Case Information

*0 FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 9/21/2015 3:29:38 PM JEFFREY D. KYLE Clerk NO. 03-15-00252-CV THIRD COURT OF APPEALS 9/21/2015 3:29:38 PM JEFFREY D. KYLE AUSTIN, TEXAS 03-15-00252-CV *1 ACCEPTED ^[7019858] CLERK In the

Third Court of Appeals

Of Texas DR. BEHZAD NAZARI, D.D.S., ET AL Appellants , V .

THE STATE OF TEXAS

Appellees, V .

ACS STATE HEALTHCARE, LLC Appellees.

On appeal from the 53 rd District Court, Travis County, Texas Cause No. NO. D-1-GV-14-005380 APPELLANTS’ REPLY BRIEF Jason Ray E. Hart Green

State Bar No. 24000511 Texas Bar No. 08349290 R IGGS & R AY , P.C. W ELLER , G REEN , T OUPS & T ERRELL , L.L.P. 506 West 14 th St., Suite A Post Office Box 350 Austin, Texas 78701 Beaumont, Texas 77704-0350 Telephone: (512) 457-9806 Telephone: (409) 838-0101 Telecopier: (512) 457-9066 Telecopier: (409) 832-8577 jray@r-alaw.com hartgr@wgttlaw.com Attorneys for Appellants Dr. Behzad Nazari, D.D.S., et al Oral Argument Requested *2 T ABLE OF C ONTENTS

T ABLE OF C ONTENTS ......................................................................................... ii

T ABLE OF A UTHORITIES ........................................................................................... iii

S UMMARY OF THE R EPLY ............................................................................................ 1

R EPLY A RGUMENT ...................................................................................................... 2

I. Reply to the State’s argument that it did not waive sovereign immunity when it brought affirmative claims against the Dental Group. . ................................................................................................ 2 II. Response to State’s argument that the Dental Group’s Third Party claims against Xerox cannot be considered in this appeal. ..................................................................................................... 6 A. Judicial economy and consistency would be met if this Court opines on the propriety of third party claims, because this is the same issue presented in the similarly postured Xerox proceeding, 03-15-00401-CV . ............................................ 6 B. Xerox is correct; Chapter 33 applies to permit contribution claims. ............................................................................... 8 C ONCLUSION ............................................................................................................... 9

P RAYER ............................................................................................................... 9

C ERTIFICATE OF C OMPLIANCE ................................................................................. 12

C ERTIFICATE OF S ERVICE .......................................................................................... 13

Page ii

T ABLE OF A UTHORITIES

CASES

Bates v. Republic of Texas ,

2 Tex. 616 (1847) ............................................................................................ 4 Gabelli v. SEC ,

133 S. Ct. 1216 (2013) ..................................................................................... 4 Guillory v. Port of Houston Auth. ,

845 S.W.2d 812 (Tex. 1993) ........................................................................... 3 Reata Const. Corp. v. City of Dallas ,

197 S.W.3d 371 (Tex. 2006) ........................................................................... 4 SEC v. City of Miami ,

581 F. App’x 757 (11th Cir. 2014) ............................................................... 4,5 State v. Emeritus Corp. ,

No. 13-13-00529-CV, 2015 WL 1456436,

(Tex. App.—Corpus Christi Mar. 26, 2015, pet. filed) ................................ 4,5 State v. Precision Solar Controls, Inc. ,

188 S.W.3d 364 (Tex. App.—Austin 2006) .................................................... 4 State ex rel. Texas Dept. of Transp. v. Precision Solar Controls, Inc. ,

220 S.W.3d 494 (Tex. 2007) ........................................................................ 2,4 STATUTES

Texas Civil Practice and Remedies Code Chapter 33 ............................................... 8

Page iii

S UMMARY OF THE R EPLY It is disturbing to imagine a government that has the power to seek damages for civil wrongdoing, while also avoiding any investigation into its own part in that

same alleged wrongdoing. The idea that the State is immune from: 1) compulsory

counterclaims, 2) counterclaims that would directly or inferentially rebut the facts

upon which its claims are predicated, and/or 3) counterclaims that share common

or related core underlying facts is a breathtaking stance. Yet the State’s response

brief fails to provide any legal support for that position. This Court should not be

misled by the State’s attempt to fabricate a self-serving “carve-out” that would

effectively create a TMFPA superstatute to override the Rules of Civil Procedure,

logic, precedent, and due process. This court need only follow Reata and the

federal analysis for False Claims Act counterclaims to resolve this case .

The Dental Group’s third-party claims against Xerox include a claim for contribution, but under a pure Federal False Claims Act analysis those claims

would not be permitted. The Dental Group’s original brief did not address that

category of relief. However, Xerox’s response brief accurately speaks to the

applicability of Civil Practice and Remedies Code Chapter 33. The Dental Group

agrees with Xerox and adopts its briefing on the matter.

R EPLY A RGUMENT

Reply to the State’s argument that it did not waive sovereign immunity when

it brought affirmative claims against the Dental Group.

The State’s response brief is rooted in two assertions. First, the State claims that it can invoke sovereign immunity as a defensive maneuver to the Dental

Groups’ counterclaims, while simultaneously asserting affirmative claims for relief

on the exact same facts, despite Reata and 75 years of case law to the contrary.

Second, because its affirmative claims were brought only under the TMFPA, the

State claims it retains its immunity “shield” while at the same time wielding the

TMFPA “sword” against the Dental Group. Both of these arguments are contrary

to precedent.

The State begins its response brief by arguing that Reata is not a case that involves a waiver of sovereign immunity; the State claims that Reata instead

relates to the judicial abrogation of sovereign immunity that occurs as a result of

the State bringing its own claims for relief. That position is a distinction without a

difference. Whether this Court categorizes the State’s claims as creating “waiver of

immunity by conduct,” ^[1] or producing judicial revocation of the common law

doctrine, or forming a bubble of facts upon which immunity cannot exist, the result

*6 is the same: sovereign immunity is unavailable to the State as a jurisdictional bar

on the Dental Groups’ claims that are germane to, connected with, and properly

defensive to the state’s claims.

The State stretches case law to find any statement that, taken in a vacuum, might appear to support its position. None of the cases cited by the State support its

argument. The State cites Guillory v. Port of Houston Auth. , 845 S.W.2d 812, 814

(Tex. 1993) for its proposition that the Texas Supreme Court has refused to

judicially abrogate a government entity’s immunity in a proprietary activity vs.

non-proprietary activity setting. (State’s Br. at 19-20). But the State ignores the

overriding fact that Guillory was about a conflict between relief available under the

Texas Tort Claims Act and federal Maritime law. Guillory did not involve the

interaction of affirmative claims asserted by the government and related

counterclaims asserted by Guillory; Guillory was about the scope of a statutory

waiver of immunity. Guillory was a straight tort action brought against a

governmental entity by Guillory. In addition, the Texas Supreme Court’s decision

in Guillory only reformed and limited Guillory’s monetary recovery; it did not

completely deprive Guillory of his claims and recovery. Guillory’s facts are so

different than the facts here, its usefulness on any relevant legal question is

negligible.

Next, the State reaches back 150 years to cite Bates v. Republic of Texas , 2 Tex. 616 (1847) for the idea that a right to set-off damages through a crossclaim is

barred by immunity. (State’s Br. at 20-21, 24). However, in 2006 this Court

expressly acknowledged that Bates had been abrogated for over 100 years, and that

Anderson and Reata were the controlling cases with regard to counterclaims raised

against the State. See State v. Precision Solar Controls, Inc. , 188 S.W.3d 364, 367

(Tex. App.—Austin 2006), order withdrawn (Apr. 5, 2007), review granted,

judgment vacated sub nom. on other grounds State ex rel. Texas Dept. of Transp. v.

Precision Solar Controls, Inc. , 220 S.W.3d 494 (Tex. 2007) (Supreme Court

remanded the case to the trial court for further consideration consistent with

Reata ); see also Reata Const. Corp. v. City of Dallas , 197 S.W.3d 371, 376 fn 2

(Tex. 2006) (stating that Bates was not in conflict with Anderson or Reata because

Bates “involved claims by the defendants for set-offs unrelated to the

governmental entities' claims.”). The claims at issue here are far from “unrelated.”

The State’s invocation of Gabelli v. SEC , 133 S. Ct. 1216, 1223 (2013), SEC v. City of Miami , 581 F. App’x 757, 760 (11th Cir. 2014) and State v. Emeritus

Corp. , No. 13-13-00529-CV, 2015 WL 1456436, at *10–11 (Tex. App.—Corpus

Christi Mar. 26, 2015, pet. filed), also fail to support the State’s position in any

way. Gabelli stands only for the proposition that the government is bound by the

statute of limitations when it seeks civil penalties; it does not even imply that there

is a different standard for applying immunity for different sorts of governmental

actions. The court in SEC v. City of Miami expressly denied official immunity to

Miami’s budget director when the SEC sought penalties for federal securities

fraud; it is difficult to see how a case denying official immunity from Federal

claims acts as a bar here, where the State is attempting to assert sovereign

immunity to counterclaims. Finally, State v. Emeritus Corp. is a decision that

turned entirely on the applicability of the Texas Medical Liability Act to a State

action under the Deceptive Trade Practices and Assisted Living Facilities Act. The

dispute in Emeritus Corp. did not in any way involve sovereign immunity or a

defendant’s counterclaims.

Simply put, the State wishes to ignore Reata . The State presents no authority, express or implied, direct or indirect, for its position that the TMFPA is a

unilateral weapon. Thus, the State asks that this Court manufacture a completely

new standard for determining whether the State can assert sovereign immunity in

response to offsetting counterclaims from a defendant. Allowing the State to

pursue a civil action without fear of having to address compulsory or related

counterclaims from defendants that might provide an offset to the State’s claims is

a breathtaking departure from precedent and the rules of civil procedure.

Response to State’s argument that the Dental Group’s Third Party claims

against Xerox cannot be considered in this appeal.

A. Judicial economy and consistency would be met if this Court opines on the propriety of third party claims, because this is the same issue presented in the similarly postured Xerox proceeding, 03-15-00401-CV.

The Dental Group agrees with Xerox that this Court should decide Xerox’s original proceeding in Cause 03-15-00401-CV in conjunction with this appeal. The

Dental Group’s second issue is generally the same as Xerox’s issue in its original

proceeding: namely, does the TMFPA prevent a defendant (either the Dental

Group in this case, or Xerox in that case) from bringing third party claims? In its

response brief, the State avoids any argument on the merits of this issue. Instead, it

argues only that this Court lacks jurisdiction to consider whether the dismissal of

the Dental Groups’ third party claims was proper.

In considering both this appeal and Xerox’s original action, this Court should note the strange procedural posture that the State’s actions have created.

The State is working to prevent all of the parties from adjudicating these

overlapping, intertwined claims in a single proceeding. All three “sides” are

claiming the others committed wrongdoing on the same facts: *10 STATE

TMFPA fraud claims in administrative court (SOAH, HHSC);

subsequently dismissed and TMFPA civil fraud replaced by this civil claim (D-1-GV-14- TMFPA case (D-1-GV-14- 00581) and the related 005380; appeal 03-15- appeal (03-15-00401- 00252-CV) CV) Counterclaims in this civil

TMFPA case: Conspiracy,

joint enterprise, breach of

contract, conversion, fraud, breach of contract, Third party claims in negligence, gross negligence this case; the same claims are made in D-1-GV-15-002055; D-1-GN-14-000319, 320, 321, and 322.

DENTISTS XEROX Contribution

(this case) Under the facts pleaded by the State in both of its fraud suits, the defendants’ justiciable interests are evident. Whether the defendant is the Dental Group in this

case or Xerox in the similarly situated original proceeding 03-15-00401-CV, the

defendants seek to reveal all of the interrelated facts and relationships in each of

their respective cases so that the culpable party(s) can be held accountable. The

defendants also seek to prevent the State from taking inconsistent positions against

the defendants.

The State is pursuing recovery of the same “tens of millions of dollars” from both the Dental Group and the defendant Xerox, even as the State demands that the

cases be tried separately. The Dental Group’s justiciable interests are obvious. The

relationship between the dentists, the State, and Xerox is a nearly perfect tripartite

arrangement. In the interest of judicial economy, consistency (especially relating to

disparate rulings on discovery and dispositive motions) and overall justice, all of

the parties’ claims regarding medical necessity and proportionate party

responsibility should be determined with an acknowledgement that rulings with

regard to any one party’s claims affect all of the parties.

B. Xerox is correct; Chapter 33 applies to permit contribution claims.

Xerox’s response brief correctly states that the Dental Group assumed that because contribution claims are not permitted under the Federal False Claims Act,

such claims were also unavailable under Texas law. Upon further research and

review, the Dental Group agrees that Texas Civil Practice and Remedies Code

Chapter 33 permits a right to contribution or indemnity under the facts of this case.

Rather than copy that argument in this reply brief, the Dental Group adopts and

incorporates Xerox’s briefing on the law under Tab F of Xerox’s response brief.

Xerox is incorrect when it claims that none of the Dental Group’s claims sound in contribution. The Dental Group expressly made a claim for contribution

in paragraph 31 of its answer (CR 40). Therefore, Xerox’s claim for contribution

from the Dental Group in 03-15-00401-CV is mirrored by the Dental Group’s

contribution claim in this case.

In sum, the Dental Group adopts Xerox’s legal analysis regarding Chapter 33’s application to this case. The Dental Group made, inter alia, a contribution

claim against Xerox, so that argument is relevant and applicable to this appeal. But

whether Chapter 33 applies to permit contribution claims does not prevent, and

will not change, an application of the federal False Claims Act framework for

permitting third party claims. All of the Dental Group’s third party claims against

Xerox are expressly permitted under the federal analysis (fraud, conspiracy, breach

of contract, negligence, gross negligence) and/or Chapter 33 (contribution).

C ONCLUSION The Dental Group and Xerox simply want judicial consistency and economy, and the opportunity to present all of the facts that relate to the State’s

claims. The idea that the Dental Group can be barred from bringing compulsory

and defensive counterclaims/third-party claims is abhorrent to the concepts of due

process and judicial economy.

P RAYER

Appellants pray this court:

1) reverse the trial court order granting the State’s Plea to the Jurisdiction so that the Appellants’ claims against the State may proceed in this case, and

2) reverse the trial court order granting the State’s Motion to Dismiss so that the Appellants’ claims against the third party Xerox may proceed in this case, or

3) in the alternative, reverse the trial court’s grant of the Motion to Dismiss the Appellants’ third party claims, and instruct the court to sever the Appellants’ third party claims against Xerox into a different cause. ___________________________________ Jason Ray R IGGS & R AY , P.C.

504 W. 14 th Street, Suite A Austin, Texas 78701

Telephone: (512) 457-9806 Facsimile: (512) 457-9866 jray@r-alaw.com

E. Hart Green

Mitchell A. Toups

W ELLER , G REEN , T OUPS & T ERRELL , L.L.P. Post Office Box 350

Beaumont, Texas 77704-0350 Telephone: (409) 838-0101 Telecopier: (409) 832-8577 hartgr@wgttlaw.com

matoups@wgttlaw.com

ATTORNEYS FOR 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., *14 SERIES PLLC D/B/A HARLINGEN FAMILY DENTISTRY GROUP, DR. JUAN VILLARREAL, RICHARD F. HERRSCHER, D.D.S., M.S.D., P.C., DR. RICHARD F. HERRSCHER, M & M ORTHODONTICS, PA, DR. SCOTT MALONE, DR. DIANA MALONE, MICHELLE SMITH, NATIONAL ORTHODONTIX, MGMT., PLLC, DR. JOHN VONDRAK, RGV SMILES BY ROCKY SALINAS, D.D.S. PA, AND DR. ROCKY SALINAS.

C ERTIFICATE OF C OMPLIANCE I certify that this Brief complies with TRAP Rule 9.4 and contains 2,062 words in Times New Roman typeface of 14-point.

Jason Ray *16 C ERTIFICATE OF S ERVICE

I hereby certify that a true and correct copy of the Response to Request for Disclosure was served via e-mail and e-service on the 21st day of September, 2015

on the following:

Counsel for Plaintiff State of Texas Raymond C. Winter

Chief, Civil Medicaid Fraud Division

Reynolds B. Brissenden

Assistant Attorneys General

Office of the Attorney General

P.O. Box 12548

Austin, Texas 78711-2548

Telephone: (512) 936-1709

Facsimile: (512) 936-0674

E-mail: raymond.winter@texasattorneygeneral.gov

E-mail: reynolds.brissenden@texasattorneygeneral.gov

Counsel for Xerox Corporation, et al.

Robert C. Walters Eric J. R. Nichols

Gibson, Dunn, & Crutcher, LLP Christopher R. Cowan

2100 McKinney Avenue, Suite 1100 Beck Redden, LLP

Dallas, Texas 75201 515 Congress Avenue, Suite 1750

Telephone: (214) 698-3100 Austin, Texas 78701

Facsimile: (214) 571-2900 Telephone: (512) 708-1000

E-mail: RWalters@gibsondunn.com Facsimile: (512) 708-1002

E-mail: enichols@beckredden.com W. Curt Webb E-mail: ccowan@beckredden.com

Constance H. Pfeiffer

Beck Redden, LLP

1221 McKinney Street, Suite 4500

Houston, Texas 77010

Telephone: (713) 951-3700

Facsimile: (713) 951-3720

E-mail: cwebb@beckredden.com

E-mail: cpfeiffer@beckredden.com

*17 Counsel for Defendants/Third-Party Plaintiffs E. Hart Green J.A. “Tony” Canales

Mitchell A. Toups CANALES & SIMONSON, P.C. 2601 Morgan Ave.

WELLER, GREEN, TOUPS & TERRELL,

L.L.P. P.O. Box 5624

Post Office Box 350 Corpus Christi, Texas 78465-5624

Beaumont, Texas 77704-0350 Telephone: (361) 883-0601

Telephone: (409) 838-0101 Facsimile: (361) 884-7023

Facsimile: (409) 832-8577 E-mail:

E-mail: hartgr@wgttlaw.com tonycanales@canalessimonson.com

E-mail: matoups@wgttlaw.com Counsel for M&M Orthodontics, P.A.,

Counsel for Defendants Dr. Scott Malone, Dr. Diana Malone,

Michelle Smith, National Orthodontix Richard B. Pecore Mgmt., PLLC and Dr. John Vondrak

LILES PARKER, PLLC

3400 N. McColl Rd., Suite F-35 Oscar X. Garcia

McAllen, Texas 78501 Law Offices of Oscar X. Garcia

Telephone: (202) 298-9750 302 Kings Highway, Suite 112

Facsimile: (202) 337-5804 Brownsville, Texas 78521

E-mail: rpecore@lilesparker.com Telephone: (956) 554-3000

Counsel for RGV Smiles by Rocky Salinas, Facsimile: (956) 554-3248

DDS PA, E-mail: oxgarcia@aol.com

and Dr. Rocky Salinas Counsel for Dr. Vivian Teegardin

Robert M. Anderton Philip H. Hilder

Law Offices of Hanna & Anderton William B. Graham

900 Congress Avenue, Suite 250 Hilder & Associates, PC

Austin, Texas 78701 819 Lovett Boulevard

Telephone: (512) 477-6200 Houston, Texas 77006

Facsimile: (512) 477-1188 Telephone: (713) 234-1416

E-mail: andertonr@msn.com Facsimile: (713) 655-9112

Counsel for Richard F. Herrscher, DDS, E-mail: philip@hilderlaw.com

MMSC, PC and Dr. Richard F. Herrscher E-mail: will@hilderlaw.com Counsel for Dr. Wael Kanaan ____________________________ Jason Ray

[1] State ex rel. Texas Dept. of Transp. v. Precision Solar Controls, Inc. , 220 S.W.3d 494 (Tex. 2007) (“[In Reata ,] [w]e held that a governmental entity that brings an action waives immunity from suit for claims that are germane to, connected with, and properly defensive to its action, to the extent of an offset.”)