Sparkman Learning Center v. AR Dept. Human Services ( 2014 )


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  •                 United States Court of Appeals
                                For the Eighth Circuit
                            ___________________________
    
                                    No. 13-3080
                            ___________________________
    
                        Sparkman Learning Center; Jessie Carter
    
                         lllllllllllllllllllll Plaintiffs - Appellants
    
                                              v.
    
      Arkansas Department of Human Services; John Selig, Individually and in his
      official capacity as Director, AR DHS; Tonya Russell, Individually and in her
       official capacity as Director of Division of Child Care and Early Childhood
     Education AR DHS other Director, Division of Child Care and Early Childhood
                                   Education of AR DHS
    
                         lllllllllllllllllllll Defendants - Appellees
                                          ____________
    
                        Appeal from United States District Court
                    for the Western District of Arkansas - El Dorado
                                    ____________
    
                             Submitted: September 11, 2014
                               Filed: December 30, 2014
                                    ____________
    
    Before RILEY, Chief Judge, SMITH and KELLY, Circuit Judges.
                                  ____________
    
    SMITH, Circuit Judge.
           Sparkman Learning Center and its executive director, Jessie Carter, (referred
    to collectively as "Sparkman") appeal the district court's1 denial of their preliminary
    injunction, denial of their post-judgment motions to alter or amend a judgment, and
    granting of the Arkansas Department of Human Services's (DHS) motion to dismiss
    Sparkman's claims that DHS violated their due process and equal protection rights
    under the Fourteenth Amendment of the United States Constitution. The district court
    barred Sparkman's claims based on principles of claim preclusion within Arkansas
    law because the claims could have been brought during the state administrative
    proceeding and judicial review. We affirm.
    
                                         I. Background
           DHS is a state agency whose Division of Child Care and Early Childhood
    Education ("Division") regulates child care facility licensing; the Division also
    administers the USDA Child Care Food Program ("Program"), which is funded by the
    federal government. Appellee John Selig is the director of DHS, and appellee Tonya
    Russell is the director of the Division (referred to collectively as "DHS"). Sparkman
    Learning Center is a day care facility that provided disability services funded by DHS
    and took part in the Program that DHS facilitated. A federal regulation for the
    Program prohibits enrolled providers from placing disqualified individuals in a
    position of authority. See 7 C.F.R. § 226.6(c)(3)(ii)(B). Additionally, DHS Policy
    1088 states that violations of the Program's regulations can result in the exclusion of
    the provider from receiving further funding from DHS.
    
          In 2005, DHS notified Sparkman of their intent to exclude Sparkman from
    further DHS funding and activities due to Sparkman's alleged placement of a
    disqualified individual, Patricia Whitaker, in a position of authority. Sparkman
    appealed this decision and was given a hearing before a DHS administrative law
    
    
          1
           The Honorable Susan O. Hickey, United States District Judge for the Western
    District of Arkansas.
    
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    judge (ALJ) pursuant to the Arkansas Administrative Procedures Act. See Ark. Code
    Ann. §§ 25-15-201–25-15-219. Sparkman believed that racial animus motivated DHS
    to place Whitaker on the disqualification list. Nonetheless, Sparkman did not raise
    any constitutional equal protection claim at this first administrative hearing. Because
    the ALJ presiding over the case was relatively new, a more experienced ALJ observed
    portions of the hearing. In a curious turn of events, before the hearing process was
    complete, the ALJ presiding over Sparkman's hearing resigned, stating "as an African
    American male I cannot continue to work in a[n] office where racism and harassment
    continue to exist on a daily basis." After the initial ALJ resigned, the other ALJ
    present, who was Caucasian, decided the case. The second ALJ's decision upheld
    DHS's termination of funding for Sparkman. Sparkman appealed this decision to the
    Pulaski County Circuit Court and subsequently to the Arkansas Court of Appeals.
    Sparkman alleged that the irregularity of having two ALJs involved in the
    administrative hearing violated their due process rights. Sparkman also alleged for
    the first time that racial animus on the part of the Caucasian ALJ affected the outcome
    of the case.
    
          In December 2006, with state proceedings underway, Sparkman also filed a
    complaint in the Western District of Arkansas alleging violations of their due process
    and equal protection rights under the Fourteenth Amendment of the United States
    Constitution. The district court declined to hear the case while the state court appeals
    were pending pursuant to the Younger2 abstention doctrine.
    
          Meanwhile, the Arkansas state courts, upon DHS's motion, remanded the
    administrative hearing appeal back to the hearing level to conduct a second hearing.
    For the second hearing, DHS appointed a private attorney to serve as the
    administrative hearing officer; Sparkman agreed to the selection. In the second
    administrative hearing, Sparkman again made no claims regarding equal protection
    
    
          2
              Younger v. Harris, 
    401 U.S. 37
     (1971).
    
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    violations resulting from DHS's racial animus, nor did Sparkman bring any claims
    regarding their due process complaint arising from the first administrative hearing.
    Following the second hearing, the hearing officer decided in DHS's favor, upholding
    DHS's decision to terminate funding for Sparkman. As before, Sparkman appealed
    to the Pulaski County Circuit Court, this time alleging that there were ex parte
    communications between DHS and the hearing officer which violated Sparkman's due
    process rights under the Fourteenth Amendment. The state circuit court upheld the
    decision of the hearing officer, finding that the use of a private attorney as a substitute
    ALJ in the second administrative hearing did not deprive Sparkman of due process.
    Sparkman appealed to the Arkansas Court of Appeals. The state appellate court
    affirmed. It held that the second hearing procedure did not violate Sparkman's due
    process rights. See Sparkman Learning Ctr., Inc. v. Ark. Dep't of Human Servs., No.
    CA 11–792, 
    2012 WL 723330
    , at *3–4 (Ark. Ct. App. March 7, 2012). Sparkman did
    not appeal to the Arkansas Supreme Court.
    
           With the state court proceedings ended, at Sparkman's request, the Western
    District of Arkansas reopened the federal case originally filed in 2006 but stayed in
    2007. Initially, Sparkman filed a motion for a preliminary injunction. The district
    court denied relief after concluding that Sparkman lacked a reasonable probability of
    prevailing on the merits. In doing so the court noted: that (1) "the state courts of
    appeal properly exercised jurisdiction over Sparkman's due process claim"; (2) both
    the federal and state suits "allege that Sparkman was deprived of due process"; (3)
    both suits involve the same two parties; (4) "Sparkman appears to have fully
    contested the claims that they chose to pursue in the administrative proceeding,
    including their due process claims"; and (5) the state courts "fully addressed
    [Sparkman's] arguments on appeal and found no reason for reversal on due process
    grounds." The district court's analysis concluded that Arkansas claim preclusion law
    barred Sparkman's due process claim. The court made the same conclusion for
    Sparkman's equal protection claim because Sparkman failed to bring the claim in the
    state court proceeding, noting that "[u]nder Arkansas law, claim preclusion applies
    
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    not only to claims that were actually litigated, but also to claims that could have been
    litigated." (Citing Beebe v. Fountain Lake Sch. Dist., 
    231 S.W.3d 628
    , 635 (Ark
    2006)). A few months later, the district court granted DHS's motion to dismiss,
    concluding that claim preclusion barred Sparkman from bringing their constitutional
    claims. Sparkman moved to alter or amend the dismissal order,3 but the district court
    denied the motion. The court determined that Sparkman made no showing of a
    manifest error of law or fact and no showing that a manifest injustice to Sparkman
    would occur. Sparkman appeals raising three issues: (1) the district court's denial of
    their preliminary injunction, (2) the district court's grant of DHS's motion to dismiss,
    and (3) the district court's denial of their Rule 52 and Rule 59 motions.
    
                                            II. Discussion
                      A. Denial of the Motion for a Preliminary Injunction
                              and Granting of the Motion to Dismiss
           "We review the denial of preliminary injunctive relief for an abuse of
    discretion." Child Evangelism Fellowship of Minn. v. Minneapolis Special Sch. Dist.
    No. 1, 
    690 F.3d 996
    , 1000 (8th Cir. 2012) (citation omitted). A district court abuses
    its discretion if it "base[s] its decision on an erroneous legal premise. We review the
    district court's legal conclusions de novo." Id. (citing FTC v. Freeman Hosp., 
    69 F.3d 260
    , 267 (8th Cir. 1995); Grand River Enters. Six Nations, Ltd. v. Beebe, 
    467 F.3d 698
    , 701 (8th Cir. 2006)). Additionally, "[w]e review a district court's grant of a
    motion to dismiss for failure to state a claim de novo, taking all facts alleged in the
    
    
    
          3
           Sparkman originally filed "Plaintiffs' Motion for Additional Findings of Fact
    and Conclusions of Law" and "Plaintiffs' Motion for a New Trial" pursuant to Rules
    52 and 59 of the Federal Rules of Civil Procedure, respectively. The district court
    correctly reframed these motions as a motion to alter or amend a judgment under Rule
    59(e) and appropriately ruled on the motions pursuant to that understanding. On
    appeal, Sparkman does not contest the district court's treatment of their filings as
    motions to alter or amend a judgment.
    
                                              -5-
    complaint as true." Gilmore v. Cnty. of Douglas, State of Neb., 
    406 F.3d 935
    , 937 (8th
    Cir. 2005) (citation omitted).
    
            District courts must consider the following factors when considering
    preliminary injunctions: "(1) the threat of irreparable harm to the movant; (2) the state
    of the balance between this harm and the injury that granting the injunction will
    inflict on other parties litigant; (3) the probability that movant will succeed on the
    merits; and (4) the public interest." Dataphase Sys., Inc. v. C L Sys., Inc., 
    640 F.2d 109
    , 113 (8th Cir. 1981) (en banc). Sparkman argues on appeal that the district court
    erred in concluding that Sparkman failed to show a probability that they would
    succeed on the merits.
    
           Because the district court denied Sparkman's motion for a preliminary
    injunction and granted DHS's motion to dismiss using the same legal reasoning and
    case law, we address the issues together. We review both issues de novo.
    
                                        1. Due Process
           Federal courts are required to respect the decisions of state courts. According
    to 28 U.S.C. § 1738, "[t]he records and judicial proceedings of any court of any . . .
    State . . . shall have the same full faith and credit in every court within the United
    States and its Territories and Possessions as they have by law or usage in the courts
    of such State." Id. Therefore, federal courts are limited to the extent we cannot give
    review to claims that have already been fully adjudicated in state court. If a state court
    would not hear the case because it was precluded by a previous holding in that state's
    courts, the federal courts must "give the same preclusive effect to state court
    judgments that those judgments would be given in the courts of the State from which
    the judgments emerged." Kremer v. Chem. Constr. Corp., 
    456 U.S. 461
    , 466 (1982)
    (footnote omitted). Federal courts do not provide a forum to relitigate claims
    previously decided adversely in state courts.
    
    
    
                                               -6-
          Our decision in Knutson v. City of Fargo controls. 
    600 F.3d 992
     (8th Cir.
    2012). In Knutson, we held that litigants could not bring claims before a federal court
    that were already fully decided by state courts in what would amount to appellate
    review of the state court ruling. See id. at 995–96 (citing Kremer, 456 U.S. at 466;
    Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 
    544 U.S. 280
    , 293 (2005)).
    
          Under 28 U.S.C. § 1738, we apply a state's law to decide whether claims
    previously decided in that state's courts, which are then brought in federal court, are
    precluded by the prior state court judgment. Arkansas law bars relitigation under
    claim preclusion when:
    
          (1) the first suit resulted in a final judgment on the merits; (2) the first
          suit was based on proper jurisdiction; (3) the first suit was fully
          contested in good faith; (4) both suits involve the same claim or cause
          of action; and (5) both suits involve the same parties or their privies.
    
    Baptist Health v. Murphy, 
    373 S.W.3d 269
    , 278 (Ark. 2010) (citing Fountain Lake
    Sch. Dist., 231 S.W.3d at 635).
    
           As to the first element, the Arkansas Court of Appeals issued a final judgment
    which decided the sole due process issue before the state court. See Sparkman, 
    2012 WL 723330
    , at *1–4. Both parties agree that when Sparkman chose not to appeal to
    the Arkansas Supreme Court, the final decision of the Court of Appeals became the
    final state court resolution of the case. The second element is not in dispute. Neither
    party contests, nor do we find, that the courts of Arkansas exercised their jurisdiction
    improperly. The Pulaski County Circuit Court had jurisdiction to hear the appeal from
    the second administrative hearing pursuant to § 25-15-212(b)(1)(B) of the Arkansas
    Code. From there, it is well settled that the Arkansas Court of Appeals has
    jurisdiction to review final judgments from the Pulaski County Circuit Court. See
    Ark. Sup. Ct. R. 1–2. We also find the third element is easily satisfied as well because
    
    
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    the state court action was contested by the parties in good faith and the state courts
    well considered the matter. See Nat'l Bank of Commerce v. Dow Chem. Co., 
    1 S.W.3d 443
    , 448 (Ark. 1999) (considering the thoroughness of review by the courts as an
    indication that the case was contested in good faith).
    
          Under the fourth element, "we must be able to determine the specific claims
    that were presented in both the federal court action and the state court action."
    Carmical v. City of Beebe, 
    871 S.W.2d 386
    , 388 (Ark. 1994) (citing Ward v. Davis,
    
    765 S.W.2d 5
     (Ark. 1989)). In the state action, Sparkman appealed from the second
    administrative hearing alleging that their due process rights under the Fourteenth
    Amendment of the United States Constitution were violated because there were ex
    parte communications between the hearing officer and DHS. In the federal action,
    Sparkman alleges this same due process complaint from the second hearing. Thus, the
    fourth element is satisfied.
    
            As to the last element, "[p]rivity exists when two parties are so identified with
    one another that they represent the same legal right." Crockett v. C.A.G. Invs., Inc.,
    
    381 S.W.3d 793
    , 799 (Ark. 2011). The Arkansas Supreme Court has "never required
    strict privity in the application of res judicata . . . ." Id. (citing Wells v. Heath, 
    602 S.W.2d 665
     (Ark. 1980)); see also Collum v. Hervey, 
    3 S.W.2d 993
     (Ark. 1928)
    (finding privity between a husband and wife); Francis v. Francis, 
    31 S.W.3d 841
    (Ark. 2000) (finding privity between a brother and sister); Hardie v. Estate of Davis,
    
    848 S.W.2d 417
     (Ark. 1993) (finding privity between a testator and his remote heirs);
    Phelps v. Justiss Oil Co., 
    726 S.W.2d 662
     (Ark. 1987) (finding privity between a
    landlord and tenant); S. Farm Bureau Cas. Ins. Co. v. Jackson, 
    555 S.W.2d 4
     (Ark.
    1977) (finding privity between an insurer and its insured); Curry v. Hanna, 
    307 S.W.2d 77
     (Ark. 1957) (finding privity between a bankrupt debtor and his trustee).
    
           Here, Sparkman Learning Center and DHS return as parties from the state court
    to the federal court case; that said, Sparkman added Jesse Carter as a plaintiff, and
    
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    added John Selig and Tonya Russell as defendants. Applying Arkansas law, we
    conclude that Jesse Carter is in privity with Sparkman Learning Center as its
    executive director, and John Selig and Tonya Russell are likewise in privity with
    DHS and the Division, respectively. Therefore, the fifth element of claim preclusion
    is satisfied even with the addition of new parties.
    
           Sparkman alleged the same due process violations in federal court that had
    already been adjudicated by the Arkansas courts. Consequently, we find no error in
    the district court's conclusion that Sparkman's due process claim is precluded.
    
                                     2. Equal Protection
           We again consider claim preclusion when addressing Sparkman's Fourteenth
    Amendment equal protection claim. Arkansas claim preclusion not only applies to
    claims that were litigated before a different court, but also to claims that could have
    been litigated. Fountain Lake Sch. Dist., 231 S.W.3d at 635. Thus, the question we
    face is whether Sparkman had the opportunity to bring their equal protection claim
    in the state administrative and judicial proceedings.
    
           Sparkman argues that they did not have a "full and fair opportunity" to litigate
    their equal protection claim in the second administrative hearing because the remand
    back to the administrative level was narrow and only contemplated a rehearing of the
    issues in the first administrative hearing. Further, Sparkman argues that discovery in
    an administrative hearing lacks the rigor permitted under state and federal court rules.
    This is true. Sparkman, however, does not dispute that they had opportunity to raise
    the claim in the first instance in the administrative process and state appeal.4
    
    
    
    
          4
           If Sparkman had raised their equal protection claim at the first administrative
    hearing, these issues would have been preserved for consideration at the second
    administrative hearing and the subsequent state court appeal.
    
                                              -9-
           According to Arkansas law, Sparkman was required to raise their equal
    protection claim at the administrative level in order to preserve it on appeal to the
    state courts. Section 25-15-208 of the Arkansas Code states that "[o]pportunity shall
    be afforded all parties to respond and present evidence and argument on all issues
    involved." Under Arkansas law, litigants are barred from raising constitutional issues
    before state courts that were not first raised at the administrative level. Hamilton v.
    Jeffrey Stone Co., 
    641 S.W.2d 723
    , 725 (Ark. Ct. App. 1982); see also Ark. Health
    Servs. Agency v. Desiderata, Inc., 
    958 S.W.2d 7
    , 8 (Ark. 1998) (finding that because
    a party "did not raise its Equal Protection Clause argument until its appeal to the
    circuit court . . . under the Hamilton rule, it is barred from arguing that issue now.");
    Ark. Bd. of Exam'rs in Counseling v. Carlson, 
    976 S.W.2d 934
    , 941 (1998) (finding
    that a party's "failure to raise the due-process arguments before the Board [at the
    administrative hearing level] precludes its consideration by this court on appeal.").
    Based on the Hamilton rule, constitutional claims can be and must be raised at the
    administrative level to preserve such claims for appeal before the state courts.
    Sparkman's failure to do so is fatal for their equal protection claim and precludes both
    state and federal courts from reviewing this claim.
    
           Sparkman also contends that the hearing officer at the second administrative
    hearing was led to believe that an agreement existed between the parties to defer the
    equal protection claim for the federal courts to decide. If such a "claim-splitting"
    agreement between the parties did exist, it is unenforceable.5 It is well established that
    claim-splitting is discouraged. All claims must be brought together, and cannot be
    parsed out to be heard by different courts. Elgin v. Dep't of Treasury, 
    132 S. Ct. 2126
    ,
    2147 (2012) ("Plaintiffs generally must bring all claims arising out of a common set
    of facts in a single lawsuit, and federal district courts have discretion to enforce that
    
    
          5
           We deny DHS's motion to supplement the record to address this point. As we
    explain, whether a claim-splitting agreement existed between the parties would not
    have any effect on our decision.
    
                                              -10-
    requirement as necessary to avoid duplicative litigation." (quotation and citations
    omitted)).
    
           Sparkman's failure to bring their equal protection claim at the administrative
    level is fatal to their attempt to litigate the claim before the federal courts. Applying
    Arkansas law, Sparkman's claim for violation of equal protection is precluded
    because it could have been brought before the state courts if initially raised in the
    administrative process.
    
           B. Denial of the Post-Judgment Motions to Alter or Amend a Judgment
           Rule 59(e) of the Federal Rules of Civil Procedure provides a means for
    "correcting manifest errors of law or fact or to present newly discovered evidence"
    after a district court has handed down a judgment. United States v. Metro. St. Louis
    Sewer Dist., 
    440 F.3d 930
    , 933 (8th Cir. 2006) (quotation and citations omitted). "'A
    district court has broad discretion in determining whether to grant a motion to alter
    or amend judgment, and this court will not reverse absent a clear abuse of discretion.'"
    Christensen v. Qwest Pension Plan, 
    462 F.3d 913
    , 920 (8th Cir. 2006) (quoting
    Global Network Techs., Inc. v. Reg'l Airport Auth., 
    122 F.3d 661
    , 665 (8th Cir.
    1997)). According to Sparkman, they brought their post-judgment motions before the
    district court to correct an important factual error and legal conclusion; namely, the
    district court's belief that Sparkman waived their right to present evidence related to
    the first administrative hearing when they agreed to participate in a second
    administrative hearing.
    
           The district court, in its order denying relief, concluded that Sparkman had not
    actually identified any manifest errors of law or fact or provided new evidence. On
    appeal, Sparkman has not shown the required errors and we conclude that the district
    court's denial of post-judgment relief was not an abuse of discretion.
    
    
    
    
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                                III. Conclusion
    For the reasons stated herein, we affirm.
                    ______________________________
    
    
    
    
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