In this edition of Litigation Roundup, the Austin appellate court rejects Texas’ bid to cut two qui tam whistleblowers out of their share of a $236 million settlement with Xerox, the Fifth Circuit finds Tesla’s uniform policy does not run afoul of the National Labor Relations Act and two Dallas pain doctors are indicted in a $12 million fraud scheme.
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Collin County District Court
Baylor University Prevails in Licensing Dispute
A court recently affirmed an arbitration award finding Baylor University did not breach a licensing agreement with Hemotek when it terminated the licenses to nine patents related to a powdered form of oxygen, referred to by the trade name Ox66, that’s used in the cosmetics industry.
While Ox66 itself is not patented, Baylor held patents that covered the research, development, manufacture and commercialization of the product and had entered into an agreement with Hemotek in 2013 that entitled the company to an exclusive license to inventions arising out of Baylor’s research into Ox66.
Baylor terminated the licenses to the nine patents in 2021, and Hemotek took the dispute to arbitration in June of that year.
The partnership between Baylor and Hemotek came to a head in during the COVID-19 pandemic in 2020, according to the arbitration final award, when an investor group called Friends of Peter approached both Hemotek and Baylor about funding medical research into whether Ox66 could be used to treat patients with acute respiratory distress.
Talks with Hemotek were unsuccessful, as were attempts to broker an agreement through Baylor, according to the final award.
So, in February 2021, Baylor provided notice it was terminating the license agreement.
An arbitration panel sided with Baylor in July, and Collin County District Judge Benjamin N. Smith signed the final judgment Nov. 3 that awarded Baylor about $1.38 million in attorney fees and costs.
Hemotek is represented by James A. Pikl of Scheef & Stone.
The case number is 380-04272-2023.
Northern District of Texas
Two Dallas Pain Docs Indicted in $12M Healthcare Fraud Case
Dallas doctors Desi Barroga, 51, and Deno Barroga, 51, have been indicted on charges they submitted more than $50 million in false claims seeking reimbursement for corticosteroid injections and also for the unlawful distribution of hydrocodone, according to the Department of Justice.
The doctors were indicted Nov. 14 on five counts each of healthcare fraud, one count each of unlawful distribution of a controlled substance and one count each of conspiracy to commit healthcare fraud. Each count is punishable by up to 10 years in federal prison.
The indictment does not explain the relationship, if any, between the doctors.
The duo operated a pain management clinic in Dallas, according to the government, billed the government more than $50 million for the unnecessary medical services and were paid about $12 million.
As part of the fraud, the government alleges the doctors would place a needle on a patient’s body to mimic an injection but would not actually pierce the skin and would bill the government as if the injection had been administered.
The case has been assigned to U.S. District Judge Brantley Starr.
Assistant U.S. Attorneys Renee Hunter and Demitri Rocha are prosecuting the case.
Deno Barroga is represented by Paul Lund of Burleson Pate & Gibson in Dallas. Desi Barroga is represented by federal public defender Jason Hawkins.
The case number is 3:23-cr-00454.
Third Court of Appeals
Justices Reject State Immunity Defense in Dentists’ Qui Tam Claims
A dentist and dental office manager may proceed with their legal actions against Texas for a share of the state’s $236 million settlement of litigation with Xerox over fraudulent orthodontic claims.
In a ruling issued Nov. 15, the panel rejected the state’s contention that it enjoys sovereign immunity under provisions of the Texas Medicaid Fraud Prevention Act. The panel also refuted the state’s argument that the qui tam claims were barred by the TMPA’s first-to-file provision, which the state said applied to a different dental office employee.
The TMFPA authorizes the attorney general to investigate and enforce its provisions and includes qui tam provisions that deputize private citizens to pursue an action on the government’s behalf.
According to the panel’s opinion, the office manager and dentist filed their separate petitions in March and April 2012 under seal against Xerox and dental and orthodontist service providers over Medicaid payments to the providers for certain types of services.
A dental office billing clerk, Alexandra Alvarez, was the first to file against Xerox in February 2012, and the state contended that subsequent allegations of Joshua LaFountain and Dr. Christine Ellis are based on the same underlying facts.
In 2014, the state filed its own suit against Xerox. In February 2019, the state announced that it had reached a settlement resolving its allegations against Xerox.
Alvarez, Ellis and LaFountain filed a joint motion for a share of the settlement proceeds. The state challenged the trial court’s denial of its plea to the jurisdiction only as to Ellis and LaFountain.
In their brief to the Austin Court of Appeals, Ellis and LaFountain said the state’s position would severely undermine the TMFPA’s purpose of encouraging private individuals to come forward with information about Medicaid fraud through qui tamsuits.
Because their qui tamactions were against Xerox on behalf of the state, the plain language of the statutory prerequisite provision makes clear that it does not apply to deprive the trial court of jurisdiction over appellees’ joint motion, said the panel opinion by Justice Rosa Lopez Theofanis.
“It also appears to be common practice, at least under the [False Claims Act], for multiple relators to work together and share resulting proceeds,” Theofanis said.
“This practice is consistent with the conclusion that the first-to-file provision is not jurisdictional because if the provision were jurisdictional, trial courts could not approve settlements awarding proceeds to more than one relator,” the opinion states.
And even if the first-to-file bar is jurisdictional, the trial court did not err when it denied the state’s plea to the jurisdiction,” the panel concluded.
Chief Justice Darlene Byrne and Justice Thomas J. Baker also sat on the panel.
Ellis is represented by Charles S. Siegel and Caitlyn Silhan of Waters & Kraus of Dallas and James Moriarty of Houston. LaFountain is represented by James “Rusty” Tucker of Dallas.
The state is represented by lawyers from the Office of the Attorney General, including Raymond Charles “Ray” Winter. Winter had been chief of the AG’s Medicaid Fraud Division until his appointment last month by Gov. Greg Abbott as the inspector general for Health and Human Services.
The case number is 3-22-236-CV.
U.S. Court of Appeals for the Fifth Circuit
Tesla Wins Uniform Spat With NLRB
Tesla’s requirement that employees wear uniforms to minimize damage caused to its vehicles during the production process does not run afoul of the National Labor Relations Act, a three-judge panel recently held.
The Nov. 14 ruling rejected arguments from the National Labor Relations Board that Tesla was interfering with employees’ rights to unionize when it sent home workers who were wearing union T-shirts instead of the uniform. The panel wrote that the NLRB had overruled its own precedent by finding otherwise and agreed with Tesla that the ruling effectively and “irrationally” made all company uniforms presumptively unlawful.
The uniform policy at issue here “advances a legitimate interest of the employer and neither discriminates against union communication nor affects nonworking time,” the panel held.
“Therefore, by treating any restriction as per se equivalent to a prohibition, the NLRB has failed to balance — or even strike a reasonable accommodation of — the employer’s and employees’ rights,” the court held.
Judges Jerry E. Smith, Leslie H. Southwick and Stephen A. Higginson sat on the panel.
Tesla is represented by Michael E. Kenneally of Morgan, Lewis & Bockius.
NLRB is represented by its own Ruth E. Burdick, Valerie Hardy-Mahoney, Micah Stoltzfus and Kira Vol.
The case number is 22-60493.
TCEQ Acted ‘Arbitrarily and Capriciously’ in Approving Port Arthur Emissions Permit
The Texas Commission on Environmental Quality applied its own administrative policy inconsistently when it approved emissions permits for a natural gas plant in Port Arthur, a three-judge panel recently determined in vacating the TCEQ’s order.
The nonprofit Port Arthur Community Action Network had challenged the permitting of the facility, arguing TCEQ contravened its policy of adhering to previously imposed emissions limits without adequately explaining the reasons for the departure. The nonprofit pointed specifically to a permit TCEQ issued to Rio Grande LNG, a facility which has been approved but not yet constructed, that allowed for lower levels of two types of emissions than what the Port Arthur permit allowed.
In the Nov. 14 ruling, the panel rejected TCEQ’s argument that the nonprofit didn’t have standing to bring suit, finding a declaration of its president and founder stating he was concerned air pollution will limit his ability to enjoy time outside was sufficient to support standing.
The panel said TCEQ had failed to present any “statutory, rule-based, or precedential support or analysis” to explain why it departed from its own policy.
“That was an error of law,” the court held. “As the Texas Court of Appeals has explained, an agency acts arbitrarily and capriciously when it changes its requirements without adequately explaining why doing so was justified. The Commission is not forever bound to the emissions limits that it set for Rio Grande LNG for all subsequent permits. … But in making those individualized determinations, the Commission must demonstrate that it is treating permit applications consistently.”
Judges James E. Graves Jr., Jacques L. Wiener Jr. and Dana M. Douglas sat on the panel.
The Port Arthur Community Action Network is represented by Colin Cox of the Environmental Integrity Project in Austin and Natasha Bahri, Amy Dinn and Chase Porter of Lone Star Legal Aid.
TCEQ is represented by Erin Snody and Jessica Ahmed of the state attorney general’s office and Toby Baker of the TCEQ.
The case number is 22-60556.
Louisiana Bar Chided for Speech ‘Non-germane’ to Regulation of Lawyers
Building on its decision in McDonald v. Longley, which sided with a group of lawyers who argued the Texas Bar couldn’t force attorneys to join while using mandatory dues to fund the bar’s speech that’s “non-germane” to the practice of law, a three-judge panel recently determined some activities of the Louisiana State Bar Association ran afoul of the law.
Judges Jerry E. Smith, Carolyn Dineen King and Jennifer Walker Elrod sat on the panel that issued the Nov. 13 ruling in favor of Randy Boudreaux in his suit against the Louisiana bar and members of the state’s supreme court.
Boudreaux had sued, taking issue with a series of actions and social media posts, including:
- “Wellness Wednesday” posts touting the health benefits of walnuts, working out and exposure to sunlight;
- Posts promoting community engagement opportunities, including holiday charity drives for Christmas and Halloween; and
- Posts about the history of gay rights and LGBT Pride Month that included a rainbow flag icon.
The panel agreed with Boudreaux that those types of speech were not germane to the practice of law, writing that if a bar association is allowed to opine on “anything that they deem is generally conducive to attorney health and wellness, there is no limiting principle.”
“If a bar association may tout the health benefits of broccoli, may it also advise attorneys to practice Vinyasa yoga, adhere to a particular workout regimen, or get married and have children, if it believes that those activities improved attorney wellness and therefore the quality of legal services in the state?” the panel wrote. “How remote or indirect can the purported benefit to legal services be? The LSBA offers no clear answer, nor can we discern any principled line once we allow advice that is not inherently tied to the practice of law or the legal profession.”
The standard requires the bar’s speech have an “inherent connection to the practice of law and not mere connection to a personal matter that might impact a person who is practicing law,” the court held.
“Promoting diversity efforts at law firms is germane, but opining on affirmative action is not,” the panel wrote further clarifying the contours of the standard. “Raising awareness of the failure of firms to retain women is germane, but speech encouraging or discouraging abortion (or abortion insurance coverage for attorneys) is not. Similarly, advice about software designed for attorneys’ use is germane, but recommending that all attorneys purchase new iPhones is not.”
The panel issued a preliminary injunction preventing the bar from requiring Boudreaux to join or pay dues and sent the case back to the trial court for further proceedings.
The State Bar of Texas on Monday sent an email to subscribers of its Daily News Briefing, saying the newsletter “is on hiatus while we review State Bar of Texas communications in light of” the Boudreaux ruling.
“You will remain on the mailing list to receive the Daily News Briefing if/when publication resumes,” the email reads. “We appreciate your readership.”
Boudreaux is represented by Scott Freeman and Timothy Sandefur of the Goldwater Institute.
The Louisiana State Bar and Louisiana Supreme Court are represented by Richard C. Stanley, Eva Dossier and Kathryn Munson of Stanley, Reuter, Ross, Thornton & Alford.
The case number is 22-30564.
Editor’s Note: Janet Elliott contributed to this report.