Magellan v. Hon. duncan/dearing

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

MAGELLAN HEALTH, INC. and MAGELLAN RX MANAGEMENT,
LLC, Petitioners

v.

THE HONORABLE SALLY S. DUNCAN1, Judge of the SUPERIOR
COURT OF THE STATE OF ARIZONA, in and for the County of
MARICOPA, Respondent Judge,

CAROL DEARING, Real Party in Interest.

No. 1 CA-SA 21-0122
FILED 12-14-2021

Petition for Special Action from the Superior Court in Maricopa County
No. CV2020-013648
The Honorable Sally S. Duncan, Judge

REVIEW GRANTED; RELIEF DENIED

COUNSEL

Lewis Roca Rothgerber Christie LLP, Phoenix
By John C. Gray

Baker & Hostetler LLP, Atlanta, GA
By Christopher A. Wiech
Co-Counsel for Petitioner

1 We note that though the underlying case is assigned to The
Honorable Sally S. Duncan, the decision at issue was made by The
Honorable Jacki Ireland.
Bonnett Fairbourn Friedman & Balint PC, Phoenix
By Elaine Ryan, Carrie Ann Laliberte, Patricia Nicole Syverson

Morgan & Morgan PA, Tampa, FL
By John A. Yanchunis

Rhine Law Firm PC, Wilmington, NC
By Joel R. Rhine, Janet R. Coleman, Martin A. Ramey
Co-Counsel for Real Party in Interest

OPINION

Presiding Judge Peter B. Swann delivered the opinion of the court, in which
Judge David D. Weinzweig and Judge Paul J. McMurdie joined.

S W A N N, Judge:

¶1 This special action arises from the superior court’s refusal to
apply claim preclusion to dismiss an action previously dismissed by a
federal district court. We accept jurisdiction because preclusion is akin to
immunity, and the value of preclusion would be irretrievably lost if the
parties were required to proceed to trial before review. We deny relief
because the federal court’s dismissal of the earlier action, though
purportedly entered “with prejudice,” was predicated solely on subject-
matter jurisdiction. Because dismissal for lack of subject-matter jurisdiction
does not constitute a judgment on the merits, the superior court correctly
determined that claim preclusion did not apply.

FACTS AND PROCEDURAL HISTORY

I. FEDERAL COURT PROCEEDINGS

¶2 In April 2020, Carol Dearing (“Plaintiff”) filed a putative class
action in the United States District Court for the District of Arizona against
healthcare providers Magellan Health, Inc., and Magellan Rx Management,
LLC, (collectively, “Defendants”) arising out of an alleged data breach
implicating patients’ personal and health information.

¶3 Defendants moved to dismiss the action under Fed. R. Civ. P.
(“Rule”) 12(b)(1) for lack of subject matter jurisdiction and Rule 12(b)(6) for
failure to state a claim. The district court concluded that Plaintiff failed to

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allege facts regarding injury sufficient to establish standing under Article
III, Section 2 of the United States Constitution. The court therefore granted
Defendants’ motion, concluding that “Plaintiff lacks standing to bring this
claim” and ordering the complaint “dismissed with prejudice for lack of
subject matter jurisdiction.” The court stated that in view of its
jurisdictional determination, it “need not address Defendant’s Rule 12(b)(6)
arguments because this Court does not have subject matter jurisdiction.”

¶4 Plaintiff moved for reconsideration, asking that the district
court deny the motion to dismiss or, alternatively, give her an opportunity
to pursue jurisdictional discovery or amend her complaint. For the first
time, she alleged that she would have presented evidence that
unauthorized accounts were opened in her name after the alleged data
breach. Noting that Plaintiff had not previously sought leave to amend her
complaint to include allegations regarding unauthorized accounts, the
court denied the motion for reconsideration and ordered the matter to
“remain closed.” Plaintiff took no further action in the federal case.

II. STATE COURT PROCEEDINGS

¶5 In October 2020, Plaintiff re-filed the putative class action in
Maricopa County Superior Court, this time including allegations regarding
an unauthorized credit account opened in her name.

¶6 Defendants moved to dismiss, arguing that Plaintiff’s claims
and the issues underlying them were precluded by the district court’s
dismissal order. The superior court denied the motion to dismiss, holding
that neither claim nor issue preclusion applied because the district court
had dismissed the action for lack of subject matter jurisdiction and had not
reached the merits of the case.

¶7 Defendants seek relief from this court by way of special
action.

JURISDICTION

¶8 We accept jurisdiction. We typically do not accept special
action jurisdiction over the denial of a motion to dismiss. Vo v. Superior
Court (Romley), 172 Ariz. 195, 198 (App. 1992). Here, however, the purely
legal nature of the questions at issue weighs in favor of our exercise of
jurisdiction. See id. (holding that jurisdiction may be warranted where, for
example, “an issue is one of first impression of a purely legal question, is of
statewide importance, and is likely to arise again”); Better Homes Constr.,
Inc. v. Goldwater, 203 Ariz. 295, 298, ¶ 10 (App. 2002) (claim preclusion is

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question of law); Campbell v. SZL Props., Ltd., 204 Ariz. 221, 223, ¶ 8 (App.
2003) (issue preclusion is question of law). Moreover, the absence of an
adequate remedy by appeal weighs in favor of our exercise of jurisdiction—
preclusion is a form of immunity, and “questions concerning immunity are
particularly appropriate for special action review.” Tucson Unified Sch. Dist.
v. Borek, 234 Ariz. 364, 367, ¶ 5 (App. 2014).

DISCUSSION2

¶9 A judgment cannot trigger claim preclusion unless it
constitutes a final decision on the merits. Media Techs. Licensing, LLC v.
Upper Deck Co., 334 F.3d 1366, 1369 (Fed. Cir. 2003). “Because standing is
jurisdictional, lack of standing precludes a ruling on the merits.” Id. at 1370.

¶10 The district court’s dismissal was based on standing.
Defendants contend, however, that the dismissal’s “with prejudice”
designation gave the ruling preclusive effect. Defendants point to Fed. R.
Civ. P. 41(b), which provides that “[u]nless the dismissal order states
otherwise, a dismissal under this subdivision (b) and any dismissal not
under this rule—except one for lack of jurisdiction, improper venue, or
failure to join a party under Rule 19—operates as an adjudication on the
merits.” Defendants contend that because “with prejudice” is often
shorthand for a final judgment on the merits, the “with prejudice” label was
a “state[ment] otherwise” under Rule 41(b) that established the dismissal’s
preclusive effect. Id.

¶11 We disagree. In Semtek International, Inc. v. Lockheed Martin
Corporation, the Supreme Court held that nomenclature does not necessarily
establish claim preclusion for purposes of refiling in state court. 531 U.S.
497, 501, 505–06 (2001). The Court explained:

In short, it is no longer true that a judgment ‘on the merits’ is
necessarily a judgment entitled to claim-preclusive effect; and
there are a number of reasons for believing that the phrase
‘adjudication upon the merits’ does not bear that meaning in
Rule 41(b).

....

2 Federal law governs our analysis. See In re General Adjudication of All
Rights to Use Water in Gila River System & Source, 212 Ariz. 64, 69, ¶ 13 (2006).

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We think, then, that the effect of the ‘adjudication upon the
merits’ default provision of Rule 41(b)—and, presumably, of
the explicit order in the present case that used the language of
that default provision—is simply that, unlike a dismissal
‘without prejudice,’ the dismissal in the present case barred
refiling of the same claim in [the district court that entered the
dismissal]. That is undoubtedly a necessary condition, but it
is not a sufficient one, for claim-preclusive effect in other
courts.

Id. at 503, 506.

¶12 Similarly, the Ninth Circuit has made clear that a court cannot
predetermine the preclusive effect of its own judgment. Ruiz v. Snohomish
Cnty. Pub. Util. Dist. No. 1, 824 F.3d 1161, 1168 (9th Cir. 2016). Accordingly,
when the “with prejudice” label is attached to a dismissal for lack of
jurisdiction, the label “does not equate to an adjudication on the merits.”3
Id.; see also Brereton v. Bountiful City Corp., 434 F.3d 1213, 1218 (10th Cir. 2006)
(“[W]here a federal court erroneously dismisses ‘with prejudice’ claims
over which it lacks jurisdiction, a state court need not be blinded by this
nomenclature into barring a subsequent action on the same claim that is
properly brought within its jurisdiction.”); Ohio v. City of Cleveland, 655 F.3d
516, 521–22 (6th Cir. 2011) (holding that under Ohio law, dismissal for lack
of standing with prejudice was error but error did not change the fact that
court never considered merits, such that res judicata did not apply).

3 We need not and do not resolve the disputed question of whether a
with-prejudice dismissal on jurisdictional grounds is ever permissible.
Compare, e.g., Brereton v. Bountiful City Corp., 434 F.3d 1213, 1216 (10th Cir.
2006) (“A longstanding line of cases from this circuit holds that where the
district court dismisses an action for lack of jurisdiction, as it did here, the
dismissal must be without prejudice.” (emphasis added)) with Univ. of
Pittsburgh v. Varian Med. Sys., Inc., 569 F.3d 1328, 1332–33 (Fed. Cir. 2009)
(recognizing “that a dismissal for lack of standing should generally be
without prejudice” but noting cases upholding dismissals with prejudice
where standing was repeatedly not cured or was unlikely curable). See also
Brnovich v. Ariz. Bd. of Regents, 1 CA-CV 18-0420, 2019 WL 3941067, at *4,
¶¶ 18–19 (Ariz. App. Aug. 20, 2019) (mem. decision) (holding that under
Ariz. R. Civ. P. 41(b), which is substantially identical to relevant federal
rule, dismissal for lack of jurisdiction with prejudice was proper based on
futility of amendment), vacated on other grounds by 250 Ariz. 127 (2020).

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¶13 We are unpersuaded by Defendants’ reliance on Frigard v.
United States, 862 F.2d 201 (9th Cir. 1988), and Freeman v. Oakland Unified
School District, 179 F.3d 846 (9th Cir. 1999). In those cases, the Ninth Circuit
stated that dismissals for lack of subject-matter jurisdiction ordinarily
“should be dismissed without prejudice so that a plaintiff may reassert his
claims in a competent court.” Frigard, 862 F.2d at 204; Freeman, 179 F.3d at
847 (quoting Frigard). Defendants contend that this statement implies that
a dismissal with prejudice bars a plaintiff from refiling in a different court.
We find the statement too ambiguous to create the implication necessary to
Defendants’ position. Further, even if Defendants are correct, Frigard and
Freeman are undercut by the more recent authorities we set forth above.

¶14 Here, the district court made plain that it dismissed the action
based on standing alone. The court specified that the dismissal was for
“lack[ ] standing” and “lack of subject matter jurisdiction,” and it expressly
disclaimed reliance on Rule 12(b)(6). The “with prejudice” label therefore
affected only Plaintiff’s ability to refile an action with the same
jurisdictional defects in a federal district court. It did not transform the
explicitly jurisdictional decision into a decision on the merits sufficient to
preclude Plaintiff’s state-court action.4 Further, because the district court
decided no issues other than its own jurisdiction, the dismissal order did
not trigger issue preclusion with respect to the state-court action. See Lucky
Brand Dungarees, Inc. v. Marcel Fashion Grp., Inc., 140 S. Ct. 1589, 1594 (2020)
(explaining that issue preclusion “precludes a party from relitigating an
issue actually decided in a prior case and necessary to the judgment”).

4 We further note that the federal court decided a jurisdictional
question unique to the federal case—i.e., standing under Article III of the
federal constitution. See ASARCO Inc. v. Kadish, 490 U.S. 605, 617 (“[T]he
constraints of Article III do not apply to state courts . . . .”); Dobson v. State, 233 Ariz. 119, 122 (2013) (“Under Arizona’s constitution, standing is not
jurisdictional, but instead is a prudential doctrine requiring ‘a litigant
seeking relief in Arizona courts [to] first establish standing to sue.’ By
contrast, in federal court, standing requirements are rooted in Article III of
the United States Constitution, which limits jurisdiction to ‘cases or
controversies.’ Arizona’s Constitution has no counterpart ‘case or
controversy’ requirement.” (citation omitted)).

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 MAGELLAN v. HON. DUNCAN/DEARING
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CONCLUSION

¶15 We accept jurisdiction and deny relief for the reasons set forth
above.

AMY M. WOOD • Clerk of the Court
FILED: AA

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