The judgment comes after Avenatti's company Eagan Avenatti LLP, could not make the first payment of a $ 4.85 million settlement with lawyer Jason Frank, a one-time partner at the company. During Tuesday's hearing, a lawyer told the federal government that Avenatti's company failed to make a payment for tax refund last week.
Avenatti is a management partner of Eagan Avenatti, according to court documents.
The settlement, which was achieved in December 2017, derives from Frank's assertion that Avenatti's company failed to pay him more than $ 18 million as a non-business equity partner, and Avenatti missed the company's profit.
When the case was dragged, Frank reduced his claim to $ 1
"Michael Avenatti's law firm entered into a crystallized written conciliation agreement to resolve an earlier trial brought by Jason Frank, his former team partner," said Eric George, a lawyer for Frank in a statement. "The settlement agreement was approved by a federal court and was a condition for his law firm's bankruptcy. According to this solution, Avenatti's law firm was required to pay Frank $ 4.85 million, all of which were personally guaranteed by Avenatti."
Frank claimed that His former partner repeatedly failed to produce copies of the company's federal income reporting or a full statement of the company's revenue and expenses, as required by the terms of their original arrangement. Under the terms of the partnership, Frank owed a quarter of the company's annual profit and a fee paid by some customers.
Frank finally sought sanctions against Avenida's company through a court of enforceance.
The panel does not issue sanctions, but agrees with some of Frank's arguments about the company.
The panel noted that while the case was in arbitration, Avenatti's company repeatedly failed to follow the panel's orders to change documents to France's company and did not pay the legal fees required in the arbitration proceedings.
The judges noted that Avenida's company "failed to produce" returns; monthly bank accounts; revenue accounting; wires, checks or invoices for costs over $ 25,000; as well as email correspondence.
The third panel argued that Avenida's companies ignored their order in October 2016 for the company to produce copies of their federal returns 2013, 2014 and 2015.
Eagan Avenatti LLP "did not return and claimed that neither its auditor had copies of the return, "the judges said.
The reply from Eagan Avenatti "stretches the credibility limits", the arbitration award for the arbitration panel, retired Judge Terry Friedman wrote.
In an order that permits the Frank's law firm to force depositions from Avenatti and two other employees at his firm Avenida's firm to engage in "a pattern of delay, obfuscation and defamation."
The arbitration panel allowed Frank to change his complaint "to add a statement of punishment and find that (Avenatti's company) acted with unwillingness, oppression and fraud in the absence of its returns."  Bankruptcy Register shows Eagan Avenatti owed IRS of about $ 2.4 million in repayment, penalty and interest. Avenatti's company made an agreement with the US Law Office's tax department to pay its tax debts.
A spokesperson for the US law firm Thom Mrozek said the company made an initial payment of approximately $ 1.5 million in taxes. It still stands 880,000 dollars, Mrozek said. In an email to CNN confirmed, Mrozek Avenatti missed a payment that expired last week.
Avenatti has suggested that he is the target of a countervailing campaign because he represents Stormy Daniels, the adult movie star who claims she had a sexual relationship with President Donald Trump and was paid $ 130,000 by Trump's lawyer Michael Cohen as a hush payment.
When a Los Angeles Times journalist, who participated in the hearing, tweeted about the $ 10 million judgment and a lawyer's statement from the law firm that Avenatti also neglected his repayments, tweatted Avenatti: "Nonsense".
He added: "A completely different law firm – no ties to Daniel's case. Irrelevant. Overblown …"
In a text to CNN that requested its answer to the verdict, Avenatti said "Absolutely irrelevant and a side show. issued to me personally. The company has nothing to do with the case or the client. Who cares? "
In court proceedings relating to the Daniels case, Avenatti has filed a lawyer at the Newport Beach Avenatti & Associates Law Firm, APC, based in California .
State Bar in California still lists him as a lawyer with Eagan Avenatti LLP, based on the same address as Avenatti & Associates in Newport Beach.
CNNs Traci Tamura contributed to this report.