United States: Sixth Circuit Vacates Class Settlement, Finding That Sealed Documents Prevented Objectors From Assessing Settlement's Fairness

This summer, the Sixth Circuit rejected class action litigants' filing of the bulk of their class settlement documents under seal. Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., 825 F.3d 299 (6th Cir. 2016). The Sixth Circuit's decision here is another indication of the increasing scrutiny that federal courts are taking with respect to class action settlements.

Controlling 60 percent of the commercial health insurance market in Michigan, Blue Cross obtained most-favored-nation agreements with more than 40 hospitals in the state. Under these agreements, Blue Cross promised to increase its own reimbursement rates for hospital services in return for each hospital's agreement to charge other commercial health insurers at least the same reimbursement rate as Blue Cross. Additionally, Blue Cross secured most-favored-nation-plus agreements with 22 other Michigan hospitals, ensuring that those hospitals charged other commercial insurers a higher reimbursement rate than Blue Cross.

The Department of Justice filed a price-fixing claim against Blue Cross, and plaintiffs filed this piggyback class action, seeking $13.7 billion plus treble damages. After Michigan outlawed most-favored-nation clauses, the DOJ dismissed its complaint. The class action, however, proceeded. Plaintiffs moved for and defendants opposed class certification, filing each and every exhibit under seal. After the plaintiffs' expert submitted his report, estimating class-wide damages at just $118 million, Blue Cross moved to exclude the report. Once again, the parties filed each and every document under seal.

The parties entered settlement negotiations, eventually agreeing to a $30 million settlement fund, which was to be distributed among millions of class members. But 26 self-insured businesses objected and moved to intervene to unseal the record. The district court denied the motion and approved the settlement agreement.

On appeal, the Sixth Circuit vacated the settlement and all the district court's orders to seal. Given the public's strong interest in open records, "[o]nly the most compelling reasons can justify non-disclosure of judicial records." The court reasoned that the public's interest is particularly high in class actions, in which members of the public are also parties to the case.

The Sixth Circuit found the parties' justifications for sealing "patently inadequate." The parties vaguely referred to "quotations, information, and references to multiple depositions and documents designated as confidential," and the district court accepted these reasons without scrutiny. According to the Sixth Circuit, the parties and the court both needed to do more. Specifically, the Sixth Circuit stated that parties should have shown some compelling interest in secrecy – trade secrets, attorney-client privilege or statutorily mandated confidentiality – that outweighed the public interest in disclosure. And the district court should have set forth specific findings and conclusions justifying nondisclosure.

The Sixth Circuit found that the sealed documents undermined the settlement fairness hearing. The sealing prevented the objectors from determining whether the settlement was fair and reasonable. The complaint led the objectors to believe their claim was worth $13.7 billion. The plaintiffs' expert, however, could only identify $118 million in damages, and the plaintiffs accepted just $30 million. The sealed documents connected the dots from the $13.7 billion complaint to the $30 million settlement fund, and without them, the objectors could not assess the settlement's fairness. The court therefore vacated the orders to seal and remanded for a new fairness hearing.

Since Shane Group, document sealing has been on the Sixth Circuit's mind. A few weeks later, the court sua sponte vacated orders to seal motions for summary judgment and accompanying exhibits. Beauchamp v. Fed. Home Loan Mortg. Corp., No. 15-6067, 2016 WL 3671629, at *4-5 (6th Cir. July 11, 2016). Later, relying once again on Shane Group, the Sixth Circuit handed a team of BakerHostetler attorneys a victory on appeal, affirming the unsealing of an entire case. Rudd Equip. Co., Inc. v. John Deere Constr. & Forestry Co., No. 16-5055, 2016 WL 4410575 (6th Cir. July 27, 2016).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.