The United States Law Week

Avenatti Saga Spotlights Attorney Ethics, When to Draw Lines

March 26, 2019, 5:37 PM

Probably the last thing on Michael Avenatti’s mind right now is potential bar discipline in California as he faces federal allegations he stole from a client and tried to extort millions from Nike.

Yet the celebrity attorney’s unfolding saga raises questions anew and teachable moments broadly about conduct that may not draw the interest of the FBI, but may still push the boundaries of ethical representation, legal experts say.

Helping attorneys, especially future ones, to recognize the difference between aggressive advocacy and shakedowns should be of great interest to lawyers, said Robert Hillman, a University of California Davis law professor.

“In the securities class action world, for example, the defense bar constantly accuses the plaintiffs’ bar of litigation initiated solely (to) harass and extract nuisance settlements,” Hillman said. “So we need more facts on Avenatti, but I would like to use his case as an opportunity to raise larger questions about how, where and when to draw the lines.”

Avenatti, who has no listed record of discipline or investigation, was charged on Monday with embezzling $1.6 million secured for a now-former client to fund his firm and a coffee shop chain he owned. Avenatti allegedly offered to loan the client his own money, plus interest, the complaint said.

The lawyer best known for representing Stormy Daniels, the adult film actress who sued President Donald Trump, was accused of bank fraud in Los Angeles federal court. Authorities in New York also alleged he tried to extort $20 million from Nike if it failed to settle a case alleging improper payments to high school athletes.

Avenatti denies wrongdoing, and said in a tweet that there was no attempt to extort Nike.

‘Deliberate Criminal Conduct’

Steven Bledsoe, a partner with Larson O’Brien LLP in Los Angeles who represented the former Avenatti client, said the lines are pretty clear.

“This is not a case about potential ethical violations (although there are many), but rather alleged deliberate criminal conduct, including falsification of settlement documents and theft of client funds,” Bledsoe said in an email. “If anything, it shows that lawyers are in a position of trust and if they break the law, they can expect the full weight of the law to come down on them.”

Discipline is part of the mix in figuring out what happens next to a lawyer who billed millions a year, according to the U.S. District Court for the Central District of California criminal complaint.

Violating the California Rules of Professional Conduct can result in discipline including disbarment. Rules prohibit a lawyer from bringing or continuing an action, conduct a defense, asserting a position in litigation, or taking an appeal, “without probable cause and for the purpose of harassing or maliciously injuring any person.”

They also mandate that funds held by an attorney for the benefit of a client be preserved in a client trust account, not used by the attorney for other purposes, and not commingled with lawyers’ other funds.

“Anecdotally, it appears that attorneys in California are disciplined for misuse of client funds more often than for any other violation,” said Neil Wertlieb, a Pacific Palisades, Calif., attorney and a former bar Committee on Professional Responsibility and Conduct chairman.

“These are very serious violations, as they involve breach of fiduciary duties owned to clients generally, as well as breach of fiduciary duties in handling someone else’s money. And it is relatively easy for the State Bar to prove such violations, as attorneys are required to keep and reconcile detailed records relating to client funds and client trust accounts,” Wertlieb, an adjunct professor at University of California Los Angeles School of Law, said.

The bar considers most serious the charges of misuse of money, misappropriation of funds, and mishandling of a trust account, said Arnold Margolis, a Los Angeles lawyer who specializes in legal ethics and professional responsibility.

“Some other cases that the bar considers very seriously are criminal convictions,” Margolis said.

Bar charges take a back seat to criminal counts. Prosecutors and judges notify the bar of criminal charges, and lawyers are supposed to tell the bar when they’re named in civil or criminal complaints.

The bar’s investigation and complaint process is confidential, spokesman Jonah Lamb said. Information becomes public if it files a notice of discipline charge.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editors responsible for this story: Jessie Kokrda Kamens at jkamens@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com

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