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In re Xerox Corp.

Supreme Court of Texas

June 22, 2018

In re Xerox Corporation and Xerox State Healthcare, LLC f/k/a ACS State Healthcare, Relators

          Argued December 6, 2017

          On Petition for Writ of Mandamus

          Justice Boyd and Justice Blacklock did not participate in the decision.

          OPINION

          Eva M. Guzman Justice

         In this mandamus proceeding, we consider whether the proportionate-responsibility scheme in Chapter 33 of the Texas Civil Practice and Remedies Code[1] applies to a civil-remedy action under the Texas Medicaid Fraud Prevention Act (TMFPA).[2] The trial court held Chapter 33 inapplicable, struck the relators' third-party petition seeking contribution under Chapter 33, and denied the relators' motion to designate responsible third parties.[3] The court of appeals denied mandamus relief, [4] as do we. Chapter 33 does not apply to a TMFPA action because (1) the statutory remedy does not constitute "damages" subject to apportionment under Chapter 33 and (2) an irreconcilable conflict exists between the proportionate-responsibility statute and the TMFPA's mitigation and fault-allocation scheme.

         I. Background

         For nearly a decade, Xerox Corporation and Xerox State HealthCare, LLC, f/k/a ACS State HealthCare, LLC (collectively, Xerox) administered the Texas Medicaid program under contracts with the Texas Health and Human Services Commission and its predecessors. As claims processor, Xerox's duties included (1) reviewing documents and patient information submitted with prior-authorization requests for orthodontic services and (2) approving or denying the requests in accordance with Medicaid policy.[5]

         The State of Texas asserts Xerox fraudulently operated the review process while serving as the Medicaid program administrator. Among other complaints, the State alleges Xerox misrepresented, concealed, or failed to disclose that it was not processing orthodontic prior-authorization requests in accordance with Medicaid policy, was not substantively reviewing the evaluative documentation, and was approving vast numbers of prior-authorization requests for ineligible services. The State claims that rather than conducting a rigorous review, Xerox actively concealed the fact that unqualified and inadequately supervised clerical employees routinely "rubber stamped" orthodontic prior-authorization requests. According to the State, Xerox's actions were unlawful, compromised the Medicaid program's integrity, and directly or indirectly caused the State to pay millions of dollars for unauthorized orthodontic services to Medicaid patients.

         Medicaid fraud may be redressed in criminal, administrative, or civil proceedings.[6] The State sued Xerox for a civil remedy under the Texas Medicaid Fraud Prevention Act (TMFPA or the Act).[7] As authorized by the Act, the State seeks treble the amount of any Medicaid payment made as a result of an unlawful act; civil penalties of not less than $5, 500 per unlawful act; interest on the amount of unlawfully procured payments; and expenses, costs, and attorney's fees.[8] The State also filed administrative actions against various orthodontic service providers, but later dismissed those proceedings in favor of pursuing TMFPA remedies against those providers in separate civil actions.

         Xerox filed a general denial and, through various procedural devices, sought to unite the separate TMFPA proceedings for purposes of shifting liability, if any, to the service providers who had directly received disputed Medicaid payments. The State vigorously opposed all efforts to bring the Medicaid service providers into the Xerox litigation, and the trial court ruled in the State's favor across the board. The court (1) granted the State's motion to strike Xerox's third-party petition, which sought contribution from twenty-seven Medicaid service providers under the comparative-fault regime in Chapter 33;[9] (2) denied Xerox's motion to designate nearly seventy Medicaid service providers as responsible third parties under Chapter 33;[10] (3) twice refused Xerox's request to consolidate this proceeding with the State's TMFPA actions against the service providers (except as to depositions); and (4) struck petitions in intervention filed by a group of service providers.

         The trial court issued letter rulings explaining that Chapter 33 is inapplicable to a TMFPA action because a state enforcement action is not a statutory tort subject to Chapter 33 and "the civil remedy in the TMFPA is not a damage provision" subject to apportionment based on comparative fault. The court said the TMFPA plainly holds each fraudster liable for a civil remedy and penalty that cannot be diminished or reduced by the civil remedy and penalty assessed against or paid by another bad actor: "There is no comparative fault, joint-and-several liability, contribution, single-satisfaction, or settlement credit in a TMFPA action." The trial court declined to consolidate the proceedings, both as an exercise of its discretion and because "[t]he State is entitled to pursue a Medicaid Fraud claim against a defendant to the exclusion of all other parties."

         After the trial court denied Xerox's request for a permissive interlocutory appeal, [11] Xerox sought mandamus relief from the trial court's orders striking Xerox's third-party petition and denying leave to designate responsible third parties under Chapter 33. The court of appeals denied mandamus relief without substantive analysis.[12] However, in an interlocutory appeal involving certain Medicaid service providers and a different legal issue, which we consider today in Nazari v. State, [13] the court of appeals concurred with the trial court's substantive rulings in this case, holding the TMFPA's civil-remedy provision is a penalty statute, not a damages provision.[14]

         After Xerox filed its mandamus petition in this Court, we temporarily abated the case to allow a successor trial-court judge to reconsider the rulings at issue.[15] The successor judge adopted the prior rulings.

         II. Discussion

         As in the courts below, the issue presented is whether Chapter 33's proportionate-responsibility scheme encompasses a civil-remedy action under the TMFPA. This is a question of legislative intent, which we determine as a matter of law using well-established interpretive principles to construe the statutory language.[16] We thus begin by examining the two statutes at issue. Mandamus will not issue absent a clear abuse of discretion for which an adequate appellate remedy is lacking.[17]

          A. Chapter 33: Proportionate Responsibility

         Chapter 33 provides a framework for apportioning damages among tortfeasors responsible for "causing or contributing to cause in any way the harm for which recovery of damages is sought."[18] The statute applies to deceptive-trade-practice actions, "any cause of action based on tort," and "any other conduct that violates an applicable legal standard."[19] We have also applied Chapter 33 to statutory torts, but have declined to do so when the enabling statute contains a separate and conflicting fault-allocation scheme.[20]

         By express carve-out, Chapter 33 is inapplicable to exemplary-damages claims, actions to collect workers' compensation benefits, and claims for damages arising from the manufacture of methamphetamine.[21] TMFPA actions are not expressly included in or exempted from Chapter 33.

         Chapter 33 embodies the fundamental tort-law principle that liability generally arises only from one's own injury-causing conduct and, as a result, liability for damages is commensurate with fault.[22] Chapter 33's proportionate-responsibility scheme also incorporates the one-satisfaction rule-a tort concept that limits a plaintiff to only one recovery for any damages suffered because of an injury.[23] This rule provides that when a claimant seeks recovery for the same injury from multiple parties, the claimant is entitled to only one recovery on that injury.[24]

         Consistent with the one-satisfaction rule and legislative intent "to hold each person responsible for [the person's] own conduct causing injury, "[25] Chapter 33 requires the trier of fact to determine the percentage of responsibility of each claimant, defendant, settling person, and any responsible third party who has been designated in compliance with the statute.[26] Damages are thereafter apportioned according to those comparative-fault findings.[27]

         In some circumstances, however, ratable apportionment yields to other legislative policies. Subject to a right of contribution, [28] comparative-fault apportionment is eliminated when a defendant is found more than fifty-percent responsible for the harm[29] and when certain crimes are perpetrated with "specific intent to do harm."[30] In addition, a claimant who is more than fifty-percent responsible is statutorily barred from recovering any damages.[31] Chapter 33 does not include TMFPA liability among those the Legislature expressly excepted from ratable apportionment.

         Xerox, supported by amici Pharmaceutical Research and Manufacturers of America, argues a TMFPA action plainly falls within Chapter 33's scope and is not expressly or impliedly excluded. As Xerox sees it, the TMFPA is a statutory tort based on fraud for the recovery of damages-at least as to some of the civil remedies authorized in the Act-and Chapter 33 must apply to prevent the State from seeking damages for the same injury from multiple tortfeasors.

         In the State's view, the TMFPA is a civil-enforcement statute for civil penalties, not a statutory tort for damages. Separate violations of the statute, the State says, produce separate injuries, rather than a unitary injury that must be apportioned among multiple violators. Following the State's argument, a TMFPA action need not be expressly exempted from Chapter 33 because the comparative-fault statute is inapplicable by its own terms. In the alternative, the State argues Chapter 33 conflicts with the TMFPA's unique method of punishing those who violate the statute and rewarding those violators who self-report and help root out systemic fraud.

         Resolution of this dispute turns on the Legislature's intent in enacting the TMFPA, an inquiry that always begins-and often ends-with the statute's language.[32]

          B. The Texas Medicaid Fraud Prevention Act: Civil Remedy

         In conjunction with the federal government, the Texas Medicaid program provides medical coverage to eligible Texans in need.[33] As with all government-funded programs, Medicaid resources are limited, which means fraud, abuse, and waste divert funds that could otherwise be used to provide essential health-care services. But fiscal impact is not the only concern. When services are provided improperly or unnecessarily, Medicaid patients are imperiled.[34] The Medicaid system's size and complexity, the limited time and financial resources of governmental regulators, and the increasing sophistication of Medicaid scams make chicanery difficult to uncover.[35] In recent years, reports about allegedly fraudulent dental and orthodontic schemes have been front-page news in Texas, and the State has stepped up efforts to deter, detect, and punish Medicaid fraud.[36]

         Similar to the federal False Claims Act[37] and the Social Security Act's Civil Monetary Penalties Law, [38] the Texas Medicaid Fraud Prevention Act is a powerful tool for targeting fraud against the Texas Medicaid program and securing the program's integrity.[39] The statute imbues the attorney general with broad investigative and enforcement authority and-via qui tam provisions-deputizes private citizens to pursue a TMFPA action on the government's behalf.[40] In addition to substantial monetary consequences for fraud on the system, the TMFPA authorizes onerous administrative sanctions, including mandatory suspension or revocation of a license, permit, certification, or state-provider agreement and exclusion from the Medicaid program for at least ten years.[41]

         But the issue in this mandamus proceeding concerns the money judgment the State seeks to recover under the TMFPA's civil-remedy provision in Section 36.052, the construction of which is at the heart of this dispute. Under the TMFPA, commission of an "unlawful act," as defined in Section 36.002, [42] results in monetary liability in various measures set out in Section 36.052(a):

         (a) Except as provided by [the mitigation provision in] Subsection (c), a person who commits an unlawful act is liable to the state for:

(1) the amount of any payment or the value of any monetary or in-kind benefit provided under the Medicaid program, directly or indirectly, as a result of the unlawful act, including any payment made to a third party;
(2) interest on the amount of the payment or the value of the benefit described by Subdivision (1) at the prejudgment interest rate in effect on the day the payment or benefit was received or paid [accruing from that day until] the state recovers the amount of the payment or value of the benefit;
(3) a civil penalty of . . . not less than $5, 500 . . . and [up to $15, 000 depending on the circumstances] for each unlawful act . . .; and
(4) two times the amount of the payment or the value of the benefit described by Subdivision (1).[43]

         In setting the amount of the variable penalty described in subsection (a)(3), the statute prescribes several factors to consider, including prior violations, the seriousness of the offense, health-and-safety impacts, and the need for effective deterrence.[44]

         When multiple violations are aggregated, the potential financial exposure under Section 36.052(a) could be staggering. Adding to the monetary liability under Section 36.052(a), the Act authorizes the State to recover reasonable investigation and litigation fees, expenses, and costs.[45]

         Xerox argues that at least some of the monetary assessments in Section 36.052(a) are "damages" subject to apportionment under Chapter 33: (1) the amount of any unlawfully procured payment and (2) interest on that amount. Xerox concedes the civil penalty in subsection (a)(3) is not apportionable, but describes the multiple payment measure in subsection (a)(4) as an apportionable form of liquidated damages.

         The State maintains that the monetary remedies in Section 36.052(a) are civil penalties, sanctions, fines, or assessments, but not damages and, therefore, not subject to apportionment. Moreover, as the State points out, the TMFPA provides only one way to mitigate liability: through prompt, voluntary disclosure.[46] The reward for doing so is considerable-liability is capped at no more than two times the amount of the unlawfully procured payment, meaning monetary exposure under Section 36.052 could be zero.[47] The statute thus provides a strong incentive for fraud participants to expeditiously divulge potentially incriminating information and, with this carrot, advances the statute's overarching objective of rooting out fraud in the Medicaid system. The State argues that the balanced liability provisions the Legislature enacted in Section 36.052 thus conflict irreconcilably with Chapter 33's proportionate-liability scheme.

         Before substantively addressing the matters in dispute, we emphasize that the issue here is not whether the claims against Xerox are meritorious, but whether a party found liable for violating the TMFPA may shift the financial burden of Section 36.052's civil remedies to other wrongdoers under the proportionate-responsibility statute. We hold they cannot.

         We agree with the State that Chapter 33 does not apply to a TMFPA action because (1) a TMFPA civil-remedy action is not an "action for recovery of damages" subject to apportionment and (2) the TMFPA's mitigated-fault provision and other financial incentives for informants conflict with Chapter 33. We therefore need not consider the State's additional arguments regarding Chapter 33's scope and application to the TMFPA.

         C. The Remedies in Section 36.052 Are Not Damages

         Medicaid fraud exacts an immense toll from the system, not all of which is discoverable, recoverable, or quantifiable as damages. The TMFPA therefore imposes harsh administrative and financial sanctions to punish and, thereby, prevent Medicaid fraud.[48] In addition to what could amount to death-penalty administrative sanctions, [49] the statute authorizes a civil remedy equal to treble the amount of a payment procured by fraud, interest on the fraudulently procured payment, and a hefty variable fine guided by aggravating and mitigating factors.[50] The civil remedy in Section 36.052(a) is undeniably punitive in the aggregate, imposing monetary liability far surpassing the amount of Medicaid funds the State may have actually expended due to an unlawful act.[51] Indeed, "[t]he very idea of treble damages reveals an intent to punish past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers."[52] Xerox urges, however, that the elements of Section 36.052(a)'s civil-remedy formula must be scrutinized individually and Chapter 33 applied to any aspect the Legislature adopted as a "damages" measure so the financial burden on wrongdoers can be alleviated. Viewing the civil remedy in an elemental fashion instead of as a comprehensive remedial scheme skews the statutory analysis, but even if the remedies in Section 36.005(a) are viewed separately, we conclude they are penalties, not damages.

         Subject to constitutional constraints on excessive penalties, [53] the Legislature can choose any measure to define a penalty. The question here is not what the Legislature is permitted to do but what it intended. Statutory language is "the surest guide to the Legislature's intent" because "it is a fair assumption that the Legislature tries to say what it means."[54] We thus presume the Legislature selected statutory words, phrases, and expressions deliberately and purposefully and was just as careful in selecting the words, phrases, and expressions that were included or omitted.[55]

         Considering the TMFPA's plain language, we begin by observing that the Legislature referred to Section 36.052 as providing a "civil remedy" instead of using the more common statutory term "damages."[56] This legislative choice is particularly telling in light of TMFPA Section 36.006, which distinguishes and juxtaposes the Act's civil remedy from the "Damages and Penalties" provision in a previously enacted provision in the same code:

The application of a civil remedy under this chapter does not preclude the application of another common law, statutory, or regulatory remedy, except that a person may not be liable for a civil remedy under this chapter and civil damages or a penalty under Section 32.039 if the civil remedy and civil damages or penalty are assessed for the same act.[57]

         The only self-referential use of the term "damages" occurs in subchapter C of the TMFPA, which governs qui tam actions. There, "damages" is used once in delineating the remedies available in a whistleblower action (Section 36.115)[58] and in setting the burden of proof for an action brought under subchapter C (Section 36.1021).[59] But the "damages" references are textually constrained to subchapter C, while Section 36.052 is found in subchapter B. Once again, the juxtaposition of word choice in these adjoining statutory provisions shows the Legislature knows how to say "damages" when it means to authorize an award of damages, yet deliberately chose not to use that term in describing the relief available under Section 36.052.[60]

         At the same time, subsection 36.052(a)(3) is expressly described as a "civil penalty," while the other components of the remedy are not. The use or absence of labels may suggest legislative intent, but labels are not dispositive of underlying character.[61] Accordingly, we examine the components of the civil-remedy formula in Section 36.052(a) to ascertain their character, considering them in light of the traditional distinctions between damages and penalties, since neither term is specially defined in the TMFPA or Chapter 33.[62]

         "Damages" are "[m]oney claimed by, or ordered to be paid to, a person as compensation for loss or injury."[63] "Damages" compensate for loss-actual or reasonably estimable-and no more.[64]But, not all compensation constitutes "damages," even when an award is necessary to make a party whole.[65] For example, attorney's fees are generally not damages, even if compensatory.[66] More recently, we reaffirmed in Wal-Mart Stores, Inc. v. Forte, that "not all compensatory recovery can be considered damages," and explained that "civil penalties are different from compensatory damages."[67]

         A "penalty" is "[p]unishment imposed on a wrongdoer," especially, "a sum of money exacted as punishment for either a wrong to the state or a civil wrong (as distinguished from compensation for an injured party's loss)."[68] Penalties "go beyond compensation" and "are intended to punish, and label defendants wrongdoers."[69] Monetary liability that exists even when no loss has occurred can only be a fine or a penalty, not damages. But that does not mean penalties do not and cannot have "compensatory traits."[70] Indeed, the Legislature may choose a penalty regime precisely because harm ensuing from a wrong may be inestimable and, therefore, must be deterred and prevented. Moreover, penalties necessarily compensate in the sense that the hallmark of a penalty is that it goes beyond compensating for a loss.

         While Xerox mostly hangs its hat on the nature of subsection (a)(1) [the amount of the unlawfully procured payment or benefit], it also argues that subsections (a)(2) [interest on the payment or benefit amount] and (a)(4) [multiplier of the payment or amount] are compensatory rather than sanctions for wrongful conduct. If monetary liability under (a)(1) were reduced by application of Chapter 33, interest on the corpus under (a)(2) and multiples of the corpus under (a)(4) would be derivatively reduced either in the same proportion or post-interest and trebling (a matter we need not decide here). Accordingly, the nature of the interest and multiplier provisions is analytically material only if either constitutes damages on its own or if either could not be imposed on anything other than damages.

         Interest is generally compensatory, but not necessarily, [71] and sometimes damages, but not always.[72] Prejudgment interest typically cannot be imposed on a future-damages award, but the Legislature can provide differently by statute.[73] Prejudgment interest usually cannot be awarded on noncompensatory damages like penalties and punitive damages, [74] but we have acknowledged that the Legislature could provide a different rule, such as by exempting a statute from the constraints in Chapter 41 of the Texas Civil Practice and Remedies Code, [75] as the Legislature has done with TMFPA actions.[76] In the latter two cases, recoverable "interest" would not actually be compensatory and, despite being labeled "interest," would be a penalty or a fine.[77]

         Xerox says the interest provision in subsection (a)(2) must be interest on damages because it accrues from the date the payment was made or the benefit received as a result of an unlawful act and runs through the date the amount is recovered. Under the common law and by statute, however, interest as damages begins to accrue on the earlier of 180 days after the date a defendant receives written notice of a claim or the date suit is filed.[78] Interest as interest accrues as allowed by statute or contract.[79] Section 36.052(a)(2) thus diverges from more general principles governing interest as damages and is more akin to interest as interest. An award of interest under subsection (a)(2) thus has no significance to the present inquiry independent of the characterization of the principle amount in (a)(1).

         As to the multiplier in (a)(4), Xerox does not forcefully press the issue but suggests the payment multiplier is essentially estimated-and in effect liquidated-damages designed to make the government whole for the cost of detecting, investigating, and prosecuting fraud. We reject this characterization. Investigation and litigation costs are separately recoverable under the Act.[80] And even if the (a)(1) single payment measure constitutes compensatory damages, as Xerox argues, treble damages under fraud-deterrent statutes like the TMFPA are "essentially punitive" even if they have "compensatory traits."[81] In a different context, we held in Phillips v. Phillips that a contract provision requiring payment of a multiple of actual damages was an unenforceable penalty on its face, rather than "liquidated damages."[82] Liquidated damages constitute a penalty unless (1) the harm caused by the breach is incapable or difficult of estimation and (2) the amount of liquidated damages is a reasonable forecast of just compensation.[83] A multiplier tethered to actual damages fails on both counts because it (1) assumes actual damages can and will be determined and (2) instead of attempting to forecast actual damages, it calls for them to be determined and multiplied.[84] In short, if treble actual damages is a penalty, then treble a fixed penalty or sanction amount would also be a penalty.

         This brings us to subsection (a)(1), the main focus of the dispute. Section 36.052(a)(1) provides, "A person who commits an unlawful act is liable to the state for . . . the amount of any payment or the value of any monetary or in-kind benefit provided under the Medicaid program, directly or indirectly, as a result of the unlawful act, including any payment made to a third party."[85]At first blush, this sounds like damages, but in operation, it is a penalty because it is fixed without regard to any loss to the Medicaid program and without a direct benefit to the liable party. A remedy unrelated to actual loss is a penalty.[86]

         The statute does not use the terms "harm," "damages," "overpayment," "loss," "actual damages," "unauthorized amount," "compensation," or any other words that imply a loss measure or require the State to prove an actual loss.[87] Rather, liability is fixed at "the amount of any payment or the value of any . . . benefit" that was made or received because of "the unlawful act."[88] The causal relationship is between the unlawful act and fact of a payment or receipt of a benefit. Under Section 36.002, an "unlawful act" may cause a loss, but not necessarily, and an act may be "unlawful" only if it does, but not necessarily.

         Section 36.002 defines the "unlawful acts" for which liability may be imposed under Section 36.052. Some of the acts are not violations at all unless they result in some loss. For example:

• "knowingly mak[ing] . . . a false statement or misrepresentation of material fact to permit a person to receive a benefit or payment under the Medicaid program that is not authorized or that is greater than the benefit or payment that is authorized";
• "knowingly conceal[ing] or fail[ing] to disclose information that permits a person to receive a benefit or payment under the Medicaid program that is not authorized or that is greater than the [authorized] payment or benefit"; and
• "knowingly . . . convert[ing] any part of [a Medicaid] benefit or payment to a use other than for the benefit of the person on whose behalf it was received."[89]

         But many other "unlawful acts" can induce a Medicaid program payment without any actual loss to the program. Examples include:

• "knowingly mak[ing] . . . a false statement or misrepresentation of material fact concerning . . . conditions or operation of a facility in order that the facility may qualify for certification or recertification required by the Medicaid program";
• "knowingly pay[ing], charg[ing], solicit[ing], accept[ing], or receiv[ing], in addition to an amount paid under the Medicaid Program, a gift, money, a donation, or other consideration as a condition to the provision of a service or a product . . . paid for, in whole or in part, under the Medicaid program";
• "knowingly present[ing] . . . a claim for payment under the Medicaid program for a product provided or a service rendered by a person who . . . is not licensed in the manner claimed";
• knowingly soliciting or receiving "any kickback, bribe, or rebate, in cash or kind . . . for which payment may be made, in whole or in part, under the medical assistance program"; and
• knowingly presenting or causing to be presented "a claim that contains a statement or representation the person knows or ...

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