Lawyers’ Risk Management Newsletter, May 2022 – Clyde & Co | Region & Cash

In this article, we look at when a threat contained in a claim is not a legitimate negotiation tactic and instead becomes extortion and/or professional misconduct.

When does a threat within a claim become extortion or professional misconduct?

The recent Opinion of the California Fourth Circuit Court of Appeals in Falcon Brands, Inc. v Mousavi & Lee, LLP, No. G059477, 2022 WL 246851 (Cal. Ct. App. 27 Jan 2022) addressed this topic. This matter arose out of the termination of Amy Mousavi’s client Nick Honard by Falcon Brands, Inc. and Coastal Harvest II, LLC (collectively Falcon), a cannabis distributor. On October 8, 2019, Mousavi emailed Falcon’s attorney a letter that summarized Honard’s labor claims and then listed 11 alleged illegal activities by Falcon, including violations of California labor laws or Bureau of Cannabis regulations Control (“BCC”) , as well as alleged bribery of an assistant district attorney.

Mousavi then offered to settle Honard’s $490,000 in debt. She requested a response to her request by the next day, or she would file a complaint and notify Falcon’s proposed merger partner, Harvest Health and Recreation, Inc. (Harvest), of the complaint against Falcon, which would matter because Harvest would remain liable as a surviving corporation after a merger.

After Falcon’s attorney responded, Mousavi again stated in an email and phone call on Oct. 9 that she would notify Harvest of Honard’s allegations and Falcon’s violation of various cannabis laws and regulations before filing the complaint.

On Friday, October 11, Mousavi sent another email to Falcon’s attorney: “I hired the attorneys [Harvest] upon notification of Mr. Honard’s claim for wages, without disclosing other issues mentioned in my letter of October 8, 2019. However, Harvest has asked me to forward the letters of formal notice I sent you. I plan to email these letters on Tuesday. Please call me if you have any questions. Many Thanks.”

The parties could not reach an agreement. On January 31, 2020, Mousavi Honards filed a complaint against Falcon. The complaint alleged that Falcon was involved in certain illegal activities, but he has not linked those actions to his wrongful termination or non-payment of his commissions, salaries or expenses.

Falcon filed a countersuit against Mousavi and her law firm, Mousavi & Lee, LLP, alleging, among other things, civil racketeering based on Mousavi’s threat to report Falcon’s alleged criminal activity to Harvest unless Falcon paid $490,000 to settle Honard’s claims to settle against them. The trial court granted Mousavi’s strike request.

On appeal, the Fourth Circuit found that the Oct. 8 email “standing alone” did not cross the line by citing violations of state law in its claim. The court found the email was a “conclusion.”[] Call when considered by itself”; It contained an implied threat, listing Falcon’s crimes but not linking them to their settlement demands.

The court then examined the October 8 email along with the October 11 email in which Mousavi informed Flacon’s attorney that she informed Harvest of Honard’s claims without disclosing “other issues” raised in the email. Mail dated October 8th.

The court found that the October 11 email clearly crossed the line by demanding a settlement based on the threat to charge Falcon with a crime (e.g., bribing an assistant district attorney). Pen. Code, §§ 518, 519(a). “The implication is clear: settle the case now or Harvest will become aware of Falcon’s alleged criminal misconduct next week.” exceeded the limits of the defendant’s representation [her] Client” (internal quotation marks and citation omitted). The court allowed the charge of racketeering.

The question of the ethical admissibility of threats in negotiations was first addressed in the ABA Model Code: “An attorney shall not bring, participate in the bringing of, or threaten to bring, a criminal complaint solely for the sole purpose of gaining an advantage in a civil matter.” This rule was not retained when the ABA Model Rules were passed in 1983, as it was deemed superfluous in light of ABA Model Rules 3.1, 4.1, 4.4 and 8.4(b) through (e). ABA Formal Op. 92-363 (1992) explained the intentional omission by the authors in light of the other model rule provisions listed above.

Many states still have a variation of this language in their version of Model Rule 3.4, 4.4, 8.4, or some other rule. See CT Rule 3.4(7); DC Rule 8.4(g); FL rule 4-3.4(g); GA Rule 3.4(h); HI Rule 3.4(i); ID Rule 4.4(a)(4); IL rule 8.4(g); KY Rule 3.4(f); LA Rule 8.4(g); MA rule 3.4(h); NJ Rule 3.4(g); NY Rule 3.4(e); OR Rule 3.4(g); TN Rule 4.4(a)(2); TX Rule 4.04(b); VA Rule 3.4(i).

States that have not specifically prohibited such behavior are likely to follow the guidance of ABA Formal Opinion 92-363 and find that any threat is still impermissible because it violates other rules, such as “fairness”) or Model Rule 8.4( b) (prohibition of criminal acts) if the threat amounts to a crime of coercion, extortion or association. See NC Op. 3 (2005).

Those jurisdictions that allow attorneys to combine settlement claims with threats to bring a well-founded administrative complaint or criminal complaint require such an auxiliary process tied together to the civil lawsuit. ABA Formal Op. 92-363 (1992); see also NY City 2017-3 (2017) (threat to report to administrative authority); AK Op. 97-2 (1997); MI Op. RI-78 (1991); to compare IL Op. 20-03 (2003) (allowed for discussion probability liability, both civil and criminal, but undue threat or prosecution can be averted by dealing with the matter).

Otherwise, it is generally unacceptable to threaten anyone with disclosure of illegal or otherwise embarrassing information outside of a potential legal proceeding. See generally Flatley v. mauro, 39 Cal. 4. 299 (2006); united states vs avenatti, No. S119CR373PGG, 2020 WL 70951 (SDNY January 6, 2020).

For this purpose, the threat of litigation is not inherently illegal unless the threatened action is based on willful falsehoods or a frivolous allegation, or the attorney knows that under no circumstances will the client sue. state vs cohen, 302 Ga. 616 (2017) (threatening to file a sexual harassment lawsuit and using video footage as evidence in that lawsuit if the threatened lawsuit was not illegal); jeffcoat vs foreman, No. 1:15-CV-00456-CL, 2016 WL 3468964, at *4 (D. Or. 29. Apr. 2016) (cease and desist letters with threats of civil claims were “customary and desirable” because “[t]They facilitate out-of-court dispute resolution”); NYSBA 1228 (2021) (the threat of filing a lawsuit that the attorney knew the client would never file would result in a false statement of fact).

In order to determine whether an improper threat has been made, the courts and disciplinary commissions will examine both the content and the context of the request for a hearing – since extortion is usually conveyed through innuendos or insinuations. However, jurisdictions vary as to whether an attorney must bring charges of specific criminal conduct or whether a general charge will suffice. Comparisons Regarding Pelkey, 962 A.2d 268, 276 n.9 (DC 2008) (references to “a violation of the California Penal Code” and to “invok[ing] all state investigative tools available to us” was “sufficiently vague”), With NY Eth. Op. 772 (2003) (no distinction between general or specific allegation as the purpose of coercion is clear).

Because of this jurisprudence and differing provisions of professional codes and ethics reports, attorneys must comply with the laws and regulations in their jurisdiction and should use such negotiation tactics with caution and economy. In addition to the ethical and criminal risks discussed here, attorneys should also consider that threats often damage the relationship with opposing counsel, jeopardize the credibility of the litigant if not followed, and indeed can have the unintended consequence of being signal weakness to clients.


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