United States v. Avenatti

81 F.4th 171

United States Court of Appeals, Second Circuit.

UNITED STATES,

v.

AVENATTI,

Decided: August 30, 2023

Opinion

Reena Raggi, Circuit Judge:

Attorney Michael Avenatti appeals from an amended judgment of conviction …, after a jury found Avenatti guilty of [extortion], see 18 U.S.C. § 875(d) (Count One); [and] attempted Hobbs Act extortion, see id. § 1951 (Count Two)… Sentenced, inter alia, to an aggregate prison term of 30 months … Avenatti challenges (1) the sufficiency of the evidence supporting each count of conviction, .... Because none of these challenges has merit, we affirm the judgment of conviction.

BACKGROUND

     Trial Evidence

The crimes of conviction took place in March 2019 while Avenatti was representing Los Angeles youth sports coach Gary Franklin in negotiations with sportswear leader Nike. Critical to the two extortion crimes was Avenatti's threat to cause Nike reputational and financial injury if it did not pay him millions of dollars... Because Avenatti argues that the trial evidence was insufficient to support conviction on any of these crimes, we recount that evidence in some detail and in the light most favorable to the prosecution. 

          Gary Franklin's Relationship with Nike

Prosecution witness Franklin was the founder and program director of California Supreme (“Cal Supreme”), a nonprofit youth-basketball organization. For many years, Franklin himself coached Cal Supreme's premier age-17-and-under team, a number of whose members went on to play for college and professional basketball teams.

Sometime in 2006-2007, Nike began sponsoring Cal Supreme, providing approximately $192,000 in annual support and affording access to Nike's Elite Youth Basketball League.² According to Franklin, about a decade into this relationship, Nike employees Jamal James and Carlton DeBose directed him to pay additional Nike money to certain players’ parents and handlers and to conceal those [potentially illegal] payments with false invoices. Franklin also accused James and DeBose of bullying him to step down from his coaching role with Cal Supreme in favor of a player's parent.

As a result of these events, in February 2018, Franklin sought advice from Jeffrey Auerbach, an entertainment industry consultant whose son had played on a Cal Supreme team. When, in September 2018, Nike stopped sponsoring Cal Supreme altogether, Franklin asked Auerbach for help getting the sponsorship renewed. Auerbach testified that he told Franklin that the payments he had been directed to make were similar to payments that had resulted in the conviction of an Adidas executive in the Southern District of New York.

The following year, on February 6, 2019, Auerbach contacted a Nike executive whom he knew to pursue Franklin's complaints. When the executive told Auerbach that he would have to discuss the matter with Nike's outside counsel, Boies Schiller Flexner LLP (“Boies Schiller”), Auerbach and Franklin decided that they too needed the assistance of an attorney.

          Avenatti's Initial Communications with Franklin

On February 28, 2019, Auerbach, on Franklin's behalf, contacted Michael Avenatti, a California-licensed attorney. Auerbach told Avenatti that Nike employees James and DeBose had “abused and bullied” Franklin to make payments to players’ families, that Franklin “felt really terribly about it,” and that he wanted to “report it to Nike” and “go with them [i.e., Nike] to the authorities.” Auerbach stated that Franklin also “wanted to reestablish his relationship with Nike,” but that “above all” he wanted “justice,” which to Franklin meant making sure James and DeBose “did not hurt any other coaches and program directors.” Auerbach testified that he did not raise the possibility of either an internal investigation or a press conference with Avenatti, deeming the former unnecessary because Franklin “knew what happened,” and the latter “damaging and detrimental to reaching [Franklin's] goals.”

Avenatti met with Franklin and Auerbach on March 5, 2019. The two men explained to Avenatti Franklin's concerns with Nike's withdrawn sponsorship of Cal Supreme and showed Avenatti documents—including bank statements, text messages, and emails—that detailed payments that Franklin had made to certain players’ parents and handlers at James's and DeBose's direction. Franklin testified that he considered the documents confidential and never gave Avenatti permission to publicize them. At the March 5 meeting, Auerbach and Franklin also both detailed the “justice” that Franklin was seeking: (1) to reestablish a sponsorship relationship with Nike, (2) to resume coaching his former team, (3) to have James and DeBose fired, (4) to receive whistleblower protection, and (5) to be paid some sort of compensation by Nike. Franklin emphasized that maintaining a relationship with Nike was important to him and that again coaching his former team was “the most important thing.” 

          Avenatti's Financial Difficulties

In March 2019, Avenatti's financial situation was precarious. Evidence showed that outstanding judgments against him totaled approximately $11 million, and that in November 2018, his law firm had been evicted from its Los Angeles office for non-payment of rent. Sometime in the period March 15-25, 2019, Avenatti's office manager recalled him saying that he was working on something that could allow him to “clear the deck of what was owed and start a new firm.” Avenatti said “something having to do with an inhouse or internal investigation,” but she could not remember the particulars.

As the following trial evidence showed, what Avenatti was working on in mid-March 2019 was a scheme to use an internal investigation retainer agreement as the vehicle for extorting millions of dollars from Nike to his own benefit and in breach of the fiduciary duty he owed Franklin.

     Avenatti's Discussions with Nik

          [Prelude to the First Nike Meeting]

[Even before the meeting, Avenatti] had already identified an internal investigation and a threat of public disclosure as crucial to his negotiations with Nike. [He told] Geragos that if the meeting “doesn't work out,” he had arrangements in place to hold a press conference on March 20, 2019, and to have a story appear in the New York Times. Phone records showed that Avenatti had contacted New York Times reporter Rebecca Ruiz on March 16, 2019.

On March 18, 2019, the day before the scheduled Nike meeting, Avenatti met with Franklin and Auerbach. Auerbach had earlier emailed Avenatti documents marked “Privileged & Confidential” detailing Franklin's dealings with Nike, including specific payments Franklin made to identified persons with respect to identified players. At the March 18 meeting, Auerbach provided Avenatti with still more such documents, which he and Franklin also considered confidential.

Avenatti told Franklin and Auerbach that at the next day's meeting with Nike, he expected to get Franklin some sort of immunity and $1 million in compensation, and to get James and DeBose fired. He would also try to reestablish a relationship between Nike and Cal Supreme. When Franklin asked about regaining control of his 17-and-under team, Avenatti said he did not think that likely. Franklin nevertheless understood that Avenatti would at least try to achieve that goal as well as the others. Avenatti made no mention of his plans to demand an internal investigation retainer or to make public Franklin's story.

          The March 19, 2019 Meeting

The March 19 [Nike] meeting was held at the Manhattan office of Geragos's law firm and attended by him, Avenatti, [Nike counsel] Wilson, Leinwand, and [outside Nike counsel] Boies Schiller associate Benjamin Homes. Avenatti stated that he represented a whistleblower with information about Nike paying amateur players, corroborated by documents implicating Nike employees James and DeBose. Later in the meeting he would identify Franklin as the whistleblower.

Adopting what the Nike representatives perceived as an aggressive and bullying tone, Avenatti stated that “Nike was going to do two things”: (1) “pay a civil settlement to his client” for “breach of contract, tort, or other claims”; and (2) hire Avenatti and Geragos “to conduct an internal investigation into corruption in basketball.”⁶ As to the second demand, Avenatti stated that if Nike preferred to have other attorneys conduct an internal investigation, it would still have to pay Avenatti and Geragos in an amount twice whatever it paid the lawyers who actually did the investigatory work.⁷

Avenatti made no mention of Nike firing James and DeBose, although Franklin had identified that as one of his specific objectives. Nor did he ask for Nike to renew its sponsorship of Cal Supreme or explore the possibility of Franklin's resuming his coaching role with Cal Supreme's 17-and-under team. Indeed, rather than raise the last possibility, Avenatti conceded it. Homes recalled him “stat[ing] as a matter of fact that Gary Franklin ... would never be able to work with Nike again.”

Avenatti told Nike's representatives that if his two demands were not promptly met, “he was going to blow the lid on this scandal.” Id. at 217. He proposed to do so not by bringing a lawsuit on his client's behalf but, rather, by having a New York Times reporter write a story and by himself holding a press conference the next day. These actions, he predicted, “would take billions of dollars off the company's market cap.” Avenatti then showed the Nike representatives some of the documents Franklin and Auerbach had given him.

When Wilson stated that Nike would need more than a day to respond to the stated demands, Avenatti opposed delay, noting that it was the eve of NCAA basketball's “March Madness” and of Nike's earnings call. Urging forbearance, Wilson observed that a public scandal could “destroy the life or destroy the career of some of these kids” whose parents or handlers had received payments. Id. at 259. In response, Avenatti shouted, “I don't give a f--k about those kids.” He said that delay would “f--k him and Mr. Geragos”—making no mention of any effect on his client Franklin.

After the meeting, Avenatti spoke by telephone with Franklin and Auerbach, reporting that “things went well,” that he had told Nike it had a problem, and that another meeting would be held on March 21. He made no mention of his retainer demand or of his threat to hold a press conference or otherwise publicize the information that Franklin and Auerbach had given him.

Meanwhile, a few hours after the meeting, Wilson and Leinwand contacted federal prosecutors in the Southern District of New York, disclosed what had occurred at the meeting, and agreed to cooperate in an investigation of Avenatti and Geragos. As a result, their subsequent conversations with Avenatti and/or Geragos were recorded by the FBI.

          The March 20, 2019 Call

Soon after 5:00 p.m. on March 20, 2019, Wilson participated in a recorded telephone call with Avenatti and Geragos. In this call, which is the subject of Count One, Wilson stated that Nike was “not going to give you everything you want, but I think we can give you much of what you want.” Avenatti responded by reiterating his two demands: “we're gonna get a million five for our guy, and we're gonna be hired to handle the internal investigation,” emphasizing that “if you don't wanna do that, we're done.” As to the retainer demand, Avenatti warned that Nike should not be thinking “[a] few million dollars,” because, at that amount “it's worth more in exposure to me to just blow the lid on this thing.” So, if Nike were thinking a retainer could “be capped at 3 or 5 or 7 million dollars, like let's just be done.” [Rather, he suggested closer to $10-20 million.]

The men agreed to another meeting on Monday, March 25.

          The March 21, 2019 Meeting

Wilson, Homes, Avenatti, and Geragos in fact met the following afternoon. Starting with what he characterized as “the easiest part,” Avenatti handed Wilson a draft settlement agreement among Nike, Franklin, and Cal Supreme, which obligated Nike to pay Franklin $1.5 million in return for a general release of any claims against the company. That document made no mention of Avenatti's retainer demand.

Instead, Avenatti proposed for that demand to be addressed in a separate “confidential retainer agreement” among Nike, himself, and Geragos. Id. at 15. Avenatti produced no draft for such an agreement, but stated that it would have to provide for Nike to pay him and Geragos a “12 million dollar retainer upon signing,” and for that amount to be “deemed earned when paid.” Id. at 14…

When Wilson observed that he had never received a $12 million retainer from Nike or done $10 million of work on an investigation for the company, Avenatti was dismissive, vulgarly suggesting he was in a stronger bargaining position with respect to Nike than Wilson had ever been: “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?”

Avenatti assured Wilson that if Nike acceded to his retainer demand, Avenatti would maintain strict confidentiality and hold no press conferences unless “directed to do so by Nike” because, at that point, “Nike's our client.” He emphasized further that it would be “up to the client [i.e., Nike] as to whether they want to self-disclose” the results of any investigation, or whether “they wanna do it or anything else, just like any other client.”

After hearing Avenatti out, Wilson stated that the first demand, “settlement of Mr. Franklin's civil claims for 1.5 million dollars” would not “be the stumbling block here.” As to the second demand, however, Wilson asked if there were “a way to avoid your press conference without hiring you and [Geragos] to do an internal investigation?” Id. Again, Avenatti was dismissive: “I'm not gonna answer that question.” Id. When Wilson explained that he was asking if everything could be done under a settlement agreement without Nike retaining Avenatti and Geragos to conduct an internal investigation, Avenatti rejected the idea of Nike making any greater payment to Franklin: “I don't think that it makes any sense for Nike to be paying, um, an exorbitant sum of money to Mr. Franklin, in light of his role in this.”

Warning Wilson not to underestimate how badly he could injure Nike “if we don't reach a resolution,” Avenatti stated that once he held a press conference, “this will snowball,” with “parents, and coaches, and friends, and all kinds of people” contacting him,

and every time we get more information, that's gonna be The Washington Post, The New York Times, ESPN, a press conference—and the company will die, not die, but they're going to incur cut after cut after cut after cut, and that's what's gonna happen. As soon as this thing becomes public. So, it is in the company's best interest to avoid this becoming public ....

     Events Leading to Avenatti's Arrest

In a telephone call later on March 21, Avenatti assured Franklin and Auerbach that things were “going well” but made no mention of the two options he had given Nike or of the action he intended to take as soon as the call concluded.

[When the FBI showed up at Franklin’s home,] Avenatti proceeded to place several calls to New York Times reporter Rebecca Ruiz. See Gov't Ex. 702. Shortly after noon, he tweeted announcement of a press conference:

Tmrw at 11 am ET, we will be holding a press conference to disclose a major high school/college basketball scandal perpetrated by @Nike that we have uncovered. This criminal conduct reaches the highest levels of Nike and involves some of the biggest names in college basketball.

Auerbach viewed the tweet with “utter shock and horror,” deeming it “[c]ompletely opposite” the goals Franklin had described to Avenatti.

At 12:39 p.m., Avenatti was arrested by FBI agents in the vicinity of Boies Schiller's Manhattan office.

     Conviction and Post-Conviction Proceedings

After a three-week trial, the jury found Avenatti guilty on each of the charged counts.  

DISCUSSION

1. Sufficiency of the Evidence

Avenatti argues that the trial evidence was insufficient to prove the wrongfulness element of his extortion crimes.

…We conclude that the trial evidence was sufficient to support Avenatti's conviction on each count of conviction.

     The Extortion Crime

          The “Wrongfulness” Element

Avenatti's convictions … required proof that he wrongfully threatened to harm Nike. This wrongfulness element is explicit in the text of § 1951(b)(2). See id. (“The term ‘extortion’ means the obtaining of property from another, with his consent, induced by wrongful use of ... fear ....” (emphasis added)). This court has construed § 875(d) also to require proof of wrongfulness. See United States v. Jackson (Jackson I), 180 F.3d 55, 70 (2d Cir. 1999) (holding that § 875(d) incorporates “traditional concept of extortion, which includes an element of wrongfulness”). Because Jackson I and its successor case, United States v. Jackson (Jackson II), 196 F.3d 383 (2d Cir. 1999), provide useful guidance as to the wrongfulness element of extortion, we discuss these cases at the outset before turning to Avenatti's particular sufficiency challenge.

1. Jackson I

In Jackson I, the defendant claimed to be the unacknowledged child of an entertainment celebrity. When she threatened to sell her paternity story to a tabloid journal unless the celebrity paid her $40 million, the defendant was charged with, and ultimately convicted of, extortion in violation of § 875(d). This court reversed, identifying charging error in the district court's failure to instruct the jury as to wrongfulness. We explained that “a threat to cause economic loss is not inherently wrongful”; rather, “it becomes wrongful only when it is used to obtain property to which the threatener is not entitled.” Jackson I, 180 F.3d at 70. Thus, “the objective of the party employing fear of economic loss or damage to reputation will have a bearing on the lawfulness of its use, and ... it is material whether the defendant had a claim of right to the money demanded.” Id. Put another way, when a party threatens harm to demand property to which he has no claim of right, the threat is extortionate.

But, as Jackson I went on to note, even when a party demands property to which he has a claim of right, the threat used to support the demand can be extortionate if the threat itself lacks a nexus to the claim of right. See id. (holding “threat to reputation that has no nexus to a claim of right” to be “inherently wrongful”). To illustrate, Jackson I considered two hypotheticals: (1) a consumer's demand for compensation for injuries caused by a defective product, and (2) a club's demand for members to pay outstanding dues. In both scenarios, the demands bear the requisite nexus to claims of right, the first in tort, the second in contract. Thus, when the demands are supported by threats that also bear a nexus to the claims of right—e.g., the injured purchaser's threat to lodge a complaint with a consumer protection bureau or the club's threat to publish a list of members who owe dues—there is no wrongfulness and, therefore, no extortion. But if these same demands are supported by threats lacking such a nexus—e.g., threats to disclose sexual indiscretions by the manufacturer's president or the delinquent club member—then, even though the demands relate to a claim of right, the threats are wrongful and extortionate. 

1. Jackson II

The day after this court announced its decision in Jackson I, the Supreme Court ruled that “the omission of an element [from a jury charge] is subject to harmless-error analysis.” … Accordingly, we agreed to rehear Jackson I to determine whether the district court's failure to charge the wrongfulness element of extortion was harmless. See Jackson II, 196 F.3d at 386-87.

Focusing first on the demand, Jackson II concluded as a matter of law that the defendant's monetary demand did not relate to a plausible claim of right to child support because it was “utter[ly] implausib[le] that a court would order a child support payment in a sum even remotely approaching the many millions of dollars demanded.” This clarified that a party with a plausible claim of right to some payment may nevertheless commit extortion when, by threat of reputational harm, he demands a payment far in excess of any amount that the claim will plausibly support.¹⁷

As to threat, Jackson II observed that, even if the defendant had a plausible claim of filial right, she could not demonstrate the requisite nexus between that right and her threat because “the commencement of a paternity suit was not the right Jackson sought to sell. Rather, she demanded money in exchange for not giving her story to The Globe, though the publication of her story neither would establish paternity nor was a prerequisite to a paternity suit.” Id. In these circumstances, this court concluded as a matter of law that the defendant's demand was “inherently wrongful.”  

2. The Evidence Was Sufficient To Prove Wrongfulness

Avenatti's sufficiency challenge to the extortion counts of conviction fails because the evidence, viewed in the light most favorable to the prosecution, permitted a reasonable jury to conclude that he had no claim of right to a personal payment from Nike, let alone to a $15-25 million payment as distinct from a $1.5 million payment to his client Franklin. Further, to the extent Avenatti sought to secure his $15-25 million demand through an agreement whereby Nike would retain Avenatti and Geragos to conduct an internal investigation, there is no evidence that the men had any plausible claim of right to be hired by the company for that purpose. In the absence of a plausible personal claim of right, there is nothing to which Avenatti's demand or threat can have a nexus.

Avenatti advances several arguments in urging a contrary conclusion. None persuades. 

1. Avenatti's Retainer Demand Bore No Nexus to Franklin's Claim of Right

Avenatti argues that his retainer demand was not extortionate because it bore the requisite nexus to his client Franklin's claim of right against Nike in that Avenatti's retention “aligned with Franklin's objectives.” Avenatti's argument [fails] because it required the jury to find that he (1) reasonably believed that his retainer demand served Franklin's claims, and (2) intended to pursue a bona fide internal investigation of Nike. Because the evidence does not compel either conclusion, we must assume that the jury did not so find.

          There Was No Reasonable Belief that the Retainer Demand Served Franklin's Goals

To begin, the evidence sufficed to permit a reasonable jury to conclude—as Nike's own outside counsel had—that Avenatti, in soliciting a multi-million-dollar retainer agreement with Nike, was operating in conflict with, rather than in pursuit of, Franklin's interests.

In any event, because the demanded internal investigation risked exposing misconduct by Franklin as well as Nike, Avenatti would necessarily be laboring under a continuing conflict of interest. This is evident from the fact that Avenatti assured Nike that it alone would decide what to do with the results of his internal investigation, but secured no such protection for Franklin, who was never told of the retainer demand.

Unbeknownst to Franklin, … Avenatti refused to settle Franklin's claims for $1.5 million unless Nike also guaranteed Avenatti a multi-million-dollar retainer.

A second Franklin goal was to have Nike employees James and DeBose fired. Although Avenatti specifically told Franklin he would pursue this goal, the evidence shows that he never once raised it in negotiations with Nike.

Franklin identified two goals as particularly important to him: (1) maintaining a relationship with Nike, and (2) getting to coach his team again (“the most important thing”). While Avenatti told Franklin that he thought their attainment—particularly the second—was unlikely, he never told his client that he planned to concede them outright, as he did when he told Nike representatives “as a matter of fact, that Gary Franklin, his client, would never be able to work with Nike again.”

When considered in light of Avenatti's failure to pursue Franklin's goals, his other actions also support a jury finding that he did not reasonably believe that his retainer demand aligned with Franklin's goals. 

          There Was No Intent To Conduct a Bona Fide Investigation

Avenatti's nexus argument also assumes his intent to conduct a bona fide internal investigation of Nike, one that he fairly valued at $15-25 million. The evidence not only did not compel that conclusion, but also convincingly supported a contrary one.

Whether a payment demand made under threat of harm is extortionate depends not only on whether a party has a claim of right to some amount of money, but also on whether he has a plausible claim of right to the amount of money demanded… Avenatti claims that he reasonably demanded a $15-25 million retainer to conduct an internal investigation of Nike based on the $10-20 million amount Nike's outside counsel “would have charged” for such work. The jury, however, was not compelled to accept this argument, having heard Wilson state that he had never received a $10 million retainer from Nike, and having heard Avenatti repeatedly press for a concession as to the possibility of an internal investigation costing in excess of $10 million.

[In addition], evidence shows that in demanding a $15-25 million retainer, Avenatti provided Nike with only the briefest description of its scope, and with nothing about the necessary work anticipated to conduct a proper investigation, the number of persons or amount of time likely to be required, or how the work would be tracked and reported. See supra at 181. Instead, Avenatti's focus in demanding the retainer was on how much and how quickly he would be paid… Avenatti states, “it is in the company's best interest to avoid this becoming public,” something it can do only by agreeing to his retainer demand. Id.

The terms of that demand further support the conclusion that Avenatti did not intend to conduct a bona fide investigation. Nike would be obligated to pay Avenatti $12 million upon signing the retainer agreement and to deem that amount earned when paid, i.e., earned before Avenatti conducted any investigation. [The] jury could conclude that the demanded retainer agreement was merely a vehicle for extorting millions of dollars from Nike not to hold a press conference that would not only embarrass the company but also cause “billions” of dollars’ damage to its market value.

In short, sufficient evidence permitted a reasonable jury to find that there was no nexus between a claim of right by Franklin and Avenatti's multi-million-dollar retainer demand and, thus, to find the wrongfulness necessary to extortion…

Conclusion

The trial evidence was sufficient to support Avenatti's conviction for the two charged extortion counts because a reasonable jury could find therefrom that Avenatti's threat to injure Nike's reputation and financial position was wrongful in that the multi-million-dollar demand supported by the threat bore no nexus to any claim of right…

Accordingly, because Avenatti's arguments on appeal all fail on the merits, we AFFIRM the February 18, 2022 amended judgment of conviction in its entirety.