The State of Texas v. Nonparty Patient No. 1, Nonparty Patient No. 2, Nonparty Patient No. 3, Nonparty Patient No. 4, Nonparty Patient No. 5, Nonparty Patient No. 6, Nonparty Patient No. 7, and Nonparty Patient No. 8, Nonparty Patient No. 9, Nonparty Patient No. 10, and Nonparty Patient No. 11

Opinion

ACCEPTED 15-25-00023-CV FIFTEENTH COURT OF APPEALS No. 15-25-00023-CV AUSTIN, TEXAS 4/14/2025 3:41 PM In the Court of Appeals CHRISTOPHER A. PRINE CLERK for the Fifteenth Judicial District15th COURT FILED IN OF APPEALS Austin, Texas AUSTIN, TEXAS 4/14/2025 3:41:30 PM CHRISTOPHER A. PRINE Clerk State of Texas, Appellant, v. NONPARTY PATIENT NO. 1, NONPARTY PATIENT NO. 2, NONPARTY PATIENT NO. 3, NONPARTY PATIENT NO. 4, NONPARTY PATIENT NO. 5, NONPARTY PATIENT NO. 6, NONPARTY PATIENT NO. 7, AND NONPARTY PATIENT NO. 8, NONPARTY PATIENT NO. 9, NONPARTY PATIENT NO. 10, AND NONPARTY PATIENT NO. 11, Appellees.

On Appeal from the 95th Judicial District Court, Dallas County

BRIEF FOR APPELLANT

Ken Paxton Abigail E. Smith Attorney General of Texas Assistant Attorney General State Bar No. 24141756 Brent Webster First Assistant Attorney General Rob Farquharson Assistant Attorney General Ralph Molina State Bar No. 24100550 Deputy First Assistant Attorney General Office of the Attorney General Austin Kinghorn Consumer Protection Division Deputy Attorney General for 12221 Merit Drive, Ste. 650 Civil Litigation Dallas, Texas 75251 Tel: (214) 290-8830 Johnathan Stone Fax: (214) 969-7615 Chief, Consumer Protection Division Counsel for Appellant ORAL ARGUMENT REQUESTED Identity of Parties and Counsel

Appellant: State of Texas

Appellate and Trial Counsel for Appellant: Abigail E. Smith Johnathan Stone Assistant Attorney General Division Chief, Consumer Protection State Bar No. 24141756 Division Abby.Smith@oag.texas.gov State Bar No. 24071779 Rob Farquharson Johnathan.Stone@oag.texas.gov Assistant Attorney General David Shatto State Bar No. 24100550 Assistant Attorney General Rob.Farquharson@oag.texas.gov State Bar No. 24104114 David.shatto@oag.texas.gov

Office of the Attorney General of Office of the Attorney General of Texas Texas Consumer Protection Division Consumer Protection Division 12221 Merit Drive, Ste. 650 P.O. Box 12548 (MC-010) Dallas, Texas 75251 Austin, Texas 78711

ii Appellees: Non-party Patients 1–11

Appellate and Trial Counsel for Appellee: Jervonne D. Newsome William M. Logan Texas Bar No. 24094869 Texas Bar No. 24106214 jnewsome@winston.com wlogan@winston.com Thanh D. Nguyen Evan D. Lewis State Bar No. 24126931 edlewis@winston.com tdnguyen@winston.com State Bar No. 24116670 Jonathan Hung Olivia A. Wogon State Bar No. 24143033 Texas Bar No. 24137299 johung@winston.com owogon@winston.com

WINSTON & STRAWN LLP WINSTON & STRAWN LLP 2121 N. Pearl St., 9th Floor 800 Capitol Street, Suite 2400 Dallas, TX 75201 Houston, TX 77002 Telephone: (214) 453-6500 Telephone: (713) 651-2600

iii Table of Contents Page(s)

Identity of Parties and Counsel ................................................................................ ii Index of Authorities ................................................................................................ vi Record References ................................................................................................ viii Statement of the Case ........................................................................................... viii Statement of Jurisdiction ...................................................................................... viii Issues Presented ...................................................................................................... ix Introduction ............................................................................................................. 1 Statement of Facts ................................................................................................... 2 I. The State Sues Dr. Lau for Violating SB 14, the Ban on Transgender Treatments for Minors, in Collin County. ............................ 2 II. The State Serves Subpoenas on Hospitals; Non-party Patients Sue in Dallas County. ................................................................................. 3 III. Procedural History ..................................................................................... 4 IV. Other Related Proceedings ......................................................................... 4 Summary of the Argument ....................................................................................... 5 Standard of Review .................................................................................................. 5 Argument ................................................................................................................. 6 I. The State is Protected from this Suit by Sovereign Immunity. ................... 6 A. Sovereign immunity protects the State from suit, absent express waiver by the legislature or the State. ...................................... 6 B. Sovereign immunity applies to State-brought lawsuits for civil penalties. .............................................................................................. 8 C. Sovereign immunity applies to this action. .......................................... 9 D. Neither Tex. R. Civ. P. 176.6 nor 192.6 affirmatively waive sovereign immunity. ........................................................................... 11 II. Non-party Patients Lack Standing to Challenge the Subpoena for the 10 Unrepresented Patients. ................................................................. 13 Prayer ...................................................................................................................... 15 Certificate of Compliance ....................................................................................... 15

iv Appellant’s Appendix .............................................................................................16

v Index of Authorities Page(s)

Cases

Allibone v. Freshour, 2017 WL 5663607 (Tex. App. Nov. 21, 2017) .................................................... 13

Bd. of Land Comm’rs v. Walling, Dallam 524 (Tex. 1843)....................................................................................... 6

Brown & Gay Eng’g, Inc. v. Olivares, 461 S.W.3d 117 (Tex. 2015) ................................................................................. 6

DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299 (Tex. 2008) .................................................................... 5, 13, 14

Dallas Area Rapid Transit v. Whitley, 104 S.W.3d 540 (Tex. 2003) ............................................................................... 7

Hosner v. DeYoung, 1 Tex. 764 (Tex. 1847) ........................................................................................ 7

In re Google LLC, 2025 WL 258715 (Tex. App.—15th Dist., Jan. 16, 2025, pet. imminent) .................................................................................................... 12, 13

Nazari v. State, 561 S.W.3d 495 (Tex. 2018) ........................................................................ passim

Reata Constr. Corp. v. City of Dall., 197 S.W.3d 371 (Tex. 2006) ........................................................................ passim

State v. Brannan, 111 S.W.2d 347 (Tex. Civ. App.—Waco 1937, writ ref’d). ................................. 7

Tex. Adjutant Gen.’s Office v. Ngakoue, 408 S.W.3d 350 (Tex. 2013) ............................................................................... 6

Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217 (Tex. 2004) ................................................................................ 5

vi Tex. Educ. Agency v. Leeper, 893 S.W.2d 432 (Tex. 1994).............................................................................. 12

Tex. Off. of Comptroller of Pub. Accts. v. Saito, 372 S.W.3d 311 (Tex. App. 2012) ................................................................ 1, 7, 11

Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692 (Tex. 2003) ..................................................................... 7, 11, 12

Statutes

Tex. Gov’t Code § 311.034 .............................................................................. 1, 7, 11

Tex. Gov’t Code § 554.0035 .................................................................................... 7

Tex. Health & Safety Code § 481.071 ...................................................................... 3

Other Authorities

Tex. R. Civ. P. 176.6 ......................................................................................... passim

Tex. R. Civ. P. 192.6 ........................................................................................ passim

Tex. R. Civ. P. 199.4 .............................................................................................. 12

vii Record References “CR” refers to the one-volume clerk’s record. “RR” refers to the one-volume

reporter’s record of March 6, 2025.

Statement of the Case Nature of the Case: This is a subpoena challenge seeking to quash the production of medical records under Tex. R. Civ. P. 176.6 and 192.6.

Trial Court: 95th District Court, Dallas County The Honorable Monica Purdy

Course of Proceedings: After Non-party Patients 1–11 filed suit seeking to quash the State’s subpoenas, the State filed a plea to the jurisdiction and plea in abatement.

Disposition in the The district court rendered an order denying the State’s plea Trial Court: to the jurisdiction and plea in abatement. CR.401. After the State automatically stayed the proceedings by appealing the denial of its plea to the jurisdiction, the district court pro- ceeded to issue an order staying all document production. CR.402.

Statement of Jurisdiction The Court has jurisdiction under Texas Civil Practice and Remedies Code Sec-

tion 51.014(a)(8) and Texas Government Code Section 22.220(d)(1).

viii Issues Presented The issues presented are as follows:

1. Did the trial court err in denying the State’s plea to the jurisdiction based on sovereign immunity?

2. Did Non-party Patients have standing to challenge production of med- ical records for 10 patients they do not represent?

ix Introduction In Texas, it is black-letter law that the State is immune from suit unless the leg-

islature waives sovereign immunity using “clear and unambiguous statutory lan-

guage.” Texas Off. of Comptroller of Pub. Accts. v. Saito, 372 S.W.3d 311, 313 (Tex.

App. 2012); Tex. Gov’t Code § 311.034. It is also black-letter law that while sover-

eign immunity does not apply to certain “offset” claims filed in response to a gov-

ernmental entity’s affirmative lawsuit for monetary damages, sovereign immunity most certainly does apply to a governmental entity’s affirmative lawsuit for civil pen-

alties. Compare Reata Constr. Corp. v. City of Dall., 197 S.W.3d 371, 375 (Tex. 2006),

with Nazari v. State, 561 S.W.3d 495, 507 (Tex. 2018). Those two simple concepts are enough to decide this case. After the State sued

a pediatrician in Collin County for violating several Texas laws, including the state

ban on providing cross-sex hormone treatments to minors, the State issued subpoe- nas to two hospitals for the medical records of 21 relevant patients. Eleven of those

patients retained counsel and filed suit in Dallas County, seeking to quash the sub-

poenas for all twenty-one patients in their entirety.

But the State is protected from such suit by sovereign immunity. The State has

never sued Non-party Patients 1–11, so there is no lawsuit for them to “offset” under

the Reata rule; furthermore, even if the State had, the State’s lawsuit against the

doctor was for civil penalties, not monetary damages. The State is thus subject to

sovereign immunity, and the two Texas Rules of Civil Procedure that Non-party Pa-

tients rely on—Rules 176.6 and 192.6—contain no “clear and unambiguous” waiver of that sovereign immunity. Even to the extent sovereign immunity does not apply,

1 Non-party Patients 1–11 have no standing to challenge production for the other 10

unrepresented patients.

This should have been an easy case for a plea to the jurisdiction—and it still is.

This Court should reverse the trial court and remand with instructions to dismiss

the case for lack of subject-matter jurisdiction.

Statement of Facts Many related proceedings and motions concerning the facts of this case are cur-

rently before this Court. To ease the Court’s understanding, the below chart displays all ongoing litigations related to this matter and major relevant case events:

I. The State Sues Dr. Lau for Violating SB 14, the Ban on Transgender Treatments for Minors, in Collin County. On October 17, 2024, after an investigation, the State sued Dr. May C. Lau for

violations of the Texas Deceptive Trade Practices Act and SB 14, the statewide ban

on providing cross-sex hormones, puberty blockers, and so-called gender-affirming

2 surgeries to 21 minors. 1 The State filed its Original Petition and Request for Injunc-

tive Relief in the 493rd Judicial District Court of Collin County. CR.43. On Novem-

ber 4, 2024, the State filed a similar lawsuit against a different doctor, Dr. M. Brett

Cooper, also with the 493rd Judicial District Court of Collin County. On January 13,

2025, the court entered a protective order to ensure privacy of the minor patients

involved and their medical records. CR.79.

II. The State Serves Subpoenas on Hospitals; Non-party Patients Sue in Dallas County. On January 16, 2025, the State served subpoenas on Children’s Hospital Dallas (Children’s) and UT Southwestern Medical Center (UTSW) (collectively “the hos-

pitals”) for the medical records of 21 patients treated by Dr. Lau. CR.22, CR.31. 2

The State concurrently mailed notice to all 21 patients at their most recent address known to the State, informing them of the subpoenas. 3

On February 2, 2025, 11 of the 21 patients (Non-party Patients) obtained repre-

sentation and filed this lawsuit in Dallas County challenging the subpoenas for med- ical records for all 21 patients.CR.11. They have also filed several non-party motions

1 The State has since amended its Original Petition to add a cause of action for vio- lating Texas Health & Safety Code § 481.071, which prohibits the prescription of controlled substances without a valid medical purpose. 2 The State later withdrew and served substantially similar subpoenas on both hos- pitals. 3 As with prior filings before this Court, the State has not attached such notices to safeguard the identities of the minor patients but can provide them to the Court on request in a supplementary filing.

3 in the Collin County action seeking to stay virtually all discovery in that case, despite

not being parties to that action and declining to intervene. See Case. No. 15-25-

00031-CV (Non-party Patients’ Mandamus filing to this Court challenging the Col-

lin County Court’s production orders).

III. Procedural History On March 3, 2025, the State filed a plea to the jurisdiction and plea in abatement

in this case, arguing sovereign immunity and dominant jurisdiction. CR.340. On

March 6, 2025, the Dallas County Court held a hearing. The court first denied the

State’s plea to the jurisdiction and plea in abatement. CR.401. The State immedi-

ately filed its notice of appeal to this Court, automatically staying proceedings in Dal-

las County. CR.426. Ignoring this stay, the Dallas County Court proceeded to issue an order staying the hospitals from producing “any documents to the State until the

interlocutory appeal [of the denial of the State’s plea to the jurisdiction] reaches a

final resolution.” CR.402 (emphasis in original). This appeal concerns the State’s plea to the jurisdiction; the State separately filed a mandamus petition challenging

the denial of its plea in abatement and the improperly issued order. See Case No. 15-

25-00039-CV.

IV. Other Related Proceedings While the Dallas County case was proceeding and since this appeal has been

filed, the Collin County Court has continued to oversee discovery in its own case,

including ordering the hospitals to produce medical records for all 21 patients to ei-

ther their counsel (in the case of Non-party Patients 1–11) or to Dr. Lau (in the case

4 of the unrepresented patients) for privilege and redaction review. Non-party Patients

have filed a mandamus petition with this Court seeking review of that order. See Case

No. 15-25-00031-CV.

Summary of the Argument I. The State is protected from this subpoena challenge by sovereign im-

munity because Non-party Patients chose to file this challenge as a new lawsuit in a

new jurisdiction, rather than as a motion in the existing lawsuit. Because the State’s

lawsuit against Dr. Lau is a suit for civil penalties, not monetary damages, the State did not open itself up to “offset” claims from Dr. Lau or third parties. See Reata

Constr. Corp. v. City of Dall., 197 S.W.3d 371, 375 (Tex. 2006); Nazari v. State, 561

S.W.3d 495, 507 (Tex. 2018). And since neither of the rules that form the basis of this subpoena challenge contain an affirmative waiver of sovereign immunity, see

Tex. R. Civ. P. 176.6, 192.6, sovereign immunity applies.

II. Even to the extent sovereign immunity does not apply, Non-party Pa- tients 1–11 do not represent the other 10 patients subject to the 21-patient subpoena.

As such, they do not have standing to challenge the production of those 10 patients’

records. DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304 (Tex. 2008).

Standard of Review “Whether a court has subject matter jurisdiction is a question of law.” Tex.

Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004).

5 Argument

I. The State is Protected from this Suit by Sovereign Immunity. Sovereign immunity protects the State from countersuit or related claims when

it files an affirmative suit for civil penalties. Because the relevant Texas Rules of Civil

Procedure do not contain an affirmative waiver of sovereign immunity, the State is

immune from this suit.

A. Sovereign immunity protects the State from suit, absent express waiver by the legislature or the State. The doctrine of sovereign immunity “bars suit against the state and its entities”

unless the state waives immunity. Tex. Adjutant Gen.’s Office v. Ngakoue, 408 S.W.3d

350, 353 (Tex. 2013) (citation omitted). Sovereign immunity protects the State and

its political subdivisions from endless litigation, while leaving to the Legislature to

determine how and “when to allow tax resources to be shifted ‘away from their in-

tended purposes toward defending lawsuits and paying judgments.’” Brown & Gay Eng’g, Inc. v. Olivares, 461 S.W.3d 117, 121 (Tex. 2015) (quoting Tex. Nat. Res. Con-

servation Comm’n v. IT-Davy, 74 S.W.3d 849, 853–54 (Tex. 2002) (plurality op.)).

Sovereign immunity is a common-law creation, and “it remains the judiciary’s re-

sponsibility to define the boundaries of the . . . doctrine and to determine under what

circumstances sovereign immunity exists in the first instance.” Reata Constr. Corp.

v. City of Dall., 197 S.W.3d 371, 375 (Tex. 2006). By contrast, the Legislature deter- mines when and to what extent to waive that immunity. Id. The doctrine of sovereign

immunity has been part of Texas jurisprudence since the days of the Republic. See

Bd. of Land Comm’rs v. Walling, Dallam 524, 526 (Tex. 1843) (discussing the

6 doctrine in the courts of the Republic); Hosner v. DeYoung, 1 Tex. 764, 769 (Tex.

1847) (recognizing the doctrine after Texas joined the Union). The doctrine has gen-

erally been considered “a rule of necessity.” State v. Brannan, 111 S.W.2d 347, 348

(Tex. Civ. App.—Waco 1937, writ ref’d).

A finding of legislative wavier of sovereign immunity “requires clear and unam-

biguous statutory language.” Texas Off. of Comptroller of Pub. Accts. v. Saito, 372

S.W.3d 311, 313 (Tex. App. 2012); Tex. Gov’t Code § 311.034. For a plaintiff to over-

come a defendant’s assertion of sovereign immunity, “the plaintiff must affirma-

tively demonstrate the court’s jurisdiction by alleging a valid waiver of immunity.”

Whitley, 104 S.W.3d at 542. Dallas Area Rapid Transit v. Whitley, 104 S.W.3d 540 (Tex. 2003). This waiver must be truly express—for example, the Supreme Court

has approvingly cited statutory language stating “Sovereign immunity is waived and

abolished to the extent of liability for the relief allowed under this chapter for a vio- lation of this chapter,” as being sufficiently “clear and unambiguous.” Wichita Falls

State Hosp. v. Taylor, 106 S.W.3d 692, 696 n.5 (Tex. 2003), judgment withdrawn and

reissued (May 13, 2003) (quoting Tex. Gov’t Code § 554.0035).

In addition to legislative waiver, certain types of claims against the government

fall outside the scope of sovereign immunity to begin with, so waiver is not required.

One such category is affirmative claims filed by a governmental entity for damages.

In the case Reata Construction Corporation v. City of Dallas, the Supreme Court ob-

served that if a “governmental entity interjects itself into or choose to engage in liti-

gation to assert affirmative claims for monetary damages, the entity will presumably have made a decision to expend resources to pay litigation costs.” 197 S.W.3d at 375.

7 Thus, because the government has already made the decision to expend tax re-

sources on the litigation, the traditional rationale for sovereign immunity does not

apply to the extent the opposing party files counterclaims “only as an offset to reduce

the government’s recovery.” Id. The Court further held that in cases filed by the

government “for monetary relief,” sovereign immunity does not protect the govern-

ment from “claims germane to, connected with, and properly defensive to those as-

serted by the governmental entity.” Id. at 377. This is known as the Reata rule.

In sum, in Texas suits against a government entity, sovereign immunity is the

default: It applies and the State is immune from suit, unless the Legislature expressly

waived it or the case falls outside the scope of sovereign immunity, like State-brought affirmative claims for monetary damages.

B. Sovereign immunity applies to State-brought lawsuits for civil penalties. The Supreme Court has made clear that the Reata rule applies only to affirmative

government claims for damages—it does not apply to State suits for civil penalties. In Nazari v. State, 561 S.W.3d 495 (Tex. 2018), the State brought Texas Medicaid

Fraud Prevent Act claims seeking penalties against dental providers for fraudulently

obtaining Medicaid payments for dental and orthodontic treatments to children. 561 SW.3d at 495. The providers responded with counterclaims and third-party claims

against the State. Id. The provider argued that the State had abrogated sovereign

immunity by filing suit against them and that they could now sue the State in re- sponse because it was “subject to the same rules that govern other parties,” like the

8 Texas Rules of Civil Procedure, and that the State “must participate in the litigation

process as an ordinary litigant.” Id. at 501 (citing cases).

The trial court, Third Court of Appeals, and Supreme Court all rejected the pro-

viders’ argument. Id. The Supreme Court held that “the Reata rule . . . never applies

when the state initiates litigation to enforce a substantive prohibition against unlaw-

ful conduct by imposing a monetary penalty.” Id. at 507 (emphasis added). This is

because “offsets,” like those in Reata, are “never ‘germane to, connected with, and

properly defensive to’ whether a monetary penalty is due. Penalties are inherently

one-sided. Citizens cannot claim a penalty against the state, but the state can and

does frequently assess fines, penalties, and sanctions against its citizens.” Id. The Court further held that “applying the Reata rule to [suits by the State seeking civil]

penalties would run counter to Reata itself and would thwart the primary justifica-

tions underlying sovereign immunity’s very existence . . . .” Id. at 509.

C. Sovereign immunity applies to this action. Because the State’s lawsuit against Dr. Lau in Collin County sought only civil

penalties and injunctive relief, not monetary damages, the Reata rule does not apply

and the case does not fall outside the scope of sovereign immunity. As an initial mat-

ter, Non-party Patients’ argument that the State waived sovereign immunity 4 to their

lawsuit in Dallas County by suing Dr. Lau in Collin County would not hold water

even if the State’s suit were for money damages. That is because the State has never

4 While the Non-party Patients refer to the State as having “waived” sovereign im- munity under Reata, technically Reata is based “not on a waiver theory, but on the scope of the [government’s] immunity.” Nazari, 561 S.W.3d at 501.

9 sued the Non-party Patients. Thus, any permissible offset claims under Reata could

be filed only by Dr. Lau, not by the Non-party Patients.

But regardless, sovereign immunity protects the State from counterclaims and

third-party claims brought by any party because the State’s suit against Dr. Lau seeks

civil penalties, not monetary damages. CR.75 ¶¶ 257–58 (State’s Original Petition,

Prayer for Relief). This is the exact situation addressed by the Supreme Court in

Nazari. A lawsuit against the State cannot be an “offset” for monetary damages

when the State seeks no damages from Non-party Patients (or Dr. Lau) to begin with.

“Since the state’s action is punitive rather than compensatory, . . . the Reata rule

does not apply.” Nazari, 561 S.W.3d at 510. Importantly, this does not leave Non-party Patients without a remedy. Had

Non-party Patients chosen to file their subpoena challenge in Collin County (which

is permitted under Texas Rules of Civil Procedure 176.6(e) and 192.6, the bases for this action), it would have been in the form of a motion related to a discovery issue

in the State’s case and on the State’s claims. Sovereign immunity would not apply.

Indeed, Non-party Patients have brought various challenges to the subpoenas in Col-

lin County Court, and that court has devoted substantial time to resolving those chal-

lenges. See Case No. 15-25-00031-CV (mandamus petition filed with this Court re-

garding the Non-party Patients’ discovery challenges in Collin County).

But because Non-party Patients chose to file this challenge in a separate court in

Dallas County, they changed the form of their challenge from a discovery motion in

an ongoing case to a new lawsuit bring a third-party claim. This is the exact form of

suit prohibited in Nazari. It is barred by sovereign immunity.

10 D. Neither Tex. R. Civ. P. 176.6 nor 192.6 affirmatively waive sovereign immunity. Finally, neither of the Texas Rules of Civil Procedure at issue contain “clear and

unambiguous language” waiving sovereign immunity for subpoena challenges. Saito,

372 S.W.3d at 313; Tex. Gov’t Code § 311.034. The Supreme Court has held that for

a statute to waive sovereign immunity, it must usually state so expressly, such as by saying “sovereign immunity to suit is waived.” Wichita Falls, 106 S.W.3d at 697.

There is no such clear waiver language here—indeed, neither Rule 176.6 nor Rule

192.6 makes any reference to sovereign immunity. And while the State is ordinarily subject to the Texas Rules of Civil Procedure when it litigates, those rules are not

sufficient to overcome sovereign immunity when it has not been waived. See Nazari,

561 S.W.3d at 500–01 (holding that while “procedural rules apply to the state just as they would any other litigant,” those rules are not sufficient to waive sovereign im-

munity).

On the “rare occasions” that the Supreme Court has found “waiver of sover-

eign immunity absent ‘magic words,’” the Court has considered four factors. Id.

The first factor is whether the statute would be “meaningless unless immunity were

waived.” Id. Second, if the statute has any “ambiguities” concerning immunity, they

should be resolved in favor of retaining immunity. Id. Third, “if the Legislature re-

quires that the State be joined in a lawsuit for which immunity would otherwise at-

tach, the Legislature has intentionally waived the State’s sovereign immunity.”

Id. at 697–98. And fourth, waiver is more likely when the Legislature has enacted

“simultaneous measures to insulate public resources from the reach of judgment

11 creditors,” such as a statutory provision that limits “the State’s potential liability.”

Id. at 698.

None of those four factors are present here. First, far from being meaningless,

Rules 176.6 and 192.6 still function in 99.9% of cases that do not involve challenges

to government subpoenas issued in a civil penalty case. They still function in this

case as well, albeit in a limited manner—Non-party Patients are still able to challenge

the subpoenas in Collin County. Second, there is no ambiguity about the lack of

waiver—but to the extent it exists, it must be resolved in favor of retaining immunity

for the State. Third, there is no Legislative requirement that the State join a lawsuit

that waives immunity. The primary example of this is the Declaratory Judgments Act, which “expressly provides that persons may challenge ordinances or statutes,

and that governmental entities must be joined or notified.” Tex. Educ. Agency v.

Leeper, 893 S.W.2d 432, 446 (Tex. 1994). But neither Rule at issue in this case says anything about mandatory joinder or notification. Finally, neither Rule says anything

about limiting the State’s liability. In sum, neither Rule 176.6 nor 192.6 expressly or

implicitly waives sovereign immunity, so the State is immune from this suit.

Below, Non-party Patients additionally cited this Court’s recent holding in In re

Google LLC, 2025 WL 258715 (Tex. App.—15th Dist., Jan. 16, 2025, pet. imminent),

to support their position of affirmative waiver. But that case has no bearing on this

one. As this Court is aware, in Google, the State brought Deceptive Trade Practices

Act and Capture or Use of Biometric Identifier Act claims against Google. Id. at *1.

Google noticed a party representative deposition for the State seeking a representa-

tive of the State on several topics pursuant to Tex. R. Civ. P. 199.4. This Court held

12 that sovereign immunity is abrogated as to party depositions in suits brought by the

State. Id. at *7. Google says absolutely nothing about whether the State filing one law-

suit abrogates immunity against the filing of new lawsuits by nonparties in a different

jurisdiction.

The State files thousands of lawsuits every year—yet Non-party Patients can

point to no statute nor any case law showing that the State waives sovereign immun-

ity from suits brought under Rules 176.6 and 192.6. In the lone instance of waiver

that undersigned counsel are aware of, Allibone v. Freshour, the Texas Medical Board

affirmatively chose to waive sovereign immunity in a suit brought under Tex. R. Civ. P.

176.6 and 192.6. 2017 WL 5663607, at *2 n.4 (Tex. App.–Austin Nov. 21, 2017). Al- libone is distinguishable because it involved an administrative subpoena, not a court-

issued subpoena from an ongoing litigation. But it is also an exception that proves

the rule—there is no general waiver of sovereign immunity by the State from suit brought under Rules 176.6 and 192.6. The State is decidedly not waiving sovereign

immunity in this suit; consequently, the Dallas County Court should have dismissed

this suit for lack of jurisdiction.

II. Non-party Patients Lack Standing to Challenge the Subpoena for the 10 Unrepresented Patients. Even if this case were not blocked by sovereign immunity, Non-party Patients

do not have standing to challenge the subpoenas insofar as they apply to the produc-

tion of medical records for patients they do not represent, because Non-party Pa-

tients suffer no injury from that production. “A court has no jurisdiction over a claim

made by a plaintiff without standing to assert it.” DaimlerChrysler Corp. v. Inman,

13 252 S.W.3d 299, 304 (Tex. 2008). “For standing, a plaintiff must be personally ag-

grieved . . . .” Id.

The subpoenas challenged by Non-party Patients seek medical records for 21

patients of Dr. Lau. CR.27–28 (Children’s subpoena); CR.36–37 (UTSW sub-

poena). But as the caption of this case indicates, Non-party Patients 1–11 represent

only eleven of those patients. They therefore do not have standing to challenge pro-

ductions of medical records related to the 10 unrepresented patients unless those

productions would somehow cause them an injury that is “concrete and particular-

ized, actual or imminent, not hypothetical.” Inman, 252 S.W.3d at 304. Non-party

Patients have never presented any evidence in this case that the production of rec- ords for unrelated, unrepresented patients would harm them. And to the extent they

have argued harm in other cases, the record is clear that those claims of injury are

baseless. See, e.g., State’s Resp. to Mandamus Pet’n, Case No. 15-25-00031-CV.

14 Prayer The Court should reverse the district court’s denial of the State’s plea to the

jurisdiction and direct the district court to dismiss the case for lack of subject-matter

jurisdiction.

Respectfully Submitted,

Ken Paxton Johnathan Stone Attorney General of Texas Chief, Consumer Protection Division

Brent Webster /s/ Abigail E. Smith First Assistant Attorney General Abigail E. Smith Ralph Molina Assistant Attorney General Deputy First Assistant Attorney General Rob Farquharson Austin Kinghorn Assistant Attorney General Deputy Attorney General for Civil Litigation Office of the Attorney General Consumer Protection Division 12221 Merit Drive, Ste. 650 Dallas, Texas 75251 Tel: (214) 290-8830 Fax: (214) 969-7615

Counsel for Appellant

Certificate of Compliance Microsoft Word reports that this document contains 3,648 words, excluding ex-

empted text.

/s/ Abigail E. Smith Abigail E. Smith

15 No. 15-25-00023-CV

In the Court of Appeals for the Fifteenth Judicial District Austin, Texas State of Texas, Appellant, v. NONPARTY PATIENT NO. 1, NONPARTY PATIENT NO. 2, NONPARTY PATIENT NO. 3, NONPARTY PATIENT NO. 4, NONPARTY PATIENT NO. 5, NONPARTY PATIENT NO. 6, NONPARTY PATIENT NO. 7, AND NONPARTY PATIENT NO. 8, NONPARTY PATIENT NO. 9, NONPARTY PATIENT NO. 10, AND NONPARTY PATIENT NO. 11, Appellees.

On Appeal from the 95th Judicial District Court, Dallas County

Appellant’s Appendix Tab 1. Order Denying the State’s Plea to the Jurisdiction and Plea in Abatement .................................................................................... A

2. Tex. R. Civ. P. 176.6 ................................................................................. B

3. Tex. R. Civ. P. 192.6 ................................................................................ C

4. Reata Constr. Corp. v. City of Dall., 197 S.W.3d 371 (Tex. 2006) ............. D

5. Nazari v. State, 561 S.W.3d 495 (Tex. 2018) ............................................ E

16 Tab A Cause No. DC—25-01823 Nonparty Patient No. 1, Nonparty Patient No. 2, Nonparty Patient N0. 3, Nonparty Patient No. 4, IN THE DISTRICT COURT OF Nonparty Patient N_o. 5, Nonparty Patient No. 6, DALLAS COUNTY, TEXAS Nonparty Patient No. 7, Nonparty Patient No. 8, 95TH JUDICIAL DISTRICT Nonparty Patient N0. 9, Nonparty Patient No. 10, and Nonparty Patient No. 1 l,

Plaintifis,

vs.

The State of Texas,

Defendant.

@ {'PRQPGSED} ORDER DENYING THE STATE’S PLEA TO THE JURISDICTION AND PLEA IN ABATEMENT Pending before the Court is the State’s plea to the jurisdiction of this Court and plea in

abatement. Having considered the pleadings, record evidence, and the parties’ arguments, the

Court'fmds that the State’s pleas are hereby DENIED.

So ORDERED and SIGNED this Blkday OWZOZS;

The Hon. Judge Monica‘ Purdy 95th Judicial District Court Dallas County, Texas Tab B 176.6. Response, TX R RCP Rule 176.6

Vernon's Texas Rules Annotated Texas Rules of Civil Procedure Part II. Rules of Practice in District and County Courts Section 9. Evidence and Discovery (Refs & Annos) A. Evidence Rule 176. Subpoenas (Refs & Annos)

TX Rules of Civil Procedure, Rule 176.6

176.6. Response

Currentness

(a) Compliance Required. Except as provided in this subdivision, a person served with a subpoena must comply with the command stated therein unless discharged by the court or by the party summoning such witness. A person commanded to appear and give testimony must remain at the place of deposition, hearing, or trial from day to day until discharged by the court or by the party summoning the witness.

(b) Organizations. If a subpoena commanding testimony is directed to a corporation, partnership, association, governmental agency, or other organization, and the matters on which examination is requested are described with reasonable particularity, the organization must designate one or more persons to testify on its behalf as to matters known or reasonably available to the organization.

(c) Production of Documents or Tangible Things. A person commanded to produce documents or tangible things need not appear in person at the time and place of production unless the person is also commanded to attend and give testimony, either in the same subpoena or a separate one. A person must produce documents as they are kept in the usual course of business or must organize and label them to correspond with the categories in the demand. A person may withhold material or information claimed to be privileged but must comply with Rule 193.3. A nonparty's production of a document authenticates the document for use against the nonparty to the same extent as a party's production of a document is authenticated for use against the party under Rule 193.7.

(d) Objections. A person commanded to produce and permit inspection or copying of designated documents and things may serve on the party requesting issuance of the subpoena--before the time specified for compliance--written objections to producing any or all of the designated materials. A person need not comply with the part of a subpoena to which objection is made as provided in this paragraph unless ordered to do so by the court. The party requesting the subpoena may move for such an order at any time after an objection is made.

(e) Protective Orders. A person commanded to appear at a deposition, hearing, or trial, or to produce and permit inspection and copying of designated documents and things, and any other person affected by the subpoena, may move for a protective order under Rule 192.6(b)--before the time specified for compliance--either in the court in which the action is pending or in a district court in the county where the subpoena was served. The person must serve the motion on all parties in accordance with Rule 21a. A person need not comply with the part of a subpoena from which protection is sought under this paragraph unless ordered to do so by the court. The party requesting the subpoena may seek such an order at any time after the motion for protection is filed.

(f) Trial Subpoenas. A person commanded to attend and give testimony, or to produce documents or things, at a hearing or trial, may object or move for protective order before the court at the time and place specified for compliance, rather than under paragraphs (d) and (e).

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 176.6. Response, TX R RCP Rule 176.6

Credits Aug. 5, 1998 and Nov. 9, 1998, eff. Jan. 1, 1999.

Section 1 to Section 3, Rule 41 appear in this volume.

Vernon's Ann. Texas Rules Civ. Proc., Rule 176.6, TX R RCP Rule 176.6 Current with amendments received through February 1, 2025. Some rules may be more current, see credits for details.

End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 2 Tab C 192.6. Protective Orders, TX R RCP Rule 192.6

Vernon's Texas Rules Annotated Texas Rules of Civil Procedure Part II. Rules of Practice in District and County Courts Section 9. Evidence and Discovery (Refs & Annos) B. Discovery Rule 192. Permissible Discovery: Forms and Scope; Work Product; Protective Orders; Definitions (Refs & Annos)

TX Rules of Civil Procedure, Rule 192.6

192.6. Protective Orders

Currentness

(a) Motion. A person from whom discovery is sought, and any other person affected by the discovery request, may move within the time permitted for response to the discovery request for an order protecting that person from the discovery sought. A person should not move for protection when an objection to written discovery or an assertion of privilege is appropriate, but a motion does not waive the objection or assertion of privilege. If a person seeks protection regarding the time or place of discovery, the person must state a reasonable time and place for discovery with which the person will comply. A person must comply with a request to the extent protection is not sought unless it is unreasonable under the circumstances to do so before obtaining a ruling on the motion.

(b) Order. To protect the movant from undue burden, unnecessary expense, harassment, annoyance, or invasion of personal, constitutional, or property rights, the court may make any order in the interest of justice and may--among other things--order that:

(1) the requested discovery not be sought in whole or in part;

(2) the extent or subject matter of discovery be limited;

(3) the discovery not be undertaken at the time or place specified;

(4) the discovery be undertaken only by such method or upon such terms and conditions or at the time and place directed by the court;

(5) the results of discovery be sealed or otherwise protected, subject to the provisions of Rule 76a.

Credits Aug. 5, 1998 and Nov. 9, 1998, eff. Jan. 1, 1999.

Section 1 to Section 3, Rule 41 appear in this volume.

Vernon's Ann. Texas Rules Civ. Proc., Rule 192.6, TX R RCP Rule 192.6 Current with amendments received through February 1, 2025. Some rules may be more current, see credits for details.

End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 Tab D Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371 (2006) 49 Tex. Sup. Ct. J. 811

[4] city charter provision stating that city could “sue and be sued” and “implead and be impleaded” did not waive city's KeyCite Yellow Flag - Negative Treatment immunity. Declined to Extend by Nazari v. State, Tex., June 22, 2018

197 S.W.3d 371 Court of Appeals' judgment reversed and remanded. Supreme Court of Texas. Brister, J., filed concurring opinion in which Hecht and REATA CONSTRUCTION O'Neill, JJ., joined. CORPORATION, Petitioner, v. Procedural Posture(s): On Appeal. CITY OF DALLAS, Respondent.

No. 02–1031 West Headnotes (10) | Argued Dec. 12, 2004. [1] States Nature and scope of immunity in | general Decided June 30, 2006. Sovereign immunity protects the state from Synopsis lawsuits for money damages. Background: Owner of building that was damaged by water from a punctured water main brought negligence action 171 Cases that cite this headnote against construction company and excavation subcontractor, and subcontractor filed third-party claim against city. City [2] Municipal, County, and Local filed plea in intervention asserting a claim of negligence Government Waiver of and Exceptions to against subcontractor. The 162nd Judicial District Court, Immunity in General Dallas County, Bill Rhea, J., denied city's plea to the Political subdivisions of the state, including jurisdiction, and city appealed. The Court of Appeals, 83 cities, are entitled to immunity from lawsuits for S.W.3d 392, reversed. Subcontractor filed petition for review. money damages—referred to as governmental immunity—unless it has been waived.

270 Cases that cite this headnote Holdings: On motion for rehearing, the Supreme Court, Johnson, J., held that: [3] States Necessity of waiver or consent [1] city did not have governmental immunity from States Effect of waiver or consent subcontractor's claims germane to, connected to, and properly Sovereign immunity encompasses immunity defensive to claims asserted by the city, to the extent any from suit, which bars a suit unless the state has recovery on those claims would offset any recovery by the consented, and immunity from liability, which city; protects the state from judgments even if it has consented to the suit. [2] subcontractor's claims against city did not fall within Tort Claims Act's waiver of immunity for personal injury caused 248 Cases that cite this headnote by a condition or use of property; [4] States Nature and scope of immunity in [3] statute providing that a home-rule municipality “may general plead and be impleaded in any court” did not waive city's It is the judiciary's responsibility to define immunity; and the boundaries of the common-law doctrine of sovereign immunity and to determine under what

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371 (2006) 49 Tex. Sup. Ct. J. 811

circumstances sovereign immunity exists in the Section of Tort Claims Act waiving first instance. governmental unit's immunity for personal injury and death caused by a condition or use of tangible 56 Cases that cite this headnote personal or real property only waives immunity when the governmental unit is the user of the [5] Water Law Miscellaneous defects or property. V.T.C.A., Civil Practice & Remedies failures Code § 101.021(2). City did not have governmental immunity from 27 Cases that cite this headnote excavation subcontractor's third-party claims for negligence, arising out of incident in which subcontractor drilled into water main due to [8] Municipal, County, and Local city's alleged misidentification of water main's Government Particular Cases and location and caused flooding to nearby building, Contexts to the extent that subcontractor's claims were Excavation subcontractor was not entitled to germane to, connected to, and properly defensive an opportunity to replead its negligence claims to claims asserted by city, and to the extent any against city, before any dismissal of the recovery on subcontractor's claims would offset subcontractor's claims due to city's governmental any recovery by the city from subcontractor, immunity, where city had twice filed special where city had intervened in building owner's exceptions claiming that subcontractor failed negligence lawsuit against subcontractor in order to state a cause of action for which the city to assert negligence claim against subcontractor. could be liable under the Tort Claims Act, and subcontractor had amended its petition twice, 88 Cases that cite this headnote but its pleadings still failed to demonstrate a waiver of immunity. V.T.C.A., Civil Practice & [6] Municipal, County, and Local Remedies Code § 101.021. Government Other particular works 20 Cases that cite this headnote Excavation subcontractor's negligence claims against city, arising out of incident in which subcontractor drilled into water main due to [9] Water Law Miscellaneous defects or city's alleged misidentification of water main's failures location and caused flooding to nearby building, Section of Local Government Code providing did not fall within Tort Claims Act's waiver of that a home-rule municipality “may plead and city's immunity for personal injury caused by a be impleaded in any court” did not waive city's condition or use of property, although tenants governmental immunity from negligence claims of building claimed that fumes from generators asserted by excavation subcontractor, arising out used in the flooded building after the water of incident in which subcontractor drilled into shorted out the electricity made them sick; Act water main due to city's alleged misidentification waived immunity only if city was user of the of water main's location and caused flooding property, and there was no claim that city was the to nearby building; waiver of immunity for tort user of the generators. V.T.C.A., Civil Practice & claims was governed by Tort Claims Act, which Remedies Code § 101.021(2). was the later-enacted, more specific statute regarding waiver of immunity in tort cases, and 4 Cases that cite this headnote phrase “plead and be impleaded” did not clearly and unambiguously reflect legislative intent [7] Municipal, County, and Local to waive immunity. V.T.C.A., Civil Practice Government Immunity and exceptions & Remedies Code § 101.021; V.T.C.A., thereto in general Government Code § 311.026; V.T.C.A., Local Government Code § 51.075.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 2 Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371 (2006) 49 Tex. Sup. Ct. J. 811

We grant the City of Dallas's motion for rehearing. We 62 Cases that cite this headnote withdraw our opinion of April 2, 2004, and substitute the following in its place. [10] Water Law Overflow or Leakage The issue in this case is whether the City of Dallas has Provision of city charter stating that the city governmental immunity from suit for claims by Reata could “sue and be sued” and “implead and be Construction Corporation arising from the City's alleged impleaded” did not waive city's governmental negligence. The court of appeals held that the City had immunity from negligence claims asserted by immunity. We conclude that the City does not have immunity excavation subcontractor, arising out of incident from suit as to Reata's claims which are germane to, connected in which subcontractor drilled into water main with, and properly defensive to the City's claims, to the extent due to city's alleged misidentification of water Reata's claims offset those asserted by the City. We reverse main's location and caused flooding to nearby the court of appeals' judgment and remand the case to the trial building; phrases “sue and be sued” and court for further proceedings. “implead and be impleaded” did not, separately or together, constitute a clear and unambiguous waiver of immunity from suit. I. Background 21 Cases that cite this headnote The City of Dallas issued Dynamic Cable Construction Corporation, Inc., a temporary license to install fiber optic cable in Dallas. Dynamic subcontracted with Reata Attorneys and Law Firms Construction Corporation to do the drilling for the project. Reata inadvertently drilled into a thirty-inch water main, *372 Lee L. Cameron Jr., Rebecca M. Alcantar, Amy flooding a nearby building owned by Southwest Properties Elizabeth Stewart, Jeffrey Osmon Marshall, Wilson Elser Group, Inc. Southwest sued Dynamic and Reata for Moskovitz Edelman & Dicker LLP, Dallas, for petitioner. negligence, and some tenants of the building intervened. Reata filed a third-party claim against the City alleging *373 Charles S. Black Jr., Asst. City Atty., Julie B. that the City negligently misidentified the water main's Essenburg, Office of the City Atty. of City of Dallas, Deborah location. Before answering Reata's third-party claim, the G. Hankinson, Law Office of Deborah Hankinson PC, Dallas, City intervened in the case, asserting negligence claims for respondent. against Dynamic. A few weeks after intervening in the Malinda York Crouch, Sr. Asst. City Atty., Houston, Elliot suit, the City answered Reata's petition and filed special Clark, Winstead Sechrest & Minick, P.C., Rafael Edward exceptions asserting that Reata's claims were not within the Cruz, Office of the Atty. Gen., Kristofer S. Monson, Asst. Texas Tort Claims Act's waiver of immunity. See TEX. CIV. Solicitor Gen., Don Wayne Cruse Jr., Asst. Solicitor Gen., PRAC. & REM. CODE § 101.021. The City subsequently Austin, Bruce S. Powers, Asst. County Atty., Houston, filed an amended plea in intervention asserting claims of William M. Boyd, John R. Stooksberry, Boyd Veigel, P.C., negligence against Reata and a plea to the jurisdiction McKinney, Robert C. Lyon, Robert Lyon & Associates, asserting governmental immunity from suit. Reata filed Rowlett, Bob Gorsky, Lyon Gorsky Baskett, et al., Dallas, a response claiming that (1) governmental immunity did Delmar L. Cain, Office of Gen. Counsel, College Station, not apply because the City subjected itself to the trial Miles T. Bradshaw, Feldman & Rogers, L.L.P., Dallas, for court's jurisdiction by intervening in the lawsuit and seeking amicus curiae. affirmative relief; (2) the Dallas City Charter and section 51.075 of the Texas Local Government Code contain express Opinion waivers of governmental immunity because they provide, respectively, that the City may “sue or be sued” and “plead Justice JOHNSON delivered the opinion of the Court, in and be impleaded”; (3) under the common law, the City which Chief Justice JEFFERSON, Justice WAINWRIGHT, could not assert governmental immunity for its actions in Justice MEDINA, and Justice GREEN joined. failing to properly identify the water main's location prior to 1970 because water services were considered a proprietary

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 3 Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371 (2006) 49 Tex. Sup. Ct. J. 811

function; and (4) even if the Texas Tort Claims Act applied, [1] [2] [3] “Sovereign immunity protects the State Reata's claim fell *374 within the Act's waiver of immunity. from lawsuits for money damages.” Tex. Natural Res. The trial court denied the City's plea to the jurisdiction, and Conservation Comm'n v. IT–Davy, 74 S.W.3d 849, 853 the City took an interlocutory appeal. See TEX. CIV. (Tex.2002). Political subdivisions of the state, including PRAC. & REM. CODE § 51.014(a)(8). cities, are entitled to such immunity—referred to as governmental immunity—unless it has been waived. 1 See Rejecting each of Reata's asserted bases for a waiver of governmental immunity, the court of appeals reversed and Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 694 n. 3 (Tex.2003). Sovereign immunity encompasses immunity dismissed Reata's claims against the City. 83 S.W.3d 400. from suit, which bars a suit unless the state has consented, The court of appeals held that even though the City intervened and immunity from liability, which protects the state from in the suit against Reata, by such action the City asserted its right to sue but did not waive its governmental immunity from judgments even if it has consented to the suit. Tex. Dep't of Transp. v. Jones, 8 S.W.3d 636, 638 (Tex.1999). We have held suit. Id. at 398–400. that sovereign immunity from suit deprives a trial court of subject-matter jurisdiction. Tex. Dep't of Parks & Wildlife In Anderson, Clayton & Co. v. State ex rel. Allred, 122 Tex. 530, 62 S.W.2d 107, 110 (1933), we stated: “[W]here a v. Miranda, 133 S.W.3d 217, 224 (Tex.2004); Jones, 8 state voluntarily files a suit and submits its rights for judicial S.W.3d at 638. determination it will be bound thereby and the defense will be entitled to plead and prove all matters properly defensive. 1 For ease of reference, we will use the term This includes the right to make any defense by answer or “sovereign immunity” to reference both sovereign cross-complaint germane to the matter in controversy.” But immunity and governmental immunity. the court of appeals relied on other language in that opinion [4] Sovereign immunity is a common-law doctrine that providing that the State, having invoked the jurisdiction of the initially developed without any legislative or constitutional district court, was “subject to the same rules as other litigants, except in so far as such rules may be modified in favor of enactment. See Cohens v. Virginia, 6 Wheat. 264, 19 the State by statute or may be inapplicable or unenforceable U.S. 264, 293, 5 L.Ed. 257 (1821) (recognizing the doctrine without citing statutory or constitutional authority); *375 because of exemptions inherent in sovereignty.” 83 S.W.3d Hosner v. De Young, 1 Tex. 764, 769 (1846) (same); see at 399 (quoting Anderson, 62 S.W.2d at 110). The court of also Tex. A & M University–Kingsville v. Lawson, 87 appeals concluded that when a governmental entity intervenes S.W.3d 518, 520 (Tex.2002). We have consistently deferred in a lawsuit, “sovereign immunity still forecloses suit against to the Legislature to waive such immunity. See IT–Davy, that governmental entity.” Id. 74 S.W.3d at 854; Guillory v. Port of Houston Auth., In this Court, Reata asserts (1) governmental immunity 845 S.W.2d 812, 813 (Tex.1993); Duhart v. State, 610 did not apply because the City subjected itself to the trial court's jurisdiction by intervening in the lawsuit and seeking S.W.2d 740, 741 (Tex.1980); Lowe v. Tex. Tech Univ., 540 affirmative relief; (2) the Dallas City Charter and section S.W.2d 297, 298 (Tex.1976). We have previously discussed 51.075 of the Texas Local Government Code contain express the possibility that a governmental entity might waive its waivers of governmental immunity because they provide, immunity by certain actions, even absent a legislative waiver respectively, that the City may “sue or be sued” and “plead of immunity. See Catalina Dev., Inc. v. County of El and be impleaded”; and (3) even if the Texas Tort Claims Paso, 121 S.W.3d 704, 705–06 (Tex.2003). However, there Act applied, Reata stated a claim within the Act's waiver of is tension between the concept of a governmental entity immunity. waiving its immunity from suit by some action independent from the Legislature's waiving immunity and the principle that only the Legislature can waive sovereign immunity. See II. Sovereign Immunity IT–Davy, 74 S.W.3d at 853. There is also tension between the concept of a governmental entity waiving its immunity

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 4 Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371 (2006) 49 Tex. Sup. Ct. J. 811

from suit and the principle that a court's lack of subject- In this situation, we believe it would be fundamentally unfair to allow a governmental entity to assert affirmative claims matter jurisdiction generally cannot be waived. See Fed. against a party while claiming it had immunity as to the party's Underwriters Exch. v. Pugh, 141 Tex. 539, 174 S.W.2d 598, 600 (1943). Recognizing that sovereign immunity is a *376 claims against it. See Guar. Trust Co. v. United common-law doctrine, we have not foreclosed the possibility States, 304 U.S. 126, 134–35, 58 S.Ct. 785, 82 L.Ed. 1224 that the judiciary may modify or abrogate such immunity (1938) (noting that the rule allowing claims against a foreign sovereign that has asserted its own claims is assumed to be by modifying the common law. See Taylor, 106 S.W.3d founded on principles of justice); see also Cunningham v. at 695–96; see also Tex. Dep't of Criminal Justice v. Parkdale Bank, 660 S.W.2d 810, 813 (Tex.1983) (stating that Miller, 51 S.W.3d 583, 593 (Tex.2001) (Hecht, J., concurring) fundamental fairness requires parties to be heard on the merits (noting that judicial abolition of immunity may be necessary of their cases). to prompt the Legislature to enact a reasoned system for determining the government's responsibility for its torts). Therefore, it remains the judiciary's responsibility to define the boundaries of the common-law doctrine and to determine III. Analysis under what circumstances sovereign immunity exists in the first instance. A. The City's Claim for Relief

We have generally deferred to the Legislature to waive Although there may have been some question after immunity because the Legislature is better suited to address Anderson regarding whether sovereign immunity the conflicting policy issues involved. See IT–Davy, continues to exist when an affirmative claim for relief is filed 74 S.W.3d at 854. A lack of immunity may hamper by a governmental entity, subsequent cases indicate that under governmental functions by requiring tax resources to be used such circumstances immunity from suit no longer completely for defending lawsuits and paying judgments rather than exists for the governmental entity. 2 In State v. Humble Oil using those resources for their intended purposes. Id. & Refining Co., 141 Tex. 40, 169 S.W.2d 707, 708 (1943), we The Legislature has expressed its desire to preserve its considered whether a defendant in a tax suit could assert an interest in managing fiscal matters through the appropriations offset against the State for taxes it had previously overpaid. process by maintaining sovereign immunity unless it has The court of appeals concluded that the rule announced in clearly and unambiguously stated otherwise. TEX. GOV'T Anderson applied: the defendant was entitled to claim an CODE § 311.034. The United States Supreme Court has offset for any matter dependent upon or connected with the also recognized that suits for money damages against states “may threaten the financial integrity of the States” and that State's suit. Id. at 709. We stated that “[w]e have no fault “at the time of the founding, many of the States could have to find with the rule of law announced in ... Anderson ... been forced into insolvency but for their immunity from when applied in a proper case.” Id. However, we went on to private suits for money damages.” Alden v. Maine, 527 hold that the Anderson rule did not apply in Humble Oil U.S. 706, 750, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999). because (1) its application would abolish the rule that taxes However, if the governmental entity interjects itself into or due the State cannot be offset, and (2) the defendant's claim chooses to engage in litigation to assert affirmative claims was not connected with the State's claim as the two involved for monetary damages, the entity will presumably have made a decision to expend resources to pay litigation costs. If taxes for different months and years. Id. at 710. While the opposing party's claims can operate only as an offset to our opinion in Humble Oil did not specifically address the reduce the government's recovery, no tax resources will be issue of whether the trial court had jurisdiction over Humble's called upon to pay a judgment, and the fiscal planning of claims against the State, we acknowledged that in certain the governmental entity should not be disrupted. Therefore, a circumstances, a defendant would be entitled to assert a claim determination that a governmental entity's immunity from suit against the State if the State filed suit. does not extend to a situation where the entity has filed suit is consistent with the policy issues involved with immunity.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 5 Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371 (2006) 49 Tex. Sup. Ct. J. 811

2 of the entity that filed suit. See Humble Oil, 169 S.W.2d at The City argues that Anderson is in conflict with two prior cases from this Court in which we held 710; Anderson, 62 S.W.2d at 110. immunity had not been waived as to claims brought against the governmental entity plaintiffs by the [5] Therefore, we hold that the decision by the City of Dallas to file suit for damages encompassed a decision to leave its defendants. See Borden v. Houston, 2 Tex. 594, sphere of immunity from suit for claims against it which 611 (1847); Bates v. Republic, 2 Tex. 616, 618 are germane to, connected with and properly defensive to (1847). However, those cases are distinguishable claims the City asserts. Once it asserts affirmative claims for from Anderson because they involved claims monetary recovery, the City must participate in the litigation by the defendants for set-offs unrelated to the process as an ordinary litigant, save for the limitation that the City continues to have immunity from affirmative damage governmental entities' claims. Borden, 2 Tex. at claims against it for monetary relief exceeding amounts 595–96; Bates, 2 Tex. at 616–17. necessary to offset the City's claims. Moreover, we see no substantive difference between a decision by the City to file In Kinnear v. Texas Commission on Human Rights, 14 an original suit and the City's decision to file its claim as an S.W.3d 299, 300 (Tex.2000), we acknowledged that the trial intervenor in Southwest's suit. Accordingly, when the City court had jurisdiction over claims against the State in a filed its affirmative claims for relief as an intervenor, the case where the State had filed suit. In Kinnear, the Texas trial court acquired subject-matter jurisdiction over claims Commission on Human Rights filed suit against Kinnear, made against the City which were connected to, germane alleging that he had violated the Texas Fair Housing Act. to, and properly defensive to the matters on which the City

Id. at 299. Kinnear counterclaimed for attorney's fees as based its claim for damages. See Anderson, 62 S.W.2d at provided by the Act, and when he prevailed, the trial court 110. Absent the Legislature's waiver of the City's immunity from suit, however, the trial court did not acquire jurisdiction awarded them. Id. at 300. In response to the question over a claim for damages against the City in excess of of whether the trial court had jurisdiction, we said that damages sufficient to offset the City's recovery, if any. “[b]ecause the Commission initiated [the] proceeding under the Texas Fair Housing Act, and Kinnear claimed attorney See City of LaPorte v. Barfield, 898 S.W.2d 288, 297 fees as a consequence of that suit, the jurisdictional question (Tex.1995); Anderson, 62 S.W.2d at 110 (holding that in this case was answered when the Commission filed suit.” when a governmental entity files suit, “the defense will be Id. Later, four concurring justices in a plurality opinion entitled to plead and prove all matters properly defensive”). 3 cited Kinnear and Anderson for the proposition that 3 “the State can waive immunity by filing suit.” IT–Davy, 74 At the time Anderson was decided, a claim of S.W.3d at 861 (Hecht, J., concurring). an offset was referred to as a defensive matter. See Sw. Contract Purchase Corp. v. McGee, 120 Tex. In circumstances such as those now before us, where the 240, 36 S.W.2d 978, 979 (1931) (stating “defendant governmental entity has joined into the litigation process in error pleaded in defense ... certain offsets and by asserting its own affirmative claims for monetary relief, defenses”). we see no ill befalling the governmental *377 entity Because the City's assertion of claims for damages against or hampering of its governmental functions by allowing Reata means that the City does not have immunity from adverse parties to assert, as an offset, claims germane to, Reata's claims to the limited extent we have explained above, connected with, and properly defensive to those asserted by we must consider Reata's remaining arguments to determine the governmental entity. And, our decisions that immunity if the City's immunity from suit has been completely waived from suit does not bar claims against the governmental entity in some manner. if the claims are connected to, germane to, and defensive to the claims asserted by the entity, in effect, modified the common- law immunity doctrine and, to an extent, abrogated immunity B. Texas Tort Claims Act

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[6] Reata claims that the court of appeals erred in holding [9] Reata also claims the City's immunity from suit is waived that its claims against the City do not fit within any waiver by section 51.075 of the Local Government Code, which of immunity under the Tort Claims Act. Specifically, Reata provides that a home-rule municipality “may plead and be claims that the court of appeals did not liberally construe impleaded in any court.” See TEX. LOC. GOV'T CODE its pleadings as asserting damages for personal injuries. § 51.075. However, waiver of immunity for tort claims is governed by the Texas Tort Claims Act. See TEX. CIV. See Tex. Dep't of Transp. v. Ramirez, 74 S.W.3d 864, 867 (Tex.2002) (noting that pleadings should be liberally PRAC. & REM. CODE ch. 101; Miranda, 133 S.W.3d at construed in favor of jurisdiction). 224–25 (holding that the governmental entity was immune from suit for a tort unless it was expressly waived by the Through the Tort Claims Act, the Legislature has waived the Tort Claims Act). Under rules of statutory construction, City's immunity for “personal injury and death so caused by we give precedence to the Tort Claims Act over section a condition or use of tangible personal or real property if the 51.075 because the Tort Claims Act is the later-enacted, governmental unit would, were it a private person, be liable more specific statute regarding waiver of immunity in tort to the claimant according to Texas law.” TEX. CIV. PRAC. & cases. See TEX. GOV'T CODE § 311.026. Moreover, in REM. CODE § 101.021(2). Tooke v. City of Mexia, 197 S.W.3d 325, 342, 2006 WL [7] The court of appeals concluded that none of the 1792223 (Tex.2006), we have held that the phrase “plead damages claimed against the *378 City—property and and be impleaded” in section 51.075 does not clearly and mental anguish damages—were recoverable under that unambiguously reflect legislative intent to waive immunity

subsection. 83 S.W.3d at 396. Reata argues that a claim for from suit. See Taylor, 106 S.W.3d at 697–98 (Tex.2003). personal injury damages was made as the intervenors asserted that fumes from generators used in the flooded building [10] Reata also claims the City's immunity is waived by the after the water shorted out the electricity made them sick. Dallas City Charter which states that the City may “sue and However, section 101.021(2) only waives immunity when the be sued” and “implead and be impleaded.” DALLAS, TEX., CITY CHARTER ch. II, § 1(2), (3). As we explain in Tooke, governmental unit is the user of the property. San Antonio such phrases, separately or together, do not comprise a clear State Hosp. v. Cowan, 128 S.W.3d 244, 245–46 (Tex.2004). There is no claim that the City was the user of the generators. and unambiguous waiver of immunity to suit. Tooke, 197 S.W.3d at 342. The City Charter provision does not waive the [8] Reata also argues that if its claim was not properly City's immunity from suit. See id. pleaded to demonstrate a waiver of immunity, it should be given the opportunity to amend before its case is dismissed. See Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d IV. Conclusion 217, 226–27 (Tex.2004). But, in the trial court, the City twice filed special exceptions claiming that Reata failed to state Because the City asserted affirmative claims for monetary a cause of action for which the City could be liable under relief against Reata, the City does not have immunity the Tort Claims Act. Reata amended its petition twice, but from Reata's claims germane to, connected to, and properly its pleadings still fail to demonstrate a waiver of immunity. defensive to claims asserted by the City, to the extent any Accordingly, we hold that the court of appeals correctly recovery on those claims will offset any recovery by the City determined that Reata's claims do not fit within any waiver of from Reata. We reverse the court of appeals' judgment and immunity under the Tort Claims Act and that Reata was not remand the case to the trial court for further proceedings entitled to replead. consistent with this opinion.

C. Waiver of Immunity by the Local Justice BRISTER filed a concurrence in which Justice Government Code and City Charter HECHT and Justice O'NEILL joined.

Justice WILLETT did not participate in the decision.

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4 *379 Justice BRISTER, joined by Justice HECHT and See Texas Ass'n of Bus. v. Texas Air Control Bd., Justice O'NEILL, concurring. 852 S.W.2d 440, 444 (Tex.1993). I join in the Court's judgment, as American law has long 5 held that a government waives immunity from suit by filing See Univ. of Texas Sw. Med. Ctr. v. Loutzenhiser, an affirmative claim in court. I write separately because I 140 S.W.3d 351, 358 (2004). disagree with the State that this rule is mistaken, and with Personal jurisdiction, by contrast, concerns a court's power the Court that we must partially abrogate sovereign immunity because the rule is in “tension” with other jurisdictional over parties. 6 A court cannot enter judgment against a rules. Instead, sovereign immunity has always had its own set party who has not been haled into court through proper of jurisdictional rules because jurisdiction over private and service, 7 and its writ extends beyond its borders only as public parties is simply different. far as due process allows. 8 Personal jurisdiction can be voluntarily waived by appearance, 9 or impliedly by an In all cases, whether the parties are public or private, a court must have jurisdiction to issue a binding judgment. But untimely objection. 10 “[j]urisdiction,” as the United States Supreme Court recently 6 observed, “is a word of many, too many, meanings.” 1 See CSR Ltd., 925 S.W.2d at 594. Both subject-matter jurisdiction and personal jurisdiction are “jurisdictional” in that a court cannot enter judgment without 7 See Wilson v. Dunn, 800 S.W.2d 833, 836 them. 2 Sovereign immunity is also “jurisdictional,” but in (Tex.1990). ways that do not fit neatly into the other two categories. 8 See World–Wide Volkswagen Corp. v. Woodson, 1 444 U.S. 286, 292, 100 S.Ct. 559, 62 L.Ed.2d 490 Steel Co. v. Citizens for a Better Env't, 523 U.S. (1980). 83, 90, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (internal quotation marks omitted). 9 See Hilburn v. Jennings, 698 S.W.2d 99, 100 2 (Tex.1985). See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 10 574, 583–84, 119 S.Ct. 1563, 143 L.Ed.2d 760 See TEX. R. CIV. P. 120a.

(1999); CSR Ltd. v. Link, 925 S.W.2d 591, 594 Throughout Texas history, we have held that sovereign

(Tex.1996); see also Anderson, Clayton & Co. immunity is “jurisdictional” 11 but without characterizing v. State, 122 Tex. 530, 62 S.W.2d 107 (1933). it as either subject-matter or personal jurisdiction. To the

Subject-matter jurisdiction concerns a court's power over contrary, in Anderson, Clayton we held that when the State waived immunity by filing suit, the trial court “acquired cases. 3 It stems from the doctrine of separation of powers, and aims to keep the judiciary from encroaching on subjects jurisdiction of the parties and subject-matter.” *380 12

properly belonging to another branch of government. 4 11 Subject-matter jurisdiction cannot be waived or conferred by See, e.g., Missouri Pacific R.R. Co. v. agreement, must be considered by a court sua sponte, and can Brownsville Navigation Dist., 453 S.W.2d 812, 814 be raised for the first time on appeal. 5 (Tex.1970); State v. Lain, 162 Tex. 549, 349

3 S.W.2d 579, 581–82 (1961); W.D. Haden Co. v. See Arbaugh v. Y & H Corp., 546 U.S. 500, Dodgen, 158 Tex. 74, 308 S.W.2d 838, 841 (1958); ––––, 126 S.Ct. 1235, 1244, 163 L.Ed.2d 1097 Walsh v. Univ. of Tex., 169 S.W.2d 993, 994 (2006); CSR Ltd., 925 S.W.2d at 594. (Tex.Civ.App.-El Paso 1942, writ ref'd).

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12 attributes of sovereignty not to be amenable to Anderson, Clayton, 62 S.W.2d at 110 (emphasis the suit of a private person without its own added). consent ...”). In the last seven years we have addressed sovereign immunity 17 See, e.g., TEX. FAM. CODE § 157.375(a) (“While almost exclusively in terms of subject-matter jurisdiction. 13 in this state for the sole purpose of compelling This approach began with a per curiam opinion in 1999, 14 the return of a child through a habeas corpus which distinguished a 1988 opinion that appeared to say proceeding, the relator is not amenable to civil the opposite. 15 But acknowledging that sovereign immunity process and is not subject to the jurisdiction of implicates subject-matter jurisdiction does not mean it does any civil court except the court in which the writ not implicate personal jurisdiction, too. Indeed, the earliest is pending.”) (emphasis added); TEX. R. CIV. Texas cases, dating even from the Republic, addressed P. 120a(1) (providing for special appearances to object to jurisdiction “over the person or property sovereign immunity in terms of “amenability” to suit, 16 a of the defendant on the ground that such party or term borrowed for personal jurisdiction. 17 property is not amenable to process issued by the courts of this State”) (emphasis added). 13 See, e.g., Tex. Dep't of Parks & Wildlife v. These early Texas cases were not aberrations; sovereign immunity has historically been considered a problem Miranda, 133 S.W.3d 217, 224 (Tex.2004); Tex. primarily of personal jurisdiction. Blackstone addressed Natural Res. Conservation Comm'n v. IT–Davy, 74 sovereign immunity under “The Rights of Persons,” S.W.3d 849, 855 (Tex.2002); Dep't of Transp. concluding that sovereign immunity arises from the nature of v. Garza, 70 S.W.3d 802, 808 (Tex.2002); Tex. the sovereign party, not the subject matter of the sovereign's Dep't of Criminal Justice v. Miller, 51 S.W.3d 583, case: 585 (Tex.2001). 14 See Tex. Dep't of Transp. v. Jones, 8 S.W.3d 636, Hence it is, that no suit or action 638 (Tex.1999) (per curiam). can be brought against the king, even 15 in civil matters, because no court See Davis v. City of San Antonio, 752 S.W.2d can have jurisdiction over him. For 518, 520 (Tex.1988) (“We do not read our opinion all jurisdiction implies superiority of in Duhart [a previous sovereign immunity case] power: authority to try would be as holding that the trial court lacked subject matter vain and idle, without an authority jurisdiction of the case and that any judgment to redress; and the sentence of a rendered for the plaintiff would have been void.”). court would be contemptible, unless Between 1988 and 1999, the Seventh Court that court had power to command the of Appeals had suggested sovereign immunity execution of it; but who, says Finch,

concerned both. See Bd. of County Comm'rs shall command the king? 18 of County of Beaver Okl. v. Amarillo Hosp. Dist., 835 S.W.2d 115, 130 n. 2 (Tex.App.-Amarillo 1992, no writ) (“[S]overeign immunity concerns 18 1 William Blackstone, COMMENTARIES ON both subject matter jurisdiction and personal THE LAWS OF ENGLAND *235. jurisdiction.”) (emphasis added); Laykin v. Once bereft of kings, the earliest American cases still viewed McFall, 830 S.W.2d 266, 267 n. 1 (Tex.App.- Amarillo 1992, no writ) (same). sovereign immunity in terms of personal jurisdiction. 19 In The Federalist No. 81, Alexander Hamilton borrowed the 16 language of personal jurisdiction *381 in stating, “It is See, e.g., Kenedy v. Jarvis, 1 S.W. 191, 194 (Tex.1886); Bd. of Land Comm'rs v. Walling, inherent in the nature of sovereignty not to be amenable to the Dallam 524 (Tex.1843) (“[I]t is one of the essential

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suit of an individual WITHOUT ITS CONSENT.” 20 In the Given these similarities and differences with each doctrine, United States Supreme Court's first major opinion, the state it should come as no surprise that the jurisdictional rules of Georgia refused to file a plea or appear at oral argument for governing sovereign immunity borrow from both but are identical to neither. Thus, just like subject-matter jurisdiction, fear that its appearance would waive sovereign immunity. 21 sovereign immunity may be raised by the court even if the

19 parties do not. 24 But like personal jurisdiction, Texas law See generally Caleb Nelson, Sovereign Immunity has long held that a governmental entity waives immunity by as a Doctrine of Personal Jurisdiction, 115 filing suit on an affirmative claim. 25 HARV.L.REV. 1559 (2002). 20 24 THE FEDERALIST NO. 81 (emphasis in original). Compare Tex. Dep't of Parks and Wildlife v. 21 Miranda, 133 S.W.3d 217, 226 (Tex.2004) (“The See Nelson, supra note 19 at 1598 (discussing trial court must determine at its earliest opportunity Chisholm v. Georgia, 2 U.S. (2 Dall.) 419, 1 whether it has the constitutional or statutory L.Ed. 440 (1793)). authority to decide the case before allowing The full story is that sovereign immunity includes concerns the litigation to proceed.”), with Mayhew about both subject-matter and personal jurisdiction, but is v. Town of Sunnyvale, 964 S.W.2d 922, 928 identical to neither. In terms of subject matter, whether (Tex.1998) (raising ripeness issue sua sponte as an a government ought to compensate particular claimants element of subject-matter jurisdiction). involves policy issues beyond the traditional scope of judicial proceedings. 22 But at the same time, there is some 25 Kinnear v. Tex. Comm'n on Human Rights, 14 incongruity in saying that routine tort and contract suits are beyond the traditional subject matter of the courts simply S.W.3d 299, 300 (Tex.2000); Anderson, Clayton because one party is a government employee. 23 & Co. v. State, 122 Tex. 530, 62 S.W.2d 107, 110 (1939). 22 Federal cases addressing the sovereign immunity of the See Fed. Sign v. Tex. S. Univ., 951 S.W.2d 401, states reflect this same hybrid nature, including elements of 414 (Tex.1997) (Hecht, J., concurring) (“[N]ot all both subject-matter and personal jurisdiction. 26 And like the the factors that weigh in determining the State's Texas rule, there is no question that states waive immunity liability on its contracts can be assessed in a judicial from suit *382 in federal court by claiming an interpleaded proceeding.”). fund, 27 filing a bankruptcy claim, 28 or removing a case to 23 See State v. Snyder, 66 Tex. 687, 18 S.W. 106, 107 federal court. 29 (1886) ( “The state, as a plaintiff, has the same right as other plaintiffs to institute and maintain 26 actions in the district courts upon any cause of See Wisc. Dep't of Corr. v. Schacht, 524 action of which, under the terms of the constitution, U.S. 381, 394, 118 S.Ct. 2047, 141 L.Ed.2d such courts have jurisdiction, and so by force of 364 (1998) (Kennedy, J., concurring) (“In certain the jurisdiction conferred on such courts by the respects, the immunity [accorded states by the constitution, and without reference to any statutory Eleventh Amendment] bears substantial similarity authorization.”). to personal jurisdiction requirements, since it can Similarly, concerns about a court's power to order the be waived and courts need not raise the issue government to appear, give evidence, and pay a judgment sua sponte. Permitting the immunity to be raised share much in common with personal jurisdictional limits at any stage of the proceedings, in contrast, is over foreign parties. Yet, it seems awkward to say Texas more consistent with regarding [it] as a limit on courts cannot “reach” other Texas governmental units, when the federal courts' subject-matter jurisdiction.”) all necessarily share the same space, and sometimes the same (citations omitted). buildings.

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27 recognizes every just claim the citizen has against See Clark v. Barnard, 108 U.S. 436, 447–48, 2 it, that in its own way it will do justice in reference S.Ct. 878, 27 L.Ed. 780 (1883). thereto, and that it has ability to do so; and this 28 is one of the reasons why no suit can be brought See Gardner v. New Jersey, 329 U.S. 565, against the state without its consent.”); Borden 573–75, 67 S.Ct. 467, 91 L.Ed. 504 (1947); see v. Houston, 2 Tex. 594, 611–12 (1847); Bd. of Land also Cent. Va. Cmty. Coll. v. Katz, 546U.S. Comm'rs v. Walling, Dallam 524 (Tex.1843). 356, ––––, 126 S.Ct. 990, 1004, 163 L.Ed.2d 945 (2006) (holding that States agreed “not to assert any Second, “[c]oercion ... is incompatible with sovereignty.” 32 sovereign immunity defense they might have had Without some indication of consent, “the powers of judicial in proceedings brought” in bankruptcy). tribunals, however great they may be, are not of a character so transcendent as to enable them to afford [a] remedy.” 33 But 29 See Lapides v. Bd. of Regents of Univ. Sys. when a government voluntarily seeks affirmative relief from of Ga., 535 U.S. 613, 616, 122 S.Ct. 1640, 152 the courts, it is not coercion but cooperation for the courts to L.Ed.2d 806 (2002). adjudicate the matter.

Thus, the jurisdictional rules of sovereign immunity cannot 32 be derived by simply plugging in the rules of subject-matter Borden, 2 Tex. at 611. or personal jurisdiction governing private parties and cases. 33 For one thing, those rules conflict. And because sovereign Walling, Dallam 524 (cited with approval by this immunity includes elements of both but all of neither, there is Court in Kenedy v. Jarvis, 1 S.W. 191, 194 no general rule about which should apply or be preempted. (Tex.1886)); accord, Snyder, 18 S.W. at 106, 110; Bates v. Republic, 2 Tex. 616 (1847). Rather than abrogating sovereign immunity piecemeal or adopting rules governing either subject-matter or personal Third, sovereign immunity protects the government from the jurisdiction wholesale, we should look to those rules for distraction and expenses that would ensue if citizens could sue guidance, applying them (or a hybrid of them) according to the government whenever they pleased. 34 But again, when the purposes and peculiar necessities of sovereign immunity. the government *383 brings its own affirmative claims, it This is precisely what the Court has done when considering has obviously concluded that the distraction and expense of arguments to limit or abolish sovereign immunity completely, litigation is worthwhile in that particular case. looking to the purposes behind the doctrine for guidance. 30 Considering those same purposes here shows why the 34 Texas Natural Res. Conservation Comm'n v. IT– traditional rule that a sovereign's affirmative claim waives Davy, 74 S.W.3d 849, 854 (Tex.2002); Walling, immunity from suit is the right one. Dallam at 525–26 (Tex.1843) (“The experience of ages and the wisdom of the most enlightened 30 See Wichita Falls State Hosp. v. Taylor, 106 statesmen and judicial expositors have sanctioned S.W.3d 692, 695–96 (Tex.2003). the doctrine that less injury would arise from the delay or even the denial of justice to individuals First, sovereign immunity is founded on the presumption that than from the distraction and imbecility consequent governments will do justice to their citizens, by one means or upon the government's being involved in continual another. 31 By filing suit in court, a government makes clear and harassing controversies at the will or caprice of that it has chosen to pursue justice (and presumably not just every citizen in the community.”). for itself) through litigation, at least in that particular case. Fourth, the protection sovereign immunity affords to the public fisc suggests that a government waiver by filing a claim 31 State v. Snyder, 66 Tex. 687, 18 S.W. 106, 109 should be limited to that claim's extent. 35 Absent sovereign (1886) (“It is to be conclusively presumed, in the immunity, policy decisions regarding government spending absence of a statute authorizing suit against the would be made by judges and juries, not the Legislature. 36 state in reference to a given matter, that it fully That might still be the case if, when a government asserted its

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own claim, it waived sovereign immunity as to much larger against governmental units, 40 it has not played the same role counterclaims and entirely different transactions. By filing in limiting which particular suits may be filed by them. Trying suit on a claim, a government consents to have the courts to collect an affirmative claim does not raise the same kinds decide its entitlement to a particular sum, but no more. of concerns as trying to avoid one.

35 39 State v. Humble Oil & Ref. Co., 141 Tex. 40, See, e.g., Wichita Falls State Hosp. v. Taylor, 169 S.W.2d 707 (1943); Snyder, 18 S.W. at 110; 106 S.W.3d 692, 696 (Tex.2003); IT–Davy, 74 Borden, 2 Tex. at 611–12 (1847); Bates, 2 Tex. at 618. S.W.3d at 854; Univ. of Tex. Med. Branch at Galveston v. York, 871 S.W.2d 175, 177 36 IT–Davy, 74 S.W.3d at 854 (“Subjecting the (Tex.1994); Duhart v. State, 610 S.W.2d 740, government to liability may hamper governmental 742 (Tex.1980). functions by shifting tax resources away from their 40 intended purposes toward defending lawsuits and See IT–Davy, 74 S.W.3d at 862 (Hecht, J., paying judgments.”); Bates, 2 Tex. at 618. concurring).

Finally, while courts in these cases see separation among the Second, while the Legislature may waive immunity in branches, parties sued by the State may see only different individual suits, in recent years it has done so quite rarely. 41 parts of the same tree. This paradoxical three-in-one structure Given the press of other business in a rapidly growing state, (which no doubt resonated with the trinitarian Founders) 37 it is unrealistic to expect immunity decisions to be made requires the courts at some point to insist that “[t]here is not piecemeal rather than collectively. The reasons for strictly construing waiver for whole classes *384 of suits against the one law for the sovereign and another for the subject.” 38 A government are not the same when a single government unit rule allowing governments to make a claim but preventing files a single case. all offsetting claims looks less like sovereign immunity than sovereign inequity. 41 See id. 37 Cf. Note, The Twenty Dollars Clause, 118 Finally, when governments bring suit, they must do so HARV.L.REV. 1665, 1680 (2005) (“In an analogy through agents who ultimately derive their authority from that would have resonated with the Founders, the the Legislature. 42 Those agents generally are not authorized trilogy of life, liberty, and property was as the to waive immunity from liability, or immunity from suit in Christian trinity of Father, Son, and Holy Spirit: individual cases. But when they file suit on an affirmative three-in-one; the same, but different.”). claim, they must be doing so with legislative authorization. 38 If the rule were otherwise, it is not clear how a government Fristoe v. Blum, 92 Tex. 76, 45 S.W. 998, 1000 could ever assert its own claims. (1898) (quoting People v. Stephens, 71 N.Y. 527, 549). 42 Thus, the traditional rule of limited waiver by appearance is See Pub. Util. Comm'n v. City Pub. Serv. Bd. of consistent with all of the purposes of sovereign immunity. It is San Antonio, 53 S.W.3d 310, 316 (Tex.2001). not in “tension” with the jurisdictional rules governing private This Court found it “well settled” more than 100 years ago parties; it is simply a different rule. that governments who file suit must follow the same rules as the governed: Nor do I see any unresolvable tension between this rule and our frequent statements that sovereign immunity must be waived by the Legislature in clear and unambiguous terms, 39 for several reasons. First, while the Legislature has taken an It is well settled that so long as active role in deciding which particular suits may be filed the state is engaged in making or enforcing laws, or in the discharge of

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When a government voluntarily enters a contract, it waives sovereign immunity from liability (though not suit) to that any other governmental function, it is extent; 44 when a government voluntarily files suit, it waives to be regarded as a sovereign, and has sovereign immunity from suit (though not liability) to that prerogatives which do not appertain extent as well. Because the City of Dallas filed an affirmative to the individual citizen; but when it claim here, it waived immunity from suit to that extent. becomes a suitor in its own courts, or a party to a contract with a citizen, the 44 same law applies to it as under like See Fed. Sign v. Tex. S. Univ., 951 S.W.2d 401, conditions governs the contracts of an 405–06 (Tex.1997). individual. 43 All Citations

197 S.W.3d 371, 49 Tex. Sup. Ct. J. 811 43 Fristoe, 45 S.W. at 999.

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© 2025 Thomson Reuters. No claim to original U.S. Government Works. 13 Tab E Nazari v. State, 561 S.W.3d 495 (2018) 61 Tex. Sup. Ct. J. 1525

561 S.W.3d 495 [4] the appellate courts lacked interlocutory jurisdiction to Supreme Court of Texas. address dismissal of third-party claims.

Dr. Behzad NAZARI, D.D.S., et al., Petitioners, Judgment of the Court of Appeals affirmed. v. The STATE of Texas; Xerox Corporation; Lehrmann, J., concurred in part, dissented in part, and filed and Xerox State Healthcare, LLC f/k/ opinion in which Johnson, J., joined. a ACS State Healthcare, LLC, Respondents See also 2018 WL 3077704. No. 16-0549 | Procedural Posture(s): Petition for Discretionary Review; Argued February 6, 2018 Interlocutory Appeal; Plea to the Jurisdiction; Motion to | Dismiss. OPINION DELIVERED: June 22, 2018 | Rehearing Denied December 14, 2018 West Headnotes (19)

Synopsis Background: State brought action against dental services [1] States Necessity of waiver or consent providers alleging fraud in violation of the Texas Medicaid The common-law doctrine of “sovereign Fraud Prevention Act, and providers counterclaimed for immunity” prohibits suits against the state unless conspiracy, breach of contract, and conversion and brought the state consents and waives its immunity. third-party claims against state contractor administering the program for common-law fraud, breach of contract, 19 Cases that cite this headnote promissory estoppel, negligent hiring, negligent supervision, negligence, and gross negligence. The District Court, Travis [2] States Nature and scope of immunity in County, 53rd Judicial District, Stephen Yelenosky, J., general granted State's plea to the jurisdiction on the counterclaims Sovereign immunity from suit implicates a and granted State's motion to dismiss third-party claims. court's subject-matter jurisdiction, because it Providers filed interlocutory appeal. The Austin Court of recognizes the courts' limited authority over the Appeals, 497 S.W.3d 169, affirmed the dismissal of the sovereign creating them. counterclaims and dismissed the appeal regarding the third- party claims. Providers' petition for review was granted. 13 Cases that cite this headnote

[3] States Nature and scope of immunity in Holdings: The Supreme Court, Brown, J., held that: general When it applies, sovereign immunity from suit [1] as a matter of first impression, State seeking a transfer operates to shield the public from the costs and of funds is insufficient to preclude protections of sovereign consequences of improvident actions of their immunity; governments.

[2] as a matter of first impression, sovereign immunity barred 3 Cases that cite this headnote dental service providers from asserting counterclaims; [4] States Power to waive immunity or [3] as a matter of first impression, sovereign immunity consent to suit protects State from counterclaims that seek to offset a penalty; and

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Although the state may elect to waive its A governmental entity does not waive its sovereign immunity, that policy decision belongs sovereign immunity by filing a claim for largely to the legislature. affirmative relief; instead, the scope of governmental immunity does not reach the defensive counterclaims to the extent that any [5] States Mode and sufficiency of waiver or recovery on the counterclaims serves as an offset consent against the government's recovery. The legislature may waive the state's sovereign 9 Cases that cite this headnote immunity by statute or by legislative resolution.

8 Cases that cite this headnote [10] States Mode and sufficiency of waiver or consent [6] States Mode and sufficiency of waiver or The state's assertion of a claim for monetary consent relief, standing by itself, is not enough to trigger the abrogation-of-immunity rule; the fact that the If the legislature elects to waive sovereign state seeks a transfer of funds is not sufficient immunity, it must do so by clear and to place it beyond the protections that sovereign unambiguous language. Tex. Gov't Code immunity from suit affords. Ann. § 311.034. 2 Cases that cite this headnote 5 Cases that cite this headnote

[11] States Particular Claims and Actions [7] States Power to waive immunity or States Intentional torts in general consent to suit Sovereign immunity barred dental service Although courts defer to the legislature to providers from asserting counterclaims for determine whether the state has waived conspiracy, breach of contract, and conversion immunity, sovereign immunity is a common- against State, in State's action for fraud law creation, and the responsibility to define under Texas Medicaid Fraud Prevention Act; the boundaries of the doctrine remains with the arguments for conspiracy and breach of contract judiciary. had nothing to do with whether providers 9 Cases that cite this headnote violated Act, conversion counterclaim would have never resulted in an offset, and State sought monetary penalty under Act, rather than [8] Municipal, County, and Local damages. Tex. Hum. Res. Code Ann. § 36.052. Government Entities Entitled to Immunity A governmental entity does not have sovereign 2 Cases that cite this headnote immunity from suit for monetary claims against it that are germane to, connected with, and [12] States Mode and sufficiency of waiver or properly defensive to affirmative claims made by consent the entity, to the extent that the claims against the The rule under which the state, by participating entity offset the entity's own claims. in certain litigation, steps outside the sphere 6 Cases that cite this headnote of protection that common-law sovereign immunity from suit provides never applies when the state initiates litigation to enforce a [9] Municipal, County, and Local substantive prohibition against unlawful conduct Government Waiver of and Exceptions to by imposing a monetary penalty. Immunity in General

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[13] States Nature and scope of immunity in 1 Case that cites this headnote general Sovereign immunity protects the state from [19] Appeal and Error On motion for counterclaims that seek to offset a penalty. dismissal or nonsuit

8 Cases that cite this headnote Statutes do not authorize an interlocutory appeal from an order granting a governmental unit's motion to dismiss third-party claims on non- [14] Penalties Persons liable jurisdictional grounds. Penalties are inherently one-sided; citizens cannot claim a penalty against the state, but 1 Case that cites this headnote the state can and does frequently assess fines, penalties, and sanctions against its citizens.

*497 ON PETITION FOR REVIEW FROM THE COURT [15] States Particular Claims and Actions OF APPEALS FOR THE THIRD DISTRICT OF TEXAS, David E. Puryear. A citizen seeking to offset a penalty must assert some other, non-penal source of the state's Attorneys and Law Firms liability, such as a tort, or a contract. Jason D. Ray, Riggs & Ray, P.C, J. Woodfin Jones, Alexander Dubose Jefferson & Townsend LLP, Austin, E. Hart Green, [16] States Nature and scope of immunity in Mitchell A. Toups, Weller Green Toups & Terrell, L.L.P., general Beaumont, Richard Bruce Pecore, Liles Parker, PLLC, Kingwood, Robert M. Anderton, Law Offices of Hanna & A penalty cannot be offset against the state any Anderton, Austin, J. A. (Tony) Canales, Canales & Simonson, more than a prison sentence. P.C., Corpus Christi, for Petitioners.

J. Campbell Barker, Philip A. Lionberger, Raymond C. [17] Appeal and Error On motion for Winter, Scott A. Keller, Office of the Attorney General of dismissal or nonsuit Texas, Jeffrey C. Mateer, First Assistant Attorney General, Appellate courts lacked interlocutory Christopher R. Cowan, Eric J.R. Nichols, Beck Redden LLP, jurisdiction to address whether trial court erred in Austin, David M. Gunn, Constance H. Pfeiffer, William dismissing dental service providers' third-party C. Webb, Beck Redden LLP, Houston, Robert C. Walters, claims against state contractor administering Gibson, Dunn & Crutcher LLP, Dallas, for Respondents. Medicaid program, in State's action against providers for violation of Texas Medicaid William R. Peterson, Morgan, Lewis & Bockius LLP, Fraud Prevention Act; State moved to dismiss Houston, for Amicus Curiae Pharmaceutical Research and providers' third-party claims against contractor Manufacturers of America. on ground that Act did not permit third-party Constance H. Pfeiffer, Beck Redden LLP, Houston, David M. claims, which was non-jurisdictional ground. Gunn, Beck Redden LLP, Houston, for Amici Curiae Xerox Tex. Hum. Res. Code Ann. § 36.001 et seq. Corporation, Xerox State Healthcare LLC. 4 Cases that cite this headnote Oscar Xavier Garcia, Attorney at Law, Brownsville, Philip H. Hilder, Hilder & Associates PC, Houston, William Graham, [18] Appeal and Error Interlocutory and Hilder & Associates, Austin, for Other interested parties. Intermediate Decisions A party may not appeal an interlocutory order unless authorized by statute.

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33.71(a). During the events that spurred this litigation, Xerox Opinion administered the prior-authorization program under a contract with the state. The state alleges that the Providers routinely Justice Brown delivered the opinion of the Court, in which submitted prior-authorization and post-treatment-payment Chief Justice Hecht, Justice Green, Justice Guzman, and requests that misrepresented the severity or nature of the Justice Devine joined. patients' conditions, sought payments for services that were In this enforcement action under the Texas Medicaid Fraud never provided, falsely claimed that licensed employees had Prevention Act (the Act), the State of Texas alleges that provided the services, and in some cases, accepted kickbacks. several dentists and their professional associations and At the same time, the state alleges, Xerox failed to properly employees (collectively, the Providers) fraudulently obtained review the Providers' prior-authorization requests and instead Medicaid payments for providing dental and orthodontic simply rubber-stamped them. 2 The state thus maintains that treatments to children. In response, the Providers assert the Providers and Xerox committed independent frauds in counterclaims and third-party claims alleging that the state violation of the Act, ultimately costing the state “and its and its contractor mismanaged the payment-approval process taxpayers millions of dollars.” and misled the Providers regarding the requirements that the Texas Medicaid Program (the Program) imposes. The state 1 The state's live petition alleges that the Providers filed a plea to the jurisdiction against the counterclaims and fraudulently performed “general dental and/or a motion to dismiss the third-party claims. The trial court orthodontic services.” The remainder of this granted both. The Providers filed this interlocutory appeal. opinion refers to these services as “orthodontic We conclude that sovereign immunity bars the Providers' services” or “orthodontic treatments.” counterclaims against the state and that we lack interlocutory jurisdiction to address the trial court's dismissal of the 2 The state's allegations against Xerox form the core Providers' third-party claims. We affirm the court of appeals' of a separate Medicaid-fraud case, also announced judgment. today. See In re Xerox, 555 S.W.3d 518, 2018 WL 3077704 (Tex. 2018). The Providers tell a different story. They deny knowingly I submitting false prior-authorization or payment requests. Instead, they claim their requests and services complied with the Program's requirements as the state and Xerox Background explained and enforced those requirements. According to the The facts giving rise to this dispute depend on whom you Providers, the state permitted and even intended Xerox to ask. According to the state, the Providers voluntarily agreed approve as many treatments as possible. This instruction, to participate in the Program by providing *498 orthodontic the Providers say, was part of the state's plan to fend treatments to qualifying children in exchange for payments off additional liabilities in a series of long-running federal from the state at reduced Medicaid rates. 1 See generally lawsuits related to allegations that the Program “did not

42 U.S.C. §§ 1396 to 1396w–5 (authorizing each satisfy the requirements of federal law.” Frew ex rel. Frew state to administer its own Medicaid program); TEX. HUM. v. Hawkins, 540 U.S. 431, 434, 124 S.Ct. 899, 157 L.Ed.2d RES. CODE § 32.001 (implementing the Texas Medicaid 855 (2004); see also Frazar v. Ladd, 457 F.3d 432, 434 (5th Program “to provide medical assistance on behalf of needy Cir. 2006) (discussing “the latest chapter in the suit to improve individuals and to enable the state to obtain all benefits for Texas administration of the Medicaid program to afford health those persons authorized” by federal law). The Program pays care to the certified class of indigent children”). for certain “medically necessary” orthodontic treatments, but it does not cover treatments that are for “cosmetic The Providers allege that because the state was desperate reasons only.” 25 TEX. ADMIN. CODE §§ 33.40(b), to appear compliant with the federal-court orders, the state turned a blind eye to Xerox's routine rubber-stamping of 33.71(a). As one way of preventing improper payments, the Providers' requests. This, the Providers say, led them to the Program requires dentists and orthodontists to obtain believe that the information they were submitting complied prior authorizations for all services and treatments. Id. § with the Program's requirements and established that their

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patients qualified for orthodontic services. But when reports of the state's exploding expenditures began to emerge, the See id. § 36.052 (authorizing civil remedies). The state alleges Providers allege the state blamed them in an effort to avoid that each of the Providers is “jointly and severally liable for responsibility for its own actions, enrich itself, and limit its the damages which arose either directly or indirectly, as a liability to the federal government for having mismanaged the result of each [of the Providers'] unlawful acts.” Program. As a result, the *499 Providers say they are not responsible for improper requests, if any, and are not liable The Providers filed an answer generally denying the state's for any overpayments. To the contrary, urge the Providers, allegations. They also asserted counterclaims against the the state and Xerox are liable for all losses, expenses, and state for conspiracy, breach of contract, and conversion. attorney's fees that the Providers have incurred as a result of The Providers seek “proportional recovery of actual and the state's and Xerox's “scheme.” exemplary damages, interest, court costs, and attorney's fees against the State.” They allege that the state has waived its The state's first step was to initiate administrative actions sovereign immunity as to the Providers' “connected, germane, against various dentists—including the Providers—alleging and defensive counterclaims” and that it “is liable up to they fraudulently obtained payments from the Program. An those amounts plead[ed].” The Providers also asserted third- avalanche of legal proceedings involving the state, Xerox, party claims against Xerox, seeking damages and contribution and the Providers ensued. Throughout these proceedings, the for common-law fraud, breach of contract, promissory state has sought to pursue its claims against Xerox and the estoppel, negligent hiring, negligent supervision, negligence, Providers separately, while Xerox and the Providers have and gross negligence. They allege the state and Xerox attempted, unsuccessfully, to join all of the claims in one were responsible for authorizing the Providers' services and proceeding. After the administrative-law judges ruled against conspired to rubber-stamp the Providers' authorization and the state in its administrative actions, the state filed this payment requests. The Providers say this conspiracy led them lawsuit against the Providers. to continue using the same standards to establish medical necessity, making the state and Xerox liable for any payments In this suit, the state alleges that the Providers committed for services that were not medically necessary. fraud in violation of the Act by submitting false prior- authorization and payment requests, seeking payments for The state filed a plea to the jurisdiction against the Providers' services never rendered, misrepresenting the qualifications of counterclaims, asserting that sovereign immunity bars the those who provided orthodontic services, and, in some cases, counterclaims and that the Providers lack *500 standing accepting illegal kickbacks. The state argued that the trial to assert any claims under the Act or for breach of the court could enjoin the Providers from committing fraud. See contract between the state and Xerox. The state also filed a TEX. HUM. RES. CODE § 36.051(a) (authorizing injunctive motion to dismiss the Providers' third-party claims against relief). It also pleaded in its petition for a recovery “to the Xerox, arguing that the Act does not permit a defendant maximum extent allowed by law,” including specifically: to assert third-party claims and that sovereign immunity bars such claims against a state contractor acting within the (1) the amount of any payments provided under the scope of its contractual authority. The trial court granted [Program], directly or indirectly, as a result of each both motions, expressly holding that “the state is entitled to [Provider's] unlawful acts, bring this action against [the Providers] to the exclusion of other parties.” The Providers filed an interlocutory appeal, (2) prejudgment interest on the amount of the payments or and Xerox filed a brief supporting the Providers' appeal. The the value of such payments, court of appeals affirmed the trial court's order dismissing the

(3) two times the amount of any payment provided under Providers' counterclaims. 497 S.W.3d 169, 171 (Tex. App. the [Program], directly or indirectly, as a result of each —Austin 2016). The court did not consider the merits of the [Provider's] unlawful acts, Providers' appeal from the order dismissing the third-party claims, concluding that it lacked interlocutory jurisdiction (4) civil penalties, and over that order. See id. at 184. (5) expenses, costs, and attorneys' fees. We granted the Providers' petition for review. We need not and do not address the merits of the parties' claims or pick between

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their competing descriptions of the underlying facts. The only with the state and the court of appeals that it does not. See issues before us today are: (1) whether sovereign immunity 497 S.W.3d at 175 (“Nothing in the provisions of the Act bars the Providers' counterclaims against the state; and (2) can be construed as a waiver of immunity for the claims at whether the trial court erred by dismissing the Providers' issue in this case.”). third-party claims against Xerox. We conclude that sovereign immunity bars the counterclaims, and we agree with the court The Providers argue that the attorney general “waived” the of appeals that we lack interlocutory jurisdiction to address state's sovereign immunity *501 by filing this suit and the order dismissing the third-party claims. voluntarily appearing in court. In support, the Providers rely on cases like Anderson, Clayton & Co. v. State ex rel. Allred, in which we held that “where a state voluntarily files II a suit and submits its rights for judicial determination, it will be bound thereby, and the defense will be entitled to Counterclaims plead and prove all matters properly defensive.” 122 Tex. 530, 62 S.W.2d 107, 110 (1933). “This includes the right,” [1] [2] [3] The trial court dismissed the Providers' we explained, “to make any defense by answer or cross- counterclaims on the ground that sovereign immunity bars those claims, meaning the court lacked jurisdiction complaint germane to the matter in controversy.” Id. The to hear them. The common-law doctrine of sovereign Providers also cite cases stating, for example, that “[w]hen immunity prohibits suits against the state unless the state the state becomes a party to a suit it is subject to the same consents and waives its immunity. See Hall v. McRaven, rules that govern other parties.” Sec. Tr. Co. v. Lipscomb 508 S.W.3d 232, 238 (Tex. 2017). Sovereign immunity Cty., 142 Tex. 572, 180 S.W.2d 151, 159 (1944); see also from suit “implicates a court's subject-matter jurisdiction,” State v. Naylor, 466 S.W.3d 783, 792 (Tex. 2015) (“[T]he Engelman Irrigation Dist. v. Shields Bros., Inc., 514 State must abide by the same rules to which private litigants S.W.3d 746, 755 (Tex. 2017), because it recognizes “the are beholden.”); Reata Constr. Corp. v. City of Dallas, 197 courts' limited authority over the sovereign creating them.” S.W.3d 371, 377 (Tex. 2006) (“[T]he City must participate in Hall, 508 S.W.3d at 238 (citing Brown & Gay Eng'g, the litigation process as an ordinary litigant[ ] ....”); State Inc. v. Olivares, 461 S.W.3d 117, 121 (Tex. 2015) ). When v. Zanco's Heirs, 18 Tex.Civ.App. 127, 44 S.W. 527, 529 (San it applies, immunity from suit “operates to ‘shield the public Antonio 1898, writ ref'd) (“When the state of Texas enters its from the costs and consequences of improvident actions of courts as a litigant, it must be held subject to the same rules their governments.’ ” Id. (quoting Tooke v. City of that govern other litigants[ ] ....”). Mexia, 197 S.W.3d 325, 332 (Tex. 2006) ).

The state disagrees, relying on cases like Borden v. [4] [5] [6] Although the state may elect to waive its Houston for the rule that the state's appearance as a plaintiff sovereign immunity, that policy decision belongs largely to in its own courts does not waive its immunity against the legislature. See Engelman, 514 S.W.3d at 753. The counterclaims. See 2 Tex. 594, 611–12 (1847) (“When legislature may waive the state's immunity “by statute or individuals have rights against the government, the clearest by legislative resolution.” Fed. Sign v. Tex. S. Univ., principles of equity and justice demand that those rights shall 951 S.W.2d 401, 405 (Tex. 1997), superseded by statute be respected[ ] .... But however clear the right may be, ... it can be enforced against the government only by its consent, and on other grounds as stated in Tex. Dep't of Parks & in the manner it may prescribe.”). And while the state may be Wildlife v. Miranda, 133 S.W.3d 217, 224 (Tex. 2004). If the bound to follow certain procedures when it appears in court, legislature elects to waive immunity, it must do so “by clear the state contends, procedural rules cannot waive the state's and unambiguous language.” Tooke, 197 S.W.3d at 328– immunity. 29 (citing TEX. GOV'T CODE § 311.034). In this court, the Providers do not argue that the Act expressly waives the We agree with the state that these decisions do not establish state's immunity against their counterclaims, and we agree that the state waives its sovereign immunity by initiating suit.

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Many of the cases the Providers cite stand simply for the resolution of that issue. We explained in Reata that once proposition that procedural rules apply to the state just as they a “governmental entity interjects itself into or chooses to would to any other litigant when the state appears in court. engage in litigation to assert affirmative claims for monetary That proposition, though sound, does not answer the question damages, the entity will presumably have made a decision whether sovereign immunity protects the state from having to to expend resources to pay litigation costs.” 197 S.W.3d defend certain actions to begin with. See Fed. Sign, 951 at 375 (emphasis added). We also recognized that “it would S.W.2d at 407 (“To state what happens if the State consents be fundamentally unfair to allow a governmental entity to to be sued says nothing about whether the State consents to assert affirmative claims against a party while claiming it had be sued.”). immunity as to the party's claims against it.” Id. at 375–76.

[7] [8] [9] And while the quote from Anderson appears To resolve the issue, we must first answer which part of the to support the Providers' waiver argument, we clarified that phrase “monetary damages” best captures Reata's holding: case and others like it in Reata Construction Corp. v. is it the word “monetary,” as the Providers argue, or is it City of Dallas. See 197 S.W.3d at 374, 376–77 (citing the word “damages,” as the state argues? See id. at 375. Anderson, 62 S.W.2d at 110). We based our Reata We conclude that Reata applies to damages, but that the holding not on a waiver theory, but on the scope of the City's question whether it applies further—and how much—is one immunity. See id. at 375 (“[I]t remains the judiciary's of first impression. This conclusion gives rise to a second responsibility to ... determine under what circumstances question: does Reata apply to penalties? We conclude sovereign immunity exists in the first instance.”). So although that it does not. The third question is whether the state's we defer to the legislature to determine whether the state action under the Act seeks to impose a penalty. We answer has waived immunity, “sovereign immunity is a common-law that question in Xerox, also decided today. See Xerox, 555 creation,” and the “responsibility to define the boundaries of S.W.3d at 533–34. In that case, “[c]onstruing the statute as a the doctrine” remains with the judiciary. Engelman, 514 whole, we conclude Section 36.052 of the [Act] employs a S.W.3d at 753. One such boundary is that a governmental penalty scheme.” Id. at 534. Since the Act is penal, Reata's entity simply “does not have immunity from suit for monetary abrogation-of-immunity rule does not apply. Accordingly, the claims against it that are ‘germane to, connected with, state's sovereign immunity protects it from the Providers' and properly defensive to’ affirmative claims made by the counterclaims. entity,” to the extent that the claims against the entity offset the entity's own claims. City of Dallas v. Albert, 354 S.W.3d 368, 372 (Tex. 2011) (quoting *502 Reata, 197 A S.W.3d at 378). “This is not because the governmental entity ‘waives’ its immunity by filing a claim for affirmative relief. The Providers argue that Reata applies broadly: anytime Instead, the scope of governmental immunity simply does the state seeks a transfer of funds. They contend that we not reach the defensive counterclaims to the extent that any have given “broad application” to the rule waiving sovereign recovery on the counterclaims serves as an ‘offset’ against the immunity when the state files a suit “in the form of government's recovery.” C. Borunda Holdings, Inc. v. Lake affirmative claims for monetary relief.” Thus, the Providers Proctor Irrigation Auth. of Comanche Cty., 540 S.W.3d 548, argue, “ Reata simply does not contemplate or support a 550 (Tex. 2018) (per curiam) (citations omitted). distinction between damages and penalties” and “the [court of appeals] was wrong to create one.” The Act authorizes At issue here, then, is not whether the state waived its (and the state has pleaded for) a monetary award including: immunity against the Providers' counterclaims by filing (1) the amount of any payment the state made as a result of this suit, but whether the scope of the state's immunity each unlawful act, (2) prejudgment interest on that amount, encompasses those counterclaims to begin with. See (3) a civil penalty for each unlawful act, and (4) two times Albert, 354 S.W.3d at 375. We agree with the parties the amount of any payment made as a result of an unlawful that the principles we announced in Reata govern the act. See TEX. HUM. RES. CODE § 36.052(a). The Providers

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argue that although Reata happened to involve tort claims for compensatory damages, we did not limit our holding 1. Pre- Reata decisions to only those types of claims seeking only that type of Reata's abrogation analysis cites eight cases, but it monetary relief. See, e.g., 197 S.W.3d at 376–78 (referring discusses only three of them in depth. See 197 S.W.3d at three times to the governmental entity's claims for “monetary 376–77. Two cases appear only once each. See id. (first relief”); id. at 377 (“Once it asserts affirmative claims citing Tex. Nat. Res. Conservation Comm'n v. IT–Davy, for monetary recovery, the City must participate in the 74 S.W.3d 849, 861 (Tex. 2002) (Hecht, J., concurring) ); litigation process as an ordinary litigant[ ] ....” (emphasis and then citing City of La Porte v. Barfield, 898 S.W.2d added) ); id. at 375 (“If the opposing party's claims 288, 297 (Tex. 1995), superseded by statute as stated in can operate only as an offset to reduce the government's recovery, no tax resources *503 will be called upon to pay Manbeck v. Austin Indep. Sch. Dist., 381 S.W.3d 528, a judgment[ ] ....” (emphasis added) ). 532 (Tex. 2012) (per curiam) ). Three more cases appear only in footnotes. See id. at 376–77 nn.2–3. (first citing The state responds that Reata applies narrowly: only Borden, 2 Tex. at 611; then citing Bates v. Republic of when the state seeks compensatory damages. Since Reata Texas, 2 Tex. 616, 618 (1847); and then citing Sw. Contract referred to the City's claim as “damages,” the state says that Purchase Corp. v. McGee, 120 Tex. 240, 36 S.W.2d 978, 979 (1931) ). The remaining cases are the three on which damages are the only type of relief that Reata addressed. Reata's analysis most relied. See id. (first discussing See id. at 377 (“[The City's decision] to file suit for damages encompassed a decision to leave its sphere of Anderson, 62 S.W.2d 107; then citing State v. Humble immunity from suit for claims against it which are germane Oil & Ref. Co., 141 Tex. 40, 169 S.W.2d 707 (1943); and then to, connected with and properly defensive to claims the citing Kinnear v. Tex. Comm'n on Human Rights ex rel. City asserts.” (emphasis added) ); id. (“[T]he trial court Hale, 14 S.W.3d 299 (Tex. 2000) (per curiam). None of these acquired subject-matter jurisdiction over claims made against cases support the view that Reata contemplated abrogating the City which were connected to, germane to, and properly immunity anytime the state sues in its own courts to obtain defensive to the matters on which the City based its claim money. for damages.” (emphasis added) ); id. (“[T]he trial court did not acquire jurisdiction over a claim for damages against The first of the three principal cases on which Reata the City in excess of damages sufficient to offset the City's relied, Anderson, was an enforcement action in which recovery, if any.” (emphasis added) ); id. (“[T]he City's the state sought “recovery of penalties” against a trucking assertion of claims for damages against Reata means that the City does not have immunity from Reata's claims to the company that was operating without a license. Anderson, limited extent we have explained ....” (emphasis added) ). 62 S.W.2d at 107. Importantly, although the state was seeking a penalty, the counterclaimants in Anderson “alleged that We do not agree with either party's characterization of our the agents of the state were acting unlawfully and in excess of precedent. In Reata and its progeny, we used broad their authority” and “sought an order enjoining such officers terms like “monetary relief” simply to refer to the damages from interfering with the operating of the trucks over the the government sought. That usage does not establish that highways.” Id. at 109. That is, the counterclaimants were Reata applies to all money claims, as the Providers not seeking monetary relief. See id. We held that they suggest. But neither does it expressly limit the Reata rule could maintain their counterclaim against the state in that to compensatory damages, as the state suggests. In other case, reasoning that

words, the issue whether the Reata rule covers the facts this case presents is one of first impression.

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Clayton & Co. opinion, when applied in a proper case. It, however, can have *504 The state having invoked the no application in this suit, because to jurisdiction of the district court ... for a here apply it would allow it to abolish judicial determination of the question the rule that taxes due the State cannot as to whether the defendants were ... be offset by an indebtedness due by the liable for the penalties ... became State to the tax debtor. Furthermore, subject to the same rules as other here we have no offset claim which litigants, except in so far as such rules is dependent upon, connected with, or may be modified in favor of the state grew out of the subject matter of this by statute or may be inapplicable or suit. It is true that the subject matter of unenforceable because of exemptions this suit is gross production taxes on inherent in sovereignty. oil, and the subject matter of the offset claim is the same character of taxes. But the one claim has no connection with the other, and the two claims are Id. at 110. We concluded that a “state's immunity from entirely independent of each other .... suit does not extend to a suit against state officers to enjoin The two claims are not even involved the enforcement of an invalid law.” Id. We also noted in the same report. the “further rule” that “where a state voluntarily files a suit and submits its rights for judicial determination, it will be bound thereby, and the defense will be entitled Id. at 709–10 (emphasis added). Humble Oil thus to plead and prove all matters properly defensive.” Id. recognized something that Anderson itself did not— Since the counterclaimants in Anderson did not even that the “rule of law announced” in Anderson could seek any money from the state, that case—although it has figured prominently in subsequent claims for money— apply to some monetary offsets. Id. at 709; see also establishes little in determining which of the state's suits for Anderson, 62 S.W.2d at 110 (allowing a counterclaim for money Reata's abrogation rule applies to. If anything, injunctive relief). If the rule were otherwise, the Humble Anderson's reference to the “exemptions inherent in Oil court would have had no reason to exempt taxes from sovereignty” indicates that counterclaims for money are Anderson's ambit. Accordingly, one of the first cases different from counterclaims for injunctive relief. Id. recognizing that the Anderson rule could apply to money also recognized that the rule did not apply to all money. As The second case, State v. Humble Oil & Refining Co., such, Humble Oil, though it predates Reata, directly involved an operator that overpaid taxes in some months but contradicts the proposition that the Reata rule applies to all underpaid them in another. See 169 S.W.2d at 708. When the state tried to recover the underpayments, the operator, monetary offsets. See Humble Oil, 169 S.W.2d at 709–10;

relying on “the general rule announced in Anderson[,]” see also Reata, 197 S.W.3d at 371 (noting approvingly that claimed the overpayments as an offset, and it paid the Humble Oil “acknowledged that in certain circumstances, difference rather than the full tax it owed for the underpaid a defendant would be entitled to assert a claim against the month. See id. at 709 (citing Anderson, 62 S.W.2d at State” (emphasis added) ). 110). We rejected the operator's argument: The third case, Kinnear v. Texas Commission on Human Rights ex rel. Hale, addressed a counterclaim for attorney's We have no fault to find with the rule fees in response to the state's initiation of *505 a suit

of law announced in the Anderson, under the Texas Fair Housing Act. See 14 S.W.3d at

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300. We held that “the jurisdictional question [of immunity immune from answering for its own negligence. See id. from suit] ... was answered when the Commission filed suit.” We announced, in Reata's introductory paragraph, that Id. Because the state had waived immunity from liability “the City does not have immunity from suit as to [the by failing to plead it, we “render[ed] judgment awarding subcontractor's] claims which are germane to, connected Kinnear his attorney fees and costs” under the Fair Housing with, and properly defensive to the City's claims, to the extent Act. Id. The state's allegation brought with it a claim [the subcontractor's] claims offset those asserted by the City.” for monetary relief, see TEX. PROP. CODE § 301.153, but Id. The remainder of the opinion confirms that our decision a jury found against the state, and we awarded Kinnear regarding the City's claims resulted from the claims' character attorney's fees on that basis, see 14 S.W.3d at 300. In as damages rather than their character as money. See generally other words, the attorney's fees in Kinnear were not an id. at 374–77. offset. Thus, Kinnear had no reason to cite (and did not First, Reata uses the word “damages” more than a dozen cite) Anderson or Humble Oil. So while Kinnear times. By contrast, it refers but three times to the City's involved an abrogation of immunity, it was not the type of “recovery,” twice to its claims for “monetary relief,” and abrogation we announced in Anderson and expounded on only once to a “monetary recovery.” See id. at 373–78. in Reata. As a result, it provides scant reason to conclude This usage indicates that we decided the case based on the anything about Reata's scope. narrow theory of damages rather than the broad theory of a transfer of funds. See id. at 375 (“The United States In sum, of the three cases on which Reata grounded its Supreme Court has also recognized that suits for money analysis, the first did not even involve a counterclaim for damages against states ‘may threaten the financial integrity of the States' and that ‘at the time of the founding, many money, see Anderson, 62 S.W.2d at 110, the second dealt of the States could have been forced into insolvency but primarily with sovereign immunity barring a counterclaim for their immunity from private suits for money damages.’ for money in the tax context, see Humble Oil, 169 S.W.2d ” (emphasis added) (quoting Alden v. Maine, 527 U.S. 706, at 709–10, and the third allowed attorney's fees against the 750, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999) ). Our purpose state in response to a failed enforcement action that did not in using the broader phrase was benign: avoiding repetition. even involve an offset, see Kinnear, 14 S.W.3d at 300. And to the extent we used “monetary relief” and its variants Against this backdrop, the Providers ask us to conclude that as something other than synonyms for “damages,” our goal was to emphasize *506 “monetary relief” as opposed to Reata applies “without regard to the type of monetary injunctive and other types of relief rather than to abrogate relief” sought. the state's sovereign immunity every time it enters a court in pursuit of a money judgment. See id. at 376–77; see 2. Reata also Hilco Elec. Co-op., Inc. v. Midlothian Butane Gas Co., 111 S.W.3d 75, 81 (Tex. 2003) (applying the rule that “when In Reata, a contractor sued a subcontractor, alleging words of a general nature are used in connection with the that the subcontractor negligently drilled into a water main. designation of particular objects or classes ... the meaning See 197 S.W.3d at 373. The subcontractor filed a third- of the general words will be restricted to the particular designation”). party claim against the City of Dallas. See id. Before answering the subcontractor's third-party claim, the City Second, accepting the interpretation the Providers urge—that intervened and “assert[ed] claims of negligence against [the subcontractor] and a plea to the jurisdiction asserting Reata applies “without regard to the type of monetary

governmental immunity from suit.” Id. (emphasis added). relief” sought—would require us to accept that Reata That is, the City sought to recover for the subcontractor's overruled Humble Oil sub silentio. Because if the Reata negligence, and at the same time maintained that it was rule applies to every “monetary recovery,” see 197 S.W.3d

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at 377, then the Reata rule applies anytime the state sues to (emphasis added) (citing Reata, 197 S.W.3d at 375–76); collect taxes. But Humble Oil holds precisely the opposite. see also Reata, 197 S.W.3d at 377 (“[T]he City does not have immunity from Reata's claims to the limited extent See 169 S.W.2d at 710 (“[T]axes due [to] the State cannot we have explained ....” (emphasis added) ). Similarly, in be offset by an indebtedness due by the State to the tax City of Galveston v. State, just one year after Reata debtor.”). Moreover, Reata relied heavily on Humble Oil as one of “our decisions that ... in effect, modified the and Tooke v. City of Mexia, we noted that “we recently common-law immunity doctrine and, to an extent, abrogated held in Reata ... that immunity does not exist when a immunity of the entity that filed suit.” See 197 S.W.3d government affirmatively files suit for money damages.” at 377 (first citing Humble Oil 169 S.W.2d at 710; and City of Galveston v. State, 217 S.W.3d 466, 471 (Tex. then citing Anderson, 62 S.W.2d at 110). Had we intended 2007) (emphasis added); see also Manbeck, 381 S.W.3d to overrule Humble Oil, we would have done so directly, at 532 (“In Reata[,] ... we held that when a governmental and we certainly would not have relied on it as one of the entity asserts an affirmative claim for monetary damages three foundational cases supporting the rule we announced. against its opponent, [the Reata rule applies].” (emphasis This suggests that the rule we adopted in Reata applies to added) ). something less than the full spectrum of legal actions the state has at its disposal for effecting a monetary transfer. *507 [10] These considerations convince us that the state's assertion of a claim for monetary relief, standing by itself, Third, if Reata abrogated immunity for some class of is not enough to trigger Reata's abrogation-of-immunity cases beyond damages, why is “monetary recovery” the limit rule. Said otherwise, the fact that the state seeks a transfer of rather than “recovery” in general or simply “any claim”— funds is not sufficient to place it beyond the protections that immunity from suit affords. When it asserts an affirmative monetary or otherwise? See, e.g., 197 S.W.3d at 375– claim for damages, the state steps outside the sphere of its 76 (“In this situation, we believe it would be fundamentally unfair to allow a governmental entity to assert affirmative immunity from suit to the extent we described in Reata. claims against a party while claiming it had immunity as See 197 S.W.3d at 375–76. But money is at issue in many more of the state's actions than those in which it seeks to the party's claims against it.” (emphasis added) ); id. damages. at 376 (“[W]hen an affirmative claim for relief is filed by a governmental entity, subsequent cases indicate that under such circumstances immunity from suit no longer completely exists for the governmental entity.” (emphasis added) ). B Since the Providers' interpretation offers no upper limit on Reata's ambit, we decline to adopt it. Though subsequent [11] [12] [13] Having concluded that the Reata rule does not abrogate sovereign immunity in every suit in which cases may modify, expand, or clarify its scope, in Reata the state seeks a transfer of funds, we must next consider itself the abrogation-of-immunity rule applied only to the City's claim for damages. whether the Reata rule applies to the action at issue in this case. Contrary to the Providers' argument, we have

Moreover, our decisions following Reata also support never held that the Reata rule always applies when the government seeks any transfer of funds. And contrary to the conclusion that the Reata rule applies to some, though not necessarily all, monetary claims. For example, the state's suggestion, nor have we ever held that Reata applies only to compensatory damages. We hold neither today. in City of Dallas v. Albert, we characterized our decision Instead, we hold that the Reata rule—under which the in Reata as one “conclud[ing] that immunity from suit state, by participating in certain litigation, steps outside the was abrogated to a limited degree.” 354 S.W.3d at 379 sphere of protection that common-law immunity from suit

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provides—never applies when the state initiates litigation to is unavailable under Reata because it could never meet enforce a substantive prohibition against unlawful conduct by imposing a monetary penalty. Sovereign immunity protects Reata's other predicate—offset. See 197 S.W.3d at 378. the state from counterclaims that seek to offset a penalty. A merits victory for the state would vindicate the state's Several strands in our jurisprudence support this rule. current payment hold. The held payments would stay with the state, so they could not function as an offset for the Providers. [14] [15] First, “offsets” are never “germane to, connected By contrast, a merits victory for the Providers would earn with, and properly defensive to” whether a monetary penalty them the held payments. But a win for the Providers would mean that the Providers owe no penalties and so have no is due. See Reata, 197 S.W.3d at 377. Penalties are inherently one-sided. Citizens cannot claim a penalty against judgment to offset. Nor can Reata answer whether the the state, but the state can and does frequently assess fines, Providers presently deserve to possess the funds while this penalties, and sanctions against its citizens. Accordingly, a litigation unfolds. Offset is a requirement under Reata, citizen seeking to offset a penalty must assert some other, non- penal source of the state's liability—a tort, a contract, etc. But see id., and there will be nothing for the held funds to in that situation, “one claim has no connection with the other, offset until this litigation concludes in the state's favor (if and the two claims are entirely independent of each other.” it does so conclude), at which point the temporary payment hold will no longer be relevant. The state's victory would See Humble Oil, 169 S.W.2d at 710. Indeed, Humble Oil holds that taxes from one month are not “dependent eliminate the Reata hurdle, but it would also conclusively destroy the conversion counterclaim's basis. So regardless of upon[ or] connected with” taxes from another. Id. The whether the Providers seek a permanent determination that same is true for penalties. When the state seeks to sanction they “should be paid” or a temporary determination that they primary conduct, a properly defensive response is that the “should possess the payments” while this suit is ongoing, conduct never occurred, or that it occurred to some lesser degree than the state alleges—not that the state cannot collect Reata does not help them. the penalty because the state itself owes some other, non-penal sum. Second, safeguarding the treasury is one of sovereign immunity's primary justifications in the modern era. See, e.g., In their conspiracy and breach-of-contract counterclaims, the Tex. Dep't of Transp. v. Sefzik, 355 S.W.3d 618, 621 (Tex. Providers contend, essentially, that they should not be liable 2011) (per curiam) (“[T]he doctrine of sovereign immunity for their fraud because the state let them get away with it. originated to protect the public fisc from unforeseen This argument has nothing to do with whether the Providers expenditures that could hamper governmental functions ....”); violated the Act. They may have strong arguments that they City of El Paso v. Heinrich, 284 S.W.3d 366, 375 did not, though we express no opinion on that point. Even (Tex. 2009) (“Th[e] compromise between prospective and under Albert's description of Reata's connectedness retroactive relief[ ] .... comports with the modern justification prong—that a counterclaim is “germane” if it is “relevant to” for immunity: protecting the public fisc.”); Tooke, 197 or “would at least inferentially rebut” the state's claim—the S.W.3d at 332 (sovereign immunity “shield[s] the public from Providers' counterclaims have not connection with whether the costs and consequences of improvident actions of their they violated the Act. See Albert, 354 S.W.3d at 375–77 governments”); IT–Davy, 74 S.W.3d at 854 (“Subjecting (discussing Reata, 197 S.W.3d at 377). the government to liability may hamper governmental functions by shifting tax resources away from their intended Similarly, the Providers' conversion counterclaim cannot purposes toward defending lawsuits and paying judgments.”). meet Reata's requirements. The Providers argue that the state has converted funds by holding money that is earmarked Many state programs and offices—including Medicaid, for services “for which [the Providers] should be paid.” police departments, environmental agencies, etc.—depend The problem with this argument is that whether the *508 at least in part for their continued existence on collecting Providers “should be paid” is already one of the central revenue in the form of penalties. Hampering these entities' issues in this case. That is, the conversion counterclaim collections by abrogating their sovereign immunity injures the public fisc just as surely as allowing private citizens to sue

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them directly for damages. For example, under the Providers' The Providers argue that even if Reata does not apply to view of Reata, any driver could assert a “selective penalties—or even if it applies only to damages—it applies in enforcement” counterclaim to any speeding ticket. The driver this case because the state is seeking damages, at least in part. could argue, as the Providers do here, that he thought his The state responds that this proceeding is a “law-enforcement conduct was permissible because it went unpunished for action” in which the state is seeking statutory “sanctions” several years. The driver might even argue that the police or “penalties,” or perhaps “liquidated damages” (as opposed department and, for example, a toll-road operator, conspired to compensatory damages). Although some of the Act's to trick the driver into speeding as part of a scheme to boost penalties must be calculated with reference to the underlying tolls. Of course, such arguments would not be relevant to fraud's monetary amount, see Xerox, 555 S.W.3d at 526, the whether the offensive conduct actually occurred. But they state argues that the legislature is free to choose whatever would, if sovereign immunity did not protect governmental measure of penalty it sees fit. That is, the state argues that the entities from their assertion, dramatically reduce entities' legislature can penalize for monetary losses just as it can for ability to collect revenue. That is why, in an analogous case, other infractions. The court of appeals agreed with the state, we recognized “the rule that taxes due [to] the State cannot be concluding that “the civil penalties that the state is seeking offset by an indebtedness due by the State to the tax debtor.” against the [Providers] do not qualify as damages or monetary Humble Oil, 169 S.W.2d at 710. relief as those terms were used in Reata.” 497 S.W.3d at 181. Instead, that court said, the state sued for a civil penalty to Third, sovereignty itself remains an important justification for “punish” the Providers for violating a public-welfare statute sovereign immunity. See Hosner v. DeYoung, 1 Tex. 764, 769 and to deter others from doing the same. Id. at 179. (1847) (“[M]andamus is not a process that can be resorted to against the state without its consent, and ... no state can Our decision in In re Xerox, also announced today, be *509 sued in her own courts without her consent, and conclusively rebuts the Providers' argument. See 555 S.W.3d then only in the manner indicated by that consent.”); see also at 521–22. We begin the relevant analysis with the Fed. Sign, 951 S.W.2d at 411 (“The State's immunity to observations that “Medicaid fraud exacts an immense toll suit is, purely as a matter of sovereignty, impervious to due from the system, not all of which is discoverable, recoverable, or quantifiable as damages” and that “[t]he civil remedy in process concerns.”); Herring v. Houston Nat'l Exch. Bank, Section 36.052(a) is undeniably punitive in the aggregate.” 114 Tex. 394, 269 S.W. 1031, 1032 (1925) (“[Immunity] See id. at 527. We also examine the amounts that the Act is an attribute of sovereignty[ ] ....”). Penalties serve a imposes in subsections 36.052(a)(1), (2), (3), and (4), in law-enforcement function and the indiscriminate assertion each instance observing that the amount is penal rather than of spurious counterclaims would severely undermine their compensatory. See id. at 525. Finally, we conclude that effectiveness. Because such counterclaims would interfere “Section 36.052 of the [Act] employs a penalty scheme and with the state's ability to enforce its laws, we decline to is not an ‘action for the recovery of damages’ to which abrogate the sovereign immunity that protects the state from [Texas Civil Practice and Remedies Code] Chapter 33's their assertion. proportionate-responsibility mandate applies.” Id. at 534. [16] A penalty cannot be offset against the state any more Section 36.052 is penal for purposes of chapter 33 because than a prison sentence. Because applying the Reata the Act “employs a penalty scheme.” See id. at 534. Our rule to penalties would run counter to Reata itself and damages discussion in Xerox turns on the Act, not on chapter would thwart the primary justifications underlying sovereign 33. See id. at 539. As a result, section 36.052 is penal for immunity's very existence, we conclude that the rule never purposes of the chapter 33 analysis in Xerox as well as applies to offset a penalty. for the Reata analysis in this case. It would make little sense for the word “damages” to mean one thing in the proportionate-liability context and another in the sovereign- C immunity context. And since Xerox depends on the Act rather than on some other statute, our conclusion in that case *510 governs the outcome in this one. See id. at 539.

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Reata's abrogation-of-immunity rule does not apply when sovereignty.” Borden, 2 Tex. at 611; see also Hosner, 1 the state seeks to impose a monetary penalty to enforce a Tex. at 769; Bates, 2 Tex. at 617–18. Then, as now, we substantive prohibition against unlawful conduct. Since the acknowledged that “[t]here may have occurred in the opinions state's action is punitive rather than compensatory, see id. at some unguarded expressions in relation to the equitable rights 527, the Reata rule does not apply here. Accordingly, we of the defendants, and powers of the courts, on the subject need not address the state's contentions that it is not suing of set-off against the government.” Bates, 2 Tex. at 617. as an ordinary litigant or that the Providers' counterclaims And then, as now, we were vigilant to prevent artful advocacy fail Reata's “connectedness” prong. Because it is neither from reducing sovereign immunity to a nullity. There are waived nor abrogated, sovereign immunity bars the Providers some monetary actions for which no monetary setoff can be from asserting their counterclaims against the state. available. Penalties are among them. Accordingly, we affirm the court of appeals' judgment.

III Justice Lehrmann filed an opinion concurring in part and dissenting in part, in which Justice Johnson joined. Third–Party Claims Justice Boyd and Justice Blacklock did not participate in the [17] [18] Finally, the Providers also complain that the trial decision. court erred by dismissing their third-party claims against Xerox. The court of appeals refused to address this complaint, concluding that it lacked jurisdiction to consider the issue on Justice Lehrmann, joined by Justice Johnson, concurring in part and dissenting in part. interlocutory appeal. See 497 S.W.3d at 182–84. We agree with the court of appeals. The trial court's order dismissing the third-party claim was an interlocutory order, and “[a] party may not appeal an interlocutory order unless authorized When a state appears as a party to a by statute.” Bally Total Fitness Corp. v. Jackson, 53 suit, she voluntarily casts off the robes S.W.3d 352, 352 (Tex. 2001). The legislature has authorized of her sovereignty, and stands before interlocutory appeals from an order granting or denying a the bar of a court of her own creation governmental unit's challenge to the trial court's jurisdiction. in the same attitude as an individual See TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8). But litigant; and her rights are determined the state moved to dismiss the Providers' third-party claims and fixed by the same principles of law against Xerox on the ground that the Act does not permit and *511 equity, and a judgment for third-party claims. or against her must be given the same effect as would have been given it had [19] Texas statutes do not authorize an interlocutory appeal it been rendered in a case between from an order granting a governmental unit's motion to private individuals. 1 dismiss third-party claims on non-jurisdictional grounds. We do not address the merits of the Providers' third-party 1 claims or whether those claims are permissible in this action. State v. Cloudt, 84 S.W. 415, 416 (Tex. Civ. App. We simply agree with the court of appeals that we lack 1904, writ ref'd). interlocutory jurisdiction to address those issues. Over a decade ago, we considered “whether sovereign immunity continues to exist when an affirmative claim for relief is filed by a governmental entity.” Reata Constr. *** Corp. v. City of Dallas, 197 S.W.3d 371, 376 (Tex. 2006). We determined that “under such circumstances immunity In 1847, this Court decided a trio of cases recognizing the from suit no longer completely exists for the governmental fundamental principle that “[c]oercion ... is incompatible with

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In 1993, the mothers of children in low-income families entity.” Id. (citing State v. Humble Oil & Ref. Co., 141 sued the Texas Department of Health and the Texas Health Tex. 40, 169 S.W.2d 707, 708 (1943) ). This is because our modern jurisprudence rejects the “antiquated ‘feudal fiction’ and Human Services Commission under 42 U.S.C. § 1983, alleging that the Texas Medicaid program did not ” that the government can do no wrong. Brown & Gay Eng'g, Inc. v. Olivares, 461 S.W.3d 117, 121 (Tex. 2015) comply with federal law. 3 The plaintiffs, a class of more than 1.5 million indigent children in Texas, claimed that (quoting Wichita Falls State Hosp. v. Taylor, 106 S.W.3d “the Texas program did not ensure eligible children would 692, 695 (Tex. 2003) ). Rather, “modern-day justifications” receive health, dental, vision, and hearing screens,” “failed for immunity “revolve around protecting the public treasury.” to meet annual participation goals,” and “lacked proper case Id. Consistent with these policies, we have narrowed the management and corrective procedures.” 4 *512 The State doctrine's scope in circumstances where “the governmental ultimately agreed to settle the dispute by entering into a entity has joined into the litigation process by asserting its consent decree, which required the State, among other things, own affirmative claims for monetary relief,” Reata, 197 “to conduct outreach efforts aimed at increasing participation S.W.3d at 376, because it would be “fundamentally unfair and the receipt of needed services” for Medicaid-eligible to allow [a governmental entity] to assert affirmative claims children. 5 After years of litigation, in 2007 the State began against [a] party while claiming immunity” as to the party's allocating millions of dollars in state and federal funding to provide these increased services, including Medicaid dental claims against it, City of Dallas v. Albert, 354 S.W.3d 368, 379 (Tex. 2011). services. 6

In this case, the State filed suit under the Texas Medicaid 3 Frew ex rel. Frew v. Hawkins, 540 U.S. 431, Fraud Prevention Act (Medicaid Fraud Act or Act), alleging 434, 124 S.Ct. 899, 157 L.Ed.2d 855 (2004). that the defendants, several dental providers offering services through the Texas Medicaid program, fraudulently obtained 4 Medicaid reimbursements. In filing suit, the State sought Frew v. Gilbert, 109 F.Supp.2d 579, 587 (E.D. to recover any payments unlawfully provided under the Tex. 2000), vacated sub nom. Frazar v. Gilbert, Medicaid program; prejudgment interest; two times the 300 F.3d 530 (5th Cir. 2002), rev'd sub nom. amount of any payment provided under the Medicaid Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 program; civil penalties; and expenses, costs, and attorney's S.Ct. 899, 157 L.Ed.2d 855 (2004). fees, as provided by the Act's “civil remedies” provision. See TEX. HUM. RES. CODE § 36.052(a). The Providers 5 counterclaimed for breach of contract, conversion, and fraud. Id. at 588–89. The issue before the Court is whether sovereign immunity 6 See Act of May 25, 2007, 80th Leg., R.S., ch. 1429, bars the Providers' counterclaims. Because the State seeks § 19, 2007 Tex. Gen. Laws 5834, 5838–39. “monetary relief” under Reata, I would hold that the State's However well-intended, these efforts attracted the scrutiny decision to file this action “encompassed a decision to leave of Texas news media, and a Dallas news station reported a its sphere of immunity from suit.” Reata, 197 S.W.3d at series of stories highlighting the State's high expenditures 377. Because the Court holds otherwise, I must respectfully for dental and orthodontic services. 7 The Health and 2 express my dissent. Human Services Commission, through its Office of Inspector General, subsequently attributed the high expenditures to 2 dental fraud. The Commission imposed payment holds For the reasons the Court explains, I agree that we lack interlocutory jurisdiction to address the against various dental providers, including some of the dismissal of the Providers' third-party claims. Providers in this case. 8 Following administrative hearings, 9 the SOAH administrative law judges found that the State had failed to present prima facie evidence to support its I. Background fraud allegations and ruled that the payment holds should be reversed. 10 But the Commission refused to release the

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funds, in one case “alter[ing] the ALJs' findings of fact and administrative *513 cases and did not release the withheld conclusions of law and issu[ing] a final order sustaining the funds to the Providers. HHSC–OIG's payment hold.” 11 12 Id. at 778; Harlingen Family Dentistry, 451 7 See, e.g., Byron Harris, Crooked Teeth: S.W.3d at 99. Medicaid Millions, WFAA (Jan. 9, 2012 13 1:10 PM CST), http://www.wfaa.com/news/local/ Harlingen Family Dentistry, 451 S.W.3d at 104; investigates/crooked-teeth-medicaid- Antoine Dental Ctr., 487 S.W.3d at 802. millions_20161017055833341/336726628. 14 8 Harlingen Family Dentistry, 451 S.W.3d at See Tex. Health & Human Servs. Comm'n v. Antoine Dental Ctr., 487 S.W.3d 776, 777–78 104 (“There is no evidence that is credible, reliable, or verifying, or that has indicia of (Tex. App.—Texarkana 2016, no pet.); Janek v. reliability, that [the providers] committed fraud Harlingen Family Dentistry, P.C., 451 S.W.3d 97, or misrepresentation.”); Antoine Dental Ctr., 487 99 (Tex. App.—Austin 2014, pet. denied). S.W.3d at 802. 9 The State filed the instant suit under the Medicaid Fraud A provider subject to a payment hold, which the Commission may impose without prior notice Act, pursuing the same allegations at issue in the nonsuited on a provider's Medicaid reimbursements upon a administrative cases. 15 The Providers responded with credible allegation of provider fraud, may request counterclaims for “proportional recovery of actual and an expedited administrative hearing before the exemplary damages, interest, court costs, and attorney fees State Office of Administrative Hearings. Shamrock against the State” for conspiracy and breach of contract, in Psychiatric Clinic, P.A. v. Tex. Dep't of Health & addition to a demand that the State release the monies held Human Servs., 540 S.W.3d 553, 555 (Tex. 2018) as ordered by the administrative law judges, trial courts, and (citing TEX. GOV'T CODE § 531.102(g)(2), (3) ). courts of appeals in the nonsuited administrative proceedings. 10 The State invoked sovereign immunity in a plea to the Antoine Dental Ctr., 487 S.W.3d at 778, 789; jurisdiction. Harlingen Family Dentistry, 451 S.W.3d at 102. 11 15 Antoine Dental Ctr., 487 S.W.3d at 778, The State also filed a separate suit against Xerox 791 (“Subsequently, [the HHSC Executive Corporation, the private contractor charged with Commissioner] entered a final order on May 2, administering the Texas Medicaid program and 2014, which also rejected the ALJs' decision. The assessing the medical necessity of providers' order was presumably made under authority of reimbursement claims, for violations of the Section 357.483 of the Texas Administrative Code, Medicaid Fraud Act. See State v. Xerox Corp., which states, ‘The judge is a designee of the No. D–1–GV–14–000581 (53rd Dist. Ct., Travis HHSC Executive Commissioner for purposes of: County, Tex. May 9, 2014). (1) issuing default, final, and other orders, and (2) The trial court granted the State's plea without stating its ruling on any motions for rehearing.’ ”). reasons. The court of appeals affirmed, holding that the The Providers filed suit, challenging the Commissioner's Reata rule did not apply because (1) “the civil penalties 12 that the State is seeking against the Dental Groups do not authority to continue holding the funds. The trial courts agreed with the Providers, in one case reversing the final order qualify as damages or monetary relief as those terms were sustaining the payment hold and, in another, issuing a writ used in Reata,” and (2) “when the State pursues an of mandamus commanding the State to pay the improperly enforcement action under the [Medicaid Fraud Act], it is held funds. 13 The courts of appeals affirmed the trial courts' not acting as an ordinary or private litigant as described in judgments in the payment-hold proceedings, ordering the Reata but is instead acting in its sovereign capacity and State to release the held funds. 14 The State nonsuited the

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S.W.3d 466, 472 (Tex. 2007) ). Properly applying these exercising its police powers.” 497 S.W.3d 169, 181 (Tex. App.—Austin 2016) (emphasis removed). principles, I would hold that Reata, its predecessors, and its progeny dictate that the State's claims under the Medicaid Fraud Act constitute affirmative claims for monetary relief; the Providers' counterclaims are germane, connected, and II. Analysis defensive to those claims; and allowing the Providers to offset The Providers contend that this case fits perfectly within the State's recovery with their counterclaims comports with the policies underlying immunity. our Reata holding: because the State asserted affirmative claims for monetary relief against the Providers, it does not have immunity against the Providers' offsetting counterclaims, which are connected, germane, and properly B. Reata's Scope defensive to the State's claims. The State disagrees, arguing that in this Medicaid fraud (or any other) enforcement action, In Reata, the City of Dallas intervened in a pending (1) the State does not seek the type of “monetary relief” tort action and asserted claims that the city's contractor and we addressed in Reata, (2) the State does not appear as its subcontractor negligently caused the city damages when an “ordinary litigant,” and (3) the defendants' counterclaims the subcontractor accidentally drilled through a water main. are not and cannot be connected, germane, and properly 197 S.W.3d at 373. The State distinguishes Reata, defensive to the State's claims. The Court sides with the State, noting that, in this case, the State is not seeking compensatory holding that “the Reata rule ... never applies when the state damages under a conventional tort theory. Instead, the State initiates litigation to enforce a substantive prohibition against contends, although this is a civil case, it is a “law-enforcement unlawful conduct by imposing a monetary penalty.” Ante at action” seeking statutory “sanctions” or “penalties,” or 507. And, relying on our decision today in In re Xerox, 555 perhaps “liquidated damages” (as opposed to compensatory S.W.3d 518, 2018 WL 3077704 (Tex. 2018), the Court holds damages), which are not based or calculated on the amount that because the Medicaid Fraud Act “employs a penalty of damages or losses the State suffered as a result of the scheme,” the Act's civil remedies provision constitutes a Providers' fraud. monetary penalty and thus may not be offset. Ante at 502. I find the Court's analysis unpersuasive. The court of appeals agreed, concluding that the State sued for a “civil penalty” to “punish” the Providers for violating a public-welfare statute and to deter others from doing

A. Judicial Abrogation of Immunity the same. 497 S.W.3d at 179. The court of appeals

In analyzing the reach of sovereign immunity, we must primarily relied on State v. Emeritus Corp., 466 S.W.3d engage in a careful weighing analysis and consider the 233 (Tex. App.—Corpus Christi 2015, pet. denied), in which the court held that the Texas Medical Liability Act policy issues at hand. See, e.g., Olivares, 461 S.W.3d at did not apply to the State's enforcement action against a 123 (“Guiding our analysis of whether to extend sovereign healthcare provider because the State was acting “in its immunity ... is whether doing so comports with and furthers sovereign capacity and us[ing] its police powers to impose the legitimate purposes that justify this otherwise harsh and recover a civil penalty,” rather than as a “claimant” doctrine.”). These policy considerations led us to permit offsetting counterclaims against the government because: “(1) seeking “damages.” 497 S.W.3d at 179–80. The court ‘when the State sues a private party, the general public stands of appeals here concluded that “the civil penalties that the to *514 lose nothing’; (2) doing so avoids ‘jurisdictional State is seeking against the Dental Groups do not qualify problems in asking courts to enforce a judgment against a as damages or monetary relief as those terms were used in government entity’; and (3) allowing such [claims] promotes Reata.” Id. at 181. ‘fundamental fairness.’ ” C. Borunda Holdings, Inc. v. Lake Proctor Irrigation Auth. of Comanche Cty., 540 S.W.3d 548, The Providers argue that the court of appeals erred in that 552 (Tex. 2018) (quoting City of Galveston v. State, 217 conclusion because, other than its claim for an injunction, all of the State's claims in this suit are for “monetary relief.”

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Specifically, the Medicaid Fraud Act authorizes, and the State against states ‘may threaten the financial integrity requests in its pleadings, a monetary award including (1) the of the States’ and that ‘at the time of the founding, “amount of any payment” the State made “as a result of” each many of the States could have been forced into “unlawful act”; (2) prejudgment interest on that amount; (3) insolvency but for their immunity from private a “civil penalty” for each unlawful act; and (4) two times suits for money damages.’ ” (quoting Alden “the amount of any payment” made as a result of an unlawful v. Maine, 527 U.S. 706, 750, 119 S.Ct. 2240, act. See TEX. HUM. RES. CODE § 36.052(a). The Providers 144 L.Ed.2d 636 (1999) ) ). One reference is argue that, although Reata happened to involve tort claims contained in a recitation of our often-repeated for compensatory damages, our holding was not limited to principle that “[s]overeign immunity protects the those types of claims seeking that type of monetary relief. State from lawsuits for money damages.” Id. at The court of appeals thus created a “distinction that Reata 374. Similarly, two references describe the relief neither contemplates nor supports.” sought by the private party, not the State. Id. at 377 (“Absent the Legislature's waiver of the City's I agree with the Providers. The Court superficially states that immunity from suit, however, the trial court did “ Reata uses the word ‘damages’ more than a dozen times,” not acquire jurisdiction over [the defendants'] claim concluding that “[t]his usage indicates that we decided the for damages against the City in excess of damages case based on the narrow theory of damages rather than the sufficient to offset the City's recovery, if any.”). broad theory of a transfer of funds.” Ante at 505. Admittedly, And four of the references appear under the Court's a word search for the term *515 “damages” reveals that analysis of waiver of immunity under the Texas we used the word thirteen times throughout the opinion, but Tort Claims Act, which is wholly separate from the the majority of the references are not relevant to the issue abrogation issue. Id. at 377–78. before us. 16 As relevant to the Court's analysis, we referred But our discussion and our holding in Reata utilized much to the City's claim for “damages” four times in Reata, broader terms. Addressing not just the City's claims but the noting that the City had sued for damages and reasoning that principles underlying our holding, we referred twice to claims the City's decision “to file suit for damages encompassed for “monetary relief.” First, we reasoned that “where the a decision to leave its sphere of immunity from suit for governmental entity has joined into the litigation process by claims against it which are germane to, connected with and asserting its own affirmative claims for monetary relief, we properly defensive to claims the City asserts”; that sovereign see no ill befalling the governmental entity or hampering immunity did not apply to the subcontractor's counterclaims of its governmental functions by allowing adverse parties “made against the City which were connected to, germane to assert, as an offset, claims germane to, connected with, to, and properly defensive to the matters on which the City and properly defensive to those asserted by the governmental based its claim for damages”; and that “the City's assertion of claims for damages against Reata means that the City does entity.” Id. at 376–77. Second, we held that because “the not have immunity from Reata's claims to the limited extent City asserted affirmative claims for monetary relief against Reata, the City does not have immunity from Reata's claims we have explained.” 197 S.W.3d at 377. We referred once germane to, connected to, and properly defensive to claims to “monetary damages,” reasoning that, “if the governmental asserted by the City, to the extent any recovery on those entity interjects itself into or chooses to engage in litigation claims will offset any recovery by the City from Reata.” to assert affirmative claims for monetary damages, the entity will presumably have made a decision to expend resources to Id. at 378. We referred once to “monetary recovery,” explaining that, once the government “asserts affirmative pay litigation costs.” Id. at 375. claims for monetary recovery, the City must participate

16 in the litigation process as an ordinary litigant.” Id. at For example, two of the references appear in a 377. And, most broadly, we referred three times simply to discussion of the United States Supreme Court's the government's “recovery.” We reasoned that our holding sovereign immunity jurisprudence. Reata, 197 would not disrupt the government's fiscal planning if “the S.W.3d at 375 (“The United States Supreme Court opposing party's claims can operate only as an offset to reduce has also recognized that suits for money damages

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and narrower terms. In other words, this is an issue of first the government's recovery.” Id. at 375. We further held impression, and it may just be, as the State and the Court that *516 immunity would still preclude jurisdiction over suggest, that we used the broader terms merely as convenient any counterclaim “for damages against the City in excess of references to the compensatory-damage relief the government damages sufficient to offset the City's recovery.” Id. at 377. was seeking in those cases, rather than to limit the State's Finally, we concluded that the City did not have immunity “to immunity when it seeks any form of monetary recovery. the extent any recovery on [the counterclaims] will offset any I would reject that suggestion, however, primarily for two recovery by the City from Reata.” Id. at 378. reasons.

We have since characterized Reata's holding by using the First, although Reata involved only claims for broader terms, explaining that governmental entities “do not compensatory damages, the cases on which we relied to have immunity from offsetting claims germane to, connected support our holding in Reata did not. Anderson, to, and properly defensive to monetary claims by the entities.” Clayton & Co. v. State, the case that provided the foundation Albert, 354 S.W.3d at 376 (emphasis added). 17 And for our Reata holding, was an enforcement action in more recently, we described Reata as holding that “when which the State sought “recovery of penalties” against a a governmental entity asserts claims for monetary relief, trucking company operating without a license. 122 Tex. immunity does not protect the entity against the defendant's 530, 62 S.W.2d 107, 107 (1933). We held that the defendant counterclaims for monetary relief that are ‘germane to, could maintain a counterclaim against the State in that case, connected with, and properly defensive to’ the government's reasoning that the State, claims.” Borunda, 540 S.W.3d at 549–50 (emphasis added) (quoting Reata, 197 S.W.3d at 376–77). In both of these having invoked the jurisdiction of cases, we described Reata's holding as broadly addressing the district court ... for a judicial the State's claims for monetary “recovery.” determination of the question as to whether the defendants were subject 17 See also City of Dallas v. Martin, 361 S.W.3d to the provisions of the foregoing act 560, 561 n.4 (Tex. 2011) (“In Reata we held and liable for the penalties described that a governmental entity does not have immunity therein, it became subject to the from monetary claims against it that are ‘germane same rules as other litigants, except to, connected with, and properly defensive to’ in so far as such rules may be affirmative claims made by the entity, to the extent modified in favor of the state by the claims against the entity offset the entity's statute or may be inapplicable or claims.”); City of Irving v. Inform Constr., Inc., 201 unenforceable because of exemptions S.W.3d 693, 694 (Tex. 2006) (“As we explained inherent in sovereignty .... That court at the instance of the state in Reata, however, the City retains immunity acquired jurisdiction of the parties from suit ... to the extent Inform's damages exceed and subject-matter in controversy, amounts offsetting the City's monetary recovery.”). and, the defendants having *517 Accordingly, I agree with the Providers that the language sought affirmative relief in a cross- bill, the jurisdiction of the court cannot we used in Reata did not limit our analysis or our afterwards be defeated by the state holding to government claims for “compensatory damages,” upon a plea that the cross-petitioners but instead rested more broadly on the government's claims were seeking an injunction against the seeking a “monetary recovery.” However, as the Court enforcement of a penal statute. observes, Reata involved only claims for compensatory damages, and neither Reata nor any of our subsequent cases specifically address the distinction between the broader

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Rather, Humble Oil's result rested on the fact that the Id. at 110 (emphasis added). The Court attempts to limit defendant's counterclaims involved taxes due for different Anderson, Clayton, reasoning that although the State months and years than the taxes on which the State had sought “recovery of penalties,” the defendants sought only an sued, and thus the counterclaims were not “dependent upon” injunction, not money damages, in their counterclaim. Ante at or “connected with” the State's affirmative claims. Id. 503. But the Court gives short shrift to our language in that Moreover, we affirmed that we had “no fault to find with case. In determining that sovereign immunity did not bar the defendants' counterclaims, we identified two guiding rules: the rule of law announced in the Anderson, Clayton & Co. opinion, when applied in a proper case.” Id. at 709. The authorities sustain the exception to the foregoing rule that the state's immunity from suit does not extend to a suit Because we based our decision in Reata on these seminal against state officers to enjoin the enforcement of an invalid cases, it is no surprise that we referred broadly to government law to the injury of the legal rights of a citizen. claims for “monetary relief” and “monetary recovery” in Reata, even though Reata itself involved only claims But the authorities sustain the further rule that, where for compensatory damages. a state voluntarily files a suit and submits its rights for judicial determination, it will be bound thereby, and the defense will be entitled to plead and prove all matters Consistent with my reading of Reata's scope, several properly defensive. This includes the right to make any courts of appeals have applied Reata in cases defense by answer or cross-complaint germane to the involving government claims for monetary relief other matter in controversy. than compensatory damages, including penalties, yet the Court neither cites, discusses, nor overrules those cases. Anderson, Clayton & Co., 62 S.W.2d at 110 (citations For example, in Bandera County v. Hollingsworth, the San omitted) (emphases added). Dismissing the “rule” that a Antonio Court of Appeals held the County was not immune defendant is entitled to plead and prove all matters properly from a counterclaim for *518 breach of a Rule 11 agreement defensive, the Court concludes that the decision “establishes where the underlying suit involved the State's claim for little” in resolving this case. Ante at 504. In addition to “taxes due, together with interest, penalties, costs, expenses, sidestepping that language, the Court ignores the fact that in and attorney's fees.” 419 S.W.3d 639, 642–44 (Tex. App. Anderson, Clayton we expressly rejected the argument that —San Antonio 2013, no pet.). Similarly, in Redburn the State's immunity could hinge on the “penal” nature of the v. Garrett, the City brought, among other claims, “an statute being enforced, 62 S.W.2d at 108, a justification enforcement action for statutory penalties in the amount the Court relies on today. Further, the Court's reliance on the of $5,000 per day pursuant to Chapter 54 of the Texas nature of the relief requested in the counterclaims is novel Local Government Code.” No. 13-12-00215-CV, 2013 and misplaced. So long as the counterclaims are germane, WL 2149699, at *2 (Tex. App.—Corpus Christi, May 16, connected, and properly defensive to the government's claims 2013, pet. denied) (mem. op.). Despite the inclusion of and do not seek more than is required to offset those claims, penalties in the monetary relief sought, the Corpus Christi they are permitted under Reata, 197 S.W.3d at 377. Court of Appeals applied Reata, holding that the City did “not have immunity from suit for claims germane to, In Reata, we also relied on our decision in Humble connected with, and properly defensive to its [cross-claims] Oil, which involved the State's action to recover unpaid to the extent [appellant's] claims act as an offset against

production taxes “plus interest and penalties.” 169 S.W.2d the City's recovery.” Id. at *10 (quoting Inform Constr., 201 S.W.3d at 694). And in City of Conroe v. TPProperty at 708 (emphasis added). We held in Humble Oil that LLC, the city sought judgment against the defendant for the defendant could not assert offsetting counterclaims based “unpaid taxes, and statutory penalties, attorneys' fees, and on alleged overpayments in other tax periods. Id. at 710. court costs.” 480 S.W.3d 545, 564 (Tex. App.—Beaumont However, contrary to the Court's description, we did not base 2015, no pet.). Without distinguishing between any of these that holding on the nature of the State's affirmative claims. forms of monetary recovery, the Beaumont Court of Appeals

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compared the city's and the defendant's claims, concluding Accordingly, the policy reasons behind our decision in that they “arise from the same transactions” and “rely on Reata support the broad language we used in that case, as the trial court's resolution of similar disputed facts.” Id. Accordingly, the Court held that the city was not immune well as the conclusion that Reata's holding applies when to the extent the defendant's “claims act as offsets to the the government chooses to file a *519 claim for “monetary relief” or “monetary recovery,” not just for “damages” City's [claims].” Id. (citing Reata, 197 S.W.3d at 376– or “compensatory damages,” as the State suggests. And 77). As these cases illustrate, nothing in the language of here, the State is undeniably seeking monetary relief. In Reata, its predecessors, or its progeny indicates that the this circumstance, as in Reata, “the governmental entity Reata rule applies only when the government seeks to has joined into the litigation process by asserting its own recover “damages” or “compensatory damages.” affirmative claims for monetary relief.” Id. at 376–77. I therefore “see no ill befalling the governmental entity or In addition to the absence of language in Reata and its hampering of its governmental functions” in this case by predecessors indicating that the type of monetary recovery allowing the Providers to assert, as an offset, claims germane sought informs the offset analysis, the policies underlying the to, connected with, and properly defensive to those asserted sovereign-immunity doctrine do not support the limitation the by the State. Id. Court adopts. Consistent with our holdings in Anderson, Moreover, it is fundamentally unfair to allow the State to Clayton and other earlier cases, we explained in Reata assert affirmative claims against the Providers—claims that that our “determination that a governmental entity's immunity could result in millions of dollars of recovery—but deny from suit does not extend to a situation where the entity has the Providers an opportunity to merely offset that recovery filed suit is consistent with the policy issues involved with with counterclaims seeking, at a minimum, the release of immunity.” 197 S.W.3d at 375. And “the primary concern money that every court to adjudicate the merits of the case in Reata was ensuring that any outcome in favor of a has held to be unlawfully retained by the government. See counterclaiming defendant would not be paid with taxpayer Borunda, 540 S.W.3d at 553 (citing Reata, 197 S.W.3d dollars.” Borunda, 540 S.W.3d at 552. That is because the at 375–76 (“[I]t would be fundamentally unfair to allow a purpose of sovereign immunity is to “shield the public from governmental entity to assert affirmative claims against a the costs and consequences of improvident actions of their party while claiming it had immunity as to the party's claims governments.” Hall v. McRaven, 508 S.W.3d 232, 238 against it.”), and Albert, 354 S.W.3d at 380 (noting that (Tex. 2017) (quoting Tooke v. City of Mexia, 197 S.W.3d “here we do not see any fundamental unfairness or inequity occurring”) ). The State has undoubtedly taken advantage 325, 332 (Tex. 2006) ); see also Olivares, 461 S.W.3d of its sovereignty, unsuccessfully pursuing its fraud claims at 123 (considering “the general purpose of protecting the through several tribunals, modifying findings and orders in public fisc”). We thus limited the scope of immunity when support of its position, and then, faced with court orders to the government files claims for monetary relief because, “if release the withheld funds, abandoning its claims only to the governmental entity interjects itself into or chooses to reappear here and assert immunity. I would hold that the engage in litigation to assert affirmative claims for monetary State's pursuit of monetary relief under the Medicaid Fraud damages, the entity will presumably have made a decision Act subjected it to the jurisdiction of the Court for offsetting, to expend resources to pay litigation costs.” Reata, 197 related counterclaims. “To hold otherwise would permit [the S.W.3d at 375. And if “the opposing party's claims can operate State] to use the court in the attainment of [its] object by only as an offset to reduce the government's recovery, no tax piecemeal, by first adopting its judgment as right, and then resources will be called upon to pay a judgment, and the fiscal repudiating it as wrong, and to avail [it]self of the advantages planning of the governmental entity should not be disrupted.” of its being both right and wrong.” See Sec. Trust. Co. of Id. Austin v. Lipscomb County, 180 S.W.2d 151, 158 (Tex. 1944) (citation and internal quotation marks omitted).

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principle that our procedural and evidentiary rules apply to the State as they would to any other litigant when it appears C. The Court's “Law-Enforcement” Exception in court. See State v. Naylor, 466 S.W.3d 783, 792 (Tex. The Court ignores the policy and jurisprudential concerns 2015) (“[W]here the Legislature has given no indication to discussed herein, concluding instead that “sovereignty itself the contrary the State must abide by the same rules to which remains an important justification for sovereign immunity.” private litigants are beholden.”). These references to the Ante at 508. But as we have already explained, protecting State as an “ordinary litigant” do not address the sovereign- the public fisc and public reliance on government services, immunity question of whether the State may be required not fealty to an all-powerful sovereign, underlie our modern to appear in court. Nothing in Reata's text or reasoning justifications for maintaining the doctrine. Olivares, 461 limits its application to cases in which the State appears as an S.W.3d at 121. Regardless, the Court adopts the State's view “ordinary litigant,” as opposed to “enforcement actions.” See that Reata does not apply here because the State is acting Reata, 197 S.W.3d at 376 (discussing Kinnear v. Tex. in its sovereign “law-enforcement” capacity. According Comm'n on Human Rights, 14 S.W.3d 299, 300 (Tex. 2000) to the Court, Reata “never applies when the state (holding that the State was not immune from a counterclaim initiates litigation to enforce a substantive prohibition against for attorney's fees in an enforcement action under the Texas unlawful conduct by imposing a monetary penalty.” Ante at Fair Housing Act) ). 507. Because “[p]enalties serve a law-enforcement function,” the Court asserts, allowing “spurious counterclaims” would Second, a law-enforcement exception would swallow the “severely undermine their effectiveness” and “would interfere Reata rule. The Court gives little guidance on how to with the state's ability to enforce its laws.” Id. at 509. 18 determine whether the State is acting in a “law-enforcement” capacity as opposed to an “ordinary litigant,” other than 18 to state that the exception applies “when the state seeks The Court's reference to “spurious counterclaims” is curious, as it implies a connection between to impose a monetary penalty to enforce a substantive a claim's merits and the government's immunity. prohibition against unlawful conduct” and that “action Whether the government is immune from suit has is punitive rather than compensatory.” Ante at 510. But nothing to do with the strength or weakness of the the Court's new rule obfuscates over a century of our claims asserted against it. sovereign immunity jurisprudence. As previously noted, our

*520 The Court's law-enforcement rationale is unfounded. precedent before and after Reata unequivocally involved First, the State highlights that, when it acts in a law- “substantive” claims, both statutory and under the common enforcement capacity, it necessarily is not acting as an law, and many involved the imposition of “penalties.” See,

“ordinary litigant” as Reata requires. But the State's e.g., Anderson, Clayton & Co., 62 S.W.2d at 110 (“[T]he argument mischaracterizes our description of the government jurisdiction of the court cannot afterwards be defeated by the state upon a plea that the cross-petitioners were seeking an as an “ordinary litigant” in Reata. We used the term injunction against the enforcement of a penal statute.”). in explaining that once the government “asserts affirmative claims for monetary recovery, [it] must participate in When any governmental body brings suit, it necessarily acts the litigation process as an ordinary litigant, save for under its sovereign authority to police and enforce the laws the limitation that [it] continues to have immunity from affirmative damage claims against it for monetary relief of the State. See Reata, 197 S.W.3d at 384 (Brister, J., concurring) (“[W]hen governments bring suit, they must do exceeding amounts necessary to offset [its] claims.” Reata, so through agents who ultimately derive their authority from 197 S.W.3d at 377. We did not hold that the Reata rule the Legislature .... But when they file suit on an affirmative applies only if the government is participating in litigation as claim, they must be doing so with legislative authorization. If the rule were otherwise, it is not clear how a government an “ordinary litigant”; rather, we held that when the Reata could ever assert its own claims.”). The Court's decision rule applies the government must participate as an “ordinary today throws what has been a well-settled doctrine into limbo litigant.” Id. This is consistent with the well-recognized

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because almost any action brought by a governmental body sovereign immunity than sovereign inequity,” Reata, 197 arguably constitutes a “law-enforcement” action. 19 S.W.3d at 383 (Brister, J., concurring).

19 20 See, e.g., TEX. AG. CODE §§ 17.152, .153 See TEX. PEN. CODE § 35A.02(a)(1)–(12); (providing for civil action for actual damages, treble damages, and civil penalties, or action under see also TEX. HUM. RES. CODE § 32.0391 the DTPA for failing to post notice of fuel tax (establishing a criminal offense for kickback and bribery schemes). rates, or document or record those rates); TEX. BUS. & COM. CODE §§ 15.21 (providing that 21 any “person or governmental entity” who is See TEX. HUM. RES. CODE §§ 32.039 harmed by unfair trade practices under the Antitrust (outlining “Damages and Penalties” the State Act “shall recover” actual damages, interest, and may seek in an administrative action against treble damages), 17.953 (providing for the State's a provider accused of Medicaid fraud), 36.006 recovery of restitution and civil penalties for (“The application of a civil remedy under this violations of the Deceptive Trade Practices Act); chapter does not preclude the application of another TEX. INS. CODE § 541.151 (providing for civil common law, statutory, or regulatory remedy, penalties for unfair competition and deceptive acts except that a person may not be liable for a civil in insurance industry); TEX. OCC. CODE §§ remedy under this chapter and civil damages or a 351.603, .604 (providing for civil penalties for penalty under Section 32.039 if the civil remedy violations of the Optometrists Act). and civil damages or penalty are assessed for the *521 I see no principled basis for adopting the State's same act.”). position that the Medicaid Fraud Act enables it to bring a 22 See id. §§ 36.002 (defining “Unlawful Acts” specialized law-enforcement action that justifies an exception relating to Medicaid fraud), .052 (establishing to the Reata rule. By participating in the federal Medicaid “civil remedies” and authorizing the State to initiate program and enacting the Act and its enabling regulations, an action for civil remedies or an injunction under the Legislature has already established a balanced statutory the Act). scheme for protecting the public against fraud. Under federal law, a state must have a “Medicaid fraud control D. Connected, Germane, and unit,” 42 U.S.C. § 1396a(a)(42)(B)(ii)(IV)(cc), which Defensive Nature of Counterclaims investigates program violations and can refer matters for criminal prosecution or “to an appropriate State agency” for other action, 42 C.F.R. § 1007.11(b)(3) (2018). In Texas, Finally, the Court concludes that Reata does not apply to the Providers' counterclaims because they are not connected, such enforcement actions can take the form of criminal, 20 germane, and properly defensive to the State's Medicaid administrative, 21 and civil proceedings. 22 Here, if the State fraud claims. Considering the underlying allegations, the desired the deference and protection of its sovereignty, it appropriate legal standard, and the State's burden on the could have brought (and can still bring) a criminal action merits, I cannot agree with this conclusion. against the Providers in this case, subject to, of course, the corresponding burden of proof. Likewise, the State could (and Where, as here, a plea to the jurisdiction challenges the did) bring an administrative action for sanctions for the same pleadings, we determine if the pleader has alleged facts that alleged violations. The State was certainly entitled to pursue affirmatively demonstrate the court's jurisdiction to hear the this civil action in lieu of its nonsuited administrative claims, cause. City of El Paso v. Heinrich, 284 S.W.3d 366, see Albert, 354 S.W.3d at 375 (“Under litigation rules 378 (Tex. 2009). Whether a pleader has alleged facts that applicable to ordinary litigants ... the City was entitled to affirmatively demonstrate a trial court's *522 subject matter nonsuit its [claims].”), but “preventing all offsetting claims” jurisdiction is a question of law reviewed de novo. Tex. by creating a law-enforcement exception here “looks less like Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226

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Providers' allegations, if true, negate the State's assertion that (Tex. 2004). We must construe the pleadings liberally in they knew the services submitted for reimbursement were not favor of the nonmovant and look to the nonmovant's intent. medically necessary, which is a material element of each of Heinrich, 284 S.W.3d at 378. the State's claims. These allegations are clearly connected and relevant to the parties' claims, and if the Providers are correct, We explained in Albert that counterclaims are their counterclaims will rebut the allegations on which the “germane”—that is, “relevant”—to the government's claims State's claims are based. See State v. Martin, 347 S.W.2d when they are based on the same question as the government's 809, 814 (Tex.Civ.App.—Austin 1961) (“Appellee's claim claim, and are “properly defensive” when they “would at to recover the very money which the State seeks to retain, least inferentially rebut” the government's allegations. 354 the claim of each arising from the same single transaction S.W.3d at 375. Here, the State claims that the Providers between the parties, could not be more closely related or more committed unlawful acts by submitting prior-authorization germane.”). Applying the appropriate standard of review at and post-treatment-payment requests and then accepting this early stage in the proceedings, I must conclude that the payments even though the services they provided did not Providers have met their burden of alleging facts overcoming qualify for reimbursement under the Medicaid program. The the State's assertion of immunity. Providers' breach of contract and conspiracy counterclaims are based on their allegations that the State had an independent duty to determine whether the patient qualified for the III. Conclusion services, that the State (through and in conspiracy with its contractor, Xerox) failed to fulfill that duty, and that When we explained the limited scope of the government's the Providers reasonably relied on the State's decisions immunity against counterclaims in Reata, we relied on when providing the services. And the Providers' conversion the policies that justify the doctrine in the first instance. counterclaim is based on the State's continued retention of Medicaid funds under a payment hold initiated on the same Because the Reata rule permits only germane and properly allegations, same facts, and same defendants as the State's defensive counterclaims and permits relief only in the form failed administrative cases. of an offset against the government's monetary recovery, we concluded that it “would be fundamentally unfair to allow Unlike the Court, I conclude that the counterclaims are a governmental entity to assert affirmative claims against relevant and defensive to the State's claims. On the merits, a party while claiming it had immunity as to the party's the State must show that the Providers acted “knowingly” claims against it.” 197 S.W.3d at 375–76. For the reasons in undertaking the unlawful acts defined in the statute. See explained, I reach the same conclusion *523 here and would TEX. HUM. RES. CODE § 36.002. The Providers allege hold that the State is not entitled to dismissal of the Providers' that the State and Xerox conspired to mislead the Providers counterclaims. Because the Court holds otherwise, I must into believing that their requests complied with the Program's respectfully express my dissent. requirements. As the Providers frame their complaint, “the State now seeks to recoup the payments that it made to the All Citations [Providers] after the [Providers] provided the very services the State had deemed to be medically necessary.” (Footnote 561 S.W.3d 495, 61 Tex. Sup. Ct. J. 1525 omitted). Thus, contrary to the Court's conclusion, the

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Associated Case Party: State of Texas

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David G. Shatto david.shatto@oag.texas.gov 4/14/2025 3:41:30 PM SENT

Rob Farquharson rob.farquharson@oag.texas.gov 4/14/2025 3:41:30 PM SENT 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.

Pauline Sisson on behalf of Abigail Smith Bar No. 24141756 pauline.sisson@oag.texas.gov Envelope ID: 99647007 Filing Code Description: Brief Requesting Oral Argument Filing Description: 20250414 Appellates Brief with Appendix Status as of 4/14/2025 3:53 PM CST

Associated Case Party: State of Texas

Rob Farquharson rob.farquharson@oag.texas.gov 4/14/2025 3:41:30 PM SENT

Johnathan Stone johnathan.stone@oag.texas.gov 4/14/2025 3:41:30 PM SENT

Ian Bergstrom Ian.Bergstrom@oag.texas.gov 4/14/2025 3:41:30 PM SENT

Abby Smith abby.smith@oag.texas.gov 4/14/2025 3:41:30 PM SENT

Amy Pletscher amy.pletscher@oag.texas.gov 4/14/2025 3:41:30 PM SENT