Continuing this month was the losing streak of suspended California lawyer Michael Avenatti, who at one time eyed a presidential bid and now is a prison inmate following federal convictions.
$16 million Default Judgment
On Tuesday, Orange Superior Court Judge Walter F. Schwarrm ordered that a default judgment against Avenatti be entered in the amount of $16,102,467.60. The award was based on a jury’s finding on June 22 that Avenatti wrongfully failed to pay the law firm of Stoll Nussbaum & Polakov APC its share of the $15,335,683.42 in attorney fees paid under the settlement of a case. The money went into Avenatti’s client trust account.
Schwarrm’s award was pursuant to Penal Code §496(c) which provides for a trebling of damages where property has been stolen. The judge declined to award punitive damages, explaining that “there is no evidence regarding the current financial condition” of Avenatti.
Defamation Action Not Revived
On July 21, the Third U.S. Circuit Court of Appeals declined to revive Michael Avenatti's $250 million defamation action against Fox News Network over coverage of his arrest in 2018. Judge Margorie O. Rendell recited:
“Plaintiff-Appellant Michael Avenatti is a celebrity lawyer who rose to public prominence in early 2018 by representing Stephanie Clifford (a/k/a Stormy Daniels), a woman with whom then- President Trump had allegedly had an extra-marital affair. But Avenatti’s freshly minted fame soon took on a different hue when, in November 2018, he was arrested by officers of the Los Angeles Police Department. Given his public profile, his arrest was covered extensively in the media, including by Defendant-Appellee Fox News Network…and the individual Defendant-Appellees, all of whom were on-air personalities for Fox News. Avenatti claims that the Defendants engaged in a ‘purposeful and malicious’ campaign of defamation and slander against him by lying, on air and in print, about the details of his arrest.”
Avenatti, a Californian, sued in state court in Delaware; Fox removed the case to the U.S. District Court for the District of Delaware based on diversity of citizenship; Avenatti then, without leave to do so, added a Californian as a defendant in an effort to deprive the federal court of jurisdiction; Judge Stephanos Bibas dismissed the Californian as defendant, restoring complete diversity; he later dismissed the action based on a lack of a plausible claim.
On appeal, Avenatti argued that once he added the defendant, Bibas was obliged to remand the case to state court, and the District Court lacked jurisdiction from that point on. Rejecting the contention, Rendell wrote:
“We think the District Court chose the correct path. Where, as here, a nondiverse defendant has been added post-removal by amendment as of right, courts may sua sponte consider dropping the spoiler under Rule 21.”
She said that “[i]f the new defendant is dispensable and can be dropped without prejudicing any party,” the court may proceed to decide if the action should be dismissed with prejudice for failure to state a claim.
Criminal Matters
Avenatti on June 16 pled guilty in the U.S. District Court for the Central District of California to four counts of wire fraud—entailing matters in which he embezzled millions of dollars from clients—and one count of attempting to obstruct the administration of the Internal Revenue Code. The latter charge relates to an effort to cheat the government out of about $5 million.
Senior Judge James V. Selna slated a sentencing hearing for Sept. 19. Avenatti faces a maximum sentence of 83 years in prison.
The Department of Justice later announced it would not pursue 31 remaining counts of wire-, bank-, and tax-fraud.
On June 2, Avenatti was sentenced to four years in prison by U.S. District Court Judge Jesse Furman of the Southern District of New York for fraud and aggravated identity theft in connection with cheating former client Stormy Daniels out of nearly $300,000. He was convicted of the charges on Feb. 4.
The money Avenatti pilfered was an advance to Daniels in connection with her book, “Full Disclosure,” in which she tells of her affair with then-President Donald Trump. Avenatti forged her signature on a letter to her literary agent, directing that payments be sent to a bank account he controlled. Avenatti represented himself in the proceeding.
On July 8, 2021, Avenatti was sentenced to two-and-a-half years in prison by District Court Judge Paul G. Gardephe, also of the Southern District of New York, based on his effort to exact a sum of about $25 million from Nike by threatening to blacken its reputation in litigation if it did not comply.
State Bar Proceedings
State Bar disciplinary charges were filed July 29, 2019. Avenatti was placed on interim suspension on June 4, 2020 based on his Feb. 14, 2019 conviction in the Nike case.
Disbarment is inevitable.
Background
The lawyer handled a number of high-profile cases, including representation of Daniels—whose actual name is Stephanie Clifford—in her actions against Trump in an effort to skirt a 2016 nondisclosure agreement she signed in connection with a $130,000 pay-off to her for agreeing not to talk publicly of their 2006 affair. He also handled her action against the then-president for defamation.
In 2018, he took preliminary steps toward launching a presidential bid in 2018, but decided against running.
