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Case 2:14-cv-08390-DMG-PLA Document 618 Filed 05/03/19 Page 1 of 10 Page ID

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1 THEODORE J. BOUTROUS, JR., SBN 132099


tboutrous@gibsondunn.com
2 JULIAN W. POON, SBN 219843
jpoon@gibsondunn.com
3 THEANE EVANGELIS, SBN 243570
tevangelis@gibsondunn.com
4 GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
5 Los Angeles, CA 90071-3197
Telephone: 213.229.7000
6 Facsimile: 213.229.7520

7 Attorneys for Defendant


KIMBERLY-CLARK CORPORATION,
8 a Delaware Corporation

9 DONALD B. VERRILLI, JR., pro hac vice


Donald.Verrilli@mto.com
10 LAUREN C. BARNETT, SBN 304301
Lauren.Barnett@mto.com
11 MUNGER, TOLLES & OLSON LLP
350 South Grand Avenue, 50th Floor
12 Los Angeles, CA 90071-3426
Telephone: 213.683.9100
13 Facsimile: 213.683.5153

14 Attorneys for Defendant


HALYARD HEALTH, INC., a Delaware
15 Corporation

16 (Additional Counsel on next page)


UNITED STATES DISTRICT COURT
17
CENTRAL DISTRICT OF CALIFORNIA—WESTERN DIVISION
18
19 BAHAMAS SURGERY CENTER, CASE NO. 2:14-cv-08390-DMG-PLA
LLC, et al.,
20 DEFENDANTS’ RESPONSE TO
Plaintiffs, PLAINTIFF’S MOTION TO
21 APPOINT INTERIM CLASS
v. COUNSEL (DKT. 609) AND
22 RECEIVER’S MOTION FOR
KIMBERLY-CLARK “INDICATIVE RULING” (DKT. 610)
23 CORPORATION, a Delaware
Corporation and HALYARD HEALTH, Hearing:
24 INC., a Delaware Corporation,
Date: May 24, 2019
Defendants. Time: 9:30 a.m.
25 Place: Courtroom 8C
350 West 1st Street
26 Los Angeles, CA 90012
27 Judge: Hon. Dolly M. Gee
28
Gibson, Dunn &
Crutcher LLP

DEFENDANTS’ RESPONSE TO MOTION TO APPOINT INTERIM CLASS COUNSEL AND MOTION FOR INDICATIVE RULING
CASE NO. 2:14-CV-08390-DMG-PLA
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1 ALEXANDER G. CALFO, SBN 152891


acalfo@kslaw.com
2 JULIA ROMANO, SBN 260857
jromano@kslaw.com
3 KING & SPALDING LLP
633 W. 5th Street, Suite 1700
4 Los Angeles, CA 90071-2073
Telephone: 213.443.4355
5 Facsimile: 213.443.4310

6 CHILTON D. VARNER, pro hac vice


cvarner@kslaw.com
7 STEPHEN B. DEVEREAUX, pro hac vice
sdevereaux@kslaw.com
8 MADISON H. KITCHENS, pro hac vice
mkitchens@kslaw.com
9 KING & SPALDING LLP
1180 Peachtree Street, N.E.
10 Atlanta, GA 30309-3521
Telephone: 404.572.4600
11 Facsimile: 404.572.5100

12 Attorneys for Defendants


KIMBERLY-CLARK CORPORATION,
13 a Delaware Corporation and HALYARD
14 HEALTH, INC., a Delaware Corporation
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Gibson, Dunn &
Crutcher LLP

DEFENDANTS’ RESPONSE TO MOTION TO APPOINT INTERIM CLASS COUNSEL AND MOTION FOR INDICATIVE RULING
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1 DEFENDANTS’ RESPONSE TO MOTIONS TO APPOINT REPLACEMENT


2 CLASS COUNSEL AND FOR INDICATIVE RULING

3 Defendants Kimberly-Clark Corporation and Halyard Health, Inc. 1 respectfully

4 submit this Response to (i) Plaintiff Bahamas Surgery Center LLC’s “Motion to Appoint

5 Interim Class Counsel” (Dkt. 609) (the “Hearon and Ibrahim Motion”); and (ii) the

6 Eagan Avenatti LLP Receiver’s “Motion for ‘Indicative Ruling’ (1) Removing Eagan

7 Avenatti LLP and Michael Avenatti as Class Counsel and (2) Appointing Jason M.

8 Frank, Scott H. Sims and Andrew D. Stolper of Frank, Sims & Stolper, LLP as Lead

9 Class Counsel” (Dkt. 610) (the “Frank Motion”). Although Defendants ultimately take

10 no position on these Motions beyond agreeing that Avenatti should be removed as class

11 counsel, they submit this Response to note several issues the Court may wish to consider

12 in ruling on these Motions.


I. All Parties and Movants Agree That Avenatti Should Be Removed as Class
13 Counsel Under Fed. R. Civ. P. 23(g)
14 Defendants agree with both Movants that, in light of his recent indictment,
15 Avenatti can no longer effectively serve as class counsel. 2 See Dkt. 609 at 1 (“The
16 Moving Parties would replace current counsel duly appointed by this Court, Michael
17 Avenatti, who has agreed to step down as lead class counsel and consents to the Moving
18 Parties assuming that role on an interim basis.” (emphasis added)); Dkt. 610 at 12 (“The
19 criminal complaints (and the recent Indictment) against Avenatti, the corroborating
20 documentary evidence of stealing client funds submitted with this Motion, and
21 Avenatti’s inability to prosecute this matter going forward, alone or through EA, make
22
23
1
Effective June 30, 2018, Halyard changed its name to “Avanos Medical, Inc.”
24 Because it was referred to as “Halyard” in all proceedings before this Court, that
name will be used herein.
25
2
Trial has now been set for June 4, 2019, for approximately three weeks. See United
26 States v. Avenatti, 8:19-cr-00061-JVS (C.D. Cal.), Dkt. 23. The Movants dispute
whether Avenatti individually was appointed class counsel or whether Avenatti as a
27 member of Eagan Avenatti LLP (“EA”) was appointed as class counsel. The point
is academic for present purposes, because all agree that neither Avenatti nor EA
28 should serve as class counsel.
Gibson, Dunn &
Crutcher LLP
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DEFENDANTS’ RESPONSE TO MOTION TO APPOINT INTERIM CLASS COUNSEL AND MOTION FOR INDICATIVE RULING
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1 plain that under no circumstances can Avenatti remain as Class Counsel.”). Although
2 Avenatti is entitled to the “constitutional presumption of innocence” in his criminal
3 proceedings, the Court’s authority to appoint and remove counsel for the class under
4 Fed. R. Civ. P. 23(g) “is a separate and distinct question” that implicates the Court’s
5 “fiduciary obligation to the plaintiff class,” and the Court should therefore formally
6 remove Avenatti as class counsel. In re New Motor Vehicles Canadian Export Antitrust
7 Litig., 466 F. Supp. 2d 364, 367–68 (D. Me. 2006) (removing Milberg Weiss as class
8 counsel after the firm’s indictment). 3
9 II. In Evaluating Candidates for Appointment as Replacement Counsel, the
Court Should Consider Whether the Candidates Can Properly Exercise
10 Counsel’s Fiduciary Duties to the Class
11 Although Defendants take no position as to who should be appointed to serve as
12 replacement class counsel after Avenatti has been removed, the Court should carefully
13 consider whether the various candidates can properly exercise counsel’s fiduciary duties
14 to the class. With respect to these particular candidates, that will likely require an inquiry
15 into (1) the candidates’ respective connections to Avenatti and the potential effect such
16 connections might have on their ability to serve; and (2) the extent to which their ability
17 to serve as class counsel might be affected by their asserted interests in any potential
18 fees, including fees for work already performed.
19 A. The Court Should Require Any Candidate for Class Counsel to
20 Disclose What Role, if Any, Such Counsel Envisions for Avenatti

21 The documents that have recently been filed with the Court leave some confusion

22 as to what, if any, role Avenatti may continue to have after he is removed as class

23 counsel. The Court should require the candidates to be very clear on this point before

24 any replacement class counsel is appointed.

25
26
3
As Defendants have repeatedly explained, both in this Court and in the Court of
27 Appeals, Defendants adhere to their view that the class was improperly certified and
should be decertified. But so long as the class remains certified, the Court continues
28 to have authority to designate class counsel under Rule 23(g).
Gibson, Dunn &
Crutcher LLP
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DEFENDANTS’ RESPONSE TO MOTION TO APPOINT INTERIM CLASS COUNSEL AND MOTION FOR INDICATIVE RULING
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1 The Hearon and Ibrahim Motion notably does not list Avenatti as a continued co-
2 counsel of record for either Bahamas or the class. Likewise, in his most recent set of
3 filings in this case (Dkt. Nos. 608, 613, 615), Avenatti has identified himself only as
4 counsel for “Michael Avenatti” and for his present law firm, “Avenatti & Associates,
5 APC.” These documents strongly indicate that Avenatti will no longer serve as co-
6 counsel of record in this matter in any respect. On the other hand, the (unsigned)
7 declaration submitted by Avenatti in support of the Hearon and Ibrahim Motion is
8 narrowly worded to state only that Avenatti will step down as “lead class counsel at this
9 time” and that he will “continue to be available … for consultation and input” to his
10 designated successors, Hearon and Ibrahim. Dkt. 609-4 (emphases added). While
11 Hearon and Ibrahim represent that “Moving Parties do not presently expect to have any
12 continuing need for such consultation and input as the case progresses through the
13 appellate phase,” in the next two sentences they state that such consultation and input is
14 “unavoidable” given Avenatti’s “knowledge of historical information about the case”
15 and “his extensive involvement in this case from its inception.” Dkt. 609 at 1, n. 1.
16 Adding to the confusion, Avenatti’s other recent actions further suggest that he
17 intends to remain involved in this litigation even after stepping down as lead class
18 counsel. Avenatti filed a Notice of Lien on April 12, 2019 that purports to “obligate[]
19 all counsel in this matter to communicate with Michael Avenatti and Avenatti &
20 Associates, APC as to the subjects of this lawsuit as well as any related mediation and/or
21 settlement.” Dkt. 608 at 1 (emphasis added); see also Dkt. 613 (Notice of Lien for
22 Attorneys’ Fees and Costs by Edward M. Ricci and Edward M. Ricci, P.A., filed by
23 Avenatti on April 23, 2019). Similarly, on April 1, 2019, Avenatti sent an email to
24 Defendants’ counsel in which he stated his “support” for Hearon’s and Ibrahim’s motion
25 and warned that “any attempt to aid” “the Receiver for Eagan Avenatti and Messrs.
26 Frank and Stolper [in] attempting to ‘hijack’ the litigation away from me” could result
27 in a lawsuit from Avenatti against Defendants and their counsel. Declaration of Stephen
28 B. Devereaux, Ex. A (emphasis added).
Gibson, Dunn &
Crutcher LLP
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1 As explained below, any issue concerning a claim by Avenatti or anyone else to


2 attorneys’ fees for work already performed is premature, can be adequately addressed
3 later (regardless of who is now appointed as class counsel), and should not drive the
4 Court’s decision as to which attorneys would best represent the class’s interests on a
5 prospective basis. See infra at 5–6. But given the very concerns that have led all parties
6 and movants to agree that Avenatti should be removed as class counsel, the Court cannot
7 ignore the current ambiguity in the record as to the continued role of Avenatti going
8 forward. Moreover, the class would be ill-served by uncertainty as to who is authorized
9 to represent the class in all aspects of the litigation (including any potential resolution).
10 Accordingly, the extent to which a candidate for class counsel does or does not envision
11 a continued role for Avenatti in the conduct of the litigation is a highly relevant fact that
12 the Court should require any candidate to clarify and that the Court should carefully
13 consider.4 A continuing relationship and entanglement with Avenatti may raise a
14 substantial question as to that counsel’s continued ability to adequately represent the
15 class.
16 Accordingly, the class would be better served if the replacement class counsel
17 represents to the Court that Avenatti will play no further role in representing the class
18 (either directly or indirectly), and if that representation is then incorporated into the
19 Court’s order of appointment.
20
21
22
23
24 4
To the extent that the necessary clarification is not forthcoming voluntarily, the Court
may wish to consider allowing potentially limited discovery into the adequacy of
25 proposed class counsel. See, e.g., Stock v. Integrated Health Plan, Inc. 241 F.R.D.
618, 623 (S.D. Ill. 2007) (recognizing that “courts are allotted sufficient discretion to
26 allow defendants discovery on any consideration, mandatory or optional, pertinent to
an inquiry made under Rule 23(g)”); Brown v. Tax Ease Lien Servicing, LLC,
27 No. 3:15-cv-208-CRS, 2017 WL 6939338, at *15–*17 (W.D. Ky. Feb. 16, 2017)
(granting motion to compel responses to interrogatories and requests for production
28 seeking information relevant to Rule 23(g) inquiry).
Gibson, Dunn &
Crutcher LLP
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DEFENDANTS’ RESPONSE TO MOTION TO APPOINT INTERIM CLASS COUNSEL AND MOTION FOR INDICATIVE RULING
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1 B. The Court Should Require Any Candidates for Class Counsel to


Clarify Their Intention to Claim an Interest in Any Attorneys’ Fees
2
The moving papers filed by both candidates have placed an undue emphasis on
3
the attorneys’ potential claim on any fees that may be obtained in this case. Although
4
the Hearon and Ibrahim Motion states that “[h]ow the potential fees will be divided is
5
simply irrelevant to the question of who is best equipped to handle the remaining work
6
in the appellate process,” Dkt. 609 at 4, the various filings and statements of Avenatti
7
(who expressly supports their motion) are quite focused on that issue (e.g., Dkt. Nos.
8
608, 613), and take the view that a failure to appoint Hearon and Ibrahim would “‘hijack’
9
the litigation away” from Avenatti, see Declaration of Stephen B. Devereaux, Ex. A.
10
For its part, the Frank Motion relies on the interest of Frank’s personal corporation, as a
11
creditor, in Avenatti’s fees in this case as an affirmative factor in favor of appointing
12
Frank, Sims, and Stolper as class counsel. Dkt. 610 at 14.
13
In Defendants’ view, the issue of any allocation of fees is plainly premature, but
14
the Court should consider the extent to which the respective candidates’ interests in fees
15
would or would not affect their ability to represent the class on a going forward basis.
16
There will be no such fees to allocate unless and until the Ninth Circuit issues a judgment
17
and mandate affirming a judgment in favor of the class. Moreover, as to the possibility
18
of an additional award of attorneys’ fees (i.e., one that would not come out of the class’s
19
own recovery), this Court has already deferred the resolution of any such award until
20
after the appellate proceedings in this case have concluded. Dkt. 589. If and when there
21
is either a final enforceable judgment in this case, or an alternative resolution of the
22
matter, there will be time enough for the Court to resolve in an orderly manner any
23
competing claims as to any attorneys’ fees.
24
At this stage the only question before this Court is whether the proposed
25
replacement class counsel satisfies the requirements of Federal Rule of Civil Procedure
26
23(g). Indeed, “[w]hen one applicant seeks appointment as class counsel, the court may
27
appoint that applicant only if the applicant is adequate under Rule 23(g)(1) and (4),” and
28
Gibson, Dunn &
Crutcher LLP
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1 “[i]f more than one adequate applicant seeks appointment, the court must appoint the
2 applicant best able to represent the interests of the class.” Fed. R. Civ. P. 23(g)(2)
3 (emphases added); see also Friedman v. Guthy-Renker LLC, No. 2:14-cv-06009-ODW,
4 2016 WL 2758240, at *2 (C.D. Cal. May 12, 2016). Although any actual allocation of
5 fees is obviously premature, the respective candidates’ fee-related motivations for
6 representing the class are properly considered by the Court in appointing class counsel
7 under Rule 23(g). Indeed, Rule 23(g) specifically identifies “propose[d] terms for
8 attorney’s fees and nontaxable costs” as a subject on which the Court “may order
9 potential class counsel to provide information.” Fed. R. Civ. P. 23(g)(1)(C).
10 Accordingly, the Court may wish to inquire as to the extent to which the respective
11 candidates’ ability to serve as class counsel might be affected by their asserted interests
12 in any potential fees, including fees for work already performed. As to Hearon and
13 Ibrahim, this inquiry may overlap with the subject of their continued relationship with
14 Avenatti.
15 C. If the Court Finds the Current Candidates to Be Inadequate, the
16 Court Has Authority to Solicit Other Applications
17 If the Court concludes that the Motions before it do not satisfactorily establish

18 that the candidates should be appointed as class counsel, the Court may wish to consider

19 inviting other counsel, with no prior associations or affiliations with Avenatti, to apply

20 to serve as replacement class counsel. See, e.g., Varela v. Indus., Prof’l & Technical

21 Workers, No. 08-cv-1012-SVW, 2009 WL 10670788, at *3 (C.D. Cal. Oct. 28, 2009)

22 (observing that “[i]f ‘the court determines that none would be satisfactory class counsel,

23 it may deny class certification, reject all applications, recommend that an application be

24 modified, invite new applications, or make any other appropriate order regarding

25 selection and appointment of class counsel’” (quoting Fed. R. Civ. P. 23(g)(1)(C), 2003

26 advisory committee’s note) (internal quotations omitted)).

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DEFENDANTS’ RESPONSE TO MOTION TO APPOINT INTERIM CLASS COUNSEL AND MOTION FOR INDICATIVE RULING
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1 III. As a Procedural Matter, the Court Should Invoke the Indicative Ruling
Procedure of Fed. R. Civ. P. 62.1
2
Finally, out of an abundance of caution, Defendants request that the Court resolve
3
the pending Motions by issuing an indicative ruling under Rule 62.1 and then awaiting
4
a limited remand from the Ninth Circuit, before formally replacing Avenatti as class
5
counsel. All parties agree that this procedural route would be appropriate, but the
6
Hearon and Ibrahim Motion suggests that, because the requested ruling would
7
supposedly “preserve the status quo,” the Court may also proceed directly to appoint
8
class counsel. Dkt. 609 at 4–5. But changing class counsel obviously constitutes a
9
change in the status quo, not a preservation of it. Moreover, the two cases that Ibrahim
10
and Hearon cite—Mayweathers v. Newland, 258 F.3d 930, 935 (9th Cir. 2001), and Stein
11
v. Wood, 127 F.3d 1187, 1189 (9th Cir. 1997)—are distinguishable because they
12
involved rules that conferred authority on district courts to act during the pendency of
13
an appeal. Mayweathers involved Rule 62(c), which the court there held permits district
14
courts to renew an expired injunction after an appeal has been taken. 258 F.3d at 935.
15
And Stein involved Federal Rule of Appellate Procedure 23, which the court interpreted
16
as authorizing district courts to determine, during the pendency of an appeal, if “a
17
condition placed on a habeas petitioner’s custody has been met.” 127 F.3d at 1190.
18
Here, there is no analogous provision under Federal Rule of Civil Procedure 23
19
vesting district courts with authority to substitute class counsel while a case is pending
20
on appeal. Accordingly, if the Court were to proceed to directly appoint replacement
21
class counsel, and if the Ninth Circuit later determined that proceeding in this manner
22
was jurisdictionally or otherwise improper, the result could be substantial uncertainty
23
and a potential significant waste of resources.
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Crutcher LLP
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DEFENDANTS’ RESPONSE TO MOTION TO APPOINT INTERIM CLASS COUNSEL AND MOTION FOR INDICATIVE RULING
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1 Dated: May 3, 2019 Respectfully submitted,


2
3
GIBSON, DUNN & CRUTCHER LLP
4
5
By: /s/ Julian W. Poon
6 Julian W. Poon
7 Attorneys for Defendant
8 KIMBERLY-CLARK CORPORATION, a
Delaware Corporation
9
10
11 MUNGER, TOLLES & OLSON LLP
12
13 By: /s/ Lauren C. Barnett
Lauren C. Barnett
14
Attorneys for Defendant
15 HALYARD HEALTH, INC., a Delaware
Corporation
16
17 Pursuant to Local Civil Rule 5-4.3.4(a)(2)(i), the filing attorney certifies that all
18 other signatories listed, and on whose behalf this filing is submitted, concur in this
19 filing’s content and have authorized its filing.
20
KING & SPALDING LLP
21
22
By: /s/ Julia E. Romano
23
Julia E. Romano
24
Attorneys for Defendants
25 KIMBERLY-CLARK CORPORATION, a
Delaware Corporation and HALYARD
26 HEALTH, INC., a Delaware Corporation

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Crutcher LLP
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DEFENDANTS’ RESPONSE TO MOTION TO APPOINT INTERIM CLASS COUNSEL AND MOTION FOR INDICATIVE RULING
CASE NO. 2:14-CV-08390-DMG-PLA