Court Finds Two State Agencies Are In Privity Despite Being Created By Separate Statutes

The doctrine of collateral estoppel may seem to be a more fitting subject to a blog devoted to civil procedure than corporate law.  However, the doctrine can have important ramifications in the corporate setting as I noted this past April in Delaware Supreme Court Upholds Federalism, Comity & Finality (discussing La. Municipal Police Retirement System v. Pyott, 46 A.3d 313 (Del. 2012)).

A recent case here in California addressed whether an administrative decision by one state agency estops another state agency.  In Happy Nails & Spa of Fashion Valley, L.P. v. Su, 2013 Cal. App. LEXIS 569 (July 19, 2013), the Employment Development Department issued assessments against the plaintiff for unpaid unemployment insurance contributions.  After a two-day administrative hearing, the administrative law judge found that the cosmetologists working for the plaintiff were independent contractors, not employees.  That decision was upheld by the Unemployment Insurance Appeals Board.  Thereafter, a separate state agency, the Division of Labor Standards Enforcement, cited the plaintiff for failing to provide itemized wage statements to its cosmetologists. After a hearing, an administrative law judge determined that the cosmetologists were employees and the plaintiff was subject to civil penalties.  No mention was made of the prior contrary decisions by the EDD or the Appeals Board.

If this is beginning to sound Kafkaesque, you’ve been paying attention.  In an opinion by Justice Joan K. Irion, the Fourth District Court of Appeal reviewed the five requirements for issue preclusion and concluded that the EDD’s decision was binding on the DLSE.

While this case turned out well for the plaintiff (the Court of Appeal remanded with direction that the plaintiff be permitted to litigate attorneys’ fees), collateral estoppel can also work in the government’s favor.  Thus, this holding may encourage appeals by those on the losing end of administrative decisions for fear that they may be estopped from litigating the same question before another state agency.