Legitimate Grounds to Threaten Legal Action
The law requires lawyers who willfully threaten or bring frivolous legal actions against others to risk loss of both their professional reputation and perhaps their law license. So, what are the basic legal "prerequisites" that must be met? Here’s the gist of it:
1. There must be a legitimate basis for believing that the threatened claim has merit. Generally speaking, this requires a factual basis to support each element of a properly stated cause of action in the jurisdiction. In most cases, the attorney must receive sufficient evidence before threatening legal proceedings that the evidentiary support for each essential element of the cause of action exists; otherwise, if the claim is not viable because its factual foundation is lacking, the claim is frivolous.
2. The threatened claim must be based upon a proper legal theory and have a legal basis. This means, effectively, that the threatened claim should have a textually arguable legal foundation in applicable statutes, case law, administrative regulations, or rules of courts.
3 . The client must be advised of the potential consequences of pursuing the claim (becoming liable for malicious prosecution and/or abuse of process, among others). A failure to adequately inform the client of these potential consequences can hurt the attorney in the event of a later malicious prosecution/legal action brought against the client.
4. The attorney must have a good-faith factual basis for concluding that the client has a rational belief that the merits of the threatened claim outweigh its potential risks, and the factual basis for a conclusion to that effect is enough for the attorney to convey the information above to his/her client.
5. The attorney’s purpose for threatening the legal action must be innocent and cannot be for an ulterior purpose. So, if the motivation for threatening legal action is to force the recipient to abandon legitimate claims, the attorney may be liable. This is not to say that legitimate claims can’t be pursued, just that the purpose for bringing the suit or threatening suit cannot simply be to harass the other party or benefit the attorney’s client at the other party’s risk.
Ethical Considerations for Lawyers
The American Bar Association Model Rules of Professional Conduct (the "Rules") govern lawyer conduct in the United States. Although all states have adopted their own version of the Rules, varying slightly from state to state, the principle duties enunciated in the Rules remain the same in every jurisdiction. The Code of Ethics and Professional Responsibility of the State Bar of California is an example of the Rules as adopted by one state. California law (and rules) apply to attorneys litigating in the state’s courts or asserting subject matter jurisdiction in California.
The Rules contain many provisions relevant to threatening legal action. For example, Rule 3.1 prohibits a lawyer from pursuing litigation that is not "warranted under existing law" unless the lawyer can support the argument for change in the law. And Rule 3.4(e) prohibits a lawyer from "knowingly" making a discovery effort "that has no substantial purpose other than to burden or harass." Other rules — such as Rules 3.2, 4.4, 4.5, and 5.1(iii) — likewise speak to actions that can amount to unethical threats.
The Model Code Probable Cause Panel administers the Rules and handles allegations of wrongdoing by lawyers. The Panel can sanction a lawyer privately or by public censure (i.e., by publication of the lawyer’s name and the Panel’s decision). A lawyer’s license to practice law may also be suspended or revoked in some states upon a finding of misconduct.
Threats of Legal Action Distinguished From Legal Advice
The law draws a distinction between providing an opinion as to the clients’ rights and what steps may be taken at law (ie legal advice) as opposed to making the threats of legal action against the other party (or their adviser). Lawyers, like other people or businesses, can only engage in misleading or deceptive conduct when making a misrepresentation (see below). On the other hand, there is no such thing as misleading or deceptive conduct where you are advising your client as to the potential steps that may be taken to enforce their legal rights. Such advice does not in itself amount to anything deceptive or misleading.
Some lawyers use the threat of legal action perhaps more often than they should. Sometimes this behaviour is dangerous and crosses the line into misleading or deceptive conduct. More often than not it is over-stated, with clients paying for such threats to be made by their lawyers, without appreciating they will be better off enforcing their legal rights instead. Legal advice should always be honest, in that the facts are stated truthfully and all relevant circumstances are disclosed. It should be able to clearly and consistent advise as to the advice provided as well as what steps may be taken to enforce those legal rights (if any).
Empty Threats in the Legal Context
When you make empty threats in the course of dealing with other lawyers, which may include inaccurate information about what the law says or blatant misstatements of the facts, you run the risk of undermining your own credibility, turning even the most routine matters into intractable disputes, and satisfying any judge’s worst fears about the state of the universe and the people that walk upon it. If you do it often enough, consensual dispute resolution systems will disregard you and the state of the court system will move on without you.
I can tell you from personal experience in mediation that lawyers who play the empty threat game wind up with less than satisfactory resolutions in their cases. Judges , mediators and others invested in justice quickly figure out who the playmakers are and they penalize them by hunkering down and forcing the case up the chain to someone who is going to be disinclined to provide the relief they would have provided had the case not been poorly played at the beginning. This will often result in an above or below market settlement at mediation, an unproductive discovery dispute and a more expensive litigation overall.
Occasionally, because of the importance of the case or the amount of money at stake, a lawyer will be able to get away with doing the gorilla chest thump/repeat the empty threat scenario on more than one matter. Over time, however, the lawyer will find themselves in the predicament of needing the cooperation of the very people they have toyed with before and they will not be able to obtain it. This creates a credibility antagonism with the judges, arbitrators and mediators who handle their case, a gap in the way their case is handled by the court, and limits their access to alternative dispute resolution.
Responding to Legal Threats
At first glance, a letter from a lawyer threatening litigation can be alarming. If a lawsuit is ultimately filed and not resolved before trial, litigation can cost tens of thousands of dollars or even more. However, just because a threat has been made, does not mean it will be followed through. Before proceeding any further with this article, it should be noted that the following recommendations do not substitute for speaking with your own lawyer or other legal professional.
How To Respond to Threat of Lawyer Action The first thing to ask yourself or your business is whether the person sending the letter has retained the lawyer on his or her own behalf as opposed to through a representative. In many cases, parties will hire a lawyer to explore the possibility of resolving a dispute before filing a case but will reserve the right to change their minds. When a lawyer is retained in this manner the client is usually attempting to use the letter to intimidate the person on the other side into backing down. Therefore, it may not be necessary to incur the cost of hiring another lawyer while the client is still undecided about whether or not to file suit. A second consideration is whether the lawyer whose contact is on the letter is a litigator or not. A litigator is a lawyer who spends almost all of his or her time filing lawsuits, attending court hearings, representing clients at trial, etc. On the other hand, an attorney who does not practice litigation does not spend most of his or her time in court; often the case that is threatened is not one that the letter-writing attorney intends to handle. A third consideration: Finally, it is important to keep in mind that where there is a potential for filing a lawsuit, you need to preserve evidence-that is every bit as true here as in any other dispute. This means if it is a lawsuit that could lead to litigation, you may need to send a "litigation hold" letter to the other party to preserve evidence such as e-mails, texts, etc. Depending on where you or your business is located additional requirements may exist to preserve evidence.
Case Examples of Legitimate and Illegitimate Threats
In real life, there are far more situations in which legitimate threats of legal action were made than those in which they were not. This is because a lawyer who threatens a lawsuit for a purpose other than what is permitted by law faces disciplinary action from his or her state bar. However, even when a lawyer "goes rogue" and issues a threat of legal action for a purpose other than that permitted by law, he or she may likely face an attorney discipline committee and/or sanctions from the courts. This section will analyze some case studies where courts or attorney discipline committees found attorney threats to not be justified and where others found attorney threats to have been justified.
Case Study 1
Peterson v. American Telecom Services Inc., 2013 WL 5567437 (Minn. Ct. App. Oct. 7, 2013)
American Telecom Services was a limited liability company that operated a call center. Its managing partner, Jennifer Neitzey, hired attorney Earl S. Haugen to review the company’s contract with a marketing company. Neitzey also requested from Haugen a referral for telephone service, which Haugen provided to a local telephone company. Neitzey later told Haugen that she did not understand the phone contract and believed the rates were too high. Haugen wrote a letter to the telephone company on behalf of American Telecom in which he demanded that the contract with the telephone company immediately terminate. In his letter, Haugen stated that American Telecom did not receive a "proper cost analysis or quote for telephone services prior to committing to the current contract." In addition, he stated: "Our client has asked us to put you on notice that if in fact you do not agree to discharge them of the existing contract within seven days from the date of this letter, we will cause to be commenced, without further notice to you, an action in Minnesota court against you for violations against Minnesota Statute §325D.09 regarding this erroneous and misleading contract." The telephone company did not respond to the letter. In response, Neitzey filed a complaint against Haugen and American Telecom with the Minnesota Office of Lawyers Professional Responsibility alleging that the letter from Haugen defamed and threatened her. In its complaint, American Telecom claimed that its issues with the rates and performance of the phone company were legitimate and that the letter from Haugen to the phone company was justified based on those issues . The court disagreed. It held that because the letter violated Rules 3.1 and 4.5 of the Minnesota Rules of Professional Conduct, which both prohibit baseless legal claims and require the issuance of threats to be in good faith, it was thus an abuse of discretion for the district court to dismiss American Telecom’s contract claims.
Case Study 2
Arborwood at Midway, LLC v. United Heritage Ins. Co., 2014 WL 1342749 (Tex. Ct. App. March 28, 2014)
In this case, a plaintiff who filed a lawsuit against a company as well as an insurance company that provided coverage to that company was sanctioned for a letter issued by the plaintiff’s lawyer that threatened a lawsuit against the insurance company (among others) in violation of Rule 3.04(d) of the Texas Rules of Professional Conduct, which requires lawyers to make reasonable efforts to expedite litigation consistent with the interests of the client. Reasonable efforts, the court noted, do not include filing meritless lawsuits. While Arborwood argued that the letter issued by its attorney was justified since it truly intended to pursue its claims and, as such, there was nothing in the letter that was sanctionable, the court did not agree. The court noted that the letter was sent to thirteen individuals and companies and threatened all thirteen with litigation. It also states that the insurance company "has committed fraud in procuring, and in the subsequent renewal of the referred policies." Since the letter could have only been sent to the insurance company and not the others, the court found that the letter was clearly a bad faith threat of litigation. As such, the court affirmed the lower court’s imposition of sanctions.
Case Study Three
Shine Lawyers v. Trent, 2016 WL 4091962 (QCA September 2, 2016)
In this case, two Australian solicitors issued a threatening letter to the Australian Minister for Trade and foreign direct investment that they would take action against her related to the effect of foreign investment in land of farmers in rural areas unless the Minister referred the matter to the appropriate parliamentary committee for investigation. The court ruled that the letter was a legitimate attempt to initiate a public inquiry into the impact of foreign investment on Australian farmers and found that the solicitors’ letter did not breach any professional or statutory obligations, nor was it an abuse of process.
