Fourth District Court of Appeal courthouse in Santa Ana, CA.

Where is the line between making a litigation threat and committing extortion?

In a decision overturning the conviction of Newport Beach attorney James Toledano, the Fourth District Court of Appeal clarified Monday that the “litigation privilege” defense to extortion charges applies when lawyers make threats in the context of pending or potential litigation “contemplated in good faith and under serious consideration.”

Although the court found that state prosecutors put forward sufficient evidence to convict Toledano of conspiracy to commit extortion, the three-judge panel held that the jury was prejudiced by the trial judge's decision not to issue an instruction on Toledano's affirmative defense that his actions were protected under the litigation privilege.

“On this record, there is a reasonable chance the jury would have rendered a more favorable verdict for Toledano had it been properly instructed that the litigation privilege could protect Toledano's communications,” wrote Fourth District Justice Richard Aronson.

An Orange County jury convicted Toledano in 2014  based on his actions on behalf of Michael Roberts, a personal trainer who had a falling out with his former employer, referred to in the opinion as Mr. M. According to the appellate opinion, Roberts had a close relationship with Mr. M and his wife, Mrs. M: He ran a gym for Mr. M.'s employees, lived in the couple's guest house, mixed with their friends, and received expensive gifts from them. In late 2005, that changed, according to the opinion, when Mrs. M cited a change in demeanor in Roberts.

Toledano became involved on Roberts' behalf in 2007 when he wrote Mrs. M. a letter claiming he'd been retained to respond to the “three and a half year campaign against” the trainer involving “defamation, improper and unlawful harassment, and constant interference with most aspects of [Robert's] life.” Toledano claimed Roberts “lost a successful business and an annual income over the past three years of approximately $250,000-$350,000 a year.”

After Roberts made a threatening phone call to Mrs. M, and the couples' lawyers secured a hearing date for a potential restraining order against him, Toledano asked the couple's lawyer for a meeting. Their attorney reported that Toledano said he had information that would “blow [the couple's case for a restraining order] out of the water.” Toledano claimed that Mrs. M. and Roberts had been involved in a long-term affair and he had photographs and letters as proof. Toledano stated if Mrs. M. failed to pay $350,000, the details of the affair would be aired to Mr. M. and the media at the hearing on the restraining order.

The couples' lawyers contacted local law enforcement shortly thereafter and wore a recording device in future meetings with Toledano. After convicting Toledano of conspiracy, Orange County Superior Court Judge John Conley sentenced the lawyer to three years of probation and nine months in local custody. The sentence had been stayed while the appeal was pending.

On Monday, the Court of Appeal found that Conley erred by failing to give his own instruction on the litigation privilege after he rejected a proposed defense instruction that was defective.

The court found that the following special instruction should have been given to the jury:

“The litigation privilege may be a defense to the charged crimes. The defendant is not guilty of the charged crimes if the litigation privilege applies to his communications. The defendant's communications are protected by the litigation privilege if: 1. The communication was made in a judicial or quasi-judicial proceeding; AND 2. The communication was made by litigants or other participants authorized by law; AND 3. The communication was made to achieve the objects of the litigation; AND 4. The communication had some connection or logical relation to the action. Although the litigation privilege applies to communications made in a judicial proceeding, the litigation privilege is not limited to statements made in a courtroom. It encompasses not only testimony in court and statements made in pleadings, but also statements made prior to the filing of a lawsuit. A prelitigation communication is privileged only when it relates to litigation that is contemplated in good faith and under serious consideration.”

Toledano's court-appointed appellate lawyer, Costa Mesa defense lawyer Correen Ferrentino, said that she was pleased that the Court of Appeal recognized her client was entitled to a defense that all his statements were covered by the civil litigation privilege.

“In fact, his conduct, in my opinion, is consistent with what civil lawyers do all the time when advocating for their clients, settling lawsuits and defending against false allegations,” she said. Ferrentino, who took over Toledano's case from Santa Rosa attorney Thea Greenhalgh, who died while the appeal was pending, said that she was glad the court published the opinion “to clarify for the courts and prosecutors that certain conduct is privileged and there are important public policy reasons why—one of which is to allow for the settlement of disputes without actual litigation in court.”

Representatives of the California Attorney General's office didn't immediately respond to a request for comment Tuesday.