Former Client Accuses Michael Avenatti of Operating Law Firm Like a 'Ponzi Scheme'

[jberryhill]

9. Barela is pursuing arbitration

...which is likely in the dispute provision of his engagement agreement, or they have otherwise agreed to arbitrate. In that circumstance, I don't know whether the arbitrator would make a referral to Calbar or not.

Certainly, if he was lying to his client about having received the settlement, and was using money from the IOLTA account to fund general operations and expenses, then he's done.

It seems odd that the other party would have said that they paid Avenatti, and produced wire transfer receipts to Avenatti's IOLTA account, if its some kind of elaborate hoax.

My theory:

Whatever went on between Barela and the other party must be potentially embarrassing enough to Barela that he would be disinclined to pursue an action to enforce the settlement, and was able to be mollified long enough by the "slow pay" story. Most of Avenatti's problems, IMHO, stem from that large judgment he got in district court against Kimberly Clark for something like $450 million, which was later cut to $20 million and even that was still on appeal. That's from memory, but the basic idea is that he probably did a lot of chicken-counting before those eggs were hatched, and then developed some creative strategies for the fallout.

It also explains how he's avoided attachment of all kinds of things from the former partner, who is still looking to collect on the judgments in his favor, and the various aggrieved parties arising from the Tully's Coffee shitshow.

But playing games with client funds is, as you know, the chart-topping reason for attorney disbarment and other discipline, by far. If you are fond of reading attorney discipline cases, it never starts out as "I'm going to steal from my clients" but is precipitated by other problems arising from character flaws.

You don't "borrow" from the IOLTA account. You track every payment in and out. You inform the client immediately upon receipt or disbursement of funds, and you send an invoice recording every transaction involving the IOLTA account.

The dispute here is going to be pretty simple to figure out.