On August 30, 2023, in United States v. Avenatti, the Second Circuit (Walker, Raggi, Park) put another nail in the coffin of disgraced former celebrity attorney Michael Avenatti. Avenatti became well-known in 2018 due to his representation of Stephanie Clifford, an adult-movie actress who had an intimate relationship with the 45th President of the United States. For a time, Avenatti soared high, earning a depiction as Superman in a frequently published cartoon.[1] Avenatti even contemplated running for president in 2020,[2] waging an abortive campaign for which you can still buy campaign buttons.[3] But like Icarus, who perished after flying too close to the sun, Avenatti flew too high, and his public profile led to multiple criminal investigations, indictments, and convictions. According to the Bureau of Prisons, he will not be released from prison until December 2035.[4]
The Second Circuit’s recent opinion covered Avenatti’s appeal from his conviction in the Southern District for several crimes relating to his representation of a client against sportswear giant Nike. The opinion concerned three principal issues: the sufficiency of the evidence of extortion and honest-services fraud, the jury instructions relating to honest-services fraud, and the legality of the restitution order. On all issues, the Court affirmed in a 77-page opinion.
Background
This prosecution of Avenatti in the Southern District of New York arose out of his representation of Gary Franklin, a youth basketball coach. Franklin founded a non-profit youth basketball organization known as Cal Supreme, and coached its premier team. In the mid-2000s, Nike began sponsoring Cal Supreme, providing sports equipment as well as cash, some of which paid Franklin’s salary. That arrangement worked for about a decade, until Franklin became frustrated that certain Nike employees were improperly encouraging him to funnel cash to players and their families. By September 2018, Franklin had been bullied into stepping down from coaching duties, and Nike had stopped sponsoring the teams.
Franklin shared his concerns with a friend, who ultimately—and fatefully—introduced him to the L.A.-based lawyer Avenatti. In an initial meeting, Franklin explained his grievances with Nike, provided documentation evidencing the employees’ wrongdoing, and outlined his goals for resolution. In addition to financial compensation from Nike, Franklin insisted he wanted “justice” in the form of resuming Nike’s sponsorship of Cal Supreme, being reinstated as coach of the youth team, and seeing the Nike employees fired.
Avenatti, however, saw an opportunity to enrich himself at his client’s expense. At the time, he was facing severe financial difficulties and owed millions in legal judgments. Along with another L.A.-based lawyer known for representing celebrities in high-profile cases—Mark Geragos—Avenatti arranged to meet with Nike’s outside counsel and its chief litigation officer.
At that meeting, Avenatti aggressively outlined two objectives: (1) A cash payment for Franklin and (2) Nike agreeing to hire Avenatti and Geragos as counsel for an “internal investigation” of Nike’s sponsorship practices. If Nike refused, Avenatti threatened that he would go to the press with Franklin’s story, which would cost Nike, he speculated, billions of dollars.
After the meeting, Avenatti called Franklin and told him that it went well. Nike, on the other hand, called federal prosecutors. Consequently, subsequent conversations between Avenatti and Nike were recorded and much of Avenatti’s colorful and profane diction was quoted verbatim in the opinion.
Over the next several days, Avenatti met with Nike’s lawyers, ostensibly to hammer out settlement details, but in reality to generate evidence for the federal investigation. Although Avenatti never brought up Franklin’s “justice” oriented goals, such as being reinstated as coach and firing the wrongdoers, the parties largely agreed that he would receive a $1.5 million payment in exchange for a general release against Nike. Far from zealously advocating for Franklin, the main subject of negotiations was the retainer for the internal investigation that he and Geragos would supposedly conduct. When Nike’s counsel cautioned that going public with the scandal might destroy the lives of some of the youth basketball players involved, Avenatti shouted “I don’t give a f—k about those kids.” And when it came to the value of Franklin’s payoff, Avenatti went so far as to claim that it would be inappropriate for Nike to pay him an “exorbitant sum.”
Not so for Avenatti and Geragos. Avenatti consistently demanded that this payment should be in the $15-$25 million range and suggested multiple ways of memorializing that payment. One offer was to prepare two separate agreements—one settling Franklin’s claims for $1.5 million and another retaining Avenatti to conduct an internal investigation for a multi-million-dollar figure. A subsequent offer was for a single payment of $22.5 million to an account designated by Avenatti.
Nike’s counsel pushed back, arguing that the range was far higher than the cost of any internal investigations counsel had conducted for Nike. But whenever that occurred, Avenatti reminded Nike’s lawyers how much it would damage Nike’s market capitalization if he went public with the scandal. Specifically, he asked Nike’s counsel (presumably rhetorically): “Have you ever held the balls of the client in your hand where you can take 5, 6 billion dollars in market cap off of ‘em?”
During these negotiations, Avenatti tweeted a mysterious reference to a separate youth basketball scandal involving Adidas. Seeing this, Franklin suspected it did not augur well for the outcome of negotiations. Nor was he relieved a few days later when FBI agents arrived at his house. Franklin called Avenatti, who began arranging to go public about the scandal and tweeted that the next day he would hold a press conference to disclose a major Nike scandal. That same day, Avenatti was arrested.
Following a three-week trial in the Southern District, Avenatti was convicted on all counts: transmitting extortionate communications in interstate commerce in violation of 18 U.S.C. § 875(d), attempted Hobbs Act extortion in violation of 18 U.S.C. § 1951, and honest-services wire fraud in violation of 18 U.S.C. §§ 1343 and 1346. He was ordered to serve 30 months in prison and to pay restitution to Nike.
On appeal, Avenatti challenged (1) the sufficiency of the evidence supporting each count of conviction, (2) the trial court’s failure to issue his requested jury instruction on honest-services fraud, and (3) the legality of the restitution order. The panel rejected all three arguments.
Sufficiency of the Evidence
Avenatti argued that the evidence was insufficient for the jury to find him guilty. In particular, he claimed that the government had failed to prove the “wrongfulness” element of his extortion crimes and the mens rea and bribery elements of his honest-services fraud crimes. Sufficiency claims face a demanding legal standard—the evidence is sufficient if any rational trier of fact could have found the essential elements of the claim. Here, the panel concluded that this standard was met.
- Wrongfulness Element of Extortion.
To succeed on the extortion theory, the government had to prove that Avenatti’s threat to harm Nike (by going public about the scandal) was “wrongful.” The panel summarized two related prior Second Circuit decisions covering this topic.[5] In those cases, the court considered a woman’s threat to disclose that she was the daughter of a celebrity to a tabloid unless that celebrity paid her $40 million. In holding that this action satisfied the wrongfulness element of the crime of extortion, the court identified the inquiry as involving two parts. First, the court asks if the party making the demand had some sort of legitimate claim to that demand, whether through tort, contract, or otherwise. If not, the threat is extortionate. Second, the court asks whether there is a nexus between the threat and that legitimate claim. In Jackson, although the defendant did have some plausible claim to that demand (e.g., for child support), there was no nexus between that claim and the threat, since the amount demanded was far greater than any claim she might have had.
In Avenatti’s case, the panel acknowledged that he had some claim to the demand of payment, but as in the Jackson case, there was no nexus between the threat and that claim. The panel rejected each of Avenatti’s four arguments to the contrary. First, the jury was entitled to find that Avenatti had no reasonable belief that his demand for an internal-investigation retainer served his client’s goals. The demand was actually contrary to those goals, in that it risked injuring Franklin’s reputation without ensuring any benefit to him. Moreover, the retainer demand was unrelated to what Franklin identified as his key goals in his dispute with Nike—getting to coach the team again, re-establishing Cal Supreme’s relationship with Nike, and seeing the Nike employees fired. Indeed, Avenatti never even raised those goals during the negotiations, and the evidence showed that the retainer demand was a sticking point, rather than an aid, in fulfilling the goal of compensating Franklin financially.
Second, the evidence showed that Avenatti never intended to conduct a bona fide internal investigation of Nike’s sponsorship practices. The price tag for this investigation was far higher than any Nike’s counsel had ever received, and Avenatti never provided any explanation of the scope of that investigation, or why it would cost so much. Instead, the jury was entitled to conclude that the retainer demand was not made for a real internal investigation, but as the price for Avenatti’s silence. Silence purchased based on threats to cause harm is the essence of extortion.
Third, the panel analyzed Avenatti’s follow-up offer to receive one lump-sum payment of $22.5 million without signing a separate retainer agreement. The panel observed that Avenatti never retracted his original retainer demand, so this offer was irrelevant to whether Avenatti committed extortion by making the original demand. And even if he had retracted it, the jury could reasonably have concluded that Avenatti would have diverted the bulk of that money to himself, rather than Franklin.
Fourth, the panel rejected the argument that the retainer demand was a legitimate attempt to recover attorneys’ fees. The panel explained that the retainer demand was unrelated to any legal work Avenatti had performed for Franklin, and that, at best, it would cover future fees for a separate engagement which conflicted with his representation of Franklin. And finally, the panel noted that the jury was entitled to see through the technicalities of the retainer demand and see it as a threat unrelated to any provision of legal services. In a footnote, the panel calculated that even if he and Geragos had worked 24 hours a day for the entire time period in which he represented Franklin, and each had billed $1000 per hour, they still would have merited nowhere near what Avenatti demanded from Nike for a retainer. Op. at 39 n. 24.
In sum, the jury was entitled to conclude that there was no nexus between Avenatti’s demand for a retainer agreement (or a significant sum for himself) and the threat to go public with the scandal. Accordingly, the wrongfulness element of the extortion charge was satisfied.
- Honest-Services Fraud
While the extortion counts focused on Avenatti’s unlawful conduct aimed at Nike, the honest-services fraud count covered his unlawful conduct toward Franklin. The crime of honest-services fraud involves a bribery component. That is, the defendant must breach a fiduciary duty by means of a quid pro quo. Here, the government had to demonstrate that Avenatti violated the fiduciary duty he owed Franklin (to act as his advocate in negotiations with Nike) by soliciting a bribe from Nike. While it is challenging for a defendant to win on a sufficiency of the evidence argument, in recent years numerous appellate courts reversed honest-services fraud convictions on a variety of different grounds. E.g., Percoco v. United States, 143 S. Ct. 1130 (2023); McDonnell v.Virginia, 579 U.S. 550 (2016); Skilling v. United States, 561 U.S. 358 (2010). Would Avenatti be the latest in this line of reversed convictions?
In a word, no. On appeal, Avenatti claimed that the evidence did not support a conclusion that he solicited a bribe. Even if he did demand a quid, he argues, he never offered to provide any corresponding quo. The panel rejected this argument. Declining to rule on whether offering to avoid going to the press with the scandal would qualify as a reciprocal quo for the quid of a cash payment, the panel found record evidence sufficient to show that Avenatti neglected his duty towards Franklin by offering to advise him to accept a settlement of $1.5 million while accepting a much higher payment for himself. This was true even if that $1.5 million payment was actually a good deal for Franklin; a person need not suffer economic harm to have been the victim of honest-services fraud. Op. at 45. The “corrupt” action was violating Franklin’s trust.
Avenatti also argued that the evidence did not support the intent element; that is, he never intended to defraud Franklin. In dismissing this argument, the panel reiterated the previous evidence but did acknowledge one sticky point. Avenatti suggested that he never intended to get one over on Franklin because Franklin would have had to sign and approve any settlement agreement. On this, the panel deferred to the jury. The jury could reasonably have concluded that the initial offer of dual agreements (one settlement, one retainer) was designed to hide the payoff from Franklin. As to the lump-sum offer to pay $22.5 million at once, the jury could have concluded “that Avenatti would have found some way” to obfuscate the truth. Op. At 52.
Jury Instructions
Avenatti argued that the trial court erred in rejecting two of his proposed jury instructions, and accordingly mis-instructed the jury on several key points. Because Avenatti raised those points below, the panel reviewed for harmless error. The standard of review, though, was ultimately irrelevant because the panel concluded that the trial court’s instructions were correct.
Because the honest-services fraud conviction rested on Avenatti’s breach of his fiduciary duty to Franklin as his attorney, it was important that the trial court instruct the jury on the scope of that duty. Avenatti sought to instruct the jury that attorneys have broad authority to make choices to support their clients’ interests. This would have allowed him, he argued, to present a theory that he was acting in Franklin’s interest the whole time. The panel held that the trial court’s instructions did allow Avenatti to argue that theory, albeit with slightly different wording. Avenatti was allowed to argue his defense theory, and, in substance, the jury was charged on this theory. Next, Avenatti argued that the trial court should have accepted his proposed instruction that the client has the ultimate authority to approve settlements and must sign settlement agreements. Here, too, the panel observed that the trial court did instruct the jury to that effect. In both instances, the panel explained, the problem was not in the jury instructions, but that the jury simply did not buy Avenatti’s theory that he was acting on Franklin’s behalf.
Restitution
In addition to his prison time, Avenatti was ordered to pay Nike $259,800.50 in restitution pursuant to the Mandatory Victims Restitution Act. That money was intended to compensate Nike for the legal fees it incurred assisting with the government’s investigation. Avenatti argued that the district court lacked the authority to order that payment.
First, he pointed to 18 U.S.C. § 3664, the MVRA provision which covers procedures for issuing and enforcing orders of restitution. That statute provides that the trial court has 90 days after sentencing to order restitution. Because the trial court indisputably issued its order more than 90 days after sentencing, Avenatti claimed that the court had missed its chance to order restitution.
Citing Dolan v. United States, 560 U.S. 605 (2010), the panel concluded that, although the defendant has a legally enforceable right to request that the court order restitution within 90 days, a court can nevertheless order restitution after that period has elapsed. Avenatti sought to limit that principle, seizing on a line in Dolan holding that the trial court can still order restitution after 90 days “at least where” the court had previously made it clear (within the deadline) that it would do so. The panel rejected that argument, reading “at least where” to highlight an example of when the court could still order restitution, as opposed to suggesting the court could only do so under that condition.
The panel also explained that Second Circuit precedent allows a defendant to effectively enforce the time limit by demonstrating actual prejudice from the delay. Avenatti also challenged that precedent, suggesting it was abrogated by Dolan. The panel disagreed, emphasizing that the purpose of the time limit was to prevent dissipation of the defendant’s assets and ensure compensation for victims, not to provide a defendant with certainty of the scope of his liability. Moreover, Avenatti had not shown any prejudice from the trial court missing the deadline.
Second, the panel rejected Avenatti’s argument that the MVRA did not apply to this case because Nike did not suffer a “pecuniary loss” within the meaning of the statute. Citing an out-of-circuit district court opinion and narrowly reading the Supreme Court’s decision in Lagos v. United States, 138 S. Ct. 1684 (2018), which held that attorneys’ fees incurred in the course of a government investigation or related noncriminal proceedings are not recoverable under the MVRA, Avenatti claimed that attorneys’ fees were not compensable pecuniary losses. The panel disagreed, holding that those fees were all incurred as a direct and foreseeable result of Avenatti’s extortionate conduct. Moreover, some of those fees were incurred prior to the government’s investigation. The panel therefore declined to reach the issue of whether attorneys’ fees incurred only after the investigation begins might trigger the MVRA. Accordingly, Avenatti was ordered to pay the restitution.
Discussion
Throughout the opinion, the panel reiterated the importance of (1) deferring to a jury’s findings when evaluating the sufficiency of the evidence and (2) adopting a common-sense approach of reviewing the record evidence. Here, Avenatti tried to suggest that an innocent inference from the record was that he was zealously (if perhaps eccentrically) advocating for Franklin all along. The panel did not need to do much work to demonstrate that the jury could have made a perhaps more reasonable inference in concluding the opposite. In any event, those types of factual questions are left to the jury and are not subject to reversal other than in cases where the quantum of evidence supporting the evidence is so small that no reasonable juror could have voted to convict. Once the jury decides to convict, it is very difficult to convince an appeals court to undo that decision based on a review of the trial evidence.
This opinion also serves as a word of warning to attorneys who are negotiating large settlements with major companies. Although attorneys do have wide latitude in directing the strategy of settlement negotiations, the client always has the final word. The panel repeatedly referred to Franklin’s insistence that his most important goals were returning to coach the team and ensuring that the malefactors at Nike were fired. By completely ignoring those intangible—yet emotionally important goals—Avenatti was effectively barred from implying that he was actually working in the best interests of his client. In addition, Avenatti did not act like a lawyer engaged in good-faith negotiations, but rather made serious and inappropriate threats to Nike, demanding actions that were unrelated to his client’s interests (i.e., Avenatti’s internal investigation). Finally, Avenatti’s propensity for “colorful” rhetoric, such as punctuating his remarks by saying “basta,”[6] which means “stop it” or “enough,” also led him to make the sort of comments in recorded calls that are catnip to prosecutors and persuasive to juries.
One aspect of Avenatti’s arguments merits further thought. With respect to the honest-services charges, this opinion could lead prosecutors to dramatically expand the reach of the wire fraud statute. The implicit premise in the panel’s opinion is that any time an attorney acts contrary to his client’s interest, the attorney has committed a crime. That proposition may run afoul of the Supreme Court’s cautionary statements in Ciminelli v. United States, 143 S. Ct. 1121 (2023). In Ciminelli, the Supreme Court held that courts should not make wire fraud into a “a federal crime of an almost limitless variety of deceptive actions traditionally left to state contract and tort law[.]” The Ciminelli Court specifically criticized the Second Circuit’s ruling in United States v. Viloski, 557 Fed. Appx. 28 (2d Cir. 2014), which affirmed a conviction where the wrongful act was a mere undisclosed conflict of interest.
Simply put, the criminal law is a blunt instrument for dealing with an attorney that puts his own best interest ahead of his client’s best interest, thereby violating his client’s trust. These are matters that have traditionally been addressed through civil litigation or disciplinary proceedings. In addition, lawyers are not the only people who owe legal duties to their clients or customers, which means that an even broader array of conduct could fall within the rule established by Avenatti. Despite all this, the Court dismissed the relevance of Ciminelli in a footnote by noting that it only concerned traditional fraud, not honest-services fraud. Op. at 43 n. 27.
In addition, the panel’s conclusion that “Avenatti’s intent was to conceal from Franklin the fact that he had used his client’s claims to negotiate a better deal for himself than for his client” also sounds similar to the Circuit’s long-standing right-to-control doctrine that Ciminelli rejected as incompatible with the text of the wire fraud statute. Merely depriving Franklin of “potentially valuable economic information” appears to be insufficient for a wire fraud conviction after Ciminelli. While the panel characterized the fraud as depriving Franklin of honest services, in actuality, the Court’s real concern seems to be that Franklin was deprived of information that would have helped him decide whether to accept a settlement offer from Nike negotiated by counsel.
Finally, the Court’s conclusion that some attorneys’ fees incurred prior to the government’s investigation may well re-open a door that Lagos seemed to shut. After Lagos, it seemed that legal fees were generally not recoverable losses, even if this meant that not all victim losses were compensable under the MVRA. Here, the fact that seemed to convince the Court not to follow Lagos was that Nike needed to hire lawyers to address Avenatti’s demands for repayment, making it different than the costs of private investigation at issue in Lagos. By treating the legal fees here as compensable restitution, the panel perhaps signaled that other crime victims should consider seeking repayment of legal fees.
[1] https://x.com/travis_view/status/1252656424615768064?s=20
[2] https://time.com/5363537/avenatti-explores-presidential-run/
[3] https://www.amazon.com/Michael-Avenatti-President-Campaign-AVENATTI-701-ALL/dp/B07JNMV45P
[4] Much of this time is related to a case in federal court in California involving charges of stealing money from clients and obstructing the IRS’s tax collection efforts. https://www.justice.gov/usao-cdca/pr/lawyer-michael-avenatti-sentenced-14-years-federal-prison-stealing-millions-dollars
[5] See Op. at 22-24 (summarizing United States v. Jackson (Jackson I), 180 F.3d 55 (2d Cir. 1999) and United States v. Jackson (Jackson II), 196 F.3d 383 (2d Cir. 1999)). The celebrity who was the victim of the extortion scheme was Bill Cosby.
[6] https://slate.com/technology/2018/05/michael-avenatti-stormy-daniels-lawyer-and-his-doomed-quest-to-make-the-basta-hashtag-happen.html
