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Crossing the Line: Zealous Advocacy or Extortion? (Nov. 14, 2014)

In any dispute, there’s a fine line between zealous advocacy and extortion. Zealous advocacy is kosher, extortion illegal. You may want to know the difference.

California defines extortion as “the obtaining of property from another, with his consent, . . . induced by a wrongful use of force or fear.” Penal Code § 518. It may be based on, among other things, a threat “either” to accuse someone of a crime “or” to expose or impute to him any “deformity, disgrace, or crime.” Id. § 519(2), (3). A demand letter—a letter threatening someone with a lawsuit unless he or she agrees to pay money or take action to settle a dispute—may serve as a basis for extortion. The letter need not “express” an extortionate threat but may nearly “imply” or be “adapted to imply” it. Id. § 523.

But you don’t have to guess at what may or may not constitute extortion. The following cases offer guidance on how not to cross the line from zealous advocacy to extortion.

Flatley

The foundational case here is Flatley v. Mauro, 39 Cal. 4th 299 (2006), in which an Irish dancer, Flatley, sued an attorney, Mauro, for extortion (among other claims) based on a demand letter that Mauro sent Flatley on behalf of a woman accusing Flatley of rape. In the letter, Mauro threatened Flatley with the disclosure of unspecified violations of immigration and tax law, as well as violations of the Social Security Act. In later phone calls, Mauro demanded a settlement payment of at least $1 million.

The trial court allowed Flatley’s civil extortion claim to proceed, and the appeals court affirmed. The California Supreme Court likewise affirmed, holding that the letter and phone calls constituted “criminal extortion as a matter of law” because they “threatened to ‘accuse’ Flatley of, or ‘impute to him,’ ‘crime[s]’ and ‘disgrace’ unless Flatley paid Mauro a minimum of $1 million of which Mauro was to receive 40 percent.” Id. at 330 (quoting Penal Code § 519(2), (3)). In other words, Mauro’s threats against Flatley crossed the line from zealous advocacy to extortion.

Notably, the high court in Flatley recognized that “the crime with which the extortionist threatens his or her victim need not be a specific crime.” Id. at 327. Instead, “the accusations need only be such as to put the intended victim of the extortion in fear of being accused of some crime.” Id. (internal quotation marks and brackets omitted; emphasis added). A demand letter may therefore be extortionate even if its accusations are vague and indirect. As the high court explained in Flatley, the “very vagueness” of accusations “serves the dual purpose of magnifying the fear” of a victim and “protecting the extortionist in the event of the failure to accomplish his extortion.” Id. at 331 (internal quotations marks, brackets, and ellipsis omitted).

Flatley also emphasized that what made Mauro’s threat extortionate was that it coupled a demand for a settlement payment with a threat “to disclose criminal activity entirely unrelated to any alleged injury suffered by Mauro’s client.” Id. at 330 (emphasis added). According to the high court, the disconnect between extraneous allegations of criminal activity and the alleged injury “exceeded the limits” of zealous advocacy and was “itself evidence of extortion.” Id. at 330–31 (internal quotation marks omitted).

Flatley further emphasized, albeit in a footnote and as dictum, that its analysis was “based on the specific and extreme circumstances” of that case. Id. at 332 n.16. That is, the “opinion should not be read to imply that rude, aggressive, or even belligerent prelitigation negotiations, whether verbal or written, that may include threats to file a lawsuit, report criminal behavior to authorities or publicize allegations of wrongdoing, necessarily constitute extortion.” Id. (emphasis added). Notwithstanding this caution, the California Court of Appeal has largely, though not invariably, extended Flatley to find extortion under less egregious circumstances.

Mendoza

It did so in Mendoza v. Hamzeh, 215 Cal. App. 4th 799, 806 (2013). There, Mendoza sued Hamzeh, an attorney, for civil extortion (among other claims) based on a demand letter that Hamzeh sent him on behalf of Mendoza’s former employer. The letter explicitly threatened that, if Mendoza did not pay damages exceeding $75,000, Hamzeh and his client would report Mendoza’s alleged fraud and conversion to relevant authorities: “‘If your client does not agree to cooperate with our investigation and provide us with a repayment of such damages caused, we will be forced to proceed with filing a legal action against him, as well as reporting him to the California Attorney General, the Los Angeles District Attorney, [and] the Internal Revenue Service regarding tax fraud.’” Id. at 802 (quoting demand letter) (emphasis added). For that reason, the trial court held that the letter was extortionate. The appeals court agreed, repeatedly emphasizing that Hamzeh had threatened to report Mendoza to authorities. Id. at 806–07.

Mendoza read Flatley to suggest that the mere insinuation of a crime, when coupled with a demand for money, may be enough to constitute extortion. See id. 806. Mendoza recognized that “the attorney’s conduct in Flatley was more egregious than Hamzeh’s conduct, in terms of nature and number of threats.” But Mendoza held, essentially, that there is no egregiousness threshold for extortion: “Regardless of whether the threat in Hamzeh’s demand letter may be characterized as particularly extreme or egregious, it still constitutes criminal extortion as a matter of law.” Id. at 806–07. According to the court, “[t]he rule must be a bright line rule.” Id. at 807. In other words, extortion is extortion—regardless whether it is egregious or not.

Malin

The court took a narrower view of extortion in Malin v. Singer, 217 Cal. App. 4th 1283 (2013). There, Malin and others co-owned a company that ran nightclubs. Singer, counsel for a co-owner named Arazm, sent Malin a demand letter and draft complaint alleging that Malin had misappropriated company assets, including by arranging sexual liaisons with older men (which included a judge whose photo was included with the demand letter). Malin sued Singer and Arazm for civil extortion (among other claims).

The trial court allowed the civil extortion claim to proceed, but the appeals court reserved in relevant part, holding that the letter and complaint were not extortionate because they set forth a closer, more logical connection between Malin’s alleged criminal activity and Arazm’s alleged injury from embezzlement. Id. at 1288. The court held that this was a significant “problem” in Malin’s extortion argument:

[T]he “secret” that would allegedly expose [Malin] and others to disgrace was inextricably tied to Arazm’s pending complaint. The demand letter accused Malin of embezzling money and simply informed him that Arazm knew how he had spent those funds. There is no doubt the demand letter could have appropriately noted that the filing of the complaint would disclose Malin had spent stolen monies on a car or a villa, if that had been the case. The fact that the funds were allegedly used for a more provocative purpose does not make the threatened disclosure of that purpose during litigation extortion. We cannot conclude that the exposure of Malin’s alleged activities would subject him to any more disgrace than the claim that he was an embezzler.

Id. at 1299 (emphasis added).

Not surprisingly, Malin read Flatley narrowly, as holding that a demand letter is extortionate only if it is “extreme” and makes “express threats.” Id. Thus, some tension exists between Malin and the Mendoza case above.

Stenehjem

More recently, the appeals court considered extortion again in Stenehjem v. Sareen, 226 Cal. App. 4th 1405, 1423 (2014). In that case, Stenehjem sued his former boss, Sareen, for wrongful termination and various other claims. The wrongful termination claim was based on allegations that Sareen had “engaged in illegal tax and duty evasion, fraud, and submitting of false records to the government”; that Stenehjem had protested the conduct; and that Stenehjem’s termination “was motivated by his opposition to [the] illegal practices.” Id. at 1411 (internal quotation marks omitted).

Sareen filed a cross-complaint alleging that Stenehjem, while representing himself, made a threat by email to file a criminal complaint against Sareen unless he paid Stenehjem money to settle his claims. The email alluded to accounting documents created by Stenehjem at Sareen’s behest and referred to potential involvement by the U.S. Attorney General, Department of Justice, and Department of Defense. The trial court held that the email was not extortionate.

The appeals court reversed, holding that “Stenehjem’s prelitigation e-mail demand, when considered in the context in which the demand was made[,] constituted extortion as a matter of law.” Id. at 1410. There are several important takeaways from Stenehjem.

First, Stenehjem held that context matters in determining whether a threat is extortionate. Although Stenehjem’s email did not itself include a money demand, the court read the email within the context of earlier and later demands for money in ongoing prelitigation negotiations: “It is important to consider the context under which the e-mail was sent. This backdrop included Stenehjem’s initial settlement demand through counsel of $675,000.” Id. at 1421 (emphases added). Indeed, the court was perfectly willing to interpret vagueness in Stenehjem’s email as evidence of its extortionate nature. See id. at 1422, 1425.

Second, although Stenehjem pointed out that Stenehjem’s threats expressly “raised the possibility of involving federal authorities,” it also emphasized that “the alleged criminal activity that Stenehjem threatened to expose . . . was entirely unrelated to any alleged injury suffered by Stenehjem as alleged in his defamation and wrongful termination claims.” Id. at 1423 (internal quotation marks omitted). This may well have been a bridge too far, given that Stenehjem in fact based his wrongful termination claim on his alleged resistance to criminal activity. In any event, Stenehjem reiterated Flatley’s emphasis on the disconnect between the alleged criminal activity and the alleged injury.

Third, Stenehjem again underscored the point that a threat may be extortionate even if it does not explicitly threaten to disclose criminal activity to relevant authorities: “The absence of . . . an express threat . . . does not negate its fundamental nature as an extortionate writing.” Id. at 1424 (emphasis added). The court explained: “The fact that Stenehjem’s e-mail may have been less than explicit—in that it did not contain conditional language such as, ‘Unless Sareen pays me for my claims, I will report him to the federal authorities for violations of the federal False Claims Act’—does not make its character any less illegal.” Id. After all, the court acknowledged, “[t]hreats can be made by innuendo[.]” Id. The court correctly noted:

It is not necessary that a threat should be apparent from the face of the letter, nor even necessary that it should be implied therefrom. [The Penal Code] says if the language used is adapted to imply a threat, then the writing is sufficient. Parties guilty of the offense here alleged seldom possess the hardihood to speak out boldly and plainly, but deal in mysterious and ambiguous phrases . . . .

Id. (internal quotation marks omitted; emphasis added).

The Bottom Line

Although Mendoza and Stenehjem take a broad view of extortion, and Malin a narrower one, they all generally follow Flatley. Given Flatley and its progeny, you should exercise caution when sending a demand letter. Avoid extraneous accusations that are unrelated to the claims at issue in your dispute. And, by all means, do not couple a demand for money with a threat to report unrelated conduct to authorities. If you do, you may well cross the line from zealous advocacy to extortion.

I have made this blog available for educational purposes only, not to provide specific legal advice. By using this blog, you understand that there is no attorney–client relationship between you and me. This blog should not be used as a substitute for independent legal advice from a licensed professional attorney in your state.