REBECCA GRADY JENNINGS, District Judge.
Plaintiff Margaret Wilson ("Wilson") sues Defendant Anthem Health Plans of Kentucky ("Anthem") seeking relief for alleged violations of Employee Retirement Income Security Act of 1974, 29 U.S.C. §§1001, et seq. ("ERISA") and the Mental Health Parity and Addiction Equity Act of 2008, 42 U.S.C.A. § 300gg-26 ("MHPAEA"). [DE 1 at 1]. Before the Court is Wilson's unopposed Motion for Preliminary Approval of Class Settlement, Approval of Notice to the Class, and Scheduling Final Fairness Hearing ("Motion"). [DE 76]. The matter is ripe. For the reasons below, the Motion is
Wilson is the mother and legal guardian of M.W., a minor child with Autism Spectrum Disorder ("ASD"). [DE 1 at 2]. According to Wilson's complaint, "Autism cannot be cured, but it can be treated" and Applied Behavior Analysis ("ABA") is the "most common and recognized method" of treatment. Id. at 3. Wilson and her son are insured by Anthem. Id. at 2.
M.W. enrolled in the Highlands Center for Autism to receive ABA treatment. Id. at 10. Wilson submitted claims to Anthem "seeking coverage for the cost" of M.W.'s treatment. Id. at 11. Anthem "paid small amounts of some claims" but, because of coverage limitations, did not reimburse most of the treatment costs. Wilson has continued to seek treatment for M.W.'s ASD but claims that "Anthem has continued to impose coverage limitations on it." Id. at 11. Wilson has spent "tens of thousands of dollars in unreimbursed expenses for the medically necessary care" of M.W. Id.
Wilson filed a Class Action Complaint, arguing that Anthem violated ERISA and MHPAEA by "routinely impos[ing] caps and limits on benefits under its health insurance policies for insureds seeking treatment for Autism Spectrum Disorders." Id. at 1. Because of Anthem's allegedly unlawful practices, Wilson sought relief for herself and on behalf of a class of similarly situated individuals.
The Court certified the class
The parties then negotiated a Class Action Settlement Agreement (the "Settlement") with help from Magistrate Judge King. The Settlement was "hotly contested by the parties" with "each party required to evaluate complex legal, factual, and procedural issues in evaluating their settlement position." [DE 76-1 at 3267]. During negotiations, the parties considered: Wilson's ability to prove the size of the class; the amount of damages the Court could award; the time, expense, and difficulty of continued litigation and trial; and the likelihood of success on the merits and on appeal. Id.
The compensatory terms of the Settlement are:
Id. at 3266
Wilson then filed her Motion [DE 76], attaching a Settlement Agreement [DE 76-2], a Notice of Class Action Settlement (the "Notice") [DE 76-2], and an Order Preliminarily Approving the Class Action Settlement Agreement, Scheduling Final Approval Hearing, and Directing Notice to Class [DE 76-3]. After review, this Court entered an Order [DE 80] granting Wilson leave to supplement the Motion to address two questions: 1) does the $175,000 in the net settlement fund wholly or partially compensate the class? and 2) why do some class members receive a pro rata share or a minimum payment of $250.00 and others receive only $250.00? Wilson sufficiently responded to the Court's questions in her Supplemental Memorandum in Support of Plaintiff's Motion for Preliminary Approval of Class Settlement, Approval of Notice to Class, and Scheduling a Final Fairness Hearing (the "Supplemental Memorandum") [DE 82], and so the Court will now
Class action suits may be settled only with court approval. Fed. R. Civ. P. 23(e). Approval of a class action settlement involves two-stages: 1) "The judge reviews the proposal preliminarily to determine whether it is sufficient to warrant public notice and a hearing"; and 2) "If so, the final decision on approval is made after the hearing." Ann. Manual Complex Lit. (Fourth) § 13.14 (2019); see also Thacker v. Chesapeake Appalachia, L.L.C., 259 F.R.D. 262, 270 (E.D. Ky. 2009) (referencing Tenn. Ass'n of Health Maint. Orgs., Inc. v. Grier, 262 F.3d 559, 565-66 (6th Cir. 2001)). "At the stage of preliminary approval, the questions are simpler, and the court is not expected to, and probably should not, engage in analysis as rigorous as is appropriate for final approval." Spine & Sports Chiropractic, Inc. v. ZirMed, Inc., No. 3:13-CV-00489, 2015 WL 1976398, at *1 (W.D. Ky. May 4, 2015) (quoting Ann. Manual Complex Lit. § 21.662 (4th ed.)). Courts apply a degree of scrutiny to proposed settlement agreements sufficient to avoid "rubberstamp[ing]" a proposed settlement agreement, while still being "mindful of the substantial judicial processes that remain to test the assumptions and representations upon which the [proposed settlement agreement] are premised." In re Inter-Op Hip Liab. Litig., 204 F.R.D. 330, 338 (N.D. Ohio 2001).
To approve a proposed settlement, the court must determine whether it is "fair, reasonable, and adequate." Whitlock v. FSL Mgmt., L.L.C., 843 F.3d 1084, 1093 (6th Cir. 2016). Rule 23(e) provides the court with factors to consider when making this determination. The Advisory Committee, in amending Rule 23(e), did not intend to displace factors developed by the circuit courts in deciding whether to approve a proposed settlement agreement, but rather to "focus the court . . . on the core concerns . . . that should guide" the court's determination. Federal R. Civ. P. 23(e) advisory committee's note to 2018 amendment. This Court thus considers both the Rule 23(e) factors and the factors set forth by the Sixth Circuit. See Peck v. Air Evac EMS, Inc., No. CV 5: 18-615-DCR, 2019 WL 3219150, at *5 (E.D. Ky. July 17, 2019).
Because the Court has already certified the class, appointed class counsel, and approved the class representative, [DE 47], its analysis here focuses on whether "giv[ing] notice is justified by the parties' showing that the court will likely be able to . . . approve the proposal under Rule 23(e)(2)."
Under the Rule 23(e)(2) factors, a settlement is "fair, reasonable, and adequate" if:
Fed. R. Civ. P. 23(e)(2).
The parties extensively litigated this matter through settlement, with Anthem "vigorously" opposing class certification. [DE 47 at 3127]. The parties "engaged in discovery related to the merits of class claims," including deposing Anthem's representatives and expert witnesses. [DE 76-1 at 3265]. There is no reason to think that, if the case continued to trial, the parties would stop litigating the case with the same intensity.
Magistrate Judge King assisted the parties at the settlement conference and in their arm'slength negotiations. Id. The parties "exchanged written statements of their settlement positions and demands." Id. The "terms of the proposed settlement agreement were hotly contested by the parties" and required each party to "consider complex legal, factual, and procedural issues in evaluating their settlement position." Id. at 3267. The parties "did not discuss the amount of attorney fees or incentive awards for the Class Representatives until the parties reached agreement on the material terms of payments directly to class members." Id. at 3265.
The Settlement, which guarantees payment from Anthem, adequately compensates the class. Under the Settlement, class members do not have to complete and file a claim form. Instead, Anthem will directly make payments to all class members that can be identified and located. No part of the settlement fund reverts to Anthem. If the fund is not exhausted, any funds remaining will be disbursed cy pres to Families for the Effective Treatment of Autism (FEAT) of Louisville. Id. at 3266. Additionally, the Settlement does not permit Anthem to withdraw from it if a "certain number or percentage of Class Members opt-out." Id. at 3267.
In its previous Order [DE 80], the Court was unable to determine whether the $175,000 in the net settlement adequately compensated the class because it was unclear how much money members of the class spent on ABA treatment. Wilson has now sufficiently addressed this issue. In her Supplemental Memorandum, Wilson explains that there are 46 class members, and that the "total amount billed by providers to Anthem for ABA therapy provided to those 46 class members is $335, 724.14." [DE 82 at 3319]. The Net Settlement Funds is $175,000, about 52% of the total amount billed to Anthem for the class members' ABA therapy. But the Net Settlement Fund is "fair, reasonable, and adequate" because, under the insurance policy:
Id. at 3319. The Court agrees and is satisfied with Wilson's explanation.
Class counsel seeks, Anthem does not object, and the Court preliminarily approves fees and costs totaling $115,000 (38% of the settlement fund). In determining whether a fee request is proper, the court may use either the percentage-of-the-fund ("Common Fund") method or the lodestar method. Gascho v. Global Fitness Holdings, L.L.C., 822 F.3d 269, 278-80 (6th Cir. 2016). But the court must articulate the "reasons for `adopting a particular methodology and the factors considered in arriving at the fee.'" Moulton v. U.S. Steel Corp., 581 F.3d 344, 352 (6th Cir.2009) (quoting Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513, 516 (6th Cir. 1993). "The lodestar method better accounts for the amount of work done, while the percentage of the fund method more accurately reflects the results achieved." Rawlings, F.3d at 516.
Fee awards typically range from 20 to 50 percent of the common fund. New England Health Care Employees Pension Fund v. Fruit of the Loom, Inc., 234 F.R.D. 627, 635 (W.D. Ky. 2006), aff'd, sub nom. Fidel v. Farley, 534 F.3d 508 (6th Cir. 2008); Déjà Vu, 925 F.3d at 898 ("It is not abnormal for negotiated attorneys' fee awards to comprise 20% to 30% of the total award"); Dick v. Sprint Commc'ns Co. L.P., 297 F.R.D. 283, 299 (W.D. Ky. 2014) (24% of common fund was reasonable); Spine & Sports Chiropractic, Inc. v. ZirMed, Inc., No. 3:13-CV-00489, 2015 WL 1976398, at *3 (W.D. Ky. May 4, 2015) (33% was reasonable); In re Countrywide Fin. Corp. Customer Data Sec. Breach Litig., No. 3:08-MD-01998, 2009 WL 5184352, at *11 (W.D. Ky. Dec. 22, 2009) (50% was reasonable).
Although 38% of the common fund is at the high end of what courts in this district have found to be reasonable, the Court preliminary approves fees and costs for no more than $115,000. That said, the Court requests that the parties provide additional information at the final fairness hearing about how the parties determined that $115,00 was reasonable for fees and costs, including the hours worked and billable rates for the plaintiff's attorneys on this case.
In Exhibit "A" of the Settlement, the parties explicitly disclaim any side agreements in the case: "This Settlement Agreement, including all exhibits, contains the entire agreement and understanding between the Parties concerning the subject matter hereof, and any and all prior oral or written agreements or understandings between the Parties related hereto are superseded." [DE 76-2 at 3289].
Finally, the Settlement treats class members equitably. In its previous Order, the Court noted that it was "unclear why some class members receive a pro rata share or a minimum payment of $250.00 and why others receive only $250.00." [DE 80 at 3316]. Wilson has now sufficiently explained why some class members receive a pro rata share or a minimum payment of $250.00 and why others receive only $250.00:
Id. at 3320-3321.
The Sixth Circuit has articulated factors to help courts determine whether a settlement is "fair, reasonable, and adequate" for preliminary approval: "(1) the risk of fraud or collusion; (2) the complexity, expense and likely duration of the litigation; (3) the amount of discovery engaged in by the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel and class representatives; (6) the reaction of absent class members; and (7) the public interest." Pelzer v. Vassalle, 655 F. App'x 352, 359 (6th Cir. 2016) (citing Int'l Union, United Auto., Aerospace, & Agr. Implement Workers of Am. v. Gen. Motors Corp., 497 F.3d 615, 641 (6th Cir. 2007).
First, "Courts presume the absence of fraud or collusion in class action settlements unless there is evidence to the contrary." Thacker v. Chesapeake Appalachia, L.L.C., 695 F.Supp.2d 521 (E.D. Ky. 2010) (citing Leonhardt v. ArvinMeritor, Inc., 581 F.Supp.2d 818, 838 (E.D. Mich. 2008)). Because Magistrate Judge King assisted the parties in their "hotly contested" settlement negotiations, there is no reason to think that the parties colluded.
Second, during negotiations, the parties considered and discussed the complexity, expense, and likely duration of the litigation. [DE 76-1 at 3267]. This matter has been pending since 2014, and it may be years before the case goes to trial. The parties have already spent considerable time and expense on this case.
Third, the parties "engaged in discovery related to the merits of the class claims . . . includ[ing] depositions of Anthem's representatives as well as the exchange of reports of expert witnesses and the depositions of those individuals." Id. at 3265.
Fourth, "the most important of the factors to be considered in reviewing a settlement is the probability of success on the merits. The likelihood of success, in turn, provides a gauge from which the benefits of the settlement must be measured." Poplar Creek Dev. Co. v. Chesapeake Appalachia, L.L.C., 636 F.3d 235, 245 (6th Cir. 2011) (citing In re Gen. Tire & Rubber Co. Sec. Litig., 726 F.2d 1075, 1086 (6th Cir. 1984)). Anthem's decision to settle necessarily suggests that Anthem weighed the risks and costs of going to trial and believed Wilson had some chance of prevailing on the merits. This factor supports settlement.
Fifth, the experienced attorneys on each side, after assessing the relative risks and benefits of litigation, believe that the settlement is fair and reasonable. See UAW v. Ford Motor Co., 2008 WL 4104329, at *26 (E.D.Mich. Aug. 29, 2008) ("The endorsement of the parties' counsel is entitled to significant weight, and supports the fairness of the class settlement."); [DE 76-1 at 3271].
Sixth, the reaction of absent class members does not yet weigh one way or the other in determining whether settlement is appropriate. At the pre-notice stage, the Court does not yet know how absent class members will respond.
Finally, the Court finds that settlement serves the public interest. "[T]here is a strong public interest in encouraging settlement of complex litigation and class action suits because they are `notoriously difficult and unpredictable' and settlement conserves judicial resources." In re Cardizem, 218 F.R.D. at 530 (quoting Granada Inv., Inc. v. DWG Corp., 962 F.2d 1203, 1205 (6th Cir.1992)); accord Ehrheart v. Verizon Wireless, No. 08-4323, 2010 WL 2365867, at *3 (3d Cir. June 15, 2010) ("Settlement agreements are to be encouraged because they promote the amicable resolution of disputes and lighten the increasing load of litigation faced by the federal courts."). There is no principled basis for not adhering to that policy here.
Because this Court has granted preliminary approval, it "must direct notice in a reasonable manner to all class members who would be bound by the proposal." Fed. R. Civ. P. 23(e)(1). The Court must direct notice under Rule 23(c)(2)(B), which requires that the notice must include in plain, easily understood language:
The Notice conveys that this is a class action alleging Anthem "has been applying dollar and hour limits on claims for reimbursement of Applied Behavioral Analysis which are not permitted by the law." [DE 76-2 at 3294]. It defines the certified class and explains the class claims, issues, and defenses. Id. at 3293. It notifies the class members that they may enter an appearance through an attorney. Id. at 3295. It explains the class members' options and the manner for requesting exclusion. Id. at 3297. Although the Notice does not yet provide how much time a class member has to request exclusion, the Notice does include a blank "[Date]," which the Court will provide in its Order. Finally, it notes that if an individual chooses to do nothing, they are bound by the terms of the settlement. Id. at 3299.
For these reasons, and being otherwise sufficiently advised, the Court
The Court hereby
