Are there limits on unreasonable claims by an attorney?

Question

Attorneys often write letters to third parties, in order to get something for their client. E.g. if A trespasses against B, B's attorney may write a letter to A stating that the trespass must be remedied, lest the matter end up in court. I will refer to the situation where an attorney implies that there may be legal action against a person as a "lawyer threat". The crucial thing about a lawyer threat is that it is simply an implication of possible legal action communicated to a third party, and it is distinct from to actually taking an action (filing a lawsuit, for instance). What, if any, are the enforceable limits on lawyer threats? By "enforceable", I mean that appropriate law boards in a state have the power to penalize (including officially reprimand) an attorney for violation of rules. I don't want to limit this to just formal demand letters (unless there's a rule against communication with third parties not via formal demand).

I presume that if a claim has legal merit, the attorney can represent to the third party that a lawsuit may arise if the situation is not remedied. My interest is the situation where this is not true, and I am specifically interested in established legal principles. ABA Model Rule 3.1 is related:

A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law. A lawyer for the defendant in a criminal proceeding, or the respondent in a proceeding that could result in incarceration, may nevertheless so defend the proceeding as to require that every element of the case be established

Here is a hypothetical example. A sells widget X; B has some belief of a property interest in widget X (by patent, contract, or whatever); B's attorney "knows" that B's claimed interest is not going to succeed in court, because (if the basis is a contract) there is actually no contract between A and B. The attorney might run into legal problems if he files a meritless suit against A, but could sanctions be imposed for simply implying in a letter that the client may pursue a (meritless) lawsuit?

One part of the rule (which isn't clearly applicable to letters, anyhow) is where it says "includes a good faith argument for an extension, modification or reversal of existing law". This strikes me as a large escape clause allowing attorneys to contradict established law, if they think they can make a case for the contradiction.

Answer 1

The main limitations on sending demand letters against the bona fide target of the demand (one can imagine sending a demand letter to someone who isn't a true target of the demand as a sneaky way to engage in defamation or to violate privacy laws but that doesn't seem to be the context here), do not arise from the professional ethics of an attorney, although attorneys are ethically forbidden in communications with third parties from making statements of fact that are actually false (Rule of Professional Conduct 4.1) or misleading someone into thinking that they are their attorney (Rule of Professional Conduct 4.3). Actually, the model rule 4.1, is broad enough to cover your scenario:

In the course of representing a client a lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person[.]

But, not all states adopt the false statement of law standard at all, and those that do often apply it leniently. The official comments to that rule doesn't add any clarity regarding the question of what constitutes a false statement of law. This is observed in an extended analysis of how Rule 4.1 has played out in practice here.

Misrepresentation

1 A lawyer is required to be truthful when dealing with others on a client’s behalf, but generally has no affirmative duty to inform an opposing party of relevant facts. A misrepresentation can occur if the lawyer incorporates or affirms a statement of another person that the lawyer knows is false. Misrepresentations can also occur by partially true but misleading statements or omissions that are the equivalent of affirmative false statements. For dishonest conduct that does not amount to a false statement or for misrepresentations by a lawyer other than in the course of representing a client, see Rule 8.4.

Statements of Fact

2 This Rule refers to statements of fact. Whether a particular statement should be regarded as one of fact can depend on the circumstances. Under generally accepted conventions in negotiation, certain types of statements ordinarily are not taken as statements of material fact. Estimates of price or value placed on the subject of a transaction and a party’s intentions as to an acceptable settlement of a claim are ordinarily in this category, and so is the existence of an undisclosed principal except where nondisclosure of the principal would constitute fraud. Lawyers should be mindful of their obligations under applicable law to avoid criminal and tortious misrepresentation.

Rule of Professional Conduct 3.1 which is referenced in your question, does not apply to demand letters.

Instead, the main limitations arise from the Fair Debt Collection Practices Act, which prohibits debt collectors (a term of art that includes most attorneys) from making false or misleading statements to collect a debt, or attempting to collect a debt that is not due, and also imposes other restrictions related to demand letters.

A recent decision of the U.S. Supreme Court involving a zombie debt claim in bankruptcy (Midland Funding v. Johnson), which held that it was not wrongful to make a claim for a debt that the creditor knew was long ago barred by the statute of limitations in a bankruptcy case (since that is only an affirmative defense to the debt that might be otherwise owed) somewhat limits the application of what would be false, however. But, the fact that Midland Funding was decided on a 5-3 basis by the U.S. Supreme Court illustrates how controversial the legal limitations on making claims that are arguably false statements of law can be.

There are also some state deceptive trade practices laws (and the mail fraud statute combined with RICO) that have been used to punish attorneys he make unjustified demand letters in support of invalid patent claims. This approach has not had consistent success, however, with a 2014 case on that theory dismissed, for example, although the complaining company later won their case on a different theory. Some states have specifically amended their laws to make sending a demand letter related to an invalid patent an actionable deceptive trade practices. A somewhat dated summary of the law in this area can be found here.