Nariocan Enterprises LLC D/B/A Cantu's Pharmacy v. the Texas Health and Human Services Commission

Opinion

ACCEPTED 15-24-00117-CV FIFTEENTH COURT OF APPEALS AUSTIN, TEXAS 6/9/2025 12:35 PM No. 15-24-00117-CV CHRISTOPHER A. PRINE CLERK Fifteenth Court of Appeals FILED IN 15th COURT OF APPEALS Austin, Texas AUSTIN, TEXAS 6/9/2025 12:35:55 PM CHRISTOPHER A. PRINE Clerk Nariocan Enterprises LLC d/b/a Cantu’s Pharmacy, Appellant, v.

Texas Health and Human Services Commission, Appellee

On appeal from the 98th District Court of Travis County, Texas

APPELLANT’S REPLY BRIEF

Michael Pruneda Ricardo Pumarejo Jr. State Bar No. 24025601 State Bar No. 24056168 michael@michaelpruneda.com ricardo@pumarejolaw.com THE PRUNEDA LAW FIRM, PLLC P UMAREJO L AW P.O. Box 1664 1606 W. 42nd Street Pharr, Texas 78577 Austin, Texas 78756 p. 956.702.9675 p. 512.731.7869 Counsel for Appellant

1 TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ....................................................................... 2 INDEX OF AUTHORITIES ............................................................................................. 3 ARGUMENT ................................................................................................................... 4 I. The trial court erred in granting the Commission’s plea to the jurisdiction. ..................................................................................................... 4

II. The trial court abused its discretion by not permitting jurisdictional discovery. ..............................................................................12

III. Dismissing Nariocan’s claims “with prejudice” was error. ....................15

PRAYER ........................................................................................................................16 CERTIFICATE OF COMPLIANCE.................................................................................18

2 INDEX OF AUTHORITIES Case Law

City of Laredo v. Laredo Merchs. Ass’n, 550 S.W.3d 586 (Tex. 2018) .............................................................................................................................. 7 City of Waco v. Tex. Nat. Res. Conservation Comm’n, 83 S.W.3d 169 (Tex. App.—Austin 2002, pet. denied) .................................................................5, 7 Isa v. Pub. Util. Comm’n of Tex., 528 S.W.3d 609 (Tex. App.— Texarkana 2017, pet. denied)...................................................................................... 8 Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150 (Tex. 2004) ..........................14 Patterson v. Planned Parenthood of Houston, 971 S.W.2d 439 (Tex. 1998) .......................................................................................................................... 6-7 Rourk v. Cameron Appraisal Dist., 131 S.W.3d 285 (Tex. App.— Corpus Christi 2004, rev’d on other grounds, 194 S.W.3d 501 (Tex. 2006) .............................................................................................................................. 8 Tex. Dept. of Parks & Wildlife v. Miranda, 133 S.W.3d 217 (Tex. 2004) ............................................................................................................................15 Tex. Educ. Agency v. Leeper, 893 S.W.2d 432 (Tex. 1994) ......................................... 7 Miscellaneous TEX. GOV’T CODE § 2001.038 ................................................................................... 4 TEX. R. APP. P. 43.2 ...................................................................................................16 U.S. CONST. art. VI, cl. 2...........................................................................................10

3 ARGUMENT I. The trial court erred in granting the Commission’s plea to the jurisdiction. A. Sovereign immunity does not bar Nariocan’s claims. The Commission’s primary argument—that sovereign immunity insulates

it from suit—fails because Nariocan properly invoked two well-established

exceptions to immunity. First, Nariocan invoked the Administrative Procedure

Act (“APA”) to challenge the validity or applicability of the Commission’s rule

that purportedly requires a physician’s prescription for COVID-19 test kits.

Texas law expressly waives immunity for such claims. See TEX. GOV’T CODE

§ 2001.038(a) (authorizing declaratory-judgment actions to determine the validity

or applicability of a rule that “interferes with or impairs, or threatens to interfere

with or impair, a legal right or privilege of the plaintiff”). The Commission insists

that Nariocan “does not challenge a rule,” but that is simply wrong. The “rule”

at issue is the requirement that pharmacies obtain a doctor’s prescription before

dispensing COVID-19 test kits to Medicaid patients—an across-the-board policy

of general applicability clearly meeting the APA’s definition of a “rule.”

Nariocan’s lawsuit squarely contests the validity and applicability of that

requirement, alleging that it conflicts with federal law and should not be enforced

against Nariocan. This is exactly the type of claim for which the Legislature has

waived immunity. See TEX. GOV’T CODE § 2001.038(a).

4 Second, Nariocan’s claim that the Commission’s actions violate

Nariocan’s right to due course of law under Article I, § 19 of the Texas

Constitution is likewise not barred by immunity. Here, Nariocan seeks only

declaratory and injunctive relief to prevent an ongoing violation of law—it does

not seek money damages or retroactive relief. The Commission’s plea to the

jurisdiction did not identify any statute that withdraws immunity for Nariocan’s

claims, but none is needed when the suit falls under these immunity exceptions.

In sum, the trial court had jurisdiction to hear Nariocan’s claims notwithstanding

immunity, and it erred by concluding otherwise.

B. Nariocan has suffered a concrete injury and faces imminent enforcement.

In City of Waco v. Texas Natural Resources Conservation Commission, the Third

Court of Appeals observed the following:

In determining whether a cause of action is ripe for judicial consideration, [courts] look to see whether the facts have sufficiently developed to show that an injury is likely to occur. A claimant is not required to show that the injury has already occurred, provided the injury is imminent or sufficiently likely. Likewise, a person seeking a declaratory judgment need not have incurred actual injury; a declaratory judgment action will lie if the facts show the presence of ripening seeds of controversy.

83 S.W.3d 169, 175 (Tex. App.—Austin 2002, pet. denied) (citations and internal

quotation marks omitted).

5 The Commission’s argument that Nariocan has not suffered a cognizable

injury is belied by the record. On January 30, 2024, the Commission issued a

preliminary-findings letter to Nariocan, accusing it of violating Medicaid rules by

dispensing 10,576 COVID-19 test kits without a prescription. The letter:

(1) states these are the Commission’s “preliminary findings”; (2) warns that “[a]

person may be subject to sanctions” for such conduct; and (3) seeks Nariocan’s

“input and response to the potential violations.” CR:289-90. The letter is not a

vague policy statement or informal guidance—it is a formal enforcement notice

identifying specific conduct and signaling consequences.

This letter alone imposes immediate harm. Nariocan is compelled to

mount a defense, incur legal and compliance costs, and reevaluate its business

model under the shadow of possible sanctions. These costs are not speculative;

they are being incurred now. The Commission’s letter effectively forces Nariocan

to choose between two detrimental options: stop providing certain services and

lose lawful business opportunities, or continue and face penalties. This

“Hobson’s choice” constitutes a present injury sufficient to confer standing and

to render the case ripe.

The Commission argues that its letter is merely “preliminary” and that no

sanction has yet been imposed. But ripeness does not require that a penalty

already be levied. As the Texas Supreme Court has made clear, “[a] case is not

ripe when its resolution depends on contingent or hypothetical facts, or upon

6 events that have not yet come to pass.” Patterson v. Planned Parenthood of Houston,

971 S.W.2d 439, 442 (Tex. 1998). Here, no further factual development is

necessary to adjudicate the core legal controversy: whether the Commission’s

prescription rule is valid and enforceable. Both sides have taken fixed legal

positions. The only “event” that remains is the Commission’s discretionary

decision to impose formal penalties—an event that would only compound, not

clarify, the injury. The ripeness doctrine does not require a plaintiff to suffer

irreversible harm before asserting its rights.

C. Texas courts permit pre-enforcement challenges when delay would compound harm. The Commission’s plea hinges on the premise that no justiciable

controversy exists until it takes final enforcement action. But Texas courts have

routinely rejected that view. Pre-enforcement challenges are permissible where

the agency’s posture creates a live legal dispute and delay would subject the

plaintiff to hardship or place it in legal limbo. For instance, in City of Laredo v.

Laredo Merchants Association, 550 S.W.3d 586, 590-91 (Tex. 2018), the supreme

court permitted a pre-enforcement challenge to a penal ordinance where

businesses faced fines if they did not comply. Similarly, in Texas Education Agency

v. Leeper, 893 S.W.2d 432, 445 (Tex. 1994), the supreme court allowed

homeschooling parents to seek declaratory relief before facing any prosecution.

And in City of Waco, 83 S.W.3d at 177-78, the Third Court of Appeals permitted

7 judicial review of environmental regulations before final permits were issued.

These cases show that declaratory relief is appropriate when a legal dispute is

crystallized and a delay would magnify harm. That is precisely the situation here.

The Commission has taken the position that Nariocan violated a rule and may

be sanctioned. Nariocan disputes that the rule is valid or enforceable under state

or federal law. No further facts are necessary; the controversy is fit for resolution

now.

D. Exhaustion of administrative remedies is not required or has been excused. Texas law does not require exhaustion of administrative remedies when

pursuing them would be futile or inadequate. See Isa v. Pub. Util. Comm’n of Tex.,

528 S.W.3d 609, 617 (Tex. App.—Texarkana 2017, pet. denied) (“Futility is an

exception to the requirement that a party seeking judicial review must exhaust

his administrative remedies.”). Moreover, general exhaustion principles contain

exceptions for constitutional claims and questions of law that agencies have no

power to decide. See Rourk v. Cameron Appraisal Dist., 131 S.W.3d 285, 292 (Tex.

App.—Corpus Christi 2004, rev’d on other grounds, 194 S.W.3d 501 (Tex. 2006)

(“[T]he [exhaustion-of-remedies] doctrine has no application when there are

pure questions of law involved. Further, the doctrine has no application where

the legal question is one of whether a statute is constitutional: administrative

agencies have no power to determine the constitutionality of statutes.” (citations

8 omitted)). Here, Nariocan’s core contentions are that the Commission’s rule

conflicts with federal law (PREP Act) and that the Commission’s procedure

violates constitutional due course of law. The Commission has no authority to

declare its own rules invalid or to refuse to enforce a state requirement on the

basis of federal preemption or constitutional inconsistency—only a court can

grant that relief. Forcing Nariocan to slog through a futile administrative exercise

would accomplish nothing except delay and prejudice. By the time the agency

process finished, Nariocan’s only recourse would still be to go to court to raise

the preemption and constitutional issues. The law does not mandate such a

pointless ritual. Accordingly, Nariocan was entitled to seek judicial intervention

without further exhaustion.

E. Federal law (PREP Act) preempts the Commission’s actions, undermining the plea to the jurisdiction. The Commission characterizes Nariocan’s reliance on the PREP Act as

“misguided” and argues that the PREP Act does not confer immunity in this

context. This misses the point. Nariocan is not suing under the PREP Act or

claiming the PREP Act as a source of subject-matter jurisdiction; rather,

Nariocan invokes the PREP Act’s preemptive force as part of its declaratory

judgment claim on the merits. The presence of a significant federal-law issue,

however, reinforces why the state court does have jurisdiction to hear this dispute:

determining whether federal law preempts a state rule is a classic judicial

9 function, and nothing in Texas law shields an agency from court scrutiny when

it is alleged to be acting contrary to supreme federal law. On the contrary, a state

agency has no authority to enforce a rule that federal law forbids. See U.S. CONST.

art. VI, cl. 2.

Substantively, the Commission’s arguments against preemption are weak.

It cites an HHS guidance document for the proposition that the PREP Act does

not govern Medicaid reimbursement decisions. Even if we accept that, Nariocan

is not claiming a right to reimbursement under the PREP Act—Nariocan’s claim

is that Texas cannot punish or sanction it for actions that were authorized by

federal law during the COVID-19 pandemic. The PREP Act and the HHS

Secretary’s declarations under it were specifically designed to expand access to

countermeasures like COVID tests by removing legal barriers. Under the PREP

Act declaration in effect at the time, licensed pharmacists were authorized to

order and administer COVID-19 tests, and any state law that “prohibits or

effectively prohibits” them from doing so was preempted. CR:297. The

Commission’s rule requiring a doctor’s prescription for test kits is exactly the sort

of obstacle the federal declaration preempted. The Commission points out that

PREP Act immunity does not apply to federal enforcement actions, which is true

but irrelevant since this is about state enforcement. The Commission also notes

that no tort claims are at issue here—again true, but Nariocan’s preemption

argument is not limited to the Act’s immunity for tort liability; it invokes the

10 Act’s express preemption clause and the intended sweep of the HHS declaration.

Notably, while the Commission emphasizes what the PREP Act does not do, it

conspicuously says nothing about the Act’s express preemption of state-law

requirements that frustrate the federal COVID-19 response. The silence is

telling. If the Commission truly believed its prescription rule was not preempted,

it would defend the rule on the merits rather than attempt to avoid the question

on jurisdictional technicalities.

F. The January 2024 letter marked a sufficient final agency action (or at least a justiciable one). Finally, the Commission’s portrayal of the January 30, 2024 preliminary-

findings letter as a nothing-burger is unconvincing. The Commission highlights

that the letter used the words “preliminary” and “potential,” but form should

not be elevated over substance. In substance, the letter is an official

communication from the agency alleging specific rule violations and opening the

door to sanctions. By the letter’s issuance, the Commission had already completed

a preliminary investigation and found reason to believe Nariocan violated

Medicaid rules (10,576 instances, no less). The Commission does not send such

letters lightly—they are the first step in the enforcement process. The letter itself

triggers immediate obligations and consequences: it demands Nariocan’s

response within a deadline, and it effectively warns that if Nariocan cannot

disprove the allegations, punitive action will follow. In administrative law terms,

11 this letter is akin to a notice of violation or a charging instrument. It may not be

the final adjudication, but it fixes the agency’s position and exposes Nariocan to

serious sanctions.

The Commission’s own citations prove the point. It quotes the letter’s

language about seeking Nariocan’s “input and response” as if to show the agency

has not made up its mind. But asking a target to respond to allegations is

characteristic of an adversarial proceeding; it does not negate that the agency has

preliminarily decided a rule was broken. Tellingly, the letter cites the very rule

Nariocan allegedly violated and even quantifies the violations, strongly indicating

that the Commission believes an infraction occurred (only the penalty might be

in question). From Nariocan’s perspective, the Commission’s investigation has

reached a stage where the accusation is concrete and the threat of sanction is

imminent. That is more than enough to warrant judicial intervention. Here, the

threatened injury (sanctions for purported violations) was plainly set in motion

by the January 2024 letter, making preventive relief appropriate and necessary.

II. The trial court abused its discretion by not permitting jurisdictional discovery. In granting the Commission’s motion to stay discovery, the trial court

(1) absolved the Commission of having to respond to the written discovery

Nariocan had already served; and (2) precluded Nariocan from seeking any

additional discovery prior to the issuance of a ruling on the plea to the

12 jurisdiction. CR:52, 215. Nariocan was thus precluded from conducting

jurisdictional discovery on matters such as the genesis and scope of the

Commission’s investigation, the interpretation of the rules at issue, and the

factual basis of the Commission’s determination that Nariocan acted unlawfully.

These inquiries were directly relevant to disputed jurisdictional issues like

ripeness and immunity (for example, evidence that the Commission had

effectively decided Nariocan violated the rule, or that it failed to coordinate with

federal authorities, would support Nariocan’s ultra vires, ripeness, and

preemption arguments).

The Commission defends the trial court’s discovery stay by insisting that

it “has made no determination whatsoever” about Nariocan and that its

investigation is ongoing—in other words, the Commission argues there were no

facts to discover. But that is not accurate. As discussed above, the Commission

did make several determinations: it determined that Nariocan dispensed

thousands of test kits without prescriptions; it determined that this conduct

violated a Medicaid policy; and it effectively determined that such violation could

warrant sanctions (hence the letter). If the Commission’s position is that these

were not “real” determinations, then discovery could have probed what, if

anything, the agency has actually decided. The information learned from such

discovery would answer whether Nariocan’s alleged violation rests on an

informal guideline, a formally promulgated rule, or simply a mistake—all facts

13 that go to the heart of jurisdiction (e.g., whether a “rule” is being applied and

whether the agency is acting beyond authority). Similarly, if the Commission’s

assertion is that Nariocan has not been injured because no action has been taken,

Nariocan was entitled to explore whether, in fact, any covert actions had been

taken—such as placing a payment hold on Nariocan’s reimbursements or

flagging Nariocan in Medicaid databases. The Commission’s brief hints at these

procedures (noting that payment holds are heard at SOAH), but without

discovery, Nariocan and the trial court had to accept or reject the Commission’s

self-serving claim that there is nothing yet to see. This one-sided fact presentation

is exactly what limited discovery could have tested.

The Commission’s cited authorities do not excuse the discovery freeze.

The Commission notes that courts can limit or stay discovery pending resolution

of threshold issues, and it cites cases like Joe v. Two Thirty Nine Joint Venture, 145

S.W.3d 150, 161-62 (Tex. 2004), for the proposition that a court need not allow

discovery if it would not affect the jurisdictional question. But Nariocan was

precluded for seeking any discovery that could have directly affected the

jurisdictional issues. For example, if discovery had shown that the Commission’s

own files contained acknowledgments that federal law permits Nariocan’s

conduct, that would validate Nariocan’s preemption theory and negate the

Commission’s immunity defense. Conversely, if discovery showed the

Commission had not actually threatened any sanction, perhaps the trial court

14 would narrowly find the case unripe. But the point is that without discovery, the

trial court was forced to speculate or accept one side’s claims. Though the Texas

Supreme Court has cautioned that a trial court must not “proceed on the merits

of a case until legitimate challenges to its jurisdiction have been decided,” Tex.

Dept. of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 228 (Tex. 2004), that decision

is not legitimate if a party is denied the tools to establish the jurisdictional facts.

Accordingly, the Court should hold that the trial court abused its

discretion when it preemptively slammed the door on all discovery, which

thereby severely prejudiced Nariocan’s ability to respond to the plea to the

jurisdiction. If the Court has any doubt about the jurisdictional facts, the

appropriate remedy is to remand for limited discovery and further proceedings.

The Court should hold as much and ensure that Nariocan is afforded an

opportunity to develop the facts needed to fully adjudicate its claims.

III. Dismissing Nariocan’s claims “with prejudice” was error.

The Commission’s brief summarily asserts that the trial court “ruled

correctly” in dismissing with prejudice, but it offers no substantive rationale for

why a prejudice designation is appropriate here. Indeed, the Commission’s own

arguments undercut any such rationale. The Commission contends Nariocan’s

claims are not ripe at this time and that Nariocan must first exhaust administrative

avenues. Those arguments, even if accepted, would only suggest that Nariocan’s

claims are premature—not that they are permanently barred. If a claim is unripe,

15 the proper course is to dismiss until it becomes ripe, at which point the plaintiff

may refile. If a claim is dismissed for failure to exhaust, the plaintiff can pursue

the administrative remedy and then return to court. A dismissal with prejudice

in these scenarios is nonsensical because it would prevent the plaintiff from ever

asserting the claim, even after it becomes ripe or after exhaustion. By labeling the

dismissal “with prejudice,” the trial court essentially punished Nariocan for filing

early by forbidding it from ever bringing its claims—even after the very ripening

event the Commission insists is necessary comes to pass (i.e., a final agency

action). That outcome is unjust and incorrect as a matter of law—for the only

conceivable justification for a with-prejudice dismissal on jurisdictional grounds

is if the defect is absolutely incurable.

Therefore, to the extent this Court concludes that the Commission was

entitled to a dismissal of Nariocan’s claims, the Court should reform the

judgment to reflect a dismissal without prejudice. See TEX. R. APP. P. 43.2(b)

(appellate court may modify the trial court’s judgment and affirm as modified).

This will ensure that Nariocan is not permanently barred from vindicating its

rights once jurisdictional prerequisites are satisfied. In no event should the “with

prejudice” language be allowed to remain, as it was clear error.

CONCLUSION & PRAYER

Nariocan acted heroically to serve public health needs during a crisis; it

should not be met with a jurisdictional stonewall when it seeks to defend those

16 actions under the law. That said, Nariocan’s suit is within the judiciary’s power

to decide and was improperly curtailed. Nariocan respectfully asks the Court to

hold that the trial court erred in granting the plea to the jurisdiction and in

denying Nariocan the discovery tools to establish its case. At a bare minimum,

the dismissal of Nariocan’s claims should be without prejudice so that

fundamental justice is preserved.

Respectfully submitted,

/s/ Ricardo Pumarejo Jr. Ricardo Pumarejo Jr. State Bar No. 24056168 ricardo@pumarejolaw.com P UMAREJO L AW 1606 W. 42nd Street Austin, Texas 78756 p. 512.731.7869

Michael Pruneda State Bar No. 24025601 michael@michaelpruneda.com THE PRUNEDA LAW FIRM, PLLC P.O. Box 1664 Pharr, Texas 78577 p. 956.702.9675

Counsel for Appellant

17 CERTIFICATE OF COMPLIANCE Pursuant to Texas Rule of Appellate Procedure 9.4, I hereby certify that this document contains 3,122 words. This is a computer-generated document created in Microsoft Word, using 14-point typeface for all text, except for any footnotes which are in 12.5-point typeface. In making this certificate of compliance, I am relying on the word count provided by the software used to prepare the document. /s/ Ricardo Pumarejo Jr. Ricardo Pumarejo Jr.

18 Automated Certificate of eService This automated certificate of service was created by the efiling system. The filer served this document via email generated by the efiling system on the date and to the persons listed below. The rules governing certificates of service have not changed. Filers must still provide a certificate of service that complies with all applicable rules.

Ricardo Pumarejo on behalf of Ricardo Pumarejo Bar No. 24056168 ricardo@pumarejolaw.com Envelope ID: 101779622 Filing Code Description: Other Brief Filing Description: Status as of 6/9/2025 12:43 PM CST

Associated Case Party: Nariocan Enterprises LLC d/b/a Cantu's Pharmacy

Name BarNumber Email TimestampSubmitted Status

Miguel Pruneda 24025601 michael@michaelpruneda.com 6/9/2025 12:35:55 PM SENT

Ricardo Pumarejo ricardo@pumarejolaw.com 6/9/2025 12:35:55 PM SENT

Associated Case Party: Texas Health and Human Services Commission

Name BarNumber Email TimestampSubmitted Status

Tiffani Collins 24067550 Tiffani.Collins@oag.texas.gov 6/9/2025 12:35:55 PM SENT

Sherlyn Harper 24093176 sherlyn.harper@oag.texas.gov 6/9/2025 12:35:55 PM SENT

Catherine Hughes catherine.hughes@oag.texas.gov 6/9/2025 12:35:55 PM SENT