United States District Court, S.D. California
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For Prime Healthcare Services, Inc., Plaintiff: Amanda Catherine Fitzsimmons, LEAD ATTORNEY, DLA Piper LLP (USA), San Diego, CA; David S Durham, LEAD ATTORNEY, DLA Piper, San Francisco, CA; Edward Smith Scheideman, III, LEAD ATTORNEY, PRO HAC VICE, DLA Piper LLP, Washington, DC; Kathleen Sue Kizer, LEAD ATTORNEY, DLA Piper LLP (U.S.), San Francisco, CA; Victoria Ann Bruno, PRO HAC VICE, DLA Piper LLP (U.S.), Washington, DC.
For Service Employees International Union, Mary Kay Henry, Defendants: Glenn Rothner, LEAD ATTORNEY, Rothner Segall and Greenstone, Pasadena, CA.
For Change to Win, CtW Investment Group, Tom Woodruff, Defendants: Andrew Dean Roth, LEAD ATTORNEY, PRO HAC VICE, Bredhoff & Kaiser PLLC, Washington, DC; Leon O. Dayan, LEAD ATTORNEY, Bredhoff & Kaiser PLLC, Washington, DC; Fern M Steiner, Smith, Steiner, Vanderpool & Wax, APC, San Diego, CA.
For Service Employees International Union - United Healthcare Workers West, Dave Regan, Defendants: Theodore Franklin, LEAD ATTORNEY, Bruce A. Harland, Jannah Manansala, Weinberg Roger and Rosenfeld, Alameda, CA.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT
[Dkt. No. 50.]
HON. GONZALO P. CURIEL, United States District Judge.
Plaintiff Prime Healthcare, Inc. (" Prime Healthcare" ) brings this civil action alleging violations of the Racketeering Influenced and Corrupt Organizations Act (" RICO" ) and the Labor Management and Relations Act (" LMRA" ). Before the Court is a motion to dismiss filed by Defendants Service Employees International Union (" SEIU" ), Service Employees International Union - United Healthcare Workers West (" UHW" ), Change to Win, CTW Investment Group, Mary Kay Henry, Dave Regan, and Tom Woodruff (collectively, " Defendants" ). (Dkt. No. 50.) The Parties have fully briefed the motion. (Dkt. Nos. 57-58.) For the reasons set forth below, the Court GRANTS IN PART AND DENIES IN PART Defendants' motion to dismiss.
Prime Healthcare brings this action against various union-related entities and individuals for allegedly unlawfully conspiring to unionize hospitals owned by Prime Healthcare. (Dkt. No. 47, First Amended Complaint (" FAC" ) ¶ 5.)
A. The Parties
Plaintiff Prime Healthcare is a hospital management company which, along with an affiliated foundation, operates twenty-eight acute care hospitals in eight states, including fifteen hospitals in California. ( Id. ¶ ¶ 1, 22-23.) Prime Healthcare describes itself as " largely non-union." ( Id. ¶ 3.)
Defendant SEIU is an unincorporated labor association that represents units of workers and negotiates terms and conditions of employment for the workers it represents. ( Id. ¶ 24.) Defendant UHW is a local union affiliate of SEIU located in California. ( Id. ¶ 25.) UHW represents individuals working in California's hospitals and clinics, including nurses, aids, case managers, clerks, maintenance workers, and housekeeping staff, and negotiates terms and conditions of employment for the healthcare workers it represents. ( Id. )
Defendant Change to Win is a union federation made up of three member unions: SEIU, the International Brotherhood of Teamsters, and the United Farm Workers of America. ( Id. ¶ 30.) Defendant CTW Investment Group is the investment arm of Change to Win. ( Id. ¶ 36.) Prime Healthcare alleges that Change to Win approves of SEIU's tactics, and supports them through CTW Investment Group. ( Id. ¶ ¶ 31-35.)
The remaining Defendants are individual executives of the above entities. Defendant Mary Kay Henry is the President of SEIU and Secretary-Treasurer of Change to Win. ( Id. ¶ 27.) Defendant Dave Regan is President of UHW, Vice President of SEIU, and Vice President of the SEIU Leadership Council. ( Id. ¶ 28.) Finally, Defendant Tom Woodruff is the Executive Director of Change to Win's Strategic Organizing Center, and also previously served as an SEIU International Executive Vice President for more than a decade. ( Id. ¶ 36.)
B. Alleged Unlawful Conduct
Prime Healthcare alleges that Defendants have unlawfully conspired to force Prime Healthcare to unionize its hospitals through a " corporate campaign" that employs extortion. ( Id. ¶ 5, 8, 47.) For example, since around 2010, Defendants have allegedly:
o attempted to thwart Prime Healthcare's acquisition of additional hospitals;
o attacked investment partners of Prime Healthcare through false and disparaging public accusations of wrongdoing;
o produced false and misleading reports and studies for the sole purpose of damaging Prime Healthcare's business goodwill;
o worked with complicit media outlets to publicize sham and baseless allegations;
o initiated certain sham and baseless complaints causing regulatory and administrative investigations, sham and baseless litigation, and inquiries by accreditation agencies;
o coerced, harassed, and threatened patients who use Prime Healthcare's services;
o persuaded writers, government agencies, and politicians to raise specious allegations about Prime Healthcare's conduct;
o targeted the California Hospital Association with sham ballot initiatives to impose a top-down neutrality agreement on its members (including Prime Healthcare); and
o violated federal labor laws.
( Id. ¶ ¶ 9, 115.)
Prime Healthcare alleges that through their extortionate activities, Defendants have acquired and are attempting to acquire substantial money and property, including tens of millions of dollars, Prime Healthcare's goodwill, Prime Healthcare's rights to grow its business through hospital acquisitions and oppose unionization of its employees, and Prime Healthcare's customers and related revenues. ( Id. ¶ ¶ 14, 110.)
C. Prior Prime Healthcare Litigation
On November 15, 2011, Prime Healthcare previously brought an antitrust action alleging that SEIU, UHW, and several Kaiser-related entities had conspired to eliminate Prime Healthcare from the healthcare services market and increase healthcare workers wages. See Prime Healthcare Servs., Inc. v. Serv. Emps. Int'l Union, No. 11-CV-2652-GPC-RBB (S.D. Cal.) (" Prime Healthcare I " ). On September 21, 2012, Prime Healthcare filed a first amended complaint. ( Id. at Dkt. No. 46.) On July 25, 2013, this Court dismissed Prime Healthcare's first amended complaint under Federal Rule of Civil Procedure 12(b)(6), but granted leave to amend. See Prime Healthcare I, 2013 WL 3873074 (S.D. Cal. July 25, 2013). After Prime Healthcare did not file a second amended complaint, this Court granted the defendants' motion to dismiss with prejudice for lack of prosecution under Federal Rule of Civil Procedure 41(b). See Prime Healthcare I, 2013 WL 6500069 (S.D. Cal. Dec. 11, 2013). Prime Healthcare's appeal of this Court's dismissal orders is still pending. See Prime Healthcare I, No. 13-57185 (9th Cir.).
On August 25, 2014, Prime Healthcare filed the instant action in the Northern District of California (" Prime Healthcare II " ). (Dkt. No. 1.) On October 24, 2014, the Northern District of California ordered the case transferred to the Southern District of California. (Dkt. No. 38.) On November 14, 2014, the case was reassigned to the undersigned judge. (Dkt. No. 45.)
On November 17, 2014, Prime Healthcare filed the operative First Amended Complaint (" FAC" ), which superseded its original complaint. (Dkt. Nos. 47, 52.) Prime Healthcare alleges eight RICO claims, 18 U.S.C. § § 1961 et seq. (counts I-VIII) and three LMRA claims, 29 U.S.C. § § 186 et seq. (counts IX-XI). (Dkt. No. 47 ¶ ¶ 270-340.)
On December 16, 2014, Defendants filed a motion to dismiss the FAC. (Dkt. No. 50.) Prime Healthcare filed its opposition on January 16, 2015. (Dkt. No. 57.) Defendants filed their reply on January 30, 2015. (Dkt. No. 58.)
On February 20, 2015, the Court held a hearing regarding Defendants' motion to dismiss. (Dkt. No. 67.) Attorneys Ed
Scheiderman, Amanda Fitzsimmons, and David Durham appeared for Prime Healthcare. Attorneys Theodore Franklin, Andrew Roth, and Glenn Rothner appeared for Defendants.
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule12(b)(6) where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); see also Neitzke v. Williams, 490 U.S. 319, 326, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989) (" Rule12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law." ). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534. While a plaintiff need not give " detailed factual allegations," a plaintiff must plead sufficient facts that, if true, " raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). " To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially plausible when the factual allegations permit " the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. In other words, " the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009). " Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.
In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe all inferences from them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions, however, need not be taken as true merely because they are cast in the form of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). When ruling on a motion to dismiss, the court may consider the facts alleged in the complaint, documents attached to the complaint, documents relied upon but not attached to the complaint when authenticity is not contested, and matters of which the court takes judicial notice. Lee v. Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).
A. Claim Preclusion
As a preliminary matter, Defendants contend that Prime Healthcare's RICO claims resting on allegations asserted in their prior antitrust action, Prime Healthcare I, are barred by claim preclusion. (Dkt. No. 50-1 at 8-14.) Claim preclusion, also known as res judicata, " prohibits lawsuits on 'any claims that were raised or could have been raised ' in a prior action." Stewart v. U.S. Bankcorp,
297 F.3d 953, 956 (9th Cir. 2002) (citation omitted). It " is motivated primarily by the interest in avoiding repetitive litigation, conserving judicial resources, and preventing the moral force of court judgments from being undermined." Int'l Union of Operating Eng'rs-Emp'rs Constr. Indus. Pension, Welfare & Trg. Trust Funds v. Karr, 994 F.2d 1426, 1430 (9th Cir. 1993) (citation and internal quotation marks omitted).
Prime Healthcare primarily responds that claim preclusion does not apply here because it alleges new wrongdoing that has occurred since its amended complaint in its prior antitrust action, Prime Healthcare I. (Dkt. No. 57 at 10, 12-16.) Prime Healthcare is correct that claim preclusion does not bar claims that could not have previously been asserted because they concern events that took place after the prior action. See United States v. Liquidators of European Fed. Credit Bank, 630 F.3d 1139, 1151 (9th Cir. 2011) (" If the harm arose from different facts at a different time, . . . then the plaintiff could not have brought the claim in the first action." ); Frank v. United Airlines, Inc., 216 F.3d 845, 851 (9th Cir. 2000) (" A claim arising after the date of an earlier judgment is not barred, even if it arises out of a continuing course of conduct that provided the basis for the earlier claim." ). However, Prime Healthcare misconstrues Defendants' argument. Defendants do not contend that " any RICO claim" is barred and they are entitled to " perpetual immunity." (Dkt. No. 57 at 12.) Rather, Defendants contend only that Prime Healthcare's RICO claims based on allegations previously asserted in Prime Healthcare I are barred. (Dkt. No. 50-1 at 8; see also Dkt. No. 58 at 2.) Defendants admit that in the instant lawsuit Prime Healthcare also alleges new conduct subsequent to Prime Healthcare I that would not be barred. (Dkt. No. 50-1 at 8, 24-27; see also Dkt. No. 58 at 2.)
Prime Healthcare relies heavily on Harkins Amusement Enter., Inc. v. Harry Nace Co., 890 F.2d 181, 183 (9th Cir. 1989), which held that a second antitrust action was not barred by a prior antitrust action because the second action alleged new antitrust conduct subsequent to the prior action. The Ninth Circuit noted that the second action alleged facts that " are at least 10 percent different" from the prior action, and alleged " conduct that occurred in a different time period." Id. However, Harkins did not hold that the second antitrust action was not precluded at all. Rather, Harkins considered whether the second action was " completely prevented" based on the prior action. Id. at 182. The Ninth Circuit stated that " [t]here can be no doubt" that the antitrust claims for the time period covered by the prior action were barred by claim preclusion. Id. Therefore, Harkins does not support Prime Healthcare's position.
As such, for the claim preclusion analysis, the Court will only focus on whether Prime Healthcare's RICO claims based on allegations asserted in Prime Healthcare I are barred, and will not consider the new subsequent allegations which Defendants concede are not barred. See Lawlor v. Nat'l Screen Serv. Corp., 349 U.S. 322, 328, 75 S.Ct. 865, 99 L.Ed. 1122 (1955) (" While the [prior] judgment precludes recovery on claims arising prior to its entry, it cannot be given the effect of extinguishing claims which did not even then exist and which could not possibly have been sued upon in the previous case." ); L.A. Branch NAACP v. L.A. Unified Sch. Dist., 750 F.2d 731, 740-41 (9th Cir. 1984) (en banc) (holding that claim preclusion barred segregation claims for acts occurring before prior lawsuit, but did not bar claims for acts occurring after prior lawsuit); Knox v. Donahoe, No. 11-CV-2596-EMC, 2012 WL 949030, at *4-5 (N.D. Cal. 2012) (holding that claim preclusion barred employment
discrimination claims to the extent they were based on events covered by prior lawsuit, but not to the extent the claims were based on events which took place after prior lawsuit). In other words, for the claim preclusion analysis, the Court will only focus on alleged conduct that took place before September 21, 2012, when the operative first amended complaint was filed in Prime Healthcare I.
Claim preclusion applies where there is " (1) an identity of claims, (2) a final judgment on the merits, and (3) privity between parties." Turtle Island Restoration Network v. U.S. Dep't of State, 673 F.3d 914, 917 (9th Cir. 2012) (citation and internal quotation marks omitted). The Court now turns to these three elements.
1. Identity of Claims
Courts considers four factors in determining an " identity of claims" : " (1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts." Id. at 917-18 (citation omitted). These factors are " tools of analysis, not requirements." Int'l Union of Operating Eng'rs-Emp'rs Const. Ind. Pension, Welfare, & Trg. Trust Funds v. Karr, 994 F.2d 1426, 1430 (9th Cir. 1993) (citation and internal quotation marks omitted). However, " [t]he last of these criteria is the most important." Turtle Island Restoration Network, 673 F.3d at 918 (citation and internal quotation marks omitted).
a. Same Transactional Nucleus of Facts
As it is the most important factor, the Court first considers whether Prime Healthcare I and Prime Healthcare II arise from the " same transactional nucleus of facts." " Whether two suits arise out of the same transactional nucleus depends upon whether they are related to the same set of facts and whether they could conveniently be tried together." Id. (citation and internal quotation marks omitted). " In most cases, the inquiry into the 'same transactional nucleus of facts' is essentially the same as whether the claim could have been brought in the first action." Id. (citation and internal quotation marks omitted).
Defendants contend that Prime Healthcare I and Prime Healthcare II relate to the same set of facts because both actions allege that since 2010, Defendants have been demanding that Prime Healthcare enter into a " neutrality agreement" with UHW, and have been backing up that demand with various forms of economic pressure, including attempts to thwart Prime Healthcare's acquisition of hospitals, attacks on Prime Healthcare's investment partners, the production and public dissemination of reports injurious to Prime Healthcare's business reputation, and the initiation of complaints resulting in government investigations of Prime Healthcare. (Dkt. No. 50-1 at 10.) Defendants also include a chart which shows over twenty common sets of allegations between Prime Healthcare I and Prime Healthcare II. (Dkt. No. 50-2 (Exh. A).)
Prime Healthcare counters that the two actions do not arise out of the same transactional nucleus because they involve a " distinct set of facts." (Dkt. No. 57 at 15.) However, Prime Healthcare fails to elaborate how, aside from new conduct subsequent to Prime Healthcare I, the two actions involve distinct facts.
The Court concludes that both actions are related to the same set of facts. For example, both actions allege that Defendants: (1) produced and publicized false
and misleading reports and studies about Prime Healthcare, such as not being in compliance with earthquake safety laws and high rates of septicemia ( compare Prime Healthcare II FAC ¶ ¶ 129-43 with Prime Healthcare I FAC ¶ ¶ 265-66, 270-90); (2) campaigned to block the bankruptcy sale of Victor Valley Community Hospital to Prime Healthcare ( compare Prime Healthcare II FAC ¶ ¶ 147-58 with Prime Healthcare I FAC ¶ ¶ 293-94, 296); (3) supported California Senate Bill 408 to restrict Prime Healthcare's ability to acquire additional hospitals ( compare Prime Healthcare II FAC ¶ ¶ 186-88 with Prime Healthcare I FAC ¶ ¶ 291-92); (4) advocated for the passage of California Senate Bill 1285 which would require hospitals such as Prime Healthcare to adjust charges for out-of-network emergency care ( compare Prime Healthcare II FAC ¶ ¶ 189-94 with Prime Healthcare I FAC ¶ ¶ 312-17); (5) wrote to the Securities and Exchange Commission stating that Prime Healthcare affiliate Medical Properties Trust had not made adequate financial disclosures concerning the cost of remedying deficiencies at Prime Hospitals ( compare Prime Healthcare II FAC ¶ ¶ 128, 130 with Prime Healthcare I FAC 267-69); and (6) prepared and obtained signatures for two ballot initiatives that would financially harm non-union hospitals such as Prime Healthcare, and then abandoned the initiatives once UHW entered into a 2012 agreement with the California Hospital Association ( compare Prime Healthcare II FAC ¶ ¶ 204-06 with Prime Healthcare I FAC ¶ ¶ 207-09). Because of these related facts, Prime Healthcare " could have brought" their RICO claims in Prime Healthcare I, and their antitrust and RICO claims premised on these facts " could conveniently be tried together." Turtle Island Restoration Network, 673 F.3d at 918 (citation and internal quotation marks omitted).
Therefore, the RICO claims in Prime Healthcare II, to the extent they are premised on conduct covered by Prime Healthcare I, " arise out of the same transactional nucleus of facts" as the antitrust claims in Prime Healthcare I. This factor weighs heavily in favor of an identity of claims.
b. Same Evidence
The Court next considers whether " substantially the same evidence" is presented in both Prime Healthcare I and Prime Healthcare II. Defendants contend that both actions involve substantially the same evidence because, as outlined above, they both require evidence of Prime Healthcare's alleged attempts to thwart Prime Healthcare's acquisition of hospitals, to attack Prime Healthcare investment partners, to produce and publicly disseminate reports injurious to Prime Healthcare's business reputation, and to initiate complaints resulting in government investigations of Prime Healthcare. (Dkt. No. 50-1 at 11-12.) Prime Healthcare responds that the evidence presented in the instant RICO action " will reach beyond that presented in the ...