Shane Grp., Inc. v. Blue Cross Blue Shield of Mich.

• Decision Date: 07 June 2016
• Docket Number: No. 15-1551,No. 15-1552,No. 15-1544,15-1544,15-1551,15-1552
• Citation: 825 F.3d 299
• Parties: Shane Group, Inc., et al., Plaintiffs-Appellees, v. Blue Cross Blue Shield of Michigan, Defendant-Appellee, Christopher Andrews (15-1544); ADAC Automotive, et al. (15-1551); Scott Mancinelli (15-1552), Objectors-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

825 F.3d 299

Shane Group, Inc., et al., Plaintiffs-Appellees

v.Blue Cross Blue Shield of Michigan, Defendant-Appellee

Christopher Andrews (15-1544); ADAC Automotive, et al. (15-1551); Scott Mancinelli (15-1552), Objectors-Appellants.

No. 15-1544

No. 15-1551

No. 15-1552

United States Court of Appeals, Sixth Circuit.

Argued: January 14, 2016

Decided and Filed: June 7, 2016

ARGUED: Bryan R. Walters, Varnum LLP, Grand Rapids, Michigan, for ADAC Appellants. Daniel A. Small, Cohen Milstein Sellers & Toll PLLC, Washington, D.C., for Shane Group Appellees. Constantine L. Trela, Jr., Sidley Austin LLP, Chicago, Illinois, for Appellee Blue Cross. ON BRIEF: Bryan R. Walters, Perrin Rynders, Varnum LLP, Grand Rapids, Michigan, for ADAC Appellants. Daniel A. Small, Cohen Milstein Sellers & Toll PLLC, Washington, D.C., E. Powell Miller, The Miller Law Firm, P.C., Rochester, Michigan, for Shane Group Appellees. Constantine L. Trela, Jr., Tacy F. Flint, Sidley Austin LLP, Chicago, Illinois, Jennifer J. Clark, Sidley Austin LLP, Washington, D.C., for Appellee Blue Cross. Christopher Andrews, Livonia, Michigan, Scott Mancinelli, Zeeland, Michigan, pro se.

Before: SILER, COOK, and KETHLEDGE, Circuit Judges.

OPINION

KETHLEDGE

, Circuit Judge.

A class action based, as this one is, on credible allegations that Michigan's largest health insurer engaged in price-fixing to the detriment of millions of Michigan citizens, is a case in which the public has a keen and legitimate interest. Yet the district court sealed most of the parties' substantive filings from public view, including 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. Class members who sought to object to the proposed settlement thus had no ability to examine the bases of what they were objecting to. To compound matters, the district court then approved the settlement without meaningful scrutiny of the settlement's fairness to unnamed members of the class. We vacate the district court's order approving the settlement, vacate the orders to seal, and remand for an open and vigorous examination of the settlement's fairness to the class.

I.

A.

Blue Cross Blue Shield of Michigan controls more than 60% of the commercial health-insurance market in Michigan. Meanwhile, privately insured patients are much more profitable for hospitals than are patients insured by Medicare or Medicaid. Few if any of the hospital systems in Michigan can afford to turn away an insurer that brings with it more than half of the privately insured patients in Michigan. And that means, for better or worse, that Blue Cross enjoys extraordinary market power in its negotiations with medical providers.

Beginning no later than 2007, according to a complaint filed in federal court by the United States Department of Justice, Blue Cross used that power for worse. Specifically, around that time, Blue Cross began insisting on so-called “MFN” and “MFN-plus” agreements with hospitals in Michigan. Per the MFN agreements, Blue Cross agreed to raise its own reimbursement rates for each hospital's services, so long as the hospital agreed to charge other commercial health insurers rates at least as high as the hospital charged Blue Cross. Blue Cross obtained MFN agreements with more than 40 hospitals, most of them small, community hospitals.

Blue Cross also entered into MFN-plus agreements with 22 of the largest hospital systems in Michigan, including three Beaumont hospitals in Southeast Michigan, Sparrow Hospital in Lansing, Metro Health Hospital in Grand Rapids, and Marquette General Hospital in the Upper Peninsula. Per the MFN-plus agreements, Blue Cross agreed to pay higher rates to each hospital so long as the hospital agreed to charge even higher rates—up to 40% higher, according to DOJ's complaint—to other commercial health-insurers. The record in this case also reflects that, the greater the spread between Blue Cross's rates and the minimum rates for other insurers, the higher the rates that Blue Cross was willing to pay. For example, Blue Cross would agree to pay a certain rate if a hospital agreed to charge other insurers 10% more than Blue Cross; but if the hospital agreed to charge other insurers even more—say, 20 or 30% higher rates than Blue Cross—then Blue Cross would agree to pay even higher rates. Thus, the effect of Blue Cross's market power was not to lower its customers' rates, as typically advertised. Instead the effect was to raise them, for Blue Cross's customers and everyone else—while preserving or expanding Blue Cross's market share.

B.

The Department of Justice filed its complaint in October 2010, seeking declarative and injunctive relief. Within two weeks, various individual and corporate plaintiffs filed putative class actions against Blue Cross based upon the same price-fixing scheme. Those complaints (including the operative complaint here) adopted almost verbatim many of the allegations in DOJ's complaint. Eventually the district court consolidated the putative class actions and appointed interim class counsel, who then filed an amended complaint on behalf of the consolidated plaintiffs. The amended complaint alleged damages of more than $13.7 billion, and sought an award of treble damages under the Sherman Act, see 15 U.S.C § 15

, in addition to an award of costs and attorneys' fees.

In March 2013, the State of Michigan enacted legislation banning the use or enforcement of MFN clauses like those negotiated by Blue Cross. That legislation afforded DOJ the principal relief it sought in its complaint. A week later, DOJ voluntarily dismissed its suit.

Meanwhile, in July 2012, Blue Cross moved to dismiss the amended complaint for failure to state a claim. The district court denied the motion and the parties commenced discovery. To analyze the data obtained during discovery, interim class counsel hired an antitrust expert, Dr. Jeffrey Leitzinger. Thereafter interim class counsel filed a motion for class certification, attaching 90 exhibits. Blue Cross filed a brief in opposition, with 42 exhibits. All of these materials were filed under seal.

Leitzinger completed his report in October 2013. The report describes the MFN scheme in detail and tentatively concludes that damages of approximately $118 million “can be calculated in a class-wide, formulaic fashion.” Report at 45. Whether Leitzinger thinks that additional damages can be calculated on an individual basis is unclear. In February 2014, Blue Cross filed a so-called Daubert motion to exclude Leitzinger's report and testimony, attaching his report and 34 other exhibits. All of these materials again were filed under seal, even though the report does not discuss any patient information and for the most part discusses only the antitrust implications of unsealed allegations in the amended complaint.

At that point the parties began settlement negotiations. They reached agreement in June 2014. Per the agreement, Blue Cross agreed to pay just under $30 million—about one-quarter the damages that Leitzinger thought calculable on a class-wide basis—into a settlement fund. Blue Cross further agreed to the following: (i) not to oppose class counsel's request for fees, so long as the amount of the request did not exceed approximately $10 million; (ii) not to oppose class counsel's motion for expenses, which purportedly totaled $3.5 million; and (iii) not to oppose so-called “incentive awards” to the named plaintiffs, in amounts up to $10,000 per individual and $50,000 per organization. All of these amounts—the fees, the expenses, and the incentive awards—would be paid out of the settlement fund. An additional $1 million from the fund would go to an administrator to facilitate disbursements to the class. After all these deductions, $14,661,560—just over 12% of the damages calculated by Leitzinger, and less than 4% of the damages and fees the class would recover if successful at trial, see 15 U.S.C. § 15

—would remain for allocation among the three to seven million class members.

Three days after the parties reached agreement—still in June 2014—the district court preliminarily approved the settlement's terms, granted the earlier motion to certify the class, and made the interim class counsel permanent. The court's order of preliminary approval required that notice of the proposed settlement be sent to members of the class within 40 days, and that any members who wished to opt out of the class or object to the settlement do so within 50 days after that. Class members who sought to examine the court record or the bases for the settlement agreement, however, found that most of the key documents were either heavily redacted or, as in the case of Leitzinger's report, completely sealed.

Various class members nonetheless objected to the settlement, arguing that its amount was too small and that too much of the settlement fund would go to attorneys' fees and expenses. The objectors also argued, among other things, that their lack of access to the court record impaired their ability to assess the settlement's fairness and that the claims process was unduly burdensome. A group of 26 self-insured businesses with health plans administered by Blue Cross (a group we call the “Varnum Group”) also sought to unseal the court record by means of a motion to intervene for that limited purpose.

A month later, the district court held a fairness hearing. For the most part, the parties and each of the objectors presented their arguments without questions from the court. Thereafter the court issued an opinion approving the proposed settlement agreement as fair, reasonable, and adequate, and denying the objecting class members' motion to intervene.

This appeal followed.

II.

A.

We begin with the question whether the district court abused its discretion when, at the parties' behest, it sealed from public view most of the court filings and exhibits that underlay the proposed settlement in this case.

1.

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