Opinion
No. X06-CV-99-0158549 S
April 21, 2004
MEMORANDUM OF DECISION
The named plaintiffs, F. Scott Gray, Ralph Falkenstein, William Hennesey, Christopher Cassels, Robert Grossman and David Pazer ("named plaintiffs") are physicians who were members of the defendant Connecticut State Medical Society Independent Physician Association ("CSMA-IPA") during the years 1997-99 and who were participants in the health care network provided at that time by the defendant Physician Health Services ("PHS"). The defendant Foundation Health Systems, Inc. ("FHS") was the parent company of PHS and is now known as Health Net, Inc. ("Health Net"). The plaintiffs' claims in this lawsuit arise out of the managed care operations of Health Net and the relationship between Health Net and CSMA-IPA during the time period 1997-99.
The lawsuit was filed by the plaintiffs as a class action on behalf of all physicians who were members of the CSMA-IPA or participating providers in PHS from 1997 through 1999. The parties have reached agreement on the settlement of the plaintiffs' claims. Since the parties seek to have the settlement entered on behalf of the class, the parties have jointly moved for the court's approval of the proposed settlement. See Practice Book § 9-9 which provides that a class action may not be compromised without the approval of the judicial authority.
On November 4, 2003, the court conditionally certified the proposed class and preliminarily approved the proposed settlement of this action in order to provide notice of and an opportunity to be heard on the proposed settlement to members of the class. The conditionally certified class consisted of all physician members of CSMA-IPA and PHS, located in the state of Connecticut, who were active members during all or part of 1997, 1998, and 1999. Notice of the proposed settlement was sent by first class mail to members of the class. A hearing on the proposed settlement was held on March 1, 2004. No objections to the proposed settlement have been submitted to the court. The parties now request final approval of the proposed settlement.
Although certifying a class for settlement purposes only is not without controversy, courts have approved the use of settlement classes in appropriate circumstances. In re GMC Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 794 (3d Cir 1995).
Because the class action requirements set forth in our practice book are similar to those applied in the federal courts, we look to federal case law for guidance in interpreting and applying our class action rules. Collins v. Anthem Health Plans, 266 Conn. 12, 32 (2003). Reference to federal court decisions regarding approval of class action settlements is especially appropriate in light of the dearth of Connecticut appellate authority on the issue.
Before the settlement of a class action may be approved, the trial court must determine that the settlement is fair, adequate, and reasonable, and not a product of collusion. Joel A. v. Giuliani, 218 F.3d 132, 138 (2d Cir. 2000). See also Williams v. Vukovich, 720 F.2d 909, 921 (6th Cir. 1983). The United States Court of Appeals for the Second Circuit has identified nine factors that a court should consider in evaluating whether a class action settlement is fair, reasonable and adequate: "(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 in light of all the attendant risks of litigation." Robertson v. National Basketball Ass'n, 556 F.2d 682, 684 n. 1 (2d Cir. 1977) (quoting City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974)). See also Girsh v. Jepson, 521 F.2d 153, 157 (3d. Cir. 1975), in which the United States Court of Appeals for the Third Circuit recognized a similar nine-part standard to gauge the appropriateness of a class action settlement. Fundamentally, the proposed settlement must be judged with reference to the strength of plaintiffs' claims. "The most important factor is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement." City of Detroit v. Grinnell Corp., 495 F.2d 448, 455 (2d Cir. 1974).
With these precepts serving as the guideposts for the court's review of the proposed settlement, it is necessary to examine the particulars of the plaintiffs' claims and the specific terms of the proposed settlement agreement.
In their complaint, the plaintiffs assert claims of breach of contract, negligent misrepresentation, breach of fiduciary duty, tortious interference with business expectancy, and violations of the Connecticut Unfair Insurance Practices Act, General Statutes § 38a-815, et seq. ("CUIPA"), and the Connecticut Unfair Trade Practices Act, General Statutes § 42-110b, et seq. ("CUTPA"). The plaintiffs allege that prior to 1998 each of the six named plaintiffs were participating physicians with both the defendant PHS, a managed care entity, and MD Health Plan ("MDHP"), a health maintenance organization. PHS and MDHP entered into merger discussions in 1997, with a final effective date of January 1, 1998 for the merger. In 1998, all physicians participating in PHS in Connecticut were notified that their 1998 contract with PHS would now be through CSMS-IPA. The plaintiffs allege that, notwithstanding PHS' announcement, CSMS-IPA and PHS never entered into a contract in either 1997 or 1998 for the provision of physician services to persons enrolled in PHS for the calendar year 1998. The plaintiffs contend that CSMS-IPA did not enter into an agreement with PHS until January 27, 1999. The plaintiffs assert that, despite the lack of a contract between CSMS-IPA and PHS, PHS began reimbursing physicians pursuant to the lower CSMS-IPA fee schedules.
The plaintiffs also assert that CSMS-IPA and PHS improperly imposed a withhold program without contractual authority. Prior to the merger of PHS and MDHP, MDHP had a withhold program under which 20% of MDHP physician fees were withheld subject to year-end reconciliation. After the reconciliation, the money remaining in the withhold was returned to the participating physicians. PHS also had a withhold program for its participating physicians pursuant to which a portion of the withhold funds were generally returned to physician members after reconciliation. The plaintiffs assert that CSMS-IPA and PHS lacked the contractual authority to keep the withhold for 1998 from physician members.
The plaintiffs further allege that, on January 27, 1999, CSMS-IPA entered into a medical services agreement on behalf of its physician members with PHS. Under this agreement, CSMS-IPA retroactively agreed to implement the withhold program for the calendar year 1998. The plaintiffs allege that this agreement lacked consideration and was unenforceable because the defendants knew that no funds would be returned to physician members as expenses exceeded the withhold. The plaintiffs also assert that the provisions of the medical services agreement were violated because PHS failed to return withhold funds to the named plaintiffs in the same manner as withhold funds were returned to PHS' direct contract providers as required by the agreement. Finally, the plaintiffs contend that PHS breached its agreement not to withhold funds for certain claims and for the last three months of 1999.
In their complaint, the plaintiffs sought compensatory damages, punitive damages, treble damages and an accounting pursuant to General Statutes § 52-401 of the monies withheld in 1997, 1998, and 1999.
The plaintiffs' complaint was filed on June 7, 1999. The parties subsequently engaged in extensive settlement negotiations. As part of that process, informal discovery was conducted and documents were exchanged. The parties engaged the services of a private mediator and held seven mediation sessions over a one-year period. The proposed settlement agreement is the culmination of the parties' mediation efforts.
According to the parties, their negotiations revealed that the named plaintiffs and most of the putative class members had an ongoing relationship with Health Net through CSMS-IPA and that their concern with Health Net's practices and policies was not limited to the fee schedules and withhold policies used in 1997-1999. The parties assert that their discussions demonstrated that changes to Health Net's administration of current and future claims would be more beneficial to physician providers than would the award of damages for past wrongs. As a result, their settlement efforts focused on changes that would improve the payment by Health Net of current and future claims submitted by the plaintiff class of physician providers.
The proposed settlement agreement introduces modifications in a number of administrative areas that the parties assert will result in a more efficient and responsive claim payment system. These administrative areas include provider relations, grievance and appeal procedures, prompt claims payment, and modifier policies and procedures. The proposed settlement also establishes mechanisms for CSMS-IPA to monitor the efficacy of the changes. Specifically, the settlement agreement proposes the following modifications.
With respect to provider relations, the settlement agreement makes the Provider Relations Unit of Health Net responsible for visiting CSMS-IPA member provider group offices and for orientation, education, and communication with CSMS-IPA members concerning policies and procedures. A specific provider relations representative will be assigned to each CSMS-IPA member and each member will be entitled to face-to-face meetings every six months. CSMS-IPA will annually survey provider satisfaction. Health Net will institute a policy to return telephone calls from CSMS-IPA members within two business days and provide a written response to correspondence within 12 business days. The written response will include a proposed action plan addressing identified concerns.
In the area of grievances and appeals, Health Net will establish and maintain a list of outside medical specialists to serve as a resource for payment approval or denial regarding medical services. Health Net will also use reasonable efforts to assign appeals involving medical services to medical directors with experience in the subject medical services area and it will publish a directory of its medical directors with their areas of training and specialization.
With respect to the prompt payment of claims, interest will be paid on claims whenever a processing error results in delay or inappropriate denial of a claim and payment is beyond the statutory time period. CSMS-IPA will have 24-hour access to claim status and related information and Health Net will report monthly to CSMS-IPA regarding its claim payment performance.
With respect to modifiers, Health Net will conduct modifier review with personnel trained and experienced with modifier criteria. Health Net will also change its policies concerning certain identified modifiers.
The settlement agreement further provides that the defendants will pay a lump sum of $140,000 to the six named plaintiffs and $280,000 in attorneys fees and costs to plaintiffs' counsel. In return for the obligations assumed by the defendants, the named plaintiffs and members of the plaintiff class agree to release and discharge all claims against the defendants arising out of or related to any acts, events, transactions or occurrences asserted in the complaint in this action.
The central issue before the court is whether this settlement agreement is fair, adequate and reasonable. First, I will address the appropriateness of the amounts awarded as incentive payments to class representatives and attorneys fees to class counsel. I will then review the settlement agreement in light of the Second Circuit's nine-part standard. Finally, I will assess the impact on the proposed settlement of multi-district litigation pending in federal court and involving the plaintiff class and the defendant Health Net.
The proposed settlement agreement awards $140,000 to the six named plaintiffs. Incentive awards to compensate named plaintiffs for time spent in connection with the litigation have been recognized as appropriate by the courts. See e.g. Strougo v. Bassini, 258 F. Sup.2d 254, 263-64 (S.D.N.Y. 2003). Here, the named plaintiffs spent considerable time assisting counsel and participating in extensive private mediation sessions over a period of one year. Counsel has estimated that each plaintiff spent 70 hours on this case. The award of $23,333 per named plaintiff results in an hourly rate of $333 per hour which is a reasonable rate given their profession as licensed physicians.
The proposed settlement agreement also provides $280,000 to plaintiffs' counsel for attorneys fees and costs. It is appropriate for the parties in a class action to negotiate the specific amount of attorneys fees to be awarded. The court must then review the award to determine whether it is reasonable. Goldberger v. Integrated Resources, 209 F.3d 43, 47 (2d Cir. 2000). The starting point for determining the reasonableness of the fee is the so-called "lodestar" approach, which is the multiplication of the number of billable hours that the attorney spent on the case by the hourly rate normally charged by similar work by attorneys of like skill in the area. City of Detroit v. Grinnell Corp., 495 F.2d 448, 471 (2d Cir. 1974). The lodestar amount may then be adjusted in light of more subjective factors, such as the risk of litigation, the complexity of the issues, and the skill of the attorneys. N.Y State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1140 (2d Cir. 1983).
Here, plaintiffs' counsel expended 363.4 hours at rates ranging between $185 and $400 per hour. An additional 24.7 hours were spent by paralegal staff at $95 per hour. The total lodestar amount, according to counsel, is $119,685. An additional $45,275 was incurred in costs. Plaintiffs' counsel seeks a multiplier of approximately 1.7 in light of the complex issues and risk involved in the litigation and the quality of the representation.
I find the amount of the fees awarded to class counsel by the proposed settlement to be reasonable. My determination is guided in part by the procedural posture of the award. It is important to note that the fees will be paid by the defendants and do not come from a common fund awarded to the class. The attorney fee award was also the product of arms-length bargaining by the parties and negotiated only after the substantive provisions of the class settlement had been agreed upon.
An enhanced award that exceeds the lodestar amount is also appropriate in this case given the risk involved in the litigation and the complex nature of the settlement issues. As will be noted subsequently in this decision, the plaintiffs face substantial risk that they will not prevail in this litigation. The willingness of plaintiffs' counsel to assume that risk in representing the named plaintiffs and the class deserves recognition and financial reward. In addition, the settlement agreement involved complex issues of health insurance and health claims payment and procedure affecting nearly 8,000 physicians in Connecticut. Its complexity justifies an enhancement of the lodestar amount.
Turning to the review of the remainder of the proposed settlement agreement, three of the nine criteria suggested by the United States Court of Appeals for the Second Circuit, see City of Detroit v. Grinnell Corp., supra, 495 F.2d 463, are readily reviewable. The parties maintain that the complexity, expense and likely duration of the litigation support approval of the settlement. The settlement of any case is preferable to litigation with its attendant expense and delay. Since any class action would typically involve even more complexity, expense and time than other litigation, it goes without saying that the costs to litigate claims on behalf of a class argue even more forcefully in favor of settlement. The issue becomes one of degree. How complex, expensive and long would this particular class litigation be and consequently how much cost and burden will be avoided by settlement?
The parties assert that extensive discovery, pretrial motions and a lengthy trial would result if litigation were pursued. While no doubt true, I find the complexity, expense and time involved in this class action to be quite manageable. Although the class consists of approximately 8,000 physicians in Connecticut, the issues of proof are not individual to each class member and focus on actions by the defendants PHS and CSMS-IPA during a circumscribed time period. The projected trial length of several weeks is also not substantial. Nevertheless, as is true with the settlement of any class action, substantial expense and delay will be avoided by settlement.
The reaction of the class to the settlement also favors approval of the class settlement. Notice of the proposed settlement was sent by first class mail, to 7,934 members of the class. No class members filed any objection to the proposed settlement. A mere thirty-nine (39) physicians chose to opt out of the class. It is also important to note that the class members as physicians are well-educated and sophisticated individuals. Although not dispositive, this response indicates a lack of any significant opposition to the proposed settlement.
Podiatrists, who are not members of the class, were mistakenly given notice of the proposed settlement. Accordingly, the exact number of class members is somewhat less than 7,934.
The purpose behind the third factor, the stage of the proceedings and the amount of discovery completed, is for the court to determine whether counsel had an adequate appreciation of the merits of the case before negotiating. In re GMC Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 813 (3d Cir. 1995). The key issue is whether class counsel adequately developed the class' claims before deciding to settle. Id., 814. Here, the parties, while not engaging in formal discovery, informally exchanged documentary evidence related to the parties' claims. These documents were used in the extensive private mediation sessions before an experienced and neutral mediator to gauge the merits of the respective claims. Since I have already determined that the plaintiffs' claims involved limited factual issues, the nature and extent of the discovery conducted by the parties combined with its use in extensive private mediation was sufficient for counsel to determine the worth of plaintiffs' legal and factual claims.
The remaining factors of the Second Circuit test involve an assessment of the risks of litigation and the benefits of the proposed settlement. These factors are the risks of establishing liability and damages; the risks of maintaining the class action through the trial; the ability of the defendants to withstand a greater judgment; and the range of reasonableness of the settlement in light of the best possible recovery and in light of all the attendant risks of litigation. In essence, they frame the central question in determining the appropriateness of a settlement of a class action, that is, whether, after weighing the strengths and risks of the plaintiffs' case against the benefits of the proposed settlement, the settlement is fair, adequate and reasonable. "In deciding whether to approve a proposed class settlement, the most significant factor for the district court is the strength of the claimants' case balanced against the settlement offer." Plummer v. Chemical Bank, 668 F.2d 654, 660 (2d Cir. 1982).
My assessment of the benefits bestowed by the settlement agreement on the plaintiff class weighed against strengths of the plaintiffs' claims causes me to ultimately conclude that the proposed settlement as drafted is not fair, adequate, and reasonable. Were it not for the instability injected into the settlement by its provision governing the relationship of the settlement to the disposition of the multi-district litigation, however, the proposed settlement agreement would pass muster. If the agreement is revised along the lines that I suggest in this opinion, the substantial risks faced by the plaintiffs of not prevailing in the litigation would make the administrative changes in the payment of claims called for in the settlement agreement an attractive and acceptable alternative to litigation.
The risks confronting the plaintiffs that they will not succeed in this litigation are sizable. The gravamen of the plaintiffs' complaint is that no contract existed between CSMA-IPA and Health Net pursuant to which the defendants could retain the withhold and require the plaintiffs to limit the fees they charged their patients. The defendants contend that the conduct of the parties evidenced an implied contract through which the parties agreed to the withhold and limited fee schedule. The defendants also assert that the implied contract was formally ratified by a written agreement on January 27, 1999 and made retroactive to encompass 1998.
The defendants further contest the plaintiffs' claim that absent a contract the plaintiffs could have billed Health Net patients at higher rates. The defendants assert that, absent a contract between CSMA-IPA and Health Net, the plaintiffs would have been unable to treat and bill Health Net members at all since they would no longer have been identified to Health Net members as participating Health Net providers.
The plaintiffs also argue that, to the extent the defendants' contract authorized a withhold, it was unenforceable as lacking consideration. The plaintiffs maintain that the defendants knew when they negotiated the contract that expenses exceeded income, thereby foreclosing the return of any funds in the withhold reserve. The defendants respond that CSMA-IPA's contract with Health Net was supported by consideration in that Health Net agreed to make CSMA-IPA, and its physicians, Health Net's exclusive source for physician services for Health Net members and Health Net agreed to make payments according to CSMA-IPA's fee schedule.
A review of these competing claims indicates that the plaintiffs faced a considerable risk of not prevailing in this litigation. The plaintiffs faced an uphill battle to persuade the trier of fact that the conduct of the defendants was not a valid implied contract supported by sufficient consideration to make it binding on the parties. A trier of fact could very well perceive the return of the withholding and a higher fee schedule as a windfall to the plaintiffs to which they were not entitled in light of the benefits they received through their access to Health Net members and their receipt of fees from Health Net.
The parties provided evidence through affidavits and testimony of the benefits to the class of the administrative changes contained in the proposed settlement agreement. The gist of the evidence consisted of opinion testimony that, in the view of the witnesses, the suggested changes would significantly improve the payment of claims by Health Net.
The parties presented affidavits in support of the proposed settlement agreement from four individuals, two of whom also testified at the fairness hearing. Kenneth R. Lalime, Executive Director of the CSMA-IPA, provided an affidavit in which he stated that the settlement furnished significant improvements in the interactions between physicians and Health Net, improvements that CSMA-IPA had sought and been unable to obtain in the past. Thomas Miller, the Vice President of Network Management at Health Net of Connecticut, Inc., stated in his affidavit that the settlement agreement provides improvements in provider relations, grievance and appeal procedures and payment procedures that Health Net would not have implemented in the usual course of business.
Mark Thompson, the Executive Director of the Fairfield County Medical Association, submitted an affidavit and testified at the hearing. He stated that the physician members of his association have experienced extensive problems with the Health Net claims process and he provided results of a survey of the members of his association conducted in 1998 which indicated that $1,706,180 in claims were outstanding thirty days or more. He further testified that the problems included physicians abandoning claims due to difficulties in receiving payment and Health Net losing claims. Thompson also stated that the changes contained in the proposed settlement would result in less claim abandonment and faster processing of claims.
Fiona Lange, the business office supervisor for Danbury Eye Physicians Surgeons, P.C., also submitted an affidavit and testimony. She described her office's relationship with Health Net as "frustrating" due to requirements to resubmit copies of previously submitted claims, numerous unanswered telephone calls, and substantial waiting on the telephone trying to resolve the nonpayment of claims. Lange also testified that her office would at times abandon claims due to difficulties in obtaining payment. Lange opined that the proposed settlement offered improvements which would resolve many of these problems. She pointed specifically to the appointment of a provider representative, changes to the grievance and appeals process, and the acceptance by Health Net of various modifiers as particularly beneficial changes.
The parties also attempted to quantify the economic benefits of the administrative changes. I find this effort unpersuasive.
The parties asserted in the memorandum submitted in support of the proposed settlement that the economic benefits of the proposed administrative changes to the claims process contained in the settlement agreement exceed the amount of damages that could reasonably be obtained through litigation. The parties asserted that the main economic claim in the complaint sought a return of the withhold funds which they estimated to be $10 million. Assuming a deduction of a 30% fee, the parties estimated that the remaining $7 million would result in a one-time payment of approximately $1,000 per class member.
The parties contend that the administrative reforms of the proposed settlement would save, at a minimum, 10-20% of the time of one administrative person, per year, in each affected physician's office. Assuming an average annual salary of $40,000, the savings would exceed $1,000 on an annual basis. The parties further estimate that the redefined modifiers will result in approximately $3 million in additional income to class members annually.
The fundamental problem with the parties' estimation of the savings which will flow from the proposed settlement is that it lacks credible supporting evidence. The only witness who provided evidence on this issue was Fiona Lange. She testified that she believed that the administrative changes would result in time savings for her office, which serves eight physicians, of 12-16 hours per week. Lange provided no estimation of the additional income that her office would receive from the use of the redefined modifiers.
After having heard the limited evidence which was provided on this issue, I do not believe that the parties have established with any degree of reasonable certainty the savings that will result from the administrative changes contained in the proposed settlement. Nonetheless, I do find that the evidence submitted by the parties established that the proposed changes will enhance the payment process and constitute valuable improvements. While their precise economic value may be unknown, the changes are sufficient to justify the parties' settlement agreement, particularly when one takes into consideration the grave risks the plaintiffs face in not prevailing in the litigation.
"The evaluation of a proposed settlement requires an amalgam of delicate balancing, gross approximations and rough justice." City of Detroit v. Grinnell Corp., 495 F.2d 448, 468 (2d Cir. 1974). My evaluation of the proposed settlement in this case, performed through the prism of the relative strengths of the plaintiff's claims and the risks of litigation, causes me to conclude that the administrative changes contained in the settlement agreement are a reasonable attempt to address the significant problems experienced by the plaintiffs with the payment of claims by Health Net and a fair and adequate basis upon which to resolve this litigation.
If my review were to end here, I would approve the proposed settlement agreement. However, there exists another issue concerning the proposed settlement which is critical to its review. That issue involves the relationship of the settlement agreement with the multi-district litigation entitled In Re Managed Care Litigation pending in the U.S. District Court for the Southern District of Florida. In Re Managed Care Litigation involves claims brought by plaintiff patients and physicians against defendant health maintenance organizations alleging that the defendants engaged in a pattern and practice of failing to pay claims in full and in a timely manner, thereby breaching certain agreements and certain state and federal statutes, including the Racketeer Influenced and Corrupt Organizations Act (Rico), 18 U.S.C. § 1961 et seq., and the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. Among the defendants in this multi-district litigation is Foundation Health Systems, Inc., now known as Health Net, Inc., one of the defendants here. The trial court in In Re Managed Care Litigation has also certified a plaintiff class consisting of all medical doctors who provided services to any person insured by any defendant from August 4, 1990 to September 20, 2002. In Re Managed Care Litigation, 209 F.R.D. 678 (2002). The members of the plaintiff class provisionally certified in the case before this court are included within the provider class certified by the district court in In Re Managed Care Litigation.
The pertinent issues before this court are the extent to which the settlement in this case will affect the litigation in In Re Managed Care Litigation and the extent to which the final result in In Re Managed Care Litigation, either through litigation or settlement, will affect the proposed settlement here. The former issue is important because considerations of comity and the orderly and efficient administration of justice would counsel that this court stay its hand should a settlement here foreclose claims in the pending federal multi-district litigation. See People v. Santos, 440 N.E.2d 876 (Ill. 1882) and McWane Cast Iron Pipe Corporation v. McDowell-Wellman Engineering Company, 263 A.2d 281 (Del. 1970). The settlement of the case before this court however will not serve as res judicata or preclude the claims of the plaintiffs in In Re Managed Care Litigation because the claims here do not arise out of the transactions or series of connected transactions which form the basis of the federal action. See Fink v. Golenbock, 238 Conn. 183, 191 (1996).
The extent to which a judgment or settlement in the multi-district litigation will affect the settlement here is important because it could have the potential to diminish the benefits received by members of the plaintiff class from the settlement agreement in this case and ultimately tip the balance against approval of the settlement. That is precisely what happens.
The proposed settlement agreement here provides that approval of the settlement agreement shall not affect the future rights of the plaintiff class members to the terms of a judgment or settlement in In Re Managed Care Litigation and, to the extent such terms are inconsistent with this settlement agreement, the terms of a judgment or settlement in the multi-district litigation shall supercede any inconsistent provisions here. The parties contend that the disposition of the claims in In Re Managed Care Litigation will not diminish the benefits gained by the plaintiffs in this case because of this provision. I do not agree.
A judgment or settlement in the multi-district litigation could result in changes in the Health Net claims process that are not as beneficial as the changes enacted in this settlement agreement. For example, the settlement agreement here provides that Health Net will return telephone calls from CSMS-IPA members within two business days and provide a written response to correspondence within 12 business days. The relief requested by the plaintiffs in In Re Managed Care Litigation includes, in addition to damages, a request for injunctive relief related to claims processing and payment. A settlement in that case could very well establish time periods for responding to plaintiff inquiries that are greater than and inconsistent with those required here. Other provisions of the proposed settlement are subject to similar erosion. As a result, the improvements contained in the settlement are too insecure and possibly ephemeral to serve as a basis for the waiver by members of the plaintiff class of their rights to assert the claims involved in this litigation. Given the limited nature of the administrative improvements that are obtained by plaintiff class members through the proposed settlement agreement, approval of the settlement agreement cannot withstand any possible diminution in its benefits.
It is not appropriate for me to unilaterally alter the terms of the proposed settlement agreement. I must approve or reject it as written. Given this choice, I do not find that the parties have shown the settlement agreement as proposed to be fair, reasonable and adequate and I consequently may not approve it. Malchman v. Davis, 706 F.2d 426, 433 (2d Cir. 1983). However, if the parties were to resubmit the settlement agreement with a modification to Section 8.3 which provides that the terms of a judgment or settlement in the multi-district litigation will supersede the provisions of this settlement only to the extent such terms are more beneficial to the plaintiff releasors, I would approve the settlement agreement. Such a change would mean that the benefits obtained in the settlement agreement in this case would be protected from diminution by disposition of the multi-district litigation and would constitute the minimum improvements that the plaintiff class members could expect to enjoy.
Accordingly, the joint motion for final approval of the proposed settlement agreement in this matter is denied, without prejudice to the parties submitting for approval within thirty days a revised settlement agreement in accordance with this opinion.
BY THE COURT
Jon M. Alander Judge of the Superior Court