Avenatti's trial on charges of defrauding clients might bring high penalty

Michael Avenatti's second trial, starting this week in a federal court in Santa Ana, could bring significantly stiffer penalties if he is convicted than the sentence he received last week in New York.

The once high-flying Orange County plaintiffs' lawyer was sentenced to 30 months in federal prison for an attempt to extort $20 million from Nike Inc. But the charges he faces in Santa Ana stem from alleged thefts of client money, which the jury and judge may view much more seriously, some legal experts said.

"Stealing from a client? It's the literal worst thing you can possibly do as an attorney," said Neama Rahmani, a former federal prosecutor now with West Coast Trial Lawyers.

Kenneth P. White, partner at Brown White & Osborn LLP who specialized in fraud and corruption cases as a federal prosecutor, agreed Avenatti's embezzlement charges are significantly worse than the extortion scheme that White called "ridiculous and buffoonish."

"It's kind of like walking up and grabbing The Rock's arm and trying to use it to punch Mike Tyson," said White. "You're using one of the most politically connected law firms in the country trying to extort one of the most powerful companies in the country, and he acted like an idiot.

"Avenatti has to be super worried about what he's facing in Orange County, but he's got a terrific trial lawyer, and if there's anyone who can do this, it's Dean Steward," White said. "It's a tough job, and he's got his work cut out for him."

H. Dean Steward of H. Dean Steward APC in Newport Beach declined to comment about the trial, including to answer whether a last-minute plea deal might be in the offing.

Avenatti's trial has been split into two phases. The first phase will center on the 10 counts of wire fraud stemming from Avenatti's alleged theft of approximately $10 million in settlement funds he secured for former clients Geoffrey Johnson, Alexis Gardner, Gregory Barela, Michelle Phan and Long Tran.

Johnson is a paraplegic who sued Los Angeles County over a traumatic experience that left him paralyzed. Prosecutors said neither Johnson nor the other clients in the case being tried received any of their money. USA v. Avenatti, 8:19-mj-241 (C.D. Cal., filed April 10, 2019).

The second phase, set to start later this year, centers on tax and bankruptcy fraud charges stemming from a coffee business in which Avenatti is alleged to have been a part owner.

A single count of wire fraud carries a maximum sentence of 20 years, according to federal guidelines.

Presiding over the trial is U.S. District Judge James V. Selna, a former captain in the U.S. Army Reserves.

"He's old school, and he's not going to like any of this at all," Rahmani said. "You can't compare the conduct in California to the New York case, as the latter may be seen as overzealous advocacy."

On Friday, Selna gave some indications of how he will run the trial. He said hearings not be available remotely, meaning spectators will have to comply with COVID mitigation requirements to attend in person. Jurors will begin filling out questionnaires on Tuesday and voir dire begins Thursday.

Last week, standing before a federal judge in New York, Avenatti seemed keenly aware of the predicament he is in. "I and I alone have destroyed my career, my relationships and my life," he told U.S. District Judge Paul G. Gardephe, who presided over the Nike case.

Avenatti was once a successful plaintiffs' attorney who in 2017 won California's largest plaintiffs' verdict -- $454 million, later reduced to $25 million, against Kimberly-Clark and Halyard Health Inc. The case involved fraudulent marketing of Microcool surgical gowns.

But his career and his life seemed to careen off the rails beginning in 2018 when he gained notoriety by representing the pornographic movie actress known as Stormy Daniels, who said that President Donald Trump had sex with her and paid her $150,000 to keep quiet about it. The case ended in a victory for Trump, with Daniels ordered to pay him $293,000 in December 2018.

Avenatti became a darling of cable news networks, appearing hundreds of times on MSNBC and CNN, and on Twitter. He flirted with the idea of running for president against Trump in 2020.

That all came crashing down in March 2019 when he walked into the New York offices of Boies Schiller Flexner LLP and engaged in a scheme to get the firm's client, Nike, to pay him $20 million under the threat that he would implicate the company in a scandal to pay bribes to families of NBA-bound college basketball players. He was arrested by the FBI as he left Boies Schiller's office.

Federal prosecutors in New York and Los Angeles quickly filed charges against him. Los Angeles prosecutors say Avenatti stole money from clients and failed to pay taxes to fund an extravagant lifestyle with a home in Newport Beach, access to a private jet, a Ferrari and suits from Neiman Marcus.

He was also charged in a separate case in New York with stealing Daniels' book advance. That trial is scheduled to begin in 2022.

"Your honor, I've learned that all the fame, notoriety and money in the world is meaningless. TV and Twitter, your honor, mean nothing," Avenatti told Gardephe last week.

In the Santa Ana case, Avenatti's scheme was simple, prosecutors say. In a trial brief filed Wednesday, Assistant U.S. Attorney Brett A. Sagel alleged that Avenatti would broker a settlement, then hide from his clients the true terms of the deal, placing the money into a bank account that he controlled. To hide his tracks, Sagel alleged, Avenatti would feed a few thousand dollars to his clients that he said was being paid in advance, or tell them the payment was delayed.

His fame, or infamy, could play a role as prospective jurors begin arriving in Selna's courtroom Tuesday. Steward has proposed asking the prospective panelists if they have ever published any posts on the internet or social media about any court cases or legal matters. They will be asked their opinions of civil lawyers; whether or not they would give more or less weight to the evidence simply because of Avenatti's profession; and whether or not they believe there are too many lawsuits in this country.

Complicating jury selection, some legal experts said, is that the trial begins at the same time another Southern California trial lawyer is facing his own accusations of stealing from clients.

Thomas V. Girardi, too, is accused of using settlement money to pay for an extravagant lifestyle. Girardi's downfall is being featured weekly on the reality TV show "The Real Housewives of Beverly Hills," where his wife is a member of the cast.

Rahmani pointed out that both attorneys are accused of doing the same thing. "Avenatti knows better. He's the one charged with upholding the laws, and he broke them," Rahmani said. "He was responsible for advocating for his clients, but took advantage of them."

Rahmani said the Avenatti jury pool is unlikely to overlook any ethical violations, especially in light of the State Bar's missteps when it failed to take any action against Girardi, who faces embezzlement accusations.

Girardi has not been charged with any crimes.

"People have already lost confidence in the justice system," Rahmani said.

White disagreed that the public would care much about legal ethics and responsibility stemming from the State Bar's mishaps with Girardi, which is essentially "inside baseball for lawyers, but not weighing on the minds of the jury pool."

The bigger dilemma for Avenatti's defense, as prosecutors wrote in their trial brief, is that should Avenatti choose to testify, he will be cross-examined about his Nike extortion case, White pointed out.

"That would be absolutely Walt Disney World for prosecutors. But on the other hand, the dilemma is, how do you show the jury alternative theories of why this could have been legitimate or the lack of criminal intent unless you testify?" White said. "It's a tough position to be in."

If Avenatti is convicted, the federal guidelines allow for several enhancements.

"More than $9.5 million [in losses] is a 20-point enhancement," Rahmani said. "This is significant time here. It's a hell of a lot more than the 30 months he got in New York."