In Falcon Brands, Inc. v. Mousavi & Lee, LLP (No. G059477 – 1.27.2022), the Fourth Appellate District held that an attorney’s pre-litigation communications containing a settlement demand did not constitute protected activity under Code of Civil Procedure section 425.16 (i.e., the “anti-SLAPP” statute) because those communications amounted to extortion.
In August 2019, Falcon Brands, Inc. (“Falcon”) – a cannabis company – terminated Nick Honard’s employment for cause. Honard then retained Mousavi & Lee, LLP (“Mousavi”) to represent him in connection with potential claims against Falcon, such as wrongful termination, failure to pay compensation, and whistleblower retaliation. On October 8, 2019, Mousavi e-mailed Falcon’s counsel, summarizing Honard’s claims, advising that Honard intended to file suit if the parties did not resolve the dispute, and threatening to notify Harvest Health & Recreation Inc. (“Harvest”) that it would also be named in the lawsuit given that Harvest intended to acquire Falcon. She offered to settle Honard’s claims for $490,000. Significantly, Mousavi also then advanced various allegations pertaining to Falcon’s non-compliance with the California Bureau of Cannabis Control’s regulations. On October 11, Mousavi sent a follow-up e-mail to Falcon’s counsel, advising that she put Harvest’s attorneys “on notice about Mr. Honard’s claims for wages, without disclosing other issues mentioned in my letter of October 8, 2019.” After the parties failed to reach a settlement, Mousavi sent Harvest copies of the various settlement demands she 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. On January 31, 2020, Mousavi filed Honard’s complaint for wrongful termination against Falcon, which, in response, filed a cross-complaint against Mousavi for extortion and intentional interference with a contract. The trial court granted Mousavi’s anti-SLAPP motion as to both causes of action, reasoning that Mousavi’s communications qualified as protected activity under the anti-SLAPP statute and that Falcon could not prevail because Mousavi’s communications were protected by the litigation privilege.
In reversing, the appellate court relied upon the Supreme Court’s seminal ruling in Flatley v. Mauro (2006) 39 Cal.4th 299 (“Flatley”), i.e., “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.” Just like in Flatley, Mousavi contended that her conduct did not rise to the level of extortion because she threatened no disclosure of Falcon’s alleged criminal misconduct to either law enforcement or the media. The appellate court disagreed, explaining, “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.” In addition to finding Falcon’s alleged criminal misconduct had no relation to Mousavi’s settlement demand, it observed that Mousavi’s communications sent a clear message: “settle the case now or Harvest will become aware of Falcon’s alleged criminal misconduct.” The appellate court concluded that Mousavi committed extortion by “link[ing] her next potential communication with Harvest—which she knew would inevitably reveal her accusations of criminal misconduct against Falcon—to Falcon’s failure to meet her settlement demand.” It rejected Mousavi’s claim that she was justified in advising Harvest about the criminal misconduct due to the pending merger, explaining that “extortion arises out of the threat rather than the follow through.” As such, because Mousavi’s conduct constituted extortion and, thus, did not qualify for protection under the ant-SLAPP law, she was unable to satisfy the first prong, thereby warranting denial of her motion.
Attorneys tend to justify aggressive tactics on the belief that they are simply representing their clients’ interests – perhaps thinking in the back of their mind that such conduct could not carry any personal consequences because it constitutes protected activity and, thus, is protected by the litigation privilege. However, as Falcon Brands, Inc. illustrates, if certain lines are crossed, attorneys can render themselves vulnerable. Extortion, of course, is one such line. Moreover, California Rules of Professional Conduct, rule 3.10 prohibits attorneys from making threats “to present criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute.” In other words, an attorney may not suggest that he or she will pursue a criminal or administrative action unless the opposing party agrees to settle a civil dispute. Attorneys should be mindful of these principles when seeking to settle a matter in either a pre-litigation or litigation setting.
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