Snowballs and Iceballs: Crossing the Line in Settlement Negotiations

Snowballs and Iceballs: Crossing the Line in Settlement Negotiations

Children of northern climes remember the joys of a snowball fight. We also remember the bully who ruined the fun by packing iceballs. (Those from more temperate zones might consider the line between brushback pitches and beanballs.) What is true in projectile sports is also true in law—there is a boundary between being aggressive and breaking the (express or implied) rules.

Recent news of criminal charges against a prominent attorney has focused attention on this boundary in the context of settlement negotiations. Prosecutors allege that Michael Avenatti demanded that Nike not only pay his client, but also hire Avenatti himself to conduct a $15 to $25 million internal investigation. Otherwise, he threatened to take billions of dollars off the company’s market capitalization by going public with his client’s allegations immediately before an earnings call and the NCAA basketball tournament.

Many attorneys were surprised that prosecutors lodged extortion charges under these circumstances. After all, it is not uncommon to add some punch to a settlement demand by warning your opponent that the case may generate negative publicity. We do not generally view that tactic as extortion.

Nevertheless, attorneys should be aware that settlement-related threats of public disclosure can be illegally extortionate. For instance, in Flatley v. Mauro, 39 Cal. 4th 299, 139 P.3d 2 (2006), Irish dance impresario Michael Flatley sued an attorney for civil extortion, intentional infliction of emotional distress, and interference with economic advantage. The attorney, representing an alleged assault victim, sent a pre-suit demand letter (including notice of a fee lien) and made telephone calls to Flatley’s attorneys in which he threatened an aggressive media campaign and disclosures to authorities if a settlement was not reached immediately. The attorney sought to dismiss Flatley’s suit on the basis of the “anti-SLAPP” statute. The California Supreme Court held that the “anti-SLAPP” defense was not available because the attorney’s conduct was illegal as a matter of law. He had not attempted to negotiate or to discuss the facts of the case but rather had simply threatened to go public unless his demands were met. The court found this to constitute criminal extortion.

Flatley is not the only example. The Court of Appeals of Georgia reached a similar result in Rogers v. Dupree, 340 Ga. App. 811, 799 S.E.2d 1 (2017). There, attorneys representing another alleged assault victim made settlement demands against the alleged assailant, warning of the possibility that legal actions would become publicly known. They revealed that their client had videotaped a sexual encounter with the man after she retained them, and the alleged assailant contended that the attorneys were complicit in a scheme to make the surreptitious video. He sued the attorneys, who brought and lost an anti-SLAPP motion to dismiss. The Georgia court ruled that this was not a SLAPP lawsuit, in part because the attorneys’ activities were illegal and therefore not valid attempts to exercise their rights, and denied the motion.

Unlike in Flatley, the Georgia attorneys were also subjected to criminal prosecution. Those charges were dismissed. The Georgia Supreme Court partially affirmed, holding that mere threats to initiate litigation cannot constitute extortion. However, the court reversed the dismissal of the charges of criminal conspiracy to make an illegal videotape. State v. Cohen, 302 Ga. 616, 807 S.E.2d 861 (2017). The court distinguished Flatley on the grounds that the indictment did not allege threats to expose information to anyone outside of the potential court proceedings, whereas Flatley’s accuser threatened to make public accusations and revelations to legal authorities.

The implication of these cases for practicing attorneys is that there are, in fact, limits on aggression in settlement negotiations. Not every threat to make accusations public is extortion, but an inflexible demand backed by threats to disseminate information publicly or to authorities might be. Demands that emphasize the attorney’s, rather than the client’s, financial interest may also evidence improper conduct.

It will be left to the legal process to determine whether Michael Avenatti’s demand was an iceball or merely a hard-thrown snowball. The charges leveled against him should sharpen all attorneys’ attention to the issue, though.

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