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

> Texas Supreme Court · June 19, 2026

URL: https://www.frixlaw.com/law-library/cases/11345119

## Case

- **Court:** Texas Supreme Court
- **Decided:** June 19, 2026
- **Precedential status:** Published
- **Opinion:** Dissent by Blacklock
- **Judges:** Hawkins; Lehrmann; Devine; Bland; Huddle; Young; Sullivan; Blacklock; Busby; Busby
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

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## Opinion text

Supreme Court of Texas
══════════
No. 25-0127
══════════

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

v.

The State of Texas and NPT Associates,
Respondents

═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the First District of Texas
═══════════════════════════════════════

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

2
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)).

3
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

4
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)).

5
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).

6
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

7
“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

8
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.

9
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

10
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.

11
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

12
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

13
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

14
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

15

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11345119. Public record. Not legal advice.