Michael Avenatti is famous these days as Stormy Daniels’ lawyer, but he made his mark in legal circles last year for winning a gigantic punitive damages award.
Avenatti went toe-to-toe with a top-notch team from King & Spalding in a California class action over “leaky” surgical gowns by Kimberly-Clark and spin-off Halyard Health. He walked away with a verdict of $3.9 million in compensatory damages and a stunning $450 million in punitive damages.
The award was clearly vulnerable—the punitive damages were 115 times greater than economic ones, and there was no evidence of any physical injury. But it’s a reminder of how brutally effective Avenatti can be in front of a jury.
On March 30, U.S. District Judge Dolly Gee of the Central District of California whacked the award down to size, setting punitive damages at $20.7 million.
Kimberly-Clark was accused of selling surgical gowns that were supposed to be impermeable, providing the highest level of protection to medical personnel. If during surgery a doctor or nurse accidentally came into contact with a patient’s blood, the “MicroCool” gowns were supposed to provide a leak-proof barrier that would protect them from exposure to contagious diseases like HIV or hepatitis.
The problem, as a former executive told “60 Minutes” in a report on the case in 2016, is that the gowns “would leak. When we pressure tested them, especially in the seams … Kimberly-Clark knew that if they told customers, it would cost us a lot of business.”
The plaintiffs argued that the companies “had known since 2012 that the gowns were defective, failed industry tests, and did not meet relevant standards, thus placing health care professionals and patients at considerable risk for infection, serious bodily harm and death.”
Clearly Avenatti’s arguments resonated with the jury. As he put it in post-trial court papers, the punitive damages were “a clear message that they found defendants’ conduct to be extremely despicable and reprehensible.”
But that doesn’t mean the award passes muster under the U.S. Supreme Court’s decision in State Farm Mutual Auto. Ins. v. Campbell, which held that there is presumptive preference for single-digit ratios between punitive and compensatory damages.
Gee gave Avenatti a choice: accept the lower award, or try the case a second time on the issue of the amount of punitive damages.
On Monday, Avenatti indicated he would accept the reduced sum. “[T]he court’s order is extremely favorable to plaintiff’s position and results in millions of dollars in punitive damages,” he wrote.
Nor did he see any point in retrying the case. The court already indicated it would only support a 1 to 5 ratio between compensatory and punitive damages, and the plaintiffs were awarded all the compensatory damages they claimed.
“There is no relevant evidentiary dispute relating to punitive damages that could possibly change the court’s analysis or outcome if the same evidence were permitted in a second trial,” he wrote.
But Avenatti asked the judge simply to reduce the damages, and not require him to accept her remittitur.
“[T]here would be a significant risk that plaintiff’s acceptance of the remittitur would result in a waiver of its right to appeal the court’s reduction of the punitive damages award,” he wrote. “It would also be unduly prejudicial to plaintiff because all indications are that defendants will be pursuing their own appeal of the court’s order and forthcoming judgment.”
Indeed, both Kimberly-Clark and Halyard added prominent new lawyers for post-trial motions.
Halyard is now represented by former Solicitor General Donald Verrilli Jr. and Daniel Collins of Munger, Tolles & Olson. Under Gee’s reduced damages, the company’s punitives drop from $100 million to $1.3 million.
But Halyard’s actual exposure is much greater. When it was spun off from Kimberly-Clark in 2014, it agreed to indemnify Kimberly-Clark for all liability related to the gowns.
Kimberly-Clark, which got its share of punitive damages reduced from $350 million to $19.4 million, is represented by Theodore J. Boutrous Jr., Julian W. Poon and Theane Evangelis of Gibson, Dunn & Crutcher.
“We are pleased that the district court has eliminated 95 percent of the unconstitutional punitive damage award and that plaintiff has now effectively accepted that reduction,” Boutrous said in an email. “We are in a strong position, with many powerful arguments for appeal of the remainder of the verdict and a binding agreement that requires Halyard to indemnify Kimberly-Clark for any damages relating to this matter.”