Michael Avenatti, the attorney for porn actress Stormy Daniels, broke his promise to make a $2-million payment that was due Monday under the settlement of his firm's bankruptcy, a new lawsuit alleges.
Avenatti agreed in December to pay $4.85 million to Jason Frank, a former lawyer at Avenatti's Newport Beach law firm, but missed the first installment of $2 million, according to a suit filed Wednesday in state Superior Court in Los Angeles.
"Avenatti has no valid excuse for failing to perform this obligation," Frank's lawsuit says.
A document filed with the complaint reveals that an arbitration panel of three retired judges found in February 2017 that the firm, Eagan Avenatti, "acted with malice, oppression and fraud" by hiding its revenue numbers and failing to give copies of its tax returns to Frank, as the panel had ordered.
The lawsuit casts Avenatti in a harsh light at a time when he has emerged as one of President Trump's chief antagonists in the media. His cable news stints are so frequent that late-night comedians joke about his overexposure.
Some critics have questioned whether Avenatti's media strategy serves the interests of Daniels in her litigation against Trump and his personal lawyer, Michael Cohen.
Daniels, whose real name is Stephanie Clifford, is seeking to invalidate a nondisclosure agreement that bars her from talking publicly about a sexual encounter she says she had with Trump in 2006 in Lake Tahoe.
Avenatti, whose pattern of unpaid taxes has yielded millions of dollars in IRS liens over the last decade, called Frank's lawsuit "frivolous and baseless."
"Old news," he wrote. "Who cares?"
He said the arbitration panel "never found fraud" despite the document showing that, in fact, it did. The retired state Superior Court judge who signed the panel's order sanctioning Avenatti's firm is Terry B. Friedman.
As an independent contractor at Avenatti's firm, Frank was supposed to be paid 25% of its annual profits, among other things.
In 2016, Frank accused the firm of cheating him out of millions of dollars and filed a demand for arbitration. The retired judges who oversaw the arbitration found that Avenatti's firm "intentionally and knowingly violated" its order to give Frank access to its tax returns and financial records.
Two days before Avenatti's scheduled March 2017 deposition in the arbitration, the case hit a snag. A man who identified himself as Gerald Tobin, using a Florida UPS mailbox paid for with cash, filed a petition to place Eagan Avenatti into involuntary bankruptcy due to an unpaid invoice of $28,700, according to Frank's complaint.
Karen S. Jenneman, a U.S. Bankruptcy Court judge in Florida, said at a hearing that Tobin's petition, which in effect suspended the arbitration case, had "a stench of impropriety." She said she didn't know whether Avenatti's firm colluded with Tobin so that it could avoid paying Frank, or "just got plain lucky that somebody filed on the eve of the arbitration."
Avenatti has denied orchestrating Tobin's bankruptcy petition.
To resolve the bankruptcy case, Avenatti personally promised to pay Frank $4.85 million. He also agreed to pay the IRS $2.4 million in back taxes, penalties and interest, Bankruptcy Court records show.
Nearly $1.3 million of the IRS payment was for payroll taxes that the firm withheld from employees but failed to turn over to the government. Avenatti has blamed the unpaid taxes on an unnamed payroll company that he says failed to do its job.
12:10 p.m.: This article was updated with details on the bankruptcy case of Eagan Avenatti, Michael Avenatti's law firm.