When Does a Lawyer’s Demand Letter Become Extortion in Washington?
The recent news involving the arrest and criminal charges against celebrity attorney Michael Avenatti, for what federal prosecutors say are for attempted extortion of retail giant Nike, bring to light a very serious and practical issue facing attorneys in settlement negotiations. Attorneys are expected to be zealous advocates of their client’s cases, but there are serious pitfalls for attorneys that take zealous advocacy too far – either for their clients or for themselves. In the case of Michael Avenatti, he and his client allegedly requested $22.5 Million in exchange for not releasing damaging evidence that Nike employees had funneled money to student college athlete recruits in violation of N.C.A.A. rules. The timing of the threats was designed to damage Nike’s reputation and market capitalization had the company not agreed to Mr. Avenatti’s demands.
The Federal Criminal Counts brought against Michael Avenatti and a Co-Conspirator include Conspiracy to Transmit Interstate Communications with Intent to Extort in violation of Title 18 USC, Section 875(d), Conspiracy to Commit Extortion Title 18 USC, Section 1951(b)(3) , and Extortion, Title 18 USC 1951 (b)(3).
In almost two decades of law practice, I have seen these issues arise, and have advised both my own clients and other attorneys seeking advice on navigating the issues related to aggressive and over-aggressive settlement demands. The Avenatti case presents a cautionary tale and raises several specific legal issues of which attorneys should be mindful and approach with care. Although Avenatti has been accused of a number of other crimes in separate complaints brought by Federal prosecutors, one in the Central District of California and the other in the Southern District of New York, this this article will only focus on the latter case, and specifically the extortion claims made against the California attorney relating to his settlement demands made against Nike.
The Relevant Law
It is expected that lawyers are zealous advocates for their clients; but the law does set limits on zealous advocacy. Those limits are found in a combination of places: criminal statutes, case law, and the rules of professional conduct. But the law is not uniform with regard to how these issues are handled, either at the federal level or from state to state.
Federal courts generally don’t considerer any litigation to be extortionate, See. Sosa v. DirectTV, Inc., 437 F.3d 923, 939-940 (9th Cir. 2005), and United States v. Pendergraft, 297 F.3d 1198, 1208 (11th Cir. 2002), but this is not always the case in state courts, where courts have been more receptive to the idea of criminalizing improper demand letters. (It should be noted that much of the communication between Mr. Avenatti and Nike was either over the telephone or during in person meetings). California in particular has had a number of high-profile cases involving where the line is crossed regarding demand letters that become cross the line. In California, the most important distinction identified in their courts seems to be between demand letters threating to file a civil action (which is deed to be proper), and those demand letters threating to file a criminal complaint (which are often deemed to be improper). See. Flatley v. Mauro, 39 C. 4th 299 (2006); Malin v. Singer, 217 Cal. App. 4th 1283 (2013). Much of this litigation takes place in the context of Anti-SLAPP litigation, which is beyond the scope of this article, but the boundaries between threatening to file criminal charges or setting in motion an investigation (in exchange for settlement funds) does illustrate the bright lines and not-so-bright-lines of that a lawyer may be crossing. Washington does not have any specific case law on this point, but there is clearly legal authority that is relevant on this point, namely criminal statutes and rules of professional responsibility.
Potential Criminal Liability
In Washington RCW 9A.56.110 defines “Extortion” as “knowingly to obtain or attempt to obtain by threat property or services of the owner…”; RCW 9A.56.120 (Extortion in the First Degree), occurs if a person commits extortion by means of a threat as defined in RCW 9A.04.110 (27)(a), (b), or (c). RCW 9A.56.130 (Extortion in the Second Degree), occurs if the individual “commits extortion by means of a wrongful threat as defined in RCW 9A.04.110 (28) (d) through (j).” The Washington Legislature revised the statue for Second Degree Extortion in 2002 in response to State v. Pauling, 108 Wn. App. 445 (2001), by adding a requirement that the threat required for conviction be “wrongful.” A summarization of various “threats” that give rise to potential criminal liability include:
- To accuse any person of a crime or cause criminal charges to be instituted against them.
- To expose a secret or publicize an asserted fact, whether true or false, tending to subject any person to hatred, contempt, or ridicule.
- To reveal any information sought to be concealed by the person threatened.
- To testify or provide information or withhold testimony or information with respect to another’s legal claim or defense.
- To do any other act with is intended to harm substantially the person threatened or another with respect to his or her health, safety, business, financial condition, or personal relationships.
All of these various above listed threats could easily find themselves in the contents of a civil demand letter; and when coupled with a settlement demand, these could easily find their way into crossing the line into extortion. A settlement demand can easily be found to be a “pecuniary benefit” (i.e. “any gain or advantage in the form of money, property, commercial interest, or anything else the primary significance of which is economic gain.”), but coupled with improper threats can become something much different.
In zealously advocating for clients, attorneys are also expected to avoid bringing or defending frivolous claims and defenses. See. RPC 3.1. Although an “advocate has a duty to use legal procedure for the fullest benefit of the client’s cause, [they also have] a duty not to abuse legal procedure.” (Comment 1 to RPC 3.1.) It is considered professional misconduct for an attorney to “commit a criminal act that reflects adversely on the lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects” RPC 8.4 (d), and “engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.” RPC 4.8 (e). It could be found to be misconduct for an attorney to violate relevant Washington criminal statutes in the pursuit of a client’s claim (such as Extortion as noted above). But even short of violating criminal law, our adversarial system there is an expectation of fairness to the opposing party and general guidelines for that conduct. See. RCP 3.4. Attorneys are also expected to respect the rights of third persons, avoiding “means that have not substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate [their] legal rights…” RPC 4.4. As a result, an attorney should take reasonable care to in preparing demand letters and other settlement communications. As much as clients often relish strongly worded demand letters that castigate and embarrass the opposing party (or their attorney); the lawyer should take a longer view than just the dispute at hand.
Questionable Effectiveness as Negotiation Tactic
Finally, there is the issue of effectiveness. Being zealous also requires an eye toward effectiveness, of seeking the best outcome for the client; and a well written demand letter (or response) can often bring a matter to an acceptable conclusion without litigation. This is one of the valuable and proper purposes of a pre-litigation demand letter. It is common for me to advise clients to only make demands; and communicate consequences that they are ready, able, and willing to carry out if the demand is not complied with. It is very easy in the heat of a conflict to make what are effectively empty threats; the downside being that once a stated threat is not followed through on, the advocate’s negotiating leverage and effectiveness diminishes rapidly. There are appropriate times to bluff, but those times are present far less often than many rely on them. Integrity and trustworthiness of an advocate, even among adversaries (maybe even more so among adversaries), is a powerful negotiation tool. When an attorney crosses a legal or professional line in advocating for and representing their client, there is a real danger that this will create an opportunity for the opposing party to “flip the script” on the that attorney and derail their negotiations, because the attorney is forced to respond to the problem that they have themselves created. This is clearly what happened in the Michael Avenatti case with regard to Nike, where Nike turned Mr. Avenatti’s threats against them into a case against him. Their response was clear “Nike will not be extorted” [Cite]. Although this case illustrates the issue of settlement demands in civil cases going too far on a national level; the principles and issues presented in this case appear in everyday lawyering. Over-aggressive lawyering is not zealous advocacy for a client.
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