Secret Class Action Settlements

Article excerpt

I. INTRODUCTION..... 889

II. CASE STUDY: THE B'NAI B'RITH LITIGATION .....890

III. SCOPE OF THE PRACTICE ..... 899

A. Secret Class Action Settlements in the News ..... 900

B. Scope of Practice in One Federal Judicial District ..... 906

IV. SECRECY AND ACCESS IN CONTEXT ..... 911

A. Policies Favoring Public Access to Settlement Agreements ..... 911

B. Policies Favoring Confidential Settlement Agreements.. 922

V. SECRECY AND ACCESS TO CLASS ACTION SETTLEMENTS ..... 927

A. Statutory and Logistical Constraints ..... 927

B. Policy-Based Constraints .....932

VI. CONCLUSION ..... 941

I. INTRODUCTION

The journalist's email arrived on a Monday morning. "Can you settle a class-action lawsuit in secret?" he asked.1 The parties to a putative federal class action had filed a joint motion the preceding Friday, seeking a confidentiality order "sealing all documents related to the settlement" of the litigation, including the stipulation of settlement, the notice of proposed settlement, the motion seeking approval of the settlement, any order entered by the court regarding the settlement, transcripts of the fairness hearing, and any objections filed by class members.2 A proposed order, filed with the motion, further directed the state and federal officials to whom the settlement documents would be provided pursuant to the Class Action Fairness Act3 to maintain their confidentiality.4

"Can you settle a class-action lawsuit in secret?"

The question threw me for a loop. Of course I was aware that parties to civil litigation settle cases every day of the week and routinely seek to shield from public scrutiny both the terms of the settlement and the inculpatory documents produced in discovery. But can you settle a class action lawsuit in secret?

This Article seeks to answer that question. It proceeds in four parts. To illustrate the practice of settling a federal class action under seal, Part I examines the class action lawsuit that prompted the journalist's email. While a case study can vividly present the issues raised by the practice, it cannot capture its scope or incidence. Part II, then, seeks to ascertain the scope of the practice of settling class actions under seal. Part III.A reveals several permutations of the practice gleaned from newspaper accounts describing class action settlements from around the country. Part III.B focuses on a single federal judicial district - the Western District of Pennsylvania - and seeks to ascertain the percentage of suits filed as class actions that were settled under seal. Having gained some understanding of the scope of the practice, the Article then seeks to assess it normatively. Part rv analyzes the policy debate surrounding secret settlements of civil suits in general, fleshing out the competing policy objectives served by public access to, and confidentiality of, settlement agreements, including those submitted to courts for their approval. Finally, Part V examines the statutory, logistical and policy-based constraints that call into serious question the legality, efficacy, and wisdom of secret class action settlements.

II. CASE STUDY: THE B'NAI B'RITH LITIGATION

On October 23, 2009, Dean and Melva Hirschfield and thirtytwo other named plaintiffs filed a verified class action complaint in the Court of Common Pleas of Allegheny County, Pennsylvania, against B'nai B'rith International ("BBI"), a worldwide Jewish service organization, and ten individuals affiliated with BBI, among other defendants.5 The plaintiffs sought recovery of deposits that they (or their decedents) had paid to gain entry into a continuing-care retirement community in Mount Lebanon, Pennsylvania, a suburb of Pittsburgh.6

According to the complaint, BBI had formed the Covenant of South Hills, Inc. ("Covenant") to develop the retirement community.7 The plaintiffs or their decedents had paid deposits (each as much as several hundred thousand dollars) to Covenant to secure entry into the facility's independent living homes. …