Court Approves Suing Ex-Employee for Extortion

            It happens every day. A current or ex-employee threatens to "blow the whistle" on some perceived employer misconduct to leverage the employer into providing a beneficial change at work or a hefty severance package. If this happens, it turns out that, in certain cases, such threats constitute an illegal threat of extortion, says a recent California Court of Appeal decision. Here is what happened.

             When Jerome Stenehjem was terminated by his employer in 2011, he hired a lawyer to write his former employer a letter threatening suit if the employer didn't pay up. That letter stated that the employer and its CEO had wrongfully terminated Stenehjem and defamed him by telling other employees that Stenehjem was terminated for assaulting and battering a female employee.  The attorney letter claimed that potential damages would be "at least $2 million" and made a pre-litigation settlement demand of $675,000.

            The company responded that the claims were bogus and explained why.  The company's letter also stated that "the only way that Stenehjem would get any money from [the company] would be to get a judgment" and in another letter admonished the lawyer that the company "did not wish to mediate the case, and did not wish to waste any more time on pointless settlement discussions."

            Three months later, Stenehjem - who by this time was no longer represented by counsel - began sending a series of emails of his own threatening to sue his former employer if he wasn't paid a substantial settlement. The company responded: "You are apparently unable to take 'No' for an answer.  [the company] is not interested in spending any time on any further settlement discussions of your bogus claims." 

            Approximately one month later, Stenehjem sent his former employer yet another threatening email, only this time he implied that unless the employer paid him to settle his lawsuit he planned to report the company to the Department of Justice over some perceived business wrongdoing. When the company refused to give in to the former employee's threat, he filed suit against the company and its owner for wrongful termination and related claims.

            In an unusual move, the company and its owner responded to the claim with a cross-complaint against Stenehjem for extortion based on his threats to report them to the Department of Justice.  Much to Stenehjem's surprise, the California Court of Appeal agreed that his threats to report the company and its owner to the authorities were illegal acts of "extortion".

            In doing so, the Court first noted that the crime of extortion is defined in the Penal Code to include sending any writing "expressing or implying, or adapted to imply" a "threat to . . . expose, or impute to [another person] . . . any .... crime," with the intent of inducing the victim to pay money to the perpetrator.  The court further noted that "in many blackmail cases the threat is to do something in itself perfectly legal, but that threat nevertheless becomes illegal when coupled with a demand for money," and that such threats "are extortionate whether or not the victim committed the crime or indiscretion upon which the threat is based and whether or not the person making the threat could have reported the victim to the authorities or arrested the victim." 

            Under these definitions, the court found that Stenehjem's email about the Department of Justice constituted an implied threat to expose violations of federal law to induce the owner to pay money to Stenehjem-amounting to illegal acts of extortion. In making its findings, the Court particularly focused on two things. First, the ex-employee ignored the company lawyer's repeated assertions that his claims had no merit and that the company would not pay him any amount to settle. Second, and perhaps most importantly, the asserted whistle blower claims had nothing whatsoever to do with Stenehjem's previously-asserted wrongful termination and defamation claims.

            Stenehjem tried to argue that what he did couldn't be extortion because he never actually said that he would report the company's owner to the authorities unless he was paid off. However, the court quickly dispensed with this argument, making the common sense observation that often the most effective threats are where the extortionist is purposely vague in his or her intentions:

"The more vague and general the terms of the accusation the better it would subserve the purpose of the accuser in magnifying the fears of his victim, and the better also it would serve to protect him in the event of the failure to accomplish his extortion and of a prosecution for his attempted crime. . . . Moreover, a threat need not be overt or explicit to constitute attempted extortion by a writing under Penal Code section 523: It is not necessary that a threat should be apparent from the face of the letter, nor even necessary that it should be implied therefrom. The statute [Pen. Code § 523] says if the language used is adapted to imply a threat, then the writing is sufficient. Parties guilty of the offense here alleged seldom possess the hardihood to speak out boldly and plainly, but deal in mysterious and ambiguous phrases."

            What this means for employers.  In the right case, a counter claim for extortion might be a very potent strategy. But, when considering this tactic, both the employer and counsel must be mindful of the many legal landmines in doing so.

            First, don't be surprised if your lawyer is reluctant to assert an extortion claim. That's because the ethics rules governing lawyer behavior absolutely prohibit lawyers from threatening the opposing side with a criminal prosecution to obtain leverage in a civil matter, as this too would be extortion. Simply put, your lawyer risks his or her license to practice law.

            Second, its well-recognized that an employer commits a so called "public policy" wrongful termination where management expressly or impliedly conditions the employment on an employee engaging in behavior which the employee reasonably believes to be illegal or where the employee is asked to participate in a cover up of management behavior that runs afoul of the law. Without question, the threat to file that kind of claim is legally protected.

            Third, most state and federal employment laws contain potent anti-retaliation provisions which protect employees from retaliation where the employee threatens to contact the authorities over some perceived violation of an employment law affecting the employee or co-workers. Importantly, these laws are designed to give employees a voice without fear of retaliation. As a result, the employee can make out a claim for illegal retaliation even where it turns out that the underlying claim is entirely without merit.

            Finally, it seems as though the court's decision permitting the extortion counter-claim hinged on the fact that the threat in question was over business matters which were entirely unrelated to the ex-employee's claims about his employment or the termination.

            Nevertheless, in the right situation, employers may now have a potent weapon when facing extortionate threats from current or ex-employees.

            If you have any questions about this article, please call your contact at the firm. All of us here at BRG&S hope you are having a great summer. We are reachable at 818-508-3700 or at www.brgslaw.com.