Texas Health and Human Services Commission and Chris Traylor, Substituted in His Official Capacity for Former Commissioner Kyle L. Janek v. F. Michael McMillen

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

ON REMAND

NO. 03-13-00303-CV

Texas Health and Human Services Commission and Chris Traylor, substituted in his

official capacity for former Commissioner Kyle L. Janek, Appellants

v.

F. Michael McMillen, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT

NO. D-1-GN-12-002004, HONORABLE ERIC SHEPPERD, JUDGE PRESIDING

MEMORANDUM OPINION

In this proceeding following remand from the Texas Supreme Court, we consider the

remaining contested elements of appellee F. Michael McMillen’s Whistleblower claim. The

underlying facts and procedural history are detailed in this Court’s prior opinion, see Texas Health

& Human Servs. Comm’n v. McMillen, No. 03-13-00303-CV, 2015 Tex. App. LEXIS 58 (Tex.

App.—Austin Jan. 8, 2015) (mem. op.), rev’d, 2016 Tex. LEXIS 178 (Tex. Feb. 26, 2016), and that

of the Supreme Court, see McMillen v. Texas Health & Human Servs. Comm’n, No. 15-0147,

2016 Tex. LEXIS 178 (Tex. Feb. 26, 2016). In the underlying suit, McMillen, a former employee

of appellee Texas Health & Human Services Commission’s Office of the Inspector General (OIG),

sued the Commission and its Executive Commissioner in his official capacity alleging violations of

the Texas Whistleblower Act and the free speech clause of the Texas Constitution. See Tex. Const.

art. I, § 8; Tex. Gov’t Code §§ 554.001–.010 (Whistleblower Act). In our prior opinion, we reversed

the trial court’s denial of the plea to the jurisdiction of the Commission and its Commissioner and

dismissed McMillen’s claims for lack of jurisdiction. As to his Whistleblower claim, we concluded

that the OIG was not “an appropriate law enforcement authority” to report the Commission’s alleged

violation of section 1396p of title 42 of the United States Code, a federal civil Medicaid law. See

2015 Tex. App. LEXIS 58, at *10–11, 19–20; see also Tex. Gov’t Code § 554.002(b) (describing

when “a report is made to an appropriate law enforcement authority”); 42 U.S.C. § 1396p(b)(1).1

McMillen appealed to the Supreme Court, but he did not appeal this Court’s dismissal

of his free speech claim, limiting his appeal to challenging the dismissal of his Whistleblower claim.

As to that claim, the Supreme Court reversed this Court’s judgment, held that the OIG was “an

appropriate law-enforcement authority” to report the Commission’s alleged violation of the federal

civil Medicaid law, and remanded the case to this Court with instructions to “consider the remaining

elements of this Whistleblower claim.” See 2016 Tex. LEXIS 178, at *1. We have done so.

Considering the remaining elements of McMillen’s Whistleblower claim, the Supreme Court’s

directive, and the jurisdictional evidence and pleadings, we conclude that the trial court has

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Section 1396p(b)(1) states:

No adjustment or recovery of any medical assistance correctly paid on behalf of an

individual under the State plan may be made, except that the State shall seek

adjustment or recovery of any medical assistance correctly paid on behalf of an

individual under the State plan in the case of the following individuals: [inapplicable

exceptions].

42 U.S.C. § 1396p(b)(1).

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jurisdiction to consider this claim. Thus, we affirm the trial court’s order denying the Commission’s

plea to the jurisdiction as to the Whistleblower claim.

Standard of Review

“A plea to the jurisdiction challenges the court’s authority to decide a case.”

Heckman v. Williamson Cty., 369 S.W.3d 137, 149 (Tex. 2012). We review a plea questioning the

trial court’s subject matter jurisdiction de novo. See Texas Dep’t of Parks & Wildlife v. Miranda,

133 S.W.3d 217, 226 (Tex. 2004). We focus first on the plaintiff’s petition to determine whether

the facts that were pled affirmatively demonstrate that subject matter jurisdiction exists. Id. We

construe the pleadings liberally in favor of the plaintiff. Id. If the plaintiff has not affirmatively

pleaded facts to support jurisdiction or to negate jurisdiction, the matter is one of pleading

sufficiency, and the court should provide the plaintiff with the opportunity to amend its pleadings

to cure jurisdictional defects. Id. at 226–27.

If a plea to the jurisdiction challenges the existence of jurisdictional facts, the trial

court may consider evidence and must do so when necessary to resolve the jurisdictional issues

raised. Id. at 227; Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000). When evidence

is submitted that implicates the merits of the case, our standard of review generally mirrors the

summary judgment standard under Texas Rule of Civil Procedure 166a(c). Miranda, 133 S.W.3d

at 228; see Tex. R. Civ. P. 166a(c). The burden is on the governmental unit to present evidence to

support its plea. Miranda, 133 S.W.3d at 228. If the governmental unit meets this burden, the

burden shifts to the plaintiff to show that a disputed material fact exists regarding the jurisdictional

issue. Id. We take as true all evidence that is favorable to the plaintiff and indulge every reasonable

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inference and resolve any doubts in the plaintiff’s favor. Id. If the evidence creates a fact question

regarding the jurisdictional issue, then the trial court cannot grant the plea to the jurisdiction, and the

fact question will be resolved by the fact-finder. Id. at 227–28. If the relevant evidence is

undisputed or fails to raise a fact question on the jurisdictional issue, however, the trial court rules

on the plea to the jurisdiction as a matter of law. Id. at 228.

Generally, governmental entities are immune from suit and liability under the doctrine

of sovereign immunity. State v. Lueck, 290 S.W.3d 876, 880 (Tex. 2009). Sovereign immunity from

suit deprives a court of subject matter jurisdiction and is therefore properly asserted in a plea to the

jurisdiction. Harris Cty. v. Sykes, 136 S.W.3d 635, 638 (Tex. 2004); Miranda, 133 S.W.3d at

225–26. The Whistleblower Act, however, waives immunity from suit to the extent a governmental

entity is liable under its provisions. See Tex. Gov’t Code § 554.0035. “The standard for a ‘violation

of [the Whistleblower Act]’ appears in section 554.002(a).” Lueck, 290 S.W.3d at 881. “A state or

local governmental entity may not suspend or terminate the employment of, or take adverse

personnel action against, a public employee who in good faith reports a violation of law by the

employing governmental entity or another public employee to an appropriate law enforcement

authority.” Tex. Gov’t Code § 554.002(a).

The elements of a Whistleblower claim “are jurisdictional and may not be waived.”

University of Hous. v. Barth, 403 S.W.3d 851, 854 (Tex. 2013) (per curiam). Under the

Whistleblower Act, a plaintiff is required to prove:

(1) that he was a public employee, (2) that he reported a violation of law in good

faith, (3) that the violation of law reported was committed by his employing

governmental entity or another public employee, (4) that the report was made to an

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appropriate law enforcement authority, and (5) that his employing governmental

entity took an adverse personnel action against him because of the report.

Texas Dep’t of Criminal Justice v. McElyea, 239 S.W.3d 842, 849 (Tex. App.—Austin 2007, pet.

denied); see Tex. Gov’t Code § 554.002(a).

The Supreme Court’s Opinion

In its opinion, the Supreme Court held that the OIG was “an appropriate law-

enforcement authority” under the Whistleblower Act to report the Commission’s alleged violation

of the federal civil Medicaid law at issue. See 2016 Tex. LEXIS 178, at *5; see also Tex. Gov’t

Code § 554.002(b). The Supreme Court concluded that the “particular law” that McMillen “reported

violated” was section 1396p(b) of Title 42 of the United States Code. See 2016 Tex. LEXIS 178,

at *5 (agreeing with McMillen that “section 1396p(b) relates to the Commission’s program at issue

in this case, which allegedly involved attempting to recover Medicaid payments from certain

beneficiaries”); see also 42 U.S.C. § 1396p(b)(1); McElyea, 239 S.W.3d at 850 (requiring “some law

prohibiting the complained-of conduct to give rise to a whistleblower claim”). The court then held:

“Assuming, without deciding, that McMillen made a good-faith report of section 1396p(b)’s

violations to the OIG, we hold that the OIG is an appropriate law-enforcement authority.” See

2016 Tex. LEXIS 178, at *5.

Good Faith Report of Law Violation

On remand, the Supreme Court has instructed this Court “to consider the remaining

contested elements of this Whistleblower claim.” Id. at *1. McMillen does not dispute that the

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Commission—and not its Commissioner—is the proper party for his Whistleblower claim. See Tex.

Gov’t Code §§ 554.001(4), (5), .002(a). In its plea to the jurisdiction, the Commission did not

challenge or otherwise produce evidence to negate McMillen’s factual allegations in his pleadings

that he was a “public employee” and that the Commission took an adverse personnel action against

him. See id. § 554.002(a); McElyea, 239 S.W.3d at 849 (listing elements of Whistleblower claim).

Thus, the dispositive question on remand is whether McMillen’s pleadings and evidence, taken as

true, create a fact issue as to the remaining contested element of McMillen’s Whistleblower claim

against the Commission—whether McMillen “in good-faith report[ed] a violation” of the federal

civil Medicaid law. See Tex. Gov’t Code § 554.002(a) (protecting “a public employee who in good

faith reports a violation of law by the employing governmental entity or another public employee to

an appropriate law enforcement authority”); Lueck, 290 S.W.3d at 881 (requiring claimant to

“actually allege a violation of the Act for there to be a waiver from suit” and considering elements

under section 554.002(a) “in order to ascertain what constitutes a violation, and whether that

violation has actually been alleged”); Miranda, 133 S.W.3d at 227–28 (applying summary judgment

standard of review when parties submit jurisdictional evidence).

“The Texas Supreme Court has held that in the context of the whistleblower statute,

good faith is analyzed using an objective standard and a subjective standard.” See McElyea,

239 S.W.3d at 849–50 (citing Wichita Cty. v. Hart, 917 S.W.2d 779, 784 (Tex. 1996)). “‘Good

faith’ means that (1) the employee believed that the conduct reported was a violation of law and

(2) the employee’s belief was reasonable in light of the employee’s training and experience.” Hart,

917 S.W.2d at 784. “The test’s first element—the ‘honesty in fact’ element—ensures that a public

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employee seeking a whistleblower-statute remedy believed that he was reporting an actual violation

of law.” McElyea, 239 S.W.3d at 850 (citing Texas Dep’t of Transp. v. Needham, 82 S.W.3d 314,

320 (Tex. 2002) (citing Hart, 917 S.W.2d at 784–85)). “The test’s second element ensures that even

if the reporting employee honestly believed that the reported act was a violation of law, the reporting

employee only receives protection if a reasonably prudent employee in similar circumstances would

have believed that the facts as reported constituted a violation of law.” Id.; see Mullins v. Dallas

Indep. Sch. Dist., 357 S.W.3d 182, 189–91 (Tex. App.—Dallas 2012, pet. denied) (discussing

required showing to satisfy “good faith” component of Whistleblower claim and reviewing factual

allegations in report to determine if allegations “would, if true” constitute violation of law or good

faith belief of violation of law).

In his response to the plea to the jurisdiction, McMillen, who was an attorney with

over twenty years of experience, argued that he “reported actual violations of law or, at the very least,

what he believed and continues to believe in good faith to be violations of law” and identified the

federal civil Medicaid law, section 1396p of Title 42 of the United States Code, as among the laws

that the Commission was violating. See 42 U.S.C. § 1396p(b)(1). McMillen also presented evidence

in response to the plea to the jurisdiction that included his affidavit, a copy of his June 2011

memorandum to the OIG, and a copy of pleadings from a California class action “challenging similar

practices by that state’s Medicaid agency,” which class action McMillen referenced in the June 2011

memorandum. In that class action, the plaintiffs alleged that the California Department of Health

Services was violating the federal prohibition in section 1396p against the recovery of Medicaid

benefits correctly paid. In his affidavit, McMillen averred about the practices that he believed to be

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illegal and identified section 1396p of Title 42 of the United States Code as the law “in [his] good

faith belief” that the Commission was violating “by improperly taking payment reimbursements from

Medicaid recipients for procedures validly and legally paid for by the federal government.”

In its briefing to this Court, the Commission argued that McMillen did not report a

violation of law because he was “the recipient, rather than the discloser, of information pertaining

to a possible violation.” The Commission argued that the June 2011 memorandum was prepared at

the instruction of his supervisor who asked McMillen “to determine legal authority in support of the

[OIG] program or legal authority that prohibits it” and that McMillen’s “attempts to categorize his

reiteration of those facts to his supervisor as an actionable report” do not satisfy the Whistleblower

Act. The Commission also challenged McMillen’s objective good faith—that a “reasonably prudent

employee in similar circumstances” would have believed that he was reporting a violation of

law—and his subjective good faith—that he honestly believed that he was reporting a violation of

law. See McElyea, 239 S.W.3d at 849–50 (discussing good faith element of Whistleblower claim).

The Commission contended that “McMillen was equivocal as to the lawfulness of the OIG practice,

at issue,” the memorandum “does not purport on its face to identify any legal wrongdoing,” “[a]n

employee’s citation to an actual law is relevant to establishing good faith,” and “it is highly relevant

when the employee is an attorney with legal training and experience.” See Barth, 403 S.W.3d at 858

(holding that, “given [plaintiff]’s legal training and experience as a practicing attorney, [plaintiff]

failed to meet the objective component of the good-faith test for reporting a violation of law to an

appropriate law enforcement authority”). The Commission points out that the June 2011

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memorandum did not expressly identify section 1396p of Title 42 of the United States Code as being

violated by the OIG program at issue.

Although the June 2011 memorandum did not expressly cite the federal civil

Medicaid law, it referred to the California class action that involved an allegedly similar program

to the Commission’s OIG program. And, in his affidavit, McMillen averred:

Although [the June 2011] memo, itself, does not expressly cite § 1396p, it was

clearly understood by all those with whom I spoke about this issue, then and going

forward, (delineated below) that I was referring to this federal statute, both in and of

itself and also as pleaded in a federal class action lawsuit that was also part of the

materials I researched, discussed with my reports, and turned in . . . .

McMillen also averred about his subjective good faith—that he honestly believed that he was

reporting a violation of the federal civil Medicaid law—and his objective good faith based, in part,

on the pleadings from the California class action that challenged the allegedly comparable state

program based on the federal civil Medicaid law. Further, as previously stated, the Supreme Court

concluded that the “particular law” that McMillen “reported violated” was section 1396p(b) of Title

42 of the United States Code. See 2016 Tex. LEXIS 178, at *5. The Supreme Court also stated:

“Based on the limited record before us, we agree with McMillen that section 1396p(b) relates to the

Commission’s program at issue in this case, which allegedly involved attempting to recover

Medicaid payments from certain beneficiaries.” Id.

Guided by the Supreme Court’s conclusions based on the same record that is before

this Court and taking as true the jurisdictional evidence that is favorable to McMillen and indulging

every reasonable inference and resolving any doubts in McMillen’s favor, we conclude that the

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evidence creates fact issues regarding whether McMillen in good faith reported a violation of the

federal civil Medicaid law. See Tex. Gov’t Code § 554.002(a); Miranda, 133 S.W.3d at 228. Thus,

considering the remaining contested element of McMillen’s Whistleblower claim, we conclude that

the trial court properly determined that it had jurisdiction over this claim.

CONCLUSION

On remand from the Supreme Court, we affirm the trial court’s order denying the

Commission’s plea to the jurisdiction as to McMillen’s Whistleblower claim.

__________________________________________

Melissa Goodwin, Justice

Before Chief Justice Rose, Justices Puryear and Goodwin

Affirmed on Remand

Filed: June 8, 2016

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