It is commonly known that you are not allowed to “extort” money from a person. What does it mean to extort money? The definition is to obtain something by force, threat or other unfair means. In other words, you can’t threaten to turn in a criminal unless they pay you money. But what about employment situations where the employee may know about the bad acts of their employer and wants to sign an agreement that they won’t blow the whistle for a fat payday when they quit?
In California, the appellate court decided this was not proper. They issued employees a stern warning that they better be careful when negotiating their settlements with their employers. Any threat, even a veiled threat, that the employee was going to turn in the employer for something real or false would be considered improper. The case was called Stenehjem v. Sareen. The opinion of the court was that when the employee threatened that unless his employer paid him a lot of money to stay quiet, he would turn his employer into the government for a False Claims Act or a qui tam violation. While qui tam is most typically a civil suit, the threat was seen as improper and violated the extortion statutes. The court did rely on the fact that qui tam can have serious criminal penalties attached to those cases, even though most are civil in nature.
Stenehjem v. Sareen Explained
The background facts of the case are important to fully understand the court’s message. Here the plaintiff was fired from this job at Akon, Inc. The plaintiff became angry with the employer because he found out that a rumor was being spread that he was fired for assaulting a female coworker. At that point the plaintiff hired an employment attorney and demanded the company pay him $675,000 as a settlement on the defamation of his character.
Akon did not pay up and instead decided to fight the charges. The plaintiff’s lawyer was ready to proceed forward, but instead of letting his lawyer do the talking for him, the plaintiff took his own action and emailed Akon’s president and CEO, and its legal counsel. The email has a subject line that simply said, “Qui Tam.”
The email accused the president and CEO of creating false accounting documents that would cause him and the company criminal liability with the government if the government found out about this information. The email set out that the plaintiff “never wanted this to become a long and expensive process let alone involve the United States Attorney General, the Department of Justice or the DOD.” He also said that he had already consulted with a qui tam attorney and that he didn’t really want to “make a federal case out of this.” But he felt that Akon’s response did not give him any choice.
Akon’s president and CEO intentionally did not respond to the plaintiff’s qui tam threat email. At that point the plaintiff told his civil attorney to sue Akon for defamation and wrongful termination.
Akon countersued for what else but “civil extortion.”
Now the case takes a quick U-turn in the morass of legal maneuvering under California law. The plaintiff filed what is called a SLAPP lawsuit against the Akon. SLAPP is an acronym that stands for “Strategic Lawsuit Against Public Policy,” which really means that Akon only sued the plaintiff to shut him up, not for a real reason. The thought was that threatening a qui tam suit is not illegal and is protected under our First Amendment rights to freedom of speech.
Many states have anti-SLAPP statutes. We have one in Florida as well, but it is not nearly as far-reaching as the California statute. So, the point here is that, while in California the SLAPP statute was a good strategy, it did not work. The California court rejected the plaintiff’s motion to dismiss Akon’s complaint under SLAPP. The court then went way further than the plaintiff bargained for. The court found, as a matter of law, the plaintiff’s pre-litigation qui tam email constituted extortion because it “threatened to expose [the president and CEO] to federal authorities for alleged violations of the False Claims Act unless he negotiated a settlement of [the plaintiff’s] private claims.”
The court really examined the entire picture before coming to a conclusion on whether there was an anti-SLAPP purpose to Akon’s lawsuit. They also looked at the working history between the parties, the total communication between the parties and the history between the parties. One big reason the court determined the behavior was extortion was that there we no connection between why the plaintiff was fired, what was said that was defamatory and what the plaintiff threatened to expose in the qui tam/False Claims Act lawsuit. The court also determined that simply because the plaintiff’s qui tam email did not demand money that is was separate and apart from the ongoing negotiations. The court felt that the threats could be mysterious, ambiguous or otherwise non-descript, and still hold extortion force and effect.
What is our takeaway from this case?
While most litigation, and all settlement negotiations, are battles for money that often can get heated, the parties must not cross the line between civil levers and criminal threats. Once any party threatens a possible action by the authorities related to claims of criminal activity it will be considered extortion and not fair negotiating tactics. Further, the threats can be pretty veiled, so beware that anything you say can be used against you in the future.
The best answer is to rely on experience and intelligent counsel. Call an attorney who understands the qui tam statutes before you tell anyone about what you know. Never make a threat hoping to extort money from a person. If you have the information then use it properly, and do the right thing.