All’s not fair in secretive class-action settlements.
If class actions are the exception (see Wal-Mart Stores, Inc. v. Dukes), then class-action settlements are a reflection of that exception. Specifically, the secrecy that might otherwise accompany dispute resolution is usually not permitted in class-action settlement, whether pursuant to Rule 23 or under the Fair Labor Standards Act (FLSA).
With that policy in mind, the Sixth Circuit sent back for a do-over a $30 million class-action settlement on Tuesday, June 7, 2016, chastising the district court for allowing several key documents to be filed under seal, unavailable for class members to review. Those sealed documents in Shane Group, Inc., et al. v. Blue Cross Blue Shield of Michigan, Nos. 15-1544/1551/1552, included class certification briefing and the named plaintiffs’ expert report that purported to detail the scope of antitrust damage suffered by three million to seven million putative class members. The price-fixing case alleged that private individuals and corporations were damaged by a rate-setting scheme orchestrated by Blue Cross’ efforts to expand its footprint in Michigan’s health-insurance market. After the complaint alleged some $13.7 billion in damages, and the expert report determined approximately $118 million in damages, the parties reached a class-wide settlement of $30 million. But because the unnamed class members couldn’t review any of the most relevant documents, the unanimous panel vacated the order approving the settlement and remanded it “for an open and vigorous examination of the settlement’s fairness to the class.”
Shane Group, thus, is another example where courts will be reluctant to approve (or affirm) a class settlement under either Rule 23 or the FLSA where actual class members and the court are deprived of information that enables them to assess the fairness of the settlement. See, e.g., Eubank v. Pella Corp., 753 F.3d 718, 729 (7th Cir. 2014) (rejecting settlement that “flunked the ‘fairness’ standard” in part by withholding “essential information”); Walker v. Vital Recovery Servs., Inc., 300 F.R.D. 599, 605 (N.D. Ga. 2014) (voiding offers of judgment of $100 to resolve FLSA claims where plaintiffs who accepted offers were “unemployed and desperate for any money they can find”). Not only that, but the case also reflects growing concern with fee awards that are disproportionate to class-member relief. In Shane Group, class counsel would have received $10 million of the $30 million, while the three million to seven million class members would have received either 4 or 12 cents on the dollar. Compounding the court’s concern was that the district court approved the agreement without any evidence of attorney hours to support the fee award—even though “some 20 lawyers billed the class more than $700 per hour, and some billed more than $900 per hour; and over 40 paralegals charged an average of $228 per hour, which is more than $10 per hour higher than the rates charged by the top 1% of paralegals nationwide.” Slip op. at 14.
Agreeing to settle class or collective claims doesn’t mean that the hard part is over. Justifying the fairness of the settlement requires careful attention to detail, complete with documentation and openness, to ensure court approval.