she had
already “put the attorneys for Harvest Health & Recreation Inc. (‘Harvest’) on notice
about Mr. Honard’s claim for wages, without disclosing other issues mentioned in my
letter of October 8, 2019.” There can be no doubt that bribing a deputy district attorney
(as alleged in the October 8 e-email) involves criminal misconduct. Mousavi then added,
“Harvest has requested that I forward the demand letters I have sent you. I am planning to
email those letters on Tuesday.” The implication is clear: settle the case now, or Harvest
will become aware of Falcon’s alleged criminal misconduct next week.”
The Falcon decision says that citing damaging information unrelated to the claim alone is not enough to cross the line. But the line is definitely crossed when there is an explicit or implicit threat to disclose the damaging unrelated information unless money is paid.
Years ago, a colleague at an APRL conference put it this way: “You can’t play poker with someone else’s chips.” The Falcon case helps clarify exactly when those chips are at play.