Opinion
A163493
02-24-2023
CARL KELLEY et al., Plaintiffs and Appellants, v. MCKESSON CORPORATION, Defendant and Respondent.
NOT TO BE PUBLISHED
(San Francisco County Super Ct. No. CGC-19-0576931)
Wiseman, J. [*]
As relators in two qui tam actions, appellants Carl Kelley and Michael McElligott sued respondent McKesson Corporation, first in federal court under the False Claims Act (FCA, 31 U.S.C. § 3729 et seq.), and then in state court under the California False Claims Act (CFCA, Gov. Code, §12650 et seq.). The federal and state cases concerned respondent pharmaceutical distributor's contracts with the federal Department of Veterans Affairs (VA) and the California Department of General Services (DGS), respectively. According to appellants, both contracts required compliance with various federal and California laws which respondent violated by failing to take adequate theft prevention measures at its distribution centers. In each case, the "false claims" at issue arose from respondent's claims for payment pursuant to one of those contracts.
After the federal district court dismissed appellants' second amended complaint without leave to amend, the superior court sustained respondent's demurrer without leave to amend, holding that the district court's dismissal of appellants' FCA claims precluded the successive litigation of their CFCA claims. We agree and affirm.
I. BACKGROUND
In their second amended complaint filed in federal district court, appellants pursued a qui tam action against respondent for violating the FCA. The complaint alleges as follows. First, respondent's "distribution centers are riddled with security flaws that allow for the diversion of extraordinary quantities of opioids for" unlawful purposes. Second, appellants "personally witnessed evidence of" such security flaws. Third, respondents' contract with the VA obligated respondent to comply with various federal and state laws-including California's Uniform Controlled Substance Act-effectively requiring more stringent security measures than the ones respondent appeared to employ. Fourth, respondent's "executive management has long known of significant security flaws." Thus, "[b]y submitting claims for goods to the federal government," respondent violates the FCA by falsely claiming "it is in compliance with the purchase contracts for those goods."
A separate complaint filed in San Francisco Superior Court asserted a CFCA claim on similar grounds. First, respondent's "supply chain is riddled with security flaws that allow for the diversion of extraordinary quantities of opiates for" unlawful purposes. Second, appellant Kelley "personally witnessed evidence of lack of security" and appellant McElligott "personally witnessed a variety of activities . . . which reflected a corporate culture that flouted the law." Third, respondents' contracts with DGS and "other California governmental entities" obligated respondent to comply with various federal and state laws-including California's Uniform Controlled Substance Act-effectively requiring more stringent security measures than the ones respondent appeared to employ. Fourth, respondent's "executive management has long known of significant security flaws." Thus, respondents violated the CFCA by "knowingly presenting or causing to be presented a false or fraudulent claim for payment" under its contracts with DGS and other California governmental entities by "omitting its violations of statutory, regulatory, and contractual requirements in connection with" those contracts.
The district court dismissed the FCA claim, finding that appellants had "not adequately pleaded that [respondent] submitted false claims for payment to the government." Arguing that the dismissal of the FCA claim had preclusive effect, respondent filed in the superior court a demurrer to appellants' CFCA-oriented complaint. The superior court sustained the demurrer without leave to amend, holding that the doctrine of res judicata applied because the "two suits ar[ose] out of the same nucleus of facts, the federal suit reached a final judgment on the merits, and [appellants] were parties to both actions."
This appeal followed.
II. DISCUSSION
Appellants urge us to reverse the order sustaining respondent's demurrer without leave to amend, arguing that the superior court erred in holding that litigation of appellants' CFCA claims was precluded by the dismissal of their FCA claims under the doctrine of res judicata. We disagree and affirm the order accordingly.
A. Standard of Review and Applicable Law
For an order sustaining a demurrer, "the standard of review on appeal is de novo." (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034.) "[W]here," as here, "a prior federal judgment was based on federal question jurisdiction, the preclusive effect of the prior judgment of a federal court is determined by federal law." (Guerrero v. Department of Corrections & Rehabilitation (2018) 28 Cal.App.5th 1091, 1102, italics removed, quoting Louie v. BFS Retail &Commercial Operations, LLC (2009) 178 Cal.App.4th 1544, 1553.)
"Res judicata applies when 'the earlier suit . . . (1) involved the same "claim" or cause of action as the later suit, (2) reached a final judgment on the merits, and (3) involved identical parties or privies.'" (Mpoyo v. Litton Electro-Optical Systems (9th Cir. 2005) 430 F.3d 985, 987 (Mpoyo), quoting Sidhu v. Flecto Company (9th Cir. 2002) 279 F.3d 896, 900.) Here, where it is beyond dispute that appellants' federal suit reached a final judgment on the merits, we must decide only whether the FCA and CFCA suits involved both the same claim and the same parties.
We grant respondent's unopposed request for judicial notice under Evidence Code section 452, subdivision (d)(2), and note in turn that the district court's order dismissing appellants' FCA claims was affirmed by the Court of Appeals for the Ninth Circuit on March 10, 2022. (McElligott. v. McKesson Corp. (9th Cir. Mar. 10, 2022, No. 21-15477) 2022 U.S. App. Lexis 6230; Cal. Rules of Court, rule 8.252, subd. (a).)
B. The Same "Claim" or Cause of Action
"Whether . . . two suits involve the same claim or cause of action requires us to look at four criteria . . . (1) whether the two suits arise out of the same transactional nucleus of facts; (2) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (3) whether the two suits involve infringement of the same right; and (4) whether substantially the same evidence is presented in the two actions." (Mpoyo, supra, 430 F.3d at p. 987.)
However, "we do not apply" the four criteria "mechanistically." (Ibid.) Even if "examination of the latter three criteria does not yield a clear outcome," where the two suits "clearly share a common nucleus of operative fact," that first criterion may control and thereby assure that "the two suits involve the same claim or cause of action." (Id. at p. 988.) "Newly articulated claims based on the same nucleus of facts may still be subject to a res judicata finding if the claims could have been brought in the earlier action." (Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency (9th Cir. 2003) 322 F.3d 1064, 1078 (Tahoe-Sierra).)
Here, a comparison of the two complaints is instructive. In the federal complaint, respondent's "distribution centers are riddled with security flaws that allow for the diversion of extraordinary quantities of opioids for" unlawful purposes. In the state complaint, respondent's "supply chain is riddled with security flaws that allow for the diversion of extraordinary quantities of opiates for" unlawful purposes. The federal complaint alleges that appellants "personally witnessed evidence of" such security flaws. According to the state complaint, Kelley "personally witnessed evidence of lack of security" and appellant McElligott "personally witnessed a variety of activities . . . which reflected a corporate culture that flouted the law."
The federal complaint alleges that respondents' contract with the VA, by obligating respondent to comply with various federal and state laws- including California's Uniform Controlled Substance Act-effectively required more stringent security measures than the ones respondent appeared to employ. The state complaint makes the same allegation, but refers to respondents' contracts with DGS and "other California governmental entities" instead of its contract with the VA. Both complaints allege that respondent's "executive management has long known of significant security flaws."
Finally, "[b]y submitting claims for goods to the federal government," respondent violated the FCA by falsely claiming "it is in compliance with the purchase contracts for those goods." Similarly, respondents violated the CFCA by "knowingly presenting or causing to be presented a false or fraudulent claim for payment" under its contracts with DGS and other California governmental entities by "omitting its violations of statutory, regulatory, and contractual requirements in connection with" those contracts.
The two complaints therefore allege a single transactional nexus of fact: respondent was contractually obligated to comply with certain laws providing for the securing of controlled substances, but knowingly violated such laws; therefore, when respondent presented a claim for payment under the contract, it knowingly misrepresented that it had complied with those laws. The only apparent distinction between the two complaints concerns the party to whom respondent's alleged false claims were made: the federal government for the purposes of the FCA, and the state of California for the purposes of the CFCA. However, it was the same alleged conduct-failing to secure its facilities-that purportedly rendered fraudulent respondent's claims for payment, irrespective of who received those claims. Because the same transactional nexus of fact underlies both claims, they could have been brought in a single suit. (31 U.S.C. § 3732, subd. (b).) Consequently, the CFCA claim "may still be subject to a res judicata finding." (Tahoe-Sierra, supra, 322 F.3d at p. 1078.)
In sum, because the two complaints so "clearly share a common nucleus of operative fact," we need not reach "the latter three criteria" in order to conclude that "the two suits involve the same claim or cause of action." (Mpoyo, supra, 430 F.3d at p. 988.) For the purposes of res judicata, appellants' respective claims under the FCA and the CFCA are identical.
C. Identical Parties or Privies
An inquiry as to whether appellants' two qui tam suits involved identical parties requires a brief discussion of the nature of such suits. As our colleagues in the Second District noted in People ex rel. Allstate Ins. Co. v. Weitzman (2003) 107 Cal.App.4th 534, 538 (Allstate), a "qui tam action has been defined as follows, 'An action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive.' (Black's Law Dict. (7th ed. 1999) p. 1262, col. 1; United States ex rel. Aflatooni v. Kitsap Physicians Service (9th Cir. 2002) 314 F.3d 995, 997, fn. 1.)" Such private persons are called relators. (Ibid.)
Here, appellants do not deny that the two suits were pursued by the same relators. Instead, they argue that the "real parties to the actions are different" because appellants brought the FCA suit on behalf of the federal government and the CFCA suit on behalf of the state of California. However, "the naming of additional parties does not eliminate the res judicata effect of a prior judgment 'so long as the judgment was rendered on the merits, the cause of action was the same and the party against whom the doctrine is asserted was a party to the former litigation.'" (U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc. (9th Cir. 1992) 971 F.2d 244, 249, italics added, quoting Dreyfus v. First National Bank of Chicago (7th Cir. 1970) 424 F.2d 1171, 1175.) Thus, if appellants are parties in their own right, their status as relators bringing suit on the behalf of two different sovereigns does not preclude the application of res judicata.
As respondent observes, both the FCA and the CFCA identify relators as parties. Under the FCA, a relator "may bring a civil action for a violation of section 3729 for the person and for the United States Government." (31 U.S.C. § 3730, subd. (b)(1), italics added.) And under the CFCA, a relator "may bring a civil action for a violation of this article for the person and either for the State of California" or for a political subdivision. (Gov. Code, § 12652, subd. (c)(1), italics added.) Moreover, the conclusion that relators are parties is supported by the Latin expression from which the term "qui tam" comes:" '[Q]ui tam pro domino rege quam pro se ipso in hac parte sequitur' . . . means,' "who pursues this action on our Lord the King's behalf as well as his own." '" (Allstate, supra, 107 Cal.App.4th at p. 538, italics added, quoting Vermont Agency of Natural Resources v. United States ex rel. Stevens (2001) 529 U.S. 765, 768, fn. 1.)
In sum, appellants were parties to both suits. Because they were the parties against whom res judicata was asserted, the fact that the two complaints named different sovereigns as additional parties is irrelevant. (U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., supra, 971 F.2d at p. 249.) The CFCA suit therefore involved both the same claim and the same parties as the FCA suit that reached a judgment on the merits when it was dismissed by the district court. For that reason, respondent's demurrer to the CFCA suit was properly sustained without leave to amend.
III. DISPOSITION
We affirm.
We concur: Jackson, P.J. Burns, J.
[*]Retired Associate Justice of the Court of Appeal, Fifth Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.