THE STORY CONTINUES.
PART TWO: Insurance Class Action Settlement REJECTED.
The background of this insurance class action settlement is detailed in Part One, posted here on Thursday, June 24, 2016. For our purposes in exploring the Court's rejection of the insurance class action settlement, it is enough to recall that the alleged conduct of the defendant Blue Cross Blue Shield of Michigan leveraged its 60% market share into raising rates "for Blue Cross's customers and everyone else -- while preserving or expanding Blue Cross's market share." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *1 (6th Cir. June 7, 2016).
- The Rejected Health Insurance Class Action Settlement.
In a couple of words, the settlement in this insurance class action was betrayed by many of the "red flags" on the Class Action Settlement Checklist posted here on April 26, 2016 based on an excellent article by Howard M. Erichson, "Aggregation as Disempowerment," to be published in 92 Notre Dame L. Rev. The red flags addressed by the Sixth Circuit which were flying from the insurance class action settlement in this case concentrated on the following:
Terms that Discourage Objections.
- Class Representative Bonus.
The class action settlement included "so-called 'incentive awards' to the named plaintiffs," which Blue Cross agreed not to oppose. The agreed amounts were "up to $10,000 per individual and $50,000 per organization." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *2 (6th Cir. June 7, 2016).
The Sixth Circuit also categorized these "so-called 'incentive awards' to the named plaintiffs" as a "bounty." In order for the named plaintiffs to claim entitlement to their bounty, however, the Sixth Circuit expressed its concerns for the guidance of Court and counsel upon remand after the Sixth Circuit rejected the class action settlement in this case. On remand, the class counsel requesting these bounties for their named plaintiffs "must provide the district court with specific documentation -- in the manner of attorney time sheets -- of the time actually spent on the case by each recipient of the award." Otherwise there is no basis on which any court can determine whether the incentive awards are valid. Putting proof of this kind in the record will not entitle anyone to a bounty, however; it will simply provide a basis for a court to decide whether the requested award should be made. Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *8 (6th Cir. June 7, 2016).
Fee Fund.
The class counsel's fees and expenses, and the bounties to given to the named plaintiffs, would all be given from the settlement fund without objection from the defendant. When all was said and done, the agreed settlement fund would amount to a remaining $14,661,560 to be divided "among the three to seven million class members." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *2 (6th Cir. June 7, 2016). Although the Sixth Circuit did not display the following figure in its opinion rejecting this settlement, doing the math shows without fear of contradiction that if there were seven million class members, each would get roughly $2.00 apiece.
Now for the remaining figures, I will ask you, the reader, to please do the math. Clearly the Sixth Circuit did the math when it rejected this class action settlement.
Clear Sailing Agreements.
As noted, Blue Cross agreed not to object to class counsel's fees. The defendant's agreement not to object to fees within a certain limit is known as a clear sailing agreement. In this case, Blue Cross and the class counsel reached a clear sailing agreement for Blue Cross "not to oppose class counsel's request for fees, so long as the amount of the request did not exceed approximately $10 million; …" Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *2 (6th Cir. June 7, 2016).
But Blue Cross agreed to more clear sailing agreements in this settlement than just for class counsel's fees. Blue Cross further agreed "not to oppose class counsel's motion for expenses, which purportedly totaled $3.5 million;" and as was already noted Blue Cross also agreed not to oppose the named plaintiffs' bounties of up to $10,000 per individual and $50,000 per organization." It will be recalled from Part 1 of this article that part of class counsel's expenses was a $2 million expert's report which counsel stipulated should be sealed.
"All of these amounts -- the fees, the expenses, and the incentive awards -- would be paid out of the settlement fund." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *2 (6th Cir. June 7, 2016).
There were many other red flags about this class action settlement that attracted the appellate court's attention. "To guide the proceedings on remand," the Sixth Circuit discussed "one very significant omission and several lesser ones in the proceedings leading up to this appeal." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *6 (6th Cir. June 7, 2016).
Among these things to be re-addressed on remand was class counsel's request for attorney's fees. Class counsel's time records were not provided to the District Court. Their billing records were not sealed; the records were not made available at all, the Sixth Circuit pointed out. "[C]lass counsel provided no backup whatsoever -- no time records, no descriptions of work done -- in support of their hours spent working on the case." Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *8 (6th Cir. June 7, 2016).
Class counsel did provide one sheet of paper per firm listing their hourly rates, however. Their claimed rates "are exceedingly high" in the eyes of the appellate court if not the trial court. "[S]ome 20 lawyers billed the class more than $700 per hour, and some billed more than $900 per hour;" many paralegals charged even more "than the rates charged by the top 1% of paralegals nationwide." The fee request even included hourly rates for some of the staff.
On top of these rates, the trial court even multiplied the fee request by using a lodestar calculation.
This was all too much for the appellate court but it seemed to bedazzle the trial court in this case, so much so that on remand the appellate court provided some guidance for counsel and Court in regard to the attorney's fees request here:
These are Bentley rates, not Cadillac rates, and if a district court thinks they are relevant to the fees that unnamed class members should actually pay, the court must explain why.
Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., Nos. 15-1544/1551/1552, ___ F.3d ___, 2016 WL 3163073, at *7 (6th Cir. June 7, 2016).
In sum, the Sixth Circuit sent messages to the class lawyers and the court below along the following clearly drawn lines. The lawyers must support their class action settlement and their secrecy requests with more than their conclusions if they want either their settlement or any of their requests to be approved. The trial court must consider the settlement and the requests in detail, not simply put its stamp of "perfunctory" approval on them.
Please Read The Disclaimer. ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with Supplements). You are invited to visit the author's website here. All rights reserved.
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