Yesterday a U.S. Bankruptcy Court judge ordered the law firm of Michael Avenatti to pay a $10 million judgment to another lawyer who previously worked for the firm. Avenatti is the (publicity-hungry) lawyer representing porn star Stormy Daniels in her many lawsuits against President Trump and his lawyer Michael Cohen.
This recent judgment comes after Avenatti’s firm, Eagan Avenatti LLP, didn’t meet the deadline for the first payment on a $4.85 million settlement with lawyer Jason Frank
Frank was once a partner at Avenatti’s firm. During the hearing on Tuesday, a lawyer for the federal government said that Avenatti’s firm also failed to make another payment due last week, for back taxes.
Avenatti is the managing partner of Eagan Avenatti, according to court documents filed in the case.
The settlement between the law firm and Jason Frank was reached in December 2017. It arose out of Frank’s claim that Eagan Avenatti failed to pay him more than $18 million that he was owed as a non-equity partner of the firm. According to Frank’s lawsuit, Avenatti also misstated the firm’s profits.
Frank eventually reduced his claim to $10 million as the case dragged on (that’s what happens when one lawyer sues another bunch of lawyers). The parties in the suit ultimately agreed to settle for $4.85 million. But according to the agreement filed, Avenatti’s firm would be on the hook for the full $10 mil if he failed to pay the settlement.
“Michael Avenatti’s law firm entered into a crystal clear written settlement agreement to resolve a prior lawsuit brought by Jason Frank, his former law partner,” said Eric George, an attorney for Jason Frank.
“The settlement agreement was approved by a federal court and was a condition of his law firm exiting bankruptcy. Under this settlement, Mr. Avenatti’s law firm was required to pay Mr. Frank $4.85 million, all of which was personally guaranteed by Mr. Avenatti.”
Now, Frank is claiming that his former partner failed on multiple occasions to produce copies of the firm’s federal tax returns. And Avenatti never gave a full accounting of the firm’s revenues and expenses either. Both were required under the terms of their initial agreement.
As a non-equity partner in Avenatti’s firm, Jason Frank was owed a quarter of the firm’s annual profits. He was also supposed to receive a portion of fees paid by certain clients.
He never got them. So Frank ultimately went after his former partners, submitting his grievances to an arbitration panel. That panel didn’t hand out any punishments against Avenatti, but they did share some of Jason Frank’s concerns about the law firm.
The panel stated that during arbitration, Avenatti’s firm repeatedly failed to comply with their orders to turn over documents to Frank’s firm. They also failed to pay the arbitration fees that were required of them.
The judges noted that Avenatti’s firm “failed to produce” a whole host of financial documents. Those included: tax returns, revenue accounting records, bank statements, checks or invoices for expenses over $25,000, wires, and email correspondence.
The three-judge-panel also asserted that Avenatti’s firm ignored its October 2016 to turn over copies of its 2013, ’14, and ’15 tax returns. Eagan Avenatti “did not produce the returns,” according to the judges. They claimed that neither they nor their accountant had any copies of the tax returns.
Which, I mean. Come on. That excuse stinks worse than the Stormy Daniels fiasco.
The chair of the arbitration panel even wrote that Avenatti’s claim that their firm had lost their tax returns “stretches the bounds of credibility”. And he was right.
The arbitration panel also said that Avenatti’s firm displayed “a pattern of delay, obfuscation and unresponsiveness.” They allowed Jason Frank to alter his complaint in order to add “a claim for punitive damages” and they found that Avenatti’s law firm “acted with malice, oppression and fraud in connection with its failure to produce its tax returns.”
According to the US Attorney’s office, Avenatti’s firm is still in pretty serious financial trouble. They have paid back about $1.5 million in taxes owed. But the firm still owes about $880,000. And a US Attorney’s office representative has confirmed that Avenatti just missed a payment that was due last week.
Look, you have to be a little crazy to go after the sitting U.S. President in court. But only an idiot tries to stiff the IRS.
Avenatti, for his part, is claiming he’s the victim of a smear campaign, because of the whole Stormy Daniels thing.
He’s also claimed on Twitter that the Eagan Avenatti LLP – which still owes back taxes to the IRS and has just been ordered to pay $10 million to a former partner – is a “Completely different law firm” with “no ties to the Daniels case.”
In court filings involving Stormy Daniels, Michael Avenatti has filed as an attorney with the Newport Beach law firm Avenatti & Associates, APC. But the State Bar of California still lists him as an attorney with Eagan Avenatti LLP.
And Eagan Avenatti LLP is operating from the same address as Avenatti & Associates, in Newport Beach, CA.
Draw your own conclusions, of course. But the one I’m drawing is that Michael Avenatti is a bad liar. And that’s the last quality you want in a lawyer. Which probably explains why his firm is going bankrupt.