Opinion
Civil Action No. 03-1007.
June 30, 2006
MEMORANDUM ORDER
This case involves a billing dispute between plaintiffs ("Baldwin EMS, et al."), who are providers of ambulance services, and defendants ("Highmark and KHPW" or "SecurityBlue"), a Medicare HMO. Plaintiffs originally filed their complaint on July 7, 2003. In short, plaintiffs claim that they are entitled to "balance bill," i.e. to collect their full rates, for services provided to defendants' enrollees rather than accept the lower, Medicare-approved rates for services. Through this action, plaintiffs attempt to collect unpaid fees from defendants. Defendants, citing to Pennsylvania's Health Care Practitioners Medicare Fee Control Act ("MOM's Act"), 35 P.S. § 449.31 et seq., claim that they were only required to reimburse plaintiff the lower, Medicare-approved rates. Before the court is the parties' joint motion to approve settlement agreement. For the reasons discussed below, the motion will be granted.
I. BACKGROUND
By Order dated January 30, 2004, the court granted the Named Class Representatives' Revised Motion for Class Certification. In so holding, the court necessarily found that this action meets the prerequisites for a class action as specified in Rule 23 of the Federal Rules of Civil Procedure. The court defined the class members as follows:
Class Definition : All Western Pennsylvania ambulance service providers who, on a non-contract basis with the Defendants . . . provided ambulance services to Defendants' Security Blue beneficiaries. The relevant period during which such services were provided is January 1, 1997 to April 1, 2002.
On March 23, 2006, after litigating the case for three years, the Named Class Representatives and defendants reached a tentative settlement agreement, and memorialized their agreement in the form of a "Stipulation of Settlement," dated April 28, 2006. The proposed settlement includes defendant Highmark's creation of a settlement fund of $10 million to pay the class plaintiffs proportionate shares of their potential damages. The proposed settlement also includes Highmark's offer to all class plaintiffs to enter into contracts with Highmark to participate in its ambulance provider network.
On May 3, 2006, the court preliminarily approved the proposed settlement set forth in the Stipulation as fair, reasonable, and adequate to the class, subject to the right of any Class Member to challenge the fairness, reasonableness, and adequacy of the Stipulation and to show cause, if any exists, why a final judgment dismissing claims based on the Stipulation should not be entered at today's Fairness Hearing. In conformity with this court's May 3, 2006 Order, notice was properly sent to all members of the Class between the dates of May 12, 2006 and May 25, 2006. After proper notice, no members of the Class have asked to opt out of the settlement reached between the Named Class Representatives and defendants. Moreover, having received proper notice, no Class members have objected either to the settlement, or to the attorneys' fees requested by Class Counsel. The date by which parties were to either opt out or file objections was by June 16, 2006. As previously stated, no objections were filed and not a single entity opted out.
II. STANDARD OF REVIEW
Courts have discretion in approving the settlement of class actions and will endorse a settlement if it is "fair, adequate and reasonable." Eichenholtz v. Brennan, 52 F.3d 478, 482 (3d Cir. 1995) (quoting Walsh v. Great Atlantic Pacific Telephone Co., Inc., 726 F.2d 956, 965 (3d Cir. 1983)). Several factors must be considered in approving the settlement. These include the following: (1) the complexity 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; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. Eichenholtz, 52 F.3d at 488 (quoting Girsh v. Jepson, 521 F.2d 153, 156 (3d Cir. 1975)). The district court must explain its reasons for approving a class action settlement agreement in order to provide for meaningful appellate review.Id.
III. DISCUSSION
In this case, a review of the factors set forth above establishes that this settlement agreement should be approved. We will address each in turn.
A. Complexity, Expense, and Likely Duration of the Litigation
First, the court must consider "the probable costs, in both time and money, of continued litigation." In re Cendant Corp. Litig., F.3d 201, 233 (3d Cir. 2001) (quoting In re General Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768, 812 (3d Cir. 1995)). The purpose of considering this factor is to determine the extent of the benefit that would be gained from settling the claim amicably. In re General Motors Corp., 55 F.3d at 812.
This complex case involves sophisticated issues of law and proof on liability and damages. Moreover, there is very little case law on the issues raised in this case. Continuation of this litigation would no doubt have involved lengthy and costly motion practice and a complex trial. By reaching a settlement at this time, the parties have avoided unnecessary expenses on both sides and have avoided the expenditure of precious judicial resources.
B. The Reaction of the Class to the Settlement
This factor "attempts to gauge whether members of the class support the settlement." In re Safety Components Inc. Sec. Litig., 166 F. Supp. 2d 72, at 85 (D.N.J. 2001) (quoting In re Prudential Ins. Co. of Am. Sales Practices Litig., 148 F.3d 283, 317 (3d Cir. 1998), cert. denied, 525 U.S. 1114 (1999)). In analyzing this factor, the court is to examine the "number and vociferousness of the objectors." Id. (quoting In re General Motors Corp., 55 F.3d at 312).
The class members' reaction to the proposed settlement was overwhelmingly favorable — in fact, there has been universal approval. No class member opted out of the class settlement. No written objections were filed of record at the time of the Fairness Hearing, and the time allotted for doing so has expired. Given that the class comprises numerous entities, no opt-outs or objections is strong evidence that the settlement is fair and adequate and agreed to by the class.
C. Stage of the Proceedings
This factor "captures the degree of case development that class counsel [has] accomplished prior to settlement. Through this lens, courts can determine whether counsel had an adequate appreciation of the merits of the case before negotiating." In re Cendant, 264 F.3d at 235 (citing In re General Motors Corp., 55 F.3d at 813). The stage of the proceedings is measured in "reference to the commencement of proceedings either in the class action at issue or some related proceeding." In re General Motors Corp., 55 F.3d at 813.
This case was settled at a time when sufficient pre- and post-filing investigations of the applicable law and material facts had occurred so as to put the parties on firm notice of the likely strengths and weaknesses of their respective positions. The parties extensively briefed the issues that were relevant to summary judgment. As such, both the parties and the court are intimately familiar with the issues presented. Yet, this was also the point where the parties have not yet prepared for trial — a complex trial which would undoubtedly cause both sides to incur massive expenses. In the court's view, this is the time that settlement should be pursued by the parties.
D. Risks of Establishing Liability and Damages
This factor is considered in order to "examine what the potential rewards or downside of litigation might have been had class counsel decided to litigate the claims rather than settle them." In re Cendant, 264 F.3d at 237 (citing In re General Motors Corp., 55 F.3d at 814). The inquiry "requires a balancing of the likelihood of success if `the case were taken to trial against the benefits of immediate settlement.'" In re Safety Components, 166 F. Supp. 2d at 89 (quoting In re Prudential Ins., 148 F.3d at 319).
There are always very real risks associated with proving liability in such cases. That risk is bolstered in a case that involves an area of relatively novel case law. In such instances, there is always an inherent risk of proving liability. Clearly, settling this claim is in the class's best interest. We also note that because this is a case of first impression for both this court and the Court of Appeals for the Third Circuit, there is significant legal risk to both sides. As such, this factor weighs strongly in favor of settlement.
As to damages, this factor is similar to the previous factor in that it "attempts to measure the expected value of litigating the action rather than settling it at the current time." In re Cendant, 264 F.3d at 238 (citing In re General Motors Corp., 55 F.3d at 816). In the normal course, proving damages involves many of the same risks as proving liability because the former is contingent upon the latter.
E. Greater Judgment
The next factor concerns "whether the defendants could withstand a judgment for an amount significantly greater than the Settlement." In re Cendant, 264 F.3d at 240. In this case, it could reasonably be presumed that defendants could withstand a larger judgment; however, the purpose of a settlement is not to bankrupt a defendant but to achieve a fair and reasonable recovery for the class. Accordingly, we find that this factor is largely neutral.
F. The Range of Reasonableness of the Settlement Fund in Light of the Best Possible Recovery and in Light of Litigation Risks
The final Girsh factors we discuss collectively ask whether "the settlement is reasonable in light of the best possible recovery and the risks the parties would face if the case went to trial." In re Prudential Ins. Co., 148 F.3d at 322. The touchstone of this examination is the "economic valuation of the proposed settlement." In re Safety Components, 166 F. Supp. 2d at 92 (quoting In re Aetna Sec. Litig., No. MDL 1219, 2001 WL 20928 at *11 (E.D. Pa. Jan. 4, 2001)).
The settlement represents a sizable payment from defendants. Indeed, the settlement in this case is for almost $7 million going directly to the class, plus an additional $3 million in attorneys' fees and costs. Each member of the class will be eligible to receive between $5.00 and $409,000, depending wholly on the amount unpaid by Highmark to that particular provider. Pursuant to the Settlement, the Class Plaintiffs will receive payment of over 60% of their underlying damages, and they have the opportunity to enter into contracts with Highmark to participate as ambulance providers in all of Highmark's benefit programs — not just Security Blue. In light of the expense and risk of proceeding to trial, this is clearly a reasonable amount for the class to accept.
IV. CONCLUSION
In conclusion, the court is satisfied that every factor considered weighs in favor of approving the settlement. The court notes also that counsel for both sides have been professional and realistic in this case. The parties have been thorough in tracking the procedural requirements for a class action settlement. The submissions of the parties to the court have been invaluable in aiding the court throughout. Indeed, the competence and candor of counsel from both sides in this case convince the court that this settlement has been achieved at arms' length by counsel both intent on protecting the interests of their clients and in arriving at a fair and adequate settlement. The court does not hesitate to approve this settlement. The appropriate order follows.
ORDER OF COURT
AND NOW, this 30TH day of June, 2006, this case having come before the Court for a Fairness Hearing relative to a settlement between the parties that has been preliminarily approved by this Court as of May 3, 2006, IT IS HEREBY ORDERED, ADJUDGED AND DECREED as follows:
a. Notice was properly sent to the members of the Class between the dates of May 12, 2006 and May 25, 2006;
b. After proper notice, no members of the Class have asked to opt out of the settlement reached between the Named Class Representatives and Highmark;
c. Notwithstanding proper service of the notice to the Named Class Representatives, no Class members have objected either to the settlement as reached between the Named Class Representatives and Highmark, or to the attorneys' fees as requested by Class Counsel, Sinclair Kelly Jackson Reinhart Hayden, LLC;
d. The date by which parties were to either opt out, or file objections, was by no later than June 16, 2006;
e. Accordingly, this Court hereby approves the settlement as reached by the Named Class Representatives and Highmark in the amount of $10 million;
f. That $10 million settlement fund is to be distributed pursuant to the table set forth in Exhibit A and attached hereto;
g. The settlement funds, to be paid in the amounts as set forth in Exhibit A, will be paid and transmitted by Highmark beginning no later than August 1, 2006 and completed by no later than August 31, 2006;
h. The Named Class Representatives, in addition to their respective proportionate share of the settlement fund, shall each receive a $5,000 payment as an expense reimbursement, to be distributed from the settlement fund;
i. Class Counsel, Sinclair Kelly Jackson Reinhart Hayden, LLC, shall receive an award of $3 million in attorneys' fees for the services it rendered in connection with this action, to be distributed from the $10 million settlement fund; and
j. The Caring Foundation, the charity designated by the parties to receive any amounts that would otherwise be payable to now-defunct class members, shall receive $32,122,52 from the settlement fund.