Michael Avenatti's law firm has been ordered to pay $10 million in a legal dispute with a former colleague who claims the firm stiffed him of millions in profits.
On Tuesday, U.S. Bankruptcy Court judge Catherine Bauer awarded the massive payout to ex-employee Jason Frank, the Los Angeles Times reported. “At this point, that’s what’s appropriate,” Bauer said at the Santa Ana, California hearing, according to the Times.
Last week, Frank filed a suit claiming the fame-hungry lawyer’s firm, Eagan Avenatti, missed a $2-million payment. It was supposed to be the first of two installments stemming from a bankruptcy settlement.
When reached by The Daily Beast on Tuesday, Avenatti said, “I’m disgusted by the press’s fascination with my personal business and my personal life.” Avenatti said the bankruptcy suit “does not in any way relate” to his client Stormy Daniels’ fight against President Trump and his loyal “fixer” and personal attorney Michael Cohen.
“Who cares?” Avenatti told The Daily Beast. “What does my personal business have to do with the case? Nothing?” He said the firm, Eagan Avenatti, doesn’t represent Daniels. (Court documents show Avenatti & Associates represent Daniels, though the lawyer continues communicating through his Eagan Avenatti email.)
After the Times broke the story on the judgment, Avenatti accused Cohen of leaking audio tapes of Daniels to the press. In a letter to U.S District Court judge Kimba Wood, Avenatti wrote, “We have reason to believe that plaintiff Michael Cohen, or members of his team, have begun to leak select audio recordings to the media that were seized in the FBI raids.”
When a Daily Beast reporter suggested Avenatti was a public figure and deemed a folk hero among liberals for his fight against Cohen and Trump, Avenatti said, “I’m not a celebrity. I’m a lawyer representing a client. Who cares?” Despite his star power, he added, “That’s nice, but I don’t necessarily subscribe to that.”
“What you should be talking about is the leaked audio recordings. That’s actually of relevance,” Avenatti concluded.
The lawyer has been a ubiquitous TV presence since his pornstar client’s battle with President Trump made her—and him—household names.
The firm's bankruptcy setback comes as Avenatti has requested to intervene in the federal case revolving around Cohen, whose office, home, and hotel room was raided by the FBI last month. The feds are investigating Cohen’s $130,000 payout to Daniels in the weeks before the 2016 election, among other things.
Frank worked at Eagan Avenatti from February 2009 to May 20, 2016.
In February 2016, Frank filed a demand for arbitration, accusing Eagan Avenatti of owing him millions of dollars from his stint as an independent contractor. Frank was promised 25 percent of the Newport Beach firm’s annual profits and 20 percent of the fees he generated from clients, Courthouse News Service reported.
Avenatti's firm missed its May 14 deadline to pay Frank. The firm had agreed to pay Frank a total of $4.85 million.
Frank declined to comment when reached by The Daily Beast. His attorney, Eric George, didn’t respond by press time.
Avenatti's firm also agreed to pay the Internal Revenue Serve $2.4 million in back taxes, penalties and interest, according to the Times report. (About $1.3 million of that was for payroll taxes that the firm withheld apparently from workers but that wasn’t paid to the government.)
The legal eagle's firm defaulted on the back taxes, and the government plans to file a motion demanding payment, an assistant U.S. attorney said at Tuesday’s hearing. According to the Times, Avenatti's firm has paid at least $1.5 million of what it owes to the IRS. (Avenatti's firm has blamed the unpaid taxes on a payroll company.)
“Over blown. Sensational reporting at its finest. No judgment against me was issued nor do I owe any taxes,” Avenatti wrote in an email to the Times.
Frank’s lawsuit, filed in Los Angeles Superior Court, claimed “Avenatti has no valid excuse for failing to perform this obligation,” the Times reported.
In February 2017, an arbitration panel of three retired judges found Avenatti’s firm “acted with malice, oppression and fraud” by hiding its revenues and failing to give copies of tax returns to Frank, according to the Times report. (In response, Avenatti told a Times reporter Frank’s lawsuit “frivolous and baseless” and “old news.”)
The panel found Avenatti’s firm “intentionally and knowingly violated” an order to provide Frank with the tax returns and financial records.
Meanwhile, a “purported creditor” named Gerald Tobin filed a petition in Florida to put Avenatti’s firm into involuntary bankruptcy over an $28,700 invoice, Frank’s lawsuit alleged. This petition came only two days before a scheduled March 2017 deposition, effectively postponing arbitration in Frank’s case.
During a hearing for Tobin’s petition, bankruptcy judge Karen Jennemann said the maneuver had “a stench of impropriety,” according to the Times. Jennemann added that she couldn’t tell whether Tobin “has some relationship with the firm that would have induced a collusive filing or Eagan Avenatti just got plain lucky and someone filed on the eve of arbitration."
According to court filings, in March of this year, Frank agreed to waive his right to collect the entire $10 million “if and only if, [Eagan Avenatti] timely paid the following settlement payments according to schedule.”
Avenatti’s firm agreed to wire Frank $2 million within 60 days, and $2.85 million within 120 days, court papers allege.
—Additional reporting by Lisa Schwartz
Update: The original version of this article stated that Michael Avenatti owed $10 million and had agreed to pay $2.4 million to the IRS. We have updated the story to reflect that the settlement was against his firm Eagan Avenatti and the firm promised to pay $2.4 million in back taxes, penalties and interest.