IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

WICHITA FALLS DIVISION

VICTORIA KLEIN, et al., §

 §

Plaintiffs, §

 § Civil Action No. 7:03-CV-102-D

VS. §

 §

O’NEAL, INC., d/b/a O’NEAL, §

JONES & FELDMAN §

PHARMACEUTICALS, et al., §

 §

Defendants. §

MEMORANDUM OPINION

 AND ORDER 

Plaintiffs Victoria Klein and Ashley Swadley, the class

representatives of an opt-out class certified under Fed. R. Civ. P.

23(b)(3), move to modify the class certification order and convert

the class to a non-opt-out class pursuant to Rule 23(b)(1)(B).

Concluding that plaintiffs have failed to show that this case has

the characteristics necessary for certification of a limited fund

class action, the court denies the motion.

I

This products liability class action arises out of the

manufacture and distribution of E-Ferol Aqueous Solution (“EFerol”), a pharmaceutical product administered intravenously to

premature infants. Carter-Glogaur Laboratories, Inc., now known as

Retrac, Inc.(“Retrac”), a division of CVS Revco DS, Inc. (“CVS

Revco”) manufactured E-Ferol, and O’Neal, Jones and Feldman, now

known as O’Neal, Inc. (“O’Neal”) began distributing it in November

1983. E-Ferol was advertised and labeled as an intravenous Vitamin

 

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E solution to be used to prevent retrolental fibroplasia, a

condition that causes impaired vision or blindness in premature

infants. No testing or research was done, however, to determine

whether E-Ferol’s formulation and recommended dosage would be safe

and effective for use in premature infants. 

Following reports of deaths and serious illnesses in infants

and a request by the Food and Drug Administration (“FDA”), E-Ferol

was recalled from the market in 1984. Approximately 1,000 infants

had received E-Ferol. Both Retrac and O’Neal were subsequently

convicted of multiple criminal counts of violating the Federal

Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 301-99, including

introducing into interstate commerce a new drug not approved by the

FDA, with the intent to defraud or mislead. See United States v.

Hiland, 909 F.2d 1114 (8th Cir. 1990). Approximately 150 lawsuits

were thereafter filed against defendants, asserting claims arising

out of the use of E-Ferol, all of which have been settled or

dismissed.

In 2003 plaintiffs filed the instant action, alleging claims

of negligence, breach of express and implied warranty, products

liability, and misrepresentation, and seeking, inter alia,

implementation of a medical monitoring program, damages, punitive

damages, and attorney’s fees and costs. They subsequently moved

for class certification pursuant to Rule 23(b)(3), and in 2004

Judge Buchmeyer certified the following class:

 

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All persons in the United States, including

any estate representatives or heirs of

deceased persons, who, during the period from

November 1, 1983 until April 30, 1984, were

administered E-Ferol. Included in the class

are parents, spouses, children, guardians, and

legal representatives of such persons with

direct or derivative claims.

Klein v. O’Neal, Inc., No. 7:03-CV-102-R, slip op. at 1 (N.D. Tex.

May 11, 2004) (Buchmeyer, J.). Defendants unsuccessfully sought

leave to appeal the class certification order under Rule 23(f).

The case was later transferred to the undersigned’s docket, and

plaintiffs now move to modify the class certification order.

II

“An order [certifying a class] may be altered or amended

before final judgment.” Rule 23(c)(1)(C); see also Rule 23(d)

(giving court discretion to make appropriate orders in class

actions). Rule 23(b)(1)(B) provides that, if the four threshold

requirements——i.e., numerosity, commonality, typicality, and

adequacy of representation——of Rule 23(a) that apply to all class

actions are met, an action may be maintained as a class action if

the prosecution of separate actions by or

against individual members of the class would

create a risk of . . . adjudications with

respect to individual members of the class

which would as a practical matter be

dispositive of the interests of the other

members not parties to the adjudications or

substantially impair or impede their ability

to protect their interests[.]

 

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1Because the court has previously determined in its class

certification order that plaintiffs satisfy the requirements of

Rule 23(a), it need not revisit that determination. 

2

Plaintiff’s propose, inter alia, that (1) each class member

receive personal notice, but without the right to opt-out of the

class; (2) each class member be entitled to a jury trial; (3) the

court conduct a series of trials consisting of ten claimants each,

five selected by plaintiffs and five selected by defendants; (4)

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Rule 23(b)(1)(B).1 In contrast to the current class certified

under subdivision (b)(3), if the class is converted to one

certified under (b)(1)(B), “Rule 23 does not provide for absent

class members to receive notice and to exclude themselves from

class membership as a matter of right.” Ortiz v. Fibreboard Corp.,

527 U.S. 815, 833 n.13 (1999).

Among the traditional varieties of suits encompassed by Rule

23(b)(1)(B) is the limited fund class action, which aggregates

“‘claims . . . made by numerous persons against a fund insufficient

to satisfy all claims.’” Ortiz, 527 U.S. at 834 (ellipsis in

original) (quoting Rule 23 advisory committee’s note). Plaintiffs

allege that discovery following the class certification order,

including “the location of more E-Ferol recipients than

anticipated, raises concerns on behalf of the Plaintiffs and the

class they represent as to whether the insurance coverage is

sufficient (the Defendants have no assets) to cover the claims

based on prior settlements in this litigation.” P. Br. 3. They

request on this basis that the court modify the class certification

order to a Rule 23(b)(1)(B) non-opt-out class.2

 

 

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mediation attempts continue, until all claims have been settled or

tried; (5) no judgment or settlement be paid until all claims have

been adjudicated; and (6) each settlement or judgment be paid pro

rata from the available limited fund.

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“While neither [Rule 23(b)(1)(B)] itself, nor the Advisory

Notes accompanying it, purport[ ] to delineate the outer limits of

the Rule’s application in the particular subset of ‘limited fund’

cases, the Supreme Court in Ortiz has read the ‘limited fund’ case

as being moored to the Rule’s historical antecedents.” In re Simon

II Litig., 407 F.3d 125, 137 (2d Cir. 2005). For instance, the

Court described the classic “limited fund” actions as involving

“‘claimants to trust assets, a bank account, insurance proceeds,

company assets in a liquidation sale, proceeds of a ship sale in a

maritime accident, and others.’” Ortiz, 527 U.S. at 834 (quoting

1 Herbert B. Newberg & Alba Conte, 1 Newberg on Class Actions,

§ 4.09, at 4-33 (3d ed. 1992)); see also id. at 842 (“It is true,

of course, that the text of Rule 23(b)(1)(B) is on its face open to

a more lenient limited fund concept, just as it covers more

historical antecedents than the limited fund.”). The Court found

support for its limiting construction of the Rule in “the Advisory

Committee’s expressions of understanding, minimiz[ing] potential

conflict with the Rules Enabling Act, and avoid[ing] serious

constitutional concerns.” Ortiz, 527 U.S. at 842. As to the

latter concern, denial of both Seventh Amendment jury trial rights

and Fifth Amendment due process principles regarding the right to

 

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a “day in court” are implicated in aggregating mass torts. Id. at

845-47. In circumscribing the universe of limited fund class

actions to those rooted in history, the Court expressed serious

concerns about the application of Rule 23(b)(1)(B) to mass tort

class actions. See id. at 845 (“[W]e do recognize that the

[Advisory] Committee would have thought such an application of

[Rule 23(b)(1)(B)] surprising, and take this as a good reason to

limit any surprise by presuming that the Rule’s historical

antecedents identify requirements.”).

Drawing upon the “historical model” of limited fund cases, the

Court has articulated three common characteristics of limited fund

class actions. Id. at 838-40. “The first and most distinctive

characteristic is that the totals of the aggregated liquidated

claims and the fund available for satisfying them, set definitely

at their maximums, demonstrate the inadequacy of the fund to pay

all claims.” Id. at 838. Indeed, the Court emphasized that this

first factor is the “most characteristic feature of a limited fund

action.” Id. at 848. The second characteristic is that “the whole

of the inadequate fund was to be devoted to the overwhelming

claims.” Id. at 839. The third is that “the claimants identified

by a common theory of recovery were treated equitably among

themselves.” Id. The Court described these characteristics as

“presumptively necessary, and not merely sufficient, to satisfy

limited fund rationale.” Id. at 842.

 

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III

Despite the Supreme Court’s expressions of doubt about the use

of limited fund class actions to aggregate mass tort claims,

plaintiffs contend that “Ortiz did not preclude Rule 23(b)(1)(B)

. . . from being used to deal with mass tort litigation.” P.

Reply. Br. 1. The court understands plaintiffs to make two

contentions supporting conversion to a Rule 23(b)(1)(B) limited

fund class. First, they appear to maintain that the Supreme

Court’s limiting construction of Rule 23(b)(1)(B) is inapplicable

(or, at least, less stringently applicable) here because Ortiz

addressed the concerns of certifying a settlement class and,

relatedly, the constitutional concerns expressed in Ortiz are

adequately addressed in this case. Alternatively, plaintiffs urge

that they have satisfied the requirements of a limited fund class

outlined in Ortiz. The court will address plaintiffs’ contentions

seriatim.

IV

Plaintiffs maintain that Ortiz is distinguishable. “The Ortiz

court was clearly concerned about conflicts arising in a mandatory

class settlement when it outlined the requirements of such a

settlement class,” whereas “[t]his is not a settlement class.” P.

Reply. Br. 2 (emphasis omitted). This distinction is significant,

they contend, because “[t]his class provides for all of the

 

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3For instance, unlike settlement class participants, these

litigation class participants would retain a Seventh Amendment

right, although potentially circumscribed, to have their claims

tried to a jury. 

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constitutional safeguards, including representation by counsel of

a member’s choosing if desired and jury adjudication of contested

issues of each claim, if necessary.” Id. 

Although Ortiz involved certification of a settlement class,

the Court did not limit its discussion of the historical roots of

limited fund classes to settlement classes. See Ortiz, 527 U.S. at

832-841. In equating the scope of Rule 23(b)(1)(B) class actions

with their “historical antecedents,” the Court relied on three

justifications: the Advisory Committee’s intention that

“subdivision (b)(1) . . . capture the ‘standard’ class actions

recognized in pre-Rule practice;” the rights of individual tort

victims under state law, as provided for under the Rules Enabling

Act; and constitutional considerations, including the Fifth and

Seventh Amendments. Ortiz, 527 U.S. at 843. Assuming the

constitutional concerns may prove less burdensome in the

certification of a litigation class as opposed to a settlement

class, the intention of the Advisory Committee and concerns of the

Rules Enabling Act still counsel against liberal interpretation of

Rule 23(b)(1)(B).3 

Moreover, and significantly, the Court did not limit its

holding in Ortiz to certification of settlement classes. In fact,

 

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the Court referred to the foregoing three characteristics as “the

essential premises of mandatory limited fund actions,” which surely

extend beyond settlement classes. Id. at 848. The Court strongly

admonished lower courts to read Rule 23(b)(1)(B) itself narrowly

because “the object was to stay close to the historical model.”

Id. at 842. Finally, other courts have applied Ortiz when

addressing certification of litigation classes. See, e.g., In re

Simon II Litig., 407 F.3d at 127 (vacating certification of

litigation class seeking punitive damages against tobacco companies

where plaintiff failed to demonstrate first Ortiz factor); In re

Complaint of River City Towing Servs., Inc., 204 F.R.D. 94, 96

(E.D. La. 2001) (denying certification of litigation class under

Rule 23(b)(1)(B) because, inter alia, requirements of Ortiz not

met); Doe v. Karadzic, 192 F.R.D. 133, 138 (S.D.N.Y. 2000)

(“Nothing in the [Ortiz] opinion renders its analysis unique to a

settlement class.”). Accordingly, the court concludes that

plaintiffs must demonstrate the “presumably necessary”

characteristics of a limited fund case, as outlined in Ortiz, to

modify their litigation class to one certified under Rule

23(b)(1)(B). 

V

The court now considers whether plaintiffs have met their

burden of showing that this case has the three characteristics

necessary for certification of a limited fund class action. This

 

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4Plaintiffs do not address the second or third characteristics

of limited fund classes described in Ortiz. 

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question turns on whether plaintiffs can satisfy the “first and

most distinctive characteristic . . . that the totals of the

aggregated liquidated claims and the fund available for satisfying

them, set definitely at their maximums, demonstrate the inadequacy

of the fund to pay all the claims.” Ortiz, 527 U.S. at 838.4 In

doing so, the court will assume arguendo that plaintiffs’ claims

are liquidated within the meaning of Ortiz.

A

In Ortiz the Supreme Court “alluded to the difficulties facing

limited fund treatment of huge numbers of actions for unliquidated

damages arising from mass torts, the first such hurdle being a

computation of the total claims.” Id. at 850. To calculate the

aggregate total of the claims, plaintiffs rely on the average

settlement value of 133 prior E-Ferol claims. They present

evidence of the average settlement value of death claims and the

average settlement value of non-death claims. They have currently

identified 391 potential class participants, of whom 67 involve

death cases and 321 non-death cases. Multiplying the average

settlements of the prior death and non-death claims by the number

of potential claimants, plaintiffs estimate total claims of

approximately $233 million.

In Ortiz the Court assumed arguendo that “prior judicial

 

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5

Plaintiffs have submitted under seal documents that disclose

information about settlements in individual E-Ferol cases that

their counsel handled. See Exs. E and F. Because the court is

discussing average settlement figures that are discernible from

plaintiffs’ publicly-available briefs and is not disclosing in this

memorandum opinion the content of any document submitted under

seal, it need not file this memorandum opinion under seal.

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experience with asbestos claims would allow a court to make a

sufficiently reliable determination of the probable total.” Ortiz,

527 U.S. at 850. Unlike “mature” tort cases such as the asbestos

litigation at issue in Ortiz, however, plaintiffs’ estimate of

potential claim liability does not provide the court with any

comfortable certainty of the total value of the claims. Their

reliance on past settlements, although perhaps sufficient to

generalize about the value of the claims, is inadequate to present

a reliable total of the aggregated liquid claims. The data lack

reliability because they include no evidence of cases tried or

jury verdicts rendered. See In re Diet Drugs (Phentermine,

Fenfluramine, Dexfenfluramine) Prods. Liab. Litig., 1999 WL 782560,

at *7 (E.D. Pa. Sept. 27, 1999) (rejecting total claim value where

“little present experience from cases tried on the brink of trial”

and “no arms length, ‘white-knuckle’ or ‘down to the wire’

settlements”).5 Indeed, plaintiffs’ proposal to conduct “a series

of trials consisting of ten claimants each (five selected by the

Plaintiffs and five selected by the Defendants),” P. Br. 6, “to

determine the amount of each valid claim,” P. Reply Br. 5,

undercuts the premise that their methodology produces a reliable

 

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total. 

Moreover, most of the past settlements were paid more than 20

years ago, between 1984 and 1986. The amount of claims sought by

this class may thus differ significantly from the estimates

extrapolated from prior out-of-court settlements. Individuals who

sued in the aftermath of E-Ferol’s recall may have had identifiable

injuries that were more easily traceable to the administration of

E-Ferol. Because defendants strongly contest causation for claims

for long-term or latent injury, the claims may result in damage

awards that are not comparable to the settlements reached two

decades ago. Finally, plaintiffs’ valuation rests entirely on an

average of prior settlement amounts, whereas, as defendants point

out, the median of those amounts is significantly lower. Without

deciding which valuation method is proper, the court is able to

conclude that plaintiffs’ $233 million estimate is at best very

rough. Accordingly, the court is unable to reach a sufficiently

reliable conclusion regarding the probable total of the aggregated

liquid damages. 

B

The next consideration relates to the amount of funds

available to satisfy the claims. Plaintiffs allege that only

insurance proceeds totaling $210 million are available to satisfy

the claims of $233 million. As evidence that only liability

insurance policies are available, they point to the deposition

 

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testimony of corporate representatives of O’Neal and Retrac. An

O’Neal representative testified that, in late 1984, O’Neal sold its

assets to Forest Laboratories for approximately $6 million, which

included the assumption of $2 million in debt. O’Neal retained

$150 million in liability insurance to cover E-Ferol claims. A

Retrac representative testified that CVS Revco and its subsidiaries

(which included Retrac), underwent bankruptcy proceedings in 1991-

92. Under the approved plan of reorganization, Retrac was relieved

of all liabilities, except as to the liability insurance that

insured the E-Ferol claims. Defendants do not contest that only

liability insurance policies exist to cover the claims; rather,

they assert that the coverage available is much greater than

plaintiffs’ estimate. 

Plaintiffs maintain that Retrac’s liability insurance from

June 1, 1983 to June 1, 1984——the relevant policy period——totaled

approximately $85 million. They contend that O’Neal, however,

possessed two relevant periods of insurance coverage: the calendar

years of 1983 and 1984. They estimate that, in 1983, O’Neal had

$150 million in total coverage, and, in 1984, it had $151 million

in total coverage. Because some of the coverage has been paid out

to claimants and some insurers are now insolvent, plaintiffs value

O’Neal’s available coverage for each calendar year at approximately

 

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6

Plaintiffs represent that neither Retrac’s nor O’Neal’s

policies have carry-over coverage into future policy periods.

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$125 million.6 They contend, moreover, that because the vast

majority of E-Ferol was not shipped until after January 1, 1984, a

significant number of infants did not receive it until after that

date, and that O’Neal’s 1983 coverage of $125 million should not be

included in its total coverage calculation. Accordingly, they

estimate the limited fund available at $210 million, consisting of

$125 million from O’Neal’s 1984 policies and $85 million from

Retrac’s policies.

Assuming arguendo that only the foregoing insurance policies

are available to cover the damages plaintiffs seek, plaintiffs have

failed to proffer evidence that the coverage is in fact limited to

$210 million. Specifically, available insurance from O’Neal’s 1983

policies increases potential funds to well over $300 million and

would be sufficient to satisfy plaintiffs’ claims valuation of $233

million. Although plaintiffs contend that the 1983 policies will

not be available to cover defendants’ liabilities (because it is

unlikely that a significant number of babies received E-Ferol prior

to January 1, 1984), the court is not convinced at this stage of

the litigation of the insufficiency of the policies to cover total

claims. Indeed, the available evidence indicates that

approximately 50 of the 391 known potential claimants were born in

1983. And although it is possible that some of the babies born in

 

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1983 received E-Ferol in 1984 rather than 1983 such that the 1983

policies would not afford coverage, plaintiffs have offered no

evidence to support this contention. In sum, plaintiffs have

failed to demonstrate adequately that the aggregate policy limits

are insufficient, especially when coupled with the unconvincing

evidence that the total claim amounts can be assessed at $233

million. See Ortiz, 527 U.S. at 850. 

* * *

The Supreme Court in Ortiz counseled “against leniency in

recognizing . . . limited fund actions in circumstances markedly

different from the traditional paradigm.” Id. at 864. “[T]he

ability to utilize a limited-fund class action under Rule

23(b)(1)(B) to handle mass-tort cases was severely restricted by

[Ortiz].” 7B Charles Alan Wright et al., Federal Practice and

Procedure § 1805, at 419 (3d ed. 2005). Plaintiffs have failed to

meet the first recognized characteristic of a limited fund class.

Accordingly, the court declines to convert plaintiffs’ class action

to a Rule 23(b)(1)(B) limited fund class action, and it denies

plaintiffs’ October 20, 2005 motion to modify the court’s class

certification order.

SO ORDERED.

February 13, 2006.

_________________________________

SIDNEY A. FITZWATER

UNITED STATES DISTRICT JUDGE

 

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