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Ninth Circuit:
Michael Avenatti Is Entitled to Resentencing in Fraud Case
Opinion Says Disgraced Attorney Is Entitled to Re-Calculation of Victims’ Losses to Account for Value of Legal Services He Performed for Clients From Whom He Stole Settlement Funds
By Kimber Cooley, associate editor
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—AP Michael Avenatti speaks during a news conference in Chicago, in this 2019 file photo. |
The Ninth U.S. Circuit Court of Appeals yesterday vacated the 14-year sentence imposed on Michael Avenatti following a guilty plea to four counts of wire fraud relating to the theft of settlement funds from four former clients, finding that the disgraced attorney is entitled to a resentencing because the trial judge failed to reduce the calculation of the victims’ losses, for purposes of an enhancement, by accounting for legal services he performed.
Avenatti—who rose to fame for representing porn star Stormy Daniels (whose real name is Stephanie Clifford) in her civil action against former President Donald Trump—also successfully argued that his sentence should run concurrently with a four-year sentence imposed by District Court Judge Jesse Furman of the Southern District of New York for the theft of nearly $300,000 from Clifford in the form of publishing advances.
In the present matter, attorneys with the U.S. Attorney’s Office in Los Angeles alleged that Avenatti collected settlement payments on behalf of his clients, then funneled the money to accounts under his control, spending it on his own extravagant lifestyle.
Initial Sentencing
Senior District Court Judge James Selna sentenced Avenatti on Dec. 5, 2022. He reasoned that the defendant had forfeited any offsetting of the fees and costs specified in his client agreements from the calculation of the total loss to his clients due to his fraudulent actions.
Selna delineated the losses in his sentencing order, explaining:
“The Probation Officer calculates the loss amount as $12,350,000, consisting of losses of four client victims: Geoffrey Johnson ($4,000,000), Alexis Gardner ($2,750,000), Gregory Barela ($1,600,000), and Michelle Phan ($4,000,000). This represents the settlements which Avenatti failed to remit to his clients. This results in a 20-level enhancement.”
He also ordered the 14 years to run consecutively to prison time ordered on the Clifford matter and another New York criminal case relating to an attempt to extort over $20 million from Nike Inc. by threatening to go public with allegedly damaging information. He was sentenced to 30 months imprisonment on the Nike case.
In a memorandum decision, signed by Circuit Judges Michelle T. Friedland, Roopali H. Desai, and Senior District Court Judge Karen E. Schreier of the District of South Dakota, sitting by designation, the court vacated the sentence and remanded for resentencing.
Calculation of Losses
The panel noted:
“Avenatti argues that the district court’s calculation of the losses from fraud as $12,350,000 and imposition of a 20-level enhancement based on that calculation were error…Avenatti contends that the district court should have accounted for the value of his legal services and costs, as well as the value of certain payments he made to victims. We agree.”
The judges continued:
“The Sentencing Guidelines define actual loss as ‘the reasonably foreseeable pecuniary harm that resulted from the offense.’….’Reasonably foreseeable pecuniary harm’ is the ‘harm the defendant knew or,…reasonably should have known, was a potential result of the offense.’….As to certain victims, the district court found that Avenatti’s ‘actual loss’ amounted to the full value of the settlements Avenatti negotiated for his clients. Reasoning that Avenatti had forfeited his fees and costs by his fraudulent conduct, the district court did not reduce the settlement values to account for Avenatti’s legal services and costs.”
Finding error in Selna’s forfeiture assessment, the judges said:
“Forfeiture is a sanction that does not approximate the pecuniary harm caused by an attorney’s misconduct….It has no place in calculating ‘actual loss’ for the purposes of enhancing a criminal defendant’s sentence. Further, Avenatti’s clients were never entitled to receive the full settlement values—they hired Avenatti on a contingency fee basis and agreed, by contract, to pay him a portion of any settlement as his fees and to reimburse him for his costs.”
Under these circumstances, they opined:
“[E]ven if Avenatti acted lawfully, his clients would not have received the full settlement amounts. By finding that Avenatti’s victims ‘lost’ the full settlement value without accounting for Avenatti’s fees and costs, the district court enhanced Avenatti’s sentence based on pecuniary harm that did not occur, and did not ‘result[] from [Avenatti’s] offense.’….This was contrary to the purpose of the loss enhancement, which is to ensure that a defendant’s sentence is proportional to the harm he caused.”
Fair Market Value
Saying the “record does not allow us to determine, as a matter of law, the fair market value of Avenatti’s fees,” the panel concluded:
“The determination of the fair market value requires fact-finding that we as an appellate court are not positioned to do. While not determinative, Avenatti’s contracted fees and costs may inform the ‘fair market value’ analysis. However, whether those contracted fees represent the fair market value of his services is a question for the district court. We therefore remand and direct the district court to account for the fair market value of Avenatti’s legal services and costs in its ‘actual loss’ calculation, without any reliance on forfeiture.”
They added:
“With respect to ‘money returned…to the victim before the offense was detected,’ the district court abused its discretion in declining to credit (and thus deduct from the losses) the value of payments Avenatti made to Geoffrey Johnson, Alexis Gardner, and Gregory Barela after he misappropriated their settlements…These too, should be accounted for on remand. The district court did not err in declining to credit payments Avenatti made before the misappropriation because those were not funds embezzled and subsequently ‘returned’ to the victims.”
Concurrent Sentence
Turning to the consecutive nature of the sentencing order, the judges remarked:
“Prior to sentencing in this case, Avenatti was separately convicted of attempting to extort Nike…(‘the Nike offense’) and of misappropriating a client’s book advance…(‘the Clifford offense’)….Avenatti contends that the district court should have imposed the sentence in the instant case to run concurrently to the sentences imposed in these other offenses because they constitute ‘relevant conduct’ under the Sentencing Guidelines.”
As to “the Clifford offense,” they said:
“The Clifford offense…was similar enough to be part of ‘the same course of conduct’ as the instant offense, because both involved misappropriating client funds….Contrary to the district court’s finding, the Clifford offense was also contemporaneous with the offenses in the present case: the relevant conduct in the Clifford offense spanned July 2018 to February 2019, and the conduct here spanned January 2015 to March 2019….The district court abused its discretion in concluding that the Clifford offense was not relevant conduct for purposes of sentencing.”
Finding no error in requiring the sentence to run consecutively to that in the Nike case, the panel reasoned:
“The district court did not abuse its discretion in concluding that the Nike offense was not relevant conduct. The modus operandi in the Nike offense—attempting to extort money from a company—is distinct from the stealing of settlement money from clients at issue here.”
Unpersuaded by Avenatti’s argument that Selna failed to address specific instances of “laudatory conduct” in determining the sentence, they concluded that “the district court’s sentencing memorandum discusses other positive conduct, and there is ‘no mechanical requirement that a sentencing court discuss every…factor.’ ”
The case is U.S. v. Avenatti, 22-50301.
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