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Case 2:14-cv-08390-DMG-PLA Document 626 Filed 05/23/19 Page 1 of 7 Page ID #:44141

UNITED STATES DISTRICT COURT


CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL

Case No. CV 14-8390-DMG (PLAx) Date May 23, 2019

Title Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation, et al. Page 1 of 7

Present: The Honorable DOLLY M. GEE, UNITED STATES DISTRICT JUDGE

KANE TIEN NOT REPORTED


Deputy Clerk Court Reporter

Attorneys Present for Plaintiff(s) Attorneys Present for Defendant(s)


None Present None Present

Proceedings: IN CHAMBERS - ORDER RE MOTION FOR APPOINTMENT OF


INTERIM CLASS COUNSEL [609] AND MOTION FOR INDICATIVE
RULING [610]

On April 16, 2019, William Hearon and Ahmed Ibrahim filed a motion to appoint them
as “interim co-lead class counsel” during the pendency of the appeals and cross-appeals in this
matter (“Appointment Motion”). [Doc. # 609.] Later that day, the Receiver of Eagan Avenatti
filed a motion for indicative ruling to remove Eagan Avenatti LLP and Michael Avenatti as class
counsel1 and appoint Jason Frank, Scott Sims, and Andrew Stolper of Frank, Sims, and Stolper,
LLP (“FSS”) as lead class counsel (“Receiver’s Motion”). [Doc. # 610.] Both motions have
since been fully briefed. [Doc. ## 617, 618, 619, 620, 622, 624.] The Court finds these matters
appropriate for decision without oral argument. Fed. R. Civ. P. 78(b); C.D. Cal. L.R. 7-15. For
the reasons discussed below, the Court GRANTS IN PART and DENIES IN PART the
Appointment Motion, DENIES the Receiver’s Motion, and ISSUES an indicative ruling
pursuant to Federal Rule of Civil Procedure 62.1 that the Court would remove Avenatti as class
counsel and appoint Hearon and Ibrahim as permanent co-lead class counsel if the Ninth Circuit
Court of Appeals were to remand for that limited purpose.2

As an initial matter, the Court must determine whether it has jurisdiction to provide the
relief sought. “Once a notice of appeal is filed, the district court is divested of jurisdiction over
the matters being appealed. This rule is judge-made; its purpose is to promote judicial economy
and avoid the confusion that would ensue from having the same issues before two courts
simultaneously. . . . The district court [also] retains jurisdiction during the pendency of an appeal
1
On November 14, 2016, the Court appointed “Michael Avenatti, Esq. of Eagan Avenatti, LLP as class
counsel” for two classes of entities and natural persons who had purchased MicroCool Gowns. [Doc. # 270 at 34–
35.]
2
The Court DENIES as moot the Receiver’s request for judicial notice because the Court need not rely
upon the documents relating thereto in order to resolve the instant motions. [Doc. # 610-5.] Similarly, the Court
OVERRULES as moot the Receivers’ objections to certain testimony and exhibits proffered by Avenatti because
that evidence has no impact on the Court’s ruling. [Doc. ## 622-1, 622-2.]

CV-90 CIVIL MINUTES—GENERAL Initials of Deputy Clerk KT


Case 2:14-cv-08390-DMG-PLA Document 626 Filed 05/23/19 Page 2 of 7 Page ID #:44142

UNITED STATES DISTRICT COURT


CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL

Case No. CV 14-8390-DMG (PLAx) Date May 23, 2019

Title Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation, et al. Page 2 of 7

to act to preserve the status quo.” See Nat. Res. Def. Council v. Sw. Marine, Inc., 242 F.3d 1163,
1166 (9th Cir. 2001) (citations omitted).

Here, one of the issues on appeal is whether this Court erred by granting Plaintiff
Bahamas Surgery Center’s motion for class certification. See, e.g., Halyard’s Opening Br. at 50,
Bahamas Surgery Ctr., LLC v. Kimberly Clark Corp., et al., Nos. 18-55478, 18-55483, 18-55558
(9th Cir. Aug. 22, 2018) (“[T]he judgment must be reversed because the claims against
Defendants should not have been certified for classwide treatment.”).3 Although it is undisputed
that “[t]he portion of the class certification order appointing class counsel was not challenged on
appeal,” that matter is arguably intertwined with the propriety of the class certification order.
See Appointment Mot. at 9 [Doc. # 609].4 Additionally, an order appointing new counsel
arguably does not fall within the narrow scope of the Court’s authority to preserve the “status
quo,” given that Stuart Esner of Esner, Chang, and Boyer is already counsel of record for
Plaintiff on appeal and the instant proceedings have been stayed. See Ibrahim Decl. at ¶ 7 [Doc.
# 612]; [Doc. ## 587–88 (orders staying the judgment)]. Thus, whether the Court possesses
jurisdiction to grant the Appointment Motion is far from certain. Given these ambiguities, the
Court shall—out of an abundance of caution—utilize Rule 62.1’s indicative ruling procedure.5
Ibrahim and Hearon request such relief as an alternative to an order of appointment, and any
delay caused by employing such a procedure would not prejudice them or the classes in any way.
See Appointment Mot. at 9 [Doc. # 609]; Ibrahim Decl. at ¶ 7 (indicating that to date, Hearon
and Ibrahim have had no difficulty assisting Plaintiff’s appellate counsel) [Doc. # 612].

This Court has a “continuing duty to see that a class is adequately represented by
counsel.” See Z-Seven Fund, Inc. v. Motorcar Parts & Accessories, 231 F.3d 1215, 1219 (9th
Cir. 2000). In discharging this duty, the court must consider the following factors:

(i) the work counsel has done in identifying or investigating potential claims in
the action;

3
The Court sua sponte takes judicial notice of Halyard’s opening brief. See Rosales-Martinez v. Palmer,
753 F.3d 890, 894 (9th Cir. 2014) (“It is well established that we may take judicial notice of judicial proceedings in
other courts.”).
4
All page references herein are to page numbers inserted by the CM/ECF system.
5
Rule 62.1(a) provides: “If a timely motion is made for relief that the court lacks authority to grant
because of an appeal that has been docketed and is pending, the court may: . . . defer considering the motion; . . .
deny the motion; or . . . state either that it would grant the motion if the court of appeals remands for that purpose or
that the motion raises a substantial issue.”

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Case 2:14-cv-08390-DMG-PLA Document 626 Filed 05/23/19 Page 3 of 7 Page ID #:44143

UNITED STATES DISTRICT COURT


CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL

Case No. CV 14-8390-DMG (PLAx) Date May 23, 2019

Title Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation, et al. Page 3 of 7

(ii) counsel’s experience in handling class actions, other complex litigation, and
the types of claims asserted in the action;
(iii) counsel’s knowledge of the applicable law; and
(iv) the resources that counsel will commit to representing the class . . . .

Fed. R. Civ. P. 23(g)(1)(A). The Court may also “consider any other matter pertinent to
counsel’s ability to fairly and adequately represent the interests of the class . . . .” See Fed. R.
Civ. P. 23(g)(1)(B). The appointment of class counsel is a matter committed to this Court’s
sound discretion. See Radcliffe v. Hernandez, 818 F.3d 537, 549 (9th Cir. 2016) (“[G]iven the
unique ethical and due process concerns involved in class actions, district courts must have the
discretion to address attorney representation and disqualification issues based on the details of
each case . . . .”).

It is undisputed that a grand jury has indicted Avenatti for bank and wire fraud in
connection with a scheme to (inter alia) steal and conceal funds from certain clients. See
Receiver’s Motion at 3 & n.1, 5, 8 [Doc. # 610. As probable cause supports these charges of
dishonesty against Avenatti, the Court has considerable doubt regarding whether he can fairly
and adequately represent the interests of the class as he defends himself against the charges. See
In re Organogensis Secs. Litig., 241 F.R.D. 397, 410 (D. Mass. 2007) (“The court finds that in a
civil class action, where Lead Counsel has the burden of showing adequacy, [an] indictment’s
determination of probable cause that criminal conduct has occurred should be considered as a
pertinent matter under Rule 23(g)(1)[(B)]. . . . A court concerned with insuring competent
representation for an absent class must worry about the possibility of distraction as the firm and
its partners struggle to defeat the criminal charges.”). Thus, Avenatti’s removal would be proper
even if he did not consent to it. See also Avenatti Decl. at ¶ 2 (“Out of an abundance of caution
and to ensure that my fiduciary duties are met, I believe it is in the best interests of the class to
relinquish my role as lead class counsel at this time.”) [Doc. # 609-4]. Further, given that the
criminal charges are not likely to be resolved soon, Avenatti has not articulated any justification
for replacing him on merely an interim basis. Therefore, the Court must appoint a permanent
replacement for Avenatti. See Reply re Appointment Mot. at 6 n.1 (“[Ibrahim and Hearon] are
not opposed to a permanent appointment as class counsel . . . .”) [Doc. # 624]; Receiver’s Mot. at
2 (requesting an order permanently appointing FSS as class counsel) [Doc. # 610].

Rule 23(g)(1)(A)’s factors indicate that the best approach to protecting the interests of the
two classes is to appoint Ibrahim and Hearon—and not FSS or some other attorneys—to the
position of permanent lead class counsel. Ibrahim is the principal drafter of the original
complaint who (among other things) assisted in discovery, prepared class certification briefing,
prepared briefing in opposition to summary judgment, prepared and opposed motions in limine

CV-90 CIVIL MINUTES—GENERAL Initials of Deputy Clerk KT


Case 2:14-cv-08390-DMG-PLA Document 626 Filed 05/23/19 Page 4 of 7 Page ID #:44144

UNITED STATES DISTRICT COURT


CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL

Case No. CV 14-8390-DMG (PLAx) Date May 23, 2019

Title Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation, et al. Page 4 of 7

and Daubert motions, assisted with all aspects of trial preparation, and opposed Defendants’
post-trial motions. See Ibrahim Decl. at ¶¶ 5–6 [Doc. # 612]. Further, Hearon was retained to
co-counsel at trial, wherein he assisted in the presentation of evidence and making strategic
decisions relating thereto. See Hearon Decl. at ¶ 4 [Doc. # 609-2]. Hearon also assisted in the
preparation of an extensive responsive appellate brief for this action, see id., and Ibrahim and
Hearon continue to coordinate with Plaintiff’s appellate counsel, see Ibrahim Decl. at ¶ 7 [Doc.
# 612]. Both attorneys have substantial experience in litigating complex civil actions, and they
each agree to commit the resources necessary to prosecute this matter. See Ibrahim Decl. at
¶¶ 3–4, 8–10 [Doc. # 612]; Hearon Decl. at ¶¶ 3, 5–9 [Doc. # 609-2]. Although the attorneys at
FSS likewise have considerable experience in the complex civil litigation arena and performed
work on the instant action at the outset of the case, there is no dispute that they ceased
representing Plaintiff long before the Court certified the two classes, ruled on Defendants’
summary judgment motion, and tried this matter. See Receivers’ Mot. at 13–14 (“Frank, Sims
and Stolper worked extensively on this case prior to leaving [Eagan Avenatti (‘EA’)] in May
2016.”) [Doc. # 610]. Additionally, although Plaintiff’s position on this question is not
dispositive, its support for the Appointment Motion strongly suggests that Ibrahim and Hearon
have already formed a meaningful attorney-client relationship with that entity, and this
continuity of representation is conducive to the effective and efficient prosecution of this action.
See Campos Decl. at ¶ 4 (“[O]n behalf of Bahamas Surgery Center and the class, I believe that
William Hearon and Ahmed Ibrahim should be appointed as interim co-lead class counsel.”)
[Doc. # 611].

The Receiver nonetheless contends that “[t]here are simply too many warning signs that
Avenatti is putting forward Hearon/Ibrahim for his own purposes and they will not be free from
his influence.” See Receiver’s Opp’n re Appointment Mot. at 2–6 [Doc. # 617]. Although it is
apparent that Hearon and Ibrahim coordinated with Avenatti in connection with the Appointment
Motion (e.g., Avenatti filed a declaration in support thereof) and that Avenatti has undermined
the Receiver’s interests by facilitating the transfer of certain client matters to Ibrahim, these facts
do not demonstrate that (if appointed) Hearon and Ibrahim would abandon their independent
duty as officers of the court to protect the interests of the certified classes. The Receiver’s
assertion that “Hearon is one of Avenatti’s closest personal friends and represented Avenatti in
settlement negotiations during EA’s bankruptcy” also does not establish that Hearon would
defraud class members to protect Avenatti’s personal interests. See id. at 4. And while the
Receiver claims that one of EA’s clients filed a civil lawsuit accusing Avenatti and Ibrahim of
“working together to conceal a settlement from [the client,]” the Receiver all but admits that this
is nothing more than an unsubstantiated allegation. See id. at 4 (“The Receiver is not aware of
any evidence that would support the allegations against Ibrahim (as opposed to Avenatti).”). As
there is no evidence that Hearon and Ibrahim intend to violate their duty of loyalty to the class or

CV-90 CIVIL MINUTES—GENERAL Initials of Deputy Clerk KT


Case 2:14-cv-08390-DMG-PLA Document 626 Filed 05/23/19 Page 5 of 7 Page ID #:44145

UNITED STATES DISTRICT COURT


CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL

Case No. CV 14-8390-DMG (PLAx) Date May 23, 2019

Title Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation, et al. Page 5 of 7

engage in any criminal misconduct, the interests of the class would be adequately protected by
the issuance of an order simply barring them from allowing Avenatti to control the strategy of
the litigation or to otherwise serve any of the functions of class counsel.6 See Fed. R. Civ. P.
23(g) advisory committee’s note to 1998 amendment (noting that a court may “make any . . .
appropriate order regarding selection and appointment of class counsel”); see also Reply re
Receiver’s Mot. (“The Receiver is not suggesting that . . . Ibrahim or Hearon are fundamentally
inadequate to represent this Class, sans Avenatti’s involvement or influence. In another set of
circumstances (in which Avenatti and his influence is completely removed from this case), the
Receiver believes they are capable of doing so.”) [Doc. # 622].

Furthermore, the Receiver argues that because Ibrahim represents Medline Industries,
Inc. in another lawsuit against Defendant Kimberly-Clark arising out of the same allegations, he
is plagued by certain “inherent conflicts that arise from a dual representation.” See Receiver’s
Opp’n re Appointment Mot. at 5–6 [Doc. # 617]. The Receiver believes that Ibrahim “could
simultaneously settle both matters and disproportionately allocate greater settlement amounts to
the Medline case where the terms and fees will be confidential and not subject to Court
scrutiny.”7 See id. at 5. The Receiver is also concerned that “now that there is a judgment in the
case, it may no longer be in Medline’s interest to have this case settle, because Medline could
potentially lose the argument that the judgment has an issue preclusive effect in the Medline
matter.”8 See id. If the Court accepted this position, then a plaintiff’s attorney could never
concurrently represent different plaintiffs in actions arising out of the same facts against the same
defendants because such “inherent conflicts” could always theoretically arise. This per se bar
would prevent clients from benefiting from the synergies that result from dual representation
(e.g., knowledge of the pertinent facts and successful legal strategies). The authority cited by the

6
Such a ruling would not prevent Ibrahim and Hearon from asking Avenatti for certain “historical
information about the case” that he may possess. See Appointment Mot. at 2 [Doc. # 609]. Nonetheless, if the
Ninth Circuit permits this Court to remove him as class counsel, then the Court will not permit him to play an active
role in the litigation.
7
The Receiver also claims that Ibrahim’s representation of the plaintiff in Naeyaert v. Kimberly-Clark
Corp., et al., No. ED CV 17-950-JAK (JPRx) (C.D. Cal.), presents a conflict of interest. See Receiver’s Opp’n re
Appointment Mot. at 5 [Doc. # 617]. Yet, the Receiver presented evidence showing that Ibrahim has already
withdrawn from Naeyart. See Weiss Decl., Ex. 2 at 20 (Apr. 15. 2019 order approving Naeyaert’s request for
Avenatti to replace Ibrahim as counsel of record) [Doc. # 617-1].
8
Relatedly, the Receiver apparently believes that Ibrahim and Hearon would be inadequate because they
have not attempted to settle this matter, given that “[t]he Receiver’s understanding is that Defendants are amenable
to serious settlement discussions.” See Receiver’s Opp’n re Appointment Mot. at 6 [Doc. # 617]. As no evidence is
offered to support that assertion, the Court need not address it further. See Lofton v. Verizon Wireless (VAW) LLC,
308 F.R.D. 276, 286 (N.D. Cal. 2015) (“[A]ttorney argument is not evidence on which the court can rely.”).

CV-90 CIVIL MINUTES—GENERAL Initials of Deputy Clerk KT


Case 2:14-cv-08390-DMG-PLA Document 626 Filed 05/23/19 Page 6 of 7 Page ID #:44146

UNITED STATES DISTRICT COURT


CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL

Case No. CV 14-8390-DMG (PLAx) Date May 23, 2019

Title Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation, et al. Page 6 of 7

Receiver does not support such a sweeping rule, which would fail to take into account the
circumstances of each case. See Kayes v. Pac. Lumber Co., 51 F.3d 1449, 1465 (9th Cir. 1995)
(affirming a district court’s order requiring counsel to withdraw from representing certain
plaintiffs in another suit because one of the plaintiffs in the parallel action “had a broader
mission than did the class [in the instant suit], including pressuring [a defendant] to sell its
interest in” another entity (emphasis added)); Sullivan v. Chase Inv. Servs. Inc., 79 F.R.D. 246,
258 (N.D. Cal. 1978) (concluding that there was a “possibility that assets and insurance of the
defendants who may have committed fraud against the plaintiffs will be insufficient to satisfy”
the claims of the two different groups of plaintiffs). Hypothetical conflicts of interest do not
negate Ibrahim’s adequacy as class counsel or show that he would subordinate the interests of
the class to the interests of his other clients. See 1 Newberg on Class Actions at § 3:75 (5th ed.
2018) (“[O]nly client conflicts that are material and presently manifest—rather than merely
trivial, speculative, or contingent on the occurrence of a future event—will affect the adequacy
of class counsel. . . . In general, class counsel may represent multiple sets of litigants . . . so long
as the litigants’ interests are not inherently opposed.” (emphasis added) (footnote omitted)).

The interests of the certified classes are paramount in the Court’s consideration. The
foregoing establishes that Ibrahim and Hearon are uniquely situated and equipped to pursue and
protect the interests of absent class members, and that it would be unduly disruptive to appoint
new counsel in their stead at this late stage of the proceedings. The aforementioned vague
allegations regarding their “affiliation” with Avenatti do not outweigh these considerations.
Moreover, the Court can mitigate any concerns regarding Avenatti’s involvement in this case by
expressly ordering Ibrahim and Hearon not to allow Avenatti to have any control over this action
or the pending appeals.

Therefore, the Court GRANTS the Appointment Motion only insofar as it seeks an
indicative ruling that the Court would remove Avenatti9 and appoint Ibrahim and Hearon as
permanent co-lead counsel if the Ninth Circuit decides to remand for that limited purpose. The
Receiver’s Motion is DENIED.10 Ibrahim and Hearon shall notify the Circuit Clerk of this
ruling within ten days of the date of this Order, and they must inform the Court of the Ninth
Circuit’s decision regarding the request for limited remand within ten days of its issuance. The

9
If EA theoretically can be characterized as class counsel merely through its affiliation with Avenatti, the
Court would remove it from that position as well. See Receiver’s Mot. at 3 (advancing the unchallenged assertion
that “EA no longer has the resources to serve as Class Counsel”) [Doc. # 610].
10
Given the Court’s disposition of the instant motions, the Court need not address any other arguments for
denying the Receiver’s Motion. See, e.g., Avenatti’s Opp’n re Receiver’s Mot. at 4–5 (arguing that the Receiver
lacks standing to request that FSS be appointed as class counsel) [Doc. # 620].

CV-90 CIVIL MINUTES—GENERAL Initials of Deputy Clerk KT


Case 2:14-cv-08390-DMG-PLA Document 626 Filed 05/23/19 Page 7 of 7 Page ID #:44147

UNITED STATES DISTRICT COURT


CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL

Case No. CV 14-8390-DMG (PLAx) Date May 23, 2019

Title Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation, et al. Page 7 of 7

May 24, 2019 hearing is VACATED. The Court STRIKES Avenatti’s unauthorized sur-reply
because it was filed without leave of court [Doc. # 625].

IT IS SO ORDERED.

CV-90 CIVIL MINUTES—GENERAL Initials of Deputy Clerk KT