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Lawyers’ Risk Management Newsletter, May 2022

The California Court of Appeal, Fourth District’s recent opinion in Falcon Brands, Inc. v. Mousavi & Lee, LLP, No. G059477, 2022 WL 246851 (Cal. Ct. App. Jan. 27, 2022) addressed this topic. That matter arose out of Amy Mousavi’s client, Nick Honard, being terminated by Falcon Brands, Inc. and Coastal Harvest II, LLC (collectively Falcon), a cannabis distributor. On October 8, 2019, Mousavi e-mailed a letter to Falcon’s counsel that summarized Honard’s employment claims and then itemized eleven allegedly illegal activities engaged in by Falcon, which included violations of California employment laws or Bureau of Cannabis Control (“BCC”) regulations, as well as alleging bribery of a deputy district attorney.

Mousavi then offered to settle Honard’s claims for $490,000. She required a response to her demand by the next day or else she would file a complaint and notify Falcon’s planned merger partner, Harvest Health and Recreation, Inc. (Harvest), about the complaint against Falcon, which would matter because Harvest would remain liable as the surviving corporation after any merger.After Falcon’s counsel responded, Mousavi, in an October 9 email and telephone call, again stated that she would be notifying Harvest of Honard’s claims and Falcon’s violation of various cannabis statutes and regulations before filing the complaint.

On Friday, October 11, Mousavi sent another e-mail to Falcon’s counsel: “I have put the attorneys for [Harvest] on notice about Mr. Honard’s claim for wages, without disclosing other issues mentioned in my letter of October 8, 2019. However, Harvest has requested that I forward the demand letters I have sent you. I am planning to e-mail those letters on Tuesday. Please call me if you have any questions. Thanks.”The parties failed to reach a settlement. On January 31, 2020, Mousavi filed Honard’s complaint against Falcon. The complaint alleged that Falcon engaged in specific illegal activities, but he did not affirmatively link those acts to either his wrongful termination or the non-payment of his commissions, salary, or expenses.

Falcon filed a cross-complaint against Mousavi and her law firm, Mousavi & Lee, LLP, for, among other things, civil extortion based on Mousavi threat to report Falcon’s alleged criminal acts to Harvest unless Falcon paid $490,000 to settle Honard’s claims against it. The trial court granted Mousavi’s motion to strike.On appeal, the Fourth District found that the October 8 email, “standing alone” did not cross the line by referencing state law violations within its demand. The Court found that the email was a “close[] call when considered by itself”; it contained an implicit threat by listing Falcon’s crimes but did not link them to her settlement demands.

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