Politics

Why Avenatti’s Financial Past Hurts Stormy Daniels

Michael Avenatti | Circa June 2016 | By Richard Dole (photographer), (copyright holder) (http://avenatti.com/portrait/portrait.html) [CC BY-SA 2.5 (https://creativecommons.org/licenses/by-sa/2.5)], via Wikimedia Commons

Michael Avenatti, the California attorney who represents Stephanie Clifford, the pornographic actress who is suing President Donald Trump and his former chief counsel Michael Cohen, has said little about the body of reporting relating to his past bankruptcies and mounting back taxes.

The cut-throat litigator and cable news fixture asserted the episodes have no bearing on his representation of Clifford or her lawsuit against the president. But the details those reports describe could substantially bear on his ability to intervene in other legal proceedings essential to the success of Clifford’s lawsuit.

Avenatti is currently the subject of a state bar investigation in California, after another attorney accused him of running an illegal “pump-and-dump” scheme through a bankrupted chain of coffee shops Avenatti acquired in 2013. Attorneys must obtain judicial permission before appearing in jurisdictions where they are not licensed to practice law. The bar association probe could serve as a basis for his exclusion from cases related to Clifford’s, as most courts require lawyers from other states to disclose any disciplinary proceedings commenced against them when seeking admission.

For example, Avenatti asked the federal trial court in Manhattan to appear as an interested party in a challenge Cohen brought against the April 9 search of his law offices by federal investigators. Such petitions, called pro hac vice motions, are routinely granted, although Cohen’s lawyers took the rare step of opposing the request on May 18.

Cohen’s lawyers argue Avenatti should be excluded from the case for several reasons, one of which is his failure to alert the court to the ongoing California inquiry. The Manhattan court’s rules require attorneys requesting pro hac vice admission to disclose “whether there are any disciplinary proceedings presently against the applicant.”

As such, the investigation — the allegations which spurned it and all information relating to it — goes directly to his ability to represent Clifford in the Cohen case.

Landlord dispute uncovers evidence of unpaid taxes

Fox News first reported that the State Bar of California referred a complaint submitted by Washington attorney David Nold to its enforcement unit “for further investigation and prosecution, if warranted.” Inquiries of this nature are only launched when a complaint shows credible evidence of a serious violation.

Nold submitted the complaint on March 26. The referral Fox News obtained is dated April 18.

The complaint arose in the course of a landlord-tenant dispute between Bellevue Square, a Washington state shopping mall which Nold represents, and Global Baristas US LLC, the parent entity of a coffee shop chain Avenatti owns. In the course of that litigation, Nold discovered the company withheld almost $6 million in taxes from federal and state officials. Failure to make such payments results in criminal liability for the individual responsible.

Avenatti denied personal culpability in a statement to Fox News.

“At no point in time was I ever responsible for any taxes for Global Baristas US LLC, nor was I ever a member of that entity, nor did I own any direct interest in that entity,” he said.

The second and third denials are somewhat beside the point, as his former law firm — Eagan Avenatti LLP — owned a Delaware-based corporation called Doppio Inc., which controlled 80 percent of Global Baristas US, according to The Seattle Times. It might be technically true that Avenatti himself is not a member of Global Baristas US or the owner of a direct interest in the company, but his firm was in control of Doppio, the majority owner of Global Baristas US.

What’s more, separate court documents show Avenatti identified himself as the principal, chairman and general counsel of Global Baristas US as recently as April 2017.

Federal tax documents further bely Avenatti’s claim. A tax lien attached to the Nold complaint names Avenatti as the liable party for the missing taxes.

From a bankrupt company, a gift to Avenatti’s own law firm

The complaint then alleges the company, while in breach of federal and state tax obligations, financed the retainer of a law firm to represent Avenatti’s own law practice in separate bankruptcy proceedings. Global Baristas US paid the law firm Baker & Hostetler $100,000 on March 15, 2017, and committed to a second $100,000 payment due by April 12, 2017 to represent Eagan Avenatti in federal bankruptcy court, according to legal documents Avenatti himself submitted in April 2017.

“Thus he admits that he committed Global’s funds to his bankrupt law firm with connection in their business operations and no duty to repay the money,” the complaint alleged.

Eagan Avenatti’s bankruptcy set off a separate dispute with Avenatti’s former law partner, Jason Frank. As part of settling the firm’s obligations, the firm agreed to pay Frank $4 million. Avenatti himself guaranteed payment. A bankruptcy judge entered a $10 million judgement against the firm Tuesday after they failed to transmit payment to Frank on time. These facts are not included in the complaint, put arise from events detailed in the complaint.

“Sensational reporting at its finest,” Avenatti told the Los Angeles Times when asked about the $10-million award. “No judgment against me was issued nor do I owe any taxes.”

All told, Nold alleges Avenatti’s bankrupt coffee shop chain withheld federal and state taxes for which Avenatti himself is liable. The company then used its own funds to hire lawyers to represent Avenatti’s law firm as it navigated its own bankruptcy.

In response, Avenatti said he has not been notified of any bar investigation of a matter concerning him, although the California bar’s template timeline of such inquiries indicates attorneys under scrutiny may not be contacted until an advanced stage of the probe.

Even if he has not been notified of a bar investigation at this point, the fact an inquiry remains ongoing leaves open the possibility he could receive such notification at some future date. He would then be obliged to disclose it when filing pro hac vice motions in other cases of relevance to Clifford.

In a statement rebutting Cohen’s lawyers, Avenatti said the Fox News report is not relevant to his motion to appear.

“As this court knows, the mere filing of a complaint with a state bar or other regulatory body, does not mean that there are facts warranting an investigation, let alone any disciplinary proceeding,” Avenatti wrote. “Mr. Cohen’s unsubstantiated statements reflect a fundamental misunderstanding of the facts and the law. Indeed, Mr. Cohen appears to rely on a form letter referenced in a Fox News article to support his allegations. This is not evidence.”

A conference to discuss Avenatti’s request to appear in the Cohen case is scheduled for May 30.

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