McGhee v. High Mountain Health LLC

1 WO — 2 — — 3 — — 4 — — 5 — 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA — 8 — 9 Joseph Martin McGhee, No. CV-19-08145-PCT-DWL 10 Plaintiff, ORDER 11 v. 12 High Mountain Health LLC, et al., 13 Defendants. — 14 — 15 Pending before the Court is a motion to dismiss by High Mountain Health LLC, 16 Aspen Management LLC, High River Consulting LLC, Red Bud Holdings LLC, Katherine 17 Spillman, David Stilley, and Steven Thompson (collectively, “Defendants”). (Doc. 21.) 18 For the following reasons, that motion will be granted and this action will be terminated. 19 BACKGROUND 20 A. Underlying Factual Allegations 21 The facts alleged in the complaint, which are presumed to be true for purposes of 22 the motion to dismiss, are as follows. 23 Defendants own and operate a marijuana cultivation facility in Flagstaff, Arizona. 24 (Doc. 1 ¶¶ 2-8, 39-40.) Plaintiff Joseph Martin McGhee worked for Defendants as a 25 cultivation assistant between August 2017 and January 2018. (Id. ¶ 1.) 26 On or around December 12, 2017, McGhee became aware that Defendants were 27 violating the Arizona Medical Marijuana Act, A.R.S. § 36-2801 et seq. (“AMMA”). (Id. 28 ¶ 49.) McGhee, “fearing that he may . . . be subject to arrest, prosecution, and 1 imprisonment for his participation in the . . . enterprise,” contacted the Drug Enforcement 2 Agency (“DEA”). (Id.) 3 On January 8, 2018, McGhee met with two DEA agents to discuss the nature and 4 extent of Defendants’ violations of the AMMA and federal criminal statutes. (Id. ¶ 50.) 5 On January 15, 2018, McGhee again met with DEA agents to provide them with 6 video and photographic evidence supporting his allegations. (Id. ¶ 51.) 7 On January 16, 2018, McGhee told several co-workers that he was cooperating with 8 the DEA in an attempt to persuade them to cooperate. (Id. ¶¶ 52-53.) The facility’s director 9 of operations overheard one such conversation, and McGhee observed him quickly leave 10 the area. (Id. ¶ 53.) 11 On January 17, 2018, McGhee received a text from his immediate supervisor 12 instructing him not to come to work that day. (Id. ¶ 54) 13 On January 18, 2018, when McGhee attempted to come to work, David Stilley and 14 Katherine Spillman intercepted him in the parking lot and told him that his employment 15 was being terminated effective immediately. (Id. ¶ 55.) 16 B. The Other Lawsuits 17 1. The First Action 18 On February 7, 2018, McGhee filed an amended complaint (the “First Action”) 19 against Defendants in Coconino County Superior Court. (Doc. 21-1.)1 The amended 20 complaint alleged that Defendants’ discharge of McGhee violated Arizona laws prohibiting 21 worker’s compensation retaliation and that the impetus for the discharge was a shoulder 22 injury McGhee had sustained while working as a cultivation assistant. (Id. at 3-5.) 23 On February 28, 2018, McGhee moved to dismiss the First Action because he was 24 unable to secure legal representation. (Id. at 7.) — 25 — 26 1 “A court may . . . consider certain materials [including] matters of judicial notice . . . without converting the motion to dismiss into a motion for summary judgment.” United — 27 — States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “It is well established that federal 28 courts may take judicial notice of related state court orders and proceedings.” ScripsAmerica, Inc. v. Ironridge Glob. LLC, 56 F. Supp. 3d 1121, 1136 (C.D. Cal. 2014). 1 On March 2, 2018, the Coconino County Superior Court granted McGhee’s motion, 2 dismissing the First Action without prejudice. (Id. at 9.) 3 2. The Second Action 4 On March 26, 2019, McGhee filed suit (the “Second Action”) against Defendants 5 in Coconino County Superior Court, making the same allegations as the First Action. (Doc. 6 21-2.) 7 On May 28, 2019, McGhee and Defendants filed a joint stipulation to dismiss the 8 Second Action with prejudice. (Doc. 21-2 at 7.) 9 On May 29, 2019, the Coconino County Superior Court granted the parties’ joint 10 stipulation, dismissing the Second Action with prejudice. (Id. at 9.) 11 3. The Third Action 12 On April 3, 2019, McGhee filed suit (the “Third Action”) in this District. (Doc. 2113 3.) This complaint reiterated the facts undergirding the First and Second Actions and 14 continued to allege that Defendants’ decision to terminate McGhee was motivated by a 15 desire to retaliate against him for filing a worker’s compensation claim. (Id. at 18-21, 35.) 16 However, this complaint alleged that the unlawful termination was a predicate act for 17 purposes of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. 18 § 1961 et seq. (Id. at 21-35.) 19 On April 8, 2019, the judge overseeing the Third Action (Humetewa, J.) issued an 20 order dismissing the complaint, with leave to amend, under 28 U.S.C. § 1915 (e)(2) because 21 it failed to “contain a ‘short and plain’ statement setting forth the basis for Plaintiff’s 22 entitlement to relief” and did “not appear to allege an injury to property []or business,” as 23 required “to state a claim for civil RICO violation.” (Case No. 19-cv-8100-DJH, Dkt. 9.) 24 On April 10, 2019, McGhee filed a premature notice of appeal. (Case No. 19-cv25 8100-DJH, Dkt. 10.) 26 On April 25, 2019, McGhee filed a first amended complaint. (Case No. 19-cv-810027 DJH, Dkt. 13.) 28 On May 14, 2019, McGhee filed a notice of voluntary dismissal of the Third Action. 1 (Doc. 21-3 at 80.) 2 On May 15, 2019, the court issued a minute entry terminating the Third Action 3 pursuant to McGhee’s notice of dismissal. (Case No. 19-cv-8100-DJH, Dkt. 21.) 4 C. This Action 5 On May 14, 2019, McGhee initiated this action by filing the complaint and an 6 application to proceed in forma pauperis (“IFP”). (Docs. 1, 2.) 7 On August 27, 2019, the Court issued an order granting the IFP application and 8 authorizing McGhee to file the complaint. (Doc. 8.) 9 On October 25, 2019, Defendants filed a motion to dismiss. (Doc. 11.) 10 On November 1, 2019, Defendants withdrew their prior motion to dismiss (Doc. 20) 11 and filed the now-pending motion to dismiss (Doc. 21). 12 On November 13, 2019, McGhee filed a response. (Doc. 22.) 13 On November 19, 2019, Defendants filed a reply. (Doc. 23.) 14 DISCUSSION 15 McGhee’s seven-count complaint alleges RICO violations arising out of the 16 termination of his employment relationship with Defendants. (Doc. 1.) Defendants seek 17 dismissal because (1) res judicata and Federal Rule of Civil Procedure 41(a)(1)(B), the so18 called “two-dismissal” rule, preclude this suit; (2) McGhee fails to state a cognizable RICO 19 claim; and (3) the in pari delicto doctrine bars McGhee from bringing this action. (Doc. 20 21.) The first argument is dispositive, so the Court need not address Defendants’ other 21 points. 22 I. Res Judiciata Effect Of The Second Action 23 As noted, Defendants advance two related but distinct reasons why the dismissal of 24 McGhee’s earlier lawsuits precludes him from bringing this action. The first argument is 25 that, because “the Second Action concluded with a stipulated dismissal with prejudice,” it 26 “is res judicata to any claim brought or that could have been brought. Plaintiff could have 27 asserted his present claim in the Second Action . . . [so] [i]t is now barred by res judicata.” 28 (Doc. 21 at 8.) 1 This argument is unavailing. “To determine the preclusive effect of a state court 2 judgment, federal courts look to state law.” Intri–Plex Techs., Inc. v. Crest Group, Inc., — 3 — 499 F.3d 1048, 1052 (9th Cir. 2007) (citation omitted). Arizona courts apply the “same 4 evidence” test to resolve questions of res judicata: “If no additional evidence is needed to 5 prevail in the second action than that needed in the first, then the second action is barred.” 6 Phoenix Newspapers, Inc. v. Dep’t of Corr., State of Ariz., 934 P.2d 801, 804 (Ariz. Ct. 7 App. 1997 ). This contrasts with the test applied in many other jurisdictions, which “focuses 8 on whether the new claim arises out of the same ‘transaction or occurrence’ that was the 9 subject of the original action.” Id. at 804-05 . “The ‘same evidence’ test is quite liberal, 10 and permits a plaintiff to avoid preclusion merely by posturing the same claim as a new 11 legal theory, even if both theories rely on the same underlying occurrence.” Power Rd.- 12 Williams Field LLC v. Gilbert, 14 F. Supp. 3d 1304, 1309 (D. Ariz. 2014) (internal 13 quotations omitted). 14 Here, the dismissal of the Second Action does not, standing alone, preclude this 15 action. In the Second Action, McGhee alleged that Defendants terminated him in 16 retaliation for his filing of a worker’s compensation claim. (Doc. 11-2 at 3-5.) In contrast, 17 this action involves allegations concerning off-site conversations with DEA agents, a drug 18 conspiracy, eavesdropping by management, and retaliation against McGhee for acting as a 19 whistleblower. (Doc. 1 ¶¶ 48-55.) Even though McGhee’s termination lies at the heart of 20 both actions—a similarity that would have triggered claim preclusion had the Second 21 Action been litigated in federal court, see Part III.B infra—the evidence necessary to prove 22 each theory of liability is different. And under Arizona law, this means the dismissal of 23 the Second Action does not result in a res judicata effect here. Cf. Five Points P’ship v. 24 Pinsonneault, 835 F. Supp. 2d 753, 760 (D. Ariz. 2011) (“Plaintiffs made fraud allegations 25 against Defendant in the underlying action . . . [and] alleged in [earlier, unsuccessful] state 26 court that Defendant made certain fraudulent misrepresentations . . . . But Plaintiffs did 27 not assert an alter ego claim below . . . . Because Plaintiffs’ alter ego claim requires 28 additional evidence, the Court finds that their claim is not barred by res judicata.”). 1 II. The “Two Dismissal” Rule—Rule 41(a)(1)(B) 2 Defendants also contend that “[e]ven if not barred by [res judicata due to] the 3 dismissal with prejudice of the Second Action, Plaintiffs’ claims are certainly now barred 4 by the ‘two dismissal’ rule.” (Doc. 21 at 10.) On this point, Defendants are correct. 5 A. Whether The Dismissal Of The Third Action Qualifies As An 6 Adjudication On The Merits Under Rule 41(a)(1)(B) 7 Rule 41(a)(1)(B) of the Federal Rules of Civil Procedure provides that, although the 8 voluntary dismissal of a lawsuit at the plaintiff’s behest is ordinarily considered a dismissal 9 without prejudice, “if the plaintiff previously dismissed any federal- or state-court action 10 based on or including the same claim, a notice of dismissal operates as an adjudication on 11 the merits.” Id. The question here is whether the dismissal of the Third Action—which 12 was ostensibly a dismissal without prejudice, because it was triggered by McGhee’s filing 13 of a notice of voluntary dismissal—should nevertheless be considered an adjudication on 14 the merits (i.e., a dismissal with prejudice) under Rule 41(a)(1)(B). 15 Although the parties have not identified any published authority from the Ninth 16 Circuit addressing the contours of Rule 41(a)(1)(B)’s “same claim” requirement, other 17 courts have rejected the notion that “the two-dismissal rule applies only where a plaintiff’s 18 second . . . action[] assert[s] precisely the same causes of action as the plaintiff’s first” and 19 have instead recognized that “[t]he weight of authority . . . [is that] the two-dismissal rule 20 [is] a close cousin of the doctrine of res judicata and one that is subject to ordinary res21 judicata principles. This means that a second action is ‘based on or includ[es] the same 22 claim’ for Rule 41(a)(1)(B) purposes whenever it arises from the same transaction or 23 occurrence as the first.” Jian Ying Lin v. Shanghai City Corp., 329 F.R.D. 36 , 39 (S.D.N.Y. 24 2018).2 — 25 — 2 See also Melamed v. Blue Cross of Cal., 2012 WL 122828 , *5 (C.D. Cal. 2012) 26 (“Neither the Ninth Circuit nor the Supreme Court has specifically addressed the meaning of ‘same claims’ for the purposes of Rule 41(a)(1). However, the Ninth Circuit has 27 analogized the ‘two dismissal’ rule to the res judicata inquiry.”) (citations omitted); 9 Charles Alan Wright et al., Federal Practice & Procedure § 2368 (3d ed. 2020 update) 28 (“There is surprisingly little discussion in the case law of what is considered ‘the same claim’ for purposes of Rule 41(a).”). 1 Applying this standard, McGhee asserted the “same claim” in the First and Third 2 Actions. In the Ninth Circuit, “[w]hether two suits arise out of the ‘same transactional 3 nucleus’ depends upon ‘whether they are related to the same set of facts and whether they 4 could conveniently be tried together.’” ProShipLine Inc. v. Aspen Infrastructures Ltd., 609 5 F.3d 960, 968 (9th Cir. 2010) (citation omitted) (emphasis omitted). Here, the first part of 6 this inquiry is easily satisfied. In the First Action, McGhee alleged that he sustained a 7 work-related shoulder injury at some point before January 5, 2018, that he filed a worker’s 8 compensation claim on January 5, 2018, that Defendants terminated him on January 18, 9 2018, and that the termination was in retaliation for his pursuit of the worker’s 10 compensation claim. (Doc. 21-1 at 5 ¶¶ 2-23.) The Third Action was premised on the 11 exact same factual allegations. (Case No. 19-cv-8100-DJH, Dkt. 13 at 16-18 ¶¶ 51-61.) 12 The only difference between the two actions is that McGhee asserted a different legal 13 theory in the First Action (a state-law claim for unlawful termination) than in the Third 14 Action (a civil RICO claim). But this is an meaningless difference for purposes of 15 assessing whether two lawsuits arose from the same set of facts. See, e.g., Mpoyo v. Litton 16 Electro-Optical Sys., 430 F.3d 985, 987 (9th Cir. 2005) (holding that the plaintiff’s first 17 and second lawsuits “relate[d] to the same set of facts,” even though the plaintiff asserted 18 Title VII claims in the first lawsuit and then sought to assert FMLA and FLSA claims in 19 the second lawsuit, because “both sets of Myopo’s claims arise from Litton’s conduct while 20 Myopo was an employee and specifically from the events leading to his termination”); Jian 21 Ying Lin, 329 F.R.D. at 40 (“Rule 41(a)(1)(B)’s two-dismissal rule would be toothless if a 22 plaintiff could evade it merely by adding to his original, voluntarily dismissed complaint a 23 new cause of action arising from the same operative facts . . . .”). 24 As for the second part of the inquiry—whether the two actions could have been 25 conveniently tried together—McGhee argues he couldn’t have brought his civil RICO 26 claim in the Second Action because it was being litigated in state court, the AMMA made 27 medical marijuana legal under state law, and the illegality of Defendants’ actions therefore 28 constituted a federal question that could only be heard in federal court. (Doc. 22 at 3-4.) 1 This argument lacks merit. “[S]tate courts have concurrent jurisdiction over civil RICO 2 claims.” Tafflin v. Levitt, 493 U.S. 455, 458 (1990). See also Feminist Women’s Health 3 Ctr. v. Codispoti, 63 F.3d 863 (9th Cir. 1995) (plaintiffs were barred, by res judicata 4 principles, from asserting civil RICO claim in federal lawsuit because they could have 5 asserted that claim in earlier, unsuccessful state-court lawsuit arising from same facts). 6 Arizona state courts, moreover, have heard cases challenging the AMMA on the grounds 7 of federal preemption. Reed-Kaliher v. Hoggatt, 347 P.3d 136, 141 (Ariz. 2015); White 8 Mountain Health Ctr., Inc. v. Maricopa Cty., 386 P.3d 416, 423-33 (Ariz. Ct. App. 2016). 9 McGhee also contends he couldn’t have asserted a claim for workers’ compensation 10 retaliation under A.R.S. § 23-1501(3)(c)(iii) in the Third Action because it is a state-law 11 claim. (Doc. 22 at 4-5.) This argument again lacks merit. The court overseeing the Third 12 Action would have had supplemental jurisdiction over this claim under 28 U.S.C. § 1367 13 had it been asserted in conjunction with McGhee’s civil RICO claim. Thus, McGhee could 14 have conveniently litigated his RICO and state-law claims as part of the same lawsuit in 15 either state or federal court. Cf. Mpoyo, 430 F.3d at 987 (concluding that former 16 employee’s Title VII, FLSA, and FMLA claims arose from same transaction because they 17 “form[ed] a convenient trial unit that discloses a cohesive narrative of an employee18 employer relationship and a controversial termination”). 19 For these reasons, the dismissal of the Third Action constituted an adjudication on 20 the merits under Rule 41(a)(1)(B). 21 B. Whether The Third Action Has A Res Judicata Effect Here 22 Although, as explained above, the with-prejudice dismissal of the Second Action 23 does not result in a res judicata effect here, it doesn’t follow that the Third Action also 24 lacks a res judicata effect. This is because the Second Action was litigated in state court 25 while the Third Action was litigated in federal court. Thus, the Court does not apply 26 Arizona’s liberal “same evidence” test when assessing the res judicata effect of the Third 27 Action. Instead, federal law applies. See generally Axon Enterprise Inc. v. Vievu LLC, — 28 — 2018 WL 317289 , *3 (D. Ariz. 2018) (“[F]ederal courts apply the transactional test to 1 determine the res judicata effect of a prior federal judgment, but defer to state res judicata 2 rules when evaluating the preclusive effect of a state court judgment.”). In federal court, 3 “[r]es judicata applies when there is (1) an identity of claims; (2) a final judgment on the 4 merits; and (3) identity or privity between parties.” ProShipLine, 609 F.3d at 968 5 (quotation omitted). 6 1. Identity Of Claims 7 When evaluating the first factor res judicata factor—identity of claims—courts look 8 to the following four considerations: “(1) whether the two suits arise out of the same 9 transactional nucleus of facts; (2) whether rights or interests established in the prior 10 judgment would be destroyed or impaired by prosecution of the second action; (3) whether 11 the two suits involve infringement of the same right; and (4) whether substantially the same 12 evidence is presented in the two actions.” Id. (citation omitted). Courts do not apply these 13 criteria “mechanistically.” Mpoyo, 430 F.3d at 987 . 14 Here, the Court has already determined that the first consideration—a common 15 transactional nucleus of facts—is present. The Ninth Circuit has “often held the common 16 nucleus criterion to be outcome determinative.” Mpoyo, 430 F.3d at 988 . “In most cases, 17 the inquiry into the same transactional nucleus of facts is essentially the same as whether 18 the claim could have been brought in the first action.” Turtle Island Restoration Network 19 v. U.S. Dep’t of State, 673 F.3d 914 , 918 (9th Cir. 2012) (internal quotation omitted). 20 In any event, the remaining considerations are inconclusive. The Ninth Circuit in 21 Mpoyo found the second and third considerations “not conclusive” in a similar case 22 because, although the plaintiff alleged that the “same overall harms and primary rights” 23 were at issue, the plaintiff’s assertion of different legal theories presented “different 24 particular rights.” 430 F.3d at 987 . As for the fourth consideration, although the Third and 25 Fourth Actions rely on some different evidence (the shoulder injury and the conversations 26 with DEA agents), there is meaningful evidentiary overlap between the two suits 27 (McGhee’s employment and termination). 28 Where, as here, the final three criteria are inconclusive, the finding that the Third 1 and Fourth Actions share a common nucleus of operative fact is “outcome determinative 2 under the first res judicata element.” Myopo, 430 F.3d at 988 . 3 2. Final Judgment On The Merits 4 The second element of the res judicata test asks whether the earlier lawsuit “reached 5 a final judgment on the merits.” Id. at 987 (quotation omitted). As discussed in Part II.A 6 above, it did—pursuant to Rule 41(a)(1)(B), McGhee’s dismissal of the Third Action 7 resulted in an adjudication on the merits. 8 3. Identical Parties Or Privies 9 The final element of the res judicata test asks whether the earlier lawsuit “involved 10 identical parties or privies.” Myopo, 430 F.3d at 987 (quotation omitted). This element is 11 satisfied here, too—the parties in the Third and Fourth Actions are identical. 12 4. McGhee’s Other Arguments 13 Notwithstanding all of this, McGhee urges the Court to refrain from dismissing this 14 action because (1) he did not serve the complaint in the Third Action on Defendants, so the 15 court never had personal jurisdiction over them; (2) requiring him to plead his RICO claim 16 simultaneously with his state-law claim would have reduced the statute of limitations by 17 75%, which raises questions regarding his due process rights; and (3) there is a compelling 18 public interest in hearing RICO cases. (Doc. 22 at 5-6, 8-10.) 19 These arguments lack merit. First, “[a] federal action is commenced by the filing 20 of the complaint, not by service of process.” Pacesetter Sys., Inc. v. Medtronic, Inc., 678 21 F.2d 93, 96 (9th Cir. 1982). Defendants in this case were the defendants in the Third 22 Action, even before service, and have standing to invoke the two-dismissal rule. See also 23 Engelhardt v. Bell & Howell Co., 299 F.2d 480, 484-85 (8th Cir. 1962) (“Plaintiff’s 24 contention that the dismissal of the first action was a mere nullity and can be disregarded 25 because the dismissal was filed at a time before the court had acquired jurisdiction over the 26 defendant is without merit.”). 27 Second, the statute of limitations for McGhee’s RICO claim was not shortened. 28 Although it’s true he had a one-year window during which he could have asserted both his state-law and RICO claims, the RICO statute of limitations itself was not affected. 2 Third, as the Seventh Circuit put it when confronted with a request for an exception to the two-dismissal rule, “the federal rules are carefully-crafted instruments designed to 4|| achieve, by their uniform application, fairness and expedition in the conduct of federal □□ litigation. Therefore, when a party contends that a court should disregard the express 6|| language of a carefully-drawn rule of procedure, that party bears a heavy burden of showing that a departure from the plain language is justified.” Sutton Place Dev. Co. v. 8 || Abacus Mortg. Inv. Co., 826 F.2d 637, 640 (7th Cir. 1987). Although there may be a public 9|| interest in the merits-based resolution of RICO claims, Rule 41(a)(1)(B) applies here and 10 || the mere fact McGhee has brought a RICO claim does not itself justify a departure from the plain language of the Rule. Codispoti, 63 F.3d at 869 (applying res judicata principles □□ to preclude plaintiffs from asserting civil RICO claim). 13 Accordingly, IT IS ORDERED that Defendants’ motion to dismiss (Doc. 21) is 14|| granted. The Clerk of Court shall terminate this action and enter judgment accordingly. 15 Dated this 21st day of April, 2020. — 16 — 17 Lm ee” 18 f CC —— Dominic W. Lanza 19 United States District Judge — 20 — — 21 — — 22 — — 23 — — 24 — — 25 — — 26 — — 27 — — 28 — -ll-