Attorney Michael Avenatti has been charged in federal court in the Southern District of New York with trying to extort up to $25 million from Nike.
Avenatti was charged with a conspiracy to transmit extortionate communications. This crime is committed when someone transmits in interstate commerce a threat to a corporation’s reputation with the intent to extort money. The statutory maximum is two years.
Avenatti was also charged with Hobbs Act extortion, which is the obtaining of property from another, with consent, induced by wrongful use of actual or threatened fear of economic harm.
Avenatti’s legal team will likely try to dismiss this case at some point, arguing that it’s not extortionate to threaten to file a lawsuit.
That’s true. The Southern District of New York has held that threats of litigation--including meritless or even economically ruinous litigation—are not acts of extortion under the Hobbs Act.
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A lawsuit actually filed in court by lawful means cannot be “wrongful,” as defined by the Hobbs Act. If courts started holding that meritless lawsuits were extortionate, every unsuccessful lawsuit would lead to an extortion claim. This, the courts say, would chill resort to the legal system.
On the other hand, sometimes threatened litigation crosses the line and is extortionate. The federal appellate courts have held that when a lawsuit is not pursued exclusively by lawful methods, threats of litigation may constitute extortion.
A court considering whether Avenatti’s threats were lawful or extortionate would look at several factors. Avenatti allegedly tried to magnify the pressure on Nike by inflating the perceived magnitude of Nike’s potential exposure and the perceived likelihood that the exposure would result in massive liability for the company.
If Avenatti waged a pressure campaign premised on misrepresentations, then that likely takes the threats outside of the protective sphere of litigation. If this pressure campaign relied upon dissemination of false information or exaggerated estimates of Nike’s damages, then that might be extortionate.
Ultimately, the courts focus on whether there is a real relationship between the original plausible claim of Avenatti’s client, and Nike’s fear of a catastrophic adverse result.
If Nike’s fear was not based upon its actual liability, but instead based on the illegitimate means used to increase Nike’s exposure on that claim, then that’s likely extortionate.
Courts recognize that both sides in litigation accept the risk of an adverse result reached by fair methods.
But the federal appellate court in reviewing a recent Southern District of New York extortion case observed that a defendant crosses the line when he “magnifies the risks to its adversary by corrupting the litigation in order to ‘get the price up.’” This creates “leverage purely attributable to the corruption, which is inherently wrongful.”
Amazingly, Avenatti could have conformed his alleged conduct to the law with just a few simple steps. He didn’t have to threaten to “take $10 billion dollars off Nike’s market cap” or threaten to hold a press conference and reveal damaging information about the company.
He might have written a private letter to Nike’s counsel, enclosed a draft copy of a civil complaint (assuming, hypothetically, that he had articulable civil causes of action against Nike), and invited settlement or resolution in lieu of filing that civil complaint the next day. Just the court filing—no threats of any other adverse public consequences.
Or, to be really safe, Avenatti could have just filed a civil complaint against Nike and litigated it. Even if the claims in that hypothetical lawsuit were flimsy at best, that would have insulated him from the extortion statute.