The Texas Supreme Court on Friday determined that a $16.5 million civil penalty the State of Texas leveled against a dentist in the wake of a summary judgment win in a Medicaid fraud lawsuit cannot stand based on the plain language of the statute used to bring the lawsuit.
The ruling frees Dr. Richard Malouf, owner of All Smiles Dental Clinic, from the civil penalty tied to 1,842 claims for reimbursement he submitted to Medicaid. After Texas was granted an early win by Travis County District Judge Catherine Mauzy, Malouf appealed and a three-justice panel affirmed the holding in October 2022. He took his fight to the Texas Supreme Court in January 2023, and in January of this year, the court heard oral arguments in the case.
During oral arguments, much of the court’s questioning focused on whether Texas had proven scienter, whether Malouf knew he was violating the statute when he submitted the claims, which is required for the judgment against Malouf to stand.
But that was not the issue that carried the day for Malouf.
In the majority’s 34-page opinion, Justice Jeff Boyd explained the decision hinges on the legislature’s use of the word “and” instead of “or” in the statute underpinning the case against Malouf.
“The defendant — a dentist — contends the statute applies only if a claim fails to indicate both the license type ‘and’ the identification number of the actual provider,” he wrote. “The state contends it applies if a claim fails to indicate either the license type ‘or’ the identification number. Considering the statute’s text, grammatical structure, context, and purpose, we agree with the dentist’s construction. And to the extent any ambiguity exists, we construe such penal statutes strictly in favor of the party against whom the state seeks to impose the penalties.”
The statute, Section 36.002(8) of the Texas Human Resources Code, states that it is unlawful if a person “makes a claim under the Medicaid program and knowingly fails to indicate the type of license and the identification number of the licensed health care provider who actually provided the service.”
The majority let its ruling rest on the fact that all of Malouf’s 1,842 claims indicated the provider’s license type.
“We thus agree with Malouf that we should construe ‘and’ in the distributive sense as he proposes because, as far as we can tell, the failure to indicate the license type and identification number is likely to be fraudulent and harmful to the state only in combination and each failure alone is not,” the majority held.
Justice Evan Young authored a 40-page dissent, joined by Justice Debra Lehrmann. In it, he called his colleagues robotic for their interpretation of the statute underpinning this case.
“What do robots and lawyers have in common? Maybe more than we would care to admit, but at least one answer is that only robots and lawyers could read the statute at issue the way the court does today,” he wrote. “The court purports to do so in the name of textualism. But a textualist’s obligation is to construe a statute in its context, giving it the meaning an ordinary English speaker would have given it at the time it was enacted. The court instead imposes an implausible reading that no one would have given it when it was written.”
“Today’s reading at best adopts a post hoc construction of the sort that good lawyers scrambling for an escape hatch might concoct for their clients.”
In a footnote in the majority’s opinion, Justice Boyd wrote that the dissenting opinion “treats the statute as if it said what it does not say and fails to give effect to what it actually does say.”
“The difference, in our view, cannot be ignored as mere semantics.”
The state had argued Malouf violated the statute when he used his “Texas Provider Identifier” number on the reimbursement forms, indicating he was the treating dentist, when the tasks were actually performed by dentists he was supervising. The state also contended those other dentists, who hadn’t yet been assigned a TPI number, were not actually supervised by Malouf.
His motive for using the incorrect number, the state contended, came down to cash flow concerns. A dentist can’t bill Medicaid until that dentist is assigned a TPI number, and there’s a 95-day deadline to bill after a service is provided.
By using his number rather than waiting for the new dentists in his clinic to get their TPI numbers, Malouf was able to get his claims paid without delay.
Malouf had argued on appeal that the Texas Medicaid Fraud Prevention Act requires the state to prove three elements, including scienter, which Texas failed to do on summary judgment here because Malouf denied knowing he was doing something wrong. The other two prongs involve disclosures on the Medicaid reimbursement form. Texas had to show that Malouf failed to identify the type of license he had and that he used the wrong TPI number.
But the state-mandated form does not provide an option for specifying the license type because the form already specifies it is for use by a dentist.
Malouf’s attorney, W. Lance Cawthon of The Snell Law Firm, argued that requirement reflects the legislature’s understanding that sometimes mistakes are made, while also recognizing that if both pieces of information are submitted incorrectly, “it almost gives you a self-proving case on scienter element, because who on earth is submitting a claim that misstates both their identification number and what kind of license they have?”
Jason W. Snell of The Snell Law Firm, who also represents Malouf, issued a statement to The Lawbook that he and his client are pleased the ten-year legal battle is over.
“The State of Texas threw all of its resources at our client in a case in which, admittedly, the state suffered zero damages,” he said. “At worst, our client made paperwork errors. This lawsuit should never have been filed. It was a waste of state resources and cost our client dearly. Finally, hopefully, Dr. Malouf can put this horrible experience behind him and move on with his life.”
Justice Jimmy Blacklock did not participate in the decision.
Texas is represented by Philip A. Lionberger, Reynolds B. Brissenden and Noah Reinstein of the Texas attorney general’s office.
The case is Malouf v. State of Texas ex rel. Ellis, case number 22-1046.