CANONSBURG GENERAL HOSPITAL, Plaintiff, v. Kathleen SEBELIUS, Secretary, U.S. Department of Health and Human Services, Defendant.
Civil Action No. 09-2385(BAH)
United States District Court, District of Columbia.
October 17, 2013
BERYL A. HOWELL, United States District Judge
III. CONCLUSION
For the foregoing reasons defendant‘s Motion [56] to Reduce Sentence is DENIED. A separate Order consistent with this Memorandum Opinion shall issue this date.
Mitchell P. Zeff, U.S. Attorney‘s Office, Jonathan C. Brumer, Jeremy Vogel, U.S. Dept. of Health and Human Services Office of the General Counsel, Washington, DC, for Defendant, Kathleen Sebelius.
MEMORANDUM OPINION
BERYL A. HOWELL, United States District Judge
The plaintiff, Canonsburg General Hospital, brings this challenge, under the Administrative Procedure Act (“APA“),
I. BACKGROUND
A. Statutory Scheme
Medicare is a federal program that pays for health care services furnished to eligible beneficiaries—generally individuals over 65 and individuals with disabilities. See
“Congress authorized the Secretary of Health and Human Services to issue regulations defining reimbursable costs and otherwise giving content to the broad outlines of the Medicare statute.” Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 506-07 (1994) (citing
Title XVIII of the Social Security Act established the Medicare program to provide health insurance for the elderly and disabled individuals. See
SNFs submit claims, which are also known as “cost reports,” for reimbursement to private “Medicare administrative contractors,” who serve as fiscal intermediaries to process claims and reimburse providers on behalf of Medicare. See
“Seeking to encourage Medicare-certified providers to operate efficiently, Congress has instructed the Secretary ... to cap payments under these programs at what [s]he determines to be reasonable cost limits (‘RCLs‘) and apply statutory norms in the determination.” St. Elizabeth‘s Med. Ctr. of Bos., Inc., 396 F.3d at 1230 (citing
“An exception differs from an exemption,” 44 Fed.Reg. 31,802 (1979), since an exception provides that RCLs may be adjusted upward under specific, enumerated circumstances “to the extent that the costs are reasonable, attributable to the circumstances specified, separately identified by the SNF ..., and verified by the intermediary.”
When determining what RCL is to be applied, SNFs are categorized into four groups based upon two primary criteria: (1) location in an urban or rural area, and (2) “freestanding” or “hospital-based.” See generally
DEFRA responded to the higher cost of hospital-based SNFs attributable to inefficiency by lowering the hospital-based SNF RCLs from 112 percent of the peer group mean to half the cost difference between the 112 percent level for hospital-based SNFs and freestanding SNFs. St. Francis, 205 F.3d at 940. In other words, the hospital-based SNF RCL was capped at the amount representing the sum of the 112 percent level RCL for freestanding SNFs plus half the difference between the 112 percent level RCL for hospital-based SNFs and freestanding SNFs.4 Id.; see also
In 1994, the Secretary issued Health Care Financing Administration Transmittal No. 378, which added a new section, PRM § 2534.5, to the Medicare Provider Reimbursement Manual (“PRM“). See PRM § 2534.5; see also Def.‘s Mem. Supp. Mot. Summ. J. (“Def.‘s Mem.“), Ex. 1, ECF No. 28; Pl.‘s Mem. Opp‘n Def.‘s Mot. Summ. J. (“Pl.‘s Mem.“), Ex. A, ECF No. 30-1. PRM § 2534.5 states that when “determining reasonable cost, the provider‘s per diem costs in excess of the cost limit are ... compared to per diem costs of a peer group of similarly classified providers.” PRM § 2534.5; Def.‘s Mem., Ex. 1, at 9; Pl.‘s Mem, Ex. A, at 9. For hospital-based SNFs, the qualifying amount for reimbursement under an exception is measured from 112 percent of the SNF‘s peer group mean per diem cost, not the SNF‘s peer group RCL. PRM § 2534.5, Def.‘s Mem., Ex. 1, at 10; Pl.‘s Mem., Ex. A, at 10. Consequently, hospital-based SNFs are precluded from being reimbursed for costs incurred through provision of atypical services that are in excess of the RCL but below the 112 percent peer group mean per diem threshold.
B. The Plaintiff
Canonsburg General Hospital (“Canonsburg” or “the plaintiff“) is a hospital located in Pennsylvania that participated in the Medicare program during all years relevant to the instant case. See Compl. ¶ 6, ECF No. 1; Answer ¶ 6, ECF No. 10. Canonsburg also owned and operated a SNF which participated in the Medicare program. AR 5, 38, 46; Compl. ¶¶ 6, 32; Answer ¶¶ 6, 32. Canonsburg‘s SNF was hospital-based, and reimbursed on a reasonable cost basis, subject to RCLs pro-
C. Canonsburg I
Following the application of PRM § 2534.5 to cost reports the plaintiff filed for the five fiscal years ending June 30, 1987 through June 30, 1990 and June 30, 1993, the plaintiff sued the defendant in the District Court for the Western District of Pennsylvania “challeng[ing] the methodology used by the Secretary in calculating the amount of its reimbursement for atypical services” for the relevant fiscal years. See Canonsburg Gen. Hosp. v. Thompson, No. 00-284, 2001 WL 36339671, at *1 (W.D.Pa. Feb. 28, 2001) (“Canonsburg I”). Specifically, Canonsburg argued that PRM § 2534.5 improperly interpreted the applicable statute and regulation when determining atypical cost exceptions from hospital-based SNF RCLs. See id.
The plaintiff asserted three arguments in support of its position in Canonsburg I: (1) PRM § 2534.5 conflicts with the applicable cost limit statute,
First, the Canonsburg I court determined that because the cost limits in the Medicare statute are phrased in permissive, not mandatory, language, the “Secretary‘s interpretation of the regulation and statute in PRM 2534.5 was reasonable, not arbitrary.” Canonsburg I, 2001 WL 36339671, at *4. Second, the Canonsburg I court rejected the plaintiff‘s argument that PRM § 2534.5 was procedurally invalid because it was not promulgated pursuant to the APA‘s notice and comment requirements. Id. The court noted that PRM rules have been widely held to be “interpretive rules” and exempt from notice and comment rulemaking and, further, that PRM § 2534.5 on its face does not “effect new substantive reimbursement standards inconsistent with prior regulations—the central characteristic of a substantive rule.” Id. (quoting St. Francis, 205 F.3d at 947). Finally, the Canonsburg I court rejected the plaintiff‘s argument that the regulation discriminates between free-standing and hospital-based SNFs because, “once [hospital-based SNFs are] discounted for their unreasonable costs as determined by Congress ... [both types of SNFs] are treated relatively the same.” Id. (quoting St. Francis, 205 F.3d at 946). The Canonsburg I court decided on cross-motions for summary judgment in favor of the defendant and against the plaintiff. See Canonsburg I, 2001 WL 36339671, at *5. The plaintiff took no appeal from this decision.
D. The Instant Case (Canonsburg II)
In September 1998, several years before the issuance of the decision in Canonsburg I, the plaintiff again filed a filed a cost report with its Medicare fiscal intermedi-
In 2009, the PRRB found that the Intermediary should have allowed for reimbursement of the plaintiff‘s costs in excess of the RCL and that PRM § 2534.5 was invalid on substantive and procedural grounds. AR 41-44. Later that year, the Acting Deputy Administrator of CMS (“Administrator“) reversed the PRRB‘s decision, finding that all hospital-based SNF costs between the RCL and the 112 percent threshold are unreasonable costs. AR 17-18. The Administrator found that PRM § 2534.5 was consistent with the statute and regulations and that the provision itself was a “reasonable and appropriate” application of reasonable cost requirements. Id. at 17. The Administrator also found that PRM § 2534.5 was not a change in CMS policy, meaning the provision did not need to be issued through notice and comment rulemaking before promulgation. Id. at 15-16. The plaintiff timely filed the instant suit challenging the Administrator‘s decision under
II. LEGAL STANDARD
A. Summary Judgment
Granting a motion for summary judgment is appropriate if the movant carries the burden of showing “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law,” based upon the pleadings, depositions, and affidavits, and other factual materials in the record.
In this case, the Court is presented with cross motions for summary judgment for purposes of reviewing the plaintiff‘s legal challenge to an HHS regulation and its application to the plaintiff. “[W]hen an agency action is challenged[] ... [t]he entire case on review is a question of law, and only a question of law.” Marshall Cnty. Health Care Auth. v. Shalala, 988 F.2d 1221, 1226 (D.C.Cir.1993). This Court need not and ought not engage in lengthy fact finding, since “[g]enerally speaking, district courts reviewing agency action under the APA‘s arbitrary and capricious standard do not resolve factual issues, but operate instead as appellate courts resolving legal questions.” James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1096 (D.C.Cir.1996); see also Sierra Club v. Mainella, 459 F.Supp.2d 76, 90 (D.D.C.2006) (“Under the APA, it is the role of the agency to resolve factual issues to arrive at a decision that is supported by
B. Issue Preclusion
“The preclusive effect of a judgment is defined by claim preclusion and issue preclusion, which are collectively referred to as ‘res judicata.‘” Taylor v. Sturgell, 553 U.S. 880, 892 (2008). Claim preclusion “forecloses ‘successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit.‘” Id. (quoting New Hampshire v. Maine, 532 U.S. 742, 748 (2001)). In contrast, issue preclusion, which was “once known as ‘collateral estoppel’ and ‘direct estoppel,‘” bars “successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment, even if the issue recurs in the context of a different claim.” Id. at 892, id. n.5 (internal quotations and citations omitted); see also U.S. Postal Serv. v. Am. Postal Workers Union, 553 F.3d 686, 696 (D.C.Cir.2009) (“Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case.“) (internal quotation marks and citation omitted). The Supreme Court has explained that these preclusion doctrines serve the important functions to “protect against the expense and vexation attending multiple lawsuits, conserv[e] judicial resources, and foste[r] reliance on judicial action by minimizing the possibility of inconsistent decisions.” Taylor, 553 U.S. at 892 (quoting Montana v. United States, 440 U.S. 147, 153-154 (1979)) (alteration in original); see also Yamaha Corp. of Am. v. United States, 961 F.2d 245, 254 (D.C.Cir.1992) (“The objective of the doctrine of issue preclusion is judicial finality; it fulfills ‘the purpose for which civil courts have been established, the conclusive resolution of disputes within their jurisdiction.‘“) (quoting Kremer v. Chem. Constr. Corp., 456 U.S. 461, 467 n.6 (1982)).
Three elements must be satisfied for a final judgment to preclude litigation of an issue in a subsequent case: “[1], the same issue now being raised must have been contested by the parties and submitted for judicial determination in the prior
The overriding goal of the issue preclusion doctrine is to “avert needless relitigation and disturbance of repose, without inadvertently inducing extra litigation or unfairly sacrificing a person‘s day in court.” Otherson v. U.S. Dep‘t of Justice, 711 F.2d 267, 273 (D.C.Cir.1983). When the first two prerequisites for application of the issue preclusion doctrine are met, the plaintiff “must be permitted to demonstrate, if he can, that he did not have a fair opportunity procedurally, substantively, and evidentially to pursue his claim the first time.” Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 333 (1971) (internal quotation marks omitted). As the Supreme Court explained, “a party who has had one fair and full opportunity to prove a claim and has failed in that effort, should not be permitted to go to trial on the merits of that claim a second time. Both orderliness and reasonable time saving in judicial administration require that this be so unless some overriding consideration of fairness to a litigant dictates a different result in the circumstances of a particular case.” Id. at 324-25.
Notably, “[a] court conducting an issue preclusion analysis does not review the merits of the determinations in the earlier litigation.” Consol. Edison Co. of N.Y. v. Bodman, 449 F.3d 1254, 1257 (D.C.Cir.2006); see also Nat‘l Post Office Mail Handlers ... v. Am. Postal Workers Union, 907 F.2d 190, 194 (D.C.Cir.1990) (“The doctrine of issue preclusion counsels us against reaching the merits in this case, however, regardless of whether we would reject or accept our sister circuit‘s position.“); Yamaha Corp. of Am. v. United States, 745 F.Supp. 734, 738 (D.D.C.1990) (noting the D.C. Circuit‘s instruction “that collateral estoppel prevents a court from ever reaching the merits“).
III. DISCUSSION
The defendant argues that the plaintiff‘s claims are precluded because of the decision in Canonsburg I. See Def.‘s Mem. at 16 (“Plaintiff‘s action is barred because it is impermissibly seeking to re-litigate the same legal issues and arguments which it litigated” in Canonsburg I). The plaintiff does not assert any argument regarding the first two elements of issue preclusion and the Court finds that they are met in the instant case. See Pl.‘s Mem. at 2-3 (raising arguments against preclusion not including challenges to prongs one or two of the Yamaha test). Indeed, at first blush, this case is a classic example where issue preclusion is appropriate: the same parties to Canonsburg I are parties to this action, namely: Canonsburg General Hospital and the Secretary, compare Canonsburg I, 2001 WL 36339671, at *1, with Compl. at 1; the same ultimate issue is in dispute, namely: the validity of PRM § 2534.5, compare Canonsburg I, 2001 WL
Instead, the plaintiff raises four arguments against issue preclusion, all of which appear to be directed to the third prong of the Yamaha test: whether issue preclusion would “work a basic unfairness” on the plaintiff. Thus, the Court first considers whether applying claim preclusion here would work the type of unfairness necessary to except a case otherwise precluded from decision, and then turns to each of the plaintiff‘s arguments.
A. Applying Issue Preclusion Is Not Unfair To The Plaintiff
In evaluating the potential unfairness to the plaintiff in precluding an APA challenge to an agency rule, the Court is cognizant that “[a]llowing one circuit‘s statutory interpretation to foreclose APA review of the question in another circuit would squelch the circuit disagreements that can lead to Supreme Court review.” Holland v. Nat‘l Mining Ass‘n, 309 F.3d 808, 815 (D.C.Cir.2002). Yet, the preclusion doctrine trumps this concern and permits circuit disagreement to be considered when “differing interpretations are developed in different cases, not in the same dispute.” Id.
Holland is instructive on this point. In that case, the D.C. Circuit declined to apply issue preclusion against the plaintiff in a case involving an identical legal challenge under the APA to the same agency rule at issue in an earlier Eleventh Circuit case, brought by different plaintiffs. See Holland, 309 F.3d at 814. The court allowed the case to proceed to the merits, because the plaintiffs were different and did “not share the same incentives” as the original plaintiffs in the Eleventh Circuit. Id. The D.C. Circuit observed that its ruling would not disturb the Eleventh Circuit‘s ruling as to the original plaintiffs, but rather would only apply to those not a party to the original suit. Id. The court discounted the agency‘s contention that it would be “potentially subject to two conflicting orders,” explaining that the agency could apply the rule “according to the two different interpretations ... depending on whether the particular [company subject to the rule] was or was not party to the Eleventh Circuit suit.” Id. In short, the possibility of regulated entities being subject to different interpretations of the same rule due to different court interpretations—and whatever unfairness this possibility presented—was not a relevant factor in considering whether claim preclusion was appropriate. See also United States v. 5 Unlabeled Boxes, 572 F.3d 169, 175-176 (3d Cir.2009) (applying res judicata to bar plaintiff‘s challenge to agency rule and rejecting argument “that application of res judicata on issues of statutory interpretation would improperly ‘squelch[] the circuit disagreements that can lead to Supreme Court review,’ because “this concern—if assumed to have some weight—would be relevant only where the ‘differing [statutory] interpretations are developed in different cases, not in the same dispute’ and where there is not mutuality of parties.“) (citing Holland, 309 F.3d at 815). The focus instead is on whether, as here, the plaintiff has already had its day in court on the identical issue and, having lost, is trying to get the proverbial “second bite at the apple.”
In examining “unfairness” for the purposes of issue preclusion, the D.C. Circuit has been primarily concerned with wheth-
As part of its reasoning, the court noted that “when preclusion is sought by a former adversary, and the other requirements for preclusion are met, courts should refuse to give the first judgment preclusive effect on grounds that the party lacked adequate incentive to litigate in the first proceeding only upon a ‘compelling showing of unfairness.‘” Id. at 277 (quoting RESTATEMENT (SECOND) OF JUDGMENTS § 28 comment j). “Even the fact that the first determination was ‘patently erroneous’ is not alone sufficient.” Id.; see also Venetian Casino Resort, LLC v. NLRB, 484 F.3d 601, 610 (D.C.Cir.2007) (finding no unfairness where the court could “discern no difference between the incentives that the [plaintiff] may have had in its Ninth Circuit litigation and its incentives here. The stakes in its attempt before that court were no less than they are now.“); Beverly Health & Rehab. Servs., Inc. v. NLRB, 317 F.3d 316, 323 (D.C.Cir.2003) (finding no unfairness where the plaintiff “had every incentive to—and did—litigate the issue before the [previous court]“). Indeed, the Supreme Court recently confirmed the finality of a court‘s judgment even in the face of error, stating: “A court‘s power to decide a case is independent of whether its decision is correct, which is why even an erroneous judgment is entitled to res judicata effect.” City of Arlington v. FCC, 569 U.S. 290, 133 S.Ct. 1863, 1869, 185 L.Ed.2d 941 (2013).
Thus, neither Canonsburg I having possibly been wrongly decided nor the plaintiff being subject to a different and more costly interpretation of the challenged rule than similarly situated regulated entities, constitutes the type of unfairness warranting avoidance of claim preclusion. On the contrary, given the undisputed fact that the amount in controversy in Canonsburg I was almost double the amount of relief sought in this case, see Def.‘s Reply at 2, n.1, the plaintiff certainly had no less, and possibly more, incentive to litigate that prior case fully. Accordingly, the plaintiff has not shown that the application of issue preclusion in this case would work the kind of compelling unfairness warranting avoidance of the doctrine. Nevertheless, the plaintiff has posited four arguments as to why issue preclusion is unfair in this case. As explained below, none of these arguments is persuasive.
B. Plaintiff‘s First Argument Regarding A Change In Legal Landscape
The plaintiff first argues that applying issue preclusion to its claim would
To constitute a sufficient shift in the legal landscape to make application of issue preclusion unfair there must be a significant change in controlling law. See Apotex, Inc. v. FDA, 393 F.3d 210, 218 (D.C.Cir.2004) (“[I]n a small set of cases, a change in controlling legal principles may allow a party to relitigate a claim that would otherwise be barred by res judicata.“); Hardison v. Alexander, 655 F.2d 1281, 1288 (D.C.Cir.1981) (noting that only “on rare occasions [have] the courts been willing to override the bar of res judicata for reasons of compelling public policy“). The plaintiff has not demonstrated such a change in controlling law for three reasons. First, the plaintiff highlights SBC, Inc. v. FCC as the significant case that brought about a change in the law, but whether the Third Circuit “expressly adopted the Paralyzed Veterans rationale,” Pl.‘s Mem. at 19, and, further, whether its treatment of the D.C. Circuit case represented a substantial change or even a minor shift in Third Circuit controlling law, is not so clear-cut.8 As the defendant points out, merely by citing Para-
Second, it is significant that the Third Circuit concluded in SBC, Inc. v. FCC that the “APA‘s notice and comment requirements do not apply to the challenged agency action at issue since that action was ‘at most, interpretative’ and ‘simply clarified, and explained, an existing rule.‘” 414 F.3d at 501. This is consistent with Paralyzed Veterans, which does not subject every change in interpretive rules to the notice and comment process; rather, only those changes that are substantively different from long-standing interpretation with significant effect on the rights or duties of regulated entities may be found procedurally defective if adopted without a notice and comment process. Paralyzed Veterans, 117 F.3d at 588. At the same time, the D.C. Circuit has repeatedly recognized “that it is quite difficult to distinguish between substantive and interpretive rules.” Syncor Int‘l Corp. v. Shalala, 127 F.3d 90, 93 (D.C.Cir.1997); see also Air Transp. Ass‘n of Am. v. FAA, 291 F.3d 49, 55 (D.C.Cir.2002) (“The distinction between a substantive rule and an interpretive rule can be less than clear-cut.“). Thus, even if the plaintiff were correct about the Third Circuit‘s agreement with the rationale of Paralyzed Veterans, it does not necessarily follow that had SBC, Inc. v. FCC been in effect, the Canonsburg I court would have been any more persuaded that Paralyzed Veterans dictated a different result than the one reached, nor that the Third Circuit would have reached a different conclusion from the district court had the plaintiff appealed Canonsburg I.
Finally, Paralyzed Veterans predates Canonsburg I and, in fact, the Canonsburg I court had the benefit of hearing the plaintiff‘s argument that PRM § 2534.5 is procedurally invalid because the new rule amounted to a substantial change to a prior interpretation without notice and comment. See Def.‘s Mem. Ex. 4 (Pl.‘s Brief In Support Of Motion For Summary Judgment in Canonsburg I), at 20-21, ECF No. 28-4 (arguing PRM § 2534.5 is procedurally invalid under Paralyzed Veterans and its progeny). The Canonsburg I court simply did not find the argument persuasive. See Canonsburg I, 2001 WL 36339671, at *4 (noting that the St. Francis court “found that PRM § 2534.5 was an interpretative rule not requiring notice and comment rulemaking.“).
The plaintiff‘s argument that the Canonsburg I court “did not have the benefit” of SBC, Inc. boils down to the proposition that had Paralyzed Veterans been followed in that prior decision, the result would have been different. This is speculative at best. Indeed, in St. Francis, which the Canonsburg I court followed, the Sixth Circuit specifically addressed the argument that “PRM § 2534.5 is procedurally invalid because it is a substantive rule, yet it was not passed pursuant to the notice and comment requirements of the Administrative Procedure Act.” The Sixth Circuit found that the PRM rule was interpretive rather than substantive since it “does not effect new substantive reimbursement standards inconsistent with prior regulations” and, therefore, concluded that “the Secretary was not required to comply with
To bolster its argument that a changed legal landscape would make application of claim preclusion inappropriate here the plaintiff cites four cases, without any discussion of their underlying facts. All of those cases are readily distinguishable and thereby actually undercut the plaintiff‘s position. For example, American Medical International, Inc. v. Secretary of Health, Education, and Welfare, 677 F.2d 118 (D.C.Cir.1981) (“AMI“), is a per curiam opinion involving the offensive use of collateral estoppel against the federal government in a Medicare reimbursement case. See id. at 119; Pl.‘s Mem. at 20. In AMI, the plaintiffs argued that the government was barred from asserting a legal argument in this Circuit since the same argument had been denied previously by another circuit court. AMI, 677 F.2d at 119. The D.C. Circuit found the offensive use of collateral estoppel against the government to be troubling since “agency relitigation of legal issues with substantial policy implications” is “healthy.” Id. at 122. Moreover, the court also raised concerns about the mutuality of the parties in the prior litigation since the prior plaintiffs had been different subsidiaries, noting that the use of issue preclusion in that case would leave some subsidiaries of a company in a more-favored position than other subsidiaries of the same company, and, therefore, issue preclusion was inappropriate. Id. at 124.
Here, in contrast to AMI, the government is using collateral estoppel defensively against a plaintiff that has already tried the same legal issues before a federal court. The Supreme Court has acknowledged that “the Government is not in a position identical to that of a private litigant.” United States v. Mendoza, 464 U.S. 154, 159 (1984) (quoting INS v. Hibi, 414 U.S. 5, 8 (1973) (per curiam)). The concern in AMI was not that an unfavorable decision against a private entity would put that entity at a disadvantage; it was that a favorable decision for an entity would unfairly advantage that entity vis a vis its peers. See AMI, 677 F.2d at 124 (“It patently would be unfair to apply one rule for AMI and AMI-Chanco (the subsidiaries) and another for the other subsidiaries.“). The D.C. Circuit acknowledged that “[i]f the Government is litigating with the same adversary in both cases, an estoppel will petrify the law only as to that one party” but stated this is “obviously not an unjust result—and accordingly will work no preclusion generating national shockwaves.” Id. Thus, in the instant case, where the government and the private entity are litigating the same issue, application of the issue preclusion doctrine is appropriate without
The plaintiff‘s citation to Pharmaceutical Care Management Association v. District of Columbia, 522 F.3d 443 (D.C.Cir.2008) (“PCMA“), fares no better. Pl.‘s Mem. at 18. PCMA involved the potential conflict between a District of Columbia law, which required pharmacists to make certain financial disclosures, and ERISA regulations that possibly preempted the D.C. statute. Id. at 445-46. The D.C. Circuit reversed the district court‘s finding that the plaintiff was precluded from challenging the D.C. law based on a First Circuit decision upholding a similar state law against the same plaintiff‘s challenge on identical grounds. Id. at 447.9
PCMA is distinguishable on a number of grounds. In that case, the district court applied non-mutual collateral estoppel using a case involving the same plaintiff but different defendants, interpreting a different law, in different circuits. Id. at 446. The district court had held that because the First Circuit rejected the plaintiff‘s arguments against a Maine law, and the District of Columbia had amended its law to conform to the Maine law, the plaintiff should be precluded from raising its constitutional challenge again in the District of Columbia. Id. The D.C. Circuit reversed, finding that application of collateral estoppel was not appropriate for several reasons, including that since the case involved non-mutual estoppel, “treating [the issue] as conclusively determined would inappropriately foreclose opportunities for obtaining reconsideration of the legal rule upon which it was based” and “prevent the court from performing its function of developing the law.” Id. at 446-47 (internal citation and quotation marks omitted). This concern about “freez[ing] the development of the law in an area of substantial public interest,” id. which animated the decision in PCMA, is simply inapplicable here since the instant case does not involve non-mutual estoppel but identical parties to the parties in Canonsburg I.
Next, the plaintiff cites Graphic Communications International Union v. Salem-Gravure Division of World Color Press, Inc., 843 F.2d 1490 (D.C.Cir.1988) (“Graphic Comm.“), for the proposition that “issue preclusion does not apply when there has been an intervening change in legal principles.” Pl.‘s Mem. at 18. While the plaintiff is correct that Graphic Comm. contains language to that effect, the intervening legal change the D.C. Circuit was concerned with in Graphic Comm. was an express overruling of the Occupational Safety and Health Review Commission decision upon which the earlier case offered for preclusion purposes was based. Graphic Comm., 843 F.2d at 1493. At issue in Graphic Comm. was not a mere disagreement between district courts in different circuits, but rather an express overruling of the decision upon which one party attempted to preclude the other. Id. It is not surprising that, in such a factual scenario, the D.C. Circuit found the application of issue preclusion to be “unfair.”
Finally, the plaintiff cites Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898 (1948), in which the Supreme Court held, similarly to AMI, that a taxpayer should not be able to benefit from one favorable tax ruling through the use of collateral estoppel when the underlying legal framework changes in the interim. See id. at 599; Pl.‘s Mem. at 20. The Court observed that collateral estoppel “is not meant to create
The instant case is quite different from Sunnen. Here, the question at issue, regarding the validity of PRM § 2534.5, has not been the subject of a ruling by any authority binding on this Court. Unlike in Sunnen, a consensus appears elusive regarding the validity of PRM § 2534.5, in view of at least three cases, including one circuit court, finding the regulation to be invalid11 and at least four other cases, including a different circuit court, finding the opposite.12 Thus, continued application of the challenged rule does not work a substantial unfairness.
In sum, no consensus has been reached among the circuits about the validity of PRM § 2534.5, Canonsburg I has not been overruled in the Third Circuit, and there is no binding authority on point in this Circuit. Accordingly, the plaintiff has not shown a critical change in controlling law such that the current legal landscape would make application of the issue preclusion doctrine to the plaintiff unfair.
C. Plaintiff‘s Second Argument That The Defendant Waived The Application Of Issue Preclusion In Administrative Proceeding Below
The plaintiff argues that because the defendant did not raise the collateral
The primary case on which the plaintiff bases its waiver argument, and the only binding authority the plaintiff cites, is Poulin v. Bowen, 817 F.2d 865 (D.C.Cir.1987). In Poulin, the D.C. Circuit found that the Social Security Administrator had waived any res judicata defense because the claims administrator examined the merits of the claim for the benefits at issue even after recognizing that the claim had been previously administratively rejected. See id. at 868-69. The D.C. Circuit pointed to the express statutory authorization for the invocation of administrative res judicata during administrative proceedings for Social Security disability benefits, see
Poulin is distinguishable from the instant case for three critical reasons. First, unlike the agency defendant in Poulin, the defendant in the instant case has consistently raised its collateral estoppel defense throughout these Court proceedings. See, e.g., Answer at 1, ECF No. 10.
Second, unlike in Poulin, the prior decision, which the agency sought to give preclusive effect in court, was a prior agency decision. The defendant here seeks issue preclusion based upon a prior judicial decision. This point was significant in Poulin: the D.C. Circuit emphasized that the agency defendant had “expressly waived applicability of administrative res judicata” and thus “may not now advance this doctrine as an alternative basis for its decision.” Poulin, 817 F.2d at 869 (emphasis added). While the parties dispute whether the Secretary was in a position to raise the preclusion defense during the administrative proceedings before either the PRRB or as part of the CMS Administrator‘s decision, see Def.‘s Reply at 14; Pl.‘s Mem. at 4, the fact remains that no administrative decision is being offered as the basis for issue preclusion.13 Rather, unlike in Poulin, the focus here is on the preclusive effect of a judicial decision made by a court with subject matter ju-
Finally, related to the second point, “while res judicata exists in part to shield parties from duplicative and vexatious litigation,” this doctrine also protects the interests of the courts. Stanton v. District of Columbia Court of Appeals, 127 F.3d 72, 77 (D.C.Cir.1997). Thus, “res judicata belongs to courts as well as to litigants, [and] even a party‘s forfeiture of the right to assert it” does not “destroy a court‘s ability to consider the issue sua sponte.” Id. (emphasis in original); see also Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 231 (1995) (noting that while “waivers of res judicata [by litigants] are [not] always impermissible, ... waivers of res judicata need not always be accepted“); Commodity Futures Trading Comm‘n v. Schor, 478 U.S. 833, 851 (1986) (stating that when “Article III limitations are at issue, notions of consent and waiver [by parties] cannot be dispositive because the limitations serve institutional interests that the parties cannot be expected to protect.“). Consequently, even if no preclusion defense were raised during the administrative proceedings—and the Secretary was deemed to have waived such defense—the Court could nonetheless take notice of the prior judicial decision in Canonsburg I to assess its preclusive effect here. In short, the Court rejects the plaintiff‘s contention, in reliance on Poulin, that to invoke issue preclusion arising from a prior judicial decision, an agency must satisfy “dual requirements that the defense be asserted first at the administrative level and, subsequently, in court.” Pl.‘s Reply at 3.14
The other cases on which the plaintiff relies are neither binding on this Court nor particularly relevant. For instance, the plaintiff cites dictum in a footnote in Municipal Resale Service Customers v. FERC, 43 F.3d 1046, 1052 n.4 (6th Cir. 1995) (“MRSC“), see Pl.‘s Mem. at 15, where the court noted that it was possible to waive res judicata and collateral estoppel defenses by failing to raise the defenses during administrative proceedings, but found it unnecessary to reach the question because such defenses would have been fruitless in that case due to the addition of new plaintiffs. Similarly, in Andrews v. D.C. Police and Firefighters Retirement & Relief Board, 991 A.2d 763, 767 (D.C.2010), the question of res judicata was raised before the District of Columbia Court of Appeals sua sponte at oral argument and neither side sought to invoke the doctrine, which is a far different posture than presented in this case. See Pl.‘s Mem. at 15.
The Court finds that the defendant has timely asserted the affirmative defense of issue preclusion in this case and has not waived this defense. Thus, the plaintiff‘s argument that it is unfair to consider this
D. The Plaintiff‘s Third Argument That Chenery Bars Issue Preclusion
The plaintiff‘s further argues that because the defendant did not use issue preclusion based upon Canonsburg I to dispose of the case during administrative proceedings, the Court is barred by the doctrine set out in SEC v. Chenery, 332 U.S. 194, 196, 67 S.Ct. 1760, 91 L.Ed. 1995 (1947), from considering this defense now as it “is beyond the proper scope of review.” See Pl.‘s Mem. at 17-18. The plaintiff misconstrues this doctrine, which is inapplicable here.
As the defendant correctly states, the Chenery doctrine requires courts “in dealing with a determination or judgment which an administrative agency alone is authorized to make” to “judge the propriety of [agency] action solely by the grounds invoked by the agency.” SEC v. Chenery, 332 U.S. at 196. Application of issue preclusion based upon a prior judicial decision is not “a determination or judgment which an administrative agency alone is authorized to make.” Rather, issue preclusion in these circumstances is a distinctly legal doctrine that is primarily concerned with “orderliness and reasonable time saving in judicial administration.” Blonder-Tongue Labs., Inc., 402 U.S. at 324. Indeed, even if the defendant agency had raised, considered and rejected the preclusive effect of the prior judicial decision in Canonsburg I, as the plaintiff contends it must to raise this defense here, the agency‘s legal conclusion would not be binding on this Court.15 Accord Univ. of Tenn. v. Elliott, 478 U.S. 788, 798 (1986) (finding that “giving preclusive effect to administrative factfinding serves the value underlying general principles of collateral estoppel: enforcing repose,” but not addressing the preclusive effect of administrative legal conclusions); see also Peery v. Brakke, 826 F.2d 740, 746 (8th Cir.1987) (“Elliot directs that a state agency‘s factfinding is to be given preclusive effect in a subsequent § 1983 action” but where the disputed issue is one of law “issue preclusion under Elliot does not apply in any meaningful sense“); Perley by Perley v. Palmer, 157 F.R.D. 452, 457 (N.D.Iowa 1994) (holding that no preclusive effect need be given “to the legal conclusions of an administrative agency” when “this issue involves the interpretation of the applicable Medicaid statute and accompanying regulations, and therefore is
The plaintiff relies, with only brief discussion, on several cases to urge this Court to apply the Chenery doctrine and bar the preclusion defense “where the agency had not invoked the defense as part of its decision under review.” Pl.‘s Reply at 8; see also Pl.‘s Mem. at 17. Two of the cases, Riffin v. Surface Transportation Board, 592 F.3d 195, 198 (D.C.Cir.2010) and Manin v. National Transportation Safety Board, 627 F.3d 1239, 1243 (D.C.Cir.2011), are wholly inapposite since the court in those cases addressed the sufficiency under the APA of the federal agency‘s explanation for the challenged decision, and not whether the agency had waived an otherwise available preclusion defense. See Riffin, 592 F.3d at 198 (finding agency counsel‘s post hoc factual justification for agency action rendered challenged decision arbitrary and capricious requiring remand for further proceedings); Manin, 627 F.3d at 1243 (finding agency‘s post hoc justification for its departure from precedent without offering any explanation for this departure during administrative proceedings rendered the challenged decision arbitrary and capricious and required remand).
Likewise, the plaintiff‘s reliance on United States Postal Service v. NLRB, 969 F.2d 1064 (D.C.Cir.1992), is misplaced. See Pl.‘s Reply at 8. There, the union intervening in the case sought to preclude the Postal Service from asserting a claim that it had previously lost but not appealed in another NLRB proceeding, arguing that “the Service, having deliberately passed up its first opportunity, should not be accorded a second chance for court review.” Id. at 1069. The D.C. Circuit declined to consider issue preclusion, however, because the defendant agency did not raise it and “courts do not force preclusion pleas on parties who choose not to make them.” Id. By contrast, here, the agency is actually raising the issue preclusion defense, which is based upon a prior judicial, not prior administrative, decision.16
E. The Plaintiff‘s Fourth Argument Regarding Policy Considerations
Finally, the plaintiff presses the argument that the policy considerations underlying the collateral estoppel doctrine would be undercut by its application here. See Pl.‘s Mem. at 20–22. In making this argument, the plaintiff puts forth three rationales, none of which are persuasive.
First, the plaintiff argues that that the “the parties have already fully tried the merits of Canonsburg Hospital‘s cases before the PRRB and the CMS Administrator,” and, therefore, “[d]eciding this case based on collateral estoppel cannot undo that reality.” Pl.‘s Mem. at 20. This argument is a non-sequitur. The conservation of judicial resources policy underpinning issue preclusion relates to tying up more than one district court judge in resolving the merits of the same legal issue. Having this Court review the merits of the same legal issue considered in Canonsburg I between the identical parties is the type of duplicative expenditure of judicial resources that the preclusion doctrine is intended to bar, regardless of the administrative resources expended in adjudicating the underlying dispute.
Second, the plaintiff accuses the defendant of using “gamesmanship” to “prevent[] development of the law in the D.C. Circuit on the precise issues in this case.” Pl.‘s Mem. at 20. Specifically, the plaintiff suggests that the defendant‘s litigation strategy in other, unrelated cases, where the defendant has chosen to settle with plaintiffs rather than pressing an appeal, results in providers being “forced to file lawsuits appealing these same issues, rather than having the issues efficiently resolved by the cases that were already pending in this Circuit.” Pl.‘s Mem. at 21, these are not considerations relevant to the application of issue preclusion. In short, the fact that the defendant has entered into settlement agreements is simply irrelevant to whether issue preclusion is appropriately applied here. The plaintiff ignores the well-recognized public interest in the voluntary settlement of legal actions. See, e.g., Citizens for a Better Env‘t v. Gorsuch, 718 F.2d 1117, 1126 (D.C.Cir.1983) (“Not only the parties, but the general public as well, benefit from the saving of time and money that results from the voluntary settlement of litigation.“); see also L.Cv.R. 16.3(c)(5) (requiring parties to consider whether disputes can be resolved through participation in court sponsored mediation or other alternative dispute resolution before proceeding to trial). The fact that the defendant has chosen to settle cases involving similar legal issues to those litigated in the instant case and Canonsburg I has no bearing on whether the application of issue preclusion here creates a fundamental unfairness for the plaintiff.17
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Once a party has had its day in court, with every incentive to litigate its case fully, a compelling showing of unfairness is necessary to avoid the application of issue preclusion to any subsequent suit between the same parties addressing the same legal issues. See Otherson, 711 F.2d at 277. The Court finds that, because the parties and issues are identical to those in Canonsburg I, that the plaintiff had a full and fair opportunity to litigate with adequate incentives to do so, and the application of issue preclusion would not inflict a fundamental unfairness on the plaintiff, the plaintiff is estopped from raising again the issues resolved in Canonsburg I.
IV. CONCLUSION
For the aforementioned reasons, the Court finds that the relitigation of the issues raised by the plaintiff is precluded by the decision in Canonsburg I. Therefore, the defendant‘s Motion for Summary Judgment is GRANTED and the plaintiff‘s Cross-Motion for Summary Judgment is DENIED.
An appropriate Order accompanies this Memorandum Opinion.
APPALACHIAN VOICES, et al., Plaintiffs,
v.
Gina MCCARTHY, In her official capacity as Administrator, United States Environmental Protection Agency, Defendant,