TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-09-00299-CV
SSC Missouri City Operating Company, LP; SSC Richmond Operating
Company, LP; HMG Park Manor of Quail Valley LLC; Rosenberg Health
& Rehabilitation Center LP and Nexion Health at Beechnut, Inc., Appellants
v.
Texas Department of Aging and Disability Services; and Adelaide Horn,
individually and in her official capacity as Commissioner of the Texas
Department of Aging and Disability Services, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT
NO. D-1-GN-08-002660, HONORABLE ORLINDA NARANJO, JUDGE PRESIDING
M E M O R A N D U M O P I N I O N
Appellants SSC Missouri City Operating Company, LP; SSC Richmond Operating
Company, LP; HMG Park Manor of Quail Valley LLC; Rosenberg Health & Rehabilitation Center
LP and Nexion Health at Beechnut, Inc.--five nursing homes in Fort Bend County, Texas--sought
judicial review of a decision by appellees the Texas Department of Aging and Disability Services
and Adelaide Horn, individually and in her official capacity as Commissioner of the Department, (1)
to grant a community-needs waiver for seventy-five additional Medicaid beds in Fort Bend County,
Texas. In two issues, appellants argue that the district court erred in granting summary judgment in
favor of the Department because appellants have an inherent right to judicial review of the
Department's action and appellants were entitled to judicial review under the Uniform Declaratory
Judgments Act. Finding no error in the district court's grant of summary judgment in favor of the
Department, we affirm.
BACKGROUND
The legislature has charged the Department to administer the Medicaid program in
Texas to provide health care services for citizens who qualify for Medicaid. Tex. Hum. Res. Code
Ann. §§ 32.001-.257 (West 2001 & Supp. 2009). Among the services offered through the Medicaid
program is nursing facility, or nursing home, services. To participate in the Medicaid program, a
nursing facility must meet certain requirements to become Medicaid certified. 40 Tex. Admin. Code
§§ 19.1-.2615 (2009) (Tex. Dep't of Aging & Disability Servs., Nursing Facility Requirements).
Once certified, a nursing facility may apply to the Department for an allocation of Medicaid beds to
provide nursing home services to qualified Texas citizens. Id. § 19.2322.
Pursuant to its delegated authority, the Department is responsible for "controlling the
number of Medicaid beds in nursing facilities." Tex. Hum. Res. Code Ann. § 32.0213(a) (West
2001); see generally ElderCare Props., Inc. v. Texas Dep't of Human Servs., 63 S.W.3d 551, 553
(Tex. App.--Austin 2001, pet. denied), overruled in part by Texas Dep't of Protective & Regulatory
Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 173 (Tex. 2004). In 1985, the Department's
predecessor--the Texas Department of Human Services--established a moratorium on allocating
additional Medicaid beds in Texas nursing homes. See ElderCare Props., 63 S.W.3d at 553. The
moratorium was formally adopted by rule in 1998 and is currently codified in title 40, section
19.2322 of the Texas Administrative Code. See 40 Tex. Admin. Code § 19.2322(b). Within this
rule, the Department also adopted several exceptions to the moratorium, including the
community-needs waiver at issue in this case. See id. § 19.2322(g)-(h). The community-needs
waiver allows the Department to lift the moratorium and make additional Medicaid beds
available when the Department finds that the criteria for granting a community-needs waiver have
been met. Id.
Appellants operate various nursing facilities in Fort Bend County and neighboring
Harris County that are Medicaid certified and have received an allocation of Medicaid beds from the
Department. In November 2006, K.D. Gotcher, Inc., requested a community-needs waiver from the
Department to provide additional Medicaid beds in Fort Bend County. Appellants filed written
comments opposing the requested waiver and arguing that Gotcher had failed to satisfy the criteria
necessary to grant a waiver. Appellants also requested a hearing on Gotcher's application
for waiver. (2) The Department denied appellants' request for a hearing and granted Gotcher a
community-needs waiver for a seventy-five bed Medicaid nursing facility.
Appellants filed suit in a Travis County District Court challenging the Department's
decision to grant a waiver to Gotcher. Appellants sought injunctive and declaratory relief. The
Department moved for summary judgment on the grounds that the trial court lacked jurisdiction to
review the Department's action because neither the statute nor the Department's rules provided for
judicial review of the Department's decision to grant a community-needs waiver, appellants did not
have an inherent right of judicial review, and there was no basis for jurisdiction under the Uniform
Declaratory Judgments Act. In support of its motion for summary judgment, the Department
provided the letter approving Gotcher's waiver request; copies of appellants' incorporation
documents; copies of the Medicaid contracts between the Department and appellants for the
provision of Medicaid services; and an affidavit from Joe D. Armstrong, Manager, Professional and
Technical Review Branch, Regulatory Services Division of DADS. The Department also provided
certified copies of the "Plaintiff's Response to Defendant's Motion for Summary Judgment" and the
trial court's judgment in Valley Grande Manor, Inc. v. Texas Department of Human Services,
No. GN-101,221 (Travis County Apr. 14, 2003).
In response, appellants provided summary judgment evidence (3) in an attempt to show
that they possessed an inherent right of judicial review because their Medicaid bed allocations and
provider agreements were franchises and, therefore, constitutionally protected property rights, that
the award of a waiver to Gotcher irreparably damaged their property rights, and that they had
requested, but had not been provided, a hearing. Appellants also directed the district court's
attention to portions of their petition seeking relief under the UDJA.
The district court granted summary judgment in favor of the Department on
April 29, 2009. This appeal followed.
DISCUSSION
In two issues, appellants contend that the district court erred in granting summary
judgment in favor of the Department. First, appellants contend that the district court had jurisdiction
over their claims seeking judicial review of the Department's order granting a waiver to Gotcher
because appellants had constitutionally protected property rights or franchises in their Medicaid bed
allocations and provider agreements previously granted by the Department. Second, appellants
contend that the district court had jurisdiction to review the Department's order under the UDJA.
Standard of Review
We review the district court's grant of summary judgment de novo. Provident Life
& Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). Where, as here, the district court
does not specify the basis for its ruling in its judgment, we may consider any and all summary
judgment grounds presented to the district court and preserved for appellate review. Cincinnati Life
Ins. Co. v. Cates, 927 S.W.2d 623, 626 (Tex. 1996). The movant has the burden of demonstrating
that no genuine issue of material fact exists and that he is entitled to judgment as a matter of law.
Tex. R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). In
reviewing a grant of summary judgment, we consider the evidence in the light most favorable to the
nonmovant and make every reasonable inference and resolve all doubts in favor of the nonmovant.
Nixon, 690 S.W.2d at 548-49.
Judicial Review of the Department's Order
A) Inherent right to judicial review
In their first issue, appellants argue that they possess an inherent right to judicial
review of the Department's decision to grant a waiver to Gotcher because the Department's decision
adversely affects appellants' vested property rights. In support of this claim, appellants contend that
their bed allocations and provider agreements are constitutionally protected franchises, which "entitle
them to be free of competition created in violation of the law." Appellants further contend that the
Department was without authority to grant the waiver because the mandatory regulatory criteria had
not been met.
As a general rule, there is no right to judicial review of an administrative order unless
a statute expressly provides that right or the order violates a constitutional right. See General Servs.
Comm'n v. Little-Tex Insulation Co., 39 S.W.3d 591, 599 (Tex. 2001); Continental Cas. Ins. Co.
v. Functional Restoration Assocs., 19 S.W.3d 393, 397 (Tex. 2000); Firemen's & Policemen's Civil
Serv. Comm'n v. Kennedy, 514 S.W.2d 237, 239-40 (Tex. 1974); City of Amarillo v. Hancock,
239 S.W.2d 788, 790-92 (Tex. 1951). The parties agree that no statute provides for judicial review
of the Department's decision to grant a community-needs waiver to Gotcher. Appellants, however,
maintain that their claims fall within the exception to the general rule because the Department's
decision violates appellants' franchise or vested property rights.
1) Do Appellants' Medicaid bed allocations and provider agreements constitute
a franchise?
As part of their argument that they are entitled to an inherent right of judicial review,
appellants contend that their Medicaid bed allocations coupled with their contractual provider
agreements constitute a franchise. This Court confronted a similar argument in ElderCare
Properties, Inc. v. Texas Department of Human Services but, finding that ElderCare had waived the
argument, we declined to address it. See 63 S.W.3d at 555. In ElderCare, this Court noted,
however, that "[a] line of cases recognizes a right to judicial review, even in the absence of state
deprivation of a vested right when the vested right at issue is a franchise, or tantamount to a
franchise." Id. (citing Chemical Bank & Trust Co. v. Falkner, 369 S.W.2d 427 (Tex. 1963);
Brazosport Sav. & Loan Ass'n v. American Sav. & Loan Ass'n, 342 S.W.2d 747 (Tex. 1961); White
Top Cab Co. v. City of Houston, 440 S.W.2d 732 (Tex. Civ. App.--Houston [14th Dist.] 1969, no
writ)). We thus consider as a matter of first impression whether appellants' Medicaid bed allocations
and provider agreements constitute a franchise.
There is nothing in the statute, the Department's rules, or appellants' provider
agreements suggesting that appellants' Medicaid bed allocations or provider agreements constitute
franchises. Under Texas law, a contractual grant of a franchise must be clear, unambiguous, and
unequivocal. See State v. Operating Contractors ABS Emissions, Inc., 985 S.W.2d 646, 653 (Tex.
App.--Austin 1999, pet. denied). As this Court explained in Operating Contractors, "Franchises
under Texas case law generally take the form of utilities, or other monopolies, created to
further the public interest." Id. (citing Texas Power & Light v. City of Garland, 431 S.W.2d 511
(Tex. 1968) (electric utility); Brazosport Sav. & Loan Ass'n v. American Sav. & Loan Ass'n,
342 S.W.2d 747 (Tex. 1961) (savings and loan associations); City of Jacksonville v. General Tel.
Co., 538 S.W.2d 253 (Tex. Civ. App.--Tyler 1976, writ ref'd n.r.e.) (telephone utility)). Moreover,
"[o]ne who claims a franchise right or privilege in derogation of the common rights of the public
must prove his title thereto by a grant clearly and definitely expressed, and cannot enlarge it by
equivocal or doubtful provisions or probable inferences." Id. (citing Incorporated Town of
Hempstead v. Gulf States Utils. Co., 206 S.W.2d 227, 230 (Tex. 1947)). Applying this standard to
appellants' Medicaid bed allocations and provider agreements makes clear that the Department could
not and did not award franchises to appellants.
In section 32.0213 of the human resources code, the legislature charged the
Department to establish procedures for controlling the number of Medicaid beds in Texas nursing
facilities. See Tex. Hum. Res. Code Ann. § 32.0213. Section 32.0213 states:
(a) The department by rule shall establish procedures for:
(1) controlling the number of Medicaid beds in nursing facilities;
(2) decertification of unused Medicaid beds in nursing facilities; and
(3) reallocation of nursing home beds decertified under Subdivision (2)
to other nursing facilities.
(b) The procedures established under this section must take into account the
occupancy rate of the nursing facility.
(c) The department may exempt a nursing facility from the procedures
established under this section if the facility:
(1) is affiliated with a state-supported medical school;
(2) is located on land owned or controlled by the state-supported medical
school; and
(3) serves as a teaching facility for physicians and related health care
professionals.
Id. Pursuant to its delegated authority, the Department has adopted rules establishing procedures to
control the number of Medicaid beds in Texas nursing facilities. See 40 Tex. Admin. Code
§§ 19.2301-.2326 (2009) (Tex. Dep't of Aging & Disability Servs., Requirements for
Medicaid-Certified Facilities). There is nothing in the plain language of section 32.0213 of the
human resources code or the Department's rules granting a franchise, much less authorizing the
Department to grant a franchise, to Medicaid bed providers. Nor do appellants' provider agreements
include any language clearly or unambiguously demonstrating that the Department granted a
franchise to appellants by entering into such agreements. We therefore reject appellants' contention
that their Medicaid bed allocations and provider agreements are constitutionally protected franchises.
To the extent appellants claim they need not point to specific statutory or contractual
language to establish a franchise because their Medicaid bed allocations and provider agreements
satisfy all of the elements of a franchise, appellants' argument is without merit. Relying on
Brazosport Saving & Loan Association v. American Savings & Loan Association, 342 S.W.2d 747
(Tex. 1961), appellants argue that their Medicaid bed allocations and provider argeements should
be construed as franchises. The Department responds that appellants' Medicaid bed allocations and
provider agreements are more like the licenses considered by the court in White Top Cab Co. v. City
of Houston, 440 S.W.2d 732 (Tex. Civ. App.--Houston [14th Dist.] 1969, no writ).
According to appellants, the combination of a Medicaid bed allocation and provider
agreement should be construed as a franchise because the bed allocation coupled with a provider
agreement is an "exclusive privilege[ ] granted by the government in an area of public interest for
purposes of economic regulation rather than quality regulation." Appellants contend that, like a
franchise, their Medicaid bed allocations and provider agreements possess the following
characteristics: exclusivity, public interest, and economic but not quality regulation.
Although we agree that Medicaid bed allocations and provider agreements concern
an area of public interest, we are unpersuaded by appellants' exclusivity and economic but not
quality regulation arguments. With regard to exclusivity, appellants recognize in their briefing to
this Court that the Department's rules allow the Department to grant waivers to the moratorium on
Medicaid beds for a variety of circumstances, including community needs. See, e.g., 40 Tex. Admin.
Code § 19.2322(h) (allowing waivers for community needs; criminal justice; under-served
minorities; Alzheimer's; teaching nursing facilities; rural counties; and state veterans homes). And,
by virtue of appellants' own Medicaid bed allocations, appellants also recognize that there are
multiple Medicaid bed providers throughout the state and in Harris and Fort Bend Counties in
particular. Likewise, there is nothing in the statute or the Department's rules that would prevent the
Department from granting additional waivers in appropriate circumstances. Thus, appellants cannot
claim to be exclusive providers of Medicaid bed services even in the limited area of Harris and Fort
Bend Counties.
In addition, the legislature has expressly provided both economic and quality
regulation in the area of Medicaid services. Section 32.001 of the human resources code states that
the purpose of the medical assistance program, including the provision of Medicaid beds in Texas
nursing facilities, is "to provide medical assistance on behalf of needy individuals and to enable the
state to obtain all benefits for those persons authorized under the Social Security Act or any other
federal act." Tex. Hum. Res. Code Ann. § 32.001 (West 2001). And section 32.002 of the human
resources code states that chapter 32 "shall be liberally construed and applied in relation to
applicable federal laws and regulations so that adequate and high quality health care may be made
available to all children and adults who need the care and are not financially able to pay for it." Id.
§ 32.002 (emphasis added). The legislature has also stated its intent that the Department encourage
competition among contracted nursing facilities. See, e.g., General Appropriations Act, 75th Leg.,
R.S., ch. 1452, 1997 Tex. Gen. Laws 5535, 5695 (Rider 7 to 1997 General Appropriations Act,
Department of Human Services). Further, subsection 19.2322(b) of the Department's rules states,
"The purpose of this section is to control the number of Medicaid beds for which [the Department]
contracts, to improve the quality of resident care by selective and limited allocation of Medicaid
beds, and to promote competition." See 40 Tex. Admin. Code § 19.2322(b). We therefore conclude
that appellants' Medicaid bed allocations and provider agreements do not share the "exclusivity" and
"economic but not quality regulation" elements of a franchise.
To the extent appellants raise additional arguments in support of their claim that
Medicaid bed allocations and provider agreements should be construed as a franchise and not a
license, we likewise reject those arguments. Although appellants argue that franchises are limited
in number, whereas licenses are unlimited, there is nothing in the statute or the Department's rules
that would prevent the Department from granting additional Medicaid bed allocations in appropriate
circumstances. Appellants also argue that licenses are temporary and revocable, and franchises are
not, but appellants ignore section 32.034 of the human resources code, which expressly allows the
Department to cancel or revoke a Medicaid provider agreement after notice and hearing. See Tex.
Hum. Res. Code Ann. § 32.034 (West 2001).
We reject appellants' argument that their Medicaid bed allocations and provider
agreements constitute franchises.
2) Do appellants' Medicaid bed allocations and provider agreements constitute
vested property rights?
Relying on Texas State Department of Human Resources v. Silver Threads Co.,
569 S.W.2d 49 (Tex. Civ. App.--Austin 1978, writ ref'd n.r.e.), appellants contend that they are
entitled to judicial review because the Department's decision granting a community-needs waiver
to Gotcher adversely affects appellants' Medicaid bed allocations and provider agreements, which
are vested property rights. Appellants' reliance on Silver Threads is misplaced.
In Silver Threads, the state sought to cancel Silver Threads' provider contract on the
ground that Silver Threads had breached the agreement. Id. at 50. After a hearing, the
Commissioner determined that just cause existed for cancellation based on Silver Threads' breach
of the contract's reporting requirements. Id. On appeal, the state argued that the trial court had erred
in denying the state's plea in abatement on the ground that the relevant statutes did not provide for
judicial review. Id. at 51. The appellate court rejected the state's argument finding that the
legislature's 1967 amendment to Section 9A of the Texas Medical Assistance Act expressly provided
for judicial review of the state's decision to cancel Silver Threads' contract. Id. The court
acknowledged that its holding was consistent with "long settled law of this State that where a vested
property right has been affected by the action of an administrative agency, thereby invoking the
protection of due process of law, there is an inherent right of appeal." Id. (citing Chemical Bank
& Trust v. Falkner, supra, and Brazosport Sav. & Loan Ass'n v. American Sav. & Loan Ass'n,
supra). The court also stated, "In our judgment appellee's right to a valuable contract constitutes
a vested property right." Id.
Thus, Silver Threads is distinguishable because it addressed the cancellation of a
provider's contract with the state for which it sought and received a hearing. We disagree with
appellants' contention that its rights were adversely affected by the Department's decision to grant
a community-needs waiver to Gotcher so as to trigger the requirement of a hearing and judicial
review. See ElderCare, 63 S.W.3d at 555-56 (rejecting claim that Department's decision to grant
waiver to nursing facility's competitor adversely affects vested property rights). Appellants have not
alleged that the Department has cancelled or taken any action against appellants' Medicaid bed
allocations or provider agreements. Nor is there evidence in the record before us that the Department
sought to revoke appellants' Medicaid bed allocations or cancel appellants' provider agreements.
Moreover, in ElderCare, this Court previously rejected the argument that nursing
facilities like appellants have a vested property right in a certain occupancy rate. See id. Like the
petitioner in ElderCare, appellants complain that the Department's decision to grant a waiver to
Gotcher will decrease the occupancy rate of appellants' Medicaid beds. See id. at 556. Citing S.C.
San Antonio, Inc. v. Texas Department Human Services, 891 S.W.2d 773 (Tex. App.--Austin 1995,
writ denied), this Court concluded that the petitioner's claim was "no more than a mere expectation"
and did not rise to the level of a vested property right entitling ElderCare to judicial review. See
63 S.W.3d at 556. For the same reasons, we conclude that appellants' claim that they are subject to
increased competition and lower occupancy rates of their Medicaid beds by virtue of the
Department's decision to grant a waiver to Gotcher is no more than a mere expectation and does not
rise to the level of a vested property right entitling appellants to judicial review. (4) See id. We
overrule appellants' first issue.
B) Judicial review under the UDJA
In their second issue, appellants contend that the district court had jurisdiction to
consider their claims under the UDJA to determine whether the Department acted outside its scope
of authority in granting a waiver to Gotcher. The Department counters that the true nature of
appellants' complaint is not that the Department lacked authority to grant the waiver to Gotcher, but
that the Department erred in granting a waiver to Gotcher in violation of the Department's own rules.
Because the Department acted within its statutory authority and discretion to grant the Gotcher
waiver, the Department argues that the district court lacked jurisdiction under the UDJA and
properly granted summary judgment against appellants.
It is well established that the UDJA is "merely a procedural device for
deciding cases already within a court's jurisdiction." (5) Texas Ass'n of Bus. v. Texas Air Control Bd.,
852 S.W.2d 440, 444 (Tex. 1993). "A litigant's request for declaratory relief cannot confer
jurisdiction on the court, nor can it change the basic character of a suit." State v. Morales,
869 S.W.2d 941, 947 (Tex. 1994). Nevertheless, Texas courts have recognized that the UDJA may
be used in appropriate circumstances to "seek declaratory relief against state officials who allegedly
act without legal or statutory authority," see Texas Natural Res. Conservation Comm'n v. IT-Davy,
74 S.W.3d 849, 855 (Tex. 2002), but it may not be used to control or reverse a discretionary agency
decision when no statute authorizes judicial review of that decision. See City of El Paso v. Heinrich,
284 S.W.3d 366, 371-72 (Tex. 2009).
In City of El Paso v. Heinrich, the supreme court recently explained the distinction
between permissible declaratory judgment suits against state officials and impermissible suits barred
by sovereign immunity. See 284 S.W.3d at 371-72. The supreme court concluded that "suits to
require state officials to comply with statutory or constitutional provisions are not prohibited by
sovereign immunity, even if a declaration to that effect compels the payment of money." Id. at 372.
"To fall within this ultra vires exception, a 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." Id.
In this case, appellants do not dispute the Department's statutory authority to grant
the Gotcher waiver. See Tex. Hum. Res. Code Ann. § 32.0213 (authorizing Department to control
number of Medicaid beds in Texas nursing facilities). Appellants simply argue that the Department
erred in exercising its authority to do so when none of the regulatory criteria had been met. Because
appellants complaint is in essence that the Department erred in the exercise of its undisputed
statutory authority to grant the waiver, appellants fail to allege a permissible claim for declaratory
relief--i.e., appellants' claim for declaratory relief against the Department does not fall within the
ultra vires exception to those claims barred by sovereign immunity.
Based on the supreme court's holding in Heinrich, we conclude that appellants'
claims for declaratory relief are barred by sovereign immunity, see 284 S.W.3d at 371-72, and we
overrule appellants' second issue.
CONCLUSION
Having considered and overruled appellants' issues, and finding no error, we affirm
the district court's grant of summary judgment in favor of the Department.
__________________________________________
Jan P. Patterson, Justice
Before Justices Patterson, Puryear and Pemberton
Affirmed
Filed: December 8, 2009
1. We refer to appellees collectively as the "Department" unless otherwise noted.
2. Although the Department disputes whether appellants requested a contested case hearing on
the waiver application filed by K.D. Gotcher, Inc., the record reflects that appellants' written
comments filed with the Department included a request for hearing.
3. Included among the evidence provided by appellants were the affidavits of Greg Lentz,
managing member of Healthmark Group, Ltd.'s general partner HM Group, LLC; Robert Kalin,
vice-president of operations for SSC Richmond Operating Company, LP's general partner SSC
Richmond Operating GP, LLC, and vice-president of operations for SSC Missouri City Operating
Company, LP's general partner SSC Missouri Operating GP, LLC; Peter J. Licari, managing member
of Rosenberg Health & Rehabilitation Center, LP's general partner Rosenberg Health
& Rehabilitation Center GP, LLC; Francis Kirley, chief executive officer of Nexion Health at
Beechnut, Inc.; and Kelly A. McDonald, counsel for appellants.
4. Finding no franchise or vested property right adversely affected by the Department's decision
to grant a waiver to Gotcher, we also reject appellants' claim that they were entitled to a contested
case hearing. Cf. Tex. Hum. Res. Code Ann. § 32.034 (West 2001) (providing for notice and hearing
where the Department seeks to revoke or cancel Medicaid contract).
5. For this reason, in the absence of franchise or vested property rights entitling appellants to an
inherent right of review, the UDJA cannot independently confer jurisdiction over appellants'
claims for judicial review. See Texas Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 444
(Tex. 1993).