A federal bankruptcy judge has issued a restraining order to block the firm of Michael Avenatti, the lawyer for porn star Stormy Daniels, from spending any fees it collects while it owes more than $10 million in unpaid debts and back taxes, it was reported Thursday.
The move by Judge Catherine Bauer of U.S. Bankruptcy Court in Santa Ana was a severe blow to Avenatti, whose personal financial troubles have deepened as his star has risen on cable news, the Los Angeles Times reported.
“I don’t want him going out and buying a new house,” Bauer said at a court hearing Wednesday a few hours before she signed the restraining order. Bauer’s order covers fees from 54 court cases, including the suit that Daniels filed against President Donald Trump to void the nondisclosure pact that bars her from talking about their alleged 2006 sexual encounter.
It’s unclear whether Avenatti has received any of the $582,000 in donations that she has collected. His Newport Beach firm, Eagan Avenatti, emerged from Chapter 11 bankruptcy protection in March after reaching agreements to pay its creditors. But Avenatti soon broke his promise that the firm would meet a May deadline to pay the Internal Revenue Service $440,291 in back taxes, penalties and interest. The firm also missed a $2 million payment, personally guaranteed by Avenatti, to Jason Frank, a lawyer who used to work there, according to The Times.
As a result, Frank won a $10 million judgment against Eagan Avenatti. Frank says the firm cheated him out of more than $15 million in pay. Avenatti denies the charge.
Hamid Rafatjoo, an attorney for Avenatti, urged Bauer Wednesday to deny Frank’s request for the restraining order.
“Yes, he has not been paid, but a secured creditor has ways of getting paid that are short of destroying” Avenatti’s firm, Rafatjoo said. “There is ways of doing things that are proper for recovering your money, and then there is personal vendettas and taking actions that are frankly just unnecessary.”
Rafatjoo also asked the judge to reject Frank’s request that all legal fees collected by the firm in the 54 cases be automatically transferred to Frank until the full $10 million judgment is paid. Bauer declined to order any automatic transfers to Frank.
“We fully support the order,” Avenatti told The Times in an email, “and are pleased the court agreed with us as opposed to Mr. Frank. This is what we wanted.”
Frank’s lawyer, Sara Chenetz, told the judge that Avenatti would find ways to dodge paying Eagan Avenatti’s creditors in the absence of a restraining order. The day after the bankruptcy case was settled, Chenetz told the judge, he started practicing law under the name Avenatti and Associates rather than Eagan Avenatti.
Avenatti and Associates, owned entirely by Avenatti, holds 75 percent of the equity in Eagan Avenatti; the remaining share belongs to San Francisco lawyer Michael Eagan.
At the hearing, Bauer voiced concerns that Avenatti would find ways to collect legal fees without moving the money through Eagan Avenatti, thus evading obligations to the firm’s creditors.
The restraining order requires the firm to notify the IRS, Frank and other creditors every time legal fees are received in any of the 54 court cases, regardless of whether the payments are made to Eagan Avenatti, Avenatti and Associates, Avenatti or Eagan personally, or any entity under their control.