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McNeil v. Phillips

Court of Appeals of Texas, Fourteenth District

August 20, 2019

JOHN MCNEILL, JR., R.PH.; AND NICHOLS SOUTHSIDE PHARMACY, Appellants
v.
COURTNEY N. PHILLIPS, EXECUTIVE COMMISSIONER; SYLVIA HERNANDEZ KAUFFMAN, INSPECTOR GENERAL; AND TEXAS HEALTH AND HUMAN SERVICES COMMISSION, Appellees

          On Appeal from the 200th District Court Travis County, Texas Trial Court Cause No. D-1-GN-14-002090

          Panel consists of Justices Christopher, Hassan, and Poissant

          MAJORITY OPINION

          MEAGAN HASSAN JUSTICE

         In this 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.

         BACKGROUND

         McNeill 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.

         The 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 Administrative Code.[1]

         McNeill 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.

         Citing 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"].[2] The Commission responded that it would not do so.

         McNeill 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).

         When 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 relief.[3]

         McNeill 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, [4] 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."

         Eight 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.

         McNeill 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.

         McNeill 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).

         On 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.

         After 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 law.

         McNeill timely appealed.[5]

         Standard of Review

         We 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).

         Analysis

         In 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)).

         I. Appellate Jurisdiction Extends to McNeill's Appeal.

         Before reaching the merits of McNeill's appellate complaints, we first address Defendants' jurisdictional challenge.

         This 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).

         McNeill 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.

         When 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.

         In this 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 not.

         The 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 Agreement."

         Because 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).

         II. Defendants are not Entitled to Sovereign Immunity.

         The 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.

         Next, 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).

         III. The Remaining Non-Constitutional Questions Presented Below Are Not Dispositive.

         Texas 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).[6] 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).[7] 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.

         The dissent urges us to adopt constitutional avoidance. [8] 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, Constitutional ...


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