Court of Appeal: Extortion Is Not a Legally Protected Pre-Litigation Demand

From the Court of Appeal's opinion:

Jerome Stenehjem sued his former employer, Akon, Inc., and Surya Sareen, Akon‘s president and chief executive officer, for defamation, among other causes of action. Sareen countersued for civil extortion. Sareen alleged in an amended cross-complaint (Cross-Complaint) that Stenehjem (1) had asserted, through his counsel, a prelitigation claim for defamation; and (2) had later, while representing himself, made a written threat by e-mail to file a false criminal complaint against Sareen unless he paid Stenehjem monies to settle his defamation claim. Stenehjem‘s e-mail demand mentioned a potential qui tam suit; alluded to accounting documents created by Stenehjem at Sareen‘s specific direction, and referred to potential involvement of the United States Attorney General, Department of Justice, and Department of Defense. Sareen alleged that Stenehjem‘s demand constituted extortion in violation of criminal laws.

Shorter:  Stenehjem is Akon's ex employee. Akon is the employer.  Sareen is Akon's CEO.  Stenehjem  claims wrongful discharge, defamation, etc.  His lawyer tries to demand over $600,000 in settlement. Akon, the former employer, repeatedly tells him to jump in the lake.

Then, Stenehjem discontinues his relationship with his lawyer and sends the following email to Akon's lawyer, McDonnell:

Dear Mr. McDonnell, [¶] Although you have been quite firm and I feel un-professional in your response to my request to discuss the matter of my wrongful termination and the defamation claim I know is valid face to face, I take your comments about this being a Bogus claim very personnelly [sic]. I at no time wanted to cause any un-neccessay [sic] or long court procedings [sic] to hinder Akon or Mr. Sareen from continuing to doing bussiness [sic] as usual. As Akon‘s attorney I leave it in your hands to get the facts from Mr. Sareen and Dick Sanders in regards to a contract review by the aduitor [sic] Wayne Vartek and the documents I created on orders from Mr. Sareen regarding BOM‘s and purchase orders for three DLVA‘s under contract aduit [sic]. Mr. Sareen went into great detail about the reasons and figures which he had me write down in my notebook required in the BOM documentation he asked me to provide. [¶] I never wanted this to become a long and expensive process let alone involve the United States Attorney General, the Department of Justice or the DOD. Other then [sic] the wrongful termination I have never held any ill feeling towards Akon or Mr. Sareen. I also never wanted to enrich a bunch of bottom feeding attorneys such as yourself and the ones I have been meeting with. With that said I advise you to forward this to Mr. Sareen, act in good faith as his attorney and decide if this is the manner in which you want to continue responding in [sic]. [¶] In closing please inform your client I do not wish to make a Federal case out of this or create any unneccessary [sic] stress on Mr. Sareen or any Akon employees. Please remind Mr. Sareen of his statement that ―when I am wrong I will be the first to admit it and appoligize [sic.]‖ [I]t is still my desire to resolve this matter face to face and with no involvement of the courts and a bunch of attorneys serving there [sic] own self interests. [¶] I am extending my hand and this offer to meet one last time because of my disgust with the idea of enriching a large group of bottom feeding attorneys such as you and the ones advising me. It is not my first choice to procede [sic] with the Qui Tam option but the choice of a group of attorneys looking for the biggest payout they can get with the least effort and expense. I have yet to sign an agreement with the Lawyer out of Los Angeles who specializes in Qui Tam suits but he has reviewed my statement, investigated the facts, talked to former Akon employees, and wants to fly up to sign an agreement and formalize my statement. [¶] I was always honest with Mr. Sareen[;] hence my disclosure of the pending actions and my extension of one last opportunity to settle this in a gentlemens [sic] manner, shake hands and put this matter behind us. If you are acting [sic] in his best interests you will forward this letter to Mr. Sareen and respond in a civil and professional manner and not in the manner which you so un-professionally replied previously. [¶] Sincerely, Jerry Stenehjem‖

(emphasis mine)

In essence, Stenehjem attempted to gain advantage in his own civil suit by threatening Akon with a "qui tam" or false claims suit, the involvement o the government, etc., unless Akon settled with Stehehjem.

Akon, bless 'em, then sued Stenehjem for extortion.  Actually, Akon filed a cross-complaint to Stenehjem's complaint for defamation etc.  In response to the cross-complaint, Stenehjem filed a motion to strike that extortion claim as a "SLAPP" or "Strategic Lawsuit Against Public Participation."

The trial court granted the motion to strike, deciding that Stenehjem's email was protected pre-litigation speech.  But the Court of Appeal reversed the trial court.  It held that Akon's lawsuit would go forward against Stenehjem because his e-mail was indeed extortion.  Extortion is not protected speech.

It is important to consider the context under which the e-mail was sent. This backdrop included Stenehjem‘s initial settlement demand through counsel of $675,000; McDonnell‘s repeated statements that Stenehjem‘s claims had no merit; and McDonnell‘s having previously rebuffed any idea of settling the claims. McDonnell: (1) advised Stenehjem‘s attorney, Heymann, six months earlier that the claims were ―meritless‖ and that the only way Stenehjem would receive any monetary payment was by obtaining a judgment against Defendants; (2) told Heymann, in response to the latter‘s overtures regarding mediation of the dispute, that Akon would not mediate the matter and would not ―waste any more time on pointless settlement discussions‖; and (3) responded to Stenehjem‘s personal e-mail of June 23, 2011, in which Stenehjem had sought ―to settlethis matter by direct negotiation,‖ by stating that ―AKON is not interested in spending any time on any further settlement discussions of your bogus claims.‖13 Stenehjem in his August e-mail is therefore characterizing as unprofessional McDonnell‘s consistent position that Stenehjem‘s claims were unmeritorious and that his clients would pay no money to settle them.

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We conclude that Stenehjem‘s August e-mail constituted extortion as a matter of law. It threatened to expose Sareen to federal authorities for alleged violations of the False Claims Act unless he negotiated a settlement of Stenehjem‘s private claims. Even were it true that Sareen had in fact committed acts violating the False Claims Act—and there is no evidence to support this, since Stenehjem filed no declarations in connection with the motion other than his attorney‘s fee declaration—this is ―irrelevant‖ to whether the threatened disclosure was extortion. (Flatley, supra, 39 Cal.4th at p. 330.) And it is of no consequence that the e-mail did not specifically identify the crime of which Stenehjem intended to accuse Sareen. (Flatley, at p. 331; Mendoza, supra, 215 Cal.App.4th at p. 806.)

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Furthermore, the alleged criminal activity that Stenehjem threatened to expose in a qui tam action was ―entirely unrelated to any alleged injury suffered by‖ Stenehjem as alleged in his defamation and wrongful termination claims. (Flatley, supra, 39 Cal.4th at pp. 330-331.)

Bottom line -  plaintiffs, you cannot attempt to leverage your own weak cases by threatening to expand claims to unrelated matters.  If you do, that could be extortion, for which you could be held liable.  I hope a few of my adversaries read this.  I've heard threats like this during my own lawsuits.

This case is Stenehjem v. Sareen and the opinion is here.

California Court of Appeal SLAPPs Claim for Breach of Settlement Agreement

Perhaps you have read about the EEOC's recent lawsuits attacking severance agreements as allegedly containing illegal provisions, because they impede the EEOC's work. The EEOC is challenging everything from "cooperation clauses," to general releases that broadly preclude the releasing employee from bringing future claims.  You know, in exchange for money.   Here's an example of what the EEOC is doing.  If the EEOC wins,  and they don't win all of these efforts to radically change the law via agency internal policy and litigation rather than legislation (Hi, credit check lawsuits), many standard releases will have to be modified.

Yes, the above discussion is related to why I asked you here today.  Somewhat. The California Court of Appeal just found that an employer's lawsuit against a union for breach of settlement agreement should be stricken because the lawsuit was a Strategic Lawsuit Against Public Participation.   The court's ruling in part is based on a conclusion that the parties' non-cooperation agreement was not enforceable.

The United Farmworkers Union settled one of two pending unfair labor practice charges with a company called D'Arrigo Bros. of California.

On February 18, 2011, UFW's attorney sent D'Arrigo's counsel a letter purporting to "memorialize the UFW's agreement." In the letter UFW acknowledged that it had obtained dismissal of the second ULP, and it promised not to refile this charge "and/or the substantive allegations at a later date." . . . UFW therefore agrees that said Objection Five will in fact be dismissed in its entirety or that, in the event the Executive Secretary for any reason declines to dismiss all or any of it prior to a hearing, UFW will timely act to withdraw its declarations and argument regarding Objection Five and will not present any evidence thereon in the objection process; and will continue to advise (in writing, on the record) the Executive Secretary, General Counsel, and/or assigned administrative law judge that UFW wants Objection Five entirely dismissed; and that UFW will not pursue, nor assist [in] pursuing, Objection Five in any fashion whatsoever."

Then, during proceedings on the remaining unfair labor practice charge, D'Arrigo believed the UFW breached the above agreement and cooperated with the Agrigultural Labor Relations Board's general counsel.

D'Arrigo sued the UFW for breaching the settlement agreement.  The UFW filed a motion to strike the D'Arrigo lawsuit under California's anti-SLAPP law.  The UFW's basis for the motion was that D'Arrigo's claim was really a lawsuit designed to retaliate against UFW for cooperating with the ALRB's proceedings in the matter that was not settled.

The Court of Appeal held that UFW should win the anti-SLAPP motion, resulting in dismissal of D'Arrigo's lawsuit.    Of note, the Court held that D'Arrigo's basis for asserting breach of contract - that the UFW violated an agreement not to cooperate with the ALRB - was unenforceable:

we agree with UFW—and with the General Counsel as amicus curiae-- that any interpretation of the stipulated language to prohibit UFW from cooperating with [the general counsel] in his investigation and prosecution of the first ULP charge must be rejected as contrary to the public policy inherent in the ALRA.

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Moreover, the [employer's] ability to guarantee the silence of witnesses by means of a legally enforceable private agreement does not comport with either the spirit or the stated purpose of the ALRA." 

That purpose is clearly stated in Labor Code section 1140.2: "[T]o encourage and protect the right of agricultural employees to full freedom of association, self-organization, and designation of representatives of their own choosing, to negotiate the terms and conditions of their employment, and to be free from the interference, restraint, or coercion of employers . . . ." This public interest is not advanced if private agreements between employer and employee are allowed to obstruct the General Counsel's prosecution of complaints. (Cf. E.E.O.C. v. Astra U.S.A., Inc. (1st Cir. 1996) 94 F.3d 738, 744-745 [settlement provision prohibiting employee from assisting EEOC in its investigation of sexual harassment charges against employer is void as against public policy].)

So, another trend in employment law appears to be increased scrutiny of releases.  Employers should ensure they know what they are bargaining for when they settle claims.  Absolute confidentiality is not realistic. Neither is a promise never to participate or cooperate in a future proceeding.  Employers should not pay settlements or separation pay expecting to fully achieve these goals.   That said, there are ways to draft agreements to comply with the limitations.   At least there used to be. We'll have to see what happens in the EEOC's litigation.

This case is D'Arrigo Bros. of California v. United Farmworkers of Am.  and the opinion is here.