Extortion vs. Settlement Negotiations
The criminal complaint filed against Michael Avenatti is an interesting reminder that the line between extortion and settlement negotiations is a thin one. In a federal court complaint filed in the Southern District of New York, the government accuses Avenatti of extortion by threatening to publicly release, through a press conference and otherwise, damaging information about the misconduct of Nike employees unless Nike made multimillion-dollar payments to Avenatti and a significant payment to his client. According to the complaint, he demanded that the monies be paid quickly, and announced a press conference on his Twitter feed at which time he would expose Nike. Among even more colorful and profane language, according to the complaint, Avenatti allegedly stated, “I’ll go and I’ll go take 10 billion dollars off your client’s market cap… I’m not [bleeping] around.” One of the alleged extortion methods was an unsolicited offer that Avenatti and an unnamed co-conspirator would conduct an “internal investigation” for which Avenatti and his co-conspirator would be paid $15 to 25 million. If the demands were met, he promised confidentiality and that his client would “ride off into the sunset.” Federal prosecutors called this conduct “an old-fashioned shakedown.”
Beyond the incendiary facts, the fascinating aspect of this case is that the express or explicit threat of public disclosure and publicity is often present in high-profile cases, especially employment matters such as sexual harassment. And the line between hard bargaining and extortion may not be crystal clear. The mere threat to file a lawsuit, even a meritless lawsuit with obvious economic ramifications, generally is not deemed to be extortion. However, if the methods used – false information, publicity, grossly exaggerated economic demands with a flimsy connection to the claim, and unusual payments directly to the attorney threatening to file a criminal complaint – are illegitimate, such conduct could cross the line between aggressive and zealous advocacy and extortion.
The Avenatti saga should be a cautionary tale for high-profile plaintiffs’ attorneys. The lessons for companies, in-house lawyers and the external lawyers who represent them in employment lawsuits and other high-profile matters are: (1) the ubiquitous nature of social and other media in 2019 makes extortion tactics easier; (2) do not assume that extortion in high-profile matters or litigation is business-as-usual or needs to be tolerated; (3) in the desire to avoid publicity or embarrassing facts, do not become complicit in the threats by acceding to shady arrangements.