Are the demands extortion?
This is really a grey area of the law: whether settlement demand letters are extortion/blackmail or merely using leverage to gain an edge in a settlement negotiation. Truthfully, a lot of lawyers walk up to the line. In this case, it would really depend on what the letter specifically says.
First, extortion and blackmail are different legal concepts. Extortion is the use of physical threat or coercion for some benefit. Blackmail is a threat to release sensitive information unless someone gives you money/some benefit. Closely related, but not the same. So this is definitely not extortion. But it could be blackmail.
It is always illegal to threaten to press criminal charges unless some demand is met. It is almost never illegal to threaten to litigate a claim if a settlement isn't reached.
If the letter says "pay me/my client X or I'll release this damaging information," it would likely be blackmail. But, "unless you pay my client X, I will be forced to litigate this and there is a likelihood that damaging information about you will come out," is likely not.
Not the definitive answer you are probably looking for...but then, the answer in most legal cases is "it depends."
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