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Daily Dicta: When a Settlement Demand Is Actually Extortion, Michael Avenatti Edition

Michael Avenatti, attorney for Stormy Daniels, leaves the Daniel P. Moynihan Courthouse in Manhattan after a hearing in front of Judge Kimba Wood regarding a search warrant that was executed at the home, hotel and office of Trump's lawyer Michael Cohen. ..(Photo by David Handschuh/NYLJ)..

So accustomed of late to litigating in the court of public opinion, Michael Avenatti seems to have forgotten how to do it against real lawyers.

On Twitter or cable TV, subtlety is a liability, not a virtue. You boast, you bluster, you threaten—and you’re rewarded with fame and followers.

But when you’re dealing with a sophisticated company like Nike and its outside counsel from Boies Schiller Flexner? It gets you charged with extortion.

To be sure, the extortion claim is just one of several unrelated criminal charges against the one-time Democratic presidential hopeful who represented porn star Stormy Daniels (a.k.a Stephanie Clifford) against President Donald Trump.

Arrested outside the offices of Boies Schiller in Manhattan on Monday, Avenatti also faces charges by federal prosecutors in California of wire and bank fraud, allegedly embezzling a client’s money to pay his own personal and business expenses.

Avenatti did not respond to a request for comment. According to the Associated Press, after his court appearance on Monday, he told reporters that he expects to be “fully exonerated” and will “never stop fighting the good fight.”

Jenna Greene
Jenna Greene

Mmm okay. It strikes me as more likely that he’s in for a world of hurt. Still, the extortion charge points to an interesting gray area in the law: Where to draw the line between a legitimate settlement demand and extortion?

I spoke with several top litigators, and they agreed it’s not unusual to talk money in pre-litigation discussions, to the point of saying “Pay us x or we’ll see you in court.”

But that number should have a basis in reality—did a breached contract have a mechanism for liquidated damages, for example? Based on verdict research, what kind of exposure might the defendant face? How do experts assess the evidence? What are the odds of winning at trial?

Here’s what you don’t do: Say that you “held the balls” of the opposing party in your hand and “I’ll go take ten billion dollars off your client’s market cap … I’m not fucking around.”

Also don’t say this: “It’s worth more in exposure to me just to blow the lid on this thing. A few million dollars doesn’t move the needle for me.…If that’s what’s being contemplated, then let’s just say it was good to meet you and we’re done. And I’ll proceed with my press conference tomorrow.” A press conference timed for maximum impact to coincide with the start of the NCAA basketball tournament and Nike’s quarterly earnings call.

According a complaint unsealed Monday in the Southern District of New York, Avenatti made those threats in recorded conversations with Nike’s lawyers at Boies Schiller.

One of Avenatti’s basic mistakes was being so obvious about publicity. At this point, any sentient lawyer would assume that if Avenatti—who has 859,000 Twitter followers and for a months-long stretch last year appeared daily on CNN or MSNBC—was suing your client, the media was going to hear about it.

You’d factor that in all on your own. Avenatti didn’t need to hold it over Nike’s head like some big, dumb club.

“Everyone knows that lawsuits create negative publicity and can have ramifications on defendants beyond the actual damages incurred by the plaintiff,” said litigator Bryan Sullivan of Early Sullivan, who recently settled a sexual assault lawsuit against talent agency powerhouse William Morris Endeavor Entertainment and an agent on behalf of “Brooklyn Nine-Nine” and “The Expendables” actor Terry Crews.

“But when an attorney actively threatens to engage in activity such as using the press or filing other administrative, regulatory, or criminal complaints to gain leverage in a settlement,” he continued, “that crosses the line into extortion, especially when the amount demanded bears little relationship to the actual damages incurred.”

Indeed, Avenatti’s settlement demand was deeply problematic.

He allegedly wanted $1.5 million for his client, identified in court papers as a coach of an Amateur Athletic Union men’s basketball team.

The coach claimed he had evidence that "one or more Nike employees had authorized and funded payments to the families of top high school basketball players and/or their families and attempted to conceal those payments, similar to conduct involving a rival company Adidas that had recently been the subject of a criminal prosecution in this district,” according to the complaint.

It’s not apparent how this conduct would have caused Avenatti’s whistleblower client to suffer $1.5 million in damages—or indeed, any damages.

Still, if that was the extent of the demand, perhaps Nike might have paid up—or maybe prosecutors in the Southern District of New York wouldn’t have bothered to set up the extortion sting (with cooperation from Nike and Boies Schiller).

But Avenatti wanted much more. On March 20, he allegedly demanded that Nike hire him and “co-conspirator 1” to conduct an internal investigation of the company, and pay them at least $10 million dollars for the work. The next day, he allegedly upped it to a $12 million retainer to be paid immediately—“deemed earned when paid”—plus a minimum guarantee of $15 million in billings and a maximum of $25 million.

Alternately, Nike could dispense with the investigation and just pay Avenatti and the co-conspirator $22.5 million. “Full confidentiality, we ride off into the sunset,” he said, according to the complaint.

The co-conspirator was identified by The Wall Street Journal and the Associated Press as attorney Mark Geragos—reporting that was independently confirmed by Lit Daily. Geragos has not been charged with wrongdoing.

A legal analyst for CNN until the network cut ties on Monday, Geragos—whose clients have included Jussie Smollett, Michael Jackson and Winona Ryder—did not immediately respond to a request for comment.

To say an internal investigation gig under these circumstances would be, um, unconventional is an understatement.

For Avenatti, it amounts to a direct conflict of interest. He was ostensibly representing a party in opposition to Nike, and then suggested he should work for Nike on the same matter. And also that he should be paid something like 10 times more than his client would receive in the settlement.

According to the complaint, Avenatti warned Nike that if his allegations went public, the company would incur “cut after cut after cut.”

Instead, Nike’s stock closed slightly up on Monday—and Avenatti may have lopped off his own head.

See also: Prosecutors Announce Charges Against Attorney Michael Avenatti