Bracewell v. State Dept. of Public Health CA3 ( 2024 )

Filed 2/6/24 Bracewell v. State Dept. of Public Health CA3
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
KEITH BRACEWELL, C097453
Plaintiff and Appellant, (Super. Ct. No. 34-2021-
00305066-CU-BC-GDS)
v.
STATE DEPARTMENT OF PUBLIC HEALTH et
al.,
Defendants and Respondents.
In a prior appeal, we ruled against claims alleged by plaintiff and appellant Keith
Bracewell and his wife in a petition for writ of mandate concerning the disqualification of
their food stores from participating in a federal program to provide supplemental food for
women and children. In this action, Bracewell alleges contract and negligence causes of
action that are based on the same facts and issues which we and the trial court resolved in
the prior action. Although he contends the doctrine of claim preclusion should not apply
due to extrinsic fraud committed on the courts by the defendants, we find the argument to
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be without merit. We thus affirm the trial court’s judgment of dismissal following a
demurrer on the basis of claim preclusion.
FACTS AND HISTORY OF THE PROCEEDINGS
Much of this discussion is taken from our unpublished opinion in the earlier
action, Bracewell v. California Dept. of Public Health (Oct. 29, 2019, C083492)
[nonpub. opn.] [2019 Cal.App.Unpub.LEXIS 7200] (Bracewell I).
The Special Supplemental Nutrition Program for Women, Infants and Children
(the WIC program) provides supplemental nutrition to pregnant and postpartum mothers
and their children up to the age of five. “Congress enacted the federal Child Nutrition
Act of 1966 (42 U.S.C. § 1771 et seq.), which established the WIC program. (42 U.S.C.
§ 1786.) [Defendant and respondent Department of Public Health] (Department)
administers the program in this State in accordance with federal WIC requirements and
guidelines. (Health & Saf. Code, §§ 20, 123280.) The Department contracts with retail
food vendors to provide supplemental food under the program. (Health & Saf. Code,
§ 123310.) Vouchers or food instruments issued to eligible program participants are
redeemed for WIC-approved food products at authorized food vendors, and the vendors
submit the vouchers to the State for reimbursement. Only authorized food vendors may
accept WIC food vouchers. (Cal. Code Regs., tit. 22, § 40735, subd. (a).) Each retail
outlet location must be authorized separately under the program. (Cal. Code Regs.,
tit. 22, § 40735, subd. (a).) In addition, authorized vendors must comply with the
Department’s ‘rules of vendor authorization, reimbursement, and monitoring that control
program food costs, maximize participant access, and ensure program integrity.’ (Health
& Saf. Code, § 123315, subd. (a)(8).)
“The Bracewells owned and operated two food stores, Basic Foods and Basic
Foods #3, in Bakersfield. The stores were approved food vendors participating in the
WIC program.
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“A food vendor must execute a vendor agreement with the Department to be
entitled to reimbursement for food vouchers. (Cal. Code Regs., tit. 22, §§ 40735, subd.
(a), 40739; 7 C.F.R. § 246.12, subd. (h)(1).) In 2006, the Bracewells entered into a
vendor agreement with the predecessor to the Department. Pursuant to that agreement,
the Bracewells agreed to comply with all federal and state laws, regulations and rules
governing the WIC program. Consistent with state law, the agreement required ‘the food
vendor’ to ‘[m]aintain, for a period of three years, records including but not limited to:
all inventory records necessary for Federal and State tax reporting purposes, inventory
records showing all wholesale and retail purchases; invoices identifying the quantity and
prices of specific supplemental foods; sales and use tax returns, and books of account and
other pertinent records that are necessary to substantiate the volume and prices charged
through food instrument redemption.’ (See Health & Saf. Code, § 123315, subd. (a)(6);
Cal. Code Regs., tit. 22, § 40735, subd. (a).) The agreement further provided that the
State reserved the right to audit a food vendor’s records and books of account for
compliance with the agreement and to disqualify the food vendor from participation in
the program if it is determined that the vendor failed to comply with the agreement or has
committed violations subject to disqualification under 7 Code of Federal Regulations part
246 and California Code of Regulations, title 22, section 40740. Although they were
included in one vendor agreement, Basic Foods and Basic Foods #3 each had its own
vendor identification number. Moreover, the vendor agreement provided that each store
location was authorized separately.
“In 2008, the State Controller’s Office audited the records of Basic Foods and
Basic Foods #3 for the period January 1, 2006 to December 31, 2006. The Department
issued separate notices of audit findings and disqualification to Basic Foods and Basic
Foods #3, finding each store had been reimbursed in excess of eligible costs by more than
20 percent of the total food voucher dollars redeemed. The stores were disqualified from
the program for three years pursuant to 7 Code of Federal Regulation section 246.12,
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subdivision (l)(1)(iii)(B) and California Code of Regulations, title 22, section 40740,
subdivision (e)(2)(C) [(section 40740(e)(2))]. The Bracewells were required to repay
$125,099 for Basic Foods and $136,357 for Basic Foods #3.
“The Bracewells filed separate appeals for each store and requested a hearing.
Administrative Law Judge (ALJ) Dwight Nelsen heard the matter and issued a proposed
decision denying the appeals. The Bracewells argued the two stores should be treated as
a single unit for auditing purposes because they were treated as one entity for federal tax
purposes, but the ALJ rejected the argument. He said the vendors’ participation in the
program was based on contract and the vendor agreement provided that each store was
authorized separately, and the auditor followed applicable procedures which required that
each store be audited separately. He concluded that combining the two stores as one was
inconsistent with accepted auditing standards and procedures of WIC stores and the
vendors’ operations.
“With respect to the inventory each store had for sale during the audit period, ALJ
Nelsen said there should be a paper trail substantiating the amount and value of the food
products each store received for sale to WIC beneficiaries. However, each store did not
have a contemporaneous paper trail to verify what it received from the other store in the
form of transfers of food products. He found that the vendor’s records for Basic Foods
showed that the volume of WIC food sales for five food items was unsupported in the
amount of $125,099, and the vendor’s records for Basic Foods #3 showed that the
volume of WIC food sales for 24 food items was unsupported in the amount of $136,357.
“The ALJ also rejected the Bracewells’ argument that they were not informed of
the need for maintaining transfer records. He said it was reasonable to expect each store
to be able to show ‘auditable documentation [of] the volume and value of the products it
had for sale.’ And the need for documentation of transferred food products should be the
same as for products from outside wholesalers. The ALJ concluded that disqualification
was appropriate because the audit of each store showed the vendor was reimbursed in an
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amount in excess of eligible costs. The Department adopted the ALJ’s proposed
decision.
“The Bracewells filed a petition for reconsideration, which was denied. The
Bracewells then filed a petition for writ of mandate in the superior court to compel [the
ALJs and the Department] to vacate the Department’s final decision and to issue a new
decision granting their appeals. The trial court granted the writ petition in part and
denied it in part. While the trial court agreed that the Bracewells were required to
maintain records reflecting transfers of goods between the two stores as part of the WIC
program’s recordkeeping requirements, it said the evidence presented indicated there may
not have been an over-reimbursement when transfers between the two stores were taken
into consideration. The trial court issued a peremptory writ, remanding the matter for
reconsideration as to the amount the Bracewells were required to repay the Department.
The trial court denied the Bracewells’ motion for reconsideration.
“On November 9, 2011, the trial court entered judgment and Keith Bracewell filed
notice of entry of judgment. About five weeks later, the Bracewells filed a writ petition
in this Court, which this Court denied because the Bracewells had a remedy by appeal.
The Bracewells did not file a timely notice of appeal concerning the November 9, 2011
judgment.
“On remand, the Department vacated its decision. ALJ Mark Otto ultimately
submitted a proposed decision concluding that the vendors must reimburse the
Department $11,231; certified public accountant Denny Bridges concluded the combined
net unsupported redemption amount for the two stores was $11,231, and the Department
did not present evidence of the monetary loss it suffered and did not dispute the amounts
Mr. Bridges used in his calculations. The Department adopted the ALJ’s proposed
decision and issued its final decision.
“The trial court did not discharge the peremptory writ. [In November 2015, the
court found that the ALJ’s decision requiring reimbursement of $11,231 was supported
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by substantial evidence. However, the court] agreed with the Bracewells that, if the
Bracewells owed only $11,231 and not $261,456, ALJ Otto needed to determine whether
the disqualification should be modified. [The Bracewells did not appeal this decision.
(Bracewell I, supra, 2019 Cal.App.Unpub.LEXIS 7200.)] On remand, ALJ Otto declined
to modify the disqualification, and the Department adopted the decision. Although the
Bracewells asserted further objections in the trial court, the trial court overruled the
objections, discharged the peremptory writ and dismissed the matter on September 21,
2016. The Department filed a notice of entry of that order and the Bracewells filed a
notice of appeal within 60 days thereafter.” (Bracewell I, supra, 2019
Cal.App.Unpub.LEXIS 7200.)
In the appeal, the Bracewells contended (1) the two stores should not have been
audited as separate vendors or required to maintain records showing inter-store transfers
of food products; (2) it was improper to disqualify the stores; and (3) there was
insufficient evidence that the stores were reimbursed in excess of eligible costs by
$11,231. (Bracewell I, supra, 2019 Cal.App.Unpub.LEXIS 7200.)
This Court disagreed with the Bracewells and affirmed the trial court’s 2016 order.
We concluded (1) the challenge to the separate audits and transfer records requirement
was barred because the Bracewells did not timely appeal the 2011 judgment; (2) the
decision to disqualify the stores was not erroneous; and (3) the challenge to the
sufficiency of the evidence was barred by the failure to timely appeal the November 2015
order. (Bracewell I, supra, 2019 Cal.App.Unpub.LEXIS 7200.) The California Supreme
Court denied the Bracewells’ petition for review on January 15, 2020.
On March 11, 2020, the Bracewells filed a complaint in superior court against the
Department and the Controller’s Office (collectively the Departments). The Departments
filed a demurrer, contending among other arguments that the Bracewells had not filed a
claim with the Departments as required by the Government Claims Act (Gov. Code,
§ 911.2).
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The Bracewells dismissed the action on September 28, 2020. Then, on
December 21, 2020, they presented the Departments with a government claim.
On July 29, 2021, the Bracewells filed this action against the Departments. The
trial court sustained the Departments’ demurrer with leave to amend, finding the
Bracewells did not file their government claim timely.
The Bracewells filed a first amended complaint on March 30, 2022. In the
complaint, they allege causes of action for breach of contract, negligence, and negligent
interference with economic advantage. They contend the Departments breached the
vendor agreement on September 30, 2008, by (1) disqualifying them as WIC vendors and
banning their participation in the WIC program for three years; (2) requiring transfer
documents and auditing their stores separately and incompletely in violation of accepted
tax auditing practices; and (3) incorrectly determining that Basic Foods #3 had been
reimbursed excessively.
For their negligence claim, the Bracewells contend that on or about September 30,
2008, (1) the Departments negligently interpreted the vendor agreement; (2) the
Departments should have known that the audit was not performed according to accepted
state and federal tax auditing standards; (3) neither store was in violation of state
regulations; (4) the Departments knew that the initial overpayment assessment of more
than $261,000 was based on improper auditing practices; and (5) the Departments knew
that the Bracewells had not actually received any payments in excess of food instrument
redemption and had not benefited financially from any program fraud.
In their claim for negligent interference with economic advantage, the Bracewells
contend (1) the auditor performed the audit incorrectly; and (2) after determining the
amount actually owed was $11,231, the Department misrepresented the grounds for a
three-year disqualification. The Bracewells further allege that the Department
wrongfully withheld from the courts a document entitled Initial Statement of Reasons,
which listed the documents required for the audit under section 40740(e)(2) and the
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reasons for a three-year disqualification. The document purportedly shows that the audit
was not properly performed and the Bracewells did not qualify for a three-year
disqualification. The Bracewells allege that had this document been disclosed to the
courts during the prior litigation, they would have won their appeal.
The Departments filed a demurrer to the first amended complaint. They
contended (1) the Bracewells’ claims were barred by res judicata and issue preclusion;
(2) the Departments were statutorily immune from the Bracewells’ claims; and (3) the
complaint was barred due to the Bracewells’ failure to timely present a government
claim.
The Bracewells opposed the demurrer. They argued that their government claim
and the action were timely filed under application of the doctrine of equitable tolling.
They also argued that the Departments were not immune, and the action was not barred
by the prior litigation.
The trial court sustained the Departments’ demurrer without leave to amend based
on the untimeliness of the Bracewells’ government claim. The court explained that Willis
v. City of Carlsbad (2020) 48 Cal.App.5th 1104, 1120-1123, established that equitable
tolling does not apply to the government claim presentation deadline, and the court was
bound to follow Willis.
DISCUSSION
Because we may affirm a judgment of dismissal after a demurrer has been
sustained without leave to amend on any ground stated in the demurrer, even if the trial
court did not rule on that ground (Carman v. Alvord (1982) 31 Cal.3d 318, 324), we
address a different ground raised in the demurrer and not addressed by the trial court that
is dispositive.
The Bracewells in their opening brief contend that res judicata, now commonly
referred to as claim preclusion, should not bar this action. The doctrine of claim
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preclusion bars claims that were, or should have been, advanced in a previous suit
involving the same parties or parties in privity with them. (DKN Holdings LLC v.
Faerber (2015) 61 Cal.4th 813, 824.) The doctrine applies if the second suit involves the
same primary right between the same parties that was adjudicated to a final judgment on
the merits in the first suit. (Ibid.) Claim preclusion may potentially not apply if the prior
judgment was obtained by extrinsic fraud. (7 Witkin, Cal. Procedure (6th ed. 2023)
Judgement, § 370.)
The Bracewells argue that claim preclusion does not apply because the
Departments fraudulently concealed a document from the courts that would have changed
the result of the prior judgments, and the Bracewells did not delay in bringing this action
upon discovering the fraud. The Departments contend there was no fraud and that claim
preclusion bars this action.
The Bracewells assert that the Departments fraudulently concealed from the courts
a document entitled “40740 Initial Statement of Reasons.” This document purportedly
reveals the true purpose and meaning of section 40740(e)(2), the regulation under which
the Bracewells were disqualified from the WIC program. That regulation requires a food
vendor be disqualified for three years from the WIC program if an audit identifies a
pattern of the vendor claiming reimbursement for the sale of supplemental food which
exceeds the vendor’s inventory purchase documentation for a specific period of time.
The Bracewells attached portions of the Initial Statement of Reasons dated
April 12, 2001, to their first amended complaint. They claim the Initial Statement of
Reasons exposes that the Departments violated the Bracewells’ due process rights by
imposing disqualification grounds and auditing requirements that do not exist in the
actual regulation, section 40740(e)(2). The Bracewells contend that had the statement
been disclosed to the courts in the earlier litigation, they would have won their appeal.
To be liable for fraudulent concealment, the defendant must have concealed or
suppressed a material fact when under a duty to disclose that fact to the plaintiff. (Nissan
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Motor Acceptance Cases (2021) 63 Cal.App.5th 793, 826.) The Bracewells do not allege
facts showing the Departments were under a legal duty to disclose the Initial Statement of
Reasons to them. Indeed, that document was already a public document.
When a state government agency engages in administrative rulemaking, it must
prepare and make available to the public an initial statement of reasons for its proposed
regulatory action. (Gov. Code, § 11346.2, subd. (b).) In general, the initial statement of
reasons must describe the proposed regulation’s purposes and benefits, assess its potential
economic impacts, and discuss reasonable alternatives. (Gov. Code, § 11346.2, subd.
(b).)
The agency must include the initial statement of reasons in its notice package
submitted to the Office of Administrative Law to initiate the approval process. (Gov.
Code, § 11346.2, subd. (b).) The statement is not published in the Notice Register, but
the agency must post the statement on its website. (Gov. Code, § 11340.85, subd. (c)(2).)
The agency must also make the statement available to the public upon request. (Gov.
Code, § 11346.2, subd. (b).)
Without evidence to the contrary, we presume a government agency has complied
with its statutory obligations. (Mateel Environmental Justice Foundation v. Office of
Environmental Health Hazard Assessment (2018) 24 Cal.App.5th 220, 239; Evid. Code,
§ 664.) Thus, the Department posted the Initial Statement of Reasons on its website on or
around the date of the statement’s release, April 12, 2001, and has made it available to
the public upon request. The Department was under no further duty to “disclose” the
statement to the Bracewells or the courts.
Because the Bracewells’ allegations concerning the Initial Statement of Reasons
do not successfully plead fraudulent concealment, the doctrine of claim preclusion
applies and bars this action from proceeding. This action involves the same cause of
action, or primary right, that was litigated in the prior action to a final judgment by the
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same parties or those in privity with the parties. Both actions arise from the alleged harm
resulting from the disqualification of the Bracewells’ stores from the WIC program.
Although the first amended complaint in this matter alleges breach of contract and
negligence, those causes of action are based on the same allegations of wrongdoing
resolved in the first action: whether the two stores were properly audited as separate
vendors; whether the stores complied with state and federal requirements to maintain
transfer records and whether such requirements existed; whether the Bracewells received
and were required to repay the assessed overpayment; and whether disqualification was a
proper remedy. The first action resolved each of these issues on the merits, and that
matter is now final. Claim preclusion prevents the Bracewells from relitigating those
issues in this action under any theory.
The Bracewells contend they raise issues and arguments in this action that the
prior action did not consider. They assert the prior action did not address: whether the
Department interpreted and enforced section 40740(e)(2) inconsistently with the Initial
Statement of Reasons; whether the three-year disqualification was authorized when it was
not imposed to punish and prevent fraud; whether Basic Foods #3 was not reimbursed in
excess of expenditures; whether unsold inventories reduced the excess reimbursement to
zero; and whether tax records were used in the audit as required.
Those arguments are all based on the manner in which the Department performed
the audit and the Department’s interpretation and enforcement of section 40740(e)(2),
both of which were at issue in the first action. A prior judgment is res judicata on matters
that were litigated, or could have been litigated, in that action. (Warga v. Cooper (1996)
44 Cal.App.4th 371, 377-378.) “If the matter was within the scope of the [prior] action,
related to the subject-matter and relevant to the issues, so that it could have been raised,
the judgment is conclusive on it despite the fact that it was not in fact expressly pleaded
or otherwise urged.” (Sutphin v. Speik (1940) 15 Cal.2d 195, 202.) The Bracewells’
“additional” arguments were all within the scope of the prior action. And because the
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Initial Statement of Reasons was a public document at the time of the first action, any
arguments the Bracewells raise in this matter based on that statement could have been
raised in the prior action. Claim preclusion thus bars the first amended complaint.
Because this issue is dispositive, we need not address the parties’ other arguments.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to the Departments. (Cal.
Rules of Court, rule 8.278(a).)
HULL, Acting P. J.
We concur:
RENNER, J.
ASHWORTH, J.
 Judge of the El Dorado County Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.
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