December 8, 2016 / 7:16 PM / in 8 months

3rd Circuit sticks up for public’s interest in deal between whistleblowers

6 Min Read

(Reuters) - Every time I read a decision upholding the public’s presumed right of access to court records, I’m proud of our justice system. And never more so than now, when good, hard facts – the sort of stuff that emerges in litigation – seem to be on a devaluation skid, right along with the news organizations dedicated to providing facts to the public. Even in an “age of post-truth politics,” as a New York Times op-ed dubbed the 2016 campaign, U.S. courts continue to believe – thank goodness! - that facts matter to the public.

On Wednesday, the 3rd U.S. Circuit Court of Appeals held that a federal trial judge in New Jersey was wrong to allow two whistleblower groups to keep a settlement agreement under seal. The circumstances of the seal order were unusual, as I’ll explain, but 3rd Circuit Judges Thomas Ambro, Patty Shwartz and Julio Fuentes said U.S. District Judge William Martini of Newark “too quickly discounted” the public’s interest in a settlement between False Claims Act plaintiffs that used the court system to resolve their dispute. The opinion is nonprecedential, but it’s a good reminder of binding 3rd Circuit precedent emphasizing the public’s right of access to litigation documents.

The two whistleblower groups, Fair Laboratory Practices Associates and Hunter Laboratories, entered into a bounty-sharing agreement when they each began suing Quest Diagnostics and other medical testing labs for defrauding state and federal governments. (There are additional plaintiffs within the groups but for simplicity I’ll call them FLPA and Hunter.) In 2011, Hunter reached a settlement with Quest in a California state-court action. That same year, Quest succeeded in squelching an FLPA suit because FLPA was found to have misused attorney-client privileged information supplied by one of the whistleblower’s principals, a former in-house lawyer for a Quest predecessor.

FLPA claimed it was nevertheless owed a share of Hunter’s whistleblower award from the California case. Hunter refused to pay, so FLPA sued its erstwhile ally in federal court in Newark. Quest sought to intervene in the case, arguing that because of FLPA’s misconduct, the judge should order its purported 15 percent of Hunter’s bounty to be donated to charity. Judge Martini denied Quest’s motion and granted summary judgment to FLPA.

Two months after he closed the case, Hunter and FLPA jointly moved to vacate the judgment. They informed Judge Martini that they’d reached an out-of-court settlement in which Hunter agreed to the terms the judge imposed in the litigation. Judge Martini asked them to file the settlement agreement. When they asked that it be sealed, the judge granted the motion, over Quest’s opposition, because he said Hunter and FLPA negotiated the settlement with an expectation of privacy. The agreement, he reasoned, would never have become part of the case record if he hadn’t asked for it.

Quest, which had been allowed to intervene on the seal issue, appealed, in a twist of the typical narrative in which corporations are trying to keep secrets under wraps as whistleblowers try to expose them. The company’s lawyers at Sidley Austin sounded like they represented a media company in Quest’s appellate brief: “Once the settlement agreement became a judicial record,” they wrote, “it fell within the common law right of public access. This right, which is fundamental to the operation of our judicial system, advances important values of transparency and openness.”

Hunter and FLPA used the public court system to settle their private dispute, Quest said, and brought their settlement to Judge Martini because they apparently want him to continue to oversee their split of their future FCA spoils. “The public has a right to know the reasons and basis of the district court’s decision to allow itself to be drafted into policing Hunter’s and FLPA’s potential future disputes over the qui tam sharing agreement,” Quest said.

Hunter, represented by Cotchett Pitre & McCarthy, said in the whistleblowers’ brief that their interest in preserving the confidentiality of private information about the suits they’re litigating trumps the public interest in their settlement agreement.

The 3rd Circuit said the whistleblowers hadn’t specifically shown why disclosure of the settlement agreement would harm them nor that they were only able to reach a settlement because of the expectation of confidentiality. “While FLPA and Hunter may have assumed that their settlement would remain confidential once filed — a questionable assumption given Quest’s involvement and interest in this case — FLPA and Hunter must still show that ‘disclosure will work a clearly defined and serious injury,’” the court said.

The whistleblowers may be worried about keeping their settlement agreement away from Quest, the 3rd Circuit ruled, but “the public also has an interest in this settlement: It has an interest in understanding why a judge would vacate a final judgment in favor of a settlement that purportedly just confirms the judgment.” The appeals court vacated the seal order and sent the case back to Judge Martini with the instruction that he consider “a less restrictive option” than sealing the entire settlement agreement.

The court decided the appeal without hearing oral argument. I emailed the two lawyers who were to have presented arguments, Robert Hochman of Sidley and Emanuel Townsend of Cotchett, but didn’t hear back.

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