Home Depot, others challenge $2.7 billion Blue Cross antitrust settlement in federal appeals court

ATLANTA (CN) — A federal appeals court heard arguments Friday over the approval of a nearly $2.7 billion subscriber class action settlement in an antitrust action against the Blue Cross Blue Shield association.

Subscribers sued the health insurance giant 11 years ago in a class action accusing it of entering into an unlawful agreement that allowed its 36 insurer companies to avoid competing against one another and hiked prices for customers.

U.S. District Court Judge R. David Proctor of the Northern District of Alabama approved the $2.67 billion compensation settlement last year, awarding $627 million to the plaintiffs' attorneys and imposing injunctive terms that alter the ways Blue plans operate, as to boost competition among insurers.

However, not all 100 million class members were happy with the settlement's approval. Four separate appeals to the 11th Circuit followed, each presenting a different argument as to how the lower court abused its discretion. The settlement cannot become final, and benefits cannot be distributed, until all appeals are resolved.

"The District Court did not abuse its discretion in approving the settlement, and each of appellants’ arguments to the contrary is wrong," attorney Karin DeMasi wrote in her brief on behalf of Blue Cross.

Among the appellants is Home Depot, which raised concerns the agreement violates public policy because it includes a release of future antitrust class claims arising from Blue Cross continuing the very pre-settlement conduct that was the center of the litigation.

Frank Lowrey, who represents the home improvement retail franchise, argued to the 11th Circuit panel that there is a "public interest at stake" in ensuring competitive markets through private antitrust enforcement.

But Charles Cooper, an attorney for a group of class members in favor of approving the settlement, argued that, contrary to Home Depot's suggestion, nothing in the settlement immunizes Blue Cross from all future antitrust challenges.

In his brief to the circuit court, Cooper argues that not only do the insurance companies remain subject to suits by non-class members, but Home Depot itself can still bring claims for "treble damages and divisible injunctive relief."

Cooper added that the release only precludes claims premised upon the conduct already challenged within this litigation, and does not prevent any challenges to new anticompetitive restraint misconduct.

Joining the panel from the Middle District Court of Florida, U.S. District Judge Thomas Barber, a Trump appointee, noted at Friday's hearing that serious antitrust violations by Blue Cross could also be dealt with by the Department of Justice or attorney general's office.

In an appeal from Topographic Inc. and Employee Services Inc., the consulting firms challenge the lower court's "plan of distribution," allocating the settlement fund between fully insured subscriber class members and self-funded sub-class members.

Attorney Scott Smith argued the allocation is "inequitable" because the larger, self-funded subclass gets only 6.5% of the money, yet there was "no financial data in the record" to support that amount.

"It seems to me, you confuse inequity with inequality," said Chief U.S. Circuit Judge William Pryor, a George W. Bush appointee.

According to Cooper and attorneys for Blue Cross, the plan of distribution was formulated by counsel for subscribers, aided by economists and other expert analysts, to equitably distribute the settlement fund between class members, employers and employees. In his brief, Cooper said the allocation to the self-funded sub class was less because Blue Cross generated far higher profits from fully insured business, giving them a stronger claim that the insurers' anticompetitive conduct led to overcharges.

"So when the judge relied on people who had a lifetime of experience, that wasn’t enough?" Barber asked Smith.

Appellants Jennifer Cochran and Aaron Craker also challenge the court's plan to allocate unclaimed money from the payout, and claims below the $5 minimum threshold shares, to claiming employers, arguing it does not treat all class members "equitably."

Their attorney, George Cochran, argued the funds should have been distributed to "all claimants, instead of trusting employers to do what is right," and said the plan contradicts the settlement's mandate to "distribute residual funds in an equitable and economic fashion."

Cooper argued in his brief that Cochran's claims ignore that the court's designation of employers as residual claimants made way for an increase in "employees' default allocation percentages."

Representing himself, the final appellant David Behenna told the Circuit he believes the lower court incorrectly calculated the proposed attorneys' fees amount by performing a percentage of the common fund analysis, supplemented by a "lodestar cross-check," which considers the hours that counsel has reasonably spent on the case and their hourly compensation.

Newly appointed by President Joe Biden, U.S. Circuit Judge Nancy Abudu questioned Behenna on how attorney fees are excessive when the court awarded a percentage lower than what is generally allowed.

Judges ended the hearing without signaling when they intend to issue a ruling.

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