Michael Avenatti must pay $4.85 million to a former colleague who claims the lawyer stiffed him out of millions in profits, a Los Angeles judge ruled Monday.
The decision comes as Avenatti floats his name as a contender to oppose Donald Trump in 2020, and makes appearances at Democratic events ahead of the midterm elections—including in New Hampshire, where he was slated to speak Monday. The attorney launched a political action committee, Fight PAC, to bolster his efforts.
But as The Daily Beast reported, Avenatti and his current and former companies owe millions in unpaid taxes and judgments—including the $4.85 million settlement to the former employee, Jason Frank. The lawyer’s tangled finances will likely come under scrutiny if he does officially announce his candidacy.
On Monday, Judge Dennis Landin tossed Avenatti’s attempt at transferring the case to federal court—a move Frank’s attorney called a “frivolous” delay tactic.
After the judge’s ruling, Frank’s attorney Eric George told reporters that Avenatti’s last-minute bid to stall the multimillion-dollar judgment was filed too late and didn’t state any ground for federal jurisdiction.
“So seeing through this baseless tactic, the judge went ahead and granted our summary judgment today,” George said.
“At the end of the day, this isn’t about tactics and procedure, it’s about doing the right thing,” George continued, adding, “Let’s not forget my client has had an awful lot of money owed to him for a lengthy period of time, and it’s been delayed through one tactic after another.”
Neither Avenatti nor a legal representative for him appeared at the Monday morning proceeding, which put Avenatti on the hook for $4.85 million, plus attorneys’ fees and interest.
When a reporter asked George about Avenatti’s claims that the Frank case is a distraction and smear campaign as he stumps for Democrats, George replied, “That’s complete bullshit.”
“This is money that was owed to [Frank] and his firm for a long time,” George said, adding that Avenatti has “managed to delay this for ages.”
The $4.85-million judgment is in addition to a $10-million judgment that a bankruptcy judge entered against Avenatti's firm, Eagan Avenatti, earlier this year, for failing to pay Frank.
George said Frank’s case is “now a collection effort.”
“It will be important to keep an eye on him and sources of money that are coming in,” George said of Avenatti. “See what his assets are and take it from there.”
Avenatti became a household name for representing Stormy Daniels in her lawsuit to invalidate a “hush agreement” she signed over her alleged affair with Donald Trump. Daniels, a porn actress and director, claims she slept with with Trump at a celebrity golf tournament in Lake Tahoe 12 years ago and that Trump and his former fixer, Michael Cohen, tried to silence her ahead of the 2016 election.
Last week, Avenatti told The Daily Beast that Frank was the one who owed him money for allegedly stealing clients.
On Monday, Avenatti reiterated that Frank owed him millions of dollars. “Any judgment issued against me will be deducted from the over $12 million that Jason Frank owes me and my law firm Avenatti & Associates as a result of his fraud,” Avenatti said in a text message. “We look forward to receiving his check for over $7 million.”
“His judgment will never hold up,” Avenatti added.
Still, a review of the settlement agreement shows that Avenatti, and his current and former law firms, cannot pursue claims against Frank.
A former independent contractor for Eagan Avenatti, Frank filed his suit in Los Angeles in May after Avenatti failed to pay the settlement money.
According to Frank’s lawsuit, Eagan Avenatti was supposed to pay Frank 25 percent of the firm’s annual profits among other compensation. The firm was also required to provide Frank—who worked there from 2009 to 2016—with copies of its tax returns and documentation showing the firm’s revenues and expenses.
Frank, who accused Eagan Avenatti of misstating its profits, filed a demand for arbitration against the firm in February 2016 and resigned three months later. A three-judge panel found that Eagan Avenatti “acted with malice, fraud and oppression,” by keeping its revenue numbers and tax returns from Frank.
But before a scheduled trial in March 2017, a creditor named Gerald Tobin filed a petition to place Eagan Avenatti into involuntary Chapter 11 bankruptcy over an unpaid bill worth $28,700—a maneuver in a Florida court that would put Frank’s case on hold.
Tobin’s listed address on the petition was for a UPS mailbox that was opened with cash on Feb. 28, 2017—one day before Tobin filed his court papers, Frank's lawsuit alleges. (Avenatti has denied any involvement with Tobin’s petition.)
Frank filed an emergency motion to allow his arbitration trial against Eagan Avenatti to proceed, and a judge ruled Frank’s case would be postponed if Eagan Avenatti consented to staying in Chapter 11 bankruptcy.
During one March hearing, Judge Karen S. Jennemann said Tobin’s petition had “a stench of impropriety” and that she didn’t “have any real confidence that [Eagan Avenatti] is going to stay in this bankruptcy or any other bankruptcy.”
Avenatti consented to placing Eagan Avenatti into bankruptcy, and the case was transferred to federal court in Los Angeles in April 2017.
Yet in December 2017, Avenatti and his firm, Eagan Avenatti, entered into a settlement with Frank and agreed to pay him $4.85 million. A bankruptcy court approved the settlement in March 2018 and dismissed Eagan Avenatti’s case.
Avenatti, according to Frank’s lawsuit, personally guaranteed the payout in two installments, with the first payment of $2 million due in May.
That settlement was never paid, Frank said.
Soon after Frank filed his Los Angeles lawsuit against Avenatti, alleging a breach of the guaranty agreement, a U.S. bankruptcy judge entered a $10-million judgment against Eagan Avenatti.
Back then, Avenatti told The Daily Beast, “I’m disgusted by the press’s fascination with my personal business and my personal life.”