A business owner may have a strong claim for fraud, unpaid money, or breach of fiduciary duty—and still create a serious new problem through an improper demand. When frustration turns into threats, the dispute can shift from the other side’s wrongdoing to the claimant’s own conduct.
We have seen parties attempt to use criminal accusations or regulatory exposure to achieve civil litigation goals. That approach can create new claims, criminal exposure, and disciplinary consequences for attorneys. It can also seriously undermine an otherwise strong case.
Having a legitimate grievance does not authorize unlawful threats.
Do not trade reporting—or silence—for a civil concession
There is a critical difference between lawfully reporting suspected misconduct and threatening to report it unless someone pays, dismisses a claim, or makes another civil concession.
California Rule of Professional Conduct 3.10 prohibits lawyers from threatening criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute. Its administrative category includes certain complaints carrying licensing consequences, fines, or quasi-criminal sanctions; it does not encompass every administrative filing. The rule also recognizes exceptions, including charges legally required before bringing a civil action.
Actual reporting is not itself prohibited by that rule merely because it affects a civil dispute. But turning reporting into a bargaining chip is different. The danger includes both “comply or I will report you” and offering silence in exchange for a civil advantage.
Nonlawyers are not governed by that attorney rule, but they can face criminal or civil liability when the applicable elements are met. California’s extortion statutes address obtaining property or other consideration through wrongful threats, and certain written threats can be punishable even without payment. See Penal Code §§ 518, 519, and 523. Lawyers can face those consequences, too.
California courts have repeatedly addressed the problem
- Flatley v. Mauro (2006), 39 Cal.4th 299: Threats of criminal accusations and extensive publicity, coupled with a seven-figure demand, constituted extortion as a matter of law for purposes of the anti-SLAPP analysis. An asserted entitlement to money did not justify the tactics. Read the decision.
- Mendoza v. Hamzeh (2013), 215 Cal.App.4th 799: An attorney’s repayment demand threatened reports to prosecutors, tax authorities, and others. The court rejected anti-SLAPP protection for the extortionate demand. Read the decision.
- Stenehjem v. Sareen (2014), 226 Cal.App.4th 1405: A former employee’s threat to involve federal authorities, read in the context of his settlement communications, crossed the line even though the particular email did not state a dollar demand. Indirect wording did not resolve the problem. Read the decision.
- Falcon Brands, Inc. v. Mousavi & Lee, LLP (2022), 74 Cal.App.5th 506: Escalating threats to disclose alleged crimes to a merger partner, linked to settlement payment, defeated anti-SLAPP protection for the extortion claim. The risk extends beyond threats directed at law enforcement. Read the decision.
These were civil anti-SLAPP decisions, not criminal convictions. They nevertheless demonstrate how a settlement communication can become the basis of a separate claim.
Litigation does not provide blanket immunity
The litigation privilege broadly protects qualifying communications against civil tort liability. It does not confer immunity from criminal prosecution or attorney discipline. Anti-SLAPP protection is a separate question, and alleging extortion does not automatically defeat either protection. Civil Code § 47(b); Flatley.
A strong civil demand can exert lawful pressure
Threatening to pursue a properly supported civil lawsuit is a legitimate way to seek relief. California Rule 3.10’s comment [2] expressly distinguishes threats to bring civil actions from prohibited threats of criminal, administrative, or disciplinary charges. Rule 3.10.
In Malin v. Singer (2013), the court rejected an extortion-as-a-matter-of-law challenge to an attorney’s demand letter and applied the litigation privilege to communications connected with litigation genuinely contemplated in good faith. 217 Cal.App.4th 1283.
That is why involving a litigation attorney matters. Counsel can evaluate the evidence, identify the available civil remedies, and communicate a credible intention to sue if the dispute is not resolved. A carefully drafted demand can exert substantial lawful pressure to address wrongdoing, compensate the injured party, or reach a resolution—without bargaining threatened criminal reporting or silence for civil concessions.
The Avenatti example shows the stakes
Michael Avenatti’s Nike prosecution is an extreme federal example. The Second Circuit affirmed convictions arising from demands for multimillion-dollar payments benefiting the lawyers, beyond the client’s proposed settlement, backed by threats to publicize alleged Nike misconduct. That federal case illustrates the consequences; California’s rules require their own analysis. United States v. Avenatti (2d Cir. 2023), 81 F.4th 171.
Have counsel shape the demand before emotions shape it
When suspected fraud, regulatory violations, or criminal conduct overlaps with a business dispute, owners and executives should involve litigation counsel before sending demands, emails, or texts.
A carefully drafted demand identifies the civil claims, supporting facts, requested relief, and lawful litigation consequences. Reporting decisions should be evaluated separately, without bargaining threats or silence for settlement. Attorney letterhead alone does not cure an unlawful threat.
An extortionate communication can turn a claimant into a defendant and damage credibility, settlement options, and case strategy. It does not automatically erase a valid underlying claim—but it can create an avoidable dispute that overwhelms the merits. Protect a strong case by pursuing it through lawful means.
General information, not legal advice. The legality of a demand depends on its language, context, and applicable law.