Practice Pointer: 4 Things to Avoid in Demand Letters

By: Bryan Ketroser

Imagine that someone has stolen money from you.  You discover their misconduct and send them a letter threatening to report them to the police unless they return the stolen funds.  They turn around and sue you for extortion.  They certainly have chutzpah, but do they actually have a claim against you, the real victim here?

Quite possibly.  The pre-litigation demand letter – in which an aggrieved party gives the wrongdoer a chance to right their wrong voluntarily – is an important tool designed to nip lawsuits in the bud while achieving a measure of justice.  By their nature, however, demand letters are designed to invoke fear in order to extract money, and it can be easy for a well-meaning party to unwittingly cross the line that separates a permissible demand from unlawful extortion. 

Under California law, criminal extortion includes “the obtaining of property from another, with his consent. . . induced by a wrongful use of force or fear.”  Cal. Pen. Code§ 518. The requisite “fear” can come from a threat to “accuse the individual threatened . . . of a crime,” “expose . . . a deformity, disgrace, or crime,” or “expose a secret affecting him.”  Cal. Pen. Code § 519.  In other words, the very same types of threats and insinuations that parties frequently employ in demand letters.[1]

The past few years have seen a dramatic increase in the amount of litigation over demand letters.[2] The current wave of litigation has its roots in a particularly egregious case involving a shakedown of the well-known entertainer Michael Flatley,[3] but California courts have shown a willingness to find extortion even absent extreme facts.  It may come as a surprise to most that neither the genuine belief that the other party committed a crime, nor the genuine belief that they owe you money, are valid defenses to extortion.  “The law does not contemplate the use of criminal process as a means of collecting a debt.”[4]

While courts are quick to point out that these cases turn on their specific facts, a careful review of the case law yields several important guidelines when drafting and sending pre-litigation demand letters:
Avoid discussion of criminal/regulatory action.  Take care to avoid even implied threats that you will “press charges” or otherwise initiate or cooperate with government actions.  This includes not just criminal prosecutions, but also regulatory actions, such as those brought by the IRS, the SEC, a state bar association, or other federal and state agencies.  
Don’t threaten negative publicity.  While it can be tempting to tell a wrongdoer that you will expose their wrongdoing to the world, such a threat increases the likelihood that your demand will be viewed as extortion.  Avoid the pitfall of discussing how any complaint you file would become part of the public record.  And certainly do not threaten to actively publicize the matter.

Focus on the harm that you have suffered.  Even if the party that harmed you also harmed others, keep your demand centered on your injuries, not theirs.  Similarly, avoid discussion of how a civil lawsuit would hurt the wrongdoer.  

Make sure you have a “colorable” claim.  The right to threaten legal action does not include the right to threaten a “sham” lawsuit.  Be sure to discuss any potential claims with an attorney prior to sending a demand letter, to make sure they are viable. 

While the foregoing guidelines will diminish the likelihood that your demand letter will one day be found extortionate, there is no substitute for working with experienced counsel who can draft a pre-litigation demand that both protects your rights and advances your interests.  A skilled attorney can also help negotiate with opposing counsel after a proper demand letter is sent.

[1]To the extent an attorney is making such threats and insinuations, they may also be violating Rule 5-100 of the California Rules of Professional Conduct:  “A member shall not threaten to present criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute.”
[2]See, e.g.Stenehjem v. Sareen, 226 Cal. App. 4th 1405 (2014); Mendoza v. Hamzeh, 215 Cal. App. 4th 799 (2013), Malin v. Singer, 217 Cal. App. 4th 1283 (2013).
[3]Flatley v. Mauro, 39 Cal. 4th 299 (2006).  The Flatleycase involved a demand letter sent by an attorney on behalf of a purported victim of sexual assault. The letter threatened state, federal, and international prosecutions, as well as world-wide publicity, if Flatley did not make a seven-figure payment to settle the purported victim’s claims.
[4]Flatley, 39 Cal. 4th at 326-27 (quotation marks and citation omitted).