JOHN MCNEILL, JR., R.PH.; AND NICHOLS SOUTHSIDE PHARMACY, Appellants
COURTNEY N. PHILLIPS, EXECUTIVE COMMISSIONER; SYLVIA HERNANDEZ KAUFFMAN, INSPECTOR GENERAL; AND TEXAS HEALTH AND HUMAN SERVICES COMMISSION, Appellees
Appeal from the 200th District Court Travis County, Texas
Trial Court Cause No. D-1-GN-14-002090
consists of Justices Christopher, Hassan, and Poissant
appeal from an order granting a plea to the jurisdiction and
denying a petition for writ of mandamus, appellants John
McNeill and Nichols Southside Pharmacy [collectively,
"McNeill"] complain (1) he should receive a
contested case hearing to challenge the results of an
administrative agency's audit, (2) the agency failed to
comply with a valid Rule 11 agreement, and (3) the agency
completed its audit using a faulty extrapolation methodology.
We reverse the trial court's grant of the appellees'
plea to the jurisdiction and remand this case to the trial
court for further proceedings to determine whether the
process provided to McNeill comports with clearly established
Due Process jurisprudence concerning administrative takings.
entered into a contract with the Texas Health and Human
Services Commission ["Commission"] to provide
prescription drugs under Medicaid and the Vendor Drug
Program. According to the plain language of the contract,
McNeill agreed to comply with "the applicable
requirements of the Medicaid and Vendor Drug Programs."
One such requirement was that McNeill's pharmacy would
have to submit to periodic performance audits.
Commission audited McNeill's pharmacy and concluded it
overpaid by $70, 266.36. The Commission calculated that
figure by examining certain errors within a three-year period
that were discovered from a random sampling of billing
records and extrapolating the alleged overpayment from those
errors. In a response to the draft audit report, McNeill
challenged the Commission's extrapolation methodology and
underlying factual assumptions. After receiving McNeill's
response, the Commission revised its audit report and reduced
the amount of the alleged overpayment to $69, 911.48. The
Commission also advised McNeill he had a right to appeal the
audit results under Title 1, Section 354.1891(c) of the Texas
invoked his right of appeal and the Commission scheduled an
informal hearing to discuss the audit exceptions that were
still challenged. After the hearing, the Commission sent a
"Final Notice" advising McNeill that the amount of
the overpayment had been reduced to $64, 549.30. The
Commission did not mention any additional right to appeal and
advised that McNeill should arrange for payment within thirty
days or a vendor hold would be imposed.
Section 531.1201 of the Texas Government Code, McNeill then
asked the Commission to docket a contested case hearing
before the State Office of Administrative Hearings
["SOAH"]. The Commission responded that it would not
promptly renewed his request for a contested case hearing
under Section 531.1201 and invoked appellate provisions
applicable to administrative actions and sanctions. In
response to McNeill's renewed request, the Commission
explained he was not entitled to a hearing under Section
531.1201 because that statute applies to cases "arising
out of a fraud or abuse investigation," whereas
McNeill's case arose out of a performance audit. The
Commission also explained McNeill's reliance on other
cited regulations was misplaced because they did not control
over Rule 354.1891(c) (which applies specifically to audits).
McNeill failed to pay the demanded restitution within the
allotted time frame, the Commission requested a vendor hold.
McNeill then filed suit against the Commission, its executive
commissioner, and its inspector general [collectively, the
"Defendants"] seeking declaratory and mandamus
also moved for a temporary restraining order and alleged
Defendants were withholding more than the amount of the
claimed overpayment. During the hearing, McNeill produced
evidence that $96, 000.00 was currently subject to the vendor
hold, an amount in excess of the alleged overpayment of $64,
549.30. When the trial court indicated that the excessive
withholding was unauthorized,  the parties entered into a Rule
11 agreement promising Defendants would "release any
amount above $64, 531.30 from the vendor hold" within
ten days. The parties further agreed the Rule 11 agreement
"would remain in place during the pendency of this case,
pending further orders of the court."
months later, McNeill moved to enforce the Rule 11 agreement
and alleged the amount of payments subject to the vendor hold
still exceeded the amount of the alleged overpayment. The
record does not reveal a ruling on this motion.
then amended his pleadings and Defendants asserted sovereign
immunity in a plea to the jurisdiction. McNeill filed a
response and the trial court conducted a hearing (but
declined to rule). Instead, it took the plea to the
jurisdiction under advisement and proceeded to a non-jury
trial on the merits.
was the only witness who appeared at the trial (other than
his attorney, who testified about her attorney's fees).
McNeill testified about various topics, including how
Defendants (1) conducted their audit, (2) used a
non-representative sample when performing their extrapolation
analysis, (3) have since changed their extrapolation
methodology, and (4) wrongly flagged invalid prescriptions in
their audit. He also testified there was never a formal
hearing where he was presented with an opportunity to
challenge Defendants' methodology and that Defendants had
ordered a partial release of the vendor hold (but were still
withholding more than the amount of the alleged overpayment).
cross-examination, Defendants attempted to introduce a
business records affidavit showing the current amount of
withholding was below the amount of the alleged overpayment.
The trial court excluded the affidavit as a discovery
sanction, but nonetheless relied upon it in its findings of
fact and conclusions of law.
the trial, the court granted the plea to the jurisdiction and
dismissed McNeill's claims for declaratory relief. The
trial court also denied McNeill's petition for a writ of
mandamus and all other unaddressed forms of relief, including
the motion to enforce the Rule 11 agreement. McNeill then
requested (and received) findings of fact and conclusions of
review the instant case de novo because it presents
an allegation that Defendants deprived McNeill of a
constitutional right. Scally v. Tex. State Bd. of Med.
Exam'rs, 351 S.W.3d 434, 446 (Tex. App.-Austin 2011,
pet. denied) ("We review claims regarding deprivation of
constitutional rights de novo because they present
questions of law.") (citing Granek v. Tex. State Bd.
of Med. Exam'rs, 172 S.W.3d 761, 771-72 (Tex.
App.-Austin 2005, no pet.)). We also review a plea
questioning the trial court's subject matter jurisdiction
de novo. Tex. Dep't of Parks & Wildlife
v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004).
Mathews v. Eldridge, the issue was:
[W]hether the Due Process Clause of the Fifth Amendment
requires that, prior to the termination of Social Security
disability benefit payments, the recipient be afforded an
opportunity for an evidentiary hearing.
424 U.S. 319, 323 (1976). The instant case involves an even
more directly alleged deprivation of a property interest
insofar as McNeill essentially alleges Defendants converted
money to which he was entitled without affording him an
opportunity for an evidentiary hearing. If true, his
pleadings evidence an impermissible violation of the United
States Constitution. See Tex. Workers' Comp.
Comm'n v. Patient Advocates of Tex., 136 S.W.3d 643,
658 (Tex. 2004) (citing Cty. of Sacramento v. Lewis,
523 U.S. 833, 846 (1998)).
Appellate Jurisdiction Extends to McNeill's
reaching the merits of McNeill's appellate complaints, we
first address Defendants' jurisdictional challenge.
court's appellate jurisdiction generally requires a
notice of appeal to be filed within thirty days of the trial
court's judgment. The deadline is extended to ninety days
if any party timely files "a request for findings of
fact and conclusions of law if findings and conclusions
either are required by the Rules of Civil Procedure or, if
not required, could properly be considered by the appellate
court." Tex.R.App.P. 26.1(a)(4).
filed his notice of appeal eighty-seven days after the trial
court signed its final order; therefore, this court only has
appellate jurisdiction if McNeill's request for findings
of fact extended the thirty-day deadline. Defendants contend
McNeill's request for findings did not extend the
deadline because (1) the trial court granted their plea to
the jurisdiction and (2) findings of fact were therefore not
required. Defendants further contend findings of fact could
not be considered in the context of McNeill's petition
for a writ of mandamus because McNeill sought mandamus relief
on purely legal grounds.
the trial court renders judgment as a matter of law, a
request for findings of fact generally does not extend the
time to perfect an appeal. See IKB Indus. (Nigeria) Ltd.
v. Pro-Line Corp., 938 S.W.2d 440, 443 (Tex. 1997). But
a request for findings can extend the appellate timetables
when the judgment is "based in any part on an
evidentiary hearing." Id.
case, there was a full trial on the merits. Even though many
(if not all) of the facts regarding McNeill's requests
for declaratory and mandamus relief were undisputed at trial,
there were fact issues concerning his motion to enforce the
Rule 11 agreement. McNeill testified Defendants were
withholding more than the amount of the alleged overpayment
while Defendants attempted to refute said testimony with a
business records affidavit (which the trial court excluded).
Defendants nevertheless cross-examined McNeill about whether
he had verified the withholding amount with the Commission or
the Office of Attorney General, and McNeill conceded he had
trial court resolved the dispute regarding the Rule 11
agreement via a finding that: "Plaintiffs did not show
[Defendants] withheld more than the amount of the debt."
This finding directly pertains to McNeill's complaint on
appeal (discussed infra) that "the trial court
recognized but failed to enforce the parties' Rule 11
the record shows the trial court's judgment was based in
part on an evidentiary hearing, findings of fact could
properly be considered on appeal; therefore, we conclude that
(1) McNeill's request for such findings extended the
deadline for filing a notice of appeal and (2) we have
appellate jurisdiction. See Gene Duke Builders, Inc. v.
Abilene Hous. Auth., 138 S.W.3d 907, 908 (Tex. 2004)
(per curiam) (a request for findings extended the deadline in
an appeal from a plea to the jurisdiction where evidence was
submitted at a hearing on the defendant's status as a
unit of state government).
Defendants are not Entitled to Sovereign Immunity.
dissent suggests our "analysis must begin with the
recognition that the Defendants are protected by sovereign
immunity." We reject this suggestion as it applies to
the individual capacity claims because individuals sued in
their individual capacities are not sovereigns. Kassen v.
Hatley, 887 S.W.2d 4, 8 (Tex. 1994) ("We
distinguish official immunity, which protects individual
officials from liability, from sovereign immunity, which
protects governmental entities from liability.").
Additionally, McNeill sought relief against the individuals
in their individual and official capacities for depriving him
of Due Process; because they allegedly did so in a manner
that is constitutionally-prohibited (and thus without legal
authority), their conduct would be ultra vires and
not entitled to sovereign immunity. City of El Paso v.
Heinrich, 284 S.W.3d 366, 372 (Tex. 2009). Therefore, we
reject the dissent's contention that the Defendants
herein "are protected by sovereign immunity"
because they are not.
the dissent suggests McNeill's failure to appeal the
trial court's refusal to provide declaratory relief
precludes the possibility that McNeill cleared his
"jurisdictional hurdle." We disagree and conclude
McNeill's appeal necessarily invokes the trial
court's failure to provide relief, particularly insofar
as it did not conduct the requisite analysis to determine
what process was due. Texas courts are empowered by statute
to compel compliance with the rule of law and the
Constitution (see, e.g., Tex. Gov't Code Ann.
§ 2001.038); claims of sovereign immunity cannot
preclude courts from conducting that analysis. McNeill's
remaining issues in the trial court with regards to the
declaratory judgment proceedings should be examined only
after the court makes an adjudicative finding about the due
process rights to which McNeill is entitled (if any).
The Remaining Non-Constitutional Questions Presented
Below Are Not Dispositive.
appellate courts are authorized to "adjudicate a statute
to be unconstitutional when its unconstitutionality is
obvious and apparent, regardless of when or how the
question is raised." Smith v. Decker, 312
S.W.2d 632, 636 (Tex. 1958) (emphasis added). Appellate
examination of such obvious constitutional questions
affecting every person and entity conducting comparable
business with the State is therefore proper, even when
"the issue was not raised in the trial court."
Goheen v. Koester, 794 S.W.2d 830, 833 (Tex.
App.-Dallas 1990, writ denied) (citing Lovejoy, at
503). Due to the obvious nature of the
constitutional deprivation herein (if a jury believes
McNeill's sworn evidence), we elect to address rather
than ignore the constitutional question presented.
dissent urges us to adopt constitutional avoidance.  Beyond the
obviousness of the alleged constitutional wrong which
requires a meaningful opportunity to be rectified, "[i]t
must be evident to anyone that the power to declare a
legislative enactment void is one which the judge, conscious
of the fallability [sic] of the human judgment, will shrink
from exercising in any case where he can conscientiously and
with due regard to duty and official oath decline the
responsibility" United States v Lovett, 328 U.S. 303,
325 (1946) (Frankfurter, J, concurring) (quoting 1 Cooley,