Key Decisions

August 2013 – A Pre-Litigation Demand Letter Was Privileged

(filed under: Key Decisions | August 16, 2013)

A Pre-Litigation Demand Letter Was Privileged

Malin v. Singer
(Cal. Ct. of App., 2d Dist.), filed July 16, 2013, published July 16, 2013

KEY FACTS

Shereene Arazm consulted with her attorney, Martin Singer, regarding alleged misappropriation of company assets by Michael Malin and Lonnie Moore. Singer sent Malin a demand letter and draft of Arazm’s proposed complaint. Together, Malin interpreted these documents as threatening to expose a secret sexual encounter Malin did not want people to know about. The letter stated:

I am litigation counsel to Shereene Arazm. I am writing to you with respect to your outrageous, malicious, wrongful and tortious conduct. As a result of your embezzlement, conversion and breach of fiduciary duty, you have misappropriated more than a million dollars from my client. As a result thereof, my client intends to file the enclosed lawsuit against you, Lonnie Moore, and various business entities that you and Mr. Moore control. As alleged in the Complaint, you, Mr. Moore and several of your co-conspirators have been embezzling and stealing money from Ms. Arazm and Geisha House, LLC for years. As set forth in detail in the Complaint, you and Mr. Moore have devised various schemes to embezzle money from the restaurants and clubs which you own and/or manage, including, but not limited to Geisha House and WonderLand. You and Mr. Moore have created a special account or “ledger,” which allows you to keep tabs on how the stolen funds are divided among you, Mr. Moore and your various co-conspirators. My client intends, as part of the lawsuit, to seek a full-fledged forensic accounting of the books and records for Geisha House, LLC, 2HYPE Productions, Inc., LTM Consulting, Inc., and Malin & Moore Enterprises, LLC, in addition to your personal accounts.

In addition, as set forth in the Complaint, we have information that you and Mr. Moore have engaged in insurance scams designed to defraud not only the insurers of your establishments, but also the insurers of WonderLand. You have also taken steps to hide your assets from creditors as well as from the taxing authorities. We are aware that you have converted my client’s monies and deposited them in accounts in the Cook Islands. We have also confirmed that you have planned to illegally transfer your shares in Geisha House Los Angeles to Sylvain Bitton in a further attempt to hide from creditors and avoid tax liability.

Because Mr. Moore has also received a copy of the enclosed lawsuit, I have deliberately left blank spaces in portions of the Complaint dealing with your using company resources to arrange sexual liaisons with older men such as ‘Uncle Jerry,’ Judge [name redacted] a/k/a ‘Dad’ (see enclosed photo), and many others. When the Complaint is filed with the Los Angeles Superior Court, there will be no blanks in the pleading.

My client will file the Complaint against you and your other joint conspirators unless this matter is resolved to my client’s satisfaction within five (5) business days from your receipt of this Complaint.”

Singer included with the letter a photograph of the judge and a copy of the draft complaint. The draft complaint did not identify any alleged sexual partners, but contained several blank spaces and redactions that, according to the letter, would be filled in before the complaint was filed. The draft complaint stated:

“[O]ver the past several months, _______________ has arranged through email and through Internet websites such as craigslist.org to have multiple sexual encounters with [redacted] which include _________________________. Based on information and belief, _______________ used company resources to facilitate these rendezvous and to communicate with various [redacted] including _______________, _______________, and _______________.”

After he received the demand letter, Malin sued Singer and Arazm for civil extortion, violation of civil rights, and intentional and negligent infliction of emotional distress. In turn, Arazm sued Malin for conversion, breach of contract, breach of fiduciary duty, accounting, and civil conspiracy.

Arazm and Singer moved to strike Malin’s complaint as a SLAPP suit arising from the exercise of Arazm’s constitutionally protected rights of speech or petition. The trial court denied the motion.

HOLDING & REASONING

The Court of Appeal reversed, to the extent that the trial court denied the motion as to Malin’s cause of action for civil extortion.

The court rejected Malin’s argument that the cases of Flatley v. Mauro, 39 Cal.4th 299 (2006) and Mendoza v. Hamzeh, 215 Cal.App.4th 799 (2013), precluded the trial court from granting Arazm and Singer’s motion. It held that Singer’s demand letter did not constitute civil extortion, as was the case with the demand letter in Flatley and Mendoza.

Ordinarily, a demand letter sent in anticipation of litigation is a legitimate speech or petitioning activity, is privileged, and will not support a claim.

But, in Flatley, the Supreme Court articulated an exception for a demand letter that was so extreme that it was found to constitute criminal extortion as a matter of law. In finding that the letter in Flatley constituted criminal extortion, the Supreme Court observed: “That the threats were half-couched in legalese does not disguise their essential character as extortion.”  And, it cautioned that its discussion of what constitutes “extortion as a matter of law” was “limited to the specific facts of this case.”

In Mendoza, the court found the anti-SLAPP statute did not apply because the demand letter improperly and unlawfully threatened to report the recipient’s conduct to the authorities unless the dispute was settled.

After analyzing the Flatley and Mendoza cases, the court noted: “In contrast with the demand letters in Flatley and Mendoza, Singer’s demand letter did not expressly threaten to disclose Malin’s alleged wrongdoings to a prosecuting agency or the public at large.” It noted:

[T]he “secret” that would allegedly expose him and others to disgrace was inextricably tied to Arazm’s pending complaint. The demand letter accused Malin of embezzling money and simply informed him that Arazm knew how he had spent those funds. There is no doubt the demand letter could have appropriately noted that the filing of the complaint would disclose Malin had spent stolen monies on a car or a villa, if that had been the case. The fact that the funds were allegedly used for a more provocative purpose does not make the threatened disclosure of that purpose during litigation extortion. We cannot conclude that the exposure of Malin’s alleged activities would subject him to any more disgrace than the claim that he was an embezzler.

ANALYSIS

It is not always easy to draw the line between a legitimate advocacy and threats that go too far. In fact, the court noted that, “In reaching [the] conclusion [it did in Flatley], the court explained it was not implying that rude, aggressive, or even belligerent prelitigation negotiations, whether verbal or written, that may include threats to file a lawsuit, report criminal behavior to authorities or publicize allegations of wrongdoing, necessarily constitute extortion.”