Employers Should Look for Litigation Threats That Cross the Line Highlighted by Michael Avenatti’s Indictment

The fact-pattern is familiar to employers who have been on the receiving end of attorney litigation threats. A plaintiff’s lawyer calls, or writes a letter, outlining a potential claim by a client, makes a demand for damages, then perhaps throws in mention of the harm the company will suffer if the allegations become public.” Just another run-of-the-mill litigation threat from a plaintiff’s attorney. Nothing to make a federal case” out of it, right? Nothing criminal, right?

Well, maybe it is criminal. The recent charges filed by the United States Attorneys’ Office in the Southern District of New York against celebrity attorney Michael Avenatti highlight the lines that both management and plaintiff’s attorneys need to be aware of during communications involving threats of litigation.

On March 25, 2019, Mr. Avenatti was charged with various counts of extortion and conspiracy to extort in connection with his communications to Nike attorneys about a claim that a client of his had relating to allegations of misconduct by Nike employees. Specifically, Mr. Avenatti threatened to hold a press conference announcing the claims unless Nike acceded to his exorbitant demands of payment to him and his client, and his insistence that he and another attorney be paid to conduct an investigation” into the matter for Nike. The indictment described that Mr. Avenatti required payment of $1.5 million for his client and that he be retained to conduct an internal investigation for between $15 and $25 million, or, that Nike pay him a total of $22.5 million to resolve claims of client and buy Avenatti’s silence.

So, what makes this extortion?” The general rule is that threats of litigation, even if the claims are meritless and/or economically harmful, are not extortion. GI Holdings, Inc. v. Baron & Budd, 179 F.Supp. 2d 233 (S.D.N.Y. 2001); Building Industry Fund v. Local Union No. 3, Intern. Broth. of Elec. Workers, AFL-CIO, 992 F. Supp. 162, 176 (E.D.N.Y. 1996). The extortion line is crossed, however, when one magnifies the risks to its adversary by corrupting the litigation in order to get the price up.’” Chevron Corp. v. Donziger, 974 F.Supp. 2d 362, 580 (S.D.N.Y. 2014). Essentially, lying about the risk makes the communications extortionate because it creates leverage that bears no proper nexus to any plausible claims that may have been asserted in the first place, and from which the victim has a right to be free.” Id.

Here, Mr. Avenatti likely crossed the line when he made repeated reference to the harm that going public with his client’s claims was going to cause Nike. The indictment states that Mr. Avenatti told Nike that if his demands were not met that he would go take ten billion dollars off [Nike’s] market cap.” This out-sized amount was clearly meant to gain the leverage” that the courts hold has no nexus to any plausible claim.

The Avenatti indictment is likely to check the tactics of even the boldest plaintiff’s counsel. Nevertheless, the lesson for employers is clear: the next time your company is faced with an out-sized threat of harm by an ambitious plaintiff’s counsel ask yourself if the harm claimed is proportionate to the allegations, and consider asking for counsel’s basis for his claim. If there is none, or the basis given is suspect, consider the possibility that you could be the victim of criminal extortion necessitating the involvement of the prosecutor’s office.