Judge dismisses Michael Avenatti’s latest bankruptcy

SANTA ANA -- A judge dismissed Michael J. Avenatti's new bankruptcy Wednesday and barred him from filing another for six months, saying a court-appointed receiver clearly has the only authority to act on behalf of the troubled attorney's law firm.

U.S. Bankruptcy Judge Catherine E. Bauer also scheduled a sanctions hearing for May 8 "to find out what Mr. Avenatti thought he was doing and why he thought this was OK."

The judge's order granted a request from Avenatti's ex-partner, Jason M. Frank, who for nearly a year has been trying to collect $10 million owed to him by Avenatti's bankrupted firm Eagan Avenatti LLP.

Avenatti filed a new bankruptcy March 7 under The Trial Group LLP, which is the same entity as Eagan Avenatti.

Lodged on the eve of his scheduled sworn testimony in a judgment debtor exam, the new bankruptcy halted the proceedings and sent the litigation back before Bauer, who presided over the original bankruptcy last year.

Frank's new partner, Andrew D. Stolper, filed an emergency motion to dismiss the case, which was joined by receiver Brian Weiss, who was appointed in February to take control of Eagan Avenatti's finances.

The Irvine Company, which evicted Avenatti from his Newport Beach office last fall, also joined.

Bauer's grant of the motion followed argument from Stolper as well as Weiss' lawyer, John P. Reitman, and R. Gibson Pagter Jr., of Pagter and Perry Isaacson APLC, who represented the Irvine Company.

James C. Bastian Jr., of Shulman Hodges & Bastian LLP, appeared for Avenatti. He opened with a quip: "Wow, talk about an uphill battle."

Bauer smiled.

"I wondered who was going to take the case," she replied.

Bastian said Avenatti's actions are "really nothing unusual" and emphasized people often file bankruptcies to avoid judgment debtor exams, which is what Avenatti did in this instance. Bastian said Avenatti is trying to avoid a public debtor exam to protect his creditors and his clients' confidentiality.

"They're trying to harass and basically humiliate Mr. Avenatti in a public setting," Bastian said. "This was not filed in bad faith. This was filed in an effort to protect all of the creditors and assets of the estate. ... We're just here trying to protect everybody."

Representing the U.S. Trustee, Michael J. Hauser said Avenatti filed the bankruptcy instead of responding to the motion to appoint a receiver, which detailed a litany of fraudulent financial transactions Avenatti is alleged to have engaged in to hide his assets from his creditors and the court.

"This is not an ad hominem attack, but when I hear he's looking out for the best interest of creditors, I'm sorry, but that motion was very powerful because it had a paper trail," Hauser said. "I would have loved to see the opposition to it."

Hauser said he has tremendous respect for Bastian but said he "was given a very, very difficult hand to play."

Bauer called Bastian's arguments "very creative" but said Avenatti clearly was prohibited from filing the bankruptcy after Weiss was appointed receiver, and questions about the public nature of a judgment debtor exam can be addressed by the judge who oversees it. Her dismissal of the bankruptcy is retroactive to the day it was filed. In re The Trial Group LLP, 19-BK10822 (Bankr. C.D. Cal., filed March 7, 2019).

Avenatti is to appear in Los Angeles County Superior Court on Friday for a judgment debtor exam for a $10 million judgment against him personally for breaching his contract with Frank over the original debt, which was $4.85 million.

Stolper asked Bauer to state that Avenatti can't avoid the exam if he suddenly files personal bankruptcy Thursday or Friday. Bauer said she "can't give you a comfort order, but I can say if that happens, sanctions will be on the table for sure." She also told Bastian that such a move by Avenatti "would not go over well."

Avenatti did not appear in court.

He announced Tuesday he was no longer representing Stephanie "Stormy Daniels" Clifford, the adult film actress whose now-dismissed lawsuit against President Donald J. Trump rocketed Avenatti to fame, but he's also currently enjoying national attention for representing alleged victims of entertainer and accused serial abuser R. Kelly.

"If the court wants to know where he is, I can tell the court that I saw him on TV at about 7:30 this morning in New York. I don't know if it was live or taped, but he was being interviewed by one of the reporters on CBS Morning News," said Reitman, of Landau Gottfried & Berger LLP.