May 5, 2017

Kimberly-Clark sues former subsidiary over $450 million punitive damages award

Law 360 reports that Kimberly-Clark Corporation has sued former subsidiary Halyard Health, Inc. over a $450 million punitive damages award handed out by a Los Angeles jury earlier this month.  

The litigation arises out of a class action in the U.S. District Court for the Central District of California.  The class members include those who bought surgical gowns made by Halyard, which  Kimberly-Clark spun off in 2014.  Attorneys for the class argued that the defendants committed fraud by marketing the gowns as impermeable when in fact they failed to protect against pathogens like Ebola.  Apparently, the plaintiffs presented no evidence of any incident in which a gown failure resulted in an injury or infection.  But that did not stop the jury from awarding $4 million in compensatory damages and $450 million in punitive damages ($350 million against Kimberly-Clark and $100 million against Halyard). 

Given the enormous size of the award and the disproportionate ratio between the punitive damages and the compensatory damages, it is not surprising that both sides have already brought in appellate lawyers for the post-trial proceedings.

Meanwhile, Kimberly-Clerk is suing Halyard in the Delaware Chancery Court, seeking indemnity for the entire award, based on an agreement the companies entered into at the time of the spin-off.  And Halyard has filed its own action in California state court, seeking a declaration that Kimberly-Clark has no right to seek reimbursement. 

We will keep an eye on this one.  With three pending lawsuits and nearly a half a billion dollars at stake, this litigation is likely to be in the news for a while.