Michael Avenatti. Photo: David Handschuh/ALM

A federal judge has removed embattled Michael Avenatti from a class action in which he won a $454 million verdict, citing her “considerable doubt” that he could fairly represent the class.

Thursday's ruling by U.S. District Judge Dolly Gee of the Central District of California comes a day after Avenatti faced new criminal charges that he stole nearly $300,000 from his former client, Stephanie Clifford, the adult film star performing under the name Stormy Daniels who sued President Donald Trump alleging she was paid thousands of dollars to keep quiet about their sexual affair. Avenatti already faces multiple charges of tax fraud, bank fraud and extortion in both California and New York.

“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,” the judge wrote. “Thus, Avenatti's removal would be proper even if he did not consent to it.”

A major court fight ensued over who would represent class members in the case given Avenatti's growing criminal charges. Avenatti brought the case against Kimberly-Clark Corp. over the cost of allegedly defective surgical gowns. Following a $454 million verdict in 2017, both sides have appeals pending before the U.S. Court of Appeals for the Ninth Circuit.

The fight over who would replace Avenatti as class counsel escalated this month, with both sides accusing each other of conflicts of interest and unethical conduct.

Gee rejected claims that lawyers representing a trustee for creditors of Avenatti's law firm that has since closed replace him as class counsel. She instead ordered that two other lawyers who worked on the case since its inception continue to represent the class, but under one condition: that Avenatti have no role in the case.

Avenatti, now of Avenatti & Associates, praised the judge's decision, which appointed William Hearon, of William C. Hearon P.A. in Miami, and Ahmed Ibrahim, of AI Law in Irvine, California, as his replacement. Avenatti previously filed a declaration stating he would step down as class counsel and supported the two lawyers, who had worked with him on the case.

“I requested to be removed as class counsel weeks ago out of an abundance of caution, and I am very pleased the court agreed to appoint Mr. Ibrahim and Mr. Hearon in my place,” Avenatti said in an emailed statement. “It not only was my preference but, more importantly, it is what is best for the class.”

A receiver in charge of collecting on a $10 million judgment against Avenatti's shuttered law firm, Eagan Avenatti, had filed a competing motion to appoint Irvine, California's Frank Sims & Stolper as lead class counsel. One of that firm's attorneys, Jason Frank, a former contract attorney at Avenatti's firm, is pursuing the $10 million judgment.

Gee, however, dismissed the receiver's “vague allegations” and “hypothetical conflicts” regarding Hearon and Ibrahim, whose long experience in the case and the support of the class representative, Bahamas Surgery Center, was persuasive.

“The interests of the certified classes are paramount in the court's consideration,” she wrote. “The foregoing establishes that Ibrahim and Hearon are uniquely situated and equipped to pursue and protect the interest 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.”

Her order emphasized that Avenatti would have no control over the case.

“As there is no evidence that Hearon and Ibrahim intend to violate their duty of loyalty to the class or 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,” she wrote.

In a footnote, she wrote that Ibrahim and Hearon would be able to ask Avenatti about “historical information about the case,” but she would not permit Avenatti “to play an active role in the litigation.”

That aspect of her ruling appears to respond to concerns by Kimberly-Clark, represented by Gibson, Dunn & Crutcher, that Avenatti might continue to play a role after his removal as class counsel. They cited liens that Avenatti had filed in the case on attorney fees and costs awarded as part of any settlement or judgment and an April 1 email threatening to sue Kimberly-Clark and its lawyers should they attempt to allow the receiver to “'hijack' the litigation away from me.”

The defendants took no position on who should replace Avenatti but noted that disputes over attorney fees were premature.

Andrew Stolper, speaking on behalf of himself, Frank and Scott Sims, all founders of Frank Sims, said in an email: “We congratulate Messrs. Hearon and Ibrahim on being selected and hope they are successful in the case.”

Jack Reitman of Los Angeles-based Landau Gottfried & Berger, a lawyer for the receiver, Brian Weiss, did not respond to a request for comment.

Hearon and Ibrahim did not respond to a request for comment.

Both filed a motion to appoint them as co-lead class counsel, noting their significant roles at trial and involvement in the appeal.

“There is thus no need for the court to make a wholesale change in the team of lawyers handling what remains of the appellate process,” they wrote in court filings last month. “How the potential fees will be divided is simply irrelevant to the question of who is best equipped to handle the remaining work in the appellate process.”

Hearon and Ibrahim, who left Eagan Avenatti earlier this year to start his own firm, also filed notices of appearances before the Ninth Circuit, alongside the plaintiffs' appellate counsel, Stuart Esner, of Esner Chang & Boyer in Pasadena, California. The Ninth Circuit has yet to schedule oral arguments in the case, which is fully briefed.

But Frank Sims, in its competing request, noted that Hearon was one of Avenatti's “close personal friends” and that Ibrahim had a potential conflict since he was representing plaintiffs in separate but similar lawsuits against Kimberly-Clark.

“There 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,” they wrote in court papers earlier this month.

Avenatti, in his own court filings, challenged the receiver's standing and qualifications to be class counsel and cited “serious ethical issues” about the lawyers at Frank Sims—in particular, Stolper's conduct as a former federal prosecutor. In 2009, a federal judge dismissed the federal government's entire criminal case alleging stock options backdating against Broadcom Corp., citing the conduct of federal prosecutors including Stolper, who had leaked grand jury information to the news media.

“Their only incentive,” Avenatti wrote of the lawyers at Frank Sims, “is to engineer a quick settlement so Frank can get paid as quickly as possible.”