Legal Ethics
Professional Malpractice
Attorneys
Litigation
Privilege
Anti-SLAPP Law
Illegal Attempts to Force
into Settling
Extortion
“Flatley
Rule.”
California Law
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.
Falcon
Brands, Inc. and Coastal Harvest II, LLC (collectively Falcon) appeal here from
an order granting respondent’s special motion to strike both causes of action
in Falcon’s cross-complaint pursuant to Code of Civil Procedure section 425.16
(the anti-SLAPP law). The cross-complaint alleges extortion and intentional
interference with a contract against attorney Amy Mousavi and her law firm,
Mousavi & Lee, LLP (collectively Mousavi). Falcon argues Mousavi’s e-mail
settlement demands, described in detail below, which are the focus of Falcon’s
cross-complaint, were not entitled to protection under the anti-SLAPP law
because they constituted illegal attempts to force Falcon into settling the
underlying matter. The trial court rejected this argument and granted Mousavi’s
anti-SLAPP motion.
We
reverse as to the first cause of action for extortion because we conclude
Mousavi’s e-mail settlement demands, when considered in context, were not
protected speech in light of the Supreme Court’s ruling in Flatley v. Mauro (2006)
39 Cal.4th 299 (Flatley). Rather, Mousavi’s escalating series of threats
ultimately transformed what had been legitimate demands into something else:
extortion. We therefore conclude Falcon’s first cause of action is not
protected by the anti-SLAPP law as a result of the well-established “Flatley
rule.”
We
affirm as to the second cause of action, intentional interference with a
contract. That cause of action arises out of Mousavi’s actual revelation of
damaging information about Falcon to Falcon’s merger partner. Falcon does not
contend the revelations were illegal as a matter of law. The revelations were
made in furtherance of Mousavi’s contemplated litigation. The trial court
correctly concluded the revelations were protected by the litigation privilege.
Consequently, they are also protected by the anti-SLAPP statute.
(…) The parties failed to reach a settlement;
Mousavi thereafter sent Harvest copies of the various settlement demands she
had made to Falcon. Harvest subsequently sued to rescind its merger agreement
with Falcon, apparently based on the claims of illegal conduct it received from
Mousavi.
(…) While Honard did allege in his complaint that
Falcon engaged in specific illegal activities,
he
did not affirmatively link those acts to either his wrongful termination
or the non-payment of his commissions, salary, or expenses.
(…) Mousavi moved to strike the cross-complaint
pursuant to the anti-SLAPP law. In support of the motion, Mousavi declared
that, after she learned Falcon was involved in a merger with Harvest, she had a
good faith reason to inform Harvest about Honard’s claims against Falcon
because the Corporations Code states the surviving corporation in a merger
remains liable for any judgment entered against the disappearing corporation.
(Corp. Code, § 1108.) She denied threatening to report Falcon to the Bureau of
Cannabis Control, to other law enforcement agencies, or to the media.
The Anti-SLAPP Law
We begin our analysis with another
quote from Flatley: “Our 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.” (Flatley, supra, 39 Cal.4th at p. 332, fn. 16.) We concur in
this observation. The presence or absence of extortion necessarily depends on
the facts in a particular case. Having said that, we turn to the difficult
issue presented here.
The anti-SLAPP law provides a summary mechanism to test the
merit of any claim arising out of a defendant’s protected speech or petitioning
activities. The law authorizes courts to strike any cause of action which falls
within the statute’s purview, if the plaintiff cannot demonstrate a probability
of prevailing on it. (Code Civ. Proc.,
§ 425.16.) “Attempting to protect against ‘lawsuits brought primarily to chill’
the exercise of speech and petition rights, the Legislature embedded context
into the statutory preamble, ‘declaring that it is in the public interest to encourage
continued participation in matters of public significance.’” (FilmOn.com
Inc. v. DoubleVerify Inc. (2019) 7
Cal.5th 133, 143 (FilmOn.com).)
“Because
our ‘primary goal is to determine and give effect to the underlying purpose of’
the anti-SLAPP statute,” we will “liberally extend the protection of the
anti-SLAPP statute where doing so would ‘encourage continued participation in
matters of public significance,’ but withhold that protection otherwise.” (FilmOn.com,
supra, 7 Cal.5th at p. 154.)
When a party moves to strike a complaint on the basis of the
anti-SLAPP law, the trial court must engage in a two-step process. “First, the
court decides whether the defendant has made a threshold showing that the
challenged cause of action is one arising from protected activity. The moving
defendant’s burden is to demonstrate that the act or acts of which the
plaintiff complains were taken ‘in furtherance of the defendant’s right of
petition or free speech under the United States or California Constitution in
connection with a public issue,’ as defined in the statute.” (Equilon
Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67 (Equilon).)
If the court finds the defendant has made that required
showing, the burden shifts to the plaintiff to demonstrate “there is a
probability that the plaintiff will prevail on the claim.” (Code Civ. Proc., §
425.16, subd. (b)(1); DuPont Merck Pharmaceutical Co. v. Superior Court (2000)
78 Cal.App.4th 562, 567-568.)
“An order granting or denying a special motion to strike
shall be
appealable . . . .” (Code Civ. Proc., § 425.16, subd. (i).) We review either
ruling on a de novo basis. (ComputerXpress, Inc. v. Jackson (2001) 93
Cal.App.4th 993, 999 [“Whether section 425.16 applies and whether the plaintiff
has shown a probability of prevailing are both reviewed independently on
appeal”].) “While we are required to construe the statute broadly, we must also
adhere to its express words and remain mindful of its purpose.” (Paul v.
Friedman (2002) 95 Cal.App.4th 853, 864, fn. omitted.)
The Protected Activity Prong
A cross-defendant who files an
anti-SLAPP motion to strike bears the initial burden of demonstrating that the
challenged cause of action arises from protected activity. (Equilon, supra,
29 Cal.4th at p. 67.) “In deciding whether the ‘arising from’ requirement is
met, a court considers ‘the pleadings, and supporting and opposing affidavits
stating the facts upon which the liability or defense is based.’” (City of
Cotati v. Cashman (2002) 29 Cal.4th 69, 79.)
In Flatley, the Supreme Court created an addendum to
the standard anti-SLAPP analysis. We believe application of the so-called “Flatley
rule” is dispositive here. Because the facts in Flatley bear such a
remarkable similarity to those now before us, we quote liberally from the
Supreme Court’s opinion:
“Plaintiff Michael Flatley, a well-known entertainer, sued
defendant
D. Dean Mauro, an attorney, for civil extortion, intentional infliction of
emotional distress and wrongful interference with economic advantage. Flatley’s
action was based on a demand letter Mauro sent to Flatley on behalf of Tyna
Marie Robertson, a woman who claimed that Flatley had raped her, and on
subsequent telephone calls Mauro made to Flatley’s attorneys, demanding a seven-figure
payment to settle Robertson’s claims. Mauro filed a motion to strike Flatley’s
complaint under the anti-SLAPP statute.
[Fn. omitted.] . . . The Court of Appeal held that, because Mauro’s letter and
subsequent telephone calls constituted criminal extortion as a matter of law,
and extortionate speech is not constitutionally protected, the anti-SLAPP
statute did not apply.” (Flatley, supra, 39 Cal.4th at p. 305.)
The Supreme Court affirmed the judgment of the Court of
Appeal: “We conclude that, consistent with the legislative intent underlying
the anti-SLAPP statute as revealed by the statutory language, and consistent
with our existing anti-SLAPP jurisprudence, a defendant whose assertedly
protected speech or petitioning activity was illegal as a matter of law, and
therefore unprotected by constitutional guarantees of free speech and petition,
cannot use the anti-SLAPP statute to strike the plaintiff’s complaint.” (Flatley,
supra, 39 Cal.4th at p. 305.)
Mousavi
argued in the trial court that Flatley is distinguishable despite the
fact that, much like in Flatley, Falcon sued Mousavi for extortion and
intentional interference with a contract based on the content of a series of
increasingly strident demand letters it received from her. Mousavi echoes the
argument made by counsel in Flatley that her demands “amounted to no
more than the kind of permissible settlement negotiations that are attendant
upon any legal dispute . . . .” (Flatley, supra, 39 Cal.4th at p. 328.)
During oral argument before us, Mousavi’s appellate counsel vigorously agreed.
We are not persuaded.
Extortion
“Extortion is the obtaining of
property . . . from another, with his or her consent . . . induced by a
wrongful use of force or fear.” (Pen. Code, § 518, subd. (a).) Fear, for purposes
of extortion “may be induced by a threat of any of the following:
1. To do an unlawful injury to the person or property of the individual
threatened or of a third person. 2. To accuse the individual threatened . . .
of a crime. 3. To expose, or to impute to him . . . a deformity, disgrace or
crime. 4. To expose a secret affecting him, her, or them. 5. To report his,
her, or their immigration status or suspected immigration status.” (Pen. Code,
§ 519, italics added; Flatley, supra, 39 Cal.4th at p. 326.)
Attempted extortion is also a crime. (Pen. Code, § 524; see People v. Umana (2006)
138 Cal.App.4th 625 (Umana) [affirming conviction for attempted
extortion under Penal Code section 524].)
As the Supreme Court explained in Flatley, “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. ‘In 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.’
[Citation.] 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 Penal Code section 519, the making of
which for the purpose stated is declared to be a wrongful use of fear induced
thereby.’” (Flatley, supra, 39 Cal.4th at p. 326, fn. omitted.). “Attorneys
are not exempt from these principles in their professional conduct.” (Id. at
p. 327.)
The Supreme Court addressed a pivotal argument tendered by
Mousavi both in the trial court and before us—that her conduct did not
constitute extortion since she threatened no direct disclosure of Falcon’s
alleged criminal misconduct to either law enforcement or the media. We
recognize at this point that this argument will strike a familiar chord with
many lawyers who might ask, isn’t this type of posturing standard operating
procedure for aggressive litigators? Don’t lawyers regularly link settlement
demands to threatened consequences?
In response, we concur with the answers provided by the
Supreme Court in Flatley: “threats to do the acts that constitute extortion
under Penal Code section 519 are extortionate whether or not the victim
committed the crime or indiscretion upon which the threat is based and whether
or not the person making the threat could have reported the victim to the
authorities or arrested the victim. [Citations.] Furthermore, the crime with
which the extortionist threatens his or her victim need not be a specific
crime.” (Flatley, supra, 39 Cal.4th at p. 327.)
In
other words, it is the threat to reveal damaging information, not any subsequent
revelation, that makes the conduct illegal when the threat is linked to a
monetary demand. Many, perhaps most, extortionate threats may never actually be
conveyed to either law enforcement or the media. The reason for this is obvious
enough: the threat had its desired effect. “The accusations need only be such
as to put the intended victim of the extortion in fear of being accused of some
crime. The more vague and general the terms of the accusation the better it
would subserve the purpose of the accuser in magnifying the fears of his
victim, and the better also it would serve to protect him in the event of the
failure to accomplish his extortion and of a prosecution for his attempted
crime.” (People v. Sanders (1922) 188 Cal. 744, at pp. 749-750; cited with
approval in Flatley, supra, 39 Cal.4th at p. 327.)
Again, it is the fact that the threat is directly linked to
the monetary demand that is the critical factor. “‘It is the means employed to
obtain the money 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.’” (Flatley, supra, 39 Cal.4th at p.
326, italics added.)
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 e-mail sent on October 8, 2019, is a closer call
when considered by itself. That e-mail 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 making any direct reference
to the alleged criminal misconduct. A skeptical observer might reasonably
wonder why Mousavi referenced the “BBC 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 e-mail must be considered in context along with the October 11,
2019 e-mail. In that e-mail 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 e-mail 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.
“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 statute 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 . . . .” (People v. Choynski (1892) 95 Cal. 640, 641–642; Umana,
supra, 138 Cal.App.4th at p. 640.)
Mousavi’s $490,000 settlement demand, as explained in her
October 8 e-mail correspondence, was for unpaid wages, commissions, and related
expenses. The demand was unrelated to any alleged criminal conduct. Thus, to
paraphrase Flatley, Mousavi’s threat to disclose criminal activity
entirely unrelated to her client’s damage claim “‘exceeded the limits of
respondent’s representation of his client’ . . . . (State v. Harrington,
supra, 260 A.2d at p. 699 [attorney’s veiled threat to have his client in a
divorce action inform on her husband to the Internal Revenue Service and Bureau
of Immigration and Naturalization supports attorney’s conviction of extortion].)”
(Flatley, supra, 39 Cal.4th at pp. 330-331.)
Although statements made in connection with litigation are
generally protected under the terms of the anti-SLAPP law, the Supreme Court
made it clear in Flatley that settlement demands which contain threats
may not be afforded protection: “not all speech or petition activity is
protected by [Code of Civil Procedure] section 425.16.” (Flatley, supra,
39 Cal.4th at p. 313.) “The law does not contemplate the use of criminal
process as a means of collecting a debt.” (People v. Beggs (1918) 178
Cal. 79, 84.)
(California Court of Appeal, Jan. 27, 2022, Falcon
Brands, Inc. v. Mousavi & Lee, LLP, Docket No. G059477, Certified for
Publication)
