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San Diego Business Law: Demand Letters and the Litigation Privilege

Occasionally, a San Diego business will find itself confronted with a potential breach of contract. When this happens, one of the first steps to take is to send a “demand letter” asking that the other party perform its obligations. An experienced San Diego corporate attorney should draft your demand letters. Such letters are an important pre-litigation step for two reasons — the letter might actually avoid the litigation and the letter is important evidence that shows a judge or jury that your business took commercially reasonable steps to avoid the dispute and honor the contract.

A different concern for San Diego businesses is the legal problem of business defamation or slander. Legally, defamation/slander is the saying or writing of some falsehood about another (including a business) that is published. This is a concern when writing a demand letter (which is another reason for having experienced corporate counsel). In general, defamation/slander claims have been successful over false claims about indebtedness or whether one honors one’s payment obligations. As an example, if Felicia says to a group of people that “Ashley has cheated me and has not paid me the money she owes me,” that might be considered defamation/slander. The word “cheated” has bad moral associations and might be slanderous. More pointedly, the statement “has not paid me the money she owes” is definitely slander if, in fact, Ashley has paid or does not actually owe the money. Punishing these sorts of statements is important in the business world since trust and reputation are so vital in today’s marketplace. Thus, the law properly punishes a business that falsely claims that another business “does not pay its debts.”

So, back to demand letters and the litigation privilege. Continuing with the example, it could be considered defamation/slander if Felicia sends a letter to Ashley that states: “You are behind in your payments. Please remit payment for the money that you owe me.” As above, Felicia is asserted potentially false claims that Ashley owes money and that Ashley has not made payments. But, if such a letter is being sent in preparation for litigation, then the letter cannot be used as evidence of defamation/slander. This is what is meant by “Litigation Privilege.” The demand letter is privileged against claims of defamation/slander. The public policy purpose is to encourage businesses to discuss their legal disputes. Maybe Felicia is wrong, and Ashley is correct. There really is no debt obligation. By sending the letter, Felicia may obtain information from Ashley that fixes the problem and avoids litigation. Ashley might call and say, “I did pay, check your mailbox.” The law does not want to punish efforts to resolve commercial disputes.

The litigation privilege is provided by Cal. Civil Code, § 47(b) which states that one is allowed to make a “privileged publication or broadcast” as part of a “judicial proceeding.” California courts have held this to include demand letters sent as a lead-up to litigation.

Contact San Diego Corporate Law

For more information, contact Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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