                                                                                 United States Court of Appeals
                                                                                          Fifth Circuit
                                                                                        F I L E D
                      IN THE UNITED STATES COURT OF APPEALS
                                                                                         March 1, 2007
                               FOR THE FIFTH CIRCUIT
                                                                                    Charles R. Fulbruge III
                                                                                            Clerk
                                           No. 06-30358
                                         Summary Calendar




WALGREEN COMPANY,
                                                                                 Plaintiff-Appellant,


                                               versus

LOUISIANA DEPARTMENT
OF HEALTH AND HOSPITALS,

                                                                                Defendant-Appellee.


                           Appeal from the United States District Court
                              for the Middle District of Louisiana
                                      (No. 3:05-CV-190)




Before DeMOSS, STEWART, and PRADO, Circuit Judges.

PER CURIAM:*

       Walgreen Company, an operator of commercial pharmacies, appeals from the district court’s

grant of summary judgment on the basis of res judicata. We affirm.




       *
        Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
                      I. FACTUAL AND PROCEDURAL BACKGROUND

         As part of its implementation of the federal Medicaid program, the Louisiana Department of

Health and Hospitals (DHH) has formulated a two-tiered system of reimbursements for prescription

drugs.    Under this system that was first implemented in 2000, Louisiana provides different

reimbursement rates for “chain pharmacies” and “independents.” On August 11, 2000, Walgreen filed

a complaint in federal district court, facially challenging the two-tiered reimbursement system and

seeking both injunctive and declaratory relief (“the 2000 litigation”). The complaint alleged that the

program violated the federal Social Security Act as well as the due process and equal protection

clauses of the Fourteenth Amendment and the Fourth Amendment. This court later held that the

Social Security Act did not confer a private right of action on health care providers because they are

not the intended beneficiaries of the statute. Evergreen Presbyterian Ministries, Inc. v. Hood, 235

F.3d 908 (5th Cir. 2000). Based on this decision, the district court denied Walgreen’s motion for

preliminary injunctive relief, a judgment that was upheld by this court. Walgreen Co. v. Hood, 275

F.3d 475 (5th Cir. 2001). Later, the district court rejected the rest of Walgreen’s arguments,

resulting in the dismissal of the case on December 10, 2002.

         On September 28, 2004, the DHH informed Walgreen that due to an error its pharmacies had

been assessed at the independent rate rather than the chain pharmacies rate and that the department

was seeking to recoup $125,000.00 of overpayments. Walgreen requested an administrative appeal

on October 27, 2004, and the DHH denied this request because the Bureau of Appeals lacks

jurisdiction to consider the constitutional issues that Walgreen alleged. These constitutional issues

were largely identical to the issues raised in the 2000 litigation.




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        Based on the denial of an administrative hearing, Walgreen filed suit in Louisiana state court

on March 9, 2005. The complaint seeks both declaratory relief and damages. The complaint alleges

the tiered reimbursement rates violate the Social Security Act and the Commerce Clause, that they

constitute an abuse of agency discretion, and that the application of the rates violates Walgreen’s

rights to due process and equal protection of the law. DHH later removed the case to federal court.

        The district court granted DHH’s motion for summary judgment on the basis that Walgreen’s

allegations, i.e. that the tiered pharmacy reimbursement rates are unlawful and invalid, has been

decided in previous litigation between the parties in front of a court of competent jurisdiction. DHH

also asserted that some of the issues were barred by collateral estoppel, but the district court did not

consider this argument because he found the whole case subject to dismissal under the res judicata

(claim preclusion) doctrine. Walgreen filed this timely appeal.

                                          II. DISCUSSION

        We review the grant of summary judgment, as well as a finding of res judicata, de novo. See

United States ex rel. Laird v. Lockheed Martin Eng’g and Sci. Serv. Co., 336 F.3d 346, 350-51 (5th

Cir. 2003). “Claim preclusion, or res judicata, bars the litigation of claims that have either been

litigated or should have been raised in an earlier suit.” In re Southmark Corp., 163 F.3d 925, 934

(5th Cir. 1999). Res judicata has four elements: (1) identity or privity of parties; (2) the judgment

in the prior action was rendered by a court of competent jurisdiction; (3) the prior action was

concluded by a final judgment on the merits; (4) the same claim or cause of action is involved in both

actions. Id. at 934. The only element at issue in this case is whether Walgreen is raising the same

claims or causes of action in this lawsuit as it was in the 2000 lawsuit. The Fifth Circuit applies the

transactional test of the RESTATEMENT (SECOND) OF JUDGMENTS, § 24, which provides that “the


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preclusive effect of a prior judgment extends to all rights the original plaintiff had ‘with respect to all

or any part of the transaction, or series of connected transactions, out of which the [original] action

arose.’” Petro-Hunt, LLC v. United States, 365 F.3d 385, 395-96 (5th Cir. 2004) (quoting Southmark

Props. v. Charles House Corp., 742 F.2d 862, 870-71 (5th Cir. 1984)). “[T]he critical issue is

whether the two actions under consideration are based on the same nucleus of operative facts.”

Southmark, 163 F.3d at 934 (emphasis in original) (internal quotation and citation omitted).

        Walgreen makes several arguments as to why this action should not be barred. First,

Walgreen argues that the regulations it is challenging in the instant action are not the same as the ones

challenged in the 2000 litigation. This argument is not persuasive. While the regulations that

Walgreen challenged were “emergency” regulations that were later enacted as permanent regulations

with changes to the repayment formula, Walgreen has not alleged or shown that the minor changes

to these regulations were such that the operative facts of this case are different than the 2000

litigation. Instead, this argument is an impermissible attempt to relitigate a facial challenge to the

validity of the regulations. See Shults v. Texas, 762 F.2d 449, 452 (5th Cir. 1985) (“Thus, the

primary right asserted . . . and the primary wrong complained of . . . are the same in both actions.

That the pertinent provisions of the 1983 amendments at issue here are not identical in other respects

to the pertinent provisions of the 1981 amendments at issue in [the prior case] is irrelevant.”).

        Next, Walgreen argues that it is challenging the DHH’s administrative determinations in this

case, such that this case is an “as applied” challenge rather than a direct facial challenge. The

operative facts surrounding this as applied challenge are different than the operative facts surrounding

the 2000 litigation. The DHH’s denial of a hearing to Walgreen is a fact that was not present in the

2000 litigation, meaning that Walgreen could not have raised this challenge. In the past, this court


                                                    4
has allowed an as applied challenge to proceed when the plaintiff’s facial challenge was barred by res

judicata. Shults, 762 F.2d at 444. However, the as applied challenge in Shults specifically challenged

the length of time that elapsed before a hearing was provided. Id.

       Here, Walgreen challenges only the underlying determination of the DHH, not the denial of

a hearing or the delay before conducting a hearing. The basis for Walgreen’s as applied challenge is

the same as the basis for the 2000 litigation. Monahan v. New York City Dep’t of Corr., 214 F.3d

275, 290 (2d Cir. 2000) (“The ‘as applied’ label cannot obscure the fact that [the new litigation is]

part of the same series of transactions. If the new as-applied challenges are to aspects of the policy

which survive the earlier litigation, then the claim itself was subsumed by the earlier litigation.”).

There is no way for Walgreen to prevail on its challenge to the regulations without challenging the

determinations of the prior suit.1

       Finally, Walgreen attempts to assert that each application of the policy is its own cause of

action, similar to the way that every alleged violation of an abatable nuisance is a separate tort. See

Lawlor v. Nat’l Screen Serv. Corp., 349 U.S. 322, 327-28 (1955); see also Stanton v. District of

Columbia Court of Appeals, 127 F.3d 72 (D.C. Cir. 1997) (successive as applied challenges were

allowed based on successive enforcement of a policy). In this case, however, there is no need for

continued review of the DHH’s future application of regulations that have been adjudged to be legal;

the 2000 litigation established that the regulation was facially valid such that future applications of

the regulations are legal. The only way to establish the unlawful application of these regulations in



       1
         Those arguments that were not raised in the 2000 litigation, such as the Commerce Clause
challenge, could have been raised in that lawsuit and are thus barred by res judicata here. See, e.g.,
Shults, 762 F.2d at 453 (holding that a challenge that plaintiffs could have raised in prior litigation
was barred).

                                                  5
these circumstances is to directly challenge the outcome of the 2000 litigation, the precise situation

that res judicata is designed to avoid.

        Nor does this decision result in perpetual immunity from attack for the DHH’s future

decisions under the tiered reimbursement system. If at any time Walgreen can allege “modifications

in controlling legal principles” or “changed circumstances [that] sufficiently alter the factual predicate

such that new as-applied claims would not be barred by the original judgment,” Monahan, 214 F.3d

at 290 (internal quotation and citation omitted), then res judicata would no longer operate to bar the

suit.

                                          III. CONCLUSION

        For the foregoing reasons, we affirm the judgment of the district court.




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