Judge Thomas Ambro of the U.S. Court of Appeals for the Third Circuit.
Judge Thomas Ambro of the U.S. Court of Appeals for the Third Circuit. ()

The U.S. Court of Appeals for the Third Circuit has ruled that an agreement detailing the division of proceeds between two claimants who brought qui tam suits against Quest Diagnostics International should not have been placed under seal.

The District Court failed to identify any particularized harm that would result if the settlement agreement were open for public view, and it discounted the public interest in learning the settlement terms, the appeals court said in Fair Laboratory Practices Associates v. Riedel.

The public has an interest in understanding the actions of U.S. District Judge William Martini, in granting the motion to seal, the appeals court said. And in particular, the public has an interest in understanding why Martini would vacate a final judgment in the case in favor of a settlement that “purportedly just confirms the judgment,” the appeals court said in a nonprecedential opinion.

The case stems from a qui tam suit brought against Quest in a California state court by Chris Riedel and Hunter Laboratories, and another brought against Quest in the Southern District of New York by Fair Laboratory Practices Associates and NPT Associates. Both groups have brought numerous qui tam suits against Quest and other laboratories, and they signed a profit-sharing agreement to share proceeds from the suits.

Quest settled the California suit with Hunter and Riedel in 2011. That same year, Quest prevailed in the New York suit because FLPA had engaged in the unethical conduct of using and disclosing Quest’s privileged information in violation of New York’s ethical rules. Although FLPA lost, it asked Hunter, pursuant to the profit-sharing pact, to share the proceeds from its settlement with Quest. Hunter refused, citing the Southern District’s dismissal of the FLPA suit.

FLPA then sued Hunter in the District of New Jersey, seeking 15 percent of the California settlement. Martini granted FLPA summary judgment, holding that the Southern District of New York dismissal did not breach the profit-sharing agreement. Two months later, FLPA and Hunter filed a joint stipulation announcing they reached an agreement granting Hunter the amount already awarded by Martini. Before approving the stipulation, Martini asked FLPA and Hunter to file their settlement agreement with the court, and they did so under seal.

Quest moved to intervene and to oppose the sealing, but Martini did not allow that company to join the case and allowed the item to be sealed. Quest appealed.

At the Third Circuit, Judges Thomas Ambro, Patty Shwartz and Julio Fuentes said the presumption of public access was not overcome by the District Court’s request that FLPA and Hunter place their settlement agreement on the docket and their assumption that the filing would remain confidential. Martini did not say if he promised confidentiality in order to facilitate settlement, the appeals court said. Since the agreement was reached two months after final judgment was entered, “any assurance of confidentiality was not the ‘but for’ cause of settlement,” Ambro wrote for the court.

In addition, the District Court “too quickly discounted the public’s interest,” even though Quest did not make any strong argument for why the agreement is relevant to the public, Ambro wrote. On remand, the District Court should consider whether less-restrictive options to sealing the entire agreement, such as redacting confidential information, would protect the parties’ privacy interests, Ambro said.

Emmanuel Townsend of Cotchett, Pitre & McCarthy in Burlingame, California, who represented Riedel and Hunter, declined to comment on the ruling. Isaac Nesser of Quinn Emanuel Urquhart & Sullivan in New York, who represented FLPA and NPT, did not return a call.

Scott Stein of Sidley Austin in Chicago, who represented Quest, said his client sought to obtain the sealed document because the finding by the New York court that FLPA engaged in unethical conduct raises concerns about possible future actions by the company. “They may still be seeking to be involved behind the scenes in litigation involving Quest. We have concerns whether they might be doing indirectly what the court said they could not do directly,” he said.

Copyright New Jersey Law Journal. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.