Michael Avenatti, attorney and spokesman for adult film actress Stormy Daniels, arrives at a New York federal court.
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Last year, Michael Avenatti found himself in financial trouble, and Jerry Tobin came to the unexpected rescue.
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Tobin, who had a lengthy arrest list and was pictured sporting a mohawk, showed up at a UPS store in Orlando, Florida, deposited two $100 bills and rented a mailbox.
The next day, Tobin filed for bankruptcy at Avenatti’s Newport Beach law firm using his new anonymous address. Tobin claimed that Egan Avenatti’s company owed him $28,700.
The bankruptcy automatically ends a nasty, high-stakes arbitration between Avenatti and the company’s staff attorney, Jason Frank. If Egan Avenatti loses, he could be forced to pay Frank more than $14 million.
U.S. Bankruptcy Judge Karen Jennemann immediately questioned whether Egan Avenatti conspired with Tobin to commit a malicious bankruptcy to prevent arbitration or whether it was “just good luck.”
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He said Tobin was an “eccentric little creditor” who couldn’t figure out on his own how to initiate the rarely used involuntary bankruptcy process.
Avenatti, who became famous a year later as a lawyer for porn star Stormi Daniels, denied that the company had anything to do with Tobin’s petition.
The story of how Avenatti ran his company after it went bankrupt says a lot about the way he worked, testing legal and ethical boundaries. Owns 75% of Eagan Avenatti; 25% owned by San Francisco attorney Michael Egan.
Egan Avenatti was ordered to pay $10 million in damages last week after Avenatti reneged on a promise to start paying $5 million to Frank, who claimed in arbitration that the company cheated him of his earnings.
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Michael Cohen, who paid Daniels to keep quiet about her alleged relationship with Donald Trump, cited the ruling in urging the judge to deny Avenatti A request to join a New York lawsuit involving FBI raids on Cohen’s home, office and hotel room.
Avenatti withdrew his plea Wednesday after a judge told him he must stop his “publicity tour.” Avenatti, 47, has been on cable news in the three months since he sued Daniels to invalidate his nondisclosure agreement, delivering pointed attacks on Cohen and the president.
His tactics have been controversial, and he recently published a report on Cohen’s private banking records. It mistakenly included transactions by a man named Michael Cohen that had nothing to do with Trump.
Stormy Daniels, whose real name is Stephanie Clifford, speaks outside a New York courtroom with her attorney Michael Avenatti.
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In the years before bankruptcy, Egan Avenatti practiced a profitable law practice. Tens of millions of dollars in legal fees helped Avenatti fund what his wife described in divorce documents as an lavish personal lifestyle.
The couple rents an oceanfront home on Lido Island for $100,000 a month. Avenatti drives a Ferrari. I bought a Honda Jet for short trips. He spent millions to acquire Tully’s Coffee, a struggling Seattle coffee shop chain.
Bankruptcy court records show the nine-lawyer firm has operating costs of more than $300,000 per month to cover payroll, rent and other expenses.
This is a plaintiffs’ law firm that handles cases primarily on a contingency basis, so their income is unstable. Months pass with little revenue, then a sudden verdict or settlement brings a windfall.
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The firm’s largest payout occurred in 2014, when Egan Avenatti secured a $35.3 million settlement for more than 7,000 clients who sued Service Corporation International, owner of Eden Memorial Park Cemetery in Mission Hills.
The company had to share some of the money with Frank, the lead attorney on the case. But that was not the case, said Frank, who alleged fraud in the arbitration case he ultimately filed.
Frank and two other attorneys deposed Egan Avenatti in May 2016 and opened their own law firm in Irvine. They took away 17 customers.
By early 2017, Tully’s Coffee, in which Avenatti majority owned, was on the brink of bankruptcy. Landlords are evicting Talley’s stores and demanding back rent. The benefits piled up when Talley’s unpaid taxes exceeded $5 million. Avenatti Law Firm, hired to defend Tully’s Coffee Shops, was forced to sue the coffee chain to pay the bill.
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Meanwhile, Egan Avenatti was also a payroll tax evader, court records show. The IRS seized $904,000 of Avenatti’s personal assets for nonpayment of personal income taxes in 2009 and 2010. (Avenatti said the arrest was a mistake.)
The arbitrators, three retired Los Angeles judges, ordered the company to provide Frank with the financial documents needed to calculate his share of the profits and then sanctioned Egan Avenatti for violating their order.
The retired judge ruled that the company’s claim that it could not find tax returns for 2013, 2014 and 2015 “beyond the limits of credibility.”
On February 10, 2017, the Commission found Egan Avenatti guilty of fraud. Avenatti denies wrongdoing, but a month before the final arbitration hearing, all signs point to a conclusion that is unfavorable to the company.
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Four days later, Avenatti took a risk and tried to make some quick money. He filed an emergency request for an additional $3.4 million to be paid to Egan Avenatti from the cemetery settlement fund, even though the company had already received its full share of $23.5 million.
After a California judge dismissed it, Avenatti went to another judge and obtained a court order approving the payment. Avenatti assured both judges that he had notified other parties of his request. In both incidents, no other parties appeared to dispute his demands for money, court documents show.
“I’m shocked,” the company’s attorney, Stephen Gurney, said in asking the court to overturn the order.
Eventually, Avenatti signed a court declaration acknowledging that he never informed the other parties that he was seeking money. A court order to pay Egan Avenatti $3.4 million has been withdrawn.
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Avenatti said in response to written questions from the Los Angeles Times: “The evidence we presented was well founded and the court found nothing wrong with it.
As Avenatti tries to get more money from the cemetery case, the final hearing for Frank’s arbitration looms.
Tobin filed for bankruptcy on March 1, 2017, just two days before Avenatti’s scheduled testimony.
“Gentlemen, there will be no testimony tomorrow regarding the attachment,” Avenatti’s attorney, Phillip Baker, said in a bankruptcy filing email to Frank and his attorneys.
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Frank was surprised and asked the bankruptcy judge for an emergency order to continue arbitration. Tobin’s request was intended to help Egan Avenatti avoid arbitration, he said.
Judge Jenneman agreed the case appeared to be unlawful. Calling it “negligence,” she said: “I’ve never encountered anything like this before.”
Jennemann gave Egan Avenatti an extremely short period of time to accept bankruptcy: less than 48 hours. He ruled that Frank’s arbitration will continue as planned unless the company accepts Chapter 11 protection from its creditors.
On its face, Tobin’s petition lacks legal merit. Involuntary bankruptcy usually requires at least three creditors to join forces.
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However, Egan Avenatti made no effort to refuse. Instead, he told the court that he literally couldn’t pay his bills and had to file for bankruptcy. Therefore, the firm terminated the arbitration with Frank.
Avenatti said last year that Tobin was “conducting private investigative work for the company,” without elaborating.
Tobin, 48, whose police record in Central Florida includes theft and drug charges, declined to speak to reporters outside his Orlando home.
Avenatti later sent Tobin’s statement to The Times. Tobin declined to say by phone whether he signed the agreement.
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Minutes after The Times told Avenatti that Tobin would not confirm the claim, Tobin wrote in an email that he stood by everything he said.
Tobin said the firm hired him in June 2016 to gather evidence for potential lawsuits by victims of the Pulse nightclub shooting in Orlando. He wrote that he was upset by Egan Avenatti’s refusal to pay the bill and started the petition.
“I did this because I read that doing so often resulted in a quick resolution of the debt and put a lot of pressure on the target company,” Tobin said.
Tobin did not disclose where he read about using involuntary bankruptcy to collect debt. He said renting a box from a UPS store the day before the guilty plea was unrelated to the case.
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“I opened post office boxes for various business reasons and paid a lot of them in cash,” he said.
Avenatti said he never spoke with Tobin, but acknowledged that other employees at the company had spoken with Tobin. He denied that the company colluded with Tobin
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