Cathleen McDonough v. Horizon Blue Cross Blue Shield ( 2015 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 14-3558
_____________
CATHLEEN MCDONOUGH;
NEW JERSEY PSYCHOLOGICAL ASSOCIATION;
BARRY HELFMANN, PSY.D.
v.
HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY
LINDA A. ESSIG; SUZANNE FEIN; SUSAN HAGY PIZZI;
JENNIFER SCHEER; ROBERT HAGER, P.A.-C.,
Appellants
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2-09-cv-00571)
District Judge: Hon. Stanley R. Chesler
_______________
Submitted Under Third Circuit L.A.R. 34.1(a)
September 17, 2015
Before: FISHER, CHAGARES, and JORDAN, Circuit Judges.
(Filed: September 23, 2015)
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OPINION
_______________

This disposition is not an opinion of the full court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.
JORDAN, Circuit Judge.
This is an appeal in which six objectors (“the objectors”) from a class of
approximately 2.8 million ask us to reverse an order of the United States District Court
for the District of New Jersey granting final approval of a class action settlement under
the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001, et seq.
Because the objectors’ arguments are without merit, we will affirm.
I. BACKGROUND
This case stems from two putative class action lawsuits filed in 2009 and 2010 in
which Horizon Blue Cross Blue Shield of New Jersey (“Horizon”) subscribers and
providers claimed that Horizon’s use of two flawed databases – Ingenix and Top of
Range (or “TOR”) – caused it to systematically underpay both subscribers and providers
for out-of-network healthcare services. The two cases were consolidated before the
District Court and the parties actively litigated them for several years, engaging in
extensive motions practice and voluminous fact and expert discovery.
In January 2013, the District Court judge presiding over the consolidated case
denied class certification in a separate but similar case, Franco v. Conn. Gen. Life Ins.
Co., 289 F.R.D. 121 (D.N.J. 2013), and he rejected the same type of damages model used
by the putative class members in this consolidated action, id. at 137-40.1 That ruling
understandably prompted the parties to intensify settlement efforts, even though there
were a number of pending motions at the time, with the putative class having moved for
1
The District Court also granted summary judgment in favor of defendants in that
case. Franco v. Conn. Gen. Life Ins. Co., No. CIV.A. 07-6039 SRC, 2014 WL 2861428(D.N.J. June 24, 2014).
2
certification and Horizon having filed both summary judgment and Daubert motions. In
June 2013, Horizon and the plaintiffs advised the District Court that they had agreed to
settle the class action and, on December 3, 2013, they jointly filed a motion for
preliminary approval of the settlement. The District Court granted the motion and
ordered that objections and opt-outs be filed by March 3, 2014 (which was later extended
to March 7, 2014). In January, 2014, approximately 2.7 million of the 2.8 million class
members received the court-approved notice, which scheduled a final approval hearing
for April 1, 2014.
On February 28, 2014, the six objectors filed their objections to the settlement.
The plaintiffs and Horizon nevertheless submitted their joint motion for final approval of
the settlement and supporting papers, including plaintiffs’ fee requests. Class counsel
had sought and received an extension of time in which to file those documents, causing
the date to change to later in March 2014. The objectors advised that they did not object
to that extension, but sought a continuance of the hearing to accommodate the prepaid
European vacation of Eric Katz, lead counsel for the objectors. Mr. Katz indicated that it
would be problematic for anyone else from his office to represent the objectors or for him
to participate by telephone. After the District Court refused to move the hearing date, a
partner and an associate from Katz’s firm ultimately attended the hearing to represent the
objectors.2
2
Katz also asked for permission to file a supplement to the previously filed
objections, which the District Court evidently granted. (Cf. App. at 1488 (“The Court:
Now, Mr. Katz, I haven’t received any additional submissions from you. Correct?”).)
3
At about the same time the objectors’ counsel was seeking a continuance, Horizon
discovered that certain members of the provider subclass did not receive direct mail
notice and advised the District Court of that issue. The Court convened the final approval
hearing on April 1, 2014 as scheduled. At the hearing, counsel for the objectors argued
and were questioned extensively by the Court. The Court then ordered the parties to
provide notice to the members of the provider subclass who did not previously receive it.
The Court also indicated that it would reconvene the final approval hearing on June 23,
2014.
The second installment of the final fairness hearing went forward on schedule.
Mr. Katz appeared at the hearing to “amplify one point with regard to the fairness of the
settlement, and also to address [the Franco decision].” (App. at 1488.) The District
Court questioned why Katz did not file any written submissions discussing those issues,
but nonetheless allowed him to present argument. When Katz’s argument concluded, the
Court noted that he did not advance anything new or responsive to the final motions for
approval, but merely “rehash[ed] … what was presented by [his] colleague” at the initial
fairness hearing. (App. at 1492.)
On July 9, 2014, the District Court issued an order and opinion, later amended on
July 24, 2014, certifying the class, appointing class counsel, approving the settlement,
awarding fees, and denying the objectors’ motions. The objectors timely appealed.
4
II. DISCUSSION3
On appeal, the objectors raise four challenges to the District Court’s approval of
the settlement: first, an unpreserved argument that the current legal standards for
assessing the fairness of a class action settlement under Federal Rule of Civil Procedure
23(e) should be modified when the settlement consists solely of non-pecuniary benefits;
second, an unpreserved claim that the manner in which the District Court conducted the
fairness hearing denied procedural due process to the objectors; third, the assertion that
the District Court erred in approving the settlement because it did not provide any real or
substantial benefit to the class; and fourth, an argument that the District Court denied
procedural fairness to the objectors because it refused to continue the fairness hearing
involving 2.8 million class members to accommodate Mr. Katz’s European vacation. We
address each argument in turn.
A. UNPRESERVED CLAIMS
It is axiomatic that issues raised for the first time on appeal will generally not be
considered absent exceptional circumstances. In re Ins. Brokerage Antitrust Litig., 579
F.3d 241, 261 (3d Cir. 2009). Particularly when complex legal issues are presented, a
reasonably detailed exposition of an argument in the district court is required to preserve
3
The District Court had jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 1132and we have jurisdiction pursuant to 28 U.S.C. § 1291. The objectors argue that we
should review the District Court’s approval of a class action settlement de novo because
the challenges they advance – many of which were not made below and thus are
unpreserved – involve requests that we fashion new legal standards. Under established
law, however, we review a District Court’s approval of a class action settlement for an
abuse of discretion. In re Cmty. Bank of N. Va., 418 F.3d 277, 298 (3d Cir. 2005).
5
the issue for appeal. Frank v. Colt Indus., Inc., 910 F.2d 90, 100 (3d Cir. 1990). Here,
the objectors ask us to adopt an entirely new standard for approving non-pecuniary class
action settlements and also ask us to direct district courts to follow a specific briefing
schedule when entertaining such settlements. Contrary to the objectors’ protestations
that they raised these issues below and that the District Court ruled on them “sub silentio”
by approving the settlement (Opening Br. at 2-3), it is clear from the record that these
issues were not raised, even obliquely, before the District Court.4 Accordingly, because
the claims were not preserved and because no extraordinary circumstances exist to
warrant our review of those claims, we will not consider them now.
B. REAL OR SUBSTANTIAL BENEFIT OF THE SETTLEMENT
In considering an application for approval of a class action settlement, a district
court must assess whether the proposed settlement is “fair, reasonable, and adequate.”
4
For example, the objectors claim that, in arguing that the settlement offered no
benefit to the class members and in asking for “further investigation” or discovery to
“develop a record in support of their contentions,” they were actually arguing that the
standards we articulated in Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975), and In re
Prudential Insurance Co. of America Sales Practices Litigation, 148 F.3d 283 (3d Cir.
1998), for determining the fairness of a class action settlement were inadequate to address
the unique realities of a non-pecuniary settlement. That is obviously incorrect and the
objectors concede as much. (Cf. Reply Br. at 19 (“Nor were Objectors required to
request the district court deviate from the current standard established by the Third
Circuit in order to preserve the issue for appeal, as that is beyond the authority of a
district court … .”).) The objectors also argue that they preserved the contention that we
should adopt a formalized briefing schedule similar to that used in other circuits when
they requested – and received – permission to file a supplemental objection after the final
motion for approval was filed. That is also incorrect, and the argument ignores the reality
that the objectors had received all of the settlement approval papers prior to the final
fairness hearings and had an opportunity to file a supplemental response to the approval
papers, which they chose not to do. Accordingly, even if the argument were not waived,
which it has been, the objectors cannot now be heard to complain about the lack of an
opportunity that they in fact had.
6
Fed. R. Civ. P. 23(e)(2); accord Ehrheart v. Verizon Wireless, 609 F.3d 590, 592 (3d Cir.
2010). “[T]here is an overriding public interest in settling class action litigation, and it
should therefore be encouraged.” In re Warfarin Sodium Antitrust Litig., 391 F.3d 516,
535 (3d Cir. 2004). Thus, when evaluating a settlement, a court should be “hesitant to
undo an agreement that has resolved a hard-fought, multi-year litigation.” In re Baby
Prods. Antitrust Litig., 708 F.3d 163, 175 (3d Cir. 2013).
When evaluating such a settlement, a court must consider the factors set forth in
Girsh v. Jepson:
(1) the complexity, expense and likely duration of the litigation; (2) the
reaction of the class to the settlement; (3) the stage of the proceedings and
the amount of discovery completed; (4) the risks of establishing liability;
(5) the risks of establishing damages; (6) the risks of maintaining the class
action through the trial; (7) the ability of the defendants to withstand a
greater judgment; (8) the range of reasonableness of the settlement fund in
light of the best possible recovery; (9) the range of reasonableness of the
settlement fund to a possible recovery in light of all the attendant risks of
litigation.
521 F.2d 153, 157 (3d Cir. 1975) (internal quotation marks and ellipses omitted).
The objectors do not argue that the District Court’s thorough discussion of the
Girsh factors was flawed. Instead, they complain that the District Court erred in
approving the settlement because the settlement did not offer a real or substantial benefit
to the class. Specifically, they argue that the settlement required the class to relinquish
$10 billion in claims in order to receive exclusively non-pecuniary relief – the
discontinuation of Ingenix and TOR – which it claims it would have received anyway, as
Horizon was planning on discontinuing those databases regardless of the outcome of the
litigation. We disagree.
7
First, as the District Court noted, the $10 billion damages calculation comes from
the plaintiffs’ expert report, which, at the time of settlement, was the subject of a Daubert
challenge, and was calculated using a model that the District Court had rejected in a
similar case. Placed in that context, the likelihood of the plaintiffs actually recovering
any portion of that damages calculation was dubious. Second, as the District Court
rightly noted, a settlement can be fair without involving pecuniary relief. Cf. Bell Atl.
Corp. v. Bolger, 2 F.3d 1304, 1311 (3d Cir. 1993) (“[N]onpecuniary benefits to the
corporation may support a settlement. …”).5 Indeed, Rule 23(b)(2) contemplates
injunctive relief. Further, the objectors’ claim that Horizon would have discontinued
using Ingenix anyway is speculative.6 And, the objectors ignore that the settlement also
secured an end to the use of TOR and gained various transparency reforms sought by the
class, including updates and revisions to Horizon plan language, member handbooks, and
marketing materials.
5
See also Zimmerman v. Bell, 800 F.2d 386, 391 (4th Cir. 1986) (nonmonetary
derivative settlement relief adequate when it provided guidelines for “future management
responses to tender offers and takeover bids”); Maher v. Zapata Corp., 714 F.2d 436, 466
(5th Cir. 1983) (nonmonetary relief adequate settlement relief); cf. Mills v. Electric Auto-
Lite Co., 396 U.S. 375, 391-92 (1970) (nonmonetary recovery on merits does not
preclude award of fees).
6
Specifically, the objectors point to the following as evidence that Ingenix’s days
were numbered, notwithstanding the settlement at issue here: (1) that the New York
Attorney General settled a lawsuit in New York state, one of the terms of which was that
Ingenix would no longer be used there; (2) that, after settlement was reached here,
Horizon’s newsletter announced the end of Ingenix; and (3) that, again, after settlement
was reached here, regulatory entities in New Jersey proposed ending Ingenix’s use.
8
Insofar as the objectors complain that discontinuing Ingenix and TOR may not
necessarily benefit the class because some members may actually receive lower payments
with a more accurate system, their argument is perplexing. Horizon subscribers are
entitled to an accurate reimbursement that comports with the terms of their benefit plans,
not a windfall that could result from overcompensation by using a flawed database. It is
evident that the objectors have not shown any errors in the District Court’s approval of
the settlement – a settlement which, particularly in light of the considerable risk of failure
to the plaintiffs, is fair, reasonable, and adequate.
C. PROCEDURAL FAIRNESS7
An objector is entitled to participate effectively in the settlement hearing and to
have an adequate opportunity to evaluate the strength of a proposed settlement. In re
Cmty. Bank of N. Va., 418 F.3d 277, 316 (3d Cir. 2005). Whether an objector was denied
procedural fairness in his or her effort to challenge the adequacy of a settlement is judged
based on the totality of the circumstances surrounding the settlement hearing. Girsh, 521
F.2d at 157. Here, the objectors raise the strained argument that they were denied
procedural fairness in voicing their objections to the proposed settlement because the
District Court refused to continue the final fairness hearing to accommodate Mr. Katz’s
vacation schedule. They further complain that they were not allowed additional discovery
into whether the settlement’s nonmonetary benefits offered a real and substantial benefit
to the class.
7
Insofar as the objectors’ procedural fairness claim is rooted in their objection to
the briefing schedule, we reject it for the reasons described in note 4, supra.
9
First, the District Court’s determination to not let a vacation dictate the schedule
produced no legitimate basis for complaint. The six objectors from a class of 2.8 million
were not entitled to compel the District Court to reschedule the hearing. The District
Court proposed having Katz attend the hearing by phone (which he rejected due to the
time difference) and suggested having someone else from Katz’s office attend the hearing
(which is what ultimately happened), but Katz believed that his “personal appearance
would enhance the process.” (App. at 789.) Two attorneys from Katz’s firm attended the
hearing and participated fully. Further, because the hearing was continued due to issues
with notice to the class, Katz actually did attend the second installment of the fairness
hearing and had an opportunity to present further argument, even though the District
Court evaluated his argument as simply a “rehash” of what his colleagues had ably
conveyed to the Court during the first installment. (App. at 1492.) The objectors were
heard through counsel in both their papers and at two sessions of the final fairness
hearing. It thus cannot be said that they were denied procedural fairness. Cf. Grimes v.
Vitalink Commc’ns Corp., 17 F.3d 1553, 1558 (3d Cir. 1994) (“[T]he objecting class
members must be given an opportunity to address the court as to the reasons the proposed
settlement is unfair or inadequate.”).
The objectors have also failed to demonstrate that they were entitled to additional
discovery. A district court has wide latitude to “employ the procedures that it perceives
will best permit it to evaluate the fairness of the settlement.” In re Cmty. Bank of N. Va.,
418 F.3d at 316 (internal quotation marks omitted). It need not endow objecting class
members with “the entire panoply of protections afforded by a full-blown trial on the
10
merits.” Tenn. Ass’n of Health Maint. Orgs. v. Grier, 262 F.3d 559, 567 (6th Cir. 2001).
Discovery is generally in order only if objectors can make a colorable claim that the
settlement should not be approved. Int’l Union, United Auto., Aerospace, & Agr.
Implement Workers of Am. v. Gen. Motors Corp., 497 F.3d 615, 635 (6th Cir. 2007).
Although, in Girsh we found that an objector was “entitled to at least a reasonable
opportunity to discovery” against the plaintiffs and defendants, 521 F.2d at 157, “that
finding was predicated on the total inadequacy of the record upon which the settlement
was approved and the totality of the circumstances surrounding the settlement hearing in
which the objector was denied meaningful participation.” In re Cmty. Bank of N. Va.,
418 F.3d at 316 (internal quotation marks omitted).
Unlike in Girsh, there was no demonstrated need for additional discovery here.
This case was litigated for approximately five years, and some million pages of discovery
passed between the parties. The objectors’ demand for additional discovery is not linked
to any identified issue with the settlement, nor have the objectors articulated any fact they
might hope to uncover. Their discovery demand is a thinly-veiled attempt to unearth
some as yet unidentified problem that might, in some way, lead to a different settlement
in which the objectors receive a payout. That is not enough to warrant discovery. Cf. In
re Prudential Ins. Co. of Am. Sales Practices Litig., 148 F.3d 283, 325 (3d Cir. 1998)
(holding the district court acted well within its discretion in denying an objector’s request
for discovery where the objector was able to present his arguments to the court during the
fairness hearing and where the court found the objector “had ample opportunity to avail
himself of the substantial discovery provided to Lead Counsel but failed to do so, and that
11
additional discovery was unnecessary because [the objector] focused primarily on legal
issues”). The District Court did not err in concluding that the objectors had failed to
make the requisite showing that further discovery was warranted.
III. CONCLUSION
For the forgoing reasons, we will affirm the ruling of the District Court.
12