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Reddy v. MedQuist

March 5, 2010


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


In this action arising from an employment relationship, four Defendants filed motions to dismiss. Defendants MedQuist, Inc. ("MedQuist") and CBay Systems Holdings Limited ("CBay") filed a motion to dismiss based on res judicata, improper venue and failure to state a claim upon which relief can be granted. Defendant Stephen H. Rusckowski joined in MedQuist's and CBay's motion and independently moved to dismiss for lack of personal jurisdiction. Defendant Koninklijke Philips Electronics N.V. of the Netherlands ("Philips") also joined in MedQuist's and CBay's motion, and independently moved to dismiss based on improper service of process and lack of personal jurisdiction. Plaintiff, appearing pro se, opposed all motions.*fn1 For the reasons which follow, the motion filed by MedQuist and CBay is GRANTED. All claims asserted against these Defendants are DISMISSED based on res judicata. The motions filed by Philips and Mr. Rusckowski are GRANTED to the extent the court finds that venue is not properly laid in this district. The case is TRANSFERRED to the United States District Court for the Central District of California. In all other respects, the motions filed by Philips and Mr. Rusckowski are DENIED WITHOUT PREJUDICE to reasserting their remaining grounds for dismissal in the transferee district.

Plaintiff was employed as a medical transcriptionist by several employers, some of which were acquired by MedQuist during the course of Plaintiff's employment. Among other things, Plaintiff alleges that she was paid by the line of transcription, however, MedQuist unilaterally increased the number of characters or keystrokes necessary to constitute a line, in effect reducing Plaintiff's pay without her consent. Plaintiff alleges that by applying different standards for what constituted a "line" for purposes of compensating the transcriptionists (longer line) as opposed to billing clients (shorter line), MedQuist was able to maximize its profits. It used these profits to acquire several medical transcription businesses, and introduced the same profitability scheme at each business it acquired. Philips and MedQuist allegedly created the program which enabled the under-compensation of transcriptionists by requiring more keystrokes or characters per line. Plaintiff alleges that Philips, MedQuist and other Defendants conspired in the scheme to underpay transcriptionists and overcharge clients for transcription services, among other things.

Plaintiff alleges claims for violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and state law claims for civil conspiracy, fraud and deceit; breach of contract and covenant of good faith and fair dealing; interference with employment and economic advantage; and intentional and negligent infliction of emotional distress. This court has subject matter jurisdiction pursuant to 28 U.S.C. Sections 1331 and MedQuist and CBay move to dismiss the complaint arguing, among other things, that it is barred by the doctrine of res judicata. In September 2006 Plaintiff filed a complaint in the United States District Court for the District of New Jersey ("New Jersey Action"). (Compl. at 10; Mem. of P.&A. in Supp. of Defs MedQuist and CBay Mot. to Dismiss ("MedQuist P.&A."), Ex. 1 ("New Jersey Complaint").)*fn2 The New Jersey Complaint alleges the same causes of action based on essentially the same facts against thirteen defendants, all of whom are the same except for CBay and Philips.*fn3

On August 1, 2007 the court in the New Jersey Action granted MedQuist's motion to dismiss and dismissed all claims except for breach of contract. (MedQuist P.&A., Ex. 2.) On January 29, 2009 MedQuist's motion for summary judgment was granted. (Id. Ex. 3.) On August 4, 2009 all claims asserted against all the remaining defendants were dismissed for failure to serve and the complaint was dismissed in its entirety. (Philips Resubmitted Request for Judicial Notice in Supp. of Its Reply ("Philips Reply Judicial Notice"), Ex. C.)

"The preclusive effect of a federal-court judgment is determined by federal common law," when subject matter jurisdiction in the prior case is based on federal question rather than diversity. Taylor v. Sturgell, 128 S.Ct. 2161, 2171 & n.4 (2008). Subject matter jurisdiction in the New Jersey Action was based on federal question. (New Jersey Complaint at 2.) "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 Elec.-Optical Sys., 430 F.3d 985, 987 (9th Cir. 2005) (internal quotation marks, ellipsis and citation omitted).

Plaintiff argues that the doctrine of res judicata does not apply because a final judgment on the merits has not been entered in the New Jersey Action. "A judgment is not a final judgment for res judicata purposes if further judicial action by the court rendering the judgment is required to determine the matter litigated." Russell v. Commissioner of Internal Revenue, 678 F.2d 782, 786 (9th Cir. 1982). Although the court did not enter a separate document captioned as judgment, "the true state of affairs is more critical than labels." Hells Canyon Preservation Council v. U.S. Forest Serv., 403 F.3d 683, 689 (9th Cir. 2004) (internal quotation marks and brackets omitted). The disposition of all of Plaintiff's claims against MedQuist following a motion to dismiss and summary judgment was final, left nothing else to be decided as to MedQuist and therefore warrants preclusive effect. See id. at 686 (summary judgment constitutes final judgment on the merits).

The parties disagree whether Plaintiff's breach of contract claim based on a written contract which was not alleged in the New Jersey Complaint is precluded. Plaintiff alleges that she became aware of the terms of her written employment contract when she was shown a copy during her deposition in the New Jersey Action, which contract she did not have before, and which differed from her recollection of the terms. (Compl. at 6, 10 & Ex. B.) To the extent Plaintiff based her breach of contract claim on the terms of the newly-discovered contract, the New Jersey court declined to adjudicate it, as it was not alleged in the complaint. (MedQuist P.&A., Ex. 3 at 59.) "The doctrine of claim preclusion bars all grounds for recovery which could have been asserted, whether they were or not, in a prior suit between the same parties on the same cause of action." McClain v. Apodaca, 793 F.2d 1031, 1033 (9th Cir. 1986) (internal quotation marks, ellipses and citation omitted). Whether the bar should apply in a particular case depends on whether the two actions involve the same claim of cause of action. Four criteria apply to make this determination:

(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, 430 F.3d at 987.

In the New Jersey Action Plaintiff sought damages for breach of the same contract as in the instant action. The only difference is that in the New Jersey Complaint Plaintiff relied on her recollection to allege the terms of her compensation, whereas in the instant action she relies on the document itself. (See Compl. at 10.)

In Mpoyo v. Litton Electro-Optical System a late discovered claim was held precluded by res judicata under analogous circumstances. The plaintiff filed a Title VII action against a former employer. Mpoyo, 430 F.3d at 986. After completion of discovery, the plaintiff moved to amend the complaint to add claims under the Fair Labor Standards Act ("FLSA") and the Family and Medical Leave Act ("FMLA"), of which he was unaware when he had filed the complaint initially. Id. at 986, 988. The motion for leave to amend was denied and the defendant prevailed on summary judgment. Id. at 986. The plaintiff filed a new action alleging the FLSA and FMLA claims which were not included in the prior action, but the new action was dismissed based on res judicata. Id. at 986, 989. The dismissal was affirmed on appeal. The court reasoned that "[b]ecause both sets of Mpoyo's claims arise from Litton's conduct while Mpoyo was an employee and specifically from the events leading to his termination, his claims relate to the same set of facts." Id. at 987. The court found that the second action arose from the same transaction or series of transactions as the first action, and considered it persuasive in dismissing the second action based on res judicata. Id. at 987 & 988.

As in Mpoyo, in this case the two breach of contract claims arise out of the same transactional nucleus of facts. Furthermore, the rights and interests established in the New Jersey Action would be destroyed or impaired by prosecution of the instant action against MedQuist, and the two suits involve the infringement of the same right to compensation. While the instant action would include additional evidence, i.e., the written contract, all other evidence of breach would overlap. That additional evidence would be ...

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