A bankruptcy judge wouldn’t hand the proceeds from dozens of pending lawsuits tied to Michael Avenatti to a creditor of his formerly bankrupt law firm, Eagan Avenatti LLP, but ordered an accounting of everything the firm takes in, according to a WSJ Pro Bankruptcy analysis. Bankruptcy Judge Catherine Bauer in Los Angeles largely ruled against Jason Frank, a former business partner of Avenatti who sought to wrest control of assets belonging to Eagan Avenatti — a firm controlled by Avenatti but legally separate from Avenatti & Associates, which represents adult-film actress Stephanie Clifford, also known as Stormy Daniels, in her hush-money lawsuit against President Donald Trump. Frank’s request raised legal questions about which assets of a bankrupt law firm are available to satisfy its debts. Courts in California have held that when law firms fold, the fees collected later on by their former partners for hourly work can’t be clawed back for distribution to creditors. But Eagan Avenatti is a contingency-fee firm, a high-stakes corner of the legal industry that requires firms to invest time and money filing complaints while collecting a slice of settlements or verdicts that arrive years later if at all.
