Court Eviscerated Over Poorly Explained Seal

CINCINNATI (CN) — Overturning a $30 million settlement, the Sixth Circuit balked at the comprehensive seal in a case where Michigan's largest health insurer faces price-fixing allegations the court called credible.

The case against Blue Cross Blue Shield of Michigan holds "keen and legitimate interest" for millions of Michigan citizens that price-fixing harms, but a federal judge in Detroit agreed to seal most substantive filings, according to the Tuesday ruling.

Writing for a three-judge panel, U.S. Circuit Judge Raymond Kethledge notes that this seal covered "nearly 200 exhibits and an expert report upon which the parties based a settlement agreement that would determine the rights of those millions of citizens."

Blue Cross reached the $30 million deal in June 2014, settling a class action that echoed the claims a 2010 federal complaint by the U.S. Department of Justice.

Against claims that its agreements with health care providers raise customer rates, Blue Cross faced the possibility of $13.7 billion in damages.

Judge Kethledge notes that class members who objected to the settlement faced a problem showing why, however, since "most of the key documents were either heavily redacted or ... completely sealed."

Kethledge said U.S. District Judge Page Hood nevertheless "approved the settlement without meaningful scrutiny of the settlement's fairness to unnamed members of the class."

Joined by Judges Eugene Edward Siler Jr. and Deborah Cook, Kethledge vacated approval of the settlement, as well as the orders to seal.

An attorney for the class members that objected to the settlement called the opinion "well-reasoned.

"We continue to have very serious concerns about the fairness of the proposed settlement," Varnum attorney Bryan Walters, of Grand Rapids, said in an email. "We look forward to the opportunity to review the record on behalf of over 25 businesses we represent who objected to the settlement."

The scathing opinion calls the reasons that the parties gave in seeking the seal "brief, perfunctory, and patently inadequate."

"In sealing all these documents and exhibits, the parties and the district court plainly conflated the standards for entering a protective order under Rule 26 with the vastly more demanding standards for sealing off judicial records from public view," Kethledge wrote.

"One can only conclude that everyone in the district court was mistaken as to which standard to apply," the judge added. "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."

Blue Cross argued that confidential medical information justified the seal, but Kethledge disagreed.

"Here again we see the standards for protective orders and sealing conflated: that a mere protective order restricts access to discovery materials is not reason enough, as shown above, to seal from public view materials that the parties have chosen to place in the court record," the judge wrote (emphasis in original). "And as to materials actually in the record, our review of the sealed materials reveals scarcely any 'confidential patient-health information,' which is unsurprising given that such information would be irrelevant to the antitrust issues presented in this case."

Undercutting the possibility that the error of the seal was harmless, Kethledge noted that the "class members cannot participate meaningfully in the process contemplated by Federal Rule of Civil Procedure 23(e) unless they can review the bases of the proposed settlement and the other documents in the court record."

On remand, the lower court must conduct a "vigorous examination of the settlement's fairness."

Kethledge also raised concerns about the lower court's approval of $10 million in fees for the class counsel. Calling the "rates claimed by class counsel are exceedingly high," the ruling points to some of the paralegals charging $228 per hour.

"Class counsel provided no backup whatsoever — no time records, no descriptions of work done — in support of their hours spent working on the case," the ruling states. "Instead, class counsel provided the district court with a single page of documentation for each firm, listing only the employee names, titles, rates, hours, and — by multiplying the rates and hours — the total lodestar for that firm. The documentation of fees in this case should have only heightened the district court's concerns about whether the settlement is fair to unnamed members of the class."

Daniel Small with Cohen Milstein Sellers & Toll, of Washington, D.C., serves as co-lead counsel for the class.

Constantine Trela Jr., with Sidley Austin in Chicago, represents Blue Cross.

The firms have not returned requests for comment.

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