After months of demanding transparency from President Trump on his alleged affair with porn star Stormy Daniels, Michael Avenatti convinced a federal judge on Wednesday to block the news media from covering his testimony about his law firm’s bankruptcy.
Eagan Avenatti, his Newport Beach firm, has defaulted on millions of dollars in debt and fallen years behind in paying its payroll taxes.
Avenatti, the firm’s owner and managing partner, was subpoenaed by former firm employee Jason Frank to testify Wednesday in U.S. Bankruptcy Court in Santa Ana. Frank is trying to collect on a $10-million judgment he won against the firm.
Judge Catherine Bauer granted Avenatti’s request Wednesday morning to bar the media from covering his court testimony. Avenatti argued that his firm’s finances and client roster should not be exposed despite a voluminous public case file that already chronicles its troubles in great detail.
“They want to embarrass me,” Avenatti said of Frank and unnamed others.
Avenatti also asked Bauer to seal the transcript of his testimony. The judge made no immediate decision on the request.
Bauer refused to allow attorneys for The Times and other news organizations to argue that Avenatti’s testimony must take place in open court. Another bankruptcy judge, Scott C. Clarkson, declined to overturn her order at an emergency hearing Wednesday afternoon after hearing objections from Dan Laidman, an attorney for The Times, ABC and CNN. Clarkson said the media organizations could file further challenges to the closure with Bauer.
For Avenatti, a fixture on cable news since he began representing Daniels nearly five months ago, the demand for secrecy was a notable change in posture.
For weeks, he has been demanding that the president’s former lawyer Michael Cohen “come clean” and release tapes and documents involving the payment of $130,000 to Daniels in return for her silence about an alleged one-night stand with Trump in 2006.
But as Avenatti has savored the publicity that the case has brought him, his firm’s financial troubles have deepened, due mainly to Frank’s $10-million judgment. Frank has alleged that Eagan Avenatti cheated him out of millions of dollars in pay, a charge that Avenatti denies.
Eagan Avenatti agreed to seek Chapter 11 bankruptcy protection from its creditors in March 2017 after a Florida vendor filed a petition alleging the firm had failed to pay a $28,700 invoice. At the time, Avenatti & Associates, owned solely by Avenatti, held 75% of the firm’s equity, and the rest belonged to San Francisco attorney Michael Eagan.
Avenatti & Associates now owns 100% of Eagan Avenatti, Avenatti said Wednesday.
As part of a court-approved settlement to resolve the bankruptcy, Avenatti personally guaranteed in December that the firm would pay Frank $4.85 million. When the firm missed the first of two promised installments, Frank sued Avenatti personally in state court to collect the money.
The settlement also enabled Frank to get the $10-million Bankruptcy Court judgment against Eagan Avenatti, which the firm did not contest.
The firm has also defaulted on more than $880,000 in federal payroll taxes, penalties and interest that Avenatti had promised that it would pay. The Internal Revenue Service asked Bauer to hold the firm in contempt of court, but set aside the request Wednesday after reaching a deal for payment, according to the U.S. attorney’s office in Los Angeles.
“Your honor, the payroll taxes need to be paid as soon as possible,” Assistant U.S. Atty. Najah Shariff told Bauer shortly before Avenatti began testifying behind closed doors in a courthouse conference room.
Nonetheless, Avenatti said by email, “All issues with the IRS are fully resolved.”
Two weeks ago, Bauer issued a restraining order to block Eagan Avenatti from spending any fees it collects while its debts to Frank and the IRS remain unpaid.
The order covers fees from 54 court cases, including the suit that Daniels, whose real name is Stephanie Clifford, filed against Trump to void the nondisclosure pact. In court papers, her attorneys are identified as Avenatti & Associates, which operates out of the same Newport Beach office as Eagan Avenatti.