September 01, 2017

Ethics: Threatening Litigation

Bruce Green

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In Ferster v. Ferster, [2016] EWCA (Civ) 717, three disputatious brothers owned an English Internet gaming company. Two teamed up to cause the company to sue the third, Jonathan, for breach of fiduciary duty and then offered to resolve the dispute by selling Jonathan their shares in the company.

During mediation, the two brothers’ counsel increased the sales price and threatened that if Jonathan did not pay, the brothers would accuse him of perjury and contempt in the pending lawsuit. That could lead to his imprisonment, the destruction of his reputation, his debarment from the online gaming business, and, eventually, to claims against third parties to whom he had transferred assets.

Jonathan, in turn, complained that his brothers were making improper threats in order to extort a ransom price for their shares. The English trial and appellate courts agreed with the lone brother, holding that the threats “exceeded what was ‘permissible in settlement of hard fought commercial litigation.’”

The English courts found that even if Jonathan committed the alleged crimes, the threats against him were improper for five reasons: (1) his brothers were threatening criminal action; (2) their threats had “serious implications for Jonathan’s family”; (3) they also threatened to publicize the allegations; (4) the threats were meant to benefit the brothers, not the company; and (5) there was no connection shown between Jonathan’s alleged misconduct and the increased demand.

Would the threats be viewed just as unfavorably by United States courts, which tend to be more tolerant of rough-and-tumble negotiation and trial practice?

In the United States, “prelitigation letters airing grievances and threatening litigation if they are not resolved are commonplace.” Revson v. Cinque & Cinque, P.C., 221 F.3d 71, 80 (2d Cir. 2000). Litigators may threaten to assert colorable claims and comment on the reputational or other harm that may ensue. But there are limits.

The ethics codes used to forbid lawyers from “threaten[ing] to present criminal charges solely to obtain an advantage in a civil matter.” Model Code of Prof’l Responsibility DR 7-105(A) (Am. Bar Ass’n 1980). The rule was based on the concept of extortion but went farther. Lawyers could not coerce a civil remedy by threatening criminal accusations unrelated to the civil wrong—for example, by threatening a thief, “Return the stolen money or we will tell the prosecutor that you possess child pornography.”

But the rule also seemed to forbid some threats that were non-extortionate and reasonable—e.g., “Return the stolen money or we will report the theft to the prosecutor.” Given the rule’s overbreadth, the drafters of the ABA Model Rules of Professional Conduct decided to scrap it and leave the problem to the law of extortion, which makes the relevant distinction. ABA Comm. on Ethics & Prof’l Responsibility, Formal Ops. 94-383 (1994) & 92-363 (1992).

But even in states without the old rule, lawyers still may not advance a civil claim by threatening unrelated criminal allegations. That’s extortionate even if the criminal accusation and the civil claim are factually supported, not fabricated. Authorities will find extortionate threats to be “prejudicial to the administration of justice” under Model Rule of Professional Conduct 8.4(d) or “to have no substantial purpose other than to embarrass . . . a third person” under Model Rule 4.4(a).

And it is not only threats to instigate criminal charges that are extortionate. Threats to cause other harms may also be improper if they are unconnected to the underlying civil claim. For example, a defense lawyer who knows that the plaintiff is an undocumented immigrant may not threaten to report the plaintiff to immigration authorities in order to extract a settlement of a lawsuit that has nothing to do with the plaintiff’s immigration status. N.C. State Bar, Formal Ethics Op. 2005-3 (2005).

Litigators also risk sanction—or worse—if there is no legitimate basis for their threatened action. In State v. Hynes, 978 A.2d 264 (N.H. 2009), for example, the court upheld a lawyer’s extortion conviction for baselessly threatening to sue a beauty salon for discriminatory pricing if it did not compensate him.

And litigators may be punished for threatening to cause more than the ordinary embarrassment that comes with litigation. For example, a lawyer was recently sanctioned for trying to compel a settlement by threatening to issue press releases and use other extrajudicial means to embarrass the opposing party. In re Matter of Strojnik, No. PDJ 2016-9083 (Ariz. Nov. 16, 2016).

The threats in the English Ferster case probably crossed the line even by U.S. standards. On the other hand, it is easy to stay on the right side of the line, and U.S. litigators don’t often cross it. They may still threaten to bring colorable civil lawsuits, inflicting all the pain that such lawsuits conventionally entail.

Bruce Green

The author is the director of the Louis Stein Center for Law and Ethics, Fordham University School of Law.