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

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

September 30, 2019

THE SHANE GROUP, INC., et al., Plaintiffs,
v.
BLUE CROSS BLUE SHIELD OF MICHIGAN, Defendant.

         ORDER GRANTING MOTION FOR FINAL APPROVAL OF SETTLEMENT AND PLAN ALLOCATION; GRANTING CLASS COUNSEL’S MOTION FOR AWARD OF ATTORNEYS’ FEES, REIMBURSEMENT OF EXPENSES, AND PAYMENT OF INCENTIVE AWARDS TO CLASS REPRESENTATIVES; AND GRANTING IN PART AND DENYING IN PART THE VARNUM GROUPS’ MOTION FOR ATTORNEY FEES AND COSTS

          DENISE PAGE HOOD, CHIEF UNITED STATES DISTRICT JUDGE

         I. BACKGROUND

         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. 78) The class action seeks to recover overcharges paid by purchasers of Hospital Healthcare Services directly to hospitals in Michigan. These overcharges resulted from the anticompetitive acts by 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)

         After a Fairness Hearing, this Court entered an Order Approving Settlement and Final Judgment on March 31, 2015. (Doc. Nos. 213, 214, 215) Certain Objectors appealed the matter. (Doc. Nos. 216, 219, 221) On June 7, 2016, the Sixth Circuit Court of Appeals issued its opinion stating that this Court “must begin the Rule 23(e) process anew.” Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, 825 F.3d 299, 311 (6th Cir. 2016). On appeal was the sealing of various filings by the parties from public view. The Sixth Circuit found that the unnamed class members were entitled to review the sealed documents, subject to the rights of the parties and third parties to make the showings necessary to seal, to determine the bases of the proposed settlement.

         On remand, the Court entered a more specific Order Regarding Various Motions to Seal or Redact. (Doc. No. 322) The Court thereafter entered an Order Granting Preliminary Approval to Proposed Class Settlement on April 17, 2018. (Doc. No. 323) The Court set a date for the Fairness Hearing on November 8, 2018, 2:00 p.m. Objections were filed by Christopher Andrews on August 22, 2018 (Doc. Nos. 341 and 344) and entities represented by the law firm of Varnum LLP on September 14, 2018 (Doc. No. 343)

         II. FAIRNESS HEARING/MOTION FOR FINAL APPROVAL

         A. Rule 23

         Rule 23 of the Rules of Civil Procedure governs the Court’s determination of whether the settlement is fair. Pursuant to Fed.R.Civ.P. 23(e)(2), “[t]he claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court’s approval. The following procedures apply to a proposed settlement, voluntary dismissal, or compromise: If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate.” The factors to be determined at the fairness hearing are: (1) the risk of fraud or collusion; (2) the complexity, expense and likely duration of the litigation; (3) the amount of discovery engaged in by the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel and class representatives; (6) the reaction of absent class members; and (7) the public interest.” Int’l Union, UAW v. Gen. Motors Corp., 497 F.3d 615, 631 (2007).

         B. Objections Filed

         1. Christopher Andrews

         Andrews lists several issues including: that the settlement unfairly benefits the named plaintiffs and class counsel; the defective and unbinding preliminary approval order and amended agreement; the undocumented and excessive expenses and costs including those of the administrator; the bloated and illegal hourly rates and number of hours with lack of evidentiary proof, like time sheets and receipts; the excessive incentive awards; the low damage amount returned to the class and low claims rates; the lack of a claims administration process; the Blue Cross heavily backed cy pres designee is unacceptable; that substantial recovery of more than $30 million based on the evidence is possible against Blue Cross; that the settlement is unfair and unreasonable; that the settlement is not in the best interests of the class members; the plaintiffs lack Article III standing; the settlement is not in the public interest; that the settlement runs contrary to public policy; the settlement violates the Due Process Clause; Class Counsel has breached its fiduciary duty of the class by putting its own interests ahead of the class; the settlement provides no meaningful relief to the class; continued litigation does not pose substantial risks in establishing liability and damages.

         2. The Varnum Group Objections

         The self-insured Objectors, represented by the Varnum firm (“Varnum Group”), filed a joint objection asserting: 1) the proposed settlement fund is woefully inadequate; 2) the attorney fees requested of class counsel are excessive and not supported by the record; 3) the proposed settlement gives an improper “bounty” to the named Plaintiffs; 4) the claims process is unnecessarily burdensome.

         They argue that under the “preferential treatment” standard, although not included in the seven UAW factors in evaluating the fairness of a settlement, the Sixth Circuit also looked to whether the settlement gives preferential treatment to the named plaintiffs and class counsel, citing Greenberg v. Procter & Gamble Co. (In re Dry Max Pampers Litig.), 724 F.3d 713, 719 (6th Cir. 2013) and Vasalle v. Midland Funding LLC, 708 F.3d 747, 755 (6th Cir. 2013). The Objectors’ arguments are addressed in the analysis below.

         C. Factors

         1. Substantial Risk of Fraud or Collusion

          Applying the first factor, the Court finds there is no indication of fraud or collusion in this case. The Varnum Group did not raise this issue on remand. It is “presumed that the class representatives and counsel handled their responsibilities with the independent vigor that the adversarial process demands” absent “evidence of improper incentives.” UAW, 497 F.3d at 628. Each party vigorously advanced and defended their arguments and positions before the Court. There were initially three cases filed relating to the instant Settlement which were later consolidated by the Court after the parties’ agreed to do so. (Doc. No. 65) Various motions were filed by the parties, including a Motion to Dismiss filed by Blue Cross, which was denied by the Court. (Doc. No. 102) The parties engaged in extensive motion practice and discovery relating to the class certification issue and expert-related issues. It was only after these motions were filed that the Court was informed that the parties resolved the matter after extensive negotiations. Each time a status conference or a hearing was held before the Court, there were numerous attorneys in attendance representing each party.

         On remand, more motions were filed regarding the document sealing issue and hearings were held on the matter. The Court did not observe any signs that the parties were engaged in pretense and posturing during the years in litigation before the Court to mask collusion in reaching a Settlement Agreement with Blue Cross. Blue Cross has defended these type of anti-trust cases before the Court most vigorously, and continues to do so in another case before this Court. Class Counsel in these consolidated cases also vigorously argued each of their positions before the Court. This factor weighs in favor of the class settlement.

         2. Complexity, Expense, and Likely Duration of Litigation

         The Court finds that the antitrust MFN issues raised by the Plaintiffs are complex, very expensive to litigate and the litigation has been ongoing for years, including appeals. The MFN issue is not a common issue involving antitrust cases in the healthcare arena. The complexity, expense and duration factor weighs in favor of class settlement.

         3. Amount of Discovery

         All parties agree that they have engaged in discovery of millions of pages of documents, multiple terabyte of data, 169 depositions and preparation of competing expert reports. They argue that based on all of this discovery taken, Plaintiffs and Blue Cross are well-aware of the strengths and weaknesses of the case. They argue that based on the significant discovery taken, this factor weighs heavily in favor of approval of the settlement.

         There is no dispute that extensive discovery has been taken in this case. On remand, further discovery was provided to Class Members and the Objectors. In light of this extensive discovery, the Court finds that Plaintiffs and Blue Cross have been able to evaluate the propriety and fair value of the settlement. The amount of discovery taken and considered by the parties in this case weighs in favor of approving the settlement.

         4. Likelihood of Success on the Merits

         The Varnum Group argues that because the Department of Justice brought a federal complaint against Blue Cross, in itself, is significant evidence that Plaintiffs have a substantial likelihood of success on the merits. In addition, the Michigan legislature banned the MFN Agreements by legislation passed in March 2013. They also claim that the Court has not granted a dispositive motion in favor of Blue Cross in this suit or the related Aetna lawsuit or the original Department of Justice lawsuit. The Objectors argue that it is obvious that the proposed settlement is grossly unreasonable, which means class members have nothing to lose, and everything to gain, by going forward with trial.

         Plaintiffs assert that in this case, an expert has analyzed the damages in this case, which was labor-intensive. The analysis could reliably and manageably be measured for purchasers covered by 23 provider agreements, out of hundreds of provider agreements with MFN hospitals, at 13 hospitals, out of 70 MFN hospitals. According to Plaintiffs, this analysis projects damages that are far less than the multi-billion dollar case argued by the Objectors. They argue that the many risks of continued litigation cast significant doubt on whether class members would receive any recovery. Plaintiffs further argue that even though the United States and the State of Michigan obtained success, they did not have to obtain class certification or prove that the class members paid an overcharge for hospitals services, or measure the amount of the overcharge. While Plaintiffs argue they would have succeeded at trial in this case, given the complex economic issues, a jury may not credit Plaintiffs’ evidence or a jury may award less than the damages that would be sought at trial. Plaintiffs claim they face significant risk that class members would receive nothing without a settlement, therefore the recovery of nearly $30 million reflects a substantial victory for Settlement Class members.

         The main question in approving a class settlement is whether the settlement is fair in light of “plaintiff’s likelihood of success on the merits.” UAW, 497 F.3d at 631. As noted above, extensive discovery has been held in this case. The Court has denied Blue Cross’ initial Motion to Dismiss, finding at that point in the litigation that Plaintiffs had stated a claim against Blue Cross. However, in light of Plaintiffs’ expert’s analysis as to damages, the Court finds that the settlement amount reached by the parties is fair in light of any success the Plaintiffs may obtain on the merits of the case. Dr. Leitzinger and Plaintiffs determined that damages could be reliably and manageably measured only for purchasers covered by 23 provider agreements at 13 MFN hospitals. This resulted in damages of $118 million, with one direct purchaser, HAP, incurring $58 million in damages. HAP’s exclusion from the Class, the settlement recovers approximately 50% of the damages incurred by the class. Plaintiffs face significant risk that the class members could receive nothing or some negligible amount in damages at trial or on appeal.

         The Court finds that the likelihood of success on the merits weighs in favor of approving the settlement. The number of opt-outs on remand have decreased and thousands of Class Members have filed claims under the settlement.

         5. Opinions of Class Counsel and ...


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