Opposition Brief — Associated Convalescent Enterprises, Inc. v. United States

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as In the Supreme Court of the Gnited states

OcTosER TERM, 1988

' ASSOCIATED CONVALESCENT ENTERPRISES, INC.,

PETITIONER

v. .

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CER TIORARI

pe TO THE UNITED STATES COURT OF APPEALS

ae \ FOR THE NINTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES

IN OPPOSITION .

CHARLES FRIED

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

t

——

Cases:

TABLE OF AUTHORITIES

Allen v. McCurry,;449 U.S. 90 (1980) . VF POE one

Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394

RSENS iy ah ang SNE Ae a a

Lawlor v. National Screen Serv. pre 349 U.S. 322

IRA i RRS See FO i a tO aim ta ee

Nevada v. United States, 463 U.S. 110 (1983) Pathe gs laa nan

United States v. International Bldg. Co., 345 U.S. 502

i CREAR IE Fe Gov Uliana eee

United States v. Mendoza, 464 U.S. 154 (1984) . ees a

United States v. Southern Fabricating Co., 764 F.2d 780

eR Pie rae ois i 's's Gas va he ae 0 a's a

Statutes:

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31 U.S.C. (0976 et.) 192 ........ yk Pat ee ee SP eee

Miscellaneous:

Restatement (Second) of Judgments (1982) .............

(I)

Jn the Supreme Court of the Gnited States

OCTOBER TERM, 1988

No. 87-1876

ASSOCIATED CONVALESCENT ENTERPRISES, INC.,

PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES

IN OPPOSITION

Petitioner contends that an action dismissed with prej-

udice against a corporate entity that was the sole share-

holder of petitioner, but continued to judgment against

three other entities related to petitioner, bars a separate ac-

tion on the judgment against petitioner as the alter ego of

the three entities.

1. This case arises out of an action brought by the

United States to enforce a judgment obtained against three

convalescent homes for Medicare overcharges (Pet. App.

B1). The overcharges, amounting to more than $1 million,

were made between 1967 and 1969 (id. at B2). Recovery of

those amounts by the United States, however, has not yet

taken place because of what the district court described as

“delay tactics and other bad faith actions” (ibid.) and

“fraudulent conduct” (id. at B5; see also id. at B11). See

generally United States v. California Care Corp., 709 F.2d

(1)

a nye a on — — =

2

1241 (9th Cir. 1983); United States v. Associated Con-

valescent Enterprises, Inc., 766 F.2d 1342 (9th Cir. 1985).

The action on the judgment was brought against peti-

tioner as the alter ego of the three convalescent homes. In

the original action against the three homes, petitioner was

not named as a defendant. The government did name as a

defendant in that action petitioner’s sole shareholder,

Aruba Bonaire Curacao Trust Company (Aruba), a

Bahamas corporation. Aruba was not sued under the

theory that it was the alter ego of petitioner; instead, the

government contended that assets of the three convales-

cent homes otherwise subject to the government’s interest

had been transferred to petitioner and then distributed by

it to Aruba in derogation of the government’s rights under

the federal priority statute, 31 U.S.C. (1976 ed.) 191, 192.

The factual basis for the government’s suit against Aruba

under the priority statute was a certificate of winding up

and dissolution filed with the California Secretary of

State. The certificate stated that petitioner had been

dissolved; that Aruba was petitioner’s sole shareholder

and had either paid for or assumed all of petitioner’s

debts; and that petitioner’s assets had been transferred to

Aruba (Pet. App. B6).

The government subsequently learned that the state-

ments in the certificate of winding up and dissolution were

false, and that petitioner’s assets had never been trans-

ferred but had been frozen pursuant to a court order in the

California state courts (Pet. App. B6). To expedite the

litigation, the government sought a voluntary dismissal of

Aruba (id. at B3). On November 24, 1981, the district

court entered an order dismissing Aruba without preju-

dice. By judgment entered on January 22, 1982, however,

the district court dismissed Aruba as a defendant with

prejudice (ibid.). The government did not seek recon-

sideration of the judgment order.

-_-_

a~

Following entry of judgment against the three convales-

cent homes, the government sued petitioner as their alter

ego in an effort to enforce the judgment. Petitioner

resisted this effort, contending that petitioner and Aruba

were in “privity” and that the dismissal with prejudice of

Aruba in the underlying action therefore precluded the

government’s suit on the judgment against petitioner. The

district court rejected that contention (Pet. App. BS-B7).

The district court also held that petitioner was the alter ego

of the three convalescent homes and that therefore the

government’s previously obtained judgment against the

homes should be enforced against petitioner (/d. at

B7-B12). |

The court of appeals affirmed without opinion (Pet.

App. Al). Judge! Boochever dissented, concluding that,

because. “the issue of ‘alter ego’ liability cou/d have been

raised in th[e] earlier action,” res judicata principles re-

quired that it be raised in that action rather than this one.

Judge Boochever therefore would have remanded the case

in order to give the government an opportunity to seek

relief from the order in the earlier action dismissing Aruba

with prejudice. Jd. at A2. A petition for rehearing with

suggestion for rehearing en banc was (contrary to the

statement in the petition (at 6)) denied without dissent

(Pet. App. Cl).

2. The court of appeals’ rejection of petitioner’s res

judicata and collateral estoppel arguments is correct and

does not conflict with any decision of this Court or

another court of appeals. Further review is therefore un-

warranted.

a. The dismissal of Aruba with prejudice in the

underlying action against the three convalescent homes

does not bar the action against petitioner to enforce that

judgment. “Under res judicata, a final judgment on the

merits bars further claims by parties or their privies on the

4

same cause of action.” United States v. Mendoza, 464

U.S. 154, 158 n.3 (1984). Res judicata did not bar the sec-

ond action here because it did not involve the “same cause

of action.”

The action to enforce the judgment against petitioner on

an alter ego theory is not the same “cause of action” or

“claim” as the claim against Aruba under the federal

priority statute. See generally Nevada v. United States,

463 U.S. 110, 130 & n.12 (1983) (discussing definition of

“same cause of action”). The final judgment in favor of

the United States in the underlying action against the con-

valescent homes gave rise to a new and separate claim by

the United States on the judgment, with new rights of en-

forcement. Restatement (Second) of Judgments § 17(1) &

comment a (1982); id. § 18(1). Further, the injuries alleged

in the two actions were distinct: in the action against

Aruba, the government claimed that assets of the three

convalescent homes had been transferred to Aruba in

derogation of the government's rights as creditor of the

homes; in the second action, the government claimed that

petitioner had sufficient control of the three homes that

the government should be permitted to enforce its judg-

ment against petitioner as well. Res judicata therefore did

not bar this action.*

* The theory adopted by Judge Boochever in dissent proves too

much. If it were true, as Judge Boochever suggested, that a plaintiff

suing One party must raise (or by not raising, forfeit) every theory that

it could raise in order to recover from a nonparty in privity withthe

named party, then the United States would have been required to raise

the alter ego theory in the first action simply because petitioner was in

privity with the convalescent homes. Under this theory, it would be ir-

relevant whether or not petitioner was in privity with Aruba; the ac-

tion against petitioner would be barred even if Aruba had never been a

party. It has never been the law, however, that a plaintiff, in an action

to establish liability, must also anticipate the issues that will have to be

5

b. Nor does the dismissal with prejudice of the action

against Aruba bar the action on the judgment against peti-

tioner under principles of collateral estoppel. “Under col-

lateral 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.” Allen v.

McCurry, 449 U.S. 90, 94 (1980). The “general limitation

the Court has repeatedly recognized” in this context,

however, is that “the concept of collateral estoppel cannot

apply when the party against whom the earlier decision is

asserted did not have a ‘full and fair opportunity’ to

litigate that issue in the earlier case” (id. at 95). A claim

that is voluntarily dismissed at the request of a party, even

one that is dismissed “with prejudice,” does not meet the

“actual litigation” requirement that is the prerequisite to

estoppel. Lawlor v. National Screen Serv. Corp., 349 U.S.

322, 327 (1955); United States v. International Bldg. Co.,

345 U.S. 502, 505-506 (1953). Thus even assuming that

petitioner and Aruba were in “privity” for purposes of col-

lateral estoppel, the dismissal of the action against Aruba

in the circumstances of this case would not preclude

relitigation of any related issue against petitioner.

3. Petitioner’s reliance on Federated Dep’t Stores, Inc.

v. Moitie, 452 U.S. 394 (1981), is misplaced. There, plain-

tiff's case had been dismissed on the merits, on the ground

that it had no cause of action. Plaintiff thereupon filed the

same claim against the same defendants in an action in

litigated 4a-order for the plaintiff to enforce the judgment that will be

entered once liability has been established. See, e.g., United States v.

Southern Fabricating Co., 764 F.2d 780 (11th Cir. 1985) (action by

United States to recover against corporate parent on judgment

rendered against subsidiary in action in which parent was not a party);

cf. Restatement (Second) of Judgments § 49 (1982).

6

State court, which was removed to federal court and

dismissed a second time, on the basis of res judicata.

While plaintiff’s appeal of the second dismissal was pend-

ing, this Court held, in an unrelated case, that the cause of

action originally stated by the plaintiff was a valid one. On

review of the res judicata dismissal, the court of appeals

created a “public policy” exception to the rules of res

judicata to permit the plaintiff’s case to go forward (id. at

398). This Court held that “such an unprecedented depar-

ture from accepted principles of res judicata is unwar-

ranted” (id. at 399).

In this case, in contrast, no “public policy” exception to

the normal rules of res judicata is at issue. Instead, the

normal rules of res judicata do not bar this action because

it does not involve the same claim as the first action

against Aruba. The first action was brought to establish

liability for Medicare overcharges. This action was

brought to recover on a judgment. Federated Dep’t Stores

is thus inapplicable to this case.

It is therefore respectfully submitted that the petition

for a writ of certiorari should be denied.

CHARLES FRIED

Solicitor General

JuLy 1988

US GOVERNMENT PRINTING OFFICE 1988— 202 037/60541

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