When Settlement and Secrecy Do Not Mix

by Proskauer - Minding Your Business
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[co-author: Owen Masters]

Non-disclosure and confidentiality provisions can be an important aspect of resolving a case through settlement. But when one of the parties is a purported class, and the allegation is an antitrust violation, settlement and secrecy may be like water and oil.

This tension came to a head in Shane Group v. Blue Cross Blue Shield of Michigan, in which the Sixth Circuit vacated a $30 million settlement between the defendant and a class of Michigan citizens and corporations, settling allegations of health insurance price fixing. The reason: the district court refused to unseal the parties’ substantive filings – including the Amended Complaint, the motion for class certification, and the expert report on which the settlement was based. When a group of class members moved to intervene to unseal parts of the record and adjourn Rule 23 fairness hearings until they could review the settlement, the district court denied their motion to intervene. In the district court’s own view, the settlement was “fair, reasonable, and adequate,” and thus, class members had no further need for information about the case.

The Sixth Circuit disagreed. Rule 23(e) gives class members the right to object to a proposed settlement, but they “cannot participate meaningfully in the process,” the Sixth Circuit found, “unless they can review the bases of the proposed settlement and the other documents in the court record.” The court found that the district court’s refusal to grant purported class members and possible objectors’ access to the record, including the report of plaintiffs’ damages expert, stymied that process. The court reasoned that, without that information, class members could not know “whether it does or does not make sense” to accept the settlement. Because the class representatives and the defendants had approved the settlement only after reviewing documents under seal, the Sixth Circuit reasoned that “the unnamed class members [were] entitled to do the same.” According to the Court, unnamed class members were “able to access only fragmentary information about the conduct giving rise to this litigation, and next to nothing about the bases of the settlement itself.” In short, the Sixth Circuit concluded that “[t]he Rule 23(e) objection process seriously malfunctioned” because the district court over-sealed the record.

Not only did the Sixth Circuit vacate the settlement, but it also revisited the district court’s previous sealing orders. The Court explained that the public has a strong interest in court records, particularly in class actions where members of the public are by definition parties to the case, and particularly in antitrust actions “in which the public has a keen and legitimate interest.” The Court found that the district court had confused the standards for a Rule 26 protective order “with the vastly more demanding standards for sealing off judicial records from public view.” Accordingly, the Sixth Circuit held that a party seeking to restrict public access must offer detailed “document-by-document, line-by-line” analysis explaining why disclosure would cause serious injury. In this case, according to the Court, the parties had mustered only perfunctory justifications for their sealing requests. The Sixth Circuit considered these “patently inadequate,” so it vacated every sealing order entered by the district court.

Confidentiality issues arise in every antitrust action, as competition cases tend to involve competitively-sensitive or proprietary information, including pricing and cost data as well as strategy documents. Sealing decisions are reviewed on an abuse of discretion standard, so trial court decisions are still entitled to significant deference. As a result of this ruling, courts in the Sixth Circuit may be more reluctant to seal materials simply because parties claim without support that their documents contain “financial and negotiating information.” If parties fail to identify justifications for their sealing requests during the litigation, a court may revisit those justifications in assessing a class settlement. And litigants seeking to prevent the disclosure of previously-sealed information will more carefully assess what information class members actually need to evaluate a settlement. Parties should be mindful of the balance between the need to protect truly sensitive and confidential information with the risk that a court may blow up a settlement because the parties sealed too much information.

**Owen Masters, a summer associate in Proskauer’s Washington, D.C. office and a rising 2L at University of Virginia, co-authored this post.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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