State Bar judge allows cross examination in Avenatti’s law license hearing

A State Bar judge ruled Monday that a lawyer for Michael J. Avenatti can cross examine the former client whose money he’s accused of stealing, part of a July 22 hearing in which the bar will seek to deactivate the troubled attorney’s law license.

During a telephone hearing in Los Angeles, Judge Yvette D. Roland said she’ll allow the questioning despite opposition from Eli D. Morgenstern, the State Bar’s senior trial counsel.

State Bar Rule of Procedure 5.230 prohibits testimony or cross examination during involuntary inactive enrollment proceedings “unless a party shows good cause,” and Avenatti’s lawyer, Ellen A. Pansky, argued cross is crucial here because the State Bar’s case hinges on the credibility of the client, Gregory Barela.

“The evidence will show that Mr. Barela’s credibility is severely lacking, and that he has a lengthy negative history of fabrication of false ‘facts,’” according to Pansky’s response to the State Bar complaint, filed Thursday. Pansky wants the State Bar application dismissed and the case to “proceed in normal and customary fashion as a regular disciplinary proceeding.”

Avenatti said in a text message to the Daily Journal he’s “very pleased that we have an opportunity to cross-examine Mr. Barela as to his numerous misstatements and outright fabrications.” He noted Barela is a felon with a recent conviction for diversion of construction funds in San Diego County Superior Court.

Barela’s new lawyer, Steven E. Bledsoe, said they welcome the questions.

“Greg will be very happy to testify,” said Bledsoe, a partner with Larson O’Brien LLP. He said Pansky’s short response to the State Bar’s massive complaint presents no viable defense to the evidence showing Avenatti falsified a settlement agreement to mask his theft of Barela’s money.

“There’s no evidence; it’s all fluff,” Bledsoe said. “It’s not a defense to say somebody’s not credible because there’s hundreds of pages of documents that support the claim.”

The State Bar on June 3 filed an application for involuntary inactive enrollment for Avenatti, which aims to inactivate his law license before formal disciplinary proceedings begin because of the substantial harm he allegedly caused to Barela and the “reasonable probability” that he’ll be disbarred.

Barela hired Avenatti in 2014 for an intellectual property matter that settled confidentially in 2018. He was the first client to publicly accuse Avenatti of theft with Bledsoe filing a statement of claims with JAMS in January that said Avenatti kept Barela’s settlement while presenting him with a falsified settlement agreement, indicating it hadn’t yet been paid.

Barela also was the lone victim in the initial criminal complaint in the Central District of California, filed the same day Avenatti was arrested in New York on extortion-related charges regarding Nike Inc.

The current grand jury indictment in the Central District accuses him of stealing $12 million total from five clients, including Barela, and a new case in New York accuses him of stealing from the client whose lawsuit against President Donald J. Trump propelled him to fame, adult film star Stephanie “Stormy Daniels” Clifford.

Veteran Orange County criminal defense attorney H. Dean Steward, a sole practitioner in San Clemente, is representing him in the Central District case and in the Clifford case in New York. Florida sole practitioners Jose M. Quiñon and Scott A. Srebnick are representing him in the Nike extortion case.

Avenatti has denied any wrongdoing and said he’s preparing for trial in each matter.

In her response to the State Bar, Pansky said inactivating Avenatti’s license is unwarranted because the underlying conduct isn’t likely to result in disbarment. She said the State Bar’s proposition is depleted client-trust account funds constitute misappropriation, but she said the factual allegations in the application “are inaccurate and/or woefully incomplete.”

She wrote Avenatti “was entitled to, or at least believed in good faith that he was entitled to, the funds he received from the Barela settlement proceeds, as attorney’s fees for legal services provided to Barela and/or costs.”

According to the State Bar, Avenatti was entitled to $760,000 of the $1.9 million settlement “as his fees from the initial $1.6 [million] settlement installment,” but he instead kept all of it.

Pansky’s response does not address the State Bar’s allegation Avenatti presented Barela with a falsified settlement agreement, and it says the State Bar “may be able to prove some level of minor misconduct.” However, “it is not reasonably likely to prevail on its allegations of substantial dishonest misappropriation of client funds warranting disbarment,” Pansky wrote.

“Other disciplinary case law shows that an attorney can be culpable for misappropriation involving large sums of money or multiple matters and not be disbarred,” Pansky continued, citing a case where an attorney was suspended for 18 months for misappropriating $1.7 million.

Pansky also cited a 1994 State Bar case in which the court found an attorney “unreasonably withdrew fees, but was not culpable of moral turpitude based on the honest belief that the fees were earned.”