Ninth Cir. Ct. App. No. 06-15847, U.S. Dist.Ct. No. CV-05-03633-MJJ.
The opinion of the court was delivered by: Baxter, J.
The doctrine of collateral estoppel, or issue preclusion,*fn1  is firmly embedded in both federal and California common law. It is grounded on the premise that "once an issue has been resolved in a prior proceeding, there is no further fact-finding function to be performed." (Parklane Hosiery Co. v. Shore (1979) 439 U.S. 322, 336, fn. 23.) "Collateral estoppel... has the dual purpose of protecting litigants from the burden of relitigating an identical issue with the same party or his privy and of promoting judicial economy, by preventing needless litigation." (Id. at p. 326, fn. omitted.)
We granted the request of the United States Court of Appeals, Ninth Circuit, to answer the following question of California law pertaining to collateral estoppel: Should issue-preclusive effect be given to a federal agency's investigative findings, when the subsequent administrative process provides the complainant the option of a formal adjudicatory hearing to determine the contested issues de novo, as well as subsequent judicial review of that determination, but the complainant elects not to invoke his right to that additional process, and the agency's findings and decision thereby become a final, non-appealable order by operation of law?*fn2  (See Murray v. Alaska Airlines, Inc. (9th Cir. 2008) 522 F.3d 920 (Murray v. Alaska).)
The Ninth Circuit has furnished the following statement of facts and procedural history (substantially reproduced here with minor non-substantive and stylistic modifications) to more fully explain the context in which the question arises. (Murray v. Alaska, supra, 522 F.3d at pp. 921-922.)
Factual and Procedural Background
Kevin Murray (Murray), a quality assurance auditor at Alaska Airlines, Inc. (Alaska), brought safety concerns to the attention of the Federal Aviation Administration (FAA), which then conducted an investigation that revealed "significant discrepancies relating to air carrier safety." Subsequently, the maintenance facility at which Murray worked was closed and his position was outsourced. Murray was not rehired by Alaska.
In December 2004, Murray filed an administrative complaint with the United States Secretary of Labor (Secretary) under the whistleblower protection provision of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21), seeking reinstatement, back pay, and compensatory damages. (See 49 U.S.C. § 42121(b)(1), (b)(3)(B).)*fn3  Invocation of AIR 21's administrative complaint procedure is voluntary and optional. (§ 42121(b)(1).) Murray -- through his lawyer, Rand Stephens -- alleged he had been denied the opportunity to apply or interview for open positions at other Alaska facilities, "despite [his] stated and documented request to remain" with the company, "in retaliation for [his] notifying [FAA inspectors] of Federal Aviation Regulations... violations and for serious airworthiness issues posing a threat to air safety." He also alleged that his superiors at Alaska "admonished and chastised [him]... for disclosing information to the FAA."
Pursuant to section 42121(b)(2)(A), the Secretary conducted an investigation, during which Alaska submitted a written response to Murray's complaint, produced relevant documentation, and offered testimonial evidence. Murray was never contacted by the Secretary's investigator. He was not given a copy of the documents provided by Alaska or its witnesses' statements. Nor did Murray have an opportunity to submit additional information to the Secretary, or respond to Alaska's arguments, before the Secretary rendered her findings.
In June 2005, the Secretary notified Murray by letter of her investigative findings. The Secretary found that Murray had participated in protected whistleblowing activity and that his termination and Alaska's subsequent failure to rehire him constituted adverse employment action. Notwithstanding that determination, the Secretary further determined there was "no credible basis to believe [Alaska] violated the employee protection provisions of AIR 21," because the "record fail[ed] to establish any connection between [Murray's] termination and his involvement in protected activity." The Secretary found that Murray had applied electronically for positions at other Alaska facilities and then "inexplicably removed his resume... the same night he applied." "The evidence showed that it was impossible for [Alaska] to remove [Murray's] resume from the employment website of its own accord." The Secretary therefore concluded that Murray "failed to establish a nexus between his protected activity and the perceived discriminatory action taken against him." The Secretary dismissed Murray's administrative complaint because he failed to demonstrate there was "reasonable cause to believe" (§ 42121(b)(2)(A)) that his whistleblowing was a "contributing factor in [Alaska's] unfavorable personnel action." (§ 42121(b)(2)(B)(iii); see 29 C.F.R. § 1979.105(a) (2010).)
The Secretary's letter closed by notifying Murray that he had "important rights of objection which must be exercised in a timely fashion." "AIR 21 permits an aggrieved party, WITHIN 30 DAYS... to file objections with the Department of Labor and to request a hearing on the record before an Administrative Law Judge." (Original capitalization.) The letter also warned that if "no objections are filed WITHIN 30 DAYS, this decision shall become final and not subject to judicial review." (Original capitalization.) Murray never filed objections or requested an on-the-record hearing. Nor did he take any steps to formally withdraw his administrative complaint. (Cf. 29 C.F.R. § 1979.111(a) [allowing complainant to withdraw his complaint by filing a written withdrawal with the Asst. U.S. Sect. of Labor, who "then determine[s] whether the withdrawal will be approved"].) On July 8, 2005, by operation of law, the Secretary's preliminary investigative findings were "deemed a final order... not subject to judicial review." (§ 42121(b)(2)(A).)
On August 2, 2005, Murray, still represented by counsel, filed a complaint against Alaska in California state court, claiming that he had been wrongfully terminated and retaliated against for whistleblowing, in violation of the public policy of California. (See Lab. Code, § 1102.5, subd. (b).) Invoking diversity jurisdiction, Alaska removed the action to federal district court. The district court, relying on the Secretary's findings in her final order, granted summary judgment to Alaska based on collateral estoppel. Murray timely appealed.
The Ninth Circuit has asked this court to determine whether certain factual findings made in the Secretary's final non-appealable order in the AIR 21 administrative action that preceded this state court lawsuit (removed to federal court on grounds of diversity jurisdiction) may now be afforded issue-preclusive effect under California law. Given the particular factual and procedural circumstances of this case, and the particular provisions of the AIR 21 statutory scheme here at issue, we conclude that they should.
Collateral estoppel is a distinct aspect of res judicata. " 'The doctrine of res judicata gives conclusive effect to a former judgment in subsequent litigation between the same parties involving the same cause of action. A prior judgment for the plaintiff results in a merger and supersedes the new action by a right of action on the judgment. A prior judgment for the defendant on the same cause of action is a complete bar to the new action. (4 Witkin, Cal. Procedure (2d ed. 1971) Judgment, §§ 147-148, pp. 3292-3293.) Collateral estoppel... involves a second action between the same parties on a different cause of action. The first action is not a complete merger or bar, but operates as an estoppel or conclusive adjudication as to such issues in the second action which were actually litigated and determined in the first action. (Id., § 197, at p. 3335.)' (Preciado v. County of Ventura (1982) 143 Cal.App.3d 783, 786-787, fn. 2.)" (Rymer v. Hagler (1989) 211 Cal.App.3d 1171, 1178 (Rymer).)
This case involves the doctrine of collateral estoppel as applied to the final decision of a federal administrative agency, as well as a corollary of that doctrine sometimes described as "judicial exhaustion." It is settled that the doctrine of collateral estoppel or issue preclusion is applicable to final decisions of administrative agencies acting in a judicial or quasi-judicial capacity. (See Astoria Federal S. & L. Assn. v. Solimino (1991) 501 U.S. 104, 107 [extending the doctrine to the final adjudications of both state and federal agencies]; United States v. Utah Constr. Co. (1966) 384 U.S. 394, 421-422 (Utah Constr. Co.); People v. Sims (1982) 32 Cal.3d 468, 479 (Sims); French v. Rishell (1953) 40 Cal.2d 477, 480-481; Knickerbocker v. City of Stockton (1988) 199 Cal.App.3d 235, 242.) As we explained in McDonald v. Antelope Valley Community College Dist. (2008) 45 Cal.4th 88, judicial exhaustion "may arise when a party initiates and takes to decision an administrative process--whether or not the party was required, as a matter of administrative exhaustion, to even begin the administrative process in the first place. Once a decision has been issued, provided that decision is of a sufficiently judicial character to support collateral estoppel, respect for the administrative decisionmaking process requires that the prospective plaintiff continue that process to completion, including exhausting any available judicial avenues for reversal of adverse findings. (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 69-72.) Failure to do so will result in any quasi-judicial administrative findings achieving binding, preclusive effect and may bar further relief on the same claims. (Id. at p. 76.)" (McDonald, supra, at p. 113.)
This court has further explained that "[i]ndicia of [administrative] proceedings undertaken in a judicial capacity include a hearing before an impartial decision maker; testimony given under oath or affirmation; a party's ability to subpoena, call, examine, and cross-examine witnesses, to introduce documentary evidence, and to make oral and written argument; the taking of a record of the proceeding; and a written statement of reasons for the decision." (Pacific Lumber Co. v. State Water Resources Control Bd. (2006) 37 Cal.4th 921, 944 (Pacific Lumber).)
Ultimately, "the inquiry that must be made is whether the traditional requirements and policy reasons for applying the collateral estoppel doctrine have been satisfied by the particular circumstances of this case." (Sims, supra, 32 Cal.3d 468, 483.) Here, Murray, who has been represented by counsel at every stage of the prior administrative and present court proceedings, voluntarily instituted an action against his former employer, Alaska, under the federal whistleblower protection statute, AIR 21. At the conclusion of the Secretary's preliminary investigation, and upon receipt of her adverse factual findings and decision, Murray effectively abandoned his administrative action and brought suit against Alaska in state court, raising claims that would ultimately turn on the same key factual matter of causation resolved against him in the earlier proceedings.*fn4 He failed to take the steps required to lawfully withdraw his adminstrative complaint, failed to exercise his absolute statutory right to a formal de novo hearing of record before an administrative law judge (ALJ), and, consequently, failed to exercise his statutory right to appeal any adverse findings and decision of the ALJ to the Ninth Circuit. All such omissions occurred in the face of clear statutory notice to Murray that his forfeiture of such rights would result in the Secretary's preliminary factual findings and decision becoming a final non-appealable order by operation of law. (§ 42121(b)(2)(A).)
In short, this case involves a variation of the usual factual pattern that implicates the doctrine of collateral estoppel and its corollary principle of judicial exhaustion. The AIR 21 statutory scheme afforded Murray an absolute right to a full de novo trial-like hearing before an ALJ, a hearing we find would fully comport with the requirements set forth in Pacific Lumber for establishing that the administrative proceedings were "undertaken in a judicial capacity." (Pacific Lumber, supra, 37 Cal.4th at p. 944.)*fn5 Here, however, Murray admittedly failed to invoke, and thereby forfeited, his right to such a formal adversarial hearing of record. None of this court's previous decisions directly addresses whether adverse administrative findings may be given collateral estoppel effect in a subsequent court suit if the complainant against whom estoppel is being sought forfeited his right to such a hearing, resulting in the agency's findings becoming a final, non-appealable order by operation of law.
The high court has explained that the focus of our inquiry should be on whether the party against whom issue preclusion is being sought had "an adequate opportunity to litigate" the factual finding or issue in the prior administrative proceeding. (Utah Constr. Co., supra, 384 U.S. at p. 422.) We followed Utah Constr. Co. in Sims, supra, 32 Cal.3d 468, 479, commenting that "[t]his standard formulated by the Supreme Court is sound...." Appellate courts of this state have followed suit, likewise recognizing that "[i]t is the opportunity to litigate that is important in these cases, not whether the litigant availed himself or herself of the opportunity. (Teitelbaum Furs, Inc. v. Dominion (1962) 58 Cal.2d 601, 607....)" (Rymer, supra, 211 Cal.App.3d at p. 1179, italics added [no showing complainant was denied opportunity to present relevant evidence in administrative proceeding]; see also Castillo v. City of Los Angeles (2001) 92 Cal.App.4th 477, 482 [same].)
Focusing the inquiry on the opportunity to litigate issues in the prior administrative proceeding is particularly appropriate where the party who initiates an administrative complaint apparently abandons his action upon receiving an adverse ruling, thereby forfeiting his statutory rights to a formal de novo hearing of record before an ALJ, and then seeks to relitigate the same issues decided in the agency's final order against the same party in a subsequently filed court action.
We confronted facts somewhat analogous to those now before us in Sims, supra, 32 Cal.3d 468. There, the issue was whether a party to an administrative action who simply refused to meaningfully participate in the proceedings was estopped from relitigating, in a subsequent court action against the same party, identical factual issues decided in the earlier administrative action. The county department of social services (County) in Sims informed the respondent, a welfare recipient, that she had received monies and food stamp benefits to which she was not entitled, allegedly procured by fraud. The County demanded that the respondent make restitution payments, and she agreed. The County additionally served notice on her, proposing to reduce her future cash grants to further compensate for the alleged overpayments. The respondent then exercised her statutory right to a "fair hearing" before a hearing officer of the California Department of Social Services (DSS) to challenge the propriety of the County's action. Meanwhile, the district attorney, on behalf of the state, filed criminal charges against the respondent alleging violations of the Welfare and Institutions Code based on the same allegations of welfare fraud raised in the administrative action. (Sims, supra, 32 Cal.3d at p. 473.)
While the criminal charges were pending, the respondent's hearing was held before a DSS hearing officer. "The County declined to present any evidence against respondent at the hearing. It contended that the DSS lacked jurisdiction to hear the case since criminal charges were still pending in the superior court. Respondent submitted the County's investigation report to the hearing officer and presented evidence to disprove the allegation of fraud. [Her husband] testified that during the time in question he lived at addresses other than that of respondent." (Sims, supra, 32 Cal.3d at p. 474.) The hearing officer concluded the agency had jurisdiction to hear the case, and that the County, through its inaction, had failed to meet its burden ...