American Medical Intern., Inc. v. Secretary of Health, Ed. and Welfare, 79-1460

• Decision Date: 14 August 1981
• Docket Number: No. 79-1460,79-1460
• Citation: 677 F.2d 118
• Parties: AMERICAN MEDICAL INTERNATIONAL, INC., et al., Appellants, v. SECRETARY OF HEALTH, EDUCATION AND WELFARE.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 118

677 F.2d 118

219 U.S.App.D.C. 267

AMERICAN MEDICAL INTERNATIONAL, INC., et al., Appellants, v. SECRETARY OF HEALTH, EDUCATION AND WELFARE.

No. 79-1460.

United States Court of Appeals, District of Columbia Circuit.

Argued March 21, 1980.

Decided Aug. 14, 1981.

Jon David Epstein, Houston, Tex., and Robert A. Klein, Washington, D. C., of the bar of the Supreme Court of California, pro hac vice by special leave of Court, with whom Philip W. Buchen, Washington, D. C., and Dennis O. Barry were on the brief, for appellants.

Paul A. Gaukler, Atty. Dept. of Justice, Washington, D. C., of the bar of the Supreme Court of North Dakota, pro hac vice by special leave of Court, with whom Alice Daniel, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., at the time the brief was filed, Charles F. C. Ruff, U. S. Atty., Anthony J. Steinmeyer, Atty., Dept. of Justice, and David Palmer, Atty., Dept. of Health and Human Services, Washington, D. C., were on the brief, for appellee.

Joseph E. Casson, Lee Calligaro and Malcolm J. Harkins, Washington, D. C., were on the brief for Federation of American Hospitals, amicus curiae, urging reversal.

Before ROBINSON, Chief Judge, WRIGHT, Circuit Judge and AUBREY E. ROBINSON, Jr., District Judge. ^*

Opinion filed PER CURIAM.

PER CURIAM:

Appellants-American Medical International, Inc. (AMI), more than thirty of its hospital subsidiaries, and a hospital it manages-challenged in the District Court a decision by the Administrator of the Health Care Financing Administration, a division of the Department of Health and Human Services, denying reimbursement of certain costs that appellants allegedly absorbed while furnishing health care to beneficiaries of the Medicare program. ¹ The District Court upheld that ruling and rejected the claim. ²

For reasons amply delineated by the District Court, ³ we agree that the costs in question are not reimbursable because they were not necessarily incurred in the provision of health-care services to Medicare patients, as is required by the Medicare Act. ⁴ That does not entirely dispose of the case, however, for the court did not address one issue: Whether the Administrator is collaterally estopped from withholding reimbursement of so-called "stock maintenance costs," ⁵ the status of which was a question raised by appellant AMI-Chanco ⁶ and decided against the Federal Government in earlier litigation in the Court of Claims. ⁷ That problem implicates some of the most difficult and troubling aspects of the law of issue-preclusion, and thus, we believe, demands full treatment.

I

The Secretary insists that an estoppel is foreclosed by the Supreme Court's decision in Commissioner v. Sunnen ⁸ three decades ago. That argument, at first glance, seems persuasive. ⁹ So long as the facts in two cases are formally "separable," the Sunnen Court declared, it is inappropriate to use a judgment in the first to estop a party on a legal point in the second:

(I)f the relevant facts in the two cases are separable, even though they be similar or identical, collateral estoppel does not govern the legal issues which recur in the second case. Thus the second proceeding may involve an instrument or transaction identical with, but in form separable from, the one dealt with in the first proceeding. In that situation, a court is free in the second proceeding to make an independent examination of the legal matters at issue.... Before a party can invoke the collateral estoppel doctrine in these circumstances, the legal matter raised in the second proceeding must involve the same set of events or documents and the same bundle of legal principles that contributed to the rendering of the first judgment. ¹⁰

This prong of Sunnen has never been popular with commentators-who maintain that formal separability of facts, without some difference pertinent to the first decision, does not justify denial of preclusive effect to the initial adjudication ¹¹-and has also been less scrupulously applied by the courts. ¹² If valid, however, Sunnen's separable-facts doctrine would, as the Secretary suggests, appear to control here, for the Court of Claims' litigation involved different years-and hence a different, though for all relevant purposes an identical, bundle of facts-from those in the case at bar. ¹³

There is, however, no need to wrestle with the intricacies of this problem, for the controversial aspect of Sunnen is no longer good law. In one of its most recent analyses of collateral estoppel, the Supreme Court allowed a judgment predicated upon one set of contracts to estop litigation of legal issues in another case dealing with a similar, though unrelated, set of contracts, because there had been no "changes in facts essential to (the) judgment." ¹⁴ The first ruling had not been "predicated" ¹⁵ on facts peculiar to the contracts there in issue, so that differences in the documents were not of "controlling significance." ¹⁶ While the Court did not expressly overrule the separable-facts doctrine, it characterized Sunnen as holding simply "that modifications in 'controlling legal principles' ... could render a previous determination inconsistent with prevailing doctrine;" ¹⁷ "unless there have been major changes in the law," the Court said, Sunnen is inapplicable. ¹⁸ Since this cannot be squared with Sunnen's declaration that "the legal matter raised in the second proceeding must involve the same set of events or documents" as that involved in the first, ¹⁹ it seems clear that "Sunnen was limited by the Court ... to cases in which there had been a significant 'change in the legal climate....' " ²⁰ Plainly that is not the case here.

II

Although it is thus apparent that an estoppel is not inexorably foreclosed by Supreme Court authority, the inquiry cannot end at this point. "(S)pecial circumstances," the Court has admonished, "warrant an exception to the normal rules of preclusion." ²¹ It remains to inquire whether the circumstances here are so unusual that the administration of justice would best be served by refusing an estoppel in the instant proceeding.

Were this a case involving only private litigants or only simple issues of fact, we would not hesitate to conclude that an estoppel should arise. The case would then stand like any other in which "the issues presented by (the) litigation are in substance the same as those resolved (earlier, and the) controlling facts or legal principles have (not) changed significantly since the (first) judgment...." ²² This is not, however, a typical case. A federal agency, not a private party, lost on an issue of federal law, not an issue of fact, in the first lawsuit. To allow nonparties to the Court of Claims' ruling ²³ to win simply on the basis of an estoppel would mean that we simply and uncritically bind ourselves to follow another court's interpretation of a federal statute in virtually all cases involving that legislation. The broader and more serious implication of such a holding is that the first court to hear a case raising a public law issue litigable only with the Federal Government would-if it ruled against the Government-rigidify the law to be applied by every court in every case presenting that issue. ²⁴ What makes that both possible and alarming are the Supreme Court's relatively recent estoppel decisions doing away with mutuality, ²⁵ sanctioning application of offensive estoppel, ²⁶ and generally broadening the permissible uses of issue-preclusion when questions of law are involved. ²⁷

This court has not yet faced squarely the problem whether, given the new estoppel rules, federal relitigation of questions of national law with new parties in new circuits should be permitted. ²⁸ Three other courts, however, have addressed that question, ²⁹ and each has concluded that no collateral estoppel should arise in such circumstances. ³⁰ They all bottom their decisions on one central policy argument: that "in the context of agency relitigation of legal issues with substantial public policy implications," ³¹ "inquiry by other circuits should not be foreclosed; indeed, a conflict among the circuits could be a healthy matter." ³² And whatever might be said of the technical legal arguments made by these courts, ³³ the policy they adopted is valid and, we believe, ultimately persuasive.

It can hardly be gainsaid that complex questions of national import can wholesomely and profitably be explored by more than a single court. And it is a truism that proposed legal rules can be improved through repeated examination by a variety of legal minds. Rigorous analysis of the law and concomitantly its healthy development would thus be hampered were an estoppel indulged in a case such as this. By the same token, independent reconsideration of legal issues by the circuits can facilitate Supreme Court review by highlighting their complications and controversial aspects, ³⁴ and thus make for better informed decisions. Indeed, the Court itself has acknowledged the value of such a shifting process in the courts of appeals. In a recent case presenting a problem dividing the circuits, the Court noted that "(t)his litigation exemplifies the wisdom of allowing difficult issues to mature through full consideration by the courts of appeals. By eliminating ... many subsidiary, but still troubling, arguments ... these courts have vastly simplified our task, as well as having underscored the reasonableness of the (ultimately prevailing) view." ³⁵

This conclusion draws support from the treatment traditionally accorded decisions of sister circuits by the courts of appeals themselves. When cases presenting legal questions with national implications have arisen, this court has always considered itself obligated to subject the analyses of coordinate tribunals to close scrutiny, with the aim of producing a sound and well-reasoned decision. ³⁶ More generally, while the courts of appeals consistently recognize the importance of uniformity, ³⁷ they have never...