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THE TAX MAN COMETH

Michael Avenatti Lived the High Life While Owing Millions to IRS

As Michael Avenatti floats a 2020 presidential run, court records reveal the lawyer and his companies owed millions in unpaid taxes and judgments.

Kate Briquelet10.21.18 8:00 PM ET

On the Fourth of July, Michael Avenatti suited up for a CNN interview and floated his name as a contender against President Trump in 2020.

Asked why he’d be qualified, Avenatti told anchor Jim Sciutto, “Because I have three things that this president lacks, Jim—brains, heart and courage. And I think I have those in spades compared to this president.”

Scuitto then told Avenatti he’d face scrutiny over his finances, including his former law firm’s then-unpaid $2.4-million bill to the IRS. “You know, look, I’ll be happy to put my tax records and background up against the president’s background and his tax records. Of course, he won’t release any of that information,” Avenatti replied, before changing the subject to his political platform.

Now Avenatti, the tenacious California litigator made famous for representing Stormy Daniels in her legal tangles with President Trump, is gearing up for a 2020 presidential run, stumping across the country and raising cash with his new political action committee, Fight PAC.

But the questions over his finances remain—and could become a sore spot on the campaign trail, as creditors pursue him and his former companies. Both the Eagan Avenatti law firm and a shuttered Seattle coffee chain, which Avenatti says he no longer owns, owe millions in unpaid taxes and judgments, according to court documents and filings with local recorder’s offices.

Tax liens filed in Orange County also show that Avenatti has personally owed at least $1.2 million in federal taxes on top of the corporate debts. One lien, filed in February 2018, was for $308,396, while another filed in August 2015 showed a balance of $903,987. The Daily Beast did not find records showing the liens were released, but Avenatti claims both debts were “fully paid.”

A String of Big Debts

Civil court filings paint a picture of Avenatti as a hard-charging attorney who enjoyed the luxe life—jetting around the world to race cars with a Saudi prince and treating his wife and their friends to luxury villas in Cabo San Lucas, Mexico. Yet he and his companies owed hundreds of thousands in unpaid taxes and in compensation to one former colleague, who claims Avenatti stiffed him out of millions in law-firm profits.

A review of court documents reveals that Avenatti, his former law firm Eagan Avenatti, and his former company Global Baristas, the majority owner of the Seattle-based Tully’s coffee chain, have owed millions in unpaid federal and state taxes in Washington and California, as well as hundreds of thousands in past-due rent to landlords.

A Newport Beach landlord began eviction proceedings last month against Eagan Avenatti in Orange County Superior Court. The real-estate entity claims Eagan Avenatti failed to make rent for three storage spaces and a 8,371-square-foot suite, totaling more than $107,415 for the months of July and August. (A lawyer representing the Irvine Company, which manages the rentals, declined to comment.)

On Oct. 18, the landlord filed court papers indicating Eagan Avenatti owes $213,253 in rent as of this month.

Avenatti told The Daily Beast he divested his interest in Eagan Avenatti within the last 12 months and that he now operates under Avenatti & Associates. “None of those obligations are my responsibility,” he said, when asked about the eviction case. Avenatti said he would forward this publication’s queries to the firm’s new owner, but declined to name them.

Yet in a Sept. 7 answer to the landlord’s complaint, signed by Avenatti himself, he claimed Eagan Avenatti made repairs to the suite and subtracted the cost from the rent. The firm offered to pay the rent due, Avenatti continued, but that the landlord “would not accept it.”

Avenatti testified at a July 25 bankruptcy hearing (from which the media was barred) that Avenatti & Associates now owns a 100 percent stake in Eagan Avenatti.‌

Meanwhile, on Monday, a Los Angeles Superior Court judge is expected to rule on a separate case brought by Jason Frank, a former employee who in 2016 filed a demand for arbitration against Eagan Avenatti, claiming the firm owed him millions in unpaid compensation. Frank settled his case with Eagan Avenatti for $4.85 million, and records show Michael Avenatti personally guaranteed the payout.

After Avenatti failed to wire the first payment to Frank, a U.S. bankruptcy court judge entered a $10-million judgment against Eagan Avenatti.

Asked for comment on Monday’s hearing, Avenatti told The Daily Beast, “Nothing’s gonna happen on Monday, so you guys are wasting your time.”

“Jason’s claims are completely bogus,” Avenatti said, adding that “regardless of what happens on Monday, Jason owes me and my law firm over $10 million” for supposedly stealing clients.

Avenatti alluded to the alleged client-stealing in a January bankruptcy filing for Eagan Avenatti, claiming that Frank and two former colleagues were fired in May 2016 “after they were discovered to have been forming their own competing law firm” and “took substantial business with them” when they left. (A review of Eagan Avenatti’s settlement with Frank indicates that Avenatti and his current and former law firms cannot pursue claims against Frank.)

Eric George, an attorney for Frank, told The Daily Beast that Avenatti’s client-stealing claims had no merit.

EA and Avenatti have avoided paying me and my company this money for years.
Jason Frank

“Mr. Avenatti’s comments are delusional, and should fool no one,” George said in a statement. “To return to reality, he negotiated and signed a written agreement that provided for $10 million to my client, and that released precisely the frivolous claims he’s concocting now. Mr. Avenatti can dissemble to the press as much as he wants—ultimately, he will lose this latest court proceeding.”

On Friday, Avenatti told The Daily Beast that he currently has no interest in Eagan Avenatti. In a July filing in Eagan Avenatti’s bankruptcy case, however, Avenatti indicated he owns the firm through Avenatti & Associates.

“The simple fact is that I have an ownership interests [sic] in two separate law firms,” Avenatti stated in one July declaration. “One is EA. The other is not. I maintain both of my office [sic] at EA’s Newport Beach office.”

Avenatti testified at a July 25 bankruptcy hearing (from which the media was barred) that Avenatti & Associates now owns a 100 percent stake in Eagan Avenatti, according to documents filed in Frank’s case.

Frank claims he hasn’t received a penny from Avenatti—who personally guaranteed the $4.85-million payout in two installments due in May and July of this year, as a condition of a U.S. bankruptcy court dismissing Eagan Avenatti’s Chapter 11 case.

In one August pleading, Frank said Avenatti’s law firm has owed him compensation from as far back as February 2014.

“Through various procedural maneuvers, such as the bankruptcy filing,” Frank stated, “EA and Avenatti have avoided paying me and my company this money for years.”

'We Enjoyed a Very Extravagant Marital Lifestyle'

Before Michael Avenatti became Donald Trump’s tweet-baiting nemesis, he was racking up a list of legal victories that resulted in a string of multimillion-dollar verdicts. On his website, Avenatti claims he’s won more than $1 billion on behalf of his clients.

His biggest win was a $454-million verdict—one of the largest in California history—against Halyard Health and Kimberly-Clark Corp. for allegedly misleading buyers about surgical gowns they claimed protected against diseases like Ebola and HIV. (Court records show a judge reduced the judgment to $25 million on appeal.)

These victories bankrolled a lifestyle that Avenatti’s second wife described as lavish in divorce pleadings.

Lisa Storie-Avenatti says the couple enjoyed a multimillion-dollar home in Newport Beach, international and domestic travel via private jet, and a collection of art and exotic cars.

In one declaration, filed in January, Storie-Avenatti said, “Petitioner and I enjoyed a very extravagant marital lifestyle. In October 2011, we bought a home in Laguna for $7.2 million and sold it in September 2015 for $12.6 million.”

“We traveled extensively throughout the world, and, when not flying privately, we always flew business class and stayed at five-star hotels,” Storie-Avenatti said in the court filing, adding that they regularly visited Cabo (where they held their destination wedding and paid expenses for 20 guests), the French Riviera, and Paris.

“I had unfettered use of credit cards that were in my name. My American Express bill was historically on average of $60,000 to $70,000 per month, and was paid in full each month,” Storie-Avenatti added in court papers.

We traveled extensively throughout the world, and, when not flying privately, we always flew business class and stayed at five-star hotels.‌

She said that since 2010, Avenatti raced in about 33 professional sports car races in the United States and Europe, including the 24 Hours of Le Mans in France, where his team included Saudi Prince Abdulaziz bin Turki Al Saud. “We spend a large amount of money on Petitioner’s racing activities,” Storie-Avenatti continued, the emphasis hers.

Storie-Avenatti was asking for $215,643 a month in family support and provided a rundown of the couple’s alleged monthly expenses including, among other things, $12,000 for nannies, $19,779 for groceries and household supplies, $19,849 for clothing, and $27,257 for entertainment, gifts and vacations.

Avenatti employed a full-time pilot hired at $100,000 a year, and owned two private jets worth about $9 million, Storie-Avenatti claimed. He also retained a full-time driver paid through his firm, but she didn’t know his pay rate.

She claimed that since they separated in October 2017, after more than six years of marriage, Avenatti cut her off from his income and she was forced to use her savings to pay for expenses for herself and the couple’s 3-year-old son.

“The parties’ marital lifestyle was funded by [Avenatti’s] earnings and income—over which [he] continues to exercise exclusive control,” Avenatti-Storie’s attorney said in one court filing.

The couple “filed separate tax returns during marriage at [Avenatti’s] insistence” and he “shared only minimal specific information with Lisa,” the document continued.

Storie-Avenatti said in court papers that in November 2016, Avenatti told her he earned $3.7 million, but that she suspected his actual take-home was “substantially higher” based on his self-publicized verdicts, the couple’s 2016 expenses and his “secreting from me of his tax returns and bank records.”

Avenatti stopped paying rent on their Newport Beach home, where Storie-Avenatti and their son lived, but his “luxurious lifestyle continues unimpeded,” an attorney for the estranged spouse claimed in divorce pleadings.

After Avenatti moved out of their home in August 2017, he snagged a $14,000-a-month apartment at the posh Ten Thousand skyscraper in Los Angeles, Storie-Avenatti said in court documents.

“While I continue to pay all the bills I can afford and to support our son, Petitioner continues to vacation and race cars,” she said, adding that in November 2017, Avenatti flew himself, a friend and the friend’s dog, to a villa.

Avenatti employed a full-time pilot hired at $100,000 a year, and owned two private jets worth about $9 million, Storie-Avenatti claimed.

Storie-Avenatti also claimed that Avenatti stopped paying the $100,000-per-month lease on their Newport Beach home, resulting in eviction proceedings.

According to court filings, Avenatti and his wife agreed to purchase their former home, at 618 Via Lido Nord, for $15.75 million. As part of the agreement, they would move in and pay $100,000 monthly, for nine months, toward the purchase price.

Two days before the couple’s final payment of nearly $14 million was due, stopped the transfer of the property to the Avenattis, and negated their obligation to cough up the millions. As a result, the property’s owner, casino magnate Gary Primm, filed court papers to evict the couple.

Storie-Avenatti listed the home as an asset in her divorce papers, saying the couple “spent hundreds of thousands of dollars to fully remodel” it.

“Because I am in the dark regarding Petitioner’s actual income, I am requesting an award of non-taxable family support based on our luxurious marital lifestyle in the amount of $215,643 per month per my review of our 2016 expenses,” she said in her declaration.

Avenatti did not appear to contest his ex-wife’s claims about their high-flying lifestyle, but he did say she was “placing unreasonable restrictions” on spending time with their son. His attorneys also fought her requests for his financial statements, according to a review of court records.

In July, a judge ordered child support of $31,981 per month, and $124,398 per month in spousal support, based on Lisa-Storie’s expenses.

The judge also ordered Avenatti to pay $185,000 in attorney’s fees and $30,000 in expert fees.

“The court notes this is a case with a considerable amount of money and amounts requested are reasonable and necessary and provide the function of support for the respondent who has limited access to funds,” a minute order stated.

'A Stench of Impropriety'

Both Jason Frank and Lisa Storie-Avenatti have battled Avenatti for his tax returns, which they said they were entitled to in their separate cases. It’s unclear if either party ever obtained those documents.

Avenatti’s lawyers called the requests “unduly burdensome and oppressive” and said the demand for tax returns “violates the right to financial privacy,” according to Orange County court filings in his divorce proceeding. They also objected on the grounds that the documents were “protected by the attorney-client privilege or work product doctrine.”

One July minute order indicated Judge Carol L. Henson noticed Avenatti hadn’t complied with Lisa-Storie’s requests for documents. “[T]he court notes that it is not appropriate to turn a blind eye that none of the requests have been complied with by the petitioner [Avenatti].” She added that, “There are no tax returns, bank statements, no income & expense declarations, no preliminary declaration of disclosure and no financial documents.”

Avenatti, who trolls the president on Twitter daily, has mostly stayed mum on the issue of releasing his tax returns.

During one August appearance on ABC’s This Week, Avenatti remained noncommittal on whether he’d release a cache of his tax returns as a presidential candidate. “I don’t know yet,” Avenatti told correspondent Jonathan Karl. “I haven’t decided. I’ll look at the issue. But here’s what I do know…”

“You don’t know if you’ll release your tax returns?” Karl asked. “This was a major issue with Trump.”

After Karl pressed Avenatti again, the lawyer said he’d commit to releasing some of his returns. “How will you make that judgment of how many?” Karl asked.

“I don’t know. I’m going to consult with people. We’re going to see what the standard has been over the years,” Avenatti replied, before adding: “But where are Donald Trump’s tax returns?”

Meanwhile, after Frank filed a demand for arbitration over his unpaid fees, a three-judge panel found that Avenatti’s former firm, Eagan Avenatti, “acted with malice, fraud and oppression” by failing to provide Frank with its revenue numbers and tax returns, in violation of their independent contractor agreement. A trial in the arbitration was set for March 13, 2017.

But on March 1, 2017, a dubious creditor in Florida named Gerald Tobin filed a petition to place Eagan Avenatti into involuntary bankruptcy over a debt of $28,700. The next day, according to a lawsuit filed by Frank, Eagan Avenatti filed a notice insisting the trial in the arbitration must be placed on hold pending the bankruptcy action.

Judge Karen S. Jennemann, a U.S. bankruptcy judge in Florida, said the involuntary petition had “a stench of impropriety” and that she didn’t know “whether the private investigator has some relationship with the firm that would have induced a collusive filing or if they just got plain lucky that somebody filed on the eve of the arbitration.”

Eagan Avenatti stayed in Chapter 11 bankruptcy, and the case was transferred to California in April 2017. Eight months later, Avenatti and his professional corporation, Avenatti & Associates, along with Eagan Avenatti, entered into a settlement agreement with Frank and his firm.

The Debtor and its responsible officer Michael Avenatti made misrepresentations to the detriment of the United States.
Federal prosecutors, asking the court to find Eagan Avenatti in contempt

The bankruptcy court approved the settlement in March 2018 and dismissed Eagan Avenatti’s bankruptcy case, but Frank hasn’t been paid.

In January, the IRS filed court papers in the bankruptcy action claiming Eagan Avenatti owed the federal government nearly $2.4 million.

Two months later, the IRS received an initial payment of more than $1.5 million. But, according to July filings, Eagan Avenatti hadn’t paid the remaining $880,582. “In this case, the Debtor and its responsible officer Michael Avenatti made misrepresentations to the detriment of the United States,” federal prosecutors wrote, asking the court to find Eagan Avenatti in contempt, or to reinstate the Chapter 11 case.

An attorney for Eagan Avenatti, in court papers, retorted that the government’s “tone and vitriolic language” showed that their court filing “was written for the press and to fulfill an agenda other than collection of the remaining balance due by [Eagan Avenatti] to the Internal Revenue Service.”

“The IRS has not provided a shred of evidence in support of its baseless assertions that Mr. Avenatti intentionally misrepresented any facts to the IRS for one simple reason—there is none.”

In August, U.S. bankruptcy judge Catherine E. Bauer approved a stipulation for Eagan Avenatti to make monthly payments of $75,000 until the taxes are paid in full. A spokesman for the U.S. Attorney’s Office in Los Angeles, which represents the IRS in the matter, said he could not comment on the payments. “To the best of my knowledge, the firm has paid everything,” Avenatti told The Daily Beast.

A spokeswoman for the IRS said the agency does not comment on whether a taxpayer’s federal tax liens have been paid up, citing federal disclosure laws. “We’re not allowed to comment on any taxpayer or agency’s relationship with our agency,” she said.

Eagan Avenatti also has state tax liens worth $493,207, according to documents filed with the Orange County recorder’s office. Records filed with the agency do not indicate the liens have been released. “To the best of my knowledge, those were fully paid as well,” Avenatti said, adding that “very often, the satisfaction of the releases don’t get filed” in a timely manner.

'A Pump and Dump Scheme'

“Seattle loves an underdog,” Michael Avenatti told an area business journal in 2014, about a year after he acquired a moribund coffee chain in a short-lived partnership with Grey’s Anatomy star Patrick Dempsey.

Avenatti had purchased Tully's Coffee for $9.15 million at a bankruptcy auction, and vowed to revamp the tanking chain of java depots, which still had decor from the 1990s and whose business strategy included planting stores close to Starbucks.

But the lawyer’s plans for Tully’s—purchased through an LLC called Global Baristas—went up in flames.

This year, all of Tully’s locations shut down as Global Baristas was accused in lawsuits of failing to pay trademarking fees and rent on their locations.

And, according to a Daily Beast review of public records, Global Baristas owes millions in unpaid state and federal taxes—including a nearly $5-million federal tax lien filed against Global Baristas US, LLC last year.

In a June court filing in New York—where Keurig Green Mountain, Inc. has filed a pending suit against Global Baristas for failing to pay trademark licensing fees—Avenatti said all stores have been closed and “taken over by their respective landlords.”

“The Global Baristas Parties have absolutely no intention of engaging in any business in the future, retail or otherwise,” said Avenatti, who described himself as general counsel of Global Baristas US, LLC and Global Baristas, LLC.

In media interviews, Avenatti has claimed he sold his stake in Tully’s at a profit. “Timing is everything. I exited at the right time,” Avenatti told the Washington Post in March. “Basically, they’re just another client now.”

In June, he told the Puget Sound Business Journal in Seattle that the assertions that Global Baristas owes millions in taxes is “completely false” but that the new owner—whom he declined to identify—is “responsible entirely” for the liens.

He bought a company out of bankruptcy and then used it for a ‘pump and dump’ scheme to deprive federal and state taxing authorities of millions of dollars.

State corporation filings from January 2018 list Avenatti as the manager of Global Baristas US LLC. In a February filing for Global Baristas, LLC, Avenatti is listed as president. And in January, Avenatti’s ex-wife listed Global Baristas’ ownership of 48 Tully’s coffee shops as one of the couple’s assets.

Avenatti told The Daily Beast that he sold Global Baristas to a new ownership group for $27,785,000, and that the private group took on all liabilities.

When asked about Global Baristas’ tax warrants, Avenatti told The Daily Beast that the unpaid taxes were “not my responsibility”

“I only do legal work for the company,” he said, before adding, “This is all old news. It’s been reported a long time ago.”

Global Baristas paid a $200,000 retainer for Eagan Avenatti’s bankruptcy case in Florida, despite the coffee company supposedly being “entirely unrelated to the business of EA,” one 2017 court document filed by Avenatti shows.

The document said the amount “is not a loan to EA, and EA is under no obligation to repay Global US for any portion of the $200,000.”

This payment was highlighted in a complaint filed with the State Bar of California against Avenatti individually in March of this year.

Avenatti obtained a $2-million loan for the company’s daily operations—without telling Dempsey—and pledged the company’s newly-acquired assets as collateral.

David Nold, a Washington attorney representing a former landlord of Tully’s Coffee, filed the complaint over Avenatti’s alleged business practices with Global Baristas.

In a letter to the California bar, Nold fumed, “In essence, he bought a company out of bankruptcy and then used it for a ‘pump and dump’ scheme to deprive federal and state taxing authorities of millions of dollars.”

Avenatti called the complaint baseless and claimed Nold is facing his own bar complaint filed in Washington, but did not elaborate. “I’ll be shocked if he doesn’t lose his license,” Avenatti told The Daily Beast.

Nold declined to comment when reached by The Daily Beast.

A spokesman for the State Bar of California told The Daily Beast the association’s investigation and complaint process is confidential, and that they cannot confirm or deny whether there’s an investigation into a specific attorney. (Online bar records for Avenatti don’t show any disciplinary charges.)

According to court records, Global Baristas owes more than $350,000 in judgments and attorney’s fees to landlords over unpaid rent. In most cases, the company left equipment behind as the stores shuttered. At least one landlord, according to their attorney Evan Loeffler, sold the coffee gear at a public auction.

Tully’s tragic demise came five years after Avenatti purchased the chain out of bankruptcy in a business partnership with Dempsey, who in August 2013 sued Avenatti over the company’s finances.

According to the lawsuit, filed in King County, Avenatti and Dempsey were the sole members and managers of Global Baristas when it formed in December 2012.

Dempsey claimed he joined the venture because Avenatti assured him he had the funds to acquire Tully’s and working capital to operate the chain.

According to his suit, 10 days after the purchase closed, Avenatti obtained a $2-million loan for the company’s daily operations—without telling Dempsey—and pledged the company’s newly-acquired assets as collateral.

Dempsey’s lawyers unearthed the loan while doing an online search of Global Baristas’ assets and discovered the lender, Aledmi LLC, was formed two days before its agreement with Avenatti and Global Baristas.

“Avenatti’s wrongful actions in obtaining a loan saddled Global Baristas with debt and encumbered all of Global Baristas assets as collateral—all to relieve Avenatti of an obligation that he owed to Global Baristas,” Dempsey’s attorney said in one pleading.

The case was settled shortly after filing, and afterward, Avenatti told the Seattle Times that the lawsuit was “much ado about nothing.”

Still, Global Baristas’ legal troubles apparently continued.

The Daily Beast found nearly $2 million in state tax warrants against Global Baristas in King County Superior Court. Court records did not indicate those warrants had been satisfied.

In addition, documents with the King County recorder’s office showed $4,998,198 in federal tax liens against Global Baristas which were filed in November 2017. The recorder’s office had no indication the money was paid. (The lien was originally filed in June 2017 against Global Baristas and Avenatti but amended to remove his name.)

Separately, Marie Fiore, a spokeswoman for the Washington State Department of Labor and Industries, said Global Baristas owes judgments and penalties and interest totaling $470,259 covering a period from April 2015 to June 2018.

To date, those debts over unpaid workers compensation taxes have not been paid, Fiore said.

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