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.

*  *  *

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.)

* * *  

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.

Half a SLAPP Still Hurts

Jessica Chang sued her former employer and an individual named Howard Cho for sexual harassment.  Cho counter-sued Chang for IIED and defamation.

Chang believed Cho filed his cross-claim in retaliation for her own.  She filed a motion to strike Cho's cross-claim as a "SLAPP" or Strategic Lawsuit Against Public Participation.

Cho in part claimed that Chang's discrimination charges filed at the EEOC/DFEH were defamatory.  But Cho also based his cross-claim for defamation in part on statements Chang made to co-workers and a written report she submitted accusing Cho of harassment.  So, the court had different types of conduct to sort through.

Each of the two causes of action in Cho's cross-complaint, defamation and intentional infliction of emotional distress, is based on three separate and discrete alleged activities by Chang: (1) Chang‟s discrimination claim filed with the EEOC and DFEH; (2) her written report to Midway management; and (3) her verbal comments to co-workers regarding the November and December incidents.

Cho argued that Chang's statements to other employees about his alleged harassment were not "protected" by either the litigation privilege or the anti-SLAPP provisions.  Therefore, Chang could be sued for slander.   The trial court agreed with Cho, as did the Court of Appeal.

Chang submitted no evidence that her comments to Lee or to other co-workers were made to seek the assistance of any other person as a witness or as a person with an interest in the action. While Chang argues such a rationale, and presumably could have offered evidence to support it, she offered none. Absent such a showing, we agree with the trial court's finding that Chang‟s comments to co-workers were not “in connection with” the issues in her subsequent lawsuit against Cho and, therefore, are not protected activity pursuant to section 425.16.

So, this means that if Chang had demonstrated a closer connection between her formal complaints and her discussions with co-workers, the communications might have been protected.  Because she did not do so, Cho's cross-claim against her could proceed.   Therefore, if this case stands, individual defendants in some cases may get away with cross-claims against plaintiffs who accuse them of sexual harassment.  This does not mean individuals should do so. There is a risk that they will be viewed as vengeful or motivated to deny bad conduct to win the cross-claim.

The trial court and the Court of Appeal had little trouble finding that the administrative charges themselves were covered by the anti-SLAPP statute, as was the letter that Chang wrote to management to complain about sexual harassment.  

The internal complaint was covered because as the court put it: "Where the protected activity is a complaint to management or a government agency, or a lawsuit concerning workplace sexual harassment, it must have a demonstrated nexus with that activity, such as an effort to find witnesses to the same or similar conduct."

So the Court of Appeal decided the anti-SLAPP law barred part of Cho's claims for defamation and IIED. Did that mean the entire cause of action should be struck?  No.  The Court decided that the trial court may stike portions of a claim, and is not required to let the whole case continue.  

Then the Court turned to Chang's request for attorneys' fees, since she prevailed on her motion.  Although the winner of an anti-SLAPP motion is entitled to fees, the trial court denied Chang's claim for them, because she had not "accomplished" enough by striking part of Cho's cross-complaint.  The Court of Appeal allowed this ruling to stand.

This ruling encourages anti-SLAPP motions directed to portions of a cause of action, but then creates a disincentive by denying attorney's fees.  We will see if the parties attempt California Supreme Court review.

This decision is Cho v. Chang and the opinion is here. 

Attorney Demand Letter: Sting but No SLAPP

Ever get one of these attorney demand letters?

“As you are aware, I have been retained to represent Media Print & Copy (‘Media’). We are in the process of uncovering the substantial fraud, conversion and breaches of contract that your client has committed on my client. . . . To date we have uncovered damages exceeding $75,000, not including interest applied thereto, punitive damages and attorneys’ fees. If your client does not agree to cooperate with our investigation and provide us with a repayment of such damages caused, we will be forced to proceed with filing a legal action against him, as well as reporting him to the California Attorney General, the Los Angeles District Attorney, the Internal Revenue Service regarding tax fraud, the Better Business Bureau, as well as to customers and vendors with whom he may be perpetrating the same fraud upon [sic].” The letter goes on to list Mendoza’s alleged transgressions, including failure to pay Media’s employees, sales taxes and bills.

Ouch. The threats. The insinuations.  The money.  Wait, criminal prosecution?

Well, Mendoza, the recipient of the above attorney demand letter, did not take this lying down. He sued the attorney, Hamzeh, for extortion, intentional infliction of emotional distress and unfair business practices.

But aren't demand letters protected speech?  And can't a lawyer sued for sending a demand letter use the "Anti-SLAPP" statute so they are not sued for representing their clients aggressively?

Yes.  Most of the time.  In this case, though, the attorney's letter exceeded the protections of the anti-SLAPP statute. Why?  Because there is no anti-SLAPP protection for threatening criminal prosecution unless the target pays money (i.e., extortion):

The threat to report a crime may constitute extortion even if the victim did in fact commit a crime. The threat to report a crime may in and of itself be legal. But when the threat to report a crime is coupled with a demand for money, the threat becomes illegal, regardless of whether the victim in fact owed the money demanded. (Flatley, supra, 39 Cal.4th at pp. 326-327.) “‘The law does not contemplate the use of criminal process as a means of collecting a debt.’ [Citations.]” (Ibid.) “Attorneys are not exempt from these principles in their professional conduct. Indeed, the Rules of Professional Conduct specifically prohibit attorneys from ‘threaten[ing] to present criminal, administration, or disciplinary charges to obtain an advantage in a civil dispute.’ (Cal. Rules of Prof. Conduct, rule 5-100(A).)” (Id. at p. 327.)

Again, most attorneys know better.  And most attorney demand letters are protected from retaliatory lawsuits. But, in my experience, some attorneys go too far with their letters.  Perhaps it's enough to simply lay out the facts and explain why there is the potential for legal liability without calling the defendant a criminal, and without demanding money to refrain from reporting a crime.

If the demand goes too far, as in this case, the lawsuit alleging extortion against the would be plaintiff's counsel is not a SLAPP, but it could be painful.  ::rimshot:::

The case is Mendoza v. Hamzeh, and the opinion is here.

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Court of Appeal Upholds SLAPP Against Accused Harasser's Counterclaim

Aber sued Comstock for sexual harassment among other things.  This did not sit well with Comstock, who sued Aber back, claiming defamation among other things.

Aber then filed a motion to strike Comstock's cross-claim. She claimed his lawsuit was a "SLAPP" or a retaliatory action against Aber.  The trial court agreed and the Court of Appeal affirmed.

If someone sues you and you return the favor, your lawsuit may be subject to a motion to strike as a "SLAPP" (strategic lawsuit against public participation).  To overcome the anti-SLAPP motion, you have to prove that you have a good chance of winning your case.   Comstock apparently did not do that, which is why his suit was dismissed.  If you file a lawsuit that is dismissed as a SLAPP, you owe the other side attorney's fees.   So, be careful before filing cross claims. It's probably wise to win your case first and then sue for malicious prosecution.

Anyway, what makes this case even more interesting is that  the Court of Appeal held that the harassment victim's pre-litigation statements made to company HR investigators were covered by the anti-SLAPP statute as protected conduct.  That means, for example, that if an employee participates in a sexual harassment investigation and reports misconduct against another employee, any defamation lawsuit will be examined as a potential SLAPP.  Even witnesses who report to HR likely will be protected from retaliatory defamation lawsuits brought by the accused harasser.  While that is good news for witnesses and victims of discrimination or harassment, it is bad news for those who are wrongly accused of harassment, who will have a tougher time protecting themselves from career-ending accusations.

This case is Aber v. Comstock and the opinion is here.

Court of Appeal: Employer's Lawsuit Against Terminated Employees Beats Anti-SLAPP Motion

Overhill Farms received notice from the IRS that hundreds of its employees' social security numbers were invalid. The company gave employees a chance to correct the problem. Those who did not were terminated. The law imposes fines and potential criminal liability on employers who permit employees to work with false social security numbers.

Led by an activist organization, some of the terminated employees began protesting at Overhill. The protestors accused Overhill of being racists and ageists, and all kinds of other -ists because of the termination decision based on the IRS's action.  The leaflets they handed out said, among other things:

“OVERHILL FARMS UNFAIR and RACIST EMPLOYER.”  The leaflets distributed at the protests contained the heading “OVERHILL FARMS UNFAIR AND RACIST.”  Overhill is “[a]n abusive and racist employer in the manner that it treats its workers,” which “discriminates against Latinos”; has “unfairly terminated 300 workers,” has “fired workers for expressing themselves freely according to the First Amendment of the U.S. Constitution,” has “exploited Latinos for 30, 20, 15 and 10 years and then threw them to the streets — many single female heads-of-household,” and has exploited part-time workers “visciously as if modern slavery were in place.” 

Well, Overhill fought back. It sued the protestors for a variety of torts, including defamation, interference with prospective economic advantage, and unfair business practices. But the protesters challenged the lawsuit as a "SLAPP" - a lawsuit in retaliation for their First Amendment activity - protesting.
Protesting of course is protected by the First Amendment. But the First Amendment does not protect against libel - provably false statements of fact. Certain types of false statements have to be made with malice to constitute defamation.

The court of appeal said that merely calling Overhill "racist" was not defamatory:

We agree that general statements charging a person with being racist, unfair, or unjust – without more – such as contained in the signs carried by protestors, constitute mere name calling and do not contain a provably false assertion of fact.  Similarly, references to general discriminatory treatment, such as that contained in the handbill and flyer here, without more, do not constitute provably false assertions of fact.  (See, e.g., Beverly Hills Foodland v. United Food & Commercial Workers Union, Local 655 (8th Cir. 1994) 39 F.3d 191, 196 [“‘[T]o use loose language or undefined slogans that are part of the conventional give and take in our economic political controversies — like ‘unfair’ and ‘fascist’ — is not to falsify facts.’  [Citations.]”].) 

But, the protestors went further:

The press release contains language which expressly accuses it of engaging in racist firings and declaims upon the disparate impact the firings have had on “immigrant women.”  Similarly, after discussing Overhill’s termination of one-fourth of Overhill’s work-force, the leaflets explicitly assert that  the discrepancy in social security numbers was merely a “pretext” to eliminate certain workers, and refers to Overhill’s conduct as “racist and discriminatory abuse against Latina women immigrants.”  Moreover, in almost every instance, defendants’ characterization of Overhill as “racist” is supported by a specific reference to its decision to terminate the employment of a large group of Latino immigrant workers.  The assertion of racism, when viewed in that specific factual context, is not merely a hyperbolic characterization of Overhill’s black corporate heart – it represents an accusation of concrete, wrongful conduct.

 The court therefore held that generally calling someone racist is hyperbole. But saying that an employer fired an employee due to unlawful discriminatory motive is a provable assertion of fact.  That conclusion could have ripple effects beyond protesting. For, if this opinion stands, when an employee alleges wrongful termination due to discrimination, retaliation, etc., an employer is within its right to sue for defamation if it can prove that the statement is false.

The decision was 2-1. The dissent said:

I part company with the majority opinion in two fundamental respects.  First, my colleagues in the majority have incorrectly made this court the first state or federal appellate court in America, ever, to hold that the epithet “racist” constitutes a provably false assertion of fact as the basis of a claim of defamation.  The majority attempts to argue that it is only so holding because the term “racist” was used in combination with other words.  But those other words are not actionable and the majority does not and cannot argue otherwise.  Whether the word “racist” is used as a noun or an adjective in combination with other words does not matter.

Second, in my view, the majority misapplies the United States Supreme Court opinions in Milkovich v. Lorain Journal Co., supra, 497 U.S. at page 19 and Linn v. United Plant Guard Workers (1966) 383 U.S. 53, 58.  Defendants’ communications in their dispute with their employer simply did not contain a provably false fact and the reasons for their allegations were disclosed.  (Franklin, supra, 116 Cal.App.4th at p. 387.)  The majority opinion’s parsing of the one word “discrepancies” in reaching its conclusion is not consistent with United States Supreme Court jurisprudence in defamation cases.  I agree the employees’ claims might not be persuasive, but that does not make them defamatory.

My thought is that the California or US Supreme Court will take up this case.  A lot of former employees accuse their employers of being "racist" or discriminatory in making employment decisions.  One can imagine the argument that this decision will interfere with the enforcement of the civil rights laws.  One can also argue that the term "racist" or "discriminatory" is a powerful weapon and should not be tossed around without a factual basis to back it up.  There's the rub. We'll see what happens next.

The opinion is Overhill Farms, Inc. v. Lopez and the opinion is here.

DGV

Court of Appeal Applies Anti-SLAPP Law to EDD Report

Dible worked for the Haight Ashbury Free Clinic as a counselor. The clinic terminated her employment for performance reasons. The clinic contested her unemployment claim. Ms. Dible sued for defamation and other claims. However, after some litigation, the clinic moved the court under the anti-SLAPP statute to dismiss the claim. Why? Because the clinic exercised its First Amendment rights to make a report in an official proceeding. The Court of Appeal agreed that the anti-SLAPP statute barred her claim. Dible then argued that she should be able to assert a claim for "defamation by compelled self-publication," because the clinic should have known Dible would have to re-publish to third parties the clinic's assertions regarding her performance.

The Court of Appeal disagreed:

Here we are clearly being asked to create a wider exception for claimants who have not republished where it is foreseeable that they might do so in the future. We decline to do so. Such a rule would require courts to engage in considerable speculation as to future conduct and lead to untenable attempts to speculate on future damage. A court could not, for instance, account for the possibility that after a plaintiff has received an award for damages in the form of lost future wages, he or she might republish while seeking a job and be given the job, thus not be damaged, nonetheless.

Since publication or republication to a third person is necessary to establish the cause of action of defamation, we conclude that plaintiff cannot establish a probability of success upon her defamation claim. The motion pursuant to section 425.16 was therefore properly granted.

The case is Dible v. Haight Ashbury Free Clinic and the opinion is here.

Cease and Desist Letter Gets SLAPP Protection

Here's the way the court put it:

An employer fired one of its employees amid allegations that the employee had misappropriated customer lists and solicited his employer’s customers to start a
competing business. Several months before litigation was commenced by the employer against its former employee, the employer’s attorney drafted a letter to the employer’s customers that accused the employee of breach of contract and
misappropriation of trade secrets, and that “suggest[ed]” to the customers that, to avoid potential involvement in any ensuing litigation “as a material witness, or otherwise,” the customers should not do business with the former employee. The employee commenced a defamation action against the former employer. We hold that, in the circumstances of this case, the lawyer’s letter to the customers was a “writing made in connection with an issue under consideration or review by a . . . judicial body” (§ 425.16, subd. (e)(2)) and therefore covered by the anti-SLAPP statute because the letter directly related to the employer’s claims against the employee, and the employer was seriously and in good faith contemplating litigation against the employee.

Of note, the court also ruled that it made no difference that the lawyer sent the letter to its customers rather than just the former employee. The court also said that the litigation privilege was irrelevant to whether the communication satisfied the requirements of the anti-SLAPP statute. However, the litigation privilege would be relevant to the second prong of anti-SLAPP analysis - the plaintiff's chance of success on the merits.

This case is good news for practitioners who send out "cease and desist" letters to former employees accused of violating restrictive covenants. It's also good news for employers, as they could have found it harder to find lawyers to send out such letters if the former employee could freely sue for defamation.

The case is Neville v. Chudacoff. The opinion is here.