Magellan Health, Inc. v. Duncan – 12/14/2021

January 3, 2022

Arizona Court of Appeals Division One holds that a federal district court’s dismissal of a case “with prejudice” on jurisdictional grounds does not have preclusive effect on the underlying claims.

In 2020, a woman filed a putative class action in federal district court against a healthcare provider based on an alleged data breach that revealed patients’ personal and health information.  The healthcare provider moved to dismiss, arguing that the woman lacked standing.  The district court agreed and concluded it lacked subject matter jurisdiction to hear the case.  It dismissed the case “with prejudice” on that basis, but specifically did not address the healthcare provider’s Rule 12(b)(6) argument.

Later that year, the woman refiled her case in Arizona state court.  The healthcare provider moved to dismiss, arguing that the district court’s “with prejudice” dismissal of the federal case precluded the woman’s claims.  The superior court denied the motion, finding that neither claim nor issue preclusion applied because the federal court had not reached the merits of the case.  The healthcare provider sought special action relief.

The Court of Appeals Division One accepted jurisdiction but denied relief.  The healthcare provider largely based its argument on the fact that the district court had dismissed the federal case “with prejudice.”  However, as the Court noted, nomenclature alone does not determine the preclusive effect of a judgment.  Instead, because the district court had specifically limited its order to its own jurisdiction, the “with prejudice” label only affected the woman’s ability to refile the case with the same jurisdictional defects in federal court.  It did not transform the jurisdictional decision into a decision on the merits.  Because a decision on the merits is a necessary condition for claim preclusion to apply, and because the district court decided no issues other than its own jurisdiction, the woman’s claim was barred by neither claim nor issue preclusion.

Judge Swann authored the opinion for the court, joined by Judges Weinzweig and McMurdie.