Dr. Behzad Nazari, D.D.S. D/B/A Antoine Dental Center Dr. Behzad Nazari Harlingen Family Dentistry, P.C. A/K/A Practical Business Solutions, Series LLC Juan D. Villarreal D.D.S., Series PLLC D/B/A Harlingen Family Dentistry Group v. State

ACCEPTED 03-15-00252-CV 7019858 THIRD COURT OF APPEALS AUSTIN, TEXAS 9/21/2015 3:29:38 PM JEFFREY D. KYLE CLERK NO. 03-15-00252-CV In the FILED IN 3rd COURT OF APPEALS Third Court of Appeals AUSTIN, TEXAS Of Texas 9/21/2015 3:29:38 PM JEFFREY D. KYLE Clerk DR. BEHZAD NAZARI, D.D.S., ET AL Appellants, V. THE STATE OF TEXAS Appellees, V. ACS STATE HEALTHCARE, LLC Appellees. On appeal from the 53rd District Court, Travis County, Texas Cause No. NO. D-1-GV-14-005380 APPELLANTS’ REPLY BRIEF Jason Ray E. Hart Green State Bar No. 24000511 Texas Bar No. 08349290 RIGGS & RAY, P.C. WELLER, GREEN, TOUPS & TERRELL, L.L.P. 506 West 14th St., Suite A Post Office Box 350 Austin, Texas 78701 Beaumont, Texas 77704-0350 Telephone: (512) 457-9806 Telephone: (409) 838-0101 Telecopier: (512) 457-9066 Telecopier: (409) 832-8577 jray@r-alaw.com hartgr@wgttlaw.com Attorneys for Appellants Dr. Behzad Nazari, D.D.S., et al Oral Argument Requested TABLE OF CONTENTS TABLE OF CONTENTS ......................................................................................... ii TABLE OF AUTHORITIES ........................................................................................... iii SUMMARY OF THE REPLY ............................................................................................ 1 REPLY ARGUMENT ...................................................................................................... 2 I. Reply to the State’s argument that it did not waive sovereign immunity when it brought affirmative claims against the Dental Group. . ................................................................................................ 2 II. Response to State’s argument that the Dental Group’s Third Party claims against Xerox cannot be considered in this appeal. ..................................................................................................... 6 A. Judicial economy and consistency would be met if this Court opines on the propriety of third party claims, because this is the same issue presented in the similarly postured Xerox proceeding, 03-15-00401-CV. ............................................ 6 B. Xerox is correct; Chapter 33 applies to permit contribution claims. ............................................................................... 8 CONCLUSION ............................................................................................................... 9 PRAYER ............................................................................................................... 9 CERTIFICATE OF COMPLIANCE ................................................................................. 12 CERTIFICATE OF SERVICE .......................................................................................... 13 Appellants’ Reply Brief Page ii TABLE OF AUTHORITIES CASES Bates v. Republic of Texas, 2 Tex. 616 (1847) ............................................................................................ 4 Gabelli v. SEC, 133 S. Ct. 1216 (2013)..................................................................................... 4 Guillory v. Port of Houston Auth., 845 S.W.2d 812 (Tex. 1993) ........................................................................... 3 Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371 (Tex. 2006) ........................................................................... 4 SEC v. City of Miami, 581 F. App’x 757 (11th Cir. 2014) ............................................................... 4,5 State v. Emeritus Corp., No. 13-13-00529-CV, 2015 WL 1456436, (Tex. App.—Corpus Christi Mar. 26, 2015, pet. filed) ................................ 4,5 State v. Precision Solar Controls, Inc., 188 S.W.3d 364 (Tex. App.—Austin 2006).................................................... 4 State ex rel. Texas Dept. of Transp. v. Precision Solar Controls, Inc., 220 S.W.3d 494 (Tex. 2007) ........................................................................ 2,4 STATUTES Texas Civil Practice and Remedies Code Chapter 33 ............................................... 8 Appellants’ Reply Brief Page iii SUMMARY OF THE REPLY It is disturbing to imagine a government that has the power to seek damages for civil wrongdoing, while also avoiding any investigation into its own part in that same alleged wrongdoing. The idea that the State is immune from: 1) compulsory counterclaims, 2) counterclaims that would directly or inferentially rebut the facts upon which its claims are predicated, and/or 3) counterclaims that share common or related core underlying facts is a breathtaking stance. Yet the State’s response brief fails to provide any legal support for that position. This Court should not be misled by the State’s attempt to fabricate a self-serving “carve-out” that would effectively create a TMFPA superstatute to override the Rules of Civil Procedure, logic, precedent, and due process. This court need only follow Reata and the federal analysis for False Claims Act counterclaims to resolve this case. The Dental Group’s third-party claims against Xerox include a claim for contribution, but under a pure Federal False Claims Act analysis those claims would not be permitted. The Dental Group’s original brief did not address that category of relief. However, Xerox’s response brief accurately speaks to the applicability of Civil Practice and Remedies Code Chapter 33. The Dental Group agrees with Xerox and adopts its briefing on the matter. Appellants’ Reply Brief Page 1 REPLY ARGUMENT Reply to the State’s argument that it did not waive sovereign immunity when it brought affirmative claims against the Dental Group. The State’s response brief is rooted in two assertions. First, the State claims that it can invoke sovereign immunity as a defensive maneuver to the Dental Groups’ counterclaims, while simultaneously asserting affirmative claims for relief on the exact same facts, despite Reata and 75 years of case law to the contrary. Second, because its affirmative claims were brought only under the TMFPA, the State claims it retains its immunity “shield” while at the same time wielding the TMFPA “sword” against the Dental Group. Both of these arguments are contrary to precedent. The State begins its response brief by arguing that Reata is not a case that involves a waiver of sovereign immunity; the State claims that Reata instead relates to the judicial abrogation of sovereign immunity that occurs as a result of the State bringing its own claims for relief. That position is a distinction without a difference. Whether this Court categorizes the State’s claims as creating “waiver of immunity by conduct,”1 or producing judicial revocation of the common law doctrine, or forming a bubble of facts upon which immunity cannot exist, the result 1 State ex rel. Texas Dept. of Transp. v. Precision Solar Controls, Inc., 220 S.W.3d 494 (Tex. 2007) (“[In Reata,] [w]e held that a governmental entity that brings an action waives immunity from suit for claims that are germane to, connected with, and properly defensive to its action, to the extent of an offset.”) Appellants’ Reply Brief Page 2 is the same: sovereign immunity is unavailable to the State as a jurisdictional bar on the Dental Groups’ claims that are germane to, connected with, and properly defensive to the state’s claims. The State stretches case law to find any statement that, taken in a vacuum, might appear to support its position. None of the cases cited by the State support its argument. The State cites Guillory v. Port of Houston Auth., 845 S.W.2d 812, 814 (Tex. 1993) for its proposition that the Texas Supreme Court has refused to judicially abrogate a government entity’s immunity in a proprietary activity vs. non-proprietary activity setting. (State’s Br. at 19-20). But the State ignores the overriding fact that Guillory was about a conflict between relief available under the Texas Tort Claims Act and federal Maritime law. Guillory did not involve the interaction of affirmative claims asserted by the government and related counterclaims asserted by Guillory; Guillory was about the scope of a statutory waiver of immunity. Guillory was a straight tort action brought against a governmental entity by Guillory. In addition, the Texas Supreme Court’s decision in Guillory only reformed and limited Guillory’s monetary recovery; it did not completely deprive Guillory of his claims and recovery. Guillory’s facts are so different than the facts here, its usefulness on any relevant legal question is negligible. Appellants’ Reply Brief Page 3 Next, the State reaches back 150 years to cite Bates v. Republic of Texas, 2 Tex. 616 (1847) for the idea that a right to set-off damages through a crossclaim is barred by immunity. (State’s Br. at 20-21, 24). However, in 2006 this Court expressly acknowledged that Bates had been abrogated for over 100 years, and that Anderson and Reata were the controlling cases with regard to counterclaims raised against the State. See State v. Precision Solar Controls, Inc., 188 S.W.3d 364, 367 (Tex. App.—Austin 2006), order withdrawn (Apr. 5, 2007), review granted, judgment vacated sub nom. on other grounds State ex rel. Texas Dept. of Transp. v. Precision Solar Controls, Inc., 220 S.W.3d 494 (Tex. 2007) (Supreme Court remanded the case to the trial court for further consideration consistent with Reata); see also Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371, 376 fn 2 (Tex. 2006) (stating that Bates was not in conflict with Anderson or Reata because Bates “involved claims by the defendants for set-offs unrelated to the governmental entities' claims.”). The claims at issue here are far from “unrelated.” The State’s invocation of Gabelli v. SEC, 133 S. Ct. 1216, 1223 (2013), SEC v. City of Miami, 581 F. App’x 757, 760 (11th Cir. 2014) and State v. Emeritus Corp., No. 13-13-00529-CV, 2015 WL 1456436, at *10–11 (Tex. App.—Corpus Christi Mar. 26, 2015, pet. filed), also fail to support the State’s position in any way. Gabelli stands only for the proposition that the government is bound by the statute of limitations when it seeks civil penalties; it does not even imply that there Appellants’ Reply Brief Page 4 is a different standard for applying immunity for different sorts of governmental actions. The court in SEC v. City of Miami expressly denied official immunity to Miami’s budget director when the SEC sought penalties for federal securities fraud; it is difficult to see how a case denying official immunity from Federal claims acts as a bar here, where the State is attempting to assert sovereign immunity to counterclaims. Finally, State v. Emeritus Corp. is a decision that turned entirely on the applicability of the Texas Medical Liability Act to a State action under the Deceptive Trade Practices and Assisted Living Facilities Act. The dispute in Emeritus Corp. did not in any way involve sovereign immunity or a defendant’s counterclaims. Simply put, the State wishes to ignore Reata. The State presents no authority, express or implied, direct or indirect, for its position that the TMFPA is a unilateral weapon. Thus, the State asks that this Court manufacture a completely new standard for determining whether the State can assert sovereign immunity in response to offsetting counterclaims from a defendant. Allowing the State to pursue a civil action without fear of having to address compulsory or related counterclaims from defendants that might provide an offset to the State’s claims is a breathtaking departure from precedent and the rules of civil procedure. Appellants’ Reply Brief Page 5 Response to State’s argument that the Dental Group’s Third Party claims against Xerox cannot be considered in this appeal. A. Judicial economy and consistency would be met if this Court opines on the propriety of third party claims, because this is the same issue presented in the similarly postured Xerox proceeding, 03-15-00401-CV. The Dental Group agrees with Xerox that this Court should decide Xerox’s original proceeding in Cause 03-15-00401-CV in conjunction with this appeal. The Dental Group’s second issue is generally the same as Xerox’s issue in its original proceeding: namely, does the TMFPA prevent a defendant (either the Dental Group in this case, or Xerox in that case) from bringing third party claims? In its response brief, the State avoids any argument on the merits of this issue. Instead, it argues only that this Court lacks jurisdiction to consider whether the dismissal of the Dental Groups’ third party claims was proper. In considering both this appeal and Xerox’s original action, this Court should note the strange procedural posture that the State’s actions have created. The State is working to prevent all of the parties from adjudicating these overlapping, intertwined claims in a single proceeding. All three “sides” are claiming the others committed wrongdoing on the same facts: Appellants’ Reply Brief Page 6 STATE TMFPA fraud claims in administrative court (SOAH, HHSC); subsequently dismissed and replaced by this civil TMFPA civil fraud TMFPA case (D-1-GV-14- claim (D-1-GV-14- 005380; appeal 03-15- 00581) and the related 00252-CV) appeal (03-15-00401- CV) Counterclaims in this civil TMFPA case: Conspiracy, joint enterprise, breach of contract, conversion, fraud, breach of contract, Third party claims in negligence, gross negligence this case; the same claims are made in D-1-GV-15-002055; D-1-GN-14-000319, 320, 321, and 322. DENTISTS XEROX Contribution (this case) Under the facts pleaded by the State in both of its fraud suits, the defendants’ justiciable interests are evident. Whether the defendant is the Dental Group in this case or Xerox in the similarly situated original proceeding 03-15-00401-CV, the defendants seek to reveal all of the interrelated facts and relationships in each of their respective cases so that the culpable party(s) can be held accountable. The defendants also seek to prevent the State from taking inconsistent positions against the defendants. The State is pursuing recovery of the same “tens of millions of dollars” from both the Dental Group and the defendant Xerox, even as the State demands that the cases be tried separately. The Dental Group’s justiciable interests are obvious. The Appellants’ Reply Brief Page 7 relationship between the dentists, the State, and Xerox is a nearly perfect tripartite arrangement. In the interest of judicial economy, consistency (especially relating to disparate rulings on discovery and dispositive motions) and overall justice, all of the parties’ claims regarding medical necessity and proportionate party responsibility should be determined with an acknowledgement that rulings with regard to any one party’s claims affect all of the parties. B. Xerox is correct; Chapter 33 applies to permit contribution claims. Xerox’s response brief correctly states that the Dental Group assumed that because contribution claims are not permitted under the Federal False Claims Act, such claims were also unavailable under Texas law. Upon further research and review, the Dental Group agrees that Texas Civil Practice and Remedies Code Chapter 33 permits a right to contribution or indemnity under the facts of this case. Rather than copy that argument in this reply brief, the Dental Group adopts and incorporates Xerox’s briefing on the law under Tab F of Xerox’s response brief. Xerox is incorrect when it claims that none of the Dental Group’s claims sound in contribution. The Dental Group expressly made a claim for contribution in paragraph 31 of its answer (CR 40). Therefore, Xerox’s claim for contribution from the Dental Group in 03-15-00401-CV is mirrored by the Dental Group’s contribution claim in this case. Appellants’ Reply Brief Page 8 In sum, the Dental Group adopts Xerox’s legal analysis regarding Chapter 33’s application to this case. The Dental Group made, inter alia, a contribution claim against Xerox, so that argument is relevant and applicable to this appeal. But whether Chapter 33 applies to permit contribution claims does not prevent, and will not change, an application of the federal False Claims Act framework for permitting third party claims. All of the Dental Group’s third party claims against Xerox are expressly permitted under the federal analysis (fraud, conspiracy, breach of contract, negligence, gross negligence) and/or Chapter 33 (contribution). CONCLUSION The Dental Group and Xerox simply want judicial consistency and economy, and the opportunity to present all of the facts that relate to the State’s claims. The idea that the Dental Group can be barred from bringing compulsory and defensive counterclaims/third-party claims is abhorrent to the concepts of due process and judicial economy. PRAYER Appellants pray this court: 1) reverse the trial court order granting the State’s Plea to the Jurisdiction so that the Appellants’ claims against the State may proceed in this case, and Appellants’ Reply Brief Page 9 2) reverse the trial court order granting the State’s Motion to Dismiss so that the Appellants’ claims against the third party Xerox may proceed in this case, or 3) in the alternative, reverse the trial court’s grant of the Motion to Dismiss the Appellants’ third party claims, and instruct the court to sever the Appellants’ third party claims against Xerox into a different cause. ___________________________________ Jason Ray RIGGS & RAY, P.C. 504 W. 14th Street, Suite A Austin, Texas 78701 Telephone: (512) 457-9806 Facsimile: (512) 457-9866 jray@r-alaw.com E. Hart Green Mitchell A. Toups WELLER, GREEN, TOUPS & TERRELL, L.L.P. Post Office Box 350 Beaumont, Texas 77704-0350 Telephone: (409) 838-0101 Telecopier: (409) 832-8577 hartgr@wgttlaw.com matoups@wgttlaw.com ATTORNEYS FOR DR. BEHZAD NAZARI, D.D.S. D/B/A ANTOINE DENTAL CENTER, DR. BEHZAD NAZARI, HARLINGEN FAMILY DENTISTRY, P.C. A/K/A PRACTICAL BUSINESS SOLUTIONS, SERIES LLC, JUAN D. VILLARREAL D.D.S., Appellants’ Reply Brief Page 10 SERIES PLLC D/B/A HARLINGEN FAMILY DENTISTRY GROUP, DR. JUAN VILLARREAL, RICHARD F. HERRSCHER, D.D.S., M.S.D., P.C., DR. RICHARD F. HERRSCHER, M & M ORTHODONTICS, PA, DR. SCOTT MALONE, DR. DIANA MALONE, MICHELLE SMITH, NATIONAL ORTHODONTIX, MGMT., PLLC, DR. JOHN VONDRAK, RGV SMILES BY ROCKY SALINAS, D.D.S. PA, AND DR. ROCKY SALINAS. Appellants’ Reply Brief Page 11 CERTIFICATE OF COMPLIANCE I certify that this Brief complies with TRAP Rule 9.4 and contains 2,062 words in Times New Roman typeface of 14-point. Jason Ray Appellants’ Reply Brief Page 12 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the Response to Request for Disclosure was served via e-mail and e-service on the 21st day of September, 2015 on the following: Counsel for Plaintiff State of Texas Raymond C. Winter Chief, Civil Medicaid Fraud Division Reynolds B. Brissenden Assistant Attorneys General Office of the Attorney General P.O. Box 12548 Austin, Texas 78711-2548 Telephone: (512) 936-1709 Facsimile: (512) 936-0674 E-mail: raymond.winter@texasattorneygeneral.gov E-mail: reynolds.brissenden@texasattorneygeneral.gov Counsel for Xerox Corporation, et al. Robert C. Walters Eric J. R. Nichols Gibson, Dunn, & Crutcher, LLP Christopher R. Cowan 2100 McKinney Avenue, Suite 1100 Beck Redden, LLP Dallas, Texas 75201 515 Congress Avenue, Suite 1750 Telephone: (214) 698-3100 Austin, Texas 78701 Facsimile: (214) 571-2900 Telephone: (512) 708-1000 E-mail: RWalters@gibsondunn.com Facsimile: (512) 708-1002 E-mail: enichols@beckredden.com W. Curt Webb E-mail: ccowan@beckredden.com Constance H. Pfeiffer Beck Redden, LLP 1221 McKinney Street, Suite 4500 Houston, Texas 77010 Telephone: (713) 951-3700 Facsimile: (713) 951-3720 E-mail: cwebb@beckredden.com E-mail: cpfeiffer@beckredden.com Appellants’ Reply Brief Page 13 Counsel for Defendants/Third-Party Plaintiffs E. Hart Green J.A. “Tony” Canales Mitchell A. Toups CANALES & SIMONSON, P.C. WELLER, GREEN, TOUPS & TERRELL, 2601 Morgan Ave. L.L.P. P.O. Box 5624 Post Office Box 350 Corpus Christi, Texas 78465-5624 Beaumont, Texas 77704-0350 Telephone: (361) 883-0601 Telephone: (409) 838-0101 Facsimile: (361) 884-7023 Facsimile: (409) 832-8577 E-mail: E-mail: hartgr@wgttlaw.com tonycanales@canalessimonson.com E-mail: matoups@wgttlaw.com Counsel for M&M Orthodontics, P.A., Counsel for Defendants Dr. Scott Malone, Dr. Diana Malone, Michelle Smith, National Orthodontix Richard B. Pecore Mgmt., PLLC and Dr. John Vondrak LILES PARKER, PLLC 3400 N. McColl Rd., Suite F-35 Oscar X. Garcia McAllen, Texas 78501 Law Offices of Oscar X. Garcia Telephone: (202) 298-9750 302 Kings Highway, Suite 112 Facsimile: (202) 337-5804 Brownsville, Texas 78521 E-mail: rpecore@lilesparker.com Telephone: (956) 554-3000 Counsel for RGV Smiles by Rocky Salinas, Facsimile: (956) 554-3248 DDS PA, E-mail: oxgarcia@aol.com and Dr. Rocky Salinas Counsel for Dr. Vivian Teegardin Robert M. Anderton Philip H. Hilder Law Offices of Hanna & Anderton William B. Graham 900 Congress Avenue, Suite 250 Hilder & Associates, PC Austin, Texas 78701 819 Lovett Boulevard Telephone: (512) 477-6200 Houston, Texas 77006 Facsimile: (512) 477-1188 Telephone: (713) 234-1416 E-mail: andertonr@msn.com Facsimile: (713) 655-9112 Counsel for Richard F. Herrscher, DDS, E-mail: philip@hilderlaw.com MMSC, PC and Dr. Richard F. Herrscher E-mail: will@hilderlaw.com Counsel for Dr. Wael Kanaan ____________________________ Jason Ray Appellants’ Reply Brief Page 14