* Pursuant to 5 TH C IR . R. 47.5, the Court has determ ined th at this opinio n should not be published and is not precedent except under the limit ed circumstances set fo rth in 5 TH C IR . R. 47.5.4. United States Court of Appeals

Fifth Circuit 

## FILED March 1, 2007 Charles R. Fulbruge III Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT
No. 06-30358 Summary Calendar

WALGREEN COMPANY, Pl aint iff-Appellant,

versus LOUISIANA DEPARTMENT OF HEALTH AND HOSPITALS, Defendant-Appellee. Appeal from the United States District Court fo r the Middle District of Louisiana (No. 3:05-CV-190)

Before DeMOSS, STEWART, and PRADO, Circuit Judges. PER CURIAM: * Walgreen Com

pany, an operator of com

mercial pharmacies, appeals from the district court’s grant of summary judgment on the basis of res judicata. We affirm.2 I. FACTUAL AND PROCEDURAL BACKGROUND As part of it s implement ation of the federal Medicaid program , the Loui siana Departm ent of Health and Hospitals (DHH) has fo rm ulated a two-tiered syst em of reimbursements fo r prescription drugs. Under this system th at was first implemented in 2000, Louisiana provides different reimbursement rates fo r “chain pharmacies” and “independents.” On August 11, 2000, Walgreen filed
a com plaint in federal district court, facially c hallenging the two-tiered reimbursement system and seeking both injunct ive and declaratory relief (“the 2000 lit igation”). The complaint alleged that the program vio lat ed th e federal Soci a l Security Act as well as the due process and equal protection clauses of th e Fourteenth Amendment and the Fourth Amendment . This court later held that the Soci al Security Act did not confer a private right of action on health care providers because they are not th e int ended 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 injunct ive relief, a judgment th at 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 Septem

ber 28, 2004, th e DHH info rm ed Walgreen th at due to an error it s pharmacies had been assessed at th e independent rate rather th an the chain pharmacies rate and th at the departm ent
was seeking to recoup $125,000.00 of overpayments. Walgreen requested an administrative appeal
on October 27, 2004, and th e 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.3

Based on th e denial of an administ rative hearing, Walgreen filed suit in Loui siana state court
on March 9, 2005. The complaint seeks both declaratory relief and damages. The complaint alleges th e 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 mo tion fo r summary judgment on the basis th at Walgreen’s allegations, i .e. that the tiered pharmacy reimbursement rates are unlawful and invalid, has been decided in previous lit igation between the parties in front of a court of com petent jurisdiction. DHH also asserted th at som

e of th e issues were barred by collat eral 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 th e grant of summary judgment, as well as a finding of res judicata, de novo. S ee 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 lit igated or should have been raised in an earlier suit.” I n 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 actio n was concluded by a final judgment on th e merit s; (4) the same claim or cause of action is invo lved 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 th e RESTA TEMENT (S ECOND ) OF J UDGMENTS , § 24, which provides th at “t he4

preclusive effect of a prior judgment extends to all rights the original plaint iff had ‘with respect to all
or any part of th e 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 cri tical issue is whether the two actions under consideration are based on the s ame nucleus of operativ e 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 th at th e regulations it is challenging in the inst ant action are not the same as the ones challenged in th e 2000 lit igation. This argument is not persuasive. While the regulations that Walgreen challenged were “emergency” regulations th at were lat er enacted as permanent regulations wit h changes to th e repayment fo rm ula, Walgreen has not alleged or shown that the mino r changes to th ese regulations were such that the operative facts of this case are different than the 2000 lit igation. Instead, thi s argument is an impermissible attempt to relitigate a facial challenge to the validit y of th e regulations. S ee Shults v. Texas , 762 F.2d 449, 452 (5th Cir. 1985) (“ Thus, the pri mary right asserted . . . and the primary wrong complained of . . . are the same in both actions. That th e pertinent provisions of th e 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 th at it is challenging the DHH’s administ rative determ inat io ns in this case, such th at this case i s an “as applied” challenge rather than a direct facial challenge. The operative facts surrounding this as applied challenge are different th an the operative facts surrounding th e 2000 lit igation. 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 court1 Those arguments that were not raised in the 2000 lit igation, such as the Com merce Clause challenge, could have been raised in th at lawsuit and are thus barred by res judicata here. See, e.g., Shults , 762 F.2d at 453 (holding th at a challenge that plaintiffs could have raised in prior litigation was barred). 5 has allo wed an as applied challenge to proceed when the plaint iff’s facial challenge was barred by res judicata. Shults , 762 F.2d at 444. However, the as applied challenge in Shults specifically challenged th e length of time that elapsed before a hearing was provided. Id. Here, Walgreen challenges only the underlying determ inat io n of the DHH, not the denial of
a hearing or th e delay before conducting a hearing. The basis for Walgreen’s as applied challenge is th e same as th e basis fo r th e 2000 lit igation. 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 th at [the new litigation is] part of th e same series of transactions. If the new as-applied challenges are to aspects of the policy which survive th e earlier lit igation, th en the claim it self w a s subsumed by the earlier lit igation.”). There is no way for Walgreen to prevail on its challenge to the regulations wit hout challenging the determ inat io ns of the prior suit. 1 Finally, Walg reen attempts to assert that each appl ication of the policy is its own cause of action, similar to th e way th at every alleged vio lat io n of an abatable nuisance is a separate tort. S ee 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 allo wed based on successive enforcement of a pol icy). In this case, however, there is no need for continued review of th e DHH’s future application of regulations th at have been adjudged to be legal; th e 2000 litigation established that the regulation was facially valid such th at future applications of th e regulations are legal. The only way to establish the unlawful application of these regulations in6

th ese circumstances is to directly challenge the outcom e of the 2000 lit igation, the precise sit uation th at res j udicata is designed to avoid. Nor does this decision result in perpetual immunit y fr om attack for the DHH’s future decisions under th e tiered reimbursement syst em. If at any time Walgreen can allege “modifications in controlling legal principles” or “changed circumstances [that] sufficient ly alt er the factual predicate such th at new as-applied claims would not be barred by the original judgment,” Monahan , 214 F.3d at 290 (int ernal quotation and cit ation om it ted), then res judicata would no lo nger operate to bar the suit. III. CONCLUSION For the foregoing reasons, we affirm the judgment of the district court.