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The Shane Group, Inc. v. Blue Cross Blue Shield of Michigan

United States District Court, E.D. Michigan, Southern Division

April 17, 2018

THE SHANE GROUP, INC., et al., Plaintiffs,



         I. BACKGROUND:

         This matter is on remand from the Sixth Circuit Court of Appeals. Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, 825 F.3d 299 (6th Cir. 2016). The Sixth Circuit ordered that on remand, this Court “must begin the Rule 23(e) process anew.” Id. at 311. The Sixth Circuit vacated the Court's approval of the settlement and its orders sealing documents in the court record. Id.

         On June 22, 2012, a Consolidated Class Action Amended Complaint was filed against Defendant Blue Cross Blue Shield of Michigan (“Blue Cross”) alleging: Unlawful Agreement in Violation of § 1 of the Sherman Act under the Rule of Reason (Count I); Unlawful Agreements in Violation of Section 2 of the Michigan Antitrust Reform Act, M.C.L. § 445.772 (Count II). (Doc. No. 274) The class action seeks to recover overcharges paid by purchasers of Hospital Healthcare Services directly to hospitals in Michigan that resulted from the anticompetitive acts of Blue Cross. (Am. Comp., ¶ 1) Blue Cross is a Michigan nonprofit healthcare corporation headquartered in Detroit, Michigan. (Am. Comp., ¶ 18) Blue Cross provides, directly and through its subsidiaries, health insurance and administrative services, including preferred provider organization (“PPO”) health insurance products and health maintenance organization (“HMO”) health insurance products. (Am. Comp., ¶ 18)

         On remand, the Court held a status conference in this matter. A Scheduling Order was issued on August 25, 2016 setting dates regarding the sealed matters and setting dates for Plaintiffs' Motion for Preliminary Approval of Class Settlement. (Doc. No. 262) After Blue Cross conferred with the Third Parties regarding the sealed documents, many of the previously sealed documents have been unsealed by agreement or with no opposition. (See, Doc. Nos. 266, 273, 274, 275, 276, 277, 278, 279, 280, 298) Motions to remain sealed or redact certain documents were filed by Blue Cross, Spectrum Health Systems (“Spectrum”), The Dow Chemical Company (“Dow”) and CIGNA Health and Life Insurance Company (“CIGNA”). Briefs have been filed and a hearing held on the matter.


         A. Ruling by the Sixth Circuit

         On appeal, the Sixth Circuit ruled that the standards to seal the Court's records were not met. Shane Group, 825 F.3d at 306. The standards set forth by the Sixth Circuit are:

By way of background, there is a stark difference between so-called “protective orders” entered pursuant to the discovery provisions of Federal Rules of Civil Procedure 26, on the one hand, and orders to seal court records, on the other. Discovery concerns the parties' exchange of information that might or might not be relevant to their case. “Secrecy is fine at the discovery stage, before the material enters the judicial record.” Baxter Int'l, Inc. v. Abbott Labs., 297 F.3d 544, 545 (7th Cir. 2002). Thus, a district court may enter a protective order limiting the use or disclosure of discovery materials upon a mere showing of “good cause[.]” Fed.R.Civ.P. 26(c)(1). These orders are often blanket in nature, and allow the parties to determine in the first instance whether particular materials fall within the order's protection. The district court entered several such orders here.
“At the adjudication stage, however, very different considerations apply.” Joy v. North, 692 F.2d 880, 893 (2d Cir. 1982). The line between these two stages, discovery and adjudicative, is crossed when the parties place material in the court record. Baxter, 297 F.3d at 545. Unlike information merely exchanged between the parties, “[t]he public has a strong interest in obtaining the information contained in the court record.” Brown & Williamson Tobacco Corp. v. F.T.C., 710 F.2d 1165, 1180 (6th Cir. 1983). That interest rests on several grounds. Sometimes, the public's interest is focused primarily upon the litigation's result-whether a right does or does not exist, or a statute is or is not constitutional. In other cases-including “antitrust” cases, id. at 1179-the public's interest is focused not only on the result, but also on the conduct giving rise to the case. In those cases, “secrecy insulates the participants, masking impropriety, obscuring incompetence, and concealing corruption.” Id. And in any of these cases, the public is entitled to assess for itself the merits of judicial decisions. Thus, “[t]he public has an interest in ascertaining what evidence and records the District Court and this Court have relied upon in reaching our decisions.” Id. at 1181; see also, e.g., Baxter, 297 F.3d at 546.
The courts have long recognized, therefore a “strong presumption in favor of openness” as to court records. Brown & Williamson, 710 F.2d at 1179. The burden of overcoming that presumption is borne by the party that seeks to seal them. In re Cendant Corp., 260 F.3d 183, 194 (3d Cir. 2001). The burden is a heavy one: “Only the most compelling reasons can justify non-disclosure of judicial records.” In re Knoxville News-Sentinel Co., 723 F.2d 470, 476 (6th Cir. 1983). Moreover, the greater the public interest in the litigation's subject matter, the greater the showing necessary to overcome the presumption of access. See Brown & Williamson, 710 F.2d at 1179. For example, in class actions-where by definition “some members of the public are also parties to the [case]”-the standards for denying public access to the record “should be applied ... with particular strictness.” Cendant, 260 F.3d at 194. And even where a party can show a compelling reason why certain documents or portions thereof should be sealed, the seal itself must be narrowly tailored to serve that reason. See, e.g., Press-Enter. Co. v. Superior Court of California, Riverside Cnty., 464 U.S. 501, 509-11, 104 S.Ct. 819, 78 L.Ed.2d 629 (1984). The proponent of sealing therefore must “analyze in detail, document by document, the propriety of secrecy, providing reasons and legal citations.” Baxter, 297 F.3d at 548.
In like fashion, a district court that chooses to seal court records must set forth specific findings and conclusions “which justify nondisclosure to the public.” Brown & Williamson, 710 F.2d at 1176. That is true even if neither party objects to the motion to seal, as apparently neither did in Brown & Williamson. (There, our court “reach[ed] the question” of the district court's seal “on our own motion.” Id.) As our decision there illustrates, a court's obligation to explain the basis for sealing court records is independent of whether anyone objects to it. And a court's failure to set forth those reasons-as to why the interests in support of nondisclosure are compelling, why the interests supporting access are less so, and why the seal itself is no broader than necessary-is itself grounds to vacate an order to seal. Id.; see also United States v. Kravetz, 706 F.3d 47, 60 (1st Cir. 2013) (“Appellate courts have on several occasions emphasized that upon entering orders which inhibit the flow of information between courts and the public, district courts should articulate on the record their reasons for doing so”); SEC v. Van Waeyenberghe, 990 F.2d 845, 849 (5th Cir. 1993) (reversing because “[w]e find no evidence in the record that the district court balanced the competing interests prior to sealing the final order”).

Shane Group, 825 F.3d at 305-06. A court's obligation to keep its records open for public inspection is not conditioned on an objection from anybody. Id. at 307. The standards for protective orders and sealing court records must not be conflated. Id. Financial and negotiating information, especially in the instant case where a practice has since been outlawed by the Michigan Legislature, is not entitled to protection as a legitimate trade secret. Id. at 308. As to the Third Parties in the instant case, the Sixth Circuit noted,

Here, as to the third-party hospitals, there is no statutory or regulatory privilege that protects their information from disclosure, and the particulars of years-ago negotiations are unlikely to amount to a trade secret. Moreover, the conduct of the hospitals that agreed to MFN clauses with Blue Cross is intricately bound up with the subject of the suit; the public has a keen interest in that conduct; and the hospitals have a lesser privacy interest than did the bank customers. Finally, what little information there is in the record from third-party insurers is for the most part highly generalized (as in the expert report) or consists of the insurers' complaints about Blue Cross's MFN practices. In any event, the parties or the third parties themselves remain free on remand to demonstrate-on a document-by-document, line-by-line basis-that specific information in the court record meets the demanding requirements for a seal.

Id. at 309.

         In Brown & Williamson Tobacco, the Sixth Circuit noted that the common law, content-based exceptions to the right of access to court proceeding were developed to protect competing interests. 710 F.2d at 1179. In addition to a party's right to a fair trial, the competing interests include “certain privacy rights of participants or third parties, trade secrets and national security.” Id. Trade secrets are “a recognized exception to the right of public access to judicial records, ” where the documents at issue were not trade secrets because the movant's competitors already had access to the documents. Id. at 1180. A movant seeking to seal court records is required to show that the information in question constitutes trade secrets, which would, if revealed, cause the movant to suffer a competitive disadvantage. Cinpres Gas Injection Ltd. v. Volkswagen Group of America, Inc., 2013 WL 11319319 at *3 (E.D. Mich. Feb. 14, 2013). Motions to seal have been granted as to trade secrets, defined as “information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it” or to prevent dissemination of “business information that might harm a litigant's competitive standing.” Id. (citing, Apple, Inc. v. Samsung Elec. Co., Ltd., 2012 WL 6115623, at *1 (N.D. Cal. Dec. 10, 2012)). Motions to seal have been denied where the movants have failed to demonstrate that the information or documents in question constituted trade secrets which would, if made public, give the movants' competitors an unfair business advantage” or that the competitors already had access to the information. Id.

         Based on the above-cited law, the movants in this matter must overcome “the strong presumption in favor of openness, ” and persuade the Court to take the “drastic step” of sealing filed documents. Brown & Williamson Tobacco, 710 F.2d at 1179; Cinpres Gas, 2013 WL 11319319 at *4. The Court addresses each movant's motion to seal below, balancing the competing interests noted above.

         B. Blue Cross' Motion to Seal, to Redact and Keep Under Seal Limited Information (#267)

         Blue Cross seeks redactions to portions of 12 exhibits (out of 153 exhibits) to four briefs Blue Cross previously filed under seal. It appears that Blue Cross followed the Sixth Circuit's requirement that a movant seeking to seal or redact documents must review the documents line by line. The Class Plaintiffs filed a response to this motion.

         1. Letters from Joseph Aoun filed in Blue Cross' opposition to Aoun's Motion to Quash Deposition Subpoena (Filed in Doc. #110, Ex. A)

         In its opposition to Joseph Aoun's Motion to Quash Deposition Subpoena, Blue Cross attached letters from Aoun from 2006-07 to show that Aoun's deposition would be relevant. The Court did not rule on the motion since the parties agreed to settle the case. Blue Cross argues that the information to be redacted is unrelated to, does not mention an MFN and is not necessary for the public to understand the MFNs and their effect and would not aid absent class members in assessing the strength of the case or evaluating the fairness of the proposed settlement. The proposed redacted information Blue Cross claims reveals information about specific rates that Blue Cross paid, and the margins that Blue Cross was willing to agree to pay at a particular hospital. Blue Cross asserts that this type of information could be used by competitors and other hospitals to Blue Cross' disadvantage in future negotiations. Blue Cross claims that the information has not been disclosed to other hospitals, other than their negotiating agents such as Aoun. Blue Cross claims that insurer rate information is a trade secret. St. Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke's Health Sys. Ltd., 2015 WL 632311 (D. Idaho Feb. 13, 2015); Queen's Mmed. Ctr. V. Kaiser Foundation Health Plan, 2014 WL 1234506 (D. Haw. Mar. 24, 2014); F.T.C. v. OSF Healthcare Sys., 2012 WL 1144620 (N.D. Ill. Apr. 5, 2012).

         Mark Johnson, Blue Cross' Vice President of Provider Contracting Support, states in his affidavit that Blue Cross makes a good-faith effort to maintain the confidentiality of its contract terms and reimbursement rates at specific hospitals. If the information about Blue Cross' individually negotiated hospital rates were to become public, or the information about margins that a hospital is paid, the information could be used by other hospitals in an effort to raise their own reimbursement rates. Johnson asserts that disclosure of this information to the public would likely result in competitive harm to Blue Cross. (Johnson Aff., ¶¶ 6, 8-11)

         Class Plaintiffs argue the information is a decade old and that the Sixth Circuit noted that “the particulars of years-ago negotiations are unlikely to amount to a trade secret.” Shane Group, 825 F.2d at 308. Class Plaintiffs also argue that Blue Cross has not taken reasonable steps to keep the information confidential. The emails show negotiations between Blue Cross and two hospitals. There is no indication that the email discussion was to be kept confidential. Class Plaintiffs assert that Blue Cross has not met its burden that the information is confidential. Class Plaintiffs do not dispute that the rate information is considered a trade secret.

         This Court's review of the Aoun communications indicate that the actual rate information is a trade secret. Although the negotiations appear to be between Blue Cross and a representative from certain hospitals, the rate information and margin rate were not revealed to Blue Cross' competitors. Blue Cross has met the requirement that it has kept the rate information and margin rate confidential from its competitors. As to harm Blue Cross may suffer from the public disclosure of the rate information, Blue Cross supported the harm it would suffer by submitting Johnson's affidavit. As noted above, Johnson asserted that the information about rates and the margin would likely result in competitive harm to Blue Cross because hospitals may now seek a raise in their reimbursement rate and Blue Cross' competitors would now have knowledge of the rate and margin information. The Court agrees that the Sixth Circuit noted the particulars of years-ago negotiations are unlikely to amount to a trade secret, but the Sixth Circuit referred to this issue as to the third-party hospitals' information, not to Blue Cross' information and the harm Blue Cross may suffer from disclosure of this information to Blue Cross' competitors. A redaction of this specific information as proposed by Blue Cross, does not take away from the gist of the discussions between Aoun and Blue Cross representatives. Absent class members and the public are still able to review the documents. Blue Cross has shown a compelling reason that specific portions of the Aoun communications should be redacted and the redaction is narrowly tailored to serve Blue Cross' interest in redacting its rate and margin information trade secret from the public and its competitors. Blue Cross may file the redacted version of the Aoun communications.

         2. Plaintiffs' Motion for Class Certification (Filed in Doc. #133)

         Blue Cross seeks to redact eight of the 90 exhibits which were attached to Class Plaintiffs' previously-filed Motion for Class Certification. Blue Cross asserts these redactions are limited to irrelevant information unrelated to MFNS. Blue Cross claims these redactions will protect Blue Cross' competitively-sensitive information, including pricing information and three hospital agreements which describes Blue Cross' Model Reimbursement Methodology (“MRM”). Blue Cross claims that as to the hospital agreements that isolated rates of certain hospitals do not add to the class members' ability to evaluate the settlement since the analysis of Dr. Jeffrey Leitzinger was based on aggregated rates and claims information across multiple hospitals. Blue Cross asserts that the rates in these agreements are still of value to current rates for which trade secret protection is warranted. Johnson's affidavit asserts that although the rates discussed in the documents are dated 2006 to 2009, the rates remain commercially sensitive because the rates do not change frequently and even if the rates are not currently in effect, the rates continue to be relevant for current and future Blue Cross negotiations with the hospitals. (Johnson Aff., ¶ 12)

         Class Plaintiffs argue that the contracts are old and that Blue Cross does not assert that the contracts are still in effect. Class Plaintiffs further argue that although the MFN clauses are not redacted in the contracts, other contract terms are relevant to the case. Class Plaintiffs claim that the rate information, in conjunction with the MFN clauses assist some class members in understanding the Motion for Class Certification who are then able to form an opinion of the reasonableness of the settlement.

         This Court's review of the documents Blue Cross seeks to redact filed as exhibits in Class Plaintiffs' previously-filed Motion for Class Certification (Doc. No. 133; Exs. A-2 to A-9 of Johnson's Affidavit) shows that the redacted portions involve Blue Cross' rate information and reimbursement methodology which are trade secrets and have not been revealed to Blue Cross' competitors. However, certain proposed redaction the Court finds will not harm Blue Cross' competitive edge. The following exhibits (attached to the Johnson Affidavit) should not be redacted:

1) Ex. A-3 (Ex. U to Doc. #133, XI. Other Provision, ¶¶ D (Notification fo Charge Increases) and E (Administrative Price Adjustments));
2) Ex. A-4 (Ex. V to Doc. #133, ¶¶ 15-23 (Presumably part of Article I, Definitions), Article II (Hospital Responsibilities), ¶¶ 4-7, and Article VII (Reporting Information).

         As argued by the Class Plaintiffs, although the rate information may be older, Blue Cross supported its claim that these rates do not change frequently from year to year and are relevant to current and future rate negotiations. Blue Cross has shown a compelling reason that specific portions of the exhibits to Plaintiffs' Motion for Class Certification should be redacted and the redaction be narrowly tailored to serve Blue Cross' interest in redacting its rate, margin and reimbursement methodology information trade secret from the public and its competitors.

         3. Expert Report of Professor David S. Sibley Attached to Filings

         Blue Cross seeks to redact limited information from one of three expert reports that were previously filed under seal-that of Professor David S. Sibley (Ex. A-9 to the Johnson Affidavit). Blue Cross filed a response previously opposing the Class Plaintiffs' Motion for Class Certification. Blue Cross asserts that it seeks to redact information from two paragraphs and six footnotes of the Sibley Report which reveal components of Blue Cross' hospital rates, negotiation strategies and reimbursement rates. Blue Cross claims that the redactions do not relate to an MFN.

         Class Plaintiffs respond that the Sibley Report was previously prepared to support Blue Cross' previous opposition to Class Certification and could inform class ...

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