Demand letters are valuable tools for creating records, dispute resolution, and much more. But, they can backfire and lead to liability for the sender and even its attorney for threats or demands that are legally improper. Today, we’ll cover some of the basics of when demand letters go too far.
What is the purpose of a demand letter?
Many things fall under the umbrella of a “demand letter” for purposes of this post: a cease and desist letter, notice of default, notice of breach, notice of violation, demand to cure, etc. Demand “letters” are generally written, but for the purposes of this post, I also include non-written demands (i.e., a telephone call).
In a typical demand letter, the sender demands that the recipient stop doing something or take a corrective action. Recipients often ignore these letters or respond and claim they didn’t do anything wrong. Even in those cases, putting a party on notice of wrongdoing may be helpful to create a record. It may also fulfill a contractual requirement before the sender can take formal legal action.
For the rest of this post, I want to look at two examples of when demand letters go too far: extortion and attorney ethics violations.
When demand letters can become extortion
Extortion is generally a criminal offense depending on the state. I practice in California, where extortion is in our penal (criminal) code. Here’s what the law says in part:
(a) Extortion is the obtaining of property or other consideration from another, with his or her consent, or the obtaining of an official act of a public officer, induced by a wrongful use of force or fear, or under color of official right.
(b) For purposes of this chapter, “consideration” means anything of value . . . .
In plain English, if someone uses a wrongful threat of force or fear to obtain something of value, that’s extortion. One clear example of potential extortion could be the threat to wrongfully report someone to the police for a crime if they didn’t comply with a demand. See Mendoza v. Hamzeh, 215 Cal.App.4th 799, 805 (2013):
“The threat to report a crime may constitute extortion even if the victim did in fact commit a crime. The threat to report a crime may in and of itself be legal. But when the threat to report a crime is coupled with a demand for money, the threat becomes illegal, regardless of whether the victim in fact owed the money demanded.”
This is a potential minefield for the cannabis industry. Cannabis is federally illegal and can even be illegal at the state level. Our dispute resolution team has seen countless examples where parties and even lawyers have made demands that threaten to report conduct to the authorities (this is especially dangerous for lawyers, which I discuss below). This type of threat can lead to liability for the party making a demand that they otherwise wouldn’t have faced.
Improper demand letters can violate legal ethics rules
On top of general prohibitions on extortion, lawyers are not permitted to use threats of administrative or criminal penalties to gain advantage in a civil proceeding. This is true even before the demander files a case. So on top extortion issues, threatening to report someone to an agency or have them prosecuted can lead to additional liability for a lawyer.
So what is proper in a demand letter?
Almost all demand letters make some kind of “threat.” Some are okay, and some are not.
Let’s say a cannabis landlord demands that its tenant pay rent, and threatens to sue for damages if it doesn’t. That is usually a legitimate demand. It almost certainly would be extortion if the landlord threatened to burn down the tenant’s house if the tenant didn’t pay.
Here’s a less clear cut example: the same landlord found out its tenant was violating cannabis regulations at the premises. It sent a demand to cure and threatened to report it to the police and cannabis agency and sue it if it did not. The threat for a suit for damages is probably legitimate in many cases. But the threats to report could be prohibited by state attorney ethics rules.
The bottom line here is that there are areas where demands are clearly improper. Sometimes, it can be hard to tell where to draw the line. A good lawyer will be able to walk a client through the best course of action in making a demand. And a good lawyer will also be able to help a client figure out what remedies they have when receiving an improper demand.