                                                                            FILED
                                                                            15-0092
                                                                            8/4/2015 3:59:31 PM
                                                                            tex-6352761
                                                                            SUPREME COURT OF TEXAS
                                                                            BLAKE A. HAWTHORNE, CLERK



                          NO. 15-0092
________________________________________________________________________

                   IN THE SUPREME COURT OF TEXAS
________________________________________________________________________

      TEXAS MEDICAL BOARD AND SCOTT FRESHOUR, IN HIS OFFICIAL CAPACITY
             AS GENERAL COUNSEL OF THE TEXAS MEDICAL BOARD,

                                                    Petitioners,

                                       v.

                                  TELADOC, INC.

                                            Respondent.
________________________________________________________________________

             ON PETITION FOR REVIEW FROM THE COURT OF APPEALS
                  FOR THE THIRD JUDICIAL DISTRICT OF TEXAS
                          CASE NO. 03-13-00211-CV
________________________________________________________________________

        TELADOC’S RESPONSE TO TMB’S PETITION FOR REVIEW
________________________________________________________________________
   JACKSON WALKER L.L.P.                    BAKER BOTTS, L.L.P.
   Matt Dow                                  Thomas R. Phillips
   State Bar No. 06066500                    State Bar No. 00000102
   Dudley D. McCalla                         98 San Jacinto Blvd., Suite 1500
   State Bar No. 13354000                    Austin, Texas 78701
   100 Congress St., Suite 1100              Tel: 512.322.2610
   Austin, Texas 78701                       Fax: 512.322.3608
   Tel: 512.236.2000                         tom.phillips@bakerbotts.com
   Fax: 512.236.2002
   mdow@jw.com                                Benjamin A. Geslison
   dmccalla@jw.com                            State Bar No. 24074269
                                              One Shell Plaza
                                              910 Louisiana St.
                                              Houston, Texas 77002
                                              Tel: 713.229.1241
                                              Fax: 713.229.2841
                                              ben.geslison@bakerbotts.com

                     ATTORNEYS FOR RESPONDENT TELADOC, INC.
                                               TABLE OF CONTENTS
FACTS..........................................................................................................................1
ARGUMENT .................................................................................................................1

I.       This Court’s review is unwarranted because the Court of Appeals
         correctly held that the TMB letter articulated a new rule under the
         APA, which was invalid under Section 2001.035 of that Act.........................2

         A.        The TMB letter satisfies the elements of Section 2001.003(6). ...........2

         B.        The petition for review fails to identify flaws in the appellate
                   court’s Section 2001.003(6) analysis. ...................................................5

II.      This Court’s review is unwarranted because the court of appeals
         opinion will have none of the disruptive effects that TMB predicts. ..............9
         A.        The opinion below will not excessively burden agencies. ....................9

         B.        The opinion below will neither “drastically expand” Texas
                   court dockets nor arrogate power to the judiciary at agency
                   expense. ...............................................................................................12

         C.        Regulated entities will not be left without guidance. ..........................14

III.     This Court’s review is unwarranted under Government Code Section
         22.001(a). .......................................................................................................15
CONCLUSION .............................................................................................................16
CERTIFICATE OF COMPLIANCE ..................................................................................18

CERTIFICATE OF SERVICE ..........................................................................................18

INDEX TO APPENDIX ..................................................................................................19




                                                               ii
                                       TABLE OF AUTHORITIES

                                                                                                      Page(s)
CASES
Bd. of Adjustment v. Levinson,
   244 S.W.2d 281 (Tex. Civ. App.—San Antonio 1951, no writ)............................ 3
Combs v. Entertainment Publications, Inc.,
  292 S.W.3d 712 (Tex. App.—Austin 2009, no pet.) .....................................10, 13
Dewhurst v. Hendee,
  253 S.W.3d 320 (Tex. App.—Austin 2008, pet. dism’d) ....................................11

El Paso Hosp. Dist. v. Tex. Health & Human Serv.,
   247 S.W.3d 709 (Tex. 2008) ..............................................................8, 13, 14, 16
Martinez v. Harris Cnty.,
  808 S.W.2d 257 (Tex. App.—Houston [1st Dist.] 1991, writ denied) .................. 3
R.R. Comm’n. v. WBD Oil & Gas Co.,
   104 S.W.3d 69 (Tex. 2003) ...................................................................................6
Teladoc, Inc. v. Tex. Med. Bd.,
   453 S.W.3d 606 (Tex. App—Austin 2014, pet. filed) ................................passim

Teladoc v. Tex. Med. Bd.,
   No. 1:15-cv-00343-RP, slip op. (W.D. Tex. May 29, 2015) ...............................11

Tex. Dept. of Transp. v. Sunset Transp.,
   357 S.W.3d 691 (Tex. App.—Austin 2011, no pet.) .........................10, 13, 14, 16

Tex. Logos, L.P. v. Tex. Dep’t of Transp.,
   241 S.W.3d 105 (Tex. App.—Austin 2007, no pet.) ...........................................11

Tex. Mut. Ins. Co. v. Vista Cmty. Med. Ctr., L.L.P.,
   275 S.W.3d 538 (Tex. App.—Austin 2008, no pet.) ...........................................13

Tex. State Bd. of Pharmacy v. Witcher,
   447 S.W.3d 520 (Tex. App.—Austin 2014, pet filed) .................................12, 14

Trinity Settlement Servs., LLC v. Tex. State Sec. Bd.,
   417 S.W.3d 494 (Tex. App.—Austin 2013, pet. denied)....................................... 6


                                                       iii
STATUTES
22 Tex. Admin. Code § 174.4.....................................................................................4

22 Tex. Admin. Code § 174.8.....................................................................................4
22 Tex. Admin. Code § 190.8(1)(L) .................................................................passim

Tex. Gov’t. Code § 2001.003(6) .......................................................................passim
Tex. Gov’t. Code § 2001.035 .....................................................................................9

Tex. Gov’t. Code § 2001.038 ...............................................................4, 5, 13, 14, 16

OTHER AUTHORITIES
29 Tex. Reg. 3896 (Apr. 23, 2004) .............................................................................4
29 Tex. Reg. 6088-89 (2004)......................................................................................4
35 Tex. Reg. 3392 (Apr. 30, 2010) .............................................................................4

35 Tex. Reg. 9085 (2010) ...........................................................................................4

40 Tex. Reg. 1019 ....................................................................................................11




                                                          iv
                                       FACTS

      The “Background” section of the court of appeals opinion states the relevant

facts sufficiently for purposes of this response. See Teladoc, Inc. v. Tex. Med. Bd.,

453 S.W.3d 606, 608-13 (Tex. App—Austin 2014, pet. filed). TMB’s facts section

contains some inaccuracies, including its having “used Rule 190.8 to discipline

license holders who prescribed drugs over the telephone or internet without first

conducting a face-to-face examination.” Pet. at 4. In reality, the record shows that it

was not merely the lack of face-to-face examinations that led to TMB historically

disciplining physicians, but the complete failure to establish any professional

relationship with patients before prescribing dangerous drugs and controlled

substances—something that has never been true of Teladoc physicians. See CR 41.

TMB also states that its June 2011 letter was in response to “a company

misrepresenting [Rule 190.8(1)(L)’s] restrictions.” Pet. 5. Teladoc maintains, and

the appeals court agreed, that TMB—not Teladoc—has misrepresented Rule

190.8(1)(L)’s restrictions.

                                     ARGUMENT

      TMB’s petition for review never discusses the dispositive fact in the court of

appeals’ analysis—namely that TMB’s June 2011 letter clearly departed from the

plain text of the rule that TMB invoked against Teladoc: 22 Tex. Admin. Code

§ 190.8(1)(L). That omission presents a distorted picture not only of the Third


                                          1
Court’s analysis, but also of this case’s importance to the State’s jurisprudence.

Because the letter was a clear departure from the plain text of a published rule, the

Third Court’s analysis was correct, the parade of horribles predicted by TMB will

never occur, and review of this case would be a waste of this Court’s resources.

I.    This Court’s review is unwarranted because the Court of Appeals
      correctly held that the TMB letter articulated a new rule under the
      APA, which was invalid under Section 2001.035 of that Act.

      A.     The TMB letter satisfies the elements of Section 2001.003(6).

      Under the APA, an agency statement is a “rule” if it is one “of general

applicability that: (A) implements, interprets, or prescribes law or policy;”

“(B) includes the amendment or repeal of a prior rule; and (C) does not include a

statement regarding only the internal management or organization of a state agency

and not affecting private rights or procedures.” Tex. Gov’t. Code § 2001.003(6).

The court below had “little difficulty concluding that the substance and nature of”

TMB’s June 2011 letter “distinguishes it as a rule.” 453 S.W.3d at 608. The

pronouncements in TMB’s letter were statements of general applicability that

implemented, interpreted, or prescribed policy; they included an amendment to a

prior rule—Section 190.8(1)(L)(i)(II) of Title 22 of the Texas Administrative

Code—and they affected private rights rather than internal TMB management.

      TMB does not dispute that the letter is an agency statement or that its

pronouncements implement, interpret, or prescribe policy. See Pet. 20-22. It does


                                         2
dispute that the letter’s pronouncements are statements of general applicability that

affect private rights. See Id. at 21. But it simply ignores that the letter amended a

prior rule. Tex. Gov’t. Code § 2001.003(6)(B). That was the principal contested

element in the courts below, and the court of appeals found the letter’s departure

from Rule 190.8(1)(L)’s plain text to be the most compelling factor in determining

that the letter constituted an invalid rule. 453 S.W.3d at 608, 620.

       Rule 190.8(1)(L) outlines what a doctor must do to establish a proper

professional relationship with a patient. That relationship is a prerequisite for the

doctor prescribing dangerous drugs or controlled substances to a person. Among the

rule’s requirements is “establishing a diagnosis through the use of acceptable

medical practices such as patient history, mental status examination, physical

examination, and appropriate diagnostic and laboratory testing.” 22 Tex. Admin.

Code § 190.8(1)(L)(i)(II) (emphasis added). Despite the term “such as” being

universally understood to denote a non-compulsory, illustrative list of examples, 1

TMB’s letter threatened “disciplinary action against the participating doctors” in

Texas unless they performed all four practices in that illustrative list, including

(most importantly) a “face-to-face” physical examination. CR 17-18.

1
        See, e.g., Teladoc, 453 S.W.3d at 617; Martinez v. Harris Cnty., 808 S.W.2d 257, 259
(Tex. App.—Houston [1st Dist.] 1991, writ denied) (holding that list of activities after “such as”
was illustrative only and not exclusive); Bd. of Adjustment v. Levinson, 244 S.W.2d 281, 282-283
(Tex. Civ. App.—San Antonio 1951, no writ) (“The synonyms of ‘such as,’ are alike, similar, of
the like kind; ‘such’ representing the object as already particularized in terms which are not
mentioned, being a descriptive and relative word, referring to the specific articles mentioned.”).

                                                3
       An analogous rule, Rule 174.8, contains a similar list of practices for the

separate telemedicine context. 22 Tex. Admin. Code § 174.8. There, TMB used

notice-and-comment rulemaking to change the “such as” qualifier to “including,”

thereby making all of the designated practices required in the telemedicine context.2

TMB did not follow that practice for Rule 190.8(1)(L), however. Instead, TMB

simply made pronouncements in its June 2011 letter to Teladoc, copying the Texas

Medical Association. CR 17-19. The court of appeals correctly held that “TMB’s

pronouncements in its June 2011 letter are tantamount to amendments to the existing

text of Rule 190.8(1)(L)(i)(II), effectively substituting ‘including’ for ‘such as,’

thereby conforming it to the 2010 telemedicine rules.” 453 S.W.3d at 621.

       As it did below, TMB frames this as a jurisdictional issue, arguing that “[t]he

decision of the APA’s drafters to limit Section 2001.038’s immunity waiver to suits

challenging the ‘validity of a rule’ was a deliberate one,” which limits jurisdiction to

only those statements determined to be a “rule” under the APA. Pet. 10-11, 19-21.

Teladoc agrees.        But as the court of appeals properly noted, because the

pronouncements in the June 2011 letter did constitute a rule, “Teladoc both properly
2
       Specifically, in 2010, when promulgating the current version of Rule 174.8 identifying
“acceptable medical practices, including patient history, mental status examination, physical
examination . . . and appropriate diagnostic and laboratory testing,” TMB replaced the prior Rule
174.4, which had contained language parallel to Rule 190.8(1)(L)(i)(II), identifying “acceptable
medical practices such as patient history, mental status examination, and appropriate diagnostic
and laboratory testing.” Compare 35 Tex. Reg. 3392 (Apr. 30, 2010) (proposing the “including”
language adopted as 22 Tex. Admin Code § 174.8, see 35 Tex. Reg. 9085 (2010)), with 29 Tex.
Reg. 3896 (Apr. 23, 2004) (detailing the previous “such as” language, adopted as 22 Tex. Admin
Code § 174.4, see 29 Tex. Reg. 6088-89 (2004)).

                                               4
invoked the district court’s jurisdiction through section 2001.038 and established its

entitlement to summary judgment on its declaratory claim under that statute, as it is

undisputed that TMB did not promulgate the letter in accordance with the APA’s

notice-and-comment rulemaking requirements.” 453 S.W.3d at 613-14.

      B.     The petition for review fails to identify flaws in the appellate
             court’s Section 2001.003(6) analysis.

      TMB claims that the court of appeals made several errors in determining that

the letter satisfied Section 2001.003(6)’s elements of a “rule.” Specifically, TMB

contends that the letter was not a statement of general applicability, Pet. ix, 10, 20-

21, that it did not affect private rights, id. at 10, 21, and that the opinion applied

with no limiting principle. Id. at 19, 23. Each contention is easily rejected.

      First, while TMB argues repeatedly that the letter’s responsive nature—

addressed to Teladoc in response to Teladoc’s advertising materials—somehow

renders it a statement of limited, not general, applicability, Pet. 7, 10, 18, 20, it cites

no authority for the underlying premise that a statement of general applicability

cannot be made in direct response to a specific perceived problem. Indeed, using

TMB’s logic, an agency’s statements would have general applicability only when

the agency clairvoyantly foresees future problems and proactively elects to resolve

them, not when it responds to an observed problem with a solution applicable to all.

      TMB apparently is trying to invoke the distinct principle that agency

statements made in the course of adjudicatory or similar proceedings, which are

                                            5
limited to the rights and interests of the parties subject to those proceedings, are not

statements of general applicability. See, e.g., R.R. Comm’n. v. WBD Oil & Gas Co.,

104 S.W.3d 69, 79 (Tex. 2003); Trinity Settlement Servs., LLC v. Tex. State Sec. Bd.,

417 S.W.3d 494, 502 (Tex. App.—Austin 2013, pet. denied). The June 2011 letter

was not, however, “an agency adjudicat[ion of] individual rights of parties through

trial-type proceedings.” Trinity, 417 S.W.3d at 502. Rather, it was a statement of

warning applicable to all Texas physicians.         The letter opened by expressing

“concern on the part of the Board for its licensed Texas physicians,” CR 17

(emphasis added), then proceeded to observe that TMB “does not believe that

physicians in Texas can reply on your representations as to compliance with Texas

board rules should they opt to participate in your program.” Id. (emphasis added).

The letter warned that if a model like Teladoc’s is “followed by licensed Texas

physicians, [it] will lead to disciplinary action against the participating doctors in the

program.” CR 19 (emphasis added). Such language is plainly not directed solely

at Teladoc, but at every licensed physician in Texas.

      Indeed, TMB admits (as it must) that it sent the letter not just to Teladoc, but

also to the Texas Medical Association, “the chief statewide association representing

the Texas medical profession, with over 48,000 physician and medical student

members.” 453 S.W.3d at 611. TMB argues that it “was merely doing its best to

notify doctors who might be detrimentally relying on Teladoc’s mischaracterization


                                            6
of Rule 190.8(1)(L)(i)(II).” Pet. 21 n.5. But that explanation sounds a whole lot like

what a statement of general applicability is intended to do—put everyone subject to

agency oversight on notice.

      TMB’s next argument, that the letter did not affect private rights, is even less

persuasive. It consists solely of conclusory statements, bereft of argument or

authority, id. at 10, 21, and should be summarily rejected.

      TMB then charges that the Third Court’s opinion is “premised on semantics”

and “merely promotes form over substance” because “[t]he court of appeals

purportedly would not have asserted jurisdiction over this lawsuit had the Letter

been phrased ‘tentatively.’” Pet. 9, 10, 13, 15, 19, 23. To support this conclusion,

TMB refers repeatedly to the Third Court’s reassurance that TMB’s perceived

parade of horribles (discussed in Part II below) is unlikely because the APA

“defines ‘rule’ in a way that will exclude a considerable range of unofficial,

individually directed, tentative or other non-proscriptive agency or staff issuances

concerning law or policy.” 453 S.W.3d at 621-22 (emphasis added).

      That simple clarification by the court of appeals—that the APA excludes a

considerable range of statements from its definition of a rule, including tentative

statements—is a far cry from TMB’s misleading characterization, that the opinion

below welcomes “a slate of new APA claims any time an agency makes a

statement that isn’t phrased in ‘tentative’ terms.” Pet. 10. Of course a statement


                                          7
phrased in tentative terms will avoid an APA challenge (because, for example, it

would not affect private rights). But so will any agency statement that does not

satisfy all of the Section 2001.003(6) elements. The inquiry is not simply whether

a statement is tentative, but whether it is a generally applicable statement that

implements policy, affects private rights, and amends a prior rule. Hence the

“considerable range” of statements that the court below assured TMB it could

make without fear of APA challenge.

       TMB doubles down on this argument, claiming that it “is difficult to find a

meaningful limiting principle to the court of appeals’ holding.” Pet. 19; see also

id. at 23. But the “limiting principle” is the very principle that TMB assiduously

ignores throughout its petition: when the other Section 2001.003(6) factors are

present, and the disputed agency statement “departs from [a prior] rule’s

unambiguous text to an extent as to effectively rewrite it,” the statement is a rule

under the APA and must be passed with formal rulemaking. 453 S.W.3d at 618;

see also El Paso Hosp. Dist. v. Tex. Health & Human Serv., 247 S.W.3d 709, 714-

15 (Tex. 2008) (finding that the commission’s “interpretation” actually “amends

another rule . . . thus meeting the second criteria of a rule”).

       It is that simple. The June 2011 letter is an agency statement of general

applicability that implements, interprets, or prescribes policy, departs from the plain

text of a prior rule it purports to interpret, and affects the private rights of all doctors


                                             8
regulated by TMB. The court of appeals properly held that the letter was a rule

under the APA that bypassed notice-and-comment rulemaking, and is thus invalid

under Section 2001.035 of the APA. 453 S.W.3d at 620.

II.   This Court’s review is unwarranted because the court of appeals
      opinion will have none of the disruptive effects that TMB predicts.

      TMB urges review based on its repeated predictions of dire consequences that

await Texas courts, administrative agencies, and all regulated entities if the appeals

court’s holding is allowed to stand. Pet. viii, 2, 9, 11-15. Specifically, TMB

predicts that the “ruling will flood the courts with rule-validity challenges,” will

“incentivize agencies to do nothing to explain their actions beyond putting their own

rules in block quotations,” and will leave regulated entities “without an explanation,

[such that] the entity would have to merely guess at the basis for the alleged

violation.” Pet. 9, 13-14. None of these alarming consequences will occur.

      A.     The opinion below will not excessively burden agencies.

      TMB contends that the “Third Court’s approach hamstrings agencies by

effectively requiring them to pursue lengthy, formal rulemaking procedures any time

they need to alert regulated entities that those entities are violating a statute or

administrative rule.” Pet. viii, 9, 11-12. But that is not what the court below held.

The court held that the letter was an improperly promulgated rule not because it

“alert[ed] regulated entities” to the law, but because it changed it by departing from



                                          9
Rule 190.8(1)(L)’s plain text.3 Had the letter merely “alerted” Teladoc to Rule

190.8(1)(L), it would not have been a rule under Section 2001.003(6); hence formal

rulemaking would have been unnecessary. See, e.g., Tex. Dept. of Transp. v. Sunset

Transp., 357 S.W.3d 691, 703-04 (Tex. App.—Austin 2011, no pet.). But it did not

merely “alert.”      It attempted to “effectively rewrite” Rule 190.8(1)(L)(i)(II) by

“substituting ‘including’ for ‘such as.’” 453 S.W.3d at 618, 620.

       As noted above, TMB actually used notice-and-comment rulemaking in

2010 to change “such as” to “including” in the analogous context of telemedicine

rules. See Part I.A. supra. This history “betrays not only TMB’s understanding of

the significant difference in meaning of ‘including’ versus ‘such as,’ but its

awareness that a change between the two must properly be achieved through the

APA’s notice-and-comment rulemaking processes and not by the naked fiat it


3
         TMB argues that it has “long interpreted [Rule 190.8(1)(L)(i)(II)] to require all four
practices to establish a professional relationship,” Pet. 4, and cites disciplinary actions from
Dr. David L. Bryson and others as support. Those disciplinary actions hardly establish that TMB
has “long interpreted that text” to mean anything. Dr. Bryson, for example, had his license
revoked not merely for failing to perform a face-to-face examination, but for ignoring Rule
190.8(1)(L) altogether, prescribing Xanax, hydrocodone, valium, and other similar dangerous
drugs and controlled substances to over 20,000 patients in a two-year period without performing
any of the Rule 190.8(1)(L)(i)(II) practices, like diagnostic or laboratory testing, obtaining a
medical history, physical examination, or consulting with primary care physicians. See CR 41.
Like TMB, the Comptroller in Combs v. Entertainment Publications, Inc., obfuscated the novelty
of its new position by making statements like “the Comptroller’s office has consistently held,” and
“[t]his office has consistently held.” 292 S.W.3d 712, 717-18 (Tex. App.—Austin 2009, no pet.).
Rather than simply accepting those assertions at face value, the court of appeals in that case
compared what the Comptroller had done before with what the letters at issue indicated it would do
in the future, id., and concluded that the letters constituted a “rule.” Id. at 721-22. What TMB has
done before here is use formal rulemaking to change “such as” to “including” for Rule 174.8. It
cannot, therefore, say that it has always read “such as” to mean “including.”

                                                10
relies on here.” 453 S.W.3d at 619-20.

       Indeed, after the opinion below was issued, TMB actually undertook notice-

and-comment rulemaking to change the very language at issue in Rule 190.8(1)(L)

itself. On February 23, 2015, TMB proposed changes to Rule 190.8(1)(L), which

would remove “such as” and replace it with “which includes documenting and

performing,” the existing list of four practices. 40 Tex. Reg. 1019. The proposed

change also adds a clarification that the physical examination “must be performed

by either a face-to-face visit or in person evaluation . . . .” Id. 4 TMB has thus—by

its own actions—accepted that the change to Rule 190.8(1)(L) that it tried to make

with the June 2011 letter is properly made through formal rulemaking. 5

       The opinion below neither incentivizes agencies to be opaque, Pet. 9, 13, nor

limits them to TMB’s “three options” of instituting proceedings without warning,

4
        The new rule has not yet gone into effect. On May 29, 2015, the U.S. District Court for the
Western District of Texas granted a preliminary injunction, temporarily halting the rule, based on
its anticompetitive effects, which include increased prices, reduced patient choice and access,
reduced innovation, and reduced availability of physician services. See Teladoc v. Tex. Med. Bd.,
No. 1:15-cv-00343-RP, slip op. at 8-9 (W.D. Tex. May 29, 2015), attached as Appendix Tab A.
5
         Moreover, it is difficult to see how TMB’s having already undertaken formal rulemaking to
amend Rule 190.8(1)(L) does not render this appeal moot, or in any event, unworthy of this
Court’s review. See, e.g., Tex. Logos, L.P. v. Tex. Dep’t of Transp., 241 S.W.3d 105, 114 (Tex.
App.—Austin 2007, no pet.) (noting the requirements of “(1) a justiciable controversy as to the
rights and status of parties actually before the court for adjudication; and (2) that will be actually
resolved by the declaration sought”); Dewhurst v. Hendee, 253 S.W.3d 320, 332–33 (Tex. App.—
Austin 2008, pet. dism’d) (expiration of biennium rendered moot claims challenging legality of
legislative appropriations for that biennium). After all, if Teladoc prevails on the merits of its
federal antitrust suit, neither the June 2011 letter nor the formal rule that was subsequently passed
will be effective, and this case will resolve nothing. If Teladoc loses in its federal action, then the
new rule will presumably take effect (subject to any challenges that may be brought on substantive
or procedural grounds) and this case will still resolve nothing.

                                                  11
engaging in notice-and-comment rulemaking, or simply doing nothing. Id. at 2. In

truth, the opinion below encourages agency transparency by reiterating the

requirement that informal agency guidance be consistent with the language of the

rule it purports to interpret. See, e.g., Tex. State Bd. of Pharmacy v. Witcher, 447

S.W.3d 520, 533, 536 (Tex. App.—Austin 2014, pet filed) (finding “a quintessential

example” of impermissible ad hoc rulemaking where the existing rule listed many

factors that “may be considered” for determining disciplinary action for pharmacists,

but the Pharmacy Board elevated one “as an outcome-determinative factor”).

       B.      The opinion below will neither “drastically expand” Texas court
               dockets nor arrogate power to the judiciary at agency expense.

       TMB further contends that the appeals court’s “interpretation will drastically

expand” the dockets of Texas courts, Pet viii, and “flood the courts with rule-validity

challenges.” Id. at 9. Continuing the hyperbole, TMB insists that the decision

below has “elevat[ed] judicial power at the expense of specialized administrative

agencies,” id., and has set courts up to “second-guess every interpretive utterance an

agency makes,” id. at 12. In reality, nothing of the sort has occurred or will occur.6

6
        In fact, if the opinion below prompted any attempted arrogation of power, it was by TMB,
not the courts. Two weeks after the opinion issued, TMB held an emergency meeting and adopted
a purported “emergency” amendment to Rule 190.8, mandating a “face-to-face visit or in-person
evaluation” before a physician can issue a drug prescription—a move that was in direct response
to, and inconsistent with, the lower court’s opinion. The professed “purpose of the emergency
amendment is to protect the public health and welfare.” Appendix Tab B (Memo from Scott
Freshour, TMB General Counsel (Jan. 16, 2015)). The Travis County District Court enjoined the
purported emergency rule after a February 6, 2015 temporary injunction hearing, holding that “[n]o
imminent peril to public health, safety or welfare existed on January 16, 2015, or exists at the
present time to justify adoption of the emergency rule and it is invalid.” Appendix Tab C

                                               12
As explained above, the court of appeals correctly determined that the letter was an

improper rule because it satisfied all the elements of Section 2001.003(6). Had it not

done so, it would not be a rule subject to challenge under Section 2001.038.

       In other words, courts will see no increase in rule-validity challenges because

the court of appeals merely followed its and this Court’s recent precedent that when

an agency statement of general applicability affects private rights, prescribes policy,

and “amends another rule,” its failure to go through formal rulemaking is subject to

judicial review under Section 2001.038. El Paso Hosp. Dist., 247 S.W.3d at 714-

15; Entm’t Publ’ns, 292 S.W.3d at 718-19. When, on the other hand, the agency

has not departed from its earlier administrative policy, is otherwise consistent in its

administrative guidance, or merely restates a published rule, there is no need (or, for

that matter, jurisdiction) for judicial review.7 Had TMB’s June 2011 letter not

purported to interpret Rule 190.8(1)(L) to require all four practices in the illustrative

“such as” list, the letter would not have satisfied APA Section 2001.003(6)(B)’s

definition of “rule.” This action would never have been brought, and courts would

have lacked jurisdiction under Section 2001.038 if the suit had been attempted.


(Temporary Injunction Order, Teladoc v. Tex. Med. Bd., et al, No. D-1-GN-15-00238). It was only
after having this second attempted end-run quashed that TMB finally began formal rulemaking.
7
        See, e.g. Tex. Dept. of Transp. v. Sunset Transp., 357 S.W.3d 691, 703-04 (Tex. App.—
Austin 2011, no pet.) (“[A]n informal agency statement that does no more than restate its own
formally promulgated rules would not in itself be a ‘rule.’”); Tex. Mut. Ins. Co. v. Vista Cmty. Med.
Ctr., L.L.P., 275 S.W.3d 538, 556 (Tex. App.—Austin 2008, no pet.) (“The 2005 Staff Report did
not affect private rights because it did not change or amend” a formally promulgated rule).

                                                 13
      C.     Regulated entities will not be left without guidance.

      For the same reasons agencies will not be hamstrung by the lower court’s

opinion, regulated entities will not be starved for guidance, as TMB predicts. See

Pet. 9, 13-14. The opinion below does not preclude informal agency guidance. It

merely reiterates the rule, consistently applied by this Court and the Third Court of

Appeals, that informal guidance may not consist of statements that reasonably

appear to “amend[] or repeal . . . a prior rule.” Tex. Gov’t Code § 2001.003(6)(B);

see El Paso Hosp. Dist., 247 S.W.3d at 714-15; Witcher, 447 S.W.3d at 534; Sunset

Transp., 357 S.W.3d at 703.

      TMB urges that “where a statute or formally promulgated rule permits

reasonable, alternative constructions, the agency’s guidance to the public is most

valuable.” Pet. 16. Teladoc agrees. But this is not such a case. TMB’s letter did

not, as TMB claims, merely make a “permissible resolution of an ambiguity.” Id. It

took an unambiguous phrase from a published rule that had a single, reasonable

construction—“such as,” and substituted for it a word with an inconsistent

meaning—“including.”      Making mandatory every item in a list of illustrative

examples is not a “reasonable, alternative construction” of Rule 190.8(1)(L)’s “such

as” qualifier any more than making dispositive a single factor in a list of many

alternative factors that “may be considered” in determining disciplinary sanctions for

pharmacists was reasonable in Witcher. See 447 S.W.3d 533.


                                         14
III.   This Court’s review is unwarranted under Government Code Section
       22.001(a).

       Review is also unwarranted here because this case meets none of the six

jurisdictional criteria identified in Government Code Section 22.001(a).         The

justices below were unanimous in their opinion; the opinion was consistent with

prior case law from this Court and the courts of appeals; the case does not involve

the validity of a statute or state revenue; the Railroad Commission is not a party;

and, while the subject matter of this case is important to Teladoc, to its affiliated

physicians, and to the millions whose insurers give them access to Teladoc

services, there is no legal error in the opinion below of such importance to Texas

jurisprudence to warrant this Court’s review.

       TMB presents a purported inconsistency in the case law, which supposedly

requires this Court to “step in to provide clear guidance to agencies and the

public.” Pet. 16-17. How, TMB muses, can the statements in Witcher and TABC

v. Amusement & Music Operators of Texas be “rules,” while those in Brinkley v.

Texas Lottery Commission and Beacon National Insurance Co. v. Montemayor are

not? Id. TMB then invokes Professor Beal’s “miry bog” epithet to charge that the

Third Court is hopelessly confused and needs this Court’s guidance.

       While the court below conceded that this is a “notoriously muddled corner of

the law,” 453 S.W.3d at 616, it also correctly observed that the dispositive factor in

this case “is perhaps one of the few that can be discerned with ‘relative certainty.”

                                         15
Id. (quoting Sunset Transp., 357 S.W.3d at 703).            Whether the statements in

Witcher, Brinkley, TABC, and Beacon were rules or not turned on the facts of those

cases and judicial interpretation of various Section 2001.003(6) factors where

lingering confusion may persist. But one thing is abundantly clear: “an agency’s

‘interpretations’ or ‘applications’ of existing formally promulgated rules will

themselves be held to be ‘rules’ where they have the effect of amending the existing

rules, or of creating new rules, and the other requirements of the APA’s ‘rule’

definition are met.” 453 S.W.3d at 616 (citing El Paso Hosp. Dist., 247 S.W.3d at

714-15 (holding agency statement to be a “rule” despite the agency’s insistence that

it “is not a rule itself, but rather its interpretation of the [existing] rule”)). Because

the June 2011 letter departed so plainly from the text of the rule it purported to

interpret, the court of appeals found this to be an easy case and had “little difficulty

concluding that [it was] a rule under the APA.” 453 S.W.3d at 608.

      As such, even if this Court were otherwise inclined to wade into what may

or may not be a “miry bog” of Section 2001.038 jurisprudence, this case is not the

appropriate vehicle to provide further guidance because it was decided on clear and

settled principles that are neither “miry” nor “muddled.”

                                     CONCLUSION

      For all of these reasons, Teladoc respectfully requests that the Court deny

TMB’s petition for review.


                                           16
Respectfully submitted,

BAKER BOTTS L.L.P.

By: /s/ Benjamin A. Geslison
      Thomas R. Phillips
      State Bar No. 00000102
      98 San Jacinto Blvd, Ste 1500
      Austin, Texas 78701
      T: 512-322-2565
      F: 512-322-8363
      tom.phillips@bakerbotts.com

      Benjamin A. Geslison
      State Bar No. 24074269
      One Shell Plaza
      910 Louisiana Street
      Houston, Texas 77002-4995
      T: 713.229.1234
      F: 713.229.2841
      ben.geslison@bakerbotts.com

      JACKSON WALKER L.L.P.
      Matt Dow
      State Bar No. 06066500
      Dudley McCalla
      State Bar No. 13354000
      100 Congress Ave, Suite 1100
      Austin, TX 78701
      mdow@jw.com
      dmccalla@jw.com

      Attorneys for Respondent Teladoc, Inc.




 17
                          CERTIFICATE OF COMPLIANCE

      As required by Texas Rule of Appellate Procedure 9.4(i)(3), I certify that,
according to the word count of the computer program used to prepare this document,
the document contains 4,475 words.

      This brief complies with the typeface requirements of Tex. R. App. P. 9.4(e)
because this brief was prepared in a proportionally spaced typeface using Microsoft
Word in Times New Roman 14-point font for text and 12-point font for footnotes.

                                        /s/ Benjamin A. Geslison
                                        Benjamin A. Geslison




                             CERTIFICATE OF SERVICE

      I certify that a that a true and correct copy of this response brief was served on
the following counsel of record for Petitioners, electronically and/or by certified
mail, return receipt requested on August 4, 2015:

      Douglas D. Geyser
      Assistant Solicitor General
      Ted A. Ross
      Assistant Attorney General

      Office of the Attorney General
      P.O. Box 12548 (MC 059)
      Austin, Texas 78711-2548


                                               /s/ Benjamin A. Geslison
                                               Benjamin A. Geslison



                                          18
                    INDEX TO APPENDIX

Tab A   Teladoc v. Texas Medical Board, No. 1:15-cv-00343-RP (W.D. Tex.
        May 29, 2015) order granting preliminary injunction.

Tab B   Memorandum from Scott Freshour, TMB General Counsel,
        announcing the emergency amendment to rule 190.8 (Jan. 16, 2015).

Tab C   Temporary Injunction Order, Teladoc v. Tex. Med. Bd., et al, No. D-
        1-GN-15-00238 (Feb. 6, 2015).




                              19
TAB A
TAB B
                                     TEXAS MEDICAL BOARD

TO:             Telemedicine Stakeholders
                               Stakeholders
                Interested
                Interested Parties
                           Parties


FROM:
FROM:           Scott
                Scott Freshour,
                      Freshour, General Counsel

DATE:
DATE:           January
                January 16,
                        16, 2015


SUBJECT:
SUBJECT:        Texas Medical Board’s Notiﬁcation
                                      Notification of
                                                   of an Emergency Rule



Dear Telemedicine Stakeholders
                  Stakeholders and Interested
                                   Interested Parties:
                                              Parties:


Today the
        the Texas Medical Board (Board)
                                     (Board) adopted an amendment on an emergency basis         basis to
                                                                                                      to Rule
190.8(1)(L),
l90.8(l)(L), relating
               relating to
                        to Violation
                           Violation Guidelines.
                                      Guidelines. The purpose of      of the
                                                                         the emergency amendment is      is to
                                                                                                            to
protect the
protect      public health
        the public  health and welfare
                                welfare by clarifying
                                            clarifying that
                                                        that a
                                                             a face-to-face
                                                               face—to—face visit
                                                                             visit or
                                                                                   or in-person
                                                                                      in—person evaluation
                                                                                                 evaluation is
                                                                                                             is
required before
required   before aa practitioner
                     practitioner can issue
                                        issue a
                                              a prescription
                                                 prescription for
                                                                for drugs.
                                                                    drugs. Attached is    is a
                                                                                             a copy ofof Rule
190.8(1)(L),
l90.8(l)(L), as   amended. This
               as amended.    This emergency rule
                                                rule is
                                                      is effective
                                                         effective immediately.
                                                                   immediately. The same version
                                                                                               version of
                                                                                                        of the
                                                                                                           the
rule will
rule will proceed through the
                            the regular
                                regular rulemaking process.
                                                     process.

Please
Please know that
               that in
                    in adopting
                       adopting this
                                this emergency rule,
                                                  rule, the
                                                        the Board was cognizant
                                                                          cognizant of the
                                                                                         the input
                                                                                              input from the
                                                                                                           the
Telemedicine Stakeholders
                Stakeholders concerning Rule 174
                                               174 related
                                                     related to
                                                             to the
                                                                the issue
                                                                    issue of
                                                                           of an “established
                                                                                 “established medical site”
                                                                                                         site”
and the
     the provision
          provision of
                     of mental health
                                health services.
                                       services. In In response
                                                       response toto this
                                                                      this input,
                                                                           input, Board Staff
                                                                                           Staff has
                                                                                                 has drafted
                                                                                                      drafted
potential
potential amendments to to Rule 174,
                                174, which are
                                            are also
                                                also included
                                                      included as
                                                                as an attachment for
                                                                                   for your
                                                                                       your review.
                                                                                             review.

The two rules,
          rules, 190.8(1)(L)        174, will
                  l90.8(l)(L) and 174,    will be presented
                                                   presented at
                                                              at the
                                                                 the February 12  12 and 13,
                                                                                          13, 2015 Board
meeting for
         for consideration
             consideration for
                            for publication
                                publication and comment according
                                                           according toto the
                                                                          the regular
                                                                              regular rulemaking process.
                                                                                                   process.
Board Staff
       Staff has
             has endeavored toto make the
                                       the two rules
                                                rules compatible to
                                                                  to ensure
                                                                     ensure patient
                                                                             patient safety
                                                                                     safety while allowing
                                                                                                  allowing
greater
greater access
        access to
               to mental health
                          health services
                                 services via
                                          via telemedicine.
                                              telemedicine.

The Board looks
          looks forward to
                        to your
                           your input
                                input on these
                                         these issues.
                                               issues.



C:
C:      Mari Robinson, Executive Director
                                 Director




              Location Address:                    Mailing  Address
                                                   Mailing Address            Phone 512.305.7010
                                                                              Phone
              333 Guadalupe,  Tower 3, Suite 610
                  Guadalupe, Tower                 MC-251, P.O.
                                                   MC-251,        Box 2018
                                                            I’.O. Box         Fax 512.305.7051
                      Texas 78701
              Austin, Texas                                Texas 78768-2018
                                                   Austin, Texas              www.tmb.state.tx.us
TAB C
                                                               FILED
                                                               15-0092
                                                               4/2/2015 2:46:44 PM
                                                               tex-4748789
                                                               SUPREME COURT OF TEXAS
                                                               BLAKE A. HAWTHORNE, CLERK

                             No. 15-0092

                          In the
                   Supreme Court of Texas


          TEXAS MEDICAL BOARD AND SCOTT FRESHOUR, IN HIS
OFFICIAL CAPACITY AS GENERAL COUNSEL OF THE TEXAS MEDICAL BOARD,
                                   Petitioners,
                                 v.

                            TELADOC, INC.,
                                     Respondent.


                  On Petition for Review from the
                      Third Court of Appeals
                    Case No. 03-13-00211-CV


                       PETITION FOR REVIEW


KEN PAXTON                       SCOTT A. KELLER
Attorney General of Texas        Solicitor General

CHARLES E. ROY                   DOUGLAS D. GEYSER
First Assistant Attorney         Assistant Solicitor General
General                          State Bar No. 24059817
                                 douglas.geyser@texasattorneygeneral.gov
OFFICE OF THE ATTORNEY
GENERAL                          TED A. ROSS
P.O. Box 12548 (MC 059)          Assistant Attorney General
Austin, Texas 78711-2548
Tel.: (512) 936-1700
Fax: (512) 474-2697              COUNSEL FOR PETITIONERS
                   IDENTITY OF PARTIES AND COUNSEL

Petitioners
Texas Medical Board and Scott Freshour, in his official capacity as
General Counsel of the Texas Medical Board

Lead Appellate Counsel                        Additional Appellate and
Douglas D. Geyser                             Trial Counsel
State Bar No. 24059817                        Ted A. Ross
Assistant Solicitor General                   State Bar No. 24008890
OFFICE OF THE ATTORNEY GENERAL                Assistant Attorney General
P.O. Box 12548 (MC 059)                       OFFICE OF THE ATTORNEY GENERAL
Austin, Texas 78711-2548                      P.O. Box 12548
Tel.: (512) 936-2540                          Austin, Texas 78711-2548
Fax: (512) 474-2697                           Tel.: (512) 475-4191
douglas.geyser@texasattorneygeneral.gov       Fax: (512) 474-1062
                                              ted.ross@texasattorneygeneral.gov

Respondent
Teladoc, Inc.

Appellate Counsel and Trial
Counsel Below                                 Thomas R. Phillips
Matt Dow                                      BAKER BOTTS L.L.P.
Carla Cox                                     98 San Jacinto Blvd., Ste 1500
Dudley D. McCalla                             Austin, Texas 78701
JACKSON WALKER L.L.P.                         Tel.: (512) 322-2565
100 Congress Ave., Suite 1100                 Fax: (512) 322-8363
Austin, Texas 78701                           tom.phillips@bakerbotts.com
Tel.: (512) 236-2230
Fax: (512) 391-2113                           Benjamin A. Geslison
mdow@jw.com                                   BAKER BOTTS L.L.P.
                                              One Shell Plaza
                                              910 Louisiana St.
                                              Houston, TX 77002
                                              Tel.: (713) 229-1241
                                              Fax: (713) 229-2841
                                              ben.geslison@bakerbotts.com


                                          i
                                      TABLE OF CONTENTS

Identity of Parties and Counsel ................................................................. i

Index of Authorities.................................................................................. iv

Statement of the Case ............................................................................. vii

Statement of Jurisdiction .......................................................................viii

Issues Presented....................................................................................... ix

Statement of Facts .................................................................................... 3

Reasons to Grant the Petition................................................................... 9

Summary of the Argument ..................................................................... 10

Argument ................................................................................................. 10

        I.      The Court Of Appeals’ Impermissibly Broad
                Interpretation Of The Term “Rule” Creates An
                Untenable Situation For The Judiciary And State
                Agencies. ................................................................................ 11

                A.       The Definition Of “Rule” Is Important To Texas
                         Courts, Administrative Agencies, And The Public...... 11

                B.       The Third Court Of Appeals’ Decisions On This
                         Issue Conflict With Each Other. .................................. 16

        II.     The Third Court Of Appeals Erroneously Interpreted
                The Term “Rule” To Include The Board’s Letter. ................. 17

                A.       Sections 2001.038 And 2001.003(6) Must Be
                         Strictly Construed To Preserve The State’s
                         Sovereign Immunity..................................................... 18




                                                     ii
                 B.      The Third Court Of Appeals’ Interpretation Of
                         “Rule” Misinterprets The Limited Judicial Review
                         Afforded By The APA. .................................................. 19

Prayer ...................................................................................................... 24

Certificate of Service ............................................................................... 25

Certificate of Compliance ........................................................................ 25

Appendix




                                                      iii
                                    INDEX OF AUTHORITIES

Cases

Am. Tort Reform Ass’n v. Occupational Safety & Health
     Admin.,
     738 F.3d 387 (D.C. Cir. 2013)......................................................... 23

Beacon Nat’l Ins. Co. v. Montemayor,
     86 S.W.3d 260 (Tex. App.—Austin 2002, no pet.) ......................... 17

Block v. Cmty. Nutrition Inst.,
     467 U.S. 340 (1984) ........................................................................ 22

Brinkley v. Tex. Lottery Comm’n,
     986 S.W.2d 764 (Tex. App.—Austin 1999,
     no pet.) .......................................................................... 14, 15, 16, 18

City of LaPorte v. Barfield,
      898 S.W.2d 288 (Tex. 1995)............................................................ 18

Combs v. Entm’t Publ’ns,
    292 S.W.3d 712 (Tex. App.—Austin 2009, no pet.) ....................... 21

Gen. Servs. Comm’n v. Little-Tex Insulation Co.,
     39 S.W.3d 591 (Tex. 2001)........................................................ 19, 22

Gulf Coast Coal. of Cities v. Pub. Util. Comm’n,
     161 S.W.3d 706 (Tex. App.—Austin 2005, no pet.) ....................... 13

Prairie View A & M Univ. v. Chatha,
     381 S.W.3d 500 (Tex. 2012)............................................................ 18

Prof’ls & Patients for Customized Care v. Shalala,
      56 F.3d 592 (5th Cir. 1995) ...................................................... 22, 23

TABC v. Amusement & Music Operators of Tex., Inc.,
    997 S.W.2d 651 (Tex. App.—Austin 1999, pet. dism’d
    w.o.j.)............................................................................................... 17



                                                     iv
TDCJ v. Miller,
    51 S.W.3d 583 (Tex. 2001)........................................................ 19, 20

Teladoc, Inc. v. Tex. Med. Bd.,
     2014 WL 7464833 (Tex. App.—Austin Dec. 31,
     2014, pet. filed) ....................................................................... passim

Tex. Educ. Agency v. Leeper,
      893 S.W.2d 432 (Tex. 1994)...................................................... 17, 21

Tex. State Bd. of Pharmacy v. Witcher,
      447 S.W.3d 520, 529 (Tex. App.—Austin 2014, pet.
      filed) .................................................................................... 12, 17, 19

Wichita Falls State Hosp. v. Taylor,
     106 S.W.3d 692 (Tex. 2003)............................................................ 18

Statutes

22 TEX. ADMIN. CODE § 190.8(1)(L) ........................................................... 4

22 TEX. ADMIN. CODE § 190.8(1)(L)(i)(II) .............................................. ix, 4

5 U.S.C. § 551(4) ...................................................................................... 23

5 U.S.C. § 553(b)(A) ................................................................................. 23

5 U.S.C. § 553(d)(2) ................................................................................. 23

5 U.S.C. § 704 .......................................................................................... 23

TEX. GOV’T CODE § 22.001(a)(3) .............................................................viii

TEX. GOV’T CODE § 22.001(a)(6) .............................................................viii

TEX. GOV’T CODE § 311.034 ............................................................... 11, 18

TEX. GOV’T CODE § 2001.003(6) ............................................. viii, ix, 11, 20

TEX. GOV’T CODE § 2001.003(6)(A)........................................................... 21


                                                     v
TEX. GOV’T CODE § 2001.003(6)(C) .......................................................... 21

TEX. GOV’T CODE § 2001.038(a) ............................................. viii, ix, 11, 20

TEX. GOV’T CODE § 2001.038(f) ...............................................................viii

TEX. OCC. CODE § 152.001(a) ..................................................................... 3

TEX. OCC. CODE § 153.001(3)(4) ................................................................. 3

TEX. OCC. CODE § 154.051 ......................................................................... 3

TEX. OCC. CODE § 164.001(a) ..................................................................... 3

TEX. OCC. CODE § 164.003 ......................................................................... 3

TEX. OCC. CODE § 164.007 ......................................................................... 3

TEX. OCC. CODE § 164.009 ......................................................................... 3

TEX. OCC. CODE § 164.051(a)(6) ................................................................. 3

Other Authorities

Ron Beal, Substantive and Interpretive Rules: The Judiciary
     Continues to Struggle to Define Them and to Determine
     Their Legal Validity and Effect, 12 TEX. TECH ADMIN.
     L.J. 55 (2010) .................................................................................. 16




                                                   vi
                             STATEMENT OF THE CASE

    Nature of the Case:      This is a declaratory-judgment claim that a letter
                             from the general counsel of the Texas Medical
                             Board on the Board’s behalf constitutes an
                             unpublished      “rule”   under     the    Texas
                             Administrative Procedure Act. CR.170-82.1

    Trial Court:             The 353rd District Court of Travis County, the
                             Honorable Amy Clark Meachum presiding

    Trial Court              The trial court granted the State’s motion for
    Disposition:             summary judgment based on lack of subject-
                             matter jurisdiction and denied Teladoc’s. CR.386-
                             87 (App. A). The court also entered an order
                             purporting to suspend enforcement of the
                             judgment. CR.389-90.

    Parties in Court of      Appellant: Teladoc, Inc.
    Appeals:                 Appellee: Texas Medical Board and Nancy
                             Leshikar, in her official capacity as General
                             Counsel of the Texas Medical Board2

    Court of Appeals:        Third Court of Appeals


    Court of Appeals’        The court of appeals reversed and rendered
    Disposition:             summary judgment declaring that the letter
                             constituted an invalid unpublished rule. Teladoc,
                             Inc. v. Tex. Med. Bd., 2014 WL 7464833 (Tex.
                             App.—Austin Dec. 31, 2014, pet. filed)
                             (Pemberton, J., joined by Jones, C.J., and Field, J.)
                             (App. B, C).


1Citations of the Clerk’s Record are formatted “CR.[page]”. Citations of the appendix
to this petition are formatted “App. [tab]”.
2   Scott Freshour has since succeeded Leshikar as the Board’s general counsel.


                                          vii
                     STATEMENT OF JURISDICTION

     This Court has jurisdiction under sections 22.001(a)(3) and (a)(6) of

the Government Code. The primary issue involves the APA’s definition

of the term “rule,” which limits a court’s jurisdiction to hear an APA

declaratory-judgment claim. See TEX. GOV’T CODE §§ 2001.003(6)

(defining “rule”), 2001.038(a) (waiving the State’s immunity for

declaratory-judgment claim regarding “the validity or applicability of a

rule”). That issue is of vital importance to: the courts, whose dockets the

Third Court’s interpretation will drastically expand; every executive

agency with rulemaking authority; and regulated entities that value

administrative guidance. The Third Court’s approach hamstrings

agencies by effectively requiring them to pursue lengthy, formal

rulemaking procedures any time they need to alert regulated entities

that those entities are violating a statute or administrative rule. The

Court should also grant the petition because the Third Court is the

appellate court intended by statute to hear these appeals, see TEX. GOV’T

CODE § 2001.038(f), yet its opinions are hopelessly muddled, drawing

meaningless distinctions that provide no useful guidance to agencies or

the public.



                                   viii
                           ISSUES PRESENTED

      The APA waives the State’s sovereign immunity for a claim
challenging the “validity or applicability of a rule.” TEX. GOV’T CODE
§ 2001.038(a) (App. F). Here, in response to Teladoc’s representations
that its business practices satisfied section 190.8(1)(L)(i)(II) of the
Board’s rules, see 22 TEX. ADMIN. CODE § 190.8(1)(L)(i)(II) (regarding the
medical practices necessary to establish a proper professional
relationship) (App. G), the Board sent Teladoc a letter (the “Letter” (App.
D)) warning that its telephonic drug-prescription practices in fact
violated Rule 190.8. CR.197. Teladoc filed suit claiming that the Letter
is an invalid “rule” under the APA because it added an in-person
consultation requirement to Rule 190.8 without undergoing the formal
rulemaking process.

      Did the trial court lack subject-matter jurisdiction over Teladoc’s
lawsuit because the Letter is not a “rule” under APA section 2001.003,
see TEX. GOV’T CODE § 2001.003(6) (App. E), because either:

     (1) the context and intent of the Letter show that it was not a
     “statement of general applicability” or attempt to bind the public;
     or

     (2) the Letter merely reiterates the requirements of Rule
     190.8(1)(L)(i)(II)? (UNBRIEFED)




                                    ix
                              No. 15-0092

                           In the
                    Supreme Court of Texas


          TEXAS MEDICAL BOARD AND SCOTT FRESHOUR, IN HIS
OFFICIAL CAPACITY AS GENERAL COUNSEL OF THE TEXAS MEDICAL BOARD,
                                   Petitioners,
                                   v.

                            TELADOC, INC.,
                                     Respondent.


                    On Petition for Review from the
                        Third Court of Appeals
                      Case No. 03-13-00211-CV


                        PETITION FOR REVIEW


TO THE HONORABLE SUPREME COURT OF TEXAS:

     The Third Court of Appeals has enlarged the APA’s waiver for rule-

validity claims to allow suit nearly any time an administrative agency

makes a statement that does anything other than quote a statute or

formally promulgated rule. That interpretation of the APA is misguided

in principle and unworkable in practice—for courts, agencies, and

regulated entities alike. Under the court of appeals’ expansive view of

section 2001.038, interpretations in press releases, letters, contested-
case proceedings, depositions, information sheets, and website frequently

asked questions, among others, bring executive activity under the control

of the judiciary.

      In addition to swelling the judiciary’s docket, the court of appeals’

interpretation puts agencies in an unmanageable position. Confronted

with a private party’s public misstatements regarding the meaning of an

administrative rule, a state agency has just three options: wait for a

regulated entity actually to engage in the unlawful conduct and then

institute adjudicatory proceedings without warning; initiate the lengthy

formal rulemaking process; or do nothing and hope no one believes the

misstatements. If the agency attempts to correct the misstatement

through anything other than a letter sent exclusively to the offending

party, the Third Court’s decree is that the agency has exposed itself to a

lawsuit.

      The Court should grant the petition for review to remedy this

untenable situation.




                                    2
                         STATEMENT OF FACTS

     The court of appeals correctly stated the nature of the case.

     Regulatory background. The Board is an executive agency

empowered “to regulate the practice of medicine” through rulemaking

and adjudications. TEX. OCC. CODE § 152.001(a). The Legislature granted

it the broad authority to “adopt rules and bylaws as necessary to . . .

regulate the practice of medicine[] and enforce this subtitle.”         Id.

§ 153.001(3)(4). The Board’s specific duties include disciplining license

holders “on determining a violation of this subtitle or a board rule.” Id.

§ 164.001(a). The initiation of disciplinary proceedings typically results

from complaints by members of the public. See id. § 154.051. Disciplinary

hearings are conducted via formal or informal contested-case procedures

and are subject to judicial review. Id. §§ 164.003, 164.007, 164.009.

     One ground for a disciplinary action is the “fail[ure] to practice

medicine in an acceptable professional manner consistent with public

health and welfare.” Id. § 164.051(a)(6). Under its statutory delegation of

authority, the Board formally promulgated a rule—unchallenged by

Teladoc here—to elaborate on this ground: “Failure to practice in an

acceptable professional manner consistent with public health and welfare



                                    3
within the meaning of the Act includes, but is not limited to . . .

prescription of any dangerous drug or controlled substance without first

establishing a proper professional relationship with the patient.” 22 TEX.

ADMIN. CODE § 190.8(1)(L). The rule further defines this category with

the language that is the subject of the instant dispute: “A proper

relationship, at a minimum requires . . . establishing a diagnosis through

the use of acceptable medical practices such as patient history, mental

status examination, physical examination, and appropriate diagnostic

and laboratory testing. An online or telephonic evaluation by

questionnaire is inadequate . . . .” Id. § 190.8(1)(L)(i)(II) (emphasis

added). Any license holder who violates section 190.8(1)(L)(i)(II) may be

disciplined by the Board.

     The Board has long interpreted that text to require all four

practices to establish a professional relationship. Over the years—

beginning well before the Board sent the Letter to Teladoc—the Board

has used Rule 190.8 to discipline license holders who prescribed drugs

over the telephone or internet without first conducting a face-to-face

examination. See CR.40-46 (relevant adjudicatory proceedings).




                                    4
      Teladoc’s business and the instant dispute. Teladoc calls itself

a “telehealth provider.” CR.171. It offers medical advice solely via

telephone, not through in-person or even video consultations. See

CR.212-14. Its physicians thus never see their patients. See, e.g., CR.174

(“Teladoc’s   participating    physicians   do     not   conduct   face-to-face

consultations or physical examinations . . . .”).

      Nevertheless, Teladoc advertised to the public—including Texas

physicians that might participate with Teladoc—that Teladoc’s business

model complied with the Board’s rules. See CR.197-98. Faced with a

company misrepresenting the rules’ restrictions, the Board’s general

counsel Nancy Leshikar responded by sending Teladoc a letter

expressing concern that Teladoc’s physicians may be violating Rule

190.8(1)(L)(i)(II):   “Tel[a]doc’s   advertising    material   has    multiple

statements indicating that its process can be conducted over the

telephone without any prior establishment of a physician/patient

relationship via a ‘face-to-face’ examination.” CR.197. For instance, the

Letter noted that Teladoc represented that its physicians treat patients

“via remote telephone consultations.” Id. Leshikar concluded: “[A]ny

representation that [Teladoc] make[s] regarding Tel[a]doc’s program



                                       5
being in conformance with the Board’s rules will be directly and firmly

refuted by the Board.” CR.198. Because the Board didn’t know the

identity of Teladoc’s doctors, cf. CR.72-73 (discussing Board’s discovery

request for identity of Teladoc doctors), the Board sent a copy of the

Letter to the vice president and general counsel of the Texas Medical

Association, a medical society representing Texas physicians and medical

students.

     Teladoc filed its original petition shortly thereafter, claiming that

the Letter was an invalid, unpublished “rule” under the APA. CR.5, 15.

Teladoc deposed Leshikar and the Board’s Executive Director, Mari

Robinson. Leshikar testified that the four practices listed in Rule

190.8(1)(L)(i)(II) are the “minimum” level of acceptable medical practices

to establish a diagnosis. CR.237. Likewise, Robinson stated that the rule

“require[s] a patient history, mental status exam, physical examination,

and appropriate laboratory testing.” CR.231. Based on this testimony

about what the Board’s rules require, Teladoc amended its petition to

include claims that these deposition statements also constitute invalid,

unpublished “rules.” CR.175-76, 179, 180-81.




                                    6
     The parties filed cross-motions for summary judgment, and the trial

court held that the Letter is not a “rule” and issued judgment for the

State. See CR.386-87. The court also entered a supersedeas order,

purporting to rely on Texas Rule of Appellate Procedure 24.2(a)(5) to

suspend enforcement of the judgment. CR.389.

     The Third Court of Appeals reversed and rendered judgment

“declaring   that   [the   Board’s]   pronouncements      regarding    Rule

190.8(1)(L)(i)(II)” in the Letter are an invalid “rule.” Teladoc, 2014 WL

7464833, at *13. The court held that the Letter is a “state agency

statement” that “implements, interprets, or prescribes law or policy” by

“implement[ing] a broader policy judgment by the Board . . . that the

creation of a new physician-patient relationship should generally entail

an in-person physical examination.” Id. at *6. The Letter thus also

“impact[ed] private rights and not merely internal agency management

or organization.” Id. Despite the fact that the Letter was a direct response

to Teladoc’s misrepresentations, the court further held that the Letter

constituted a “statement of general applicability” because it was also sent

to the general counsel of the Texas Medical Association, thereby

“plac[ing] the regulated public—Texas physicians—on notice.” Id. at *7.



                                      7
The court also found that even resolving an ambiguity in Rule 190.8

“would have a legal effect on private parties beyond . . . the text of Rule

190.8[] alone.” Id. at 10.




                                    8
                      REASONS TO GRANT THE PETITION

• The line between “rule” and policy statement limits courts’ ability to
  interfere with the executive’s constitutional discretion. The decision
  here epitomizes the Third Court’s elevation of judicial power at the
  expense of specialized administrative agencies.3 This is all the more
  problematic given that, in evaluating the jurisdictional issue, the court
  refused to afford the Board deference regarding the interpretation of
  its own formally promulgated rule. The Board’s sensible attempt to
  refute Teladoc’s misstatement should not have opened the courthouse
  doors.

• The court of appeals purportedly would not have asserted jurisdiction
  over this lawsuit had the Letter been phrased “tentatively.” But a legal
  rule premised on semantics merely promotes form over substance.

• The court of appeals’ ruling will flood the courts with rule-validity
  challenges: any agency statement, regardless of context or intent,
  might waive the State’s immunity so long as the statement isn’t
  “unofficial, individually directed, [or] tentative,” descriptors that set
  only vague and hollow limits on the court’s interpretation. Teladoc,
  2014 WL 7464833, at *11.

• The court’s decision will also incentivize agencies to do nothing to
  explain their actions beyond putting their own rules in block
  quotations. The APA is not designed, however, to prevent
  administrative bodies from communicating with the public. A rational
  interpretation of the statute should encourage agencies to be more, not
  less, transparent.




3 These issues are also before the Court in a separate petition for review. See Petition
for Review, No. 14-1022, Tex. State Bd. of Pharmacy v. Witcher (response to petition
requested Feb. 27, 2015).


                                           9
                      SUMMARY OF THE ARGUMENT

     The court of appeals’ decision throws open the courthouse doors to

a broad range of APA challenges based on mere semantics, regardless of

the intent or context of the agency’s statement. The upshot is a slate of

new APA claims any time an agency makes a statement that isn’t

phrased in “tentative” terms. Afraid that they might not meet this

“tentative” standard, agencies will be less apt to issue any guidance,

thereby depriving regulated entities of valuable information and

harming the public.

     Those are not the consequences of reasonable interpretations of the

term “rule” and section 2001.038’s immunity waiver. To the contrary,

that waiver must be strictly construed to preserve executive agencies’

immunity. Because the Board’s Letter merely responded to Teladoc’s own

misstatements in an effort to allow Texas physicians to reform their

conduct to avoid disciplinary proceedings under Rule 190.8, the Letter is

not a statement of general applicability that itself affected private rights.

                                ARGUMENT

     The decision of the APA’s drafters to limit section 2001.038’s

immunity waiver to suits challenging the “validity or applicability of a



                                     10
rule” was a deliberate one. The Legislature could have empowered courts

to adjudicate declaratory claims regarding any interpretive agency

statement. But it instead restricted this jurisdiction to considering the

validity of “statement[s] of general applicability” that “affect[] private

rights or procedures.” TEX. GOV’T CODE § 2001.003(6); see id.

§ 2001.038(a). The Third Court’s interpretation removes any meaningful

jurisdictional limit on that text and conflicts with Government Code

section 2001.034’s requirement of strict construction of immunity

waivers. And the result of that flawed legal analysis is predictably

problematic for courts, agencies, and regulated entities hoping for more,

not less, transparency from the government.

I.   THE    COURT    OF    APPEALS’    IMPERMISSIBLY BROAD
     INTERPRETATION OF THE TERM “RULE” CREATES AN UNTENABLE
     SITUATION FOR THE JUDICIARY AND STATE AGENCIES.

     A.    The Definition Of “Rule” Is Important To Texas Courts,
           Administrative Agencies, And The Public.

     The Third Court’s interpretation of “rule” has pernicious

consequences for the judiciary, the executive, and the public, as well as

the relationships between the three.

     As to the judiciary, the APA’s limited waiver protects the courts’

scarce resources. In a state as large as Texas, administrative agencies


                                   11
issue an untold number of pronouncements every month, as part of

informal and formal requests, memoranda, and proceedings. Not every

decision can (or should) be made through the APA’s formal processes. If

a private party can challenge any statement that is phrased in definitive

language—even if there is no grant of judicial review—section 2001.038

lawsuits may overwhelm the courts. Cf. Tex. State Bd. of Pharmacy v.

Witcher, 447 S.W.3d 520, 529 (Tex. App.—Austin 2014, pet. filed)

(allowing challenge to statement contained in contested-case ruling).

     That limited waiver also preserves the appropriate functioning of

both government departments. Properly construed, the APA allows

agencies—which are subject to political pressure through the executive—

to engage in policymaking without undue intrusion from the courts. The

judiciary steps in only to determine the “validity or applicability” of

agency action that concretely affects private parties. By contrast, courts

do not stand ready to second-guess every interpretive utterance an

agency makes, for that would impermissibly interject the courts into the

details of executive functions. The Third Court’s decision here upsets that

careful balance struck by the APA.




                                     12
     And as to that agency policymaking function itself, the court of

appeals’ interpretation incentivizes agencies to provide less information

to regulated entities or, at best, to provide information in a vague or

ambiguous manner, lest it cross the line from “tentative” to definite. If

the Letter here constitutes a “rule,” consider the alternatives left to an

agency, like the Board, that wishes to alert a regulated entity that it is

violating a statute or regulation. First, the agency could, without

warning, simply initiate administrative proceedings. The agency’s

interpretation of the regulation would be entitled to deference on judicial

review. See, e.g., Gulf Coast Coal. of Cities v. Pub. Util. Comm’n, 161

S.W.3d 706, 712 (Tex. App.—Austin 2005, no pet.). This is plainly a poor

option. Among other problems, it would increase costs for both the agency

and the regulated entity, and would likely create needless friction

between the parties.

     Second, the agency could send correspondence stating that the

entity is violating a rule but without providing any additional

explanation because, under the court of appeals’ reading of the APA, any

“non-tentative” explanation would subject the agency to an APA rule-

validity challenge. But without an explanation, the entity would have to



                                    13
merely guess at the basis for the alleged violation. This option thus adds

little value for a regulated entity that is not knowingly and willfully

violating the Texas Administrative Code.

     That leaves the two impractical options the court of appeals favors.

One way for the agency to retain its independence from judicial

interference is to initiate rulemaking proceedings under the APA each

time it wants to notify a regulated entity of a possible violation. But that

option is unworkable, inefficient, and overly restrictive, as the Third

Court previously recognized:

     Agencies would be reduced to impotence, however, if bound to
     express their views as to “law,” “policy,” and procedural
     “requirements” through contested-case decisions or formal
     rules exclusively; and they could not under such a theory
     exercise powers explicitly delegated to them by the
     legislature. . . . If every expression by the agency as to “law,”
     “policy,” and procedural “requirements” requires the
     promulgation of a formal rule, the agency could no longer
     exercise its “informed discretion” to choose adjudication as a
     means of making law and policy, rather than rulemaking, a
     choice we have repeatedly said an agency has when it
     possesses both adjudicatory and rulemaking powers.

Brinkley v. Tex. Lottery Comm’n, 986 S.W.2d 764, 769 (Tex. App.—Austin

1999, no pet.); see also id. at 770 (noting “the straight-jacket of

rulemaking”).




                                    14
     The other course is to avail itself of what the Third Court evidently

(but erroneously) believed was a meaningful constraint on its decision:

issue statements that are “unofficial, individually directed, tentative or

other[wise] non-proscriptive.” Teladoc, 2014 WL 7464833, at *11. It’s

difficult to see the sense of this approach. In the first place, the Letter

itself was “unofficial” and “individually directed.” More importantly,

there is no rational reason for the result here to differ had the Letter said

that Texas physicians’ reliance on Teladoc’s misstatements about Rule

190.8 “may lead to disciplinary action,” instead of writing that such

reliance “will lead to disciplinary action.” CR.198 (emphasis added). The

law—especially an immunity waiver—should not turn on such semantics

and formulaic niceties.

     In sum, the only sensible option is precisely what the Board did

here (and precisely what the Third Court approved in other cases, see

infra Part I.B), namely, alert Teladoc and others who may have relied on

Teladoc’s misstatements that the Board disagrees with Teladoc’s views.

     The APA should be interpreted to encourage an agency to warn

regulated entities, not to penalize it for doing so. See Brinkley, 986 S.W.2d

at 770 (“The definition in section 2001.003(6) is sufficiently flexible to



                                     15
allow agencies to perform their functions without unnecessary

procedural obstacles.”). This situation is exacerbated by the court’s

treatment of interpretive deference owed to agencies. The court held that

even a permissible resolution of an ambiguity offends section 2001.038.

Teladoc, 2014 WL 7464833, at *10. But where a statute or formally

promulgated rule permits reasonable, alternative constructions, the

agency’s guidance to the public is most valuable. This important matter

warrants the Court’s involvement.

      B.    The Third Court Of Appeals’ Decisions On This Issue
            Conflict With Each Other.

      Adding uncertainty to a bad situation, the Third Court’s decisions

interpreting the term “rule” reach conflicting results without any

principled explanation for the differing outcomes.4

      For instance, the court has held not to be “rules”:

• Lottery Commission letters purporting “to make licensees aware of the
  agency’s position and to afford an opportunity to licensees for
  voluntary compliance,” Brinkley, 986 S.W.2d at 771 n.10 (emphases
  removed); see id. (noting that agency explained “that the ‘Eight-liner’
  is a gambling device . . . and is therefore illegal,” and promised to

4 Cf. Ron Beal, Substantive and Interpretive Rules: The Judiciary Continues to
Struggle to Define Them and to Determine Their Legal Validity and Effect, 12 TEX.
TECH ADMIN. L.J. 55, 64 (2010) (calling two Third Court decisions “directly
inconsistent” with each other and describing that court’s jurisprudence as a “miry
bog”).


                                       16
      “initiate an appropriate administrative disciplinary action” for illegal
      operations); and

• A letter sent to the plaintiff in which the agency allegedly “reversed
  [the agency’s] position” interpreting a form promulgated by the agency
  and promised to “institute an administrative enforcement action,”
  Beacon Nat’l Ins. Co. v. Montemayor, 86 S.W.3d 260, 264-65 (Tex.
  App.—Austin 2002, no pet.).

        By contrast, the court has held to be rules, in addition to the Letter

here:

• TABC memoranda setting out the “elements that make a[n] [eight-
  liner gambling] machine illegal,” TABC v. Amusement & Music
  Operators of Tex., Inc., 997 S.W.2d 651, 654 (Tex. App.—Austin 1999,
  pet. dism’d w.o.j.); and

• An explanation of longstanding agency policy stated in a contested-
  case order, Witcher, 447 S.W.3d at 529.

        This Court should step in to provide clear guidance to agencies and

the public regarding what kinds of agency statements must proceed

through formal rulemaking.

II.     THE THIRD COURT OF APPEALS ERRONEOUSLY INTERPRETED THE
        TERM “RULE” TO INCLUDE THE BOARD’S LETTER.

        “Not every statement by an administrative agency is a rule for

which the APA prescribes procedures for adoption and for judicial

review.” Tex. Educ. Agency v. Leeper, 893 S.W.2d 432, 443 (Tex. 1994).

Indeed, as the Third Court previously explained, “[a]gencies would be



                                       17
reduced to impotence . . . if bound to express their views as to ‘law,’

‘policy,’ and procedural ‘requirements’ through contested-case decisions

or formal rules exclusively.” Brinkley, 986 S.W.2d at 769. That sensible

interpretation also is required by the Code Construction Act’s mandate

that immunity waivers be strictly construed. This Court should therefore

reject the Third Court’s flawed, overbroad interpretation of “rule.”

     A.    Sections 2001.038 And 2001.003(6) Must Be Strictly
           Construed To Preserve The State’s Sovereign
           Immunity.

     Waivers of immunity must be strictly construed. See, e.g., Prairie

View A & M Univ. v. Chatha, 381 S.W.3d 500, 513 (Tex. 2012); TEX. GOV’T

CODE § 311.034. That principle “applies to both the existence and the

extent of the waiver.” City of LaPorte v. Barfield, 898 S.W.2d 288, 297

(Tex. 1995), superseded by statute on other grounds. Accordingly,

ambiguities must be resolved in favor of retaining immunity. Wichita

Falls State Hosp. v. Taylor, 106 S.W.3d 692, 697 (Tex. 2003).

     The decision here does just the opposite. Any agency statement—

regardless of context or intent—might subject the State to a lawsuit.

Here it was a letter responding to Teladoc’s misstatement. But this isn’t

the Third Court’s only recent overreach. In Witcher, for example, another



                                    18
case pending in this Court, the court of appeals held that a contested-

case decision’s explanation of the agency’s longstanding position could be

challenged under section 2001.038. See 447 S.W.3d at 529.

      It is difficult to find a meaningful limiting principle to the court of

appeals’ holdings. As noted above, the court purported to carve out

“unofficial,    individually   directed,   tentative   or   other[wise]   non-

proscriptive” statements. Teladoc, 2014 WL 7464833, at *11. But how the

Board was supposed to squeeze through that opening remains unclear.

Simply couching communications with words like “might” is hardly a

principled rule of law.

      B.       The Third Court Of Appeals’ Interpretation Of “Rule”
               Misinterprets The Limited Judicial Review Afforded
               By The APA.

      The background presumption of Texas law is that, apart from

constitutional claims, there is no basis for judicial review of executive

action. See, e.g., Gen. Servs. Comm’n v. Little-Tex Insulation Co., 39

S.W.3d 591, 599 (Tex. 2001). The APA thus allows suits “only in certain,

narrowly defined circumstances.” TDCJ v. Miller, 51 S.W.3d 583, 587

(Tex. 2001) (interpreting Tort Claims Act). The Court therefore “must

look to the terms of the [statute] to determine the scope of its waiver” in



                                      19
light of “the particular facts of the case.” Id. (citation and internal

quotation marks omitted).

     Section 2001.038 limits jurisdiction to claims contesting the

“validity or applicability” of a “rule.” TEX. GOV’T CODE § 2001.038(a). In

turn, a “rule”

     (A) means a state agency statement of general applicability
     that:

           (i) implements, interprets, or prescribes law or policy; or

           (ii) describes the procedure or practice requirements of
           a state agency;

     (B) includes the amendment or repeal of a prior rule; and

     (C) does not include a statement regarding only the internal
     management or organization of a state agency and not
     affecting private rights or procedures.

Id. § 2001.003(6). The Third Court’s interpretation of “rule,” taken in

context of the APA as a whole and essential principles of sovereign

immunity, is flawed in several respects.

     First, the Letter does not fit a reasonable construction of the plain

text. The Board responded to Teladoc’s misstatements so that Teladoc’s

doctors have the opportunity to reform their conduct. And the Board

directed the Letter at a single entity and merely warned that the entity




                                    20
was violating an administrative regulation.5 This is not a “statement of

general applicability” that “affect[s] private rights.” Id. § 2001.003(6)(A),

(C).

       The context of the statement and the agency’s intent should matter.

See Combs v. Entm’t Publ’ns, 292 S.W.3d 712, 722 (Tex. App.—Austin

2009, no pet.) (stating that courts must “consider the intent of the agency

. . . and the context in which the agency statement was made” (citing

Leeper, 893 S.W.2d at 443)). The Letter described policy, but did not

create it. It is absurd to think that if the Board initiated a disciplinary

proceeding against a Teladoc physician, it would cite the Letter as a basis

for its action. Rather, the Board would rely on—and enforce—the statute

and formally promulgated rules, as indeed it has done for years. Cf.

CR.40-46.6



5 The Board acknowledges that it also sent a copy of the Letter to the TMA, but that
doesn’t change the nature and intent of the Letter; rather, the Board doesn’t have a
list of names of Teladoc’s doctors but believed that some Teladoc doctors are affiliated
with the TMA. The Board was merely doing its best to notify doctors who might be
detrimentally relying on Teladoc’s mischaracterization of Rule 190.8(1)(L)(i)(II).
6 Although the “interpretation” of Rule 190.8(1)(L)(i)(II), as stated in the Letter,
would apply to all entities and doctors identically situated to Teladoc and its doctors,
any time an agency sends a letter to a regulated entity, there may be some other
entity engaging in the same practice. A “statement of general applicability” cannot
sweep in every pronouncement that could apply to a class larger than one. And
nothing in the Letter would bind the Board to apply the Letter’s so-called

                                          21
      The Third Court’s approach also cannot be squared with the

purpose of a rule-validity challenge. That type of claim prevents an

agency from achieving the same result as formal rulemaking without

actually engaging the rulemaking process. But any such characterization

of the Letter is unavailing. The Board has been enforcing the Letter’s

“interpretation” of Rule 190.8 for years; the Letter needed to make that

understanding explicit now only because Teladoc itself made statements

to the contrary.

      The federal APA provides a stark but useful contrast. Whereas

Texas law requires strict construction of immunity waivers and doesn’t

contain a background right to judicial review of executive action, see, e.g.,

Little-Tex, 39 S.W.3d at 599, federal administrative law presumes the

availability of review of administrative action. See, e.g., Block v. Cmty.

Nutrition Inst., 467 U.S. 340, 348-49 (1984); see Prof’ls & Patients for

Customized Care v. Shalala, 56 F.3d 592, 595 (5th Cir. 1995) (“The APA’s

notice and comment exemptions must be narrowly construed.” (citation

and internal quotation marks omitted)). Federal courts thus review a



“interpretation,” as opposed to the Rule itself, to other entities (or even to Teladoc) in
future disciplinary proceedings.


                                           22
distinctly broader class of cases, including those involving interpretive

rules. See, e.g., Prof’ls & Patients, 56 F.3d at 595-96; see also 5 U.S.C.

§§ 551(4), 553(b)(A), 553(d)(2), 704; Am. Tort Reform Ass’n v.

Occupational Safety & Health Admin., 738 F.3d 387, 395-96 (D.C. Cir.

2013). The drafters of Texas’s APA, however, deliberately selected a

narrower immunity waiver, a choice that is consistent with general Texas

administrative-law principles.

     Second, the court of appeals’ construction has no limiting principle.

Indeed, it comes close to allowing jurisdiction merely to consider

interpretations of agency statements, even though section 2001.038

contemplates challenges only to the “validity or applicability” of the

purported rule.

     Third, the perverse results of the court’s interpretation reflect its

interpretive defects. As discussed supra Part I.A, the court of appeals’

view hamstrings agencies, encouraging them to offer less information

and explanation (or none at all) or to couch every statement in vague or

tentative language. Neither the public nor the executive is served by such

an incentive. A reasonable interpretation of the APA should promote

communications like the Letter, not penalize them.



                                   23
                                PRAYER

      The Court should grant the petition for review, reverse the court of

appeals’ judgment, and render judgment dismissing the case for want of

jurisdiction.

                                Respectfully submitted.

KEN PAXTON                       SCOTT A. KELLER
Attorney General of Texas        Solicitor General

CHARLES E. ROY                    /s/ Douglas D. Geyser
First Assistant Attorney         DOUGLAS D. GEYSER
General                          Assistant Solicitor General
                                 State Bar No. 24059817

                                 TED A. ROSS
                                 Assistant Attorney General

                                 OFFICE OF THE ATTORNEY GENERAL
                                 P.O. Box 12548 (MC 059)
                                 Austin, Texas 78711-2548
                                 Tel.: (512) 936-2540
                                 Fax: (512) 474-2697
                                 douglas.geyser@texasattorneygeneral.gov

                                 COUNSEL FOR PETITIONERS




                                   24
                         CERTIFICATE OF SERVICE

      On April 2, 2015, the foregoing Petition for Review was served via

File & ServeXpress on:

Matt Dow                                Thomas R. Phillips
Carla Cox                               BAKER BOTTS L.L.P.
Dudley D. McCalla                       98 San Jacinto Blvd., Ste 1500
JACKSON WALKER L.L.P.                   Austin, Texas 78701
100 Congress Ave., Suite 1100           Tel.: (512) 322-2565
Austin, Texas 78701                     Fax: (512) 322-8363
Tel.: (512) 236-2230                    tom.phillips@bakerbotts.com
Fax: (512) 391-2113
mdow@jw.com                             Benjamin A. Geslison
                                        BAKER BOTTS L.L.P.
                                        One Shell Plaza
                                        910 Louisiana St.
                                        Houston, TX 77002
                                        Tel.: (713) 229-1241
                                        Fax: (713) 229-2841
                                        ben.geslison@bakerbotts.com
      Counsel for Respondent

                                  /s/ Douglas D. Geyser
                                  Douglas D. Geyser

                     CERTIFICATE OF COMPLIANCE

      In compliance with Texas Rule of Appellate Procedure 9.4(i)(2), this

brief contains 4,277 words, excluding the portions of the brief exempted

by Rule 9.4(i)(1).


                                  /s/ Douglas D. Geyser
                                  Douglas D. Geyser


                                   25
Beacon Nat. Ins. Co. v. Montemayor, 86 S.W.3d 260 (2002)




                                                        86 S.W.3d 260
                                                   Court of Appeals of Texas,
                                                            Austin.

                            BEACON NATIONAL INSURANCE COMPANY; First Preferred
                          Insurance Company; and Petrolia Insurance Company, Appellants,
                                                          v.
                     Jose MONTEMAYOR, in his Official Capacity as Commissioner of Insurance;
                       the Texas Department of Insurance; John Cornyn, in his Official Capacity
                        as Attorney General; and the Office of the Attorney General, Appellees.

                                           No. 03–01–00499–CV.           |   July 26, 2002.

Homeowners' insurer brought action against the Commissioner of Insurance, Department of Insurance, and Attorney General
for a declaratory judgment that the insurer had no duty to pay for cost to repair or replace portions of multi-layer roof damaged by
excluded peril. The 261st Judicial District Court, Travis County, William E. Bender, J., granted Department's plea to jurisdiction
and dismissed the case. Insurer appealed. The Court of Appeals, Marilyn Aboussie, C.J., held that: (1) trial court lacked subject
matter jurisdiction; (2) the Department's actions were not subject to judicial review; (3) the insurer was required to exhaust
administrative remedies; and (4) the doctrine of primary jurisdiction justified deference to the Department.

Affirmed.



 West Headnotes (27)


 [1]     Pleading       Plea to the Jurisdiction
         A plea to the jurisdiction challenges the district court's authority to determine the subject matter of the cause of action.

         Cases that cite this headnote


 [2]     Appeal and Error         Cases Triable in Appellate Court
         Subject matter jurisdiction raises a question of law reviewed de novo.

         Cases that cite this headnote


 [3]     Courts       Presumptions and Burden of Proof as to Jurisdiction
         The plaintiff bears the burden of pleading facts that show the district court has subject matter jurisdiction.

         1 Cases that cite this headnote


 [4]     Pleading       Plea to the Jurisdiction
         On a plea to jurisdiction, plaintiff's good faith factual allegations are reviewed to determine whether the district court
         has jurisdiction.

         Cases that cite this headnote




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                1
Beacon Nat. Ins. Co. v. Montemayor, 86 S.W.3d 260 (2002)




 [5]    Courts        Presumptions and Burden of Proof as to Jurisdiction
        Unless the face of the petition affirmatively demonstrates a lack of jurisdiction, the district court must liberally
        construe the allegations in the petition in favor of the plaintiff and in favor of jurisdiction.

        2 Cases that cite this headnote


 [6]    Courts        Allegations, pleadings, and affidavits
        The plaintiff's pleadings should be alleged sufficiently to give a reasonable person fair notice of the basis for
        jurisdiction.

        Cases that cite this headnote


 [7]    States       What are suits against state or state officers
        State agencies have immunity from suit under the doctrine of sovereign immunity.

        Cases that cite this headnote


 [8]    States       Declaratory judgment
        Uniform Declaratory Judgments Act (UDJA) waives the state's sovereign immunity when a party seeks a court's
        construction of a statute or rule. V.T.C.A., Civil Practice & Remedies Code § 37.003.

        4 Cases that cite this headnote


 [9]    Declaratory Judgment            Insurance
        Trial court lacked subject matter jurisdiction in an insurer's suit against the Commissioner of Insurance for a
        declaratory judgment that the standard homeowners' policy did not require the insurer to pay for cost to repair or
        replace portions of multi-layer roof damaged by excluded peril; the Department of Insurance had authority to regulate
        the policies and claims practices and had taken no adverse action against the insurer, and the insurer did not seek
        resolution of a dispute between contracting parties. V.A.T.S. Insurance Code, arts. 5.35(a-j), 21.21, § 5, 21.21–2, §§
        4, 8; V.A.T.S. Insurance Code, §§ 31.002(1), 37.001.

        3 Cases that cite this headnote


 [10]   Declaratory Judgment            Jurisdiction not enlarged
        A declaratory judgment action is merely a procedural device for deciding matters already within a court's subject
        matter jurisdiction.

        2 Cases that cite this headnote


 [11]   Declaratory Judgment            Nature and scope of remedy
        Declaratory Judgment            Jurisdiction not enlarged
        The Uniform Declaratory Judgments Act (UDJA) does not itself confer jurisdiction or substantive rights and cannot
        change the basic character of a lawsuit. V.T.C.A., Civil Practice & Remedies Code § 37.003.

        4 Cases that cite this headnote




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Beacon Nat. Ins. Co. v. Montemayor, 86 S.W.3d 260 (2002)




 [12]   Administrative Law and Procedure              Judicial Review of Administrative Decisions
        Constitutional Law        Judicial encroachment on executive acts taken under statutory authority
        An administrative body is entitled to exercise its statutory duties and functions without interference from the courts,
        unless it exceeds that statutory authority.

        1 Cases that cite this headnote


 [13]   Declaratory Judgment            Officers and official acts in general
        A party may employ a declaratory judgment action to intervene in administrative proceedings only when an agency
        is exercising authority beyond its statutorily conferred powers.

        4 Cases that cite this headnote


 [14]   Action      Moot, hypothetical or abstract questions
        Action      Persons entitled to sue
        Subject matter jurisdiction requires that the plaintiff bringing the suit have standing to do so, that there be a live
        controversy between the parties, and that the case be justiciable or ripe for decision.

        Cases that cite this headnote


 [15]   Declaratory Judgment            Contracts
        Insureds were necessary parties in an insurer's suit against the Commissioner of Insurance for a declaratory judgment
        that the standard homeowners' policy did not require the insurer to pay for cost to repair or replace portions of multi-
        layer roof damaged by excluded peril; the insureds had a cognizable interest in the action since they were or would
        be denied coverage for roof tear-off expenses. V.T.C.A., Civil Practice & Remedies Code § 37.006(a).

        1 Cases that cite this headnote


 [16]   Declaratory Judgment            Insurance
        Insurance Department's correspondence with homeowners' insurer and proposed consent decree about its obligation
        to pay for the cost to tear off shingles were not a “rule” within the meaning of an Administrative Procedure Act (APA)
        statute allowing a person to bring a declaratory judgment action to determine the validity or applicability of a rule.
        V.T.C.A., Government Code § 2001.038.

        6 Cases that cite this headnote


 [17]   Administrative Law and Procedure              Judicial Review of Administrative Decisions
        There is no right to judicial review of an administrative order unless a statute provides a right or unless the order
        adversely affects a vested property right or otherwise violates a constitutional right.

        Cases that cite this headnote


 [18]   Insurance       Judicial remedies and review




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Beacon Nat. Ins. Co. v. Montemayor, 86 S.W.3d 260 (2002)


        Insurance Department's actions in connection with prescription, promulgation, adoption, approval, amendment, or
        repeal of standard manual rules or policies and endorsement forms for fire and other allied insurance lines were not
        subject to judicial review. V.A.T.S. Insurance Code, arts. 5.39, 5.96(k).

        Cases that cite this headnote


 [19]   Insurance       Judicial remedies and review
        Insurance Department's informal disposition actions regarding homeowners' insurer's obligation to pay for cost to
        repair or replace portions of multi-layer roof damaged by excluded peril were not subject to judicial review before
        the Department took any action against the insurer. V.A.T.S. Insurance Code, § 82.055(a).

        Cases that cite this headnote


 [20]   Declaratory Judgment            Statutory remedy
        Failure to exhaust administrative remedies precludes declaratory relief before the agency issues a final administrative
        decision. V.T.C.A., Government Code § 2001.171.

        2 Cases that cite this headnote


 [21]   Constitutional Law        Particular Issues and Applications
        Homeowners' insurer's action anticipating that the Insurance Department would initiate enforcement proceedings if
        the insurer did not agree to the terms of a proposed consent decree essentially sought an advisory opinion which the
        court was powerless to render. Vernon's Ann.Texas Const. Art. 2, § 1.

        1 Cases that cite this headnote


 [22]   Insurance       Judicial remedies and review
        The exception to the administrative finality requirement for matters involving purely legal issues did not apply to suit
        by homeowners' insurer against the Insurance Department to challenge its position that the insurer was required to
        pay for cost to repair or replace portions of multi-layer roof damaged by excluded peril; the substance of the insurer's
        complaints involved factual issues, and the insurer was thus required to exhaust administrative remedies.

        Cases that cite this headnote


 [23]   Administrative Law and Procedure            Primary jurisdiction
        The “primary jurisdiction doctrine” applies when a court and an agency have concurrent original jurisdiction over a
        dispute and guides a court in determining whether it should route the threshold decision about certain issues that are
        within the special competence of an administrative agency to that agency.

        1 Cases that cite this headnote


 [24]   Administrative Law and Procedure            Primary jurisdiction
        A court must decide whether it should defer to the agency's expertise and responsibility to develop regulatory policy
        under primary jurisdiction doctrine.

        1 Cases that cite this headnote




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Beacon Nat. Ins. Co. v. Montemayor, 86 S.W.3d 260 (2002)




 [25]   Appeal and Error         Cases Triable in Appellate Court
        Appellate courts review questions of primary jurisdiction on a de novo basis with no deference to the district court's
        decision.

        Cases that cite this headnote


 [26]   Administrative Law and Procedure             Primary jurisdiction
        Courts defer to an agency under primary jurisdiction doctrine when uniform decision making is essential to carry out
        the purposes of the regulatory scheme.

        Cases that cite this headnote


 [27]   Insurance        Judicial remedies and review
        The doctrine of primary jurisdiction justified deference to the Insurance Department regarding its dispute with
        homeowners' insurer over obligation to pay for cost to repair or replace portions of multi-layer roof damaged by
        excluded peril; the issues implicated other questions concerning such matters as structural engineering, residential
        construction, and premium rating, and principles of uniformity dictated a decision by the Department.

        3 Cases that cite this headnote




Attorneys and Law Firms

 *263 Bruce McCandless III, Larry Parks, Christopher A. McClellan, Long, Burner, Parks, McClellan & DeLargy, P.C., Austin,
for appellants.

Sarah C. Wells, Asst. Atty. Gen., Austin, for appellees.

Before Chief Justice ABOUSSIE, Justices B.A. SMITH and PURYEAR.

Opinion

MARILYN ABOUSSIE, Chief Justice.

Appellants Beacon National Insurance Company, First Preferred Insurance Company, and Petrolia Insurance Company
(collectively “Beacon”) appeal the district court's order granting the Texas Department of Insurance's (“TDI”) plea to the
jurisdiction and dismissing the cause. 1 Beacon contends the district court erred because (1) Beacon is entitled to pursue
declaratory relief to construe a contract; (2) its action presents a justiciable controversy *264 with TDI and is not barred by
sovereign immunity; (3) Beacon is not required to exhaust its administrative remedies before seeking this declaratory relief on
a purely legal question; and (4) primary jurisdiction does not bar Beacon's request for declaratory relief. We will affirm the
judgment of the district court.



                                                        BACKGROUND

This controversy stems from Beacon's treatment of its insureds' claims for roof repairs. When replacing a roof, some
homeowners elect to lay new shingles over the damaged layer of shingles rather than pay the cost of having the old layer
removed. Repeating this practice over time can result in the loss of a “nailable surface,” i.e., a surface to which a new roof may


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adequately be affixed. Subsequent roof repairs eventually require removing the underlying layers in order to obtain a nailable
surface.

The crux of this controversy concerns the Texas Standard Homeowers Insurance Policy—Form B (“Form B”), a standard
insurance policy form promulgated by TDI, the terms of which are incorporated into the insurance policy contracts between
Beacon and its policy holders. Form B provides, “If a Peril Insured Against causes the loss, we will pay the reasonable cost you
incur for necessary repairs.” Form B requires an insurer to pay its insured “the cost to repair or replace that part of the building
structure(s) damaged, with material of like kind and quality and for the same use and occupancy on the same premises; or the
amount actually and necessarily spent to repair or replace the damaged building structure(s).” 2 Form B excludes from coverage
“loss caused by wear and tear, deterioration or loss caused by any quality in property that causes it to damage or destroy itself.”

Beacon acknowledges that Form B requires it to pay for roof damage caused by covered perils, such as hail. However, Beacon
contends that Form B does not require it to pay for repairs or replacement of roofing layers damaged by excluded perils, such as
wear and tear. Thus, as Beacon concludes in a memo to its agents dated January 27, 2000, “on those claims requiring replacement
of damaged roofs, our company will only figure to tear off one layer of roofing and replace it with like kind and quality.”


Beacon asserts that TDI expressly approved Beacon's interpretation of Form B in a letter to Beacon dated February 15, 2000. 3
However, Beacon complains that TDI reversed its position in a letter to Beacon dated October 5, 2000, informing Beacon that
regardless of whether underlying roof layers were damaged by excluded perils, Beacon was responsible for providing *265
a nailable surface for a new roof covering:


   One such situation [not addressed in the February 15, 2000 letter] exists if during the removal of the damaged roof covering
   it is discovered the underlayment (shingles or decking) is an unsuitable nailing surface for the new roof covering.... To attach
   the new roof covering, there must be a nailable surface; therefore, it may be necessary to either (i) replace wood shingles/
   shakes with new wood shingles/shakes, or (ii) remove the wood shingles/shakes and redeck the affected area before installing
   the new roof covering.
   A generous reading of these letters suggests that TDI agreed with Beacon's assertion that it was not responsible for replacing
   underlying layers of roofing when those underlying layers were damaged by excluded perils. However, that statement, and
   TDI's acquiescence to it, does not address situations where the cause of damage to the underlying layers of roofing is unknown,
   or where there are so many underlying damaged layers (some caused by excluded perils, some by covered perils) that a
   nailable surface cannot be obtained without removing the underlying layers.
Beacon claims that TDI “announced its intention” to: (1) fine Beacon a total of $12,000; (2) require Beacon to review its policy
files to locate specific claims in which Beacon refused to pay for tear off necessary to obtain a “nailable surface”; and (3)
require Beacon to pay past roof repair claims in accordance with the October 5, 2000 letter. Beacon expresses concern that
TDI will institute an administrative enforcement action against it. On May 23, 2001, Beacon filed suit against TDI, seeking
declaratory relief that

             (1) [i]n light of both the “like kind and quality” language in the settlement portion of Form B and the
             specific exclusions listed in the policy, [Beacon is] not obligated to repair or replace portions of a multi-
             layer roof that are damaged as a result of an excluded peril; (2) TDI may not periodically interpret an
             insurance contract in a manner that is contrary to the plain terms of the contract and that in doing so it
             is exceeding its statutory authority; (3) TDI cannot retroactively impose a new interpretation of a policy
             form in order to punish an insurer who took actions consistent with the agency's previous interpretation;
             and (4) Beacon's treatment of roof repair claims consistent with the terms of Form B and the agency's
             interpretation of such form cannot constitute “bad faith” claims settlement practices as a matter of law....


Beacon founded its request for declaratory relief on the Uniform Declaratory Judgments Act (“the UDJA”). See Tex. Civ.
Prac. & Rem.Code Ann. § 37.003 (West 1997). It characterizes its suit as an effort to obtain a court declaration of purely legal



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questions regarding its contract rights and obligations under Form B with respect to claims settlement with its policy holders. See
Tex. Civ. Prac. & Rem.Code Ann. § 37.004 (West 1997). In response, TDI filed a plea to the jurisdiction based on, among other
things, sovereign immunity, Beacon's failure to exhaust its administrative remedies, and the primary jurisdiction of TDI over the
issues presented. The district court granted TDI's plea to the jurisdiction without specifying the grounds, and Beacon appeals.



                                                  STANDARD OF REVIEW

 [1] [2] [3] [4] A plea to the jurisdiction challenges the district court's authority to determine the subject matter of the cause
of action. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex.2000). Subject matter jurisdiction raises a question of law,
which we review de novo. See Mayhew v. Town *266 of Sunnyvale, 964 S.W.2d 922, 928 (Tex.1998). The plaintiff bears the
burden of pleading facts that show the district court has subject matter jurisdiction. Texas Ass'n of Bus. v. Texas Air Control
Bd., 852 S.W.2d 440, 446 (Tex.1993). We examine a plaintiff's good faith factual allegations to determine whether the district
court has jurisdiction. See Bland Indep. Sch. Dist., 34 S.W.3d at 554.

 [5] [6] Unless the face of the petition affirmatively demonstrates a lack of jurisdiction, the district court must liberally
construe the allegations in the petition in favor of the plaintiff and in favor of jurisdiction. Texas Ass'n of Bus., 852 S.W.2d at
446; Peek v. Equipment Serv. Co., 779 S.W.2d 802, 804 (Tex.1989). Nevertheless, the plaintiff's pleadings should be alleged
sufficiently to give a reasonable person fair notice of the basis for jurisdiction.



                                                         DISCUSSION

Initial Determination
Beacon's pleadings do not clearly allege whether it is seeking an initial determination of legal issues or appealing an action
taken by TDI. Although Beacon couches its complaints in terms of seeking construction of contractual language, the facts and
allegations reflect that Beacon's main complaint concerns TDI's recent statement as to the coverage afforded by Form B and
Beacon's perceived threat of enforcement action being taken by TDI. Beacon states that its declaratory judgment action sought
to clarify its rights under Form B and to complain of TDI's improper construction of the form. Beacon asserts that TDI exceeds
its statutory authority because its construction is wrong. Beacon contends that TDI changed its position about what the terms
of Form B required, “announced its intention” to fine Beacon, tendered Beacon a proposed consent order, and suggests that
unless Beacon agrees TDI might institute an enforcement action. Beacon asserts in its brief that it “seeks relief from TDI's
proposed enforcement action.”

 [7] [8] [9] State agencies have immunity from suit under the doctrine of sovereign immunity. Federal Sign v. Texas S.
Univ., 951 S.W.2d 401, 405 (Tex.1997). The UDJA waives this immunity when a party seeks a court's construction of a statute
or rule. City of LaPorte v. Barfield, 898 S.W.2d 288, 297 (Tex.1995). Beacon's action does not seek construction of a statute
or rule; it seeks a court ruling as to its obligations under Form B, which is part of its insurance contracts with its policy holders
to which TDI is not a party. We hold that the district court properly sustained TDI's plea to the jurisdiction.

Beacon argues that because courts are empowered to construe insurance policies through declaratory judgment actions and the
UDJA waives the State's sovereign immunity against such a suit, 4 the courts are therefore empowered to remedy Beacon's
complaints about TDI's current position as to the terms of coverage provided in Form B. We disagree.

 [10] [11] A declaratory judgment action under the UDJA is available if (1) a justiciable controversy exists and (2) the
controversy can be resolved by court declaration. Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex.1995). However, the
UDJA does not establish subject matter jurisdiction. A declaratory judgment action is merely a procedural device for deciding
matters already within a court's subject matter jurisdiction. State v. Morales, 869 S.W.2d 941, 947 (Tex.1994); Texas Ass'n of
Bus., 852 S.W.2d at 444. The UDJA does *267 not itself confer jurisdiction or substantive rights, and it cannot change the


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basic character of a lawsuit. Vance v. Doe, 969 S.W.2d 537, 540 (Tex.App.-Dallas 1998, no pet.); Kadish v. Pennington Assocs.,
948 S.W.2d 301, 304 (Tex.App.-Houston [1st Dist.] 1995, no writ). Beacon must allege an independent basis for jurisdiction
to maintain this proceeding.

 [12] [13] The power of courts to issue declaratory judgments under the UDJA in the face of administrative proceedings
is limited. For example, we have held that when a statute provides an avenue for attacking an agency order, a declaratory
judgment action will not lie to provide redundant remedies. Young Chevrolet, Inc. v. Texas Motor Vehicle Bd., 974 S.W.2d
906, 911 (Tex.App.-Austin 1998, pet. denied). An administrative body is entitled to exercise its statutory duties and functions
without interference from the courts, unless it exceeds that statutory authority. Westheimer Indep. Sch. Dist. v. Brockette, 567
S.W.2d 780, 785 (Tex.1978). A party may employ a declaratory judgment action to intervene in administrative proceedings
only when an agency is exercising authority beyond its statutorily conferred powers. Nuchia v. Woodruff, 956 S.W.2d 612,
615–16 (Tex.App.-Houston [14th Dist.] 1997, pet. denied).

Although Beacon's petition alleges that TDI has exceeded its statutory authority, the basis alleged for that complaint is not
sufficient to confer jurisdiction. Beacon asserts that while TDI has authority to promulgate Form B, it does not have authority
to construe its provisions. But see Tex. Ins.Code Ann. art. 5.35 (West Supp.2002). Beacon contends that TDI misconstrues the
terms of coverage provided in Form B and, therefore, TDI has exercised authority beyond that conferred on it by the legislature.
Whether TDI's interpretation is correct or incorrect cannot be the factor that confers jurisdiction. TDI is expressly authorized
by the Insurance Code to regulate insurance policies and insurer claims practices. 5 It therefore has the authority to decide such
matters in the first instance.


 [14] Furthermore, Beacon has not demonstrated the requirements necessary to seek contract construction. 6 It does not seek
resolution of a dispute between contracting parties. Beacon is not a party to any contract with TDI. Beacon does not seek a
declaration of contracting parties' rights under any specific contract. 7 It is axiomatic that a contractual dispute must rest upon a
contract, or at least an allegation of a contract. Here, there is none. Rather, Beacon's claims concern abstract insurance contracts
and hypothetical sets of facts. Beacon's preemptive claims for contractual construction reflect an effort to avoid regulatory
enforcement. See, e.g., *268 Texas Med. Ass'n v. Aetna Life Ins. Co., 80 F.3d 153, 159 (5th Cir.1996) (under Texas law
plaintiffs lacked standing under Insurance Code to bring claims, and allegations seeking contract construction could not provide
jurisdiction).

Beacon's premature attempt to arrest the administrative process before the agency has taken adverse action against it
distinguishes this case from the facts of a recent decision in which we held that a party had properly presented a request for
declaratory relief. See City of Waco v. Texas Natural Res. Conservation Comm'n, 83 S.W.3d 169 (Austin 2002, no pet. h.). In
that case, the City sought a declaration of the effect of a federal regulation incorporated into state law, a pure question of law.
Id., op. at 177. Resolution of the City's claims did not require the determination of facts in the context of an individual permit.
Id., op. at 176– 177. We held that the City's claim properly implicated the purpose of the UDJA. Id., op. at 178. Beacon's claims
require determination of several factual matters which have not been sufficiently developed. Additionally, while Beacon has
only pointed to TDI's “intentions,” the City was able to point to actions that the TNRCC had taken, i.e., granting permits that
allowed for the additional discharge of wastewater into an impaired segment of water. Moreover, this action by the TNRCC
indicated that the TNRCC had been given the opportunity to exercise primary jurisdiction in the matter; in contrast, TDI's
expressed intentions do not manifest that agency's exercise of a matter within its statutorily conferred province.

 [15] In addition, Beacon's suit lacks necessary parties. Section 37.006(a) of the UDJA requires all with an interest who would
be affected by a declaration be made parties to any declaratory judgment action. See Tex. Civ. Prac. & Rem.Code Ann. §
37.006(a) (West 1997). Beacon's insureds who have been or will be denied coverage for roof tear-off expenses have a cognizable
interest in this declaratory judgment action. Beacon has not joined or even identified any such insureds. Section 37.006(a)
prohibits the application of any declaration to anyone not a party to the declaratory judgment action. See id. If a declaration
in this case could not have a preclusive effect, then the suit cannot terminate a controversy or resolve uncertainties. Section



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37.008 allows a court to refuse to hear a declaratory judgment action if it would not end the controversy or uncertainty. Id. §
37.008 (West 1997). The district court properly refused to hear this claim.


Judicial Review of TDI Actions
 [16] Section 2001.038 of the Administrative Procedure Act (“APA”) allows a person to bring a declaratory judgment action
to determine the “validity or applicability of a rule ... if it is alleged that the rule or its threatened application interferes with or
impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff.” Tex. Gov't Code Ann. § 2001.038
(West 2000). This provision cannot provide jurisdiction because Beacon does not allege any basis for a declaratory judgment
under section 2001.038. Beacon does not challenge the “validity or applicability” of an agency rule, finding, or order. Beacon
complains only about a series of letters between Beacon and TDI and a proposed consent decree submitted to Beacon by TDI.
Neither the correspondence nor the proposed consent decree equate to a specific agency rule, set of requirements, or specific
policy concerning roof tear-offs or the terms of coverage under Form B.

Section 2001.038 requires that the agency action being challenged be a “rule” as *269 defined in the APA. Nothing in
Beacon's complaints qualifies as an attack on an agency “rule” as the statute defines that term. See id. § 2001.003(6). Here,
the correspondence from TDI about which Beacon complains is directed at Beacon only; TDI's comments are not statements
of general applicability.

TDI's general policy regarding roof tear-offs is apparently set forth in agency bulletins or advisory letters which are not included
in this record. Beacon has not sought a declaratory judgment concerning the “validity and application” of these bulletins or
letters. Beacon's complaints are directed at TDI's correspondence with Beacon, not generally applicable policies. Even if we
assume that Beacon complains or could complain about the policies contained in TDI's bulletins or advisory letters, these
bulletins or advisory letters do not rise to the status of “rules” within the meaning of section 2001.003(6). Brinkley v. Texas
Lottery Comm'n, 986 S.W.2d 764, 769 (Tex.App.-Austin 1999, no pet.). This Court has previously held:

  Not every statement by an administrative agency is a rule for which the APA prescribes procedures for adoption and for
  judicial review. Texas Educ. Agency v. Leeper, 893 S.W.2d 432, 443 (Tex.1994). This observation refers to the fact that
  administrative agencies routinely issue letters, guidelines, and reports, and occasionally file briefs in court proceedings, any
  of which might contain statements that intrinsically implement, interpret, or prescribe law, policy, or procedure or practice
  requirements. Are all such statements therefore “rules” within the meaning of APA section 2001.003(6) and 2001.038? They
  are not for several reasons.

  ****

  The legislature intends that administrative agencies exercise effectively the powers delegated to them.... Agencies would be
  reduced to impotence, however, if bound to express their views as to “law,” “policy,” and procedural “requirements” through
  contested-case decisions or formal rules exclusively; and they could not under such a theory exercise powers explicitly
  delegated to them by the legislature.

Id. at 769–71.

Beacon did not allege that any “rule” within the meaning of section 2001.003(6) is invalid or inapplicable. It did not allege the
threatened deprivation of a specific property right or privilege. Therefore, section 2001.038 provides no basis for the district
court's jurisdiction over Beacon's declaratory judgment action.


Judicial Review Under the Insurance Code
Beacon complains about TDI's actions or anticipated actions in three general areas: (1) regulation of insurance policy forms,
see Tex. Ins.Code Ann. arts. 5.39, 5.96 (West 1981); (2) regulation of insurer unfair and deceptive acts or practices, see Tex.
Ins.Code Ann. art. 21.21 (West 1981 & Supp.2002); and (3) regulation of insurer claims settlement practices, see Tex. Ins.Code



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Ann. art. 21.21–2 (West 1981 & Supp.2002). 8 The statutory framework for judicial review of TDI's actions differs among these
code provisions. 9 The code *270 explicitly excludes matters arising under articles 5.39 and 5.96 (regarding the promulgation
and approval of policy forms by TDI) from the definition of a “contested case” under the APA. These provisions contain their
own specialized procedures which do not provide for judicial review of TDI's acts. 10 On the other hand, TDI's regulation under
articles 21.21 and 21.21–2 are subject to the contested case provisions of the APA and substantial evidence review. 11

 [17] [18] The portions of the Insurance Code providing for TDI's regulation of the pertinent types of insurance policies do
not expressly allow for judicial review. The Texas Supreme Court recently reiterated the basic rule that “there is no right to
judicial review of an administrative order unless a statute provides a right or unless the order adversely affects a vested property
right or otherwise violates a constitutional right.” Continental Cas. Co. v. Functional Restoration Assocs., 19 S.W.3d 393,
397 (Tex.2000); see also General Servs. Comm'n v. Little–Tex Insulation Co., 39 S.W.3d 591, 599 (Tex.2001); Stone v. Texas
Liquor Control Bd., 417 S.W.2d 385, 385–86 (Tex.1967). The legislature did not provide for judicial review from decisions
made under article 5.39 in connection with prescription, promulgation, adoption, approval, amendment, or repeal of standard
manual rules or policies and endorsement forms for fire and other allied insurance lines. To the extent that Beacon complains
of TDI's actions related to its duties under article 5.96, there is no jurisdictional basis for judicial review of those actions, and
article 5.96(k) expressly exempts the article from application of the APA.

Neither article 21.21 nor article 21.21–2 provides any basis for jurisdiction over Beacon's claims. The private cause of action
created in article 21.21, section 16 was fashioned by the legislature to be used against insurers. Nothing in article 21.21, section
16 provides an insurer a right of action against TDI. Similarly, article 21.21, section 16 applies only to persons in privity of
contract with an insurer or an intended beneficiary of a policy. Shelton Ins. Agency v. St. Paul Mercury Ins. Co., 848 S.W.2d
739, 744 (Tex.App.-Corpus Christi 1993, writ denied); CNA Ins. Co. v. Scheffey, 828 S.W.2d 785, 791 (Tex.App.-Texarkana
1992, writ denied); Chaffin v. Transamerica Ins. Co., 731 S.W.2d 728, 731 (Tex.App.-Houston [14th Dist.] 1987, writ ref'd
n.r.e.). Moreover, article 21.21–2 is not available to Beacon because only TDI may act under it to investigate insurers and
impose sanctions. See Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 148–49 (Tex.1994).

 [19] [20] Furthermore, there is no judicial review of TDI's actions because TDI has not taken any action against Beacon. We
have nothing to review. TDI has only engaged in informal disposition procedures prescribed by the Insurance Code. See Tex.
Ins.Code Ann. § 82.055(a) (West 2002). As judicial review under articles 21.21 and 21.21–2 is subject to the APA, anyone
aggrieved by TDI's actions must first exhaust all administrative remedies before proceeding to court. Texas Educ. Agency v.
Cypress–Fairbanks Indep. Sch. Dist., 830 S.W.2d 88, 90 (Tex.1992). Section 2001.171 of the APA only allows judicial review
to a person “who has exhausted *271 all administrative remedies available within a state agency” and who is dissatisfied with
a “final order in a contested case.” Tex. Gov't Code Ann. § 2001.171 (West 2000). Failure to exhaust administrative remedies
precludes granting declaratory relief before the agency issues a final administrative decision. Cypress–Fairbanks Indep. Sch.
Dist., 830 S.W.2d at 90. Here, there is no order, final or otherwise.

 [21] Clearly, TDI was acting pursuant to the authority granted to it under section 82.055(a) when it submitted the proposed
consent decree about which Beacon complaints. Beacon argues that it anticipates that TDI will initiate enforcement proceedings
if Beacon does not agree to the terms set out in the proposed consent decree. TDI has not initiated any enforcement proceedings.
Beacon's lawsuit presents an attempt to circumvent TDI's ability to act under chapters 82 and 84 of the Insurance Code. See
Tex. Ins.Code Ann. §§ 82.051, .052, .054, .055 (West 2002). Beacon essentially seeks an advisory opinion which the courts are
powerless to render. See Texas Ass'n of Bus., 852 S.W.2d at 444 (citing Tex. Const. art. II, § 1, prohibiting advisory opinions).

 [22] The exception to the finality requirement for matters involving purely legal issues does not apply to this case as Beacon
urges. The substance of Beacon's complaints involves factual issues, not purely legal questions, and requires technical expertise
that should not be determined in a factual vacuum. Each insured's roof claim is factually unique and may arise under innumerable
factual scenarios. Whether and under what circumstances an adequate roof can be installed without removing underlying layers
is a fact-based question. Beacon seeks a blanket answer based only on policy language and not individualized facts. See,



                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                             10
Beacon Nat. Ins. Co. v. Montemayor, 86 S.W.3d 260 (2002)


e.g., Mercedes Indep. Sch. Dist. v. Munoz, 941 S.W.2d 215, 218 (Tex.App.-Corpus Christi 1996, writ denied) (existence of
fact questions disqualified claim from pure legal question exception). Beacon is not excused from the exhaustion of remedies
requirements of the APA.


Primary Jurisdiction
 [23] [24] [25] [26] The doctrine of primary jurisdiction applies when a court and an agency have concurrent original
jurisdiction over a dispute. Cash Am. Int'l, Inc. v. Bennett, 35 S.W.3d 12, 18 (Tex.2000). It guides a court in determining whether
it should route the threshold decision about certain issues that are “within the special competence of an administrative agency”
to that agency. Id. A court must decide whether it should defer to the agency's expertise and responsibility to develop regulatory
policy. Id. The doctrine rests on valid policies: “(1) an agency is typically staffed with experts trained in handling the complex
problems in the agency's purview; and (2) great benefit is derived from an agency's uniformly interpreting its laws, rules, and
regulations, whereas courts and juries may reach different results under similar fact situations.” Subaru of Am., Inc. v. David
McDavid Nissan, Inc., 84 S.W.3d 212, 221 (Tex.2002); see also Gregg v. Delhi–Taylor Oil Corp., 162 Tex. 26, 344 S.W.2d 411,
413 (1961). This deference ensures that the agency decides, at least initially, 12 matters that require the “special knowledge,
experience and services of the administrative tribunal to determine technical and intricate matters of fact.” Cash Am. Int'l, Inc.,
35 S.W.3d at 18. Courts *272 also defer to an agency when uniform decision making is essential to carry out the purposes
of the regulatory scheme. Id.; Kavanaugh v. Underwriters Life Ins. Co., 231 S.W.2d 753, 755 (Tex.Civ.App.-Waco 1950, writ
ref'd); see also Tex. Ins.Code Ann. § 36.001(b) (West 2002).

 [27] Both of the fundamental principles underlying the doctrine of primary jurisdiction lead to the conclusion that the courts
should defer to TDI, subject to appropriate judicial review, on the issues presented in this case. While courts alone are authorized
to construe written contracts and adjudicate rights thereunder, this case involves many more complex issues than simple contract
interpretation. TDI's enforcement of insurer claims handling practices is necessarily informed by court interpretations of policy
language. However, the issues raised by Beacon's complaints implicate other questions concerning such matters as structural
engineering, residential construction, and premium rating. TDI can better address, at least initially, these fact-based questions
and apply its regulatory expertise and historical perspective to these issues.

Moreover, principles of uniformity dictate that TDI address these issues. In matters of insurance and interpretation of insurance
policies, the supreme court has recognized the importance of uniformity, especially when policy provisions are identical across
the country. National Union Fire Ins. Co. v. CBI Indus., 907 S.W.2d 517, 522 (Tex.1995). Form B is a standardized form used in
the insurance industry nationwide. Resolution of the issues raised by Beacon potentially impact all insurers writing homeowner
coverage in Texas. The issues should first be addressed in a broader administrative proceeding, not in two party litigation. The
regulatory scheme and authority of TDI will be undermined if insurers are allowed to avoid enforcement proceedings through
preemptive declaratory judgment actions.



                                                        CONCLUSION

For the reasons set forth above, we overrule Beacon's issues on appeal. We affirm the judgment of the district court granting
TDI's plea to the jurisdiction and dismissing Beacon's action.


All Citations

86 S.W.3d 260


Footnotes




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                            11
Beacon Nat. Ins. Co. v. Montemayor, 86 S.W.3d 260 (2002)


1     Beacon conceded at oral argument that it has no justiciable claims against John Cornyn as Attorney General or the Office of Attorney
      General.
2     Form B also provides, under a section labeled “Extensions of Coverage,” the following: “We will pay your expense for the removal
      from the residence premises of: (a) debris of covered property if a Peril Insured Against causes the loss.”
3     This February 15 letter is apparently a response to an earlier letter from Beacon which is not in the record. The February 15 letter
      enclosed a copy of an “April 24, 1995 letter by [TDI] which clarified this Department's position regarding claims on dwellings having
      multiple layers of roof coverings.” It then states that “[i]t appears that [Beacon's January 27, 2000 letter to adjusters] regarding roof
      claim loss settlement is within the provisions as contained in the policy contract.” This is the portion of TDI's letter relied on by
      Beacon to support its claim that TDI at one time approved of its settlement practices regarding roof claims. The February 15 letter
      goes on to state, “However, there may be situations, i.e. [sic] wind and/or hail damages both layers, that the company would be
      expected to pay for complete removal of the top and underlying roofing material.”
4     See Tex. Civ. Prac. & Rem.Code Ann. § 37.004 (West 1997).
5     Tex. Ins.Code Ann. art. 5.35(a)-(j) (West Supp.2002); Tex. Ins.Code Ann. art. 21.21, § 5, 21.21–2, §§ 4, 8 (West 1981); Tex. Ins.Code
      Ann. §§ 31.002(1), 37.001 (West 2002) (investing TDI with authority to “regulate the business of insurance in this state”).
6     Subject matter jurisdiction requires that the plaintiff bringing the suit have standing to do so, that there be a live controversy between
      the parties, and that the case be justiciable or ripe for decision. Texas Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 443–
      46 (Tex.1993); Texas Dep't of Banking v. Mount Olivet Cemetery Ass'n, 27 S.W.3d 276, 282 (Tex.App.-Austin 2000, pet. denied)
      (suits to construe statutes).
7     All of the insurance policy construction cases cited by Beacon in its brief involve situations concerning an insurance policy between
      an insurer and an insured. See Travelers Indem. Co. v. McKillip, 469 S.W.2d 160 (Tex.1971); Carlton v. Trinity Universal Ins. Co.,
      32 S.W.3d 454 (Tex.App.-Houston [14th Dist.] 2000, pet. denied); Wallis v. United Servs. Auto Ass'n, 2 S.W.3d 300 (Tex.App.-San
      Antonio 1999, pet. denied).
8     The proposed consent decree submitted by TDI includes provisions for Beacon's violations of policyholder complaint record keeping.
      An insurer's failure to keep required records of the complaints it receives about its claims practices is governed by article 21.21–
      2, section 2(6). Tex. Ins.Code Ann., art. 21.21–2, § 2(b) (West Supp.2002). These failures are defined as “unfair claims settlement
      practices.”
9     The Insurance Code is not a model of clarity. Adding to the confusion is the fact that the Code is being recodified in intervals and
      portions of the recodification contain substantive revisions. Currently, some parts of the Code have been recodified and some have not.
10    Tex. Ins.Code Ann. arts. 5.39(a), 5.96(a), (b), (f), (j), (k) (West Supp.2002).
11    Tex. Ins.Code Ann. §§ 31.002, .001, .101, .201–03 (West 2002).
12    Appellate courts review questions of primary jurisdiction on a de novo basis with no deference to the district court's decision. Subaru
      of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 222 (Tex.2002).


End of Document                                                           © 2015 Thomson Reuters. No claim to original U.S. Government Works.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                         12
Board of Adjustment of City of San Antonio v. Levinson, 244 S.W.2d 281 (1951)




                                                     244 S.W.2d 281
                                      Court of Civil Appeals of Texas, San Antonio.

                            BOARD OF ADJUSTMENT OF CITY OF SAN ANTONIO et al.
                                                 v.
                                             LEVINSON.

                               No. 12304. | Nov. 7, 1951. | Rehearing Denied Dec. 5, 1951.


Minnie (Stein) Levinson brought suit against the Board of Adjustment of the City of San Antonio, Texas and others to enjoin
operation of a one chair beauty shop in a home in a D-Apartment District. The 73rd District Court, of Bexar County, Delos
Finch, J., entered a judgment in favor of the plaintiff, and the defendants appealed. The Court of Civil Appeals, Pope, A. J.,
held that zoning ordinance prohibited operation of beauty shop, and that powers granted Adjustment Board to make a
variance did not permit it to re-classify land uses.

Judgment affirmed.

W. O. Murray, C. J., dissented.




 West Headnotes (5)


[1]
        Zoning and Planning
          Home occupations

        In light of the ejusdem generis rule of
        construction, words “such as the office of a
        physician, surgeon, dentist, musician, or artist”
        limited and contracted the broader term “home
        occupation” as used in zoning ordinance of city
        permitting in a D-Apartment District uses
        customarily incident to enumerated uses when
        situated in the same dwelling, including “home
        occupation”“such as the office of a physician,
        surgeon, dentist, musician, or artist”, and the
        words “such as” required that the home
        occupations be like or similar to the
        classifications or kinds named.


        6 Cases that cite this headnote




[2]
        Zoning and Planning
          Right to variance or exception, and discretion

        Discretion of a city zoning board of adjustment

               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                         1
Board of Adjustment of City of San Antonio v. Levinson, 244 S.W.2d 281 (1951)



       to vary zoning ordinance is not power to
       legislate.


       Cases that cite this headnote




[3]
       Zoning and Planning
         Limitations on and sparing exercise of power

       The power to vary conditions of municipal
       zoning ordinances should be sparingly
       exercised.


       Cases that cite this headnote




[4]
       Zoning and Planning
         Home occupations

       City ordinance authorizing in a D-Apartment
       District uses customarily incident to enumerated
       uses when situated in the same dwelling,
       including home occupation “such as” the office
       of a physician, surgeon, dentist, musician, or
       artist, did not authorize operation of a one chair
       beauty shop in the D-Apartment District.


       2 Cases that cite this headnote




[5]
       Zoning and Planning
         Business, commercial, and industrial uses in
       general

       Where city zoning ordinance provided that in
       D-Apartment District there might be such home
       occupations as office of a physician, surgeon,
       dentist, musician, or artist, and provided that
       Board of Adjustment had authority to hear and
       decide special exceptions to terms of ordinance
       where literal enforcement of ordinance will
       result in unnecessary hardships, and that City
       Commissioners may from time to time amend,
       supplement or change by ordinance the
       boundaries of the districts or the regulations
       established, Board of Adjustment could not
       grant a variance so as to permit operation of a
              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   2
Board of Adjustment of City of San Antonio v. Levinson, 244 S.W.2d 281 (1951)



        one chair beauty shop in home in D-Apartment
        District, and it was necessary that any relief
        come by way of an amendment by City
        Commissioners.


        9 Cases that cite this headnote




Attorneys and Law Firms

*281 Kampmann & Burney, Jack R. Davis, and C. J. Matthews, San Antonio, for appellants.

Adrian A. Spears, San Antonio, for appellee.

Opinion

POPE, Justice.



The Board of Adjustment of the City of San Antonio, Carmen Eggleton and her husband have appealed from a judgment of
the District Court of Bexar County, that held an order of the San Antonio Board of Adjudgment to be in excess of its
delegated powers and void. The Board’s order granted Carmen Eggleton and her husband permission to operate a beauty
shop in a D-Apartment District as zoned by the City of San Antonio.

Appellants Carmen Eggleton and her husband live in San Antonio in a D-Apartment District as defined by the Zoning
Ordinance, and are adjoining neighbors of appellee, Minnie Levinson. The Eggleton property is located about two hundred
feet from North St. Mary’s Street, where various *282 kinds of retail stores are situated. Mrs. Eggleton maintains her aged
and blind father in her home, and Mrs. Levinson maintains her disabled sister in her home. On March 16, 1949, after proper
notice and hearing, the Board of Adjustment granted Mrs. Eggleton permission to operate a one-chair beauty shop in her
seven-room residence, provided she displayed no signs or advertising on the outside of the home. Mrs. Eggleton commenced
the operation of her beauty shop and has continued that operation up to the present time. On September 27, 1950, Minnie
Levinson sought and obtained a rehearing and challenged the Board’s jurisdiction to make its former order. This application
for rehearing was made more than a year and a half after the original decision by the Board. The ordinance required appeals
from Board orders to be perfected within ten days. On October 12, 1950, the Board denied the rehearing and appellee within
ten days filed suit in the District Court, still attacking the jurisdiction of the Board to enter its order and praying for an
injunction against the operation of the beauty shop. The court after trial entered its judgment that the Board did not have the
authority and jurisdiction to enter its original order in 1949, and enjoined appellants from further operating the beauty shop.
The judgment was superseded.

Appellee concedes that she did not appeal from the Board’s original order within the time provided by the ordinance, and that
unless the order is void, she cannot attack the order.

Land uses not granted by the ordinance were expressly prohibited. The uses for a D-Apartment District as stated in the
ordinance are: ‘Uses customarily incident to any of the above uses when situated in the same dwelling, including home
occupation such as the office of a physician, surgeon, dentist, musician, or artist * * *.’ Another section permits also in such a
district: ‘Uses customarily incident to any of the above uses * * * when not involving the conduct of a business other than
incidental to the residential use of such lot * * *.’ Beyond those uses permitted by the ordinance, the Board of Adjustment
was authorized:

‘To hear and decide special exceptions to the terms of this ordinance upon which the Board is required to pass herein.


                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                           3
Board of Adjustment of City of San Antonio v. Levinson, 244 S.W.2d 281 (1951)



‘To authorize upon appeals in specific cases such variance from the terms of this ordinance as will not be contrary to the
public interest where, owing to special conditions a literal enforcement of the provisions of this ordinance will result in
unnecessary hardships, and so that the spirit of the ordinance shall be observed and substantial justice done.’

The judgment of the district court amounts to a judgment (1) that the beauty shop as an incident to the residence is not
permitted in a D-Apartment District under the wroding of the ordinance, and (2) that the granting of the right to maintain the
beauty shop was not a mere ‘variance,’ but was a re-zoning which is a form of legislation and in excess of the Board’s
delegated powers and void.
[1]
    If the ordinance in permitting ‘home occupation, such as the office of a physician, surgeon, dentist, musician, or artist,’
means that a beautician may operate her shop in her home, any action by the Board of Adjustment becomes immaterial, for
the right exists without benefit of an exception to or variance from the ordinance. The trial court has held that the beauty shop
is not ‘such as’ the vocations named in the ordinance. Erwin v. Steele, Tex.Civ.App., 228 S.W.2d 882, discusses the rule of
ejusdem generis as an aid in interpreting the words ‘such as’ when used in a will. Examination of that case shows that the
general words were repeated both before and after the specific items designated in the sentence being construed, and in that
respect differs from the instant case. However, we think, in the light of the ejusdem generis rule of construction, the words
‘such as the office of a physician, surgeon, dentist, musician, or artist’ limit and contract the broader term ‘home occupation.’
Erwin v. Steele, Tex.Civ.App., 228 S.W.2d 882. The named occupations may be treated as examples or illustrations, but even
so, the words ‘such as’ require *283 that the home occupations be like or similar to the classifications or kinds named.
Charles Behlen Sons’ Co. v. Ricketts, 30 Ohio App. 167, 164 N.E. 436. The words ‘such as’ were defined in the Erwin case
(Tex.Civ.App., 228 S.W.2d 885) as: ‘(A) similitude, classifying articles of the kinds named, which are like or similar to those
used in the will. ‘Such’ is defined by Webster as ‘having the particular quality or character specified; certain; representing the
object as already particularized in terms which are not mentioned’; as of like kind, similar, equivalent to, ‘of that kind.’
Travers v. Wallace, 93 Md. 507, 49 A. 415. The synonyms of ‘such as,’ are alike, similar, of the like kind; ‘such’
representing the object as already particularized in terms which are not mentioned, being a descriptive and relative word,
referring to the specific articles mentioned. Strawberry Hill Land Corporation v. Starbuck, 124 Va. 71, 97 S.E. 362.’


In Piaget-Del Corporation v. Kulik, 133 N.J.L. 485, 45 A.2d 125, 126, the court was called upon to construe a zoning
ordinance which prohibited within business districts certain ‘trades, industries or uses,’ among others, ‘Merry-Go-Rounds,
Ferris Wheels or similar amusement.’ It was there held that a skating rink was not included in the ban and that the words ‘or
similar amusement’ could not be construed to include them. The ordinance in the instant case permits uses ‘including home
occupations such as the office of a physician, surgeon, dentist, musician, or artist.’ ‘Such as’, from the definition in the Erwin
case, means ‘similar’, and the ordinance thus permits a use of a home for ‘the office of a physician, surgeon, dentist, musician,
or artist’, and/or similar home occupations, to paraphrase the Kulik case. The Kulik case reasons that if any amusements,
though not stated, were included within the ban of that ordinance, the ordinance would not receive its ordinary and natural
meaning, for ‘Evidently, there was no intention, by this provision, to reach all amusement devices and places of
entertainment.’ By the same reasoning, unless we are to say that the San Antonio ordinance permits all home occupations, we
must construe the ordinance as permitting only those named uses and similar uses, a beauty parlor not being one of them.

Hence, it becomes apparent that in the instant case, while other ‘home occupations’ may be similar to the named vocations
and permitted; many others are prohibited, both professional and unprofessional.

The purposes for passing the comprehensive zoning regulations and the establishment of the districts were those usually
stated in the exercise of a city’s police powers. But the ordinance not only established land uses, it also had as one of its
purposes, the preservation of what it established. The ordinance permits relief from the rigors of the ordinance, but the
methods of obtaining changes are stated in the ordinance. Those changes are effected by way of an (1) exception or variance
at the hands of the Board of Adjustment under stated circumstances, or (2) amendment at the hands of the City Commission.
Whether the ordinance as written permits the beauty shop in a D-Apartment District must be decided in view of a purpose to
preserve the designated uses of the property. Every expansion of the permitted uses is an encroachment upon what is
prohibited and to that degree does not preserve the district.

The Board of Adjustment was delegated the power to grant a variance so long as it ‘will not be contrary to the public interest
where, owing to special conditions a literal enforcement of the provisions of this ordinance will result in unnecessary
hardships, and so that the spirit of this ordinance shall be observed and substantial justice done.’ In the exercise of that power
to enlarge upon permitted land uses, the Board possesses some discretion, which unless abused will prevail. We are not here

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                            4
Board of Adjustment of City of San Antonio v. Levinson, 244 S.W.2d 281 (1951)



concerned with discretion, but power of the Board. Appellee concedes that the Board did not abuse its discretion, if this is
such a case as called for its exercise. Appellee urges that the Board exercised an undelegated power in permitting a use which
is prohibited. The Board admittedly is granted some discretion to alleviate land use hardships, while at the other extreme
*284 we know that the Board is powerless to go so far as to legislate. Somewhere between these opposites, the Board’s
delegated administrative powers cease and the municipality’s legislative powers commence. That point of separation of
powers means the difference between a valid and a void order.
[2]
    Discretion to vary is not power to legislate. While the language which grants discretion cannot be expressed in decimal
points, we do have some guides that indicate the areas which the Board of Adjustment may not transgress. In the absence of a
clear delegation of powers, a Board’s effects to change the nature of permitted land uses have been held void. Under
ordinances expressly prohibiting certain uses, as in this case, courts have on many occasions held void a Board’s attempt to
grant a variance permitting such use. Lee v. Board of Adjustment, 226 N.C. 107, 37 S.W.2d 128, 168 A.L.R. 1. In the
absence of action by the proper legislative body of the city, an ordinance permitting a foundry in a first manufacturing district
could not be expanded to permit a foundry in a second manufacturing district, City of Amarillo v. Stapf, 129 Tex. 81, 101
S.W.2d 229; nor a filling station in a residence district, Harrington v. Board of Adjustment, Tex.Civ.App., 124 S.W.2d 401;
Bray v. Beyer, 292 Ky. 162, 166 S.W.2d 290, 292. A free parking lot adjoining a threatre was not permitted in the adjacent
first residential district, Texas Consolidated Theatres v. Pitillo, Tex.Civ.App., 204 S.W.2d 396, nor a retail store in a dwelling
district, Luse v. City of Dallas, Tex.Civ.App., 131 S.W.2d 1079, and where, unlike in the instant case, all professions were
expressly forbidden in a certain district, appellant was denied the right to use his home as a dentist’s office, Connor v. City of
University Park, Tex.Civ.App., 142 S.W.2d 706, although the question of the Board’s power to vary the ordinance was not
raised in that case. Accord, City of Harlingen v. Feener, Tex.Civ.App., 153 S.W.2d 671. Walton v. Tracy Loan & Trust
Company, by the Supreme Court of Utah, 97 Utah 249, 92 P.2d 724, 727, states the reasons that land may not be re-classified
for uses by action of the Board: ‘Any variance in use is to the extent of such land in effect a rezoning or the placing of such
land in a different zone than that in which the Commission by ordinance had placed it for the purpose of promoting the health,
safety, morals and general welfare of the community. Such interpretation would permit the Board, an administrative agent
merely, to set aside and in effect annual an ordinance, a legislative act of the Commission, and to do all the Commission itself
might do. It requires no citation of authority to establish that the Commission could not delegate to the Board or any other
administrative officer its legislative powers or functions. The Board may make such rules and regulations as are reasonably
necessary or expedient to enable it to carry out administratively its functions and duties, but not the duties and powers of the
Commission. Its function is to carry out the will of the Commission and not to void or set aside that judgment or will.’


This Court recently held in the case of Hall v. Board of Adjustment of City of McAllen, 239 S.W.2d 647, that the failure to
appeal from a Board’s decision within the time allowed by the ordinance was grounds for dismissal of the suit for certiorari
to review the action of the Board in allowing a skating rink in an area not permitted by the ordinance. Neither the opinion nor
the transcript of statement of facts in that case, which we have again examined, brought forward the city ordinance which
would show the measure of the powers delegated to the Board by the City of McAllen. Whether the Board exceeded its
delegated powers was not the point in that case. Driskell v. Board of Adjustment, Tex.Civ.App., 195 S.W.2d 594, unlike the
problem in the instant case, involved an ordinance specifically authorizing the Board to grant a variance as regards the same
kind of use there sought. The Board there possessed the power and also the ordinance was clear in its intended scope. City of
San Angelo v. Boehme Bakery, 144 Tex. 281, 190 S.W.2d 67, held that the Board possessed the power to extend uses that
were non-conforming at the time the ordinance there in question was passed. That *285 ordinance also expressly granted
such power to the Board, unlike in the instant case where, instead of a grant of powers, there is a prohibition of the exercise
of such powers. This distinction is recognized in the Court of Civil Appeals opinion, Boehme Bakery v. City of San Angelo,
185 S.W.2d 601. The Supreme Court approved this distinction between delegated and undelegated powers. City of University
Park v. Hoblitzelle, Tex.Civ.App., 150 S.W.2d 169, 171, states: ‘the Board of Adjustments of the City of University Park,
exercising the powers granted by the ordinances of said City, denied by the application, * * *.’ That case no authority for a
problem where there is no grant of power to the Board. City of West University Place v. Ellis, Tex.Civ.App., 118 S.W.2d 907,
affirmed 134 Tex. 222, 134 S.W.2d 1038, in no way concerned the delegation of powers. That case held that even the proper
legislative body of the city could not arbitrarily classify a business lot as a single family dwelling.
[3]
    Board of Adjustment v. Stovall, Tex.Civ.App., 218 S.W.2d 286, concerned an ordinance which gave more specific
authority to the Board than is found in the San Antonio ordinance, but it was there held that the attempted variation was
legislation rather than a variance even under the more definite delegation of powers. The power to vary conditions of zoning
ordinances should be sparingly exercised. Weaver v. Ham, Tex., 232 S.W.2d 704, 708.



                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                           5
Board of Adjustment of City of San Antonio v. Levinson, 244 S.W.2d 281 (1951)



Section 70 of the San Antonio zoning ordinance infers that the City Commissioners expected to exercise the power of
changing district boundaries. It provides: ‘Sec. 70. The City Commissioners may from time to time amend, supplement or
change by ordinance the boundaries of the districts or the regulations herein established.’
[4] [5]
        We conclude that the ordinance prohibits a beauty shop in the D-Apartment District, and that under the delegated
powers granted the Board to make a variance in instances of hardship, it cannot reclassify land uses. That must come by way
of an amendment by the City Commissioners who retained the power to legislate.


The judgment is affirmed.




W. O. MURRAY, Chief Justice.


I do not concur in the above opinion. It will be kept in mind that this is not an appeal from an order of the Board of
Adjustment but an independent proceeding to have its order declared void for want of jurisdiction.

Under the zoning law the Board did have jurisdiction to consider whether or not the operating of a one-chair beauty shop,
such as appellant desired to operate, was a home occupation such as the office of a physician, surgeon, dentist, musician, or
artist, and whether there was to be granted a variance or exception to this zoning ordinance.

The construction placed upon the language of the ordinance by the majority is a very strict one and, in effect, holds that the
doctrine of ejusdem generis should be applied, and therefore the only offices that can be operated in a D-Apartment District
are those named in the ordinance. It occurs to me that the language of the ordinance, in general terms, having granted the
right to conduct home occupations in D-Apartment districts, the language following, naming specifically five of these home
industries, should not be given such strict construction as to exclude such home occupations as dress-making, a lawyer’s
office, an engineer’s office, etc. Just why would the City authorize a doctor, a dentist, a surgeon, a musician or an artist to
maintain an office in his home in such a zone and at the same time intend that under no circumstances could a dress-maker, a
lawyer, or an engineer maintain an office in his home? I cannot believe that such was the intention. In construing an
ordinance the legislative intent is the thing to be determined.

It further occurs to me that in constructing the particular language here used in the ordinance an application of the doctrine of
ejusdem generis will defeat rather than uphold the legislative intent. The doctrine of ‘ejusdem generis’ and ‘expression unius
est exclusio alterius’ are not rules of substantive *286 law, but are only rules of construction, and are not to be applied where
the legislative intent is plain and unambiguous. City of Lexington v. Edgerton, 289 Ky. 815, 159 S.W.2d 1015, 151 A.L.R.
1207; City of Caruthersville v. Faris, 237 Mo.App. 605, 146 S.W.2d 80.

For the reasons above stated, I respectfully enter my dissent.


All Citations

244 S.W.2d 281

 End of Document                                                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                               6
Brinkley v. Texas Lottery Com'n, 986 S.W.2d 764 (1999)




                                                      986 S.W.2d 764
                                                  Court of Appeals of Texas,
                                                           Austin.

                               Shannon BRINKLEY, d/b/a Krane–Ko Vending, Appellant,
                                                       v.
                                     TEXAS LOTTERY COMMISSION, Appellee.

                                          No. 03–97–00252–CV            |   Feb. 4, 1999.

Owner of electronic machines similar to slot machines filed action seeking, in part, declaratory judgment that his machines
were not gambling devices. The District Court, Travis County, 250th Judicial District, John K. Dietz, J.P., dismissed his causes
of action for want of jurisdiction. Owner appealed. The Court of Appeals, John Powers, J. (Retired), held that: (1) cause of
action seeking declaratory judgment that machines were not gambling devices sought improper advisory opinion; (2) trial court
lacked jurisdiction to grant requested injunctive relief in absence of allegations of probable injury; (3) Commission's advisory
letters were not “rules” within meaning of provision of Administrative Procedure Act (APA) authorizing declaratory judgments
to determine validity of rules; and (4) Commission was not subject to suit under § 1983 or federal civil rights conspiracy statute.

Affirmed.



 West Headnotes (14)


 [1]    Constitutional Law         Advisory Opinions
        Separation-of-powers doctrine prohibits courts from issuing advisory opinions.

        1 Cases that cite this headnote


 [2]    Constitutional Law         Advisory Opinions
        Distinctive feature of an advisory opinion is that it decides an abstract question of law without binding the parties.

        4 Cases that cite this headnote


 [3]    Constitutional Law         Advisory Opinions
        Opinion is advisory when the judgment sought would not constitute specific relief to a litigant or affect legal relations.

        7 Cases that cite this headnote


 [4]    Declaratory Judgment           Future or contingent questions
        Court will not declare rights on facts which have not arisen or adjudicate matters which are contingent, uncertain,
        or rest in the future.

        1 Cases that cite this headnote


 [5]    Declaratory Judgment           State officers and boards




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Brinkley v. Texas Lottery Com'n, 986 S.W.2d 764 (1999)


        Cause of action brought by owner of electronic machines against Lottery Commission seeking declaratory judgment
        that his machines were not gambling devices, in response to advisory letters on subject sent by Commission to bingo-
        parlors, sought improper advisory opinion where only parties to suit were owner and Commission, and where owner
        was not licensee subject to Commission's regulation but was speculating that declaratory judgment might induce his
        former lessor or other licensees to allow him to operate his machines in their parlors.

        3 Cases that cite this headnote


 [6]    Declaratory Judgment            Advisory opinions
        Uniform Declaratory Judgments Act is a procedural device for deciding cases already within a court's jurisdiction;
        the statute does not enlarge a court's jurisdiction so as to authorize the rendition of advisory opinions. V.T.C.A., Civil
        Practice & Remedies Code §§ 37.001–37.011.

        3 Cases that cite this headnote


 [7]    Injunction       Clear, likely, threatened, anticipated, or intended injury
        Injunctions may not issue unless it is shown that the respondent will engage in or is engaging in the activity to be
        enjoined.

        Cases that cite this headnote


 [8]    Injunction       Gambling and gaming
        Trial court lacked jurisdiction to grant request by owner of electronic machines for injunction to prevent Lottery
        Commission and all others from interfering with his operation in bingo parlors licensed by Commission, absent
        allegations of fact showing probable injury; owner alleged that Commission sent advisory letters on whether machines
        were gambling devises to about 2,500 licensees, but not that Commission, unless restrained, would enforce against
        him any sanction within its power to enforce.

        3 Cases that cite this headnote


 [9]    Declaratory Judgment            State officers and boards
        Advisory letters from Lottery Commission about whether electronic machines were illegal gambling devices did
        not constitute “rules” within meaning of provision of Administrative Procedure Act (APA) authorizing declaratory
        judgments to determine validity of rules. V.T.C.A., Government Code §§ 2001.003(6), 2001.038.

        8 Cases that cite this headnote


 [10]   Administrative Law and Procedure             Rules, Regulations, and Other Policymaking
        Not every statement or expression by an administrative agency as to “law,” “policy,” and procedural “requirements” is
        a rule for which the Administrative Procedure Act (APA) prescribes procedures for adoption and for judicial review;
        in absence of statute providing that statements have legal effect on private persons or some attempt by agency to so
        enforce its statement, the agency's pronouncements remain merely informal views, effective only upon and within the
        agency's internal management and organization. V.T.C.A., Government Code § 2001.003(6).

        13 Cases that cite this headnote


 [11]   Civil Rights      States and territories and their agencies and instrumentalities, in general



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Brinkley v. Texas Lottery Com'n, 986 S.W.2d 764 (1999)


        Civil Rights      Parties
        States and the governmental entities that are considered “arms of the State” are not “persons” subject to suit under §
        1983, and thus, when a litigant seeks relief from the acts of a state agency under § 1983, he must sue an individual in
        authority at an agency as opposed to the agency itself. 42 U.S.C.A. § 1983.

        2 Cases that cite this headnote


 [12]   States       Necessity of Consent
        Doctrine of sovereign immunity, unless waived, protects the State of Texas, its agencies, and its officials, against
        lawsuits for damages, absent legislative consent to sue the state.

        2 Cases that cite this headnote


 [13]   Civil Rights      Liability of Municipalities and Other Governmental Bodies
        Conspiracy        Persons Liable
        Lottery Commission was arm of the state and thus was not “person” subject to suit for damages and injunctive relief
        under § 1983 or federal civil rights conspiracy statute. 42 U.S.C.A. §§ 1983, 1985.

        1 Cases that cite this headnote


 [14]   Appeal and Error         Review of correct decision based on erroneous reasoning in general
        Correct lower court judgment must be upheld on any applicable legal theory, even if the lower court gives an incorrect
        reason for its judgment.

        Cases that cite this headnote




Attorneys and Law Firms

*766 Ira E. Tobolowsky, Tobolowsky & Burk, P.C., Dallas, for Appellant.

John Cornyn, Atty. Gen., Matthew L. Rienstra, Asst. Atty. Gen., Admistrative Law Division, Austin, for Appellee.

Before Chief Justice ABOUSSIE, Justices B.A. SMITH and POWERS. *

Opinion

JOHN POWERS, Justice (Retired).

Shannon Brinkley sued the Texas Lottery Commission to obtain a declaratory judgment that certain machines, denominated
“eight-liners,” are not “gambling devices” as defined by the Texas Penal Code. See Tex. Penal Code Ann. § 47.01(B)(4) (West
Supp.1998). He applied for an injunction against enforcement of any criminal or administrative penalties for operating “eight-
liners,” and in a civil-rights action prayed for compensatory damages. The trial court dismissed his causes of action for want
of jurisdiction. Brinkley appeals. We will affirm the judgment.



                                                  THE CONTROVERSY




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Brinkley v. Texas Lottery Com'n, 986 S.W.2d 764 (1999)


The Bingo Enabling Act, administered and enforced by the Texas Lottery Commission, provides as follows:

             A game of chance other than bingo ... may not be conducted or allowed during an occasion when bingo
             is played.... This subsection does not prohibit the exhibition and play of an amusement machine that is
             not a gambling device as defined by Section 47.01, Penal Code.

Tex.Rev.Civ. Stat. Ann. art. 179d, § 11(k) (West Supp.1998). Section 47.01 of the Penal Code defines “gambling device.” 1

The Commission licenses and regulates some 2,500 bingo-parlors. Many licensees allow the operation of “eight-liners” in their
parlors. Eight-liners are electronic machines (similar to “slot machines”) that dispense gift certificates redeemable for prizes.
The machines do not all operate in the same manner; their operation and payout can be configured in a variety of ways.

 *767 The Commission received numerous complaints and inquiries from licensees who were uncertain about whether the
particular machines in their parlors were set up to operate legally. In response, the Commission sent to its licensees letters setting
forth criteria by which the licensees might ascertain the legal status of machines in their parlors. The letters included a warning
that illegally operated machines exposed licensees to administrative and criminal penalties. 2 The Commission noted in the
letters that application of the stated criteria would not necessarily determine the legality of the machines and “the agency cannot
guarantee that the use of the eight-liners is necessarily legal.” The letters concluded: “we hope this helps answer questions you
may have in regard to this issue.”

Brinkley does not hold a Commission license to operate a bingo parlor. He owns several eight-liners that he formerly operated
in a space he leases within a licensed bingo parlor. When Brinkley's lessor received the Commission's letters, he refused to
allow Brinkley to continue the operation of his eight-liners in the bingo parlor.

Brinkley pleaded against the Commission the following causes of action:

(1) An action under the Uniform Declaratory Judgments Act for a judicial determination that eight-liners are not gambling
devices under section 47.01(4)(B) of the Texas Penal Code, and that the Commission's interpretation of section 47.01 is
unconstitutional;

(2) an action for declaratory judgment under section 2001.038 of the Texas Government Code that the Commission's letters
constitute “rules,” as defined by section 2001.003(6) of the Administrative Procedure Act, and that the “rules” are invalid
because they were not formulated or adopted in compliance with the rulemaking provisions of Texas Government Code sections
2001.021–.037; 3

(3) an application for injunction restraining the Commission and “all others” from interfering with the operation of Brinkley's
eight-liners in bingo parlors, whether by raids, harassment, criminal prosecution, forfeiture and seizure of Brinkley's eight-
liners, or any other way; and

(4) actions for injunctive relief and compensatory damages, under 42 United States Code sections 1983 and 1985, for violation
of Brinkley's civil rights under color of state law. 4

The Commission filed pleas to the jurisdiction, contending the trial court lacked subject-matter jurisdiction because (1) the
actions were barred by the doctrine of sovereign immunity; (2) Brinkley lacked standing to assert the actions alleged; (3) the trial
court lacked jurisdiction to determine legal relationships under a penal statute; and (4) there existed no justiciable controversy.
The trial court denied the plea of sovereign immunity but sustained the pleas on the other grounds claimed and dismissed the
actions. Brinkley contends the trial court possessed jurisdiction on the grounds discussed below.




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                                      UNIFORM DECLARATORY JUDGMENTS ACT

 [1] [2] [3] [4] The separation-of-powers doctrine prohibits courts from issuing advisory opinions. Texas Ass'n of Bus. v.
Texas Air Control Bd., 852 S.W.2d 440, 444 (Tex.1993); Firemen's Ins. Co. v. Burch, 442 S.W.2d 331, 333 (Tex.1969); Morrow
v. Corbin, 122 Tex. 553, 62 S.W.2d 641, 647 (1933). The distinctive feature of an advisory opinion is that it decides an abstract
question of law without binding the parties. Alabama State Fed'n of Labor v. McAdory, 325 U.S. 450, 461, 65 S.Ct. 1384, 89
L.Ed. 1725 (1945); Texas Ass'n of Bus., 852 S.W.2d at 444; Firemen's Ins. Co., 442 S.W.2d at 333; California Prods. Inc. v.
Puretex Lemon Juice, Inc., 160 Tex. 586, 334 S.W.2d 780, 783 (1960). An opinion is advisory when the judgment sought would
not constitute specific relief to a litigant or affect legal relations. Reuter v. *768 Cordes–Hendreks Coiffures, 422 S.W.2d 193,
196 (Tex.Civ.App.—Houston [14th Dist.] 1967, no writ). “The court will not declare rights on facts which have not arisen or
adjudicate matters which are contingent, uncertain, or rest in the future.” 26 C.J.S. Declaratory Judgments, § 28 (1956).

 [5] [6] Brinkley alleged that he sustained “irreparable injury to vested property rights with no adequate remedy at law”
because his lessor, “as a result” of the Commission's letters, demanded that Brinkley remove his machines. Elsewhere in his
petition, Brinkley's allegations are susceptible of a construction that the letters prevent his operating his machines in other bingo
parlors. We believe Brinkley's cause of action under the UDJA requires an advisory opinion. Brinkley and the Commission
are the only parties to the lawsuit and Brinkley is not a licensee subject to the Commission's regulation. 5 Brinkley necessarily
speculates that a declaratory judgment, holding that eight-liners are not gambling devices, may induce his lessor or other bingo-
parlor licensees to allow him to operate his machines, however configured, in their parlors. This is a contingency, an uncertainty,
a hypothesis upon which a court may not decide the legal issues raised in Brinkley's petition. See Coalson v. City Council of
Victoria, 610 S.W.2d 744, 747 (Tex.1980) (suit to declare invalid city charter-amendment initiative requires advisory opinion
because voters might disapprove proposed amendment); Central Sur. & Ins. Corp. v. Anderson, 445 S.W.2d 514, 515 (Tex.1969)
(suit for declaratory judgment that insurer liable to pay judgment, in advance of judgment against tort defendant, requires
advisory opinion); see generally Texas Ass'n of Bus., 852 S.W.2d at 444. 6



                                                     INJUNCTIVE RELIEF

 [7] [8] The trial court also lacked jurisdiction to grant the injunctive relief requested. 7 Injunctions may not issue unless it
is shown that the respondent will engage in or is engaging in the activity to be enjoined. See State v. Morales, 869 S.W.2d
941, 946–47 (Tex.1994). Brinkley seeks to enjoin the Commission and “all others” from interfering with the operation of his
eight-liners in bingo parlors in any way, including the prohibition of raids, harassment, criminal prosecution, and forfeiture
and seizure of his machines. Brinkley alleged only that the Commission sent the advisory letters to about 2,500 licensees.
He has not alleged that the Commission threatens to impose upon him (he is not a licensee) administrative penalties nor that
law enforcement authorities (not parties here) threaten to prosecute him under the criminal law. He has not alleged that the
Commission, unless restrained, will enforce against him any sanction within its power to enforce. We decline to hold as a matter
of law that the Commission's sending of the advisory letters to a large number of its licensees constituted a showing of “probable
injury” to Brinkley. See id. at 946–47; Transport Co. v. Robertson Transports, Inc., 152 Tex. 551, 261 S.W.2d 549, 552 (1953)
(requiring showing of “probable injury” if respondent not restrained). Absent allegations of fact showing a probable injury, a
court is without jurisdiction to grant the injunctive relief requested. See Morales, 869 S.W.2d at 942, 946–47; see also *769
Texas Employment Comm'n v. Martinez, 545 S.W.2d 876, 877–78 (Tex.Civ.App.—El Paso 1976, no writ).



                       ADMINISTRATIVE PROCEDURE ACT—DECLARATORY JUDGMENT

Section 2001.038 of the Administrative Procedure Act (APA) creates a cause of action for declaratory judgment to determine the
validity or applicability of an agency rule when it “is alleged that the rule or its threatened application interferes with or impairs,



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or threatens to interfere with or impair, a legal right or privilege of the plaintiff.” Tex. Gov't Code Ann. § 2001.038 (West 1998).
For purposes of section 2001.038 and all other sections in Chapter 2001 of the Texas Government Code, the word “rule”

  (A) means a state agency statement of general applicability that:

     (i) implements, interprets, or prescribes law or policy; or

     (ii) describes the procedure or practice requirements of a state agency;

  (B) includes the amendment or repeal of a prior rule; and

  (C) does not include a statement regarding only the internal management or organization of a state agency and not affecting
    private rights or procedures.

Tex. Gov't Code Ann. § 2001.003(6) (West 1998) (emphasis added).

 [9] Brinkley contends the trial court had jurisdiction of his cause of action for declaratory judgment, under section 2001.038
of the APA, because the Commission letters amounted to a “rule” as defined in section 2001.003(6). We disagree.

 [10] “Not every statement by an administrative agency is a rule for which the APA prescribes procedures for adoption and
for judicial review.” Texas Educ. Agency v. Leeper, 893 S.W.2d 432, 443 (Tex.1994). This observation refers to the fact that
administrative agencies routinely issue letters, guidelines, and reports, and occasionally file briefs in court proceedings, any
of which might contain statements that intrinsically implement, interpret, or prescribe law, policy, or procedure or practice
requirements. Are all such statements therefore “rules” within the meaning of APA section 2001.003(6) and 2001.038? They
are not for several reasons.

It does not appear that the legislature has delegated to the Commission a power to bind others by ukase—a naked proclamation
contained, for example, in a letter, a set of guidelines, or a report, or by a statement in a brief filed in a court proceeding. It
appears instead that the Commission may bind others generally only by a rule promulgated through the notice-and-comment
procedures of APA sections 2001.022–.037, or bind particular litigants by the Commission's order adjudicating a contested
case conducted under the procedures set forth in APA sections 2001.051–.147. The same is true in general of most constitutive
statutes and enabling acts delegating power to administrative agencies.

The legislature intends that administrative agencies exercise effectively the powers delegated to them. See Sexton v. Mount
Olivet Cemetery Ass'n, 720 S.W.2d 129, 137 (Tex.App.—Austin 1986, writ ref'd n.r.e.). Agencies would be reduced to
impotence, however, if bound to express their views as to “law,” “policy,” and procedural “requirements” through contested-
case decisions or formal rules exclusively; and they could not under such a theory exercise powers explicitly delegated to them
by the legislature. How, under such a theory, could an agency practically express its views to an informal conference or advisory
committee, or state its reasons for denying a petition to adopt a rule, or file a brief in a court or agency proceeding? See Tex.
Gov't Code Ann. §§ 2001.021, .031, .058 (West 1998).

The foregoing are only examples derived from the APA itself. If every expression by the agency as to “law,” “policy,” and
procedural “requirements” requires the promulgation of a formal rule, the agency could no longer exercise its “informed
discretion” to choose adjudication as a means of making law and policy, rather than rulemaking, a choice we have repeatedly
said an agency has when it possesses both adjudicatory and rulemaking powers. See, e.g., Madden v. Texas Bd. of Chiropractic
Exmr's, 663 S.W.2d 622, 626 (Tex.App.—Austin 1984, writ ref'd n.r.e.); *770 State Bd. of Ins. v. Deffebach, 631 S.W.2d 794,
799 (Tex.App.—Austin 1982, writ ref'd n.r.e.). If the agencies were so restricted, they would be deprived, as a practical matter,
of the power to adjudicate; an agency could make valid “law” or “policy” only through the straight-jacket of rulemaking, even
though the agency might be quite unable to do so for any number of reasons as noted in El Paso v. Public Util. Comm'n, 883
S.W.2d 179, 188–89 (Tex.1994). 8




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The very text of the APA rejects the theory that every agency pronouncement regarding “law,” “policy,” and procedural
“requirements” requires the promulgation of a formal rule. That theory would destroy, for example, the distinction between
“rules” and “policies” found in section 2001.058(b), (c), and (e); the word “policies” is rendered meaningless because under
that theory “policies” could only exist in the form of “rules.”

We need not belabor the point. The definition in section 2001.003(6) is sufficiently flexible to allow agencies to perform their
functions without unnecessary procedural obstacles; the definition expressly excludes from the definition of a “rule” any agency
statements regarding only the internal management or organization of an agency that do not affect private rights or procedures.
See Tex. Gov't Code Ann. § 2001.003(6)(C) (West 1998). This statutory exclusion encompasses any agency statement regarding
“law,” “policy,” or procedural “requirements” made outside the rulemaking and contested-case context; such statements have
no legal effect on private persons absent a statute that so provides or some attempt by the agency to enforce its statement against
a private person, as in Madden where the agency attempted to enforce, in the course of adjudicating a contested case, its policy
of what constituted a “bona fide reputable chiropractic” school. See Madden, 663 S.W.2d at 626–27. At that point, an affected
person may challenge, if he wishes, the validity or applicability of the agency statement on whatever grounds may be applicable.
Until then, the agency's pronouncements regarding “law,” “policy,” and procedural “requirements” remain merely informal
views, effective only upon and within the agency's internal management and organization. 9 See Leeper, 893 S.W.2d at 443
(state board of education resolution stating guidelines for school districts pending statutory revision); United Parcel Serv., Inc. v.
Oregon Transp. Comm'n, 27 Or.App. 147, 555 P.2d 778, 780 (1976) (commission statement consenting to city's designation of
truck route); Reynolds Sch. Dist. v. Oregon Sch. Employees, 58 Or.App. 609, 650 P.2d 119, 123 (1982) (agency statement made
in adjudication of previous contested case); United States v. Fitch Oil Co., 676 F.2d 673, 678 (Temp.Emer.Ct.App.U.S.1982)
(statement of Secretary of Energy); Durnin v. Allentown Fed. Sav. and Loan Ass'n, 218 F.Supp. 716, 721 (E.D.Pa.1963) (letter
from supervisory agent of Federal Home Loan Bank Board); 1 Davis and Pierce, Administrative *771 Law Treatise § 3.5 at
120 (3d ed.1994). 10

Accordingly, we hold the Commission's letters were not rules within the meaning of APA section 2001.038, authorizing suits
for declaratory judgment in district court.



                                                  CIVIL–RIGHTS ACTIONS

Brinkley also requested injunctive relief and damages under 42 United States Code sections 1983 and 1985. Section 1983
provides as follows:

             Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or
             Territory or the District of Columbia, subjects or causes to be subjected, any citizen of the United States
             or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities
             secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity,
             or other proper redress. For the purposes of this section, any Act of Congress applicable exclusively to
             the District of Columbia shall be considered to be a statute of the District of Columbia.

42 U.S.C.A. § 1983 (1994) (emphasis added). Section 1985 prohibits a “conspiracy” by two or more “persons” to deprive
another of constitutional rights under color of state law. See 42 U.S.C.A. § 1985 (1994).

 [11] Section 1983 applies only to “persons” as that term is used in the statute. See Will v. Michigan Dep't of State Police, 491
U.S. 58, 63–70, 109 S.Ct. 2304, 105 L.Ed.2d 45 (1989). States are not “persons” as that term is used in section 1983. Id. at
71, 109 S.Ct. 2304. Governmental entities that are considered “arms of the State” are also not persons under section 1983. Id.
at 70, 109 S.Ct. 2304. When a litigant seeks relief from the acts of a state agency under section 1983, he must therefore sue an
individual in authority at an agency as opposed to the agency itself. See Ntreh v. University of Tex. at Dallas, 936 S.W.2d 649,
652 (Tex.App.—Dallas 1996), aff'd as modified, 947 S.W.2d 202 (Tex.1997).



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 *772 [12] [13] [14] The doctrine of sovereign immunity, unless waived, protects the State of Texas, its agencies and
its officials, against lawsuits for damages, absent legislative consent to sue the State. See Federal Sign v. Texas S. Univ., 951
S.W.2d 401, 405 (Tex.1997); Griffin v. Hawn, 161 Tex. 422, 341 S.W.2d 151, 152–53 (1960); Hosner v. DeYoung, 1 Tex. 764,
769 (1847). The Texas Lottery Commission is an “arm of the State” and not a person under section 1983. If the Commission
is not a person for purposes of section 1983, it is not a person for purposes of section 1985. See State v. Biggar, 848 S.W.2d
291, 295 (Tex.App.—Austin 1993), aff'd, 873 S.W.2d 11 (Tex.1994). Because sections 1983 and 1985 are inapplicable to the
Commission, the sole defendant in Brinkley's action, and he has not obtained legislative consent to sue the State, we hold the
trial court did not err in dismissing for want of subject-matter jurisdiction Brinkley's claims under sections 1983 and 1985. 11
See Ntreh, 936 S.W.2d at 652.

Having concluded that the trial court was without jurisdiction to render judgment on Brinkley's claims for compensatory
damages and for declaratory and injunctive relief, we affirm the judgment below.


All Citations

986 S.W.2d 764


Footnotes
*      Before John Powers, Senior Justice (retired), Third Court of Appeals, sitting by assignment. See Tex. Gov't Code Ann. § 74.003(b)
        (West 1998).
1       “Gambling device” means any electronic, electromechanical, or mechanical contrivance not excluded under Paragraph (B) that for a
        consideration affords the player an opportunity to obtain anything of value, the award of which is determined solely or partially by
        chance, even though accompanied by some skill, whether or not the prize is automatically paid by the contrivance. The term:
        ***
             (B) does not include any electronic, electromechanical, or mechanical contrivance designed, made, and adapted solely for bona
               fide amusement purposes if the contrivance rewards the player exclusively with noncash merchandise prizes, toys, or novelties,
               or a representation of value redeemable for those items, that have a wholesale value available from a single play of the game
               or device of not more than 10 times the amount charged to play the game or device once or $5, whichever is less.
           Texas Penal Code Ann. § 47.01(4)(B) (West Supp.1998).
2       The Commission may impose administrative penalties for violations of the Bingo Enabling Act. Law-enforcement authorities enforce
        the Texas Penal Code.
3       See Tex. Gov't Code Ann. §§ 2001.021–.037 (West 1998).
4       See 42 U.S.C. §§ 1983, 1985 (1994).
5       The Commission regulates amusement machines pursuant to article 179d of the Texas Revised Civil Statutes (Bingo Enabling Act)
        which is concerned only with those amusement machines located in bingo halls. See Tex.Rev.Civ. Stat. art. 179d (West 1998). Outside
        of bingo halls, law enforcement personnel are charged with the enforcement of Texas Penal Code section 47.01 which prohibits the
        use of “gambling devices.” Tex. Penal Code § 47.01 (West 1994 & Supp.1998).
6       The Uniform Declaratory Judgments Act, found in the Texas Civil Practice & Remedies Code, is a procedural device for deciding
        cases already within a court's jurisdiction; the statute does not enlarge a court's jurisdiction so as to authorize the rendition of advisory
        opinions. See Tex. Civ. Prac. & Rem.Code Ann. §§ 37.001–.011 (West 1997); Texas Ass'n of Bus. v. Texas Air Control Bd., 852
        S.W.2d 440, 444 (Tex.1993).
7       Brinkley requested injunctive relief pursuant to section 65.011 of the Texas Civil Practice & Remedies Code and section 16.29 of
        the Texas Business & Commerce Code (Injury to Business Reputation or Trade Name or Mark); Tex. Civ. Prac. & Rem.Code Ann.
        § 65.011 (West 1997); Tex. Bus. & Com.Code Ann. § 16.29 (West Supp.1998).
8       The legislature may, by statute, require an agency to make formal rules with regard to particular matters. See Railroad Comm'n v.
        Shell Oil Co., 146 Tex. 286, 206 S.W.2d 235, 241 (1947). The agency would be bound, of course, to enact rules in compliance with
        the legislative mandate. It may also be that a constitutional provision requires, in particular circumstances, that the agency promulgate
        a formal rule before attempting to bind private persons by the agency's view of “law,” “policy,” or procedural “requirements.” See,




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Brinkley v. Texas Lottery Com'n, 986 S.W.2d 764 (1999)


      e.g., Madden v. Texas Bd. of Chiropractic Exmr's, 663 S.W.2d 622, 626–27 (Tex.App.—Austin 1984, writ ref'd n.r.e.). Such matters
      are not involved in the present controversy.
9     The letters sent by the Commission in this instance were, on their face, simply advisory guidelines; they did not purport to express a
      final opinion on the legality of eight-liners of any particular kind. We have previously noted the valuable role such advisory opinions
      serve in administration. See Texas Comm'n of Licensing and Regulation v. Model Search America, Inc., 953 S.W.2d 289 (Tex.App.
      —Austin 1997, no writ). As we stated in that opinion,
            [T]o permit suits for declaratory judgments upon mere informal, advisory, administrative opinions might well discourage the
            practice of giving such opinions, with a net loss of far greater proportions than any possible gain.
         Id. at 293 quoting, Helco Prods. Co. v. McNutt, 137 F.2d 681, 684 (D.C.Cir.1943). Considering the number of bingo-parlor licensees
         and the variety of ways in which eight-liners can be configured, the practical value of the letters is obvious. Nothing in the letters
         purports to foreclose an individual licensee from seeking, if he wishes, a formal opinion from the Commission regarding particular
         eight-liners. While private parties may voluntarily comply with such guidelines, they are not legally bound to do so.
10    The first Commission letter stated:
            TO ALL BINGO LICENSEES:
            The Texas Lottery Commission has received complaints regarding the use of gambling devices at locations where bingo is being
            conducted. The specific complaints concern the operation of devices popularly known as “Eight Liners.”
            The Texas Lottery Commission considers these devices to be gambling devices as defined by Section 47.01(4) of the Texas
            Penal Code, as a result of the method of operation and payoff of these devices.
            Please be aware that Section (11(k)) of the Bingo Enabling Act, Texas Revised Civil Statutes Article 179d, provides the
            following: “A game of chance other than bingo may not be conducted or allowed during an occasion when bingo is played.
            This subsection does not prohibit the exhibition and play of an amusement machine that is not a gambling device as defined
            by Section 47.01, Penal Code.”
            Therefore, effective September 1, 1996, the Commission will refer any incident of use by a licensee of the aforementioned
            device(s) in an illegal manner which is detected after September 1, 1996 to the appropriate law enforcement agency for criminal
            prosecution and will initiate an appropriate administrative disciplinary action.
            This notice is intended to make licensees aware of the agency's position and to afford an opportunity to licensees for voluntary
            compliance.
         (Emphasis added). The letter was signed by the Commissioner's Security Director.
         The follow-up letter stated:
            [T]he agency received complaints regarding the use of “Eight liners” at locations where Bingo is being conducted.
            Based on a follow-up of those complaints, the agency considers these “eight-liners” at those locations to be gambling devices,
            as a result of the method of operation and payoff of those machines.
            The purpose of the August 15, 1996 letter was to notify licensees of the agency's position and to afford licensees an opportunity
            for voluntary compliance.
            We have received numerous calls since the August 15, 1996 letter was sent. To help you determine whether an “Eight-liner”
            located in your Bingo location is not an amusement machine ... the agency's position is that the “Eight-liner” is a gambling
            device ... and is therefore illegal. Even if the answer to every question is “no,” the agency cannot guarantee that the use of the
            “Eight-liner” is necessarily legal.
            We hope this helps answer questions you may have in regards to this issue. Please contact [the Security Director] should you
            have any further questions.
         (Emphasis added.)
11    We must uphold a correct lower court judgment on any applicable legal theory, even if the court gives an incorrect reason for its
      judgment. Guaranty County Mut. Ins. Co. v. Reyna, 709 S.W.2d 647, 648 (Tex.1986).


End of Document                                                           © 2015 Thomson Reuters. No claim to original U.S. Government Works.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                          9
Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)




                                                         292 S.W.3d 712
                                                    Court of Appeals of Texas,
                                                             Austin.

                       Susan COMBS, Comptroller of Public Accounts of the State of Texas, Appellant
                                                          v.
                                ENTERTAINMENT PUBLICATIONS, INC., Appellee.

                       No. 03–08–00474–CV. | June 12, 2009. | Rehearing Overruled Aug. 27, 2009.



Synopsis
Background: Fundraising products seller brought an action against the Comptroller of Public Accounts, for declaratory and
injunctive relief, to prevent the Comptroller from implementing a new rule which would require seller to collect and remit tax
on the sales of products sold through school fundraising activities. The 419th Judicial District Court, Travis County, Gus J.
Strauss, Jr., J., denied the Comptroller’s plea to the jurisdiction, and granted a temporary injunction in favor of seller,
enjoining the Comptroller from implementing and enforcing the new tax rule. The Comptroller made an interlocutory appeal.



Holdings: The Court of Appeals, J. Woodfin Jones, C.J., held that:
[1]
  Comptroller’s letters to association of fundraising suppliers constituted a “rule” under the Administrative Procedures Act
(APA):
[2]
      declaratory relief regarding validity of sales tax rule was not prohibited by Tax Code;
[3]
      rule regarding application of sales tax to fundraising suppliers was invalid when promulgated by letter;
[4]
      statute on injunction in taxpayer’s suit did not bar enjoining of Comptroller’s enforcing of new rule; and
[5]
      temporary injunction was warranted to preserve status quo pending final disposition of merits of seller’s action.


Affirmed.

Diane M. Henson, J., filed a concurring opinion.




  West Headnotes (17)


 [1]
           Courts
             Determination of questions of jurisdiction in
           general

           Whether a court has subject-matter jurisdiction
           is a question of law.


           3 Cases that cite this headnote
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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)




[2]
       Pleading
         Scope of inquiry and matters considered in
       general

       A plea to the jurisdiction often may be
       determined solely from the pleadings and
       sometimes must be.


       Cases that cite this headnote




[3]
       Appeal and Error
         Cases Triable in Appellate Court

       A plea to the jurisdiction determination is
       reviewed de novo.


       1 Cases that cite this headnote




[4]
       Pleading
         Scope of inquiry and matters considered in
       general
       Pleading
         Questions of law and fact

       When a plea to the jurisdiction challenges the
       existence of jurisdictional facts, a court should
       consider relevant evidence submitted by the
       parties when necessary to resolve the
       jurisdictional issues raised, and where the
       jurisdictional issue or facts do not implicate the
       merits of the case, and the facts are disputed, the
       court, not the jury, must make the necessary fact
       findings to resolve the jurisdictional issue; if the
       facts relevant to jurisdiction are undisputed, the
       court     should     make     the    jurisdictional
       determination as a matter of law based solely on
       those undisputed facts.


       14 Cases that cite this headnote




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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)


[5]
       Courts
         Determination of questions of jurisdiction in
       general

       Because a court should not proceed with a case
       over which it has no jurisdiction, it should make
       the jurisdictional determination as soon as
       practicable, but has discretion to defer the
       decision until the case has been more fully
       developed.


       Cases that cite this headnote




[6]
       Appeal and Error
         Appeal from orders relating to injunctions

       In an appeal from an order granting or denying a
       request for a temporary injunction, appellate
       review is confined to the validity of the order
       that grants or denies the injunctive relief.


       Cases that cite this headnote




[7]
       Injunction
         Discretionary Nature of Remedy

       Whether to grant or deny a temporary injunction
       is within the trial court’s sound discretion.


       Cases that cite this headnote




[8]
       Declaratory Judgment
         Officers and official acts in general
       Declaratory Judgment
         Jurisdiction of particular state courts

       The Administrative Procedures Act (APA)
       declaratory judgment vehicle, provided by the
       statute which allows a person to challenge the
       validity or applicability of an agency rule
       pursuant to a declaratory judgment action if it is
       alleged that the rule or its threatened application
       interferes with or impairs a legal right or
       privilege of the plaintiff, is a legislative grant of
               © 2015 Thomson Reuters. No claim to original U.S. Government Works.   3
Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)



       subject  matter    jurisdiction.       V.T.C.A.,
       Government Code § 2001.038.


       3 Cases that cite this headnote




[9]
       Declaratory Judgment
         Sales and use taxes

       Comptroller of Public Accounts’ letters to an
       association of fundraising suppliers constituted a
       “rule” under the Administrative Procedures Act
       (APA) which was subject to challenge by
       declaratory judgment action, and were not
       merely advisory opinions, inasmuch as they
       were statements implementing, interpreting, or
       prescribing law or policy; letters communicated
       Comptroller’s intention to apply sales tax law in
       all cases to all brochure fundraising firms,
       thereby interpreting tax code to mean such firms
       were always taxable “sellers” of goods they sold
       to schools for resale to public, by deeming all
       school groups mere agents of the fundraising
       firms. V.T.C.A., Government Code §§
       2001.003(6), 2001.038; V.T.C.A., Tax Code §
       151.024.


       2 Cases that cite this headnote




[10]
       Administrative Law and Procedure
         Nature and Scope

       Not every statement by an administrative agency
       is a “rule” for which the Administrative
       Procedures Act (APA) prescribes procedures for
       adoption, and in order to constitute a rule,
       statements may not pertain only to the internal
       management of the agency without affecting
       private rights or procedures, but must, instead,
       be “generally applicable” because affecting the
       interest of the public at large such that they
       cannot be given the effect of law without public
       input by way of rulemaking procedures.
       V.T.C.A., Government Code § 2001.003(6).


       4 Cases that cite this headnote


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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)




[11]
       Administrative Law and Procedure
         Nature and Scope

       The definition of a “rule” for which the
       Administrative    Procedures     Act    (APA)
       prescribes procedures for adoption does not
       reference statements made in contested case
       determining individual rights, even if the
       number of individuals is large and they can be
       described as falling within a defined class.
       V.T.C.A., Government Code § 2001.003(6).


       2 Cases that cite this headnote




[12]
       Declaratory Judgment
         Levy, assessment, collection, and
       enforcement

       In enacting Tax Code statute which purports to
       prevent a court from issuing a declaratory
       judgment      regarding     the    “applicability,
       assessment, collection, or constitutionality of a
       tax or fee or the amount of the tax or fee due, ”
       the legislature did not intend to bar all
       declaratory actions involving the assessment and
       collection of taxes, as the next sentences read:
       “The court may grant such relief as may be
       reasonably required by the circumstances. A
       grant of declaratory relief against the state or a
       state agency shall not entitle the winning party
       to recover attorney’s fees.” V.T.C.A., Tax Code
       § 112.108.


       1 Cases that cite this headnote




[13]
       Declaratory Judgment
         Sales and use taxes

       Taxpayer’s action for declaratory relief,
       regarding validity of a sales tax rule
       promulgated by the Comptroller of Public
       Accounts in a letter, which was in violation of
       the Administrative Procedures Act (APA), was
       not prohibited by Tax Code statute which
       purported to prevent a court from issuing a

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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)



       declaratory      judgment        regarding      the
       “applicability, assessment, collection, or
       constitutionality of a tax or fee or the amount of
       the tax or fee due”; action did not seek
       declaratory relief regarding the tax itself, and in
       fact the declaratory judgment action on validity
       of a rule was authorized by the APA itself.


       3 Cases that cite this headnote




[14]
       Taxation
         Administrative agencies and regulation

       Tax rule regarding application of sales tax to
       fundraising suppliers was invalid, when
       announced by letter from the Comptroller of
       Public Accounts to a fundraising suppliers
       association; Comptroller did not comply with
       the Administrative Procedures Act’s (APA)
       procedural requirements for promulgating
       agency rules before issuing the letters. V.T.C.A.,
       Government Code §§ 2001.021–2001.041.


       Cases that cite this headnote




[15]
       Injunction
         Injunctions against government officials in
       general
       Taxation
         Remedies for wrongful enforcement

       Statute on requirements for an injunction in a
       taxpayer’s suit did not bar temporarily enjoining
       of Comptroller of Public Accounts from
       implementing and enforcing a new rule
       described by the Comptroller’s letters unless and
       until the Comptroller properly enacted the rule
       in compliance with Administrative Procedures
       Act (APA) procedures; what taxpayer sought,
       and the court granted, was not a “tax
       injunction.” V.T.C.A., Tax Code § 112.101.


       Cases that cite this headnote




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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)


[16]
        Injunction
          Preservation of status quo
        Injunction
          Discretionary Nature of Remedy

        The purpose of a temporary injunction is to
        preserve the status quo of the subject matter of a
        suit pending final disposition of the case on its
        merits and, because of this limited purpose, the
        trial court has broad discretion to determine
        whether to issue such an injunction.


        Cases that cite this headnote




[17]
        Injunction
          Injunctions against government officials in
        general
        Injunction
          Public revenue;  bonds and taxation
        Taxation
          Remedies for wrongful enforcement

        Temporary injunction was warranted to preserve
        status quo pending final disposition of merits of
        fundraising products seller’s action against
        Comptroller of Public Accounts, to prevent
        implementing of new rule that required such
        sellers to collect tax on sales of products through
        school fundraising activities; there was evidence
        that, absent the injunction, seller would likely
        suffer imminent and irreparable injury because
        rule would disrupt business and cause financial
        liability, which substantially outweighed any
        harm Comptroller would suffer by having to
        adopt a rule that complied with the procedural
        requirements of the Administrative Procedures
        Act (APA).


        Cases that cite this headnote




Attorneys and Law Firms

*714 William E. Storie, Assistant Attorney General, Austin, TX, for Appellant.

Carl R. Galant, McGinnis, Lochridge & Kilgore, LLP, Austin, TX, for Appellee.

Before Chief Justice JONES, Justices PURYEAR and HENSON.
               © 2015 Thomson Reuters. No claim to original U.S. Government Works.   7
Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)




                                                       *715 OPINION


J. WOODFIN JONES, Chief Justice.

Appellee Entertainment Publications, Inc. (“Entertainment”) sued Susan Combs, Comptroller of Public Accounts of the State
of Texas (the “Comptroller”), for declaratory and injunctive relief to prevent the Comptroller from implementing a new rule
that would require Entertainment to collect and remit tax on the sales of products sold through school fundraising activities.
The trial court denied the Comptroller’s plea to the jurisdiction and granted a temporary injunction in favor of Entertainment,
enjoining the Comptroller from implementing and enforcing a new rule governing the tax treatment of fundraising sales. In
this interlocutory appeal, the Comptroller complains of the denial of her plea to the jurisdiction, see Tex. Civ. Prac. &
Rem.Code Ann. § 51.014(a)(8) (West 2008), and the grant of the temporary injunction, see id. § 51.014(a)(4). The
Comptroller argues that the policy statement Entertainment complains of is not a “rule” that may be challenged under the
Administrative Procedures Act (“APA”), see Tex. Gov’t Code Ann. §§ 2001.021–.041 (West 2008); that the court lacked
jurisdiction to grant declaratory relief under the Uniform Declaratory Judgments Act (“UDJA”), see Tex. Civ. Prac. &
Rem.Code Ann. §§ 37.001–.011 (West 2008); and that injunctive relief is improper. We will affirm the orders of the district
court.




                                   FACTUAL AND PROCEDURAL BACKGROUND

Entertainment is a brochure-fundraising firm that contracts with schools and related organizations, some tax-exempt, to sell
merchandise and food products in order to raise funds for student groups. The fundraising products are sold by the school
groups to third-party consumers using Entertainment’s brochures and order forms at retail prices suggested by Entertainment
in its catalogs. According to Entertainment, its initial sales to the school groups are separate transactions from the ultimate
sales of items by the school groups to the end consumers. In Entertainment’s view, this “two-sale transaction” system dictates
that the school groups themselves are the actual “sellers” of goods for the following reasons:

  The school [group] purchases sales inventory from a vendor [such as Entertainment] for a certain price (first transaction)
  and then resells the taxable items at its own profit or loss for a price the organization determines (second transaction).

  The school [group] assumes the responsibility and risk.

  The school [group] does not receive a commission on sales, nor does it share or split the proceeds with the vendor in any
  way.

Thus, Entertainment argues that the school groups, not Entertainment, are the “sellers” and therefore are responsible for
collecting and remitting any sales tax due on the items sold to the end consumers. See Tex. Tax Code Ann. § 151.052(a)-(b)
(West 2008) (requiring that “seller” of taxable item collect sales tax). Furthermore, when the school groups claim an intention
to resell the fundraising products, Entertainment maintains that, based on the “sale for resale” exemption in section 151.302
of the tax code, it is not responsible for collecting sales tax on its initial sales to the school groups. See id. § 151.302(a)
(providing that “sale for resale” of taxable item is exempted from sales tax); see also id. § 151.006(a)(1) (defining “sale for
resale” of tangible personal property). Accordingly, Entertainment asserts that it accepts resale or exemption certificates in
lieu of charging sales tax to schools that claim an intention to resell the *716 fundraising products. Only when schools do not
provide a resale or exemption certificate does Entertainment charge sales tax, based on the “wholesale” price that schools pay
Entertainment for the products.

In marketing itself to school groups, Entertainment relies on a further exemption in the tax code, which provides that a
tax-exempt organization such as a school may hold two one-day, tax-free sales per year, at which the sale of an item priced
$5,000 or less is exempted from sales tax. See id. § 151.310; 34 Tex. Admin. Code § 3.322(h)(2) (2008). Such sales are

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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)



permissible, however, only if the school—not Entertainment—is regarded as the actual “seller” of the fundraising products.
According to Entertainment, its business model “allows schools to utilize the tax advantages of the two-sale scenario”
because the schools can resell the fundraising products without having to calculate the sales tax due on the items or collect
sales tax from the end consumers.

The alternative to viewing these types of transactions as two distinct sales is to characterize them as a single sale, wherein the
fundraising firm is the seller and the school or school group acts as the seller’s agent. In these circumstances, the fundraising
firm bears the responsibility of collecting and remitting sales tax on the products, which may not be sold tax-free during one
of the school’s tax-free sales days.

Entertainment asserts that it developed its understanding that the transactions at issue were two distinct sales from what it
refers to as the Comptroller’s “long-standing rule” stated in a 2007 letter ruling identified as Accession No. 200704926L. The
so-called Factual Criteria Rule, as described in that letter,1 provided the following guidelines for determining whether the
fundraising firm or the school organization was the “seller” for purposes of collecting sales tax:

1
         The inquiry to which Accession No. 200704926L
         responded was submitted by an unidentified vendor
         seeking clarification of the same issues involved in this
         appeal. The vendor specifically asked about sales to
         parent-teacher      organizations,   and     thus     the
         Comptroller’s response refers only to “PTAs.” (All of
         the Comptroller’s accessions are available through
         http:// cpastar2.cpa.state.tx.us.)




    The PTA is the seller when it purchases sales inventory from a vendor for a certain price (first transaction) and then resells
    the taxable items at its own profit or loss for a price the PTA determines (second transaction). The PTA assumes all
    responsibility and risk.

      The PTA is the seller when it does not share/split the proceeds with the vendor/distributor.

      ....

      The PTA is not the seller when it takes orders for the vendor and receives a commission from the vendor, such as a share
      or split of the proceeds. This is true regardless of who is setting the sales price.

      ....
      Whether the payment, such as a check, is made to the PTA or the vendor may not be an indicator of the seller. For
      example, a check could be made to the PTA, but if the PTA is receiving a commission from a vendor, the PTA is not the
      seller.2
2
         These guidelines are similar to and consistent with the
         Comptroller’s statements in other documents
         referenced in Accession No. 200704926L. See, e.g.,
         Accession No. 200204940L (Apr. 5, 2002) (noting that
         in situation when exempt organization is merely acting
         as sales representative, seller is responsible for
         collecting and remitting sales tax); Accession No.
         9808714L (Aug. 4, 1998) (stating that distributor does
         not need to collect sales tax if exempt organization is
         purchasing taxable items for its own use or to sell);
         Accession No. 8609H0755E02 (Sept. 17, 1986)
         (applying rule that if school assumes responsibility for
         activity and/or sales, school is responsible for ensuring
         tax is paid).


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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)




*717 According to the testimony of the Comptroller’s representative, this letter accurately stated, at that time, the
Comptroller’s policy as to brochure fundraising.

On March 18, 2008, the Comptroller sent a letter to the Executive Director of the Association of Fundraising Distributors and
Suppliers (the “March 2008 letter”), stating the following:

                The Comptroller’s office has consistently held that sales will not qualify as one of a non-profit
                organization’s tax-free sales days when a school group raises funds by acting as sales representatives
                or agent for a for-profit retailer. In these cases, the retailer is the seller of the goods.

The March 2008 letter, which was signed by the Comptroller, Susan Combs, went on to explain that her office had conducted
a review of fundraising firms and found that a number of them had not been following the applicable statutes and guidelines
her office had promulgated. The letter stated, “Our office has reviewed the situation and determined that fundraising firms
should not be allowed to mischaracterize their relationships with the schools.” Specifically, the Comptroller expressed
concern that fundraising firms had been modifying their contracts with schools to “include language concerning sellers’
responsibilities and recharacterizing commission payments as markup.” As a result, “non-profit school groups would be
forced to analyze and review each contract with its vendors to determine who is responsible for collecting and remitting sales
tax and whether it must expend one of its tax-free sales days for the sales under that contract.”

The March 2008 letter further stated that section 151.024 of the tax code had been “applied to direct marketing firms
operating in Texas for several years.” Section 151.024, entitled “Persons Who May Be Regarded As Retailers,” provides:

                If the comptroller determines that it is necessary for the efficient administration of this chapter to
                regard a salesman, representative, peddler, or canvasser as the agent of a dealer, distributor, supervisor,
                or employer under whom he operates or from whom he obtains the tangible personal property that he
                sells, whether or not the sale is made in his own behalf or for the dealer, distributor, supervisor, or
                employer, the comptroller may so regard the salesman, representative, peddler, or canvasser, and may
                regard the dealer, distributor, supervisor, or employer as a retailer or seller for purposes of this chapter.

Tax Code § 151.024. The March 2008 letter concluded, “For the efficient administration of the tax and to create certainty for
the non-profits that tax would be collected and paid by the fundraising firm and not the school organization, we believe we
need to utilize this section of the statute.”

According to the Comptroller’s witness, the effect of “utilizing” section 151.024 was to do away with the fundraising firm’s
ability “to contractually change the responsibilities of the buyer and the seller. We—the Comptroller just determined that the
[fundraising firm] would be the seller regardless of these factors [listed in Accession No. 200704926L].” On
cross-examination, the Comptroller’s representative further testified:

         Q. But under what we call the old rule, you went through these factors and you could make a determination *718
         whether the school was the seller or the school was the agent.

         A. That is correct.

         Q. Okay. And then, in March, the Comptroller invoked 151.024 and said, “We’re not going to do this analysis anymore.
         If you’re a brochure fundraising firm, the school is your agent.”

         A. That is correct.

  ....

         Q. Okay. And I think you just told me but—this [March 2008 letter] is the document that you would say instituted
         the—what we call the new rule, but it does away with the seller versus the agent for seller analysis. Right?

         A. That is correct.

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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)



  ....

         Q. Well—okay. But if you look at the whole transaction, the fact of the matter is, since March 18th, 2008, you no longer
         look at any part of the transaction if you’re a brochure fundraiser; isn’t that correct?

         A. That’s correct. We’re going to say that they are subject to tax and that the vendor needs to collect the tax.

Less than a month later, on April 14, 2008, the Comptroller’s office submitted a follow-up letter (the “April 2008 letter”) to
the Executive Director of the Texas PTA and counsel for Entertainment, stating:

  This office has consistently held that school fundraising firms taking orders through brochures and sales forms were
  considered the actual sellers of the fundraising items and responsible for the sales tax on the full sales price. The PTAs or
  other nonprofit associations act as representatives for the fundraising firms in taking the orders and earning a commission
  and are not responsible for the sales tax on these sales.

  ....

  To resolve these issues, for clarity, and the efficient administration of the tax, the Comptroller will regard the PTAs or
  other nonprofit entities as the sales agent for the fundraising firm and will apply § 151.024 of the Texas Tax Code.

The April 2008 letter was signed by the “Assistant Director of Tax Administration” of the Comptroller’s office and
referenced a meeting that had taken place that morning between officers of the Texas PTA and “the Comptroller and staff.”
In this appeal, the Comptroller does not contend that the signer of the letter was acting with anything less than her full
authority.

Shortly thereafter, Entertainment filed suit seeking declaratory and injunctive relief against enforcement of the Comptroller’s
“New Rule.” Specifically, Entertainment sought a declaration under the APA that the rule embodied in the March and April
2008 letters was invalid and a further declaration under the UDJA that the Comptroller exceeded her statutory authority under
section 151.024 of the tax code in adopting the rule and applying section 151.024 to Entertainment. The Comptroller filed a
plea to the jurisdiction, asserting that the trial court lacked subject-matter jurisdiction over Entertainment’s claims. With
respect to Entertainment’s rule challenge, the Comptroller argued that the policy in question is not a “rule” that can be
challenged under the APA; alternatively, the Comptroller asserted that even if the policy is a rule, the APA does not permit a
challenge to rules that affect the assessment or collection of a tax. In addition, the Comptroller’s plea urged that
Entertainment’s request for declaratory relief under the UDJA is barred by sovereign immunity because she was acting
within her discretionary authority in applying section 151.024 of the tax code to Entertainment. The *719 Comptroller further
asserted that because the tax code provides the exclusive remedy for taxpayers who wish to enjoin assessment, collection, or
enforcement of a tax, the trial court also lacked jurisdiction over Entertainment’s request for injunctive relief; additionally,
the Comptroller argued that Entertainment’s UDJA claim was not yet ripe.

After a hearing, the trial court denied the Comptroller’s plea to the jurisdiction and granted Entertainment’s application for a
temporary injunction. The order denying the plea specified that the trial court had jurisdiction “over the declaratory judgment
cause of action under Section 2001.038 of the APA in its entirety,” finding that the Comptroller had adopted a new rule with
respect to fundraising firms but had failed to comply with the procedural requirements to adopt a new administrative rule. In
its order granting the temporary injunction, the trial court directed the Comptroller to “desist and refrain from implementing
and enforcing the New Rule described by the Comptroller’s letters dated March 18, 2008 and April 14, 2008 unless and until
the Comptroller properly enacts the New Rule according to the procedural requirements of the APA” or until the Court
renders its final judgment.

On appeal, the Comptroller argues that (1) the trial court lacked subject-matter jurisdiction under the APA; (2) Entertainment
cannot establish subject-matter jurisdiction under the UDJA; (3) injunctive relief is barred by the tax code; and (4) injunctive
relief is improper under general principles of equity.




                                                     STANDARDS OF REVIEW
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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)


[1]
  Whether a court has subject-matter jurisdiction is a question of law. Texas Dep’t of Parks & Wildlife v. Miranda, 133
S.W.3d 217, 226 (Tex.2004).
[2] [3] [4]
       A plea to the jurisdiction often may be determined solely from the pleadings and sometimes must be. See Bland Indep.
Sch. Dist. v. Blue, 34 S.W.3d 547, 554–55 (Tex.2000). Such a determination is reviewed de novo. Miranda, 133 S.W.3d at
226. When a plea to the jurisdiction challenges the existence of jurisdictional facts, however, a court should consider relevant
evidence submitted by the parties when necessary to resolve the jurisdictional issues raised. Id.
[5]
   Where the jurisdictional issue or facts do not implicate the merits of the case, and the facts are disputed, the court—not the
jury—must make the necessary fact findings to resolve the jurisdictional issue. See id. (“ ‘Whether a district court has subject
matter jurisdiction is a question for the court, not a jury, to decide, even if the determination requires making factual findings,
unless the jurisdictional issue is inextricably bound to the merits of the case.’ ”) (quoting Cameron v. Children’s Hosp. Med.
Ctr., 131 F.3d 1167, 1170 (6th Cir.1997)). If, however, the facts relevant to jurisdiction are undisputed, the court should
make the jurisdictional determination as a matter of law based solely on those undisputed facts. Id. at 228. Because a court
should not proceed with a case over which it has no jurisdiction, it should make the jurisdictional determination as soon as
practicable, but has discretion to defer the decision until the case has been more fully developed. Id. at 227.3

3
              Here, the trial court’s order denying the plea to the
              jurisdiction did not indicate that the court was deferring
              its jurisdictional determination until the case was more
              fully developed. Nor did Entertainment urge a deferral
              of the issue in its response to the Comptroller’s plea to
              the jurisdiction. Accordingly, because the trial court did
              not purport to exercise its discretion in this regard, we
              will not attempt to apply an abuse-of-discretion
              standard in reviewing the trial court’s denial of the plea.
              In any event, as discussed below, the relevant facts
              before the trial court were undisputed and conclusive,
              so fuller development of the case would have served no
              purpose.



*720 [6] [7] In an appeal from an order granting or denying a request for a temporary injunction, appellate review is confined
to the validity of the order that grants or denies the injunctive relief. See Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex.1993).
Whether to grant or deny a temporary injunction is within the trial court’s sound discretion. Butnaru v. Ford Motor Co., 84
S.W.3d 198, 204 (Tex.2002). A reviewing court must not substitute its judgment for that of the trial court unless the trial
court’s action was so arbitrary that it exceeded the bounds of reasonable discretion. Id. A trial court abuses its discretion
when it acts without reference to any guiding rules or principles, not when it simply exercises that discretion in a manner
different from how a reviewing appellate court might. Low v. Henry, 221 S.W.3d 609, 620 (Tex.2007). As a reviewing court,
we must view the evidence in the light most favorable to the trial court’s order and indulge every reasonable inference in its
favor. Brammer v. KB Home Lone Star, L.P., 114 S.W.3d 101, 105–06 (Tex.App.-Austin 2003, no pet.).




                                                                     DISCUSSION


Subject–Matter Jurisdiction
[8]
    In issues one and two, the Comptroller asserts that the trial court erred in denying her plea to the jurisdiction because the
trial court lacked subject-matter jurisdiction over Entertainment’s suit. The trial court’s order denied the Comptroller’s plea
to the jurisdiction on the specific basis that it had jurisdiction over Entertainment’s “cause of action for declaratory judgment
under Section 2001.038 of the Texas Government Code, Administrative Procedures Act.” The APA allows a person to
challenge the validity or applicability of an agency rule pursuant to a declaratory judgment action if it is alleged that the rule
or its threatened application interferes with or impairs a legal right or privilege of the plaintiff. APA § 2001.038(a). As this
Court has consistently held, the APA declaratory-judgment vehicle of section 2001.038 is a legislative grant of subject-matter
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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)



jurisdiction. See, e.g., Keeter v. Texas Dep’t of Agric., 844 S.W.2d 901, 902 (Tex.App.-Austin 1992, writ denied); Lopez v.
Public Util. Comm’n, 816 S.W.2d 776, 782 (Tex.App.-Austin 1991, writ denied); Rutherford Oil Corp. v. General Land
Office, 776 S.W.2d 232, 235 (Tex.App.-Austin 1989), aff’d sub nom. State v. Flag–Redfern Oil Co., 852 S.W.2d 480
(Tex.1993).
[9]
   In the present case, the parties submitted evidence relevant to the jurisdictional issue, but that evidence does not implicate
the merits of Entertainment’s case: the jurisdictional inquiry concerns whether the Comptroller’s March and April 2008
letters constitute a rule under the APA and, if so, whether that rule or its threatened application interferes with or impairs
Entertainment’s legal rights or privileges, whereas the merits concern whether the rule was validly adopted. The relevant
jurisdictional facts were undisputed; accordingly, we review the trial court’s decision de novo.

The Comptroller contends that the statements contained in the March and April 2008 letters do not constitute a “rule” that can
be challenged under the APA. Rather, the Comptroller argues that these statements are merely advisory opinions, not binding
instructions, concerning *721 her future use of section 151.024 of the tax code in the enforcement of sales tax. We disagree.

The APA defines “rule” as follows:

      “Rule”:

        (A) means a state agency statement of general applicability that:

          (i) implements, interprets, or prescribes law or policy; or

          (ii) describes the procedure or practice requirements of a state agency;

        (B) includes the amendment or repeal of a prior rule; and

        (C) does not include a statement regarding only the internal management or organization of a state agency and not
        affecting private rights or procedures.

APA § 2001.003(6). There is no question in this case that the March and April 2008 letters are statements implementing,
interpreting, or prescribing law or policy. As the Comptroller’s witness testified, these letters communicated the
Comptroller’s intention to apply section 151.024 in all cases involving brochure fundraising firms, thereby interpreting the
tax code to mean that such firms are, for purposes of collecting and remitting sales tax, always the “sellers” of the taxable
items.
[10]
    As the Comptroller correctly points out, however, “[n]ot every statement by an administrative agency is a rule for which
the APA prescribes procedures for adoption....” Brinkley v. Texas Lottery Comm’n, 986 S.W.2d 764, 769 (Tex.App.-Austin
1999, no pet.) (quoting Texas Educ. Agency v. Leeper, 893 S.W.2d 432, 443 (Tex.1994)). In order to constitute a rule, the
statements must be generally applicable and may not pertain only to the internal management of the agency without affecting
private rights or procedures.
[11]
    “The term ‘general applicability’ under the APA references ‘statements that affect the interest of the public at large such
that they cannot be given the effect of law without public input.’ ” El Paso Hosp. Dist. v. Texas Health & Human Servs.
Comm’n, 247 S.W.3d 709, 714 (Tex.2008) (quoting Railroad Comm’n v. WBD Oil & Gas Co., 104 S.W.3d 69, 79
(Tex.2003)). “The definition does not reference statements made in determining individual rights, even if the number of
individuals is large and they can be described as falling within a defined class.” WBD Oil, 104 S.W.3d at 79.4

4
          The supreme court’s analysis in WBD Oil, overruling
          this Court’s decision that the Railroad Commission’s
          field rules were “rules” under the APA, see WBD Oil &
          Gas Co. v. Railroad Comm’n, 35 S.W.3d 34 (Tex.
          App.-Austin 1999), rev’d, 104 S.W.3d 69 (Tex.2003),
          turns on the fact that the field rules had been
          promulgated through trial-type proceedings rather than


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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)



       through the APA’s rulemaking provisions. 104 S.W.3d
       at 79. Thus, the court’s comments regarding
       “statements made in the determination of individual
       rights” must be read in light of its holding that the field
       rules in question had been adopted in a contested case
       that adjudicated the individual rights of the parties and
       could not, therefore, be challenged as generally
       applicable “rules” in a declaratory-judgment action
       under section 2001.038. See id.



We conclude that the Comptroller’s statements in the March and April 2008 letters that the Comptroller will uniformly regard
brochure-fundraising firms as the sellers and nonprofit entities as the sellers’ agents, without regard to the individual factors
considered under the Comptroller’s previous guidelines, are “generally applicable” statements for purposes of the APA.
These interpretations apply not only to Entertainment and the tax-exempt groups with which it conducts business, but to all
brochure-fundraising firms engaging in *722 business across the state.5 Compare Texas Alcoholic Beverage Comm’n v.
Amusement & Music Operators of Tex., Inc., 997 S.W.2d 651, 660 (Tex.App.-Austin 1999, pet. dism’d w.o.j.) (holding that
statements contained in agency memoranda were rules because they imposed binding instructions affecting private rights of
all similarly situated persons), with Beacon Nat’l Ins. Co. v. Montemayor, 86 S.W.3d 260, 269 (Tex.App.-Austin 2002, no
pet.) (declining to view agency correspondence as stating rule when policy was directed only at plaintiff and did not implicate
rights of any party other than plaintiff).

5
       The Comptroller’s representative confirmed that the
       rule would be uniformly applicable during his
       testimony on cross-examination:
              Q. And does this new—does Exhibit No. 8 [the
              March and April 2008 letters]—is it in your
              mind—does this apply to all brochure
              fundraising firms who operate in Texas?
              A. Yes, under this model.
              Q. What model is that?
              A. Well, the model with the taking of the sales
              orders and with the brochures and—if that’s
              what you’re talking about when you say
              brochure fundraising firms.
              Q. It is.



Moreover, construing the statements in the March and April 2008 letters as “rules” is consistent with the supreme court’s
instruction that we consider the intent of the agency, the prescriptive nature of the guidelines, and the context in which the
agency statement was made. See Leeper, 893 S.W.2d at 443 (holding that statements evincing intent to urge action by
legislature did not constitute rule under APA and noting that guidelines “were only recommended, not prescriptive”). In this
case, the March and April 2008 letters informed interested parties of the Comptroller’s intention to regard all school groups
as agents of the fundraising firms and the firms themselves as the sellers for purposes of applying the sales-tax provisions of
the tax code. The statements in the letters are also prescriptive, unambiguously expressing an intent to apply this
interpretation of section 151.024 in all future cases involving brochure-fundraising firms, regardless of whether the particular
circumstances of each transaction might have resulted in different tax treatment under the “seller versus agent-for-seller”
analysis the Comptroller had previously applied.

The statements in the March and April 2008 letters are also consistent with subsection (c) of the APA’s definition of “rule”:
while the interpretation would bind agency employees to apply the rule in analyzing the tax responsibilities of parties to these
sales, it is not directed “only” to “the internal management or organization of a state agency.” See APA § 2001.003(6)(c).
Rather, it is aimed at placing the regulated public on notice of the Comptroller’s prospective, blanket application of section
151.024 of the tax code.


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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)


[12] [13]
       Finally, we decline to adopt the Comptroller’s position that a declaratory-judgment action can never be available to
challenge a Comptroller rule. As support for her position, the Comptroller cites this Court’s decision in First State Bank v.
Sharp, 863 S.W.2d 81 (Tex.App.-Austin 1993, no writ). But the primary holding of First State Bank was rejected by the
supreme court in R Communications v. Sharp, 875 S.W.2d 314, 318 (Tex.1994) (reversing court of appeals opinion relied on
by First State Bank court and declaring unconstitutional section 112.108 of tax code “insofar as it would preclude a taxpayer
from obtaining judicial review of its tax liability by means of a declaratory action”). Whether First State Bank is still good
law for some purposes is an issue we need not decide, as the current version of section 112.108 does not bar Entertainment’s
suit *723 under the R Communications decision. Section 112.108 purports to prevent a court from issuing a declaratory
judgment regarding the “applicability, assessment, collection, or constitutionality of a tax or fee ... or the amount of the tax or
fee due.” Tax Code § 112.108. The legislature did not intend section 112.108 to bar all declaratory actions involving the
assessment and collection of taxes, as the next sentences read: “The court may grant such relief as may be reasonably
required by the circumstances. A grant of declaratory relief against the state or a state agency shall not entitle the winning
party to recover attorney’s fees.” Id. (emphasis added). Entertainment did not seek declaratory relief regarding the tax itself,
but regarding the validity of the rule promulgated by the Comptroller in violation of the APA, for which the legislature has
expressly permitted suit by a declaratory-judgment action. See APA § 2001.038.

In light of the preceding, we hold that the Comptroller’s statements in the March and April 2008 letters that she would
henceforth regard a school group or other nonprofit entity doing business with a brochure-fundraising firm as the sales agent
for the fundraising firm and apply section 151.024 of the tax code constitute a “rule” under the APA. Therefore, we conclude
the trial court correctly determined that section 2001.038 conferred subject-matter jurisdiction over Entertainment’s claim
and properly denied the Comptroller’s plea to the jurisdiction on this basis.6 We overrule the Comptroller’s first and second
issues.7

6
            Professor Ron Beal has defined an “interpretive rule” as
            an agency statement made under the following
            conditions:
                    (1) it is issued by an agency board,
                    commissioner, executive director or other
                    officer vested with the power to act on behalf of
                    the agency;
                    (2) it is issued with the intent of the agency to
                    notify persons or entities that are similarly
                    situated or within a class described in general
                    terms;
                    (3) it is issued to notify those persons or entities
                    of the agency’s interpretation of a statutory
                    provision that has been crystallized following
                    reflective examination in the course of the
                    agency’s interpretive process; and
                    (4) such interpretation was not labeled as
                    tentative or otherwise qualified by arrangement
                    for consideration at a later date.
              Ron Beal, A Miry Bog Part II: UDJA and APA
              Declaratory Judgment Actions and Agency
              Statements Made Outside a Contested Case Hearing
              Regarding the Meaning of the Law, 59 Baylor L.
              Rev. 267, 270 (2007); see also Ron Beal, The APA
              and Rulemaking: Lack of Uniformity Within a
              Uniform System, 56 Baylor L. Rev. 1, 29–46 (2004).
              Although we need not place the label “interpretive
              rule” on the Comptroller’s March and April 2008
              letters, we note that they satisfy all the elements of
              Professor Beal’s four-part test.



7
            On appeal, the Comptroller reurges each of the


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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)



            jurisdictional arguments raised in her plea to the
            jurisdiction regarding the declaratory relief sought by
            Entertainment, including several challenges regarding
            whether the trial court had jurisdiction under the UDJA;
            because we conclude that the trial court had jurisdiction
            under the APA, however, we need not address the
            additional grounds. See Tex.R.App. P. 47.1.


[14]
   When an agency promulgates a rule without complying with the statutory rule-making procedures, the rule is invalid. See
APA § 2001.035(a); El Paso Hosp. Dist., 247 S.W.3d at 715. It is undisputed in this case that the Comptroller did not comply
with the APA’s procedural requirements for promulgating agency rules before issuing the March and April 2008 letters;
accordingly, the rule announced by those letters is invalid. A court, on finding an agency rule invalid, may remand the rule to
the agency to allow “reasonable time for the agency to *724 either revise or readopt the rule through the established
procedures.” APA § 2001.040; El Paso Hosp. Dist., 247 S.W.3d at 715. We will therefore affirm the trial court’s order
denying the Comptroller’s plea to the jurisdiction and abating consideration of the substantive matters raised in
Entertainment’s petition “pending the Comptroller’s determination as to whether she will seek to properly enact the
administrative rule under the APA, and what the terms of that administrative rule would be.”8

8
            Our holding does not prevent the Comptroller from
            making an individualized determination, on a
            case-by-case basis, that a tax-exempt organization
            should be regarded as a fundraising firm’s agent, after
            having determined that it is “necessary for the efficient
            administration” of chapter 151 of the tax code to do so.
            See Tax Code § 151.024.




Temporary Injunction
In issues three and four, the Comptroller argues that injunctive relief is barred by the tax code and contrary to general
principles of equity. The Comptroller maintains that Entertainment was required to comply with the statutory requirements
for pursuing a tax injunction, as stated in section 112.101 of the tax code. See Tax Code § 112.101. We disagree.
[15]
    The Comptroller’s arguments misunderstand the nature of the injunctive relief granted by the trial court. Entertainment
did not seek, and the trial court did not grant, a “tax injunction.” By its order, the trial court enjoined the Comptroller “from
implementing and enforcing the New Rule described by the Comptroller’s letters dated March 18, 2008 and April 14, 2008
unless and until the Comptroller properly enacts the New Rule” in compliance with APA procedures. This situation is
analogous to that presented by Texas Alcoholic Beverage Commission v. Macha, 780 S.W.2d 939 (Tex.App.-Amarillo 1989,
writ denied), in which the taxpayer claimed that the Commission’s suspension of his liquor permits for failure to remit taxes
allegedly due violated his right to due process. After the trial court enjoined the suspension, the Commission argued on
appeal that the injunction was improper because the taxpayer failed to prepay the taxes allegedly due or post a bond as
required by section 112.101. Id. at 941. Affirming the order granting the injunction, the court of appeals held that, since the
trial court’s order “does not prohibit the collection of a state tax, license, registration or filing fee, section 112.101 does not
control.” Id. Similarly, here Entertainment has not sought to prohibit the assessment or collection of a tax or fee. Indeed, no
tax had yet been assessed that the trial court could have enjoined.
[16] [17]
         The purpose of a temporary injunction is to preserve the status quo of the subject matter of a suit pending final
disposition of the case on its merits. See Davis v. Huey, 571 S.W.2d 859, 862 (Tex.1978). Because of this limited purpose,
the trial court has broad discretion to determine whether to issue a temporary injunction. Amusement & Music Operators, 997
S.W.2d at 654. In this case, the trial court found that Entertainment had presented evidence that, if its application was not
granted, it would likely suffer “imminent and irreparable injury” because implementation of the “New Rule” would disrupt
its business and subject it to financial liability. The trial court further found that the threat of immediate and irreparable injury
to Entertainment substantially outweighed the harm, if any, that the Comptroller would suffer as a result of having to reassess
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Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (2009)



its administrative rule and adopt a rule that complied with the procedural requirements of the APA. Based on the record
before us, we conclude *725 that the trial court did not abuse its discretion. We overrule the Comptroller’s third and fourth
issues.




                                                       CONCLUSION

Having overruled the Comptroller’s issues on appeal, we affirm the orders of the trial court denying the Comptroller’s plea to
the jurisdiction and granting a temporary injunction in favor of Entertainment.




Concurring Opinion by Justice HENSON.



DIANE M. HENSON, Justice, concurring.

I concur in the judgment and reasoning of the majority opinion, with the exception of the discussion of the four-part test for
defining an “interpretive rule,” found in footnote six. In light of our determination that the Comptroller’s statements in the
March and April 2008 letters constitute a rule under section 2001.003(6) of the APA, we need not address the issue of
whether they might also be considered interpretive rules under the four-part test suggested by Professor Beal, or the impact, if
any, of an “interpretive rule” designation under the test. Because this test has never been adopted by this Court or the Texas
Supreme Court and is not necessary for disposition of the appeal, I decline to join footnote six of the majority opinion.



All Citations

292 S.W.3d 712

 End of Document                                              © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Dewhurst v. Hendee, 253 S.W.3d 320 (2008)




                                                         253 S.W.3d 320
                                                     Court of Appeals of Texas,
                                                              Austin.

        David DEWHURST, Tom Craddick, Susan Combs, State of Texas, and the Texas Legislative Budget Board,
                                                Appellants,
                                                     v.
                  Edd HENDEE, Individually and as Executive Director of C.L.O.U.T., Appellees.

                       No. 03–07–00462–CV. | April 2, 2008. | Rehearing Overruled April 23, 2008.



Synopsis
Background: Citizens’ group and its executive director brought action against the State, State officials, and members of the
Legislative Budget Board (LBB), seeking declarations that school financing bill violated constitution and statute and alleging
that it caused State to exceed aggregate biennial cap on the rate of growth of appropriations. The District Court, Travis
County, 345th Judicial District, William E. Bender, J., granted plea to the jurisdiction filed by all defendants except
Comptroller. Plaintiffs appealed. The Court of Appeals, 228 S.W.3d 354, affirmed in part, reversed in part, and remanded.
On remand the District Court, Travis County, 261st Judicial District, Joseph H. Hart, J., granted in part and denied in part
defendants’ plea to the jurisdiction. Defendants appealed.



Holdings: The Court of Appeals, Bob Pemberton, J., held that:
[1]
      citizens’ group had no standing to seek relief for fiscal biennium that had expired;
[2]
      group’s challenges to appropriations during expired fiscal biennium were moot;
[3]
   legislature’s use of state personal income (SPI) to calculate the estimated rate of growth in the state’s economy did not
violate the constitution; and
[4]
      legislature’s failure to reconcile estimated growth with actual growth did not violate the constitution.


Reversed and rendered.




  West Headnotes (15)


 [1]
           States
             Rights and Remedies of Taxpayers

           Citizens’ group had no standing as taxpayers to
           seek declaratory and injunctive relief to prevent
           State’s expenditures of appropriations for fiscal
           biennium that had expired.


           Cases that cite this headnote
                   © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                     1
Dewhurst v. Hendee, 253 S.W.3d 320 (2008)




[2]
       States
         Rights and Remedies of Taxpayers

       Taxpayers have standing only to challenge
       prospective state expenditures, but do not have
       standing to complain of public funds that have
       already been spent.


       1 Cases that cite this headnote




[3]
       Municipal Corporations
        Incurring Indebtedness or Expenditure

       When a taxpayer brings an action to restrain the
       illegal expenditure of tax money, he sues for
       himself, and it is held that his interest in the
       subject-matter is sufficient to support the action;
       but when the money has already been spent, an
       action for its recovery is for the taxing entity,
       and the cause of action belongs to it alone.


       Cases that cite this headnote




[4]
       Municipal Corporations
        Nature and Scope in General

       In general, taxpayers do not have a right to bring
       suit to contest government decision-making
       because governments cannot operate if every
       citizen who concludes that a public official has
       abused his discretion is granted the right to
       come into court and bring such official’s public
       acts under review.


       Cases that cite this headnote




[5]
       States
         Rights and Remedies of Taxpayers

       Citizens’    group’s     challenges    to    State
              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   2
Dewhurst v. Hendee, 253 S.W.3d 320 (2008)



       appropriations during fiscal biennium, including
       the claim that appropriations during the
       biennium exceeded statutory spending cap, were
       rendered moot when the biennium expired.
       Vernon’s Ann.Texas Const. Art. 8, § 22;
       V.T.C.A., Government Code § 316.002(a)(3).


       1 Cases that cite this headnote




[6]
       Action
         Moot, Hypothetical or Abstract Questions

       To invoke the capable of repetition, yet evading
       review exception to the mootness doctrine, a
       plaintiff must prove that: (1) the challenged
       action was too short in duration to be litigated
       fully before the action ceased or expired; and (2)
       a reasonable expectation exists that the same
       complaining party will be subjected to the same
       action again.


       Cases that cite this headnote




[7]
       States
         Limitation of Amount of Indebtedness or
       Expenditure

       A legislative enactment pursuant to the
       constitutional provision imposing a biennial cap
       on the rate of growth of appropriations is
       “arbitrary” when it is taken without reference to
       guiding rules or principles. Vernon’s Ann.Texas
       Const. Art. 8, § 22.


       Cases that cite this headnote




[8]
       Appeal and Error
         Cases Triable in Appellate Court

       Whether a legislative enactment is arbitrary is a
       question of law that the Court of Appeals
       reviews de novo.



              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   3
Dewhurst v. Hendee, 253 S.W.3d 320 (2008)




       Cases that cite this headnote




[9]
       Constitutional Law
         Arbitrariness

       Although the determination of whether a
       legislative enactment is arbitrary may rest in part
       upon determinations of disputed factual matters,
       such findings have a limited role in deciding
       ultimately the constitutional issues.


       Cases that cite this headnote




[10]
       Constitutional Law
         Interpretation of Constitution in General

       For the constitutional provision requiring the
       Legislature to establish a public school system,
       as with other provisions, the final authority to
       determine adherence to the Constitution resides
       with the Judiciary. Vernon’s Ann.Texas Const.
       Art. 7, § 1.


       Cases that cite this headnote




[11]
       Constitutional Law
         Reasonableness or Rationality
       Constitutional Law
         Arbitrariness

       A mere difference of opinion between judges
       and legislators, where reasonable minds could
       differ, is not a sufficient basis for striking down
       legislation as arbitrary or unreasonable.


       Cases that cite this headnote




[12]
       Constitutional Law
         Meaning of Language in General
       Constitutional Law

              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   4
Dewhurst v. Hendee, 253 S.W.3d 320 (2008)



         Plain, Ordinary, or Common Meaning

       When construing the Texas Constitution, the
       courts rely heavily on its literal text and must
       give effect to its plain language.


       1 Cases that cite this headnote




[13]
       Constitutional Law
         Intent in General

       The courts strive to give constitutional
       provisions the effect their makers and adopters
       intended; to that end, the courts may also
       consider such things as the legislative history
       and purpose of the constitutional provision, the
       historical context in which it was written, prior
       judicial decisions, and the interpretations of
       analogous constitutional provisions by other
       jurisdictions.


       2 Cases that cite this headnote




[14]
       States
         Limitation of Amount of Indebtedness or
       Expenditure
       States
         Rights and Remedies of Taxpayers

       Legislature did not violate the state constitution
       by using state personal income (SPI) to calculate
       the estimated rate of growth in the state’s
       economy, for purposes of constitutional
       provision imposing a biennial cap on the rate of
       growth of appropriations, and thus citizens’
       group did not allege a constitutional violation in
       their action challenging the use of SPI to set the
       spending cap, as required for the citizens’ group
       to have standing based on a taxpayer’s right to
       sue in equity to enjoin the illegal expenditure of
       public funds. Vernon’s Ann.Texas Const. Art. 8,
       § 22.


       Cases that cite this headnote




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   5
Dewhurst v. Hendee, 253 S.W.3d 320 (2008)




[15]
        States
          Limitation of Amount of Indebtedness or
        Expenditure
        States
          Rights and Remedies of Taxpayers

        Legislature did not violate the state constitution
        when it failed to provide a “feedback”
        mechanism, to reconcile estimated growth with
        actual growth when measuring state economy’s
        growth rate, for purposes of constitutional
        provision imposing a biennial cap on the rate of
        growth of appropriations, and thus citizens’
        group did not allege a constitutional violation in
        their action challenging the mechanism for
        measuring economic growth, as required for the
        citizens’ group to have standing based on a
        taxpayer’s right to sue in equity to enjoin the
        illegal expenditure of public funds. Vernon’s
        Ann.Texas Const. Art. 8, § 22.


        Cases that cite this headnote




Attorneys and Law Firms

*322 Danica L. Milios, Asst. Sol. Gen. for Litigation, Austin, for Appellants.

Gary M. Polland, Polland & Associates, Houston, for Appellees.

Before Justices PATTERSON, PURYEAR and PEMBERTON.




                                                             OPINION


BOB PEMBERTON, Justice.

This is an interlocutory appeal from an order of the district court granting in part and denying in part a plea to the jurisdiction
asserted by appellants following our partial remand in Hendee v. Dewhurst, 228 S.W.3d 354 (Tex.App.-Austin 2007, pet.
denied) (“Hendee I ”). In Hendee I, we affirmed in part and reversed in part a judgment of the district court granting a prior
plea to the jurisdiction and dismissing the plaintiffs’ suit for want of subject-matter jurisdiction. Following our remand,
appellants filed another plea to the jurisdiction, raising new grounds regarding the causes of action that had survived the first
proceeding. The district court, with a different visiting judge presiding, granted the plea with respect to the same causes of
action whose dismissal we affirmed in Hendee I, but otherwise denied it. Concluding that appellants have conclusively
negated the district court’s subject-matter jurisdiction over all of the causes of action challenged in the second plea to the
jurisdiction, we will reverse the portion of the district court’s order denying the plea and render judgment dismissing all of
these causes of action for want of subject-matter jurisdiction.


                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                             6
Dewhurst v. Hendee, 253 S.W.3d 320 (2008)




                                                           BACKGROUND


The lawsuit
The nature of the underlying action and its constitutional and statutory backdrop are detailed in Hendee I. To summarize, in
June 2006, Edd Hendee, individually and as executive director of the group Citizens Lowering Our Unfair Taxes PAC
(C.L.O.U.T.) (collectively, Plaintiffs), filed suit against the Lieutenant Governor, the Speaker of the House of
Representatives, *323 the Comptroller, and the members of the Legislative Budget Board (LBB),1 all in their official
capacities (collectively, the State Defendants2). Relying on principles of taxpayer standing—the exception to general standing
limitations that permits “a taxpayer ... to sue in equity to enjoin the illegal expenditure of public funds, even without showing
a distinct injury”3—Plaintiffs sought declaratory relief challenging the legality of prospective state expenditures authorized
under H.B. 1 or other appropriations by the 79th Legislature4 on the basis that the underlying appropriations violated the
Texas Constitution and statute.5 The cornerstone of Plaintiffs’ suit was article VIII, section 22(a) of the Texas Constitution:

1
       The LBB is a permanent joint committee of the Texas
       Legislature comprised of the lieutenant governor,
       speaker of the house of representatives, the chairman of
       the senate finance committee, the chairman of the
       house appropriations committee, the chairman of the
       house ways and means committee, three members of
       the senate appointed by the lieutenant governor, and
       two additional house members appointed by the
       speaker. Tex. Gov’t Code Ann. § 322.001(a) (West
       2005). The lieutenant governor and speaker of the
       house are joint chairs of the LBB. Id. § 322.001(b). The
       LBB develops budget and policy recommendations for
       legislative appropriations, including a draft General
       Appropriations Act each session, id. § 322.008(c)
       (West 2005), and fiscal impact statements regarding
       other proposed legislation. Id. § 314.001 (West 2005).



2
       Plaintiffs also named “the State of Texas” as a
       defendant, which is the effect of their naming the other
       defendants in their official capacities. See Perry v. Del
       Rio, 53 S.W.3d 818, 822–23 (Tex.App.-Austin 2001),
       pet. dism’d, 66 S.W.3d 239 (Tex.2001).



3
       Hendee v. Dewhurst, 228 S.W.3d 354, 373–74
       (Tex.App.-Austin 2007, pet. denied); see id. at 378–82
       (analyzing the Texas Supreme Court’s jurisprudence on
       the subject).



4
       As we explained in Hendee I, H.B. 1 responded to the
       Texas Supreme Court’s decision in the Neeley v. West
       Orange–Cove case. Neeley v. West Orange–Cove
       Consolidated Indep. Sch. Dist., 176 S.W.3d 746
       (Tex.2005). The supreme court held that Texas’s public
       school finance system constituted an unconstitutional
       state property tax and gave the legislature until June 1,
       2006, to enact corrective legislation. Id. at 800. During

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       the 79th Legislature’s third called session of April and
       May 2006, it succeeded in enacting H.B. 1, which the
       Governor signed into law on May 31 of that year. H.B.
       1 attempted to shift some of the burden of funding
       Texas’s public schools from local property taxpayers to
       the state and, to that end, made additional
       appropriations for the biennium ending on August 31,
       2007.



5
       Although Plaintiffs did not then seek to enjoin the
       expenditures, there has been no dispute that their
       declaratory claims challenging the expenditures’
       legality would logically be governed by the same
       taxpayer-standing principles. See Hendee I, 228 S.W.3d
       at 379 n. 31.




   In no biennium shall the rate of growth of appropriations from state tax revenues not dedicated by this constitution exceed
   the estimated rate of growth of the state’s economy. The legislature shall provide by general law procedures to implement
   this subsection.
   Tex. Const. art. VIII, § 22(a). An “appropriation” refers to a legislative enactment authorizing state funds to be expended
   for particular purposes. The constitution elsewhere requires that “[n]o money shall be drawn from the Treasury but in
   pursuance of specific appropriation made by law; nor shall any appropriation of money be made for a longer term than two
   years.” See Tex. Const. art. VIII, § 6. “State tax revenues not dedicated by this constitution” refers to one source of funds
   that the legislature could appropriate; others include non-tax revenues and tax revenues whose use is dedicated by the
   constitution. Hendee I, 228 S.W.3d at 359–60. The “biennium” runs from September 1 of each odd-numbered year through
   August 31 of *324 the succeeding odd-numbered year. See id. at 360 n. 3.
Plaintiffs alleged that appropriations from non-dedicated state tax revenues for the biennium beginning September 1, 2005
and ending August 31, 2007 (the “06–07 biennium”6) violated article VIII, section 22 both because the specific amount of
those appropriations exceeded the constitutional limit and because the legislature’s “procedures to implement this subsection”
systematically cause noncompliance with that limit. The legislature has implemented article VIII, section 22 primarily
through chapter 316 of the government code. Chapter 316 requires that, in advance of each biennial regular legislative
session, the LBB must calculate the “spending cap,” or “the amount of state tax revenues not dedicated by the constitution
that could be appropriated within the limits established by the estimated rate of growth of the state’s economy.” Tex. Gov’t
Code Ann. § 316.002(a)(3) (West 2005). The LBB is to establish this figure by determining (1) “the estimated rate of growth
of the state’s economy from the current biennium to the next biennium,” and (2) “the level of appropriations for the current
biennium from state tax revenue not dedicated by the constitution,” and then (3) applying the former to the latter. Id. §
316.002(a). The requirement that the LBB calculate the spending cap before each regular legislative session, as well as the
cap itself, are enforced through a range of procedures and checks in the legislative process. See id. §§ 316.002(d),
(e), .006–.008 (West 2005); Hendee I, 228 S.W.3d at 361–63.

6
       We will similarly use “08–09 biennium” to describe the
       now-current biennium that began on September 1, 2007
       and will end on August 31, 2009; “04–05 biennium” to
       describe the September 1, 2003–through–August 31,
       2005 biennium that preceded the 06–07 biennium; etc.



Subject to an exception that has undisputedly never been invoked, the LBB “shall determine the estimated rate of growth of
the state’s economy” based on “estimated Texas total personal income” or “state personal income” (SPI), “dividing the
estimated Texas total personal income for the next biennium by the estimated total Texas personal income for the current
biennium.” Id. § 316.002(b); see id. § 316.002(c) (permitting adoption of “a more comprehensive definition of the rate of
growth” by “the committee established by Section 316.005”). “Using standard statistical methods, the board shall make the
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estimate by projecting through the biennium the estimated Texas total personal income reported by the United States
Department of Commerce or its successor in function.” Id.

The other component of the spending cap, to which the growth rate is applied—the “level of appropriations for the current
biennium from state tax revenues not dedicated by the constitution”—is also partly an estimate, as we explained in Hendee I,
for reasons related to the nature of appropriations. See Hendee I, 228 S.W.3d at 361–62. Even without additional legislative
action, the amount of an appropriation, as well as its funding source—e.g., whether the money comes from non-dedicated
state tax revenues (subject to the spending cap) or dedicated tax revenues or federal funds (not subject to the cap)—may
change during a biennium, such as when changes in economic conditions not originally forecasted impact the amount or
composition of funding sources subject to an appropriation. Id. Because the “level of appropriations for the current biennium
from state tax revenues not dedicated by the constitution” is calculated during the current biennium, it is comprised of both
*325 actual appropriations of non-dedicated tax revenues (appropriated non-dedicated tax revenues that have already been
spent, and whose amount is thus finally ascertainable) and estimated appropriations of non-dedicated tax revenues (the
amount of such funds that the LBB anticipates will be spent pursuant to appropriations during the remainder of the biennium).
Id. Reflecting the potential for unforeseen changes in the amount or funding source of appropriations later in the biennium,
the LBB determines “the level of appropriations for the current biennium from state tax revenues not dedicated by the
constitution” and the corresponding spending cap for the next biennium “subject to adjustments resulting from revenue
forecast revisions or subsequent appropriations certified by the Comptroller.” Id. This characteristic of appropriations,
furthermore, impacts determination of the amount of additional appropriations from non-dedicated state tax revenues that can
be made in the current biennium without exceeding the current biennium’s spending cap.

Before approving its determination of the SPI-based “estimated rate of growth of the state’s economy,” the “level of
appropriations for the current biennium from state tax revenues not dedicated by the constitution,” and the resulting spending
cap for the next biennium, the LBB must publish in the Texas Register “the proposed items of information and the
methodology used” in making these calculations and, by December 1 of each even-numbered year, hold a public hearing
regarding those matters. Tex. Gov’t Code Ann. §§ 316.003–.004 (West 2005). Once it approves the three items, the LBB
“shall submit the information to a committee composed of the governor, lieutenant governor, speaker of the house of
representatives, and comptroller,” which has ten days to “meet and finally adopt the items, either as submitted by the board or
as amended by the committee.” Id. § 316.005 (West 2005). However, if the committee fails to act by the deadline, the items
are “treated as if the committee had adopted them as submitted.” Id.

In the case of the 06–07 biennium, it is undisputed that in November 2004, the LBB adopted by resolution—deemed
approved by the section 316.005 committee—an 11.34% “estimated rate of growth of the state’s economy [i.e., of SPI] from
the current [04–05] biennium to the next [06–07] biennium” and a “level of appropriations for the current [04–05] biennium
from state tax revenues not dedicated by the constitution” of $46.8 billion. Applying the growth rate to its calculation of
current-biennium appropriations, the LBB in its resolution adopted a 06–07 spending cap of $52.145 billion.

Plaintiffs pled numerous declaratory claims predicated on essentially four liability theories.7 First, Plaintiffs alleged that the
legislature and LBB’s use of SPI to calculate “the estimated rate of growth of the state’s economy” and the spending cap
violates article VIII, section 22. They urged that, as a matter of constitutional interpretation, the “estimated rate of growth of
the state’s economy ” requires a broader measure of economic growth than SPI, which they criticized as a mere “component”
of “the state’s economy.” Plaintiffs pled that SPI “has been historically proven to wildly overstate the growth in *326 the
state’s economy, permitting excessive increases in spending contrary to the intent of the constitutional and statutory spending
restraint provision at issue in this case.” Plaintiffs further pled that other alternative measures would more accurately
calculate “growth in the state’s economy,” placing particular emphasis on “Gross State Product (“GSP”) ... a barometer of
‘growth of the state’s economy’ more consistent with sound economic practice and the intent of the constitutional and
statutory provisions at issue.”8 They cited, and attached as evidence to their petition, comptroller projections and a study by
former Hartland Bank chairman David Hartman that they contend demonstrate that GSP generally increases at a lower rate
than SPI and that SPI consequently “overstates” state economic growth. Plaintiffs further argued that the legislative history of
the proposed constitutional provisions that became article VIII, section 22 demonstrates affirmative intent to reject SPI as a
measure of economic growth.9

7
       As we observed in Hendee I, several of Plaintiffs
       declaratory claims went beyond seeking determinations

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       that expenditures and their underlying appropriations
       were illegal, and purported to request that the district
       court improperly specify particular means by which the
       State Defendants would be required to implement
       article VIII, section 22. Hendee I, 228 S.W.3d at 372 n.
       23.



8
       Plaintiffs also urged that a measure based on population
       growth plus inflation would be more consistent with
       article VIII, section 22 than SPI.



9
       In their briefing in this proceeding, Plaintiffs
       summarize these theories as:
           Theory Six—The use of SPI is unconstitutional, as
           it does not measure the “rate of growth of the
           state’s economy.”
           Theory Seven—The use of SPI is unconstitutional,
           because the legislature explicitly rejected the use
           of SPI in the course of amending the legislation
           that became Article VIII, Section 22.



Second, Plaintiffs alleged that the LBB’s calculation of the SPI-based “estimated rate of growth in the state’s economy”
between the current and next biennium has “always” proven inaccurate when compared to the actual SPI growth rates for the
same period. Plaintiffs complained that the legislature has not provided a “feedback mechanism” for making a “controlling
reduction (or increase) in the growth numbers when the projections are in error” during either the subject biennium or after it
ends, causing the spending cap (and appropriations) to grow at a rate exceeding the actual rate of SPI growth.10 It is
undisputed that once the LBB adopts the SPI-based “estimated rate of growth of the state’s economy” between the current
and next biennium prior to the regular legislative session preceding the start of the next biennium, it does not adjust or revise
that figure (or make corresponding adjustments to the spending cap) to account for intervening changes in economic
conditions. Nor does chapter 316 require or provide a mechanism for making such adjustments. In contrast, it is undisputed
that the LBB’s staff will periodically revise the board’s calculations of current-biennium appropriations from non-dedicated
state tax revenues (with corresponding adjustments to the next biennium’s spending cap) as the current biennium progresses
and eventually ends. For example, in December 2005, after the 04–05 biennium ended and appropriations became final, the
LBB staff calculated the actual level of 04–05 appropriations from non-dedicated state tax revenue to have been
approximately *327 $49.9 billion, a figure somewhat higher than the LBB’s original estimate of $46.8 billion. Applying the
fixed 11.34% economic growth rate to this final 04–05 appropriations amount, staff determined a final 06–07 spending cap
that exceeded the LBB’s original figure of $52.145 billion—approximately $55.6 billion.

10
       Plaintiffs summarize these theories as:
            Theory Four—The State’s use of SPI in
            combination with other factors is arbitrary and
            capricious because, while the state modifies the
            other factors as the biennium passes to account for
            actual historical data within the biennium, the state
            does not make such adjustments to SPI. Thus,
            when economic data indicate that the projected
            SPI is inaccurate (which, as noted above, it always
            has been), the projection is never adjusted for
            error.
            Theory Five—State’s use of SPI is arbitrary and
            capricious because, after the end of the biennium,
            the errors in SPI are never corrected for, unlike

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            changes in other factors.



The effect of the unadjusted “excessive” appropriations resulting from deviations between estimated and actual SPI growth,
Plaintiffs added, compounds each biennium, as past appropriations will necessarily be reflected in the current-biennium
appropriations figure that is the baseline for the spending-cap calculation. As a result, Plaintiffs pled, Texas state government
spending between 1980–81 and 2000–01 increased at a rate 42.2% greater than the actual rate of growth in SPI over the same
period. The failure to correct for these past incremental deviations of actual versus estimated SPI growth and their
compounding effect over time on each biennium’s spending cap, Plaintiffs urged, violates article VIII, section 22.11

11
       In other words, Plaintiffs advocated that article VIII,
       section 22 required prospective adjustments in the
       spending cap that account for past deviations between
       estimated and actual SPI growth. This is distinguishable
       from challenging “specific appropriations and
       expenditures made during prior biennia.” Hendee I, 228
       S.W.3d at 364 n. 12.
          Plaintiffs similarly pled a theory that article VIII,
          section 22 is violated by the failure to adjust each
          biennium’s spending cap to account for past
          divergences      between     SPI    and     GSP     or
          population-growth-plus-inflation.     Because     this
          theory rests upon Plaintiffs’ contention that the use
          of SPI to estimate the economic growth rate violates
          article VIII, section 22, we do not separately address
          it.



Third, Plaintiffs pled that the specific amount of appropriations from non-dedicated state tax revenues during the 06–07
biennium exceeded the spending cap. Plaintiffs cited calculations by LBB staff that total 06–07 appropriations from
non-dedicated state tax revenues in December 2006 were $53.0 billion. This, Plaintiffs alleged, demonstrated that the
legislature exceeded the spending cap—which, they contend, was $52.145 billion, the LBB’s original 06–07 figure. Plaintiffs
contended that the LBB staff’s calculation of the final 06–07 spending cap—$55.6 billion—was invalid because it was not
formally approved by the LBB itself. Alternatively, even assuming the validity of the $55.6 billion “unapproved staff
generated limit,” Plaintiffs alleged that H.B. 1 appropriated an additional $3.9 million in non-dedicated state tax
revenues—which, when added to the $53.0 billion already appropriated for 06–07, yielded $56.9 billion, $1.3 billion over the
staff’s own calculation of the cap.12

12
       Plaintiffs term this theory “Theory One—The State
       overspent its own calculated limits.”



Fourth, Plaintiffs alleged that chapter 316 and the practices of making adjustments to the LBB’s initial spending cap
calculations violate the separation of powers by improperly delegating legislative power to the LBB, its staff, or the section
316.005 committee. Tex. Const. Ann. art. II, § 1. Relatedly, Plaintiffs urged that these violations render void any
“adjustments” to the spending cap or current-biennium appropriation levels by LBB staff.13

13
       Plaintiffs summarize these theories as follows:
            Theory Two—The State’s SPI number was set at
            $52.145 and cannot be adjusted by LBB staff
            without express authorization of the ten-member
            Board of the LBB....
            Theory Three—The State’s SPI number was set at
            $52.145 billion and cannot be adjusted by the LBB


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            staff. Only the ten-member Board of the LBB can
            change the SPI number.
            ....
            Theory Eight—The Government Code Section
            316.005 [committee comprised of the governor,
            lieutenant governor, speaker of the house of
            representatives, and comptroller that approves the
            LBB’s initial calculation of the spending cap]
            facially violates the mandate in Article 2, Sec. 1
            for separation of powers.
            Theory Nine—The LBB has no constitutional
            authority to set the limit by itself.... [T]he LBB
            may propose a limit just as another committee may
            propose a bill, but the LBB’s proposal must be
            ratified by the Legislature just like any other
            committee proposal. The failure of the Legislature
            to ever ratify the LBB’s proposed limits is
            persuasive evidence of an unconstitutional
            delegation of authority.
            Theory Ten—The LBB, as a committee, may not
            set the Article VIII, Section 22 limits, but can only
            recommend them to the Legislature, which must
            approve these limits “by general law” in
            accordance with the plain language of Article VIII,
            Section 22.




*328 Hendee I
All defendants except the Comptroller14 joined in a plea to the jurisdiction challenging only the sufficiency of Plaintiffs’
pleadings. They argued that Plaintiffs’ causes of action presented non-justiciable political questions and that Plaintiffs lacked
standing as taxpayers to assert their causes of action, and that their causes of action were barred by sovereign immunity,
because they had not and could not allege that H.B. 1’s appropriation was actually unconstitutional or unlawful. The district
court granted the plea without specifying its grounds. Plaintiffs appealed.

14
       At the time, Carole Keeton Strayhorn.



In Hendee I, relying on the Texas Supreme Court’s analysis in Neeley v. West Orange–Cove Consolidated Indep. Sch. Dist.,
176 S.W.3d 746, 776–83 (Tex.2005), we concluded that Plaintiffs’ causes of action did not present non-justiciable political
questions and, relatedly, that article VIII, section 22 was self-executing to the extent of prohibiting legislative action
inconsistent with its requirements. Hendee I, 228 S.W.3d at 369–73. We also determined that Plaintiffs would have standing
as state taxpayers to seek declaratory or injunctive relief challenging prospective state expenditures made pursuant to
appropriations alleged to have violated article VIII, section 22(a) or chapter 316 of the government code. Id. at 378–82. We
also emphasized, however, that the defendants could negate subject-matter jurisdiction over these causes of action by either
demonstrating that Plaintiffs’ pleadings did not allege facts constituting violations of article VIII, section 22 or chapter 316 or
negating the existence of any such facts through conclusive jurisdictional evidence. Id. at 366–69 (citing Texas Dep’t of
Parks & Wildlife v. Miranda, 133 S.W.3d 217, 227–28 (Tex.2004); Director of Dept. of Agric. & Environ. v. Printing Indus.
Ass’n, 600 S.W.2d 264, 265–70 (Tex.1980); McLane Co. v. Strayhorn, 148 S.W.3d 644, 649 (Tex.App.-Austin 2004, pet.
denied)).15 *329 We held that the district court did not err in dismissing Plaintiffs’ “improper delegation” causes of action
because the face of their pleadings demonstrated fatal and incurable jurisdictional defects—namely, that the challenged
procedures were not delegations of legislative power at all. Id. at 378.16 On the other hand, observing that the defendants had
not challenged in the trial court whether Plaintiffs had alleged article VIII, section 22 violations, nor had the parties
developed that issue on appeal, we concluded that the district court would have abused its discretion in dismissing on that
basis. Id. at 369, 374–75 (discussing Miranda, 133 S.W.3d at 227, and Davis v. Burnam, 137 S.W.3d 325, 335 & n. 16
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Dewhurst v. Hendee, 253 S.W.3d 320 (2008)



(Tex.App.-Austin 2004, no pet.)). Similarly, we rejected an appellate-level attempt by the defendants to broaden their
jurisdictional challenge to attack the jurisdictional facts Plaintiffs pled in support of their cause of action that H.B. 1 “caused
total appropriations [of non-dedicated state tax revenues for 06–07] to exceed even the unapproved staff-generated limit by
$1.3 billion dollars.” On appeal, the defendants had presented evidence for the first time that (1) before H.B. 1 was enacted,
the Comptroller had certified additional constitutionally-dedicated tax revenue that caused the LBB staff’s estimates of 06–07
appropriations from non-dedicated tax revenues to drop (correspondingly increasing the “room” under the spending cap); and
(2) H.B. 1’s appropriations from non-dedicated tax revenues, according to LBB staff calculations, fell within the spending
cap. Nonetheless, we concluded that the principles of Miranda precluded us from considering this challenge when it
overlapped with the merits of Plaintiffs’ claims and was raised for the first time on appeal. Hendee I, 228 S.W.3d at 375–78.17

15
       We explained:
           It is ... well-established that where a trial court’s
           jurisdiction depends upon whether a state official’s
           acts are within her constitutional or statutory
           authority, such as when a plaintiff alleges ultra
           vires action to avoid sovereign immunity, the trial
           court may sometimes be able to decide the
           jurisdictional issue as a matter of law based on the
           pleadings by construing the constitutional and
           statutory provisions defining the actor’s authority
           and ascertaining whether the acts alleged would
           exceed that authority. See, e.g., McLane Co. v.
           Strayhorn, 148 S.W.3d 644, 649 (Tex.App.-Austin
           2004, pet. denied) (acknowledging that in
           determining whether declaratory judgment suit
           may be maintained against a state official, it was
           first necessary, in light of sovereign immunity
           principles, to construe statutes defining official’s
           powers to “decide whether the [official] validly
           exercised her discretion or acted outside of her
           legal authority”); cf. Director of Dept. of Agric. &
           Environ. v. Printing Indus. Ass’n, 600 S.W.2d 264,
           265–70 (Tex.1980) (construing constitution to
           determine whether plaintiff alleged ultra vires
           action by state officials; state had raised issue via
           special exceptions). And Miranda would further
           allow jurisdictional challenges, via its summary
           judgment-like process, to the existence of the
           alleged acts that are asserted to have been beyond
           the actor’s constitutional or statutory authority.
        Hendee I, 228 S.W.3d at 368–69.



16
       We also held, sua sponte, that Plaintiffs had failed to
       allege C.L.O.U.T.’s associational standing, but that the
       defect was curable and Plaintiffs thus were entitled to
       the opportunity to amend. See id. at 382.



17
       We explained the principles underlying these holdings:
           To succeed, a defendant challenging a
           jurisdictional fact via a plea to the jurisdiction
           must satisfy the same initial burden as in a
           “traditional” summary judgment—conclusively
           negating the existence of the fact—and judgment
           is proper in such instance only if the plaintiff
           cannot present controverting evidence raising a

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           genuine issue of material fact. Miranda, 133
           S.W.3d at 227–28. More generally, a trial court
           must exercise sound discretion in deciding
           whether a jurisdictional determination implicating
           the merits “should be made at a preliminary
           hearing or await a fuller development of the case,
           mindful that this determination must be made as
           soon as practicable.” Id. at 227; see Bland, 34
           S.W.3d at 554. It follows that a trial court’s
           decision to determine a jurisdictional issue
           implicating the merits at a particular preliminary
           stage of case development may be so arbitrary or
           unreasonable, given the state of the record, that it
           constitutes an abuse of discretion. Cf. Davis v.
           Burnam,      137      S.W.3d       325,      334–35
           (Tex.App.-Austin 2004, no pet.) (vacating trial
           court’s denial of jurisdictional plea turning on
           statutory construction to determine whether
           alleged acts were ultra vires; defendant had
           inadequate notice to brief and argue the issue).
         Hendee I, 228 S.W.3d at 369.



Following our decision in Hendee I,18 the defendants filed a petition for review in the supreme court, which was denied on
July 10, 2007. With the August 31, 2007 *330 end of the 06–07 biennium looming, Plaintiffs requested, and we granted,
expedited issuance of our mandate.

18
       We issued our initial opinion and judgment in April
       2007. The defendants filed a motion for rehearing, in
       response to which we substituted an opinion and
       judgment dated June 11, 2007.




Proceedings below
On July 31, 2007, Plaintiffs amended their petition to seek temporary and permanent injunctive relief, in addition to their
original requests for declaratory relief.19 All of the State Defendants20 joined in a renewed plea to the jurisdiction, this time
with attached evidence “to provide the record desired by the court of appeals.” The State Defendants asserted: (1) Hendee I
had already held that the district court lacked subject-matter jurisdiction over Plaintiffs’ “improper delegation” causes of
action; (2) Plaintiffs had failed to allege conduct constituting violations of article VIII, section 22(a); (3) their attached
jurisdictional evidence conclusively established that 06–07 appropriations did not exceed the spending cap21; and (4)
Plaintiffs’ taxpayer standing was destroyed, and their claims rendered moot, because the funds appropriated under 06–07
appropriations had already been spent (or would be, by the end of August).

19
       They also amended their allegations of C.L.O.U.T.’s
       associational standing.



20
       In the interim, Susan Combs had replaced Carole
       Keeton Strayhorn as Comptroller.



21
       This evidence included, along with the documents the


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       defendants had attempted to present on appeal in
       Hendee I, affidavit testimony of John O’Brien, the
       Director of the LBB. O’Brien testified that the
       Comptroller’s April 2006 update to the revenue
       estimates included an additional $1.8 million in natural
       gas tax revenue over the previous estimate. He
       explained that because natural gas revenues “are
       partially dedicated by the Constitution,” total
       appropriations from non-dedicated state tax revenue as
       of April 2006 dropped to $52.04 billion, $3.56 billion
       under the spending limit. O’Brien continued that during
       the third special session of 2006, the legislature
       appropriated a total of $3.866 billion, $3.476 billion of
       which was funded by non-dedicated state tax revenues.
       Adding these new appropriations from non-dedicated
       state tax revenues to the $52.04 already appropriated
       would equal $55.516 billion, a figure below the 06–07
       final spending cap of $55.6 billion.
          O’Brien further testified that during its 80th regular
          session between January through May 2007, the
          legislature reduced 2007 appropriations and that
          further revisions to the comptroller’s revenue
          estimates increased the amount of dedicated tax
          revenue, “thus freeing up revenue not subject to the
          spending limit.” The effect of these developments,
          O’Brien opined, was to reduce total 06–07
          appropriations from non-dedicated state tax
          revenues, as of July 2007, to $55.3 billion, or $286
          million below the 06–07 final spending cap.



On August 14, the district court granted the plea with regard to Plaintiffs’ “improper delegation” claims but otherwise denied
it. The State Defendants immediately filed a notice of appeal from the district court’s order.22 Apparently in response to the
Plaintiffs’ attempts to proceed with a hearing on their request for temporary injunctive relief, the State Defendants also filed a
“Notice of Automatic Stay” in the district court stating that they were entitled to the automatic stay of trial court proceedings
pending their appeal provided in section 51.014(b) of the civil practice and remedies code.23 Plaintiffs filed an “Emergency
Objection to State Defendants’ Notice of Automatic Stay and Request for Reinstatement of Hearing Date on Plaintiffs’
Request for Temporary Injunctive Relief.” On August 21, the district court denied this relief, finding that the automatic-stay
provisions of section 51.014(b) applied. On August 23, Plaintiffs sought mandamus relief from this order, which we granted
to the extent of holding *331 that section 51.014(b)’s automatic-stay provisions did not apply during the pendency of the
State Defendants’ pending interlocutory appeal.24 The State Defendants sought mandamus from this order with the supreme
court, which denied such relief on August 30.25 At the end of the following day, August 31, 2007, the 06–07 biennium ended.

22
       See Tex. Civ. Prac. & Rem.Code Ann. § 51.014(a)(8).



23
       See id. at § 51.014(b).



24
       In re Hendee, No. 03–07–00490–CV (Tex.App.-Austin
       Aug. 27, 2007) (mem.op.).



25
       In re Dewhurst, No. 07–0683 (Tex. Aug. 30, 2007).

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       The parties represent that the district court subsequently
       denied Plaintiffs’ request for temporary injunctive
       relief.



During the pendency of this appeal, Plaintiffs have filed a second amended petition in which they add declaratory and
injunctive claims seeking to prevent forthcoming expenditures under 08–09 appropriations that they allege are
unconstitutional and illegal. Plaintiffs base these claims, as before, on the theories that the underlying 08–09 appropriations
violate article VIII, section 22 because of the legislature’s continued use of SPI to calculate the spending cap and the lack of a
“feedback” mechanism as it bears on that cap’s calculation.26 Plaintiffs also add a new cause of action alleging that the
specific amount of 08–09 appropriations from non-dedicated state tax revenues exceeds the 08–09 spending cap.

26
       They similarly complain of the continued “improper
       delegation” of powers to the LBB, its staff, and the
       section 316.005 committee, albeit acknowledging that
       Hendee I affirmed the dismissal of those causes of
       action.




                                                             DISCUSSION

The State Defendants bring four issues on appeal, contending that Plaintiffs have failed to invoke the district court’s
subject-matter jurisdiction because (1) the alleged facts made the basis for Plaintiffs’ theories challenging the use of SPI and
the lack of a “feedback mechanism” in calculating the spending cap do not constitute violations of article VIII, section 22(a);
(2) the State Defendants’ uncontroverted jurisdictional evidence conclusively demonstrates that 06–07 from non-dedicated
state tax revenues did not exceed the 06–07 spending cap; (3) Plaintiffs lack standing as taxpayers because the 06–07
biennium has ended and, by definition, all expenditures under the challenged 06–07 appropriations have already been spent;
and (4) similarly, Plaintiffs’ causes of action challenging 06–07 appropriations or expenditures are moot.27

27
       The State Defendants do not separately challenge
       C.L.O.U.T.’s associational standing, relying on the
       above grounds to defeat the standing of its members to
       sue in their own behalf. See Texas Ass’n of Bus. v. Tex.
       Air Control Bd., 852 S.W.2d 440, 447 (Tex.1993).



The applicable standard of review is detailed in Hendee I. 228 S.W.3d at 366–69.



Standing and mootness
[1] [2] [3] [4]
                We agree with the State Defendants that the expiration of the 06–07 fiscal biennium is fatal to Plaintiffs’ standing
as taxpayers to seek declaratory and injunctive relief to prevent expenditures under 06–07 appropriations. Those
appropriations, by definition, expired after August 31, 2007. See Hendee I, 228 S.W.3d at 359–60 & n. 3. Stated another way,
the allegedly illegal expenditures that conferred standing on Plaintiffs to challenge 06–07 appropriations have already been
spent.28 And, as we observed in Hendee I,

28
       At oral argument, counsel for Plaintiffs asserted that
       their standing to challenge 06–07 appropriations might
       have been preserved because some appropriated funds
       “lapse” at the end of a biennium without being spent

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            and go back into general revenue. Although any such
            funds would now be subject to appropriation in the
            current (08–09) biennium, counsel maintained that such
            funds could, at least in theory, not yet be spent. For this
            reason, counsel posited, Plaintiffs would retain standing
            even into the 08–09 biennium to challenge the legality
            of the 06–07 appropriations under which those funds
            could have been expended during that biennium, but
            ultimately were not. Eventually, Plaintiffs’ counsel
            candidly conceded that this argument was “not the
            strongest part of our case.” We are not persuaded that
            the existence of any lapsed appropriated 06–07 funds
            could, in light of the well-established principles of
            taxpayer standing discussed above, somehow preserve
            Plaintiffs’ standing to seek declaratory and injunctive
            relief to challenge the now-expired 06–07
            appropriations.




     *332 it is well-established that taxpayers have standing only to challenge prospective state expenditures, but do not have
     standing to complain of public funds that have already been spent. As the supreme court has explained:

             When a taxpayer brings an action to restrain the illegal expenditure ... of tax money he sues for himself, and it is held
             that his interest in the subject-matter is sufficient to support the action; but when the money had already been spent,
             an action for its recovery is for the [taxing entity]. The cause of action belongs to it alone.
          Hoffman v. Davis, 128 Tex. 503, 100 S.W.2d 94, 95 (1937); see Bland [I.S.D. v. Blue ], 34 S.W.3d [547,] 556–58
          [ (Tex.2000) ].

     Hendee I, 228 S.W.3d at 381. These limitations reflect that “[i]n general, taxpayers do not have a right to bring suit to
     contest government decision-making because ... governments cannot operate if every citizen who concludes that a public
     official has abused his discretion is granted the right to come into court and bring such official’s public acts under review.”
     Bland, 34 S.W.3d at 555 (quoting Osborne v. Keith, 142 Tex. 262, 177 S.W.2d 198, 200 (1944)). Taxpayer-standing
     principles strike a balance between “the protection afforded taxpayers” by permitting such suits compared to “the
     interference such suits pose to government activities.” Id. at 557. Applying these principles, the Texas Supreme Court has
     held that taxpayers lack standing to challenge even prospective expenditures when “the government entity has received all
     that it bargained for and must simply pay for it,” because “[t]he potential for disruption of government operations is too
     great to allow a taxpayer with no special injury distinct from the general public from paying for goods and services it has
     already received and placed in permanent use.” Id. at 381–82. Where the challenged expenditures have already been made,
     taxpayers even more clearly lack standing to seek injunctive and declaratory relief to prevent those expenditures. Hendee I,
     228 S.W.3d at 364 (“To the extent Plaintiffs are complaining about specific appropriations and expenditures made during
     prior biennia, as opposed to forthcoming expenditures ... they would lack standing.”); see Hoffman, 100 S.W.2d at 95.
     Consequently, we must reverse the district court’s order with regard to Plaintiffs’ declaratory and injunctive claims against
     expenditures under now-expired 06–07 appropriations and render judgment dismissing those claims for want of
     subject-matter jurisdiction. See Texas A&M University System v. Koseoglu, 233 S.W.3d 835, 839–40 (Tex.2007).29
29
            We note that the 06–07 biennium had not yet expired at
            the time the district court ruled on the State
            Defendants’ plea to the jurisdiction.


[5] [6]
     Similarly, each cause of action that Plaintiffs have asserted to challenge 06–07 appropriations has been rendered moot
by the 06–07 biennium’s expiration. This includes Plaintiffs’ theory that the specific amount of 06–07 appropriations
exceeded *333 the spending cap applicable to that biennium. Plaintiffs attempt to salvage this theory by invoking the
“capable of repetition, yet evading review” exception to the mootness doctrine. To invoke this exception, a plaintiff must
prove that: (1) the challenged action was too short in duration to be litigated fully before the action ceased or expired; and (2)
a reasonable expectation exists that the same complaining party will be subjected to the same action again. Williams v. Lara,
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52 S.W.3d 171, 184 (Tex.2001); Blum v. Lanier, 997 S.W.2d 259, 264 (Tex.1999); see also In re Allied Chem. Corp., 227
S.W.3d 652, 655 (Tex.2007). Even if this mootness exception were otherwise availing here, it remains that the 06–07
biennium has ended, all 06–07 appropriations have expired, and there cannot possibly be further allegedly illegal
expenditures under those appropriations that would give Plaintiffs standing to challenge those appropriations. See Hoffman,
100 S.W.2d at 95.30

30
       Because Plaintiffs have not alleged a justiciable
       controversy regarding compliance with the 06–07
       spending cap that would continue beyond the 06–07
       biennium’s end, any opinion we would offer on that
       subject or the implications of the State Defendants’
       jurisdictional evidence would be advisory and beyond
       our jurisdiction. See Valley Baptist Med. Ctr. v.
       Gonzalez, 33 S.W.3d 821, 822 (Tex.2000) (“Under
       article II, section 1 of the Texas Constitution, courts
       have no jurisdiction to issue advisory opinions.”). We
       note, however, that Plaintiffs have relied on their
       “improper delegation” theories in urging us to ignore
       the State Defendants’ jurisdictional evidence regarding
       the LBB staff’s calculations of the final 06–07 spending
       cap and of the level of appropriations from
       non-dedicated state tax revenues as the 06–07 biennium
       progressed. Because Plaintiffs have not appealed from
       the district court’s dismissal of their improper
       delegation theories below, any challenge to that ruling
       is not properly before us. See Campbell v. State, 85
       S.W.3d 176, 184 (Tex.2002). To the extent Plaintiffs
       nevertheless are asking us to revisit our holding in
       Hendee I that their improper delegation claims failed to
       state violations of article II, section 1, we decline that
       invitation. See Briscoe v. Goodmark Corp., 102 S.W.3d
       714, 716 (Tex.2003) (discussing the law-of-the-case
       doctrine); cf. Tex. Parks & Wildlife Dep’t v. Dearing,
       240 S.W.3d 330, 351 (Tex.App.-Austin 2007, pet.
       filed) (finding that “clearly erroneous” exception to
       law-of-the-case doctrine applied). However Plaintiffs
       might attempt to characterize the actions of the LBB, its
       staff, or the section 316.005 committee in regard to the
       spending cap, it remains that “the ultimate legislative
       power—whether a bill containing an appropriation is
       passed, amended, or rejected—is vested not in the LBB
       or its staff, but with each respective chamber and its
       individual members, who can utilize several procedural
       mechanisms to resist passage of bills containing
       appropriations they believe would violate the spending
       cap.” Hendee I, 228 S.W.3d at 378 (also observing that
       “the only ‘delegation’ of legislative power that
       Plaintiffs attack is merely an assignment of duties
       within the legislative branch.”). Further, because this
       holding is decisive of all of Plaintiffs’
       improper-delegation theories, we need not address the
       State Defendants’ contention that Plaintiffs waived
       their complaint regarding the committee established
       under section 316.005. See id. at 365 n. 13.



On the other hand, Plaintiffs’ second amended petition, as noted, seeks declaratory and injunctive relief to prevent
forthcoming expenditures under 08–09 appropriations based on their live theories that the continued use of SPI to calculate
“the estimated rate of growth of the state’s economy” and the spending cap and the absence of a “feedback mechanism”
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violate article VIII, section 22. See City of Austin v. L.S. Ranch, Ltd., 970 S.W.2d 750, 755 (Tex.App.-Austin 1998, no pet.)
(petition was amended during pendency of interlocutory appeal from denial of plea to jurisdiction to allege justiciable
controversy and moot subject matter of appeal). Plaintiffs also allege a new theory that the specific amount of the
legislature’s 08–09 appropriations from non-dedicated state tax revenue have exceeded the 08–09 spending cap.

*334 Because the State Defendants have not challenged subject-matter jurisdiction over the latter theory in this proceeding,
that question is not yet before us. However, the State Defendants have squarely challenged whether the legislature’s use of
SPI and the absence of a “feedback mechanism” actually constitute violations of article VIII, section 22. See Hendee I, 228
S.W.3d at 374 (whether conduct constituting a constitutional violation has been alleged controls both sovereign immunity
and Plaintiffs’ standing). Because these grounds would negate subject-matter jurisdiction over Plaintiffs’ live claims based on
those theories, we consider them here. Id. at 368–69.



Use of SPI
[7] [8] [9]
         The parties agree that to prevail on their causes of action regarding the legislature’s use of SPI to determine “the
estimated rate of growth of the state’s economy,” Plaintiffs must plead and prove that such use is arbitrary in light of the
requirements of article VIII, section 22. Arbitrariness is the standard that the supreme court has applied to claims challenging
the Texas public school finance system under article VII, section 1, of the Texas Constitution. See Neeley, 176 S.W.3d at
783–85. An action is arbitrary when it is taken without reference to guiding rules or principles. Id. at 784 (citing General Tire,
Inc. v. Kepple, 970 S.W.2d 520, 526 (Tex.1998)). Whether a legislative enactment is arbitrary is a question of law that we
review de novo. Neeley, 176 S.W.3d at 785. Although this determination may rest in part upon determinations of disputed
factual matters, such findings “have a limited role” in deciding ultimately the constitutional issues. Id.
[10] [11]
        Both article VII, section 1 and article VIII, section 22 mandate that the legislature enact legislation to effectuate
somewhat broadly-defined goals, yet do not specify precisely how the legislature is to perform that task. Compare Tex. Const.
Ann. art. VII, § 1 (“A general diffusion of knowledge being essential to the preservation of the liberty and rights of the
people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and
maintenance of an efficient system of free public schools”) with id. art. VIII, § 22(a) (“In no biennium shall the rate of
growth of appropriations from state tax revenues not dedicated by this constitution exceed the estimated rate of growth of the
state’s economy. The legislature shall provide by general law procedures to implement this subsection.”). In this way, each
provision “gives the legislature the ‘sole right to decide how to meet the standards set by the people,’ ” yet it remains under
our constitution that “the Judiciary has the final authority to determine whether they have been met.” Hendee I, 228 S.W.3d
at 373 (quoting Neeley, 176 S.W.3d at 777 & n. 169 (quoting West Orange–Cove Consol. Indep. Sch. Dist. v. Alanis, 107
S.W.3d 558, 563–64 (Tex.2003))); see also id. at 372 (legislature’s authority is “not committed unconditionally to the
legislature’s discretion, but is instead accompanied by standards”) (quoting Neeley, 176 S.W.3d at 776–77 (quoting
Edgewood Indep. School Dist. v. Kirby, 777 S.W.2d 391, 394 (Tex.1989))).31 The arbitrariness standard ensures that the
judiciary defers to the legislature on matters constitutionally *335 committed to that branch’s discretion while also
performing its role as final arbiter of whether the legislature’s acts comply with constitutional requirements. As the supreme
court has explained in regard to article VII, section 1:

31
              See also Mitchell County v. City Nat’l Bank, 91 Tex.
              361, 43 S.W. 880, 882–83 (1898) (constitutional
              provisions were self-executing to the extent of
              prohibiting conflicting laws but not to the extent of
              requiring particular laws be enacted to effectuate it
              because the provisions “prescribe no rules by which
              any act could be done in the enforcement of their
              requirements”).




     If the Legislature’s choices are informed by guiding rules and principles properly related to public education—that is, if
     the choices are not arbitrary—then the system does not violate the constitutional provision.


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       For article VII, section 1, as with other provisions, “[t]he final authority to determine adherence to the Constitution
       resides with the Judiciary.” As we have said, “ ‘a mere difference of opinion [between judges and legislators], where
       reasonable minds could differ, is not a sufficient basis for striking down legislation as arbitrary or unreasonable.’ ” At
       the same time, “[l]egislative action ... is not without bounds.” In assessing challenges to the public school system under
       article VII, section 1, courts must not on the one hand substitute their policy choices for the Legislature’s, however
       undesirable the latter may appear, but must on the other hand examine the Legislature’s choices carefully to determine
       whether those choices meet the requirements of the Constitution. By steering this course, the Judiciary can assure that
       the people’s guarantees under the Constitution are protected without straying into the prerogatives of the Legislature.

     Neeley, 176 S.W.3d at 785 (footnotes and citations omitted). Similarly, when evaluating whether Plaintiffs have alleged
     conduct constituting violations of article VIII, section 22(a), it is not enough for Plaintiffs to allege merely that the
     legislature might have chosen a better method for calculating the spending cap or to demonstrate a “difference of opinion ...
     where reasonable minds could differ.” See id. Our proper role is instead to determine whether the legislature’s choice of a
     method is arbitrary—without guiding rules and principles properly related to the directives of article VIII, section 22. See
     id.32
32
          As we have previously suggested, the same standard
          would apply to a complaint that the specific spending
          cap for a biennium has been exceeded—whether the
          legislature acted arbitrarily in regard to its compliance
          with that limit. See Hendee I, 228 S.W.3d at 378 n. 29.
          This standard leaves room for “difference of opinion”
          regarding the technical calculations and economic
          forecasting bearing on the spending cap and its
          components and legislative ascertainment of whether
          current-biennium appropriations from non-dedicated
          state tax revenues are within the cap. See id. (observing,
          with regard to Plaintiffs’ claim alleging violation of the
          06–07 spending cap as calculated by the LBB staff,
          “Plaintiffs would not have a basis to ‘go behind’ and
          dispute estimates validly made by the Comptroller or
          LBB.”). On the other hand, this standard does not
          require or allow carte blanche judicial deference to
          bare conclusions by the State’s witnesses regarding
          what these figures are or whether the spending cap has
          been complied with.



Given these limitations on judicial intervention, Plaintiffs’ theory ultimately must rest upon a construction of article VIII,
section 22 that forecloses any discretion of the legislature to choose the rate of growth of SPI to measure “the estimated rate
of growth in the state’s economy.” Plaintiffs urge that the “estimated rate of growth of the state’s economy” in article VIII,
section 22(a) means growth of the entire economy—and personal income is inadequate because it is merely one component
of the state’s economy. To further support their analysis of the provision’s text, Plaintiffs also rely on a view of article VIII,
section 22’s legislative history. As introduced in the house of representatives, the proposed Tax Relief Amendment that
included what became article VIII, section 22 would have *336 limited the growth of all legislative appropriations from state
tax revenue to a fixed annual increase of 7 ½ percent. H.J. of Tex., 65th Leg., 2d C.S. 9 (1978). That provision was deleted
entirely in the committee substitute, see id. at 92, but the following provision was later added through a house floor
amendment:

     That Article VIII of the Texas Constitution be amended by adding Section 21 to read as follows:

     Sec. 21 (a) Except as otherwise provided by this Section, legislative appropriations from State tax revenue for a fiscal
     biennium may not exceed the total of those appropriations for the preceding biennium by more than would result from a
     percentage equaling the percentage of growth of total personal income of the State during the previous biennium, as
     reported by the Comptroller of Public Accounts.

     (b) The limitation in subsection (a) hereof shall not apply to appropriations and tax increases necessary to provide for

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Dewhurst v. Hendee, 253 S.W.3d 320 (2008)



     reimbursement to school districts to replace revenues lost by partial or total abolition of ad valorem property taxes.

     (c) If the legislature by adoption of a resolution approved by a record vote of three-fifths of the members of each house,
     finds that an emergency exists and identifies the nature of the emergency, the legislature may provide for appropriations in
     excess of the amount authorized by Subsection (a) of this section. The excess authorized under this subsection may not
     exceed the amount specified in the resolution.

     (d) In no case shall appropriations exceed revenues as provided in Article III, Section 49a.

Id. at 142–43. This version of the provision that became article VIII, section 22 remained in the Taxpayer Relief Amendment
passed by the house, id., but was deleted in the senate committee substitute and omitted from the version approved by that
chamber. Id. at 309. The conference committee agreed on the language that now appears in article VIII, section 22, and that
was the version submitted to and ratified by the voters. Citing the fact that the legislature considered but eventually rejected a
version of subsection (a) that would have explicitly tied the spending limit to growth in personal income, Plaintiffs urge us to
infer legislative intent to reject growth in personal income as a measure of the “estimated rate of growth in the state’s
economy.”
[12] [13]
       When construing the Texas Constitution, we “rely heavily on its literal text and must give effect to its plain language.”
Stringer v. Cendant Mortgage Corp., 23 S.W.3d 353, 355 (Tex.2000); see Republican Party of Tex. v. Dietz, 940 S.W.2d 86,
89 (Tex.1997); Edgewood Indep. Sch. Dist. v. Kirby, 777 S.W.2d 391, 394 (Tex.1989). We strive to give constitutional
provisions the effect their makers and adopters intended. Stringer, 23 S.W.3d at 355. To that end, we may also consider such
things as the legislative history and purpose of the constitutional provision, the historical context in which it was written,
prior judicial decisions, and the interpretations of analogous constitutional provisions by other jurisdictions. Id.; Dietz, 940
S.W.2d at 89.
[14]
    Contrary to Plaintiffs’ assertions, the text of article VIII, section 22(a) does not foreclose the legislature’s use of SPI to
calculate the “estimated rate of growth of the state’s economy.” The meaning of the terms “the state’s economy” and “the
estimated rate of growth of the state’s economy” is not self-apparent, but entails consideration of myriad technical and policy
variables. Cf. Neeley v. West Orange–Cove Consol. Indep. Sch. Dist., 176 S.W.3d 746, 783 (Tex.2005) (noting that “the
standards *337 of article VII, section 1—adequacy, efficiency, and suitability—do not dictate a particular structure that a
system of free public schools must have”). Nor does article VIII, section 22 provide definitions for these terms.33 Instead, the
provision expressly contemplates that the legislature will address these matters in the first instance when devising
“procedures to implement this subsection.” Tex. Const. Ann. art. VIII, § 22(a). We cannot conclude that the legislature’s
determination to select SPI as the basis for calculating the growth factor was without guiding rules and principles relative to
article VIII, section 22(a)’s purposes.

33
            Nor do Plaintiffs point to any other constitutional
            provisions or case law that might bear upon judicial
            construction of these terms.



The State Defendants have advanced several reasonable rationales supporting the legislature’s choice to use SPI. They urge
that personal income is an appropriate measure of state spending relative to economic growth—the concern of article VIII,
section 22—because it measures the ability of individuals and businesses to pay for government services.34 The State
Defendants also observe that twenty out of thirty states with spending limits use personal income to measure economic
growth. They further posit that using SPI also has the economic policy benefit of incentivizing stakeholders in government
spending to support policies that increase personal income. Plaintiffs vehemently disagree with these economic and policy
judgments, offering their own rationales as to why GSP or other alternatives would provide a more accurate or fiscally
prudent barometer of economic growth than SPI. Although these arguments may demonstrate that reasonable minds can
disagree with the legislature’s choices, we cannot conclude that the use of SPI is so lacking in guiding rules and principles
related to article VIII, section 22’s directives as to be arbitrary and unconstitutional.

34
            These rationales are detailed in O’Brien’s affidavit
            testimony.

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We are unpersuaded by the implications Plaintiffs draw from article VIII, section 22’s legislative history. That the legislature
considered but ultimately decided not to include express language in the constitutional proposal that would have tied the
spending cap to personal income is merely one indicator of the intent of that provision. See Stringer, 23 S.W.3d at 355
(observing that the intent of both the drafters and the people who ratified it is relevant). More importantly, this legislative
record is at least equally consistent with the contemporary practice of constitutionalizing only the general principles of the
limitation, delegating to the legislature the task of determining the specific method of calculating the estimated economic
growth rate and spending cap, and thereby avoiding adding even more statute-like provisions to the byzantine array already
contained in our 130–year–old Texas Constitution.

If anything, the origins of section VIII, section 22 support the legislature’s choice to use SPI to measure the estimated rate of
growth in the state’s economy. As we noted in Hendee I, article VIII, section 22 was born of a tax reform effort in the late
1970s. See John Greene & Larry Toomey, The Tax Reform Act of 1979, 42 Tex. B.J. 1007, 1007 (1979) (contemporaneously
observing, with reference to the notable California taxpayer-relief measures of the 1970s, that “Proposition 13 sentiment has
invaded the Texas Legislature.”). The provision that became article VIII, section 22 was one of several components of a “Tax
Relief Amendment” to the constitution *338 proposed by the 65th legislature during a special session called for that purpose
by Governor Dolph Briscoe. H.J.R. 1, 65th Leg., 2d C.S. These origins suggests less a concern with the general growth in
government compared to the economy that Plaintiffs decry, but with the relative burdens that the funding demands of
government impose on taxpayers. The legislature would not have acted arbitrarily and without guiding rules and principles by
seeking to advance this objective by tying growth in state spending to growth in the income of the taxpayers who fund the
government.

For these reasons, we hold that Plaintiffs’ theory that the legislature’s use of SPI to calculate “the estimated rate of growth in
the state’s economy” and the spending cap does not allege conduct constituting a violation of article VIII, section 22.



Adjustment mechanism
[15]
    We also cannot conclude that the legislature’s failure to provide a “feedback” mechanism to reconcile estimated SPI
growth with actual SPI growth during the biennium violates article VIII, section 22. Article VIII, section 22(a) requires only
that the rate of growth in appropriations cannot exceed “the estimated rate of growth in the state’s economy.” “The estimated
rate of growth” implies a single calculation, while “estimated rate of growth” belies Plaintiffs’ notion that the figure must
precisely track whatever the actual rate of SPI growth during the biennium ultimately proves to be. Nor did the legislature act
arbitrarily in requiring the LBB and section 316.005 committee to develop and approve this estimate before the legislature’s
regular session. This timing enables the LBB to make an initial calculation of the next biennium’s spending cap before the
legislature begins the session in which it generally will enact appropriations for that biennium.

Plaintiffs emphasize that, in contrast to the legislature and LBB’s reliance on a fixed estimated economic growth rate, the
LBB staff periodically updates the board’s calculations of current-biennium appropriations and makes corresponding
adjustments to the next biennium’s spending cap, including a final calculation of the spending cap once the current biennium
ends. Plaintiffs urge that this distinction establishes the arbitrariness of using a fixed economic growth estimate. To the
contrary, this distinction is consistent with the text of article VIII, section 22. Although the provision refers to “the estimated
rate of growth of the state’s economy,” the framers did not similarly qualify “the rate of growth of appropriations from state
tax revenues not dedicated by this constitution.” Consequently, article VIII, section 22(a) would appear to require that the
rate of growth of actual appropriations from non-dedicated state tax revenues not exceed “the estimated rate of growth of the
state’s economy” for that period. The LBB staff’s periodic recalculations of the amount of current-biennium appropriations
from non-dedicated state tax revenues (and corresponding adjustments to the next biennium’s spending cap) would appear
necessary to ensure that the rate of growth in actual appropriations remains within the estimated rate of growth of the state’s
economy. There is no corresponding constitutional basis for requiring similar adjustments to the economic growth rate. The
legislature’s failure to provide for such adjustments is not arbitrary.

Similarly, we cannot conclude that the absence of mechanisms for accounting for long-term deviations between estimated
and actual SPI growth constitutes a violation of article VIII, section 22. The provision, again, refers to “the estimated rate of

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growth in the state’s economy” for the biennium and does not require that appropriations *339 growth precisely track
whatever ultimately proves to have been the actual rate of SPI growth once the period ends. To the extent that Plaintiffs are
challenging the legislature’s use of a biennium-by-biennium method of calculating the spending cap—calculating economic
and appropriations growth from a base year of the current biennium35 instead of using a baseline like 1980–81 or earlier years
that would tend to correct incremental biennial deviations—we likewise conclude that Plaintiffs have not alleged a theory
whereby that approach would violate article VIII, section 22. Article VIII, section 22(a) provides that, “[i]n no biennium shall
the rate of growth of appropriations from state tax revenues not dedicated by this constitution exceed the estimated rate of
growth of the state’s economy.” This type of provision allows either a biennium-by-biennium approach or a comparison of
relative economic and spending growth between the provision’s inception and the next biennium. Cf. Op. Tenn. Atty Gen.
85–153, at 5 (1985) (observing that Tennessee’s similar constitutional limitation could be implemented either by taking its
year of inception as the base year or by looking only to the preceding year).36 Consequently, we cannot conclude that the
legislature acted without guiding rules and principles in opting for its biennium-by-biennium approach.

35
         See Tex. Gov’t Code Ann. § 316.002(a) (requiring the
         LBB to establish “the estimated rate of growth of the
         state’s economy from the current biennium to the next
         biennium,” “the level of appropriations for the current
         biennium from state tax revenues not dedicated by the
         constitution,” and “the amount of state tax revenues not
         dedicated by the constitution that could be appropriated
         for the next biennium within the limit established by the
         estimated rate of growth of the state’s economy”).



36
         Tenn. Const. Ann. art. II, § 24 (“In no year shall the
         rate of growth of appropriations ... exceed the estimated
         rate of growth of the state’s economy ...”). This
         provision apparently was the model for article VIII,
         section 22. See Janice C. May, The Texas State
         Constitution: A Reference Guide 310 (1996).



In sum, although reasonable minds may differ regarding the policy choices the legislature has made in its implementation of
article VIII, section 22, we cannot conclude that the choices of which Plaintiffs have complained violate constitutional
boundaries. Plaintiffs’ complaints regarding those policy choices, in other words, must be adjudged not by the judiciary but
by the legislature and, ultimately, the people.




                                                              CONCLUSION

For the foregoing reasons, we reverse the district court’s order in part, and render judgment dismissing all of Plaintiffs’
causes of action for want of jurisdiction, with the exception of their claims, added in their second amended petition, based on
the yet-unchallenged theory that the specific amount of 08–09 appropriations from non-dedicated state tax revenues have
exceeded the 08–09 spending cap.



All Citations

253 S.W.3d 320

     End of Document                                                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.


                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                               23
Dewhurst v. Hendee, 253 S.W.3d 320 (2008)




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   24
El Paso Hosp. Dist. v. Texas Health and Human Services Com’n, 247 S.W.3d 709 (2008)
Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534




                                                     247 S.W.3d 709
                                                 Supreme Court of Texas.

          EL PASO HOSPITAL DISTRICT d/b/a R.E. Thomason General Hospital District, et al., Petitioner,
                                                  v.
       TEXAS HEALTH AND HUMAN SERVICES COMMISSION and Don Gilbert, Commissioner, Respondents.

                              No. 05–0372. | Argued Nov. 15, 2006. | Decided Feb. 22, 2008.



Synopsis
Background: Hospitals sued Health and Human Services Commission (HHSC) seeking declaration that HHSC’s cutoff date
for submitting paid claims data to determine Medicaid reimbursement rates was invalid rule under the Administrative
Procedures Act (APA) and that HHSC failed to follow its own rules in reviewing the hospitals’ claim. The 201st Judicial
District Court, Travis County, Peter M. Lowry, J., found in favor of HHSC. Hospitals appealed. The Austin Court of Appeals,
Bea Ann Smith, J., 161 S.W.3d 587, affirmed. Hospitals petitioned for review.



Holdings: On rehearing, the Supreme Court, David M. Medina, J., held that:
[1]
   HHSC’s cutoff date was a “rule” under the APA, and thus, because HHSC did not follow the proper rule-making
procedures, rule was invalid, and
[2]
  hospitals were entitled to a formal review with State Office of Administrative Hearings, with respect to individual claims
data excluded by the invalidated cutoff rule.


Judgment of Court of Appeals reversed and remanded.




  West Headnotes (6)


 [1]
          Health
            Medicaid and similar programs in general

          Medicaid is a health insurance program, jointly
          operated and funded by the federal and state
          governments, for the medical care of
          low-income and other eligible persons.
          Medicaid Act, §§ 1901–1930, 42 U.S.C.A. §§
          1396–1396u.


          1 Cases that cite this headnote




 [2]
          Health

                   © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                   1
El Paso Hosp. Dist. v. Texas Health and Human Services Com’n, 247 S.W.3d 709 (2008)
Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534

          Providers, Proceedings Regarding

       Health and Human Services Commission’s
       (HHSC’s) cutoff date for submitting paid claims
       data to determine reimbursement rates for
       inpatient Medicaid services was a “rule” under
       the Administrative Procedures Act, and thus,
       because HHSC did not follow the proper
       rule-making procedures, rule was invalid; cutoff
       was a statement of general applicability because
       it applied to all hospitals, effect of cutoff was to
       modify the base-year rule by controlling the data
       HHSC would use from that year, and cutoff
       affected hospitals’ private rights because it was
       a key formula component. V.T.C.A.,
       Government Code § 2001.003(6)(A–C); 1 TAC
       § 355.8063(b)(5).


       4 Cases that cite this headnote




[3]
       Administrative Law and Procedure
         Nature and Scope

       The term “general applicability” under the
       Administrative Procedures Act’s definition of
       “rule” references statements that affect the
       interest of the public at large such that they can
       not be given the effect of law without public
       input. V.T.C.A., Government Code §
       2001.003(6)(A).


       5 Cases that cite this headnote




[4]
       Administrative Law and Procedure
         Duty to make

       A presumption favors adopting rules of general
       applicability through the formal rule making
       procedures the Administrative Procedures Act
       sets out, including providing notice, publication,
       and public comment on the proposed rule.
       V.T.C.A.,        Government        Code         §§
       2001.023–2001.030.


       1 Cases that cite this headnote


               © 2015 Thomson Reuters. No claim to original U.S. Government Works.    2
El Paso Hosp. Dist. v. Texas Health and Human Services Com’n, 247 S.W.3d 709 (2008)
Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534



[5]
        Administrative Law and Procedure
          Validity

        When an agency promulgates a rule without
        complying with the proper rule-making
        procedures, the rule is invalid. V.T.C.A.,
        Government Code § 2001.035(a).


        6 Cases that cite this headnote




[6]
        Health
          Providers, Proceedings Regarding

        Hospitals were entitled to a formal review with
        State Office of Administrative Hearings, with
        respect to individual claims data excluded by an
        invalidated rule in which Health and Human
        Services Commission (HHSC) set cutoff date
        for submitting paid claims data to determine
        reimbursement rates for inpatient Medicaid
        services; because the cutoff rule was invalid,
        hospitals’ administrative appeals did not
        question HHSC’s payment methodology, but
        rather the omission of individual claims. 1 TAC
        § 355.8063(k)(1)(A), (k)(2).


        3 Cases that cite this headnote




Attorneys and Law Firms

*711 Marie R. Yeates, Houston, Spikes Kangerga, Julie Plantes Woody, Vinson & Elkins L.L.P., James E. Gjerset, Lance
James Ramsey, Shauna L. Lorenz, Gjerset & Lorenz, Austin, TX, for Petitioner.

Robert L. Seibert, Office of Attorney General, Greg Abbott, Attorney General of Texas, Barry Ross McBee, Office of Atty.
Gen., Edward D. Burbach, Office of Atty. Gen., Barbara Bryant Deane, Assistant Atty. Gen., Rafael Edward Cruz, Office of
Atty. Gen., Rance L. Craft, Kristofer S. Monson, Assistant Solicitor Gen., Kent C. SullivanFirst Asst. Atty. Gen., and David
S. Morales, Office of Atty. Gen., Austin, TX, for Respondents.

Ron Beal, pro se.

Opinion

Justice MEDINA delivered the opinion of the Court.



               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                       3
El Paso Hosp. Dist. v. Texas Health and Human Services Com’n, 247 S.W.3d 709 (2008)
Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534

We grant El Paso Hospital District’s motion for rehearing, withdraw our opinion and judgment dated August 31, 2007, and
substitute the following in its place.

In this appeal from the denial of a declaratory judgment, we are asked whether the Texas Health and Human Services
Commission’s (HHSC) data-collection method for calculating prospective Medicaid inpatient service rates is an agency rule
as defined by the Administrative Procedures Act (APA). TEX. GOV’T CODE § 2001.003(6). If it is, we are asked to declare
the rule invalid because HHSC neglected to adopt it as the APA requires. We are further asked to determine whether HHSC
failed to follow the procedure prescribed by other rules that govern an interested party’s administrative appeal of HHSC’s
proposed rates. The trial court denied all relief, and the court of appeals affirmed its judgment. 161 S.W.3d 587.

We conclude that HHSC’s data collection method is an invalid rule and remand that part of the case for further proceedings.
We further conclude that the Hospitals are entitled to have their excluded data entry claims reviewed. Accordingly, we
reverse the court of appeals’ judgment.




                                                               I

Fourteen Texas hospitals sued HHSC asking that HHSC’s cutoff date for submitting paid claims data to determine
reimbursement rates for inpatient Medicaid services be declared invalid. The Hospitals claim the cutoff date is improper
either because it is an invalid rule under the APA, or because it conflicts with relevant provisions of the Human Resources
Code and HHSC’s administrative rules. Additionally, the Hospitals assert that HHSC failed to follow its administrative
appeals rules in reviewing the Hospitals’ claims. A general understanding of the Medicaid program and the process HHSC
uses to reimburse for Medicaid services is necessary before addressing these complaints.
[1]
   Medicaid is a health insurance program, jointly operated and funded by the federal and state governments, for the medical
care of low-income and other eligible persons. See generally Pub.L. No. 89–97, 79 Stat. 286 (1965) (codified as amended at
42 U.S.C. §§ 1396–1396u); see also Wilder v. Va. Hosp. Ass’n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990)
(citing 42 U.S.C. § 1396). While federal law establishes Medicaid’s basic parameters, each state decides eligible groups,
types and range of services, payment levels for services, and administrative services. See 42 C.F.R. § 430.0. Specifically,
each state prepares a written plan describing the nature and scope of its Medicaid *712 program. Id. § 430.10. Once the plan
is approved by the Secretary of Health and Human Services, the state is responsible for operating the program to conform
with the federal guidelines. 42 U.S.C. § 1396. In Texas, HHSC is the agency charged with this responsibility. See TEX.
HUM. RES.CODEE §§ 32.028(a)-(d), 32.0281(a).

Under the approved plan, HHSC is responsible for reimbursing hospitals that provide services to Medicaid patients. See 42
U.S.C. § 1396a(a)(13). The reimbursement methodology in Texas is a prospective payment system. TEX. HUM.
RES.CODEE § 32.028(d). Under this system, HHSC sets the rates paid to hospitals for each service in advance, which allows
hospitals to know the rate at which they will be reimbursed for specific services. See Wilder, 496 U.S. at 506, 110 S.Ct. 2510.
The prospective payment system encourages hospitals to control costs for inpatient Medicaid services so they can earn a
profit under the pre-determined rates. Id. at 506–07.

To implement this system, HHSC has adopted specific rules to determine the prospective payment rates. Although the
rate-calculation rules are detailed and complex, they generally involve three components: (1) the data that forms the basis for
the rate calculation, (2) the formula that converts the data into reimbursement rates, and (3) the process HHSC uses to collect
the data and calculate rates.

The first component, the data used for the rate calculation, is comprised of both cost and claims data. See 1 TEX. ADMIN.
CODEE § 355.8063(c). Cost data are derived from the hospitals’ cost reports that allocate a portion of their total costs to the
Medicaid program based on how many days Medicaid patients stay in the hospital, charges associated with such patients, and
other factors. See id. § 355.8063(l ). Claims data are derived from hospital claims requesting payment for services rendered to
Medicaid patients under existing reimbursement rates. Id. § 355.8063(b)(5).

The second component, the rate-calculation formula, converts the cost and claims data into reimbursement rates that

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                         4
El Paso Hosp. Dist. v. Texas Health and Human Services Com’n, 247 S.W.3d 709 (2008)
Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534

approximate a hospital’s cost for treating a Medicaid patient. The formula achieves this goal by taking a group of hospitals
with similar Medicaid cost experiences, deriving those hospitals’ approximate costs to treat an average Medicaid case, then
adjusting that cost to reflect the relative expense of a particular service. Id. § 355.8063(e). The result is the new rate to be
paid to that hospital group for that service. See id. Specifically, the rate for a service is determined by multiplying (1) the
relative weight of the patient’s diagnosis-related group by (2) the standard dollar amount for the hospital’s payment division.
Id. Although several steps are involved in calculating the diagnosis-related groups and standard dollar amounts, the
foundation for the calculations, and what is important for purposes of this appeal, is the “base year” that we will later discuss
in more detail. Id. § 355.8063(b)(5).

The third component for determining prospective rates for Medicaid services is HHSC’s process for collecting the data. This
process requires that the prospective reimbursement rates be recalculated at least every three years to account for inflation
and medical advances that affect the cost of medical services. See id. HHSC’s current policy is to recalculate the rates on a
three-year cycle. See id. The first year is the base year, and only claims data from Medicaid patients admitted in this base
year may be included in the rate calculation. See id. § 355.8063(n). The next year, HHSC collects the data and converts it into
prospective reimbursement rates. See id. These rates then go into effect in *713 the third year and remain effective for three
years during which this process is repeated. See id. During the third year, HHSC makes changes only if a hospital
successfully appeals a mathematical or data entry error. Id. § 355.8063(k)(1). For example, the base year at issue here was the
state fiscal year from September 1, 1999, to August, 31, 2000. The process for collecting data and generating rates occurred
between September 1, 2000, and August 31, 2001. These rates were in effect from September 1, 2001, through August 31,
2004.

This appeal focuses on HHSC’s interpretation of what constitutes a “base year.” HHSC’s rules define the “base year” as “[a]
12–consecutive–month period of claims data selected by the [department] or its designee.” Id. § 355.8063(b)(5). HHSC
requires that the “12–consecutive–month period” run concurrently with the State’s fiscal year from September 1 to August 31.
See id. § 355.8063(n). HHSC gathers all claims data for Medicaid patients admitted during that fiscal year but uses only the
claims that Medicaid actually pays to assure that the data is from Medicaid-eligible claimants. Most importantly to this
appeal, HHSC imposes a “cutoff” date, selecting claims data only from base-year claims that are paid within the fiscal year
plus a six-month grace period (the “February 28 cutoff”). Put simply, when determining what claims go into the rate
calculation, HHSC considers only the claims of Medicaid patients admitted during the base year that are actually paid within
six months of the base-year’s end. Claims for all patients admitted during the base year, but not paid by February 28, are not
included in determining the prospective reimbursement rates. Between February 28 and August 31, HHSC recalculates the
standard dollar amount and diagnosis-related group relative weights, informs hospitals of the proposed new rates, hears
appeals, and finalizes the new rates before they go into effect on September 1 of that year.

The problem with this process, according to the Hospitals, is that HHSC does not use twelve consecutive months of claims
data in computing rates as its rules require. Instead, the Hospitals argue that HHSC’s six-month cutoff arbitrarily excludes
relevant Medicaid claims simply because they are not paid quickly enough. The Hospitals submit that under HHSC’s
interpretation of the rule, only 95–97 percent of base-year claims are used to calculate the rates, while the rules actually
require a “true cost average.”

Dissatisfied with this process, the Hospitals sought administrative review of the reimbursement rates from fiscal year 2000,
asking HHSC to include claims data excluded by the February 28 cutoff. HHSC denied the Hospitals’ request and refused to
refer the case to the State Office of Administrative Hearings for a formal hearing. The Hospitals then sued HHSC for
declaratory and injunctive relief to enjoin it from applying the February 28th cutoff. The Administrative Procedures Act
authorizes declaratory relief when determining the validity or applicability of a rule, if the plaintiff alleges “that the rule or its
threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the
plaintiff.” TEX. GOV’T CODE § 2001.038(a).

The trial court granted the Hospitals’ request for a temporary injunction, but, at a subsequent trial on the merits, a visiting
judge ruled against the Hospitals on all claims. The court of appeals affirmed, 161 S.W.3d 587, and this appeal followed.




                                                                 II
                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                5
El Paso Hosp. Dist. v. Texas Health and Human Services Com’n, 247 S.W.3d 709 (2008)
Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534

The Hospitals present two arguments on appeal. First, they ask that we declare *714 the February 28 cutoff invalid either
because it constitutes an improperly promulgated rule or because it conflicts with the applicable provisions of the Texas
Human Resources Code and the Texas Administrative Code. See generally TEX. HUM. RES.CODEE § 32.028(d); 1 TEX.
ADMIN. CODEE § 355.8063. Second, the Hospitals argue that HHSC failed to refer their administrative appeal relating to
the rate issue for formal hearing, as required by HHSC’s rules and the Texas Human Resources Code. They ask that we either
direct HHSC to refer their appeal or remand the case for further proceedings.




                                                               A
[2]
   HHSC is charged with establishing methods for administering and adopting necessary rules for the proper and efficient
operation of medical assistance programs. TEX. HUM. RES.CODEE § 32.021(c). Specifically, HHSC has statutory authority
to adopt “reasonable rules and standards governing the determination of rates paid for inpatient hospital services on a
prospective payment basis.” Id. § 32.028(d). HHSC also has authority to adopt rules relating to the payment rates that
describe the process used to determine the rates. Id. § 32.0281(b). HHSC further must describe the prospective payment
system used to reimburse hospitals that provide inpatient Medicaid services. See 1 TEX. ADMIN. CODEE § 355.8063(a).

HHSC argues that it complied with these statutes, and that the February 28 cutoff is not a rule itself, but rather its
interpretation of the base-year rule. The Hospitals disagree, arguing the February 28 cutoff falls squarely within the APA’s
definition of a rule. We agree with the Hospitals. Under the APA, a rule: (1) is an agency statement of general applicability
that either “implements, interprets, or prescribes law or policy” or describes [HHSC’s] “procedure or practice requirements;”
(2) “includes the amendment or repeal of a prior rule;” and (3) “does not include a statement regarding only the internal
management or organization of a state agency and not affecting private rights or procedures.” TEX. GOV’T CODE §
2001.003(6)(A)-(C).
[3]
   First, the February 28 cutoff is a statement of general applicability that implements law or describes procedure. See id. §
2001.003(6)(A)(i)-(ii). The term “general applicability” under the APA references “statements that affect the interest of the
public at large such that they cannot be given the effect of law without public input.” R.R. Comm’n of Tex. v. WBD Oil & Gas
Co., 104 S.W.3d 69, 79 (Tex.2003). The prospective payment system and its calculations affect all hospitals receiving
reimbursement for inpatient Medicaid services. Thus, no question exists that the February 28 cutoff is a statement of general
applicability because it applies to all hospitals.

The cutoff further implements policy and describes HHSC’s data collection procedure. HHSC is required to describe the
process used to determine payment rates through its formally promulgated rules, and HHSC’s rule provides that it will use a
base year, “[a] 12–consecutive–month period of claims data,” to calculate the Hospitals’ rates. 1 TEX. ADMIN. CODEE §
355.8063(b)(5). The effect of HHSC’s February 28 cutoff, however, is to modify the base-year rule by controlling the data
HHSC will use from that year. The February 28 cutoff thus amends another rule, the base year’s 12–consecutive–month
period of claims data, thus meeting the second criteria of a rule. See TEX. GOV’T CODE § 2001.003(6)(B).

Finally, the February 28 cutoff is not a statement regarding the agency’s internal management or organization but rather
affects *715 the Hospitals’ private rights. Hospitals are entitled to have their prospective reimbursement rates determined
according to the formula set out in HHSC’s rules. The February 28 cutoff is a key component of that formula, directly
affecting the Hospitals’ right to reimbursement, but was not adopted through proper rule-making procedures. Id. §
2001.003(6)(C).

The enabling statute here requires that HHSC adopt “reasonable rules and standards governing the determination of rates paid
for inpatient hospital services on a prospective payment basis.” TEX. HUM. RES.CODEE § 32.028(d). Specifically, HHSC
must “assure that the payment rates are reasonable and adequate to meet the costs incurred by the hospital in rendering
services to Medicaid recipients.” Id. § 32.028(d)(1). The February 28 cutoff is a significant component for calculating
prospective reimbursement rates, and the Hospitals complain that its effect is to skew those rates to their disadvantage.
Whether or not this is true, it is a matter that the agency should explore as a part of its rule-making process.
[4]
      A presumption favors adopting rules of general applicability through the formal rule-making procedures the APA sets out.

                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                      6
El Paso Hosp. Dist. v. Texas Health and Human Services Com’n, 247 S.W.3d 709 (2008)
Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534

Rodriguez v. Serv. Lloyds Ins. Co., 997 S.W.2d 248, 255 (Tex.1999). These procedures include providing notice, publication,
and public comment on the proposed rule. Id. (citing TEX. GOV’T CODE §§ 2001.023–.030). The process assures notice to
the public and affected persons and an opportunity to be heard on matters that affect them. Id.
[5]
   When an agency promulgates a rule without complying with the proper rule-making procedures, the rule is invalid. See
TEX. GOV’T CODE § 2001.035(a). Although we do not decide whether the February 28 cutoff is appropriate to the
determination of whether hospitals receive reasonable and adequate reimbursement for inpatient Medicaid services, we do
hold that HHSC should have incorporated the cutoff into the language of the “base-year rule.” See, e.g., 1 TEX. ADMIN.
CODEE § 355.8065(b)(24) (including cutoff in rule pertaining to additional reimbursement for disproportionate share
hospitals). Because we conclude that the February 28th cutoff is a rule that HHSC did not properly promulgate, we reverse
the court of appeals’ judgment and render judgment declaring the rule invalid and enjoining its enforcement. See TEX.
GOV’T CODE § 2001.035.




                                                               B
[6]
  The Hospitals also complain that HHSC improperly applied its administrative appeals rules. The Hospitals contend that
HHSC was required to refer their appeal for a formal hearing with the State Office of Administrative Hearings.

According to the Texas Administrative Code, a hospital may appeal a claim if the hospital believes HHSC “made a
mechanical, mathematical, or data entry error in computing the hospital’s base year claims data,” and “may request a review
of the disputed calculation by the HHSC....” 1 TEX. ADMIN. CODEE § 355.8063(k)(1)(A). HHSC considers this review an
“informal review.” See id. If a hospital is dissatisfied with the results of the informal review, the hospital may then request a
formal hearing before the State Office of Administrative Hearings. See id.

However, the appeals rule also specifically states that “[a] hospital may not appeal the prospective payment methodology
used by the HHSC ... including: (A) the payment division methodologies; (B) the [diagnosis-related groups] established; (C)
the methodology for classifying hospital discharges within the [diagnosis-related *716 groups]; (D) the relative weights
assigned to the [diagnosis-related groups]; and (E) the amount of payment as being inadequate to cover costs.” Id. §
355.8063(k)(2). Thus, the appeals rules specifically prohibit any appeals contesting HHSC’s prospective payment
methodology.

The court of appeals concluded that HHSC was not required to grant a formal review “[b]ecause the mathematical or data
entry errors alluded to by the Hospitals did not pertain to individual claims but, rather, to how the claims selection process in
the aggregate could lead to mathematical or data entry errors.” 161 S.W.3d at 594. Because the February 28 cutoff is invalid,
however, the Hospitals’ administrative appeals do not question HHSC’s payment methodology but rather the omission of
individual claims. Applying the base-year rule without the February 28 cutoff, the only issue is whether HHSC has included
all the claims arising during the twelve-month base-year period. See TEX. ADMIN. CODEE §§ 355.8063(b)(5), (n). This
inquiry involves a reviewable “data entry” claim. See id. § 355.8063(k)(1). Thus, we conclude that the Hospitals were
entitled to a review of individual claims data excluded by the February 28 cutoff.




                                                             ***

We reverse the court of appeals’ judgment and remand the case to the trial court for further proceedings.



All Citations

247 S.W.3d 709, Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                           7
El Paso Hosp. Dist. v. Texas Health and Human Services Com’n, 247 S.W.3d 709 (2008)
Med & Med GD (CCH) P 302,333, 51 Tex. Sup. Ct. J. 534



 End of Document                                        © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                        8
Martinez v. Harris County, 808 S.W.2d 257 (1991)




                                                       808 S.W.2d 257
                                                   Court of Appeals of Texas,
                                                     Houston (1st Dist.).

                                                Ruben MARTINEZ, Appellant,
                                                           v.
                                                 HARRIS COUNTY, Appellee.

                        No. 01–90–00723–CV. | April 18, 1991. | Rehearing Denied May 9, 1991.


Victim of injury incurred while swinging sued county maintaining swing-set. The 269th District Court, Harris County, David
West, J., entered summary judgment for county and appeal was taken. The Court of Appeals, O’Connor, J., held that: (1)
swinging was recreational activity, covered by statute limiting liability of landowners for injuries occurring out of such
activity; (2) statute did not violate the state or federal equal protection rights of accident victim; and (3) statute did not violate
open courts provision of State Constitution.

Affirmed.




 West Headnotes (4)


[1]
        Negligence
          Property, conditions, activities and persons
        covered

        Swinging        was      “recreation,”   within
        contemplation of statute limiting landowners
        liability for torts arising out of recreational
        activity conducted on premises, even though
        swinging was not a specifically enumerated
        recreational activity; statute provided that
        “activities such as” enumerated ones constituted
        recreation. V.T.C.A., Civil Practice & Remedies
        Code § 75.001(2).


        4 Cases that cite this headnote




[2]
        Negligence
          Property, conditions, activities and persons
        covered

        Statute limiting liability of owners for injuries
        incurred while engaged in recreational activities
        on premises applied to injuries on swing-set,
        even though activities specifically designated

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                1
Martinez v. Harris County, 808 S.W.2d 257 (1991)



       under statute as recreational did not involve
       owner’s alteration of land, as did swing-set;
       statutory definition of “premises” included
       structures. V.T.C.A., Civil Practice & Remedies
       Code § 75.001(2, 3).


       3 Cases that cite this headnote




[3]
       Constitutional Law
         Personal Injuries
       Negligence
         Constitutional, statutory and regulatory
       provisions

       Statute providing for limitation of liability to
       landowners arising out of injuries incurred while
       engaging in recreational activities did not violate
       equal protection rights of victims of recreational
       injuries, as opposed to those sustaining other
       types of injuries on same premises; statute bore
       rational relationship to legitimate state interest
       of encouraging landowners to allow public to
       enjoy outdoor recreation on landowners’
       facilities. V.T.C.A., Civil Practice & Remedies
       Code § 75.001(2); U.S.C.A. Const.Amend. 14;
       Vernon’s Ann.Texas Const. Art. 1, § 3.


       4 Cases that cite this headnote




[4]
       Constitutional Law
         Conditions, Limitations, and Other
       Restrictions on Access and Remedies
       Counties
         Condition and use of public buildings, places,
       and property

       Statute limiting liability of landowners for
       injuries arising from recreational use of land, as
       applied to county as landowner, did not violate
       recreational accident victim’s constitutional
       right to open court for redress of personal injury;
       constitutional provision applied only to
       abridgement of common-law rights of action,
       and right to sue county was statutory. V.T.C.A.,
       Civil Practice & Remedies Code § 75.001(2);
       Vernon’s Ann.Texas Const. Art. 1, § 13.


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   2
Martinez v. Harris County, 808 S.W.2d 257 (1991)




          4 Cases that cite this headnote




Attorneys and Law Firms

*258 Donald Burger, Houston, for appellant.

Frank M. Sanders, Asst. County Atty., for appellee.
Before O’CONNOR and COHEN, JJ., and GERALD T. BISSETT,1Assigned Justice.
1
         The Honorable Gerald T. Bissett, Retired Justice, Court
         of Appeals, Thirteenth District of Texas at Corpus
         Christi, sitting by assignment.




                                                               OPINION


O’CONNOR, Justice.

The question presented here is: Does the recreational use statute apply to governmental entities? We hold it does and we
affirm the summary judgment in favor of Harris County.

Ruben Martinez sued Harris County for personal injuries, alleging the County negligently installed a swing in one of its parks.
In April of 1989, as Martinez was swinging on a swing-set at Sylvan Beach Park, he was hurt when the swing became
unhooked from the chain. Martinez alleged the County did not properly squeeze shut the “S” hook that attaches the swing to
the chain.

The trial court, relying on the recreational use statute in chapter 75 of the Texas Civil Practice and Remedies Code, which
limits the landowner’s liability, granted Harris County’s motion for summary judgement. Chapter 75 provides:

    If an owner, lessee, or occupant of real property gives permission to another to enter the premises for recreation, the owner,
    lessee, or occupant, by giving the permission, does not:

    (1) assure that the premises are safe for that purpose;

    (2) owe to the person to whom permission is granted a greater degree of care than is owed to a trespasser on the premises;
    or

    (3) assume responsibility or incur liability for any injury to any individual or property caused by any act of the person to
    whom permission is granted.

TEX.CIV.PRAC. & REM. CODE ANN.. § 75.002(c) (Vernon Supp.1991).

*259 In a summary judgment case, the movant for summary judgment has the burden of showing that it is entitled to
judgment as a matter of law. Nixon v. Mr. Property Management, 690 S.W.2d 546, 548 (Tex.1985).



                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                          3
Martinez v. Harris County, 808 S.W.2d 257 (1991)



1. Swinging is not a recreational activity
[1]
    In point of error one, Martinez claims the trial court erred in granting Harris County’s motion for summary judgment
because swinging is not a “recreational activity” as that term is defined by chapter 75. Thus, Martinez argues, the County
cannot take advantage of the recreational use statute. The statute defines “recreation” as

            an activity such as hunting, fishing, swimming, boating, camping, picnicking, hiking, pleasure driving,
            nature study, and waterskiing and other water sports.

TEX.CIV.PRAC. & REM.CODE ANN. § 75.001(3) (Vernon Supp.1991). Martinez contends the list in § 75.001(2) is
exclusive, and therefore, the County, as the landowner, may be sued for injuries arising from any activities not included in the
list.

The statute provides that “activities such as ” those listed are considered “recreation” for purposes of chapter 75. Under the
ejusdem generis rule, which means “of the same kind,” we are to construe the general words in the statute as applying to
things of the same kind or class as those specifically enumerated. Harris County v. Eaton, 573 S.W.2d 177, 179 (Tex.1978).
Ejusdem generis is a canon of construction that provides when general words follow the enumeration of things of a specific
meaning, the general words will be construed as applying only to things of the same general class as those enumerated. 2A C.
SANDS, SUTHERLAND’S STATUTES AND STATUTORY CONSTRUCTION § 47.17 (4th ed. 1973). The examples
included in the statute are not exclusive and do not exhaust the class. See Eaton, 573 S.W.2d at 179.

Chapter 75 was enacted to encourage landowners to allow the public to enjoy outdoor activities on the land by limiting their
liability for injuries arising from these activities. Tarrant County Water Control & Improvement Dist. v. Crossland, 781
S.W.2d 427, 437 (Tex.App.—Fort Worth 1989, no writ). In light of the general wording of the Texas statute and the purpose
of the statute, swinging is a recreational activity contemplated under chapter 75.

When a similar challenge was made to an Iowa recreational use statute that limited the liability of landowners who open their
property to the public for recreational activities, the United States court of appeals held that the statute was valid against a
plaintiff who sued for injuries sustained on a swing-set. Hegg v. United States, 817 F.2d 1328, 1330 (8th Cir.1987). The Iowa
statute defined “recreational purpose” as

            the following or any combination thereof: Hunting, horseback riding, fishing, swimming, boating,
            camping, picnicking, hiking, pleasure driving, motorcycling, nature study, water skiing, snowmobiling,
            other summer and winter sports, and viewing or enjoying sites while going to and from or actually
            engaged therein.

IOWA CODE ANN. § 111C.2(3) (West 1984). The appellate court upheld the district court’s ruling that the list in the statute
was intended to be illustrative only, not exclusive, and that “in view of the general purposes of the statute and the popular and
reasonable understanding of the meaning of the term ‘recreational purpose,’ swinging fell within that definition.” Hegg, 817
F.2d at 1330.

We overrule point of error one.



2. Swinging exclusion is not contemplated by statute
[2]
   In point of error two, Martinez claims the trial court erred in granting the summary judgment, because swinging on a swing
is not the kind of recreational activity contemplated by the legislature. He argues that chapter 75 carves a narrow exception to
normal landowner liability law.

Martinez attempts to distinguish swinging on a swing from those activities listed in § 75.001(3), in that the listed activities
are ones that a visitor can do without any aid or assistance from the landowner. He points out that all the listed recreational
activities do not require the landowner to *260 provide equipment or to change the condition of the property. He argues that
the legislative intent of the statute was not to penalize a landowner who allows the listed activities when the land’s primary
purpose is for some other use. Martinez contends that by changing the nature of the land by erecting playground equipment,

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                           4
Martinez v. Harris County, 808 S.W.2d 257 (1991)



Harris County, as the landowner of Sylvan Beach Park, falls outside the protection of the statute. The County, he claims,
should not be allowed to change the land so that people are lured onto it for recreation, and then be immune from the
negligent operation of its recreational equipment.

The statute specifically defines “premises” as including “buildings, structures, machinery, and equipment attached or located
on the land, road, water, watercourse, or private way.” TEX.CIV.PRAC. & REM.CODE ANN. § 75.001(2) (Vernon
Supp.1991). Playground equipment falls within the definition of “premises.”

Further, as stated above, the purpose of the statute is to encourage landowners to open their property to the public for
enjoyment of recreational activities. A reasonable meaning of “recreation” would include the activity of swinging on a
swing-set provided for public use.

We overrule point of error two.



3. Constitutional violations
[3]
   In point of error three, Martinez contends that chapter 75 violates the equal protection clauses of the Texas Constitution
and the United States Constitution. The Texas Constitution provides: “All free men ... have equal rights, and no man, or set of
men, is entitled to exclusive separate public emoluments, or privileges, but in consideration of public services.” TEX.
CONST. art. I, § 3. The United States Constitution provides: “No State shall ... deny to any person within its jurisdiction the
equal protection of the laws.” U.S. CONST. amend. XIV, § 1. Martinez argues the Texas Civil Practice and Remedies Code §
75.001(3) creates different classes of plaintiffs that are treated differently under the law, namely, that people engaging in
recreational activities have no remedy for landowner negligence.

In support of this point of error, Martinez relies on Whitworth v. Bynum, 699 S.W.2d 194 (Tex.1985). In Whitworth, the
Texas Supreme Court analyzed the constitutionality of the Texas automobile guest statute. Id. at 195. That statute denied a
passenger, who was a relative of the host driver, the right to sue the driver for injuries, death, or loss, in case of an accident
resulting from the driver’s negligence. TEX.REV.CIV.STAT.ANN. art. 6701b (Vernon 1977). The Texas Supreme Court
held the statute unconstitutional, finding the classification drawn by the statute was not “rationally related to a legitimate
State interest.” Whitworth, 699 S.W.2d at 197. Plaintiff argues that as in Whitworth, there is no rational basis between a
legitimate State interest and the classifications drawn in the statute. Here, he claims there are two classifications: people
engaged in the recreational activities enumerated in chapter 75, and those engaged in other activities on a landowner’s
property.

When we review the constitutionality of a statute, we presume that it is valid. Spring Branch Indep. School Dist. v. Stamos,
695 S.W.2d 556, 558 (Tex.1985). Equal protection questions involve inquiry into three subjects: the character of the
classification; the individual interests affected by classification; and the governmental interest asserted in support of the
classification. Houston Chronicle Publishing Co. v. City of Houston, 620 S.W.2d 833, 838 (Tex.App.—Houston [14th Dist.]
1981, no writ). If interests other than fundamental rights are affected, the classification must be rationally related to a
legitimate state interest. Sullivan v. University Interscholastic League, 616 S.W.2d 170, 172 (Tex.1981) (challenge under the
United States constitutional equal protection provision); Houston Chronicle Publishing Co., 620 S.W.2d at 838 (challenge
under the Texas constitutional equal protection provision). Martinez is not alleging a violation of a fundamental right;
therefore, we apply the rational basis test here.

Chapter 75 was enacted for the “salutary purpose of encouraging landowners to allow the public to enjoy outdoor recreation
*261 on the landowner’s property by limiting the liability of the landowner for personal injury which often results from
vigorous outdoor activities.” Tarrant County Water Control & Improvement Dist., 781 S.W.2d at 437. The statute provides
landowners with a limitation on their liability in exchange for opening their land to the public for recreational activities.

In other states, statutes like chapter 75, enacted for similar purposes, have been upheld against federal and state equal
protection challenges. Harlan v. Frazier, 635 F.Supp. 718, 724 (W.D.La.1986), aff’d, 811 F.2d 601 (5th Cir.1987) (Louisiana
statute); Sublett v. United States, 688 S.W.2d 328, 329 (Ky.1985) (Kentucky statute); Reed v. United States, 604 F.Supp.
1253, 1265 (N.D.Ind.1984) (Indiana statute); Simpson v. United States, 652 F.2d 831, 833–34 (9th Cir.1981) (California
statute); Moss v. Department of Natural Resources, 62 Ohio St.2d 138, 404 N.E.2d 742, 745 (1980) (Ohio statute).
                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                            5
Martinez v. Harris County, 808 S.W.2d 257 (1991)




Chapter 75 bears a rational relationship to a legitimate state interest. The classification, therefore, is reasonable and the
statute withstands the equal protection challenge.

We overrule point of error three.



4. Violation of the open courts provision
[4]
    In point of error four, Martinez contends chapter 75 violates the open courts provision of the Texas Constitution. The
constitution provides: “All courts shall be open, and every person for an injury done him, in his lands, goods, person or
reputation, shall have remedy by due course of law.” TEX. CONST. art. I, § 13.

In Sax v. Votteler, 648 S.W.2d 661, 665 (Tex.1983), the Texas Supreme Court restated the test for analyzing violations of the
open courts-due process provision: A statute that unreasonably abridges a justiciable right to obtain redress for injuries
caused by the wrongful acts of another amounts to a denial of due process under article I, section 13, and is therefore, void.
The court held that a statute is constitutional if “the legislative basis for the statute outweighs the denial of the
constitutionally-guaranteed right of redress.” Id. at 665–66.

In our analysis, we must first consider the purpose of the statute. Sax, 648 S.W.2d at 666. The purpose of chapter 75 is to
limit liability of landowners when the landowner allows the public to use the property for recreational purposes. Tarrant
County Water Control and Improvement Dist., 781 S.W.2d at 437.

Second, in order for the open courts analysis to apply, there must be some abrogation of a litigant’s right to bring a cause of
action, either common law or statutory. Sax, 648 S.W.2d at 666. Martinez must show that he had a cause of action that is
restricted by the recreational use statute, and that the restriction is unreasonable or arbitrary when balanced against the
purpose and basis of the statute. Sax, 648 S.W.2d at 666.

Martinez did not have a common-law cause of action for a suit against Harris County; he only had a right to sue the County
under the Texas Tort Claims Act. Under the common-law doctrine of sovereign immunity, the State and its political
subdivisions, which includes counties, may not be held liable for torts absent a statutory provision creating such liability.
State v. Terrell, 588 S.W.2d 784, 785 (Tex.1979); Wheat v. Texas Dept. of Corrections, 715 S.W.2d 362, 363
(Tex.App.—Houston [1st Dist.] 1986, writ ref’d n.r.e.); TEX.CIV.PRAC. & REM.CODE ANN. § 101.001 et seq. (Vernon
1986 & Supp.1991). The Texas Tort Claims Act provides the exception to the doctrine of sovereign immunity for counties. Id.
Thus, Martinez’s remedy is not rooted in the common law, but is statutorily created. Because he cannot establish he had a
cognizable cause of action that was restricted by chapter 75, he has failed to show a violation of the open courts provision of
the constitution.

Other jurisdictions have held that statutes similar to chapter 75 did not violate the open courts provisions of those states.
Harlan, 635 F.Supp. at 725; Genco v. Connecticut Light & Power Co., 7 Conn.App. 164, 508 A.2d 58, 63 (1986); *262
Sublett, 688 S.W.2d 328, 329 (Ky.1985); Abdin v. Fischer, 374 So.2d 1379, 1380 (Fla.1979).

We overrule point of error four.



All Citations

808 S.W.2d 257

  End of Document                                             © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                            6
Martinez v. Harris County, 808 S.W.2d 257 (1991)




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   7
Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442




                                                      104 S.W.3d 69
                                                  Supreme Court of Texas.

      RAILROAD COMMISSION OF TEXAS and Greg Abbott in His Official Capacity as Attorney General for the
                                    State of Texas, Petitioners,
                                                 v.
                    WBD OIL & GAS CO. and WBD Oil & Gas Co., Inc., Respondents.

           No. 01–0177. | Argued Jan. 9, 2002. | Decided Feb. 13, 2003. | Rehearing Denied June 5, 2003.


Oil and gas company filed declaratory judgment action challenging the validity of field rules promulgated by the Railroad
Commission for oil and gas fields in state’s panhandle. The 250th Judicial District Court, Travis County, Margaret A. Cooper,
J., dismissed for want of jurisdiction, and company appealed. The Austin Court of Appeals, 35 S.W.3d 34, reversed and
remanded. Commission and two intervening operators petitioned for review. The Supreme Court, Hecht, J., held that: (1)
field rules could not be judicially reviewed as “rules” through a declaratory judgment action under the Administrative
Procedure Act (APA), but instead could only be reviewed following the more limited procedures available for review of
contested case decisions, and (2) company received adequate notice from the Commission that its production rights were to
be adjudicated in proceedings to change field rules.

Judgment of Court of Appeals reversed and remanded.




 West Headnotes (2)


[1]
         Declaratory Judgment
           Statutory remedy

         Field rules promulgated by the Railroad
         Commission, using contested case procedures,
         could not be judicially reviewed as “rules”
         through a declaratory judgment action under the
         Administrative Procedure Act (APA), but
         instead could only be reviewed following the
         more limited procedures available under the
         APA for review of contested case decisions;
         field rules were not rules of general
         applicability, but were an adjudication of the
         individual interests principally affected.
         V.T.C.A., Government Code §§ 2001.003(1, 6),
         2001.038, 2001.171–2001.202.


         15 Cases that cite this headnote




[2]
         Mines and Minerals
          Powers and Proceedings of Commissions and

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                       1
Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442

        Officers in General

        Oil and gas company received adequate notice
        from the Railroad Commission that its
        production rights in certain oil and gas fields
        were to be adjudicated in proceedings to change
        field rules for the fields, such that company was
        required to follow judicial review procedures for
        contested case decisions when challenging the
        field rules, although participation in the
        proceeding was only invited, not compelled, and
        company was never formally named as a party,
        where notice was very clear in warning that
        company’s rights would be affected, company
        was aware that it could intervene, and notice set
        out changes the Commission was considering
        making and warned that other changes could
        also be made. V.T.C.A., Government Code §§
        2001.171–2001.202.


        5 Cases that cite this headnote




Attorneys and Law Firms

*69 Jamie Nielson, Austin, Ronald C. Schultz, Dubai, Howard G. Baldwin, First Assistant Attorney General, Jeffrey S. Boyd,
Office of the Attorney General, Austin, for petitioners.

Philip F. Patman, Ana Maria Marsland–Griffith, Patman & Osborn, Austin, Rick A. Mayer, The Woodlands, for Anadarko
Petroleum Corp.

Don Walker, Asst. Atty. Gen., for the Railroad Commission.

James Douglas Ray, Charles E. Hampton, Michael P. Marcin, Gammage, Hampton, Marcin & Ray, Travis Phillips, The Law
Offices of Travis R. Phillips, Austin, *70 Robert A. Gammage, Hill Gilstrap, PC, Arlington, for respondents.

Opinion

Justice HECHT delivered the opinion of the Court, in which Chief Justice PHILLIPS, Justice ENOCH, Justice OWEN,
Justice O’NEILL, Justice JEFFERSON, Justice SCHNEIDER, and Justice SMITH joined.


To regulate oil and gas production, the Railroad Commission of Texas has adopted general rules applicable throughout the
State,1 but because these general rules cannot adequately address the widely varying conditions found in the thousands of oil
and gas reservoirs in Texas, the Commission may issue orders with detailed regulations for a specific field, which the
Commission calls field rules. In determining field rules, the Commission has historically followed the procedures used for
adjudication rather than for rulemaking. Under the Administrative Procedure Act,2 judicial review of adjudicated decisions is
more limited in timing and scope than judicial review of rules. The question before us is whether field rules are subject to
review as rules. The trial court thought not, but a divided court of appeals disagreed.3 We agree with the trial court and
consequently reverse and remand the case to the court of appeals for further proceedings.



               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                        2
Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442

1
       See 16 TEX. ADMIN. CODE ch. 3 (2002).



2
       TEX. GOV’T CODE §§ 2001.001–.902.



3
       35 S.W.3d 34 (Tex.App.-Austin 1999).




                                                                   I

The discovery gas well in the Panhandle Field—the Canadian River Gas Company Masterson No. 1 well in Potter
County—was completed in 1918 to little delight because there was then, and for many years afterward, no significant market
for gas. On the other hand, the 1921 completion of the discovery oil well in the field—the Gulf Production Company S.B.
Burnett No. 2 well in Carson County—set off massive drilling and production throughout the area. It was customary at the
time for oil wells to be completed and the casing perforated both in lower oil horizons and higher gas horizons so that gas and
oil were produced together. The so-called “wet” or casinghead gas from the well was processed to remove whatever liquid
condensate or “natural gasoline” could be extracted under pressure, and the remaining “dry” gas—some 90% of the
volume—was vented or flared. The gas lost by this lamentable practice could reach, by one 1934 estimate, 1 billion cubic
feet per day. In 1935, the Legislature prohibited such wasteful operations.4 About the same time, the Commission began
issuing a series of orders adopting field rules to regulate the production of oil and gas in the Panhandle Field, and specifically,
to prohibit perforating oil well casing in higher gas strata so as to produce gas and oil together.

4
       Act of April 30, 1935, 44th Leg., R.S., ch. 120, § 1,
       1935 Tex. Gen. Laws 318, 318–319 (“Declaration of
       policy: In recognition of past, present, and imminent
       evils occurring in the production and use of natural gas,
       as a result of waste in the production and use thereof in
       the absence of correlative opportunities of owners of
       gas in a common reservoir to produce and use the same,
       this law in enacted for the protection of public and
       private interests against such evils by prohibiting waste
       and compelling ratable production.”).



By 1986, the Panhandle Field had been divided into thirteen separately designated fields (several simply on county lines)
together containing 10,796 producing oil wells and 3,510 producing gas wells. From information the Commission had
obtained and from operators’ requests for clarification of the field rules, the Commission *71 had grown concerned about
persisting “high-perforation” practices5 as well as the adequacy of the field rules in other respects. Accordingly, in January
1986 the Commission initiated Docket No. 10–87,017 by notifying all operators in the Panhandle Fields, as well as all other
interested persons and the public, that it would hold a hearing to consider consolidating the fields and changing the field rules.
The Commission’s notice set out possible changes in the rules but warned that it would adopt “such rules, regulations, and
orders as in its judgment the evidence presented may justify and such rules, regulations and orders may differ from those
specifically proposed or mentioned in this notice.” Operators were “urged to present data and opinions” and admonished to
conduct any necessary discovery diligently. The notice scheduled a prehearing conference for the purpose of organizing the
participants and determining when and how the trial-type hearing would be conducted. The hearing began in January 1987,
and in March 1989 the Commission issued its final order, adopting findings and conclusions and changing the field rules. In
part, the new rules changed completion requirements, well spacing, and allowable production. Several parties sought review
of the order in district court, but that case was dismissed in January 1990.6


                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                            3
Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442

5
       See also Amarillo Oil Co. v. Energy–Agri Prods., Inc.,
       794 S.W.2d 20, 27 n. 6 (Tex.1990) (observing that
       “[o]il operators have been shooting perforations in the
       well casings into the gas formations, higher up the
       hole”).



6
       Texaco, Inc. v. Railroad Comm’n, No. 465,642
       (Consolidated) (53rd Dist. Ct., Travis County, Tex.,
       Jan. 26, 1990).



The notice, hearing, order, and appeal were in all respects typical of the adjudicative—what the APA calls “contested
case”—procedures the Commission has long followed in determining field rules.7 Such proceedings can be initiated by an
operator or by the Commission.8 Notice is given, usually by mail, to all operators in the field and other persons whose rights
could be affected. Persons with a “justiciable or administratively cognizable interest” may intervene.9 The hearing is
conducted like a trial, with witnesses giving sworn testimony subject to cross-examination and a verbatim record kept.10
According to the Commission, the evidence regarding the nature of a particular reservoir and the production from it is often
very technical and complex. The hearing results in an order detailing regulations applicable to the specific area, which may
differ from statewide regulations. Parties can seek judicial review as with any contested case decision. Persons affected by
field rules may seek exceptions from the Commission based on individual circumstances, and of course when situations in a
field change, the Commission may revisit the field rules as it did here.

7
       See Joe Greenhill & Robert C. McGinnis, Practice and
       Procedure in Oil and Gas Hearings in Texas, 18 SW.
       L.J. 406, 407–408 (1964).



8
       3 ERNEST E. SMITH & JACQUELINE LANG
       WEAVER, TEXAS LAW OF OIL AND GAS § 15.3,
       at 214 (1997).



9
       See 16 TEX. ADMIN. CODE § 1.64(a) (2002).



10
       SMITH, supra note 8, § 15.3, at 214.



WBD Oil & Gas Co. and WBD Oil & Gas Co., Inc. (together, “WBD”) have forty marginal oil wells and one gas well in the
Panhandle Fields and therefore received the Commission’s notice of Docket No. 10–87,017, but decided not to participate in
the hearing. WBD also received a copy of the Commission’s final order but did not attempt to join in the appeal to the district
court. In June 1995, however, WBD sued the Commission, challenging the validity *72 and applicability of the 1989 field
rules. WBD complained that the Commission should not be permitted to change completion requirements for existing wells.
In essence, WBD asserted that the Commission had, in WBD’s words, “deprived them of property without due process, and
unconstitutionally interfered with vested rights through an impermissible retroactive application of agency rules or orders that
were adopted in a contested case proceeding in which WBD was not a party.” WBD alleged violations of several provisions
of the state and federal constitutions. As grounds for the trial court’s jurisdiction, WBD asserted section 2001.038 of the
APA,11 the Uniform Declaratory Judgments Act,12 section 85.241 of the Texas Natural Resources Code, section 1983 of title
42 of the United States Code, the Texas Constitution, and the United States Constitution. The Commission filed a plea to the
jurisdiction, arguing that WBD was improperly attempting to circumvent the APA’s requirements for obtaining judicial
review of a Commission order. Several operators intervened in support of the Commission’s position.13 The trial court
                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                          4
Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442

sustained the Commission’s plea and dismissed the case.

11
          TEX. GOV’T CODE § 2001.038.



12
          TEX. CIV. PRAC. & REM.CODE §§ 37.001–.011.



13
          Anadarko Petroleum Corp.; MidCon Gas Services
          Corp.; Natural Gas Pipeline Company of America;
          Midgard Energy Company; and Conoco Inc.



A divided court of appeals reversed,14 holding that the trial court had jurisdiction under section 2001.038(a) of the APA,
which states:

14
          35 S.W.3d 34.



     The validity or applicability of a rule ... may be determined in an action for declaratory judgment if it is alleged that the
     rule or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege
     of the plaintiff.15
15
          TEX. GOVT.CODE § 2001.038(a).



The APA defines “rule” as “a state agency statement of general applicability that ... implements, interprets, or prescribes law
or policy....”16 A field rule, the court concluded, fits this definition: it is clearly a state agency statement that prescribes law or
policy, and it is generally applicable, though not statewide, because it applies to an open class of persons rather than specific
individuals, is prospective, and affects individual rights only in subsequent enforcement proceedings.17 The court rejected the
argument that because field rules are determined using contested case procedures, they are contested case decisions that may
be appealed under APA sections 2001.171–.202 and not rules that may be challenged in a declaratory judgment action under
section 2001.038.18 The court reasoned that the nature of neither the Commission proceeding nor its decision is dictated by
the procedures followed, regardless of whether those procedures are mandated by law or are within the Commission’s
discretion19—in other words, a rule is a rule, whether it is the product of an informational notice-and-comment rulemaking
hearing or an adversarial trial-type contested case hearing. Besides, the court explained, field rules are not adjudications
because their determination is inherently legislative rather *73 than adjudicative,20 and therefore the proceeding to determine
them is not a contested case, defined by the APA to be “a proceeding ... in which the legal rights, duties, or privileges of a
party are to be determined by a state agency after an opportunity for adjudicative hearing.”21 Thus, the court concluded, the
trial court had jurisdiction of WBD’s claims under section 2001.038. Those claims, the court stated, were a direct attack on
the field rules rather than an impermissible collateral attack22 and were not within the Commission’s primary jurisdiction.23
“We can think of no reason,” the court said, “why the legislature would have wanted rules adopted [with contested case]
procedures to be immune from challenge under APA § 2001.038.”24 Having reached this conclusion, the court did not
consider WBD’s other jurisdictional arguments.

16
          Id. § 2001.003(6).



17
          35 S.W.3d at 40–43.



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Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442



18
       Id. at 43–46.



19
       Id.



20
       Id. at 43–45.



21
       TEX. GOV’T CODE § 2001.003(1).



22
       35 S.W.3d at 46.



23
       Id. at 46–47.



24
       Id. at 45.



In dissent, Justice Powers argued that the court’s “abstract and lexical”25 construction of the APA’s definition of “rule” was
so broad as to include every generally applicable statement of policy an agency might make, however informally, subjecting
all such statements not only to unlimited attack in judicial proceedings but also to all of the APA’s procedural requirements
for rulemaking, resulting in “absurd and paralyzing consequences”.26 The court’s analysis, he noted, could not be limited to
the adoption of field rules or even to all Railroad Commission proceedings; as a construction of the APA, it applied with
equal force to all agency proceedings. Beyond these pragmatic difficulties, Justice Powers argued, the court’s holding
ignored the APA’s fundamental, functional, procedural dichotomy between rulemaking and contested case decision-making
and the judicial review appropriate for each. “ ‘A rule,’ ” he contended, quoting Professor Davis’s commentary on
administrative law, “ ‘is the product of rulemaking, and rulemaking is the part of the administrative process that resembles a
legislature’s enactment of a statute.’ ”27 In Justice Powers’ view, the nature of the proceeding determines whether a decision
is a rule. The APA’s definition of “rule” in general terms, Justice Powers argued, is meant to discourage agencies from
attempting to circumvent the Act’s notice-and-comment procedures when they should apply, not to mandate their application
universally.28 The contested case procedures the Commission used to determine field rules, Justice Powers observed, not only
provided interested persons with adequate process but guaranteed due process when rulemaking procedures would not.29
Accordingly, he concluded, the appropriate judicial review of field rules was by appeal as with other contested case decisions,
not by declaratory judgment action allowed for rules challenges.

25
       Id. at 49 (Powers, J., dissenting).



26
       Id. at 52.



27
       Id. at 51 (quoting KENNETH CULP DAVIS,
       ADMINISTRATIVE LAW § 5.01, at 123 (1972))

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Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442


       (emphasis added in opinion).



28
       Id. at 50–51.



29
       Id. at 52.



On rehearing, Justice Kidd added a brief concurring opinion attempting to “harmonize” the court’s opinion and Justice
Powers’ dissent. In Justice Kidd’s view, “[t]he Railroad Commission, in propounding field rules, employs a hybrid procedure
which *74 blends both legislative rulemaking and contested-case procedures into one docket.”30 In this circumstance, which
he regarded as entirely unique, field rules could be challenged under section 2001.038.31

30
       Id. at 48 (Kidd, J., concurring).



31
       Id.



The Commission and two intervenors in the trial court32 petitioned for review. They and several amici curiae33 argue that the
court of appeals’ decision opens long-settled field rules to new attacks and poses a serious threat to the process the
Commission has used for decades to determine field rules. In addition, the Public Utilities Commission as amicus curiae has
expressed concern that the court of appeals’ construction of the APA will adversely affect it and other agencies. We granted
the petitions for review to address these issues.34

32
       Conoco, Inc. and Anadarko Petroleum Corp.



33
       Coghlan, Crowson, Fitzpatrick, Westbrook &
       Worthington; Goldston Oil Corp.; Phillips Petroleum
       Co.; Pioneer Natural Resources USA, Inc.; Scott,
       Douglass & McConnico; Texas Oil & Gas Association.



34
       44 Tex. Sup.Ct. J. 1170 (Sept. 20, 2001).




                                                             II
[1]
   We are not concerned here with whether the Commission’s long-standing practice of determining field rules using
contested case procedures rather than rulemaking procedures is an appropriate exercise of the discretion that we have said it
possesses generally to choose between the two.35 The court of appeals indicated,36 and WBD concedes, that the use of
contested case procedures is proper and maybe even necessary to fully protect the rights of everyone affected. The issue we
have to decide is whether field rules, having been determined under contested case procedures, may nevertheless be judicially
reviewed as rules under section 2001.038 of the APA rather than as contested case decisions. The issue is not, of course,

                    © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                   7
Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442

merely one of nomenclature; denominating reservoir-specific regulations “field rules ”, as opposed to “field regulations” or
“field orders”, does not make them “rules” within the meaning of the APA. Use of the term “field rules” predates the APA’s
first predecessor in 197537 by decades. Nor do we think that the issue can be resolved by focusing on a single provision of the
APA—its definition of “rule”—to the distortion of the Act as a whole. Accordingly, we begin with an overview of the APA’s
provisions to set the context in which individual provisions must be construed.

35
       See Railroad Comm’n v. Lone Star Gas, 844 S.W.2d
       679, 689 (Tex.1992) (observing that the Commission
       may exercise “informed discretion” in deciding to
       promulgate rules rather than determine issues in
       contested cases).



36
       35 S.W.3d at 45.



37
       Act of April 8, 1975, 64th Leg., R.S., ch. 61, 1975 Tex.
       Gen. Laws 136.



The APA provides two modes of judicial review—one for contested case decisions and the other for rules—that are
significantly different. Judicial review of contested case decisions is far more limited. To obtain such review, an aggrieved
person must move for rehearing (except in certain cases),38 must have exhausted all other administrative remedies available,39
*75 and must file a petition with the court within thirty days of the decision.40 A person seeking judicial review of a rule need
not do any of these things. The only time limitation on judicial review of a rule is that a proceeding to contest compliance
with certain procedural requirements must be initiated within two years of the rule’s effective date.41 Otherwise, judicial
review of a rule may be sought at any time. The scope of review of a contested case decision varies from statute to statute;42
sometimes a court must try the issue de novo,43 but far more often it is limited to determining whether the agency decision
was supported by substantial evidence.44 The APA does not restrict the scope of judicial review of rules but says only:

38
       TEX. GOV’T CODE § 2001.145(a) (“A timely motion
       for rehearing is a prerequisite to an appeal in a
       contested case except that a motion for rehearing of a
       decision or order that is final under Section
       2001.144(a)(3) [involving imminent peril to the public
       health, safety, or welfare] or (4) [by agreement of the
       parties] is not a prerequisite for appeal.”).



39
       Id. § 2001.171 (“A person who has exhausted all
       administrative remedies available within a state agency
       and who is aggrieved by a final decision in a contested
       case is entitled to judicial review under this chapter.”).



40
       Id. § 2001.176(a) (“A person initiates judicial review in
       a contested case by filing a petition not later than the
       30th day after the date on which the decision that is the
       subject of complaint is final and appealable.”).



41
       Id. § 2001.035(b) (“A person must initiate a proceeding

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Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442


          to contest a rule on the ground of noncompliance with
          the procedural requirements of [specified sections] not
          later than the second anniversary of the effective date
          of the rule.”).



42
          Id. § 2001.172 (“The scope of judicial review of a state
          agency decision in a contested case is as provided by
          the law under which review is sought.”).



43
          Id. § 2001.173(a) (“If the manner of review authorized
          by law for the decision in a contested case that is the
          subject of complaint is by trial de novo, the reviewing
          court shall try each issue of fact and law in the manner
          that applies to other civil suits in this state as though
          there had not been an intervening agency action or
          decision but may not admit in evidence the fact of prior
          state agency action or the nature of that action except to
          the limited extent necessary to show compliance with
          statutory provisions that vest jurisdiction in the court.”).



44
          Id. § 2001.174 (“If the law authorizes review of a
          decision in a contested case under the substantial
          evidence rule or if the law does not define the scope of
          judicial review, a court may not substitute its judgment
          for the judgment of the state agency on the weight of
          the evidence on questions committed to agency
          discretion but: (1) may affirm the agency decision in
          whole or in part; and (2) shall reverse or remand the
          case for further proceedings if substantial rights of the
          appellant have been prejudiced because the
          administrative findings, inferences, conclusions, or
          decisions are: (A) in violation of a constitutional or
          statutory provision; (B) in excess of the agency’s
          statutory authority; (C) made through unlawful
          procedure; (D) affected by other error of law; (E) not
          reasonably supported by substantial evidence
          considering the reliable and probative evidence in the
          record as a whole; or (F) arbitrary or capricious or
          characterized by abuse of discretion or clearly
          unwarranted exercise of discretion.”).



     The validity or applicability of a rule ... may be determined in an action for declaratory judgment if it is alleged that the
     rule or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege
     of the plaintiff.45
45
          Id. § 2001.038(a).



No standard of review is prescribed. The statute adds that plaintiff need not have challenged the rule before the agency.46
Judicial review of rules is thus largely unlimited in time and scope.



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Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442

46
          Id. § 2001.038(d) (“A court may render a declaratory
          judgment without regard to whether the plaintiff
          requested the state agency to rule on the validity or
          applicability of the rule in question.”).



The differences in these two modes of judicial review do not derive from distinctions between decisions qua decisions and
rules qua rules unrelated to the procedures that produce them. Both decisions and rules have the force of law, and while it
may often be true that a contested case decision affects only the relatively few parties actually involved in the case while a
*76 rule may have a much broader effect, that is not necessarily so. Some cases, like this one, affect a large number of
persons, more than some rules. Moreover, to the extent that a contested case decision has precedential value for similar cases,
its effect may be similar to a rule’s. The proper mode of judicial review is simply not based on the number of persons
affected.

But different methods of judicial review can be justified by the profound procedural differences between contested case
proceedings and rulemaking proceedings. In rulemaking proceedings:
  • notice of a proposed rule must be published in the Texas Register;47

47
          Id. § 2001.023(b) (“A state agency shall file notice of
          the proposed rule with the secretary of state for
          publication in the Texas Register in the manner
          prescribed by Chapter 2002.”).



     • the agency must “give all interested persons a reasonable opportunity to submit data, views, or arguments, orally or in
     writing”;48
48
          Id. § 2001.029(a).




     • interested persons are not entitled to compel evidence or take discovery;
        • the agency need not conduct a hearing unless requested by at least twenty-five persons, an association with at least
        twenty-five members, or the government;49
49
          Id. § 2001.029(b) (“A state agency shall grant an
          opportunity for a public hearing before it adopts a
          substantive rule if a public hearing is requested by: (1)
          at least 25 persons; (2) a governmental subdivision or
          agency; or (3) an association having at least 25
          members.”).




     • no rules of evidence apply;

       • persons supplying information need not testify under oath;

       • interested persons are not entitled to cross-examination;
       • the agency may consult informally with interested persons and appoint a committee of experts to provide advice;50
50
          Id. § 2001.031(a)-(b)(“(a) A state agency may use an
          informal conference or consultation to obtain the
          opinions and advice of interested persons about
          contemplated rulemaking. (b) A state agency may
          appoint committees of experts or interested persons or


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Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442


          representatives of the public to advise the agency about
          contemplated rulemaking.”).



     • a proposed rule must be reviewed by a committee in each House of the Legislature;51
51
          Id. § 2001.032 (“Each house of the legislature by rule
          shall establish a process under which the presiding
          officer of each house refers each proposed state agency
          rule to the appropriate standing committee for review
          before the rule is adopted....”).




     • the agency, if requested, must give “a concise statement of the principal reasons for and against” the adoption of the
     rule;52 and
52
          Id. § 2001.030 (“On adoption of a rule, a state agency,
          if requested to do so by an interested person either
          before adoption or not later than the 30th day after the
          date of adoption, shall issue a concise statement of the
          principal reasons for and against its adoption. The
          agency shall include in the statement its reasons for
          overruling the considerations urged against adoption.”).




     • there is no record of the proceedings.
     By contrast, in a contested case:
        • notice must be given to each party;53
53
          Id. § 2001.051 (“In a contested case, each party is
          entitled to an opportunity: (1) for hearing after
          reasonable notice of not less than 10 days; and (2) to
          respond and to present evidence and argument on each
          issue involved in the case.”).



     • only parties are entitled to present evidence and argument;54
54
          Id.



     *77 • the agency and parties may subpoena evidence and take discovery;55
55
          Id. §§ 2001.089–.103.



     • each party is entitled to an opportunity for hearing;56
56
          Id. § 2001.051.



     • the rules of evidence apply generally;57
57
          Id. § 2001.081 (“The rules of evidence as applied in a
          nonjury civil case in a district court of this state shall
          apply to a contested case except that evidence


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Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442


          inadmissible under those rules may be admitted if the
          evidence is: (1) necessary to ascertain facts not
          reasonably susceptible of proof under those rules; (2)
          not precluded by statute; and (3) of a type on which a
          reasonably prudent person commonly relies in the
          conduct of the person’s affairs.”).



     • witnesses are sworn;58
58
          Id. § 2001.088 (“A state agency may swear witnesses
          and take their testimony under oath in connection with
          a contested case held under this chapter.”).



     • parties are entitled to cross-examination;59
59
          Id. § 2001.087 (“In a contested case, a party may
          conduct cross-examination required for a full and true
          disclosure of the facts.”).



     • the agency may generally not engage in ex parte consultations;60
60
          Id. § 2001.061(“(a) Unless required for the disposition
          of an ex parte matter authorized by law, a member or
          employee of a state agency assigned to render a
          decision or to make findings of fact and conclusions of
          law in a contested case may not directly or indirectly
          communicate in connection with an issue of fact or law
          with a state agency, person, party, or a representative of
          those entities, except on notice and opportunity for each
          party to participate. (b) A state agency member may
          communicate ex parte with another member of the
          agency unless prohibited by other law. (c) Under
          Section 2001.090, a member or employee of a state
          agency assigned to render a decision or to make
          findings of fact and conclusions of law in a contested
          case may communicate ex parte with an agency
          employee who has not participated in a hearing in the
          case for the purpose of using the special skills or
          knowledge of the agency and its staff in evaluating the
          evidence.”)




     • a proposed decision is not reviewable by the Legislature;

       • the agency must make findings of fact and conclusions of law, whether requested or not;61 and
61
          Id. § 2001.141(“(a) A decision or order that may
          become final under Section 2001.144 that is adverse to
          a party in a contested case must be in writing or stated
          in the record. (b) A decision that may become final
          under Section 2001.144 must include findings of fact
          and conclusions of law, separately stated. (c) Findings
          of fact may be based only on the evidence and on
          matters that are officially noticed. (d) Findings of fact,
          if set forth in statutory language, must be accompanied


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Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442


         by a concise and explicit statement of the underlying
         facts supporting the findings. (e) If a party submits
         under a state agency rule proposed findings of fact, the
         decision shall include a ruling on each proposed
         finding.”).



     • a record must be made of the proceedings.62
62
         Id. § 2001.060 (“The record in a contested case
         includes: (1) each pleading, motion, and intermediate
         ruling; (2) evidence received or considered; (3) a
         statement of matters officially noticed; (4) questions
         and offers of proof, objections, and rulings on them; (5)
         proposed findings and exceptions; (6) each decision,
         opinion, or report by the officer presiding at the
         hearing; and (7) all staff memoranda or data submitted
         to or considered by the hearing officer or members of
         the agency who are involved in making the decision.”).



Plainly, rulemaking procedures maximize “public participation in the rulemaking process,” a stated purpose of the APA,63
while contested case procedures limit participation to those directly affected by the dispute. It makes perfect sense to allow
less restricted judicial review of rules. It *78 may well be that the effect of a rule cannot be fully appreciated except as time
passes. To require review to be initiated within thirty days, or any comparably short time period, would impair the utility of
rules by forcing on them a permanence they do not deserve. For contested cases, the situation is exactly opposite. Once an
agency has resolved the disputes among persons directly involved in a contested case, they have every reason to expect that
any further challenge will follow immediately and after that the decision will stand. To offer litigants no assurance of finality
in the circumstances presented is to make the dispute-resolution process meaningless to them.

63
         Id. § 2001.001(2).



The court of appeals suggested that determining field rules is a hybrid process,64 but this cannot be true. Contested case
procedures and rulemaking procedures are mutually exclusive: a rule cannot be adopted without public input, and a contested
case cannot be decided with it. A person is entitled to provide rulemakers with data or opinions without being placed under
oath; a person cannot testify in a contested case except under oath. Parties to a contested case are entitled to a decision based
on the evidence in the record; there is no record in a rulemaking proceeding. An agency proceeding to determine field rules
that bind persons who receive notice but do not actually appear and participate is no less adjudicative than is a class action in
court. In both instances, all those whose rights will be affected must be given notice. In a rulemaking proceeding, blanket
notice must be given to the public at large. Contested case procedures and rulemaking procedures simply cannot be mixed in
one hybrid proceeding.

64
         35 S.W.3d at 43; id. at 48 (Kidd, J., concurring).



WBD argues, and the court of appeals held, that the Commission’s hearing on the Panhandle Field rules was not a contested
case as defined by the APA. We disagree. The APA defines a contested case as “a proceeding ... in which the legal rights,
duties, or privileges of a party are to be determined by a state agency after an opportunity for adjudicative hearing.”65 WBD
argues, as the court of appeals did,66 that the Panhandle Field rules hearing was not adjudicative because individual rights
were not determined, but this argument contradicts WBD’s basic complaint in this case, which is that its own rights have
been altered by the decision in a proceeding in which it did not participate. Contested case procedures were used, including
giving notice to all operators, so that production rights in the field could be determined. Like a judgment in a class action, the
Commission’s decision adjudicated the rights of those who chose to participate in the proceeding and all others similarly

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Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442

situated—that is, other operators in the Panhandle Fields. The court of appeals reasoned that the Panhandle Field rules were
not “concretely operative” against any individual until the initiation of enforcement proceedings,67 but under that view only
the rights of violators would ever be determined. Certainly, the law is more “concretely operative” when one is standing in
the dock, but one need not be indicted to notice the law’s constraints. Operators who chose to comply with the field rules also
had their rights determined in the proceeding.

65
         TEX. GOV’T CODE § 2001.003(1).



66
         35 S.W.3d at 45.



67
         Id. at 43.



The mainstay of the court of appeals’ analysis and WBD’s argument is that field *79 rules come within the APA’s definition
of a rule, which is “a state agency statement of general applicability that ... implements, interprets, or prescribes law or
policy....”68 While this definition may be read abstractly to encompass field rules, in the context of the APA as a whole it is
clear that field rules are not rules of “general applicability” which must not be made without public comment but are an
adjudication of the individual interests principally affected. One need only compare field rules detailing spacing and
proration requirements in a specific reservoir and its own peculiar geologic formations with the Commission’s statewide rules
which govern the entire oil and gas industry for the public good to see this difference. We noted this difference in Railroad
Commission v. Torch Operating Co., comparing temporary field rules to statewide rules:

68
         TEX. GOV’T CODE § 2001.003(6).



     Temporary field rules are not adopted under the rulemaking provisions of the Administrative Procedure Act. Instead, they
     are promulgated through the adjudication provisions of the Act because these rules concern a specific field and a specific
     group of operators and do not affect the statewide oil and gas industry as a whole.69
69
         912 S.W.2d 790, 791 n. 1 (Tex.1995) (citing 3
         ERNEST E. SMITH & JACQUELINE LANG
         WEAVER, TEXAS LAW OF OIL AND GAS § 15.3,
         at 214–215 (1995)).



By “general applicability”, the APA definition references statements that affect the interest of the public at large such that
they cannot be given the effect of law without public input. The definition does not reference statements made in determining
individual rights, even if the number of individuals is large and they can be described as falling within a defined class.

Thus, as we read the APA, judicial review of orders adopting field rules should be the same as in other contested case
decisions. As a practical matter, such review affords the participants in the proceeding ample opportunity to challenge the
Commission’s decision but also provides for the reasonable finality necessary for conducting operations in the field. To allow
field rules to be challenged in a declaratory judgment action that can be filed at any time would deny them the certainty
essential to their effectiveness. The court of appeals wrote: “We can think of no reason why the legislature would have
wanted rules adopted [with contested case] procedures to be immune from challenge under APA § 2001.038.”70 The reason to
require that orders adopting field rules be reviewed like other contested case decisions is to afford the certainty such
decisions require as long as circumstances are unchanged.

70
         35 S.W.3d at 45.


                      © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                  14
Railroad Com’n of Texas v. WBD Oil & Gas Co., 104 S.W.3d 69 (2003)
159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442




Accordingly, we conclude that Commission field rules adopted in a contested case like those involved here cannot be
challenged in a declaratory judgment action under section 2001.038 of the APA.




                                                              III
[2]
   WBD argues that even if section 2001.038 would not otherwise apply, it should nevertheless be permitted to sue under that
statute because the notice it received was inadequate for a contested case proceeding. According to the notice, participation in
the proceeding was only invited, not compelled, and WBD was never formally named as a party. But the notice was very
clear in warning that WBD’s rights would be affected. WBD was aware that it could intervene in the proceeding and chose
not to do so. Not only did the Commission’s notice urge participation, *80 it set out changes the Commission was
considering making in the field rules and warned that other, different changes might also be made. We think the notice was
sufficient for WBD to know that its production rights in the Panhandle Fields were to be adjudicated.

As we have noted above, WBD asserts a number of other bases for jurisdiction of its claims in the district court, which the
court of appeals did not find it necessary to address. Although the parties have devoted a portion of their briefing in this
Court to WBD’s other jurisdictional arguments, we believe they should first be addressed by the court of appeals.

******

For these reasons, the judgment of the court of appeals is reversed and the case is remanded to that court for further
proceedings.




Justice WAINWRIGHT did not participate in the decision.


All Citations

104 S.W.3d 69, 159 Oil & Gas Rep. 122, 46 Tex. Sup. Ct. J. 442

      End of Document                                         © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                        15
Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173




                                                         453 S.W.3d 606
                                                     Court of Appeals of Texas,
                                                              Austin.

                                             Teladoc, Inc., Appellant
                                                         v.
       Texas Medical Board and Nancy Leshikar, in her Official Capacity as General Counsel of the Texas Medical
                                                 Board, Appellees

                                        NO. 03–13–00211–CV | Filed: December 31, 2014



Synopsis
Background: Operator of network of physicians providing medical services by telephone brought action against state
medical board, alleging that letter sent to operator by board, which warned that doctors providing such services would be
exposed to disciplinary action, was a “rule” within the meaning of the Administrative Procedure Act (APA) and, therefore,
invalid for failure to follow the notice and comment procedure. The District Court, Travis County, 353rd Judicial District,
Amy Clark Meachum, J., awarded summary judgment to board, finding that the letter was not a rule. Operator appealed.



Holdings: The Court of Appeals, Bob Pemberton, J., held that:
[1]
      letter was an agency statement of general applicability, and
[2]
      letter effectively amended existing board rule and, thus, was itself a “rule.”


Reversed and rendered.




  West Headnotes (9)


 [1]
           Appeal and Error
             Particular orders or rulings reviewable in
           general
           Appeal and Error
             Rendering Final Judgment

           Where both sides move for summary judgment
           and the trial court grants one motion and denies
           the other, Court of Appeals reviews the
           summary judgment evidence presented by both
           sides, determines all questions presented, and
           renders the judgment that the district court
           should have rendered.


           Cases that cite this headnote


                   © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                  1
Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173




[2]
       Appeal and Error
         Cases Triable in Appellate Court

       Construction of both statutes and administrative
       rules presents questions of law that Court of
       Appeals reviews de novo under traditional
       principles of statutory construction.


       Cases that cite this headnote




[3]
       Health
         Regulatory boards, officers, and examiners
       Health
         Nature and existence of relation

       Letter from state medical board to operator of
       network of physicians providing medical
       services by telephone, warning that providing
       such services without a prior face-to-face
       examination would violate board rule governing
       creation of a “proper professional relationship,”
       was an agency statement of general
       applicability, for purposes of determining
       whether letter was itself a “rule” within meaning
       of Administrative Procedure Act (APA), despite
       contention that letter was directed only at
       operator; letter included a threat of disciplinary
       action against any physicians who violated
       board’s interpretation of rule, and letter was
       copied to statewide professional organization of
       physicians. Tex. Gov’t Code Ann. §
       2001.003(6); 28 Tex. Admin. Code §
       190.8(1)(L).


       1 Cases that cite this headnote




[4]
       Administrative Law and Procedure
         Nature and Scope

       An informal agency statement that does no more
       than merely restate its own formally
       promulgated rules would not in itself be a “rule”
       within the meaning of the Administrative

              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   2
Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173

       Procedure Act (APA). Tex. Gov’t Code Ann. §
       2001.003(6).


       Cases that cite this headnote




[5]
       Administrative Law and Procedure
         Nature and Scope

       An agency’s interpretations or applications of
       existing formally promulgated rules will
       themselves be held to be “rules” within the
       meaning of the Administrative Procedure Act
       (APA) where they have the effect of amending
       the existing rules, or of creating new rules, and
       the other requirements of the APA’s “rule”
       definition are met. Tex. Gov’t Code Ann. §
       2001.003(6).


       Cases that cite this headnote




[6]
       Administrative Law and Procedure
         Nature and Scope

       The bare fact that an agency statement might be
       said to interpret or effectuate only standards
       already prescribed in existing statutes or rules,
       as opposed to creating new standards, cannot
       categorically mean that the statement lacks the
       sort of legal effect on private persons that
       distinguishes a “rule” within the meaning of the
       Administrative Procedure Act (APA), as the
       same would be true of any “agency statement of
       general applicability that” interprets law, and the
       legislature has explicitly included such
       statements within the APA’s definition of
       “rule.” Tex. Gov’t Code Ann. § 2001.003(6).


       1 Cases that cite this headnote




[7]
       Health
         Regulatory boards, officers, and examiners
       Health
         Nature and existence of relation

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Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173

       Letter from state medical board to operator of
       network of physicians providing medical
       services by telephone, which interpreted board
       rule governing creation of a proper professional
       relationship as requiring a face-to-face
       examination, effectively amended board rule so
       as to conform to separate rule governing
       telemedicine and, thus, was itself a “rule”
       subject to notice and comment requirements of
       Administrative Procedure Act (APA); letter
       interpreted phrase “such as” before list of
       acceptable medical practices as requiring
       employment of all such practices, and
       interpreted rule’s statement that “telephonic
       evaluation by questionnaire is inadequate” as
       applying to all telephonic evaluations. Tex.
       Gov’t Code Ann. §§ 2001.003(6), 2001.0225 et
       seq.; 28 Tex. Admin. Code §§ 174.8,
       190.8(1)(L).


       Cases that cite this headnote




[8]
       Administrative Law and Procedure
         Power to Make

       An agency’s discretion to make law or policy
       through adjudication is not unlimited.


       Cases that cite this headnote




[9]
       Administrative Law and Procedure
         Nature and Scope

       Not every statement by an administrative agency
       is a rule for which the Administrative Procedure
       Act (APA) prescribes procedures for adoption
       and for judicial review, and the Act defines
       “rule” in a way that will exclude a considerable
       range of unofficial, individually directed,
       tentative or other non-proscriptive agency or
       staff issuances concerning law or policy.


       Cases that cite this headnote




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   4
Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173

*607 FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT, NO.
D–1–GN–11–002115, HONORABLE AMY CLARK MEACHUM, JUDGE PRESIDING

Attorneys and Law Firms

Douglas D. Geyser, Office of the Attorney General, Solicitor General’s Office, Austin, TX, for appellee.

Benjamin Geslison, Baker Botts, L.L.P., Houston, TX, Dudley D. McCalla, Matt Dow, Carla J. Cox, Jackson Walker, L.L.P.,
Thomas R. Phillips, Baker Botts, L.L.P., Austin, TX, for appellant.
Before Chief Justice Jones, Justices Pemberton and Field




                                                              OPINION


Bob Pemberton, Justice

We again confront the recurrent question of whether an “informal” written agency pronouncement regarding law or policy
constitutes a “rule” as the Administrative Procedure Act (APA)1 defines that *608 term.2 In this case, a professional
regulatory agency sent a letter to the primary statewide association representing the regulated population warning that certain
practices violated agency rules and would lead to disciplinary action. The agency’s pronouncement went beyond a mere
restatement of its existing formally promulgated rules or underlying statutes. We have little difficulty concluding that the
substance and nature of this pronouncement distinguishes it as a “rule” under the APA.

1
       The APA is codified in chapter 2001 of the Texas
       Government Code. See Tex. Gov’t Code §§
       2001.001–.902.



2
       See id. § 2001.003(6).




                                                          BACKGROUND

As its name suggests, Teladoc, Inc., the appellant, is in the business of providing health-care consumers access to a network
of physicians who dispense medical services by telephone. The basic features of Teladoc’s business model are undisputed.
Through a website, an individual consumer creates a personal account, provides access to personal information and medical
records, and can request consultation with a physician when the need arises. In that event, a responding physician will access
and review the patient’s information and medical records through the website, then call the patient by telephone and consult
with him or her. Based on the medical records and history, the patient’s reported symptoms, and other information the
physician elicits during the consultation, the physician dispenses medical advice and, when deemed appropriate, can
prescribe certain medications.3 A nurse reviews any resulting prescriptions for allergies or potential drug interactions before
submission to the patient’s pharmacy. The consulting physician enters notes and findings into the patient’s electronic health
record, which is immediately made available to the patient and the patient’s primary-care physician.

3
       Teladoc has emphasized that its physicians do not
       prescribe drugs that have a demonstrated risk of abuse,
       such as narcotics, or non-therapeutic drugs like Viagra.



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Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173



Teladoc has operated in Texas since 2005, and its clientele currently includes several large public and private health plans
and managed-care organizations.4 But in June 2011, the Texas Medical Board (TMB or the Board)—the administrative
agency that licenses and regulates physicians in this state, including those participating in Teladoc’s network5—wrote
Teladoc a letter taking issue with “several recent representations by Teladoc regarding its internet program” that, in TMB’s
view, indicated that physicians would be “jeopardizing their respective licenses should they choose to participate” in
Teladoc’s network.

4
       Teladoc indicates, and the Texas Medical Board does
       not dispute, that its customers currently include “the
       entire commercially-insured population of Aetna in the
       State of Texas, as well as several large group
       employers ... and over three hundred smaller employers
       through non-Aetna plans[,] ... 800,000 members of the
       Texas State Medicaid managed care population, ...
       approximately 25,000 individuals within the Medicare
       population, ... and a number of children in foster care
       for the Texas Health and Human Services
       Commission.”



5
       See Tex. Occ. Code § 152.001 (creating TMB); see
       generally id. §§ 151.001–168.202 (Medical Practice
       Act). There is no contention that Teladoc itself is
       practicing medicine or is otherwise directly subject to
       TMB’s regulatory authority.



The letter attacked “Teladoc[ ] advertising materials” for indicating that the physicians in its network can provide medical
services “over the telephone without any prior establishment of a physician/patient relationship via a ‘face-to-face’
examination,” asserting that this practice violated *609 “Board Rule 190.8(1)(L).” That rule, codified in Title 28 of the Texas
Administrative Code at section 190.8(1)(L), is included among a non-exclusive list of physician acts and omissions that TMB
has deemed to constitute the “fail[ure] to practice medicine in an acceptable professional manner consistent with public
health and welfare” under the Medical Practice Act.6 The referenced paragraph (L) specifically prohibits physicians from
prescribing “any dangerous drug or controlled substance without first establishing a proper professional relationship with the
patient.”7 Since November 2003, and at all times relevant to this case, subparagraph (i) of paragraph (L) has prescribed the
requirements for creating a “proper professional relationship” as follows:

     (i) A proper relationship, at a minimum requires:

       (I) establishing that the person requesting the medication is in fact who the person claims to be;

       (II) establishing a diagnosis through the use of acceptable medical practices such as patient history, mental status
       examination, physical examination, and appropriate diagnostic and laboratory testing. An online or telephonic
       evaluation by questionnaire is inadequate;

       (III) discussing with the patient the diagnosis and the evidence for it, the risks and benefits of various treatment
       options; and
       (IV) ensuring the availability of the licensee or coverage of the patient for appropriate follow-up care.8

According to TMB, the requirements set forth in (II)—“Rule 190.8(1)(L)(i)(II)”—meant that the “acceptable medical
practices” entailed in “establishing a diagnosis” (and, in turn, initiating a “proper” physician-patient relationship) must
always include a “ ‘face-to-face’ physical examination.” As TMB would later elaborate, this construction rested upon two
related premises: (1) the “physical examination” contemplated in Rule 190.8(1)(L)(i)(II) entails a “face-to-face” examination;
and, more critically, (2) the rule’s reference to “acceptable medical practices such as patient history, mental status

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Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173

examination, physical examination, and appropriate diagnostic and laboratory testing” means that physicians must perform
all four enumerated procedures or their equivalent. In TMB’s view, the “face-to-face” physical examination component of
these requirements precluded a physician from making an initial diagnosis by telephone.

6
       22 Tex. Admin. Code § 190.8(1) (TMB, Violation
       Guidelines); see Tex. Occ.Code §§ 153.001 (TMB’s
       rulemaking authority), 164.051(a)(6) (“The board may
       refuse to admit a person to its examination or refuse to
       issue a license to practice medicine and may take
       disciplinary action against a person if the person ... fails
       to practice medicine in an acceptable professional
       manner consistent with public health and welfare.”).



7
       22 Tex. Admin. Code § 190.8(1)(L).



8
       28 Tex. Reg. 10496, 10497 (2003) (codified at 22 Tex.
       Admin. Code § 190.8(1)(L)(i)).



TMB’s letter similarly criticized Teladoc for purportedly advertising that the telephone consultations it provides are not
within the scope of revised rules governing “telemedicine” that the agency promulgated in 2010. Telemedicine, simply
described, refers to medical services provided over the Internet or other “advanced communication technology” enabling an
off-site physician to see and hear the patient in real time.9 TMB’s 2010 telemedicine *610 rules, codified in chapter 174 of
title 22 of the Texas Administrative Code,10 incorporate an explicit concept of “face-to-face visit,” defined as “[a]n evaluation
performed on a patient where the provider and patient are both at the same physical location” unless the patient is located at a
medical facility qualifying as an “established medical site.”11 When a patient is located at an “established medical site,” the
rules permit a “distant site provider” to use “telemedicine medical services ... for all patient visits, including initial
evaluations to establish a proper physician-patient relationship between a distant site provider and a patient.”12 However,
when a patient is located somewhere other than an “established medical site,” a distant site provider may not provide
telemedicine medical services without first “see[ing] the patient one time in a face-to-face visit” or receiving a referral from
another physician who has performed an in-person evaluation of the patient.13 The telemedicine rules additionally include a
provision, Rule 174.8, that addresses the initial creation of the physician-patient relationship in a manner similar to Rule
190.8(1)(L)(i):

     (a) Evaluation of the Patient. Distant site providers who utilize telemedicine medical services must ensure that a proper
     physician-patient relationship is established which at a minimum includes:

       (1) establishing that the person requesting the treatment is in fact whom he/she claims to be;

       (2) establishing a diagnosis through the use of acceptable medical practices, including patient history, mental status
       examination, physical examination (unless not warranted by the patient’s mental condition), and appropriate
       diagnostic and laboratory testing to establish diagnoses, as well as identify underlying conditions or contra-indications,
       or both, to treatment recommended or provided;

       (3) discussing with the patient the diagnosis and the evidence for it, the risks and benefits of various treatment options;
       and
       (4) ensuring the availability of the distant site provider or coverage of the patient for appropriate follow-up care.14

*611 Subparagraph (2) generally corresponds to Rule 190.8(1)(L)(i)(II), but with an obvious textual difference—whereas
Rule 190.8(1)(L)(i)(II) requires “establishing a diagnosis through the use of acceptable medical practices such as patient
history, mental status examination, physical examination, and appropriate diagnostic and laboratory testing,”15 Rule
174.8(a)(2) requires “establishing a diagnosis through the use of acceptable medical practices, including patient history,

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Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173

mental status examination, physical examination ... and appropriate diagnostic and laboratory testing.”16

9
       See 22 Tex. Admin. Code § 174.2(10) (TMB,
       Definitions)     (defining     “Telemedicine     Medical
       Services” as “[t]he practice of medical care delivery,
       initiated by a distant site provider, who is physically
       located at a site other than the site where the patient is
       located, for the purposes of evaluation, diagnosis,
       consultation, or treatment which requires the use of
       advanced telecommunications technology that allows
       the distant site provider to see and hear the patient in
       real time”); see also Tex. Gov’t Code § 531.001(8)
       (defining same phrase as “a health care service initiated
       by a physician or provided by a health professional,
       diagnosis or consultation by a physician, treatment, or
       the transfer of medical data that requires the use of
       advanced telecommunications technology”).



10
       See 22 Tex. Admin. Code §§ 174.1–.12 (TMB
       Telemedicine rules).



11
       See id. § 174.2(3) (defining “face-to-face visit”); see
       also id. § 174.2(2) (defining “established medical
       site”).



12
       Id. § 174.6 (TMB, Telemedicine Medical Services
       Provided at an Established Medical Site).



13
       See id. § 174.7(a) (TMB, Telemedicine Medical
       Services Provided at Sites other than an Established
       Medical Site). The same rule additionally requires that
       any such patients obtain an annual “in-person”
       evaluation by a physician and that existing patients
       receive face-to-face visits within 72 hours after
       receiving telemedicine medical services related to new
       symptoms. See id. § 174.7(c), (e).



14
       Id. § 174.8(a) (TMB, Evaluation and Treatment of the
       Patient).



15
       Id. § 190.8(1)(L)(i)(II) (emphasis added).



16
       Id. § 174.8(a)(2) (emphasis added).




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While acknowledging that “phone consults were deleted from the [2010 telemedicine] rule as adopted,” TMB in its letter
insisted—notwithstanding the textual differences between the enactments—that this exclusion had reflected its position “both
initially and throughout the [rulemaking] process” that the more general Rule 190.8(1)(L)(i)(II) had already required
“ ‘face-to-face’ consults [as] the only appropriate manner in which to establish a physician/patient relationship.” The
telemedicine rules had departed from this policy, TMB claimed, only to the extent of “allow[ing] for situations in which th[e]
required ‘face-to-face’ examination could be accomplished through the use of the [I]nternet.” TMB also emphasized that
Teladoc had commented in opposition to the telemedicine rules when proposed,17 characterizing the company as having
“maintain[ed] throughout the rulemaking process that ‘face-to-face’ examinations were not necessary to establish a
physician/patient relationship,” and portraying the agency’s response as a repudiation of that position not only with respect to
the telemedicine rules, but also Rule 190.8(1)(L)(i)(II).18

17
       Teladoc or affiliates evidently offer medical services
       over the Internet in other states.



18
       The letter represents, for example, that “as Teladoc
       described its practices before the Board members
       sitting on the rulemaking committee, Teladoc was told
       that it was then violating Board rules and if it continued
       in that vein it would continue to be in violation of
       Board rules.”



Based on TMB’s view of Rule 190.8(1)(L)(i)(II) and the rule’s relationship with the 2010 telemedicine rules, TMB accused
Teladoc of “unconscionable” “misrepresentation” in advertising or representing that “its process can be conducted over the
telephone without any prior establishment of a physician/patient relationship via a ‘face-to-face’ examination.” TMB added
that “[t]hese statements ... if followed by licenced Texas physicians, will lead to disciplinary action against the participating
doctors in the program.” The agency also threatened that “any representation that you [Teladoc] make regarding Teladoc’s
program being in compliance with Board rules will be directly and firmly refuted by the Board” and that “[t]he Board will
take all legal steps as are necessary should it see continued advertisements containing the material referenced above.”

Of final note, the letter advised that “[b]y copy hereof, the Board is sending this correspondence to the Texas Medical
Association,” and a copy was indeed transmitted by overnight delivery to TMA’s Vice President and General Counsel. TMA,
as TMB acknowledges, is the chief statewide association representing the Texas medical profession, with over 48,000
physician and medical student members.19

19
       As if to emphasize this fact, our oral-argument docket
       on the day we heard Teladoc’s appeal also included, by
       happenstance, one of the many scope-of-practice
       lawsuits TMA has initiated over the years on behalf of
       the Texas medical profession.



*612 In response to this letter and its implications for Teladoc’s ability to do business in Texas, the company sued TMB
under section 2001.038 of the APA, which authorizes declaratory-judgment claims against a state agency to challenge the
“validity” or “applicability” of a “rule.”20 Teladoc contended that TMB’s letter—or, more precisely, the agency’s
pronouncements therein concerning the construction and effect of Rule 190.8(1)(L)(i)(II)—was in itself a “rule” under the
APA.21 Because TMB unquestionably did not comply with the APA’s notice-and-comment rulemaking requirements before
promulgating this new “rule,” Teladoc prayed that the “rule” be declared void under APA section 2001.035.22 In the
alternative, Teladoc prayed that the district court remand the “rule” to TMB, pursuant to APA section 2001.040, to afford the
agency the opportunity to readopt or revise through proper APA procedures.23

20
       See Tex. Gov’t Code § 2001.038(a) (“The validity or

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      applicability of a rule ... may be determined in an action
      for declaratory judgment if it is alleged that the rule or
      its threatened application interferes with or impairs, or
      threatens to interfere with or impair a legal right or
      privilege of the plaintiff.”), (c) (“The state agency must
      be a party to the action.”); see also Texas Dep’t of
      Transp. v. Sunset Transp., Inc., 357 S.W.3d 691, 700
      (Tex.App.–Austin 2011, no pet.) (explaining that
      section 2001.038 waives sovereign immunity to the
      extent of the relief it authorizes) (citing Texas Logos,
      L.P. v. Texas Dep’t of Transp., 241 S.W.3d 105, 123
      (Tex.App.–Austin 2007, no pet.)).



21
      See Tex. Gov’t Code § 2001.003(6) (defining “rule”).



22
      See     id.    §§     2001.0225–.034     (rulemaking
      procedures), .035 (“A rule is voidable unless a state
      agency adopts it in substantial compliance with
      Sections 2001.0225 through 2001.034.”).



23
      See id. § 2001.040 (“If a court finds that an agency has
      not substantially complied with one or more of the
      procedural requirements of Sections 2001.0225 through
      2001.034, the court may remand the rule, or a portion
      of the rule, to the agency and, if it does so remand, shall
      provide a reasonable time for the agency to either
      revise or readopt through established procedure.”).
         In addition to the declaratory relief it sought, Teladoc
         also asserted claims for temporary and permanent
         injunctive relief to restrain the “rule’s” enforcement.
         The district court granted a temporary restraining
         order, which was ultimately extended through
         judgment by agreement. On appeal, however,
         Teladoc does not appear to complain of the district
         court’s dismissal of its claims for injunctive relief.
         Teladoc also named as a defendant the TMB officer
         who had written the June 2011 letter on the agency’s
         behalf—general counsel Nancy Leshikar, in her
         official capacity. At least with respect to Teladoc’s
         claim for declaratory relief under APA section
         2001.038, this amounts to a duplicative but harmless
         pleading of the same claim for relief against the same
         defendant, TMB. See Texas Dep’t of State Health
         Servs. v. Balquinta, 429 S.W.3d 726, 750
         (Tex.App.–Austin 2014, pet. filed) (suggesting that
         where sovereign immunity has been waived by APA
         section 2001.038 so as to permit suit against an
         agency, it is of no substantive consequence that
         claimant also named agency official as a defendant to
         that claim) (citing Texas A & M Univ. Sys. v.
         Koseoglu, 233 S.W.3d 835, 844 (Tex.2007); cf.
         Texas State Bd. of Pharmacy v. Witcher, 447 S.W.3d
         520, 545 (Tex.App.–Austin 2014, pet. filed)
         (reasoning that where agency’s immunity from suit

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         was waived by section 2001.171 of the APA,
         immunity was likewise waived as to agency officers
         sued in their official capacities) (citing Koseoglu,
         233 S.W.3d at 844). For convenience, however, we
         refer to the relevant defendant solely as TMB.



Teladoc subsequently sought summary judgment on its claims. TMB countered with a cross-motion for summary judgment
challenging whether its June 2011 letter had constituted a “rule” under the APA and, in turn, whether Teladoc’s claims had
invoked the district court’s jurisdiction via *613 section 2001.038.24 Concluding that “the June 16, 2011 letter ... is not an
unpublished ‘rule’ within the meaning of the [APA],” the district court rendered judgment denying Teladoc’s motion and
granting TMB’s cross-motion, in effect sustaining the agency’s jurisdictional challenge. This appeal ensued.

24
       See Slay v. Texas Comm’n on Envtl. Quality, 351
       S.W.3d 532, 544–45 (Tex.App.–Austin 2011, pet.
       denied) (“From the face of the statute, a challenged
       agency action that constitutes a ‘rule’ is among the
       facts (more precisely, a mixed question of law and fact)
       that must exist in order for a claimant to successfully
       invoke, via section 2001.038, a trial court’s
       subject-matter jurisdiction over the claim for relief
       authorized by the statute. If there is no ‘rule’ as defined
       by the APA being challenged, in other words, the
       claimant cannot obtain the declaratory relief the statute
       authorizes against the State, its agencies, or its agents,
       because sovereign immunity would bar the cause of
       action.”) (citing Combs v. City of Webster, 311 S.W.3d
       85, 100–01 (Tex.App.–Austin 2009, pet. denied)).




                                                                ANALYSIS

Teladoc brings two issues on appeal. In the first, Teladoc argues that TMB’s June 2011 letter constitutes a “rule” under the
APA as a matter of law, such that the district court erred in denying Teladoc’s summary-judgment motion and granting
TMB’s. Teladoc further prays that we render judgment against TMB declaring the “rule” invalid or, alternatively, remanding
it to TMB under APA section 2001.040. In its second issue, urged in the alternative, Teladoc contends that even if it is not
entitled to summary judgment, TMB has likewise failed to meet its summary-judgment burden, such that we should reverse
the district court’s judgment and remand for further proceedings.



Standard of review
[1]
    We review the district court’s summary-judgment rulings de novo.25 Summary judgment is proper when there are no
disputed issues of material fact and the movant is entitled to judgment as a matter of law.26 Where, as here, both sides move
for summary judgment and the trial court grants one motion and denies the other, we review the summary-judgment evidence
presented by both sides, determine all questions presented, and render the judgment that the district court should have
rendered.27

25
       Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661
       (Tex.2005).




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26
       Tex.R. Civ. P. 166a(c); Shell Oil Co. v. Khan, 138
       S.W.3d 288, 291 (Tex.2004).



27
       Texas Workers’ Comp. Comm’n v. Patient Advocates of
       Tex., 136 S.W.3d 643, 648 (Tex.2004); FM Props.
       Operating Co. v. City of Austin, 22 S.W.3d 868, 872
       (Tex.2000).



In this case, the pivotal summary-judgment issue turns on application of statutes and rules to undisputed facts—whether
TMB’s June 2011 letter, whose contents are in the record and undisputed, qualifies as a “rule” as the APA has defined that
term.28 If the letter is not a “rule,” Teladoc failed to invoke the district court’s jurisdiction through APA section 2001.038.29 If,
on the other hand, the letter is a “rule,” Teladoc both properly invoked the district court’s jurisdiction through section
2001.038 and established its entitlement to summary judgment on its declaratory claim under that statute, as *614 it is
undisputed that TMB did not promulgate the letter in accordance with the APA’s notice-and-comment rulemaking
requirements.30

28
       Teladoc also emphasizes summary-judgment evidence
       of what it characterizes as TMB’s prior explicit or tacit
       agreement that initial physician-patient consultations by
       telephone satisfy Rule 190.8(1)(L)(i)(II). Because we
       conclude the contents of the letter itself conclusively
       establish that it is a “rule,” we need not address this
       additional evidence or its possible implications.



29
       See, e.g., Slay, 351 S.W.3d at 544–45, 548.



30
       See, e.g., El Paso Hosp. Dist. v. Texas Health &
       Human Servs. Comm’n, 247 S.W.3d 709, 715
       (Tex.2008); Combs v. Entertainment Publ’ns, Inc., 292
       S.W.3d 712, 723–24 (Tex.App.–Austin 2009, no pet.).


[2]
  Construction of both statutes and administrative rules presents questions of law that we review de novo under traditional
principles of statutory construction.31 Our primary objective is to ascertain and give effect to the drafters’ intent.32 We
determine that intent from the plain meaning of the words chosen when it is possible to do so, using any definitions
provided.33 We consider the statutes or rules as a whole rather than their isolated provisions.34 We presume that the
enactment’s language was chosen with care, with each word included (or omitted) purposefully.35

31
       See TGS–NOPEC Geophysical Co. v. Combs, 340
       S.W.3d 432, 438 (Tex.2011) (holding that
       administrative rules are interpreted under principles of
       statutory construction); City of Rockwall v. Hughes,
       246 S.W.3d 621, 625 (Tex.2008) (“Statutory
       construction is a legal question we review de novo.”).



32
       See TGS–NOPEC, 340 S.W.3d at 439 (citing Tex.
       Gov’t Code § 312.005; Texas Dep’t of Protective &

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         Regulatory Servs. v. Mega Child Care, Inc., 145
         S.W.3d 170, 176 (Tex.2004)).



33
         See id. (citing Tex. Gov’t Code § 311.011(b)).



34
         See id. (citing Texas Dep’t of Transp. v. City of Sunset
         Valley, 146 S.W.3d 637, 642 (Tex.2004)).



35
         See id. (citing In re M.N., 262 S.W.3d 799, 802
         (Tex.2008)).




A rule?
The APA defines a “rule” as follows:

     “Rule”:

       (A) means a state agency statement of general applicability that:

         (i) implements, interprets, or prescribes law or policy; or

         (ii) describes the procedure or practice requirements of a state agency;

       (B) includes the amendment or repeal of a prior rule; and
       (C) does not include a statement regarding only the internal management or organization of a state agency and not
       affecting private rights or procedures.36

Teladoc asserts that TMB’s letter satisfies each element of this definition. TMB does not dispute that its letter is a “state
agency statement,” as required by (A), and it plainly is—it purports to speak for the Board, conveying its official position,
and there is no contention that the writer, the agency’s general counsel, was acting with anything less than the Board’s full
authority.37 Similarly, the statement obviously “implements, interprets, or prescribes law or policy,” reflecting the Board’s
construction and application of Rule 190.8(1)(L)(i)(II) and the underlying statutory concept of practicing medicine “in an
acceptable professional manner consistent with public health and welfare.”38 The *615 statement likewise implements a
broader policy judgment by the Board, reflected explicitly in the 2010 telemedicine rules, that the creation of a new
physician-patient relationship should generally entail an in-person physical examination.39 The statement would also impact
private rights and not merely internal agency management or organization, thereby negating the exception in (C)—TMB
unambiguously and definitively asserts that a physician’s provision of prescriptions or other medical services “over the
telephone without any prior establishment of a physician/patient relationship via a ‘face-to-face’ examination” violates Rule
190.8(1)(L)(i)(II) and will prompt legal action that includes “disciplinary action against the participating doctors.”40

36
         Tex. Gov’t Code § 2001.003(6).



37
         See Entertainment Publ’ns, 292 S.W.3d at 718, 721–22
         (letter signed by the “Assistant Director of Tax
         Administration” of the Comptroller’s office conveying
         Comptroller’s construction of tax laws was a “rule”

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       under the APA; noting that “the Comptroller does not
       contend that the signer of the letter was acting with
       anything less than her full authority”).



38
       See id. at 721 (“There is no question” that letters
       conveying Comptroller’s construction of tax laws are
       “statements implementing, interpret[ing], or prescribing
       law or policy,” as they “interpret[ed] the tax code to
       mean that [brochure-fundraising] firms are, for
       purposes of collecting and remitting sales tax, always
       the ‘sellers’ of the taxable items.”).



39
       See El Paso Hosp. Dist., 247 S.W.3d at 714 (HHSC’s
       “February 28 cutoff” used in calculating Medicaid
       reimbursement      rates   “implements      law”   and
       “implements policy”); Witcher, 447 S.W.3d 520, 2014
       WL 5654255, at *7 (“The Board’s disciplinary order ...
       leave[ ]s little doubt” that Board’s de facto
       “reciprocal-sanctions” requirement “is a statement
       implementing, interpreting, or prescribing the agency’s
       policy....”).



40
       See Witcher, 447 S.W.3d 520, 2014 WL 5654255, at *7
       (noting that Board’s order was essentially statement
       that it was “duty bound” to impose disciplinary action
       based on interpretation); Entertainment Publ’ns, Inc.,
       292 S.W.3d at 722 (emphasizing that legal
       interpretation in Comptroller’s letters would bind
       agency employees and “unambiguously express[ed] an
       intent to apply this interpretation ... in all future cases”
       involving similar facts); see also Witcher, 447 S.W.3d
       520, 2014 WL 5654255, at *10 (distinguishing Board
       of Pharmacy’s reciprocal-sanctions “rule” from the
       non-binding evaluative sanctions guidelines addressed
       in Slay, 351 S.W.3d at 537–42, 546–48).


[3]
  TMB joins issue, however, as to whether the letter represents an agency statement of “general applicability.” Agency
statements of “general applicability” refer to those “that affect the interest of the public at large such that they cannot be
given the effect of law without public comment,” as contrasted with statements “made in determining individual rights.”41 Its
letter does not meet this requirement, TMB insists, because it was “directed only at Teladoc.” That narrow characterization is
conclusively refuted by the contents of the letter itself. While the letter certainly seeks in part to influence or impede
Teladoc’s Texas operations, it also pronounces a rule construction that impacts all physicians practicing in this
state—accompanied by a threat of “disciplinary action” against any physicians who would dare to deviate from the Board’s
view.42 The letter is also pointedly copied to TMA, the chief statewide professional organization representing Texas
physicians and medical students. In short, the letter and the manner of its dissemination are plainly calculated to place the
regulated public—Texas physicians—on notice of the agency’s legal pronouncement and the accompanying threat of adverse
consequences if they fail to comply.43

41
       See Entertainment Publ’ns, Inc., 292 S.W.3d at 721
       (quoting El Paso Hosp. Dist., 247 S.W.3d at 714;
       Railroad Comm’n v. WBD Oil & Gas Co., 104 S.W.3d

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              69, 79 (Tex.2003)).



42
              See id. at 721–22 (Comptroller’s letters regarding tax
              treatment of brochure-fundraising firms “apply not only
              to Entertainment and the tax-exempt groups with which
              it conducts business, but to all brochure-fundraising
              firms engaging in business across the state.”).



43
              See id. at 722 (“[W]hile the interpretation [of Tax Code
              in letters] would bind agency employees to apply the
              rule in analyzing the tax responsibilities to parties to
              these sales, it is not directed ‘only’ to the ‘internal
              management or organization of a state agency.’ Rather,
              it is aimed at placing the regulated public on notice of
              the Comptroller’s prospective, blanket application of
              [the] tax code.”) (internal citation omitted); see also id.
              (concluding that the manifested “intent of the agency,
              the prescriptive nature of the [letters], and the context
              in which the agency statement was made” distinguished
              them as a “rule”) (quoting Texas Educ. Agency v.
              Leeper, 893 S.W.2d 432, 443 (Tex.1994)).
                 Similarly misplaced is TMB’s reliance on Beacon
                 National Insurance Co. v. Montemayor, which
                 rejected an attempted APA section 2001.038
                 challenge to an asserted “rule” consisting “only [of] a
                 series of letters between Beacon and TDI and a
                 proposed consent decree submitted to Beacon by
                 TDI.” 86 S.W.3d 260, 268–69 (Tex.App.–Austin
                 2002, no pet.). The Beacon Court emphasized that
                 “the correspondence from TDI about which Beacon
                 complains is directed at Beacon only” and did not
                 “equate to a specific agency rule, set of requirements,
                 or specific policy.” Id. 268–69. None of that is true
                 of TMB’s letter here.


[4] [5] [6]
         *616 A potentially more complicated question on which the parties diverge is whether the pronouncements in the
letter should be considered to have any legal effect or significance independent of what is already contained in Rule
190.8(1)(L)(i)(II). Subpart (B) of the APA’s definition states that a “rule” “includes the amendment or repeal of a prior
rule.”44 While “includes” denotes that a “rule” may include agency statements beyond those that amend or repeal an existing
rule, “this indicia of a ‘rule,’ ” as we have previously observed, “is nonetheless illustrative of the types of agency actions that
would [be considered to] have legal effect on private persons, as contemplated by [ (C) ].”45 Consequently, as we explained in
Sunset Transportation, “an informal agency statement that does no more than merely restate its own formally promulgated
rules would not in itself be a ‘rule,’ ” adding that this proposition is perhaps one of the few that can be discerned with
“relative certainty” in this notoriously muddled corner of the law.46 But in the aftermath of the Texas Supreme Court’s El
Paso Hospital decision, it is equally clear that an agency’s “interpretations” or “applications” of existing formally
promulgated rules will themselves be held to be “rules” where they have the effect of amending the existing rules, or of
creating new rules, and the other requirements of the APA’s “rule” definition are met.47 Similarly, the bare fact that an agency
statement might be said to “interpret” or effectuate only standards already prescribed in existing statutes or rules, as opposed
to creating new standards, cannot categorically mean that the statement lacks the sort of legal effect on private persons that
distinguishes a “rule,” as the same would be true of any “agency statement of general applicability that ... interprets ... law,”
and the Legislature has explicitly included such statements within the Texas APA’s definition of “rule.”48



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44
       Tex. Gov’t Code § 2001.003(6)(B).



45
       Sunset Transp., 357 S.W.3d at 704.



46
       Id. at 703; accord Texas Dep’t of Pub. Safety v.
       Salazar, 304 S.W.3d 896, 904 (Tex.App.–Austin 2009,
       no pet.) (DPS internal memorandum prescribing that
       drivers’ licenses will include statement of bearer’s
       immigration status “merely reiterates” rule already
       imposing that requirement).



47
       See El Paso Hosp. Dist., 247 S.W.3d at 714–15
       (holding agency statement to be a “rule” despite
       agency’s insistence that it “is not a rule itself, but rather
       its interpretation of the [existing] rule”). Accord
       Witcher, 447 S.W.3d 520, 2014 WL 5654255, at *9–10.



48
       See Tex. Gov’t Code § 2001.003(6)(A); see also
       Entertainment Publ’ns, 292 S.W.3d at 723 n. 6
       (acknowledging that the Court’s analysis reached the
       same conclusion as would applying Professor Ron
       Beal’s analysis to identify an “interpretive rule”) (citing
       Ron Beal, A Miry Bog Part II: UDJA and APA
       Declaratory Judgment Actions and Agency Statements
       Made Outside a Contested Case Hearing Regarding the
       Meaning of the Law, 59 Baylor L.Rev. 267, 270 (2007);
       Ron Beal, The APA and Rulemaking: Lack of
       Uniformity Within a Uniform System, 56 Baylor L.Rev.
       1, 29–46 (2004)). As Professor Beal further notes, the
       Texas APA differs from its federal counterpart in
       making “rules” that “interpret” law or policy—the
       so-called      “interpretive      rules”—subject         to
       notice-and-comment rulemaking requirements. Ronald
       L. Beal, Texas Administrative Practice & Procedure, §
       2.3.4 (2014) (citing 5 U.S.C. § 553(b)(3)(a)).



*617 The “agency statement” held to be a “rule” in El Paso Hospital was HHSC’s “interpretation” of its formally
promulgated rules governing calculation of Medicaid reimbursement rates to divine a temporal cut-off for the data set that
was not found in the text of the existing rules.49 A more recent example of an agency rule “interpretation” held to itself
constitute a “rule” is found in this Court’s Witcher decision, in which the Board of Pharmacy had applied a multi-factor
sanctions rule in a manner that effectively made only one of the factors singularly dispositive.50 At the opposite end of the
spectrum is the situation we addressed in Sunset Transportation, where the asserted “rule”—an informational “notice” issued
by the Texas Department of Transportation concerning regulatory changes impacting certain interstate motor carriers51—was
substantively identical to the agency’s formally promulgated rules.52 We further observed that “distinguishing a mere
restatement of a formally promulgated rule from a statement that is itself a ‘rule,” was “straightforward” on the record
presented there, but “might prove more elusive in other circumstances.”53

49
       See El Paso Hosp. Dist., 247 S.W.3d at 714–15.


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50
       See Witcher, 447 S.W.3d 520, 2014 WL 5654255, at
       *10.



51
       See Sunset Transp., 357 S.W.3d at 700–01.



52
       See id. at 704. The portions of the notice at issue
       consisted of (1) a statement that “[a]ll motor carriers
       must maintain active insurance filing with TxDOT at
       all times;” and (2) a statement that motor carriers
       whose state registrations have been revoked “are
       required to re-register and submit applicable fees.” The
       first challenged statement, we observed, “tracks
       TxDOT’s rules” requiring motor carriers to “file and
       maintain proof of automobile liability insurance for all
       vehicles required to be registered.” Id. (quoting 43 Tex.
       Admin. Code § 218.16(e)(1)(A)). The second
       challenged statement, we concluded, “tracks TxDOT’s
       rules providing that ‘[i]f a motor carrier that has
       registered [under the statute requiring it] does not
       maintain continuous motor carrier registration under
       [the statute], the motor carrier must file an application
       under [the statute] to operate on public streets and
       highways in this state.” Id. (citing 43 Tex. Admin.
       Code § 218.14(c) and related rule governing
       registration requirements and fees, § 218.13).



53
       Id.


[7]
  The parties urge diametrically opposing views as to where TMB’s letter lies along this continuum. Teladoc argues that the
“construction” of Rule 190.8(1)(L)(i)(II) pronounced in TMB’s letter amounts to an amendment of that formally promulgated
rule, similar to the temporal cut-off in El Paso Hospital. It reasons that Rule 190.8(1)(L)(i)(II)’s requirement of “...
acceptable medical practices such as patient history, mental status examination, physical examination, and appropriate
diagnostic and laboratory testing” denotes a non-exclusive list of illustrative examples of “acceptable medical practices,”
emphasizing dictionary definitions to that effect.54 *618 Consequently, Teladoc urges, Rule 190.8(1)(L)(i)(II) contemplates
that a “physical examination” (whether “face-to-face” or through some other means) is merely one type of “acceptable
medical procedure” through which a physician might permissibly make an initial diagnosis in a given case consistent with the
standard of care. In pronouncing that a physical examination—and, indeed, each of the other examples of “acceptable
medical procedures” mentioned in Rule 190.8(1)(L)(i)(II) or their equivalent—are all required in every case, TMB’s letter, in
Teladoc’s view, departs from that rule’s unambiguous text to an extent as to effectively rewrite it.

54
       See, e.g., The American Heritage Dictionary of the
       English Language 1740 (5th ed.2011) (defining “such”
       as “[o]f this kind” and “[o]f a kind specified or
       implied,” and describing the idiom “such as” to mean
       “[f]or example”); see also Martinez v. Harris Cnty.,
       808 S.W.2d 257, 259 (Tex.App.–Houston [1st Dist.]
       1991, writ denied) (holding that list of activities after

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       “such as” was illustrative only and not exclusive);
       Board of Adjustment v. Levinson, 244 S.W.2d 281,
       282–283 (Tex.Civ.App.–San Antonio 1951, no writ)
       (“The synonyms of ‘such as,’ are alike, similar, of the
       like kind; ‘such’ representing the object as already
       particularized in terms which are not mentioned, being
       a descriptive and relative word, referring to the specific
       articles mentioned.”).



In contrast, TMB insists that its letter merely “restates” Rule 190.8(1)(L)(i)(II), emphasizing two textual features of that
enactment. First, pointing to the conjunction “and” within the rule’s enumeration of “... acceptable medical practices such as
patient history, mental status examination, physical examination, and appropriate diagnostic and laboratory testing,” TMB
urges that “such as ...” must refer to all four of the cited procedures collectively as the exemplar of “acceptable medical
practices.” Second, TMB insists that the concluding sentence in Rule 190.8(1)(L)(i)(II)—“An online or telephonic evaluation
by questionnaire is inadequate”—unequivocally bars physicians from relying only on a telephone consultation when
establishing a physician-patient relationship. Teladoc counters that in the context of Rule 190.8(1)(L)(i)(II)’s use of “and”
following “such as,” “and” is merely the equivalent of “or,” as suggested by Webster’s use of the following example to
illustrate the definition of “such as”—“course fish such as carp, catfish, and the like.”55 Were TMB’s view of the rule correct,
Teladoc suggests, it would imply that “course fish such as ...” in the Webster’s illustration must refer to a conflation of “carp,
catfish, and the like” that is unknown to nature, a nonsensical construction. As for Rule 190.8(1)(L)(i)(II)’s last sentence,
Teladoc accuses TMB of rewriting the rule again by ignoring the modifier “... online or telephonic evaluation by
questionnaire ...” “By questionnaire,” Teladoc observes, denotes the use of a script or finite list of questions that are asked
without regard to the person being questioned.56 Evaluation or consultation without the use of a questionnaire—such as the
sorts of open-ended questions that a doctor in search of a diagnosis might ask, whether in person or over the phone—are not
prohibited, Teladoc urges.

55
       Webster’s Third New Int’l Dictionary 2283 (2002)
       (defining “such”).



56
       See, e.g., American Heritage at 1444 (defining
       “questionnaire” as “[a] form containing a set of
       questions, especially one addressed to a statistically
       significant number of subjects as a way of gathering
       information for a survey”).



TMB also insists that Rule 190.8(1)(L)(i)(II) must be read “in context” with its 2010 telemedicine rules. By this, TMB means
that the two enactments must be construed to impose parallel requirements of a “face-to-face” physical examination as part of
a physician’s initial evaluation of a new patient. Were it otherwise, TMB reasons, physicians could “evade” the face-to-face
physical examination requirements imposed by the telemedicine rules “simply by picking up the telephone and calling the
patient.”57 Teladoc replies that if the 2010 telemedicine *619 rules have any bearing on the meaning of the 2003–enacted
Rule 190.8(1)(L)(i)(II), it is only to illustrate stark textual differences between the two rules, most notably the contrast
between Rule 174.8’s reference to “... acceptable medical practices, including patient history, mental status examination,
physical examination ... and appropriate diagnostic and laboratory testing”58 as compared to Rule 190.8(1)(L)(i)(II)’s “...
acceptable medical practices such as patient history, mental status examination, physical examination, and appropriate
diagnostic and laboratory testing.”59 “Including,” Teladoc urges, is a term of enlargement that encompasses all that follows,60
in contrast to the list of examples denoted by “such as.” Such textual distinctions, as Teladoc emphasizes, must be given
effect when construing Rule 190.8(1)(L)(i)(II).61

57
       To similar effect, citing its responses to a comment
       from Teladoc regarding the proposed 2010


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       telemedicine rules, TMB emphasizes an excerpt in
       which it described Rule 174.8 as “consistent with and
       mirror [ing] the language of 22 TAC § 190.8(1)(L).” 35
       Tex. Reg. 9085, 9090 (2010) (comment to adopted rule
       22 Tex. Admin. Code § 174.8). This statement
       responded to a comment concerning a requirement
       within Rule 174.8 regarding follow-up care and, in
       context, would appear to refer solely to that feature of
       the two enactments, not the broader correlation TMB
       insinuates. See id. Regardless, TMB’s characterization
       of the relationship between the telemedicine rules and
       the preexisting Rule 190.8(1)(L)(i)(II) would be no
       more authoritative regarding the latter provision’s
       meaning than the similar ex-post assertions contained
       in its June 2011 letter. Cf. Entertainment Publ’ns, 292
       S.W.3d at 717–18 (noting Comptroller’s Office’s
       attempt to portray new tax code interpretation as one it
       “has consistently held”).



58
       22 Tex. Admin. Code § 174.8(a)(2) (emphasis added).



59
       Id. § 190.8(1)(L)(i)(II) (emphasis added).



60
       See Tex. Gov’t Code § 311.005(13) (“ ‘Includes’ and
       ‘including’ are terms of enlargement and not of
       limitation or exclusive enumeration, and use of the
       terms does not create a presumption that components
       not expressed are excluded.”).



61
       See Railroad Comm’n v. Texas Citizens for a Safe
       Future & Clean Water, 336 S.W.3d 619, 628
       (Tex.2011) (“When the legislature uses a word or
       phrase in one portion of a statute but excludes it from
       another, the term should not be implied where it has
       been excluded.”); see also TGS–NOPEC, 340 S.W.3d
       at 439 (we presume that the enactment’s language was
       chosen with care, with each word included (or omitted)
       purposefully).



At bottom, Teladoc argues, TMB’s letter amounts to a procedurally invalid amendment to conform Rule 190.8(1)(L)(i)(II) to
Rule 174.8 merely by declaring that the two textually contrasting provisions actually mean the same thing. In that regard,
Teladoc also emphasizes that when promulgating the current version of Rule 174.8 referring to “... acceptable medical
practices, including patient history, mental status examination, physical examination ... and appropriate diagnostic and
laboratory testing” in 2010, TMB actually replaced a prior version that had contained language parallel to Rule
190.8(1)(L)(i)(II) and referring to “... acceptable medical practices such as patient history, mental status examination, and
appropriate diagnostic and laboratory testing.”62 This history, Teladoc contends, betrays not only TMB’s understanding of the
significant difference in the meaning of “including” versus “such as,” but its awareness that a change between the two must
properly be achieved through the APA’s notice-and- *620 comment rulemaking processes and not by the naked fiat it relies
on here.

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62
       See 35 Tex. Reg. 9085 (2010) (codified at 22 Tex.
       Admin. Code § 174.8) (proposed Apr. 30, 2010); 29
       Tex. Reg. 6088, 6089 (codified at 22 Tex. Admin. Code
       § 174.4 (Use of the Internet in Medical Practice)
       (proposed Apr. 23, 2004), repealed 35 Tex. Reg. 9085
       (2010) (emphasis added). An earlier version of the
       same rule, promulgated in 2003, had also contained the
       same “such as” language. See 28 Tex. Reg. 3325 (2003)
       (codified at 22 Tex. Admin. Code § 174.17 (Use of the
       Internet in Medical Practice), repealed 29 Tex. Reg.
       6088 (2004).



We agree with Teladoc that TMB’s pronouncements in its June 2011 letter are tantamount to amendments to the existing text
of Rule 190.8(1)(L)(i)(II), effectively substituting “including” for “such as,” thereby conforming it to the 2010 telemedicine
rules. Similarly, to the extent the pronouncement also rests upon Rule 190.8(1)(L)(i)(II)’s last sentence, TMB’s letter
effectively deleted the modifying phrase “by questionnaire.” TMB’s pronouncements hardly “track” Rule 190.8(1)(L)(i)(II)
in the manner of the TxDOT notice in Sunset Transportation—rather, they depart from and effectively change that text.63

63
       Cf. Sunset Transp., Inc., 357 S.W.3d at 704; Salazar,
       304 S.W.3d at 904.



In contending otherwise, TMB ultimately insists that even if Rule 190.8(1)(L)(i)(II) fails to unambiguously support its
“interpretation,” the letter is at least consistent with a reasonable interpretation to which that ambiguous rule would be
susceptible and would be accorded deference under the principles that govern judicial review of agency rule constructions.64
But even if we assume TMB’s pronouncement could somehow be reconciled with Rule 190.8(1)(L)(i)(II)’s text, as the
agency insists, the letter would still have the effect of amending the rule so as to adopt one of the alternative reasonable
constructions to which the current text would be susceptible while rejecting another. To that extent, at least, the
pronouncement would have a legal effect on private parties beyond that achieved through the text of Rule 190.8(1)(L)(i)(II)
alone. To hold that the pronouncement has no such effect because it “interprets” or “applies” Rule 190.8(1)(L)(i)(II) to
resolve an ambiguity would be, as previously suggested, logically inconsistent with the Legislature’s explicit recognition that
a “rule” under the APA includes an “agency statement of general applicability that ... interprets ... law.”65

64
       See, e.g., TGS–NOPEC, 340 S.W.3d at 438.



65
       See Tex. Gov’t Code § 2001.003(6)(A). To the extent
       Texas Mutual Insurance Co. v. Vista Community
       Medical Center Hospital, 275 S.W.3d 538
       (Tex.App.–Austin 2008, pet. denied), could be
       construed as holding to the contrary, we conclude it is
       not controlling. Vista concerned disputes arising under
       a formal rule promulgated by the Division of Workers’
       Compensation that had imposed a “stop-loss” limitation
       on reimbursement payments made to hospitals. After
       administrative law judges (ALJs) at the State Office of
       Administrative Hearings (SOAH) reached divergent
       conclusions regarding the proper construction of the
       stop-loss rule in deciding medical-reimbursement
       disputes, the director of SOAH’s medical-review
       division prepared a one-page memorandum advocating
       what the director viewed as the proper construction of
       the rule, which SOAH ALJs followed for a period

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          thereafter. See id. at 545–46. In relevant part, this Court
          held that the memorandum was not itself a “rule” void
          for failure to comply with APA rulemaking
          requirements. See id. at 555–56. The Court reasoned in
          part that the memorandum was not a “state agency
          statement” because it had never been adopted or
          approved by the relevant agency, the Division. See id.
          at 555. The Court went on, however, to conclude that
          the memorandum was merely a statement regarding
          SOAH’s “internal management” that “did not affect
          private rights” because “it [was] designed to correct
          [ALJ’s] inconsistent application or the Stop–Loss
          Exception” and “it did not change or amend [the
          stop-loss rule]; it simply mandated internal consistency
          when applying the rule.” Id. at 556. Vista ‘s assertion
          that this memorandum was purely “internal” and had no
          impact on private rights is arguably inconsistent with
          both El Paso Hospital and this Court’s more recent
          jurisprudence like Entertainment Publications and
          Witcher, inasmuch as the rule construction advocated in
          the memorandum was to be applied, and was applied,
          by SOAH ALJs in deciding medical fee disputes,
          plainly impacting private rights. Cf. El Paso Hosp.
          Dist., 247 S.W.3d at 714–15 (agency’s cut-off date
          affected hospitals’ private rights); Witcher, 447 S.W.3d
          520, 2014 WL 5654255, at *7 (emphasizing general
          applicability of the agency interpretation and its impact
          on the private rights); EntertainmentPubl’ns, 292
          S.W.3d at 721 (noting that applying interpretation to all
          brochure-fundraising firms affected private rights).
          Similarly, as for the suggestion that the memorandum
          did not impact private rights because it represented one
          of two competing constructions of the stop-loss rule,
          Vista cites no supporting authority beyond attempting
          to contrast the memorandum with the cut-off “rule” in
          El Paso Hospital, which it characterized as
          “contradict[ing]” the underlying formal rules. See Vista,
          275 S.W.3d at 556. But leaving aside the merits of
          these assertions by the Vista Court, see Sunset Transp.,
          357 S.W.3d at 704 (citing Vista as example where the
          distinction between “a mere restatement of a formally
          promulgated rule” and “a statement that is itself a
          ‘rule’ ” was “elusive”), they can be classified as dicta
          given the Court’s preceding holding that the
          memorandum was not a “state agency statement” at all.
          See id. at 555.


[8] [9]
      *621 Finally, TMB urges that “sound public policy” warrants a narrow construction of the APA’s “rule” definition that
would exclude the pronouncements in its letter. “If this type of letter constitutes a ‘rule,’ ” TMB insists, the “alternatives left
to an agency ... that wishes to alert a regulated entity that it [in the agency’s opinion] is violating a statute or regulation”
would be confined to the following “poor option[s]”: (1) “without warning, simply initiate administrative proceedings”; (2)
“send correspondence stating that the entity is violating a rule but without providing any additional explanation,” leaving the
entity to “merely guess at the basis for the alleged violation”; or (3) “initiate rulemaking proceedings each time it wants to
notify a regulated entity of a possible violation.” The latter option is especially odious in TMB’s view, quoting the following
familiar excerpt from this Court’s 1999 Brinkley opinion, seemingly cited by this state’s administrative agencies with greater
frequency and fervor than even the Texas Constitution:
             Agencies would be reduced to impotence ... if bound to express their views as to ‘law,’ ‘policy,’ and

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            procedural ‘requirements’ through contested-case hearings or formal rules exclusively; and they could
            not under such a theory exercise powers explicitly delegated to them by the [L]egislature.... If every
            expression by the agency as to ‘law,’ ‘policy,’ and procedural ‘requirements’ requires the
            promulgation of a formal rule, the agency could no longer exercise its ‘informed discretion’ to choose
            adjudication as a means of making law and policy rather than rulemaking, a choice we have repeatedly
            said an agency has when it possesses both adjudicatory and rulemaking powers.66

An agency’s discretion to “mak[e] ‘law’ or ‘policy’ ” through adjudication is not unlimited, of course, as this Court has most
recently held in Witcher,67 but the more critical observation here is that our construction of the APA’s “rule” definition does
not imply the stark alternatives Brinkley and TMB suggest. As the Texas Supreme Court observed in Leeper, “Not every
statement by an administrative agency is a rule for which the APA prescribes procedures for adoption and for judicial
review,”68 and the Act defines “rule” in a way that will exclude a considerable range of unofficial, individually directed,
tentative or other non-proscriptive agency or staff issuances concerning law *622 or policy.69 But where, as here, an agency’s
legal or policy pronouncements seek to control the conduct of a free people through the assertion or threatened assertion of
State power, agency “impotence” is hardly the relevant concern under our Constitution and laws. Rather, it is the risk that
agencies—whose legitimate authority and very existence must derive from law and not merely perceived
“expediency”70—will stray from their legal limitations (perhaps with the best of individual intentions, but exceeding them
nevertheless) through what federal courts have aptly termed a “tyranny of small decisions” that substantively assert Executive
or Legislative power over the citizenry through forms calculated to avoid the meaningful checks and balances the Framers
intended the Judiciary to provide.71 In very recently rejecting agency claims to an absolute right to supersede adverse trial
court judgments pending appeal, the Texas Supreme Court cited similar concerns:
             The State’s position—boundless entitlement to supersede adverse non-money judgments—would vest
             unchecked power in the executive branch, at considerable expense to the judicial branch, not to
             mention the wider public we both serve. The Texas Constitution divides governing power among three
             branches, and power seized by one branch necessarily means power ceded by another. Our State
             Constitution, like Madison’s Federal handiwork, is infused with Newtonian genius: three rival
             branches locked in synchronous orbit by competing interests—ambition checking ambition. These are
             abstract principles, but they have real-world ripple effects on the lives of everyday Texans. This case is
             Exhibit A. TRAP 24.2(a)(3) gives the trial court discretion, quite sensibly, to prevent the State from
             re-revoking Montalvo’s certification—the ultimate professional sanction—while it spends years
             appealing the court’s reversal of the State’s first revocation, something the trial court found “arbitrary
             and capricious.” The State—as yet unsupported by a victory on the merits in any court—wants to strip
             Montalvo of his livelihood while the appellate process grinds on.... That’s a striking assertion of
             unbridled executive power—to enforce administrative orders that a trial court has reversed—and
             TRAP 24.2(a)(3) recognizes the judiciary’s authority to say no.72

With similar perceptiveness, the Legislature, through the APA, has enabled affected *623 citizens to invoke judicial
jurisdiction, through section 2001.038, to test the “validity” or “applicability” of agency pronouncements that rise to the level
of “rules”—including those that “interpret” law or policy—and required that the further checks of transparency, public
participation, and reasoned justification must precede such assertions of agency authority. We must give effect to these
important safeguards, as the Legislature has intended.

66
       Brinkley v. Texas Lottery Comm’n, 986 S.W.2d 764,
       769 (Tex.App.–Austin 1999, no pet.).



67
       See Witcher, 447 S.W.3d 520, 2014 WL 5654255, at
       *12–13 (discussing principles that limit ad hoc
       rulemaking).



68
       Leeper, 893 S.W.2d at 443.



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Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173



69
      See Tex. Gov’t Code § 2001.003(6); Combs, 311 at
      100–01, (noting that appellees could not point to any
      specific “statement” by the comptroller); see also
      Ronald L. Beal, Texas Administrative Practice &
      Procedure § 2.3.4 (2014) (illustrating examples of
      agency statements that would fall short of “rules”).



70
      See, e.g., Public Util. Comm’n v. City Pub. Servs. Bd.,
      53 S.W.3d 310, 316 (Tex.2001) (“[W]hen the
      Legislature expressly confers a power on an agency, it
      also impliedly intends that the agency have whatever
      powers are reasonably necessary to fulfill its functions
      or duties. An agency may not, however, exercise what
      is effectively a new power, or a power contradictory to
      the statute, on the theory that such a power is expedient
      for administrative purposes.”).



71
      See Iowa League of Cities v. Environmental Prot.
      Agency, 711 F.3d 844, 873 (8th Cir.2013) (quoting
      Professionals & Patients for Customized Care v.
      Shalala, 56 F.3d 592, 596 (5th Cir.1995)).



72
      In re State Bd. for Educator Certification, No.
      13–0537, –––S.W.3d ––––, 2014 WL 7204523, 2014
      Tex. LEXIS 1208, at *17–18 (Tex. Dec. 19, 2014); see
      Tex. Const. art. II, § 1 (“The powers of the Government
      of the State of Texas shall be divided into three distinct
      departments, each of which shall be confided to a
      separate body of magistracy, to wit: Those which are
      Legislative to one; those which are Executive to
      another, and those which are Judicial to another; and no
      person, or collection of persons, being of one of these
      departments, shall exercise any power properly
      attached to either of the others, except in the instances
      herein expressly permitted.”); see also City of Dallas v.
      Stewart, 361 S.W.3d 562, 577 (Tex.2012) (citing
      approvingly       to    scholarship   suggesting      that
      administrative agencies, in assuming adjudicatory,
      rulemaking, and administrative functions in a manner
      not obviously contemplated by the tripartite
      constitutional structure, suffer from a “chronic
      ‘legitimacy crisis’ ” (citing Richard H. Fallon, Jr.,
      Legitimacy and the Constitution, 118 Harv. L.Rev.
      1787, 1842–43 (2005)).
         To the extent TMB argues that its letter resembles
         those that Brinkley held to be “simply advisory
         guidelines” that “have no legal effect on private
         persons,” see Brinkley, 986 S.W.2d at 770–71 & nn.
         9 & 10, we observe that Brinkley ‘s analysis was
         premised on the view that agency pronouncements of
         law have no material effect on private rights unless
         issued in the form of formal rules or contested-case
         orders. Id. at 769. That premise has been eroded, to

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Teladoc, Inc. v. Texas Medical Board, 453 S.W.3d 606 (2014)
Med & Med GD (CCH) P 305,173


           say the least, by this Court’s precedents that have
           been informed by the Texas Supreme Court’s
           intervening El Paso Hospital decision. In short, if
           Brinkley would imply a different result here, we need
           go no farther than to conclude it is distinguishable.



We hold that TMB’s pronouncements regarding Rule 190.8(1)(L)(i)(II) contained in its June 2011 letter are a “rule” as a
matter of law. Accordingly, we sustain Teladoc’s first issue and need not reach its second issue, which it argues in the
alternative.73

73
         See Tex.R.App. P. 47.1.




                                                            CONCLUSION

Having sustained Teladoc’s first issue on appeal, we reverse the district court’s judgment and render summary judgment
declaring that TMB’s pronouncements regarding Rule 190.8(1)(L)(i)(II) contained in its June 2011 letter are a “rule” under
the APA and, therefore, invalid under section 2001.035 of that Act.



All Citations

453 S.W.3d 606, Med & Med GD (CCH) P 305,173

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Texas Alcoholic Beverage Com'n v. Amusement and Music..., 997 S.W.2d 651 (1999)




                                                       997 S.W.2d 651
                                                  Court of Appeals of Texas,
                                                           Austin.

                           TEXAS ALCOHOLIC BEVERAGE COMMISSION, Appellant,
                                                v.
                        AMUSEMENT AND MUSIC OPERATORS OF TEXAS, INC., Appellee.

                 No. 03–98–00579–CV.          |    May 6, 1999.      |   Opinion on Rehearing July 29, 1999.

Association of amusement and music operators brought action for declaratory judgment against Texas Alcoholic Beverage
Commission and its administrator, and Department of Public Safety and its director, challenging constitutionality of memoranda
defining illegal “gambling devices” to include certain coin-operated electronic machines. The District Court, Travis County,
John K. Dietz, J., issued temporary injunction against enforcement of memoranda by agencies. Commission appealed. The
Court of Appeals, Bea Ann Smith, J., held that: (1) Commission received adequate notice and opportunity to be heard regarding
issuance of temporary injunction; (2) association had standing to sue on behalf of its members; (3) trial court had jurisdiction
over claim that Commission invalidly promulgated rules under APA; and (4) association demonstrated probable injury and
probable right of recovery required to support injunction.

Affirmed; rehearing granted.



 West Headnotes (13)


 [1]    Injunction       Preservation of status quo
        The limited purpose of a temporary injunction is to preserve the status quo of the subject matter of a suit pending
        final disposition of the case on its merits.

        1 Cases that cite this headnote


 [2]    Injunction       Discretionary Nature of Remedy
        The trial court has broad discretion to determine whether to issue a temporary injunction.

        Cases that cite this headnote


 [3]    Appeal and Error         Injunction
        Appellate court may reverse the trial court's order granting a temporary injunction only for a clear abuse of discretion.

        3 Cases that cite this headnote


 [4]    Injunction       Other particular cases
        Injunction       Right or necessity
        Texas Alcoholic Beverage Commission received adequate notice and opportunity to be heard, at hearing on temporary
        injunction sought by association of amusement and music operators, on issue of whether Commission's memoranda
        were invalid rules under Administrative Procedure Act (APA), though association's first petition did not plead issue;
        association's counsel elicited testimony at hearing from Commission's witnesses concerning compliance with APA,


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Texas Alcoholic Beverage Com'n v. Amusement and Music..., 997 S.W.2d 651 (1999)


       and prior to issuance of injunction Commission filed reply to association's amended petition that specifically pleaded
       that memoranda were invalid rules. Vernon's Ann.Texas Rules Civ.Proc., Rule 681; V.T.C.A., Government Code §
       2001.001 et seq.

       Cases that cite this headnote


[5]    Corporations and Business Organizations             Persons entitled to sue; standing
       Association of amusement and music operators had standing to bring suit on behalf of its members to enjoin
       Alcoholic Beverage Commission from implementing memoranda adopting definition of “gambling devices” that
       included certain coin-operated electronic machines, on ground that memoranda were invalidly promulgated rules
       under Administrative Procedure Act (APA); request for injunctive relief did not require participation from individual
       members. V.T.C.A., Government Code § 2001.001 et seq.

       Cases that cite this headnote


[6]    Associations      Actions by or Against Associations
       An association may sue on behalf of its members when (1) its members could otherwise sue on their own; (2) the
       interests the association seeks to protect are germane to the organization's purpose; and (3) neither the claim asserted
       nor the relief sought requires the participation of individual members in the lawsuit.

       Cases that cite this headnote


[7]    Declaratory Judgment            State officers and boards
       Claims by association of amusement and music operators for declaratory and injunctive relief, regarding whether
       Alcoholic Beverage Commission memoranda that expanded definition of “gambling devices” were invalidly
       promulgated rules under Administrative Procedure Act (APA), were ripe without proof of individual prosecution.
       V.T.C.A., Government Code § 2001.001 et seq.

       1 Cases that cite this headnote


[8]    Injunction      Authority of court; jurisdiction and venue
       Request by association of amusement and music operators for temporary injunction against enforcement of Alcoholic
       Beverage Commission memoranda that expanded definition of “gambling device,” based on Attorney General's
       opinion that Penal Code definition was unconstitutionally restrictive, was not request to enjoin enforcement of criminal
       law matter, which would be outside trial court's jurisdiction, where relief was sought on ground that memoranda
       were invalidly promulgated rules under Administrative Procedure Act (APA). V.T.C.A., Penal Code § 47.01(4)(B);
       V.T.C.A., Government Code § 2001.003.

       3 Cases that cite this headnote


[9]    Courts       Previous Decisions as Controlling or as Precedents
       An Attorney General's opinion, while persuasive, is not the law, and is not immune from the trial court's jurisdiction
       or appellate review.

       3 Cases that cite this headnote


[10]   Injunction      Gambling and gaming



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Texas Alcoholic Beverage Com'n v. Amusement and Music..., 997 S.W.2d 651 (1999)


        Association of amusement and music operators sufficiently demonstrated probable injury and probable right
        of recovery to support temporary injunction restraining Alcoholic Beverage Commission from implementing
        memoranda expanding definition of “gambling devices” to include certain coin-operated electronic machines,
        in action claiming implementation constituted improper rulemaking under Administrative Procedure Act (APA).
        V.T.C.A., Penal Code § 47.01(4)(B); V.T.C.A., Government Code § 2001.003.

        3 Cases that cite this headnote


 [11]   Gaming and Lotteries            Verdict and findings
        Trial court did not abuse its discretion in finding that Alcoholic Beverage Commission memorandum had effect
        of instructing law enforcement agents to ignore Penal Code provision defining “gambling devices,” in connection
        with request by association of amusement and music operators for temporary injunction against implementation of
        memorandum, where memorandum instructed agents that exception to gambling device statute was inapplicable
        and referred to Attorney General opinion advising that exception was unconstitutional and should be excluded from
        reading of statute. V.T.C.A., Penal Code § 47.01(4)(A, B).

        1 Cases that cite this headnote


 [12]   Injunction       Gambling and gaming
        Trial court had power to issue injunctive order against Alcoholic Beverage Commission under Administrative
        Procedure Act. V.T.C.A., Government Code § 2001.001 et seq.

        Cases that cite this headnote


 [13]   Injunction       Defendants or respondents
        Ordinarily, a plaintiff must sue an individual in authority to enjoin the activities of a state agency.

        Cases that cite this headnote




Attorneys and Law Firms

*652 John Cornyn, Atty. Gen., W. Reed Lockhoof, Asst. Atty. Gen., Law Enforcement Defense Div., Austin, for appellant.

Jennifer S. Riggs, Hill, Gilstrap, Adams & Graham, Austin, for appellee.

Barry Bishop, Clark, Thomas & Winters, Austin, for Veterans of Foreign Wars, Dept. of Texas.

*653 Before Justices JONES, B.A. SMITH and YEAKEL.


BEA ANN SMITH, Justice.

This case comes before us on an interlocutory appeal from a temporary injunction. The Amusement and Music Operators
of Texas, Inc. (“AMOT”) filed a declaratory judgment action against the Texas Alcoholic Beverage Commission (the
“Commission”); Doyne Bailey, the Administrator of the Commission; the Department of Public Safety; and Dudley Thomas,
the Director of the Department of Public Safety. AMOT challenged the constitutionality of a Commission memorandum and
interoffice communication interpreting the definition of “gambling devices” in section 47.01 of the Texas Penal Code as applied
to certain machines called “eight-liners.” The trial court issued a temporary injunction enjoining those agencies from relying



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Texas Alcoholic Beverage Com'n v. Amusement and Music..., 997 S.W.2d 651 (1999)


on the memorandum and the first two paragraphs of the interoffice communication. In seven issues, the Commission appeals
the temporary injunction issued. We will affirm the trial court's order.



                                                       BACKGROUND

AMOT is an association of amusement and music operators. The members of AMOT engage in the business of owning
and/or operating coin-operated machines, including amusement machines known as “eight-liners.” Eight-liners are electronic
machines, similar to slot machines, that dispense gift certificates redeemable for prizes.

Before 1993, the Texas Penal Code made the possession and operation of all gambling devices illegal. However, in 1993, the
legislature amended the Penal Code's definition of “gambling devices” to exclude

            electronic, electromechanical, or mechanical contrivance designed, made, and adapted solely for bona
            fide amusement purposes if the contrivance rewards the player exclusively with noncash merchandise
            prizes, toys, or novelties, or a representation of value redeemable for those items, that have a wholesale
            value available from a single play of the game or device of not more than 10 times the amount charged
            to play the game or device once or $5, whichever is less. 1


Tex. Penal Code Ann. § 47.01(4)(B) (West Supp.1999). AMOT members relied on the plain language of this statute and on
discussions with county prosecutors and police officers before entering the business of owning and operating eight-liners.

In 1998, the attorney general's office issued an opinion ruling that the amended definition of gambling devices violated the
Texas Constitution because it purports to authorize the operation of certain lotteries not contemplated by the constitution. See
Att'y Gen. Op. DM–466 (Jan. 23, 1998). The Texas Constitution requires the legislature to pass laws prohibiting all lotteries or
gift enterprises other than those specifically authorized by the constitution. See Tex. Const. art. III, § 47(a). Because the Texas
Constitution allows for no exemptions to the lottery ban other than those enumerated, 2 the attorney general concluded that
the exemption in section 47.01(4)(B) is unconstitutional. The attorney general stated in his opinion that “if the contrivances
described as ‘eight-liners' fit the Penal Code's definition of ‘gambling device,’ freed of the unconstitutional 1995 exception in
paragraph (B), their possession is proscribed.” Att'y Gen. Op. DM–466.

In reliance on this opinion, the Commission drafted and distributed two memoranda to its law enforcement agents. The first
memorandum, dated February 9, 1998 *654 and written by Doyne Bailey (“February 9, 1998 memo”), explained that the
attorney general had determined that the statute should be read to delete Paragraph (B), and listed the three elements that
make a machine illegal according to the attorney general's opinion: (1) the machine awards a prize, even if it is a prize of
very small value or a redeemable coupon for anything of value; (2) the prize is awarded by chance; and (3) the player gives
consideration for the opportunity to win a prize. The second memorandum, an interoffice communication written by James S.
Smelser (“Smelser memo”), also listed the three elements as the basis for probable cause against gambling devices, and stated:
“If in your investigation you have probable cause to believe that games violate the elements in § 47.01(4)(A) then the defense
under § 47.01(4)(B) is not applicable.”

AMOT filed suit to enjoin the Commission and the Department of Public Safety from relying on these memoranda in enforcing
the provisions of the Texas Penal Code governing the operation of gambling devices. The Veterans of Foreign Wars, Department
of Texas, intervened in support of the injunctive suit. AMOT alleged that the enforcement of the internal memoranda violated
their rights to due process under the law, and challenged the authority of the two agencies to suspend section 47.01(4)(B) of the
Texas Penal Code pursuant to an opinion of the attorney general. The defendants filed a plea to the jurisdiction. At a hearing
on the temporary injunction held July 14, 1998, the trial court indicated that it was granting the plea to the jurisdiction on
the grounds that AMOT lacked associational standing to pursue its constitutional claims. On October 5, 1998, however, the




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trial court ruled that AMOT did have standing to pursue its claims under the Administrative Procedure Act 3 (“APA”), and
found that the two memoranda constituted invalid rules because they were not passed in accordance with the APA's rulemaking
requirements. The court therefore ordered that the defendants were temporarily enjoined from relying on the February 9, 1998
memo and the first and second paragraphs of the Smelser memo.

On appeal, the Commission argues that (1) the temporary injunction is void because it was denied notice and a hearing on the
issues addressed in the order; (2) the trial court lacked subject matter jurisdiction; (3) the trial court erred in finding that the
memoranda constitute rules under the APA; (4) the trial court lacked subject matter jurisdiction to enjoin the enforcement of
a criminal law matter; (5) the trial court erred in construing section 47.01(4)(B) of the Texas Penal Code as an exemption; (6)
the trial court erred in concluding that the Smelser memo directed agents to ignore section 47.01(4)(B); and (7) the trial court's
order is void because it seeks to enjoin a state agency.



                                                         DISCUSSION

 [1] [2] [3] The purpose of a temporary injunction is to preserve the status quo of the subject matter of a suit pending final
disposition of the case on its merits. See Davis v. Huey, 571 S.W.2d 859, 862 (Tex.1978). Because of this limited purpose, the
trial court has broad discretion to determine whether to issue a temporary injunction. See LeFaucheur v. Williams, 807 S.W.2d
20, 22 (Tex.App.—Austin 1991, no writ). We therefore may reverse the trial court's order granting a temporary injunction only
for a clear abuse of discretion. See Walling v. Metcalfe, 863 S.W.2d 56, 57–58 (Tex.1993); Iranian Muslim Org. v. City of San
Antonio, 615 S.W.2d 202, 208 (Tex.1981).


Notice
 [4] In its first issue on appeal, the Commission contends that it was denied notice and a hearing on the substance of the
temporary injunction in violation of Rule 681 of the Texas Rules of Civil Procedure. The Commission concedes that a hearing
was held on the temporary injunction, *655 but argues that no “live” pleading filed by AMOT prior to the day of the hearing
discussed whether the February 9, 1998 memo or the Smelser memo were “rules” within the meaning of the APA. AMOT's
supplemental petition, on file at the time of the hearing, briefed the applicability of the APA to the two memoranda. However,
the Commission argues that the trial court explicitly stated that it had not looked at the supplemental petition at the time of the
hearing. The Commission therefore believes that it did not have adequate notice and opportunity to be heard on the issue that
became the basis for the trial court's issuance of the temporary injunction.

Rule 681 states that no temporary injunction shall be issued without notice to the adverse party. Tex.R. Civ. P. 681. In City
of Austin v. Texas Public Employees Ass'n, 528 S.W.2d 637, 640 (Tex.Civ.App.—Austin 1975, no writ), this Court held that
the requirement of notice impliedly requires an adequate opportunity to be heard. After reviewing the record, we find that the
Commission had adequate opportunity to be heard on the question of whether the internal memoranda constituted invalid rules
under the APA. During the hearing on the temporary injunction, counsel for AMOT elicited testimony from the Commission's
witnesses regarding the procedures followed in promulgating the internal memoranda and whether they complied with APA
requirements. The Commission was therefore on notice that the applicability of the APA was an issue before the court, and
had the opportunity to present evidence as to whether it had complied with the APA, or in the alternative, why it was not
required to do so.

Moreover, AMOT's amended petition, filed after the hearing, specifically pleaded that the directives issued in the memoranda
were invalid rules. The Commission responded to these allegations in a subsequently filed pleading, arguing that the internal
memoranda were not rules and therefore were not subject to APA requirements. Obviously, the Commission understood that
the applicability of the APA was at issue because it briefed the matter in its reply to the amended petition. All of these pleadings
were on file before the trial court when it issued the temporary injunction. We fail to see how the Commission was deprived of
its opportunity to be heard under Rule 681. We therefore overrule the Commission's first issue on appeal.



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Subject Matter Jurisdiction
 [5] [6] In its second and fourth issues on appeal, the Commission argues that the trial court lacked subject matter jurisdiction
to issue the temporary injunction. First, the Commission contends that AMOT lacks associational standing to bring suit on
behalf of its members because AMOT cannot meet the third prong of the “Hunt test” for associational standing adopted by
the Texas Supreme Court in Texas Ass'n of Business v. Air Control Board, 852 S.W.2d 440, 447–48 (Tex.1993). According
to the Hunt test, an association may sue on behalf of its members when (1) its members could otherwise sue on their own;
(2) the interests the association seeks to protect are germane to the organization's purpose; and (3) neither the claim asserted
nor the relief sought requires the participation of individual members in the lawsuit. See id. at 447 (adopting test from Hunt v.
Washington State Apple Advertising Commission, 432 U.S. 333, 343, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977)).

At the July 14 hearing, the trial court stated that AMOT could not meet the third part of the Hunt test. The court based this
determination on the fact that AMOT sued for a declaration that seizure of its eight-liner machines by agents of the Commission
would be unconstitutional, and for an injunction prohibiting such seizure. Either form of relief, the court ruled, would require
proof of the individual circumstances by the aggrieved establishment that had an eight-liner seized. In the temporary injunction
order, the trial court granted the Commission's plea to the jurisdiction only with respect to the search and *656 seizure and
due process claims 4 raised in AMOT's first amended petition. The court denied the plea to the jurisdiction with respect to the
remainder of the AMOT's claims.

AMOT's inability to meet the Hunt test with respect to its constitutional claims did not preclude it from suing on behalf of its
members for other relief. AMOT could still sue to enjoin the Commission from relying on invalidly promulgated rules because
that action does not require the participation of individual members. 5 The trial court therefore did not err in restricting its grant
of the defendants' plea to the jurisdiction and ruling that it had subject matter jurisdiction to hear the remainder of AMOT's
claims.

 [7] The Commission also argues that the trial court did not have subject matter jurisdiction because AMOT's claims were not
ripe. As discussed above, the trial court's order preserved only the declaratory and injunctive relief sought by the association
to prevent the Commission from enforcing an illegal rule. The claims pursued by AMOT do not require proof of individual
prosecution against its members. The contention is simply that the Commission adopted what is effectively a rule without
complying with the rulemaking procedures mandated by the APA. If AMOT has standing to contest the validity of this rule,
which we have determined that it does, then the claim is ripe. We therefore overrule the Commission's second issue on appeal.

 [8] In its fourth issue, the Commission argues that the trial court lacked subject matter jurisdiction to enjoin the enforcement of
a criminal law matter. However, there was no criminal law matter before the trial court. The issue was whether the memoranda
constituted an invalid rule of an administrative agency. The fact that the rule interpreted a provision of the Penal Code is
ancillary to the administrative question before the trial court.

 [9] The Commission suggests that the only challenge to the memoranda available to members of AMOT is arrest and trial, at
which point the aggrieved establishments could challenge the constitutionality of the rule. The cases cited by the Commission
are inapposite to its position. They stand either for the proposition that a civil appellate court cannot review an injunction of an
enforcement of a criminal statute, see, e.g., Dearing v. Wright, 653 S.W.2d 288, 289 (Tex.1983), or for the proposition that a
trial court cannot entertain an equitable action determining the illegality of a statute absent a showing of irreparable injury to
vested property rights, see, e.g., State v. Morales, 869 S.W.2d 941, 945 (Tex.1994); Coalson v. City Council of Victoria, 610
S.W.2d 744, 747 (Tex.1980); Texas Liquor Control Bd. v. Canyon Creek Land Corp., 456 S.W.2d 891, 894 (Tex.1970). What
AMOT challenges, however, is the enforcement of an agency rule. The Commission's position that section 47.01(4)(B) of the
Penal Code is unconstitutional and can be ignored is based only on an attorney general's opinion, not on a decision by a court of
law. An attorney general's opinion, while persuasive, is not the law, see Holmes v. Morales, 924 S.W.2d 920, 924 (Tex.1996),
and is not immune from the trial court's jurisdiction or our review. 6 We overrule this fourth issue on appeal.


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 *657 Determination that the Interoffice Memoranda are “Rules ” Under the APA
 [10] The Commission contends that the trial court erred in holding that the February 9, 1998 memo and the Smelser memo are
rules under the APA. The Commission's argument is twofold. First, it argues that the APA is not applicable to the Penal Code
because the Code of Criminal Procedure is the only procedural act with authority to instruct how criminal statutes are to be
enforced. The Commission observes that no provision of the Code of Criminal Procedure instructs law enforcement to consult
the APA when determining proper procedure to follow in enforcing the Penal Code. Furthermore, article 1.27 of the Code of
Criminal Procedure states that where the Code fails to provide a procedural rule, common law shall be applied and govern.
Therefore, the Commission asserts, the trial court violated the Code of Criminal Procedure when it adjudged the Commission's
actions in drafting memos related to the enforcement of the Penal Code under the strictures of the APA.

Put another way, the Commission's argument is essentially this: even if the memoranda would otherwise constitute rules under
the APA, the Commission does not have to comply with the APA because the APA does not govern the Penal Code. We find
no provision in the APA that excludes its applicability to state agencies adopting rules that interpret the Penal Code. Nor are
we persuaded by the Commission's inability to identify a directive in the Code of Criminal Procedure to consult the APA for
enforcement matters. We can hypothesize at least one possible explanation for the Code's failure to contain such an instruction
—namely, that the legislature failed to anticipate that a state agency might adopt and implement a rule rewriting a provision of
the Penal Code unless authorized by statutory amendment or judicial opinion.

In the event that the APA does apply, the Commission argues that neither the February 9, 1998 memo nor the Smelser memo
satisfy the APA's definition of a rule. Section 2001.003 of the APA states that a rule

  (A) means a state agency statement of general applicability that:

     (i) implements, interprets, or prescribes law or policy; or

     (ii) describes the procedure or practice requirements of a state agency;

  (B) includes the amendment or repeal of a prior rule; and

  (C) does not include a statement regarding only the internal management or organization of a state agency and not affecting
    private rights or procedures.

Tex. Gov't Code Ann. § 2001.003(6) (West 1999).

The Commission offers two arguments why the February 9, 1998 memo and the Smelser memo do not constitute rules under
the APA. First, it argues that the memoranda do not reflect a policy choice of the Commission, but rather, invoke a reasonable
reading of the Penal Code in conjunction with the Texas Constitution and the common law of the state. Moreover, the Smelser
memo instructs Commission agents how to develop probable cause, and therefore, it more accurately constitutes a statement
regarding internal management of the agency. Second, the Commission contends that the memoranda are not binding on the
parties.

In order to grant a temporary injunction, the trial court was required to find that the plaintiffs established a probable injury
and a probable right to recovery. See, e.g., Omniphone, Inc. v. Southwestern Bell Tel. Co., 742 S.W.2d 523, 525 (Tex.App.—
Austin 1987, no writ). Appellate review is limited to determining whether the trial court abused its discretion in granting the
injunction. See Davis v. Huey, 571 S.W.2d 859, 862 (Tex.1978). The merits of the underlying lawsuit are not presented for
review. See id. at 861; Omniphone, 742 S.W.2d at 525. In this *658 case, the trial court found that both memoranda set out
binding practice requirements; that the requirements substantially changed previous enforcement policy by directing the agents
to ignore the exemption to the definition of gambling device set out in the Penal Code; and that the memoranda directed agents
to issue warning tickets and initiate enforcement actions against all eight-liners. The court therefore determined that the memos



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met the definition of rules under the APA, and enjoined the Commission from taking any enforcement action in reliance on the
memos and from otherwise ignoring the statutory exemption set out in section 47.01(4)(B) of the Penal Code.

While the findings of the trial court read much like an order of declaratory judgment, we are restrained from reviewing
more than the temporary injunction that is before us on interlocutory appeal. We therefore may not examine the merits of
the declaratory judgment action brought by AMOT. After reviewing the record, we determine that AMOT has sufficiently
demonstrated a probable injury and a probable right to recovery for the purposes of this temporary injunction. The testimony
of the Commission's witnesses establishes that agents of the Commission not only intend to enforce, but have enforced
administrative sanctions on owners and operators of eight-liner machines. AMOT has thus established facts showing probable
injury. Cf. Brinkley v. Texas Lottery Comm'n, 986 S.W.2d 764, 768–69 (Tex.App.—Austin 1999, no pet. h.) (no probable injury
where appellant failed to allege threatened administrative penalties or prosecution). We also agree that these facts are sufficient
to establish a probable right to recovery. The record reflects that the Commission has adopted guidelines for enforcing the
Penal Code that appear contrary to the plain wording of the statute. Those guidelines appear in the two memoranda at issue.
The record also establishes that the enforcement of these guidelines affects every owner and operator of eight-liner machines
in Texas. Without reviewing the merits of the claims, we find sufficient evidence to support AMOT's claim to a probable right
to recovery at trial. 7 We therefore overrule the Commission's third issue on appeal.


Construction of the Statute and the Smelser Memo
 [11] In its fifth and sixth issues on appeal, the Commission argues that the trial court erred in construing Penal Code section
47.01(4)(B) as an exemption from prosecution and in reading the language of the Smelser memo to instruct agents to ignore
that section. The construction of section 47.01(4)(B) is an issue that goes to the merits of the underlying lawsuit, because it
informs the question of whether the memoranda were statements of policy and whether they were binding. Because we have
determined that AMOT has established a probable injury and a probable right to recovery, we leave this issue to be *659
determined by the trial court on the merits.

The construction of the Smelser memo is supported by the plain language of the memo, which instructs law enforcement that if
their investigation results in a finding of probable cause that a machine violates section 47.01(4)(A), “then the defense under §
47.01(4)(B) is not applicable.” The Smelser memo also instructs enforcement personnel to refer to the February 9, 1998 memo,
which specifically advises personnel how the statute should be read according to the view of the chief law enforcement agent
of the state, the attorney general. That reading voids section 47.01(4)(B) as unconstitutional and advises that it be excluded
from a reading of the statute. Under these circumstances, we believe that the trial court did not abuse its discretion in finding
that the Smelser memo instructed agents to ignore the language of the Penal Code. We overrule the Commission's fifth and
sixth issues on appeal.


Injunction of a State Agency
 [12] [13] The Commission's final point on appeal is that the trial court's order is void for attempting to enjoin a state agency.
Ordinarily, a plaintiff must sue an individual in authority to enjoin the activities of a state agency. See Nabejas v. Texas Dep't
of Public Safety, 972 S.W.2d 875, 876 (Tex.App.—Corpus Christi 1998, no pet.) (citing Dillard v. Austin Indep. Sch. Dist., 806
S.W.2d 589, 592 (Tex.App.—Austin 1991, writ denied)). However, as discussed above, the trial court's jurisdiction over this
matter was founded on the APA. It was therefore empowered to issue an injunctive order. See Tex. Civ. Prac. & Rem.Code
Ann. § 65.011 (West 1997). We overrule the Commission's seventh issue on appeal.



                                                        CONCLUSION




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Texas Alcoholic Beverage Com'n v. Amusement and Music..., 997 S.W.2d 651 (1999)


Having found that the trial court had subject matter jurisdiction over this action, and that it did not abuse its discretion in
determining that the internal memoranda constituted guidelines purporting to bind agency enforcement of the Penal Code, we
affirm the trial court's order granting a temporary injunction.



                                                ON MOTION FOR REHEARING

In a very articulate motion for rehearing, the Commission complains that our holding in this case is at odds with this court's
decision in Brinkley v. Texas Lottery Comm'n, 986 S.W.2d 764 (Tex.App.—Austin 1999, no pet.). We write to point out the
distinctions, if they were not clear earlier, between the memoranda issued here by the Alcoholic Beverage Commission and the
letters sent by the Lottery Commission in Brinkley.

While both agency statements address the legality of eight-liners, there the similarity ends. In Brinkley, the Lottery Commission,
which regulates bingo parlors and any eight-liners placed in those halls, warned its licensees that eight-liners could be legal
or illegal, depending on how they were configured and operated. The Lottery Commission sent out two letters to some 2500
licensees describing some of the criteria that might be used by the licensee to evaluate the legality of the eight-liners in their
bingo halls. The first letter stated: “This notice is intended to make licensees aware of the agency's position and to afford an
opportunity to licensees for voluntary compliance.” The second included a warning that the guidelines were advisory and could
not be guaranteed to determine legality. We held that these letters were advisory and non-binding on the licensee:

             The letters sent by the Commission in this instance were, on their face, simply advisory guidelines; they
             did not purport to express a final opinion on the legality of eight-liners of any particular kind. We have
             previously noted the valuable role such advisory opinions serve in administration.... Considering the
             number of bingo-parlor licensees and the variety of ways in which eight-liners can be configured, the
             practical value of the letters is obvious. Nothing in the letters purports to foreclose an *660 individual
             licensee from seeking, if he wishes, a formal opinion from the Commission regarding particular eight-
             liners. While private parties may voluntarily comply with such guidelines, they are not legally bound
             to do so.

Brinkley, 986 S.W.2d at 770 n. 9.

By contrast, the memoranda issued by the Alcoholic Beverage Commission in this case impose binding instructions on law
enforcement agents that affect the private rights of all owners of eight-liners. They are agency statements that implement,
interpret or prescribe law or policy; they amend or repeal a prior enforcement policy of the Commission; and they do not
constitute statements regarding only the internal management or organization of the Commission without affecting private
rights. Clearly, they are statements of general, not particular, applicability. In WBD Oil & Gas Co. v. Railroad Commission of
Texas, No. 03–97–00002–CV, ––– S.W.2d ––––, 1999 WL 46637 (Tex.App.—Austin Feb. 4, 1999, reh'g filed), we determined
that field rules of the Railroad Commission that satisfied this literal statutory definition could confer jurisdiction for a declaratory
judgment action challenging the rules' validity under APA section 2001.038. See slip op. at 659. We follow that holding here.


All Citations

997 S.W.2d 651


Footnotes
1      This language appears in the 1995 amendment. However, the substance of this amendment was adopted in 1993. See Att'y Gen. Op.
        DM–466 (Jan. 23, 1998).
2       The Texas Constitution permits the legislature to authorize bingo games conducted by a church or other nonprofit organization,
        charitable raffles, and a state lottery. See Tex. Const. art. III, §§ 47(b), (d), (e).



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3     See Tex. Gov't Code Ann. ch. 2001 (West 1999).
4     AMOT complained that, in violation of due process, the Commission issued administrative sanctions to members of AMOT for
      operating eight-liners without providing for notice and a hearing on the alleged violations.
5     In its brief, the Commission asserts that the remaining claims and relief sought by AMOT do require the participation of individual
      members in the lawsuit. However, the Commission has waived this argument by failing to provide any authority or support for what
      is merely a conclusory statement. See Tex.R.App. P. 38.1(h).
6     For these reasons, we also reject the Commission's contention that AMOT has come into court with unclean hands because it is
      operating “illegal” eight-liner machines.
7     We recognize that the Texarkana Court of Appeals recently addressed a similar issue involving eight-liners in Weaver v. Head, 984
      S.W.2d 744 (Tex.App.—Texarkana 1999, no pet.). In that case Head, an eight-liner operator, sought a declaratory judgment that
      Penal Code section 47.01(4)(B) is valid and constitutional, and a ruling that the attorney general has no authority to suspend the
      statute's operation. The trial court enjoined Weaver, the sheriff of Gregg County, from relying on Attorney General Opinion DM–466
      to disregard section 47.01(4)(B) as unconstitutional. The trial court found that Weaver's use of DM–466 would violate the separation
      of powers provision of the Texas Constitution and that Head had vested property rights that would be violated by prosecution based
      on the attorney general's opinion. See id. at 745.
         The court of appeals reversed. It held that the trial court's injunction was improper because it did not address the constitutionality
         of section 47.01(4)(B) and was not in answer to any of the relief sought by Head. See id. at 747. The present case is distinguishable.
         Here, AMOT did not request a determination of section 47.01(4)(B)'s constitutionality. Instead, AMOT sought and was granted
         injunctive relief on the ground that the Commission's implementation of DM–466 constituted improper rulemaking in violation of
         the APA, a theory that was not raised in Weaver. We therefore find Weaver unpersuasive under the circumstances of the present
         case.


End of Document                                                           © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)




                                                         357 S.W.3d 691
                                                    Court of Appeals of Texas,
                                                             Austin.

    The TEXAS DEPARTMENT OF TRANSPORTATION, and Amadeo Saenz, Jr., in his Official Capacity as
                    Director of Texas Department of Transportation, Appellants,
                                                 v.
  SUNSET TRANSPORTATION, INC.; MEL Transport, Inc. d/b/a Magnum Transportation; and Sunset Prosper,
                                          Inc., Appellees.

                        No. 03–10–00023–CV. | Aug. 19, 2011. | Rehearing Overruled Jan. 13, 2012.



Synopsis
Background: Motor carriers brought action against Texas Department of Transportation (TxDOT) under the Uniform
Declaratory Judgments Act (UDJA) and the Administrative Procedure Act (APA), challenging the imposition of certain
registration requirements and fees. TxDOT filed plea to the jurisdiction. The 126th Judicial District Court, Travis County,
John K. Dietz, J., denied plea. TxDOT appealed.



Holdings: The Court of Appeals, Bob Pemberton, J., held that:
[1]
   Revised Notice challenged by motor carriers was not a “rule” for purposes of invoking district court’s subject-matter
jurisdiction through APA;
[2]
      motor carriers were to have opportunity to amend their pleadings to cure the jurisdictional defect;
[3]
      redundant UDJA claims would be subject to dismissal; and
[4]
   UDJA claims were sufficient to invoke district court’s subject-matter jurisdiction under the ultra vires exception to
sovereign immunity.


Affirmed.




 West Headnotes (15)


 [1]
           Pleading
             Plea to the Jurisdiction

           A plea to the jurisdiction challenges a trial
           court’s authority to decide the subject matter of
           a specific cause or action.


           Cases that cite this headnote



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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)




[2]
       Courts
         Allegations, pleadings, and affidavits

       Analysis of whether the authority exists for a
       trial court to decide the subject matter of a
       specific cause or action begins with the
       plaintiff’s live pleadings.


       Cases that cite this headnote




[3]
       Courts
         Allegations, pleadings, and affidavits

       Plaintiff has the initial burden of alleging facts
       that affirmatively demonstrate the trial court’s
       jurisdiction to hear the cause.


       1 Cases that cite this headnote




[4]
       Courts
         Allegations, pleadings, and affidavits

       Mere unsupported legal conclusions do not
       suffice to demonstrate the trial court’s
       jurisdiction to hear a cause.


       Cases that cite this headnote




[5]
       Appeal and Error
         Matters or Evidence Considered in
       Determining Question

       In considering appeal from denial of plea to the
       jurisdiction, appellate court must consider
       evidence the parties presented below that is
       relevant to the jurisdictional issues, including
       evidence that a party has presented to negate the
       existence of facts alleged in the plaintiff’s
       pleading.


       Cases that cite this headnote

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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)




[6]
       Appeal and Error
         Cases Triable in Appellate Court
       Appeal and Error
         Pleading

       In considering appeal from denial of plea to the
       jurisdiction, appellate court’s ultimate inquiry is
       whether the plaintiff’s pled and un-negated
       facts, taken as true, and liberally construed with
       an eye to the pleader’s intent, would
       affirmatively demonstrate a claim or claims
       within the trial court’s subject-matter
       jurisdiction; this is a question of law reviewed
       de novo.


       1 Cases that cite this headnote




[7]
       States
         What are suits against state or state officers

       Merely asserting legal conclusions or labeling a
       defendant’s actions as “ultra vires,” “illegal,” or
       “unconstitutional” does not suffice to plead a
       claim under “ultra vires” exception to sovereign
       immunity; what matters is whether the facts
       alleged constitute actions beyond the
       governmental actor’s statutory authority,
       properly construed.


       3 Cases that cite this headnote




[8]
       Administrative Law and Procedure
         Nature and Scope

       An informal agency statement that does no more
       than restate its own formally promulgated rules
       is not in itself a “rule” under the Administrative
       Procedure Act (APA). V.T.C.A., Government
       Code § 2001.003(6).


       2 Cases that cite this headnote



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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)




[9]
       Administrative Law and Procedure
         Nature and Scope

       A “rule,” under the Administrative Procedure
       Act (APA), encompasses state agency
       statements formally promulgated in compliance
       with the APA’s notice-and-comment rulemaking
       procedures, but it extends beyond these.
       V.T.C.A., Government Code § 2001.003(6).


       2 Cases that cite this headnote




[10]
       Administrative Law and Procedure
         Nature and Scope

       A “rule” under the Administrative Procedure
       Act (APA) must have some legal effect on
       private persons, and not merely impact the
       internal management or organization of a state
       agency. V.T.C.A., Government Code §
       2001.003(6).


       2 Cases that cite this headnote




[11]
       Automobiles
         Judicial supervision

       Texas Department of Transportation (TxDOT)
       Revised Notice stating that motor carriers whose
       state registrations have been revoked “are
       required to re-register and submit applicable
       fees,” and that “All motor carriers must maintain
       active insurance filing with TxDOT at all
       times,” was a mere restatement of TxDOT’s
       formally promulgated rules and was not itself a
       “rule” under the Administrative Procedure Act
       (APA), and thus motor carrier’s challenge to
       validity or applicability of Revised Notice failed
       to invoke district court’s subject-matter
       jurisdiction     through      APA.     V.T.C.A.,
       Government Code §§ 2001.003(6), 2001.038.


       4 Cases that cite this headnote


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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)




[12]
       Pleading
         Amendments following sustaining of pleas

       If a claimant’s pleadings omit sufficient facts to
       affirmatively demonstrate the trial court’s
       jurisdiction but do not affirmatively demonstrate
       incurable defects in jurisdiction, the issue on
       plea to the jurisdiction is one of pleading
       sufficiency, and the plaintiffs should be afforded
       the opportunity to amend.


       1 Cases that cite this headnote




[13]
       Pleading
         Amendments following sustaining of pleas

       Where motor carriers’ challenge to validity or
       application of Revised Notice failed to invoke
       district court’s subject-matter jurisdiction
       through Administrative Procedure Act (APA)
       because the Revised Notice was a mere
       restatement of TxDOT’s formally promulgated
       rules, and was not itself a “rule,” motor carriers
       were to have opportunity to amend their
       pleadings to cure the jurisdictional defect
       following grant of TxDOT’s plea to the
       jurisdiction; claims necessarily implicated the
       applicability or substantive validity of the
       underlying formally promulgated TxDOT rules.
       V.T.C.A., Government Code §§ 2001.003(6),
       2001.038.


       Cases that cite this headnote




[14]
       Declaratory Judgment
         Statutory remedy
       Declaratory Judgment
         Grounds for involuntary dismissal in general

       Motor carriers’ Uniform Declaratory Judgments
       Act (UDJA) claims, challenging imposition of
       certain registration requirements and fees by
       Texas Department of Transportation (TxDOT),
       would be subject to dismissal to the extent
       UDJA remedies would be redundant to remedies

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        available to motor carriers on their claims
        brought under Administrative Procedure Act
        (APA). V.T.C.A., Civil Practice & Remedies
        Code § 37.001 et seq.; V.T.C.A., Government
        Code § 2001.038.


        Cases that cite this headnote




[15]
        States
          What are suits against state or state officers

        Claim brought under Uniform Declaratory
        Judgments Act (UDJA), alleging that Texas
        Department of Transportation (TxDOT) was
        requiring motor carriers that had already validly
        registered with it and whose registrations had
        not been revoked to re-register, pay related fees,
        and also submit annual filings of proof of
        financial responsibility, alleged conduct that
        would run afoul of Unified Carrier Registration
        Act (UCR Act) and the state transportation code,
        and thus such allegations would invoke the
        district court’s subject-matter jurisdiction under
        the ultra vires exception to sovereign immunity.
        49 U.S.C.A. § 14504a(a); V.T.C.A., Civil
        Practice & Remedies Code § 37.001 et seq.;
        V.T.C.A., Transportation Code § 643.002.


        2 Cases that cite this headnote




Attorneys and Law Firms

*694 Amy Kovar, Assistant Attorney General, Austin, TX, for Appellants.

Kent J. Lisenby, Chuck Axmacher, The Lisenby Law Firm, P.C., Fort Worth, TX, for Appellees.

Before Justices PURYEAR, PEMBERTON and ROSE.




                                                             OPINION


BOB PEMBERTON, Justice.

The Texas Department of Transportation (TxDOT) and its executive director, in his official capacity, appeal a district court

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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)



order denying, in its entirety, their plea to the jurisdiction over claims asserted by appellees Sunset Transportation, Inc.; MEL
Transport, Inc. d/b/a Magnum Transportation, Inc.; and Sunset Prosper, Inc.1 In a single issue, appellants assert that
appellees’ claims—which were asserted under the Uniform Declaratory Judgments Act (UDJA) and section 2001.038 of the
Administrative Procedure Act (APA)—are each barred by sovereign immunity. We agree that appellees did not plead facts
sufficient to invoke the district court’s jurisdiction under APA section 2001.038. However, we conclude that appellees are
entitled to the opportunity to replead those claims. In light of this holding, moreover, we further conclude that the district
court reached the correct result in denying appellants’ plea as to appellees’ UDJA claims at this juncture. For these reasons,
we affirm the district court’s order.

1
           See Tex. Civ. Prac. & Rem.Code Ann. § 51.014(a)(8)
           (West 2008).




                                                     STANDARD OF REVIEW
[1] [2] [3] [4] [5] [6]
                 A plea to the jurisdiction challenges a trial court’s authority to decide the subject matter of a specific cause or
action. See Texas Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 225–26 (Tex.2004). Analysis of whether this
authority exists begins with the plaintiff’s live pleadings. Id. at 226. The plaintiff has the initial burden of alleging facts that
affirmatively demonstrate the trial court’s jurisdiction to hear the cause. Id. (citing Texas Ass’n of Bus. v. Texas Air Control
Bd., 852 S.W.2d 440, 446 (Tex.1993)). Mere unsupported legal conclusions do not suffice. See Creedmoor–Maha Water
Supply Corp. v. Texas Comm’n on Envtl. Quality, 307 S.W.3d 505, 515–16 & n. 7 & 8 (Tex.App.-Austin 2010, no pet.). We
must also consider evidence the parties presented below that is relevant to the jurisdictional issues, Bland Indep. Sch. Dist. v.
Blue, 34 S.W.3d 547, 555 (Tex.2000), including evidence that a party has presented to negate the existence of facts alleged in
the plaintiff’s pleading. See Miranda, 133 S.W.3d at 227; see also Combs v. Entertainment Publ’ns, Inc., 292 S.W.3d 712,
719 (Tex.App.-Austin 2009, no pet.) (summarizing different standards governing evidentiary challenges to the existence of
pled jurisdictional facts where such facts implicate both jurisdiction and the merits versus where they implicate only
jurisdiction). Our ultimate inquiry is whether the plaintiff’s pled and un-negated facts, taken as true, and liberally construed
with an eye to the pleader’s intent, would affirmatively demonstrate a claim or claims within the trial court’s subject-matter
jurisdiction. See Miranda, 133 S.W.3d at 226; Creedmoor–Maha Water Supply Corp., 307 S.W.3d at 513, 516 n. 8. This is a
question of law that we review de novo. See Miranda, 133 S.W.3d at 226; Creedmoor–Maha Water Supply Corp., 307
S.W.3d at 513, 516 n. 8.




                                                    REGULATORY CONTEXT

It is undisputed that each appellee is a motor carrier that engages in both interstate *695 commerce and intrastate commerce
within Texas. These facts implicate interrelated state and federal regulatory regimes that provide the context for appellees’
claims and, ultimately, the jurisdictional issues on appeal. It is thus helpful to begin with a brief review of these laws before
beginning our analysis of the pleadings and jurisdictional evidence.

In 2005, the United States Congress enacted a law known as the Unified Carrier Registration Act of 2005 (the UCR Act)
creating a “Unified Carrier Registration” (UCR) system through which a motor carrier operating in interstate or international
commerce submits a single registration fee and pays, through a designated “base state,” a “UCR fee” in an amount
determined based on the size of its vehicle fleet. See 49 U.S.C.A. §§ 14504a(a)(2) (West 2007), (f) (West 2007 & Supp.
2011). The system is implemented through an interstate agreement under which individual states so desiring can opt to
participate in collecting UCR fees and in sharing fee revenues. See id. §§ 14504a(a)(2), (e), (f)(4), (g)-(h) (West 2007). Of
chief relevance to this case, however, are provisions of the UCR Act that prohibit states—regardless of whether they have
opted into fee-collection and sharing under the UCR system—from imposing certain additional regulatory burdens on the
interstate motor carriers that would register under the UCR system. Congress determined that it was an “unreasonable burden
upon interstate commerce” for a state or its agencies “to enact, impose, or enforce any requirement or standards with respect
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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)



to, or levy any fee or charge on,” interstate motor carriers in connection with registering their interstate operations with the
state, the filing of information concerning their federally required financial responsibility, or the filing with the state of the
name of their federally required agent for service of process. See id. § 14504a(c)(1)(A)-(C) (West 2007 & Supp. 2011). States
were further prohibited from requiring any interstate motor carrier that also had intrastate operations to pay any tax or fee
from which a purely intrastate carrier would be exempt. See id. § 14504a(c)(2) (West Supp. 2011).

Finally, and most importantly for this case, Congress prohibited states from “enact[ing], impos[ing], or enforc[ing] any
requirement or standards with respect to, or levy and fee or charge on” motor carriers that conduct both interstate and
intrastate business “in connection with ... the annual renewal of the intrastate authority, or the insurance filings ... or other
intrastate filing requirement necessary to operate within the State,” if certain conditions are met. See id. § 14504a(c)(1)(D)
(West 2007). For this prohibition to apply, the motor carrier (1) must have satisfied certain federal registration requirements
and (2) be “in compliance with the laws and regulations of the State authorizing the carrier to operate in the State in
accordance with [49 U.S.C.] section 14501(c)(2)(A).” See id. Section 14501(c)(2)(A), in turn, provides that general federal
preemption of state regulations “related to a price, route, or service of any [interstate] motor carrier ... with respect to the
transportation of property” does not:

             restrict the safety regulatory authority of a State with respect to motor vehicles, the authority of a State
             to impose highway route controls or limitations based on the size or weight of the motor vehicle or the
             hazardous nature of the cargo, or the authority of the State to regulate motor carriers with regard to
             minimum amounts of financial responsibility related to insurance requirements and self-insurance
             authorization.

*696 Id. § 14501(c)(2)(A) (West 2007). Additionally, section 14504a(c)(1)(D) exempts from preemption renewals of a motor
carrier’s intrastate operating authority to transport waste or household goods, conduct certain bus services, or provide
non-consensual towing. See id. § 14504a(c)(1).

The UCR Act took effect in January 2007, and Texas opted into the UCR system through legislation effective on September
1 of that year. See generally Tex. Transp. Code Ann. §§ 645.001–.004 (West 2011) (delegating authority to, among other
things, participate, “to the fullest extent practicable ... in a federal motor carrier registration program under the unified carrier
registration system....”). At the same time, the Legislature amended the transportation code in an evident attempt to conform
Texas law to the UCR Act’s preemption provisions.

At all relevant times, chapter 643 of the transportation code has generally prohibited a motor carrier from operating a
commercial motor vehicle on a road or highway of this state unless the carrier registers with the State (specifically, at the
dispute’s inception, TxDOT’s motor vehicle division2) and obtains a registration certificate and, for each vehicle, a “cab
card.” See Tex. Transp. Code Ann. §§ 643.051, .054, .059 (West 2011). Such registrations must also be renewed periodically,
generally on an annual basis. See id. § 643.058, .061 (West 2011). Additionally, motor carriers required to register under
chapter 643 must, with respect to each vehicle requiring registration, maintain liability insurance or financial responsibility in
an amount specified by the agency, which must not exceed the amounts required under federal law. See id. §§ 643.101(a),
(b), .102 (West 2011). Proof of such insurance or financial responsibility must be filed at the time of initial registration, “at
the time of a subsequent registration if the motor carrier was required to be continuously registered ... and the carrier failed to
maintain continuous registration,” when the carrier changes insurers, and when the carrier changes ownership. Id. §
643.103(a) (West 2011); see also id. §§ 643.053(2) (West 2011) (application for initial registration must be accompanied by
proof of insurance or financial responsibility as required by section 643.103), .058(c)(3) (motor carrier renewing registration
must “provid[e] ... evidence of continuing insurance or financial responsibility” in required amount). Fees may be assessed in
connection with initial registration, renewal of registration, and insurance filings. See id. §§ 643.053(1),
(3), .057, .058(c)(2), .061(b), .103(c). All of these general requirements have been implemented through rules, codified at
relevant times in title 43, chapter 18 of the Texas Administrative Code. See generally 43 Tex. Admin. Code §§ 18.2–.76
(2010) (Tex. Dep’t of Transp., Motor Carriers), amended by 34 Tex. Reg. 8286 (2009), adopted 35 Tex. Reg. 664 (2010)
(codified as amended at 43 Tex. Admin. Code §§ 218.1–.77 (Tex. Dep’t of Motor Vehicles, Motor Carriers)).

2
       See infra note 5.



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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)



In response to the UCR Act, the Legislature amended section 643.002 of the transportation code to provide simply that “[t]his
chapter does not apply” to “motor carrier operations exempt from registration by the Unified Carrier Registration Act of 2005
(49 U.S.C. Section 14504a).” See id. § 643.002(1) (West 2011). A few months later, TxDOT likewise promulgated proposed
rule amendments to implement the UCR system and conform to the Act’s preemption provisions. See 32 Tex. Reg. 9923–34
(2007) (to be codified at *697 43 Tex. Admin. Code §§ 18.1–.76) (proposed Dec. 28, 2007). The amendments as proposed
ultimately took effect on April 17, 2009. See 32 Tex. Reg. 9923–34 (2007), adopted 33 Tex. Reg. 2978–81 (2008) (codified
at 43 Tex. Admin. Code §§ 18.1–.76). New or amended provisions that are material to this appeal included a requirement that
interstate carriers operating in Texas “register and comply with provisions of the [UCR] System as required by 49 U.S.C.
14504(a) [sic],” 43 Tex. Admin. Code § 18.18(b), an exclusion of “motor vehicle[s] exempt from registration by the Unified
Carrier Registration Act of 2005” from the “commercial motor vehicle[s]” required to be registered with TxDOT, see id. §§
18.2(6)(B)(viii), .11(a), and a new subsection titled “Interstate motor carrier operating in intrastate commerce” that was added
to the rule governing expiration and renewals of state motor carrier registrations:

     (1) An interstate motor carrier registered under § 18.18 of this chapter [i.e., UCR] is not required to renew a certificate
     of registration issued under § 18.11 of this chapter [the general requirement that motor carriers register with TxDOT]
     except when the motor carrier is operating commercial motor vehicles as a

       (A) charter bus carrier;

       (B) for-hire household goods carrier; or

       (C) recyclable materials or waste carrier.

     (2) If a motor carrier that registered under § 18.18 of this chapter [UCR] does not maintain continuous motor carrier
     registration under § 18.11 of this chapter, the motor carrier must file an application under § 18.13 of this chapter [the
     general requirements and procedures for original registration as a motor carrier with TxDOT, including fees and proof of
     insurance requirements] to operate on public streets and highways in this state.

Id. § 18.14(c); see id. §§ 18.11, 18.13, 18.15–.16.3 The rule amendments did not alter preexisting requirements that motor
carriers “file and maintain proof of automobile liability insurance for all vehicles required to be registered ... at all times.” Id.
§ 18.16(e)(1)(A); see also id. § 18.16(e)(2) (requiring proof-of-insurance filing at time of original registration application, on
or before cancellation date of insurance coverage, whenever the motor carrier changes insurers, whenever the motor carrier
changes its name, whenever the motor carrier changes the classification of the cargo being transported, and when “replacing
another active insurance filing”).

3
       TxDOT also added a statement to the preamble of its
       registration rules recognizing that transportation code
       chapter 643 prohibits motor carriers from operating
       commercial motor vehicles on a Texas road or highway
       “unless the carrier registers with the department or is
       exempt from registration under Transportation Code §
       643.002.” 32 Tex. Reg. 9923, 9927 (codified at 43 Tex.
       Admin. Code § 18.10) (emphasis added).




                                                          THE RECORD

The record in this case consists of appellees’ live pleading at the time of the hearing on appellants’ plea to the jurisdiction4
and evidence presented by appellees both during the hearing and as exhibits to their response in opposition to appellants’ plea.
This evidence includes documentary evidence and both affidavit and live testimony from Erick Smith, an officer with a
company that handles appellees’ regulatory filings. Appellants challenged only the sufficiency *698 of appellees’ pleadings;
they did not attempt to negate the existence of any pled facts with evidence nor presented evidence to controvert that
presented by appellees. Consequently, we must take as true appellees’ factual allegations and evidence. See Miranda, 133
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S.W.3d at 226; Creedmoor–Maha Water Supply Corp., 307 S.W.3d at 513, 516 n. 8.

4
       Their third amended original petition.



Appellees’ pleadings and evidence reflect that each entity is a Texas corporation, with a principal place of business in this
state, and the record further indicates that the corporations are affiliated or related. Each company, moreover, is a motor
carrier that operates in Texas in both interstate and intrastate commerce, and none has operated intrastate within the
categories of intrastate operations that are excluded from the UCR Act’s preemption of state registration renewal
requirements, see 49 U.S.C.A. § 14504a(c)(1).

Before the UCR Act took effect in 2008, according to Smith, appellees had registered with TxDOT as motor carriers. After
UCR went into effect, appellees’ pleadings and evidence indicate, appellees had each registered under the UCR system. The
documentary evidence reflects, and appellees acknowledge, that TxDOT revoked the state registration of Sunset
Transportation during the summer of 2008. However, it is not this revocation that is the immediate focus of appellees’ claims
for relief.

In their pleadings, appellees complain that TxDOT is requiring “UCR registered interstate motor carriers who also operate[ ]
in intrastate commerce ... to maintain active insurance filings with TXDOT at all times, to re-register with TXDOT and to
pay applicable fees to the State, all in contradiction to the UCR Act and the Texas Transportation Code.”5 In appellees’ *699
view, section 643.002 of the transportation code and the UCR create an exemption for and/or preempt these state registration,
insurance, and fee requirements with respect to interstate motor carriers within UCR’s scope. Appellees allege that their
business operations are being impeded by being required to “re-register” with TxDOT, maintain active insurance filings, and
pay related fees as a condition of operating intrastate in Texas, and that TxDOT has been “threatening administrative
penalties and fines” and “harass[ing] the plaintiffs with bogus records requests” in connection with “registration violations”
that are premised on TxDOT’s erroneous view of those requirements. Appellees seek the following declarations:

5
       After appellees filed suit but before the hearing on
       appellants’ plea to the jurisdiction, the state functions
       implicated by appellees’ allegations were transferred
       from TxDOT to the newly created Texas Department of
       Motor Vehicles (DMV). See Act of May 23, 2009, 81st
       Leg., R.S., ch. 933, §§ 1.01–11.01, 2009 Tex. Gen.
       Laws 2485–522; see also 34 Tex. Reg. 8286 (2009),
       adopted 35 Tex. Reg. 664 (2010) (codified at 43 Tex.
       Admin. Code §§ 218.1–.77) (DMV rules that generally
       track the TxDOT motor carrier registration rules
       discussed herein). The Legislature provided that,
       effective November 1, 2009, “all powers, duties,
       obligations, and rights of action of the Motor Vehicle
       Division ... of the Texas Department of Transportation
       are transferred to the Texas Department of Motor
       Vehicles” and that “the Texas Department of Motor
       Vehicles shall continue in any proceeding involving the
       Motor Vehicle Division, the Vehicle Titles and
       Registration Division, or the portion of the Motor
       Carrier Division ... that was brought before the
       effective date of this act in accordance with the law in
       effect on the date the proceeding was brought, and the
       former law is continued in effect for that purpose.” Act
       of May 23, 2009, 81st Leg., R.S., ch. 933, §§ 6.01(a),
       (d), 2009 Tex. Gen. Laws 2519–20.
          Although the DMV and its executive director would
          appear, as a formal matter, to have succeeded to the
          interests of TxDOT and its executive director in this
          litigation, the Attorney General continued to

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          prosecute the plea to the jurisdiction in the names of
          TxDOT and its executive director, the district court’s
          order refers only to these defendants, and the
          Attorney General has pursued this appeal solely in
          their names. In an apparent abundance of caution,
          appellees joined the DMV as an additional
          defendant, alleging that the new agency has
          continued to interpret and enforce the state
          registration and filing requirements in the same
          manner TxDOT had. Neither side contends that the
          distinction between the predecessors and successors
          has any substantive implications for this appeal. For
          this reason, and because the events giving rise to the
          underlying dispute involved actions by TxDOT, we
          have, for clarity, continued to identify the relevant
          state actors as TxDOT and its executive director, as
          the parties have, and similarly cite to the versions of
          relevant rules that referenced TxDOT rather than the
          DMV.




  • “that the [TxDOT] policy of requiring UCR registered interstate motor carriers who may also operate in intrastate Texas
  commerce to maintain active insurance filings with [TxDOT] at all times and/or re-register and submit applicable fees to
  re-activ[ate] a revoked [TxDOT] motor carrier certificate of registration, is invalid because it seeks to amend the law as
  made and provided by the Legislature through an administrative process,” is “an excessive exercise of the power vested in
  [TxDOT],” and “goes beyond the statutory authority to regulate interstate carriers and insurers.”

     • “that [TxDOT] [is] acting beyond [its] statutory authority in requiring insurance filings, registrations, and fees, for
     interstate carriers registered under the UCR who may operate in intrastate commerce.”

     • that “[TxDOT] [is] preempted by federal law from requiring interstate carriers registered under the UCR from making
     insurance filings or renewing intrastate authority.”

   Appellees additionally seek temporary and permanent injunctive relief restraining appellants “from requiring insurance
   filings from interstate motor carriers registered under the UCR, from conducting investigations of intrastate movements of
   interstate motor carriers registered under the UCR, and from issuing violation reports or assessing fines to interstate motor
   carriers properly registered under the UCR concerning intrastate movement.”
Appellees purport to assert their claims under the limited waiver of sovereign immunity provided in the Uniform Declaratory
Judgments Act, Tex. Civ. Prac. & Rem.Code Ann. §§ 37.001–.009 (West 2009); see Texas Lottery Comm’n v. First State
Bank of DeQueen, 325 S.W.3d 628, 633–34 (Tex.2010) (recognizing that section 37.006(b) of the UDJA waives the State’s
sovereign immunity to the extent of permitting suits for declarations as to the construction or validity of a state statute), but
ultimately must rely upon the “ultra vires” exception to sovereign immunity. See City of El Paso v. Heinrich, 284 S.W.3d 366,
369–77 (Tex.2009) (explaining that sovereign or governmental immunity does not bar suits against governmental officers in
their official capacity for prospective relief to restrain acts outside their discretionary legal authority); Creedmoor–Maha
Water Supply Corp., 307 S.W.3d at 514–16 (recognizing “that an otherwise proper UDJA claim seeking to construe or
invalidate a statute is nonetheless barred by sovereign immunity if the remedy would have the effect of establishing a right to
relief against the State that implicates sovereign immunity and for which immunity has not been waived,” including an
ostensible “ultra vires” claim that actually seeks to control state action). In this regard, appellees allege that TxDOT’s
executive director “has acted ultra vires of the applicable laws regarding registration and insurance filings[,] for which no
immunity exists.” *700 Appellees also request attorney’s fees as the UDJA permits. See Tex. Civ. Prac. & Rem.Code Ann. §
37.009.

Appellees additionally invoke section 2001.038 of the APA. APA section 2001.038 waives sovereign immunity to the extent
of creating a cause of action for declaratory relief regarding the “validity” or “applicability” of a “rule” if “it is alleged that
the rule or its threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or

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privilege of the plaintiff.” Tex. Gov’t Code Ann. § 2001.038(a) (West 2008); see Texas Logos, L.P. v. Texas Dep’t of Transp.,
241 S.W.3d 105, 123 (Tex.App.-Austin 2007, no pet.) (“section 2001.038 is a grant of original jurisdiction and, moreover,
waives sovereign immunity”). As for the TxDOT “rule” that is under challenge, appellees allege that “in June 2008 TxDOT
revised its policy or rules concerning UCR registered interstate motor carriers who also operated in interstate commerce to
require those carriers to maintain active insurance filings with TXDOT at all times, to re-register with TXDOT and to pay
applicable fees to the State.” This allegation refers to a TxDOT document, purportedly published on the agency’s website and
in evidence, titled, “Important Notice for UCR Registered Interstate Motor Carriers Also Operating in Intrastate
Texas Commerce,” and indicating “REVISED—JUNE 25, 2008” and “EFFECTIVE IMMEDIATELY.”

This document (hereinafter, the “2008 Revised Notice”) states that its “purpose is ... to provide instructions to Interstate
Motor Carriers who are currently registered under the Unified Carrier Registration (UCR) Agreement and that also operate in
Intrastate Texas Commerce to convert existing TxDOT Registration to a non-expiring certificate,” and that it applied to
“Interstate Motor Carriers also operating in Interstate Texas Commerce” that had a current U.S. Department of
Transportation number, are currently registered under UCR, and whose intrastate operations did not consist of household
goods, charter bus, or waste transportation. (Those categories of carriers, the document indicated, “must continue to renew
TxDOT registration.”) The 2008 Revised Notice then provided instructions for “converting,” via a website or hard copy and
mail, an existing TxDOT motor carrier certificate of registration to a “UCR/Intrastate certificate” that “will not expire” as
long as the motor carrier remains registered with UCR and its intrastate operations do not include household goods, charter
bus, or waste transportation. Upon conversion, the document further advised, TxDOT would provide a “new certificate and
insurance cab card” indicating UCR registration. The 2008 Revised Notice additionally indicated that “No fees are required
for activating an expired TxDOT Certificate and the existing TxDOT Number will be retained.” However, at the bottom of
the page was printed, in bold:

  All motor carriers must maintain active insurance filing with TxDOT at all times.

  Motor Carriers are required to re-register and submit applicable fees to re-activate a revoked TxDOT Motor
  Carrier Certificate of Registration.

Appellees contrast the 2008 Revised Notice with an earlier TxDOT document, similar in form, dated September 10, 2007,
and titled, “Important Notice for Motor Carriers” (hereinafter the “2007 Notice”). The 2007 Notice stated that its
“purpose ... is to inform motor carriers of the latest requirements associated with the *701 Unified Carrier Registration Act of
2005” and provided a chart explaining registration and filing requirements applicable to various categories of motor carrier
operations. The chart, in relevant part, instructed that: (1) motor carriers that operated interstate were required to register with
UCR and to comply with the Federal Motor Carrier Safety Administration (FMCSA) requirements, (2) motor carriers that
operated exclusively intrastate were required to register with TxDOT, (3) interstate carriers that also operated intrastate as
charter bus carriers, non-consent tow-truck carriers, for-hire household goods carriers, or waste carriers were required to
register with both UCR and TxDOT and comply with the FMCSA requirements, and (4) other interstate carriers that also
operated intrastate (e.g., appellees) were required to do the following:

     • Comply with FMCSA requirements (http://www.fmcsa.dot.gov/); AND

     • Register with UCR (http://www.ucr.in.gov/).

     IMPORTANT NOTE: All first time registrants in this category must also register with TxDOT as a motor carrier.

Appellees interpret the 2007 Notice as advising them that, having previously registered with TxDOT in years past, they were
no longer required to comply with any state registration or insurance requirements or pay related fees, but needed merely to
register under UCR and comply with FMCSA requirements. They assert that this interpretation was “consistent with the
statutory language of the UCR and Chapter 643 of the Texas Transportation Code.” Additionally, Smith testified that as late
as the summer of 2008, but sometime before the 2008 Revised Notice, TxDOT had conducted an investigation of Sunset
Transportation’s registration and that the individual investigator had concluded that the company was properly registered.6 By
subsequently changing “its policy and rules” to require “active insurance filings ... at all times” and re-registration and fees
when state registration certificates are revoked, as reflected in the 2008 Revised Notice, appellees complain that TxDOT
acted contrary to section 643.002 of the transportation code and the UCR Act.7


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6
       Smith also claimed that the TxDOT investigator
       furnished the company with a copy of the 2007 Notice
       at the time.



7
       Appellees also suggest that TxDOT was targeting them
       specifically when it issued the 2008 Revised Notice,
       and there does appear to be some correlation between
       the dates of the investigation and when the notice
       issued.




                                                          ANALYSIS

In their plea to the jurisdiction, appellants asserted that sovereign immunity barred appellees’ suit, that APA section 2001.038
did not waive such immunity because appellees had failed to identify any “rule” that they were challenging, that appellees
had not alleged facts that would invoke the district court’s jurisdiction via the “ultra-vires” exception to sovereign immunity,
and that appellees’ UDJA claims would be a redundant remedy and mere vehicle for recovering attorney’s fees if it turned
out that appellees had invoked the court’s jurisdiction through their APA claim. The district court’s order denying the plea
did not elaborate on its reasoning, nor were findings of fact and conclusions of law requested or made. On appeal, appellants
bring forward essentially the same grounds for dismissal on which they relied below.
[7]
   To determine whether appellees have asserted a valid ultra vires claim that invokes the district court’s subject-matter *702
jurisdiction, we would construe the provisions of the transportation code and UCR Act that define the scope of TxDOT’s
legal authority, apply them to the facts that appellees have alleged, and ascertain whether those facts constitute acts beyond
TxDOT’s legal authority. See Heinrich, 284 S.W.3d at 372–73 (ultra vires suit “must not complain of a government officer’s
exercise of discretion, but rather must allege, and ultimately prove, that the officer acted without legal authority or failed to
perform a purely ministerial act”); Creedmoor–Maha Water Supply Corp., 307 S.W.3d at 516 n. 8 (quoting Hendee v.
Dewhurst, 228 S.W.3d 354, 368–69 (Tex.App.-Austin 2007, pet. denied) (when analyzing whether plaintiff has alleged ultra
vires acts, we construe the relevant statutory or constitutional provisions that define the governmental actor’s discretionary
authority, apply the provisions to the pled and un-negated facts, and determine whether those facts fall within or outside that
authority). Appellees emphasize that they explicitly pled that TxDOT or its executive director acted “ultra vires” or contrary
to their legal authority. However, merely asserting legal conclusions or labeling a defendant’s actions as “ultra vires,”
“illegal,” or “unconstitutional” does not suffice to plead an ultra vires claim—what matters is whether the facts alleged
constitute actions beyond the governmental actor’s statutory authority, properly construed. Creedmoor–Maha Water Supply
Corp., 307 S.W.3d at 515–16 & nn. 7–8. To this extent, the jurisdictional inquiry with respect to appellees’ purported ultra
vires claims would substantially overlap with the claims’ merits. Id. at 516 n. 8.

In contrast to appellees’ UDJA claims, which are ultimately predicated upon the ultra vires exception, appellees’ claims
under APA section 2001.038 invoke the district court’s subject-matter jurisdiction if appellees have challenged the “validity”
or “applicability” of a “rule” under the APA and they allege that “the rule or its threatened application interferes with or
impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff.” Tex. Gov’t Code Ann. §
2001.038(a); see Texas Logos, L.P., 241 S.W.3d at 123. Determining whether appellees have done so, unlike with our
analysis of appellees’ ultra vires claims, does not require us to delve into the merits of the claims, see Texas Dep’t of Pub.
Safety v. Salazar, 304 S.W.3d 896, 903 (Tex.App.-Austin 2009, no pet.)—nor would such an inquiry be proper. See Bland
Indep. Sch. Dist., 34 S.W.3d 547; Hendee, 228 S.W.3d at 366. Consequently, we should begin with section 2001.038’s
narrower jurisdictional inquiry.

Appellees have alleged that the 2008 Revised Notice is invalid because it violates the limitations on TxDOT’s regulatory
powers imposed by transportation code section 643.002 and the UCR Act. These factual allegations suffice to invoke the
district court’s subject-matter jurisdiction if the 2008 Revised Notice is a “rule” within the meaning of the APA. See, e.g.,

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Combs v. City of Webster, 311 S.W.3d 85, 100–01 (Tex.App.-Austin 2009, pet. denied) (recognizing that “[t]o the extent that
no rule as defined by the APA is at issue, section 2001.038 does not provide any basis for the district court’s jurisdiction over
appellees’ declaratory judgment action”). Appellants argue that the 2008 Revised Notice is not a “rule” because it merely
restates requirements already prescribed in TxDOT’s formally promulgated rules.
[8] [9]
          A “rule” under the APA:

          (A) means a state agency statement of general applicability that:

            (i) implements, interprets, or prescribes law or policy; or

            *703 (ii) describes the procedure or practice requirements of a state agency;

          (B) includes the amendment or repeal of a prior rule; and

          (C) does not include a statement regarding only the internal management or organization of a state agency and not
          affecting private rights or procedures.

Tex. Gov’t Code Ann. § 2001.003(6) (West 2008). This definition obviously encompasses state agency statements formally
promulgated in compliance with the APA’s notice-and-comment rulemaking procedures, see id. §§ 2001.021–.036 (West
2008), but it extends beyond these. See, e.g., El Paso Hosp. Dist. v. Texas Health & Human Servs. Comm’n, 247 S.W.3d 709,
714–15 (Tex.2008) (holding that agency rate-calculation procedure, ostensibly an “interpretation” of its formally
promulgated rules, was itself a “rule” that was invalid because adopted without complying with APA’s notice-and-comment
procedures). Under certain circumstances, this Court has held that agency pronouncements that advise third parties regarding
applicable legal requirements, as did the 2008 Revised Notice, may be “interpretations” of law that constitute “rules” under
the APA. See Entertainment Publ’ns, Inc., 292 S.W.3d at 720–22; Texas Alcoholic Beverage Comm’n v. Amusement & Music
Operators of Tex., 997 S.W.2d 651, 657–58 (Tex.App.-Austin 1999, pet. dism’d w.o.j.); see also First Fed. Sav. & Loan
Ass’n v. Vandygriff, 639 S.W.2d 492, 498–99 (Tex.App.-Austin 1982, writ dism’d w.o.j.). Precisely when those
circumstances exist has sometimes been difficult to discern under the relevant case law.8 One thing that can be said with
relative certainty, however, is that an informal agency statement that does no more than restate its own formally promulgated
rules would not in itself be a “rule.”

8
            See, e.g., Ron Beal, Substantive and Interpretive Rules:
            The Judiciary Continues to Struggle to Define Them
            and to Determine Their Legal Validity and Effect, 12
            Tex. Tech. Admin. L.J. 55, 59–66 (2010).


[10]
    That a “rule” must be more than a restatement of a formally promulgated rule is implicit in the APA’s requirement that a
“rule” have some legal effect on private persons and not merely impact the “internal management or organization of a state
agency.” Tex. Gov’t Code Ann. § 2001.003(6)(C). Recognizing this, we have consistently held that an agency statement
interpreting law must bind the agency or otherwise represent its authoritative position in matters that impact personal rights.
See Salazar, 304 S.W.3d at 905 (“[a]gency statements that ‘have no effect on private persons’ are not considered rules”)
(quoting Brinkley v. Texas Lottery Comm’n, 986 S.W.2d 764, 770 (Tex.App.-Austin 1999, no pet.)); Entertainment Publ’ns,
Inc., 292 S.W.3d at 722 (emphasizing that legal interpretation in Comptroller’s letters would bind agency employees and
“unambiguously express[ed] an intent to apply this interpretation ... in all future cases” involving similar facts); Amusement
& Music Operators of Tex., 997 S.W.2d at 658 (agency memoranda to its law enforcement agents held to constitute “rules”
on that record where there was evidence that agents “not only intend to enforce, but have enforced administrative sanctions”
in accordance with memoranda); see Brinkley, 986 S.W.2d at 770 (observing that agency advisory opinion regarding
applicable law would have no legal effect “absent a statute that so provides or some attempt by the agency to enforce its
statement against a private person”). An agency statement that merely restated a formally promulgated *704 rule would not
meet this test because it would be the underlying rule, not the agency’s restatement of it, that had legal effect. This Court has
previously concluded as much. See Texas Mut. Ins. Co. v. Vista Cmty. Med. Ctr., L.L.P., 275 S.W.3d 538, 556
(Tex.App.-Austin 2008, no pet.) (“The 2005 Staff Report did not affect private rights because it did not change or amend” a
formally promulgated rule).

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This conclusion is also consistent with the second element of the APA’s “rule” definition, which provides that a “rule”
“includes the amendment or repeal of a prior rule.” Tex. Gov’t Code Ann. § 2001.003(6)(B). Although “includes” is a term
of enlargement rather than exclusion or limitation,9 such that not all “rules” amend or repeal other rules, this indicia of a
“rule” is nonetheless illustrative of the types of agency actions that would have legal effect on private persons, as
contemplated by the third element. Agency statements that merely restated rules would have no such effect, and would not
themselves be “rules.”

9
            Tex. Gov’t Code Ann. § 311.005(13) (West 2005)
            (“ ‘[i]ncludes’ and ‘including’ are terms of enlargement
            and not of limitation or exclusive enumeration, and use
            of the terms does not create a presumption that
            components not expressed are excluded”).


[11]
    Although distinguishing a mere restatement of a formally promulgated rule from a statement that is itself a “rule” might
prove more elusive in other circumstances, see Vista Cmty. Med. Ctr., L.L.P., 275 S.W.3d at 555–56, its application is
straightforward in this case. Appellees complain of the portion of the 2008 Revised Notice stating that motor carriers whose
state registrations have been revoked “are required to re-register and submit applicable fees.” This statement tracks
TxDOT’s rule providing that “[i]f a motor carrier that registered under § 18.18 of this chapter [UCR] does not maintain
continuous motor carrier registration under § 18.11 of this chapter, the motor carrier must file an application under § 18.13 of
this chapter to operate on public streets and highways in this state.” 43 Tex. Admin. Code § 18.14(c); see id. § 18.13
(registration requirements, including applicable fees and proof of financial responsibility); see also id. §§ 218.14(c)(2), .13.
Appellees also complain about the notice’s statement that “All motor carriers must maintain active insurance filing with
TxDOT at all times.” This statement, likewise, tracks TxDOT’s rules. See 43 Tex. Admin. Code § 18.16(e)(1)(A) (motor
carriers must “file and maintain proof of automobile liability insurance for all vehicles required to be registered ... at all
times”); see also id. § 218.16(e)(1)(A). We agree with appellants that the 2008 Revised Notice merely restates TxDOT’s
formally promulgated rules and, thus, is not itself a “rule” under the APA. Because appellees have alleged only this “rule” as
the basis for their claims under APA section 2001.038, they have failed to invoke the district court’s subject-matter
jurisdiction through that statute. See City of Webster, 311 S.W.3d at 100–01.
[12] [13]
        On the other hand, the foregoing analysis also reveals that appellees’ claims necessarily implicate the substantive
validity of the underlying formally promulgated TxDOT rules, or, alternatively, the applicability of the underlying rules in
light of the rules’ exclusion of “motor vehicle[s] exempt from registration by the Unified Carrier Registration Act of 2005”
from the “commercial motor vehicle[s]” required to be registered with TxDOT. The Texas Supreme Court has instructed us
that if a claimant’s pleadings omit sufficient facts to affirmatively demonstrate *705 the trial court’s jurisdiction but do not
affirmatively demonstrate incurable defects in jurisdiction, the issue is one of “pleading sufficiency, and the plaintiffs should
be afforded the opportunity to amend.” Miranda, 133 S.W.3d at 226–27. This is such a case. The substance of appellees’
claims seek declarations regarding the validity or applicability of TxDOT’s formally promulgated rules. APA section
2001.038 confers subject-matter jurisdiction on the district court to determine such claims. To cure the existing jurisdictional
defect, appellees need only add allegations to the effect that the “rule” or “rules” they are challenging are TxDOT’s formally
promulgated rules instead of the 2008 Revised Notice. Accordingly, we will, at this juncture, affirm the district court’s order
denying appellants’ plea to the jurisdiction as to appellees’ section 2001.038 claims without prejudice to appellants re-urging
their plea once appellees have had a reasonable opportunity to amend their pleadings to cure the jurisdictional defect.10

10
            To the extent appellees’ complaints regarding the 2007
            Notice are intended to sound in estoppel, appellees will
            likewise have the opportunity to replead any facts they
            can assert in good faith to meet the high burden for
            such a claim. See City of White Settlement v. Super
            Wash, Inc., 198 S.W.3d 770, 774–75 (Tex.2006).


[14]
       Assuming that appellees replead under section 2001.038, we agree with appellants that appellees’ UDJA claims would be

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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)



redundant remedies to the extent they complain about TxDOT’s imposition of requirements related to insurance or
re-registration for motor carriers whose prior registration has been revoked. In that event, appellees’ UDJA claims regarding
those requirements would be subject to dismissal. See Texas Mun. Power Agency v. Public Util. Comm’n, 253 S.W.3d 184,
200 (Tex.2007) (declaratory-judgment action will not be entertained if another pending action between the same parties may
adjudicate the same issue); Strayhorn v. Raytheon E–Sys., Inc., 101 S.W.3d 558, 572 (Tex.App.-Austin 2003, pet. denied);
Young Chevrolet, Inc. v. Texas Motor Vehicle Bd., 974 S.W.2d 906, 911 (Tex.App.-Austin 1998, pet. denied); Ben Robinson
Co. v. Texas Workers’ Comp. Comm’n, 934 S.W.2d 149, 153 (Tex.App.-Austin 1996, writ denied). But this repleading has
not occurred yet, and we conclude that the district court reached the correct result in declining to dismiss appellees’ UDJA
claims at this juncture, pending appellees’ opportunity to replead their section 2001.038 claims. Although appellants urge us
to proceed with an analysis of whether appellees have alleged ultra vires acts, at the present time it is unnecessary and would
be premature for us to reach these questions, which would effectively decide the merits of appellees’ putative section
2001.038 claims. See Salazar, 304 S.W.3d at 903; see also Bland Indep. Sch. Dist., 34 S.W.3d 547; Hendee, 228 S.W.3d at
366.
[15]
    However, appellees’ UDJA claims are also predicated upon alleged TxDOT actions beyond those that are the subject of
their section 2001.038 claims. Liberally construing appellees’ factual allegations, as we must do, see Miranda, 133 S.W.3d at
226, they claim that TxDOT is requiring motor carriers that have already validly registered with it and whose registrations
have not been revoked to re-register, pay related fees, and also submit annual filings of proof of financial responsibility. Such
conduct would run afoul of the UCR Act and, thus, transportation code section 643.002.11 Consequently, these allegations
*706 would invoke the district court’s subject-matter jurisdiction under the ultra vires exception to sovereign immunity. See
Heinrich, 284 S.W.3d at 372–73. The district court did not err in denying appellees’ plea as to these claims.

11
       See 49 U.S.C.A. § 14504a(a)(9), (d) (West 2007). The
       entity that administers the UCR system, a joint
       state-industry body known as the UCR Plan Board of
       Directors, has published “informal guidance”
       explaining the relationship between section §
       14504a(c)(1) and section 14501(c)(2)(A) as follows:
             • A state shall not “[r]equire an interstate motor
             carrier ... of property, to renew or charge a fee to
             renew its intrastate authority or insurance filings
             or any other filings required of an intrastate
             carrier,” except with regard to carriers that
             transport waste or household goods, certain bus
             operations, and non-consensual towing. Unified
             Carrier Registration Plan Board of Directors, The
             Unified Carrier Registration Act of 2005 Informal
             Guidance for Interested Parties, available at
             http://www.wutc.wa.
             gov/webimage.nsf/0/421868d1f06cf30888257361
             005ffbe4/$FILE/ATT70RBR/UCR% 20Questions
             %20and%20Answer%20Document%201–30–08.p
             df (emphasis in original).
             • A state may, however, “[r]equire an interstate
             carrier to complete the application requirements,
             including the fees and proof of insurance
             coverage, for an initial application for interstate
             operating authority.” Id. (emphasis in original).
             • The UCR Act “has taken ... away from the
             States” enforcement of financial responsibility
             laws with regard to filing proof of financial
             responsibility.” “However, a State may enforce its
             laws requiring liability coverage for any vehicle
             operating on the State’s public ways. In other
             words, if an interstate motor carrier is found to be
             operating on a State’s highways without liability
             insurance coverage, the State may take an action


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Texas Dept. of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691 (2011)



            against that motor carrier.” Id. at 11.
            • A state may not require “an annual insurance or
            surety bond filing by an interstate motor carrier
            that is operating under an intrastate authority from
            the State.” That is, “[a] State may require the
            insurance of surety bond filing as part of the initial
            issuance of the intrastate authority, but under §
            14504a, not annually thereafter. A State may
            require the insurance company or surety company
            providing such coverage to notify the State
            whenever the coverage is cancelled or not
            renewed. Additionally, nothing in the UCR Act
            prohibits a State from verifying the coverage as
            part of its internal review process of intrastate
            motor carriers.” Id.




                                                             CONCLUSION

For the reasons we have explained, we affirm the district court’s order denying appellants’ plea to the jurisdiction.



All Citations

357 S.W.3d 691

  End of Document                                                    © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)




                                                     241 S.W.3d 105
                                                Court of Appeals of Texas,
                                                         Austin.

                                        TEXAS LOGOS, L.P., Appellant
                                                      v.
      TEXAS DEPARTMENT OF TRANSPORTATION, and Michael W. Behrens, Individually, and in his capacity as
                   Executive Director of the Texas Department of Transportation, Appellees.

                                        No. 03–07–00002–CV. | Aug. 30, 2007.



Synopsis
Background: Sign vendor brought action against Texas Department of Transportation (TxDOT) and its executive director,
both in his official and individual capacities, arising from its loss of contract for state’s logo sign program to a competing
vendor, seeking declarations under Uniform Declaratory Judgments Act (UDJA) that TxDOT exceeded its statutory authority
by violating or waiving various rules and statutes governing its procurement of logo sign contract, and that TxDOT’s
administrative protest rules were invalid. TxDOT and director in his official capacity filed plea to the jurisdiction. The
District Court, Travis County, Margaret A. Cooper, J., granted plea and dismissed vendor’s claims against TxDOT and
director in his official capacity. Vendor appealed.



Holdings: The Court of Appeals, Bob Pemberton, J., held that:
[1]
   vendor’s claims seeking declarations under UDJA that TxDOT violated statutes governing its procurement of contract, and
that contract was void were barred by sovereign immunity;
[2]
  sovereign immunity barred vendor’s claim under UDJA for a declaration voiding TxDOT’s denial of vendor’s protest to
contract; and
[3]
  trial court lacked subject matter jurisdiction over vendor’s claim under Administrative Procedures Act (APA) seeking
declaration of invalidity of TxDOT’s protest rules.


Affirmed.




  West Headnotes (25)


 [1]
          Appeal and Error
            Pleading

          Court of Appeals, in reviewing trial court’s
          grant of Texas Department of Transportation’s
          (TxDOT) plea to the jurisdiction, in action
          brought by sign vendor against TxDOT after
          vendor lost contract for state’s logo sign
          program, would assume truth of factual
          allegations contained in vendor’s pleadings,
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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



       where TxDOT did not challenge the
       jurisdictional facts alleged by vendor and did not
       introduce controverting jurisdictional evidence,
       but disputed only whether vendor’s pleadings
       were sufficient to affirmatively establish trial
       court’s subject matter jurisdiction.


       Cases that cite this headnote




[2]
       Appeal and Error
         Pleadings and rulings thereon

       Court of Appeals, in reviewing trial court’s
       grant of Texas Department of Transportation’s
       (TxDOT) plea to the jurisdiction, in action
       brought by sign vendor against TxDOT after
       vendor lost contract for state’s logo sign
       program, would consider jurisdictional evidence
       vendor attached to its petition, as well as
       evidence vendor introduced in response to
       TxDOT’s plea to the jurisdiction.


       Cases that cite this headnote




[3]
       Pleading
         Plea to the Jurisdiction

       Subject matter jurisdiction of a trial court may
       be challenged through a plea to the jurisdiction.


       1 Cases that cite this headnote




[4]
       Pleading
         Plea to the Jurisdiction
       States
         Liability and Consent of State to Be Sued in
       General

       The immunity from suit encompassed by a
       state’s sovereign immunity deprives a trial court
       of subject-matter jurisdiction, and thus may be
       raised through a plea to the jurisdiction.



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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)




       1 Cases that cite this headnote




[5]
       Courts
         Determination of questions of jurisdiction in
       general

       Determination of whether a trial court has
       subject matter jurisdiction begins with the
       pleadings.


       Cases that cite this headnote




[6]
       Courts
         Allegations, pleadings, and affidavits

       Pleader has the initial burden of alleging facts
       that affirmatively demonstrate the trial court’s
       jurisdiction to hear the cause.


       1 Cases that cite this headnote




[7]
       Appeal and Error
         Striking out or dismissal

       When reviewing trial court’s dismissal of cause
       for lack of jurisdiction, appellate court construes
       the pleadings liberally and look to the pleader’s
       intent.


       Cases that cite this headnote




[8]
       Pleading
         Amendments following sustaining of pleas

       If the pleadings do not contain sufficient facts to
       affirmatively demonstrate the trial court’s
       jurisdiction but do not affirmatively demonstrate
       incurable defects in jurisdiction, the issue is one
       of pleading sufficiency and plaintiffs should be


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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



       afforded the opportunity to amend.


       Cases that cite this headnote




[9]
       Pleading
         Amendments following sustaining of pleas

       If the pleadings affirmatively negate the
       existence of jurisdiction, then a plea to the
       jurisdiction may be granted without allowing
       plaintiffs an opportunity to amend.


       1 Cases that cite this headnote




[10]
       Pleading
         Scope of inquiry and matters considered in
       general

       When a plea to the jurisdiction challenges the
       existence of facts alleged by the pleader to
       establish the trial court’s subject matter
       jurisdiction, the trial court must consider
       relevant evidence submitted by the parties.


       Cases that cite this headnote




[11]
       Declaratory Judgment
         Jurisdiction not enlarged

       The Uniform Declaratory Judgment Act (UDJA)
       does not create or augment a trial court’s
       subject-matter jurisdiction; it merely provides a
       remedy where subject matter jurisdiction already
       exists. V.T.C.A., Civil Practice & Remedies
       Code § 37.003(a).


       2 Cases that cite this headnote




[12]
       Declaratory Judgment
         Jurisdiction not enlarged

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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



       Declaratory Judgment
         Jurisdiction of particular state courts

       While the Uniform Declaratory Judgment Act
       (UDJA) cannot confer subject matter
       jurisdiction in the absence of a cause of action
       within the court’s jurisdiction, a suit under the
       UDJA is not confined to cases in which the
       parties have a cause of action apart from the
       UDJA itself; that is, a UDJA action will lie
       within the subject matter jurisdiction of the
       district courts when there is (1) a justiciable
       controversy as to the rights and status of parties
       actually before the court for adjudication, and
       (2) that will be actually resolved by the
       declaration sought. V.T.C.A., Civil Practice &
       Remedies Code § 37.001 et seq.

       1 Cases that cite this headnote




[13]
       States
         Declaratory judgment

       A justiciable controversy regarding whether a
       state agency or officer has acted beyond
       statutory authority, which provides a
       jurisdictional basis for an action pursuant to the
       Uniform Declaratory Judgment Act (UDJA)
       seeking construction of that statutory authority,
       does not implicate sovereign immunity.
       V.T.C.A., Civil Practice & Remedies Code §
       37.001 et seq.

       1 Cases that cite this headnote




[14]
       Declaratory Judgment
         State officers and boards
       States
         Declaratory judgment

       Uniform Declaratory Judgment Act (UDJA)
       does not authorize, by sovereign immunity
       waiver or otherwise, a claim that seeks to
       control state action. V.T.C.A., Civil Practice &
       Remedies Code § 37.001 et seq.

       1 Cases that cite this headnote



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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)




[15]
       Declaratory Judgment
         Subjects of relief in general

       Mere fact that sign vendor lacked vested
       property rights in contract award by Texas
       Department of Transportation (TxDOT) to a
       competing vendor that could give rise to an
       inherent right of judicial review did not deprive
       vendor of standing to prosecute a proper claim
       under Uniform Declaratory Judgments Act
       (UDJA) challenging TxDOT’s statutory
       authority in regard to the contract procurement.


       Cases that cite this headnote




[16]
       States
         Declaratory judgment

       Sign vendor’s claims against Texas Department
       of Transportation (TxDOT) seeking declarations
       under Uniform Declaratory Judgments Act
       (UDJA) that TxDOT violated statutes governing
       its procurement of logo sign contract and that
       logo sign contract TxDOT awarded to
       competing vendor was void, were barred by
       sovereign immunity, as claims ultimately sought
       to invalidate contract, a remedy that would
       control state action, and vendor alleged only
       past statutory violations, for which the only
       plausible remedy was invalidation of contract.
       V.T.C.A., Civil Practice & Remedies Code §
       37.001 et seq.; V.T.C.A., Transportation Code
       §§ 391.091(a), 391.0935(f), 391.099(d).


       4 Cases that cite this headnote




[17]
       Declaratory Judgment
         Statutory remedy

       A claim pursuant to the Uniform Declaratory
       Judgment Act (UDJA) is sui generis and, all
       other things being equal, the district court’s
       subject matter jurisdiction over it exists
       independently of any administrative remedies.
       V.T.C.A., Civil Practice & Remedies Code §

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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



       37.001 et seq.

       Cases that cite this headnote




[18]
       States
         Liability and Consent of State to Be Sued in
       General

       In addition to barring suits for money damages,
       sovereign immunity protects the state against
       suits to control state action.


       3 Cases that cite this headnote




[19]
       States
         What are suits against state or state officers

       A suit seeks to “control state action,” and thus is
       barred pursuant to sovereign immunity, when
       the judgment would effectively direct or control
       a government official in the exercise of his
       discretionary statutory authority.


       4 Cases that cite this headnote




[20]
       States
         Declaratory judgment

       A declaratory judgment suit ostensibly to
       declare statutory authority may be barred by
       sovereign immunity if it is predicated upon
       factual allegations that fall entirely within a state
       official’s discretionary statutory powers; in such
       cases, courts may be able to decide jurisdictional
       challenges as a matter of law based on the
       pleadings by construing the relevant statutes and
       ascertaining whether the acts pled fall within or
       outside discretionary powers. V.T.C.A., Civil
       Practice & Remedies Code § 37.001 et seq.

       2 Cases that cite this headnote




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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)


[21]
       States
         Declaratory judgment

       A claim against officers of a state, including one
       under the Uniform Declaratory Judgment Act
       (UDJA), seeking to establish a contract’s
       validity, to enforce performance under a
       contract, or to impose contractual liabilities is a
       suit against the state. V.T.C.A., Civil Practice &
       Remedies Code § 37.001 et seq.

       2 Cases that cite this headnote




[22]
       Municipal Corporations
         Nature and grounds of liability
       States
         Liability and Consent of State to Be Sued in
       General

       The contemporary rationale or justification for
       sovereign or governmental immunity is to
       protect state resources from the costs of paying
       judgments and defending against them so they
       can instead be used in accordance with the
       policy and budgetary directives of the legislature
       or local governments.


       1 Cases that cite this headnote




[23]
       Public Contracts
         Judicial Remedies and Review
       States
         Determination and disposition
       States
         Declaratory judgment

       Texas Department of Transportation (TxDOT)
       did not exceed its statutory authority in refusing
       to determine sign vendor’s protest of TxDOT’s
       award of logo sign contract to a competing
       vendor through an Administrative Procedure Act
       (APA) contested case proceeding, and thus
       sovereign immunity barred vendor’s claim under
       Uniform Declaratory Judgments Act (UDJA) for
       a declaration voiding TxDOT’s denial of the
       protest; vendor did not allege acts by TxDOT
       that exceeded its statutory authority, and absent
       express statutory authority, the APA did not

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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



       independently provide a right to a contested case
       hearing. V.T.C.A., Civil Practice & Remedies
       Code § 37.001 et seq.; V.T.C.A., Government
       Code § 2001.001 et seq.

       7 Cases that cite this headnote




[24]
       Declaratory Judgment
         Streets and highways
       States
         Declaratory judgment

       Sign vendor’s claim against Texas Department
       of Transportation (TxDOT) under the
       Administrative Procedures Act (APA), seeking
       declaration of the invalidity of TxDOT’s protest
       rules, did not present a justiciable controversy,
       as required for court to exercise subject matter
       jurisdiction over the claim; justiciable
       controversy that sign vendor purportedly pled
       concerned its rights relative to TxDOT’s award
       of logo sign contract to competing vendor and
       its protest of that award, sovereign immunity
       barred vendor’s claims under Uniform
       Declaratory Judgments Act (UDJA) to
       invalidate contract and protest order, and relief
       provided under APA did not extend to
       invalidating either TxDOT’s protest order or its
       ultimate contract award, but only rules by which
       protest was conducted. V.T.C.A., Government
       Code § 2001.038(a).


       3 Cases that cite this headnote




[25]
       Declaratory Judgment
         Jurisdiction of particular state courts
       States
         Declaratory judgment

       Unlike the Uniform Declaratory Judgments Act
       (UDJA), provision of Administrative Procedures
       Act (APA) creating cause of action for
       declaratory judgment regarding validity or
       applicability of rule if it is alleged that rule or its
       threatened application interferes with or impairs,
       or threatens to interfere with or impair, a legal
       right or privilege of plaintiff, is a grant of
       original jurisdiction and, moreover, waives

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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



        sovereign immunity. V.T.C.A., Civil Practice &
        Remedies Code § 37.001 et seq.; V.T.C.A.,
        Government Code § 2001.038.


        10 Cases that cite this headnote




Attorneys and Law Firms

*108 Stephen G. Gleboff, Christopher Alan Brown, Hughes & Luce, L.L.P., Dallas, John B. Lay, Attorney General, Austin,
for appellant.

Betsy J. Johnson, Office of Attorney General, Susan Desmarais Bonnen, Assistant Atty. Gen., Austin, for appellee.

Before Chief Justice LAW, Justices PURYEAR and PEMBERTON.




                                                           OPINION


BOB PEMBERTON, Justice.

Since the inception of the Texas Department of Transportation’s logo sign program *109 in the early 1990s, Texas Logos,
L.P., had held the contract to erect, maintain, and market fee-for-display opportunities on these now-familiar blue signs,
located near Texas highway exits, that contain business logos of participating restaurants, gas stations, and lodging facilities.
In December 2005, the department issued a request for proposals (RFP) seeking offers from vendors to operate the
“Information Logo Sign and Tourist–Oriented Directional Sign Program”—which would include “specific information logo
signs,” “major shopping area guide signs,” and new “tourist-oriented directional signs” with information about wineries and
other agribusiness or tourist-oriented businesses—following the December 2006 expiration of Texas Logos’s contract. Texas
Logos, Media Choice/Quorum Media Group, L.L.C. (Media Choice), and other competing vendors submitted proposals for
award of the contract (the “logo sign contract”). The department ultimately awarded the logo sign contract to Media Choice.

After unsuccessfully pursuing the administrative protest remedies the department provided under its rules and requesting, and
being denied, a contested-case proceeding on its protest under the Administrative Procedures Act, Texas Logos sued the
department and its executive director, in his official capacity (collectively, TxDOT) and individually. Texas Logos alleges
chiefly that TxDOT “exceeded its statutory authority” by violating or waiving the requirements of various statutes and rules
governing its procurement of the logo sign contract, resulting in a procurement that was “riddled with fraud, conflicts of
interest, and extra-statutory actions by TxDOT at virtually every turn.” It sought declarations under the Uniform Declaratory
Judgments Act (UDJA)1 that TxDOT had violated procurement statutes and that the logo sign contract was void. Texas Logos
also sought declarations under the UDJA that TxDOT was statutorily required to adjudicate its protest through a
contested-case proceeding and that its refusal to do so rendered void the agency’s order denying its protest. Finally, Texas
Logos requested declarations under section 2001.038 of the Administrative Procedures Act2 that TxDOT’s administrative
protest rules were, for this reason and others, invalid.

1
       Tex. Civ. Prac. & Rem.Code Ann. §§ 37.001–.011
       (West 1997 & Supp.2006).



2
       Tex. Gov’t Code Ann. § 2001.038 (West 2000).

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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)




TxDOT (i.e., the department and Behrens in his official capacity) filed a plea to the jurisdiction, asserting that Texas Logos’s
claims against it were barred by sovereign immunity. The district court granted the plea and dismissed Texas Logos’s claims
against TxDOT; the claims against Behrens individually remained pending in the district court. Texas Logos appeals from
this order.3 For the reasons explained below, we affirm the district court’s order.

3
              See Tex. Civ. Prac. & Rem.Code Ann. § 51.014(a)(8)
              (West Supp.2006). In its notice of appeal, Texas Logos
              erroneously included Behrens in his individual capacity
              as one of the appellees. Thus, although our caption
              indicates otherwise, Behrens individually is not a party
              to this appeal.




                                                   STANDARD AND SCOPE OF REVIEW
[1] [2] [3] [4]
           The subject matter jurisdiction of a trial court may be challenged through a plea to the jurisdiction. See Texas Dep’t
of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 225–26 (Tex.2004); Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554
(Tex.2000); *110 Hendee v. Dewhurst, 228 S.W.3d 354, 368 (Tex.App.-Austin, 2007, pet. denied). The immunity from suit
encompassed by sovereign immunity derives a trial court of subject-matter jurisdiction, Reata Constr. Corp. v. City of Dallas,
197 S.W.3d 371, 374 (Tex.2006) (citing Miranda, 133 S.W.3d at 224), and thus may be raised through a plea to the
jurisdiction. Our discussion of “sovereign immunity” in this opinion refers to immunity from suit.
[5] [6] [7]
        The determination of whether a trial court has subject matter jurisdiction begins with the pleadings. See Miranda, 133
S.W.3d at 226. The pleader has the initial burden of alleging facts that affirmatively demonstrate the trial court’s jurisdiction
to hear the cause. Id. (citing Texas Ass’n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 446 (Tex.1993)). Whether the
pleader has met this burden is a question of law that we review de novo. Id. We construe the pleadings liberally and look to
the pleader’s intent. Id.
[8] [9]
      If the pleadings do not contain sufficient facts to affirmatively demonstrate the trial court’s jurisdiction but do not
affirmatively demonstrate incurable defects in jurisdiction, the issue is one of pleading sufficiency and the plaintiffs should
be afforded the opportunity to amend. Id. at 226–27. If the pleadings affirmatively negate the existence of jurisdiction, then a
plea to the jurisdiction may be granted without allowing the plaintiffs an opportunity to amend. Id. at 227.
[10]
    When a plea to the jurisdiction challenges the existence of facts alleged by the pleader to establish the trial court’s subject
matter jurisdiction, the trial court must consider relevant evidence submitted by the parties. Id. at 227 (citing Bland, 34
S.W.3d at 555); Hendee, 228 S.W.3d at 365. Here, TxDOT has not challenged the jurisdictional facts alleged by Texas Logos,
nor did it introduce controverting jurisdictional evidence.4 It disputes only whether Texas Logos’s pleadings are sufficient to
affirmatively establish the district court’s subject matter jurisdiction. Consequently, we assume the truth of the factual
allegations contained in Texas Logos’s pleadings. Miranda, 133 S.W.3d at 226.7

4
              The only evidence TxDOT introduced was a copy of a
              letter from Texas Logos’s counsel to establish that
              Texas Logos, not TxDOT, had requested the hearing on
              TxDOT’s plea.



Additionally, because Texas Logos attached jurisdictional evidence to its petition and introduced additional evidence in
response to TxDOT’s plea to the jurisdiction, we may consider it in resolving the jurisdictional challenges TxDOT has raised.
Bland, 34 S.W.3d at 555 (“[A] court deciding a plea to the jurisdiction is not required to look solely to the pleadings but may
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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



consider evidence and must do so when necessary to resolve the jurisdictional issues raised.”).




                                     PLEADINGS AND JURISDICTIONAL EVIDENCE


Challenges to logo sign contract
On appeal, Texas Logos principally contends that it properly invoked the district court’s subject-matter jurisdiction through
its UDJA claims alleging that TxDOT exceeded its statutory authority when procuring the logo sign contract and seeking to
declare the contract void. To summarize, Texas Logos alleges that TxDOT violated or exceeded its statutory authority by
improperly skewing its procurement procedures to favor Media Choice, enabling Media Choice to submit fraudulent,
misleading, and inaccurate information upon which TxDOT ostensibly based its award decision. Central to these allegations
is Texas Logos’s legal premise that *111 TxDOT’s procurement of the logo sign contract was governed by the State
Purchasing and General Services Act (the “Purchasing Act”). See generally Tex. Gov’t Code Ann. §§ 2151.001–2177.103
(West 2000 & Supp.2006). Among other requirements, the Purchasing Act generally requires competitive bidding5 and that
state agencies purchase goods and services “that provide the best value for the state,” for which “the purchase price and
whether the goods or services meet specifications are the most important considerations.” Id. § 2155.074(a)-(b) (West
Supp.2006).

5
       See Tex. Gov’t Code Ann. § 2155.063 (“Except as
       otherwise provided by this subtitle, a purchase of or
       contract for goods or services shall, whenever possible,
       be accomplished through competitive bidding.”).



Overall, Texas Logos alleges that TxDOT’s conduct violated these competitive-bidding requirements by failing in its
“obligation to place all bidders on the same ‘plane of equality.’ ” See Texas Highway Comm’n v. Texas Ass’n of Steel Imps.,
Inc., 372 S.W.2d 525, 527 (Tex.1963) (regarding competitive-bidding principles). Texas Logos alleges specifically that
TxDOT violated or exceeded its statutory authority by ignoring several deficiencies in Media Choice’s proposal.

Texas Logos pleads that Media Choice “omitted important pricing information” elicited by TxDOT’s RFP. It asserts that
Media Choice “omitted” from a required schedule “an entire row” of pricing information concerning installation charges for
major shopping area guide signs, and thereby “failed to provide the required pricing for the minimum and maximum
proposed fees for MSAGS Freeway Installation.”6 By nonetheless accepting Media Choice’s “incomplete” proposal and
awarding the logo sign contract on that basis, Texas Logos contends that TxDOT violated and waived its duties under the
Purchasing Act to evaluate “the purchase price and whether the goods meet specifications” as “the most important
considerations” in determining the “best value for the state.” See Tex. Gov’t Code Ann. § 2155.074. Texas Logos further
pleads that TxDOT’s consideration of Media Choice’s “incomplete” proposal violated its rules “requir[ing] submission and
consideration of the proposed fees to be charged to program participants and the percentage of those fees to be remitted to
[TxDOT].” This allegation appears to allude to 43 Tex. Admin. Code § 25.403(b) (2007), which provides, in relevant part,
that TxDOT “will determine the best value to the state by evaluating the contractor’s ... (8) proposed percentage to be paid to
the department from fees collected from program participants; [and] (9) proposed amount for the fees that will be charged to
participants in the program.”

6
       Texas Logos also complains that Media Choice “did
       not follow the RFP’s instructions” to fill in the blanks
       in the copy of the schedule provided, but “retyped the
       schedule including the bold, all caps statement setting
       forth the consequence for the failure to fully complete
       the schedule.”



Texas Logos also pleads that it “performed an analysis” of the prospective fees that Media Choice would earn and retain
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compared to those Texas Logos would earn and retain under the companies’ respective proposals. It concluded that “Media
Choice would generate $17,011,398 more in gross revenue ... than by using the fees proposed by Texas Logos” during the
five-year contract term, but “Media Choice would return $2,568,629 less to the State than Texas Logos during that time
period while retaining in Media Choice’s coffers $19,580,027 more than Texas Logos.” Texas Logos similarly alleges that its
returns to the state were higher *112 throughout the contract term and that it provided a higher guaranteed minimum annual
return during the first year. It adds that “[i]n some cases, the Media Choice proposal specified rates to Texas businesses that
are 650% higher than those proposed by Texas Logos, yet TxDOT ignored this disparity.” Texas Logos pleads that in light of
these calculations, TxDOT’s award of the logo sign contract to Media Choice “waived consideration of certain required best
value” factors under the Purchasing Act, TxDOT’s statutes, and TxDOT’s rules relating to the proposed amount of fees that
would be charged to businesses participating in the program. See Tex. Gov’t Code Ann. § 2155.074; Tex. Transp. Code Ann.
§ 2391.091(c) (West 2007); 43 Tex. Admin. Code § 25.403(b)(8)-(9).

Texas Logos further alleges that Media Choice’s proposal would have paid TxDOT a ten-percent share of only rental fees it
collected from participating facilities and shopping areas, and excluded a second component of total fees, installation fees.
As Texas Logos emphasizes, the legislature has required that contracts for each type of logo sign provide for (1) the
assessment of fees to be paid the contractor by eligible participants, and (2) remittance of at least ten percent of these fees to
TxDOT. Tex. Transp. Code Ann. §§ 391.091(b) (specific information logo signs), .0935(g) (major shopping area guide
signs), .099(e) (tourist-oriented directional sign program) (West 2007). Texas Logos pleads that “[t]he law governing this
Program, as well as the mandatory provisions of TxDOT’s rules and the RFP, required Media Choice to remit at least 10% of
all fees collected to the State.”

Texas Logos also complains that TxDOT permitted Media Choice to submit unaudited financial statements with its proposal.
In this way and others, Texas Logos urges that Media Choice failed to comply with the requirements of TxDOT’s RFP.
Texas Logos pleads that TxDOT’s own rules governing its procurement of the logo sign contract required it to disqualify
proposals that did not meet the RFP’s terms. See 43 Tex. Admin. Code § 25.403(c)(1) (“The department will not consider a
proposal that ... fails to comply with any requirement contained in the request for proposals issued under this section....”).7

7
       Texas Logos also cites 1 Tex. Admin. Code §
       113.6(a)(7) (2007), which states that “A bid containing
       a material failure to comply with the advertised
       specifications shall be rejected.” Section 113.6(a)(7)
       governs procurements under the Purchasing Act. See 43
       Tex. Admin. Code § 9.3(b)(1), (10)-(11) (2007).



Texas Logos pled and produced evidence attempting to tie TxDOT’s claimed favoritism to an alleged quid pro quo between
Media Choice and a TxDOT employee who participated in the evaluation of the logo sign contract proposals. According to
Texas Logos, the employee solicited employment opportunities during the procurement process and “was rewarded with, a
consulting job with a subcontractor to Media Choice after TxDOT awarded the Contract to Media Choice.”8 Texas Logos
also alleged additional conduct by Media Choice in the nature of fraudulent inducement. It pled that the unaudited financial
statements that Media Choice submitted to TxDOT were “materially false” and “falsely overstated Media Choice’s net worth
by approximately one million dollars.” Texas Logos also accuses Media Choice of providing “materially misleading
information about which employees would perform the *113 Logo Sign Contract” and misleading information regarding the
entity that would be performing the logo sign contract.9

8
       Texas Logos also alleged that “[t]he same TxDOT
       employee had previously assisted in securing the
       approval of proprietary technology belonging to the
       Media Choice subcontractor while employed by
       TxDOT.”



9
       These and similar allegations are the subject of a
       related action that Texas Logos filed in the district

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       court of Williamson County against Media Choice and
       related entities; the Media Choice subcontractor that
       allegedly “rewarded” the TxDOT employee; the now
       former TxDOT employee, Gregory Brinkmeyer,
       individually; and Brinkmeyer’s consulting company.
       After the district court dismissed this suit for want of
       subject-matter jurisdiction, Texas Logos appealed to
       this Court, and this proceeding remains pending before
       us. Texas Logos, L.P. v. Brinkmeyer, No.
       03–07–00032–CV, (Tex.App.-Austin, notice of appeal
       filed Jan. 22, 2007).




Challenges to protest ruling and denial of contested-case proceeding
Texas Logos also seeks declarations under the UDJA that it was entitled to a contested-case proceeding to determine its
protest, that TxDOT exceeded its statutory authority in refusing that request, and that “TxDOT’s protest order is, therefore,
void.” Texas Logos relies on section 2155.076 of the government code, another provision of the Purchasing Act. Section
2155.076 requires that:

            each state agency by rule shall develop and adopt protest procedures for resolving vendor protests
            relating to purchasing issues. An agency’s rules must be consistent with the [building and procurement]
            commission’s rules. The rules must include standards for maintaining documentation about the
            purchasing process to be used in the event of a protest.

Tex. Gov’t Code Ann. § 2155.076(a) (West 2000). Texas Logos pleads that because section 2155.076 “contemplates an
adjudication of vendor’s rights under the statutes and rules governing particular procurements, such protests must be
conducted as contested case, consistent with the procedures in the ... APA.”



Challenges to TxDOT protest rules
Texas Logos’s claims under section 2001.038 of the APA seek declarations that TxDOT’s rules governing procurement
protests—43 Tex. Admin. Code § 9.3—are invalid. It pleads that “TxDOT’s protest procedures ... fail to not only apply the
contested case procedures found in the APA, but are instead a sham process designed to cloak TxDOT’s actions from any
meaningful scrutiny and, thus, do not ... effectuate the intent of [section 2155.076]; and ... contain no standards for
maintaining documents to be used in the event of a protest.” Texas Logos elaborates that by requiring protests to be filed
within ten days after a contract award—a deadline corresponding to TxDOT’s response deadline for any Public Information
Act request—the TxDOT rules effectively preclude discovery. It adds that the rules lack provisions for examination of
witnesses, subpoenas to obtain evidence, the appointment of a neutral hearing officer, the presentation of or objection to
evidence, or “a meaningful hearing of the protest.”




                                                             ANALYSIS

Texas Logos brings two issues on appeal, asserting that the district court had subject-matter jurisdiction over Texas Logos’s
causes of action for declarations under the UDJA (i.e., its challenges to both the logo sign contract and the protest denial
order) and section 2001.038 of the APA (its challenges to TxDOT’s protest rules).



UDJA
Texas Logos asserts that its UDJA claims properly invoked the district court’s subject-matter jurisdiction because they are
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predicated on allegations that TxDOT acted beyond its statutory authority and *114 seek declarations construing that
authority. The UDJA provides that a claimant “whose rights, status, or other legal relations are affected by a statute ... may
have determined any question of construction or validity arising under [it] and obtain a declaration of rights, status, or other
legal relations thereunder.” Tex. Civ. Prac. & Rem.Code Ann. § 37.004(a) (West 1997). The legislature intended the UDJA
to be remedial, to settle and afford relief from uncertainty and insecurity with respect to rights, and to be liberally construed.
Id. § 37.002 (West 1997); Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex.1995).
[11] [12]
        The UDJA does not create or augment a trial court’s subject-matter jurisdiction—it merely provides a remedy where
subject-matter jurisdiction already exists. See Tex. Civ. Prac. & Rem.Code Ann. § 37.003(a) (West 1997) (“A court of record
within its jurisdiction has power to declare rights, status, and other legal relations ....”) (emphasis added); Chenault v. Phillips,
914 S.W.2d 140, 141 (Tex.1996); Texas Ass’n of Bus., 852 S.W.2d at 444. But while the UDJA cannot confer subject-matter
jurisdiction in the absence of a cause of action within the court’s jurisdiction, “[a] suit under the UDJA is not confined to
cases in which the parties have a cause of action apart from the Act itself.” Texas Dep’t of Pub. Safety v. Moore, 985 S.W.2d
149, 153 (Tex.App.-Austin 1998, no pet.).10 That is, a UDJA action will lie within the subject-matter jurisdiction of the
district courts when there is (1) a justiciable controversy as to the rights and status of parties actually before the court for
adjudication; and (2) that will be actually resolved by the declaration sought. Brooks v. Northglen Ass’n, 141 S.W.3d 158,
163–64 (Tex.2004); Beadle, 907 S.W.2d at 467.

10
            See also Bexar Metro. Water Dist. v. City of Bulverde,
            156 S.W.3d 79, 90 (Tex.App.-Austin 2004, pet.
            denied); Juliff Gardens, L.L.C. v. Texas Comm’n on
            Envtl.   Quality,   131     S.W.3d      271,   276–77
            (Tex.App.-Austin 2004, no pet.); City of Waco v. Texas
            Natural Res. Conservation Comm’n, 83 S.W.3d 169,
            175 (Tex.App.-Austin 2002, pet. denied).


[13] [14]
        As this Court has repeatedly recognized, a justiciable controversy regarding whether a state agency or officer has acted
beyond statutory authority provides a jurisdictional basis for a UDJA action seeking construction of that statutory authority.11
This type of UDJA action, furthermore, does not implicate sovereign immunity. Texas Ass’n. of Steel Imps., Inc., 372 S.W.2d
at 530–31; Cobb v. Harrington, 144 Tex. 360, 190 S.W.2d 709, 712 (1945); see also Texas Natural Res. Conservation
Comm’n v. IT–Davy, 74 S.W.3d 849, 855 (Tex.2002) (“Private parties may seek declaratory relief against state officials who
allegedly act without legal or statutory authority.”); cf. Director of Dep’t of Agric. & Env’t v. Printing Indus. Ass’n, 600
S.W.2d 264, 265–66 (Tex.1980) (if the complained-of acts of a state official are illegal or outside his statutory authority, “an
entity or person whose rights have been violated ... may bring suit to remedy the violation or prevent its occurrence, and such
suit is not a suit against the State *115 requiring legislative or statutory authorization.”).12

11
            See, e.g., Texas Dep’t of Ins., Div. of Workers’ Comp.
            v. Lumbermens Mut. Cas. Co., 212 S.W.3d 870, 874–75
            (Tex.App.-Austin 2006, pet. denied) (claim that
            agency’s issuance of advisories inconsistent with
            statutory requirements was outside of agency’s
            statutory authority); Sweeney v. Jefferson, 212 S.W.3d
            556, 564–65 (Tex.App.-Austin 2006, no pet.) (whether
            defendants removed plaques without historical
            commission approval and without statutory authority);
            Texas Mun. Power Agency v. Public Util. Comm’n, 100
            S.W.3d 510, 516 (Tex.App.-Austin 2003, pet. denied)
            (a UDJA action “to interpret the scope of an agency’s
            statutory authority ... is sufficient to invoke the trial
            court’s jurisdiction”).



12
            Relying on language in certain decisions of this Court,
            Texas Logos suggests that the UDJA also “waives

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       sovereign immunity when a party seeks interpretation
       or construction of an agency’s statutory authority.”
       (Emphasis added.) See, e.g., Lumbermens, 212 S.W.3d
       at 875 (“[A] UDJA action ‘to interpret the scope of an
       agency’s statutory authority ... is sufficient to invoke
       the trial court’s jurisdiction and to waive sovereign
       immunity.’ ” (quoting Texas Mun. Power Agency, 100
       S.W.3d at 516)). TxDOT disputes whether the UDJA
       waives sovereign immunity for such claims because (1)
       as noted, the UDJA cannot independently confer
       subject-matter jurisdiction on the trial court, see Texas
       Ass’n of Bus., 852 S.W.2d at 444 (interpretation of
       UDJA as independently conferring subject-matter
       jurisdiction would render it violative of article II,
       section 1 of the Texas Constitution); and (2) the UDJA
       does not provide a waiver by “clear and unambiguous
       language” either explicitly or implicitly. See Tex. Gov’t
       Code Ann. § 311.005 (West 2005), § 311.034 (West
       Supp.2006); Tex. Civ. Prac. & Rem.Code §§ 37.001,
       37.006(a) (West 1997); but see Texas Educ. Agency v.
       Leeper, 893 S.W.2d 432, 446 (Tex.1994) (because
       UDJA contemplated that state government entities
       would be joined in suits to construe their statutory
       authority, it necessarily waived sovereign immunity
       against award of attorney’s fees under the act).
          We need not address whether or to what extent the
          UDJA waives sovereign immunity here because the
          type of claims Texas Logos purports to
          assert—declaratory claims to construe the statutory
          authority of a state officer or agency alleged to be
          exceeding that authority—does not implicate
          sovereign immunity. See Cobb v. Harrington, 144
          Tex. 360, 190 S.W.2d 709, 712 (1945). Nor would
          the asserted waiver on which Texas Logos relies
          impact our ultimate disposition. As Texas Logos
          acknowledges, the UDJA does not authorize (by
          sovereign immunity waiver or otherwise) a claim
          that seeks to control state action. See Texas Natural
          Res. Conservation Comm’n v. IT–Davy, 74 S.W.3d
          849, 855–56 (Tex.2002).




Challenges to logo sign contract
[15] [16]
          In the Steel Importers case, as Texas Logos emphasizes, the Texas Supreme Court affirmed a declaratory judgment
invalidating agency actions it held to have violated a competitive-bidding statute, and further held that the suit did not
implicate sovereign immunity. The Texas Highway Commission (a TxDOT predecessor) had issued a minute order requiring
that its highway construction contracts require the use of only American-manufactured materials. Texas Ass’n of Steel Imps.,
Inc., 372 S.W.2d at 526. A trade association representing steel importers sought declaratory judgment that the order was
“invalid, illegal, void, and of no lawful effect” because it violated the applicable purchasing statute, which required
competitive bidding. Id. at 526, 530. The supreme court agreed that the minute order violated the competitive bidding
requirement of the statute:

            “Competitive bidding” require[s] due advertisement, giving opportunity to bid, and contemplates a
            bidding on the same undertaking upon each of the same material items covered by the contract; upon
            the same thing. It requires that all bidders be placed upon the same plane of equality and that they each
            bid upon the same terms and conditions involved in all the items and parts of the contract, and that the

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             proposal specify as to all bids the same, or substantially similar specifications. Its purpose is to
             stimulate competition, prevent favoritism and secure the best work and materials at the lowest
             practicable price, for the best interests and benefit of the taxpayers and property owners. There can be
             no competitive bidding in a legal sense where the terms of the letting of the contract prevent or restrict
             competition, favor a contractor or materialman, or increase the cost of the work or of the materials or
             other items going into the project.

*116 Id. at 527 (quoting Sterrett v. Bell, 240 S.W.2d 516, 520 (Tex.Civ.App.-Dallas 1951, no writ)). The supreme court
added that:

             [o]nce the view be adopted ... that the Minute Order is void because it is contrary to the competitive
             bidding statute, there can be no basis for saying that the disputed order was authorized by law. It was
             wholly nugatory and hence the present proceeding cannot be classed as a suit against the state.

Id. at 530 (citing Cobb, 190 S.W.2d at 709, State v. Epperson, 121 Tex. 80, 42 S.W.2d 228 (Tex.1931), State v. Lain, 162
Tex. 549, 349 S.W.2d 579 (1961), and United States v. Lee, 106 U.S. 197 (1882)). Further, the court reasoned, “[a]s this is
not a suit against the State,” the plaintiffs—whom, the court observed, were “resident citizen property taxpayers of the State
of Texas or the representatives of such property taxpayers,” “[a]ll of [whom] are actively engaged in or interested in the sale
and use of imported manufactured products,” and some of whom “are owners of imported foreign manufactured products
suitable for highway construction purposes”—“clearly have the right and litigable interest to have the challenged Minute
Order declared null and void.” Id. at 530–31.

Texas Logos equates its UDJA claims with the claim in Steel Importers. It argues that TxDOT, like the highway commission,
was required to conduct the logo sign contract procurement “through a competitive process and had an obligation to place all
bidders on the same ‘plane of equality.’ ” See id. at 527. Instead, Texas Logos alleges, TxDOT waived competitive
requirements and unfairly favored Media Choice over other bidders. It urges that TxDOT had no statutory authority to
conduct the procurement in that manner. This absence of statutory authority, Texas Logos asserts, renders TxDOT’s contract
award—like the minute order in Steel Importers—“void .” Although acknowledging that it has located “no authority ... [that]
specifically holds that ultra vires conduct by an agency permits a Texas court to declare void an unlawfully entered contract,”
Texas Logos suggests that “if all variety of agency action can be declared void by a court, there is no principled reason [why]
a contract should be any different.”

TxDOT responds that a contract—or at least the logo sign contract—is different. First, it asserts that the district court lacked
subject-matter jurisdiction to invalidate the contract award (or its protest decision) because the legislature has not provided
for judicial review of these agency actions. See, e.g., Texas Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc.,
145 S.W.3d 170, 172 (Tex.2004) (“In Texas, a person may obtain judicial review of an administrative action only if a statute
provides a right to judicial review, or the action adversely affects a vested property right or otherwise violates a constitutional
right.”). TxDOT asserts—and Texas Logos acknowledges—that the legislature has not explicitly provided a judicial review
mechanism under the Purchasing Act or the transportation code and the company possessed no vested property right in the
award of the logo sign contract that could support a claim to an inherent right of judicial review.
[17]
    TxDOT’s argument is misplaced. A UDJA claim is sui generis and, all other things being equal, the district court’s
subject-matter jurisdiction over it exists independently of any administrative remedies. Texas Liquor Control Bd. v. Canyon
Creek Land Corp., 456 S.W.2d 891, 895 (Tex.1970); Cobb, 190 S.W.2d at 713. Although the subject matter of a UDJA
claim—including one ostensibly concerning an agency’s statutory authority—may sometimes be subsumed within the
agency’s *117 exclusive jurisdiction, see Texas Ct. Reps. Certification Bd. v. Esquire Deposition Servs., No.
03–06–00002–CV, 240 S.W.3d 79, 89 (Tex.App.-Austin, 2007, no pet. h.); cf. Texas Mun. Power Agency v. Public Util.
Comm’n, 100 S.W.3d 510, 520 (Tex.App.-Austin 2003, pet. denied) (UDJA claim to construe agency’s statutory authority
was broader than subject matter of contested-case proceeding), TxDOT does not claim that the legislature had granted it
exclusive jurisdiction or otherwise displaced the district court’s subject-matter jurisdiction to determine a valid UDJA claim
to construe the agency’s statutory authority in regard to the logo sign contract. Likewise, the mere fact that Texas Logos
lacked vested property rights in the contract award that could give rise to an inherent right of judicial review would not
deprive it of standing to prosecute a proper UDJA claim challenging TxDOT’s statutory authority in regard to the contract
procurement. See Texas Ass’n of Steel Imps., Inc., 372 S.W.2d at 530–31;

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Inc., 99 S.W.3d 376, 380 (Tex.App.-Austin 2003, pet. denied) (instant-ticket game vendor had standing to seek declaratory
and injunctive relief challenging lottery commission’s statutory authority to adopt policy requiring consideration of
prospective vendor’s economic impact on the state when awarding certain contracts).13

13
       We find similarly unpersuasive TxDOT’s attempts to
       characterize Texas Logos’s UDJA claims challenging
       the logo sign contract as sounding in tort, and barred by
       sovereign immunity, merely because Texas Logos
       pleads that TxDOT’s alleged extra-statutory favoritism
       toward Media Choice—the basis for its declaratory
       claims against TxDOT—enabled or included alleged
       tortious and fraudulent acts by Media Choice and
       Brinkmeyer individually.



TxDOT also asserts that the legislature has given it “sole discretion” or “virtually unlimited discretion” in awarding the logo
sign contract. It points to section 391.091 of the transportation code, which provides:

     (a) The department shall contract with an individual, firm, group, or association in this state to erect and maintain
     specific information logo signs and major shopping area guide signs at appropriate locations along an eligible highway.

     (b) The department may enter into a contract under this section by the method that the department determines is the most
     practical or most advantageous for the state, including competitive bids, competitive sealed proposals, and open market
     contracts.

     (b)14 A contract under this section shall provide for:

14
       There are two subsection b’s in section 391.091.




     (1) the assessment of fees to be paid to a contractor by a commercial establishment eligible for display on the specific
     information logo sign; and

          (2) remittance to the department of at least 10 percent of the fees collected by the contractor.

          (c) The department shall make a written award of a contract to the offeror whose proposal offers the best value for
          the state. In determining the best value for the state, the department may consider:

          (1) revenue provided to the department by the contractor;

          (2) fees to be charged eligible businesses or agricultural interests for inclusion on the signs;

          (3) the quality of services offered;

          (4) the contractor’s financial resources and ability to perform; and

          *118 (5) any other factor the department considers relevant.

          (d) To the extent of any conflict, this section prevails over any other law relating to the method of the purchasing of
          goods and services by the department.

          (e) Subtitle D, Title 10, Government Code, and Chapter 223 do not apply to purchases of goods and services under
          this section.

     Tex. Transp. Code Ann. § 391.091 (emphasis added). TxDOT observes that section 391.091 authorizes it to procure the
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       contract “by the method that the department determines is the most practicable or most advantageous for the state,” id. §
       391.091(b), gives it discretion in determining the “best value for the state,” id. § 391.091(c), and trumps other
       procurement statutes and law—including the Purchasing Act (subtitle D, title 10 of the government code), a cornerstone
       of Texas Logos’s claims.
[18] [19] [20]
               TxDOT contends that Texas Logos has alleged only conduct within the scope of these discretionary powers and,
therefore, seeks to “control state action.” In addition to barring suits for “money damages,” sovereign immunity protects the
state against suits to “control state action.” IT–Davy, 74 S.W.3d at 855–56; Printing Indus. Ass’n, 600 S.W.2d at 265–66. A
suit seeks to control state action when the judgment would effectively direct or control a government official in the exercise
of his or her discretionary statutory authority. Printing Indus. Ass’n, 600 S.W.2d at 265–66; Griffin v. Hawn, 161 Tex. 422,
341 S.W.2d 151, 152–53 (1960); Short v. W.T. Carter & Bro., 133 Tex. 202, 126 S.W.2d 953, 962 (1939); see also IT–Davy,
74 S.W.3d at 855–56 (characterizing the imposition of contract liability as “controlling state action”). A
declaratory-judgment suit ostensibly to declare statutory authority may be barred by sovereign immunity if it is predicted
upon factual allegations that fall entirely within a state official’s discretionary statutory powers. McLane Co. v. Strayhorn,
148 S.W.3d 644, 649 (Tex.App.-Austin 2004, pet. denied). In such cases, courts may be able to decide jurisdictional
challenges as a matter of law based on the pleadings by construing the relevant statutes and ascertaining whether the acts pled
fall within or outside discretionary powers. See Printing Indus. Ass’n, 600 S.W.2d at 265–70; Griffin, 341 S.W.2d at 153–54;
Hendee, 228 S.W.3d at 368; McLane Co., 148 S.W.3d at 649.15

15
       See also Potter Co. Atty’s Office v. Stars & Stripes
       Sweepstakes, L.L.C., 121 S.W.3d 460, 470–71
       (Tex.App.-Amarillo 2003, no pet.) (holding that suit to
       compel release of seized eight-liners was barred by
       governmental immunity where machines had been
       lawfully seized under search warrant; suit thus “seeks
       to control the actions of officials acting within their
       authority and cannot therefore be maintained without
       legislative consent”); Commissioner, Tex. Dep’t of
       Human Servs. v. Trinity Coalition, Inc., 759 S.W.2d
       762, 764 (Tex.App.-El Paso 1988, writ dism’d w.o.j.)
       (contractor’s suit to enjoin agency from entering into
       contract with competitor and refusing it bidding rights
       based on unresolved audit issues was barred by
       sovereign immunity; “[h]ere, T.D.H.S. acted within its
       own delineated procedure in regulating the terms,
       bidding, and acceptance of contracts for day care
       services”).



Texas Logos counters that, notwithstanding section 391.091 of the transportation code, TxDOT’s procurement of the logo
sign contract was governed by the Purchasing Act. It observes that section 391.091 is specifically addressed to contracts only
for “specific information logo signs and major shopping area guide signs.” Tex. Transp. Code Ann. § 391.091(a). The third
type of sign made subject to the logo sign contract—the tourist-oriented directional sign program—is *119 explicitly
addressed only in section 391.099. That provision requires TxDOT to “enter into one or more contracts” with a third-party
vendor to erect and maintain tourist-oriented directional signs along eligible highways. Id. § 391.099(b), (d) (West 2007).
Like contracts for the other types of signs, contracts for the tourist-oriented directional sign program must provide for the
charging of fees and remittance of at least ten percent to TxDOT. See id. § 391.099(e); cf. id. §§ 391.091(b), .0935(g).
However, section 391.099 does not address the standards governing the procurement of tourist-oriented directional sign
program contracts—and, unlike section 391.091, does not specifically exclude such contracts from the Purchasing Act or
other procurement statutes.

Based on its construction of these statutes, Texas Logos maintains that contract procurement for the tourist-oriented
directional sign program is governed by the Purchasing Act and that, moreover, TxDOT placed the entire logo sign contract
under the Act by opting to procure a single combined contract for the “Information Logo and Tourist–Oriented Directional
Sign Program.”16 Texas Logos adds that, in any event, these and similar arguments by TxDOT17 properly go to the merits of
its UDJA claims rather than the district court’s subject-matter jurisdiction over them. It suggests that “[t]he fact that TxDOT
and Texas Logos are debating whether the Purchasing Act applies to the Logo Sign procurement should be proof enough that
                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                         19
Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



there is a controversy regarding the construction and applicability of a statute that is subject to declaratory relief” and within
the district court’s subject-matter jurisdiction.

16
       It adds that, contrary to TxDOT’s current position, the
       agency stated in its RFP that the procurement of the
       combined contract would be governed by the
       Purchasing Act. Strictly speaking, TxDOT’s statements
       in the RFP would not estop it from later disputing the
       Purchasing Act’s applicability. See State v. Durham,
       860 S.W.2d 63, 67 (Tex.1993). However, Texas Logos
       suggests that TxDOT’s position in the RFP nonetheless
       may belie the merits of its current arguments.



17
       In addition to its arguments based on section 391.091
       and those disputing the applicability of the Purchasing
       Act, TxDOT parses through Texas Logos’s pleading
       allegations and disputes whether “the actions allegedly
       taken by TxDOT are actually contrary to any of the
       specific statutes cited by Texas Logos.” Similarly,
       relying on its construction of these statutes, TxDOT
       argues that Texas Logos alleges only that the agency
       “made the wrong decision” within its statutory
       authority, not that it exceeded its authority. See Beacon
       Nat’l Ins. Co. v. Montemayor, 86 S.W.3d 260, 270
       (Tex.App.-Austin 2002, no pet.).



TxDOT counters that even if Texas Logos had, in this or other ways, pled proper UDJA claims concerning its statutory
authority, the claims would nonetheless be barred by sovereign immunity because they ultimately seek to invalidate the logo
sign contract, a remedy that would “control state action.” It adds that because sovereign immunity precludes invalidation of
the logo sign contract, the district court likewise lacks jurisdiction under the UDJA over any component issues—e.g., those
concerning the applicability of the Purchasing Act—because a declaration regarding those issues would not resolve the
ultimate dispute. See Beadle, 907 S.W.2d at 467 (citing Texas Ass’n of Bus., 852 S.W.2d at 446). We must agree with
TxDOT.
[21]
    It is well-established that a claim—including one under the UDJA—“seeking to establish a contract’s validity, to enforce
performance under a contract, or to impose contractual liabilities are suits against the State.” IT–Davy, 74 S.W.3d at 855–56
(characterizing such claims as a *120 form of “controlling state action”); see W.D. Haden Co. v. Dodgen, 158 Tex. 74, 308
S.W.2d 838, 840 (1958) (“A suit against officers of a state, to require them to perform acts which constitute a performance of
a contract by the state, is in effect a suit against the state itself. A suit against officers of a state, the purpose or effect of
which is to establish the validity of a contract of the state, or to enforce through them the performance of a contract of the
state, or to require acts to be performed by them which would impose contractual liabilities upon the state, is a suit against the
state.”) (quoting Herring v. Houston Nat’l Exch. Bank, 113 Tex. 264, 253 S.W. 813, 814 (Tex.1923)). The Texas Supreme
Court has historically regarded these immunity principles as also barring suits to cancel or nullify a contract made for the
benefit of the state. See W.D. Haden Co., 308 S.W.2d at 841 (“ ‘There is a clear distinction between a suit against an officer
for a wrong committed by him in the name of the state, and suits brought against an officer to prevent the exercise by the
state through such officer of some act of sovereignty, or suits against an officer or agent of the state to enforce specific
performance of a contract made for the state, or to enjoin the breach of such contract, or to recover damages for such breach,
or to cancel or nullify a contract made for the benefit of the state.’ ”) (emphasis added) (quoting Imperial Sugar Co. v. Cabell,
179 S.W. 83, 89 (Tex.Civ.App.-Galveston 1915, no writ).
[22]
    Suits to nullify a contract made for the benefit of the state would likewise implicate sovereign immunity principles as
currently articulated by the Texas Supreme Court. The contemporary rationale or justification for sovereign or governmental
immunity is to protect state resources from the costs of paying judgments and defending against them so they can instead be

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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



used in accordance with the policy and budgetary directives of the legislature or local governments. See Reata Constr. Corp.,
197 S.W.3d at 375 (citing IT–Davy, 74 S.W.3d at 854) (“A lack of immunity may hamper governmental functions by
requiring tax resources to be used for defending lawsuits and paying judgments rather than using those resources for their
intended purposes.”); Tooke v. City of Mexia, 197 S.W.3d 325, 331–32 (Tex.2006) (sovereign immunity “remains firmly
established, and as it has come to be applied to the various governmental entities in this State, an important purpose is
pragmatic: to shield the public from the costs and consequences of improvident actions of their governments”). Contracts are
a well-established means through which the state or local governments effectuate their policy directives regarding
governmental functions. See, e.g., Ben Bolt–Palito Blanco Consol. Indep. Sch. Dist. v. Texas Political Subdivisions Prop./Cas.
Joint Self–Ins. Fund, 212 S.W.3d 320, 322, 325–26 (Tex.2006); Tooke, 197 S.W.3d at 329; Big Spring v. Board of Control,
404 S.W.2d 810, 817 (Tex.1966); Osborne v. Keith, 142 Tex. 262, 177 S.W.2d 198, 201 (Tex.1944). Furthermore, contracts
may provide financial benefits for governmental entities, and thus, will have implications for budgetary and appropriations
processes. Such is the case with the logo sign contract, which, as TxDOT observes, guarantees it several million in minimum
payments during the contract term. By interfering with these policy and budgetary decisions regarding the use of state
resources, a suit to invalidate the logo sign contract implicates sovereign immunity.

We disagree with Texas Logos that the statutory violations it alleges would, if proven, render the logo sign contract void; i.e.,
a nullity. TxDOT possessed express *121 statutory authority to contract with regard to all three types of signs addressed in
the logo sign contract. See Tex. Transp. Code Ann. §§ 391.091(a) (“The department shall contract with an individual, firm,
group, or association in this state to erect and maintain specific information logo signs and major shopping area guide signs at
appropriate locations along an eligible highway.”), .0935(f) (“The commission may contract with an individual, firm, group,
or association in this state to erect and maintain major shopping area guide signs at appropriate locations along an eligible
urban highway.”), .099(d) (“The commission shall enter into one or more contracts with an individual, firm, group, or
association in this state to erect and maintain tourist-oriented directional signs at locations along eligible highways.”).
Furthermore, the Purchasing Act—assuming it applies, as Texas Logos argues—does not reflect legislative intent to render
void an otherwise-authorized contract executed in violation of its requirements. Instead, the legislature provided a range of
other remedies and responses to violations, including agency protest procedures, see Tex. Gov’t Code Ann. § 2155.076,
dismissal of agency employees, id. § 2155.003 (West 2000) (conflict-of-interest prohibitions), legal action by the agency
against defaulting contractors, id. § 2155.070(c) (West 2000), and removing vendors from participating in state contracts, id.
§§ 2155.070(d), 2155.077 (West 2000). See also id. § 2155.004(d) (West Supp.2006) (prohibition against agencies accepting
bids or awarding contracts including financial participation of certain agency personnel “does not create a cause of action to
contest a bid or award of a state contract”). This statutory scheme contemplates that while contracts executed in violation of
the Act’s requirements might be subject to invalidation by the agency or other statutory remedies, they would not be rendered
a legal nullity on that basis. Cf. Friends of Canyon Lake, Inc. v. Guadalupe–Blanco River Auth., 96 S.W.3d 519, 528
(Tex.App.-Austin 2002, pet. denied) (allegations that applicant had failed to give required notice and “failed to provide
statutorily required information to the TNRCC” as part of water right permit application process did not state claim that
TNRCC had acted wholly beyond its statutory permitting jurisdiction). Finally, Texas Logos’s allegations of fraud or
misrepresentation by Media Choice or self-dealing by an employee are the types of allegations that render a contract voidable,
not void. See Dallas Farm Machinery Co. v. Reaves, 158 Tex. 1, 12, 307 S.W.2d 233 (Tex.1957); Osborne, 177 S.W.2d at
201.

We agree with TxDOT that the sovereign-immunity implications of its existing contract with Media Choice distinguish this
case from Steel Importers and the other cases involving challenges to agency statutory authority on which Texas Logos relies.
Texas Logos’s cases each involved declarations or injunctions that operated prospectively to compel state officials and
agencies to comply with their statutory authority. Although these remedies had the effect of invalidating certain agency
directives or policies, they did not establish a right to money damages or invalidate an existing contract. Texas Logos’s
claims, by contrast, explicitly attack an existing contract with the state.

An otherwise-proper declaratory claim alleging statutory violations may nonetheless have the effect of establishing a right to
a remedy that is barred by sovereign immunity. For example, a declaratory claim that would be proper if asserted to compel
the state to act within its statutory powers prospectively may nonetheless be barred by sovereign immunity to the extent it
alleges past statutory violations that *122 implicate a right to money damages. This distinction is illustrated by recent Texas
decisions concerning declaratory claims of statutory rights to payments. In City of Houston v. Williams, a group of retired
firefighters sought a declaratory judgment that the city had violated chapter 143 of the local government code by improperly
calculating lump-sum payments of accrued vacation and sick leave paid upon termination and in improperly deducting
alleged overpayments of overtime. 216 S.W.3d 827, 828 (Tex.2007) (per curiam); see Tex. Loc. Gov’t Code Ann. §§
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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



142.0017, 143.115–.116 (West 1999). The city filed a plea to the jurisdiction asserting governmental immunity, which the
district court denied and the court of appeals affirmed. In relevant part, the court of appeals held that the city had no
immunity from the retirees’ declaratory judgment claim because it sought construction of the pertinent statutory rights and
the trial court had purported to reserve determination of damages for a later date. The supreme court reversed, holding that
the firefighters’ declaratory judgment claim actually sought money damages and, therefore, implicated the city’s
governmental immunity. Williams, 216 S.W.3d at 828–29 (citing IT–Davy, 74 S.W.3d at 856).

The supreme court reasoned that “[t]he only injury the retired firefighters allege has already occurred, leaving them with only
one plausible remedy—an award of money damages.” Id. at 829. It further explained that whether the plaintiffs sought a
declaration regarding a “legitimate question of statutory interpretation” was irrelevant, because, “in every suit against a
governmental entity for money damages, a court must first determine the parties’ contract or statutory rights; if the sole
purpose of such a declaration is to obtain a money judgment, immunity is not waived.” Id. As for the trial court’s reservation
of a damages determination, the court observed that “governmental immunity does not spring into existence when a damages
award is finally made; it shields governments from the costs of any litigation leading up to that goal.” Id.

Williams thus recognized a dichotomy between declaratory and injunctive claims regarding past violations of statutory rights
to payment under chapter 143 (which implicate governmental immunity because the “only plausible remedy” is money
damages) and those seeking only to compel a municipality to comply with the statutes in the future (which, even while
implicating rights to future payments, do not implicate immunity). See Bell v. City of Grand Prairie, 221 S.W.3d 317,
324–26 (Tex.App.-Dallas 2007, no pet.).18

18
       Accord City of Seagoville v. Lytle, 227 S.W.3d 401,
       410–12 (Tex.App.-Dallas 2007, no pet. h.) (employing
       similar analysis in holding that declaratory-judgment,
       mandamus, and injunctive relief claims alleging
       termination in violation of local government code
       sections 614.022 and 614.023 were barred by
       governmental immunity to the extent they sought back
       pay or back benefits, but not to the extent they sought
       prospective reinstatement only); City of Dallas v.
       Albert, 214 S.W.3d 631, 633, 637 (Tex.App.-Dallas
       2006, pet. filed) (similar analysis in suit alleging failure
       to pay police officers and firefighters in accordance
       with voter-approved pay referendum; suit barred by
       governmental immunity to the extent it sought back pay
       and benefits); City of Dallas v. Martin, 214 S.W.3d
       638, 640, 644 (Tex.App.-Dallas 2007, pet. filed)
       (same).



A similar principle governs here. Even if sovereign immunity would not otherwise have barred Texas Logos’s declaratory
claims if it had alleged ongoing statutory violations in the logo sign procurement and sought to make TxDOT comply with
these statutes, Texas Logos alleges only past statutory violations, the “only plausible remedy” for which is the invalidation of
*123 the contract.19 Such a remedy, we have seen, implicates sovereign immunity and bars Texas Logos’s UDJA claims
challenging the logo sign contract and procurement. See Williams, 216 S.W.3d at 828–29; see also Tooke, 197 S.W.3d at
331–32 (sovereign or governmental immunity functions “to shield the public from the costs and consequences of improvident
actions of their governments”).

19
       Texas Logos confirmed during oral argument that it
       complains only of TxDOT’s alleged past statutory
       violations, not of any ongoing or future violations.




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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



Challenges to procurement order & denial of contested case hearing
[23]
     We likewise conclude that sovereign immunity bars Texas Logos’s UDJA claims alleging that TxDOT acted beyond its
statutory authority in refusing to determine its protest through a contested-case proceeding and seeking a declaration voiding
TxDOT’s denial of the protest. Under the precedent of this Court, Texas Logos does not allege acts by TxDOT that exceed its
statutory authority. See Printing Indus. Ass’n, 600 S.W.2d at 265–70; Hendee, 228 S.W.3d at 368; McLane Co., 148 S.W.3d
at 649. Specifically, this Court has long held that, absent express statutory authority, the APA does not independently provide
a right to a contested case hearing.20 Texas Logos has not asserted a basis for our distinguishing or departing from these
decisions. Barring any, we overrule Texas Logos’s first issue.

20
            See, e.g., Eldercare Props., Inc. v. Texas Dep’t of
            Human Servs., 63 S.W.3d 551, 557 (Tex.App.-Austin
            2001, pet. denied), overruled on other grounds by
            Mega Child Care, Inc., 145 S.W.3d at 173; Best & Co.
            v. State Bd. of Plumbing Exam’rs, 927 S.W.2d 306,
            309–310 (Tex.App.-Austin1996, writ denied); H.
            Tebbs, Inc. v. Silver Eagle Distributors, Inc., 797
            S.W.2d 80, 85 (Tex.App.-Austin 1990, no writ); see
            also Shrieve v. Texas Parks & Wildlife Dep’t, 2005 WL
            1034086, at *3, 2005 Tex.App. LEXIS 3406, at *13
            (Tex.App.-Austin May 5, 2005, no pet.) (mem.op.).




Section 2001.038
[24] [25]
        In its second issue, Texas Logos asserts that the district court had subject-matter jurisdiction over its cause of action
for a declaration under section 2001.038 of the APA that TxDOT’s protest rules are invalid. Section 2001.038 creates a cause
of action for declaratory judgment regarding “[t]he validity or applicability of a rule ... if it is alleged that the rule or its
threatened application interferes with or impairs, or threatens to interfere with or impair, a legal right or privilege of the
plaintiff.” Tex. Gov’t Code Ann. § 2001.038(a). Unlike the UDJA, section 2001.038 is a grant of original jurisdiction and,
moreover, waives sovereign immunity. Id. § 2001.038(a), (c); Texas Dep’t of Human Servs. v. ARA Living Ctrs. of Tex., 833
S.W.2d 689, 693 (Tex.App.-Austin 1992, writ denied); Southwestern Bell Tel. Co. v. Public Util. Comm’n, 735 S.W.2d 663,
669 (Tex.App.-Austin 1987, no writ).

However, section 2001.038, like other causes of action, requires the existence of a justiciable controversy to establish the
district court’s subject-matter jurisdiction. The justiciable controversy that Texas Logos pled concerned its rights relative to
TxDOT’s award of the logo sign contract to Media Choice and its protest of that award. We have held that sovereign
immunity bars Texas Logos’s UDJA claims to invalidate the contract and protest order. The relief provided under section
2001.038 does not extend to invalidating either TxDOT’s protest order or its ultimate contract award, but only the rules by
which the protest was conducted. At this juncture, Texas Logos’s section 2001.038 challenge to the validity of those rules
would amount to a mere abstract, advisory *124 opinion. Cf. Friends of Canyon Lake, 96 S.W.3d at 529 (district court lacked
subject-matter jurisdiction over section 2001.038 rule challenge where underlying controversy had been extinguished by
plaintiff’s failure to exhaust administrative remedies). We overrule Texas Logos’s second issue.




                                                             CONCLUSION

Having overruled Texas Logos’s issues, we affirm the district court’s judgment dismissing Texas Logos’s suit for want of
subject-matter jurisdiction. As our disposition is controlled by principles of sovereign immunity, we are not passing on the
merits of Texas Logos’s allegations concerning the logo sign procurement. Although sometimes criticized as arbitrary or
unfair in the manner by which it shields alleged “improvident actions” by government from judicial redress, sovereign
immunity is nonetheless the established law of Texas that we are bound to apply.

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Texas Logos, L.P. v. Texas Dept. of Transp., 241 S.W.3d 105 (2007)



But we observe that, as a corollary to sovereign immunity principles, the judiciary defers to the legislature to decide when, if,
or to what extent to waive such immunity, as these decisions entail sensitive policy judgments concerning the use of public
resources and governmental functions that are the proper domain of that branch.21 The legislature may, as it sees fit, waive
immunity by statute or express permission. Tooke, 197 S.W.3d at 332–33; IT–Davy, 74 S.W.3d at 853–54. Further, while
Texas Logos correctly notes that “the courts of this State ... have [some] jurisdiction to reign in agencies that overstep their
statutory authority” through mechanisms like the UDJA, we note that the legislature and executive possess much more
expansive powers in this regard, when they deem such actions appropriate.22

21
         See City of Galveston v. State, 217 S.W.3d 466, 469
         (Tex.2007) ( “This heavy presumption in favor of
         immunity arises not just from separation-of-powers
         principles but from practical concerns. In a world with
         increasingly complex webs of government units, the
         Legislature is better suited to make the distinctions,
         exceptions, and limitations that different situations
         require. The extent to which any particular city, county,
         port, municipal utility district, school district, or
         university should pay damages involves policy issues
         the Legislature is better able to balance.”); Reata
         Constr. Corp., 197 S.W.3d at 375 (“We have generally
         deferred to the Legislature to waive immunity because
         the Legislature is better suited to address the conflicting
         policy issues involved.”) (citing IT–Davy, 74 S.W.3d at
         854 (“We have consistently deferred to the Legislature
         to waive sovereign immunity from suit, because this
         allows the Legislature to protect its policymaking
         function.”)).



22
         We intend no comment regarding Texas Logos’s
         pending appeal of its Brinkmeyer suit.




All Citations

241 S.W.3d 105

     End of Document                                                   © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                 24
Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)




                                                     275 S.W.3d 538
                                                 Court of Appeals of Texas,
                                                          Austin.

       TEXAS MUTUAL INSURANCE COMPANY, Liberty Mutual Insurance Company, Zenith Insurance Company
                                and Zurich American Insurance Company, Appellants,
                                                         v.
        VISTA COMMUNITY MEDICAL CENTER, LLP, d/b/a Vista Medical Center Hospital; Christus Health Gulf
             Coast; and The Texas Department of Insurance, Division of Workers’ Compensation, Appellees.

                      No. 03–07–00682–CV. | Nov. 13, 2008. | Rehearing Overruled Jan. 13, 2009.



Synopsis
Background: Hospital filed action appealing decision of medical dispute resolution officer (MDRO), in which it challenged
interpretation of rule promulgated by the Department of Insurance, Division of Workers’ Compensation (Division) regarding
stop-loss exception to standard per diem methodology for inpatient hospital services to workers’ compensation claimants.
Workers’ compensation insurer filed a counterclaim against hospital and a cross-claim against Division challenging the
validity of the rule. Another hospital and other workers’ compensation insurers intervened. Following a bench trial, the
District Court of Travis County, 353rd Judicial District, Margaret A. Cooper, J., entered judgment for hospitals. Division and
insurers appealed.



Holdings: The Court of Appeals, Jan P. Patterson, J., held that:
[1]
   stop-loss exemption rule required hospitals to demonstrate that the admission involved unusually costly and unusually
extensive services, in addition to demonstrating that charges exceeded $40,000;
[2]
   failure of Division to review stop-loss rule exemption every two years and to provide fee reimbursement guidelines that
followed Medicare methodologies did not invalidate rule;
[3]
   terms “unusually costly” and “unusually extensive” in stop-loss rule were not so vague and uncertain that their use in
determining whether the exception applied would be arbitrary;
[4]
  Division staff report interpreting stop-loss rule was not a rule that had to be adopted in conformance with Administrative
Procedures Act (APA) procedures; and
[5]
   stop-loss rule did not allow workers’ compensation carriers to audit a health care provider’s charges for implantables,
orthotics, and prosthetics to cost plus 10% when determining whether the $40,000 stop-loss threshold had been met.


Affirmed in part, and reversed in and rendered part.




  West Headnotes (28)


 [1]
           Declaratory Judgment
             Scope and extent of review in general

                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                      1
Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



       A trial court’s declaratory judgment is reviewed
       de novo.


       Cases that cite this headnote




[2]
       Administrative Law and Procedure
         Determination of validity; presumptions

       When considering a challenge to the validity of
       an administrative rule, courts begin with the
       presumption that the rule is valid, and the party
       challenging the rule has the burden of
       demonstrating its invalidity.


       Cases that cite this headnote




[3]
       Administrative Law and Procedure
         Construction

       Courts construe administrative rules, which have
       the same force and effect as statutes, in the same
       manner as statutes.


       2 Cases that cite this headnote




[4]
       Workers’ Compensation
        Construction and operation

       In construing a rule issued by the Department of
       Insurance, Division of Workers’ Compensation
       (Division), a court’s primary objective is to give
       effect to the Division’s intent.


       Cases that cite this headnote




[5]
       Workers’ Compensation
        Construction and operation

       Courts defer to the an interpretation by the
       Department of Insurance, Division of Workers’

              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   2
Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



       Compensation (Division) of its own rules so
       long as that interpretation is reasonable and
       consistent with the plain language of the rule.
       V.T.C.A., Government Code § 311.023(6).


       Cases that cite this headnote




[6]
       Administrative Law and Procedure
         Administrative construction

       In an appeal of an agency interpretation of its
       own rule, court review is limited to determining
       whether the administrative interpretation is
       plainly erroneous or inconsistent with the rule.


       Cases that cite this headnote




[7]
       Administrative Law and Procedure
         Administrative construction

       If an agency fails to follow the clear,
       unambiguous language of its own regulation, a
       court must reverse its action as arbitrary and
       capricious.


       1 Cases that cite this headnote




[8]
       Administrative Law and Procedure
         Construction

       When construing an administrative rule, courts
       must read the rule as a whole, giving meaning
       and purpose to every part.


       1 Cases that cite this headnote




[9]
       Administrative Law and Procedure
         Construction

       Courts should not construe an administrative

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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



       rule in a way that would lead to an absurd or
       unreasonable result if another more reasonable
       construction or interpretation exists.


       Cases that cite this headnote




[10]
       Administrative Law and Procedure
         Construction

       When construing an administrative rule, courts
       give effect to all words in the rule and, if
       possible, do not treat any words as mere
       surplusage.


       1 Cases that cite this headnote




[11]
       Administrative Law and Procedure
         Construction

       Courts avoid construing administrative rules in a
       way that would render portions of the rule
       inoperable or meaningless.


       Cases that cite this headnote




[12]
       Workers’ Compensation
        Cost containment programs;  managed care

       Stop-loss exception rule adopted by Department
       of    Insurance,      Division    of    Workers’
       Compensation (Division), providing stop-loss
       exception to standard per diem methodology for
       inpatient hospital services to workers’
       compensation claimants, required hospitals to
       demonstrate more than that charges exceeded
       $40,000, and in addition required hospitals to
       demonstrate that the admission involved
       unusually costly and unusually extensive
       services; rule stated exception was established to
       ensure compensation for unusually costly and
       unusually extensive services during a hospital
       admission, that $40,000 was the minimum
       threshold and that the exception was to be
       allowed on a case-by-case basis, and an
              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   4
Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



       interpretation allowing exception to apply
       merely because charges exceeded $40,000
       would be contrary to mandate in Labor Code
       that Division achieve effective medical cost
       control. V.T.C.A., Labor Code § 413.011; 28
       TAC § 134.401(c)(6) (Repealed).


       2 Cases that cite this headnote




[13]
       Administrative Law and Procedure
         Validity

       The measure of the validity of an agency rule is
       whether it is constitutional and whether it
       conforms to the procedural and substantive
       statutes applicable to its adoption.


       Cases that cite this headnote




[14]
       Workers’ Compensation
        Rules and Orders

       Failure of Department of Insurance, Division of
       Workers’ Compensation (Division) to review
       and revise stop-loss rule exception to standard
       per diem methodology for inpatient hospital
       services to workers’ compensation claimants
       every two years and provide fee guidelines that
       followed        Medicare         reimbursement
       methodologies, as required by provisions in
       Labor Code, did not invalidate the rule, though
       Labor Code provisions used the word “shall,” as
       the legislature did not provide for any
       consequences for Division’s noncompliance
       with the directives. V.T.C.A., Labor Code §§
       413.011, 413.012; 28 TAC § 134.401(c)(6)
       (Repealed).


       Cases that cite this headnote




[15]
       Statutes
         Mandatory or directory statutes

       To determine whether the legislature intended a
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       provision to be mandatory or directory, courts
       consider the plain meaning of the words used, as
       well as the entire act, its nature and object, and
       the consequences that would follow from each
       construction.


       2 Cases that cite this headnote




[16]
       Statutes
         Purpose

       When a statute is silent about consequences of
       noncompliance, courts look to the statute’s
       purpose in determining the proper consequence
       of noncompliance.


       2 Cases that cite this headnote




[17]
       Time
         Statutory provisions

       If a statute requires that an act be performed
       within a certain time without any words
       restraining the act’s performance after that time,
       the timing provision is usually directory.


       2 Cases that cite this headnote




[18]
       Workers’ Compensation
        Liberal or strict construction in general

       Courts liberally construe workers’ compensation
       legislation to carry out its evident purpose of
       compensating injured workers and their
       dependents.


       Cases that cite this headnote




[19]
       Workers’ Compensation
        Cost containment programs;  managed care

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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)




       Fee guidelines for health care providers
       providing treatment to workers’ compensation
       claimants are just that, guidelines, and merely
       assist carriers and, upon review, the Department
       of     Insurance,     Division     of   Workers’
       Compensation (Division) in determining
       whether medical charges are fair and reasonable
       or satisfy the applicable standard.


       Cases that cite this headnote




[20]
       Workers’ Compensation
        Cost containment programs;  managed care

       There is no private right to an updated fee
       guideline or a guideline that uses a particular
       reimbursement methodology, for purposes of
       health care provider fees to care for workers’
       compensation claimants, so long as the
       reimbursement provided in the guideline is fair
       and reasonable.


       Cases that cite this headnote




[21]
       Workers’ Compensation
        Cost containment programs;  managed care

       Terms “unusually costly” and “unusually
       extensive,” in rule adopted by Department of
       Insurance, Division of Workers’ Compensation
       (Division) establishing stop-loss exception to
       standard per diem methodology for inpatient
       hospital services to workers’ compensation
       claimants, were not so vague and uncertain that
       their use in determining whether the exception
       applied would be arbitrary; terms only
       recognized that what was “unusually costly” and
       “unusually expensive” in a particular fee dispute
       was a fact-intensive inquiry best left to the
       Division’s determination on a case-by-case
       basis. 28 TAC § 134.401(c)(6) (Repealed).


       2 Cases that cite this headnote




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[22]
       Administrative Law and Procedure
         Validity
       Constitutional Law
         Rules and Regulations in General
       Constitutional Law
         Statutes in general

       There is no constitutional requirement that a
       statute or rule must define all of the terms used.


       Cases that cite this headnote




[23]
       Administrative Law and Procedure
         Validity

       Recognizing the myriad of factual situations that
       may arise and allowing administrative agencies
       sufficient flexibility when drafting their rules,
       courts require no more than a reasonable degree
       of certainty defining what is required or
       prohibited.


       Cases that cite this headnote




[24]
       Constitutional Law
         Rules and regulations

       Courts will invalidate an economic regulation
       only if it commands compliance in terms so
       vague and indefinite as really to be no rule or
       standard at all or if it is substantially
       incomprehensible.


       Cases that cite this headnote




[25]
       Workers’ Compensation
        Rules and Orders

       Staff report issued by Department of Insurance,
       Division of Workers’ Compensation (Division),
       regarding interpretation of Division rule
       establishing stop-loss exception to standard per
       diem methodology for inpatient hospital services
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       to workers’ compensation claimants, was not a
       rule within the meaning of the Administrative
       Procedures Act (APA) that had to be adopted in
       compliance with the APA; report was a
       one-page document prepared to address
       inconsistent applications of the stop-loss rule by
       Division’s medical dispute resolution officers
       (MDROs), and only proposed a correction to the
       internal inconsistency based on the language of
       the rule. V.T.C.A., Government Code §§
       2001.003(6), 2001.0225 to 2001.034; 28 TAC §
       134.401(c)(6) (Repealed).


       1 Cases that cite this headnote




[26]
       Administrative Law and Procedure
         Nature and Scope

       Not every administrative pronouncement is a
       rule within the meaning of the Administrative
       Procedures Act (APA); administrative agencies
       routinely issue letters, guidelines, and reports,
       and occasionally file briefs in court proceedings,
       any of which might contain statements that
       intrinsically implement, interpret, or prescribe
       law, policy, or procedure or practice
       requirements, and if such statements were rules,
       an agency could not carry out its legislative
       functions. V.T.C.A., Government Code §§
       2001.003(6), 2001.0225 to 2001.034.


       2 Cases that cite this headnote




[27]
       Workers’ Compensation
        Construction and operation

       The Department of Insurance, Division of
       Workers’      Compensation       (Division) has
       authority to interpret its own rules.


       Cases that cite this headnote




[28]
       Workers’ Compensation
        Cost containment programs;  managed care
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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)




        Rule adopted by Department of Insurance,
        Division of Workers’ Compensation (Division),
        establishing stop-loss exception to standard per
        diem methodology for inpatient hospital services
        to workers’ compensation claimants, did not
        allow workers’ compensation carriers to audit a
        health care provider’s charges for implantables,
        orthotics, and prosthetics to cost plus 10% when
        determining whether the $40,000 stop-loss
        threshold had been met. 28 TAC § 134.401(c)(6)
        (Repealed).


        1 Cases that cite this headnote




Attorneys and Law Firms

*542 Thomas B. Hudson Jr., Robin A. Melvin, Christopher H. Trickey, P. M. Schenkkan, Graves, Dougherty, Hearon &
Moody, P.C., Steven M. Tipton, Flahive, Ogden & Latson, P.C., Nicholas Canaday, III, Office of the Atty. Gen., Dudley D.
McCalla, Heath, Davis & McCalla, P.C., Mary Barrow Nichols, Mary Barrow Nichols, Gen. Counsel, Austin, for Appellants.

David F. Bragg, Law Office of David F. Bragg, P.C., Eric G. Carter, The Carter Law Firm, Austin, for Appellees.

Before Justices PATTERSON, WALDROP and HENSON.




                                                           OPINION


JAN P. PATTERSON, Justice.

This appeal concerns a challenge to the validity of a rule promulgated by the Texas Department of Insurance, Division of
Workers’ Compensation,1 regarding hospital fee reimbursement for inpatient services to injured workers’ compensation
patients. See 22 Tex. Reg. 6264–308 (July 4, 1997) (originally codified at 28 Tex. Admin. Code § 134.401), repealed, 33 Tex.
Reg. 5319 (July 4, 2008). Appellee Vista Community Medical Center, LLP, d/b/a Vista Medical Center Hospital filed suit
against the Division and appellant Texas Mutual Insurance Company in a medical fee reimbursement dispute seeking a
declaratory judgment that the “Stop–Loss Exception” in Rule 134.4012 was invalid. Another hospital, appellee Christus
Health Gulf Coast, and several insurance carriers, including appellants Liberty Mutual Insurance Company, Zenith Insurance
Company, and Zurich American Insurance Company, intervened and sought competing declarations regarding the validity of
Rule *543 134.401. The trial court severed the parties’ claims for declaratory relief and, after a bench trial, issued a final
judgment granting declaratory relief in favor of the hospitals and rejecting the Division’s interpretation of the Stop–Loss
Exception. Because we conclude there was error in the trial court’s judgment, we affirm the trial court’s judgment in part,
and reverse and render in part.

1
       The rule at issue was originally promulgated by the
       Texas Workers’ Compensation Commission in 1997,
       but the legislature abolished the TWCC in 2005 and
       transferred its duties and rules to the Division of
       Workers’ Compensation within the Texas Department

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        of Insurance. See Act of May 29, 2005, 79th Leg., R.S.,
        ch. 265, §§ 8.001(b), .004(a), 2005 Tex. Gen. Laws
        468, 607–11. In light of this change, we refer to the
        agency throughout this opinion as either the
        “Commission” or the “Division.”



2
        Rule 134.401 was adopted in 1997, see 22 Tex. Reg.
        6264 (July 4, 1997), and formerly codified at 28 Tex.
        Admin. Code § 134.401 (2007), but has since been
        repealed. See 33 Tex. Reg. 5319 (July 4, 2008)
        (repealing Rule 134.401). Because the 1997 rule
        remains in effect for admissions occurring prior to its
        repeal effective March 1, 2008, we refer to the rule as
        “Rule 134.401” or the “1997 guideline.”




                                      FACTUAL AND PROCEDURAL BACKGROUND

In 1989, the Texas Legislature enacted a new Workers’ Compensation Act that restructured workers’ compensation law in
Texas. See Tex. Lab.Code Ann. §§ 401.001–506.002 (West 2006 & Supp.2008).3 The Act charged the Division with the
difficult task of developing medical fee reimbursement guidelines that would ensure quality medical care for injured workers
and achieve effective medical cost control. Id. § 413.011; see also Patient Advocates v. Texas Workers’ Comp. Comm’n, 80
S.W.3d 66, 71 (Tex.App.-Austin 2002), aff’d in part, rev’d in part, 136 S.W.3d 643 (Tex.2004). To satisfy its legislative
mandate to balance these competing legislative policy goals, the Division adopted the 1992 hospital reimbursement guideline,
which was invalidated by this Court in 1995 for lack of a reasoned justification. See Texas Hosp. Ass’n v. Texas Workers’
Comp. Comm’n, 911 S.W.2d 884, 885–86, 888 (Tex.App.-Austin 1995, writ denied) (declaring “Rule 400” void because it
failed to include reasoned justification as required by section 2001.033 of the APA). In the wake of this Court’s decision, the
Division adopted the 1997 guideline, including the Stop–Loss Exception, at issue in this appeal. See 22 Tex. Reg. 6264.

3
        The Workers’ Compensation Act was initially located
        in articles 8303–1.01 through 8308–11.10 of the Texas
        Revised Civil Statutes, but was codified in the labor
        code in 1993. See Act of May 12, 1993, 73rd Leg.,
        R.S., ch. 269, 2003 Tex. Gen. Laws 987.




The 1997 Guideline
With certain exceptions, the 1997 guideline provides that hospitals are to be reimbursed for inpatient admissions under a
standard per diem methodology based on the category of admission. See generally Rule 134.401(c)(1)-(2). The 1997
guideline also specifies two exceptions to the standard per diem reimbursement methodology. Id. 134.401(c)(2)(C). These
two exceptions apply on a case-by-case basis and include the “Trauma–Burn–HIV,” or “TBHIV,” exception, and the
Stop–Loss Exception. See id. 134.401(c)(5) & (6). Only the Stop–Loss Exception is at issue in this appeal.

With regard to the Stop–Loss Exception, Rule 134.401(c)(6) provides:

    Stop-loss is an independent reimbursement methodology established to ensure fair and reasonable compensation to the
    hospital for unusually costly services rendered during treatment to an injured worker. This methodology shall be used in
    place of and not in addition to the per diem based reimbursement system. The diagnosis codes specified in paragraph (5) of
    this subsection are exempt from the stop-loss methodology and the entire admission shall be reimbursed at a fair and

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  reasonable rate.

    (A) Explanation

       (i) To be eligible for stop-loss payment the total audited charges for a hospital admission must exceed $40,000, the
       minimum stop-loss threshold.

       (ii) This stop-loss threshold is established to insure compensation for unusually extensive services required during an
       admission.

       *544 (iii) If audited charges exceed the stop-loss threshold, reimbursement for the entire admission shall be paid using
       a Stop–Loss Reimbursement Factor (SLRF) of 75%.

       (iv) The Stop–Loss Reimbursement Factor is multiplied by the total audited charges to determine the Workers’
       Compensation Reimbursement Amount (WCRA) for the admission.

       (v) Audited charges are those charges which remain after a bill review by the insurance carrier has been performed.
       Those charges which may be deducted are personal items (e.g., telephone, television). If an on-site audit is performed,
       charges for services which are not documented as rendered during the admission may be deducted. The formula to
       obtain audited charges is as follows: Total Charges–Deducted Charges = Audited Charges.

    (B) Formula. Audited Charges x SLRF = WCRA.

    (C) Example. Total Charges: $108,000; Deducted Charges: $8,001; Audited Charges: $99,999. $99,999 x 75% =
    $74,999.25 (WCRA).

Rule 134.401(c)(6). In addition, Rule 134.401 also defines the terms “Stop–Loss Payment,” “Stop–Loss Reimbursement
Factor,” and “Stop–Loss Threshold.” Id. § 134.401(b)(1)(F)-(H). Stop–Loss Payment is “[a]n independent method of
payment for an unusually costly or lengthy stay.” Id. § 134.401(b)(1)(F). Stop–Loss Reimbursement Factor is “[a] factor
established by the Commission to be used as a multiplier to establish a reimbursement amount when the total hospital charges
have exceeded specific stop-loss thresholds.” Id. § 134.401(b)(1)(G). Stop–Loss Threshold is “[the] Threshold of total
charges established by the Commission, beyond which reimbursement is calculated by multiplying the applicable Stop–Loss
Reimbursement Factor by the total charges identifying that particular threshold.” Id. § 134.401(b)(1)(H).

Rule 134.401 also sets forth certain general information as follows: All hospitals must bill their “usual and customary
charges.” Id. § 134.401(b)(2)(A). Hospital reimbursement for acute care hospital inpatient services rendered shall be the
lesser of pre-negotiated rates between the hospital and insurance carrier, the hospital’s usual and customary charges, or
reimbursement as set out in subsection (c) of Rule 134.401 for the particular admission. Id. § 134.401(b)(2)(A)(i)-(iii).
Additional Reimbursements as outlined in subsection (c)(4) will be determined on a case-by-case basis within the guidelines
established for the specific services rendered. Id. § 134.401(b)(2)(B). Finally, all hospital charges are subject to audit as
described in the Commission’s rules. Id. § 134.401(b)(2)(C).



Medical Fee Disputes
In 2001, with health care costs rising, the Division began to see a corresponding rise in the number of medical fee disputes
between hospitals and insurance carriers. Under the labor code, a health care provider dissatisfied with a carrier’s payment
can file an administrative dispute with the Division. See Tex. Lab.Code Ann. § 413.031(a) (West Supp.2008). A Division
employee known as a medical dispute resolution officer, or MDRO, reviews the complaint and documentation filed by the
provider and the carrier and determines the appropriate reimbursement due the provider under the labor code and the
Division’s rules. See id. § 413.031(c); 28 Tex. Admin. Code § 133.307 (2007). If either party is dissatisfied with the
MDRO’s decision, *545 that party can request a hearing before an Administrative Law Judge at the State Office of
Administrative Hearings (SOAH). See Tex. Lab.Code Ann. § 413.031(k).4 Under the labor code, the ALJ issues the final
administrative order. See id. §§ 402.073(b) (West Supp.2008), 413.031(k). But a party may seek judicial review of the ALJ’s
order in a Travis County District Court under the substantial evidence rule. See id. § 413.031(k–1).


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4
       There was a window of time between 2005 and 2007
       when a party was not entitled to request a hearing at
       SOAH. In 2005, the Legislature amended section
       413.031(k) to eliminate the option of requesting a
       hearing at SOAH in a medical fee dispute. See Act of
       May 29, 2005, 79th Leg., R.S., ch. 265, § 3.245, 2005
       Tex. Gen. Laws 469, 554 (amending section 413.031(k)
       of the labor code). But, in 2007, the Legislature
       re-wrote section 413.031(k) again and restored the
       option of requesting a SOAH hearing before seeking
       judicial review in a medical fee dispute. See Act of
       May 23, 2007, 80th Leg., R.S., ch. 1007, § 1, 2007 Tex.
       Gen. Laws 3525, 3525 (codified at Tex. Lab.Code Ann.
       § 413.031(k) (West Supp.2008)).



Many of these administrative fee disputes concerned the applicability of the Stop–Loss Exception. The hospitals argued that
the Stop–Loss Exception applied whenever the audited charges for a particular admission exceeded $40,000. The hospitals
thus urged that whenever the audited charges for a particular admission exceeded $40,000, reimbursement should be paid at
75% of the total audited charges using the Stop–Loss Reimbursement Factor in Rule 134.401. See Rule 134.401(c)(6)(A)(iii).
The insurance carriers disagreed and argued that reimbursing a hospital admission at 75% of the total audited charges
anytime those charges exceeded $40,000 would produce a windfall for the hospitals and defeat the statutory objective of
achieving effective medical cost control. Accordingly, the carriers urged that, in addition to total audited charges exceeding
$40,000, a hospital must prove that an admission involved “unusually costly” and “unusually extensive” services, before the
Stop–Loss Exception applied. Essentially, the carriers argued that the hospitals must satisfy a two-pronged test before
reimbursement under the Stop–Loss Exception applied.

When resolving these initial administrative disputes, the Division’s MDROs issued conflicting opinions regarding the
applicability of the Stop–Loss Exception. Some MDROs applied the Stop–Loss Exception whenever total audited charges
exceeded $40,000, and some MDROs applied the Stop–Loss Exception on a case-by-case basis only to those cases involving
unusually costly and unusually extensive services where total audited charges exceeded $40,000. For those cases appealed to
SOAH, the first SOAH decisions issued in 2001 applied the Stop–Loss Exception on a case-by-case basis only to those cases
involving unusually costly and unusually extensive services in which total audited charges exceeded $40,000. Thereafter,
SOAH ALJs issued conflicting decisions on when to apply the Stop–Loss Exception. Like the Division’s MDROs, some
ALJs applied the Stop–Loss Exception whenever total audited charges exceeded $40,000, and other ALJs applied the
Stop–Loss Exception on a case-by-case basis only in those cases involving unusually costly or unusually extensive services
where total audited charges exceeded $40,000.



The 2005 Staff Report & Resulting Appeals
When Allen McDonald became Director of the Medical Review Division in 2004, he identified an internal split among
Division employees over the proper interpretation and application of the Stop–Loss Exception. In the fall of 2004, McDonald
ordered *546 a halt in the issuance of MDRO decisions in Stop–Loss Exception disputes until he could investigate further. At
the January 2005 public meeting, the Division’s Chairman inquired about the inconsistent agency positions regarding the
Stop–Loss Exception. McDonald promised to report back at the next meeting. At the February 2005 public meeting,
McDonald presented the 2005 Staff Report, a one-page document in which McDonald explained the proper interpretation and
application of the Stop–Loss Exception. The 2005 Staff Report explained that in order to qualify for Stop–Loss Payment, an
admission must have audited charges exceeding $40,000 and the admission must involve unusually costly and unusually
extensive services. The agency Commissioners acknowledged McDonald for his presentation but took no official action
regarding the 2005 Staff Report.

Between February 2005 and June 2006, Division MDROs applied the two-part interpretation of the Stop–Loss Exception in
the 2005 Staff Report in almost 1,500 disputes. Many of these disputes, including the dispute that led to this case, were
appealed directly to the district court.5

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5
       These appeals were taken during the window of time
       when parties were not entitled to a hearing at SOAH.
       See note 4 supra. The parties have informed the Court
       that these appeals are inactive pending resolution of this
       appeal.




The 2007 En Banc Panel Decision
After the Staff Report was issued in 2005, SOAH began consolidating the Stop–Loss Exception disputes into one docket for
consideration of threshold legal issues. This docket was assigned to an en banc panel of nine SOAH ALJs in 2006. In January
2007, after briefing on a limited record, the en banc panel rejected the Division’s interpretation and application of the
Stop–Loss Exception as explained in the 2005 Staff Report and held, 7–2, that the Stop–Loss Exception applied in any case
in which total audited charges exceeded $40,000. The en banc panel held that this dollar amount threshold was the only
prerequisite for payment under the stop-loss method. In addition, the en banc panel held that a hospital’s implant charges,
regardless of mark-up, must be used when deciding whether the $40,000 threshold has been met. The en banc panel rejected
the carriers’ arguments that implant charges should be reduced to cost plus 10% as required in Rule 134.401 when
determining whether audited charges exceeded $40,000.

Since the issuance of the en banc panel decision, SOAH ALJ’s have ordered numerous reimbursements at 75% of audited
charges. Most carriers have paid under protest and perfected appeals to the district court in these cases.6

6
       The parties agree that these appeals are likewise
       inactive pending resolution of this appeal.




The Trial Court’s Judgment
The instant appeal originated in 2006 when Vista appealed one of the many decisions rendered by the Division’s MDROs
pursuant to the 2005 Staff Report. In addition to the suit for judicial review allowed under the labor code, Vista sought a
declaration under section 2001.038 of the Administrative Procedure Act, see Tex. Gov’t Code Ann. § 2001.038 (West 2000),
regarding the proper interpretation of the Stop–Loss Exception, as well as a declaration that the 2005 Staff Report was an
invalidly adopted rule.

As one of the defendants in Vista’s lawsuit, Texas Mutual filed an answer and counterclaim against Vista, as well as a
cross-claim against the Division challenging *547 the validity of Rule 134.401 and the Stop–Loss Exception. Texas Mutual
sought competing declarations that the 1997 guideline, properly interpreted: (1) required that charges for implants be audited
to cost plus 10% before determining whether an admission met the $40,000 minimum stop-loss threshold; and (2) required a
hospital to prove that the services provided in an admission were unusually costly and unusually extensive before that
admission was entitled to Stop–Loss Payment under Rule 134.401. Alternatively, Texas Mutual sought a declaration that the
Stop–Loss Exception was invalid because it violated statutory standards and was an unconstitutional delegation of the
Division’s legislative authority to private parties.

Several carriers and another hospital intervened and sought declaratory relief regarding the application and validity of the
Stop–Loss Exception. The trial court severed the parties’ claims for declaratory relief from Vista’s administrative appeal.
After a bench trial, the trial court entered final judgment with the following declarations:

     1. The Court declares that the stop-loss reimbursement methodology of the Acute Care Inpatient Hospital Fee Guideline
     found at 28 Texas Administrative Code § 134.401(c)(6) requires only that a provider prove that its total audited charges
     exceed $40,000 in order for the stop-loss reimbursement methodology to apply; there is no additional requirement that a
     provider prove that the admission was unusually costly, or unusually extensive[,] in order for the stop-loss

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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



       reimbursement methodology to apply.

       2. The Court declares that the Staff Report that was admitted into evidence as Vista Exhibit 9 and Joint Exhibit 4 is an
       administrative rule as defined in Tex. Gov’t Code § 2001.003(6) and is invalid and voidable because it was not adopted
       in substantial compliance with Tex. Gov’t Code § 2001.0225 through Tex. Gov’t Code § 2001.034.

       3. Instead of remanding the rule to the Division under Tex. Gov’t Code § 2001.040 to allow a reasonable time for the
       Division to either revise or readopt the rule through established procedures, the Court finds good cause to immediately
       invalidate the Staff Report because the Court holds that absent the addition of objective criteria, the phrases “unusually
       costly” and “unusually extensive” as used by the Division are so vague and uncertain that their use in determining
       whether the stop-loss reimbursement methodology applies would be arbitrary.

       4. The Court declares that when determining whether payment is due under 28 Tex. Admin. Code 134.401(c)(6), a
       carrier is authorized to audit all hospital charges in accordance with applicable Division retrospective rules, and is not
       limited to auditing for the deductions as described in 28 Tex. Admin. Code § 134.401(c)(6)(A)(v).

       5. The Court declares that under 28 Tex. Admin. Code § 134.401(c)(6), a carrier is not authorized to reduce the
       provider’s usual and customary charges for implantables, orthotics and prosthetics to cost plus 10% in determining
       whether the stop-loss reimbursement methodology applies for reimbursement purposes.

The trial court’s judgment denied all further relief not specifically granted and ordered that each party was to bear its own
costs, attorney’s fees, and other expenses. *548 The trial court denied Texas Mutual’s motion for new trial, and the insurance
carriers, including Texas Mutual, Liberty Mutual, Zenith, and Zurich American, appealed to this Court. The Division did not
appeal.




                                                         DISCUSSION

This appeal involves the proper interpretation and application of Rule 134.401. The carriers urge reversal of the trial court’s
judgment arguing that the trial court’s declarations erroneously interpret Rule 134.401. The hospitals counter that the trial
court’s judgment was proper and this Court should affirm. The Division does not appeal the trial court’s judgment but urges
this Court to reject the carriers’ challenges to the validity of Rule 134.401. For the reasons discussed below, we determine the
trial court erred in its interpretation of Rule 134.401.



Standard of Review
[1]
   We review the trial court’s declaratory judgment de novo. See City of San Antonio v. City of Boerne, 111 S.W.3d 22,
25–26 (Tex.2003).
[2] [3] [4] [5] [6] [7]
                   This appeal concerns a challenge to the validity of an administrative rule under section 2001.038 of the
government code. See Tex. Gov’t Code Ann. § 2001.038. When considering a challenge to the validity of an administrative
rule, we begin with the presumption that the rule is valid, and the party challenging the rule has the burden of demonstrating
its invalidity. See Office of Pub. Util. Counsel v. Public Util. Comm’n, 104 S.W.3d 225, 232 (Tex.App.-Austin 2003, no pet.);
McCarty v. Texas Parks & Wildlife Dep’t, 919 S.W.2d 853, 854 (Tex.App.-Austin 1996, no writ) (citing cases). We construe
administrative rules, which have the same force and effect as statutes, in the same manner as statutes. Rodriguez v. Service
Lloyds Ins. Co., 997 S.W.2d 248, 254 (Tex.1999); Lewis v. Jacksonville Bldg. & Loan Ass’n, 540 S.W.2d 307, 310
(Tex.1976). In construing a Division rule, our primary objective is to give effect to the Division’s intent. Rodriguez, 997
S.W.2d at 254. We defer to the Division’s interpretation of its own rules so long as that interpretation is reasonable and
consistent with the plain language of the rule. Public Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 (Tex.1991);
see also Tex. Gov’t Code Ann. § 311.023(6) (West 2005). Our review is limited to determining whether the administrative
interpretation is plainly erroneous or inconsistent with the rule. Gulf States Utils., 809 S.W.2d at 207 (citing United States v.
Larionoff, 431 U.S. 864, 872, 97 S.Ct. 2150, 53 L.Ed.2d 48 (1977)). However, if an agency fails to follow the clear,
unambiguous language of its own regulation, we must reverse its action as arbitrary and capricious. Id. (citing Sam Houston
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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



Elec. Coop., Inc. v. Public Util. Comm’n, 733 S.W.2d 905, 913 (Tex.App.-Austin 1987, writ denied)).



Carrier Claims
On appeal, the insurance carriers raise several challenges to the trial court’s judgment. In general, the carriers argue that the
trial court erred in its construction of Rule 134.401 and in its declaration that Rule 134.401 was a valid rule.7 The carriers
argue that Rule 134.401 is valid if properly interpreted. The carriers assert that the proper interpretation of Rule 134.401
requires proof that audited charges exceed $40,000, as well as proof that an admission involved unusually costly and
unusually extensive services, before an admission can be paid under the Stop– *549 Loss Exception. The carriers also argue
that the trial court erred in its declaration that the terms “unusually costly” and “unusually extensive” are so vague as to be
arbitrary and that the trial court should not have found the 2005 Staff Report to be an invalid rule. Finally, the carriers argue
that the trial court erred in its declaration that the charges for implantables, orthotics, and prosthetics could not be audited to
cost plus 10% when determining whether audited charges exceed $40,000.

7
          Certain carriers argue that Rule 134.401 has been
          invalid since its inception or that it has become invalid
          for the various reasons we discuss.



Alternatively, the carriers assert that Rule 134.401 as interpreted by the trial court is invalid because it fails to satisfy the
statutory requirements of labor code section 413.011. In particular, the carriers argue that Rule 134.401 as interpreted by the
trial court violates labor code section 413.011 because:

      • it does not result in fair and reasonable reimbursement;

      • it is not based on Medicare reimbursement policies and methodologies;

      • it has not been reviewed and revised every two years;

      • it no longer achieves effective medical cost control;

      • it constitutes an unconstitutional private delegation of agency authority;

      • it allows for reimbursement for medical services in excess of those amounts charged for similar treatment to
      individuals with an equivalent standard of living; and

      • it is inconsistent with the labor code definition of “medical benefit.”



1. Interpretation of the Stop–Loss Exception
We begin our analysis of the carriers’ claims with a review of the trial court’s interpretation of Rule 134.401. The carriers
challenge the trial court’s interpretation of the Stop–Loss Exception, or section 134.401(c)(6) of the rule. The plain language
of the rule provides that the stop-loss method is an independent reimbursement methodology established to ensure fair and
reasonable compensation to the hospital for unusually costly services rendered during treatment to an injured worker. See
Rule 134.401(c)(6). The rule also provides that the stop-loss threshold was established to ensure compensation for unusually
extensive services during a hospital admission and that an admission is eligible for stop-loss payment if the total audited
charges exceed $40,000. Id. § 134.401(c)(6)(A)(i)-(ii).
[8] [9] [10] [11]
              We construe administrative rules, which have the same force as statutes, in the same manner as statutes.
Rodriguez, 997 S.W.2d at 254. As when construing a statute, we must read the rule as a whole, giving meaning and purpose
to every part. See Sharp v. House of Lloyd, Inc., 815 S.W.2d 245, 249 (Tex.1991); Ex Parte Pruitt, 551 S.W.2d 706, 709
(Tex.1977). We should not construe a rule in a way that would lead to an absurd or unreasonable result if another more
reasonable construction or interpretation exists. See National Plan Adm’rs, Inc. v. National Health Ins. Co., 235 S.W.3d 695,

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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



701 (Tex.2007); C & H Nationwide v. Thompson, 903 S.W.2d 315, 322 n. 5 (Tex.1994). We give effect to all words in the
rule and, if possible, do not treat any words as mere surplusage. See Spradlin v. Jim Walter Homes, Inc., 34 S.W.3d 578, 580
(Tex.2000). Accordingly, we avoid construing rules in a way that would render portions of the rule inoperable or meaningless.
See id.
[12]
    The trial court’s declaration that a hospital need only demonstrate that total audited charges exceed $40,000 to be entitled
to payment under the Stop–Loss Exception is contrary to the plain language of the rule. The rule states that the Stop– *550
Loss Exception was established to ensure compensation for unusually costly and unusually extensive services during a
hospital admission. See Rule 134.401(c)(6). The rule also states that the stop-loss threshold was established to ensure
compensation for unusually extensive services during a hospital admission. Id. § 134.401(c)(6)(A)(ii). The trial court’s
declaration eliminates the Division’s ability under the rule to ensure that the Stop–Loss Exception provides compensation for
unusually costly and unusually extensive services.

The trial court’s declaration is inconsistent with other provisions in the rule. For example, the rule defines “Stop–Loss
Payment” as an independent method of payment for an unusually costly or lengthy stay. Id. § 134.401(b)(1)(F). But the trial
court’s declaration precludes consideration of whether a hospital admission was unusually costly or lengthy. In addition, the
rule states that $40,000 is the “minimum stop-loss threshold.” Id. § 134.401(c)(6)(A)(i) (emphasis added). By its terms, this
language suggests that there must be something more than a dollar amount to be considered when determining whether to
apply the Stop–Loss Exception. The basic structure of the rule is consistent with this concept: The rule provides that
reimbursement will be made under the standard per diem method unless an exception applies. Id. § 134.401(c)(2). The rule
further states that independent reimbursement under the Stop–Loss Exception will be “allowed on a case-by-case basis.” Id. §
134.401(c)(2)(C). This language suggests that the Stop–Loss Exception was meant to apply on a case-by-case basis in
relatively few cases. Without consideration of whether an admission involves unusually costly or unusually extensive
services, there can be no determination on a case-by-case basis, and the Stop–Loss Exception would mechanically apply in
all cases where total audited charges exceeded $40,000. Reading the language of the rule as a whole, this cannot be what the
Division intended.

The trial court’s declaration is also contrary to the legislative mandate in the labor code because it precludes the Division
from achieving effective medical cost control. Under the trial court’s interpretation, the Division cannot limit the application
of the Stop–Loss Exception to those cases involving unusually costly and unusually extensive services in which total audited
charges exceed $40,000. When the Division adopted the 1997 guideline, it provided for a standard per diem reimbursement
methodology with two exceptions. With the rise in health care costs as demonstrated by the record evidence in this case, the
trial court’s interpretation leads to the absurd and unreasonable result that reimbursement under the Stop–Loss Exception has
replaced the standard per diem method as the general method of hospital reimbursement. Stated differently, the exception has
now become the rule. We do not believe that this is what the Division intended when it adopted the 1997 guideline.

For these reasons, we conclude that the trial court’s interpretation is contrary to the plain language of the rule, renders
portions of the rule meaningless, and leads to results inconsistent with the intent of the statutory structure. A more reasonable
interpretation of the rule is that to be eligible for reimbursement under the Stop–Loss Exception, a hospital must demonstrate
that total audited charges exceed $40,000 and that an admission involved unusually costly and unusually extensive services.
This interpretation is consistent with the plain language of the rule, which states that the stop-loss method was established to
ensure fair and reasonable *551 compensation to the hospital for unusually costly and unusually extensive services. Id. §
134.401(c)(6), (c)(6)(A)(ii). It is likewise consistent with the interpretation urged by the Division in the 2005 Staff Report,
which we address more fully below. And it is consistent with the basic structure of the rule, which calls for reimbursement
under the standard per diem method except as allowed on a case-by-case basis under the Stop–Loss Exception. Accordingly,
we sustain the carriers’ challenge, reverse the trial court’s declaration, and render judgment that the Stop–Loss Exception
requires a hospital to demonstrate that total audited charges exceed $40,000 and that the admission involved unusually costly
and unusually extensive services to receive reimbursement under the stop-loss method.

We emphasize that, in light of the legislative mandate in section 413.011 of the labor code requiring the Division to adopt fee
guidelines designed to achieve both quality medical care and effective medical cost control, this is a more reasonable
interpretation of the Stop–Loss Exception in Rule 134.401. Furthermore, because we adopt the construction of the rule urged
by the carriers on appeal, we need not reach the carriers’ alternative claims that the rule, as construed by the trial court, is an
invalid delegation of the Division’s legislative authority. Nor do we reach the carriers’ claims that the rule, as interpreted by
the trial court, is invalid because it fails to provide fair and reasonable reimbursement, fails to achieve effective medical cost
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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



control, or allows for reimbursement for medical services in excess of those amounts charged for similar treatment to
individuals with an equivalent standard of living as required in section 413.011 of the labor code, or that the trial court’s
interpretation is inconsistent with the definition of “medical benefit” in labor code section 401.011(31).
[13] [14]
        To the extent certain carriers maintain that Rule 134.401 was invalid at its inception, or became invalid at some later
date, because the rule is not based on Medicare reimbursement policies and methodologies and has not been reviewed and
revised every two years, we find those claims to be without merit. While we agree with the carriers that section 413.011 of
the labor code currently requires the Division to adopt medical fee guidelines that follow Medicare reimbursement policies
and methodologies, see Tex. Lab.Code Ann. § 413.011(a), this requirement was not part of the statute when the Division
adopted Rule 134.401 in 1997 and was not added until 2001. SeeAct of May 25, 2001, 77th Leg., R.S., ch. 1456, § 6.02, 2001
Tex. Gen. Laws 5167, 5185 (amending section 413.011(a) to require the Division to “adopt the most current reimbursement
methodologies ... used by the federal Health Care Financing Administration”).8 Because this requirement was not part of the
statute in 1997, the rule was not invalid at its inception for failing to meet this requirement. Nor do we believe that the rule
became invalid at the moment this requirement was added to the statute in 2001.9

8
            This language was changed in 2005 from “Health Care
            Financing Administration” to “Centers for Medicare
            and Medicaid Services.” Act of May 29, 2005, 79th
            Leg., R.S., ch. 265, § 3.233, 2005 Tex. Gen. Laws 469,
            548.



9
            “The measure of the validity of an agency rule is
            whether it is constitutional and whether it conforms to
            the procedural and substantive statutes applicable to its
            adoption.” Texas Dep’t of Banking v. Restland Funeral
            Home, Inc., 847 S.W.2d 680, 683 (Tex.App.-Austin
            1993, no writ).



Similarly, we agree that section 413.012 states that the medical fee guidelines *552 “shall be reviewed and revised” every
two years to reflect fair and reasonable rates and to reflect reasonable and necessary ranges of medical treatment. See Tex.
Lab.Code Ann. § 413.012 (West 2006). But it does not follow that the Division’s failure to review and revise the 1997
guideline every two years since it was adopted invalidates the rule.
[15] [16] [17] [18]
              Although we generally construe the term “shall” as imposing a duty or obligation, see Tex. Gov’t Code Ann. §
311.016 (West 2005), Texas courts have, in certain circumstances, construed “shall” to be directory. See, e.g., Albertson’s Inc.
v. Sinclair, 984 S.W.2d 958, 961 (Tex.1999). To determine whether the legislature intended a provision to be mandatory or
directory, we consider the plain meaning of the words used, as well as the entire act, its nature and object, and the
consequences that would follow from each construction. See Schepps v. Presbyterian Hosp. of Dallas, 652 S.W.2d 934, 936
(Tex.1983) (citing Chisholm v. Bewley Mills, 155 Tex. 400, 287 S.W.2d 943, 945 (1956)). The supreme court has held that
“provisions which are not of the essence of the thing to be done,” but are directed instead towards the prompt and orderly
conduct of business, are not generally considered mandatory. Id. When a statute is silent about consequences of
noncompliance, we look to the statute’s purpose in determining the proper consequence of noncompliance. Id. at 938. “If a
provision requires that an act be performed within a certain time without any words restraining the act’s performance after
that time, the timing provision is usually directory.” Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 495 (Tex.2001). Further,
we liberally construe workers’ compensation legislation to carry out its evident purpose of compensating injured workers and
their dependents. See Lujan v. Houston Gen. Ins. Co., 756 S.W.2d 295, 297 (Tex.1988); Ward v. Charter Oak Fire Ins. Co.,
579 S.W.2d 909, 910 (Tex.1979).

The legislature has provided no consequences for the Division’s unfortunate noncompliance with the statutory directives in
section 413.011 or 413.012 of the labor code. If the legislature had intended consequences for the failure to adopt Medicare
reimbursement methodologies or the failure to review and revise the fee guidelines, it could have spelled out those
consequences in the statute. With regard to the legislature’s requirement that the Division adopt new treatment guidelines for

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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)



injured workers, the legislature expressly provided that “[t]he treatment guidelines adopted under Chapter 413, in effect
immediately before September 1, 2001, are abolished on January 1, 2002.” See Act of May 25, 2001, 77th Leg., R.S., ch.
1456, § 6.09(b), 2001 Tex. Gen. Laws 5167, 5188. It speaks volumes that the legislature provided no consequences for the
failure to adopt Medicare reimbursement methodologies or the failure to review and revise the fee guidelines every two
years.
[19] [20]
       The carriers do not complain that the reimbursement rates under the 1997 guideline, as properly interpreted, are
unreasonable. Nor have the carriers demonstrated harm from the application of the reimbursement rates in the 1997 guideline.
Fee guidelines are just that—guidelines. They “merely assist carriers and, upon review, the [Division] in determining whether
medical charges are ‘fair and reasonable’ or satisfy the applicable standard.” Methodist Hosp. v. Texas Workers’ Comp.
Comm’n, 874 S.W.2d 144, 149–50 (Tex.App.-Austin 1994, writ dism’d w.o.j.). This Court has previously held that there is
no private right to a fee guideline established by rule. See *553 Texas Workers’ Comp. Comm’n v. East Side Surgical Ctr.,
142 S.W.3d 541, 549 (Tex.App.-Austin 2004, no pet.) (“East Side is only entitled to ‘fair and reasonable’ reimbursement-not
to have the fee guidelines established by rule.”). Accordingly, there can be no private right to an updated fee guideline or a
guideline that uses a particular reimbursement methodology, so long as the reimbursement provided in the guideline is fair
and reasonable. See id.

For these reasons, we conclude that the labor code’s requirement to adopt fee guidelines that follow Medicare reimbursement
methodologies and to review and revise these guidelines every two years are directory, not mandatory.10 We further conclude
that the Division’s failure to comply with these statutory directives does not invalidate the 1997 guideline, or Rule 134.401.

10
            We reject the carriers’ argument that this Court’s
            opinion in Texas Medical Association v. Texas Workers
            Compensation Commission, 137 S.W.3d 342
            (Tex.App.-Austin 2004, no pet.), requires a different
            result. In Texas Medical Association, this Court stated
            that “the Commission has the ongoing statutory duty to
            review and revise the fee guidelines to ensure they are
            in compliance with the statutory factors,” see id. at 350
            (citing Tex. Lab.Code Ann. § 413.012 (West 2006)),
            but this Court did not consider whether that “ongoing
            duty” was mandatory or directory. See id. Nor did this
            Court consider the appropriate consequence for
            noncompliance with this “ongoing duty.” Thus, our
            opinion in Texas Medical Association does not answer
            the question before us today-namely, whether this
            Court may invalidate an agency rule for noncompliance
            with a statutory directive when the legislature is silent.




2. “Unusually Costly” and “Unusually Extensive”
[21]
     Within their challenge to the trial court’s interpretation of Rule 134.401, the carriers argue that the trial court erred in its
determination that the terms “unusually costly” and “unusually extensive” are “so vague and uncertain that their use in
determining whether the [Stop–Loss Exception] applies would be arbitrary.” The carriers assert that such industry terms are
knowable, calculable, and determinable and provide reasonably clear guidance to those parties affected by the rule.11 We
agree.

11
            The record demonstrates that MDROs, carriers, and
            hospitals understand and are familiar with these terms
            because they have been previously utilized and applied
            in other cases since the 1997 guideline was
            promulgated.



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Texas Mut. Ins. Co. v. Vista Community Medical Center, LLP, 275 S.W.3d 538 (2008)




This Court has previously held that where an “idea embodied in a phrase is reasonably clear, a court should find it acceptable
as a standard of measurement.” Texas Bldg. Owners & Managers Ass’n v. Public Util. Comm’n, 110 S.W.3d 524, 535
(Tex.App.-Austin 2003, pet. denied). The supreme court has also recognized that a broad standard encompassing a multitude
of factors will pass constitutional scrutiny if it is no more extensive than the public interest demands. See Jordan v. State Bd.
of Ins., 160 Tex. 506, 334 S.W.2d 278, 280 (1960); Housing Auth. v. Higginbotham, 135 Tex. 158, 143 S.W.2d 79, 87 (1940).
Examples of standards upheld by Texas courts include “not worthy of public confidence,” “unjust, fair, inequitable,
misleading, deceptive,” and “just and reasonable.” See Texas Bldg. Owners & Managers Ass’n, 110 S.W.3d at 535 (citing
cases).

We have held that Rule 134.401 requires a provider to demonstrate that the services it has provided are “unusually costly”
and “unusually extensive” in order to be reimbursed under the stop-loss methodology. The phrases “unusually costly” and
“unusually extensive” are no more vague or uncertain than other standards previously upheld by Texas courts. See id.
(discussing standards and citing cases). They are no more vague or uncertain than other standards in the labor code requiring
*554 fee guidelines to be “fair and reasonable,” “ensure quality medical care,” and “achieve effective medical cost control.”
See Tex. Lab.Code Ann. § 413.011(d). What is unusually costly and unusually extensive in any particular fee dispute remains
a fact-intensive inquiry best left to the Division’s determination on a case-by-case basis. See Texas Bldg. Owners &
Managers Ass’n, 110 S.W.3d at 536 (holding that what is “reasonable” and “nondiscriminatory” is fact-intensive inquiry best
left to discretion of Public Utility Commission).

No party disputes that the labor code delegates authority to the Division to establish medical fee guidelines, resolve medical
fee disputes, and “adjudicate the payment given the relevant statutory provisions and commissioner rules.” Id. §§ 413.011(d)
(establish fee guidelines), .031(c) (adjudicate payment due). The scope of this authority includes the discretion to establish
appropriate standards for reimbursement and to determine whether those standards have been met. Id. §§ 413.011(d), .031(c);
see also Texas Bldg. Owners & Managers Ass’n, 110 S.W.3d at 535–36 (commission’s authority to require payment of
“reasonable” and “nondiscriminatory” compensation includes power to determine what is reasonable and nondiscriminatory
when dispute arises). To the extent the parties are dissatisfied with the Division’s determination, the labor code provides for
review by SOAH and appeal to the courts. See Tex. Lab.Code Ann. § 413.031(k).12

12
          See also note 4 supra (explaining that between 2005
          and 2007 the legislature provided for direct appeal to
          the courts without allowing an administrative hearing at
          SOAH).


[22] [23] [24]
            There is no constitutional requirement that a statute or rule must define all of the terms used. See Rooms with a
View, Inc. v. Private Nat’l Mortgage Ass’n, Inc., 7 S.W.3d 840, 845 (Tex.App.-Austin 1999, pet. denied); Garay v. State, 940
S.W.2d 211, 219 (Tex.App.-Houston [1st Dist.] 1997, pet. ref’d). Recognizing the myriad of factual situations that may arise
and allowing administrative agencies sufficient flexibility when drafting their rules, courts require no more than a reasonable
degree of certainty defining what is required or prohibited. See Pennington v. Singleton, 606 S.W.2d 682, 689 (Tex.1980).
Courts will invalidate an economic regulation “only if it commands compliance in terms so vague and indefinite as really to
be no rule or standard at all ... or if it is substantially incomprehensible.” Ford Motor Co. v. Texas Dep’t of Transp., 264 F.3d
493, 507 (5th Cir.2001) (internal quotation omitted); see also Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S.
489, 498, 102 S.Ct. 1186, 71 L.Ed.2d 362 (1982) (“Economic regulation is subject to a less strict vagueness test.”). Applying
these principles to Rule 134.401, we conclude that the phrases “unusually costly” and “unusually extensive” are sufficiently
definite to provide guidance to the MDROs and ALJs who review and determine medical fee disputes on a case-by-case basis.
See Hoffman Estates, 455 U.S. at 498, 102 S.Ct. 1186; Commission for Lawyer Discipline v. Benton, 980 S.W.2d 425, 437
(Tex.1998). Therefore, we sustain the carriers’ challenge and reverse the trial court’s declaration to the contrary.



3. 2005 Staff Report
[25]
     The carriers also challenge the trial court’s determination that the 2005 Staff Report was an invalid and voidable rule. In
its second declaration, the trial court held that the 2005 Staff Report was an administrative rule as defined in section

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2001.003(6) of the government code, and that it was invalid and voidable because it *555 was not adopted in compliance
with government code sections 2001.0225 through 2001.034. See Tex. Gov’t Code Ann. §§ 2001.003, .0225–.034 (West
2000) (defining “rule” and establishing rulemaking procedures). In its third declaration, the trial court invalidated the 2005
Staff Report because it found that the Division’s use of the phrases “unusually costly” and “unusually extensive” in
determining whether the Stop–Loss Exception applies would be arbitrary. The carriers urge this Court to reverse the trial
court’s declarations.

We agree with the carriers that the 2005 Staff Report is not an invalid and voidable rule. The APA defines a rule as “a state
agency statement of general applicability that ... implements, interprets, or prescribes law or policy; or ... describes the
procedure or practice requirements of a state agency.” Tex. Gov’t Code Ann. § 2001.003(6)(A). The APA definition of a rule
includes “the amendment or repeal of a prior rule,” but it does not include “a statement regarding only the internal
management or organization of a state agency and not affecting private rights or procedures.” Id. § 2001.003(6)(B)-(C).

As a preliminary matter, we conclude that the 2005 Staff Report was not a statement by a state agency. The 2005 Staff Report
was a one-page document prepared by the director of the Medical Review Division within the Division that was intended to
address an internal agency matter—namely, the inconsistent application of Rule 134.401. The 2005 Staff Report was
presented to the Division at the January 2005 open meeting, but the Division simply thanked the director for the report and
took no official action. The 2005 Staff Report recognized that the Division’s MDROs had a history of inconsistently applying
Rule 134.401, and proposed a correction to that internal inconsistency based on the language of Rule 134.401. For this reason,
we conclude that the 2005 Staff Report was not a statement of the agency within the meaning of the APA.
[26]
    Even if we recognized the 2005 Staff Report as an agency statement, it is well-established that not every administrative
pronouncement is a rule within the meaning of the APA. See Texas Educ. Agency v. Leeper, 893 S.W.2d 432, 443 (Tex.1994);
Brinkley v. Texas Lottery Comm’n, 986 S.W.2d 764, 769 (Tex.App.-Austin 1999, no pet.). “This observation refers to the fact
that administrative agencies routinely issue letters, guidelines, and reports, and occasionally file briefs in court proceedings,
any of which might contain statements that intrinsically implement, interpret, or prescribe law, policy, or procedure or
practice requirements.” Brinkley, 986 S.W.2d at 769. If such statements were rules, an agency could not carry out its
legislative functions: “How, under such a theory, could an agency practically express its views to an informal conference or
advisory committee, or state its reasons for denying a petition to adopt a rule or file a brief in a court or agency proceeding?”
Id.
[27]
    The supreme court in El Paso Hospital District v. Texas Health and Human Services Commission, 247 S.W.3d 709
(Tex.2008), analyzed whether an agency’s interpretation of its own rule was also a rule.13 In that case, the HHSC had
interpreted its rule to impose a February 28th cutoff date when calculating Medicaid reimbursement rates. Under the rule’s
definition of “base year,” the HHSC was required to use “ ‘[a] 12–consecutive–month period of claims data,’ to calculate the
[h]ospitals’ rates.” See id. at 714 (quoting *556 1 Tex. Admin. Code § 355.8063(b)(5)). The supreme court concluded that the
February 28th cutoff was contrary to the rule’s definition of base year because it excluded several claims from the calculation
of the hospitals’ rates and thus amended the plain language of the rule. Id. Because the HHSC had not followed APA
rulemaking procedures to promulgate the February 28th cutoff, the supreme court also held that it was invalid and enjoined
the HHSC from using the February 28th cutoff to calculate the hospitals’ reimbursement rates. Id. at 715 (citing Tex. Gov’t
Code Ann. § 2001.035 (West 2000)).

13
       It is undisputed that the Division has authority to
       interpret its own rules.



Unlike the HHSC’s interpretation in El Paso Hospital District, the 2005 Staff Report does not contradict Rule 134.401.
Moreover, assuming the 2005 Staff Report is an agency statement, it is a statement regarding the agency’s internal
management that does not affect private rights. See Tex. Gov’t Code Ann. § 2001.003(6)(C). The 2005 Staff Report is a
statement regarding internal management because it is designed to correct MDROs’ inconsistent application of the Stop–Loss
Exception. It also allowed the agency to function effectively and produced clarity of direction in a highly technical area. The
2005 Staff Report did not affect private rights because it did not change or amend Rule 134.401; it simply mandated internal
consistency when applying the rule.


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We also reject the hospitals’ argument that the 2005 Staff Report was a “new” interpretation of Rule 134.401. The record
before us demonstrates that MDROs in the Division, as well as SOAH ALJs, had issued conflicting opinions interpreting and
applying the Stop–Loss Exception in Rule 134.401 before the 2005 Staff Report was issued. Some MDROs and ALJs
interpreted and applied the Stop–Loss Exception in the same manner as the 2005 Staff Report, and some did not. Because
there were prior opinions and decisions interpreting and applying the Stop–Loss Exception in the same manner as the 2005
Staff Report, that report cannot, by definition, be a “new” interpretation of Rule 134.401.

For these reasons, we conclude that the 2005 Staff Report was not a rule within the meaning of the APA and, therefore, was
not subject to APA rulemaking procedures. We sustain the carriers’ challenge and reverse the trial court’s declaration that the
2005 Staff Report was an invalidly adopted rule.



4. Reimbursement for Implantables, Orthotics, and Prosthetics
[28]
    The carriers also challenge the trial court’s declaration that Rule 134.401 does not allow a carrier to audit a provider’s
charges for implantables, orthotics, and prosthetics to cost plus 10% when determining whether the $40,000 stop-loss
threshold has been met. For the following reasons we overrule the carriers’ challenge and sustain the trial court’s judgment.

Rule 134.401 specifically carves out reimbursement for implantables, orthotics, and prosthetics. See Rule 134.401(b)(2)(B)
(general information regarding additional reimbursements), (c)(4) (“Additional Reimbursements”). When medically
necessary, implantables, orthotics, and prosthetics are reimbursed as “Additional Reimbursements” under the rule.14 Id. §
134.401(c)(4)(A). As provided in the rule, implantables, orthotics, and prosthetics shall be reimbursed at the cost to the
hospital plus 10%. Id. Rule 134.401 also *557 provides that “[a]ll charges are subject to audit as described in the
Commission rules.” Id. § 134.401(b)(2)(C). Rule 134.401 provides that when audited charges exceed the $40,000 stop-loss
threshold, the entire admission shall be reimbursed using the 75% stop-loss reimbursement factor. Id. § 134.401(c)(6)(A)(iii).

14
       Also included in the category of “Additional
       Reimbursements” are magnetic resonance imaging
       (MRIs), computerized axial tomography (CAT scans),
       hyperbaric oxygen, blood, air ambulance, and
       pharmaceuticals. Rule 134.401(c)(4)(B)-(C).



Reading these provisions together, we conclude that the charges for implantables, orthotics, and prosthetics must be audited
before those charges can be used to determine whether the $40,000 stop-loss threshold has been met. The question then
becomes audited to what? The carriers argue that these costs should be reduced, or audited, to cost plus 10% as specified in
section 134.401(c)(4)(A). We do not believe this is what the Commission intended. Consider the following example: if the
cost for implantables in a given admission was $40,000, under the carriers’ interpretation, this cost would be audited to cost
plus 10%, or $44,000, for purposes of determining whether the Stop–Loss Exception applied. Assuming that the admission
involved unusually costly and unusually extensive services and because $44,000 is greater than $40,000, the Stop–Loss
Exception would apply. Therefore, the entire admission would be reimbursed using the following formula:
  Audited Charges x 75% SLRF15 = WCRA16

15
       SLRF means “Stop–Loss Reimbursement Factor.” See
       Rule 134.401(c)(6)(A).



16
       WCRA      means      “Workers’        Compensation
       Reimbursement Amount.” See id.



See Rule 134.401(c)(6)(B). Applying this formula to the example, the hospital would be reimbursed only $33,000, or $7,000
less than its cost, for the implantables. Under this example, the hospital, or other provider, would incur a loss.

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Because providers would incur losses under the carriers’ proposed construction of the rule, that interpretation would be
contrary to the statutory requirement that fee guidelines be “fair and reasonable.” See Tex. Lab.Code Ann. § 413.011(d). We
cannot construe the rule in a manner that is inconsistent with the statute. See, e.g., CenterPoint Energy, Inc. v. Public Util.
Comm’n, 143 S.W.3d 81, 85 (Tex.2004) (observing that rule is invalid if it violates statutory provision); Texas Workers’
Comp. Comm’n v. Patient Advocates, 136 S.W.3d 643, 657–58 (Tex.2004) (upholding rule as consistent with statute);
National Plan Adm’rs, Inc., 235 S.W.3d at 701 (courts should not construe statute in manner that leads to absurd results); C
& H Nationwide, 903 S.W.2d at 322 n. 5 (same).

For these reasons, we conclude there was no error in the trial court’s declaration that the costs for implantables, orthotics, and
prosthetics should not be reduced to cost plus 10% when determining whether the $40,000 stop-loss threshold has been met.
This is consistent with the plain language of the rule and section 413.011 of the labor code. It is likewise consistent with the
trial court’s judgment that a carrier is authorized to audit all hospital charges in accordance with applicable Division
retrospective review rules, which we affirm because no party has challenged that declaration on appeal.




                                                        CONCLUSION

Having considered all of the parties’ issues, we affirm the trial court’s judgment that carriers may audit a provider’s charges
as permitted by the Division’s rules and that a carrier may not reduce the charges for implantables, orthotics, and prosthetics
to cost plus 10% when determining whether the Stop–Loss Exception applies. We reverse the trial *558 court’s judgment that
the Stop–Loss Exception applies to any admission in which audited charges exceed $40,000, and we render judgment that, to
establish eligibility for reimbursement under the Stop–Loss methodology, a provider must demonstrate that audited charges
exceed $40,000 and that the services provided were unusually costly and unusually extensive so as to allow application of the
exception. We also reverse the trial court’s judgment that the 2005 Staff Report is an invalid rule and that the phrases
“unusually costly” and “unusually extensive” are so vague and uncertain that their use by the Division in determining
whether the Stop–Loss Exception applies would be arbitrary.



All Citations

275 S.W.3d 538

  End of Document                                              © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                           23
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)




                                                      447 S.W.3d 520
                                                  Court of Appeals of Texas,
                                                           Austin.

       The Texas State Board of Pharmacy, and in their official capacities only, Gay Dodson, Executive Director; and
                                 Jeanne D. Waggener, President of the Board, Appellants
                                                             v.
                                             Tiana Jean Witcher, Appellee

                                      NO. 03–12–00560–CV | Filed: October 31, 2014



Synopsis
Background: Pharmacist filed suit for judicial review of Board of Pharmacy’s order indefinitely suspending her pharmacist
license. The District Court, Travis County, 345th Judicial District, Tim Sulak, P.J., reversed and remanded. Board appealed.



Holdings: The Court of Appeals, J. Woodfin Jones, C.J., held that:
[1]
      reciprocal-sanctions policy was a “rule” within meaning of Administrative Procedure Act (APA), and
[2]
   issue was not novel or one with which Board was unfamiliar, making imposed adjudicative reciprocal sanctions policy
invalid.


Affirmed; motion for rehearing overruled.

Melissa Goodwin, J., dissented and filed opinion.




  West Headnotes (13)


 [1]
           Health
             Order, Judgment, or Remedy

           Board of Pharmacy applied reciprocal-sanctions
           policy to pharmacist, enforcing suspension of
           her state license concurrent with suspension of
           her out-of-state license, without regard to her
           individual circumstances and in attempt to
           promote      consistent   sanctions    generally
           applicable to all pharmacists licensed in other
           states, and therefore policy was “rule” within
           meaning of Administrative Procedure Act
           (APA), rather than statement regarding only
           internal management or organization of Board,
           not affecting private rights or procedures;
           sanctions were imposed on pharmacist despite
           Board’s adoption of ALJ’s findings that
                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                    1
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



       mitigating factors outweighed aggravating
       factors considered in assessing appropriate
       disciplinary penalty, and sanctions were,
       according to testimony from Board member,
       “Board’s policy” and “standard sanction” in
       such circumstances. Tex. Gov’t Code Ann. §
       2001.003(6)(c); 22 Tex. Admin. Code §§
       281.60(c), 281.62.


       1 Cases that cite this headnote




[2]
       Administrative Law and Procedure
         Validity

       Rule that is not properly promulgated under
       mandatory Administrative Procedure Act (APA)
       procedures is invalid. Tex. Gov’t Code Ann. §
       2001.174(2).


       Cases that cite this headnote




[3]
       Administrative Law and Procedure
         Reversal

       Agency decision based on invalid rule must be
       reversed and remanded to agency if substantial
       rights of appellant have been prejudiced thereby.
       Tex. Gov’t Code Ann. § 2001.174(2).


       Cases that cite this headnote




[4]
       Administrative Law and Procedure
           Discretion of Administrative Agency
       Administrative Law and Procedure
           Arbitrary, unreasonable or capricious action;
       illegality

       An agency’s decision is arbitrary or results from
       an abuse of discretion if the agency weighs only
       relevant factors that the legislature directs it to
       consider but still reaches a completely
       unreasonable result.



              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   2
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)




       Cases that cite this headnote




[5]
       Administrative Law and Procedure
         Stare decisis; estoppel to change decision

       Although agency is not bound to follow its
       decisions in contested cases in same way that
       court is bound by precedent, agency is required
       by courts to explain its reasoning when it
       appears to reviewing court that agency has
       departed from its earlier administrative policy or
       there exists apparent inconsistency in agency
       determinations.


       Cases that cite this headnote




[6]
       Health
         Order, Judgment, or Remedy

       Case wherein Board of Pharmacy imposed
       adjudicative reciprocal-sanctions policy to
       suspend pharmacist’s license whose out-of-state
       license had been suspended was not novel issue
       with which Board was unfamiliar, and thus it did
       not qualify as circumstance wherein adjudicative
       rulemaking was appropriate, making Board’s
       reciprocal-sanctions policy invalid; Board
       adjudicated policy in prior case wherein it
       referenced existence of other cases involving
       reciprocal sanctions, and Board member
       testified that imposing reciprocal sanctions was
       “Board’s policy” and their “standard sanction”
       under such circumstances. Tex. Gov’t Code
       Ann. § 2001.035(a).


       Cases that cite this headnote




[7]
       Administrative Law and Procedure
         Notice and comment, necessity

       Ad hoc rulemaking is a narrow exception to the
       Administrative Procedure Act’s (APA) mandate
       that agency rules be adopted through
       notice-and-comment rulemaking procedures.
              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   3
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



       Tex. Gov’t Code Ann. § 2001.174(2).


       1 Cases that cite this headnote




[8]
       Administrative Law and Procedure
         Duty to make

       Unless mandated by statute, the choice by an
       agency to proceed by general rule or by ad hoc
       adjudication is one that lies primarily in the
       informed discretion of the agency.


       Cases that cite this headnote




[9]
       Administrative Law and Procedure
         Duty to make
       Administrative Law and Procedure
         Notice and comment, necessity

       When an agency seeks to adopt rules of general
       applicability, there is a presumption favoring the
       fairness and public participation that accompany
       formal rulemaking under the Administrative
       Procedure Act (APA) because allowing an
       agency to amend its rules through administrative
       adjudication undercuts the APA. Tex. Gov’t
       Code Ann. § 2001.174(2).


       2 Cases that cite this headnote




[10]
       Administrative Law and Procedure
         Duty to make

       In exceptional cases, an agency may choose to
       formulate and enforce a general requirement
       through a decision in a particular case, but that
       may be done only when using the rulemaking
       procedure would frustrate the effective
       accomplishment of the agency’s functions. Tex.
       Gov’t Code Ann. § 2001.174(2).


       Cases that cite this headnote


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.   4
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)




[11]
       Health
         Review

       Board of Pharmacy waived appellate review of
       any error in trial court’s order concerning the
       scope of remand following invalidation of
       Board’s reciprocal-discipline policy as an
       invalid rule not promulgated in accordance with
       Administrative Procedure Act (APA), where
       Board did not challenge the trial court’s order
       with respect to the scope of remand. Tex. Gov’t
       Code Ann. § 2001.174(2).


       Cases that cite this headnote




[12]
       States
         What are suits against state or state officers

       Subject to the limited “ultra vires” exception,
       sovereign immunity protects state officers sued
       in their official capacities to the same extent that
       it protects their employers.


       Cases that cite this headnote




[13]
       Health
         Pharmacists

       Members of Board of Pharmacy who were sued
       in their official capacity did not have sovereign
       immunity from pharmacist’s action challenging
       Board’s reciprocal-sanctions policy as an invalid
       rule not adopted in accordance with
       Administrative Procedure Act (APA), since
       APA waived Board’s immunity from suit. Tex.
       Gov’t Code Ann. §§ 2001.171, 2001.174(2).


       Cases that cite this headnote




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.   5
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL                                           *522 DISTRICT, NO.
D–1–GN–12–000026, HONORABLE TIM SULAK, JUDGE PRESIDING

Attorneys and Law Firms

Dan Lype, Andre D’Souza, Louis Leichter, for Tiana Jean Witcher.

Kristofer S. Monson, for The Texas State Board of Pharmacy, Gay Dodson and Jeanne D. Waggener.
Before Chief Justice Jones, Justices Goodwin and Field




                                               ON MOTION FOR REHEARING



                                                              OPINION


J. Woodfin Jones, Chief Justice

We withdraw our opinion and judgment dated May 3, 2013, and substitute the following in its place. The appellants’ motion
for rehearing is overruled.

After a contested-case hearing, the Texas State Board of Pharmacy (“the Board”) indefinitely suspended Tiana Jean
Witcher’s pharmacist license. Witcher filed a suit for judicial review of the Board’s order. See Tex. Gov’t Code § 2001.176.
The trial court reversed the Board’s order and remanded the cause to the Board, concluding that the indefinite suspension of
Witcher’s license was arbitrary and capricious and also was based on an invalid rule. See id. § 2001.174(2). We will affirm
the trial court’s judgment.




                                     FACTUAL AND PROCEDURAL BACKGROUND

The facts of this case are largely undisputed. Witcher received her Texas pharmacist license in 1987 and her North Carolina
pharmacist license in 1992 via reciprocity. In November 2007, her husband died in a car accident two weeks after they were
married. In October 2008, near the anniversary of his death, Witcher became so intoxicated during her personal time that she
had to be treated for alcohol poisoning. On the advice of a colleague, Witcher self-referred to the North Carolina Pharmacist
Recovery Network (NCPRN), a program that aids impaired pharmacists, to address alcohol-abuse issues in her personal life.
She voluntarily entered into a monitoring contract with NCPRN in January 2009.

Witcher subsequently came under scrutiny by the North Carolina licensing authority when she failed to comply with some of
the terms of her voluntary monitoring agreement with the NCPRN. Due to the compliance issues, the North Carolina
licensing authority suspended Witcher’s pharmacist license in April 2010 based on concerns that she was unfit to practice
pharmacy. In suspending Witcher’s license, the North Carolina licensing authority found that she had “[i]ndulged in the use
of drugs to an extent that renders the pharmacist unfit to practice pharmacy” and “[d]eveloped a physical or mental disability
that render[ed her] unfit to practice pharmacy with reasonable skill, competence and safety to the public.” See N.C. Gen.Stat.
Ann. § 90–85.38(a)(3), (5). Under the North Carolina suspension order, Witcher is ineligible to petition for reinstatement of
her license until the NCPRN advocates for its reinstatement, a condition presumably directed to ensuring her fitness to
practice pharmacy.1 The North Carolina order further specifies that only the NCPRN may monitor Witcher’s recovery.

1
       The North Carolina suspension order notes that
       becoming eligible to petition for reinstatement does not
       guarantee that such petition will be granted. Thus, even

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                        6
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



       if Witcher satisfies the precondition to applying for
       reinstatement, her license would remain suspended
       indefinitely under the North Carolina suspension order.



*523 After Witcher’s North Carolina license was suspended, she returned to Texas to live with her father because she lacked
means to earn a living in North Carolina, had lost her house in foreclosure, and had no family or support system in North
Carolina. Upon returning to Texas, she voluntarily enrolled in the Texas Pharmacist Recovery Network (TxPRN), became
successfully employed as a pharmacist, and participated in therapy. Witcher averred that she did not abuse alcohol after her
October 2008 hospitalization, did not abuse alcohol on the job, and sought assistance from NCPRN and TxPRN on her own
initiative. While in Texas, Witcher has exhibited no signs of alcohol impairment in the workplace or elsewhere.

Based on the active suspension of Witcher’s license in North Carolina, however, the Board instituted disciplinary
proceedings to suspend Witcher’s Texas license until the suspension of her North Carolina license has been lifted. See Tex.
Occ.Code § 565.001(a)(16) (authorizing disciplinary action against licensed pharmacist disciplined by another state). Along
with the disciplinary complaint, the Board’s staff filed a motion for summary disposition, asserting that, as a matter of law, (1)
Witcher was subject to discipline under section 565.001(a)(16) of the Texas Pharmacy Act (TPA), which authorizes the
Board to discipline a license holder who has “been disciplined by the regulatory board of another state for conduct
substantially equivalent to conduct described under this subsection”; (2) the violations found by the North Carolina licensing
authority were, as a matter of law, substantially equivalent to conduct prohibited in TPA sections 565.001(a)(4) and (a)(7);
and (3) the appropriate disciplinary sanction was “a period of suspension in Texas to run concurrently with the North
Carolina suspension.” See id. §§ 565.001(a)(4) (pharmacist may be disciplined upon “developing an incapacity that prevents
the applicant or license holder from practicing pharmacy with reasonable skill, competence, and safety to the public”), (a)(7)
(pharmacist may be disciplined for “us[ing] drugs in an intemperate manner that, in the board’s opinion, could endanger a
patient’s life”), (a)(16) (pharmacist may be disciplined based on disciplinary action in another state for conduct that would
violate the TPA); 565.051 (discipline for violation of TPA includes revocation, suspension, probated suspension, and
licensing restrictions).

Witcher admitted that she was subject to being disciplined by the Board based on the North Carolina disciplinary action.
However, because she had not abused alcohol since October 2008 and it was undisputed that she was presently fit to practice
pharmacy, she advocated for a five-year probated suspension in keeping with Board precedent in disciplinary proceedings
involving impaired pharmacists who had engaged in significantly more egregious conduct but who had demonstrated current
fitness to practice to the Board’s satisfaction.

The administrative law judge (ALJ) who presided over the disciplinary proceedings granted partial summary disposition as to
Witcher’s violation of the TPA but denied summary disposition regarding the appropriate sanction to be imposed.2 See *524
1 Tex. Admin. Code § 155.505 (2014) (State Office of Admin. Hearings, Summary Disposition) (authorizing ALJ to issue
decision without evidentiary hearing if no genuine issue of material fact and party is entitled to decision as matter of law).
After an evidentiary hearing directed solely to the appropriate sanction, the ALJ recommended a five-year probated
suspension, finding among other things that (1) Witcher voluntarily entered into a participation agreement with TxPRN, (2)
she had complied with all terms and conditions of her TxPRN participation agreement, (3) she had been sober since October
22, 2008, which was prior to her self-referral to NCPRN, and was not working when she was impaired due to alcohol use, (4)
she “can safely practice pharmacy in Texas,” (5) the mitigating factors in her case outweighed the aggravating factors, (6) it
was “not feasible for [Witcher] to participate in the NCPRN program as a precondition to having the suspension of her North
Carolina license lifted, and it is not financially viable for her to return to North Carolina,” and (7) the North Carolina
licensing authority would not accept Witcher’s participation in the TxPRN program as a substitute for the requirement that
she participate in the NCPRN program. The ALJ further found that, in relocating to Texas, Witcher was “not seeking to
evade compliance with the reinstatement provisions of the North Carolina order, but only to avoid the considerable financial
hurdles she would face to achieve that compliance.”

2
       In granting partial summary disposition, the ALJ
       concluded from the following undisputed facts that
       Witcher was subject to disciplinary action by the Board
       in accordance with section 565.001(a)(16) of the TPA:

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                           7
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



            1. Tiana J. Witcher (Respondent) holds pharmacist
            license No. 30135 issued by the Texas State Board
            of Pharmacy (Board) on October 21, 1987.
            2. On or about April 20, 2010, the North Carolina
            Board of Pharmacy (NCBP) entered a Final Order
            against the North Carolina license No. 11664 held
            by [Witcher]. That order made the following
            Findings of Fact:
               a) On or about January 29, 2009, [Witcher]
               voluntarily entered a substance abuse program
               administered by North Carolina Pharmacist
               Recovery Network (NCPRN). At that time
               Respondent entered into a contract governing
               the terms of her participation in the program
               (Contract).
               b) Between approximately March 2009 and
               November 2009, Respondent violated the terms
               of the Contract in various ways, including but
               not limited to:
                 i. By failing to call in to determine if she
                 should be drug tested on or about March 14,
                 2009, April 15, 2009, and April 17, 2009;
                 ii. By submitting dilute urine samples on or
                 about June 9, 2009, July 27, 2009, September
                 8, 2009, October 21, 2009, and November 24,
                 2009;
                 iii. By violating the Contract’s limitations on
                 her employment, specifically by working the
                 third shift at the North Carolina Baptist
                 Hospital Pharmacy in or about April 2009,
                 without approval from NCPRN, and after
                 NCPRN had denied her request for such
                 approval; and
                 iv. By failing to participate in the required
                 sessions of continuing care in July 2009.
            3. The April 10, 2010, Order placed [Witcher’s]
            license on an indefinite suspension with the
            requirement that she may not petition for
            reinstatement unless she provides the NCBP with
            written notice from NCPRN that NCPRN will
            advocate for [her] reinstatement.
            4. [Witcher] had been disciplined by a regulatory
            board of another state for conduct substantially
            equivalent for which the Board may discipline a
            licensee.



The Board adopted all of the ALJ’s recommended findings of fact and conclusions of law without modification. However, in
keeping with the Board’s unwritten policy that a pharmacist with an active suspension in another state cannot practice
pharmacy in Texas, the Board rejected the ALJ’s recommended sanction and instead suspended Witcher’s Texas license until
her North Carolina license has been reinstated. The Board also required Witcher to submit to simultaneous monitoring by the
TxPRN, even though the terms of both the NCPRN and TxPRN agreements require Witcher to be physically present to
participate in or complete several of the *525 tasks, including meeting attendance and drug and alcohol screenings.

After exhausting her administrative remedies, Witcher filed a suit for judicial review in the district court of Travis County.
See Gov’t Code § 2001.176. Witcher alleged, and the district court ultimately found, that (1) an enforced suspension of
Witcher’s license is arbitrary and capricious in light of the facts found by the Board and its conclusions of law, (2) the Board
used an unwritten policy (“reciprocal-sanctions policy”) to impose an enforced suspension on Witcher’s license, and (3) the

                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                          8
Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



use of the reciprocal-sanctions policy was arbitrary and capricious, resulted from improper ad hoc rulemaking, and violated
the formal rulemaking requirements in the Administrative Procedure Act (APA) and the TPA. See id. § 2001.174(2)
(specifying when trial court must reverse and remand in suit for judicial review); see also id. §§ 2001.021–.041 (governing
agency rulemaking); Tex. Occ.Code §§ 554.051–.057 (prescribing Board’s rulemaking authority). The trial court did not
disturb any of the Board’s findings of fact and conclusions of law (which were unchallenged), but the court reversed the
portion of the final order imposing an indefinite enforced suspension of Witcher’s license. The court ordered the cause
remanded to the Board to determine an appropriate sanction consistent with the court’s findings but limited the proceedings
on remand to the established record and the Board’s affirmed fact findings and conclusions of law. See Gov’t Code §
2001.174(2) (governing judicial review of agency decisions).

On appeal, the Board contends that the reciprocal sanction imposed in Witcher’s case was not arbitrary and capricious
because the Board has the exclusive authority to impose penalties and the sanction imposed was (1) within the range of
sanctions authorized in the TPA, (2) consistent with statutory provisions that automatically deny licensing to new applicants
who are subject to an active suspension in another state, and (3) consistent with the Board’s policy, practice, and precedent of
imposing reciprocal sanctions on Texas licensees who have been disciplined by other states.




                                                             DISCUSSION

In addition to having the authority to discipline a pharmacist for acts violating Texas laws and federal law applicable in Texas,
the Board may also discipline pharmacists who have been disciplined by pharmacy regulatory boards in other states if the
pharmacist was disciplined for conduct that would violate the TPA. See Occ.Code § 565.001(a)(16). If a pharmacist is found
to have committed violations in another state that are substantially equivalent to Texas violations, the Board has available to
it the same disciplinary options in regard to limiting a pharmacist’s practice as it would have for a violation committed in
Texas. See id. § 565.051. Those options include revocation, enforced suspension, probated suspension, and license
restrictions. See id. Although the Board may consider an ALJ’s recommendation regarding the sanction to be imposed, the
Board retains discretion to determine the appropriate sanction. 22 Tex. Admin. Code § 281.60(b) (2014) (Tex. State Bd. of
Pharmacy, General Guidance); cf. Sears v. Texas State Bd. of Dental Exam’rs, 759 S.W.2d 748, 751 (Tex.App.–Austin 1988,
no writ) (“The agency is charged by law with discretion to fix the penalty when it determines that the statute has been
violated.”).

In selecting the appropriate sanction, the Board has formally promulgated rules setting forth guidelines to be considered in
assessing sanctions for violations of the TPA. Those guidelines specify that “[t]he *526 ultimate purpose of disciplinary
sanctions is to protect and inform the public, deter future violations, offer opportunities for rehabilitation, if appropriate,
punish violators, and deter others from violations.” 22 Tex. Admin. Code § 281.60(c). The guidelines are further “intended to
promote consistent sanctions for similar violations.” Id. Included in the analytical framework guiding disciplinary matters is
section 281.62, a rule that prescribes several aggravating and mitigating factors that the Board may consider in assessing the
appropriate disciplinary penalty.3 Although *527 the Board adopted the ALJ’s finding that the mitigating factors in Witcher’s
case outweighed the aggravating factors, it nonetheless imposed an indefinite enforced suspension of Witcher’s license
coterminous with the suspension of her North Carolina license.

3
       Rule 281.62 provides:
           The following factors may be considered in
           determining the disciplinary sanctions imposed by
           the board if the factors are applicable to the factual
           situation alleged....
           (1) Aggravation. The following may be considered
           as aggravating factors so as to merit more severe
           or more restrictive action by the board:
              (A) patient harm and the severity of patient
              harm;
              (B) economic harm to any individual, entity, or
              the environment, and the severity of such harm;


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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



             (C) increased potential for harm to the public;
             (D) attempted concealment of the conduct
             which serves as a basis for disciplinary action
             under the Act;
             (E) premeditated conduct which serves as a
             basis for disciplinary action under the Act;
             (F) intentional conduct which serves as a basis
             for disciplinary action under the Act;
             (G) motive for conduct which serves as a basis
             for disciplinary action under the Act;
             (H) prior conduct of a similar or related nature;
             (I) disciplinary actions taken by any regulatory
             agency of the federal government or any state;
             (J) prior written warnings or written
             admonishments from any government agency or
             official regarding statutes or regulations
             pertaining to the conduct which serves as a basis
             for disciplinary action under the Act;
             (K) violation of a board order;
             (L) failure to implement remedial measures to
             correct or mitigate harm from the conduct
             which serves as a basis for disciplinary action
             under the Act;
             (M) lack of rehabilitative potential or likelihood
             for future conduct of a similar nature;
             (N) relevant circumstances increasing the
             seriousness of the conduct which serves as a
             basis for disciplinary action under the Act; and
             (O) circumstances indicating intoxication due to
             ingestion of alcohol and/or drugs.
          (2) Extenuation and Mitigation. The following
          may be considered as extenuating and mitigating
          factors so as to merit less severe or less restrictive
          action by the board:
             (A) absence of potential harm to the public;
             (B) self-reported and voluntary admissions of
             the conduct which serves as a basis for
             disciplinary action under the Act;
             (C) absence of premeditation to commit the
             conduct which serves as a basis for disciplinary
             action under the Act;
             (D) absence of intent to commit the conduct
             which serves as a basis for disciplinary action
             under the Act;
             (E) absence of prior conduct of a similar or
             related nature;
             (F) absence of disciplinary actions taken by any
             regulatory agency of the federal government or
             any state;
             (G) implementation of remedial measures to
             correct or mitigate harm from the conduct
             which serves as a basis for disciplinary action
             under the Act;
             (H) rehabilitative potential;
             (I) prior community service and present value to
             the community;
             (J) relevant circumstances reducing the
             seriousness of the conduct which serves as a
             basis for disciplinary action under the Act;
             (K)      relevant     circumstances      lessening

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



                   responsibility for the conduct which serves as a
                   basis for disciplinary action under the Act; and
                   (L) treatment and/or monitoring of an
                   impairment.
              22 Tex. Admin. Code § 281.62 (2014) (Tex. State
              Bd. of Pharmacy, Aggravating and Mitigating
              Factors).


[1] [2] [3]
        It is undisputed that, under the TPA, the Board had the authority to discipline Witcher and to impose an enforced
suspension of her license. The overarching issue in this appeal, however, is whether the particular sanction
imposed—enforced suspension of Witcher’s license concurrently with the suspension of her North Carolina license—resulted
from the improper application of a “rule” as that term is defined in the APA. See Tex. Gov’t Code § 2001.003(6) (defining
“rule” for purposes of APA). A rule that is not properly promulgated under mandatory APA procedures is invalid, see El
Paso Hosp. Dist. v. Texas Health & Human Servs. Comm’n, 247 S.W.3d 709, 714 (Tex.2008), and an agency decision based
on an invalid rule must be reversed and remanded to the agency if substantial rights of the appellant have been prejudiced
thereby, see Gov’t Code § 2001.174(2) (specifying when trial court must reverse and remand agency decision). Because the
Board’s action in this case undeniably affected Witcher’s substantial rights, we focus our analysis on whether the Board
applied an improperly promulgated “rule” within the meaning of the APA.

The Board does not dispute that, in the present case, it employed what it characterized as a “non-binding” policy, practice, or
precedent of imposing reciprocal sanctions on Texas licensees who have been disciplined by licensing authorities of other
states if the conduct would have been sanctionable if committed in Texas. It is further undisputed that the Board did not adopt
this policy, practice, or precedent in accordance with the APA’s formal rulemaking procedures. The Board contends,
however, that no matter how the reciprocal-sanctions policy is characterized, it was not required to comply with the APA’s
rulemaking procedures because the policy is not a “rule” within the meaning of the APA but rather is a “statement regarding
only the internal management or organization of a state agency and not affecting private rights or procedures.” See Gov’t
Code § 2001.003(6)(c) (excluding such statement from APA’s definition of “rule”). The Board asserts that it has the authority
to develop internal practices intended to promote consistency in the assessment of administrative penalties and that the
reciprocal-sanctions policy furthers that goal. Alternatively, the Board asserts that it was entitled to adopt the policy as an ad
hoc rule because the Board did not have sufficient experience with the issue of suspended pharmacists to develop a “hard and
fast rule.” See City of El Paso v. Public Util. Comm’n of Tex., 883 S.W.2d 179, 188–89 (Tex.1994) (observing that agency
rule may be adopted outside formal rulemaking procedures in limited circumstances including novel situations in which
agency is inexperienced).

Witcher contends, however, that the policy falls squarely within the APA’s definition of a rule, was not properly promulgated
under the APA, and does not qualify for any recognized exception to the requirement of formal rulemaking. See, e.g., id.
(citing SEC v. Chenery Corp., 332 U.S. 194, 202–03, 67 S.Ct. 1760, 91 L.Ed. 1995 (1947), as recognizing that agency has
discretion to proceed on ad hoc or “case-by- *528 case” basis when issue is novel to agency or so specialized and varying as
to be impossible of capture within any general rule); see also Southwestern Bell Tel. Co. v. Public Util. Comm’n of Tex., 745
S.W.2d 918, 926 (Tex.App.–Austin 1988, writ denied) (recognizing ad hoc rulemaking can be appropriate to flesh out new
statute or rule). Witcher also asserts that, absent the application of a rule, the Board’s chosen sanction is arbitrary and
capricious because, among other things, there is no rational relationship between the facts found by the Board and the
sanction imposed. See City of El Paso, 883 S.W.2d at 184 (agency decision is arbitrary if agency fails to consider statutorily
required factor, considers irrelevant factor, or weighs only relevant factors but reaches unreasonable result). Stated another
way, Witcher contends that absent the application of a valid rule mandating a reciprocal sanction, such a sanction is
unreasonable considering both her individual circumstances and prior Board precedent involving pharmacists who engaged in
significantly more egregious substance-abuse conduct but who received probated five-year sentences upon establishing
fitness to practice, as she has in this case. See Agreed Board Order # G–09–025 (May 5, 2010) (pharmacist who stole drugs
from pharmacy, abused legal and illegal drugs, and violated terms of monitoring agreement with TxPRN given one-year
active suspension followed by five-year probated suspension if fitness to practice established by end of active suspension);
Agreed Board Order # G–10–020 (June 7, 2011) (involving similar facts and sanctions); Agreed Board Order # B–08–038–A
(Aug. 11, 2010) (pharmacist who stole controlled substances given limited active suspension followed by five-year probated
suspension if fitness to practice established by end of active suspension).

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



The APA defines a “rule” as follows:

  “Rule”:

     (A) means a state agency statement of general applicability that:

       i. implements, interprets, or prescribes law or policy; or

       ii. describes the procedure or practice requirements of a state agency;

     (B) includes the amendment or repeal of a prior rule; and

     (C) does not include a statement regarding only the internal management or organization of a state agency and not
     affecting private rights or procedures.

Gov’t Code § 2001.003(6). This Court has held that, to constitute a “rule” under this definition, “an agency statement
interpreting law must bind the agency or otherwise represent its authoritative position in matters that impact personal
rights.” Texas Dep’t of Transp. v. Sunset Transp., Inc., 357 S.W.3d 691, 703 (Tex.App.–Austin 2011, no pet.) (emphasis
added); see Texas Dep’t of Pub. Safety v. Salazar, 304 S.W.3d 896, 905 (Tex.App.–Austin 2009, no pet.) (“Agency
statements that ‘have no effect on private persons’ are not considered rules.”) (quoting Brinkley v. Texas Lottery Comm’n,
986 S.W.2d 764, 770 (Tex.App.–Austin 1999, no pet.)); Combs v. Entertainment Publ’ns Inc., 292 S.W.3d 712, 722
(Tex.App.–Austin 2009, no pet.) (emphasizing that legal interpretation in Comptroller’s letters would bind agency employees
and “unambiguously express[ed] an intent to apply this interpretation ... in all future cases” involving private parties in
similar circumstances); Texas Alcoholic Beverage Comm’n v. Amusement & Music Operators of Tex. Inc., 997 S.W.2d 651,
658 (Tex.App.–Austin 1999, pet. dism’d w.o.j.) (agency memoranda to its law-enforcement agents held to constitute “rules”
on that record where there was evidence that agents “not only intend to enforce, but *529 have enforced administrative
sanctions ” in accordance with memoranda (emphasis added)); see also Brinkley, 986 S.W.2d at 770 (observing that agency
advisory opinion regarding applicable law would have no legal effect “absent a statute that so provides or some attempt by
the agency to enforce its statement against a private person ” (emphasis added)). “Although the distinction between a ‘rule’
and an agency statement that concerns only ‘internal management or organization ... and not affecting private rights’ may
sometimes be elusive, the core concept is that the agency statement must in itself have a binding effect on private parties.”
Slay v. Texas Comm’n on Envtl. Quality, 351 S.W.3d 532, 546 (Tex.App.–Austin 2011, pet. denied). In that regard, a
distinction exists between nonbinding evaluative guidelines that take into consideration case-specific circumstances—which
have been held not to be a rule—and policies that dictate specified results without regard to individual circumstances, which
have been held to be a rule. Compare id. at 538–39, 548 (agency’s guidelines used to evaluate environmental violations for
purposes of recommending penalty based on individual circumstances was not “rule” under APA), with El Paso Hosp. Dist.,
247 S.W.3d at 714 (by establishing cut-off date for accepting data to determine hospitals’ Medicaid reimbursement rate,
agency established “rule” within meaning of APA) and Entertainment Publ’ns, 292 S.W.3d at 721(“[T]he Comptroller’s
statements in the March and April 2008 letters that the Comptroller will uniformly regard brochure-fundraising firms as the
sellers and nonprofit entities as the sellers’ agents, without regard to the individual factors considered under the
Comptroller’s previous guidelines, are ‘generally applicable’ statements for purposes of the APA.”).

The Board’s disciplinary order in this case, including the findings of fact and conclusions of law, leave little doubt that the
Board’s reciprocal-sanctions policy is a statement implementing, interpreting, or prescribing the agency’s policy that affects
private rights and has implications beyond the parties to the underlying proceeding. It is, therefore, a rule within the meaning
of the APA. See El Paso Hosp. Dist., 247 S.W.3d at 714 (stating that “general applicability” under APA references agency
statements that affect interests of public at large such that they cannot be given effect of law without public input); see also
CenterPoint Energy Entex v. Railroad Comm’n of Tex., 213 S.W.3d 364, 369 (Tex.App.–Austin 2006, no pet.) (“Ad hoc
rulemaking occurs when the agency makes a determination that has implications beyond the instant parties....”).

In the final agency order in Witcher’s disciplinary proceeding, the Board explained its reciprocal-sanctions policy in the
following terms of general applicability:

            A concurrent suspension is the appropriate disciplinary sanction because the Board can not [sic] allow
            pharmacists to work in Texas who have had their practice ability taken away in another state. The

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



             integrity of all states’ licensing systems is compromised if pharmacists are allowed to jump from state
             to state in order to avoid disciplinary action. The Board has a duty to respect the public acts of another
             state board. This promotes uniformity and consistency in regulation among the states.

As articulated, the Board’s reciprocal-sanctions policy applies not just to Witcher but to all pharmacists licensed in more than
one state. The order essentially states that the Board is duty-bound to impose reciprocal disciplinary action without regard to
any other factor that might be *530 considered in individual circumstances.4

4
       The dissent makes much of the fact that “the Board’s
       representative” (i.e., a staff member) argued to the
       Board that it was not required to suspend Witcher. But
       in an administrative hearing, the agency’s staff is
       simply like any other party in the proceeding, and
       statements by a staff member are not deemed to be
       statements of the agency board or commission. Here, as
       in every contested case, the Board spoke through its
       order.


[4]
  The general applicability of the Board’s policy is underscored by the passage that followed its articulation, which further
demonstrates that the reciprocal-sanctions policy was applied without regard to the specific circumstances in Witcher’s case:

             Although the ALJ’s recommendation [of a five-year probated sentence with monitoring] may satisfy
             concerns the Board would have regarding [Witcher’s] impairment, it would not address the fact that
             [Witcher] is barred from practicing pharmacy by a regulatory board of another state for conduct
             substantially equivalent to conduct described under the Texas Pharmacy Act.

Moreover, contrary to the stated rationale for the reciprocal-sanctions policy, the Board adopted the ALJ’s finding that
Witcher was “not seeking to evade compliance with the reinstatement provisions of the North Carolina order, but only to
avoid the considerable financial hurdles she would face to achieve that compliance.” Significantly, although the Board found
that requiring Witcher to participate in the NCPRN program as a precondition to having the suspension of her North Carolina
license lifted is not reasonably possible given her current circumstances, it nonetheless ordered her to do just that.5 These
findings and conclusions support the construction of the Board’s policy as a rule that applies irrespective of the circumstances
in an individual case.

5
       The Board adopted the ALJ’s finding that it would not
       be “feasible” for Witcher to comply with the NCPRN
       precondition to reinstatement. “Feasible” is defined to
       mean “capable of being done ... possible of realization,”
       “capable of being managed, utilized or dealt with
       successfully,” and “reasonable, likely.” Webster’s Third
       New Int’l Dictionary: Unabridged 831 (2002). “An
       agency’s decision is arbitrary or results from an abuse
       of discretion if the agency ... weighs only relevant
       factors that the legislature directs it to consider but still
       reaches a completely unreasonable result.” City of El
       Paso v. Public Util. Comm’n of Tex., 883 S.W.2d 179,
       184 (Tex.1994). Thus, even if we were to agree with
       the Board that its policy is not a rule under the APA,
       the imposition of a requirement that the Board itself
       found to be virtually impossible to satisfy would
       suggest that the Board’s decision is arbitrary and
       capricious. If the Board applied a properly promulgated
       rule dictating such a consequence, however, it would be
       more difficult to conclude that the sanction lacked a
       rational basis. Cf. Pierce v. Texas Racing Comm’n, 212

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



       S.W.3d 745, 753–54 (Tex.App.–Austin 2006, pet.
       denied) (agency did not abuse its discretion in applying
       zero-tolerance policy when racehorse tested positive for
       banned substance and unchallenged “guidelines”
       mandated loss of purse for type of violation involved).



The general applicability of the reciprocal-sanctions policy and its impact on the interests of the public at large is further
evident from the evidence and testimony admitted at the hearing before the ALJ. At the evidentiary hearing, Carol Fisher, the
Board’s Director of Enforcement, testified that reciprocal discipline is the “Board’s policy” and the “standard sanction.” As
the source of the policy, Fisher cited the case of In re Nealy, in which the Board had previously articulated its
reciprocal-sanctions policy in the same terms of general applicability in a particularly egregious case in which a pharmacist
who received his Texas license via reciprocity with Louisiana had a long history of violating the pharmacy laws of both states.
See *531 Texas State Bd. of Pharmacy v. Nealy, Board Order # N–03–005, SOAH Docket No. 515–04–6488 (2005). After
nearly 15 years of suspensions, revocations, reinstatements, and continuing violations, the Board suspended Nealy’s license
concurrently with an active suspension of his Louisiana license, and stated:

            In previous cases with similar facts, the Board has typically imposed disciplinary action mirroring the
            action by another state board of pharmacy. The policy the Board considers in taking such action is to
            prevent licensees from escaping disciplinary action in one state by coming to Texas. If another state
            board of pharmacy has prohibited a pharmacist from practicing, so long as there is no evidence that a
            pharmacist has not been afforded due process in the other state, the Board believes it is sound policy
            for the pharmacist to be prevented from practicing in Texas until the pharmacist resolves the
            restrictions on his license in the other state. Otherwise a pharmacist would suffer no negative
            consequences from violations of the law in another state. Other pharmacists with licenses in Texas and
            in another state might assume that similar violations would not merit serious consideration by the
            Board.

Id. (emphasis added). Although the factual circumstances and extensive disciplinary history in Nealy would have justified the
imposition of a reciprocal sanction without regard to the enunciated policy, the Board made a point of articulating the policy
itself as the basis for imposing a reciprocal sanction. As the Board’s staff noted in its written closing argument in Witcher’s
case: “It is clear from the order [in Nealy ] that [the Board] based the selection of the sanction on the licensee’s disciplinary
status in the other state and not upon his prior disciplinary history with [the Board].”

Despite the stark disparity in individual circumstances between Witcher’s case and the facts in Nealy, Fisher testified that she
did not expect that the Board would do anything differently from what it had done in Nealy because the fact of an active
suspension of Witcher’s North Carolina license was dispositive of the appropriate sanction. Fisher repeatedly testified to the
effect that individual circumstances do not matter. In this regard, the reciprocal-sanctions policy is analogous to agency
policies that this Court in Combs v. Entertainment Publications, Inc., 292 S.W.3d 712 (Tex.App.–Austin 2009, no pet.), and
the supreme court in El Paso Hospital District v. Texas Health & Human Services Commission, 247 S.W.3d 709 (Tex.2008),
found to be rules under the APA.

In Entertainment Publications, a brochure-fundraising firm that contracted with tax-exempt schools to sell merchandise and
food products to raise money for student groups challenged an agency policy that would require it to collect and remit tax on
its sale of those goods to the schools. Entertainment Publ’ns, 292 S.W.3d at 715. Historically, the brochure-fundraising firm
had structured its transactions with its customers to take advantage of the exemption to avoid collecting sales taxes on its
initial sale of goods to those customers. Id. at 716. The tax-exempt customers, in turn, could use a different provision of the
tax code to avoid collecting sales tax on the items when sold to the ultimate consumer, but only if the tax-exempt customer
was considered to be the “seller” of the merchandise. Id.To determine who was the seller in such transactions, the
Comptroller had historically applied several criteria to analyze the actual substance of the relevant transaction. That policy
had been reflected in an earlier letter ruling, which a representative of the Comptroller’s office testified accurately stated the
Comptroller’s policy *532 as to brochure fundraising at the time it was issued. However, the Comptroller subsequently
issued two letters in which the policy was changed from the factor-based approach to a bright-line rule that the fundraising
firm would always be considered the “seller.”

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)




Like the Board in the present case, the Comptroller in Entertainment Publications argued that the letters were merely
advisory opinions, not binding instructions, concerning her future enforcement of the sales tax. This Court disagreed,
holding:

             There is no question in this case that the [Comptroller’s] March and April 2008 letters are statements
             implementing, interpreting, or prescribing law or policy. As the Comptroller’s witness testified, these
             letters communicated the Comptroller’s intention to apply section 151.024 in all cases involving
             brochure fundraising firms, thereby interpreting the tax code to mean that such firms are, for purposes
             of collecting and remitting sales tax, always the “sellers” of the taxable items.

Id. at 721. The Court further concluded that the policy was “generally applicable” within the meaning of the APA because

             the Comptroller’s statements in the March and April 2008 letters that the Comptroller will uniformly
             regard brochure-fundraising firms as the sellers and nonprofit entities as the sellers’ agents, without
             regard to the individual factors considered under the Comptroller’s previous guidelines, are “generally
             applicable” statements for purposes of the APA. These interpretations apply not only to [the appellee]
             and the tax-exempt groups with which it conducts business, but to all brochure-fundraising firms
             engaging in business across the state.

Id. at 721–22.

As in Entertainment Publications, the present case involves a policy that establishes a bright-line rule that is applicable
without regard to individual circumstances that could be considered under section 281.62 of the Board’s rules. In addition,
both the terms of the final order and the testimony by the Board’s Enforcement Director during the disciplinary proceeding
reveal the Board’s intent to apply the policy not just to Witcher but also prescriptively to others.

In El Paso Hospital District, the Texas Supreme Court considered whether the Health & Human Services Commission’s
(HHSC) data-collection method for calculating prospective Medicaid inpatient service rates was an agency rule as defined by
the APA. 247 S.W.3d at 711. In determining the reimbursement rate, HHSC employed a policy of accepting data from claims
paid only through a specified date in the year following the base year. Id. at 713. Claims for all patients admitted during the
base year, but not paid by the cut-off date, were not included in determining the prospective reimbursement rates. Id. This
policy resulted in the exclusion of data for services actually performed in the base year if the claims were not paid before the
cut-off date. Id. The supreme court rejected HHSC’s argument that the cut-off date was not a rule itself but rather an
interpretation of its own base-year rule. Id. at 714. The court concluded that the cut-off rule fell squarely within the APA’s
definition of a rule because (1) it implemented HHSC’s policy and described its data-collection procedure and (2) it applied
to all hospitals receiving reimbursement for inpatient Medicaid services. Id.

The court observed that HHSC’s rules provided that it would use a base year, defined as “[a] 12–consecutive–month period
of claims data,” to calculate the Hospitals’ rates and that the effect of the cut-off *533 date was to modify the base-year rule
by controlling the data HHSC would use from that base year. Id. at 714 (quoting 1 Tex. Admin. Code § 355.8063(b)(5)). The
court also determined that the cut-off date did not concern the agency’s internal management or organization but rather
affected the Hospitals’ private rights. Id. at 714–15. Consequently, the court said, the Hospitals were “entitled to have their
prospective reimbursement rates determined according to the formula set out in HHSC’s rules.” Id. Because the cut-off date
was a rule that had not been properly promulgated, it was found to be invalid. Id.

In the present case, the reciprocal-sanctions policy the Board cited in its final order is analogous to the cut-off date in El Paso
Hospital District in that it establishes one of the aggravating factors in section 281.62 of the Board’s rules—specifically,
subsection (1)(I) pertaining to disciplinary actions taken by any state—as an outcome-determinative factor. Although use of
the factors in section 281.62 is discretionary, the elevation of one of those factors to case-dispositive status either constitutes
a modification of that rule or the establishment of a new rule.

The Board argues that the reciprocal-sanctions policy is like the evaluative penalty guidelines this Court concluded did not
constitute a rule in Slay v. Texas Commission on Environmental Quality, 351 S.W.3d 532, 548 (Tex.App.–Austin 2011, pet.

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



denied). That case—unlike the present case, Entertainment Publications, and El Paso Hospital District—involved guidelines
that required evaluation of case-specific factors in formulating a recommendation for an appropriate sanction. See id. at
537–42. Although the guidelines considered in Slay were intended to achieve a level of consistency when similar
circumstances were present, they did not require a specific result in all cases. There was no per se penalty dictated by the
guidelines; rather, the agency’s staff was required to use a formalized analytical structure to evaluate the case, but the
structure did not direct a particular outcome. Id. at 546–48. That is the opposite of the circumstances in the present case.

Considering the foregoing, we conclude that construing the Board’s policy as a “rule” is consistent with the supreme court’s
instruction that we consider the intent of the agency, the prescriptive nature of the policy, and the context in which the agency
statement was made. Cf. Entertainment Publ’ns, 292 S.W.3d at 722 (citing Texas Educ. Agency v. Leeper, 893 S.W.2d 432,
443 (Tex.1994)). The Board has unambiguously expressed its intent to apply the reciprocal-sanctions policy to all Texas
pharmacists licensed to practice in other states, regardless of whether the particular circumstances of each case might result in
a different sanction if the aggravating and mitigating factors in agency rule 281.62 were considered. Cf. 22 Tex. Admin. Code
§ 281.62 (2014) (Tex. State Bd. of Pharmacy, Aggravating and Mitigating Factors) (listing factors that “may be considered in
determining the disciplinary sanctions imposed by the board if the factors are applicable to the factual situation alleged”); cf.
also Entertainment Publ’ns, 292 S.W.3d at 722 (construing Comptroller’s letters that changed policy from “seller versus
agent-for-seller” analysis to bright-line standard). Without doubt, the Board’s policy “represent[s] its authoritative position in
matters that impact personal rights.”6 See Sunset Transp., Inc., 357 S.W.3d at 703.

6
       After issuing its final order in Witcher’s case, the
       Board,     using     notice-and-comment        rulemaking
       procedures, formally promulgated a rule requiring the
       imposition of reciprocal sanctions when a Texas
       licensee has been disciplined by the regulatory board of
       another state:
            § 281.67. Sanctions for Out–of–State Disciplinary
            Actions
            (a) When determining the appropriate sanction for
            a disciplinary action taken by a regulatory board of
            another state under § 565.001(a)(16), §
            565.002(a)(13), or § 568.003(a)(13), the board has
            determined that the following shall be applicable
            for all types of licensees and registrants for such
            licenses and registrations issued by the board.
            (1) If the other state’s disciplinary action resulted
            in the license or registration being restricted,
            suspended, revoked, or surrendered, the
            appropriate sanction shall be the same as the
            sanction imposed by the other state, such that the
            licensee or registrant has the same restriction
            against practice in Texas.
            (2) If the license or registration is subject to any
            other type of disciplinary sanctions, the
            appropriate sanction shall be equivalent to or less
            than that imposed by the other state unless
            contrary to board policy.
            (b) The sanctions imposed by this section can be
            used in conjunction with other types of
            disciplinary actions, including administrative
            penalties, as outlined in this chapter.
            (c) When a licensee or registrant has additional
            violations of the Texas Pharmacy Act, the board
            shall consider imposing additional more severe
            types of disciplinary sanctions, as deemed
            necessary.
          22 Tex. Admin. Code § 281.67 (2014) (Texas State
          Bd. of Pharmacy, Sanctions for Out–of–State
          Disciplinary Actions). In adopting that rule, the

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         Board stated that the addition of section 281.67
         “clarifies the sanctions for disciplinary actions taken
         by a regulatory board of another state.” 37 Tex. Reg.
         4046 (June 1, 2012) (emphasis added) (adopting new
         section 281.67 of Board’s rules); 37 Tex. Reg. 2145
         (Mar. 30, 2012) (emphasis added) (proposing new
         section 281.67). This statement of the formal rule as
         a “clarification” might be construed to further
         support the prescriptive nature and general
         applicability of the reciprocal-sanctions policy prior
         to its formal adoption as a rule. But even if it is not,
         it at least demonstrates that the policy was capable of
         being captured in a rule, thus rendering one of the
         recognized exceptions to the APA’s formal
         rulemaking procedures inapplicable. See City of El
         Paso, 883 S.W.2d at 188–89 (observing that agency
         rule may be adopted outside formal rulemaking
         procedures in limited circumstances including when
         issue is so specialized and varying as to be
         impossible of capture within general rule).


[5]
   *534 Furthermore, having previously articulated the reciprocal-sanctions policy in Nealy and as it is rearticulated in
Witcher’s case, the Board is not entirely free to disregard it in future cases. Although an “ ‘agency is not bound to follow its
decisions in contested cases in the same way that a court is bound by precedent.’ ... [,] an agency is required by courts to
‘explain its reasoning when it “appears to the reviewing court that an agency has departed from its earlier administrative
policy or there exists an apparent inconsistency in agency determinations.” ’ ” Austin Chevrolet, Inc. v. Motor Vehicle Bd.,
212 S.W.3d 425, 438 (Tex.App.–Austin 2006, pet. denied) (quoting Flores v. Employees Retirement Sys. of Tex., 74 S.W.3d
532, 533–34 (Tex.App.–Austin 2002, pet. denied)).7

7
       In light of the facts the Board adopted in Witcher’s case
       and the Board’s acknowledgment that the underlying
       rationale of the policy is not strictly applicable to
       Witcher’s individual circumstances, it is difficult to
       conceive of a scenario in which the Board would not
       apply the policy. At oral argument, the only scenario
       the Board’s counsel could hypothesize was one for
       which no discipline would be authorized under the TPA
       in the first instance—that is, counsel suggested that the
       Board would not impose reciprocal discipline if a
       pharmacist’s license was suspended in another state for
       something absurd, like wearing a red t-shirt. However,
       such conduct would not be sanctionable under the TPA,
       and accordingly the reciprocal-sanctions policy would
       not be implicated. See Tex. Occ.Code § 565.001
       (providing grounds for disciplining Texas licensee).


[6]
  The foregoing analysis leads us to conclude that the Board’s informally announced reciprocal-sanctions policy constitutes
an agency “rule” as that term is *535 defined in the APA. It is well established that a rule that is not adopted in accordance
with the APA’s rulemaking procedures is typically invalid. El Paso Hosp. Dist., 247 S.W.3d at 715 (citing Gov’t Code §
2001.035(a)). In exceptional cases, however, an agency may choose to formulate and enforce a general requirement through a
decision in a particular case. Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 255 (Tex.1999). Adjudicative rulemaking
has been recognized as appropriate in limited circumstances in which an agency is confronted with (1) an issue of first
impression, (2) a new or amended statutory scheme or administrative rules, or (3) an issue that cannot be adequately captured
within the bounds of a general rule because the problem is so specialized and varying in nature. None of those circumstances
is present in this case.8 Accordingly, the rule embodied in the reciprocal-sanctions policy is invalid and should not have been
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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



applied in Witcher’s case. The inclusion of general language in the final order that the sanction imposed “best reflects the
Board’s determination of the seriousness of the violation and is the best sanction to deter future violations” neither negates
the rule’s obvious application in Witcher’s case nor suggests an alternative basis for the Board’s decision. The trial court did
not err in reversing the Board’s order and remanding the cause to the Board for reconsideration of the appropriate sanction
under properly promulgated rules.

8
         We are not persuaded by the Board’s assertion that
         Witcher’s case presented a novel issue with which the
         Board was unfamiliar. The case of In re Nealy, which
         references the existence of other cases involving
         reciprocal sanctions, refutes such a claim, as does
         Fisher’s testimony.




                                               ON MOTION FOR REHEARING

In its initial appellate briefing, the Board’s principal arguments were that (1) the Board’s order did not contain or adopt a
“rule” at all, and (2) if it did, the rule fell within one of the narrow circumstances in which ad hoc rulemaking is permitted.
The Board has now filed a motion for rehearing raising wholly new issues and arguments. Although we conclude that the
motion for rehearing does not require that we alter the substance of our original opinion, we add this supplemental opinion to
address some of the new arguments raised in the motion.

It is undisputed that, at all relevant times, there was no statute or regulation that mandated the imposition of an identical
reciprocal sanction for a Texas licensee whose out-of-state pharmacist’s license had been suspended or revoked by another
state. Rather, the Board’s formally adopted regulations provided a number of aggravating and mitigating factors to be
considered in determining the appropriate disciplinary sanction in an individual disciplinary proceeding. See 22 Tex. Admin.
Code § 281.62 (providing evaluative factors in cases involving non-criminal conduct). The disciplinary action taken by
another jurisdiction was but one of those factors. Id. § 281.62(1)(I). The central issue in this case is whether the Board
improperly engaged in ad hoc rulemaking (also referred to as adjudicative rulemaking) when it applied a general policy that
requires, as a standard sanction, the imposition of a reciprocal sanction without regard to any other factor identified in the
applicable regulation and without regard to whether the rationale underlying the policy is actually implicated by the affected
pharmacist’s individual circumstances.

An ad hoc rule is a general statement of law or policy that is made in the context of a contested case and the impact of which
*536 will extend to persons beyond those who are parties to the proceeding at hand.

    [T]he Texas Supreme Court and the Austin Court of Appeals have both recognized that an agency may formulate a rule for
    the first time within a contested case proceeding. Such act of rulemaking has been labeled ad hoc adjudication or ad hoc
    rulemaking or case by case rulemaking.

    ... [A]n ad hoc “rule” is not a mere finding of fact or interpretation of a statutory term but it is an agency formulating
    policy subject to its delegated rule making power that sets forth a standard that is binding on the parties before the agency.

2 Ronald L. Beal, Texas Administrative Practice and Procedure § 10.1 at 10–2 to 10–3 (Supp. 6/2009) (footnotes omitted).

              While ad hoc rulemaking is an exercise of legislative power, the rules are developed by the “common
              law” method [i.e., within a contested case] that then imposes the rules by stare decisis and precedent.
              While the particular contested case order which adopted an ad hoc rule is only directly applicable to
              those to whom it has been applied, the agency will be required to apply it to future parties with
              substantially similar conditions.

1 Beal, supra § 2.4 at 2–58 (Supp. 6/2010).

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The present case presents a quintessential example of ad hoc rulemaking. Pursuant to the APA’s notice-and-comment
rulemaking procedures, the Board had formally adopted a rule setting forth 15 aggravating factors and 12 mitigating factors
that could be considered in determining the appropriate sanction to be assessed against a pharmacist who had violated Board
rules. See 22 Tex. Admin. Code § 281.62. Nonetheless, in this case the Board’s contested-case order stated that, as a matter
of policy, one of the aggravating factors listed in Rule 281.62(1) would be dispositive in all cases in which that factor was
present, regardless of the presence or absence of any of the other 26 enumerated factors. Id. at 281.62(1)(I). This statement
was announced as a matter of general policy. This is the essence of an ad hoc rule. See 1 Beal, supra at § 2.4 (Supp. 6/2010);
Ron Beal, Ad Hoc Rulemaking in Texas: The Scope of Judicial Review, 42 Baylor L.Rev. 459, 461–67 (1990); Ron Beal, Ad
Hoc Rulemaking: Texas Style, 41 Baylor L.Rev. 101, 102–07 (1989); see also Ron Beal, The APA and Rulemaking: Lack of
Uniformity within a Uniform System, 56 Baylor L.Rev. 1, 13–18 (2004).

The main thrust of the Board’s motion for rehearing is that the Board (and, by extension, any administrative agency) has
virtually unrestricted discretion to engage in ad hoc rulemaking. In advancing this position, which was not previously made
to this Court, the Board relies largely on two arguments, which were likewise not previously made to this Court. First, the
Board asserts that certain statements in Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248 (Tex.1999), in which the Texas
Supreme Court recognized severe limitations on an agency’s authority to engage in ad hoc rulemaking, are mere “dictum”
that can safely be ignored. Second, the Board asserts that, in any event, the holding in Rodriguez was undercut if not
overturned—sub silentio—by the supreme court’s later opinion in Railroad Commission of Tex. v. WBD Oil & Gas Co., 104
S.W.3d 69 (Tex.2003). We disagree on both counts.




                                               Rodriguez v. Service Lloyds Ins. Co.




The supreme court in Rodriguez emphasized the importance of requiring agencies to adhere to the notice-and-comment
rulemaking procedures mandated by the APA: *537 “A presumption favors adopting rules of general applicability through
the formal [notice-and-comment] rulemaking procedures as opposed to administrative adjudication. Allowing an agency to
create broad amendments to its rules through administrative adjudication rather than through its rulemaking authority
undercuts the Administrative Procedure Act (APA).” 997 S.W.2d at 255. The court held that agencies could utilize ad hoc
rulemaking only in narrow circumstances:

    In exceptional cases, an agency may choose to formulate and enforce a general requirement through a decision in a
    particular case. An agency may do this when using the [notice-and-comment] rulemaking procedure would frustrate the
    effective accomplishment of the agency’s functions. Adjudicative rulemaking may be appropriate, for example, when the
    agency is construing a new rule or when a dispute deals with a problem that requires ad hoc resolution because the issue
    cannot be captured within the bounds of a general rule. The agency’s discretionary choice to rely on adjudication is
    subject to judicial review and revision.

Id. (citations omitted) (emphases added). In recognizing stringent limitations on an agency’s power to use ad hoc rulemaking,
the Rodriguez court did not make new law and did not go out on a jurisprudential limb.9 Rather, the court upheld the plain
language of the APA as prescribing the method and manner by which a state agency can adopt generally applicable
statements of law, policy, procedure, or practice. See Tex. Gov’t Code §§ 2001.0225–.034 (governing agency rulemaking); cf.
generally Texas Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 173, 199 (Tex.2004)
(holding that APA’s plain language controls in absence of express conflict with agency’s enabling statute or unless clear
evidence exists of contrary legislative intent). An improperly adopted rule is voidable. Tex. Gov’t Code § 2001.035(a).

9
        See, e.g., SEC v. Chenery Corp., 332 U.S. 194, 202–03,
        67 S.Ct. 1760, 91 L.Ed. 1995 (1947) (observing that
        agencies are less justified in resorting to ad hoc
        procedures in lieu of promulgating general rules, but


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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



       recognizing that, to avoid “stultify[ing] the
       administrative process,” ad hoc decision making would
       be warranted in appropriate circumstances including
       reasonably unforseeable situations, inexperience with
       particular problems, or inability to capture problem
       within bounds of general rule); Railroad Comm’n of
       Tex. v. Lone Star Gas Co., 844 S.W.2d 679, 689
       (Tex.1992) (noting that agency has “informed
       discretion” in making decision to proceed via
       rulemaking or ad hoc adjudication but stating that
       rulemaking should be utilized except “ ‘[when] there is
       a danger that its use would frustrate the effective
       accomplishment of the agency’s function”); Amarillo
       Indep. Sch. Dist. v. Meno, 854 S.W.2d 950, 958
       (Tex.App.–Austin 1993, writ denied) (“exceptional
       cases” may arise in which “agency may justifiably
       choose, in its discretion to formulate and enforce a
       general requirement [ad hoc]” rather than by formal
       rulemaking, including construing new rule or statute or
       matter incapable of articulation as general rule); 1
       Frank E. Cooper, State Administrative Law 177–85
       (1965) (observing that legislature delegates rulemaking
       power to agency in expectation that it will ordinarily
       employ that power to formulate and adopt requirements
       of general applicability).



In its motion for rehearing in the present case, the Board attempts to dismiss these holdings in Rodriguez as dictum. They are
not. In Rodriguez, the Texas Workers’ Compensation Commission had formally adopted a rule requiring that an initial
impairment rating be disputed by the claimant within 90 days after the rating was assigned. 997 S.W.2d at 252. Over the
years, however, the Commission had purported to create ad hoc exceptions to the 90–day deadline. Id. at 254–55. The
claimant in Rodriguez sought to take advantage of those exceptions. The supreme *538 court rejected the agency’s ad hoc
exceptions as improper, holding that the formally adopted rule would control:

             Here, we see no reason to overturn the presumption favoring the fairness and public participation that
             accompany formal rulemaking under the APA. The 90–day Rule certainly is not new. In addition, the
             Commission could have easily formulated exceptions in the language of a general rule. In fact, the
             Commission appeals panels formulated their exceptions in the language of a general rule....

Id. at 255 (citations omitted).
[7]
  Thus, the Rodriguez opinion not only announced the standard by which courts should determine the validity of ad hoc rules,
it specifically applied that standard in evaluating—and rejecting—the Commission’s ad hoc exceptions. Far from being
peripheral to the court’s holding, the Rodriguez opinion’s references to the exceptional circumstances needed to make ad hoc
rulemaking permissible (“construing a new rule” or addressing an “issue [that] cannot be captured within the bounds of a
general rule”) were central to the court’s decision. Accordingly, the relevant statements in Rodriguez were not dictum. See
Bryan A. Garner, A Dictionary of Modern Legal Usage 274 (2nd ed.1995) (quoting Judge Posner’s definition of “dictum” as
“a statement in a judicial opinion that could have been deleted without seriously impairing the analytical foundations of the
holding ....” contained in Sarnoff v. American Home Prods. Corp., 798 F.2d 1075, 1084 (7th Cir.1986)). We therefore
continue to be bound by the holdings in Rodriguez, which can only be read as affirming that ad hoc rulemaking is a narrow
exception to the APA’s mandate that agency rules be adopted through notice-and-comment rulemaking procedures.




                                     Railroad Commission of Texas v. WBD Oil & Gas Co.

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



The second major argument raised in the Board’s motion for rehearing is that the supreme court’s holding in Rodriguez
described above was undercut by the court’s later opinion in Railroad Commission of Tex. v. WBD Oil & Gas Co., 104
S.W.3d 69 (Tex.2003). Even a casual reading of WBD, however, shows that it is inapplicable to the present case. The sole
issue in WBD was whether field rules adopted by the Railroad Commission after a trial-type proceeding (which the supreme
court held to be a contested case) could be challenged under section 2001.038 of the APA or instead had to be challenged
through contested-case procedures. See id. at 74. Section 2001.038 provides that “[t]he validity or applicability of a rule ...
may be determined in an action for declaratory judgment if it is alleged that the rule or its threatened application interferes
with or impairs, or threatens to interfere with or impair, a legal right or privilege of the plaintiff.” Tex. Gov’t Code §
2001.038(a). The court held that the field rules at issue could not be challenged under section 2001.038 but had to be
challenged through the procedure for challenging a contested-case order:

     Thus, as we read the APA, judicial review of orders adopting field rules should be the same as in other contested case
     decisions....

     Accordingly, we conclude that Commission field rules adopted in a contested case like those involved here cannot be
     challenged in a declaratory judgment action under section 2001.038 of the APA.

WBD, 104 S.W.3d at 79. Nowhere in the supreme court’s WBD opinion is ad hoc rulemaking mentioned. Nowhere in the
opinion is Rodriguez cited, much less discussed *539 or overruled. In short, ad hoc rulemaking was never an issue in WBD.

The procedural posture of the present case, on the other hand, is radically different. Here, Witcher did use contested-case
procedures to challenge the Board’s ad hoc rule. She timely filed a motion for rehearing with the Board, complaining of the
ad hoc reciprocal-sanction rule. When that was overruled, she timely filed a suit for judicial review, again complaining of the
ad hoc rule. See Tex. Gov’t Code §§ 2001.171, .174–76. The trial court agreed, ruling that “the Board’s use of an unwritten
policy to impose an enforced suspension of Ms. Witcher’s license is 1) arbitrary and capricious, 2) improper ad-hoc
rulemaking, and 3) a violation of the APA and Pharmacy Act’s rulemaking requirements.” Thus, as stated above, the
dispositive issues in this appeal are (1) whether the Board’s contested-case order applied an ad hoc “rule,” and (2) if it did,
whether the circumstances fall within one of the narrow exceptions in which ad hoc rulemaking is permitted. WBD does not
control these questions.

Nonetheless, the Board appears to contend in its motion for rehearing that WBD stands for the proposition that (1) agencies
generally have unqualified discretion to adopt rules either by notice-and-comment rulemaking or by ad hoc adjudication and
(2) an agency statement that “implements, interprets, or prescribes law or policy” adopted ad hoc in an adjudicative
proceeding can never be a statement of general applicability as required to meet the APA’s definition of a “rule.” See Tex.
Gov’t Code § 2001.003(6) (defining “rule” for purposes of APA). Neither of these broad propositions is supported by the
applicable statutory schemes or the relevant jurisprudential environment.

We will not revisit the second proposition because our original opinion adequately explains our conclusion that the
reciprocal-sanctions policy meets the APA’s definition of a rule and we discern nothing in WBD that alters that conclusion.10
Our discussion of the first proposition *540 proceeds from our conclusion that the reciprocal-sanctions policy is a rule that
was not promulgated under the APA’s mandatory rulemaking procedures before being applied to dictate the sanction
imposed in Witcher’s case.

10
         We reiterate our initial observations that the Board’s
         disciplinary order included affirmative statements of
         general applicability that were prospective in operation
         and based on general policy considerations rather than
         Witcher’s individual circumstances. Cf. Combs v.
         Entertainment Publ’ns Inc., 292 S.W.3d 712, 724 & n.
         8 (Tex.App.–Austin 2009, no pet.) (agency not
         precluded from making individual determination, on
         case-by-case basis, but pronouncement of policy
         applicable to all similarly situated businesses without
         regard to individual circumstances constituted “rule”
         under APA). The evidence established that the Board


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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



           considers a reciprocal sanction to be the “standard
           sanction.” Moreover, and perhaps most importantly, the
           indefinite-suspension sanction the Board imposed
           against Witcher’s Texas license is so at odds with the
           Board’s fact findings as to be inexplicable without the
           application of an outcome-determinative factor not
           found in the enabling statute or governing regulations.
           Without resort to such a rule, the sanction imposed is
           not supported by basic underlying fact findings and the
           Board’s own precedent. Further, in addition to
           espousing a general policy to justify the selection of a
           standard sanction in reciprocal disciplinary scenarios,
           the Board’s decision only sets forth justifications or
           explanations that contradict its fact findings. The
           Board’s motion for rehearing presents no reason for us
           to reconsider our prior holding that the
           reciprocal-sanctions policy meets the APA’s definition
           of a “rule.”
              We do not read WBD as holding that contested-case
              proceedings can never give rise to a statement that
              meets the APA’s general applicability standard. In
              that case, the supreme court concluded that the field
              rules emanating from a contested-case proceeding
              were not statements of general applicability because
              they affected only individual interests in a specific
              field and had no impact on other oil and gas fields in
              the state. See WBD, 104 S.W.3d at 79. That is not the
              situation presented here; the policy the Board
              articulated and applied in this case has statewide
              ramifications that extend far beyond the specific
              party to the contested-case proceeding.



In a nutshell, (1) the APA contains a statutory mandate governing agency adoption of rules of general applicability; (2) the
Board’s enabling statute, the TPA, contains no language that limits the APA’s reach or expands the Board’s rulemaking
authority; and (3) to the extent the Board arguably has discretion to use its limited statutory adjudicatory authority to adopt ad
hoc rules of general applicability, the facts of this case do not support the exercise (through any recognized or proffered
exception to APA rulemaking) of any such discretion in contravention of the APA’s plain language and the presumption
favoring APA rulemaking.
[8]
  As a general proposition, “[u]nless mandated by statute, the choice by an agency to proceed by general rule or by ad hoc
adjudication is one that lies primarily in the informed discretion of the agency.” State Bd. of Ins. v. Deffebach, 631 S.W.2d
794, 799 (Tex.App.–Austin 1982, writ ref’d n.r.e.) (citing SEC v. Chenery Corp., 332 U.S. 194, 67 S.Ct. 1760, 91 L.Ed. 1995
(1947)). The APA is a statute that mandates the procedures by which agencies are permitted to adopt rules, and in Mega
Child Care, the Texas Supreme Court affirmed the unremarkable proposition that the APA must be applied according to its
plain language absent an express conflict with an agency’s enabling statute. 145 S.W.3d at 199 (“[I]n the absence of express
statutory language [in the agency’s enabling statute] prohibiting judicial review, a legislative intent to prohibit judicial review
[otherwise afforded under the APA] must be established by specific legislative history or other reliable evidence of intent.”).
There is nothing in the TPA that support’s the conclusion that the TPA’s general grant of rulemaking authority or limited
grant of adjudicatory authority categorically trumps the APA’s mandate that agencies are to adopt rules of general
applicability via notice-and-comment rulemaking.

With regard to rulemaking, the TPA states:

      (a) The board shall adopt rules consistent with this subtitle for the administration and enforcement of this subtitle.

      (b) If the board determines it necessary to protect the health and welfare of the citizens of this state, the board may make a

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



     rule concerning the operation of a licensed pharmacy located in this state applicable to a pharmacy licensed by the board
     that is located in another state.

     (c) The board shall adopt rules regarding records to be maintained by a pharmacist performing a specific act under a
     written protocol.

     (d) The board by rule shall specify minimum standards for professional responsibility in the conduct of a pharmacy.

Tex. Occ.Code § 554.051. Thus, the TPA authorizes the Board to adopt rules but is silent with regard to the method or
methods by which the Board may do so. The APA, on the other hand, is not silent about how agencies are required to adopt
rules. See Tex. Gov’t Code §§ 2001.0225–.036. Nevertheless, relying on the presumption that agencies have some discretion
to select the method for adopting rules in the absence of a statutory prohibition, the Board now argues that the absence of an
express prohibition against adjudicative rulemaking is all that is required to supersede the APA’s plain directive. Such a
position, however, is contrary to bedrock principles of statutory construction, which eschew reliance on extrinsic construction
*541 aids that alter a statute’s plain meaning. See Shook v. Walden, 304 S.W.3d 910, 917 (Tex.App.–Austin 2010, no pet.)
(courts may resort to rules of construction or extrinsic aids only when statutory text is ambiguous); cf. generally Mega Child
Care, 145 S.W.3d at 173 (holding that plain language of APA provides independent right to judicial review when agency’s
enabling statute neither specifically authorizes nor specifically prohibits judicial review).

In the present case, the TPA does not contain any language that limits the APA’s mandate that agencies use
notice-and-comment procedures to adopt rules, including making them available for public inspection and comment. See Tex.
Gov’t Code §§ 2001.004–.005, .0225–.034. Nor is there any other evidence of clear legislative intent to override or limit the
APA’s scope or to expand the Board’s rulemaking authority.11 Applying the APA as written, that statute provides the
procedures required for the Board to adopt rules or regulations of general applicability. Although narrow exceptions have
been recognized where necessary to allow the agency to accomplish its functions, the Board has cited none that would apply
under the facts of this case, as we previously discussed and further explain here.

11
         To the contrary, when the TPA was enacted in 1981,
         the statute expressly required the Board to adopt rules
         in accordance with the APA. See Act of May 28, 1981,
         67th Leg., R.S., ch. 255, § 16(a), 1981 Tex. Gen. Laws
         638, 645 (“The rules shall be adopted, amended, or
         repealed in accordance with the Administrative
         Procedure Act.”). During a nonsubstantive codification
         in 1999, the foregoing language referring to compliance
         with the APA was removed. See Act of May 28, 1999,
         76th Leg., R.S., ch. 388, § 1, 1999 Tex. Gen. Laws
         1431, 1949 (current version at Tex. Occ.Code §
         554.051). But according to a “Revisor’s Note” to the
         revised statute, the sentence requiring adoption of rules
         under the APA was deleted as “unnecessary” because
         the APA, by its express terms, applies to all agencies:
         “The revised law omits as unnecessary the portion of
         [the prior statute] that requires rules to be adopted,
         amended, or repealed in accordance with the
         Administrative Procedure Act. Chapter 2001,
         Government Code, requires each agency to follow that
         law in adopting rules.” Id. (Revisor’s Note).
         Notwithstanding this explanation, the Board asserts that
         the deletion of the reference to the APA means that,
         under the TPA, the Board has complete discretion to
         adopt rules in individual adjudications without regard
         to the APA. We disagree.
            Although a revisor’s note cannot vary the plain
            language of a statute, the ability to proceed via
            “adjudicative rulemaking” is not included anywhere
            in the TPA. Therefore, the discretion to forgo


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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



         compliance with APA rulemaking procedures could
         exist only by resorting to an extra-textual
         presumption that would create a conflict with the
         APA’s plain language. Harmonizing the TPA and
         APA to avoid such a conflict—and consistent with
         the legislature’s intent in adopting both statutes—the
         APA must be construed to govern the Board’s
         rulemaking activities in the absence of an express
         provision in the TPA to the contrary or clear
         evidence of legislative intent to restrict the APA’s
         scope and applicability vis-á-vis the Board. Cf. Texas
         Dep’t of Protective & Regulatory Servs. v. Mega
         Child Care, Inc., 145 S.W.3d 170, 199 (Tex.2004)
         (“In the absence of express statutory language
         prohibiting judicial review, a legislative intent to
         prohibit judicial review [despite independent right
         provided by the APA] must be established by
         specific legislative history or other reliable evidence
         of intent.”); cf. also Texas Indus. Energy Consumers
         v. CenterPoint Energy Hous. Elec. LLC, 324 S.W.3d
         95,        107         (Tex.2010)       (resort      to
         “specific-controls-over-general        maxim”        is
         unnecessary because maxim only applies if
         overlapping statutes cannot be reconciled and court
         was able to construe two provisions to harmonize
         rather than conflict).


[9]
  To the extent the Board has “discretion” to adopt, repeal, or modify rules in an adjudicative proceeding by virtue of its
statutory authority to adjudicate disciplinary actions, the case law cannot be read to support the unfettered discretion alluded
to in the Board’s motion for rehearing. *542 Rather, the principle of “informed discretion” has long been tempered by “[a]
presumption [that] favors adopting rules of general applicability through the [APA’s] formal rulemaking procedures as
opposed to administrative adjudication.” Rodriguez, 997 S.W.2d at 255; see Railroad Comm’n of Tex. v. Lone Star Gas Co.,
844 S.W.2d 679, 688–689 (Tex.1992); cf. City of El Paso v. Public Util. Comm’n of Tex., 883 S.W.2d 179, 189 n. 21
(Tex.1994) (observing that agency “discretion to proceed on a ‘case-by-case basis is not absolute” and that agency is “bound
to follow the [APA’s] formal rulemaking procedures” when circumstances supporting ad hoc adjudication are not present).
Thus, when an agency seeks to adopt rules of general applicability, there is a “presumption favoring the fairness and public
participation that accompany formal rulemaking under the APA” because “[a]llowing an agency to [amend] its rules through
administrative adjudication ... undercuts the APA.”12 Rodriguez, 997 S.W.2d at 255.

12
       Although the Board attempts to distinguish Rodriguez
       on the basis that its holding is limited to amendments of
       rules made on an ad hoc basis, it is axiomatic that
       amending a rule is substantively, legally, and
       effectively indistinguishable from adopting a new rule
       or repealing an old one.


[10]
   In “exceptional cases,” an agency “may choose to formulate and enforce a general requirement through a decision in a
particular case,” but that may be done only when “using the rulemaking procedure would frustrate the effective
accomplishment of the agency’s functions.” Id. (citing Lone Star Gas Co., 844 S.W.2d at 689, and Amarillo Indep. Sch. Dist.
v. Meno, 854 S.W.2d 950, 958 (Tex.App.–Austin 1993, writ denied)). Courts have recognized that ad hoc rulemaking “may
be” appropriate, for example, when the agency is presented with a novel issue; when a dispute deals with a problem that is
too technical, complex, or varied to be captured within the bounds of a general rule; or to fill in the interstices of a new
statute or rule. See, e.g., Rodriguez, 997 S.W.2d at 255; City of El Paso, 883 S.W.2d at 188–89 & n. 21 (citing Chenery, 332
U.S. at 202–03, 67 S.Ct. 1760, and Southwestern Bell Tel. Co. v. Public Util. Comm’n of Tex., 745 S.W.2d 918, 926–27

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



(Tex.App.–Austin 1988, writ denied)); see also Beal, supra, 56 Baylor L.Rev. at 16 (“[N]otice and comment rulemaking
procedures must be utilized unless a bona fide exception exists.”). As stated in our original opinion, none of these
circumstances applies to the reciprocal-sanctions policy at issue here. Even on rehearing, the Board has offered no
exceptional circumstances to support adopting the reciprocal-sanctions policy on an ad hoc basis.

The Board asserts that the reciprocal-sanctions policy was not newly adopted in Witcher’s case, or even in Nealy, but instead
was adopted in contested cases 30 years ago (or over the course of the past 30 years) to address the issue at a time when it
was “novel.” That proposition, however, is not supported by the plethora of Board decisions submitted for the first time in its
motion for rehearing, nor by the history of the statutes governing pharmacist licensing. Until Nealy and the order in the
present case, there is no indication that the results were governed by a prospective policy of general applicability rather than
the significantly more egregious and entirely distinguishable factual and procedural circumstances presented in those cases.
Moreover, this is not an issue that was unfamiliar to the legislature or the Board when the TPA was enacted. Indeed,
suspension, revocation, cancellation, or restriction of an out-of-state license *543 has been a basis for disciplining a Texas
licensee since the TPA’s inception.13 The reciprocal-sanctions policy simply does not address any novelty in the regulation of
pharmacists that had not already been contemplated by the legislature in enacting the TPA.

13
       See generally Acts 1973, 63d Leg., R.S., ch. 286, § 1,
       1973 Tex. Gen. Laws 677, 678. (authorizing Board to
       issue Texas pharmacy license by reciprocity on
       applicant’s satisfaction of certain conditions)
       (repealed); Act of May 28, 1981, 67th Leg., R.S., ch.
       255, §§ 22(a)(5), 26(a)(15), 1981 Tex. Gen. Laws 638,
       652, 54 (current versions at Tex. Occ.Code §§ 558.101,
       565.001(a)(16), 565.051) (prohibiting Board from
       issuing Texas pharmacy license by reciprocity if
       applicant had license granted by another state
       “suspended, revoked, canceled or otherwise restricted
       for any reason” and authorizing a range of disciplinary
       actions against Texas licensee or applicant whose
       “license to practice pharmacy issued by another state
       [was] canceled, revoked, or suspended for conduct
       substantially equivalent” to conduct that would subject
       pharmacist to discipline under TPA); Act of May 28,
       1987, 70th Leg., R.S. ch. 262, §§ 3, 5, 1987 Tex. Gen.
       Laws 1584, 1585 (current versions at Tex. Occ.Code §
       558.051(a)(F), 559.005(a)) (amending TPA to prohibit
       initial licensing by examination if pharmacist had
       license issued by another state “suspended, revoked,
       canceled, surrendered, or otherwise restricted for any
       reason” and prohibiting Texas licensee from obtaining
       new license upon same circumstances if Texas license
       lapsed without renewal for two or more years).



Even if the issue had been “novel” at an earlier time, there are several other reasons why the Board would have abused its
discretion in continuing to apply an ad hoc rule, including that any novelty or exigencies that might have previously
warranted a deviation from the APA’s procedures or the need for continued reliance on an ad hoc rule should have been
temporary and lasted only so long as reasonably necessary to allow the Board an opportunity to comply with the APA in
adopting the rule.14 See City of El Paso, 883 S.W.2d at 188–89 & n. 21; cf. Tex. Gov’t Code § 2001.034 (agency may enact
“emergency rule without prior notice or hearing” upon finding “imminent peril to public health, safety, or welfare” but such
rule may be used only temporarily pending adoption following APA’s notice-and-comment rulemaking procedures). The
availability of the APA rulemaking process and the amenability of the subject matter to promulgation as a formal rule support
the presumption favoring the fairness and public participation that accompany notice-and-comment rulemaking under the
APA.15

14
       Over the years, the Board has promulgated rules

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



      governing disciplinary sanctions on several occasions
      but failed to formally adopt the reciprocal-sanctions
      rule until June 2012, after its decision in Witcher’s
      case. See 22 Tex. Admin. Code § 281.67 (Texas State
      Bd. of Pharmacy, Sanctions for Out–of–State
      Disciplinary Actions). The Board’s regulatory history
      reveals that, in March 2000, it promulgated a rule
      expressly setting forth aggravating and mitigating
      factors as guidelines for determining the appropriate
      sanction in disciplinary actions under section 565.001
      of the TPA, but the Board apparently was not moved at
      that    time     to    include    its   “long-standing”
      reciprocal-sanctions policy in the new rule. See 25 Tex.
      Reg. 2574 (Mar. 24, 2000) (former 22 Tex. Admin.
      Code § 281.57). Nor was it moved to do so when the
      rule was amended in 2005 and later repealed and
      replaced in 2006, both of which occurred after the
      Board’s decision in In re Nealy, Bd. Order # N–03–005
      (May 10, 2005). See 30 Tex. Reg. 7874 (Nov. 25, 2005)
      (former 22 Tex. Admin. Code § 281.57); 22 Tex.
      Admin Code § 281.62 (current version). Instead,
      “disciplinary actions taken by any regulatory agency of
      the federal government or any state” was included in
      the sanctions guidelines as one factor among many that
      could be considered.



15
      The inadvisability of allowing the Board to freely
      adopt, amend, or repeal its rules in disciplinary
      proceedings is further demonstrated by the TPA’s
      confidentiality provisions, which preclude the Board
      from publicly disclosing the contents of an order
      disciplining an impaired pharmacist. See Tex.
      Occ.Code §§ 564.002 (“All records and proceedings of
      the board, an authorized agent of the board, or a
      pharmaceutical organization committee relating to the
      administration of this chapter (governing Texas’s
      program to aid impaired pharmacists and pharmacy
      students) are confidential and are not considered public
      information....”), .003 (“The board may disclose that
      the license of a pharmacist who is the subject of [a
      confidential] order ... is suspended, revoked, canceled,
      restricted, or retired ... [but] may not disclose the nature
      of the impairment or other information that resulted in
      the board’s action.”). Because the Board’s orders are
      not uniformly made available for public inspection,
      using the disciplinary adjudicative process to announce
      new, amended, or repealed rules of general
      applicability would hinder the goals of openness and
      public participation reflected in the APA’s provisions.
      See, e.g., Tex. Gov’t Code § 2001.004 (requiring
      agencies to make available for public inspection “all
      rules and other written statements of policy or
      interpretations that are prepared, adopted, or used by
      the agency in discharging its functions”); see also
      Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248,
      255–56 (Tex.1999) (“[I]nformally amending this rule
      through a contested case hearing or an appeals panel
      decision results in the ‘issuance of private opinion that

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



            will never be known by anyone except those few
            persons who take the time to research the files of an
            agency.’ ” (quoting Ron Beal, Ad Hoc Rulemaking:
            Texas Style, 41 Baylor L.Rev. 101, 120 (1989))).



*544 In sum, the Board’s motion for rehearing does not persuade us that WBD requires a different outcome in this case. Nor
does it persuade us that the Board appropriately adopted the reciprocal-sanctions policy as a rule of general applicability
without complying with the APA.




                                     The Board’s Other Arguments in its Motion for Rehearing

The Board also complains that we are required to uphold the Board’s decision if there is a rational basis underlying the
reciprocal-sanction policy and if there is some evidence that it is applicable under the facts of Witcher’s case. However, an
agency’s legislative rule is binding on all concerned, including the judicial department, only if the rule is (1) reasonable, (2)
within the power delegated to the agency, and (3) the product of proper procedure. General Elec. Credit Corp. v. Smail, 584
S.W.2d 690, 694 (Tex.1979) (citing and quoting K. Davis, Administrative Law Treatise § 5.03 (1958 ed. and Supps.)); Sharp
v. Cox Tex. Publ’ns, Inc., 943 S.W.2d 206, 209 (Tex.App.–Austin 1997, no writ). “When an agency promulgates a rule
without complying with proper rule-making procedures, the rule is invalid.” El Paso Hosp. Dist. v. Texas Health & Human
Servs. Comm’n, 247 S.W.3d 709, 715 (Tex.2008). Having concluded that the rule here is not the product of proper procedure,
it lacks the force of law without regard to its reasonableness vel non.
[11]
   The Board also complains that the trial court erred in limiting the scope of remand to a determination of an appropriate
sanction based on the established record and the affirmed fact findings and conclusions of law, which were not challenged
below or on appeal. The Board contends that the only remedy for applying an improperly promulgated rule is remand for
entirely new proceedings affording Witcher notice of the rules of decision to be applied, including the reciprocal-sanctions
policy. Cf. Texas State Bd. of Pharmacy v. Seely, 764 S.W.2d 806, 814 (Tex.App.–Austin 1988, writ denied) (“Assum[ing],
without deciding, that the Board [of Pharmacy] possessed authority to promulgate official policy as to what that norm or
standard [of conduct] should be; that it promulgated a valid policy consistent with the statutory provisions committed to the
Board’s administration; and that it permissibly promulgated and applied that policy retroactively in the course *545 of
adjudicating Seely’s case, rather than formulating and promulgating that policy under the rulemaking provisions of [the
predecessor to the APA] to be applied prospectively”—all such assumptions being necessary to valid license-revocation
order—due process required, at minimum, that Board give pharmacist prior notice of legal criteria Board would apply to his
conduct); Madden v. Texas Bd. of Chiropractic Exam’rs, 663 S.W.2d 622, 626–27 (Tex.App.–Austin 1983, writ ref’d n.r.e.)
(chiropractic board “arguably” had discretion to announce and apply new definition in ad hoc adjudicative proceeding rather
than by promulgation of general rule through exercise of its rulemaking power, but, at minimum, due process required prior
notice of legal criteria and hearing relative to issues that would actually control result). In the present appeal, the Board did
not challenge the trial court’s order with respect to the scope of remand. Accordingly, if there is any error in that regard, it
has been waived. See Secure Comm, Inc. v. Anderson, 31 S.W.3d 428, 430–31 (Tex.App.–Austin 2000, no pet.) (holding that
appellant waives right to complain of ruling to which no error was assigned).
[12] [13]
       Finally, the Board summarily asserts that sovereign immunity bars Witcher’s claims against the individual appellants
who were sued in their official capacity.16 Subject to the limited “ultra vires” exception, sovereign immunity protects state
officers sued in their official capacities to the same extent that it protects their employers. See, e.g., University of Tex. Med.
Branch at Galveston v. Hohman, 6 S.W.3d 767, 776 (Tex.App.–Houston [1st Dist.] 1999, pet. dism’d w.o.j.) (“[T]o the
extent [the nurse] was acting in her official capacity, she enjoys the same governmental immunity as UTMB on [the
plaintiff’s] claims under the Nurse Reporting Act.”). The Texas Supreme Court has explained the derivative nature of a state
official’s immunity as follows:

   When a state official files a plea to the jurisdiction, the official is invoking the sovereign immunity from suit held by the
   government itself. It is fundamental that a suit against a state official is merely “another way of pleading an action against
   the entity of which [the official] is an agent.” A suit against a state official in his official capacity “is not a suit against the
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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



     official personally, for the real party in interest is the entity.” Such a suit actually seeks to impose liability against the
     governmental unit rather than on the individual specifically named and “is, in all respects other than name, ... a suit against
     the entity.”

Texas A & M Univ. Sys. v. Koseoglu, 233 S.W.3d 835, 844 (Tex.2007) (internal citations omitted) (emphasis added); see also,
e.g., De Mino v. Sheridan, 176 S.W.3d 359, 365 (Tex.App.–Houston [1st Dist.] 2004, no pet.). (“It is a well-established and
generally accepted principle of law that suit against a government employee in his official capacity is, in all respects, a suit
against the governmental unit.”). It is undisputed in this case that the Board’s immunity from suit is waived by section *546
2001.171 of the APA.17 Because the Board is not immune from suit, neither are the individual appellants who were sued in
their official capacities.

16
          Although courts occasionally use the terms “sovereign
          immunity”         and       “governmental      immunity”
          interchangeably, they are distinct concepts. Wichita
          Falls State Hosp. v. Taylor, 106 S.W.3d 692, 694 n. 3
          (Tex.2003). The Board generally asserts that its board
          members and executive director enjoy “immunity”
          from suit in their official capacities. We construe this as
          a claim of “sovereign immunity,” which refers to the
          state’s immunity from suit and liability and extends not
          only to the state but also to various divisions of state
          government, including agencies, boards, hospitals, and
          universities. Id.



17
          See Tex. Gov’t Code § 2001.171 (authorizing an
          aggrieved person to file suit for judicial review of
          agency’s final decision in contested case); Mega Child
          Care, 145 S.W.3d at 198 (recognizing APA’s limited
          waiver of sovereign immunity for suits for judicial
          review).



We overrule the Board’s motion for rehearing.




                                                                CONCLUSION

For the reasons stated, we affirm the trial court’s judgment.


Dissenting Opinion by Justice Goodwin




                                                          DISSENTING OPINION


Melissa Goodwin, Justice
I withdraw my dissenting opinion dated May 3, 2013, and substitute the following in its place.

The only issue in this appeal is the sanction imposed against appellee Tiana Jean Witcher by the Texas State Board of
Pharmacy. The Board’s sanction against Witcher—suspending her Texas pharmacy license—was within the statutory range

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



of punishment and consistent with past precedent and expressed policy concerns. Nonetheless, the majority concludes that the
Board imposed the sanction based upon an invalid rule—a binding “reciprocal-sanctions policy.” Because the record supports
that the Board did not have a binding policy and that it properly considered the facts and circumstances of this case, I
respectfully dissent.

Section 2001.003(6) of the Government Code defines a rule to mean a “state agency statement of general applicability.” Tex.
Gov’t Code § 2001.003(6). As the majority recognizes, for an agency statement to be a rule, it must “bind the agency or
otherwise represent its authoritative position in matters that impact personal rights.” Texas Dep’t of Transp. v. Sunset Transp.,
Inc., 357 S.W.3d 691, 703 (Tex.App.–Austin 2011, no pet.); see Slay v. Texas Comm’n on Envtl. Quality, 351 S.W.3d 532,
546 (Tex.App.–Austin 2011, pet. denied) (noting that “core concept [of rule] is that the agency statement must in itself have a
binding effect on private parties”).

The majority concludes that the Board’s “unwritten policy that a pharmacist with an active suspension in another state cannot
practice pharmacy in Texas” was an invalid rule. The majority focuses on testimony by the Board’s director of enforcement
at the contested case hearing and the Board’s statements in its order concerning policy reasons for imposing a reciprocal
sanction against Witcher. At the hearing, the director relied upon a prior order in which the Board imposed a reciprocal
sanction of suspension based upon the disciplinary action by another state’s board of pharmacy. See In re Nealy, Bd. Order #
N–03–005, SOAH Docket No. 515–04–6488 (2005). In Nealy, the Board noted that, “[i]n previous cases with similar facts,
the Board has typically imposed disciplinary action mirroring the action by another state board of pharmacy.” But the fact
that the Board has “typically imposed” a mirror sanction when faced with disciplinary action by another state board does not
foreclose the Board from imposing a different sanction within its discretion depending on the facts and circumstances of a
particular case. See Slay, 351 S.W.3d at 546.

In the context of an agency’s written policy “setting forth an elaborate methodology for applying statutory criteria” to
determine administrative penalties, this *547 Court has explained the difference between a non-binding guideline and a rule.
Id. at 538. In that case, we concluded that the district court did not err in determining that the “Penalty Policy” at issue was
not a rule. Id. at 548. We explained: “[W]hat ultimately matters is that the district court also had evidence to the effect that
the [agency] commissioners were not bound to follow the Penalty Policy’s methodology when exercising their legislatively
conferred discretion to impose penalties.” Id. at 546 (emphasis in original); see also Texas Educ. Agency v. Leeper, 893
S.W.2d 432, 443 (Tex.1994) (“Not every statement by an administrative agency is a rule.”); Texas Mut. Ins. Co. v. Vista
Cmty. Med. Ctr., LLP, 275 S.W.3d 538, 555 (Tex.App.–Austin 2008, pet. denied) (noting it is “well-established that not
every administrative pronouncement is a rule”); Brinkley v. Texas Lottery Comm’n, 986 S.W.2d 764, 769 (Tex.App.–Austin
1999, no pet.) (observing that agencies routinely issue documents such as guidelines “which might contain statements that
intrinsically implement, interpret, or prescribe law, policy, or procedure or practice requirements” that are not rules).

Here, the district court had evidence that the Board was not bound to impose a sanction of suspension. The Board’s own
conduct demonstrated that it was not bound to apply a reciprocal sanction but that it did so within its discretion and consistent
with prior decisions addressing similar facts. See Tex. Occ.Code § 565.051(1) (board “may” “suspend the person’s license”);
22 Tex. Admin. Code § 281.60 (2012) (Texas State Bd. of Pharmacy, General Guidance)1; Pierce v. Texas Racing Comm’n,
212 S.W.3d 745, 754, 757 (Tex.App.–Austin 2006, pet. denied) (noting that “[p]olicy considerations ... are the reason that the
Commission is granted discretion over what penalties should be imposed for racing violations” and upholding penalty that
“followed its guidelines” and “decade of precedent”); see also Austin Chevrolet, Inc. v. Motor Vehicle Bd., 212 S.W.3d 425,
438 (Tex.App.–Austin 2006, pet. denied) (noting that “a licensing authority acts arbitrarily and unlawfully if it treats
similarly situated applicants differently without an articulated justification”). The sole purpose of the contested case hearing
was to determine the appropriate sanction. It was undisputed that Witcher’s license was suspended in North Carolina, and she
did not challenge the process or procedure in North Carolina that resulted in the suspension. If the board was “duty-bound ”
to suspend Witcher’s license because her North Carolina license was suspended, as the majority suggests, why have the
hearing? Why admit evidence at the hearing concerning the facts and circumstances of Witcher’s particular case?

1
       Section 281.60 states in relevant part:
            (a) This subchapter is promulgated to:
               (1) promote consistency and guidance in the
               exercise of the sound discretion by the agency
               in licensure and disciplinary matters; ...


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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



           (b) Board’s role. The board shall render the final
           decision in a contested case and has the
           responsibility to assess sanctions against licensees
           who are found to have violated the Act....
           Asanction should be consistent with sanctions
           imposed in other similar cases and should reflect
           the board’s determination of the seriousness of the
           violation and the sanction required to deter future
           violations. A determination of the appropriate
           sanction is reserved to the board....
         22 Tex. Admin. Code § 281.60 (2012) (Texas State
         Bd. of Pharmacy, General Guidance) (emphasis
         added).



The Board’s conclusions of law recognized that it did not have a binding policy that dictated the sanction of suspension
against Witcher. The Board concluded *548 that it “[did] not have a written policy or rule requiring that a pharmacist be
prevented from practicing in Texas until the pharmacist resolves restrictions on her license in another state.” Similarly, at the
open meeting where the Administrative Law Judge’s proposal for decision was considered, the Board’s representative stated:

            There is not a policy that requires you to suspend when somebody is suspended in another state.
            However, suspension is an option. And so what you have to do is look at the facts—the findings of fact
            in this case and decide based upon everything that the Judge found, based upon her impairment, based
            on her management of that impairment, based upon her status in North Carolina what of your
            disciplinary options do you think is the appropriate option. And I’ve given you the arguments why I
            believe that it should be suspension and why we should look at what the other state did. But, no,
            there’s not a policy that requires you to suspend and that’s not what I’m asserting; but there is no need
            to have a policy on the flip side. It’s not required that you have a policy that says what you do in these
            situations.

In contrast to the majority’s conclusion that the Board’s “reciprocal-sanctions policy” was a “bright-line rule that is
applicable without regard to individual circumstances,” the Board’s representative made clear to the Board that the
appropriate sanction for Witcher was within the Board’s discretion—not a foregone conclusion—and then argued for
suspension based upon policy reasons.2 See Fay–Ray Corp. v. Texas Alcoholic Beverage Comm’n, 959 S.W.2d 362, 369
(Tex.App.–Austin 1998, no pet.) (upholding revocation of permit and noting that “an agency has broad discretion in
determining which sanction best serves the statutory policies committed to the agency’s oversight”); Sears v. Texas State Bd.
of Dental Exam’rs, 759 S.W.2d 748, 751 (Tex.App.–Austin 1988, no writ) (“[T]he choice of penalty is vested in the agency,
not in the courts.”).

2
       For example, had there been evidence that Witcher was
       not afforded due process in the North Carolina
       proceeding, the Board, considering the facts and
       circumstances of Witcher’s case, might have imposed a
       different sanction within its discretion. See In re Nealy,
       Order # N–03–005, SOAH Docket No. 515–04–6488
       (2005) (recognizing that evidence of “whether a
       pharmacist has not been afforded due process in the
       other state” relevant to policy determination in context
       of appropriate sanction based on sanction imposed by
       another state board of pharmacy).



Further, unlike the agency statements that were found to be rules in the cases cited by the majority, the agency statements at
issue here were made during contested case hearings in the context of determining the appropriate sanction against an
individual. Compare El Paso Hosp. Dist. v. Texas Health & Human Servs. Comm’n, 247 S.W.3d 709, 711–12 (Tex.2008)

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Texas State Board of Pharmacy v. Witcher, 447 S.W.3d 520 (2014)



(concluding that agency’s “data-collection method for calculating prospective Medicaid inpatient service rates” was rule in
suit for declaratory relief); Combs v. Entertainment Publ’ns, Inc., 292 S.W.3d 712, 715 (Tex.App.–Austin 2009, no pet.)
(concluding legal interpretations in letters sent by Comptroller were rules in suit for declaratory and injunctive relief), with
Railroad Comm’n of Tex. v. WBD Oil & Gas Co., 104 S.W.3d 69, 70, 79 (Tex.2003) (concluding that “field rules” were not
rules of “general applicability” and noting that APA definition of rule “does not reference statements made in determining
individual rights”).

Because I would conclude that the Board did not act based upon an invalid rule and that it considered the facts and *549
circumstances of Witcher’s case and then acted well within its discretion to impose the sanction of license suspension, I
would affirm the order of the Board and reverse the trial court’s judgment.3

3
        I also disagree with the majority’s suggestion that, even
        if the Board’s decision was not based upon an invalid
        rule, that its decision would be arbitrary and capricious.
        According to her own testimony, Witcher had no plans
        to return to North Carolina to practice pharmacy in
        North Carolina, or otherwise clear the North Carolina
        suspension because of lack of financial resources. I
        question whether a licensing board would be acting
        arbitrarily or capriciously by refusing to excuse
        compliance with another state’s unchallenged sanction
        based upon the licensee’s lack of financial resources.



As to the majority’s supplemental opinion, I would not address issues and arguments raised by the Board for the first time in
its motion for rehearing, except as to the individual appellants’ assertion of immunity from suit. See Wells Fargo Bank, N.A.
v. Leath, 425 S.W.3d 525, 540 (Tex.App.–Dallas 2014, pet. filed) (supp. op. on reh’g) (concluding issue raised for first time
on rehearing not before the court and declining to address it); AVCO Corp. v. Interstate Sw., Ltd., 251 S.W.3d 632, 676
(Tex.App.–Houston [14th Dist.] 2008, pet. denied) (supp. op. on reh’g) (same); see also OAIC Commercial Assets, L.L.C. v.
Stonegate Vill., L.P., 234 S.W.3d 726, 747 (Tex.App.–Dallas 2007, pet. denied) (op. on reh’g) (“A motion for rehearing does
not afford a party an opportunity to raise new issues after the case has been briefed, argued, and decided on other grounds,
unless the error is fundamental.”).



All Citations

447 S.W.3d 520

    End of Document                                                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Trinity Settlement Services, LLC v. Texas State Securities Bd., 417 S.W.3d 494 (2013)
Blue Sky L. Rep. P 75,042




                                                 417 S.W.3d 494
                                            Court of Appeals of Texas,
                                                     Austin.
                               TRINITY SETTLEMENT SERVICES, LLC, Appellant
                                                        v.
          The TEXAS STATE SECURITIES BOARD and John Morgan, in his Official Capacity as Commissioner of the
                                     Texas State Securities Board1, Appellees.
1            The notice of appeal and prior filings in the district
             court reference the TSSB’s former commissioner,
             Denise Voigt Crawford, who has since retired.
             Accordingly, the TSSB’s current commissioner,
             John Morgan, has been substituted. See
             Tex.R.App. P. 7.2(a).



                            No. 03–10–00639–CV. | Aug. 1, 2013. | Rehearing Overruled Oct. 2, 2013.



Synopsis
Background: Viatical settlement company sued Texas State Securities Board (TSSB) to obtain declaratory judgment that
TSSB acted without statutory authority in prior enforcement action against another viatical settlement company, and that
certain investments plaintiff proposed to sell were not “securities” as defined by Texas Securities Act (TSA). The 53rd
Judicial District Court, Travis County, Lora Livingston, J., granted TSSB’s plea to the jurisdiction. Plaintiff appealed.



Holdings: The Court of Appeals, David Puryear, J., held that:
[1]
   TSSB’s statements in prior action did not constitute rule under Administrative Procedure Act (APA) subject to challenge
through declaratory judgment action;
[2]
      in seeking declaration that TSSB acted without statutory authority, plaintiff sought impermissible advisory opinion; and
[3]
      plaintiff’s requested declaration of its rights and status was not ripe for review.


Affirmed.




    West Headnotes (29)


    [1]
             Securities Regulation
               Securities requiring registration or
             qualification in general

             Courts must analyze specific facts surrounding
             investment transaction to determine whether it
             falls within the definition of “security” under
             Texas Securities Act (TSA).

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Trinity Settlement Services, LLC v. Texas State Securities Bd., 417 S.W.3d 494 (2013)
Blue Sky L. Rep. P 75,042

       Ann.Texas Civ.St. art. 581–4(A).


       Cases that cite this headnote




[2]
       Securities Regulation
         Investment contracts

       Test for whether an investment constitutes
       investment contract, and thus a security under
       Texas Securities Act (TSA), is whether the
       scheme involves investment of money in
       common enterprise with profits to come solely
       from efforts of others. Vernon’s Ann.Texas
       Civ.St. art. 581–4(A).


       Cases that cite this headnote




[3]
       Securities Regulation
         Investment contracts

       In determining whether profits anticipated from
       investment by investors result solely from
       efforts of others so that investment is an
       investment contract, and thus a security under
       Texas Securities Act (TSA), test for whether
       profits from enterprise in which investment was
       made come solely from efforts of others is
       whether efforts made by those other than
       investor are undeniably significant ones, those
       essential managerial efforts which affect failing
       or success of the enterprise. Vernon’s
       Ann.Texas Civ.St. art. 581–4(A).


       Cases that cite this headnote




[4]
       Securities Regulation
         Investment contracts

       Particular business structure and managerial
       efforts of viatical-settlement provider are critical
       in determining whether provider is selling
       securities subject to regulation under Texas
       Securities Act (TSA).

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Trinity Settlement Services, LLC v. Texas State Securities Bd., 417 S.W.3d 494 (2013)
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       Civ.St. art. 581–4(A).


       Cases that cite this headnote




[5]
       Courts
         Jurisdiction of Cause of Action

       Subject-matter jurisdiction is essential to the
       authority of a court to decide a case.


       Cases that cite this headnote




[6]
       Pleading
         Plea to the Jurisdiction

       Plea to the jurisdiction challenges trial court’s
       authority to determine subject matter of specific
       cause of action.


       Cases that cite this headnote




[7]
       Appeal and Error
         Extent of Review Dependent on Nature of
       Decision Appealed from

       When Court of Appeals considers trial court’s
       order on plea to the jurisdiction, Court looks to
       plaintiff’s petition to determine whether facts
       pled affirmatively demonstrate that jurisdiction
       exists.


       Cases that cite this headnote




[8]
       Pleading
         Presumptions and Burden of Proof

       In plea to the jurisdiction, burden is on plaintiff
       to affirmatively demonstrate trial court’s
       jurisdiction.


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Trinity Settlement Services, LLC v. Texas State Securities Bd., 417 S.W.3d 494 (2013)
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       Cases that cite this headnote




[9]
       Appeal and Error
         Pleading

       In determining whether plaintiff, in plea to the
       jurisdiction has met burden to affirmatively
       demonstrate trial court’s jurisdiction, Court of
       Appeals construes plaintiff’s pleadings liberally,
       taking all factual assertions as true, and looks to
       plaintiff’s intent.


       Cases that cite this headnote




[10]
       Pleading
         Scope of inquiry and matters considered in
       general

       Court deciding plea to the jurisdiction is not
       required to look solely to pleadings, but may
       consider evidence and must do so when
       necessary to resolve jurisdictional issues raised.


       Cases that cite this headnote




[11]
       States
         Declaratory judgment

       Section of Administrative Procedure Act (APA)
       that allows party to bring declaratory-judgment
       action against agency rule is legislative grant of
       subject-matter jurisdiction, such that valid
       claims raised pursuant to its provisions are not
       barred by sovereign immunity. V.T.C.A.,
       Government Code § 2001.038.


       Cases that cite this headnote




[12]
       Declaratory Judgment
         Officers and official acts in general

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       If party raises valid agency rule challenge for
       declaratory judgment under Administrative
       Procedure      Act     (APA),      trial   court’s
       subject-matter jurisdiction is established, but
       challenged agency action constituting a rule
       under APA must exist for claimant to
       successfully invoke trial court’s subject-matter
       jurisdiction under statute allowing party to bring
       declaratory    judgment       action.    V.T.C.A.,
       Government Code § 2001.038.


       Cases that cite this headnote




[13]
       Declaratory Judgment
         Officers and official acts in general
       States
         Declaratory judgment

       If there is not an agency rule within meaning of
       Administrative Procedure Act (APA) being
       challenged by declaratory-judgment, claimant
       cannot seek declaratory relief, and sovereign
       immunity bars the cause of action.


       Cases that cite this headnote




[14]
       Declaratory Judgment
         State officers and boards

       Texas State Securities Board’s (TSSB)
       statement in action against viatical settlement
       company that sale of viatical settlements, as
       investments, were securities subject to Texas
       Securities Act (TSA), did not constitute a rule
       within meaning of Administrative Procedure Act
       (APA), and thus statement was not subject to
       challenge        under       APA          through
       declaratory-judgment action; TSSB’s statement
       was not generally applicable, but rather it
       specifically described business model and
       investment transactions of company, and it was
       made in seeking adjudication only of company’s
       individual rights based on specific investments it
       sold. V.T.C.A., Government Code §§
       2001.003(6), 2001.038.


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       Cases that cite this headnote




[15]
       Administrative Law and Procedure
         Nature and Scope

       Not every administrative pronouncement is a
       rule within the meaning Administrative
       Procedure Act (APA). V.T.C.A., Government
       Code § 2001.003(6).


       Cases that cite this headnote




[16]
       Administrative Law and Procedure
         Nature and Scope

       In order to be considered statement of general
       applicability under Administrative Procedure
       Act (APA), such that statement would be a rule
       within      meaning     of    APA,      agency
       pronouncements must affect interest of the
       public at large such that they cannot be given
       effect of law without public input. V.T.C.A.,
       Government Code § 2001.003(6).


       Cases that cite this headnote




[17]
       Administrative Law and Procedure
         Nature and Scope

       Agency statements that have no legal effect on
       private persons are not considered rules under
       Administrative Procedure Act (APA). V.T.C.A.,
       Government Code § 2001.003(6).


       Cases that cite this headnote




[18]
       Declaratory Judgment
         Jurisdiction not enlarged

       Uniform Declaratory Judgments Act (UDJA)

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       does not enlarge trial court’s jurisdiction; rather,
       declaratory-judgment action under UDJA is
       merely a procedural device for deciding matters
       already within trial court’s subject-matter
       jurisdiction. V.T.C.A., Civil Practice &
       Remedies Code § 37.001 et seq.

       Cases that cite this headnote




[19]
       Action
         Moot, hypothetical or abstract questions
       Action
         Persons entitled to sue

       Subject matter jurisdiction requires that party
       bringing suit must have standing, that there be
       live controversy between parties, and the case
       must be justiciable.


       Cases that cite this headnote




[20]
       Declaratory Judgment
         Termination or settlement of controversy
       Declaratory Judgment
         Necessity

       To invoke subject-matter jurisdiction of court,
       declaratory judgment action requires a
       justiciable controversy as to rights and status of
       parties actually before court for adjudication,
       and declaration sought must actually resolve the
       controversy.


       2 Cases that cite this headnote




[21]
       Declaratory Judgment
         Moot, abstract or hypothetical questions

       “Justiciable controversy,” as prerequisite for
       declaratory judgment, is one in which real and
       substantial controversy exists involving genuine
       conflict of tangible interest and not merely a
       theoretical dispute.


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       1 Cases that cite this headnote




[22]
       Declaratory Judgment
         Moot, abstract or hypothetical questions

       Jurisdiction   under    Uniform Declaratory
       Judgments Act (UDJA) primarily depends on
       nature of the controversy, whether controversy
       is merely hypothetical or rises to justiciable
       level. V.T.C.A., Civil Practice & Remedies
       Code § 37.001 et seq.

       Cases that cite this headnote




[23]
       Declaratory Judgment
         State officers and boards

       Viatical settlement company, in seeking
       declaration that Texas State Securities Board
       (TSSB) acted without statutory authority in prior
       action by alleging that viatical settlement
       investments were securities under Texas
       Securities Act (TSA), did not allege justiciable
       controversy, as required for declaratory
       judgment,     and   thus    company       sought
       impermissible advisory opinion from trial court;
       opinion would not bind parties before court, nor
       would it resolve whether company was subject
       to requirements of TSA. V.T.C.A., Civil
       Practice & Remedies Code § 37.001 et seq.;
       Vernon’s Ann.Texas Civ.St. art. 581–4(A).


       Cases that cite this headnote




[24]
       Declaratory Judgment
         Moot, abstract or hypothetical questions
       Declaratory Judgment
         Future or contingent questions

       Declaratory-judgment action does not give court
       jurisdiction to pass upon hypothetical or
       contingent situations, or to determine questions
       not then essential to the decision of actual
       controversy, although such actions may in the

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       future require adjudication.


       2 Cases that cite this headnote




[25]
       Action
         Moot, hypothetical or abstract questions

       Ripeness implicates subject-matter jurisdiction
       and asks whether, at the time lawsuit is filed,
       facts have developed sufficiently so that injury
       has occurred or is likely to occur, rather than
       being contingent or remote.


       Cases that cite this headnote




[26]
       Action
         Moot, hypothetical or abstract questions

       Case is not ripe when its resolution depends on
       contingent or hypothetical facts, or upon events
       that have not yet come to pass.


       1 Cases that cite this headnote




[27]
       Declaratory Judgment
         Nature and elements in general

       Justiciable controversy, as required for
       declaratory judgment, does not necessarily
       equate with a fully ripened cause of action;
       rather, action for declaratory judgment will lie
       when fact situation manifests presence of
       ripening seeds of a controversy, such that claims
       of several parties are present and indicative of
       threatened litigation in immediate future which
       seems unavoidable, even though differences
       between parties as to their legal rights have not
       reached state of actual controversy. V.T.C.A.,
       Civil Practice & Remedies Code § 37.001 et
       seq.

       Cases that cite this headnote



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[28]
       Action
         Moot, hypothetical or abstract questions

       In determining whether a cause is ripe for
       judicial consideration, courts look to whether
       facts have sufficiently developed to show that
       injury has occurred, or is likely to occur.


       1 Cases that cite this headnote




[29]
       Declaratory Judgment
         Professions, businesses or occupations
       Declaratory Judgment
         State officers and boards

       Viatical settlement company’s requested
       declaration of its rights and status under Texas
       Securities Act (TSA) was not ripe for review so
       as to invoke jurisdiction under Uniform
       Declaratory Judgments Act (UDJA); company’s
       requested declaration was based on hypothetical
       facts, and whether company was under
       imminent threat of enforcement action under
       TSA was speculative. V.T.C.A., Civil Practice
       & Remedies Code § 37.001 et seq.; Vernon’s
       Ann.Texas Civ.St. art. 581–4(A).


       Cases that cite this headnote




Attorneys and Law Firms

*497 Hector De Leon, Benjamin S. De Leon, Thomas P. Washburn, George B. Ward, De Leon & Washburn, P.C., Austin,
TX, for Appellant.

Lesli Gattis Ginn, Assistant Attorney General, Financial Litigation, Tax, and Charitable Trusts Division, Austin, TX, for
Appellee.

Before Justices PURYEAR, PEMBERTON, and ROSE.




                                                          OPINION



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Trinity Settlement Services, LLC v. Texas State Securities Bd., 417 S.W.3d 494 (2013)
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DAVID PURYEAR, Judge.

This is an appeal from a grant of a plea to the jurisdiction stemming from a dispute regarding the Texas State Securities
Board’s regulation of the sale of viatical settlements. Appellant Trinity Settlement *498 Services, LLC (Trinity), an entity
proposing to engage in the sale of viatical settlements, sued appellees the Texas State Securities Board (TSSB) and John
Morgan, in his official capacity as Commissioner of the TSSB, to obtain a declaratory judgment (1) that the TSSB and
Morgan acted without statutory authority in an enforcement action against another viatical-settlement provider, Retirement
Value, LLC (RV) and (2) that certain investments Trinity itself proposes to sell, denominated “specified percentages of
participations in the proceeds of life insurance policies,” are not “securities” as defined by the Texas Securities Act (TSA).
We affirm the trial court’s order granting the plea to the jurisdiction, concluding Trinity failed to invoke the jurisdiction of
the trial court under either (1) the Administrative Procedure Act (APA) section 2001.038 because it failed to challenge a rule
of the TSSB, as defined by the APA, or (2) the Uniform Declaratory Judgments Act (UDJA) because it failed to plead a
justiciable controversy.




                                                        BACKGROUND


A. Viatical Settlements
A “viatical settlement” is a transaction in which an insured sells the benefits of his or her life insurance policy to a third party
in return for a lump-sum cash payment equal to a percentage of the policy’s value. See Black’s Law Dictionary 1497 (9th ed.
2009); Securities & Exch. Comm’n. v. Mutual Benefits Corp., 408 F.3d 737, 738 (11th Cir.2005). The purchaser of the
viatical settlement realizes a profit if, when the insured dies, the policy benefits paid are greater than the purchasing price,
adjusted for time value. Mutual Benefits Corp., 408 F.3d at 738. Viatical-settlement providers—like Trinity—purchase
policies from individual insureds and then typically sell fractionalized interests in these policies to investors. Id.
[1]
   Viatical settlements may be subject to the requirements of the TSA if they constitute “securities” as defined by the Act.
Tex.Rev.Civ. Stat. art. 581–4(A). The TSA’s definition of “security” includes, in relevant part, “any ... note ... or other
evidence of indebtedness ... or any ... investment contract” but excludes “any insurance policy ... or any contract or agreement
in relation to and in consequence of any such policy or contract, issued by an insurance company subject to the supervision or
control of the Texas Department of Insurance when the form of such policy or contract has been duly filed with the
Department.” Id. “The term ‘security’ has been defined broadly and encompasses unusual financial instruments as well as
those commonly considered securities.” Caldwell v. State, 95 S.W.3d 563, 566 (Tex.App.-Houston [1st Dist.] 2002, pet.
ref’d); see also Tcherepnin v. Knight, 389 U.S. 332, 338, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967) (noting term “security” should
be viewed as embodying a flexible rather than static principle). Courts must analyze the specific facts surrounding an
investment transaction to determine whether it falls within the definition of “security.” See, e.g., Caldwell, 95 S.W.3d at 566;
King Commodity Co. of Tex., Inc. v. State, 508 S.W.2d 439, 442 (Tex.Civ.App.-Dallas 1974, no writ).

Whether a particular viatical settlement falls within the definition of a “security” may turn on a number of factors, including
whether the investment may be characterized as a note, evidence of indebtedness, or investment contract and whether the
investment is excluded from the definition of security because it is a contract or agreement in relation to and in consequence
of a life insurance policy. See, e.g., *499 Griffitts v. Life Partners, Inc., No. 10–01–00271–CV, 2004 WL 1178418, at *1
(Tex.App.-Waco May 26, 2004, no pet.) (mem. op.); see also Tex.Rev.Civ. Stat. art. 581–4(A). Even if a viatical settlement
falls within the definition of a security, there are several exemptions from the TSA’s registration requirements—including
exemptions for private offerings and sales to accredited investors. See Tex.Rev.Civ. Stat. art. 581–5 (Exempt Transactions); 7
Tex. Admin. Code § 139.19 (2013) (TSSB, Accredited Investor Exemption).
[2] [3]
      Litigation involving the regulation of viatical settlements as securities, however, has largely turned on whether the
investment at issue satisfied the requirements of an “investment contract.” See, e.g., Mutual Benefits Corp., 408 F.3d at 743;
Griffitts, 2004 WL 1178418, at *1–2; see also Michele Meyer McCarthy, Annotation, State Regulation of Viatical Life
Insurance Programs, Viatical Settlements, and Viatical Investments, 28 A.L.R.6th 281 (2007). “The test” for whether an
investment constitutes an investment contract “is whether the scheme involves an investment of money in a common
enterprise with profits to come solely from the efforts of others.” Searsy v. Commercial Trading Corp., 560 S.W.2d 637, 640

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(Tex.1977). The test, in turn, for whether profits “come solely from the efforts of others” is “whether the efforts made by
those other than the investor are undeniably significant ones, those essential managerial efforts which affect the failing or
success of the enterprise.” Id. at 641.
[4]
   In the context of viatical settlements, courts have found that whether a particular viatical settlement is an investment
contract largely depends on whether the managerial efforts of a viatical-settlement provider affected the failure or success of
the enterprise or whether the profitability of the enterprise is determined by the mortality of the insureds rather than the
managerial efforts of the provider. Compare Securities & Ex. Comm’n. v. Life Partners, Inc., 87 F.3d 536, 542–548
(D.C.Cir.1996); Griffitts, 2004 WL 1178418, at *2, with Mutual Benefits Corp., 408 F.3d at 743–745. Thus, the particular
business structure and managerial efforts of a viatical-settlement provider are critical in determining whether the provider is
selling securities subject to regulation under the TSA. Determining who is buying the investments may also be critical, as
sales to some investors may be exempt from the TSA’s registration requirements. See Tex.Rev.Civ. Stat. art. 581–5; 7 Tex.
Admin. Code § 139.19.



B. RV Lawsuit
On May 5, 2010, the State of Texas, through the Office of the Attorney General and at the request of the TSSB, filed suit
against RV—a viatical—settlement provider-alleging several causes of action including the sale of unregistered securities in
violation of the TSA. The Plaintiff’s Original Verified Petition, verified by the Deputy Securities Commissioner, alleges that
RV “offered for sale and sold investments in the death benefits of life insurance policies” as part of its “Re–Sale Life
Insurance Policy Program.” After providing a detailed recitation of the specific facts giving rise to the investment
transactions in the Re–Sale Life Insurance Policy Program, the Petition alleges:

             The investments in the Re–Sale Life Insurance Policy Program are securities in the form of
             “investment contracts”.... An application of [the definition of investment contract] to the investments
             in the Re–Sale Life Insurance Policy Program demonstrates that these investments are “investment
             contracts,” and these instruments are therefore securities.

*500 The Petition then asserts several causes of action against RV, including offering and selling unregistered securities in
violation of the TSA.



C. Trinity’s Lawsuit
The present suit arises from Trinity—an entity not associated with RV—seeking a declaration under both the UDJA and APA
that the TSSB and Morgan acted without authority in the RV suit in alleging that the investments in the Re–Sale Life
Insurance Policy Program were securities subject to the TSA’s requirements. With regard to its interest in the RV suit, Trinity
alleges only that it “proposed to engage in the sale of specified percentages of participations in the proceeds of life insurance
policies,” and that “as a result of the TSSB’s allegations that the investments in the Re–Sale Life Insurance Policy Program
are securities in the form of investment contracts, ... Trinity has been forced to cease its own anticipated business operations
and refuse any business from participants seeking to purchase a specified percentage in the proceeds of life insurance
policies.” Trinity additionally seeks a declaration that the sale of specified percentages of participations in the proceeds of life
insurance policies does not constitute a security under the TSA, and consequently, Trinity is not required to register with the
TSSB.

The appellees filed a plea to the jurisdiction alleging the trial court did not have subject-matter jurisdiction because Trinity’s
claims were not ripe for adjudication, sought an advisory opinion, and were barred by sovereign immunity. Trinity responded
by contending the TSSB was engaging in improper ad-hoc rule-making against RV and other viatical-settlement providers.
As evidence, Trinity attached a hearing transcript from an enforcement action brought by the TSSB against another
viatical-settlement provider, AGAP Life Offering, LLC (AGAP). The trial court granted the plea to the jurisdiction and
issued the following conclusions of law: (1) Trinity’s claims are not ripe for adjudication and its suit seeks an impermissible
advisory opinion, (2) Trinity’s UDJA claims against the TSSB are barred by sovereign immunity, (3) Trinity’s UDJA claims
against the Commissioner in his official capacity fail because Trinity did not allege an ultra vires action, and (4) the APA
does not confer jurisdiction under section 2001.038 because Trinity did not challenge a TSSB rule.
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                                                  STANDARD OF REVIEW
[5] [6]
     Subject-matter jurisdiction is essential to the authority of a court to decide a case. Rusk State Hosp. v. Black, 392 S.W.3d
88, 94 (Tex.2012). A plea to the jurisdiction challenges the trial court’s authority to determine the subject matter of a specific
cause of action. Heckman v. Williamson Cnty., 369 S.W.3d 137, 149 (Tex.2012). The purpose of a plea “is not to force the
plaintiff to preview their case on the merits but to establish a reason why the merits of the plaintiffs’ claims should never be
reached.” Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex.2000). Because subject-matter jurisdiction presents a
question of law, we review the district court’s decision de novo. Graber v. Fuqua, 279 S.W.3d 608, 631 (Tex.2009).
[7] [8] [9] [10]
            When we consider a trial court’s order on a plea to the jurisdiction, we look to the “plaintiff’s petition to determine
whether the facts pled affirmatively demonstrate that jurisdiction exists.” State v. Holland, 221 S.W.3d 639, 642 (Tex.2007).
The burden is on the plaintiff to affirmatively demonstrate the trial court’s jurisdiction. Heckman, 369 S.W.3d at 137. In
determining whether the plaintiff has met this burden, we construe the plaintiff’s *501 pleadings liberally, taking all factual
assertions as true, and look to the plaintiff’s intent. Id. “A court deciding a plea to the jurisdiction is not required to look
solely to the pleadings but may consider evidence and must do so when necessary to resolve the jurisdictional issues raised.”
Bland Indep. Sch. Dist., 34 S.W.3d at 555. Here, Trinity submitted as evidence the State’s petition filed on behalf of the
TSSB in the RV suit and a transcript from the TSSB’s enforcement hearing against AGAP.




                                                         DISCUSSION


A. Subject–Matter Jurisdiction under the APA
[11] [12] [13]
           In its first issue on appeal, Trinity argues that the trial court had jurisdiction over its claims against the TSSB under
section 2001.038 of the APA. See Tex. Gov’t Code § 2001.038. The APA allows a party to bring a declaratory-judgment
action against an agency to challenge the validity or applicability of an agency rule if it is alleged that the rule or its
threatened application interferes with or impairs a legal right or privilege of the plaintiff. Id.; see Texas Dep’t of Transp. v.
Sunset Transp. Inc., 357 S.W.3d 691, 700 (Tex.App.-Austin 2011, no pet.). Section 2001.038 of the APA is considered a
legislative grant of subject-matter jurisdiction, such that valid claims raised pursuant to its provisions are not barred by
sovereign immunity. See Combs v. Entertainment Publ’ns., Inc., 292 S.W.3d 712, 720 (Tex.App.-Austin 2009, no pet.);
Texas Dep’t of Pub. Safety v. Salazar, 304 S.W.3d 896, 903 (Tex.App.-Austin 2009, no pet.). If a party raises a valid rule
challenge under the APA, the trial court’s subject-matter jurisdiction is established. See Combs, 292 S.W.3d at 720. But a
challenged agency action constituting a “rule”—as defined by the APA—must exist for a claimant to successfully invoke the
trial court’s subject-matter jurisdiction under section 2001.038. See Slay v. Texas Comm’n. on Envtl. Quality, 351 S.W.3d
532, 545 (Tex.App.-Austin 2011, pet. denied). If there is not a “rule” as defined by the APA, the claimant cannot seek
declaratory relief under section 2001.038, and sovereign immunity bars the cause of action. Id.
[14]
    In this appeal, Trinity does not challenge an agency rule adopted by the TSSB through the formal rule-making procedures
set forth in the APA. See Tex. Gov’t Code § 2001.023–.034. Rather, Trinity argues that the TSSB’s “publicly-announced
interpretation of the TSA” in the RV suit is an ad hoc rule subject to challenge under the APA. “Ad hoc rulemaking occurs
when the agency makes a determination that has implications beyond the instant parties but prefers not to make a formal rule
because the agency may not have had sufficient experience with a particular problem to support making a rule or because the
problem is so specialized and varying in nature as to be impossible of capture within the boundaries of a general rule.”
CenterPoint Energy Entex v. Railroad Comm’n. of Tex., 213 S.W.3d 364, 369 (Tex.App.-Austin 2006, pet. dismissed). The
TSSB, however, argues that statements made in its pleadings in the RV suit are not “rules” within the meaning of the APA,
and therefore not subject to a challenge under section 2001.038. We agree with the TSSB.
[15]
   To invoke the trial court’s jurisdiction under the APA, Trinity had the burden of establishing that the TSSB’s
“publicly-announced interpretation of the TSA” in the RV suit was a “rule” as defined by the APA. See Tex. Gov’t Code §

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2001.038; see also Slay, 351 S.W.3d at 544–45. The APA defines a “rule” as a “state agency statement of general
applicability” *502 that “implements, interprets, or prescribes law or policy” or “describes the procedure or practice
requirements of a state agency” but “does not include a statement regarding only the internal management or organization of
a state agency and not affecting private rights or procedures.” Tex. Gov’t Code § 2001.003(6). But “[n]ot every
administrative pronouncement is a rule within the meaning of the APA.” Salazar, 304 S.W.3d at 906; see Texas Educ.
Agency v. Leeper, 893 S.W.2d 432, 443 (Tex.1994). “This observation refers to the fact that administrative agencies routinely
issue letters, guidelines, and reports, and occasionally file briefs in court proceedings, any of which might contain statements
that intrinsically implement, interpret, or prescribe law, policy or procedure or practice requirements,” but not all such
statements are “rules” within the meaning of the APA. Brinkley v. Texas Lottery Comm’n., 986 S.W.2d 764, 769
(Tex.App.-Austin 1999, no pet.) (also noting that an agency could not practically file a brief in court “if bound to express
their views as to law, policy, and procedural requirements through contested-case decisions or formal rules exclusively”).
[16] [17]
        In order to be considered a statement of “general applicability” under the APA, agency pronouncements must “affect
the interest of the public at large such that they cannot be given the effect of law without public input.” El Paso Hosp. Dist. v.
Texas Health & Human Servs. Comm’n., 247 S.W.3d 709, 714 (Tex.2008). Agency statements that “have no legal effect on
private persons” are not considered rules. Brinkley, 986 S.W.2d at 770. When an agency adjudicates individual rights of
parties through trial-type proceedings, the Texas Supreme Court has held that “statements made in determining individual
rights, even if the number of individuals is large and they can be described as falling within a defined class” are not
statements of general applicability. Railroad Comm’n. v. WBD Oil & Gas Co., 104 S.W.3d 69, 79 (Tex.2003) (concluding
field rules adopted through contested-case hearings “are not rules of general applicability which must not be made without
public comment but are an adjudication of the individual interests principally affected”); see also Combs, 292 S.W.3d at 721
n. 4 (observing that field rules at issue in WBD Oil were “promulgated through trial-type proceedings ... that adjudicated the
individual rights of the parties and could not, therefore, be challenged as generally applicable rules in a declaratory-judgment
action under section 2001.038”).

We conclude the TSSB’s statements in the RV suit were limited solely to an adjudication of RV’s individual rights under the
TSA and are not statements of general applicability. See WBD Oil & Gas Co., 104 S.W.3d at 79. The TSSB’s petition in the
RV suit specifically describes the business model and investment transactions of RV’s Re–Sale Life Insurance Policy
Program, analyzes the definition of “security” under the TSA, and concludes that the specific investments sold by RV were
“securities” subject to regulation by the TSSB. But this statement applies only to RV and is based on the specific transactions
involved in the Re–Sale Life Insurance Policy Program.

Further, the TSSB did not express an intention in the RV suit to apply this interpretation of the TSA in all future cases
involving the sale of viatical settlements, regardless of whether the particular factual circumstances of a transaction might
result in a different treatment. Compare Combs, 292 S.W.3d at 722 (emphasizing legal interpretation in Comptroller’s letter
constituted a rule because it would bind agency employees and “unambiguously express[ed] *503 an intent to apply this
interpretation ... in all future cases involving brochure-fundraising firms, regardless of whether the particular circumstances
of each transaction might have resulted in a different tax treatment”); El Paso Hosp. Dist., 247 S.W.3d at 714 (concluding
HHSC’s cutoff date for submitting paid claims to determine Medicaid reimbursement rates was a “statement of general
applicability because it applies to all hospitals”); see also Texas State Bd. of Pharmacy v. Witcher, No. 03–12–00560–CV,
2013 WL 1876467, at *8 (Tex.App.-Austin May 3, 2013, no pet. h.) (motion for rehearing pending) (majority opinion
concluding agency’s reciprocal-sanctions policy met APA’s definition of a “rule” because it was generally applicable to all
pharmacists licensed in more than one state without regard to individual circumstances and Board intended “to apply the
policy not just to Witcher but also prescriptively to others”). Rather, the TSSB’s statements were made in seeking an
adjudication only of RV’s individual rights based on the specific investments they sold under their Re–Sale Life Insurance
Policy Program and are not statements of generally applicability. See WBD Oil & Gas Co., 104 S.W.3d at 79.

Further, the transcript from the TSSB’s enforcement hearing against AGAP—another viatical-settlement provider—does not
demonstrate that the TSSB has adopted an unwritten rule or policy of regulating all viatical settlements as securities without
regard to individual circumstances. See CenterPoint Energy, 213 S.W.3d at 369 (“If the decision made during a ratemaking
proceeding reflects a policy choice that has not been committed to a formal rule, it can be considered an ad hoc rulemaking.”);
Witcher, 2013 WL 1876467, at *8 (majority opinion concluding “a policy that establishes a bright-line rule that is applicable
without regard to individual circumstances” met definition of “rule” under APA). Rather, the TSSB’s representative at the
hearing repeatedly testified that not all viatical settlements are securities, and under Texas law, the TSSB must analyze the
specific facts of an investment transaction and apply such facts to the TSA’s definition of “security” to determine whether an
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investment is a security subject to the TSSB’s regulation. He further testified in great detail as to the specific facts of AGAP’s
investments—which differed from Trinity’s—and applied these facts to the TSA’s definition of security to conclude that
AGAP’s investments were securities subject to regulation. Because AGAP and RV had different factual circumstances,
TSSB’s legal theories and analysis in the two cases differed and neither case established a policy of regulating all viatical
settlements without regard to individual circumstances.

Accordingly, we cannot conclude that Trinity has established that the TSSB’s statements in the RV suit constituted a “rule”
invoking the trial court’s jurisdiction under the APA. We overrule Trinity’s first issue on appeal.



B. Subject–Matter Jurisdiction under the UDJA
Having concluded that Trinity failed to invoke the jurisdiction of the trial court under the APA, we next consider whether the
trial court had jurisdiction under the UDJA. See Tex. Civ. Prac. & Rem.Code § 37.001–.011 (provisions of UDJA). Trinity
sought two declarations under the UDJA: (1) a declaration that the appellees acted without statutory authority in the RV suit
and (2) a declaration of its own rights and status under the TSA. Sovereign immunity bars both of Trinity’s UDJA claims
against the TSSB. See Texas Dep’t. of Transp. v. Sefzik, 355 S.W.3d 618, 621 (Tex.2011) (“[T]he UDJA does not *504 waive
the state’s sovereign immunity when the plaintiff seeks a declaration of his or her rights under a statute.”); City of El Paso v.
Heinrich, 284 S.W.3d 366, 372–73 (Tex.2009) (suits seeking to restrain official conduct that is ultra vires of an agency’s
statutory or constitutional powers “cannot be brought against the state, which retains immunity, but must be brought against
the state actors in their official capacity” because “acts of officials which are not lawfully authorized are not acts of the
state”). With regard to Trinity’s remaining claims against Morgan, we conclude Trinity failed to plead a justiciable
controversy. For Trinity’s first claim seeking a declaration that Morgan acted without statutory authority in the RV suit, we
conclude Trinity is seeking an impermissible advisory opinion that will not resolve any controversy between the parties
actually before the court. For Trinity’s second claim seeking a declaration of its own rights and status under the TSA, we
conclude that any controversy between the TSSB and Trinity at this time is based upon hypothetical facts that have not yet
matured to a ripe controversy sufficient to confer jurisdiction on the trial court.2

2
          Because we conclude Trinity failed to plead a
          justiciable controversy, we do not reach the issue of
          whether they raised valid ultra vires claims. See Texas
          Dep’t of Pub. Safety v. Salazar, 304 S.W.3d 896, 906
          (Tex.App.-Austin 2009, no pet.) (“While private parties
          may seek declaratory relief in connection with an
          alleged ultra vires act, a declaratory judgment requires
          a justiciable controversy as to the rights and status of
          parties actually before the court for adjudication.”).




                              Declaration that Morgan Acted Without Statutory Authority in the RV Suit
[18] [19] [20] [21] [22]
                  The UDJA is a remedial statute designed “to settle and to afford relief from uncertainty and insecurity with
respect to rights, status, and other legal relations.” Tex. Civ. Prac. & Rem.Code § 37.002(b). It provides in relevant part: “A
person ... whose rights, status, or other legal relations are affected by a statute ... may have determined any question of
construction or validity arising under the ... statute ... and obtain a declaration of rights, status, or legal relations thereunder.”
Id. § 37.004(a). The UDJA, however, does not enlarge a trial court’s jurisdiction; rather, a declaratory-judgment action is
merely a procedural device for deciding matters already within a trial court’s subject-matter jurisdiction. Heinrich, 284
S.W.3d at 370. “Subject matter jurisdiction requires that the party bringing the suit must have standing, that there be a live
controversy between the parties, and the case must be justiciable.” Tex. Dep’t. of Banking v. Mount Olivet Cemetery Ass’n.,
27 S.W.3d 276, 282 (Tex.App.-Austin 2000, pet. denied). Accordingly, to invoke the subject-matter jurisdiction of the court,
a declaratory judgment action “requires a justiciable controversy as to the rights and status of the parties actually before the
court for adjudication, and the declaration sought must actually resolve the controversy.” Brooks v. Northglen Ass’n., 141

                       © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                       15
Trinity Settlement Services, LLC v. Texas State Securities Bd., 417 S.W.3d 494 (2013)
Blue Sky L. Rep. P 75,042

S.W.3d 158, 163–64 (Tex.2004). A justiciable controversy is one in which a real and substantial controversy exists involving
a genuine conflict of tangible interest and not merely a theoretical dispute. Texas Dep’t. of Pub. Safety v. Moore, 985 S.W.2d
149, 154 (Tex.App.-Austin 1998, no pet.). Jurisdiction under the UDJA therefore “primarily depends on the nature of the
controversy; whether the controversy is merely hypothetical or rises to the justiciable level.” Id. at 154.
[23]
     We conclude Trinity is seeking an impermissible advisory opinion as the declaration it seeks—that the TSSB acted
without statutory authority in the RV *505 suit—would not bind the parties to the current litigation nor provide specific relief
to Trinity. See Brinkley, 986 S.W.2d at 767 (“The distinctive feature of an advisory opinion is that it decides an abstract
question of law without binding the parties.”). Rather, Trinity is seeking a declaration of the rights and status of RV—a party
who is not before the court and cannot invoke the jurisdiction of the trial court. See Brooks, 141 S.W.3d at 163–64
(concluding trial court does not have jurisdiction to declare rights and status of parties who are not before the court). To
invoke the jurisdiction of the trial court, Trinity must allege a justiciable controversy “as to the rights and status of parties
actually before the court for adjudication” that will be resolved by the declaration sought. Id. Further, a declaration that the
TSSB acted without statutory authority in the RV suit would not resolve whether Trinity is subject to the requirements of the
TSA. Rather, Trinity’s right to proceed with its proposed sale of viatical settlements would remain speculative because it is a
fact-based determination. See Tex. Civ. Prac. & Rem.Code § 37.008 (allowing trial court to refuse to render declaratory
judgment if it would not end controversy or uncertainty giving rise to proceeding). Accordingly, we conclude Trinity seeks
an impermissible advisory opinion that would not bind the parties before the court and failed to invoke the jurisdiction of the
trial court under the UDJA.




                                  Declaration of Trinity’s Rights and Status under the TSA
[24]
    Trinity additionally seeks a declaration “that the sale of specified percentages of participations in the proceeds of life
insurance policies does not constitute a security” under the TSA and that “Trinity is consequently not required to register
with the TSSB its participations as securities.” In this claim, Trinity is not challenging a specific agency action nor the
validity of an agency rule. See City of Waco v. Texas Nat’l. Res. Conservation Comm’n., 83 S.W.3d 169, 178
(Tex.App.-Austin 2002, pet. denied). Rather, Trinity seeks a declaration to clarify its own rights and status under the TSA.
The UDJA grants any litigant whose rights are affected by a statute the opportunity to obtain a declaration of those rights
under the statute. Tex. Civ. Prac. & Rem.Code § 37.004; see also Texas Mun. Power Agency v. Public Util. Comm’n., 100
S.W.3d 510, 515 (Tex.App.-Austin 2003, pet denied). A declaratory-judgment action does not, however, give a court
“jurisdiction to pass upon hypothetical or contingent situations, or to determine questions not then essential to the decision of
an actual controversy, although such actions may in the future require adjudication.” Bexar Metro. Water Dist. v. City of
Bulverde, 234 S.W.3d 126, 130–31 (Tex.App.-Austin 2007, no pet.). After careful review of the record, we conclude any
controversy between the TSSB and Trinity at this time is based upon hypothetical facts that have not yet matured to a ripe
controversy sufficient to confer jurisdiction on the trial court. While the TSSB raises several challenges to the trial court’s
jurisdiction, the ripeness issue is dispositive. See Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 851 (Tex.2000).
[25] [26] [27]
            Ripeness implicates subject-matter jurisdiction and asks whether—at the time a lawsuit is filed—the facts have
developed sufficiently so that an injury has occurred or is likely to occur, rather than being contingent or remote. Rea v. State,
297 S.W.3d 379, 383 (Tex.App.-Austin 2009, no pet.). A case is not ripe when its resolution depends on contingent or
hypothetical facts, or upon events that have not yet come to pass. *506 Patterson v. Planned Parenthood of Houston, 971
S.W.2d 439, 442 (Tex.1998). A justiciable controversy, however, does not necessarily equate with a fully ripened cause of
action. Moore, 985 S.W.2d at 153–54. Rather, an action for declaratory judgment will “lie when the fact situation manifests
the presence of ripening seeds of a controversy,” such that “the claims of several parties are present and indicative of
threatened litigation in the immediate future which seems unavoidable, even though the differences between the parties as to
their legal rights have not reached the state of an actual controversy.” Id.; see Save our Springs Alliance v. City of Austin, 149
S.W.3d 674, 683 (Tex.App.-Austin 2004, no pet.) The constitutional prohibition against issuing advisory opinions also has a
pragmatic, prudential aspect that aims to conserve “judicial time and resources for real and current controversies, rather than
abstract, hypothetical, or remote disputes.” Patterson, 971 S.W.2d at 443 (quoting Mayhew v. Town of Sunnyvale, 964
S.W.2d 922, 928 (Tex.1998)). In the administrative-law context, moreover, avoiding premature litigation over administrative
determinations prevents courts from “entangling themselves in abstract disagreements over administrative policies” while
simultaneously allowing the agency to perform its functions unimpeded. Id.

                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                          16
Trinity Settlement Services, LLC v. Texas State Securities Bd., 417 S.W.3d 494 (2013)
Blue Sky L. Rep. P 75,042


[28] [29]
        In determining whether a cause is ripe for judicial consideration, we look to whether the facts have sufficiently
developed to show that an injury has occurred, or is likely to occur. City of Waco, 83 S.W.3d at 175. When a business—like
Trinity—files a “pre-enforcement” suit seeking a declaration of its rights prior to an agency enforcement action, we have
concluded the controversy is ripe for review only if “an enforcement action is imminent or sufficiently likely.” Atmos Energy
Corp. v. Abbott, 127 S.W.3d 852, 856 (Tex.App.-Austin 2004, no pet.); see also Rea, 297 S.W.3d at 383 (“To establish that a
claim is ripe based on an injury that is likely to occur, the plaintiff must demonstrate that the injury is imminent, direct, and
immediate, and not merely remote, conjectural, or hypothetical.”). In this case, the pleadings and evidence indicate the TSSB
has taken no action against Trinity.3 Although the TSSB has brought an enforcement action against other viatical settlement
providers, we cannot conclude that an enforcement action against Trinity is also imminent or sufficiently likely to occur at
this time.

3
            Trinity pleads the TSSB sent its manager, Michael
            McDermott, correspondence in connection with the RV
            suit “alleging Mr. McDermott may have offered for
            sale and/or sold investments on behalf of RV.”
            According to Trinity’s pleadings, the TSSB letter was
            sent to Mr. McDermott because of his potential
            connection with the RV suit and not because of any
            action by Trinity or action by McDermott on Trinity’s
            behalf.



Rather, whether the TSSB will bring an enforcement action against Trinity depends on many factual contingencies that have
not yet come to pass and are not before the court, including whether Trinity chooses to begin selling viatical settlements, how
Trinity ultimately structures its investments, the managerial efforts Trinity exerts in such sales, what type of investors
purchase the viatical settlements, and whether the TSSB elects to bring an enforcement action against Trinity based on these
future actions. Trinity’s claim does not pose a pure question of law but instead asks the trial court to engage in a fact-based
determination based upon contingent, hypothetical facts. See Beacon Nat’l. Ins. Co. v. Montemayor, 86 S.W.3d 260, 268
(Tex.App.-Austin 2002, no pet.) (concluding appellant’s premature attempt to arrest the administrative process before the
agency had taken an adverse action against it was not ripe when claim did not *507 present pure question of law but required
the determination of several factual matters that had not sufficiently developed); see also Atmos, 127 S.W.3d at 858
(concluding “issues raised by appellants were not fit for judicial review because whether appellants are subject to the Ceiling
Price Statute is dependent on many facts not before the trial court”); see also Patterson, 971 S.W.2d at 443 (“Litigation based
upon hypothetical possibility rather than concrete fact is apt to be poor litigation.”).

Further, we cannot conclude that the TSSB’s enforcement actions against other viatical-settlement providers demonstrates
that an enforcement action against Trinity is also imminent at this time. Whether a particular viatical settlement is subject to
the TSA is a fact-based determination contingent upon a number of factors, including whether the profitability of the
enterprise is determined by the death of the insureds or the essential managerial efforts of the provider. See Life Partners, Inc.,
87 F.3d at 542–48; Mutual Benefits Corp., 408 F.3d at 743–45; Griffitts, 2004 WL 1178418, at *2. Trinity pleaded that it
“proposed to engage in the sale of viatical settlements” but did not plead that its investments or business would be structured
identically to RV’s or any other viatical-settlement provider the TSSB has previously instituted enforcement proceedings
against.4 Because Trinity’s specific factual circumstances may differ from other viatical-settlement providers, we cannot
conclude that an enforcement action against Trinity is imminent or sufficiently likely at this time. Accordingly, we conclude
that Trinity’s requested declaration of its rights and status under the TSA is not ripe for review and failed to invoke the trial
court’s jurisdiction under the UDJA because it is based on hypothetical facts. We further conclude that whether the TSSB
will bring a future action is too speculative to support Trinity’s contention that they are under an imminent threat of
enforcement. See Atmos, 127 S.W.3d at 858.

4
            In its appellate brief, Trinity states that it did not intend
            to “suggest that Trinity’s entire business model or
            systems and processes were going to be identical to
            those of RV.”


                      © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                     17
Trinity Settlement Services, LLC v. Texas State Securities Bd., 417 S.W.3d 494 (2013)
Blue Sky L. Rep. P 75,042




                                                              CONCLUSION

Having determined Trinity’s petition did not invoke the trial court’s jurisdiction, we affirm the trial court’s grant of the plea
to the jurisdiction.5

5
        The Texas Supreme Court has instructed us that if a
        claimant’s pleadings omit sufficient facts to
        affirmatively demonstrate the trial court’s jurisdiction
        but do not affirmatively demonstrate incurable defects
        in jurisdiction, the issue is one of “pleading sufficiency,
        and the plaintiffs should be afforded the opportunity to
        amend.” Texas Dep’t of Parks & Wildlife v. Miranda,
        133 S.W.3d 217, 226–27 (Tex.2004). This is not such a
        case. Rather, we conclude the pleadings “affirmatively
        negate the existence of jurisdiction” and the “plea to the
        jurisdiction may be granted without allowing the
        plaintiffs an opportunity to amend.” Id.




All Citations

417 S.W.3d 494, Blue Sky L. Rep. P 75,042

    End of Document                                                   © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                 18
22 TAC § 174.4, 22 TAC § 174.4




                                                      22 TAC § 174.4
                                              Tex. Admin. Code tit. 22, § 174.4
                                            TEXAS ADMINISTRATIVE CODE
                                             TITLE 22. EXAMINING BOARDS
                                            PART 9. TEXAS MEDICAL BOARD
                                             CHAPTER 174. TELEMEDICINE

Effective:TAX

§ 174.4. Use of the Internet in Medical Practice

(a) Evaluation of the Patient. Physicians who utilize the Internet must ensure a proper physician-patient relationship is
established that at a minimum includes:

  (1) establishing that the person requesting the treatment is in fact who the person claims to be;

  (2) establishing a diagnosis through the use of acceptable medical practices such as patient history, mental status examination,
  physical examination, and appropriate diagnostic and laboratory testing to establish diagnoses and identify underlying
  conditions and/or contra-indications to treatment recommended/provided;

  (3) discussing with the patient the diagnosis and the evidence for it, the risks and benefits of various treatment options; and

  (4) ensuring the availability of the physician or coverage of the patient for appropriate follow-up care.

(b) Treatment. Treatment and consultation recommendations made in an online setting, including issuing a prescription via
electronic means, will be held to the same standards of appropriate practice as those in traditional (face-to-face) settings. An
online or telephonic evaluation by questionnaire does not constitute an acceptable standard of care.

(c) State Licensure. Physicians who treat and prescribe through the Internet are practicing medicine and must possess appropriate
licensure in all jurisdictions where patients reside.

(d) Electronic Communications.

  (1) Written policies and procedures must be maintained when using electronic mail for physician-patient communications.
  Policies must be evaluated periodically for currency. Such policies and procedures must address:

    (A) privacy to assure confidentiality and integrity of patient-identifiable information;

    (B) health care personnel, in addition to the physician, who will process messages;

    (C) hours of operation and availability;

    (D) types of transactions that will be permitted electronically;

    (E) required patient information to be included in the communication, such as patient name, identification number and
    type of transaction;

    (F) archival and retrieval; and

    (G) quality oversight mechanisms.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                            1
22 TAC § 174.4, 22 TAC § 174.4


  (2) All patient-physician e-mail, as well as other patient-related electronic communications, must be stored and filed in the
  patient's medical record.

  (3) Patients must be informed of alternative forms of communication for urgent matters.

(e) Medical Records.

  (1) Medical records must include copies of all patient-related electronic communications, including patient-physician e-mail,
  prescriptions, laboratory and test results, evaluations and consultations, records of past care and instructions.

  (2) Notice of privacy practices related to the use of e-mail must be filed in the medical record.

(f) Disclosure. Physician medical practice sites must clearly disclose:

  (1) ownership of the website;

  (2) specific services provided;

  (3) office address and contact information;

  (4) licensure and qualifications of physician(s) and associated health care providers;

  (5) fees for online consultation and services and how payment is to be made;

  (6) financial interest in any information, products, or services;

  (7) appropriate uses and limitations of the site, including providing health advice and emergency health situations;

  (8) uses and response times for e-mails, electronic messages, and other communications transmitted via the site;

  (9) to whom patient health information may be disclosed and for what purpose;

  (10) rights of patients with respect to patient health information; and

  (11) information collected and any passive tracking mechanisms utilized.

(g) Accountability. Medical practice sites must provide patients with a clear mechanism to:

  (1) access, supplement, and amend patient-provided personal health information;

  (2) provide feedback regarding the site and the quality of information and services; and

  (3) register complaints, including information regarding filing a complaint with the Texas State Board of Medical Examiners
  as provided for in Chapter 178 of this title (relating to Complaints).

(h) Advertising/Promotion of Goods or Products. Advertising or promotion of goods or products from which the physician
receives direct remuneration or incentives is prohibited.



Source: The provisions of this § 174.4 adopted to be effective July 4, 2004, 29 TexReg 6088.


                                              Current through December 31, 2009
                                              Copr. (c) 2009. All rights reserved.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                          2
22 TAC § 174.4, 22 TAC § 174.4




End of Document                                         © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                        3
§ 174.8. Evaluation and Treatment of the Patient, 22 TX ADC § 174.8




  Texas Administrative Code
    Title 22. Examining Boards
      Part 9. Texas Medical Board
         Chapter 174. Telemedicine

                                                      22 TAC § 174.8
                                              Tex. Admin. Code tit. 22, § 174.8

                                     § 174.8. Evaluation and Treatment of the Patient

                                                          Currentness


(a) Evaluation of the Patient. Distant site providers who utilize telemedicine medical services must ensure that a defined
physician-patient relationship is established which at a minimum includes:


     (1) establishing that the person requesting the treatment is in fact who the person claims to be;


     (2) establishing a diagnosis through the use of acceptable medical practices, including documenting and performing patient
     history, mental status examination, and physical examination that must be performed as part of a face-to-face or in-person
     evaluation as defined in §174.2(3) and (4) of this title (relating to Definitions). The requirement for a face-to-face or in-
     person evaluation does not apply to mental health services, except in cases of behavioral emergencies, as defined by 25
     TAC §415.253 (relating to Definitions), and appropriate diagnostic and laboratory testing to establish diagnoses, as well
     as identify underlying conditions or contra-indications, or both, to treatment recommended or provided;


     (3) discussing with the patient the diagnosis and the evidence for it, the risks and benefits of various treatment options; and


     (4) ensuring the availability of the distant site provider or coverage of the patient for appropriate follow-up care.


(b) Treatment. Treatment and consultation recommendations made in an online setting, including issuing a prescription via
electronic means, will be held to the same standards of acceptable medical practices as those in traditional in-person clinical
settings.


(c) An online questionnaire or questions and answers exchanged through email, electronic text, or chat or telephonic evaluation
of or consultation with a patient are inadequate to establish a defined physician-patient relationship.


Credits
Source: The provisions of this §174.8 adopted to be effective October 17, 2010, 35 TexReg 9085; amended to be effective
June 4, 2015, 40 TexReg 3148.


Current through 40 Tex.Reg. No. 4262, dated June 26, 2015, as effective on or before June 30, 2015

22 TAC § 174.8, 22 TX ADC § 174.8



               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                               1
§ 174.8. Evaluation and Treatment of the Patient, 22 TX ADC § 174.8




End of Document                                              © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                             2
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8




  Texas Administrative Code
    Title 22. Examining Boards
      Part 9. Texas Medical Board
         Chapter 190. Disciplinary Guidelines
           Subchapter B. Violation Guidelines

                                                      22 TAC § 190.8
                                              Tex. Admin. Code tit. 22, § 190.8

                                                § 190.8. Violation Guidelines

                                                          Currentness


     <Teladoc, Inc. v. Texas Medical Bd.,--- F.Supp.3d ----, 2015 WL 4103658 (W.D.Tex.,2015.) enjoined this section
    from taking effect, providing that “Defendants are enjoined from taking any action to implement, enact and enforce
    New Rule 190.8 from taking effect pending final resolution of the claims brought by Plaintiffs in their Complaint.”>

When substantiated by credible evidence, the following acts, practices, and conduct are considered to be violations of the Act.
The following shall not be considered an exhaustive or exclusive listing.


(1) Practice Inconsistent with Public Health and Welfare. Failure to practice in an acceptable professional manner consistent
with public health and welfare within the meaning of the Act includes, but is not limited to:


     (A) failure to treat a patient according to the generally accepted standard of care;


     (B) negligence in performing medical services;


     (C) failure to use proper diligence in one's professional practice;


     (D) failure to safeguard against potential complications;


     (E) improper utilization review;


     (F) failure to timely respond in person when on-call or when requested by emergency room or hospital staff;


     (G) failure to disclose reasonably foreseeable side effects of a procedure or treatment;


     (H) failure to disclose reasonable alternative treatments to a proposed procedure or treatment;




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                          1
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8




    (I) failure to obtain informed consent from the patient or other person authorized by law to consent to treatment on the
    patient's behalf before performing tests, treatments, procedures, or autopsies as required under Chapter 49 of the Code
    of Criminal Procedure;


    (J) termination of patient care without providing reasonable notice to the patient;


    (K) prescription or administration of a drug in a manner that is not in compliance with Chapter 200 of this title (relating to
    Standards for Physicians Practicing Complementary and Alternative Medicine) or, that is either not approved by the Food
    and Drug Administration (FDA) for use in human beings or does not meet standards for off-label use, unless an exemption
    has otherwise been obtained from the FDA;


    (L) prescription of any dangerous drug or controlled substance without first establishing a defined physician-patient
    relationship.


         (i) A defined physician-patient relationship must include, at a minimum:


              (I) establishing that the person requesting the medication is in fact who the person claims to be;


              (II) establishing a diagnosis through the use of acceptable medical practices, which includes documenting and
              performing:


              (-a-) patient history;


              (-b-) mental status examination;


              (-c-) physical examination that must be performed by either a face-to-face visit or in-person evaluation as
              defined in §174.2(3) and (4) of this title (relating to Definitions). The requirement for a face-to-face or in-person
              evaluation does not apply to mental health services, except in cases of behavioral emergencies, as defined by
              25 TAC §415.253 (relating to Definitions); and


              (-d-) appropriate diagnostic and laboratory testing.


              (III) An online questionnaire or questions and answers exchanged through email, electronic text, or chat or
              telephonic evaluation of or consultation with a patient are inadequate to establish a defined physician-patient
              relationship;


              (IV) discussing with the patient the diagnosis and the evidence for it, the risks and benefits of various treatment
              options; and




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                               2
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8




              (V) ensuring the availability of the licensee or coverage of the patient for appropriate follow-up care.


         (ii) A proper professional relationship is also considered to exist between a patient certified as having a terminal
         illness and who is enrolled in a hospice program, or another similar formal program which meets the requirements
         of subclauses (I) through (IV) of this clause, and the physician supporting the program. To have a terminal condition
         for the purposes of this rule, the patient must be certified as having a terminal illness under the requirements of 40
         TAC §97.403 (relating to Standards Specific to Agencies Licensed to Provide Hospice Service) and 42 CFR 418.22.


         (iii) Notwithstanding the provisions of this subparagraph, establishing a professional relationship is not required for:


              (I) a physician to prescribe medications for sexually transmitted diseases for partners of the physician's
              established patient, if the physician determines that the patient may have been infected with a sexually transmitted
              disease; or


              (II) a physician to prescribe dangerous drugs and/or vaccines for a patient's close contacts if the physician
              diagnoses the patient with one or more of the following infectious diseases listed in items (-a-)-(-g-) of this
              subclause. For the purpose of this clause, a "close contact" is defined as: any person who provided care for the
              patient while the patient was symptomatic; or a member of the patient's household. The physician must document
              the treatment provided to the patient's close contact(s) in the patient's medical record. Such documentation at a
              minimum must include the close contact's name, drug prescribed, and the date that the prescription was provided.


              (-a-) Chicken Pox;


              (-b-) Influenza;


              (-c-) Invasive Haemophilus influenzae Type B;


              (-d-) Meningococcal disease;


              (-e-) Pertussis;


              (-f-) Scabies; or


              (-g-) Shingles.


    (M) inappropriate prescription of dangerous drugs or controlled substances to oneself, family members, or others in which
    there is a close personal relationship that would include the following:




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                              3
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8




         (i) prescribing or administering dangerous drugs or controlled substances without taking an adequate history,
         performing a proper physical examination, and creating and maintaining adequate records; and


         (ii) prescribing controlled substances in the absence of immediate need. "Immediate need" shall be considered no
         more than 72 hours.


    (N) providing on-call back-up by a person who is not licensed to practice medicine in this state or who does not have
    adequate training and experience.


    (O) delegating the performance of nerve conduction studies to a person who is not licensed as a physician or physical
    therapist without:


         (i) first selecting the appropriate nerve conductions to be performed;


         (ii) ensuring that the person performing the study is adequately trained;


         (iii) being onsite during the performance of the study; and


         (iv) being immediately available to provide the person with assistance and direction.


(2) Unprofessional and Dishonorable Conduct. Unprofessional and dishonorable conduct that is likely to deceive, defraud, or
injure the public within the meaning of the Act includes, but is not limited to:


    (A) violating a board order;


    (B) failing to comply with a board subpoena or request for information or action;


    (C) providing false information to the board;


    (D) failing to cooperate with board staff;


    (E) engaging in sexual contact with a patient;


    (F) engaging in sexually inappropriate behavior or comments directed towards a patient;


    (G) becoming financially or personally involved with a patient in an inappropriate manner;




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                       4
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8




    (H) referring a patient to a facility, laboratory, or pharmacy without disclosing the existence of the licensee's ownership
    interest in the entity to the patient;


    (I) using false, misleading, or deceptive advertising;


    (J) providing medically unnecessary services to a patient or submitting a billing statement to a patient or a third party payer
    that the licensee knew or should have known was improper. "Improper" means the billing statement is false, fraudulent,
    misrepresents services provided, or otherwise does not meet professional standards;


    (K) behaving in an abusive or assaultive manner towards a patient or the patient's family or representatives that interferes
    with patient care or could be reasonably expected to adversely impact the quality of care rendered to a patient;


    (L) failing to timely respond to communications from a patient;


    (M) failing to complete the required amounts of CME;


    (N) failing to maintain the confidentiality of a patient;


    (O) failing to report suspected abuse of a patient by a third party, when the report of that abuse is required by law;


    (P) behaving in a disruptive manner toward licensees, hospital personnel, other medical personnel, patients, family
    members or others that interferes with patient care or could be reasonably expected to adversely impact the quality of
    care rendered to a patient;


    (Q) entering into any agreement whereby a licensee, peer review committee, hospital, medical staff, or medical society is
    restricted in providing information to the board; and


    (R) commission of the following violations of federal and state laws whether or not there is a complaint, indictment, or
    conviction:


         (i) any felony;


         (ii) any offense in which assault or battery, or the attempt of either is an essential element;


         (iii) any criminal violation of the Medical Practice Act or other statutes regulating or pertaining to the practice of
         medicine;


         (iv) any criminal violation of statutes regulating other professions in the healing arts that the licensee is licensed in;



              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                5
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8




          (v) any misdemeanor involving moral turpitude as defined by paragraph (6) of this section;


          (vi) bribery or corrupt influence;


          (vii) burglary;


          (viii) child molestation;


          (ix) kidnapping or false imprisonment;


          (x) obstruction of governmental operations;


          (xi) public indecency; and


          (xii) substance abuse or substance diversion.


     (S) contacting or attempting to contact a complainant, witness, medical peer review committee member, or professional
     review body as defined under §160.001 of the Act regarding statements used in an active investigation by the board for
     purposes of intimidation. It is not a violation for a licensee under investigation to have contact with a complainant, witness,
     medical peer review committee member, or professional review body if the contact is in the normal course of business
     and unrelated to the investigation.


     (T) failing to timely submit complete forms for purposes of registration as set out in §166.1 of this title (relating to Physician
     Registration) when it is the intent of the licensee to maintain licensure with the board as indicated through submission of
     an application and fees prior to one year after a permit expires.


(3) Disciplinary actions by another state board. A voluntary surrender of a license in lieu of disciplinary action or while an
investigation or disciplinary action is pending constitutes disciplinary action within the meaning of the Act. The voluntary
surrender shall be considered to be based on acts that are alleged in a complaint or stated in the order of voluntary surrender,
whether or not the licensee has denied the facts involved.


(4) Disciplinary actions by peer groups. A voluntary relinquishment of privileges or a failure to renew privileges with a hospital,
medical staff, or medical association or society while investigation or a disciplinary action is pending or is on appeal constitutes
disciplinary action that is appropriate and reasonably supported by evidence submitted to the board, within the meaning of
§164.051(a)(7) the Act.


(5) Repeated or recurring meritorious health care liability claims. It shall be presumed that a claim is "meritorious," within the
meaning of §164.051(a)(8) of the Act, if there is a finding by a judge or jury that a licensee was negligent in the care of a patient
or if there is a settlement of a claim without the filing of a lawsuit or a settlement of a lawsuit against the licensee in the amount


                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                 6
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8


of $50,000 or more. Claims are "repeated or recurring," within the meaning of §164.051(a)(8) of the Act, if there are three or
more claims in any five-year period. The date of the claim shall be the date the licensee or licensee's medical liability insurer
is first notified of the claim, as reported to the board pursuant to §160.052 of the Act or otherwise.


(6) Discipline based on Criminal Conviction. The board is authorized by the following separate statutes to take disciplinary
action against a licensee based on a criminal conviction:


     (A) Felonies.


          (i) Section 164.051(a)(2)(B) of the Medical Practice Act, §204.303(a)(2) of the Physician Assistant Act, and
          §203.351(a)(7) of the Acupuncture Act, (collectively, the "Licensing Acts") authorize the board to take disciplinary
          action based on a conviction, deferred adjudication, community supervision, or deferred disposition for any felony.


          (ii) Chapter 53, Texas Occupations Code authorizes the board to revoke or suspend a license on the grounds that a
          person has been convicted of a felony that directly relates to the duties and responsibilities of the licensed occupation.


          (iii) Because the provisions of the Licensing Acts may be based on either conviction or a form of deferred adjudication,
          the board determines that the requirements of the Act are stricter than the requirements of Chapter 53 and, therefore,
          the board is not required to comply with Chapter 53, pursuant to §153.0045 of the Act.


          (iv) Upon the initial conviction for any felony, the board shall suspend a physician's license, in accordance with
          §164.057(a)(1)(A), of the Act.


          (v) Upon final conviction for any felony, the board shall revoke a physician's license, in accordance with §164.057(b)
          of the Act.


     (B) Misdemeanors.


          (i) Section 164.051(a)(2)(B) of the Act authorizes the board to take disciplinary action based on a conviction, deferred
          adjudication, community supervision, or deferred disposition for any misdemeanor involving moral turpitude.


          (ii) Chapter 53, Texas Occupations Code authorizes the board to revoke or suspend a license on the grounds that a
          person has been convicted of a misdemeanor that directly relates to the duties and responsibilities of the licensed
          occupation.


          (iii) For a misdemeanor involving moral turpitude, the provisions of §164.051(a)(2) of the Medical Practice Act
          and §205.351(a)(7) of the Acupuncture Act, may be based on either conviction or a form of deferred adjudication,
          and therefore the board determines that the requirements of these licensing acts are stricter than the requirements of
          Chapter 53 and the board is not required to comply with Chapter 53, pursuant to §153.0045 of the Act.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                               7
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8




          (iv) The Medical Practice Act and the Acupuncture Act do not authorize disciplinary action based on conviction for
          a misdemeanor that does not involve moral turpitude. The Physician Assistant Act does not authorize disciplinary
          action based on conviction for a misdemeanor. Therefore these licensing acts are not stricter than the requirements of
          Chapter 53 in those situations. In such situations, the conviction will be considered to directly relate to the practice
          of medicine if the act:


               (I) arose out of the practice of medicine, as defined by the Act;


               (II) arose out of the practice location of the physician;


               (III) involves a patient or former patient;


               (IV) involves any other health professional with whom the physician has or has had a professional relationship;


               (V) involves the prescribing, sale, distribution, or use of any dangerous drug or controlled substance; or


               (VI) involves the billing for or any financial arrangement regarding any medical service;


          (v) Misdemeanors involving moral turpitude. Misdemeanors involving moral turpitude, within the meaning of the
          Act, are those that involve dishonesty, fraud, deceit, misrepresentation, deliberate violence, or that reflect adversely
          on a licensee's honesty, trustworthiness, or fitness to practice under the scope of the person's license.


     (C) In accordance with §164.058 of the Act, the board shall suspend the license of a licensee serving a prison term in a
     state or federal penitentiary during the term of the incarceration regardless of the offense.


(7) Violations of the Health and Safety Code. In accordance with §164.055 of the Act, the Board shall take appropriate
disciplinary action against a physician who violates §170.002 or Chapter 171, Texas Health and Safety Code.


(8) For purposes of §164.051(a)(4)(C) of the Texas Occupations Code, any use of a substance listed in Schedule I, as established
by the Commissioner of the Department of State Health Services under Chapter 481, or as established under the Comprehensive
Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. §801 et seq.) constitutes excessive use of such substance.


Credits
Source: The provisions of this §190.8 adopted to be effective November 30, 2003, 28 TexReg 10496; amended to be effective
July 4, 2004, 29 TexReg 6092; amended to be effective January 25, 2006, 31 TexReg 396; amended to be effective July 3,
2007, 32 TexReg 3994; amended to be effective June 24, 2009, 34 TexReg 4124; amended to be effective October 3, 2010,
35 TexReg 8754; amended to be effective June 28, 2011, 36 TexReg 3921; amended to be effective December 18, 2011, 36
TexReg 8378; amended to be effective July 4, 2012, 37 TexReg 4929; amended to be effective December 23, 2012, 37 TexReg
9774; amended to be effective August 3, 2014, 39 TexReg 5750; amended to be effective December 7, 2014, 39 TexReg 9345;
amended to be effective June 3, 2015, 40 TexReg 3159.



               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                             8
§ 190.8. Violation Guidelines, 22 TX ADC § 190.8




Current through 40 Tex.Reg. No. 4262, dated June 26, 2015, as effective on or before June 30, 2015

22 TAC § 190.8, 22 TX ADC § 190.8

End of Document                                                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                9
§ 22.001. Jurisdiction, TX GOVT § 22.001




  Vernon's Texas Statutes and Codes Annotated
    Government Code (Refs & Annos)
      Title 2. Judicial Branch (Refs & Annos)
        Subtitle A. Courts
           Chapter 22. Appellate Courts
              Subchapter A. Supreme Court

                                            V.T.C.A., Government Code § 22.001

                                                    § 22.001. Jurisdiction

                                                Effective: September 1, 2003
                                                         Currentness


(a) The supreme court has appellate jurisdiction, except in criminal law matters, coextensive with the limits of the state and
extending to all questions of law arising in the following cases when they have been brought to the courts of appeals from
appealable judgment of the trial courts:


  (1) a case in which the justices of a court of appeals disagree on a question of law material to the decision;


  (2) a case in which one of the courts of appeals holds differently from a prior decision of another court of appeals or of the
  supreme court on a question of law material to a decision of the case;


  (3) a case involving the construction or validity of a statute necessary to a determination of the case;


  (4) a case involving state revenue;


  (5) a case in which the railroad commission is a party; and


  (6) any other case in which it appears that an error of law has been committed by the court of appeals, and that error is of such
  importance to the jurisprudence of the state that, in the opinion of the supreme court, it requires correction, but excluding
  those cases in which the jurisdiction of the court of appeals is made final by statute.


(b) A case over which the court has jurisdiction under Subsection (a) may be carried to the supreme court either by writ of error
or by certificate from the court of appeals, but the court of appeals may certify a question of law arising in any of those cases
at any time it chooses, either before or after the decision of the case in that court.


(c) An appeal may be taken directly to the supreme court from an order of a trial court granting or denying an interlocutory
or permanent injunction on the ground of the constitutionality of a statute of this state. It is the duty of the supreme court to
prescribe the necessary rules of procedure to be followed in perfecting the appeal.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                              1
§ 22.001. Jurisdiction, TX GOVT § 22.001




(d) The supreme court has the power, on affidavit or otherwise, as the court may determine, to ascertain the matters of fact that
are necessary to the proper exercise of its jurisdiction.


(e) For purposes of Subsection (a)(2), one court holds differently from another when there is inconsistency in their respective
decisions that should be clarified to remove unnecessary uncertainty in the law and unfairness to litigants.


Credits
Acts 1985, 69th Leg., ch. 480, § 1, eff. Sept. 1, 1985. Amended by Acts 1987, 70th Leg., ch. 1106, § 1, eff. June 20, 1987;
Acts 2003, 78th Leg., ch. 204, § 1.04, eff. Sept. 1, 2003.



Notes of Decisions (280)

V. T. C. A., Government Code § 22.001, TX GOVT § 22.001
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature

End of Document                                                    © 2015 Thomson Reuters. No claim to original U.S. Government Works.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                  2
§ 2001.003. Definitions, TX GOVT § 2001.003




  Vernon's Texas Statutes and Codes Annotated
    Government Code (Refs & Annos)
      Title 10. General Government (Refs & Annos)
        Subtitle A. Administrative Procedure and Practice
           Chapter 2001. Administrative Procedure (Refs & Annos)
             Subchapter A. General Provisions (Refs & Annos)

                                           V.T.C.A., Government Code § 2001.003

                                                    § 2001.003. Definitions

                                                 Effective: September 1, 2005
                                                          Currentness


In this chapter:


  (1) “Contested case” means a proceeding, including a ratemaking or licensing proceeding, in which the legal rights, duties,
  or privileges of a party are to be determined by a state agency after an opportunity for adjudicative hearing.


  (2) “License” includes the whole or a part of a state agency permit, certificate, approval, registration, or similar form of
  permission required by law.


  (3) “Licensing” includes a state agency process relating to the granting, denial, renewal, revocation, suspension, annulment,
  withdrawal, or amendment of a license.


  (4) “Party” means a person or state agency named or admitted as a party.


  (5) “Person” means an individual, partnership, corporation, association, governmental subdivision, or public or private
  organization that is not a state agency.


  (6) “Rule”:


     (A) means a state agency statement of general applicability that:


        (i) implements, interprets, or prescribes law or policy; or


        (ii) describes the procedure or practice requirements of a state agency;


     (B) includes the amendment or repeal of a prior rule; and




                   © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                      1
§ 2001.003. Definitions, TX GOVT § 2001.003




    (C) does not include a statement regarding only the internal management or organization of a state agency and not affecting
    private rights or procedures.


  (7) “State agency” means a state officer, board, commission, or department with statewide jurisdiction that makes rules or
  determines contested cases. The term includes the State Office of Administrative Hearings for the purpose of determining
  contested cases. The term does not include:


    (A) a state agency wholly financed by federal money;


    (B) the legislature;


    (C) the courts;



    (D) the Texas Department of Insurance, as regards proceedings and activities under Title 5, Labor Code, 1 of the
    department, the commissioner of insurance, or the commissioner of workers' compensation; or


    (E) an institution of higher education.


Credits
Added by Acts 1993, 73rd Leg., ch. 268, § 1, eff. Sept. 1, 1993. Amended by Acts 2005, 79th Leg., ch. 265, § 6.007, eff.
Sept. 1, 2005.


Editors' Notes

                                                    REVISOR'S NOTE

                                                    2008 Main Volume

       The source law states that “contested case” means a certain type of proceeding, “including but not restricted to” a
       ratemaking or licensing proceeding. The revised law omits the words “but not restricted to” because under Sections
       311.005 of this code (Code Construction Act) and 312.011 of this code, “including” is a term of enlargement and
       not of limitation, and use of the term does not create a presumption that components not expressed are excluded.




Footnotes
1      V.T.C.A., Labor Code § 401.001 et seq.
V. T. C. A., Government Code § 2001.003, TX GOVT § 2001.003
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature

End of Document                                                   © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                               2
§ 2001.035. Substantial Compliance Requirement; Time Limit..., TX GOVT § 2001.035




  Vernon's Texas Statutes and Codes Annotated
    Government Code (Refs & Annos)
      Title 10. General Government (Refs & Annos)
        Subtitle A. Administrative Procedure and Practice
           Chapter 2001. Administrative Procedure (Refs & Annos)
             Subchapter B. Rulemaking

                                          V.T.C.A., Government Code § 2001.035

               § 2001.035. Substantial Compliance Requirement; Time Limit on Procedural Challenge

                                                          Currentness


(a) A rule is voidable unless a state agency adopts it in substantial compliance with Sections 2001.0225 through 2001.034.


(b) A person must initiate a proceeding to contest a rule on the ground of noncompliance with the procedural requirements of
Sections 2001.0225 through 2001.034 not later than the second anniversary of the effective date of the rule.


(c) A state agency substantially complies with the requirements of Section 2001.033 if the agency's reasoned justification
demonstrates in a relatively clear and logical fashion that the rule is a reasonable means to a legitimate objective.


(d) A mere technical defect that does not result in prejudice to a person's rights or privileges is not grounds for invalidation
of a rule.


Credits
Added by Acts 1993, 73rd Leg., ch. 268, § 1, eff. Sept. 1, 1993. Amended by Acts 1999, 76th Leg., ch. 558, § 3, eff. Sept. 1, 1999.


Editors' Notes

                                                      REVISOR'S NOTE

                                                      2008 Main Volume

       (1) The revised law substitutes “January 1, 1976,” for the source law reference to a rule “hereafter” adopted because
       the provision became effective on that date.

       (2) The source law refers to adoption of a rule “in substantial compliance with this section.”The revised law
       substitutes “Sections 2001.023-2001.034” for “this section” because Section 5 of the source law is revised as
       Sections 2001.023-2001.034 of this chapter.


V. T. C. A., Government Code § 2001.035, TX GOVT § 2001.035
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature

End of Document                                                     © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                 1
§ 2001.038. Declaratory Judgment, TX GOVT § 2001.038




  Vernon's Texas Statutes and Codes Annotated
    Government Code (Refs & Annos)
      Title 10. General Government (Refs & Annos)
        Subtitle A. Administrative Procedure and Practice
           Chapter 2001. Administrative Procedure (Refs & Annos)
             Subchapter B. Rulemaking

                                           V.T.C.A., Government Code § 2001.038

                                              § 2001.038. Declaratory Judgment

                                                           Currentness


(a) The validity or applicability of a rule, including an emergency rule adopted under Section 2001.034, may be determined
in an action for declaratory judgment if it is alleged that the rule or its threatened application interferes with or impairs, or
threatens to interfere with or impair, a legal right or privilege of the plaintiff.


(b) The action may be brought only in a Travis County district court.


(c) The state agency must be made a party to the action.


(d) A court may render a declaratory judgment without regard to whether the plaintiff requested the state agency to rule on the
validity or applicability of the rule in question.


(e) An action brought under this section may not be used to delay or stay a hearing in which a suspension, revocation, or
cancellation of a license by a state agency is at issue before the agency after notice of the hearing has been given.


(f) A Travis County district court in which an action is brought under this section, on its own motion or the motion of any party,
may request transfer of the action to the Court of Appeals for the Third Court of Appeals District if the district court finds that
the public interest requires a prompt, authoritative determination of the validity or applicability of the rule in question and the
case would ordinarily be appealed. After filing of the district court's request with the court of appeals, transfer of the action may
be granted by the court of appeals if it agrees with the findings of the district court concerning the application of the statutory
standards to the action. On entry of an order by the court of appeals granting transfer, the action is transferred to the court of
appeals for decision, and the validity or applicability of the rule in question is subject to judicial review by the court of appeals.
The administrative record and the district court record shall be filed by the district clerk with the clerk of the court of appeals.
The court of appeals may direct the district court to conduct any necessary evidentiary hearings in connection with the action.


Credits
Added by Acts 1993, 73rd Leg., ch. 268, § 1, eff. Sept. 1, 1993. Amended by Acts 1999, 76th Leg., ch. 894, § 1, eff. Sept. 1, 1999.


V. T. C. A., Government Code § 2001.038, TX GOVT § 2001.038
Current through Chapters effective immediately through Chapter 46 of the 2015 Regular Session of the 84th Legislature




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                1
§ 2001.038. Declaratory Judgment, TX GOVT § 2001.038




End of Document                                         © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                        2
Board of Medical Examiners to adopt rules and bylaws as neces·                                           ('.?) \kdit1rn--Any rncch;u1hn1 of infon11;i1ion trnn>kr i11-
sary to: govern its own proceedings; perform its duties; regulate                           clt1<Ji11g clcctni11ic means.
the practice of medicine in this state; and enforce this subtitle.
                                                                                                      r:;) Pcrson--Anindividuill unlcs-. oth,·rwisc e:\p1c-ssly maclc
The following are affected by the proposed repeals: Article                                 applicable to a partnership, association. PrcorpPr;uion.
21.53F of the Insurance Code; Government Code §531.021 ?(i)
                                                                                                           (41     J'h ysic·i;111:p<1t ic11t e:111;1_i l:.-;'\ .snn1 putc'r:hascd .. ct11111n u-
and Texas Occupations Code Annotated, § 153.004.
                                                                                            11 icat ion hdwce'n physician (nr their lllcdical per,onnc·ll and patic·nts
 §174./. l'ur1>ose.                                                                         within a p1'\1fcs,ional relationship in which the physician ha' taken on
 .~· 174.2. Deji11i1io11.1.                                                                 an C.\plicit mca~lll\' of responsibility l'or the pati<:nt's cmc .
 §I 74.3. Quu/Zficatio11s for Spl'cia/ Put/Hise Lkense for l'ructice oj
                                                                                                          (:'i) T. :lcmedicinc medical ocrvicc-·A health c;1rc service
k!edicine Across Stale Lines.                                                               initiated by a physicirn1 or provided hyahe;dth pruks,ium1lacting un-
 .11174.4. Limits m1 Special 1'111/)(>se Ucense In l'mctice Medicine
                                                                                            tkr physician delegation and supervision. for purpu,cs pf as:;cssment
Across State Lines.
                                                                                            by. <l hc:nllh prnk»ionaL ,Jiag11osis orl·\1nsulta1iu11 by n physician.
 §174.5. /)e11i11! o(ApfJlirntion(or .'>i](•t·itil 1'11rpose Licms1• to l'r(/(:-
                                                                                            tre;1t111cnl, ___ orthe tr;msfcr_or rneLlical dn1;1. that rcq11ircs the use or
ticc Afcdicine Across State Lines.
                                                                                            ;tdya11t·e:d tclcco1_n_n_1_unicatig11s 11tlwr tl1;111 by _tc_k:pl1<i11t'.... orfacsi_1nily as
 §174.6. RCl'orntion and U111iwtio11 r<fSpeciu/ Purpose l.ict'nse.
                                                                                            tkscrihe·d in s57JJ,~:? of the lJtilitics Cock.
 §'174.7. Cooperntion.
 § 174..\'. i\pjJ<'<lntl1Ci'\',                                                             /j I 74.3.     Ji,le111t'dici11e         Mt'dicul Scl'l'ices.
                                                                                                               ................ . .. ................ . ... .
.1$174.9. !'111ie11t Mediml Rffnrds.                                                                 Utl All physkians that use tckrne:dicinc nh:diuil service> in
§ 174. JO. h~fim11ed Consent.                                                               thcirpracti''.<C' ~l1alladgptp1·t1tncnls _ l_t_l_ pre~wnt fra11d :ind ;1ht1:."ti1ro11gh
 § 174. 11. Address Chm1ges.                                                                the: lhl' or tckmcdkinc: nwdinil Se'rvice'S. These qandnrd<. must be L'Oll-
/ii 74. 12. lklegutirm and S11pe1Tisio11.                                                   sistcnt ~;·itt1 ·those c1tal~li.,l1c(l ·hy 1h~··'l'c·lccommu11i,·ati~;n.,·lnft-a,truc­
§ 174. 13. Exempt ions.                                                                     nm: Fund Board and llcalth und llurnan Sc•rvice'' Commi,:-;ion pursuant
§ 17.f. I cl. 'frmpmwT Suspension !!j Special l'urf!O'il' Ucrnse.                           tu s53 l .02 I ti I of the Government Code.
,1$174.15. Fees um/ Fiiilurc 'fo Submit Fees.
.l:f/74. 16. R1•gislrution ReqlliH'/111'11/s.                                                      {h) In order to establish thata phy,ician ha;, made a good faith
§ 174. 17. Use      or  the lt11Nl1N in Medical Pmcrice.                                    dfort in th(' physician's prnctice to prcvcrn fraud and abuse through the
                                                                                            w.enf tclcmcdicinc mc:dical services, the plJyskian _n_rnst i1nplement
Tt1is agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal author·                          written protoc·nls that addn:ss the I'< ii lowing:
ity to adopt.                                                                                              (I)     authrnticatinn and autlmri1.a1inn pf user:-;;

Filed with the Office of the Secretary of State on April 12, 2004.                                         t 2J    autl1e1Jticati\'ll llf the origin of informarinn:

TRD-200402445                                                                                              (lJ     the prc\'l.:ntion nj'11nawl1ori1cd acccssto1hc system or
Donald W. Patrick. MD, JD                                                                   inf11rmation:
Executive Director                                                                                     141   systcn1 sc:ntrity, including thl' integrity ofinforrnation
Texas State Board of Medical Examiners                                                      that is rnlb:tt:d. progrnn1 inttgrity, and systc•m integrity:
Earliest possible date of adoption: May 23. 2004
                                                                                                           (5J     maintenance ol' do(·11rnentatiPn about \ystcm and inl'nr-
For further information. please call: (512) 305-7016                                        IJ1;tti\l11 usage:


22 TAC      ** 174.1 ·•174.5               •                •                               und
                                                                                                           ((iJ    information stpragc, maintenalll'(\ and u·rn1'missinn;


The new sections are proposed under the authority of the Oc·                                               (71     ;ynchroninttion and vnilirntinn                 ur patknt prnJ'il(• dat;l.
cupations Code Annotated. §153.001, which provides the Texas                                §I N.4.        Use o/rhc !111cmet in Medical Pr(!(.'/ice.
State Board of Medical Examiners to adopt rules and bylaws as
                                                                                                    (al haluatinn ol'the Patknt. Plly,kiam who utili1e the lnte~r­
necessary to: govern its own proceedings; perform its duties:
                                                                                            nct must ensure a pnipcr physic·ian"patirnt relationship is l':-.tahlishcd
regulate the practice of medicine in this state; and enforce this
                                                                                            that at a minimum includes:
subtitle.
                                                                                                      r I J C'-.tablishing that the• pn,.,011 re·que·sting the• trl'almcnt is
The following are affected by the proposed new rules: Article
                                                                                            in fact wlw thc pnson clairm lo be·:
21.53F of the Insurance Code; Governrnent Code §531.021 ?(i}
and Texas Occupations Code Annotated, §153.004.                                                         l'.?J establishing a diagrnisis through the use' 01· :iccc·pt;ibk
                                                                                            mc'Llical practin·s such as palknt history. 1ne·11tal statuscxarninatiun,
§111. I. l'11rpose.
                                                                                            physiull examination. and apprnpriall' diagnostic and lahoratury testing
This chapter is promulgated tt\ establish :,tandards for till' llSC or tilt::
                                                                                            tnyst;1bli sh cliag1_1_. _,_,L'S_ ;111Lljtlentify u11Llcrlyipg cnntl itinnsand/t 1ryt111tra-
lnternctand pro\'isiPll of telcmc·dicinc tm:dil'al scr\'iL'CS by phy0ician'
                                                                                            i 11dications tn treatment rccommcndcd/pnwidc'd:
wlw are lkc·1l'>cd lt1 prne·tin· medicine in thi0 State'.
                                                                                                         ill cfo.rns,ing with thl' patient till' diagnosi' ;111d the evi-
§174.2.     D<:fi11irim1s.
                                                                                            denn~    I'm it. tlK risks and hcnclib ol' \';trio11s 1rcat111cnt optiun': ;111d
Tht: following \\'Pt rb and lcJ'111.'>. wl1l'n w,t.:d in this chapte•r ,\mil IH1n·
till' l'nllowing 111c;111ing' unks' the l'\>ntnt indicates nthe·nvi,c.                                 (.j) c'llSUl'ing the• (IV<lil;1hility nfthc phy,ki<lll                  llf' Cl\\'l'l'agc   of
                                                                                            the patient forappr11priall' rollmv"up care.
             (I J \.kdical practice• site--.-\ patie:nhpce·ilk lnll'mL't site,
accc•ss tr.> wlliclt is lirnikd to licct!'cd pliysiL'ians. associated 1rn:dical                       (bl Trc·atmc·nt. Trcatnwnt u11d consultatiun rcc11rnrnc~ndations
personnel and patients. ll is an intt:rac·tiw site ;md thw; qnalilic' as a                  mark in an rn1line setting, including i'suing a prcsl:,:iptinn via~:lcc-
JlrnL~ticc ll>('ati1m. It_ t'l'(]ttircs ;1dcfi11csl_physir:iai1-p;ni.,;11t rclaiionship,_   t1:011ic; 11ie.;_1.r15.___ "··i II hc_hcldtl> t lie: :;a11_1_c.. standard:- c•I' ;1ppr()priatcpr<tl:ticc




29 TexReg 3896                 April 23, 2004                Texas Register
ns tho\e in tradi1ional (face-to-face) settings. An onlinc or telephonic                                                         ( 10)     rights   1lf   patients with rc<.pect to patient health infor-
L'ya lt1ati(l n byqt1csti<1r111ai.1·.; lltll'SJl<lt(:On<;titutc .<1n;1cccptablt~ star1~l111 tl                       rnati<>n;,111d
of care.
                                                                                                                                   t]IJ    i11lu1:11)'1li()lll'(lll.:.rt.:d and a11y.pa>sivc trncking.rnc,:11:
       (c) State Licensurc.        l'byskians \\·hol.rt'at and pr.cscribc                                            anisms utilized.
through tlw Internet arc pranicing medicine and mu>t pns,css appro-
                                                                                                                          (g) 1\CC<1u1Hahility, \1t,dic;1J11raclil'I!.. sites .n.1us.l prnvidc.Pa:
priate liccnsurc in all jurisdictions where patients reside.
                                                                                                                     tknh with a clear mcchani'<rn to:
           (dJ      Eknronic Communication;,.
                                                                                                                                  tJ I acccs>, . sup11Jcn1.c.nt. i\J1(ja111.c:t1(jpntil'l.1t:pr:<Jyided . . Pt:r:
                 \Yrillt'11 _ polic·ic:s <111d pr(1cedurt;s 111usl be _rnaint~1ittl'd
                 (I)                                                                                                 ',\mal hc';tlth inl'orn1atinn;
when using clectwnic nwil for physician-patient communic·atiuns.
                                                                                                                                           121 provide t'ccdba<:k regarding the sit<: and the quality of
PoliL:ics n1u'1 he: ev11lu<!lcd pc;riodicallyfor cur·r:-:'ncy Such policic~s
                                                                                                                     information                and services:                   and
and pnKedurc> must mldrcss:                                                                                               .................... .............
                                                                                                                                    ,                        ···························

                                                                                                                                \}I rcgistt:r complaints, ir1c·luding infonnation regarding
                ti\l priyacy_t<la>s11r·c C(Jnfic]cntiality and i11tcgrity<1fpa-
                                                                                                                     tiling a complaint with tl1c'lcxas Stntc lltiardcif iv1cdica1 Fxamincrs
tic111-idC11!iliahlc infornrntion;
                                                                                                                     clspnlvid~c] l'iJrin Cl1nptc'.r. l}8 11!' thi'-.tjtlc. (rcbti11glo CiJll1pj;1i11lsj,
            (B) health rn1·e_ pl'rsonnel. in additionto the physician.
                                                                                                                              (h) Advcrtising/Pro111otion of Go<>ds or Products. Advertising
who will pnwcss mcssagl's:
                                                                                                                     or .]lf(>nl(\tion. . ofg(J\lds \>1:pr\Jdt1L·L,o;Jn11n \\·l1icl1.thcphysicia11.r.\.L:.e.ivc·s
                        tC)     hours of opcralio11 and availability:                                                direct remuncrmit>n or incentives is prohibited.
                        rDI     types of transactions th;1t will be pcrn1ittcdclcclro11~                             §174.5.       NU1icc 1!f'!'rirncy Pra<'lices.
ically:                                                                                                                      (aJ  Physicians that rnn11mmk;1tc wilh patients by e-mail or
                        fl'.)       rcquin:d patient infunn<tlionlo he included i11 the                              \>lhnykctronir m.:a11solhcr .than . .telcphonc·or .fa\:si111ik mu~l .. rnakc'
                                                                                                                     a g\lod faith cff<lrt to noti l'y paticllt' in writing ul' Lile physicians' pri-
.L:.1.1.n.1.ll.lll .lliCation ...Sttc:Jl as .Jlali~nt . 11 <lfll~, j~C nti ji Cal.iPl) llll!Jlbc: I' .<llld t )'pc
or transan ion:                                                                                                      vacy prnc:ticcs.

                        l.FJ archival and rctric~val: and                                                                    ibJ  Th<: notice of privacy practice> shall include language that
                                                                                                                     i~consiotcnt   \Vilh f~tl~'.r•1lstandardsunder 45 c1:g l'arh I (1() and 164
                        (G)     q11.<.1ljly(1vcrsight n1ccha11is111\,                                                rel,Hing to pril'<KY of individually idcntifi;lhic lw:llth inl\)rnHltion.
                 \2)       All paticnt:physician e-mail. ;1s 1\·cll as othcrpaticnHe·                                This agency hereby certifies that the proposal has been reviewed
lated <:lcctronic communications. must                           be~   '.'ol\>red and lilcd in the pa-               by legal counsel and found to be within the agency's legal aut11or-
ti<.'nt's medical n:cmd.                                                                                             ity to adopt.
                 <>l       Patic'nls niusl be· i111'ornwd qf alt..~rnativc l'orrm or COlll-
lllllllication fur nrgcnt matters.                                                                                   Filed with the Office of the Secretary of State on Ap1·il 12, 2004.
                                                                                                                     TRD-200402446
           rd       \ledic;il Ret·ords.
                                                                                                                     Donald W. Patrick, lv1D. JD
           ( 1J \kdical rccurds rnust include copil'sl'i' all pntic111-rc-                                           Executive Director
latcd electwnic com1m1nicatiPJ1', including patient-physicinn e-mail.                                                Texas State Board of lv1edical Examiners
p1\:scriptinm. laboratory and test n::~ull\. ev;1lua1iuns a11dcrnhultalio11s.                                        Earliest possible date of adoption: May 23, 2004
record'> of pa\l l'<H'l' and instructi\111\.
                                                                                                                     For further information, please call: (512) 305- 7016
                          Notice or privacy practice\ related lo the use or e-mail
1ll11sl he flkd

        (I)
                 L!l
                        in the rncdirnl rc..:ord.
                   !)i;;.,·Josurc. l'hysil'ian rnc:dil'al practice sites must clearly
                                                                                                                                               •
                                                                                                                     CHAPTER 177. CERTIFICATION or
                                                                                                                                                                  •                •
discl\isc::
                                                                                                                     NON-PROFIT HEALTH ORGANIZATIONS
                 (I J      owncT\hipuf the wehsi1c:
                                                                                                                     The Texas State Board of Medical Examiners pmposes amend-
                           specific services provided:                                                               ments to §§177. 1 -177.8, the repeal of §§177.9- 177. 16 and new
                                                                                                                     §§177.9 - 177. 13, concerning Certification of Non-Profit Health
                 r}l       (Jnicc address andt·<1111acl infon11ution:
                                                                                                                     Organizations. The amendments, repeals and new rules are
                 ( 4)      licc11surc and quali l1catio1b of physician( s) <llld associ-                             necessary for general cleanup of the chapter.
ated hcalt h car<: providers:
                                                                                                                     Elsewhere in this issue of the Texas Register, the Texas State
                 k1·s for on line consultation ;ind servin~s and l1(1w p<iy·
                 (:\)                                                                                                Board of Medical Examiners proposes the rule review of Chapter
ment is lo be'. made:                                                                                                i 77.
                 (6)       linancial intcrc'.st in any illl'ormation, products, <'I' scr·                            Michele Shackelford, General Counsel, Texas State Board of
vices:                                                                                                               Medical Examiners. has determined that for the first five-year
                                                                                                                     period the rules are in effect there will be no fiscal implications
          (7 J appropriate uses and limi1ath111~ or the site. including
                                                                                                                     to state or local government as a result of enforcing the rules as
prnviding heal! h adyice and cmcrgcnry. healll1 sit1i;1tio1.1s:
                                                                                                                     proposed.
          (X) uses and .rc~po1.1sc til11es for l':1nails, 1'.lt'etronb:. mes-
                                                                                                                     Ms. Shackelford also has determined t11at for each year of tile
sagcs. and oth.:r ro11ir11u11icatium tran<,mill.ed via the ~itc:
                                                                                                                     first five years the rules as proposed are in effect the public bene-
           (i)J to whom patient hGalth inf'prmation may be                                        di~closcd          fit anticipated as a result of enforcing the sections will be to make
and for \\'hat purpose:                                                                                              reference to other sections of the rules rather than to repeat the



                                                                                                             PROPOSED RULES                         April 23, 2004                 29 TexReg 3897
William H. Kuntz, Jr.                                                  Filed with tt1e Office of the Secretary of State on June 8, 2004.
Executive Director                                                     TR0-200403723
Texas Department of Licensing and Regulation                           Ron f<ettler, Pl1D.
Effective <Jate: June 28. 2004                                         Interim Executive Director
Proposal publication date: January 30, 2004                            State Board for Educator Certification
For further information. please call: (512) 463-7348                   Effective date: June 28, 2004


TITLE 19. EDUCATION
                     •            •              •                     Proposal publication date: February 27, 2004
                                                                       For furtt1er information, please call: (512) 936-8239


PART 7. STATE BOARD FOR                                                                     •
                                                                       TITLE 22. EXAMINING BOARDS
                                                                                                          •              •
EDUCATOR CERTIFICATION
                                                                       PART 9. TEXAS STATE BOARD OF
CHAPTER 233. CA:l'EGORIES OF                                           MEDICAL EXAMINERS
CLASSROOM TEACHING CERTIFICATES
                                                                       CHAPTER 163.              LICENSURE
19 TAC §§233.4, 233.9 • 233.12
                                                                       22 TAC §163.14
The State Board for Educator Certification adopts amendments
to §233.4. relating to the mathematics and science certificates        The Texas State Board of Medical Examiners adopts new
for teaching in grades 4-8 and 8-12 and new §233.9, relating to        § 163.14, concerning Licensure to Practice Medicine Across
the supplemental certificate for teaching gifted and talented stu-     State Lines, without changes to the proposed text as published
dents in the same grade levels and in the same content areas of        in the April 23, 2004, issue of the Texas Register (29 TexReg
the holder's base certificate; §233.10. relating to the certificates   3894) and will not be republished.
for teaching fine arts in all levels, from early childhood programs
                                                                       The new rule is created in order to implement requirements for
through grade 12: §233.11, relating to certificates for teaching
                                                                       practicing medicine across state lines.
health in all levels, from early childl1ood programs through grade
12; and §233.12, relating to certificates for teaching career and      No comments were received regarding adoption of the rule.
tect1nology education in grades 6-12 and in grades 8-12.
                                                                       The new section is adopted under the authority of the Occupa-
The rules were published in the February 27, 2004, issue of            tions Code Annotated,§ 153.001, which provides the Texas Slate
the Texas Register (29 TexReg 1811) and are adopted without            Board of Medical Examiners to adopt rules and bylaws as neces-
changes.                                                               sary to: govern its own proceedings; perform its duties: regulate
                                                                       the practice o1 medicine in this state: and enforce this subtitle.
The State Board for Educator Certification received no objec-
tions to the adoption of new certificates which will remain valid      This agency hereby certifies that the adoption has been reviewed
for holders but which will no longer be issued after September 1,      by legal counsel and found to be a valid exercise of the agency's
2005.                                                                  legal authority.
No public comments were received in response to the notice of
                                                                       Filed with the Office of the Secretary of State on June 14. 2004.
proposed rules as publisl1ed in the above-referenced issue ot the
Texas Register.                                                        TR D-200403861
                                                                       Donald W. Patrick, MO. JD
The amendments and new sections are adopted under the statu-
                                                                       Executive Director
tory authority of the following sections of the Education Code:
§21.031 (a). which vests SBEC with the authority to regulate and       Texas State Board of Medical Examiners
oversee all aspects of the certification, continuing education, and    Effective date: July 4. 2004
standards of conduct of public school educators; §21.041 (b){1 ),      Proposal publication date: April 23, 2004
Education Code, whicl1 requires SBEC to propose rules that pro-        For further information, please call: (512) 305-7016
vide for the regulation of educators and the general administra-
tion of Chapter 21, Subchapter B, in a manner consistent with
that subchapter; §21.041 (b){2), which requires SBEC to spec-
                                                                       CHAPTER 174.
                                                                                                  • •
                                                                                            • TELEMEDlClNF
ify the classes of certificates to be issued; §21.041 (b)(3), which
requires SBEC to specify the period for which each class of edu-       The Texas State Board of Medical Examiners adopts the re·
cator certificate is valid: §21.041 (b)(4), which requires SBEC to     peal of §§174.1 - 174.17 and new §§174.1 - 174.5, concerning
specify the requirements for the issuance and renewal of an ed-        Telemedicine, without changes to the proposed text as published
ucator certificate: and §21.042, which requi1·es SBEC to submit        in the April 23, 2004. issue of the Texas Register (29 TexReg
proposed rules to the State Board of Education for review prior        3895) and will not be republished.
to adoption.
                                                                       The new rules relate to standards for provision of telemedicine
No other statutes. articles. or codes are affected by the adopted      medical services and use of the Internet in transmission of infor-
amendments and new sections.                                           mation.
This agency hereby certifies that the adoption has been reviewed       No comments were received regarding adoption of the rules.
by legal counsel and found to be a valid exercise of the agency's
legal authority.                                                       22 TAC §§174.l • 174.17




29 TexReg 6088 June 25, 2004                     Texas Register
The repeals are adopted under the authority of the Occupa-           Elsewhere in this issue of the Texas Register. the Texas State
tions Code Annotated, §153.001, which provides the Texas State       Board of Medical Examiners adopts tl1e rule review of Chapter
Board of Medical Examiners to adopt rules and bylaws as neces-       177.
sary to: govern its own proceedings; perform its duties; regulate
                                                                     No comments were received regarding adoption of the rules.
the practice of medicine in this state; and enforce this subtitle.
This agency hereby certifies that the adoption has been reviewed     22TAC§§177.l - l77.8
by legal counsel and found to be a valid exercise of the agency's    The amendments are adopted under the authority of the Occu-
legal authority.                                                     pations Code Annotated, § 153.001, which provides the Texas
                                                                     State Board of Medical Examiners to adopt rules and bylaws as
Filed with the Office of the Secretary of State on June 14, 2004.    necessary to: govern its own proceedings; perform its duties;
TRD-200403862                                                        regulate the practice of medicine in this state; and enforce this
Donald W. Patrick. MD. ,JD
                                                                     subtitle.
Executive Director                                                   §I 77.-1.     1\pp/ica1ions/i1r Cerlification as a 162.UIJ I/ h) H1·ctl1h 01gm1-
Texas Slate Board of Medical Examiners                               i~utio11.

Effective date: ,July 4, 2004
                                                                     A healih or;z;rnization ~eeking rertillcation under §162.00l(hl pf the
Proposal publication date: April 23. 2004                            Act shall <.ubmit a11 ;1pplicatio1110 the board. 10 thc:: aucntion nl'thc:: Nun-
For further information, please call: (512) 305-7016                 Prnfih department. on a form npprowd by the board. The applicatinn


22 TAC §§174.1·174.S
                      •             •              •                 shall include:
                                                                                  t I! Initial ldentillrntit'n Statement. A statement sig.11cd and
                                                                     vcrillc~d   hy the chief executive officer:
The new sections are adopted under the authority of the Occu-
                                                                                 (AJ i11dica1ing thc name and mailin;z                        ~1dclrcss   of   the~
pations Code Annotated, § 153.001. which provides the Texas
                                                                     hcnhh organization:
State Board of Medical Examiners to adopt rules and bylaws as
necessary to: govern its own proceedings: perform its duties;                     <Hl indicating the'. 1w111cs and mailing addresses uf all
regulate the practice of medicine in this state; and enforce this    mcmbc'rs or that there~ ;ire no members:
subtitle.
                                                                                      <Cl     indkating the nnrncs and mailing ;1ddrcsscs of all
This agency l1ereby certifies that the adoption has been reviewed    nrlkns: and
by legal counsel and iound to be a valid exercise of the agency's
                                                                                      (J))    indicating. tht:     n;1111c~s   and mailing mldrcsscs of all
legal authority.
                                                                     din::cturs.
Filed with the Office of the Secretary of State on June 14, 2004.                t2J Initial Ducuml'nt StatemL~nl. A statL·mc·1ll si!.lllL'd and
TRD-200403863
                                                                     l'erilic·d by the chief c•xccutivc 11flicer attaching a copy of il{c current
                                                                     L·erti!icnc uf incorporation or the lic:alth urganizatiun and altaching a
Donald W. Patrick. MD. JD
                                                                     ropy nf the current hy-lnws or the health organi1.ati11n including pr"<lli-
Executive Director
                                                                     sions that:
Texas State Board of Medical Examiners
Effective date: July 4, 2004                                                      tAl th.~ hc:alth organi1ation is org;111i;,·(] for any ur nll nf
Proposal publication date: April 23. 2004
                                                                     the fnllPwing purposes:
For further lnfor111atlon, plew;e call: (512) 305-7010                                (i) the l'arrying out or 'cic•ntili<: l\"it:arr:h and f('-


                     •
CHAPTER 177. CERTIFICATION OF
                                    •             •                  >earch projcds in the public interest in the fields 01· 111edical scic'JKes .
                                                                     medical c:rnn<irnics, public hL·allh. sociology. or rda\L'.d areas:
                                                                                     (ii} the supponin;z or 11\L'dical education in l)l(•dkal
                                                                     sd1011b through ;zrants and scholarships:
NON-PROFIT HEALTH ORGANIZATIONS
                                                                                       1iiii        the improving and developin;z or the ahilitic";
The Texas State Board of Medical Examiners adopts amend-
                                                                     nl· i11dilidu;1b and         i11stituti11n~
                                                                                                             studying. tcaehing. and prncticing
ments to §§177.1 - 177.3. 177.5-1T7.8, the repeal of §§177.9
                                                                     medic in,•:
- 177.16 and new §§177.9 - 177.13, concerning Certification
of Non-Profit Health Organizations, without changes to the pro-                           1/1-J     the dclhcry of IJL•alth       cm~   to the public:
posed text as published in the April 23, 2004, issue of the Texas
                                                                                        (\') the <:Ilg.aging in tlW instnictiun of the l_!.L'IJCr;i!
Register (29 TexReg 3898) and will not be republished. The
                                                                     public in the' area of tncdical scicnc·c. public· hc<rltli, cilld hygiclll'.
Texas State Board of Medical Exarniners also adopts an amend-
                                                                     and related i11'tru,·1iu11 usdul to tile· individu;li <llid hcnl'fkial to the·
ment to § 177.4 with changes to the proposed text as published
                                                                     t'<llll!llllllity.
in the April 23, 2004. issue of the Texas Register (29 TexReg
3898). The text of the rule will be republished. There is a minor                 <BJ tile physicia11(s) orga11i1ing and irll'orpornting the
change in paragraph (2)(F). The words at the end of the sen·         health organization shall scil'ct the initial hoard 01· director:- co11sistc·11t
tence "unless the physician is terminated" have been removed.        with the missiun, goals. and purpuscs ur the health organi1.atio11:
The amendments, repeals and new rules are necessary for gen-                          (CJ the by-laws nf the health organi1atin11 shall Ix in-
eral cleanup of the chapter.                                         terprde'.d in a manner that n:,nvcs IP the health organirntion through
                                                                     its rct<tin..:d physicians the sole <1t1tlhlrity to engage: in the prarticc 111'
                                                                     medicine and re·scrvl's to the hl'alth organi1ation thwugh its bPard uf




                                                                ADOPTED RULES                         .lune 25, 2004                29 TexReg 6089
l\'quir<CS the l!Se or HdVHHC1Cd t<CJecomnrnnkHtions Other than hy teJe-                                                                            (it) Tc:l.:r11c;dici1l~ 111cdi~al sen iyl>Pr()I iclcd at a llll established
plwne or faesimile as describ,·d in *57.042 of' tlw lltilitles Codc, I                                                                  l_l_l_C(lic<1].>itc;. . 1.1.1;~.bt:...Ll_:<_l'.LJ ...l.(lr:_1\]_lj~<1_tic;.1_1t . 1. bit:::_._[1Jl"l.l.l_liit1g_i11i_tj.<1l. . c1<~l_t1.:
                                                                                                                                        at ions to establish a proper physician-patient rc'ialitn1.~hip bl'111('Cll a
             J\6) T'c•kprc,;cntcr-a l\.'Hlc>t<.' sit<.' pn>\ ider; as d0f\n0d in I           0

                                                                                                                                        ~l[:-;t<111~ silC:.flJ:ll\i_(lt;r_<!ll_tLiJJl<ttic:1_1t,
TAC *354,1+30, who is 1wt a phy~ician, rcgist<Crnd nurse, advaned
pnwtice m1b,.; or physician as~btant tmk,;s sudi physician, rcgiskred                                                                          (J:i.} Ltir:_J_lS~\ comlitiQt_l_~_<!_Jlalic'lll sit<:J~resc11tcr111ustlJc:rl:asun~
nur,;e.. ndvHMed prncticenur,;c 1wphyskian a~sistant i~ a qualifkd mcn-                                                                nbly a1ailnhle onsitc a11h.t:.sstablish..:d 1nt;.dical sitctoassisl 11 ith .tl1c
ttt+ ftea.14 jWOJ~hltrnt i\S dclttt<:·tl -i-H f..~02-\-Btat ttf llit;. ~fHH.Jeflt                                                      p1\11J~i,1n.<1l·care,... 1.1 is attl1t; discrcti<111 t11·111c <l.isl,111\ :;itcph; si<,:it111 iJa
Codc'.j                                                                                                                                patic:nt site prcsenkr is ni:ccssary for fol kl\\ -up evaluation or trc:n111.:nt
                                                                                                                                       of a pre1 inush diaµrn,sed condition .
.U 7./.3.           frlc111cdici11c .\/edicul Services.
             (a)
             All physicians that use kkmcdidnc rndical sen kcs in                                                                                   .LU l\. Lli<::tantsit<: prt1\idcr1.11.a:.L.lt;Jcgalcl<1?~?<111d acti1. iti~'..~
their praclice~ shall adopt protocol;; to prcn:nt fraud and abuse through                                                               l<l(lpaticn.1. . sitiep10c?,;,:11te1·rl11ringapt1lic:11ti.:11t;L1t111tcr.
the use oJ'tdcmedicim: medical scrl"iccs. These standards must be con-                                                                             (.2) .\Llistanl site PJ:ll\ idc:r delegating tasks to a patient site
sistent with thns..: ..:stahlishcd hy the [kb:nmmunicatinns lnlh1;;truc-                                                               pr.:sentcr;l1ull,:11sure lliat1hc11atkn1 :-itc pri.:s.::ntcr to 11 horn dc>kgation
tttre Vttnd ~ Mtt:IJ Health nnd Human Scrvio.:s Ctimmbsiun pur·                                                                        is made is propcrh supcn bed.
suanl to ~531.02161 of the Go\ cr11111cnl Code.
                                                                                                                                                ~':'.) lUhcunl) ~cr1iccs_prnyidt;(_I ar.:r.ela.tcsl tu n.i.e1.1tal.J1c:at1t.i. a
             (b)       (No clrnng..:.)                                                                                                 pa1ienlsik presenter is rn1trequircde\ct:pl in cases 11hcrc th<: patk11t
§17./.5.           .\"olfcl' fiJ/'<1/{('ll/,~ /o/f'rii·m:y l'ractices/.                                                                1r1;1:J1c. <l ll<111gl:rtu.tl1.c.1.i1>c'.i\l:s or 11tl1crs
            (a)       !'rivac) Practices .                                                                                             §1 7 4. 7. "fr/e111edi('il/e .\fr•c/ic·al Sen-ices l'rovided ar Sites other thon
                                                                                                                                       Fswhlislied .\ /e,/ical Sites.
                 (I)        J{a)J l'hy:-.icians that cPmrnunicak wilh palknts b)
cl..:ctnmic communicalicl!lo> Jt"-mai~ Hf Bittt'f l'·IH4!BHi€ membl other                                                                           (a J ,\distrn.1l ~it~ prov id"r 1111(1 pro\ ides tclt;t\l('.llici 11c mc:<li~<1I
111;;11 tcJepi);:;;)c·;;j: focsir;)ffc lllUSt provide patients \I ith Written Jl()-                                                    s.:rvic_cs. a1 .<.l. :;it.;.otl1l'.r thr1n_11ns~tablisl1t;LLrncllical .sitcf\.1r apatic11t)
i.ill_<::lg]Q!_!_~!_LJ.j~<::__[lLl)_~ ci 1!!1.:~~-[Jr i1 :!_(:l_P_Ia ei !!'..es p1~r__ts_i_.:_ v11 !~1-~.tl~!.!!.J.'.~                 J'.IS.\' it).1_t~l.:-.d i;1grlllS_~~Lc(_\J1~1iili)J111.1_U~t l'.i.th.e.r:
treatment. In additil>JL a good faith effo1i must bt.:: made toob1ai11                                                                             U) s..:.c:. the: patient on.c thucjn a j\1cc-tn~focc visit hcl\Jn.:
the. patient's 11ritten aeknm1 kdgc111c11L including by l'~111<1iLof tile~                                                             p1·,iyidi11g tt;l9f1lt;lli('itit; 111c·dical ('<trt;: 11r ·· . ·· . ····· . · . ·. . ·
noiic.::. [make a good foith clforl 10 nntil)' patients in writing ol" the
fltt~iellitts.: fll~·HK7 prac+i*-'l~ I                                                                                                                 (2) sc.c. the paticnt 11itl1out an i11itial [tll\>tn-litt:e 1 isit. pw:
                                                                                                                                       vided 1he patient ha' n::cc ii ed an in-person c1aluatinn by ancithn physi·
          (2) J+h}J The nntice of privacy practices shall inclmk lan-                                                                  ~j<t!!..1:I1t1J1_<!:i.Xt:J~n:,:<J.t!1i;_11Q.lJ.<:1.1.Uli1:__ <1_d~li.U•111<1Lsll.rc <~1}~Ul1c 1:i:_t:c.n:11l . i.~
guage that is con;;istcnt 11ith lt.~dcral standard,; under .15 CFR l'arb I 60                                                          dPcumenh':d in the medical r·ecord.
and 164 relating to pri1at:y ur indi1 iduall) idcntitiabk hc·ailh inl(>rnla·
lion.                                                                                                                                         (ll} Patient sitc11rcscntcrs arc .1.1ot required 1\1r prc~c.xisting
                                                                                                                                       cunditiuns pn:viow;[y diagnosed h) a ph: sician through a facc·to-fi1ce
           \0) I.imitations (\r Tckmcdil'inl:. _l'J1y,;_icians \\ho .t1_ss                                                             visit.
telcmcdicinc 111~;Zllc~1l-sc1:·\·i;:~, n1·t;;:;:· prior IL) pro;J~iing sen ice~.
                                                                                                                                               ~~_l 1~fu1 al is'l!.:.'.1)! ll~l b..:~:::c..c._11Ji:.<1.1ilil sic ic][lJi2.u111Jx1:p<::_1~~~~1.1
gj~~·LL~<::.1!:_11 ~1\J.<;1_~\_;;__1_1._q\li,:s_xi;gci_i:d i11 KJ':'.!S!1_1_':'._<\ii,:l!l':'. . .~l~':'..~li~~~L-~':'..1'.Y_lc.s.:~
inc}uding thcrisb and h..:ndlts pl' being treated via tclcrncdicinc,                                                                   Cl al11:ition at least once a year.
IHi11.. t<1_ rcce'.iYc. f\lliL111:U[l<;arc t1rassi.sta11cein11J~:.cvcnu1ran adv-:.rs.:_                                                        (d) Telcrnedicinc' medical s..:n ices mm nut iK' 11sc.:d hi treat
reaction to the> trca1rncnl nr in the cn.'11! nt'nn innbilitv 1n cornnnmicatc                                                          chronit.: pain 11 it11 sche(l11 k(! drl1g' <11 sites Lither than rncdic<1 I practice
'~'--~s~01L.t~:J1_~~l111(,1(1gi0!Ls1!~':'.~~1ip'l1~!1i l~;i1~i~~--~1\:.:<i1;!1c.~~.'111~f                                              .c:i.ti:.c:,
 dated 1wticc. including an cledronic nckno11 lcdg..:mcnL by the patient
':'_?t<!l)I i~!i<:>Jl pr·(C~llll1J1liL)l1 \l{ l}Lltic,.,;.                                                                                          \<:) t\_llj"t;,111t sit(;Jl!:l!_1_itjc;1111CI) lt~y<1l;111 y~t(lllli~ji<;LIJ><1ti~11t",;_
                                                                                                                                       nc11 symptoms that nrc unrelated tu a patient·~ prccxi,ting condition
           (c) Ncu:ssit1 oi' ln-l'erson E.1aluatio11. When. i(w 11hntc1cr                                                              pro\ idcd the. patient is t·..:quc,tcll lo be ~ccnjn <1f;:1cc~to-f"an: visit. Ii;
i:t:~IS\lfl, {lit; i~ls111~·~ffcir~e 111Z~Fl1ji):f11~LIJ~-- !~11:·;1 ;;~{i[t::;;f,;1· ·1;;iffc;1i ci1~                                 apl1ysicia11 11 itl1i11)2110Ltl'S. Adhta11i :">itc11rcJ1iy..:1: 111<1) 1rnt provide
cotmtcr is unable w pt"l'vidc all pc'rtinelll clinical information that a                                                              C<l11tinuing tckrncdicitK 111c·dic1il sen ices for thcsc 11<:\Y s;mptPms tu
l1t;alll1 care prc11jtlcr . '-'.:\.crci~i11g ordina1.·y ~killa11d care 1.1tn1.ld <le.c·rn rea·                                         apaticnt 11ht1 is not seen 11ithin 72 hours, !f;1 patient"s s)mptnms arc
Sllll<lllJ) ne<,:C,?,;<1ry !(iJthe j)l;IC:lit:c' o i't11t:clk~i Jl.l'.. .a.ta11 <!CCC jlt;1[1lc lt;y<:l •.>J
snfrty and qu<llit) in th.: cnnk\t t'f thni pnrticular medical ..:nt:ountcr.
                                                                                                                                       1t;;;\Jl1_..:<I :1i\l1i11       n
                                                                                                                                                                     l1111115,;1il:J1tl111t_..:t111tj!1t1j11g tr.c<1t111c.11U(11 tl1.c a\:l1\~
                                                                                                                                       sy111ptn111s i:; 1101 nc,·cssary then a fol low-up f:1cc-to- lit<.:e 1i:;it is 11u1
tl1c,11 tb<:_<li ~t ;111t 'iit<:J'l~tl\ _i(l_c1~ 111t1~U~:i<1 ~<; tl1 i?.k!l<l~_l_l1. l<l tllt:.P£1 tit;t~ tJit:i•l!:                  rcquirt:d.
t<1Jl1c C:L111clusi(in <ll .. tl1i:. l.i1_c1_cl~111r;dicinc. c.11count..:r_;111cL<!dviscand
cnunsl:l thc patient prior to the eonclusi11n uf'tlw lh\' tck111cdid1w cn-                                                             §/ 74.8. 1~·mlua1im1 and li-em111e111 o/ihe l'a1iu111.
etlunterr.:garding the 11ecd .1i1rthcpaticnl tri oh ta in a11arldi1 i<.inal in-per~                                                             (a) E1:1lua1in11pf thc Patient ... I)istant silt;prri1 ide1s.11ho.111iii1c
s\lll 1tK'tlicalyv<1lt1i1ti11nrl'a~1111t1J1Iy nbl1:: t11 111c:i:t tl1c palil'Jlt's nc'.<,;<I~,                                         lcjc'tnt:dic in.l~. . r11cdical ,;crvi(cs . r.11 ust ensure a p1·,1p~·ryhysician-palk11t
                                                                                                                                       rclaiionship is established that al a minimum indudcs:
            ( d) ~·,11.1.1plt1inls t<1 tl1_cl}<)<lr1I. J>[1ysisji111~ 1!1;11 u5c' tr;l~111.:<li<:ir1.:
medical services must pru,ide notice ufho11 patient:; may tile n corn-                                                                              ( IJ l.'stablishing that the: ['('N.ln rcquc>ting the trealmenl is
t!..lai11_t__.~.ith the B1.wrd nn the pl11si~iaii"s 11 cbsitc or 11 ith _in form.:d nrn-                                               in lticl 11 ho the: pc:rson claim;; lo be:~
scnt rrnllerials pro1idcd to patients pl"ior tnrc,11dcringtclcmcdicinc mcd-
                                                                                                                                                          (2)
                                                                                                                                                            .:stnblishi11gn diagnnsis through the use ol" acc:eptablc
 ii.:al sen ices. Writtrn conknt and method of the notice: mu~t b..: rnn·
                                                                                                                                       111.~~ljc,:al.pract iL\:s i11~·!utling .Patic:111 l1i~t<11y,    .r.11.i:rHal st<1t11;; c.xr11.ni11ali<1.1.1,.
sist~llt \1ilh ~.118,]._;,ftlii51ii)~(1·~iati.11gt<l (11n111lainij>r1)(;C.d11re NLll.i·
                                                                                                                                       ph; sicai l'\arninatio11 ( un lcss m>t 11arrantcd by tile: patient\ mental co11-
l)catiL>r1),
                                                                                                                                       liitit111), <1n~I appi:()pri<tti: <lii1g11(1>til'. <llltl lci[?t1r:1tL1ry t.,:~[j11g tlJ l~stal2li?l1
§17..f.() "fr/e111edici11c .\Jed1cal Senft·esl'1·oridedat 1111/."sw/1/ishe(/                                                           diugn,is.:sas 11dl as idcnti I} 11ndcrlyingyonditionsor contra~i11dica­
\ fedicul Site.                                                                                                                        tin11s, or both'.. lo trentrnc11trcco111mcndcd or 1mividcd:



35 TexReg 3392                                 April 30, 2010                              Texas Register
                     (}) clisc11?,;i11g .11itl1Jl1.: p<1tic11ttl1t: diag11c)sis .arid tl1c cvi-                                §/?LIL               On-call Sel'l'ices.
(f<:.11~c'.llll_Lt,     tl_it: rLc;_k..c~ill!~l l)t:t:i_cJi_~..QI·,. :i_Utlt1_,; trt: •!tI1J.l~t]t \lQti(Jt_l.:_-;;_:111(J     l'l1ysicia11.'> .....\1!111arc· t1fthe. ~an1c specialty and prt)l]Llt: Tt;ciprc)cal
                     ill cnsuri1112; the arnilabilitv Pi' the distanl site prO\_id.:r m                                        scr1ices. may prn\ideo1Hnll.ll'k111edici11c medical sl.'rvkes for each
con~rngc             of the patient f(1r appropriate folkl\\-llP care.                                                         ~1thc1" s rnrren)_patienb.

            (.h) ··1·rcatn1.c .11t, 'l)'ca t111c11{a11d c,>11s11llati()l1Jt:t:<ln1111t:tl(l<1ti(1ns                                                 Stare    l.ice11s11re.
                                                                                                                                                        .... ....................
                                                                                                                                                    -·····     ,.             ,,,,,.


111;1tic?J111111 0111j11c?5c:11i11g, in~l11ding is,;t1ing a prescription 1 ia c lcctro11ic                                     .l~b25i~'.i'11.1.~. . ~\l}tl\1:~'.~ll.<~.11.~.JEI\~S_(:1.~[l)~: . tf!..1'\>t1.gh ..it~i1·;.1.11e.,:(l. l'.tlt.11.11.1.L1.1.1.ica.ti.')ns
1_ii.t:~n1,;,_~~ il!J!C: l1~[5!Jg_tl_ic; 5<1!.!1_C_;;_t;~11~l<tL~_12Llt[ll2£.()Jl!J.<tl~__11,r~s_fl~c?_<!:i                    1t:eh11olog) arc practicing medicine and 1111rst possess appropriate Ii cen-
!hose in traditional in-person clinical s.:ttings. i\n onlinc or 1.:lcphonic                                                   sure in all jurisdiction~ where their patknts presently rc~sidc. 1\n out-
L'.1<1l11:1ti<111 st1lcl; _l1)• t[Lte;;1it11111(tirc d11csnot ct>nstitutc an acceptahlt:                                       Pf:-5t<1tc physic1<1nn1ny pmyidc episodic rnnsultatio11s 11 ilhnut a Te\as
~tandard ur care.
                                                                                                                               IJ.lc'dl':'.al liecns~0_as pruvil!\~_.in l'nas Oci:upations Code. ~151.056
§17:19,              frclmu!ogy .1m<I Seq1rity Req11ire111el//s                                                                nnd ~ 172.12(1) tif this tilk (rclnting tn 0111-ol~State kkrnedicinc Li-
                                                                                                                               t:~11~c::-L\~ll]plir111U,
               (al   :\t a mi11i111um. ad1anced i:otnmunii:ntion teehnnlngy
n.1t.1.st ... b.: U~CL! .f\lr tilLpati,.,:1.itl'.lillu;ititlll a11.tl. tr.,:<1t111ci1t COlllil!ClCL.l yia                      This agency hereby certifies that the proposal has been reviewed
telerncdicine.                                                                                                                 by legal counsel and found to be within the agency's legal author-
                                                                                                                               ity to adopt.
       (bl 1\dcquate scrt1rit) .nh'as.t.1.rcs. nH1st be irnplcmc11kd tr> en~
sure that al I patient n111rnnmicati11ns. rc,·urding~. and records rcrnain                                                     Filed with the Office of the Secreta1y of State on April 19, 2010.
confidential.
                                                                                                                               TRD-201001895
                        Ekctronii.: ....................
                                    Cu111municatio11s.
                        ....................             ... ····· ..                                                          Mari Robinson, J.D.
           ill ~'rittc11__!2Q.Li.<::.is:_and prn_<:_cdun:s . tnltStml)CmllH\llltain<::(l                                       Executive Director
11i1l'n using ekl'lronic mail for ph)sician~pmknt commu11iemions.                                                              Texas Medical Board
Ptllicies.mu~Ih..:.c\aluatcd.Jleriodieally l(ir.t:Lnreney ...... St1d1 p11licies                                               Earliest possible date of adoption: May 30, 201 O
and prncedures must addrt?ss:                                                                                                  For further information. please call: (512) 305-7016
                (!\) 11riy<1c:;. tti <1,;st1r.: c;g11jiLl~.1.1ti<tl it;<111tl i11tsgrit) t)J'p<t~
ticnt-idc11tillablc inl(mnati<1n:
                                                                                                                               22 TAC §174.4, §174.6
                                                                                                                                                                        •                        +                       +
                  (Bl health care pers,J1meL in addition                                      t(l   tile ph: sici<m.
1\ht> 1.1.ill process.rnL':iS<tgcs:                                                                                            I Dliwr \· 11ore: l/Je re.1·1 of !he ji1f/01ring secrio11s pro1,osedj<>r l'l'/h'a/
                                                                                                                               1rif/ 1101 he 1111/Jlished. !he sec1io11s 11w1· be 1>.yw11i11ed in the o(lic<'.1· o/
                           (CJ                 ll(lurs of uperatinn and a1 ailahility:                                         the kms .\/2dicol /Joard or in the h'.WS l\egislc!' office. J.100111 145 .
                           ( D)                types nl'lransaetinns that 11 ill he permitted electron-                        .funws Far! Rudder IJ11ifdi11g I 019 f:lm::os St re er. .. I 11sri11. fr.\'as)
}c<.111::;                                                                                                                     The repeals are proposed under the authority of the Texas Oc-
                       (I~) r.,:g11i!Y'LJl<lliL~11tJ11l\1rn1atkrn to k included in the                                         cupations Code Annotated. §153.001, which provides authority
~)11_1.1111Il1.~<:.<~ti~ll1:..:'.U.t:J:i..i12J1al i~"..']-~_nil lll_t:_,J.9<:11.tJli cal i_ll[l_Il_l!l.11li._ei:.<,1,1itlj~~   for the Board to adopt rules and bylaws as necessary to: govern
or transaction:                                                                                                                its own proceedings; perform its duties; regulate the practice of
                                                                                                                               medicine in this state; enforce this subtitle; and establish rules
                           ( F)                archi1 al 1111d n:tri<.:\ al: and                                               related to licensure.
                           (Cl)                qualit~   tll'l'rsight mechanisms.                                              The repeals are also authorized by § 157 .001, Texas Occupa-
                     (2)         1\llrde1ant patic'nl-physiciun e-mail. th 11ell nsothc:r                                      tions Code.
paticnl~rel<1t<:d                clc'.C!rooic cornrnunirnliuns. mus! bL' s!med and filed in                                    No other statutes. articles or codes are affected by this proposal.
th..: patient'smcdical_t~_rnrd.
                                                                                                                               ,0 7.J.4.          Use o(lh1: llll<'l'llet in ,\fedicuf l'mcrice.
           (l) P;1tiL'ills lllUSt bl' i It formed of' al tern at i \'e lbnns or C\)!ll-
111 unkatiun for urgent nrnttcrs.                                                                                              fl 7./.6.          Dc!egutio1110 011d S111Je1·1·isio11 o/TelcpreselllC/'s.

§I   7
         . / / IJ.    .\ ledicul Recrmi> .Ji!r Tcle111e1/ici11c . \ !edical So'\' fees.
                                                                                                                               This agency hereby certifies that the proposal has been reviewed
                                                                                                                               by legal counsel and found to be within the agency's legal author-
          la) \'lecli<:;<tlrccnrd~ m11st be maintained for nil tclcrncdicim:                                                   ity to adopt.
l!l\tli<:<tl ?cryic>c,s. l}11ll1 t!i.; cjio;ti1r1t ~itc>J?l'<JI itlt:r t1r1tl l]1l'p<1li~11t ~itt:
presenter 11111st maintain th..: rccol'lb creakd at each sih'. unless the dis-                                                 Filed with the Office of the Secretary of State on April 19, 2010.
~a_nl sik_fl.l:OI idcr n~ntains the n:cmds in an dectronii: health rect>rd
                                                                                                                               TRD-201001896
l(irniat.
                                                                                                                               Mari Robinson, J.D.
        (h) l)i5tant,;it.; prnyidcrs 111u5lt!btai11 a11 rid.equate ;u1d et)!Jl~                                                Executive Director
pl\tc, 111c1J.ic;1Jl1istc11·:· f\)r tJ1c: p;1tie11( p1·it11·.10 p1:q1i(li11g .llYiJllllL'.1.ll <lJlll                          Texas Medical Board
111usl dncumrnt 1his in the medical record.                                                                                    Earliest possible date of adoption: May 30, 201 O
          (S:) ,\'L.,:dic<.!L_1ss.<.!.l:l:f;;.._1_11ust .. incl udc en pies of all .. rek1 an1                                 For fu1iher information. please call: (512) 305-7016
pati.,:111-r.:lnted. _ch:ctronii: .C()l11111Unicatinns, .including relcv1u1t pn:
tiL'llt~physician e-11111iL pre;;criptions. lahorat<>ry 1111d test l'l'sults.
svnluatio11s 11ncl co11sult{ltion>. rl'l.'t)l'd~ nl' past care and instrut:tions.
                                                                                                                                                                       •                        +                        •
11· ptis;;i l1J~.'. . . tsl.,:n1sLI i.s.i11c, ~11c:g.u.11 tc:.r:;. th<t[11.r.c.... rs.;,ir,1.~'..~L.clcct1\>11ii,:11l l)
                                                                                                                               PART 18. TEXAS STATE BOARD OF
should abu b.: included. in.. th<.~ Illl'.dic1d        .             record.
                                                                          .....                                                PODIATRIC MEDICAL EXAMINERS


                                                                                                                       PROPOSED RULES'                                        April 30, 2010                               35 TexReg 3393
The amendments are adopted under Texas Occupations Code.                                      PART 9.          TEXAS MEDICAL BOARD
Chapter 51 and Chapter 1151, whicl1 authorize the Texas Com-
mission of Licensing and Regulation. the Deparimenfs govern-                                  CHAPTER 174.             TELEMEDICINE
ing body, to adopt rules as necessary to implement these chap-
                                                                                              The Texas Medical Board (Board) adopts amendments to
ters and any other law establishing a program regulated by the
                                                                                              §§174.1 · 174.3 and 174,5, the repeal of §174.4 and §174.6
Department.
                                                                                              and new §§174.6 - 174.12, concerning Telemedicine            The
The statutory provisions affected by the adoption are those set                               amendments to §§174.1, 174.3 and 174.5 and the repeal of
fo1ih in Texas Occupations Code. Chapters 51 and 1151. No                                     §174.4 and §174.6 and new §174.10 and §174.12 are adopted
other statutes, articles, or codes are affected by tl1e adoption.                             without changes to the proposed text as published in the April
                                                                                              30, 2010, issue of the Texas Register (35 TexReg 3390) and will
,\"9-1. I 00.    Codr! o/Fthics.                                                              not be republished. New §174.6 and §174.8 are adopted with
Registrants must:                                                                             minor changes to the proposed text as published in the April
                                                                                              30, 2010, issue of the Texas Register (35 TexReg 3390). The
             (I l be guided hy ihc principk that property taxation should                     text of the rule will be republished. The amendment to §174.2
he: !'air and uniform. and apply all laws. rules. mclhmk and pruc..:dun:s.                    and new § 174. 9 and § 174.11 are adopted without changes to
in a unifrirm nrnnner. to all 1~1,pa; crs:                                                    the proposed text as published in the July 16, 2010, issue of the
          ( 2) not accept or solicit an; gin. Cavor. or sen ice that might                    Texas Register (35 TexReg 6175) and will not be republished.
rcusPnably tend to inllucncc the registrant in the discharge l'f olliciul                     New §174.7 is adopted with a minor change to the proposal as
duties. with the l(1llo11ing c:;.;ccptions:                                                   published in the July 16, 2010, issue of the Texas Register (35
                                                                                              TexReg 6175). The text of the rule will be republished.
              (;\) the lwnclit is usc~d ~olcly to defray the c·;.;pcnscs that
accrue in the pcrfon11a111.:e ul'duties or acti\itics in co1111ectit11111 ith the             The amendments to§ 174.1, concerning Purpose, adds statutory
ollice which arc nonrcimbursahk by the stntc or political subdivision:                        authority for the chapter and exempts out-of-state telemedicine
                                                                                              license holders, federally qualified health centers, and health in-
              (Bl n political contribution as defined by Title 15 of the                      surance help lines from the chapter. The Board has determined
Electill11 Code: or                                                                           that the changes are necessary to have the rules applied to only
               (C) an item with a 1alue oflc,;s than SSO. i.::1:cludi11g ..:a;.;h             certain telemedicine providers.
or a 11c'gotiabk instrument:                                                                  The amendments to §174.2, concerning Definitions, define dis-
                (3)n<>t use inl'ormatic>n received in ct1nncction 1\ ith th.: du-             tant site provider, established medical site. face-to-face visit, pa-
ties of an appraiser, assessor. ur cPllcctor i\1r their OI\ n purposes. unless                tient site location, patient site presenter; amend the definitions
>ud1 inl(>1·111ation can b.: knP11n by ordinary means tu a11y ,1rdinar:- cit-                 for physician-patient e-mail, telemedicine medical services; and
izen:                                                                                         deletes the definition for telepresenter. The Board has deter-
                                                                                              mined that it is necessary to establish uniform definitions for
           (4) not cngagc in an ollicial act that is di,.;Jwncst. rniskad-
                                                                                              those who practice telemedicine in Texas.
ing. l'raudulcni. tkccpth c. m in 1iui<1ti<'ll of la11:
                                                                                              The amendments to §174.3, concerning Telemedicine Medical
          (5) 11nt conduct their prn!Cssi,mal duties in a manner that                         Services. deletes reference to the Telecommunications Infra-
could reaso11abl; be npcctcd to creak th<: appcaranc(· of irnproprict~:                       structure Fund Board (TIFB). The Board has determined that
            (6) nnt accept an appraisal. assessment. or collection re-                        references to the TIFB must be eliminated since it no longer
lated assignnk~nt that can rc;1sonably he construed a~ bdng in C\)!l!l ict                    exists.
11 ith the regbtrant's rc:'ponsibilily 10 their juri:;diclion, cmploycr. or                   The repeal of §174.4, concerning Use of the Internet in Medical
clknl. <lr in\\ hich the r.:gistrunl lias an unn:n:nled p.:rsunal intcrc'l or                 Prar.lir.e, i!i moved to Chapter 164 as new §164.6. The Board
bias: and                                                                                     has determined that this section is more appropriately placed in
            ( 7) m>t accept an a,;siµnmrnt or rcsponsihil it~· in 11 hich the                 Chapter 164, which relates to advertising.
r<:gistrant has a pl.'.rs<111al irn..:rest \\ itlmut f'ull dis<:los1m.: of that intt:rc.,l.   The amendments to §174.5. concerning Notice of Privacy Prac-
This agency hereby certifies that the adoption has been reviewed                              tices, provides that physicians that communicate electronically
by legal counsel and found to be a valid exercise of the agency's                             with patients and provide telemedicine medical services, must
legal authority.                                                                              provide notice to patients of privacy practices, limitations of
                                                                                              telemedicine, when in-person evaluations are necessary. and
Filed with the Office of the Secretary of State on September 24,                              how to file complaints with the Board. The Board has determined
                                                                                              that it is necessary to ensure that patients are given appropriate
2010.                                                                                         notice to make informed decisions about their care and their
TRD-201005557                                                                                 rights as consumers. The amendment also changes the name
William H. Kuntz, Jr.                                                                         from "Notice of Privacy Practices" to "Notice to Patients".
Executive Director                                                                            The repeal and replacement of §174.6, concerning Delegation
Texas Department of Licensing and Regulation                                                  to and Supervision of Telepresenters, repeals §174.6 and adds
Effective date: October 15, 2010                                                              new language for new §174.6, concerning Telemedicine Medical
Proposal publication date: May 28, 2010                                                       Services Provided at an Established Medical Site. The Board
For further information. please call (512) 463-7348                                           has determined that the new language is necessary to establish
                                                                                              standards for the provision of telemedicine medical services at
                           +                •               +                                 established medical sites.
TITLE 22. EXAMINING BOARDS


                                                                                       ADOPTED RULES                October 8, 2010          35 TexReg 9085
New §174.7, concerning Telemedicine Medical Services Pro-            No comments were received regarding §§174.1, 174.3, 174.4,
vided at Sites other than an Established Medical Site, estab-        174.6, 174.10 and 174.12.
lishes under what conditions a distant site provider may provide
                                                                     §174.2
telemedicine medical services at sites other than an established
medical site, such as a patient's home.                              The Board received comments regarding §174.2 from the Texas
                                                                     Medical Association and Health and Human Services Commis-
New §174.8, concerning Evaluation and Treatment of the Pa-
                                                                     sion.
tient, establishes standards for physicians that use telemedicine
medical services for the evaluation and treatment of patients.       COMMENT ONE: Texas Medical Association
New §174.9, concerning Technology and Security Require-              The commenter asked the following questions and made the fol-
ments, establishes requirements relating to technology and           lowing suggestions:
security regarding the provision of telemedicine medical ser-
                                                                     (1 ): Paragraph (1) should be clarified to indicate that a distant
vices and physician-patient communications through email. The
                                                                     site provider also includes physician assistants or advanced
Board has determined that the new rule will protect confiden-
                                                                     practice nurses who are supervised by and delegated authority
tial electronic communications between physicians and their
                                                                     from a licensed Texas physician in accordance with Title 3
patients and that electronic medical records are appropriately
                                                                     Texas Occupations Code. Chapter 157. Otherwise, this provi-
safeguarded.
                                                                     sion could be misinterpreted to mean that the usual delegation
New §174. 10, concerning Medical Records for Telemedicine            requirements do not apply to Telemedicine.
Medical Services, establishes the requirements for the mainte-
                                                                     (2): Although paragraph (2) states that an established medical
nance of medical records for telemedicine medical services and
                                                                     site requires a defined physician-patient relationship, it is unclear
what documents are considered part of the medical records.
                                                                     as to when exactly the creation of a physician-patient 1·elationship
The Board has determined that the changes ensure that medical
                                                                     must occur. Does the relationship need to be established before
records are appropriately maintained for patients who receive
                                                                     the patient arrives at an established medical site for the first time,
telemedicine medical services.
                                                                     or can it take place during the initial visit?
New §174. 11, concerning On-call Services, establishes that
                                                                     (3): Paragraphs (3) and (4) are very similar in definition. Listing
physicians in the same specialty who provide reciprocal services
                                                                     examples under each definition may assist in minimizing confu-
may provide on-call telemedicine medical services for each
                                                                     sion.
other's patients. The Board has determined that changes allow
for the use of telemedicine medical services through on-call         (4): The definition of "patient-site presenter" in paragraph (?)(A)
services when a patient's distant site provider is not available.    should be amended by adding another subdivision that would
                                                                     permit either the licensed health care individual or a person del-
New §174.12, concerning State Licensure. provides that per-
                                                                     egated and supervised by the distant site physician to be the
sons who treat and prescribe through advanced communications
                                                                     patient site presenter. The commenter states that the provisions
technology are engaged in the practice of medicine and must
                                                                     of Section 157. 001, Occupations Code would permit such dele·
have appropriate licensure unless othe1wise exempt. The Board
                                                                     gation and supervision, and contends that this ability to delegate
has determined that the changes ensure that those who reside
                                                                     and supervise is extremely important to assure access in the ru-
outside of Texas and provide medical services to Texas residents
                                                                     ral areas where health care providers are few and far between.
are appropriately licensed.
                                                                     (5): In paragraph (7)(B), there should be an additional sentence
Sections 174.2, 174.7, 174.9 and 174.11 were previously pub-
                                                                     stating that all delegation tasks and activities must be done in ac-
lished for proposal in the April 30, 2010, issue of the Texas Reg-
                                                                     cordance with the provisions of Chapter 157 of the Occupations
ister: however these sections were withdrawn and re-proposed
                                                                     Code. This should be done in order to put physicians on notice
in the July 16, 2010, issue of the Texas Register These sec-
                                                                     that compliance with the statute is not limited to solely PAs and
tions were withdrawn and re-published with changes based on
                                                                     APNs.
comments received from the April 30, 2010 proposal. The Board
received and reviewed comments at the June and August meet-          The Board agrees with comment ( 1) and amended the language
ings. Some entities made comments twice (repeating their com-        to include PAs and APNs in the definition of distant site provider.
ments} and the relevant sections (§§174.2, 174.7, 174.9 and          Section 174.6(a) addresses comment (2) as it provides that a
174. 11) were withdrawn and republished with changes in July.        telernedicine encounter at an established medical site may be
The comments were again reviewed at the August meeting and           used for an initial evaluation and therefore the rules already pro-
no further changes were made to the rules, therefore the rules       vide that the relationship does not need to precede the patient's
are adopted without changes at this time. A summary of the           visit to the site. The Board agrees in part with comment (3) and
comments follows.                                                    will develop a link on its website for frequently asked questions,
                                                                     including examples for these definitions. The Board disagrees
The Board sought stakeholder input through Stakeholder
                                                                     with comment (4) and has determined that patient site presen-
Groups, which made comments on !he suggested changes to
                                                                     ters must be licensed or certified in a health-related field to en-
the rules at a meeting, held on March 9, 2010. The comments
                                                                     sure patient safety. In addition, this rule is consistent with regu-
were incorporated into the proposed rules.
                                                                     lations established by the Health and Human Services Commis-
The Board received support for the rules without change from the     sion as it relates to Medicaid reimbursement requirements for
Texas Department of Insurance, the University of Texas Medical       telemedicine services. The Board disagrees with comment (5)
Branch at Galveston, Texas e-Health Alliance and Texas Organ-        and does not believe additional language is necessa1y as Chap-
ization of Rural and Community Hospitals.                            ter 157 applies to all delegated acts and additional notice is not
                                                                     required.
Comments:
                                                                     COMMENT TWO: Health and Human Services Commission



35 TexReg 9086         October 8, 2010         Texas Register
The commenter recommends adding the word "private" to the                Human Services Commission, Texas Association of Business.
last sentence in paragraph (2) so that it would read "a patient's        Texas Public Policy Foundation, and State Reprnsentative Jim
private home is not considered an established medical site." He          Jackson.
states that otherwise, the definition excludes a residential facility
                                                                         COMMENT NO. 1
or other institutional setting where a patient resides. The com-
menter also recommended substituting "in real time" for "con-            Texas Hospital Association commented that they have some
temporaneously" in paragraph (10). Several grammatical sug-              concern about the proposed language that would require an es-
gestions were also made. The Board agreed with these com-                tablished patient with new symptoms to be seen in person within
ments, and changes were made to the section.                             72 hours or at an established medical site. They recommend
                                                                         that the Texas Medical Board, with input from telemedicine
§174.5
                                                                         experts, health care facilities and professionals, monitor this
The Board received comments regarding §174.5 from the Texas              provision closely on an ongoing basis with regard to its impact
Medical Association and Teladoc Medical Services.                        on resources and access to health care, particularly in under-
                                                                         served areas, and be prepared to respond to those concerns if
COMMENT ONE: Texas Medical Association
                                                                         necessary by considering a future rule change.
The commenter contends that this section of the rule is incon-
                                                                         The Board disagrees with this comment in part. The 72-hour pro-
sistent with federal HIPAA privacy requirements. She states that
                                                                         vision in subsection (e) pertains only to patients being treated
as written, tl1is section would require physicians who are not
                                                                         at home with new conditions unrelated to the preexisting con-
ott1erwise subject to the "notice and acknowledgment" require-
                                                                         ditions they are being treated for via telemedicine. IF the pa-
ments of HIPAA to be subject to those provisions, even though
                                                                         tient's symptoms resolve within 72 hours, then an in-person visit
telemedicine services are not covered by HIPAA She notes that
                                                                         is not required. Because this provision only pertains to patients
even HIPAA provides an exemption from those requirements for
                                                                         receiving treatment at home, or somewhere besides an estab-
medical practices with 10 or fewer full time employees, and that
                                                                         lished medicine site, there would likely be no patient site presen-
to impose these requirements upon all physicians would have
                                                                         ter available to confer with the distant site provider to determine
an adverse impact upon both small practices and those in rural
                                                                         whether the patient needs an in-·person visit In addition, Chapter
areas. She suggests that if the agency seeks to keep this Sec-
                                                                         111 of the Texas Occupations Code pertaining to telemedicine
tion of t11e Rule, it should retain only a "notice" requirement, and
                                                                         and telehealth services authorizes the Board to adopt rules to
delete any references to "written acknowledgment".
                                                                         ensure that patients receiving care via telemedicine receive ap-
The Board disagrees with this comment. After review of the fed-          propriate, quality care and to "require a face-to-face consulta-
eral HIPAA notice and privacy requirements, the Board has de-            tion between a patient and physician providing a telemedicine
termined that the rules are not in violation with HIPAA The fol-         medical service within a certain number of days following an ini-
lowing was obtained from the HHS Office of Civil Rights' website         tial telemedicine medical service only if the physician has never
that supports the Board's position and therefore the Board has           seen the patient". The adopted rules are in keeping with the in-
adopted the proposed language without amendment:                         tent of the current statute. For these reasons, the Board does
                                                                         not believe that any changes should be made to this proposed
"The HIPAA Privacy Rule is intended to be flexible enough to
                                                                         rule as published. The Board has adopted the amendments to
address the various types of relationships that covered health
                                                                         this section as published, without changes, but plans to work with
care providers may have with the individuals they treat. includ-
                                                                         stakeholders in the future to monitor how the rules will affect pa-
ing those treatment situations that are not face-to-face . For
                                                                         tient care.
service provided electronically, the notice must be sent electroni-
cally automatically and contemporaneously in response to the in-         COMMENT NO. 2
dividual's first request for service. In this situation, an electronic
                                                                         OptumHealth commented that the rules should focus "on the
return receipt or other return transmission from the individual is
                                                                         roles and responsibilities of health professionals providing care,
considered a valid written acknowledgment of the notice."
                                                                         rather than distinguishing based upon how healthcare informa-
COMMENT TWO: Teladoc Medical Services                                    tion is transmitted." OptumHealth also raised concerns that the
                                                                         rules "do not clearly define what is and what is not permitted
The commenter objects to the references in subsections (b)
                                                                         through various modes of information transmission" and that
and (c) that advise the patient to seek additional follow-up care.
                                                                         rules should provide a "flexible regulatory framework that both
He states that the language is overly restrictive and that the
                                                                         recogrnzes the rapidly changing information infrastructure and
telemedicine physician can provide appropriate follow-up care.
                                                                         protects patients and care providers."
The Board disagrees with this comment. Stakeholder input led
                                                                         The Board disagrees with this comment The Board has set
to the inclusion of this language so that patients would be able
                                                                         out requirements for when face-to-face visits are necessary and
to give proper informed consent when seeking medical care
                                                                         when the use of advanced communication technology may be
through the use of telemedicine services.
                                                                         used, in part based on where the patient is being treated (es-
§174.7                                                                   tablished medical site v. site other than an established medi-
                                                                         cal site) and the condition being treated (preexisting condition
The Board received comments regarding §174.7 from Texas
                                                                         v. new condition unrelated to previously diagnosed condition).
Hospital Association, OptumHealth (national care management
                                                                         For these reasons, the Board does not believe that any changes
organization that provides health care via telemedicine), Amer-
                                                                         should be made to this proposed rule as published. The Board
icanWell (technology pariner of OptumHealth), Rural Caucus
                                                                         has adopted the amendments to this section as published, with-
of the Texas Legislature, the Texas Conservative Coalition,
                                                                         out changes.
Texas Conservative Coalition Research Institute, Texas Med-
ical Association, Teladoc Medical Services, Texas Health and             COMMENT NO. 3




                                                                  ADOP1ED RVLES               October 8, 2010         35 TexReg 9087
CHAPTER 176. HEALTH CARE LIABILITY                                          plus lines basis, and is not otherwise subject to regulation by the Texas
                                                                            Department of Insurance.
LAWSUITS AND SETTLEMENTS
                                                                                      (6) "Physician" means any person licensed to practice
22 TAC §176.1                                                               medicine in this state, including interns, residents, physicians acting as
The Texas Medical Board (Board) proposes an amendment to                    supervising physicians, on-call physicians, consulting physicians, and
§176.1, concerning Definitions.                                             physicians who administer, read, or interpret laboratory tests, x-rays
                                                                            [ex-rays], and other diagnostic studies.
The amendment to §176.1 corrects the spelling of the term
"x-ray" located in paragraph (6).                                           The agency certifies that legal counsel has reviewed the pro-
                                                                            posal and found it to be within the state agency's legal authority
Scott Freshour, General Counsel for the Board, has determined               to adopt.
that for each year of the first five years the section as proposed
is in effect the public benefit anticipated as a result of enforcing        Filed with the Office of the Secretary of State on February 23,
this proposal will be to have correctly spelled medical terms con-
tained in the Board rules.                                                  2015.
Mr. Freshour has also determined that for the first five-year pe-           TRD-201500619
riod the section is in effect there will be no fiscal implication to        Mari Robinson, J.D.
state or local government as a result of enforcing the section as           Executive Director
proposed. There will be no effect to individuals required to com-           Texas Medical Board
ply with the rule as proposed. There will be no effect on small or          Earliest possible date of adoption: April 5, 2015
micro businesses.                                                           For further information, please call: (512) 305-7016
Comments on the proposal may be submitted to Rita Chapin,                                         ♦             ♦            ♦
P.O. Box 2018, Austin, Texas 78768-2018 or e-mail comments
to: rules.development@tmb.state.tx.us. A public hearing will be             CHAPTER 190. DISCIPLINARY GUIDELINES
held at a later date.
                                                                            SUBCHAPTER B. VIOLATION GUIDELINES
The amendment is proposed under the authority of the Texas Oc-
cupations Code Annotated, §153.001, which provides authority                22 TAC §190.8
for the Board to adopt rules and bylaws as necessary to: govern             The Texas Medical Board (Board) proposes amendments to
its own proceedings; perform its duties; regulate the practice of           §190.8, concerning Violation Guidelines.
medicine in this state; enforce this subtitle; and establish rules
related to licensure.                                                       The amendment adds language to paragraph (1)(L) in order
                                                                            to clarify a "defined physician-patient relationship" and the
No other statutes, articles or codes are affected by this proposal.         requirements for establishing same before prescribing drugs.
§176.1. Definitions.                                                        The amendment clearly defines the minimum elements that are
For the purposes of this chapter:                                           required to establish a defined physician-patient relationship.
                                                                            The elements include a physical examination that must be per-
           (1) "Health care liability claim" means a cause of action        formed either by a face-to-face visit or an in-person evaluation,
against a licensee for treatment, lack of treatment, or other claimed de-   as those terms are defined under existing board rules.
parture from accepted standards of medical or health care or safety that
proximately results in injury to or death of a patient, whether the pa-     The amendments to §190.8 further add new paragraph (8), re-
tient's claim or cause of action sounds in tort or contract. This def-      lating to Texas Occupations Code §164.051(a)(4)(C)'s authority
inition is consistent with Texas Civil Practices and Remedies Code          for the board to take disciplinary action based upon a licensee's
§74.001(a)(13) (relating to medical liability).                             inability to practice medicine with reasonable skill and safety to
                                                                            patients because of excessive use of drugs, narcotics, chem-
          (2) "Complaint" means a petition or complaint filed as a          icals, or another substance. The amendment adds language
lawsuit on a health care liability claim.                                   stating that for the purposes of §164.051(a)(4)(C) of the Texas
          (3)   "Settlement" means:                                         Occupations Code, any use of a substance listed in Schedule I,
                                                                            as established by the Commissioner of the Department of State
              (A) a payment made by or on behalf of a licensee on a         Health Services under Chapter 481 of the Texas Health and
health care liability claim on which no lawsuit has been filed;             Safety Code, or as established under the Comprehensive Drug
              (B) an agreement to settle a lawsuit on a health care li-     Abuse Prevention and Control Act of 1970 (21 U.S.C. §801 et
ability claim for a specified amount to be paid by or on behalf of a        seq., constitutes excessive use of such substance.
licensee;                                                                   Scott Freshour, General Counsel for the Board, has determined
               (C) a dismissal or non-suit of a lawsuit on a health care    that for each year of the first five years the section as proposed
liability claim with no payment; and                                        is in effect the public benefit anticipated as a result of enforcing
                                                                            the proposal will be to insure patient safety by setting forth spe-
              (D) a final judgment in a lawsuit on a health care liabil-    cific parameters and requirements for a practitioner to establish a
ity claim entered by the trial court.                                       defined physician-patient relationship prior to prescribing drugs.
           (4) "Insurer" means any entity that provides health care li-     The amendment to §190.8(1)(L) will protect patient health and
ability coverage to a licensee and is not limited to insurance companies    safety by requiring the use of acceptable medical practices that
that are regulated by the Texas Department of Insurance.                    comply with state law and medical board rules, while still pro-
                                                                            viding ample access to medical treatment. An additional public
           (5) "Nonadmitted insurer" means an insurance company             benefit anticipated will be to clarify requirements for prescribing
that is not admitted to do business in Texas, does business on a sur-



40 TexReg 1018            March 6, 2015           Texas Register
drugs that are consistent with the board's existing rules related                                (III) An online questionnaire or questions and
to acceptable medical practices, requirements for medical record             answers exchanged through email, electronic text, or chat or tele-
documentation of patient evaluations and examinations, and re-               phonic evaluation of or consultation with a patient are inadequate to
quirements for the practice of telemedicine. The public benefit              establish a defined physician-patient relationship [by questionnaire is
will also provide clarity as to the definition of excessive use of           inadequate];
narcotics, chemicals, or another substance by a physician that
                                                                                                 (IV) [(III)] discussing with the patient the diag-
would impair a physician's ability to practice with reasonable skill
                                                                             nosis and the evidence for it, the risks and benefits of various treatment
and safety to patients and that would authorize the board to take
                                                                             options; and
disciplinary action based upon such impairment, thereby better
enabling the board to protect the public.                                                       (V) [(IV)] ensuring the availability of the li-
                                                                             censee or coverage of the patient for appropriate follow-up care.
Mr. Freshour has also determined that for the first five-year pe-
riod the section is in effect there will be no fiscal implication to                          (ii) - (iii)   (No change.)
state or local government as a result of enforcing the section as
                                                                                           (M) - (O)     (No change.)
proposed. There will be no effect to individuals required to com-
ply with the rule as proposed. There will be no effect on small or                     (2) - (7) (No change.)
micro businesses.
                                                                                       (8) For purposes of §164.051(a)(4)(C) of the Texas Occu-
Comments on the proposal may be submitted to Rita Chapin,                    pations Code, any use of a substance listed in Schedule I, as established
P.O. Box 2018, Austin, Texas 78768-2018 or e-mail comments                   by the Commissioner of the Department of State Health Services under
to: rules.development@tmb.state.tx.us. A public hearing will be              Chapter 481, or as established under the Comprehensive Drug Abuse
held at a later date.                                                        Prevention and Control Act of 1970 (21 U.S.C. §801 et seq.) consti-
                                                                             tutes excessive use of such substance.
The amendment is proposed under the authority of the Texas Oc-
cupations Code Annotated, §153.001, which provides authority                 The agency certifies that legal counsel has reviewed the pro-
for the Board to adopt rules and bylaws as necessary to: gov-                posal and found it to be within the state agency's legal authority
ern its own proceedings; perform its duties; regulate the prac-              to adopt.
tice of medicine in this state; enforce this subtitle; and establish
rules related to licensure. The amendments are also proposed                 Filed with the Office of the Secretary of State on February 23,
under the authority of the Texas Occupations Code Annotated,
                                                                             2015.
§164.051(a)(4)(C).
                                                                             TRD-201500621
No other statutes, articles or codes are affected by this proposal.
                                                                             Mari Robinson, J.D.
§190.8. Violation Guidelines.                                                Executive Director
When substantiated by credible evidence, the following acts, practices,      Texas Medical Board
and conduct are considered to be violations of the Act. The following        Earliest possible date of adoption: April 5, 2015
shall not be considered an exhaustive or exclusive listing.                  For further information, please call: (512) 305-7016

           (1) Practice Inconsistent with Public Health and Welfare.                                ♦             ♦           ♦
Failure to practice in an acceptable professional manner consistent with
public health and welfare within the meaning of the Act includes, but        TITLE 43. TRANSPORTATION
is not limited to:
                                                                             PART 10. TEXAS DEPARTMENT OF
              (A) - (K)   (No change.)
                                                                             MOTOR VEHICLES
             (L) prescription of any dangerous drug or controlled
substance without first establishing a defined physician-patient [proper     CHAPTER 206.                MANAGEMENT
professional] relationship [with the patient].
                                                                             The Texas Department of Motor Vehicles (department) proposes
                 (i) A defined physician-patient [proper] relationship       amendments to Chapter 206, Subchapter A, §206.1, Texas Mo-
must include, at a minimum [requires]:                                       tor Vehicle Board; §206.2, Texas Department of Motor Vehi-
                    (I) establishing that the person requesting the          cles; Subchapter B, §206.22, Public Access to Board Meetings;
medication is in fact who the person claims to be;                           §206.23, Public Hearings; Subchapter E, §206.92, Definitions;
                                                                             §206.93, Advisory Committee Operations and Procedures; Sub-
                     (II) establishing a diagnosis through the use of        chapter F, §206.111, Restrictions on Assignment of Vehicles;
acceptable medical practices, which includes documenting and per-            and Subchapter G, §206.131, Digital Certificates. The depart-
forming: [such as]                                                           ment also proposes the repeals of Subchapter B, §206.21, Board
                         (-a-) patient history;[,]                           Meetings; Subchapter D, §§206.61 - 206.73, relating to Proce-
                         (-b-) mental status examination;[,]                 dures in Contested Cases; and Subchapter E, §206.91, Scope
                         (-c-) physical examination that must be per-        and Purpose.
formed by either a face-to-face visit or in-person evaluation as defined
in §174.2(3) and (4) of this title (relating to Definitions). The require-   EXPLANATION OF PROPOSED AMENDMENTS AND RE-
ment for a face-to-face or in-person evaluation does not apply to mental     PEALS
health services, except in cases of behavioral emergencies, as defined       The department conducted a review of its rules in compliance
by 25 TAC §415.253 (relating to Definitions);[,] and                         with Government Code, §2001.039. Notice of the department's
                         (-d-) appropriate diagnostic and laboratory         plan to review was published in the April 18, 2014, issue of the
testing.                                                                     Texas Register (39 TexReg 3261).



                                                                      PROPOSED RULES                    March 6, 2015          40 TexReg 1019
                                    Texas Medical Board
                                   MAILING ADDRESS: P.O. Box 2018' AUSTIN TX 78768·2018
                                                  PHONE: (512) 305·7010



                                                    June 16,2011


     VIA LONE STAR OVERNIGHT DELIVERY
     Mr. Paul Squire, Esq.
     General Counsel
     Teledoc
     100 ,Spring Valley, Ste 600
     Dallas, Texas 75244

     Dear Mr. Squire:

     Several recent representations by Teledoc regarding its internet program have come to the
     attention of the Texas Medical Board ("Board"). These representations cause concern on the
     part of the Board for its licensed Texas physicians. Physicians who choose to participate in the
     internet program you advertise should be able to expect that your company has taken all steps
     necessary to ensure that the service or product offered by you in Texas meets all Texas legal
     standards and requirements. Further, physicians should be able to have assurances from your
     company that they will not be jeopardizing their respective licenses should they choose to
     participate. The Board does not believe that physicians in Texas can rely on your representations
     as to compliance with Texas Board rules should they opt to participate in your program.

     As you may recall, the Board, after extensive public input and numerous stakeholder meetings,
     several of which Teledoc participated in, adopted new telemedicine rules last year. As you will
     also recall, of all the stakeholders, only Teledoc and Optimum opposed the final rules as adopted,
     maintaining throughout the rulemaking process that "face-to-face" examinations were not
     necessary to establish a physician/patient relationship. Board Rule 190.8(1)(L) provides:

     Prescription of any dangerous drug or controlled substance without first establishing a proper
     professional relationship with the patient.

            (i)    A proper relationship, at a minimum requires:
                   (I)   Establishing that the person requesting the medication is in fact who the
                         person claims to be;
                   (II)  Establishing a diagnosis through the use of acceptable medical practices
EXHIBIT                  such a patient history, mental status examination, physician examination,
                         and laboratory testing. An online or telephone evaluation by questionnaire
                         is inadequate;


    The Board both initially and throughout the process specifically rejected the position that a
    "face- to- face" examination was not required to establish a physician/patient relationship and
    crafted the Board rules to allow for situations in which that required "face-to-face" examination


                                                        17                                                17
Mr. Paul Squire, Esq.
June 16, 2011
Page No.2

could be accomplished through the use of the internet. Further refinements were provided for
after that initial physician patient relationship was established. However, the fundamental
language of Board Rule 190.8(l)(L) was never changed.

Teledoc's advertising material has multiple statements indicating that its process can be
conducted over the telephone without any prior establishment of a physician/patient relationship
via a "face-to-face" examination. Such statements include:

   •   "Teledoc ....provides Aetna's Texas insured members access to Texas licensed
       physicians who treat minor non-emergent medical conditions via remote telephone
       consultations when the member's primary care physician is not available."

   •   "Specialize in talking with patients and diagnosing problems over the phone."

   •   "In compliance with the Texas Medical Board's rules, do not consult with
       individuals via email, algorithm or online chat, nor are consultations based solely on
       an online or telephone consult questionnaire." The Board notes that the only thing the
       physician will be looking at is the patient's medical records maintained by Aetna. There
       will be no "face-to-face" examination by the Teledoc physician.

   •   "You should be aware that Teledoc was actively involved in the comments to such
       Rules." The Board notes that as Teledoc described its practices before the Board
       member~ sitting on the rulemaking committee, Teledoc was told it was then violating
       Board rules and if it continued in that vein it would continue to be in violation of Board
       rules.

   •   "Moreover, the Texas Medical Board, when adopting the Telemedicine Rules last
       year, intentionally deleted phone consults from the definition of "telemedicine
       medical services" before the rules were finally adopted in August 2010. You should
       note that Teledoc does not provide video consultations here in Texas that would
       meet the definition of telemedicine medical services under the TMB's rules. Finally,
       the access which Teledoc provides to Aenta's members complies with the TMB's
       prior guidance ensuring that the standard of care is met in Teledoc's physicians'
       consultations." . Teledoc does correctly note that phone consults were deleted from the
       rule as adopted because such consults were directly in opposition to the position of the
       Board that "face-to-face" consults were the only appropriate manner in which to establish
       a physician/patient relationship. Such deletion was not the result of the Board's decision
       that telephone consultations would be appropriate. The Board notes that Teledoc was in
       violation of the Board's rules then and is in violation of the rules now, in that its program
       does not provide for a prior physician/patient relationship to be established with the
       "face- to-face" examination aspect.




                        LOCAL ADDRESS: 333 GUADALUPE, TOWER 3, SUITE 610 • AUSTIN TX 78701
                                          WEB: www.tsbme.state.tx.us
                                                                                                       18
                                                        18
Mr. Paul Squire, Esq.
June 16} 2011
Page No.3

      •   ".... diagnose routine, non-emergency medical problems, recommend treatment,
          and can even call in a prescription to your pharmacy of choice, when necessary:"


These statements are but a few of the statements made by Teledoc, that if followed by licensed
Texas physicians, will lead to disciplinary action against the participating doctors in the program.

Such knowing and deliberate misrepresentation is unconscionable given the active participation
of Teledoc in the discussions and rulemaking procedures leading up to the adoption of the
telemedicine rules in Board Rule 174 this last year. Teledoc has been told by Board members,
the Executive Director and myself, as General Counsel, that the structure proposed by Teledoc is
contrary to the Board's rules and that opinion has not changed due to the adoption of Board Rule
174. The adoption of that rule did not in any manner amend, modify, or delete the requirements
of Board Rule 190.8(1)(L).

Accordingly, the Board is hereby notifying you that any representation that you make regarding
Teledoc's program being in conformance with the Board's rules will be directly and firmly
refuted by the Board. By copy hereof, the Board is sending this correspondence to the Texas
Medical Association.

The Board will take all legal steps as are necessary should it see continued advertisements
containing the material referenced above.




                                                     Nancy Leshikar, J.D.
                                                     General Counsel


cc:       VIA LONE STAR OVERNIGHT DELIVERY
          Rocky Wilcox, JD
          Vice President and General Counsel
          Texas Medical Association
          401 West 15th Street
          Austin, Texas 78701




                        LOCAL ADDRESS: 333 GUADALUPE, TOWER 3, SUITE 610 • AUSTIN TX 78701
                                                 www.tsbme.state.tx.us
                                                                                                       19
                                          WEB:

                                                        19
                                         SOAH DOCKET NO. 503-01·2134

                                                 LICENSE NO. E-7013


 IN THE MAITER OF                                        §                             BEFORE THE
                                                         §
THE COMPLAINT AGAINST                                    §                   TEXAS STATE BOARD
                                                         §
 DAVID LYMAN BRYSON, M.D.                                §               OF MEDICAL EXAMINERS

                                                   FINAL ORDER


          During open meeting at Austin, Texas, the Texas State Board of Medical Examiners finds
that after proper and timely notice was given, the above~styled case was heard by an Administrative
Law JUdge of the Texas State Office of Administrative Hearings ("SOAH") who made and filed a
proposal for decision containing the Administrative Law Judge's proposed findings of fact and
conclusions of law. The proposal for decision was properly served on all parties and all parties
were given an opportunity to file exceptions and replies as part of the record herein.
          The Texas State Board of Medical Examiners, after review and due consideration of the
proposal for decision, and exceptions and replies filed, if any, adopts the following proposed
findings of fact and conclusions of law of the Administrative Law Judge ("ALJ"). All proposed
findings of fact and conclusions of law not specifically adopted herein are hereby denied.


                                                 FINDINGS OF FACT


1.        David L. Bryson, M.D., holds Texas Medical License E-7013.


2.        The Texas State Board of Medical Examiners (Board) issued License E-7013 to Dr. Bryson
on December 8, 1976.


3.        Dr. Bryson's license has been temporarily suspended by the Board since January 22,2001.
At all other times relevant to this case, Dr. Bryson'S license was in full force and effect.


4.        In January 1999, Dr. Bryson entered into a business and financial relationship with
Mr. William Stallknecht and the Pill Box Pharmacy. of San Antonio, Texas. Mr. William StaUknecht
is a licensed Texas pharmacist.


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                                                                                                40
 5.       Dr. Bryson's business and financial relationship with Mr. Stallknecht and the Pill Box
 Pharmacy (Pill Box) continued until March 1, 2001.


6.        During 1999, Dr. Bryson consulted with over 10,000 patients through either internet
questionnaires or telephone conversations. As the year progressed, Dr. Bryson consulted with
fewer patients by internet questionnaire and consulted with more patients by telephone. Dr. Bryson
prescribed only unscheduled drugs based on the internet questionnaire. He also prescribed
scheduled drugs and controlled substances based on the telephone conversations.


7.        After December 24, 1999, Dr. Bryson ceased consulting with any patients solely through
internet questionnaires. After that date, he conducted all of his consultations by telephone.


8.        From January 2000 through March 1, 2001, Dr. Bryson consulted with over 10,000 patients
through telephone conversations.                 Dr. Bryson prescribed scheduled drugs and controlled
substances to these patients based on the telephone conversations.


9.        Between January 1999 and March 1,2001, more than 50% of the prescriptions written by
Dr. Bryson were for the pain medication hydrocodone.


10.       Between January 1999 and March 1, 2001 J more than 25% of the prescriptions written by
Dr. Bryson were for anti-anxiety drugs, such as Xsnax and Valium.


11.       Between January 1999 and March 1, 2001, Dr. Bryson had no medical office or other
facilities to examine patients.


12.       Between January 1999 and March 1,2001, Dr. Bryson never saw his patients or pertonned
physical examinations, nor did he order urinalyses, cecs, blood chemistries, X-rays, CT scans,
MRls, or any other type of diagnostic testing for any of the more than 20,000 patients that he
                                                                                               ,"
consulted with by telephone or internet questionnaire.


13.       Between January 1999 and March 1, 2001, Dr. Bryson did not consult with the treating
physicians for any of his 20,000 patients.




G:\Physlclans\8JYSon\Final Order 01 Revocation                                             PAGE20F6


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 14.       Between January 1999 and March 1,2001, Dr. Bryson failed to establish a proper medical
 diagnosis on his patients by not obtaining complete medical histories, not performing mental status
 exams, not performing physical examinations, and not ordering appropriate diagnostic testing.


 15.       Between January 1999 and March 1, 2001, Dr. Bryson prescribed scheduled substances
 and dangerous drugs without establishing a proper physician I patient relationship.


 16.      Between January 1999 and March 1, 2001, Dr. Bryson ordered three refills for
approximately 90% of the prescriptions he issued.


17.       Between January 1999 and March 1, 2001 , Dr. Bryson never requested or obtained any of
his patients' relevant medical records directly from their prior or current treating physicians.


18.       Between January 1999 and March 1,2001, Dr. Bryson never provided a report or a medical
or clinical record to any of his patients' then current or subsequent treating physicians.


19.       Between January 1999 and March 1, 2001, Dr. Bryson prescribed dangerous drugs or
controlled substances for pain without conducting any physical examinations of patients that
included an assessment and consideration of the pain, physical and psychological function, history
of substance abuse, coexisting diseases and conditions, or the presence of a recognized medical
indication for the use of a dangerous drug or controlled substance.


20.       Between January 1999 and March 1,2001, Dr. Bryson failed to make any arrangements for
clinical follow-up or assessment of treatment for any of his patients.


21.       Between January 1999 and March 1,2001, Dr. Bryson received two or three calls per month
from patient family members stating that the patient was abusing drugs.


22.       Between January 1999 and March 1, 2001, Dr. Bryson failed to exercise sound medical
judgment in treating pain and related symptoms with scheduled drugs and controlled substances.


23.       Between January 1999 and March 1, 2001, Dr. Bryson prescribed scheduled drugs and
controlled substances in a manner that created a SUbstantial risk of harm to his patients.




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24.       Between January 1999 and March 1, 2001, Dr. Bryson prescribed scheduled drugs and
controlled substances in a manner inconsistent with public health and welfare.


25.       Dr. Bryson's prescription of Tussionex (with hydrocodone) to patient JA on November 4,
1999, caused harm to JA in that it supported JA's addiction to pain medications.


26.       During 1999, an $85.00 physician consultation fee was charged to each patient who
received a prescription from Dr. Bryson. For internet-questionnaire patients, Dr. Bryson received
$25.00 of the consultation fee and the Pill Box Pharmacy received $60.00 of the fee. For telephone
consultation patients, Dr. Bryson received $35.00 and the Pill Box Pharmacy received $50.00.


27.       Between January 2000 and March 1. 2001. a $100.00 physician consultation fee was
charged to each telephone-consultation patient who received a prescription from Dr. Bryson.
Dr. Bryson received $50.00 of the consultation fee and the Pill Box Pharmacy received $50.00 of
the fee. After January 1,2000. Dr. Bryson consulted with all patients by telephone.


28.       All patients paid their fees by credit card to the Pill Box Pharmacy, which then paid
Dr. Bryson his share.


29.       If Dr. Bryson did not write a prescription for a patient, the patient did not pay the consultation
fee and Dr. Bryson received no compensation.


30.       Dr. Bryson'S patient records lacked adequate information to document a diagnosis or to
formulate a treatment plan for the following patients: JB, LB, VB, RC, OF, EH, PH, WH, CK, and
DL.


31.       Dr. Bryson's medical practice between January 1999 and March 1, 2001, was
unprofessional and likely deceived, defrauded, and injured the public.


32.       Dr. Bryson's continuation In the practice of medicine creates a danger or threat to the
general pUblic.




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                                                 CONCLUSIONS OF LAW


 1.        The Board of Medical Examiners (Board) has jurisdiction over this matter pursuant to TEX.
 Dcc. CODE ANN. §164.151.


 2.        The State Office of Administrative Hearings has jurisdiction to conduct the administrative
 hearing in this matter and to issue a proposal for decision pursuant to TEX. OCC. CODE ANN. §
 164.007 and TEX. Gov1r CODe ANN., Ch. 2003.


 3.        Notice of hearing was provided as required by the Administrative Procedure Act, TEX. GOV'T
CODE ANN.§ 2001,051 and 2001.052.


4,        The hearing was conducted according to the requirements of the Administrative Procedure
Act, the Aules of the State Office of Administrative Hearings, and the rules of the Texas State Board
of Medical Examiners.


5.        Based on Findings of Fact No. 30, Dr. Bryson violated 22 TEX. ADMIN. CODE (TAC)§ 165.1
by failing to maintain adequate medical records.


6.        Based on Findings of Fact Nos. 6-24, Dr. Bryson violated TEX. Dcc. CODE § 164.051 (a)(6)
by falling to practice medicine in an acceptable manner consistent with the public health and
welfare.


7,        Based on Findings of Fact Nos. 6-24, Dr. Bryson violated TEX. OCC. CODe § 164.051 (a}(l)
and 164.052(a)(5) by engaging In unprofessional conduct that is Iikely"to deceive or defraud the
public or injure the public.


8.        Based on Findings of Fact Nos. 6-24, Dr. Bryson violated TEX. Occ. CODE § 164.053(a)(6)
by prescribing dangerous drugs and controlled substances in a manner inconsistent with the public
health and welfare.


9.        Based on Findings of Fact Nos. 6-24, Dr. Bryson violated the BME Internet Prescribing
Policy by prescrit;>ing dangerous drugs and controlled substances without establishing a proper
physician-patient relationship.



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                                                      44
 10.       Based on Findings of Fact Nos. 6~24, Dr. Bryson violated 22 TAC § 170.3 by failing to follow
 Board guidelines for treatment of intractable pain.


 11.       Based on Conclusions of Law Nos. 5-10, the Texas State Board of Medical Examiners
 should revoke Dr. Bryson's medical license No. E-7013.


                                                          ORDER

           Based on the above Findings of Fact and Conclusions of             Law, the Board ORDERS that
 Respondent's Texas license is hereby REVOKED.                     Respondent shall immediately cease the
 practice of medicine in the state of Texas.


           In accordance with TEX. ace. CODE ANN § 2001.177 and 22 TEX. ADMIN. CODE§ 187.39(C),
 should Respondent appeal this Final Order, the Respondent shall be responsible for payment of all
costs of preparation of the original or certified copy of the record of the agency proceedings.




          SIGNED AND ENTERED by the presiding officer of the Texas State Board of Medical
Examiners on this          /6         day of      August, 2002.


                                                          .t:'ee S.   rson, M.D., President
                                                          Texas State Board of Medical Examiners




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