The court affirmed a district court’s approval of a $2.67 billion class action settlement of an antitrust multi-district litigation brought against Blue Cross Blue Shield Association and its local member plans alleging Sherman Act violations in restrictions on the member plans’ ability to compete. In re Blue Cross Blue Shield Antitrust Litig. MDL 2406, 2023 WL 7012247 (11th Cir. Oct. 25, 2023). The court’s opinion, authored by Chief Judge Bill Pryor, is chock-full of principles governing class action settlements generally and particularly antitrust class actions, and warrants the attention of class-action practitioners.
The litigation began more than a decade ago. Subscribers to Blue Cross plans alleged that Blue Cross allocated territories in a way that limited member plans’ competition by mandating minimum percentages of business under the Blue Cross brand for each member, restricting the right of member plans to be sold to companies outside Blue Cross, and imposing other ancillary restraints on competition. The subscribers sought money damages and injunctive relief. In 2018, the district court granted partial summary judgment for the subscribers, concluding that the aggregation of competitive restraints alleged amounted to a per se violation of the Sherman Act.
After prolonged negotiations, a settlement agreement was reached which divided the subscriber-plaintiffs into two groups: a damages class under Rule 23(b)(3) of the Federal Rules of Civil Procedure and a Rule 23(b)(2) injunctive relief class. The damages class included individual members, insured groups and self-funded accounts. The two classes were almost completely congruent in membership with the main difference being that the injunctive relief class, but not the damages class, included beneficiaries and dependents of employees. During the negotiations, the court appointed a self-funded claimant’s class representative to represent separately the self-funded claimants, which did not buy health insurance but instead primarily purchased administrative services and self-insured health care costs for employees. Most other class members were fully insured by Blue Cross.
The damages class was predicated on a plan of distribution from a common fund of $2.67 billion. The plan allocated 93.5% of the net settlement fund to the fully-insured claimants and 6.5% to the self-funded claimants. The allocation was based on several factors, including the relative volume of payments, the strength of the respective claims, a shorter self-funded damages period, and the differences in payments for fully-insured coverage versus administrative fees borne by the self-funders. The plan also included a method for divvying up the settlement proceeds between claiming employers and employees. The settlement agreement provided for up to 25% of the common fund to be allocated to attorneys’ fees and expenses. The subscribers’ counsel unsurprisingly sought the full amount.
The settlement released all claims based upon or relating in any way to the “factual predicates” of the subscriber actions, as described in the complaints; any issue raised in the subscriber actions by pleading or motion; or “mechanisms, rules, or regulations” adopted by Blue Cross that were within the scope of the settlement structural relief and approved by a monitoring committee established as part of the injunctive relief. Subscribers retained their rights to pursue most claims relating to coverage and benefits.
After two fairness hearings, the court overruled numerous objections and approved the settlement and the fee application. In the course of the proceedings, the court denied an objector’s request for discovery of communications between the fully-insured claimants’ counsel and the self-funded claimants’ expert witness. The denial was on the basis of the common-interest privilege.
Four objectors appealed approval of the settlement, on various grounds. The court’s resolution of the objections sets out a number of rules governing class action settlements.
1. Prospective releases are permissible in some circumstances. Home Depot argued that the settlement’s release provision violated public policy because it released future claims. The court rejected this argument, noting that releases of future claims are important in many settlement agreements and had been approved by the Eleventh Circuit in antitrust cases. The court noted that other circuits had approved and enforced prospective releases in antitrust cases, where the releases involved claims based on conduct central to the underlying litigation. Such releases were not categorically prohibited by public policy, the court held. As the court saw it, the public enforcement of antitrust laws would not be affected by the release. The court also rejected a related argument that the settlement perpetuates “clearly illegal conduct” by Blue Cross in allowing the continuation of its exclusive service area policy. The court noted that a settlement agreement in an antitrust case may perpetuate conduct when its illegality is uncertain but not clear. Here, the court discerned no evidence that the exclusive service area policy was itself a per se violation of the Sherman Act. The district court’s finding of a per se violation was instead based on an aggregation of conduct, not on the basis of any single restraint on competition. The court agreed with the district court that the post-settlement system, which included the exclusive service area policy, would not be clearly illegal under the antitrust laws. Finally, the court rejected Home Depot’s argument that the release violated the rule that a class action release may not exceed the identical factual predicate underlying the claims made in the class action. In practice, the court pointed out, the doctrine permits the release of claims that share a common nucleus of operative fact with the claims in the underlying litigation. The release did not exceed that limit, the court held.
2. The same plaintiffs and plaintiffs’ counsel may represent injunctive relief and damages classes without a conflict sufficient to render them inadequate under Rule 23(a)(4). Home Depot argued that the settlement violated Rule 23 and the due process clause of the Fifth Amendment because the same named plaintiffs and counsel represented the injunctive-relief class and the damages class when the classes had competing settlement priorities. The court concluded that there was no categorical prohibition of this simultaneous representation. To render a representation inadequate, the conflict must be substantial and fundamental to the specific issues in controversy, the court held, such as where some members claim to have been harmed by the same conduct that benefited other members of the class. In finding no such fundamental conflict, the court noted that most of the class members were eligible for both forms of relief.
The court declined to consider Home Depot’s additional argument concerning intraclass conflicts as having been waived by insufficient discussion in Home Depot’s opening brief.
3. Rule 23(e)(2)(D) does not require that all class members be treated equally so long as they are treated equitably. Another objector, Topographic, claimed that the district court misapplied Rule 23(e)(2)(D) in approving the allocation of settlement funds to self-funded claimants. The court began with the text of the rule, amended in 2018, which requires that a settlement be approved only if the court finds that the proposed settlement “treats class members equitably relative to each other.” The court found that the district court had considered the differences between self-funded claimants and fully-insured claimants, such as differing litigation risks and incurred costs, before concluding that the two were treated equitably. Further, the district court did not presume that the settlement was reasonable merely because it was negotiated at arm’s length. The court also rejected Topographic’s argument that the settlement required careful judicial scrutiny because it favored named plaintiffs. That standard applied only where named plaintiffs received a benefit at the expense of the absent class members. Here, the self-funded plaintiffs had their own counsel and class representatives, which was not facially unfair. The court also rejected Topographic’s related arguments that a separate analysis of damages for the self-funded claimants was necessary before approval could be given and that the court improperly relied on an economist’s expert report in approving the settlement allocation. The court detected no abuse of discretion.
The court also turned away Topographic’s argument that it should have been permitted discovery into the self-funded claimant’s expert’s communications with the fully insured claimant’s counsel during the litigation. The object of the discovery would have been to determine if the fully-insured claimant’s counsel had input into the expert’s report concerning the allocation. But the court held that the substantially similar interests of the two groups in the litigation against Blue Cross and in the settlement negotiations was sufficient to allow the self-funded claimants’ expert and the fully- insured claimant’s counsel to invoke the common interest privilege against disclosure. Moreover, even if this was not a proper application of that privilege, the court found the Topographic made no showing of harm beyond a suggestion of potential collusion, without evidence of it. The court found no abuse of discretion in that ruling, or in assigning a shorter damages period (based on the pleadings), or in approving the 6.5 percent allocation to the self-funded claimants.
Another objector contended that the court violated Rule 23(e)(2)(D) in approving a distribution of unclaimed funds that differently allocated the unclaimed funds of the fully insured employers and the unclaimed funds of those employers’ employees. The court rejected this argument on the same grounds, concluding that the plan of distribution might be unequal but was not inequitable.
4. The decision to divide a class (or not) with potentially adverse interests into subclasses is within the discretion of the district court. Topographic also argued that settlement funds should have been distributed to all subscribers on the same basis, and that the court created a fundamental intra-class conflict by creating two subclasses. The court responded that the conflict might have arisen if the district court failed to create the two subclasses. In any event, however, the court detected no abuse of discretion in dividing the class into two subclasses.
5. In a common fund settlement, a court need not employ a lodestar methodology in determining attorney’s fees to be awarded, even if the lodestar methodology would have been required if the plaintiffs had prevailed without a settlement. Another objector argued that the district court erred in awarding attorneys’ fees on account of injunctive relief by employing a percentage-of-the-common-fund methodology rather than the lodestar approach required under section 16 of the Clayton Antitrust Act, which governed the injunctive class’s claims. The court rejected this argument, citing its precedents indicating that a fee award falling between 20 and 25% is presumptively reasonable. The request for a higher percentage than that range requires an evaluation under the 12 factors specified in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974). The court noted approvingly that the district court here performed the Johnson analysis, even though the fee request was less than 25% of the common fund. The district court also used the lodestar to confirm the reasonableness of the requested percentage. The Eleventh Circuit concluded that there was no abuse of discretion to be found in the court’s “thorough analysis.”
6. Comment. Blue Cross is an illustration of the heavy practical burden facing the objectors to an arm’s-length class action settlement approved after a conscientious examination by a district judge that avoids familiar tripwires to approval. A settlement that resolves multidistrict litigation pending for more than a decade also arrives on appeal with express-train momentum that may be overwhelming, even for arguments that, in another case, might have found some traction.