Wood et al v. Betlach et al

Filing 78

ORDER denying 26 Motion to Dismiss Counts/Claims. Signed by Judge David G Campbell on 9/24/2012.(NVO)

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WO

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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No. CV12-08098-PHX-DGC

Flint Wood, et al.,
Plaintiff,

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v.

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ORDER

Thomas Betlach, Director of the Arizona
Health Care Cost Containment System, and
Kathleen Sebelius, Secretary of the United
States Department of Health and Human
Services, in their official capacities,

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Defendants.

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Defendant Thomas Betlach, Director of the Arizona Health Care Cost

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Containment System (“the Director”) has filed a motion to dismiss Plaintiffs’ second

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claim for relief for failure to state a claim on the grounds that it is barred by res judicata.

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Doc. 26. The motion has been fully briefed (Docs. 35, 43), and neither party has

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requested oral argument. For the reasons set forth below, the Court will deny the motion.

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I.

Background.

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Plaintiffs are residents of Arizona who qualify for medical services through the

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Arizona Health Care Cost Containment System (“AHCCCS”) under a Medicaid-

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approved project covering low-income single adults and couples who do not have

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dependent children living with them. Doc. 1, ¶¶ 1-2. Plaintiffs filed this action for

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declaratory and injunctive relief challenging the copayments charged to this population.

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Id. Plaintiffs make two claims for relief: (1) that the decision approving the copayments

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by Defendant Kathleen Sebelius, Secretary of the United States Department of Health

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and Human Services (“The Secretary”), violates the Social Security Act and is arbitrary

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and capricious, and (2) that the written notices sent by Director Betlach regarding the

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copayments violate the Due Process Clause of the U.S. Constitution. Id., ¶¶ 94-100.

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Plaintiffs’ suit follows a prior class action, Newton-Nations v. Rogers, No. CV 03-

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2506-PHX-EHC, 2010 WL 1266827 (D. Ariz. March 29, 2010), in which different

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named plaintiffs challenged the copayments and notice provisions on behalf of the same

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low income childless adult population covered by a previous – now-superseded –

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AHCCCS program. In Newton-Nations, the plaintiffs challenged the then-Secretary’s

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2003 decision approving the copayment provisions and the 2003 notices sent to class

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members. 2010 WL 1266827 at *8. The district court granted summary judgment to

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Defendants. Id. at *21. On appeal, the Ninth Circuit affirmed in part and reversed in

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part. Newton-Nations v. Betlach, 660 F.3d 370, 383-84 (9th Cir. 2011).

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The Court of Appeals made no finding on the merits of the 2003 notices, but noted

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numerous intervening events, including new notices sent in 2010 and 2011, and stated

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that “[i]f the alleged failure to provide adequate notice of coverage changes in 2003 has

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not been repeated, these intervening events likely have rendered this claim moot.” Id. at

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883. The Court of Appeals remanded to the district court “for a determination of whether

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there is an ongoing basis for this claim, and if so, whether the relevant notices have

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satisfied the requirements of constitutional due process and the Medicaid Act.” Id.

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On remand, Judge Rosslyn O. Silver dismissed the 2003 notice claim as moot.

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Newton-Nations v. Betlach, 2:03-cv-02506-ROS, Doc. 261 at 5. Judge Silver reasoned

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that “[g]iven the expiration of the prior program, as well as the additional notices sent

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later, the claim in Plaintiffs’ complaint regarding the 2003 notices is moot.” Id.

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II.

Legal Standards.

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“The doctrine of res judicata provides that ‘a final judgment on the merits bars

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further claims by parties or their privies based on the same cause of action.’” In re

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Schimmels, 127 F.3d 875, 881 (9th Cir. 1997) (quoting Montana v. United States, 440

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U.S. 147, 153 (1979)). Thus, res judicata applies “whenever there is (1) an identity of
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claims, (2) a final judgment on the merits, and (3) privity between parties.” Tahoe-Sierra

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Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 322 F.3d 1064, 1077 (9th Cir. 2003)

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(quoting Stratosphere Litig. L.L.C. v. Grand Casinos, Inc., 298 F.3d 1137, 1143 n. 3 (9th

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Cir. 2002)). Identity of claims exists when two suits “arise from the same transactional

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nucleus of facts.” Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 714 (9th Cir.

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2001) (internal quotation marks and citation omitted). “Privity between parties exists

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when a party is ‘so identified in interest with a party to former litigation that he represents

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precisely the same right in respect to the subject matter involved.’” Stratosphere, 322

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F.3d at 1143 n. 3 (quoting Schimmels, 127 F.3d at 881).

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III.

Discussion.

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The Director argues that Plaintiffs’ claim regarding the notices sent in 2010 should

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be dismissed on res judicata grounds because it relies on the identical legal theory

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presented in Newton-Nations, it was presented to and decided by Judge Silver on remand,

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and the parties are in privity because they represent the same class of low income

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childless adults. Doc. 26 at 5.

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Plaintiffs argue that Judge Silver’s dismissal of the 2003 notices claim on

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mootness grounds is not a final judgment on the merits for purposes of res judicata.

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Doc. 35 at 4. Plaintiffs also argue that res judicata does not apply in any case because

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mere identity of legal theory and alleged harm does not equate to identity of claims. Id.

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Plaintiffs argue that the claim pertaining to the 2010 notices was not brought – and could

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not have been brought – in Newton-Nations because the 2010 notices did not yet exist

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when the plaintiffs filed their complaint; thus, the claim does not arise from “the same

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transactional nucleus of facts” as required for res judicata. Id. at 4-6.

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The Director argues that Judge Silver could not have made the mootness

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determination without first finding the 2010 notices legally sufficient, and it is this

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implicit finding on the merits of the 2010 notices that precludes relitigation. Docs. 26 at

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3-4; 43 at 2-4. This is really an issue-preclusion argument. It is not the finding of

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mootness that the Director argues precludes Plaintiffs’ claim, but the finding on an issue
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central to the mootness inquiry (the sufficiency of the 2010 notices) that the Director

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argues precludes relitigation of that issue.

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argument, however, the Director must show that Judge Silver made the determination that

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the 2010 notices were legally sufficient. “The party asserting preclusion bears the burden

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of showing with clarity and certainty what was determined by the prior judgment.” Clark

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v. Bear Stearns & Co., Inc., 966 F.2d 1318, 1321 (9th Cir. 1992).

To prevail on such an issue-preclusion

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To show what Judge Silver decided, the Director points to what the Ninth Circuit

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said when it remanded the case for further consideration – that “if the alleged failure to

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provide adequate notice of coverage changes in 2003 has not been repeated, these

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intervening events [including new 2010 and 2011 notices] likely have rendered this claim

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moot.” 660 F.3d at 383. The Director also notes that on remand the plaintiffs argued that

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the 2010 notices were a continuing violation, and the Director developed the record and

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argued that the new notices satisfied due process. Docs. 26 at 3; 43 at 5. The Director

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argues that if the Court were now to find the 2010 notices unlawful, such a finding would

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necessarily conflict with Judge Silver’s apparent determination that the 2010 notices were

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legally sufficient. Doc. 43 at 8.

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The Director misstates the scope of Judge Silver’s opinion.

The only legal

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determination Judge Silver made regarding the notices was that the then-plaintiffs’ claim

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regarding the sufficiency of the 2003 notices was moot. Although the Ninth Circuit

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instructed the district court to determine “whether there is an ongoing basis for [the claim

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that the 2003 notices violated due process], and if so, whether the relevant notices have

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satisfied the requirements of constitutional due process and the Medicaid Act” (id.),

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Judge Silver determined that the claim regarding the 2003 notices was moot and never

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reached the second part of the inquiry. She never addressed the sufficiency of the later

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notices. Nor is Judge Silver’s limited explanation that the 2003 claim was moot “given

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the expiration of the prior program, as well as the additional notices later sent” (2:03-cv-

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02506-ROS, Doc. 261 at 4) enough to show “with clarity and certainty [that the

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sufficiency of the 2010 notices] was determined by the prior judgment.” Clark v. Bear
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Stearns & Co., Inc., 966 F.2d at 1321. This is particularly true given Judge Silver’s

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general statement that the plaintiffs were free to challenge the new program in a new suit.

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2:03-cv-02506-ROS, Doc. 261 at 4. It appears that Judge Silver simply was of the view

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that new events had mooted the old claims before her. The Court cannot conclude that

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she decided the legal sufficiency of the 2010 notices sub silentio.

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Nor is the Court persuaded by the Director’s res judicata argument that Plaintiffs’

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claim regarding the 2010 notices is barred as one that “could have been brought” in the

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earlier action. See Doc. 43 at 7 (citing, e.g., United States ex rel. Barajas v. Northrup

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Corp., 147 F.3d 905, 909 (9th Cir. 1998) (“Res judicata bars relitigation of all ground of

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recovery that . . . could have been asserted.”). The prior lawsuit concerned events of

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2003. This lawsuit concerns events of 2010. Although the legal issues are similar, the

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factual basis for the current claim arises from different events. As a result, the Court

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cannot conclude that this case presents an identity of claims. Nor can the Court conclude

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that the prior claims were decided on the merits; Judge Silver never addressed the merits.

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Res judicata therefore does not apply. Tahoe-Sierra Pres. Council, 322 F.3d at 1077 (res

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judicata requires an identity of claims and a final judgment on the merits).

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IT IS ORDERED that Defendant Thomas Betlach’s motion to dismiss Plaintiffs’
second claim for relief (Doc. 26) is denied.
Dated this 24th day of September, 2012.

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