It’s been a couple of years since a federal jury convicted Michael Avenatti of attempting to extort Nike, but a new court ruling clarifies that the multibillion-dollar company counts, under the law, as a “victim.”
But Nike isn’t going to get what it sees as full restitution.
On Feb. 14, SDNY Judge Paul Gardephe held that Avenatti owes Nike $260,000. The amount is nearly $600,000 less than what Nike had demanded.
The ruling highlights how attorneys’ fees can rise quickly under a billable arrangement where attorneys might charge more than $1,000 an hour and are paid for their time, including when sitting in on court hearings. The ruling also underscores how courts can question the necessity of certain tasks as they relate to criminal prosecutions.
Avenatti’s dealings with Nike began in March 2019, when he demanded the world’s largest footwear company pay his client, Gary Franklin, $1.5 million and pay Avenatti and another attorney as much as $25 million—or else. Avenatti threatened to hold a March Madness-timed press conference in which he would accuse the company of corruption in college basketball recruiting. The damage, Avenatti told Nike attorneys, would cause Nike’s stock price to drop. “I’ll go take $10 billion off your client’s market cap,” Avenatti warned.
Franklin, an AAU coach, hired Avenatti after Nike let him go—illegally, Franklin believed. Franklin told Avenatti he refused to partake in alleged bribes of high school basketball stars, in which they would be paid to attend Nike-sponsored college programs.
Although Avenatti had a right to demand that Nike pay Franklin in a settlement of potential legal claims, the demand crossed into troubled waters when it also included Nike paying Franklin’s attorneys as much as 17 times what their client would be paid. Avenatti’s payment would ostensibly reflect him providing a service; in this case, an internal investigation. Avenatti also told Nike the company could pay him and another attorney $22.5 million for no services rendered. In exchange, Nike would secure “full confidentiality” and a pledge the attorneys would “ride off into the sunset.”
Nike retained Boies Schiller Flexner LLP, a prominent litigation law firm, to address the Avenatti matter. The firm is headed by David Boies, who represented Vice President Al Gore in Bush v. Gore and who has litigated on behalf of both the NFL and the National Basketball Players Association. Attorneys for the firm contacted the U.S. Attorney’s Office about what appeared to be an extortion plot. FBI agents then recorded calls between Avenatti, Nike and attorneys. The recordings produced crucial evidence that led to Avenatti’s conviction.
Nike submitted a victim impact statement, which “conservatively estimates” that Nike incurred “at least $1 million” in costs. Nike is protected by a federal law, the Mandatory Victims Restitution Act (MVRA), which obligates convicted defendants, including extortionists, to make restitution to their victims for certain categories of expenses. Reimbursable expenses include attorneys’ fees that a “victim was required to incur to advance the investigation or prosecution of the offense.” Recoverable attorneys’ fees must be “necessary.”
In citing what it classified as $856,162 in recoverable attorneys’ fees, Nike listed the following services rendered by Boies Schiller:
* Assisting the FBI and prosecutors by (1) partaking in recorded meetings and calls; (2) conferring with FBI agents and prosecutors; and (3) sharing various documents with the government.
* Preparing Nike employees for interviews and testimony.
* Providing legal analysis of court filings.
* Attending hearings and the trial.
* Representing Nike as it pertained to Avenatti’s sentencing and its aftermath.
Avenatti rejected the premise of Nike as a victim under the MVRA. He noted that the company hadn’t suffered a “direct pecuniary loss.” Avenatti never held the threatened press conference. The company’s stock never dropped on his account. The plot was foiled before it could do Nike harm. Therefore, as Avenatti saw it, Nike wasn’t a victim.
Judge Gardephe disagreed. He stressed that “the attorneys’ fees Nike incurred in assisting the Government’s investigation and prosecution of Avenatti’s crimes were a direct and foreseeable result” of Avenatti’s offenses. The judge cited a case involving an investment analyst convicted of insider trading. There was no evidence the analyst’s criminal acts harmed his employer, but the employer’s expenses in assisting the government’s case were nonetheless recoverable as restitution. So long as the fees incurred by Nike’s attorneys were in connection with “services that were invited, requested, or otherwise induced by the Government,” Judge Gardephe reasoned, Avenatti is on the hook.
But the bulk of the expenses Nike cited weren’t deemed appropriate for restitution. Judge Gardephe noted that Nike sought reimbursement for when their attorneys reviewed Avenatti’s various filings. “There is no evidence,” the judge stressed, “that Boies Schiller’s assessment of Avenatti’s motions was invited, required, requested, or otherwise induced by the Government, much less that it was of use to the Government.” Similarly, the judge didn’t find it “necessary for Nike’s counsel to be present for multiple pretrial hearings” where Nike witnesses didn’t testify.
Judge Gardephe further limited the amount Avenatti must pay due to Boies Schiller’s “block billing” for time entries. This method combines multiple tasks into one billing entry, which brings efficiency but doesn’t clarify how much time was spent on each task. “This Court,” the judge held, “cannot now attempt to extricate recoverable expenses from non-recoverable expenses in block-billing entries. Nor should it.”
Avenatti, who was sentenced to two-and-a-half years in prison, has appealed the conviction to the U.S. Court of Appeals for the Second Circuit. Separately, he awaits sentencing in May for wire fraud and aggravated identity theft convictions related to his representation of adult-film star Stormy Daniels.
