Texas Qui Tam Under Fire: Texas Appellate Dissent Raises Major Constitutional Doubts
In a closely watched mandamus proceeding, the Texas Fifteenth Court of Appeals denied mandamus relief to a defendant pharmaceutical company in a qui tam case brought under the Texas Healthcare Program Fraud Prevention Act (the “Act”). While the majority declined to reach the merits of the defendant’s constitutional challenges to the Act—holding that mandamus relief was premature because an adequate remedy exists through post-trial appeal—the dissent authored by Chief Justice Brister delivers a sweeping critique that could have substantial implications for future qui tam litigation in Texas. Most notably, the dissent concludes that (1) the relator lacks standing under the Texas Constitution; and (2) the Act’s qui tam provisions, as applied in cases in which Texas has not intervened, violate the separation of powers requirement under the Texas Constitution.
The case arises from a qui tam action filed under the Act in Texas state court by Health Selection Group, LLC (“HSG”), an entity affiliated with a litigation-focused organization that brings healthcare fraud claims nationwide. HSG alleges that the defendant engaged in unlawful “white coat marketing” practices—providing support services to healthcare providers that purportedly constitute illegal inducements under Texas law. Following denial of the defendant’s motion to dismiss, the defendant sought mandamus relief in both the Texas Sixth Court of Appeals and the Texas Supreme Court, arguing, among other things, that: (1) HSG lacks standing because it suffered no injury; and (2) the Act’s qui tam provisions violate the Texas Constitution. Both courts denied mandamus with the Texas Supreme Court having held that the Fifteenth Court of Appeals had jurisdiction. Though two justices of the Texas Supreme Court specifically requested a “written opinion” on the two mandamus issues, the Fifteenth Court of Appeals majority refused to intervene, emphasizing that litigation costs alone do not justify extraordinary relief.
Chief Justice Brister’s dissent takes a markedly different approach, arguing that the court should have addressed the constitutional issues now, particularly given the scale and nature of the litigation—which he equated to a mass tort case that was more likely to settle than go to trial—and the fact that two justices of the Texas Supreme Court had previously requested that it do so. Going on to consider the constitutional issues, the dissent would have first held that HSG lacks constitutional standing because it “does not allege that it personally suffered any injury” from the alleged fraud. Instead, it seeks recovery “on behalf of Texas,” plus a share of the proceeds, and as such, it is acting as a “volunteer,” not an injured party.
In briefing before the court, HSG argued that the Act effectively assigns the State’s claims to private parties. Cf. Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 773 (2000). The dissent rejects that theory for two key reasons. First, statutes cannot create constitutional standing—standing is jurisdictional and cannot be expanded by legislative action. Second, unlike the Act’s federal analog, the False Claims Act, the Act’s remedies are punitive, not compensatory. The Act imposes liability and penalties for certain unlawful acts, rather than for false claims for payment. And, while Texas law permits assignment of compensatory damages, it generally prohibits assignment of punitive claims. Accordingly, the dissent concludes that there is no valid “assignment” that could confer standing.
Chief Justice Brister also contends that the Act’s qui tam provisions violate the Texas Constitution to the extent they allow relators to seek and impose civil penalties in cases where Texas does not intervene. According to the dissent, the Texas Constitution assigns responsibility for representing the State to elected officials such as the Attorney General and local prosecutors. While private delegation is permitted under certain circumstances, such delegations are “subject to more stringent requirements and less judicial deference.” Applying Texas Supreme Court precedent on such delegations, the dissent found the following factors render the qui tam provisions unconstitutional in non-intervened cases: (1) relators are not elected, appointed, or accountable to the public; (2) relators, particularly those like HSG, may be driven by profit rather than public interest; and (3) delegating to relators the power to impose penalties is especially suspect under Texas law.
Chief Justice Brister’s dissent closes with particularly pointed language, warning against “replacing the State’s elected executives with unelected rogues” pursuing penalties in the State’s name. He characterizes entities like HSG as litigation-driven actors seeking “booty” rather than advancing the public interest, underscoring his concern that the Act is being used to incentivize opportunistic enforcement rather than genuine whistleblowing. He also questions the underlying theory of liability, noting that the alleged “kickbacks” consist of free support services that even the United States Department of Justice has concluded can benefit healthcare programs and patients alike. In that light, the opinion suggests these cases risk penalizing conduct that federal authorities have already deemed lawful—and even beneficial.
The majority opinion can be accessed here. The dissenting opinion can be accessed here.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
