Commercial Litigation and Arbitration

RICO & Res Judicata — Mere Addition of Claims, Defendants to Same Facts Doesn’t Avoid Preclusion Bar — Can’t Relitigate Final Judgment by Adding Subsequent Facts to Adjudicated 16-Year-Long Set of Events

Zahl v. Warhaftig, 2016 U.S. App. LEXIS 12155 (3d Cir. July 1, 2016):

Kenneth Zahl, M.D. appeals the final decision of the U.S. District Court for the District of New Jersey granting summary judgment in favor of a group of defendants comprised of current and former employees in the Office of the Attorney General of New Jersey ("OAG"), current and former members of the NJ Board of Medical Examiners, the NJ Board of Medical Examiners ("BME or "Board"), and two of Dr. Zahl's former employees (collectively "Appellees"). For the following reasons, we will affirm the decision of the District Court.

I. Factual and Procedural History

We refrain from delving into the details of [*2]  Zahl's extensive litigation history in both federal and New Jersey state courts, as the factual background is set forth at length in previous opinions issued in this matter. See (A1). At this juncture, as we write only for the benefit of the parties, it is sufficient to indicate the barebones of the overarching matter and focus only on the facts implicated in the instant action. Zahl's medical license was revoked in 2003 through state court proceedings initiated in 1999 by an investigation of Zahl's Medicare billing practices by the BME. (A2). On appeal, in 2003, the New Jersey Superior Court, Appellate Division, stayed the revocation of Zahl's license. (A2). The Board also required that a Nurse Practice Monitor keep track of any medical activities for which Zahl were to bill. (A2). These license revocation proceedings have been referred to as Zahl I throughout litigation in federal and state court.

In 2004, the OAG filed a complaint seeking to close Zahl's practice after reports submitted by the second Nurse Practice Monitor indicated that all of his coding for billed medical procedures was incorrect.1 (A2--A3). The OAG agreed to let Zahl continue practicing with new practice monitors [*3]  in place. (A3). Concurrently, litigation surrounding the revocation of Zahl's license continued and the matter ultimately ended up before the Supreme Court of New Jersey. (A3).

1   The first Nurse Practice Monitor assigned to Zahl was reassigned and replaced due to a deterioration of their working relationship after she submitted her initial report to the Board as well as to a former prosecutor in the Attorney General's office who was working on the appeal of Zahl I. (A2).

Shortly before the scheduled oral argument in front of the Supreme Court of New Jersey in Zahl I, the OAG filed a complaint initiating the proceedings referred to as Zahl II. (A3). The complaint again sought to close Zahl's practice for failure to comply with the Board's billing monitoring requirements and the Board suspended Zahl's license. (A3). On appeal, Zahl I concluded when the Supreme Court of New Jersey upheld the Board's finding of Zahl's liability and its determination that revocation of his license was warranted, reversing the Appellate Division's decision reducing the punishment from revocation to sanctions. (A3).

While Zahl I and Zahl II proceeded in state court, Zahl filed numerous suits in federal court, [*4]  beginning in 2001 with an Order to Show Cause for injunctive relief against prosecutors in the OAG and other New Jersey officials to halt the Zahl I license revocation proceedings. (A3). This Court affirmed the District Court's dismissal based on Younger abstention because of the ongoing state court proceedings. Zahl v. Harper, 282 F.3d 204, 206 (3d Cir. 2002). In 2006, Zahl filed another complaint for an Order to Show Cause in federal court, which added both new claims and new defendants to the 2001 complaint. (A3). The District Court construed the 120-page amended complaint, filed in 2007, as asserting numerous claims which included, inter alia, violations of 42 U.S.C. §§ 1983, 1985(3), and 1986, injunctive relief pursuant to § 1983, monetary damages pursuant to §§ 1983, 1985(3), and 1986, a civil Racketeer Influenced and Corrupt Organizations Act ("RICO") claim pursuant to § 1962(c) & (d), and state RICO claims. (A4). The District Court dismissed of all of Zahl's claims in six different opinions issued from March 2008 to April 2010, which we affirmed on appeal. Zahl v. N.J. Dep't of Law & Pub. Safety Div. of Consumer Affairs, 428 F. App'x 205, 207-08 (3d Cir. 2011). As relevant to the instant action, the sixty-two page unpublished March 2008 District Court opinion dismissed Zahl's claims based on the Rooker-Feldman doctrine, Younger abstention, New Jersey's entire controversy doctrine, issue [*5]  preclusion, absolute immunity, and failure to state a claim upon which relief can be granted. (A535--A596).

The 100-page complaint in this action, filed in 2013 subsequent to the close of New Jersey state court litigation and this Court's decision affirming the dismissal of Zahl's claims arising from the 2006 suit, asserts seven counts, including § 1983 claims based on violations of Zahl's rights under the First, Fifth and Fourteenth Amendments, state and Federal civil RICO claims, and a claim for civil conspiracy under New Jersey common law. (A35--A134). The District Court (Linares, J.) converted Appellees' Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) to a Motion for Summary Judgment. (A4--A5). After affording the parties the opportunity to provide further briefing and evidence, the District Court granted summary judgment in favor of Appellees. (A4, A16--A17). The District Court denied Zahl's Motion for Reconsideration. (A21--A22). This timely appeal of the order granting summary judgment and the order denying reconsideration followed.2 (A24). Zahl now challenges the grant of summary judgment as premature because the District Court did not permit the requested pretrial discovery. (Appellant's Br. 7-8).

2   Zahl initially filed a notice of appeal [*6]  only indicating that he wished to appeal the denial of motion for reconsideration. (A23). He later filed an amended notice of appeal indicating that he was appealing both of the District Court's orders. (A24). We need not address the denial of reconsideration, and deem this issue abandoned and waived, as Zahl has not mentioned it in his opening brief or presented any argument in support. See Kost v. Kozakiewicz, 1 F.3d 176, 182 (3d Cir. 1993).


C. The District Court's 2008 Decision and Claim Preclusion

The affirmative defense of claim preclusion, also called res judicata, "protect[s] litigants from the burden of relitigating an identical issue with the same party or his privy and . . . promot[es] judicial economy by preventing needless litigation."6 In re Mullarkey, 536 F.3d 215, 225 (3d Cir. 2008) (alterations in original) (quoting Post v. Hartford Ins. Co., 501 F.3d 154, 169 (3d Cir. 2007)) (internal quotation marks omitted). Three requirements must be satisfied for claim [*13]  preclusion to apply. There must be "(1) a final judgment on the merits in a prior suit involving (2) the same parties or their privies and (3) a subsequent suit based on the same cause of action." Id. (quoting Post, 501 F.3d at 169) (internal quotation marks omitted). Claim preclusion serves judicial economy and finality by barring "not only claims that were brought in a previous action, but also claims that could have been brought." Id.

6   We have previously noted our preference for the term claim preclusion instead of res judicata per the distinction between the two drawn by the U.S. Supreme Court. As a broader term for preclusionary principles, res judicata "is often analyzed . . . to consist of two preclusion concepts: issue preclusion and claim preclusion." United States v. Athlone Indus., Inc., 746 F.2d 977, 983 n.4 (3d Cir. 1984) (alteration in original) (quoting Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 77 n.1 (1984)) (internal quotation marks omitted). In this opinion we adhere to our practice of using claim preclusion "to refer to the preclusive effect of a judgment in foreclosing relitigation of the same causes of action," and issue preclusion to "refer[] to the effect of a judgment in foreclosing relitigation of a matter that has been litigated and decided." Id.

The District Court found that all of Zahl's claims were barred [*14]  by claim preclusion. (A8--A16). Zahl challenged the presence of two of the elements necessary for claim preclusion: privity and identical claims. (A8). With respect to privity, the District Court found that the relationship between the 2006 case defendants and the instant defendants was "sufficiently close." (A10). Citing the well-established principle that advancing a new legal theory that could have been raised in the first suit does not defeat claim preclusion, the District Court rejected Zahl's argument that the claims were not identical. (A11).

The claims in the 2006 and instant complaints are identical for preclusion purposes because the constitutional and conspiracy claims Zahl presently raises either were asserted in the previous action, or could have been. See Edmundson v. Boro. of Kennett Square, 4 F.3d 186, 189 (3d Cir. 1993) ("Claim preclusion . . . prohibits reexamination not only of matters actually decided in prior cases, but also those that the parties might have, but did not, assert in that action."). Zahl's § 1983 claims, based on violations of the First, Fifth and Fourteenth Amendments, federal and state RICO claims, and civil conspiracy claims, are identical to those alleged in the 2006 complaint. (A12--A14). Here, as the District Court accurately noted, "the additional [*15]  facts that [Zahl] alleges in his 2013 Complaint do not save his pleadings from being duplicative." (A16).

Privity, which we have described as "merely a word used to say that the relationship between one who is a party on the record and another is close enough to include that other within the res judic

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