Avenatti hit with another lawsuit, additional claims of wrongdoing

Embattled attorney Michael J. Avenatti’s legal woes continued to mount Tuesday as two more former clients accused him of defrauding them, part of a long-running dispute with former co-counsel who say he cut them out of their share of a $39 million settlement.

The complaint filed in Santa Barbara County Superior Court is the fourth formal allegation of Avenatti mistreating clients to publicly arise since January, when a former client accused of him of stealing a $1.6 million settlement that’s at the center of a federal wire fraud charge.

The new developments occurred as the court-appointed receiver now managing bankrupt Eagan Avenatti LLP is seeking to remove Avenatti as counsel in a major class action, citing bank records he said prove Avenatti misappropriated client money.

Avenatti has long denied wrongdoing and said on Twitter Tuesday he’s “amazed by the misreporting and stupidity surrounding how legal settlements work.” Attorneys working on contingency are “allowed to deduct and keep the monies” for their fees as well as any money advanced for the client’s benefit, he wrote.

“There is nothing improper about any of this and it happens all the time throughout the U.S.,” Avenatti wrote. “It is common practice.”

The allegations against Avenatti, however, are complicated.

Receiver Brian Weiss, a certified public accountant, filed a sworn declaration in district court Monday that supports a wire fraud charge against Avenatti which is part of a larger investigation into broad financial crimes involving Eagan Avenatti as well as Avenatti’s company Global Baristas, which operated the now-shuttered Tully’s coffee shops.

Weiss cites the recent Central District case as well as an extortion complaint filed in the Southern District of New York in his motion to remove Avenatti as class counsel, emphasizing allegations that Avenatti stole $5 million in client funds, lied to clients and duped a client into signing a doctored settlement agreement.

He wants Avenatti’s ex-partner and current creditors — Jason M. Frank, Andrew D. Stolper and Scott H. Sims — to take over the case, citing their previous work on it while partners with Avenatti. Bahamas Surgery Center LLC et al., v. Kimberly-Clark Corp. et al., 14-CV08390 (C.D. Cal., filed Oct. 29, 2014).

Weiss acknowledged he filed his request without meeting and conferring with Avenatti as required, but he said he did so because of “exigent circumstances” involving Avenatti. U.S. District Judge Dolly M. Gee denied the motion without prejudice on Tuesday and said Weiss must meet and confer before re-filing.

Meanwhile, the new lawsuit in Santa Barbara County names not only Avenatti as a defendant but Frank and Sims as well, in relation to a $39 million settlement in 2011 that “spawned seven years of unnecessary litigation rife with undisclosed conflicts of interest and ethical violations,” according to the 45-page complaint filed Monday by A. Barry Cappello, Leila J. Noël and Lawrence J. Conlan of Cappello & Noël LLP.

Cappello & Noel represent William Parrish and Timothy Fitzgibbons, two former employees of FLIR Systems, a thermal imaging company they successfully sued in 2008 for malicious prosecution. Eagan Avenatti represented Parrish and Fitzgibbons in the original action, along with Panish Shea & Boyle LLP and Stoll, Nussbaum & Polakov APC.

The firms have been embroiled in ongoing litigation since shortly after FLIR paid the $39 million settlement in 2011, and it’s the catalyst for Parrish’s and Fitzgibbons’ claims that their now-former attorneys at Eagan Avenatti acted incompetently and “took positions which were flatly antagonistic” to their clients.

Parrish and Fitzgibbons said they didn’t learn of the scope of the misconduct until August 2018, when they fired Avenatti as counsel in the ongoing matter in Orange County Superior Court, which centers on attorney Robert J. Stoll Jr.’s claims that Avenatti stole $5.4 million in attorney fees that should have gone to Stoll. Eagan Avenatti LLP v. Stoll, 2011-00483570 (Orange Super. Ct., filed June 14, 2011).

According to the complaint, the $39 million settlement included $15.3 million in contingent attorney fees, which Parrish and Fitzgibbons received.

But the plaintiffs say their attorneys didn’t tell them they were fighting over where the settlement should be deposited when the entire amount was dropped into an Eagan Avenatti trust account, and they blame Avenatti for exposing them to a seven-year lawsuit that’s yet to be resolved.

Parrish also accuses Avenatti of duping him into jointly purchasing a private jet with him, and of allowing Parrish to lend him $1.5 million without disclosing the fact that he’s a high-risk lendee.

Avenatti’s alleged misconduct includes pushing Parrish and Fitzgibbons into suing Latham & Watkins LLP, which represented FLIR in the initial lawsuit that led to the $39 million malicious prosecution settlement.

The lawsuit was dismissed and Latham was awarded $1.8 million in attorney fees. Along the way, Avenatti and his firm partners “continually focused the plaintiffs’ attention on the Latham litigation, reiterating that the Latham litigation was the clients’ only significant legal matter, and diverting the clients’ attention from the also-pending Stoll litigation.”

The lawsuit accuses Sims and Frank of acting improperly while working the case as Eagan Avenatti partners.

Other defendants include former firm associate Alexander L. Conti and Michael Q. Eagan, the former co-founding partner practicing in San Francisco who’s never spoken publicly about Avenatti’s troubles.

It lists five claims: professional negligence, breach of fiduciary duty, concealment, conversion and promissory estoppel. Parrish v. Avenatti et al., 19CV01686 (Santa Barbara Super. Ct., filed April 1, 2019).

Frank and Sims could not be reached for comment on Tuesday. Together with Stolper, they’ve been for nearly a year pursuing payment of $14.85 million Avenatti owes Frank. By subpoenaing Avenatti’s bank records, they say they have uncovered evidence of widespread financial misconduct, which has been the focus of recent sworn testimony by Avenatti in judgment debtor exams.

In addition to the $1.6 million settlement at the center of the wire fraud charge, Stolper on March 22 questioned Avenatti about a $4 million settlement he obtained in 2015 for a paraplegic with mental illness problems, who bank records show has received no more than $1,900 a month since Avenatti received the settlement. Johnson v. Baca et al., BC493409 (L.A. Super. Ct., filed June 21, 2013).

Stolper also mentioned a settlement involving Avenatti’s former client, Michelle Pham, who he said is represented by Orrick, Herrington & Sutcliffe LLP. No further details were discussed, but the Central District criminal complaint against Avenatti discusses a settlement involving a client with the initials M.P, in which Avenatti allegedly misused $3 million to pay debt and close his bankruptcy case.