Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-99-00224-CV

The State of Texas; The Texas Department of Mental Health and Mental Retardation;

and Kerrville State Hospital/Anand Mehendale, M.D.; William F. Schultheis,

D.O.; and Terry L. Parvin, D.O., Appellants

v.

Anand Mehendale, M.D.; William F. Schultheis, D.O.; and Terry L. Parvin, D.O./

The State of Texas; The Texas Department of Mental Health and Mental

Retardation; Kerrville State Hospital; and Brenda C. Roche, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT

NO. 98-13835, HONORABLE PAUL DAVIS, JUDGE PRESIDING

Three physicians (1) ("the Doctors") sued the State (2) pursuing various causes of action

stemming from the termination of their employment from Kerrville State Hospital. The State filed

a motion to dismiss three of the claims, which the trial court granted in part and denied in part.

The court refused to dismiss the Doctors' causes of action for violating the Texas Medical Practice

Act (MPA) and for breach of contract, but did dismiss the Doctors' wrongful-termination claim.

The State now brings an interlocutory appeal to challenge the trial court's refusal to dismiss the

MPA claim, asserting that there has been no waiver of sovereign immunity. The State also

appeals the denial of its motion to dismiss the Doctors' breach-of-contract claim, urging that the

bylaws under which the Doctors sue do not create any contractual rights, and alternatively that

if contractual rights do arise, sovereign immunity has not been waived. By cross-appeal, the

Doctors challenge the dismissal of their wrongful-termination claim. Because the Doctors did not

include that cause of action in their most recent amended petition, however, we will dismiss their

cross-appeal. We will reverse the trial court's order as to the MPA claim and render judgment

dismissing that cause. On the breach of contract claim, we will reverse the trial court's judgment

and remand with instructions to allow the Doctors an opportunity to amend their pleadings.

Factual and Procedural Background

The Doctors are former employees of Kerrville State Hospital. While on staff

there, they participated, pursuant to the Medical Practice Act, in a peer review investigation of

a fellow doctor, David Bryson, who was suspected of being responsible for the death of a patient

under his care. The Doctors recommended terminating Bryson, but the State ultimately chose to

reinstate him to his position at Kerrville State Hospital.

After the investigation of Bryson was concluded, the Doctors themselves were

investigated by the Texas Department of Health for unrelated allegations of misconduct concerning

alteration of medical and government records. The Doctors contend the investigation was carried

out in contravention of the disciplinary procedures provided for by the Medical Staff Bylaws ("the

Bylaws") of Kerrville State Hospital. Following the investigation, the Doctors were terminated

for their conduct. The Doctors believe that the investigation and their termination were carried

out to retaliate against them for their role in the investigation of Bryson.

The Doctors sued the State pleading seven causes of action. (3) They sought more

than $25.6 million in damages for violations of the Whistleblower Act (4) and the MPA, (5) as well as

claims for defamation, intentional infliction of emotional distress, and breach of contract. As an

alternative to their breach-of-contract claim, the Doctors sought a declaratory judgment to define

their rights under the Bylaws of Kerrville State Hospital.

Pleading various jurisdictional bars, the State filed a motion to transfer venue and

to dismiss all of the claims except the request for declaratory judgment. The trial court's order

of April 8, 1999 indicates that the State withdrew its motion to transfer venue and its motion to

dismiss the claims for intentional infliction of emotional distress, defamation, and violation of the

Whistleblower Act. As to the other three claims, the trial court granted the motion to dismiss the

wrongful-termination claim and denied the motions to dismiss the Doctors' MPA and breach-of-contract claims. The State brought this interlocutory appeal urging that the trial court erred by

refusing to dismiss the MPA and contract claims. On cross-appeal, the Doctors claim the court

erred in dismissing their wrongful-termination claim. Still pending in the trial court are the

remaining claims for violation of the Whistleblower Act, defamation, intentional infliction of

emotional distress, and declaratory judgment.

Discussion

Jurisdiction

The Doctors claim that sovereign immunity is an affirmative defense and therefore

does not implicate the subject matter jurisdiction of the court. Accordingly, they argue that the

State is not entitled to an appeal of the trial court's order denying its plea to the jurisdiction. We

disagree. The Texas Supreme Court squarely rejected this argument in a recent opinion when it

wrote, "[s]ince as early as 1847, the law in Texas has been that absent the state's consent to suit,

a trial court lacks subject matter jurisdiction. A party may contest a trial court's subject matter

jurisdiction by filing a plea to the jurisdiction." Texas Dep't of Transp. v. Jones, 43 Tex. Sup.

Ct. J. 143, 144 (Dec. 2, 1999) (per curiam) (citations omitted).

The State now appeals the denial of its motion to dismiss for lack of jurisdiction.

Although ordinarily only final orders are appealable, an appeal of an interlocutory order may be

brought where the trial court has denied a plea to the jurisdiction raised by a governmental unit.

See Tex. Civ. Prac. & Rem. Code Ann. § 51.014 (a)(8) (West Supp. 2000). Whether a trial court

has subject matter jurisdiction is a question of law requiring de novo review. See Michael v.

Travis County Housing Auth. , 995 S.W.2d 909, 912 (Tex. App.--Austin 1999, no pet.).

Medical Practice Act Claim

The State appeals the denial of its plea to the jurisdiction and urges that the

Doctors' MPA claim should be dismissed because the Act does not contain a waiver of sovereign

immunity. Immunity from suit bars an action against the State unless the State expressly consents

to the suit. See Federal Sign v. Texas S. Univ. , 951 S.W.2d 401, 405 (Tex. 1997). Legislative

consent for suit or other waiver of sovereign immunity must be by clear and unambiguous

language. See id. Whether a statute reveals a clear and unambiguous waiver of immunity is a

question of law. See Southwest Tex. State Univ. v. Enriquez, 971 S.W.2d 684, 686 (Tex.

App.--Austin 1998, pet. denied).

The Doctors argue that 1987 amendments to the MPA unequivocally waived

immunity. Participation and reporting in the peer review process were optional until 1987, when

the legislature amended the MPA to make the process mandatory. See Act of June 1, 1987, 70th

Leg., R.S., ch. 596, sec. 18, § 5.06 , 1987 Tex. Gen. Laws 2333 . Those 1987 changes added the

language now codified in section 160.012 of the Occupations Code, which provides a cause of

action "against a health care entity . . . that suspends or terminates the employment of the person

. . . for reporting to the board." Tex. Occ. Code Ann. § 160.012 (West 2000).

"Health care entity" is defined by the MPA in relevant part as:

(A) a hospital licensed under Chapter 241 or 577, Health and Safety Code;

(B) an entity, including a health maintenance organization, group medical practice,

nursing home, health science center, university medical school, or other health

care facility, that:

(i) provides medical care or health care services; and

(ii) follows a formal peer review process to further quality medical care or

health care.

Id. § 151.002(a)(5). (6) The Doctors note that this section does not explicitly exempt the State from

suit, and the definition of "health care entity" is broad enough to include institutions like Kerrville

State Hospital. The legislature could have specifically excluded the State and its institutions from

the definition and chose not to; therefore, the Doctors infer a waiver of sovereign immunity from

the language of the statute. They urge that application of the doctrine of sovereign immunity to

the MPA would weaken the peer review process and protections for those who participate in it,

a result which is contrary to the legislature's goals in making the MPA peer review provisions

mandatory in the first place.

The State correctly points out that the Doctors' argument turns the doctrine of

sovereign immunity on its head. The Doctors want us to assume that, under the MPA, sovereign

immunity has been waived unless the legislature includes explicit language to the contrary. In

fact, the opposite proposition is true. It is the waiver of sovereign immunity that must be clear

and unambiguous . See Federal Sign , 951 S.W.2d at 405 ; University of Tex. Med. Branch v. York ,

871 S.W.2d 175, 177 (Tex. 1994); Duhart v. State, 610 S.W.2d 740, 742 (Tex. 1980).

The legislature certainly knows how to waive the State's immunity from suit, and

the State has cited us to several examples where it has done so. See Tex. Civ. Prac. & Rem.

Code Ann. § 101.025 (West 1997) ("Sovereign immunity to suit is waived and abolished" under

Texas Tort Claims Act); Tex. Gov't Code Ann. § 554.0035 (West Supp. 2000) (public employee

alleging violation of Whistleblower Act "may sue the employing state or local governmental

entity. . . . Sovereign immunity is waived and abolished to the extent of liability . . . for a

violation of this chapter."); Tex. Gov't Code Ann. § 2007.004 (West Supp. 2000) ("Sovereign

immunity to suit and liability is waived and abolished to the extent of liability created" by Private

Real Property Rights Preservation Act); see also Texas Dep't of Health v. Ruiz, 960 S.W.2d 714,

719 (Tex. App.--El Paso 1997, pet. denied) (citing other "clear and unambiguous" waivers of

sovereign immunity). Such explicit language is absent in the statute challenged here. We find

no clear and unambiguous waiver of sovereign immunity in the MPA.

Although the present suit was originally brought in December 1998, a 1999

amendment to the MPA bolsters our conclusion that sovereign immunity has not been waived.

The amendment, effective June 16, 1999, provides that "[t]his section does not impose liability

or waive immunity for a hospital district or hospital authority that has common-law, statutory, or

other immunity." Act of May 21, 1999 , 76th Leg., R.S., ch. 908, sec. 2, 1999 Tex. Gen. Laws

3622 , 3622. (7) Though it was not in effect when the cause of action before us arose, this

amendment indicates that our holding is in line with the legislature's intent that sovereign

immunity not be waived under the MPA. We reverse the trial court's denial of the State's plea

to the jurisdiction and render judgment dismissing the Doctors' MPA claim.

Breach-of-Contract Claim

The Doctors claim that the Bylaws of Kerrville Hospital constitute an employment

contract between them and the hospital. They further claim that by terminating them the hospital

violated the terms of those Bylaws, and they seek damages for the breach. The State denies that

the Bylaws constitute a contract and argues alternatively that, even if the Bylaws are a contract,

the State has not waived its immunity from suit. The State appeals the denial of its motion to

dismiss on those grounds.

As explained by the supreme court in Federal Sign , sovereign immunity protects

the state from lawsuits for damages, absent legislative consent to sue the state. See 951 S.W.2d

at 405 . The term "sovereign immunity" actually embraces two principles: immunity from suit

and immunity from liability. See id. Immunity from suit bars a legal action against the State,

even if the State acknowledges liability to the asserted claim, unless the legislature has given

express consent to sue. See id. Immunity from liability provides that, even if the legislature has

given consent to sue, the State may not be adjudged liable for the claim asserted. See id. When

the State enters into a contract with a private entity, it gives up its immunity from liability, but

not its immunity from suit. See id.

Federal Sign recognized that there "may be other circumstances where the state

may waive its immunity by conduct other than simply executing a contract so that it is not always

immune from suit when it contracts." Id . at 408 n.1. Recognizing the significance of that

footnote, this Court has held that Federal Sign leaves room for the State to waive its immunity

with regard to a particular contract by its conduct. See Aer-Aerotron, Inc. v. Texas Dep't of

Transp., 997 S.W.2d 687, 691 (Tex App.--Austin 1999, pet. filed) (en banc); Little-Tex Insulation

Co. v. General Servs. Comm'n , 997 S.W.2d 358, 364 (Tex App.--Austin 1999, pet. filed). We

have held, for example, that the State's acceptance of a benefit under a contract without paying

for the benefit may waive immunity from suit. See Little-Tex, 997 S.W.2d at 364 ; Texas Natural

Resources Conservation Comm'n v. IT-Davy , 998 S.W.2d 898, 902 (Tex. App.--Austin 1999, pet.

filed). We have also held that the State did more than merely enter into a contract (and so waived

liability) where the State fully implicated itself in the performance of a contract. See Aer-Aerotron , 997 S.W.2d at 691-692 .

In their Second Amended Original Petition, the Doctors allege:

The Medical Staff Bylaws of [Kerrville State Hospital] governs [sic] the

relationship between [the Doctors] and [the State] and constitutes [sic] a contractual

agreement between [the Doctors] and [the State]. [The State] disciplined and

terminated [the Doctors] in complete derogation of the procedures established for

the discipline of medical staff members set forth in the Medical Staff Bylaws. As

such, [the State has] breached [its] agreement with [the Doctors] under the Medical

Staff Bylaws. Such breach has caused [the Doctors] to incur damages within the

jurisdictional limits of the court.

In their response to the State's motion to dismiss, the Doctors state:

[T]he Federal Sign decision narrowed the Court's holding to leave open the

possibility of suit against the State by parties who have tendered performance or

performed services on State property under a contract with the State. The

[Doctors'] employment was governed by the Medical Staff Bylaws which [the

State] clearly breached when terminating [the Doctors]. The facts of Federal Sign

are distinguishable from the matters in this case, and thus do not apply.

Even accepting the allegations in the Doctors' pleadings as true, and assuming without deciding

that the Bylaws constitute a contract and that the State's actions constituted a breach of that

contract, the Doctors have pleaded no facts that point to a waiver of immunity from suit. They

have alleged neither that the legislature has expressly waived immunity from suit nor that the State

engaged in the kind of conduct that might otherwise constitute waiver. Accordingly, we will

reverse the trial court's denial of the State's motion to dismiss; nonetheless, the Doctors must be

given an opportunity to replead and attempt to state a cause of action upon which relief can be

granted. (8) See City of Austin v. L. S. Ranch, Ltd. , 970 S.W.2d 750, 753-54 (Tex. App.--Austin

1998, no pet.). Accordingly, we will remand this portion of the cause to the trial court.

Wrongful-Termination Claim

On cross-appeal, the Doctors urge that the trial court erroneously granted the

State's motion to dismiss their wrongful-termination claim. Appeal may be taken from an

interlocutory order that grants a plea to the jurisdiction by a governmental unit. See Tex. Civ.

Prac. & Rem. Code Ann. § 51.014 (a)(8). However, the Doctors omitted this ground of recovery

in their Second Amended Original Petition, filed on April 2, 1999. An amended pleading replaces

and supersedes the previous pleading, and once an amended pleading is filed, earlier pleadings

are no longer part of the proceedings. See Tex. R. Civ. P. 65; Drake Ins. Co. v. King, 606

S.W.2d 812, 817 (Tex. 1980). "[W]hen a plaintiff fails to include in his amended petition a cause

of action that he had included in a previously filed petition, that cause of action . . . is no longer

before the trial court." State v. Tamminga, 928 S.W.2d 737, 740 (Tex. App.--Waco 1996, no

writ); see also Little-Tex, 997 S.W.2d at 360-61 .

The order being appealed was signed by the trial judge on April 8, 1999, which

means that the Second Amended Petition was the live pleading before the court when it ruled.

Although the trial court's order refers to the Doctors' First Amended Original Petition and

purports to dismiss with prejudice the wrongful-termination claim contained therein, in fact, that

cause of action had been dismissed by the Doctors themselves when they dropped it from their

most recent pleading. We therefore dismiss the Doctors' cross-appeal on this claim. (9)

Conclusion

Because there has been no clear and unambiguous waiver of sovereign immunity

under the MPA, we reverse the trial court's order and render judgment granting the State's motion

to dismiss that claim for lack of jurisdiction. We further reverse the trial court's order denying

the State's motion to dismiss the Doctors' breach-of-contract claim, and we remand that portion

of the cause for further proceedings to allow the Doctors an opportunity to amend their pleadings.

Finally, we dismiss the Doctors' cross-appeal complaining of the order dismissing their wrongful-

termination cause of action because that claim was not included in the live pleading in this case.

J. Woodfin Jones, Justice

Before Justices Jones, B. A. Smith and Patterson

Reversed and Rendered in Part; Reversed and Remanded in Part; Dismissed in Part

Filed: January 27, 2000

Do Not Publish

1. Anand Mehendale, M.D., William F. Schultheis, D.O., and Terry L. Parvin, D.O., are

appellees/cross-appellants in this case.

2. Appellants/cross-appellees in this case are The State of Texas, The Texas Department

of Mental Health and Mental Retardation, and Kerrville State Hospital. We will refer to them

collectively as "the State." David Lyman Bryson was named a defendant on the original petition

but omitted from the first amended petition. Brenda C. Roche is a cross-appellee because she is

named as defendant in the first and second amended petitions, but she is not an appellant because

she did not file a notice of appeal.

3. The Doctors filed an Original Petition and two Amended Petitions, and the claims

asserted varied slightly in each pleading. Declaratory judgment was not sought in the Plaintiffs'

Original Petition, and the wrongful-termination claim was not included in the Second Amended

Petition. The First Amended Petition is the only pleading that included all seven grounds of

recovery.

4. Chapter 554 of the Government Code, popularly called the Whistleblower Act, provides:

A public employee whose employment is suspended or terminated or

who is subjected to an adverse personnel action [for reporting a violation of

law] is entitled to sue for:

(1) injunctive relief;

(2) actual damages;

(3) court costs; and

(4) reasonable attorney fees.

Tex. Gov't Code Ann. § 554.003 (a) (West Supp. 2000).

5. The MPA was recodified effective September 1, 1999, moving from Vernon's Revised

Civil Statutes to Subtitle B of the Occupations Code. The relevant portions of the MPA remain

unchanged, and the Act provides: "A person has a cause of action against a health care entity,

or an owner or employee of a health care entity, that suspends or terminates the employment of

the person or otherwise disciplines or discriminates against the person for reporting to the board."

Tex. Occ. Code Ann. § 160.012 (b) (West 2000).

6. Mental hospitals such as Kerrville State Hospital are subject to chapter 577 of the Health

and Safety Code, which specifically states that "[a] mental health facility operated by the Texas

Department of Mental Health and Mental Retardation or a federal agency need not be licensed

under this chapter." Tex. Health & Safety Code Ann. § 577.002 (West Supp. 2000). While this

leaves room for voluntary licensing, there is nothing in the record indicating whether Kerrville

State Hospital is, in fact, licensed. More likely, the Doctors rely on the definition in section

151.002(a)(5)(B), characterizing Kerrville State Hospital as an entity providing health care or

medical services that also follows a peer review process.

7. This is the same legislature that enacted the codification of the MPA, moving it from

Vernon's Revised Civil Statutes to the Occupations Code. The amendment was not included in

the recodification. However, the amendment is still valid law because the Government Code

provides that the "repeal of a statute by a code does not affect an amendment . . . of the statute

by the same legislature that enacted the code. The amendment . . . is preserved and given effect

as part of the code provision that revised the statute so amended." Tex. Gov't Code Ann.

§ 311.031 (c) (West 1998).

8. As an alternative form of relief sought in their response to the State's motion to dismiss,

the Doctors asked the trial court to abate their contract claim to permit them the opportunity to

obtain from the legislature a resolution waiving sovereign immunity. See Tex. Civ. Prac. & Rem.

Code Ann. § 107.002 (West 1997). The trial court overruled the State's motion to dismiss and

did not address the Doctors' motion to abate. With no final order on this issue, we may not

properly consider in this interlocutory appeal whether the trial court should have abated the

Doctors' contract claim.

9. Because that ground of recovery had been voluntarily abandoned by the Doctors, the

trial court had no need to address it, and the language in the court's order dismissing the claim

with prejudice was apparently surplusage. On appeal, neither party has questioned whether the

wrongful-termination claim was dismissed with prejudice or whether it may be re-instituted in a

later pleading, so we need not consider that question here.

in, D.O., are

appellees/cross-appellants in this case.

2. Appellants/cross-appellees in this case are The State of Texas, The Texas Department

of Mental Health and Mental Retardation, and Kerrville State Hospital. We will refer to them

collectively as "the State." David Lyman Bryson was named a defendant on the original petition

but omitted from the first amended petition. Brenda C. Roche is a cross-appellee because she is

named as defendant in the first and second amended petitions, but she is not an appellant because

she did not file a notice of appeal.

3. The Doctors filed an Original Petition and two Amended Petitions, and the claims

asserted varied slightly in each pleading. Declaratory judgment was not sought in the Plaintiffs'

Original Petition, and the wrongful-termination claim was not included in the Second Amended

Petition. The First Amended Petition is the only pleading that included all seven grounds of

recovery.

4. Chapter 554 of the Government Code, popularly called the Whistleblower Act, provides: