United States v. Avenatti

432 F.Supp.3d 354

UNITED STATES of America

v.Michael AVENATTI, Defendant.

S1 19 Cr. 373 (PGG)

United States District Court, S.D. New York.

Signed January 8, 2020

Filed January 9, 2020

Matthew D. Podolsky, Robert Benjamin Sobelman, Daniel Charles Richenthal, United States Attorney's Office, New York, NY, for United States of America.

Jose Manuel Quinon, Jose M. Quinon, P.A., Howard M. Srebnick, Black, Srebnick, Kornspan & Stumpf, P.A., Scott Alan Srebnick, Scott A. Srebnick, P.A., Miami, FL, E. Danya Perry, Perry Guha LLP, New York, NY, for Defendant.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE, U.S.D.J.:

Indictment (S1) 19 Cr. 373 charges Defendant Michael Avenatti with transmitting interstate communications with intent to extort, in violation of 18 U.S.C. § 875(d) (Count One); Hobbs Act extortion, in violation of 18 U.S.C. § 1951 (Count Two); and honest services wire fraud, in violation of 18 U.S.C. §§ 1343 and 1346 (Count Three). The Government charges that Avenatti – who is licensed to practice law in California – transmitted in interstate commerce threats "to cause financial harm to Nike and its reputation if Nike did not agree to make multimillion dollar payments to Avenatti"; "used threats of economic and reputational harm in an attempt to obtain multimillion dollar payments from Nike"; and used interstate communications to "engage[ ] in a scheme to obtain payments for himself from Nike based on confidential information provided to AVENATTI by Client-1 for the purpose of furthering AVENATTI's representation of Client-1, without Client-1's knowledge or approval," thereby depriving Client-1 of the "duty of honest services" he was owed. ((S1) Indictment (Dkt. No. 72) ¶¶ 20, 22, 24)

Avenatti has moved to dismiss Count Three, the honest services wire fraud count. (Def. Mot. (Dkt. No. 74)) Avenatti contends that Count Three must be dismissed because (1) Skilling v. United States, 561 U.S. 358, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010), limits the honest services wire fraud statute to bribes and kickbacks, and the (S1) Indictment does not allege a bribe or kickback; (2) the "honest services wire fraud charge fails to allege a violation of a legally cognizable duty"; and (3) the "honest services wire fraud statute is vague-as-applied." (Def. Br. (Dkt. No. 75) at 12, 14, 16) (emphasis omitted).¹ For the reasons stated below, Avenatti's motion to dismiss Count Three will be denied.

BACKGROUND

I. THE (S1) INDICTMENT'S FACTUAL ALLEGATIONS AND CHARGES

The (S1) Indictment alleges that Client-1 is the director and head coach of an amateur youth basketball program (the "Basketball Program") based in California. "For a number of years, the Basketball Program ... had a sponsorship program with Nike[,] pursuant to which Nike paid the program approximately $72,000 annually." ((S1) Indictment (Dkt. No. 72) ¶ 5) In March 2019, Client-1 sought legal assistance from Avenatti "after [Nike informed] the Basketball Program ... that its annual contractual sponsorship would not be renewed." (Id. ¶ 8)

Avenatti and Client-1 met on March 5, 2019. "During that meeting and in subsequent meetings and communications, Client-1 informed AVENATTI ... that [he] wanted Nike to reinstate its $72,000 annual contractual sponsorship of the Basketball Program." "During the [March 5, 2019] meeting, Client-1 [also] provided AVENATTI with information regarding what Client-1 believed to be misconduct by certain employees of Nike involving the alleged funneling of illicit payments from Nike to the families of certain highly ranked high school basketball prospects." (Id. ¶ 9)

At the March 5, 2019 meeting, Avenatti "told Client-1 that [he] believed that he would be able to obtain a $1 million settlement for Client-1 from Nike...." However,

at no time during the March 5, 2019 meeting or otherwise did AVENATTI inform Client-1 that AVENATTI also would and did seek or demand payments from Nike for himself in exchange for resolving any potential claims made by Client-1 and not causing financial and reputational harm to Nike, or that AVENATTI would and did seek to make any agreement with Nike contingent upon Nike making payments to AVENATTI himself. Furthermore, at no time did AVENATTI inform Client-1 that AVENATTI intended to threaten to publicize the confidential information that Client-1 had provided to AVENATTI, nor did AVENATTI obtain Client-1's permission to publicize any such information.

(Id. ¶ 10)

The Indictment goes on to allege that during a March 19, 2019 meeting with Nike's lawyers, Avenatti told Nike that

he represented Client-1, "a youth basketball coach, whose team had previously had a contractual relationship with Nike, but whose contract Nike had recently decided not to renew";

Client-1 "had evidence that one or more Nike employees had authorized and funded payments to the families of top high school basketball players and attempted to conceal those payments";

"he intended to hold a press conference the following day to publicize the asserted misconduct at Nike, which would negatively affect Nike's market value"; and

he "would refrain from holding that press conference and damaging Nike if Nike agreed to two demands: (1) Nike must pay $1.5 million to Client-1 as a settlement for any claims Client-1 might have regarding Nike's decision not to renew its contract with the Basketball Program; and (2) Nike must hire AVENATTI and Attorney-1 to conduct an internal investigation of Nike, with a provision that if Nike hired another firm to conduct such an internal investigation, Nike would still be required to pay AVENATTI and Attorney-1 at least twice the fees of any other firm hired."

(Id. ¶ 11)

In a March 20, 2019 telephone call with Nike's counsel, Avenatti reiterated that he expected to "get a million five for [Client-1]" and to be "hired to handle the internal investigation," for which he demanded a "multimillion dollar retainer" in exchange for not holding a press conference. (Id. ¶ 13(a)-(b)) According to Avenatti, "3 or 5 or 7 million dollars" would not be sufficient for his retainer. Unless Nike agreed to a larger retainer, Avenatti would hold a press conference that would "take ten billion dollars off [Nike's] market cap" (Id. ¶ 13(c)) Avenatti also stated that "he expected to be paid more than $9 million." (Id. ¶ 13(d)) At the end of the call, Avenatti agreed to meet with Nike's lawyers the next day. (Id. ¶ 13(e))

On March 21, 2019, Avenatti met with Nike's lawyers in Manhattan. (Id. ¶ 14) At that meeting, Avenatti demanded "a $12 million retainer to be paid immediately and to be ‘deemed earned when paid,’ with a minimum guarantee of $15 million in billings and a maximum of $25 million, ‘unless the scope changes.’ " (Id. ¶ 14(a)) Nike's counsel asked Avenatti whether Nike could simply pay Client-1, "rather than retaining AVENATTI. AVENATTI responded that he did not think it made sense for Nike to pay Client-1 an ‘exorbitant sum of money ... in light of his role in this.’ " (Id. ¶ 14(b)) Avenatti agreed to meet with Nike's counsel "on March 25, 2019, to hear whether Nike was willing to make the demanded payments. AVENATTI stated that Nike would have to agree to his demands at that meeting or he would hold his threatened press conference." (Id. ¶ 14(f))

According to the (S1) Indictment, Avenatti did not "inform Client-1 that Nike had offered to resolve Client-l's claims without paying AVENATTI. Nor did AVENATTI inform Client-1 that AVENATTI had continued to threaten to publicize confidential information provided to AVENATTI by Client-1, or that AVENATTI had continued to use that information to demand a multimillion dollar payment for himself." (Id. ¶ 14(g))

About two hours after the March 21, 2019 meeting, and without consulting Client-1, Avenatti posted the following message on Twitter:

(Id. ¶ 15; see also @MichaelAvenatti, Twitter (Mar. 21, 2019, 3:52 p.m.), https://twitter.com/MichaelAvenatti/status/1108818722767163392) The article linked in the March 21, 2019 tweet refers to a prosecution brought by the Government against employees of Adidas – a competitor of Nike. (Id. ¶ 16)

On March 25, 2019, after Avenatti learned that law enforcement officers had approached Client-1, but shortly before he was arrested, Avenatti posted the following message to Twitter:

(Id. ¶ 18; see also @MichaelAvenatti, Twitter (Mar. 25, 2019, 12:16 p.m.), https://twitter.com/MichaelAvenatti/status/1110213957170749440)

Later that day, Avenatti was arrested as he approached Nike's counsel's office complex in Manhattan for the scheduled March 25, 2019 meeting. (Id. ¶ 17)

The (S1) Indictment charges Avenatti with: (1) transmitting interstate communications with intent to extort, in violation of 18 U.S.C. § 875(d), in that "AVENATTI, during an interstate telephone call, threatened to cause financial harm to Nike and its reputation if Nike did not agree to make multimillion dollar payments to AVENATTI"; (2) attempted extortion, in violation of 18 U.S.C. § 1951, in that "AVENATTI used threats of economic and reputational harm in an attempt to obtain multimillion dollar payments from Nike, a multinational public corporation"; and (3) committing honest services wire fraud, in violation of 18 U.S.C. §§ 1343 and 1346, in that he "engaged in a scheme to obtain payments for himself from Nike based on confidential information provided to AVENATTI by Client-1 ... without Client-1's knowledge or approval, and used and caused the use of interstate communications to effect the scheme." (Id. ¶¶ 20, 22, 24)

DISCUSSION

I. DEFENDANT'S MOTION TO DISMISS COUNT THREE

Avenatti contends that Count Three – which alleges honest services wire fraud, in violation of 18 U.S.C. §§ 1343 and 1346 – must be dismissed, because (1) Skilling v. United States, 561 U.S. 358, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010), limits the honest services wire fraud statute to bribes and kickbacks, and the (S1) Indictment does not allege a bribe or kickback; (2) the "honest services wire fraud charge fails to allege a violation of a legally...