California Court of Appeal, Falcon Brands, Inc. v. Mousavi & Lee, LLP, Docket No. G059477

 

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)