The Sixth Circuit has vacated a $30-million settlement resolving class action claims that a Blue Cross Blue Shield subsidiary “flouted antitrust laws by fixing insurance prices,” finding that the district court improperly sealed documents that class members needed to determine if the settlement was fair.
Both the class and BCBS of Michigan gave only “brief, perfunctory and patently inadequate” reasons for sealing nearly 200 pieces of evidence and an expert report that they relied on when negotiating the deal, the three-judge panel said. It was this information that class members needed to help them decide if they wanted to accept 12 percent of the recoverable damages estimated by the expert, and 4 percent of what they could have received if they won at trial, the panel said.
The appeals court said that not only did the lower court improperly seal documents and exhibits, in doing so it conflated the standards for entering a protective order with the “vastly more demanding” standards for sealing judicial records from the public, as it also vacated the orders to seal the information. The court said:
One can only conclude that everyone in the district court was mistaken as to which standard to apply. But one point is unmistakable: on the showings set forth in this record, every document that was sealed in the district court was sealed improperly.
The appeals court said, unlike information exchanged during discovery, the public has a strong interest in seeing what is entered into the court record while the case is being adjudicated. Courts have also long been in favor of openness and the party that seeks to seal documents must prove why they should be sealed, and even if neither party objects, the panel said a court that seals something must say exactly why it did so, the panel said. These standards were unmet in this case.
When the Plaintiffs – individuals and businesses who said BCBS of Michigan’s scheme to raise hospital reimbursement rates hurt them – sought to seal a brief supporting class certification and all 90 attachments, their entire justification was that the brief includes quotes, information and references to depositions and documents BCBS or third parties had designated as confidential, the Sixth Circuit explained.
Despite these being justifications for a protective order, not an order to seal, the district court in its order allowed the documents to be sealed anyway. The other motions to seal followed the same pattern, the court said. BCBS argued that the Sixth Circuit has repeatedly held that objectors’ right to discovery is limited, but the court disagreed. The court explained:
There is an obvious difference – so obvious that one wonders how a party could overlook it – between limiting the right of class members to take new discovery after settlement, and denying them the right to view materials already in the court record.
The insurer also argued that it was concerned about the possible disclosure of sensitive financial and negotiating information, an argument that the court found inadequate for a number of reasons:
• Proponents of sealing information must show that it will hurt them, but BCBS offered “only platitudes,” and information about a practice that was eventually outlawed by Michigan’s legislature isn’t a legitimate trade secret and can’t be protected as such.
• There is concern for the information of third parties over a reasonable argument, but there is no statutory or regulatory privilege protecting that information from disclosure in this case.
• Third parties’ conduct is intricately bound with the subject of the suit.
Beginning no later than 2007, according to a U.S. Department of Justice (DOJ) complaint filed in 2010, BCBS used its “extraordinary” market power to reach agreements with Michigan hospitals under which the insurer agreed to raise its own reimbursement rates for hospital services as long as the providers agreed to charge other insurers rates at least as high as the hospital charged BCBS. Within two weeks of the DOJ’s lawsuit, a number of putative class action lawsuits were filed – adopting many of the government’s allegations – which were eventually consolidated into one case seeking more than $40 billion in damages, plus fees and expenses.
In March 2013, Michigan banned the use of agreements like those negotiated by BCBS, giving the DOJ the relief it sought, and the government voluntarily dismissed its case. In October of that year, the Plaintiffs’ antitrust expert, Dr. Jeffrey Leitzinger, finished his report, which described the scheme in detail and tentatively concluded that about $118 million in damages could be calculated on a class-wide basis, but was unclear about whether more could be calculated on an individual basis.
The two sides reached the $30 million settlement agreement in June 2014. It was reported that the settlement after attorneys’ fees and other expenses are deducted from the settlement fund would work out to $14.6 million. Since there are 3 million to 7 million potential class members, each of those individuals would receive between $2 to $5. That sort of recovery might make the class members wonder if pursuing the case was worth their involvement. Obviously, the panel on the Sixth Circuit had serious questions about the settlement.
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