Litigation
Acts of dishonesty can often lead to a courtroom, whether they come from business partners, competitors, contractual counterparties, or employees. Companies should understand some of the most common types of claims, and the typical defenses to them.
RICO (Racketeer Influenced and Corrupt Organizations Act)
Civil RICO can transform ordinary business disputes into federal cases with potentially devastating consequences. Originally designed to combat organized crime, RICO now appears regularly in commercial litigation, offering successful plaintiffs triple damages and attorney fees
Civil RICO Claims
To establish a RICO violation, plaintiffs must prove a "pattern of racketeering activity," which sounds more dramatic than it often is in practice. The pattern requires at least two related criminal acts within ten years—typically mail fraud, wire fraud, or money laundering in business cases. However, simply alleging multiple instances of fraud isn't enough. Courts look for criminal behavior that's either ongoing or threatens to continue, not just a business deal gone wrong. A disputed real estate transaction with allegedly false documents might involve multiple communications, but courts often find this is just one scheme, not the kind of continuing criminal enterprise RICO targets.
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The "enterprise" requirement poses another significant hurdle for RICO plaintiffs. While any business can theoretically qualify as an enterprise, plaintiffs must show it operates as more than just a legitimate company engaged in some questionable conduct. The enterprise needs structure and continuity beyond normal business operations. This distinction matters because courts increasingly dismiss RICO claims where the alleged enterprise is simply the defendant corporation itself conducting its regular business, even if that business involved fraud.
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Standing to bring RICO claims requires more than just being harmed by a racketeer. The injury must be to "business or property," which excludes personal injuries and emotional distress. More importantly, recent Supreme Court decisions have tightened the causation requirement significantly. Your injury must flow directly from the criminal conduct, not from some secondary effect. If a competitor bribes officials to win contracts you wanted, you might lack standing because your injury is too indirect—the bribery harmed you only because it helped them compete more effectively.
Defenses
When facing RICO claims, challenging the enterprise allegations often provides the quickest path to dismissal. Courts require specific facts showing how defendants operated as a coordinated unit for criminal purposes. Simply alleging that businesses worked together on deals that turned out to be fraudulent rarely suffices. We've seen courts dismiss RICO claims where plaintiffs tried to transform ordinary joint ventures or business partnerships into criminal enterprises simply by adding allegations of fraud. The key is showing that any coordination was for legitimate business purposes, not criminal activity.
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The pattern requirement offers another strong defense, particularly in cases arising from discrete business transactions. Two acts of mail fraud involving the same transaction don't create a pattern—they're part of one scheme. Courts examine whether the alleged criminal acts have similar purposes, participants, and methods, but also whether they represent ongoing criminal behavior or just a single episode. A series of misrepresentations during one business negotiation, even if spanning months, typically fails the pattern test because it's fundamentally one event with a definite endpoint.
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Statute of limitations defenses can eliminate RICO claims before expensive discovery begins. RICO's four-year limitations period runs from when the plaintiff discovered or should have discovered the injury. Each new injury can restart the clock, but only if it's actually new. Plaintiffs often try to extend old claims by alleging recent "cover-up" activities, but courts increasingly reject these attempts when the underlying fraud was already discoverable. The key is showing that any recent acts don't create new injuries—they're just continued effects of the old ones.
RICO in Business Disputes
Understanding when business disputes morph into RICO cases helps both plaintiffs and defendants evaluate their positions realistically. Plaintiffs often add RICO claims to gain leverage, hoping the threat of treble damages will force settlement. However, courts have grown skeptical of attempts to "RICO-ize" garden-variety business disputes. A contract breach involving some allegedly false statements doesn't become racketeering just because emails were exchanged. The criminal conduct must be distinct from, not merely incidental to, the underlying business dispute.
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The treble damages provision makes RICO a powerful weapon, but it's double-edged. While plaintiffs dream of tripling their recovery plus attorney fees, defendants facing weak RICO claims might consider counterclaims for frivolous litigation. Some courts have awarded sanctions against attorneys who file boilerplate RICO claims without investigating whether they truly fit RICO's requirements. This risk has made sophisticated plaintiffs' counsel more selective about when to invoke RICO.
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Strategic considerations often favor early aggressive motion practice in RICO cases. Unlike simple fraud claims that might survive initial scrutiny, RICO's technical requirements provide multiple grounds for dismissal. Successfully eliminating RICO claims early not only reduces exposure but often weakens the plaintiff's overall case by removing the threat of catastrophic damages. However, failed motions can educate plaintiffs about deficiencies, so defendants must weigh whether to attack immediately or wait for summary judgment after discovery locks in the plaintiff's position.
False Claims Act / Qui Tam
The False Claims Act has become the government's primary weapon against healthcare and procurement fraud, generating billions in recoveries annually. With mandatory treble damages and per-claim penalties that can reach tens of thousands of dollars per false bill, FCA cases pose existential threats to companies doing business with the government.
Healthcare FCA Cases
Healthcare providers face FCA liability for billing and coding decisions made daily in complex regulatory environments. What separates criminal fraud from innocent mistakes is knowledge—but under the FCA, "knowing" includes deliberate ignorance and reckless disregard. A pattern of upcoding might start innocently when staff misunderstand coding guidelines, but it can become fraud if management ignores obvious red flags. The challenge for providers is that government prosecutors and whistleblowers review billing decisions with perfect hindsight, seeing patterns that might not have been obvious in real-time operations.
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The Anti-Kickback Statute creates a particularly treacherous landscape for healthcare FCA cases. Any payment that violates the AKS—from excessive medical director fees to free equipment—can transform every subsequent claim into a false claim. The theory is that kickbacks taint medical judgment, making resulting claims fraudulent. This creates enormous leverage because a single improper financial relationship can affect thousands of claims over many years. Even technical violations of safe harbors can trigger massive liability if relationships influence referrals.
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Medical necessity challenges represent perhaps the most frustrating type of FCA case for providers. Government prosecutors and whistleblowers second-guess physician judgment, arguing that treatments were unnecessary or excessive. These cases often involve competing expert opinions about appropriate care, with the government claiming providers chose profitable over proper treatment. The key defense is showing that reasonable physicians could differ on treatment decisions and that documentation supports medical judgment, even if reviewers disagree in hindsight.
Government Contractor FCA
Procurement fraud cases in the government contracting space often arise from the web of certifications contractors must make. Every invoice typically includes certifications of compliance with countless regulations, contract terms, and specifications. Under the "false certification" theory, violations can make claims false even if the work was performed perfectly. A contractor might deliver exactly what the government ordered, but if they violated small business subcontracting requirements or Buy American provisions, their claims could be deemed fraudulent.
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The Supreme Court's Escobar decision has reshaped how courts analyze FCA cases by focusing on materiality. Not every regulatory violation creates FCA liability—the violation must be material to the government's payment decision. This means defendants can now argue that minor technical violations wouldn't have affected payment, especially if the government continued paying after learning of problems. But materiality remains fact-intensive, and courts have reached different conclusions about similar violations.
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Damages calculations in FCA cases often determine whether companies can survive. The government typically seeks all payments connected to false claims, not just any overpayment amount. From this base, treble damages apply, plus thousands in per-claim penalties. Defendants argue they should receive credit for value provided—if defective parts still worked, shouldn't damages reflect only the quality difference? Courts remain split on these arguments, making damage exposure unpredictable. Statistical sampling further complicates matters, as the government extrapolates findings from reviewed claims to entire contract periods.
Defenses
The knowledge element provides the first line of defense in FCA cases, as the government must prove defendants acted "knowingly," not merely negligently. This scienter requirement encompasses actual knowledge, deliberate ignorance, and reckless disregard—but not innocent mistakes or mere negligence. In complex regulatory environments like healthcare, reasonable interpretations of ambiguous rules can negate knowing falsity. When regulations are genuinely unclear, defendants who follow reasonable compliance advice or industry practice often prevail. The key is documenting the basis for billing decisions and showing good faith efforts to comply with confusing requirements. Courts have increasingly recognized that the FCA shouldn't punish defendants for reasonable disagreements about unsettled regulatory interpretations.
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Materiality has emerged as a powerful defense following the Supreme Court's Escobar decision. Not every false statement or regulatory violation creates FCA liability—the falsehood must be material to the government's payment decision. This defense succeeds when defendants show the government routinely pays claims despite knowing about the alleged violations, suggesting immateriality. For instance, if Medicare continues reimbursing claims after learning about technical documentation deficiencies, those deficiencies likely aren't material. The analysis examines whether the government consistently refuses payment for such violations, includes compliance as an express contract condition, or has shown through conduct that it doesn't actually care about the requirement. This defense has revolutionized FCA litigation by allowing dismissal of cases involving minor technical violations.
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The government knowledge defense can bar FCA liability when the government knew about and approved the defendant's conduct. If agencies explicitly approved billing practices, pre-approved contract interpretations, or continued paying after learning of alleged problems, defendants may escape liability. This defense works particularly well in heavily regulated industries where defendants interact regularly with government officials. However, the knowledge must be held by officials with authority to approve practices—field-level inspectors' informal approvals may not suffice. Documentation of government approvals, regulatory guidance, and agency communications becomes crucial. Some courts require showing that the government knew of the specific practices at issue, not just general approaches.
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Statute of limitations defenses can eliminate stale FCA claims, as the Act requires filing within six years of the violation or three years after the government knew or should have known of the fraud (but no more than ten years total). The limitations period for qui tam cases has generated significant litigation about which provision applies and when the government "should have known" of alleged fraud. Defendants increasingly succeed by showing that public information, prior audits, or earlier investigations put the government on notice of potential issues, starting the shorter three-year clock. The first-to-file bar presents another temporal defense, preventing copycat relators from filing duplicative cases based on similar allegations already pending in other courts.
​Business Fraud and Misrepresentation
Business fraud claims occupy a unique space in commercial litigation, blending contract law with tort theories and often carrying quasi-criminal implications. These cases require careful navigation of legal theories, damage calculations, and the practical realities of business relationships gone wrong.
Securities and Investment Fraud
M&A fraud claims have become almost routine in failed acquisitions, as buyers seek to escape bad deals or recover losses by claiming sellers lied during negotiations. The typical pattern involves post-closing discoveries that the business isn't what buyers expected—revenues were inflated, liabilities hidden, or problems concealed. Sellers counter that sophisticated buyers conducted extensive due diligence and negotiated specific representations and warranties that allocate these risks. The tension between fraud claims and contractual provisions creates complex legal issues, as courts balance the policy against fraud with the need for commercial certainty in negotiated transactions.
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Investment disputes follow predictable patterns when markets turn or investments fail. Investors who were happy during profitable years suddenly discover they were defrauded when losses mount. Claims range from unsuitable investment recommendations to misrepresentation of risks to participation in Ponzi schemes. The challenge in defending these cases is that failed investments don't equal fraud—risk means the possibility of loss. Documentation of disclosures, investor sophistication, and investment objectives becomes crucial. The line between aggressive salesmanship and actionable misrepresentation often depends on what was written versus what was said.
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Ponzi scheme litigation creates particularly complex webs of claims and defenses. When schemes collapse, trustees pursue clawback actions against investors who received more than they invested, financial institutions that processed transactions, and professionals who provided services. The fraudulent transfer analysis seems straightforward—return money you shouldn't have received—but defenses based on good faith, value given, and statutory safe harbors create nuanced arguments. Financial institutions face additional claims for ignoring red flags, while accountants and lawyers risk liability for enabling schemes through negligent services
Contract and Commercial Fraud
Fraudulent inducement claims attempt to escape contract limitations by recasting breaches as torts. The key distinction lies in timing and intent—did the defendant plan to breach when making promises, or did circumstances change? This temporal question often turns on credibility battles and circumstantial evidence. Email threads showing internal discussions, financial projections revealing known problems, and patterns of similar conduct with other parties can transform contract disputes into fraud cases. However, courts remain skeptical of efforts to convert every broken promise into fraud, especially between sophisticated commercial parties.
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Concealment claims raise interesting questions about disclosure duties in arms-length transactions. While parties generally have no duty to volunteer harmful information, partial disclosures can create obligations to complete the story. The classic example involves sellers who tout certain positive metrics while knowing that undisclosed problems make those metrics misleading. Active concealment—destroying documents, hiding problems during diligence, or creating false appearances—clearly supports fraud claims. But passive non-disclosure requires special relationships or circumstances creating disclosure duties. The sophistication of parties matters, as courts expect experienced buyers to ask probing questions and not rely on seller silence.
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Damage calculations in fraud cases offer opportunities beyond typical contract measures but also present proof challenges. Benefit-of-the-bargain damages—the difference between what was promised and delivered—can exceed actual losses if fraudulent representations inflated value significantly. Out-of-pocket damages focus on actual losses, returning plaintiffs to their pre-fraud position. Consequential damages might include lost opportunities, though proving what would have happened absent fraud challenges plaintiffs. Punitive damages require clear and convincing evidence of malicious conduct, not just intentional misrepresentation, limiting their availability in commercial cases.
Partnership and Joint Venture Fraud
Partnership disputes involving fraud allegations combine the intimacy of close business relationships with the bitterness of divorce proceedings. Financial statement manipulation between partners violates both contractual and fiduciary duties, creating multiple theories of liability. These cases often reveal years of hidden resentments and suspicions, with forensic accountants uncovering patterns of self-dealing that destroy any remaining trust. The challenge is separating legitimate business disagreements from actual fraud, as partners often have different visions for the business and may make decisions benefiting themselves while believing they're acting properly.
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Misappropriation claims in partnership contexts involve both clear theft and grayer areas of diverted opportunities. While secretly taking partnership funds clearly violates duties, questions arise when partners pursue related opportunities or use partnership resources for personal benefit. The scope of partnership business, exclusivity obligations, and disclosure requirements all affect whether conduct crosses from aggressive self-interest to breach of duty. Courts apply different standards depending on partnership agreements and the nature of fiduciary relationships, making outcomes unpredictable.
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Dissolution disputes become particularly venomous when fraud allegations emerge during winddown. Partners accuse each other of looting the business, wasting assets, or manipulating valuations to gain advantages. These cases often require immediate injunctive relief to preserve assets and prevent ongoing harm. Receivers or provisional directors may be necessary when partners cannot cooperate even to liquidate. The intersection of legal damage claims with equitable remedies for dissolution creates procedural complexities, as courts must unwind businesses while adjudicating fraud claims that affect asset values and distributions.
Trade Secret Theft and Economic Espionage
Trade secret litigation sits at the intersection of intellectual property, employment law, and criminal law. These cases often begin with an employee's sudden departure to a competitor, followed by suspicious competitive activity that suggests more than coincidence.
Defending Trade Secret Claims
Independent development defenses require proving that the defendant created the allegedly misappropriated information without using the plaintiff's secrets. This defense succeeds more often than many realize, particularly in industries where multiple companies work on similar problems. The key is documentation—development notes, emails discussing design decisions, and evidence of work predating any access to plaintiff's information. Courts understand that similar business needs often drive similar solutions, and not every competitive similarity indicates theft. The burden of proving independent development falls on defendants, making contemporaneous documentation crucial.
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Reverse engineering provides a complete defense when properly executed. If a product is publicly available, competitors can study and replicate it through legitimate means. However, the devil lies in the details of "legitimate means." Breaking shrink-wrap licenses, violating terms of service, or using improper methods to access products may defeat the defense. Moreover, some information simply cannot be reverse engineered despite theoretical possibility—customer lists, pricing strategies, or business plans aren't embedded in products. The defense works best for technical information that can be discovered through careful product analysis.
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Public domain arguments challenge the fundamental premise that information qualifies as a trade secret. Information available in patents, publications, or industry knowledge cannot be a trade secret, no matter how valuable. The challenge comes when plaintiffs claim their "secret" is a unique combination of public elements. Courts wrestle with whether combining publicly available information in a particular way creates protectable secrets. The analysis often turns on whether the combination itself provides competitive advantage beyond what anyone could achieve through public sources. Industry standards, academic literature, and expired patents all provide fertile ground for public domain arguments.
Prosecuting Theft Claims
Emergency relief capabilities make trade secret cases unique in commercial litigation. Unlike patent or contract cases where damages can remedy past harm, trade secret theft involves ongoing injury that money cannot fix. Once secrets are disclosed, they're destroyed forever. This urgency justifies extraordinary remedies—ex parte temporary restraining orders, expedited discovery, and preliminary injunctions. Courts understand that waiting for normal litigation timelines could render any eventual victory meaningless. The key is presenting concrete evidence of imminent harm, not just suspicions or competitive paranoia.
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Forensic preservation has become the critical first step in modern trade secret cases. Within hours of discovering potential theft, companies must preserve evidence across multiple platforms—computers, phones, cloud accounts, and communication systems. Professional forensic firms image devices, capture metadata, and establish chains of custody that ensure admissibility. Beyond preservation, forensic analysis reveals the story of misappropriation—USB connections showing mass downloads, email forwards to personal accounts, and deletion patterns suggesting consciousness of guilt. The digital breadcrumbs left by modern technology often provide the smoking gun that circumstantial evidence alone cannot.
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Employee raiding cases add complexity when entire teams depart together. While employees have the right to leave and compete, coordinated departures suggest planning that may involve trade secret theft. Did departing employees download customer lists before leaving? Did they solicit colleagues while still employed? These cases often combine trade secret claims with breach of non-compete agreements, tortious interference, and unfair competition theories. The challenge is distinguishing legitimate competition from improper use of inside information. Courts balance protecting business investments against employee mobility rights, with outcomes often depending on specific conduct rather than broad principles.
Criminal Referrals
The decision to involve law enforcement in trade secret cases requires careful strategic consideration. Criminal prosecution adds pressure that civil litigation cannot match—the threat of prison concentrates minds differently than damage awards. Federal prosecutors have become increasingly interested in trade secret cases, particularly those involving foreign competitors or sophisticated theft schemes. However, criminal referral means losing control of the case. Prosecutors decide what to charge, when to act, and whether to plea bargain. Victims become witnesses rather than parties, potentially waiting years for resolution while unable to pursue civil remedies.
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Parallel proceedings create both opportunities and challenges when civil and criminal cases proceed simultaneously. Criminal investigation tools—search warrants, wiretaps, and immunity grants—can uncover evidence unavailable in civil discovery. However, criminal cases often stay civil proceedings, delaying resolution and recovery. Fifth Amendment assertions by defendants in civil cases create adverse inferences but prevent full factual development. Coordinating with prosecutors requires delicate balance—sharing information helps the criminal case but may limit civil options. Some companies pursue civil cases first to control timing and strategy, referring criminal aspects only after securing civil remedies.
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The Economic Espionage Act provides federal criminal penalties for trade secret theft, with enhanced penalties when foreign governments benefit. These prosecutions have increased dramatically as the Department of Justice prioritizes protecting American innovation. The statute's broad reach covers not just actual theft but attempts and conspiracy, capturing preparatory acts before secrets are actually disclosed. Sentencing guidelines key penalties to loss amounts, creating battles over trade secret valuation. While criminal conviction establishes liability for civil cases, waiting for criminal resolution can delay civil recovery for years. Companies must weigh immediate civil remedies against the strategic advantages of criminal prosecution.
Extortion and Business Threats
The line between aggressive business tactics and criminal extortion has become increasingly important as commercial disputes escalate and parties seek leverage through threats and pressure tactics.
Commercial Extortion
Business negotiations sometimes cross from hard bargaining into criminal territory when threats enter the picture. The classic pattern involves threats to report regulatory violations, file criminal complaints, or disclose embarrassing information unless business concessions are made. What distinguishes criminal extortion from legitimate negotiation often depends on the relationship between the threat and the underlying dispute. Threatening to report actual wrongdoing to authorities might be proper if seeking legitimate redress, but the same threat becomes extortion if used to gain unrelated advantages. Documentation of threat circumstances—who said what, when, and in what context—often determines whether criminal lines were crossed.
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Litigation threats occupy a special category in extortion analysis because filing lawsuits is a fundamental right. However, threatening baseless litigation solely to extract payments can constitute extortion. The key is whether the threatened lawsuit has any legitimate basis or is purely a pressure tactic. Patterns matter—serial filers who threaten numerous parties with similar claims face greater scrutiny. Courts examine whether threatened claims have any factual or legal basis, whether demands relate to actual damages, and whether the threatener genuinely intends to litigate or simply seeks quick settlements. The analysis balances protecting legitimate petition rights against preventing litigation abuse.
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Settlement negotiations present particular challenges because aggressive tactics are expected, but lines still exist. Threatening criminal prosecution to gain civil settlement advantages has long been recognized as improper. Similarly, threats to report regulatory violations or publicize embarrassing information must relate to the dispute being settled. Package deals that combine legitimate claims with improper demands risk tainting entire negotiations. The best practice involves clearly documenting the legitimate basis for any threats or pressure, showing how they relate to resolving actual disputes rather than gaining unrelated advantages. When negotiations involve potential criminal conduct, parties should consider whether separate criminal and civil discussions might avoid extortion implications.
Defending Extortion Claims
Protected speech defenses provide powerful shields against extortion claims, particularly when threats involve litigation or public disclosure. The First Amendment protects not just pure speech but also petition rights—the ability to seek redress through courts and government agencies. Threatening to file lawsuits, report regulatory violations, or publicize disputes generally receives constitutional protection. However, this protection isn't absolute. Speech loses protection when it becomes integral to criminal conduct. The challenge is showing that any threats were part of legitimate efforts to vindicate rights rather than criminal schemes to extract money.
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Legitimate business purpose can defeat extortion claims by demonstrating proper objectives behind allegedly threatening conduct. Businesses routinely make aggressive demands when collecting debts, enforcing contracts, or protecting intellectual property. The law recognizes that commercial relationships sometimes require firm positions and serious consequences for breach. The key is proportionality—demands should relate to actual harm or legitimate interests. A company threatening litigation over clear contract breaches acts properly, even if demands include attorney fees and consequential damages. But threatening to destroy a business unless receiving payments far exceeding any possible damages suggests improper extortion rather than legitimate collection efforts.
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Litigation privilege provides near-absolute protection for statements made in judicial proceedings and qualified protection for related communications. Demand letters, settlement negotiations, and pre-litigation discussions often fall within this privilege when they relate to anticipated litigation. The privilege exists to encourage open communication in dispute resolution without fear of derivative lawsuits. Courts broadly interpret the privilege, understanding that effective advocacy sometimes requires strong statements. However, the privilege has limits—it doesn't protect criminal conduct, and bad faith can defeat qualified privilege for pre-litigation statements. The key is ensuring that any aggressive statements genuinely relate to potential litigation rather than using litigation threats as cover for extortion.