Nazari v. State
| Decision Date | 22 June 2018 |
| Docket Number | No. 16–0549,16–0549 |
| Citation | 561 S.W.3d 495 |
| Parties | Dr. Behzad NAZARI, D.D.S., et al., Petitioners, v. The STATE of Texas; Xerox Corporation; and Xerox State Healthcare, LLC f/k/a ACS State Healthcare, LLC, Respondents |
| Court | Texas Supreme Court |
William R. Peterson, Morgan, Lewis & Bockius LLP, Houston, TX, for Pharmaceutical Research and Manufacturers of America.
Oscar Xavier Garcia, Attorney at Law, Brownsville, TX, Philip H. Hilder, Hilder & Associates PC, Houston, TX, William Graham, Hilder & Associates, Austin, TX, for Dr. Wael Kanaan.
Jason D. Ray, Riggs & Ray, P.C, Austin, TX, J. Woodfin Jones, Alexander Dubose Jefferson & Townsend LLP, Austin, TX, E. Hart Green, Mitchell A. Toups, Weller Green Toups & Terrell, L.L.P., Beaumont, TX, Richard Bruce Pecore, Liles Parker, PLLC, Kingwood, TX, Robert M. Anderton, Law Offices of Hanna & Anderton, Austin, TX, J. A. (Tony) Canales, Canales & Simonson, P.C., Corpus Christi, TX, for Dr. Behzad Nazari, D.D.S., et al.
J. Campbell Barker, Philip A. Lionberger, Raymond C. Winter, Scott A. Keller, Office of the Attorney General of Texas, Austin, TX, Jeffrey C. Mateer, First Assistant Attorney General, Austin, TX, Christopher R. Cowan, David M. Gunn, Constance H. Pfeiffer, Eric J.R. Nichols, Beck Redden LLP, Austin, TX, William C. Webb, Beck Redden LLP, Houston, TX, Robert C. Walters, Gibson, Dunn & Crutcher LLP, Dallas, for The State of Texas; Xerox Corporation; and Xerox State Healthcare, LLC, f/k/a ACS State Healthcare, LLC.
In this enforcement action under the Texas Medicaid Fraud Prevention Act (the Act), the State of Texas alleges that several dentists and their professional associations and employees (collectively, the Providers) fraudulently obtained Medicaid payments for providing dental and orthodontic treatments to children. In response, the Providers assert counterclaims and third-party claims alleging that the state and its contractor mismanaged the payment-approval process and misled the Providers regarding the requirements that the Texas Medicaid Program (the Program) imposes. The state filed a plea to the jurisdiction against the counterclaims and a motion to dismiss the third-party claims. The trial court granted both. The Providers filed this interlocutory appeal. We conclude that sovereign immunity bars the Providers' counterclaims against the state and that we lack interlocutory jurisdiction to address the trial court's dismissal of the Providers' third-party claims. We affirm the court of appeals' judgment.
The facts giving rise to this dispute depend on whom you ask. According to the state, the Providers voluntarily agreed to participate in the Program by providing orthodontic treatments to qualifying children in exchange for payments from the state at reduced Medicaid rates.1 See generally 42 U.S.C. §§ 1396 to 1396w–5 (); TEX. HUM. RES. CODE § 32.001 (). The Program pays for certain "medically necessary" orthodontic treatments, but it does not cover treatments that are for "cosmetic reasons only." 25 TEX. ADMIN. CODE §§ 33.40(b), 33.71(a). As one way of preventing improper payments, the Program requires dentists and orthodontists to obtain prior authorizations for all services and treatments. Id. § 33.71(a). During the events that spurred this litigation, Xerox administered the prior-authorization program under a contract with the state. The state alleges that the Providers routinely submitted prior-authorization and post-treatment-payment requests that misrepresented the severity or nature of the patients' conditions, sought payments for services that were never provided, falsely claimed that licensed employees had provided the services, and in some cases, accepted kickbacks. At the same time, the state alleges, Xerox failed to properly review the Providers' prior-authorization requests and instead simply rubber-stamped them.2 The state thus maintains that the Providers and Xerox committed independent frauds in violation of the Act, ultimately costing the state "and its taxpayers millions of dollars."
The Providers tell a different story. They deny knowingly submitting false prior-authorization or payment requests. Instead, they claim their requests and services complied with the Program's requirements as the state and Xerox explained and enforced those requirements. According to the Providers, the state permitted and even intended Xerox to approve as many treatments as possible. This instruction, the Providers say, was part of the state's plan to fend off additional liabilities in a series of long-running federal lawsuits related to allegations that the Program "did not satisfy the requirements of federal law." Frew ex rel. Frew v. Hawkins , 540 U.S. 431, 434, 124 S.Ct. 899, 157 L.Ed.2d 855 (2004) ; see also Frazar v. Ladd , 457 F.3d 432, 434 (5th Cir. 2006) ().
The Providers allege that because the state was desperate to appear compliant with the federal-court orders, the state turned a blind eye to Xerox's routine rubber-stamping of the Providers' requests. This, the Providers say, led them to believe that the information they were submitting complied with the Program's requirements and established that their patients qualified for orthodontic services. But when reports of the state's exploding expenditures began to emerge, the Providers allege the state blamed them in an effort to avoid responsibility for its own actions, enrich itself, and limit its liability to the federal government for having mismanaged the Program. As a result, the Providers say they are not responsible for improper requests, if any, and are not liable for any overpayments. To the contrary, urge the Providers, the state and Xerox are liable for all losses, expenses, and attorney's fees that the Providers have incurred as a result of the state's and Xerox's "scheme."
The state's first step was to initiate administrative actions against various dentists—including the Providers—alleging they fraudulently obtained payments from the Program. An avalanche of legal proceedings involving the state, Xerox, and the Providers ensued. Throughout these proceedings, the state has sought to pursue its claims against Xerox and the Providers separately, while Xerox and the Providers have attempted, unsuccessfully, to join all of the claims in one proceeding. After the administrative-law judges ruled against the state in its administrative actions, the state filed this lawsuit against the Providers.
In this suit, the state alleges that the Providers committed fraud in violation of the Act by submitting false prior-authorization and payment requests, seeking payments for services never rendered, misrepresenting the qualifications of those who provided orthodontic services, and, in some cases, accepting illegal kickbacks. The state argued that the trial court could enjoin the Providers from committing fraud. See TEX. HUM. RES. CODE § 36.051(a) (authorizing injunctive relief). It also pleaded in its petition for a recovery "to the maximum extent allowed by law," including specifically:
See id. § 36.052 (authorizing civil remedies). The state alleges that each of the Providers is "jointly and severally liable for the damages which arose either directly or indirectly, as a result of each [of the Providers'] unlawful acts."
The Providers filed an answer generally denying the state's allegations. They also asserted counterclaims against the state for conspiracy, breach of contract, and conversion. The Providers seek "proportional recovery of actual and exemplary damages, interest, court costs, and attorney's fees against the State." They allege that the state has waived its sovereign immunity as to the Providers' "connected, germane, and defensive counterclaims" and that it "is liable up to those amounts plead[ed]." The Providers also asserted third-party claims against Xerox, seeking damages and contribution for common-law fraud, breach of contract, promissory estoppel, negligent hiring, negligent supervision, negligence, and gross negligence. They allege the state and Xerox were responsible for authorizing the Providers' services and conspired to rubber-stamp the Providers' authorization and payment requests. The Providers say this conspiracy led them to continue using the same standards to establish medical necessity, making the state and Xerox liable for any payments for services that were not medically necessary.
The state filed a plea to the jurisdiction against the Providers' counterclaims, asserting that sovereign immunity bars the counterclaims and that the Providers lack standing to assert any claims under the Act or for breach of the contract between the state and Xerox. The state also filed a motion to dismiss the Providers' third-party claims against Xerox, arguing that the Act does not permit a defendant to assert third-party claims and that sovereign immunity bars such claims against a state contractor acting within the scope of its contractual authority. The...
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