Sixth Circuit rejects Blue Cross class action settlement because of sealed docs

Russell Boniface Jun. 17, 2016, 1:28pm


CINCINNATI (Legal Newsine) - On June 7, U.S. Court of Appeals for the Sixth Circuit rejected a $30 million class action settlement in a lawsuit alleging Blue Cross Blue Shield of Michigan of price fixing because class members couldn't review key documents.

In October 2010, the Department of Justice filed an antitrust suit accusing the company of violating federal and state laws by using most favored nation clauses in contracts with 70 hospitals in Michigan and inflating prices for healthcare services. 

Within two weeks, patients, employers and other insurers filed a series of private class actions against the health insurer. The government lawsuit was eventually settled, but the district court consolidated the private class actions, which asked for damages of $118 million. 

The price-fixing case was settled in March 2015, with Blue Cross agreeing to pay $30 million.

Class members objected, however, because they said they couldn’t review the fairness of the settlement. Key documents, including an expert’s report and the class certification briefing, were filed under seal and not available for public review.

“Their due process rights were essentially denied,” attorney Dustin Dow of BakerHostetler recently told Legal Newsline. “The settlement would bind all the members of the class and they would be barred from relitigating these issues. They don’t have access to the critical documents, so they can’t determine whether the settlement was fair. They have to take whatever the settlement says—basically be blindfolded.”

Dow said filing a document under seal in a class action suit is rare. 

“It is almost unthinkable that the class members would not have access to the crucial documents, especially those that pertain to class certification,” he said. 

"It seems that allowing the documents to come in under seal is a result of possible confusion, and the Sixth Circuit picked up on this. Documents filed under seal are subjected to a much harsher and stricter standard then those under a protective order during discovery.”

Another issue was the district court’s approval of attorneys fees.

“Twenty lawyers billed over $700 per hour,” Dow said. “It is one thing to include a large fee in a class settlement, which can be perfectly fine if you have the billing records to back it up, but according to the Sixth Circuit opinion, they didn’t even have the billing records to show that the work was actually performed.”

Dow said there is more scrutiny being applied to class action settlements. 

“Part of it is the objectors can make some money,” he said. “That is part of the reason you are seeing so many objections in class action settlements. And the appellate court is wise to the due process implications of a settlement. 

"Once unnamed class members are bound by a settlement, they will not be able to bring their own suits based on the allegations once a settlement goes through. So the courts are going to be more and more particular about how they scrutinize an agreement to make sure everyone’s due process rights are protected.”

Dow expects the Blue Cross settlement to go back to the district court. 

“The district court will probably remove the documents from the seal and make them public, or if the documents do stay sealed it will change the settlement,” he said. “The district court will work out the problems that the Sixth Circuit identified. Both sides will have to reconsider the settlement. It will restart the negotiating leverage as well.”

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