Hi-Desert Med. Cntr. v. Douglas, No. 253268 (D2d2, as modified, Sept. 15, 2015)
Some hospitals challenged the enforcement of a state Medicaid law. They took a two-pronged attack. First, they filed mandamus proceedings in Superior Court, seeking to enjoin the enforcement of the statute. They did not, however, seek damages in mandamus. Instead, they also filed administrative actions with the California Department of Health Care Services, seeking to have certain funds refunded, based on their theory that the law was unenforceable. They agreed to stay their admin proceeding pending the action on their writ.
They lost the writ in trial court, but the Third District reversed, holding that the statute was unlawful due to the Legislature’s failure to follow some federal notice and comment procedures that apply to Medicaid laws, and enjoining further enforcement. The court didn’t address damages, however, because the hospitals never asked for them.
On remand, the hospitals tried to expand their petitions to add a damages remedy. The trial court agreed. But this time, the Third District agreed with the Department. It held that the court lacked jurisdiction to award monetary relief because the prior petition and appeal had already been fully resolved on the merits. If the hospitals wanted reimbursement to be part of their writ, they should have demanded that in the first place.
Then the Department moved to dismiss the long-dormant administrative actions, on the ground that the issues presented in them were already decided in the writ proceedings. The ALJs agreed and dismissed based on res judicata principles. The hospitals took writs of administrative mandamus, and two different L.A. Superior Court judges came to conflicting rulings regarding whether res judicata applied. Everyone appealed and the appeals were consolidated.
After finding that one hospital forfeited its appeal by failing to oppose a motion to dismiss during the administrative mandamus proceeding, the court addresses the key issue: “whether the administrative actions are barred by the doctrine of res judicata.” It holds they are. The elements of res judicata are all present. The parties are the same, the earlier claims were reduced to final judgment, and the claims arise from the same primary right. On the last point, the hospitals might have had a leg to stand on if, after winning their petition on the unenforceability of the law, they rekindled their administrative cases to obtain reimbursement. But by choosing instead to try to belatedly jam damages into the post-remand mandamus cases, a final loss on those issues became preclusive in the administrative proceedings.
The court further addressed various policy-based arguments as to why preclusion should not apply. Although the hospitals raise various formulations of estoppel, none meet any of the various available tests for relief under that doctrine. Nor did the hospitals putative need to exhaust administrative remedies merit non-preclusion. The law (including in the second appeal in the mandamus case) is clear that the hospitals could have sought damages as part of their writ petition. Finally, the court rejects a generic plea to equity. For sure, applying res judicata will mean that the Department avoids reimbursing them for unlawfully collected funds. But as the Court explains, “the scales of equity tip both ways.” Quoting Judge Kozinski's opinion delivering the death blow to the Winklevii's quixotic efforts to mulct some more Facebook out of Mark Zuckerburg, it remarks that “[t]his litigation has been pending for over 10 years and, ‘[a]t some point litigation must come to an end. That point has now been reached.’” (quoting Facebook, Inc. v. Pac. Nw. Software, Inc., 640 F.3d 1034, 1042 (9th Cir. 2011).
Reversed for the hospitals that prevailed in trial court; affirmed for the other.
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