Kimberly-Clark Sues Halyard Over $454 Million Gown Verdict

(Bloomberg) -- Kimberly-Clark Corp. sued its spinoff Halyard Health Inc. claiming it wrongfully refused to pick up the entire tab for a $454 million verdict against the companies over the safety of some of their surgical gowns.

The complaint filed on Tuesday in Delaware claims Halyard agreed to indemnify Kimberly-Clark for all costs tied to a lawsuit accusing the companies of misleading consumers about the safety of their MicroCool surgical gowns. Halyard must pay its $350 million punitive-damages portion of the jury verdict in the class-action case, Kimberly-Clark said in the Delaware Chancery Court suit.

Alpharetta, Georgia-based Halyard Health, which makes surgical masks, gloves and pain-pump accessories, filed its own suit on Monday in state court in California claiming it's not obligated to cover litigation costs.

Robin Keegan, a Halyard spokeswoman, didn't immediately return a call and an email seeking comment on Kimberly-Clark's suit. Kimberly-Clark is best known as the maker of Huggies diapers and Scott toilet paper.

A federal court jury in California concluded April 7 that Kimberly-Clark and Halyard officials misled doctors and nurses about the safety of the MicroCool gowns and failed to notify users the garments wouldn't protect them from serious diseases such as the Ebola virus and HIV. Lawyers for consumers said evidence showed company executives sold the gowns knowing the sleeves didn't properly seal to keep out contaminants.

Punitive Damages

The jury ordered Kimberly-Clark to pay $3.8 million in compensatory damages and $350 million in punitive damages to a class of California gown buyers. The panel also ordered Halyard to pay more than $261,000 in compensatory damages and $100 million in punitive damages.

Kimberly-Clark and Halyard officials said last month they will appeal the jury's finding.

Kimberly-Clark officials said Halyard had originally accepted responsibility for all costs tied to the case and, in a regulatory filing three days after the verdict, said it was “obligated to indemnify Kimberly-Clark for its share of any final judgment” in the suit.

“Neither party has ever called this obligation into question until now,” Kimberly-Clark's lawyers said in the suit. The company is seeking a court order barring Halyard from doing “an about-face” on its financial responsibilities.

The case is Kimberly-Clark Corp. v. Halyard Health Inc., 2017-0332, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Sophia Pearson, Elizabeth Wollman