District Court Conflated Standards for Protective Orders and Sealing Orders: Sixth Circuit | Practical Law

District Court Conflated Standards for Protective Orders and Sealing Orders: Sixth Circuit | Practical Law

In Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, the US Court of Appeals for the Sixth Circuit vacated a district court's order approving a class action settlement because it found that the district court abused its discretion by sealing most of the parties' substantive filings and exhibits relating to the proposed settlement.

District Court Conflated Standards for Protective Orders and Sealing Orders: Sixth Circuit

by Practical Law Litigation
Published on 09 Jun 2016 • USA (National/Federal)
In Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, the US Court of Appeals for the Sixth Circuit vacated a district court's order approving a class action settlement because it found that the district court abused its discretion by sealing most of the parties' substantive filings and exhibits relating to the proposed settlement.
On June 7, 2016, in Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, the US Court of Appeals for the Sixth Circuit vacated a district court's order approving a class action settlement because it found that the district court abused its discretion by sealing most of the parties' substantive filings and exhibits relating to the proposed settlement ( (6th Cir. June 7, 2016)).

Background

Blue Cross Blue Shield of Michigan (Blue Cross) controls more than 60% of the commercial health insurance market in Michigan. Various individual and corporate plaintiffs filed putative class actions against Blue Cross for misuse of its market power in a price-fixing scheme, allegedly to the detriment of millions of Michigan citizens. The district court consolidated the class actions and appointed interim class counsel, who filed an amended complaint that sought damages of more than $13.7 billion and treble damages under the Sherman Antitrust Act.
Discovery began in July 2012. The interim class counsel hired an antitrust expert to analyze the data obtained through discovery. Counsel also filed a motion for class certification with 90 exhibits. Blue Cross filed an opposing brief, attaching 42 exhibits. The parties filed all of the materials under seal.
The expert completed his report in October 2013, which concluded that damages of about $118 million could be calculated in a class-wide, formulaic fashion. Blue Cross filed a Daubert motion to exclude this report with 34 other exhibits. The parties also filed these materials under seal.
The parties then began settlement negotiations and reached an agreement in June 2014. Blue Cross agreed to pay about $30 million (about one-quarter of the damages the expert thought calculable on a class-wide basis) into a settlement fund. The district court preliminarily approved the settlement terms, granted the motion to certify the class, and made the interim class counsel permanent. The district court's approval required that any member who wished to opt out of the class or to object to the settlement do so within 50 days. However, class members who sought to examine the court record or the bases for settlement were unable to because the parties had filed under seal or heavily redacted most of the documents, including the expert report. However, in a fairness hearing held a month later, the district court issued an opinion approving the settlement agreement as fair, reasonable, and adequate. An appeal followed.

Outcome

In its analysis, the Sixth Circuit held that the district court abused its discretion when it sealed the substantive filings, including the expert report, and 194 exhibits. The Sixth Circuit reasoned that:
  • The public had a legitimate interest in the case and the sealed materials formed the basis for a settlement agreement that would determine the rights of those millions of citizens. Class members must have access to the court filings, especially the expert report, in order to make a meaningful judgment on the proposed settlement and the likelihood of success on their claims. Depriving unnamed class members access to the materials violated the objection process under Federal Rule of Civil Procedure (FRCP) 23(e).
  • The parties and the district court conflated the standards for entering a protective order under FRCP 26 with the more demanding standard for sealing off judicial records from public view. Although secrecy at the discovery stage was acceptable between parties, the adjudication stage, when materials enter the judicial record, warrants different considerations because the public has a strong interest in obtaining information in the court record. The court also determined that:
    • the parties and district court only provided perfunctory explanations for sealing materials, including the plaintiffs, who provided only protective-order justifications and not sealing-order justifications when they sought to seal their brief supporting the certification motion; and
    • the district court failed to set forth specific findings and conclusions to justify nondisclosure to the public, and a protective order that restricts access to discovery materials is an insufficient basis on which to seal materials the parties have chosen to place in the court record.
The Sixth Circuit also found that the district court erred by:
  • Failing to make an independent examination that weighed the plaintiffs' likelihood of success on the merits against the amount and form of the relief offered in the settlement.
  • Approving class counsel's fee request of $10 million by relying in part on the higher amount calculated by the lodestar method.
  • Approving incentive awards for the named plaintiffs without specific documentation about time they spent on the case.
  • Not responding to all of the objections.
Based on its analysis, the Sixth Circuit vacated all of the orders sealing documents in the court record and the district court's order approving the settlement. The court then remanded the case to the district court to begin the FRCP 23(e) process anew.