Laboratory Corporation of America Holdings D/B/A Laboratory Corporation of America v. the State of Texas and Npt Associates

Supreme Court of Texas

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No. 25-0127

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Laboratory Corporation of America Holdings, d/b/a Laboratory

Corporation of America,

Petitioner,

v.

The State of Texas and NPT Associates,

Respondents

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On Petition for Review from the

Court of Appeals for the First District of Texas

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CHIEF JUSTICE BLACKLOCK, joined by Justice Busby, dissenting.

The “materiality” rule the Court announces is not supplied by the

statutory text, which imposes a textual materiality requirement in two

nearby provisions but conspicuously not in the provision at issue. The

source of the Court’s materiality rule is, instead, the common law of

fraud, which the Court mistakenly assumes the Legislature must have

thought just as applicable to LabCorp’s relationship with the State of

Texas as it is to LabCorp’s relationship with a private health insurance

company.

Without a strong warrant in the statutory text, the Court imports

familiar principles of common-law fraud into a regulatory context

unfamiliar to the common law—a massive, elaborate government

healthcare program chronically vulnerable to fraud. The Court

confronts a statute protecting the State and the taxpayers from misuse

of the public treasury and treats it as though it were a statute protecting

private parties from each other. This category error would be no error

at all if the statutory text supported it. Courts can certainly hold the

Texas Health and Human Services Commission to the same common-

law, “reasonable-man” standards as private parties (estoppel, apparent

authority, reasonable reliance, inquiry notice, etc.) if the Legislature

asks us to do so. The Legislature has not asked us to do so, at least not

in this instance.

The common law developed to govern and guide the private

economy, not to govern and guide the sovereign. Obviously, common-

law thinking is deeply embedded in our legal culture, and it often retains

much influence in the realm of public law, as it should. But the question

here is not whether it is permissible to look to the common law for

guidance on the application of a Medicaid statute. Of course it is. The

question is whether the common law’s influence over a Medicaid statute

is so strong as to compel the judiciary to add to an unambiguous statute

a “material” word the Legislature conspicuously omitted. The answer is

no.

The Texas Health and Human Services Commission is many

things, perhaps far too many things. Whatever else it may be, it is

certainly not LabCorp’s commercial counterparty. It is a representative

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of the sovereign people of Texas and a custodian of their money, which

has been entrusted to it under rules it is not at liberty to waive, ignore,

or forget. When the people running a business fail to protect the

business’s interests, whether knowingly or by inattention, they often

bind their successors and the business in the future. The same is rarely

true of the State, which is frequently not held to common-law standards

of objective reasonableness.1 One reason for this difference is that the

people sitting across the HHSC conference table from LabCorp’s

executives do not have the power to speak for, or to bind, the State of

1 See Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S.

51, 60 (1984) (“When the Government is unable to enforce the law because the

conduct of its agents has given rise to an estoppel, the interest of the citizenry

as a whole in obedience to the rule of law is undermined. It is for this reason

that it is well settled that the Government may not be estopped on the same

terms as any other litigant.”); Off. of Pers. Mgmt. v. Richmond, 496 U.S. 414,

428 (1990) (“If agents of the Executive were able, by their unauthorized oral or

written statements to citizens, to obligate the Treasury for the payment of

funds, the control over public funds that the [Appropriations] Clause reposes

in Congress in effect could be transferred to the Executive.”); Fed. Crop Ins.

Corp. v. Merrill, 332 U.S. 380, 384 (1947) (“Whatever the form in which the

Government functions, anyone entering into an arrangement with the

Government takes the risk of having accurately ascertained that he who

purports to act for the Government stays within the bounds of his authority.”);

Utah Power & Light Co. v. United States, 243 U.S. 389, 409 (1917) (“[The

sovereign] is neither bound nor estopped by acts of its officers or agents in

entering into an arrangement or agreement to do or cause to be done what the

law does not sanction or permit.”); City of White Settlement v. Super Wash Inc.,

198 S.W.3d 770, 773 (Tex. 2006) (“‘[E]quitable estoppel will not lie against the

Government as [it lies] against private litigants’ . . . . [because] legislative

prerogative would be undermined if a government agent could—through

mistake, neglect, or an intentional act—effectively repeal a law by ignoring,

misrepresenting, or misinterpreting a duly enacted statute or regulation.”

(quoting Richmond, 496 U.S. at 419)).

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Texas in anything resembling the way LabCorp’s executives speak for

and bind LabCorp.

We need not consult any background law to interpret the

straightforward statute before us. But if we did, the law governing

disputes with the sovereign over the public treasury (e.g., immunity, no

estoppel against the State, etc.) ought to be just as informative as the

law governing private disputes between equals. The statute at issue

does not govern a relationship between equals. It governs the

relationship between the State of Texas and those who seek to profit by

voluntarily participating in a multi-billion-dollar taxpayer-funded

welfare program. HHSC employees do not have the power to authorize

LabCorp to overcharge the State of Texas. Their inattention to

LabCorp’s alleged failure to comply with Texas law’s best-price

requirement cannot excuse a departure from the rules LabCorp agreed

to when it signed up as a Medicaid contractor. In short, this is not the

kind of relationship to which the heavy common-law presumptions on

which the Court relies are a comfortable fit.

***

Although the background principles the Court invokes should

carry less weight in this context than the Court affords them, we need

not have consulted any background principles at all. The text indicates

on its own that the liability it creates hinges purely on subjective

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causation, not on the objectively material2 omission the Court requires.

The text says:

A person commits an unlawful act if the

person . . . knowingly conceals or fails to disclose

information that permits a person to receive [an improper

payment].

TEX. HUM. RES. CODE § 36.002(2).

“Permits” is the pivotal word for today’s purposes. A curious word

choice, perhaps, but hardly opaque as these things go. The statute’s rule

is this: If a person’s omission permits an improper payment, the person

is liable. The Court’s rule is this: If a person’s material omission permits

an improper payment, the person is liable. The Court’s rule thus gives

Medicaid-fraud defendants an additional off-ramp the Legislature did

not give them. It is no longer the case that an omission gives rise to

liability if, as a factual matter, it allows or brings about an improper

payment, which is all I take “permits” to mean. Under the Court’s

decision, even if an omission allows or brings about an improper

2 “The question of materiality, it is universally agreed, is an objective

one, involving the significance of an omitted or misrepresented fact to a

reasonable [decisionmaker].” TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438,

445 (1976). The Court’s definition of materiality, borrowed from the statute,

reflects an objective standard that turns on the natural tendency of the omitted

information to influence a reasonable decisionmaker, not on the actual

decisionmaker’s reasons for the decision. See Ante at 28 (“The Act defines

‘[m]aterial’ as ‘having a natural tendency to influence or to be capable of

influencing,’ TEX. HUM. RES. CODE § 36.001(5-a), and we have previously

explained that ‘[a] representation is material if the representation was

important to the plaintiff in making a decision, such that a reasonable person

would be induced to act on and attach importance to the representation in

making the decision.’” (quoting Barrow-Shaver Res. Co. v. Carrizo Oil &

Gas, Inc., 590 S.W.3d 471, 496 (Tex. 2019)).

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payment, there is no liability unless the omission was also objectively

material. The defendant can win either by showing that the omission

did not actually, subjectively cause the payment or by showing that the

omission did not, objectively, have a tendency to influence a reasonable

Medicaid administrator’s decision about the payment. Although the

Court’s analysis of the facts blends these two inquiries, they are distinct

questions. As the experience of securities fraud litigation demonstrates,

they may be litigated in future cases as two separate defenses, either of

which is sufficient to get the defendant off the hook.3

The Court gets to this place by assuming that common-law

background principles require us essentially to insert “material”

between “disclose” and “information” in section 36.002(2). Put aside the

familiar dissenter’s refrain about not adding words to statutes. I have

no objection, in principle, to reading statutes in light of the background

law, sometimes even in ways that might be thought by critics to add a

word or two. I disagree with the Court’s over-reliance on background

law that does not fully capture the nature of the relationship between

LabCorp and the State of Texas, but I will beat that horse no further.

As a textual matter, the problem is not just that the Court adds a word.

The problem is the weighty word the Court adds—material. Not only

3 See 3 THOMAS LEE HAZEN, TREATISE ON THE LAW OF SECURITIES

REGULATION § 12.64 (8th ed. upd. 2026) (“[E]ven if a private plaintiff can

establish materiality, the plaintiff also carries the burden[] of proving

causation . . . .”); see, e.g., In re Merck & Co., Inc. Sec. Litig., 432 F.3d 261, 275

(3d Cir. 2005) (“[L]oss causation and materiality are two separate elements of

a [securities fraud] claim.”); Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341

(2005) (listing materiality and loss causation as separate elements).

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does this jurisprudentially loaded word create a free-standing, matter-

of-law defense not contemplated by the text. Not only does reading it

into the statute threaten to sweep in mountains of federal caselaw

constructed to protect fraud defendants from the misuse of statutes that

actually use the word “material.” Setting that aside, the Court reads

the word “material” into section 36.002(2) even though several

neighboring provisions, including the companion provision governing

misstatements, actually use the word. See, e.g., TEX. HUM. RES. CODE

§§ 36.002(1) (“a false statement or misrepresentation of a material fact

to permit [an improper payment]”), .002(4)(B) (“a false statement or

misrepresentation of material fact concerning . . . information”),

.002(12) (“making or use of a false record or statement material to an

obligation to pay”).

By requiring a “misrepresentation of material fact” in the

provision governing false statements but requiring only a “fail[ure] to

disclose information” in the nearby companion provision governing

omissions, the Legislature could hardly have made it clearer that

materiality is not a distinct requirement for omissions. I suppose the

drafters needed to insert a clunky aside, like “. . . fail to disclose

information, whether or not material, that permits . . . .” As ugly and

superfluous as that would look, it seems the only way around the Court’s

strong presumption.

In the Court’s view, the word “material” need not be added to the

provision because the word “permits” already entails it. Ante at 24, 27.

One problem for this view is that the neighboring provision governing

misstatements uses both the verb “permit[s]” and the adjective

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“material.” TEX. HUM. RES. CODE § 36.002(1). If the Court is right that

“permits” entails materiality, then the word “material” is superfluous in

the misstatements provision. In any event, the Court is not right that

“permits” entails materiality. The Court notes that “[i]nherent in the

concept that A ‘permits’ B is the suggestion that A must carry some

importance—or else it would not ‘allow’ B or create an ‘opportunity’ for

B to occur.” Ante at 25. I agree. But importance can be objective or

subjective. A statement or omission can be objectively important in the

sense that a reasonable person would appreciate its significance, even if

that significance is lost on the actual decisionmaker. Conversely, the

actual decisionmaker may subjectively attribute significance to a

statement or omission that, objectively, it does not carry. The statement

or omission is still important to the decisionmaker and therefore may be

what, as a factual matter, “permits” the decision. The Court does not

grapple much with the distinction between the subjective causation

inquiry and the objective materiality inquiry, but for me it is the whole

ballgame.

The Court’s textual error is compounded by its heavy reliance on

the statutory definition of the word “material.” See TEX. HUM. RES. CODE

§ 36.001(5-a) (“‘Material’ means having a natural tendency to influence

or to be capable of influencing.”). The statute uses “material” several

times, although not in the disputed provision, and then it provides a

statutory definition of that term, which should communicate to the

judiciary, “This is what we mean when we use this word.” The Court

finds itself in the curious position of responding, “Yes, and it is also what

you mean when you don’t use that word.” It is one thing (sometimes the

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right thing, though rarely, depending on the context) to read a word into

a statute. It is quite another to incorporate the legislative definition of

a word into statutory text that does not contain the word.

In my view, the word “permits” imposes a simple subjective

causation requirement, which is not at all without teeth and which in

many cases would overlap with an objective materiality requirement, as

it does in the Court’s application of its materiality rule to these facts.

Ante at 29–36. But the text does not remotely suggest an additional,

objective inquiry—on top of simple causation—into whether the

omission had a tendency to influence the decision of a reasonable

Medicaid administrator. The Court concludes otherwise. Thus now,

even if it is true that the omission was a but-for cause of the payment,

it must also be true that the omitted information objectively had a

tendency to influence a reasonable Medicaid administrator. That is not

a crazy rule by any means, but it is not what the text says.

The Court invokes the U.S. Supreme Court’s decision in Universal

Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176, 193

(2016). I agree with Escobar, which analyzes a federal statute imposing

liability on one who “knowingly presents, or causes to be presented, a

false or fraudulent claim for payment or approval.” See 31 U.S.C.

§ 3729(a)(1)(A). The Supreme Court, quite reasonably, interpreted the

statutory words “false or fraudulent claim” to include a materiality

requirement because the ordinary meaning of those words, in particular

the word “fraudulent,” comes to us from the common law and historically

entails materiality.

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Escobar correctly holds that when Congress uses common-law

words like “fraud” and “fraudulent,” the courts should not divorce those

words from their common-law roots. I agree completely. That is not

what we have here. “Permits” is not a common-law word. The word

“fraud” or its derivatives are nowhere to be found in the provision at

issue. Surely the Legislature’s use of “fraud” in the non-operative title

of the statute (the “Medicaid Fraud Prevention Act”) cannot bear the

weight the Court places on it. The title of a legislative act may

sometimes serve as a weak indicator of meaning when the operative text

is unclear, as is not the case here. But let us not be naïve. Particularly

on a high-profile topic like Medicaid fraud, a legislative act’s ceremonial

title is usually selected for its value as a promotional political slogan,

not for its accuracy in capturing the nuances of the statutory text.

If the Texas Legislature had prohibited “fraudulent omissions,”

this case would be like Escobar, and I would agree with the Court about

materiality. The Legislature did not say that. It imposed liability on

one who “fails to disclose information that permits a person to receive

[an improper payment].” TEX. HUM. RES. CODE § 36.002(2). This

provision contains no common-law terms in need of judicial elaboration.

I take it to mean what it says, no more and no less.

For these reasons, I find the textual argument for the Court’s

reading of the statute quite weak. Only with the strong support of a

heavy presumption in favor of incorporating the common-law’s approach

to materiality does the Court’s approach become plausible. Because I do

not think the presumption the Court invokes is nearly strong enough to

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turn a remarkably poor textual argument into a winner, I cannot join

the Court’s understanding of the disputed text.

***

This is no mere academic debate about the weight of

presumptions and the nuance of syntax. To illustrate the practical

consequence of the Court’s materiality rule, we can divide potential

omissions into three groups. First, consider omissions that did not make

a difference in the payment decision. If the omission does not

subjectively allow or bring about the payment, then we cannot say the

omission “permits” the payment. I believe the Court and I agree on

that.4 Second, consider omissions that would tend to influence the

decision of an objectively reasonable Medicaid administrator (i.e.,

material omissions). If such an omission subjectively brings about the

payment, then the omission “permits” the improper payment. I agree

with the Court on that.

The problem is a third category, one the Court must assume will

be rare or non-existent but which strikes me as plausible, perhaps even

common, in the messy realm of government healthcare payments. If a

person omits information that would make no difference to a

hypothetical, reasonable Medicaid administrator in light of everything

else that has been disclosed, but divulging the omitted information

would, in fact, have caused the actual Medicaid administrator to reject

4 As does the State, I think.

While the State’s briefing resists taking a

firm position on the causal connection required between the omission and the

payment, at oral argument the State conceded, as surely it must, that the

omission must be at least a but-for cause of the payment in order for us to say

that the omission “permits” the payment.

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the payment, did the omission “permit” the payment? I think so. If the

payment was illegal, and if revealing the omitted information would

have stopped it, then the omission “permits” an illegal payment. This is

no less true if the omission would not have been important in the mind

of a hypothetical, objectively reasonable Medicaid administrator who

has earnestly stayed abreast of everything the contractor has divulged

about the payment.

In an ideal world, the Court’s materiality rule would make little

difference. If the people on both sides of the conference table are

sophisticated, attentive, and vigorously protecting their side’s

prerogatives, then the difference between what subjectively causes a

payment to be made and what objectively would cause a reasonable

person to make the payment should be negligible. There may be a much

wider gap than the Court assumes, however, between the behavior of

hypothetical, reasonable Medicaid administrators and the behavior of

actual, real-world Medicaid administrators—and that gap may be

outcome determinative in future cases because of today’s decision.

The Legislature knows we do not live in an ideal world of

objectively reasonable Medicaid administration. To be fair, the program

is so large and so elaborate—and the world is so full of both sick people

seeking help and ambitious people seeking profit—that perhaps it would

be impossible for anyone running the program to consistently satisfy the

standards of objective reasonableness the law demands of private

companies. Be that as it may, a reasonable legislator might very well

assume that LabCorp’s executives—paid handsomely to make as much

money as possible from Texas’s Medicaid program and supported by

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armies of lawyers and consultants—operate at a higher level of

sophistication and attentiveness than the HHSC employees across the

table. In light of that dynamic, does the Legislature want a company in

LabCorp’s position to think, “Let’s tell them just enough about this

payment that they should realize it’s illegal if they’re paying attention,

but if they don’t notice, we’ll get paid; if they notice later, we’ll convince

a court the omission wasn’t material given everything else we told

them”? Or does the Legislature want the company to think, “If we don’t

tell them everything about the legality of this payment that might

matter to even the most inattentive and unsophisticated bureaucrat, we

may end up on the hook for a big penalty, even if the bureaucrat should

have caught it”? The reader can decide.

Although it is not our job to assess the wisdom of dispensing with

a materiality requirement for omissions but not for misstatements, it is

not hard to see why the Legislature may have wanted to do so. A broad

liability rule for omissions incentivizes maximum divulgence of

potentially relevant information. It puts the onus on the contractor to

police its own compliance and to overcommunicate about any potential

problems with its charges, rather than putting the onus on the Medicaid

administrators to ask questions or put the pieces together for

themselves. By the same token, in a regime where contractors are

expected to volunteer as much information as possible about the legality

of their charges, a materiality requirement for misstatements

diminishes the threat of liability for immaterial errors in the

information provided. In this way, the two apparently divergent

liability rules may actually work together to encourage maximum

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information flow. If you tell us everything, you have a matter-of-law

defense if we rely on your statements in unreasonable ways. If you don’t

tell us everything, you’re on the hook if our ignorance means you receive

an illegal payment, even if we should have known better.

Who knows if that was the intentional design of this statute.

Courts are often bad at guessing at such things. I hypothesize it only to

illustrate that imposing liability for omissions that cause illegal

payments, irrespective of materiality, would not be crazy or even

surprising in the context of a government program that is far too large

and far too elaborate for any government bureaucracy, no matter how

well intentioned, to proactively police. That the Legislature might want

the risk of bureaucratic inattention or incompetence to fall on those who

seek to profit from the public treasury rather than on the taxpayers

should be no surprise in Texas, where almost no feature of our law “is

more marked than its vigilance for the protection of the public funds and

the public credit against misuse.” Bexar County v. Linden, 220 S.W. 761,

761 (Tex. 1920).

***

With all that said, I do not disagree in spirit with the Court’s dim

view of the weak case the State has thus far made against LabCorp.

Even without a materiality requirement, this statute is not a license for

the State or a qui tam plaintiff to harass a company that helpfully laid

all its cards on the table to help the State make a lawful payment

decision, as LabCorp claims to have done. Several defenses, apart from

an extra-textual materiality defense, are available in circumstances like

these. For instance, on these facts it is not clear there were any

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omissions at all, much less material ones. It is not clear any omissions

were a but-for cause of the payments. And perhaps most importantly,

it is not even clear the payments were illegal.

I do not pass judgment on any of those points, but each of them

remained to be explored, and each of them may have entitled LabCorp

to judgment. LabCorp, however, has not sought judgment on any of

those theories. Its summary judgment motion, which the district court

granted, argued only that the statute imposes a materiality requirement

and that none of the alleged misstatements or omissions were material.

That motion should have been denied, with respect to omissions,

because the sole legal theory it advances is incorrect as to omissions.

Whether additional grounds for judgment in LabCorp’s favor may exist

for reasons resembling those the Court gives today is not the question

before us. LabCorp’s materiality argument is the only ticket to reversal

on offer. Because I disagree with that argument, I respectfully dissent.

James D. Blacklock

Chief Justice

OPINION FILED: June 19, 2026

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