Pre-Litigation Demand Letters: Assessing the Thin Line between Zealous Advocacy and Extortion
Attorneys commonly send demand letters to adverse parties urging them to settle before an action is filed in court. Before sending demand letters, it is imperative to carefully consider the substance of such letters and the demands contained therein as they may amount to civil2 and/or criminal3 extortion. Attorneys must avoid sending pre-lawsuit demand letters that 1) threaten to damage the recipient’s reputation, privacy,4 person, or property and 2) threaten criminal or disciplinary proceedings. In addition, attorneys must ensure that the demand letters are focused on issues relating to the prospective litigation and do not threaten the disclosure of any prejudicial fact that may be irrelevant to the contemplated action.
The California Rules of Professional Conduct explicitly prohibit the threat of criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute.5 Significantly, the use of "civil dispute" indicates the rule is applicable prior to the formal filing of a civil action.6 A strict reading of the rule may lead to the conclusion that other threats are fair game. However, this is not the end of the story.
As the State Bar Act makes clear, attorneys are obligated to uphold their duty to advance no fact prejudicial to the honor or reputation of a party or witness, unless required by the justice of the cause with which he or she is charged,7 and not to encourage the commencement of an action from any corrupt motive of passion or interest.8 The State Bar provides additional guidance in the California Attorney Guidelines of Civility and Professionalism. Section 18 states: “[a]n attorney should negotiate and conclude written agreements in a cooperative manner and with the informed authority of the client.”9 As illustrative examples, the State Bar provides that an attorney should avoid tactics that that are abusive, that are not made in good faith, that threaten inappropriate legal action, that are not true, or that are intended solely to gain an unfair advantage or take unfair advantage of a superior bargaining position.10
Obviously, criminal conduct, such as extortion, falls outside the bounds of the law and is a breach of our ethical duties. The crime of extortion by threatening letter requires: (1) defendant sent or delivered a threatening letter or writing to another person, (2) defendant intended to use fear to obtain money or property with the other person’s consent,11 and (3) in the writing, the defendant threatened to (a) injure unlawfully the person or property of the victim, (b) accuse the victim of a crime, or (c) expose a secret12 about the victim, or connect the victim or the victim’s family with a “disgrace, crime, or deformity.13 The threat can be directly stated in the writing, or can be implied by the contents of the writing and the surrounding circumstances, or can be intended by the sender to be understood as a threat by the recipient.14
Attorneys are apt to point out that the litigation privilege may provide safe harbor in the civil context for pre-litigation demand letters.15 This is true to a limited extent. The litigation privilege generally applies to "any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action."16
The California Supreme Court addressed the application of the litigation privilege in the context of pre-litigation demand letters amounting to extortion in Flatley v. Mauro.17 In this case, Mauro wrote to Flatley threatening to sue him for allegedly raping Mauro’s client, to report him to the police, and to release information to the press if Flatley did not pay a million dollar demand. In rejecting Mauro’s defense based on the litigation privilege, the court held that Mauro’s actions constituted criminal extortion because his conversations with plaintiff’s lawyers consisted of an “immediate and extensive threat of exposure if Flatley failed to make a sufficient offer of money.”18 The Flatley court emphasized that its holding was based on the particular extreme facts of the instant case and acknowledged that demand letters are generally given wide latitude.19 At the same time, however, other courts have held that tangential and gratuitous threats not relating to the litigation contained therein are not protected by the litigation privilege.20
Accordingly, the divide between legitimate negotiation and actionable extortion is not delineated by a bright-line rule. Nonetheless, attorneys must make sure that pre-litigation demand letters do not include threats that may unnecessarily harm a person’s reputation or expose a secret that would compel any payment of money. Further, attorneys must ensure that demand letters are limited to addressing the prospective litigation at hand. Failure to do so may subject the attorney to State Bar discipline, criminal prosecution, and civil liability.
1 People v. McKenzie, 34 Cal. 3d 616, 631 (1983).
2 See Flatley v. Mauro, 39 Cal. 4th 299 (2006).
3 See People v. Reiner (Cal. App. 2d 2004) 2004 WL 1171507. This involved the highly publicized scheme to extort money from attorney Ed Masry and Erin Brockovich by her former boyfriend, threatening to disclose the false story that Masry had had an affair with his celebrated investigator.
4 Attorneys have the utmost duty to maintain “inviolate” the confidence and “at every peril to himself or herself” to preserve the client’s secrets. See Business and Professions Code §6068(e). In the context of client-versus-lawyer litigation such as fee disputes or legal malpractice, Evidence Code §958 provides a limited exception that permits attorneys to disclose attorney-client communications with a client or former client when the communication is “relevant to an issue of breach, by the lawyer or by the client, of a duty arising out of the lawyer-client relationship.” However, a lawyer who discloses confidential information not bearing on the issues of breach in the attorney-client litigation is subject to discipline. See Los Angeles County Bar Ass'n, Prof'l Responsibility & Ethics Comm., Formal Op. No. 519, “Whether There is a Self-Defense Exception to an Attorney’s Duty to Protect and Preserve Confidential Client Information in Order to Permit the Attorney to Defend Against Third Party Claims,” endnote 11, citing Dixon v. State Bar, 728 (1982) (In response to a client filing suit to enjoin an attorney from harassing her, the attorney filed a declaration, which included gratuitous and embarrassing information about the client that “was irrelevant to any issues then pending before the court” and was found by the State Bar Court to have been made for the purpose of “harassing and embarrassing" the former client.) The threat to disclose the client’s secrets—unrelated to the dispute at hand—would likely be viewed as unethical, to be sure, and quite probably extortionate.
5 See Cal. R. of Prof'l Conduct R. 5-100(a).
6 See Cal. R. of Prof'l Conduct, Rule 5-100, Discussion.
7 Bus. & Prof. Code §6068(f).
8 Bus. & Prof. Code §6068(g).
9 See Cal. Atty. Guidelines of Civility and Professionalism, Section 18.
11 Pen. Code §518; see also People v. Goodman, 159 Cal. App. 2d 54, 60 (1958) (“To constitute extortion the victim must consent, albeit it is a coerced and unwilling consent, to surrender of his property; the wrongful use of force or fear must be the operating or controlling cause compelling the victim's consent to surrender the thing to the extortionist.”)
12 See Cal. Crim. Jury Instruction, No. 1831. (“A secret is a fact that is unknown to the general public or to someone who might be interested in knowing the fact; and harms the threatened person so greatly that he or she would be likely to give the Defendant money or property to prevent the fact from being revealed.”)
13 Pen. Code §523; Cal. Crim. Jury Instruction, No. 1831.
15 Civ. Code §47(2).
16 Silberg v. Anderson, 50 Cal. 3d 205, 212 (1990); Susan A. v. County of Sonoma, 2 Cal. App. 4th 88, 93 (1991).
17 See Flatley v. Mauro, 39 Cal. 4th 299, 326 (2006) (Civil extortion requires the proof of the same elements as criminal extortion.)
18 Id. at 332, fn. 16.
20 See, e.g., Nguyen v. Proton Technology Corp., 69 Cal. App. 4th 140, 143-44 (1999) (allegations in demand letter that were “extraneous” to litigation dispute were not covered by the litigation privilege); see also Monex Deposit Co. v. Gilliam (S.D. Cal. 2010) 680 F. Supp. 2d 1148, 1157 (Federal court applying California law granted summary judgment to plaintiff and found that a letter contained extortionate threats. The letter threatened (1) “that various governmental agencies and news outlets would be notified of 'the criminal activities perpetrated daily by [Plaintiff],'” and (2) “threatened to expose [Plaintiff’s] secrets.” Though the threat suggested that defendant would file a lawsuit against the plaintiff, the court found that the defendant neither had the capacity nor the intent to bring suit. As such, the threat was extortionate rather than pre-litigation negotiation covered by the litigation privilege.)