Dr. Behzad Nazari, D.D.S. D/B/A Antoine Dental Center Dr. Behzad Nazari Harlingen Family Dentistry, P.C. A/K/A Practical Business Solutions, Series LLC Juan D. Villarreal D.D.S., Series PLLC D/B/A Harlingen Family Dentistry Group v. State
03-15-00252-CV
| Tex. App. | Aug 10, 2015Background
- The State sued multiple dental groups under the Texas Medicaid Fraud Prevention Act (TMFPA), alleging providers submitted false prior-authorizations and claims (primarily for orthodontic services) to obtain Medicaid payments.
- Defendants (dental groups) answered with a general denial and filed counterclaims against the State (conspiracy, breach of contract, conversion) asserting the State or its contractor Xerox caused or enabled the alleged misconduct; they also filed third-party claims against Xerox for various torts and contract theories.
- The State filed a plea to the jurisdiction asserting sovereign immunity and moved to dismiss the third-party claims, arguing TMFPA does not permit defendants to shift liability and that sovereign immunity bars counterclaims against the State.
- The trial court granted the State’s plea to the jurisdiction, dismissed the counterclaims with prejudice, and dismissed the third-party claims; defendants appealed interlocutorily under Tex. Civ. Prac. & Rem. Code § 51.014(a)(8).
- Central legal question: whether the State’s initiation of a TMFPA enforcement action waives sovereign immunity so defendants may assert damages counterclaims or whether sovereign immunity (and related common-law limits like estoppel) bars those counterclaims; and whether the appellate court has jurisdiction to review dismissal of third-party claims against Xerox.
Issues
| Issue | State's Argument | Defendants' Argument | Held |
|---|---|---|---|
| Whether filing a TMFPA enforcement action waives sovereign immunity to allow damages counterclaims | TMFPA enforcement is a sovereign law-enforcement action; Legislature has not waived immunity; Reata does not apply because State acted in sovereign (not private) capacity | State waived immunity by suing; Reata permits counterclaims when a government seeks monetary relief | Court affirmed dismissal: sovereign immunity bars defendants’ counterclaims against the State |
| Whether defendants’ counterclaims fall within Reata’s exception (claims germane, connected, properly defensive) | Even if Reata applied, counterclaims are not sufficiently connected or defensive to TMFPA claims (they focus on detection/review issues, not the elements of the alleged statutory violations) | Counterclaims are defensive and offset the State’s claims because State/Xerox conduct led to defendants’ reliance and liability | Held: counterclaims are outside Reata’s limited class and thus do not overcome immunity |
| Whether estoppel or equitable defenses permit recovery against the sovereign | Estoppel against the State is inappropriate in sovereign law-enforcement suits; applying estoppel would interfere with governmental functions and is disfavored | Estoppel (or similar equitable defenses) applies because the State/Xerox induced reliance causing defendants’ damages | Held: equitable estoppel is not available here to bar or convert State’s enforcement; nor does it permit counterclaims for damages |
| Whether appellate court has jurisdiction to review dismissal of third-party claims against Xerox | §51.014(a)(8) authorizes interlocutory appeal only from plea-to-jurisdiction rulings against a governmental unit; no statute authorizes interlocutory appeal of dismissal of third-party claims | Defendants invoked §51.014(a)(8) to support review of entire order (including Xerox dismissal) | Held: appellate court lacks jurisdiction to review dismissal of third-party claims against Xerox; only plea-to-jurisdiction ruling is appealable |
Key Cases Cited
- Anderson, Clayton & Co. v. State ex rel. Allred, 62 S.W.2d 107 (Tex. Comm'n App. 1933) (permits prospective relief against state officers for ultra vires conduct; does not authorize damages counterclaims against the State)
- Bates v. Republic, 2 Tex. 616 (Tex. 1847) (State suing to recover public funds does not thereby expose itself to counterclaims for money without consent)
- Reata Construction Corp. v. City of Dallas, 197 S.W.3d 371 (Tex. 2006) (government acting in private/contractual capacity may be subject to offsetting counterclaims that are germane and defensive)
- Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692 (Tex. 2003) (Legislature is primary actor to waive sovereign immunity; courts should be cautious in judicially abrogating immunity)
- City of Dallas v. Albert, 354 S.W.3d 368 (Tex. 2011) (distinguishes sovereign vs. proprietary governmental acts when assessing availability of counterclaims)
- Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51 (U.S. 1984) (government enforcement context limits equitable defenses like estoppel against government recovery of public funds)