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 ( 2015 )

ACCEPTED
03-15-00252-CV
6432785
THIRD COURT OF APPEALS
AUSTIN, TEXAS
8/10/2015 4:53:21 PM
JEFFREY D. KYLE
No. 03-15-00252-CV CLERK
IN THE COURT OF APPEALS
FOR THE THIRD DISTRICT OF TEXAS AT AUSTIN
FILED IN
3rd COURT OF APPEALS
DR. BEHZAD NAZARI, D.D.S., ET AL., AUSTIN, TEXAS
Appellants, 8/10/2015 4:53:21 PM
v.
JEFFREY D. KYLE
Clerk
THE STATE OF TEXAS,
Appellee,
v.
XEROX CORPORATION, XEROX STATE HEALTHCARE, LLC
F/K/A ACS STATE HEALTHCARE, LLC,
Appellees.
On Appeal from the 53rd Judicial District Court of Travis County, Texas,
Trial Court Cause No. D-1-GN-14-005380
BRIEF OF APPELLEES
BECK REDDEN LLP BECK REDDEN LLP
Eric J.R. Nichols Constance H. Pfeiffer
State Bar No. 14994900 State Bar No. 24046627
enichols@beckredden.com cpfeiffer@beckredden.com
Gretchen Sween 1221 McKinney St., Ste. 4500
State Bar No. 24041996 Houston, TX 77010
gsween@beckredden.com (713) 951-3700
Christopher R. Cowan (713) 951-3720 (Fax)
State Bar No. 24084975
ccowan@beckredden.com
515 Congress Ave., Ste. 1900
Austin, TX 78701
(512) 708-1000
(512) 708-1002 (Fax)
GIBSON, DUNN & CRUTCHER LLP KELLY HART & HALLMAN LLP
Robert C. Walters C. Andrew Weber
State Bar No. 20820300 State Bar No. 00797641
rwalters@gibsondunn.com andrew.weber@kellyhart.com
2100 McKinney Ave., Ste. 1100 301 Congress, Ste. 2000
Dallas, TX 75201 Austin, TX 78701
(214) 698-3100 (512) 495-6451
(214) 571-2900 (Fax) (512) 495-6930 (Fax)
COUNSEL FOR APPELLEES, XEROX CORPORATION AND
XEROX STATE HEALTHCARE, LLC, F/K/A ACS STATE HEALTHCARE, LLC
Oral Argument Requested
TABLE OF CONTENTS
PAGE
TABLE OF CONTENTS ...................................................................................................i
INDEX OF AUTHORITIES.............................................................................................. ii
STATEMENT OF THE CASE ..........................................................................................iv
STATEMENT OF JURISDICTION ..................................................................................... v
ISSUE PRESENTED........................................................................................................ v
STATEMENT OF FACTS ................................................................................................. 1
SUMMARY OF ARGUMENT ........................................................................................... 8
ARGUMENT ................................................................................................................. 9
I. The Court Should Decide Xerox’s Original Proceeding
Along with this Appeal to Ensure that the Entire Litigation
Is Procedurally Consistent. .................................................................... 9
II. Counterclaims and Third-Party Claims May Be Brought
When the State Brings a TMFPA Claim. ............................................ 10
A. The ordinary rules of civil procedure apply when the
State brings a TMFPA claim..................................................... 10
B. Because the State has brought a tort claim for
damages, Chapter 33 applies and permits contribution
claims as well. ........................................................................... 12
III. Xerox Will Raise Immunity Arguments Once the Providers’
Claims Are Clearer. ............................................................................. 15
PRAYER FOR RELIEF .................................................................................................. 16
CERTIFICATE OF SERVICE .......................................................................................... 18
CERTIFICATE OF COMPLIANCE .................................................................................. 19
INDEX OF AUTHORITIES
CASE PAGE(S)
Janek v. Harlingen Family Dentistry, P.C.,
451 S.W.3d 97 (Tex. App.—Austin
2014, no pet.) ........................................................................................................ 4
U.S. ex rel. Miller v. Bill Harbert Intern. Const., Inc.,
505 F. Supp. 2d 20 (D.D.C. 2007) ...................................................................... 13
Mortgages, Inc. v. U.S. Dist. Court for Dist. of Nev.,
934 F.2d 209 (9th Cir. 1991) .............................................................................. 13
Reata Const. Corp. v. City of Dallas,
197 S.W.3d 371 (Tex. 2006) .......................................................................passim
Rusk State Hosp. v. Black,
392 S.W.3d 88 (Tex. 2012)................................................................................. 15
Sec. Trust Co. of Austin v. Lipscomb Cnty,
180 S.W.2d 151 (Tex. 1944) .............................................................................. 12
Shipp v. Malouf,
439 S.W.2d 432 (Tex. App.—Dallas
2014, pet. denied).................................................................................................. 3
State v. Naylor,
No. 11-0114, 2015 WL 3852284
(Tex. June 19, 2015) .......................................................................................8, 11
Texas Dep’t of Corr. v. Herring,
513 S.W.2d 6 (Tex. 1974)................................................................................... 11
Texas Mut. Ins. Co. v. Ruttiger,
381 S.W.3d 430 (Tex. 2012) .............................................................................. 11
United States v. Campbell,
No. CIV.A. 08-1951, 2011 WL 43013
(D.N.J. Jan. 4, 2011) ........................................................................................... 13
Wortham v. Walker,
128 S.W.2d 1138 (Tex. 1939)
(orig. proceeding)................................................................................................ 12
ii
STATUTES
TEX. CIV. PRAC. & REM. CODE § 33.002(a)(1) ......................................................... 14
TEX. HUM. RES. CODE
§ 36.002 ................................................................................................................. 4
§ 36.007............................................................................................................. 4, 5
§ 36.052................................................................................................................. 4
OTHER AUTHORITIES
25 TEX. ADMIN. CODE § 33.71 (2015) ................................................................... 2, 3
iii
STATEMENT OF THE CASE
Nature of the case This is a civil Medicaid fraud case brought by the State
of Texas against orthodontic-service providers.
The providers have brought counterclaims against the
State and third-party claims against Xerox.
In this lawsuit, the State has sued only the providers.
Although the State’s fraud theory alleges intertwined
claims against the providers and Xerox, the State is suing
Xerox in a separate lawsuit, seeking to recoup from
Xerox payments the State made to the providers.
Trial court Honorable Stephen Yelenosky
345th Judicial District Court of Travis County
Trial court disposition: The trial court ruled that counterclaims and third-party
claims cannot be brought in a suit brought under the
Medicaid fraud statute. Thus, the trial court:
(1) granted the State’s plea to the jurisdiction and
dismissed the claims against the State with
prejudice and
(2) granted the State’s motion to dismiss third-party
claims against Xerox. Tab A.
iv
STATEMENT OF JURISDICTION
This Court has jurisdiction under TEX. CIV. PRAC. & REM. CODE §
51.014(a)(8).
ISSUE PRESENTED
Did the trial court err by dismissing the Dental Group’s third-party claims
against Xerox?
v
STATEMENT OF FACTS
This fraud suit is brought by the State of Texas against Medicaid providers.
It is factually intertwined with a separate fraud suit the State has brought against
two Xerox entities. The State simultaneously accuses Medicaid providers and
Xerox of a fraudulent scheme, yet it contends it can take a divide-and-conquer
approach and seek double recovery by suing them in separate lawsuits.
Although Xerox benefits from the State’s argument that the trial court
adopted in this case, Xerox does not agree with it. There is no prohibition against
counterclaims and third-party claims in a Texas Medicaid fraud suit. Because the
order under review assumes there is, Xerox agrees that it is erroneous.
The Dental Group’s statement of facts accurately sets forth the procedural
background of this case. This statement of facts provides additional context for the
broader landscape of this litigation and a related proceeding before this Court.
HHSC contracts for processing of Medicaid claims
The Texas Health and Human Services Commission oversees the Texas
Medicaid program, which serves low-income Texans. The program includes a
process for reimbursing providers for the services provided to eligible children.
HHSC has in recent years hired contractors to assist it in claims processing.
During the time period from 2004 to 2014, HHSC contracted with a private entity
to be its fiscal agent and claims processor. Tab B at 30. That entity was later
acquired by Xerox Corporation. Id. at 2.
 Long known as a brand name for copiers, Xerox now has a business division
that provides analytic, consulting, revenue improvement, technological, and
business process outsourcing solutions to the healthcare industry worldwide. The
Xerox entity that contracted with HHSC is Xerox State Healthcare, LLC. Id.1
HHSC contracted with Xerox State Healthcare to provide multiple Medicaid
administrative and technical services, including the processing of “prior
authorizations” for orthodontic services submitted by the providers. Id. at 3. The
“prior authorization” process requires providers to submit forms, materials, and
certifications related to the provider’s diagnosis and the patient’s condition in order
to receive prior approval for the orthodontic services. Instead of performing
services first and then submitting the bill for payment, Medicaid “[o]rthodontic
services must be prior authorized” before the provider performs the service.
25 TEX. ADMIN. CODE § 33.71 (2015).
Under the contract, Xerox State Healthcare established the Texas Medicaid
& Healthcare Partnership (TMHP), a consortium of Xerox State Healthcare and
other subcontractors. TMHP processed hundreds of thousands of prior-
authorization requests for orthodontic services over the span of a decade. During
that time period, the State alleges that it spent approximately $1.1 billion for
orthodontic services to Medicaid-eligible children. Tab B at 3.
1
HHSC first contracted with ACS State Healthcare LLC, which changed its name to Xerox
State Healthcare, LLC after it was acquired by Xerox Corporation. Tab B at 2. Xerox
Corporation and Xerox State Healthcare, LLC are distinct entities with separate legal arguments;
references to them jointly as “Xerox” are solely for ease of reading.
2
HHSC approved the contract and prior authorization policies under which
TMHP operated, and it oversaw the work of Xerox State Healthcare (and the other
TMHP contractors). Tab C.2 In fact, HHSC’s Office of Inspector General
conducted a full contract audit of the prior authorization process, and the results
were made public in a 2008 report. Id. Xerox State Healthcare continued to
perform under its contract until May 2014, when the State terminated the contract.
Negative publicity prompts the State to cast blame
As the Dental Group explained, there has been a great deal of negative
publicity about HHSC and the State’s spending on Medicaid orthodontic services.
See Dental Group Br. 2-3; see also Shipp v. Malouf, 439 S.W.2d 432, 437–38 (Tex.
App.—Dallas 2014, pet. denied) (discussing publicity about Medicaid provider).
A series of “investigative” news reports in 2011 raised questions about the State’s
spending on orthodontic services to Medicaid-eligible children and about the
medical judgments of orthodontic providers, causing HHSC to second-guess that
spending and begin casting blame on others.
HHSC’s Office of Inspector General, led by a now-departed deputy, made
sweeping pronouncements of a vast fraud against the Medicaid program by
orthodontic providers across the State. HHSC then filed separate administrative
proceedings against members of the Dental Group. See Dental Group Br. 1.
2
The 2008 audit report is publicly available at http://www.tdmr.org/texas-state-audit-report.
It is not yet filed as evidence in this case but is cited merely as an uncontested background fact.
3
Meanwhile, Xerox State Healthcare continued to perform under its contract
with HHSC. After all, HHSC had approved the contract and prior authorization
policies under which TMHP operated, and it continued to oversee the work of
Xerox State Healthcare (and the other TMHP contractors). Tab B at 19-20.
As HHSC received adverse findings and results in the administrative
proceedings against the providers,3 the State ultimately turned on Xerox and filed
suit in Travis County against two Xerox entities in May 2014. Tab B. The State
accused Xerox of failing to “catch” the providers’ alleged fraud through the prior
authorization process. Rather than suing for breach of the prior authorization
procedures set by the State in the HHSC contract, the State brought a single tort
claim under the Texas Medicaid Fraud Prevention Act (“TMFPA”).
The TMFPA defines “unlawful acts,” beginning with knowing
misrepresentations and nondisclosures. See TEX. HUM. RES. CODE § 36.002.
It also provides for substantial civil remedies. A person who commits an
“unlawful act” can be sued for the amount of payments made “as a result of the
unlawful act,” plus double damages, civil penalties for each unlawful act between
$5,500 and $15,000, prejudgment interest, and reimbursement of the State’s
reasonable attorneys’ fees, expenses, and costs. See id. §§ 36.052, 36.007.
3
See, e.g., Janek v. Harlingen Family Dentistry, P.C., 451 S.W.3d 97 (Tex. App.—Austin 2014,
no pet.).
4
The State seeks the same recovery
from Xerox and the providers in separate lawsuits
The State’s suit against Xerox seeks “all relief possible” under the TMFPA.
Tab B at 21. This relief even includes the value of payments made under the
Medicaid program to the Medicaid orthodontic-service providers—not to Xerox.
Id. The State’s administrative proceedings against various providers sought
recovery of the same payments.
Several providers then filed four separate suits against Xerox and the State.
See CR47 n.2.4 The State filed a plea to the jurisdiction, which the trial court
granted. CR67. Those providers suits are now pending solely against Xerox.
Several other providers intervened in the State’s suit against Xerox, asserting
common-law tort claims against the State and Xerox and seeking to recover for
losses incurred as a result of payment holds and administrative claims that the
providers contend the State wrongfully asserted. Tab D. The State moved to
strike the intervention, and its motion was granted. CR69-78 (motion to strike);
CR61-62 (order in State v. Xerox suit).
Meanwhile, in December 2014, the State nonsuited its administrative cases
against the Dental Group and filed this suit the next day. Just like the suit against
Xerox, the State has sued the Dental Group solely under the TMFPA.
4
Harlingen Family Dentistry v. ACS State Healthcare, LLC, Cause No. D-1-GN-14-000319;
Antoine Dental Center v. ACS, No. D-1-GN-14-000320; M&M et al. v. ACS, D-1-GN-14-
000321; and Dr. Paul Dunn v. ACS, No. D-1-GN-14-000322.
5
In this suit, the Dental Group answered the State’s TMFPA claim and
asserted counterclaims and third-party claims against Xerox. CR29. Xerox filed a
general denial but has not yet asserted affirmative defenses or filed any motions.
Tab E. The State answered and simultaneously asserted a plea to the jurisdiction,
plea in bar, and a motion to dismiss the third-party claims. CR43.
The State maintains in both of its fraud suits that it can exclude any party
that it has chosen not to name in that suit—even while it seeks the same damages
against the excluded party elsewhere. It contends that counterclaims against the
State and third-party claims against parties who may share responsibility for any
damages are not permissible. Thus, while the State resists the counterclaims and
third-party claims in this suit, it is simultaneously arguing that Xerox cannot file
third-party claims against the providers in the State v. Xerox suit. CR69-109. The
State further argues that Chapter 33 does not apply, such that Xerox could not even
designate the providers as responsible third parties. CR91-108.
The trial court agrees with the State in both lawsuits and dismisses
all counterclaims, third-party claims, and RTP designations
The various lawsuits between the State, Medicaid providers, and the Xerox
entities have all been specially assigned, through the Travis County district court
administrative process, to one district judge. The trial court was made aware that
the State is seeking the same damages against separate parties in separate lawsuits
based on factually related allegations.
6
Yet the trial court decided that the State divide-and-conquer approach is
permissible. In the State’s suit against Xerox, the trial court struck the providers’
petitions in intervention. CR61-62. It twice denied motions to consolidate the
various lawsuits. CR286-92. It struck Xerox’s third-party contribution claims
against the providers. CR294. And it denied Xerox’s motion for leave to
designate the providers as responsible third parties. CR381-82. The last two
rulings are pending before this Court in an original proceeding. See Cause No. 03-
15-00401-CV (filed 7/1/15).
In this suit, the trial court reached the same result by granting the State’s
plea to the jurisdiction and dismissing the counterclaims, as well as granting the
State’s motion to dismiss the Dental Group’s third-party claims against Xerox.
Tab A. The order in this suit made plain that the trial court’s rationale is
consistent with the rulings in the State’s suit against Xerox:
Consistent with this Court’s rulings in the State’s litigation against
Xerox, the Court finds that the State is entitled to bring this action
against defendants to the exclusion of other parties.
Tab A; see also CR65 (Court letter to counsel: “The State is entitled to pursue a
Medicaid Fraud claim against a defendant to the exclusion of all other parties[.]”).
While the premise underlying the trial court’s rulings in both proceedings is
consistent, the differing postures require different analyses. Xerox responds to the
part of the order that grants the State’s motion to dismiss third-party claims.
CR383-84.
7
SUMMARY OF ARGUMENT
I. The Court should decide the issue presented in Xerox’s original
proceeding along with the issues presented in this appeal. The causes are on a
parallel track; the issues are closely related; and it will promote fairness and
efficiency to ensure the issues are all decided now. The trial court’s rulings have
resulted in multiple skewed lawsuits. Deciding related issues in the separate
lawsuits together will assist the Court’s decisional process and ensure that it
understands how its holdings affect the entire litigation landscape.
II. When the State sues, it must generally abide by the same rules that
apply to private litigants. The Texas Supreme Court recently reaffirmed this rule.
See State v. Naylor, No. 11-0114, 2015 WL 3852284, at *6 (Tex. June 19, 2015).
This settled rule is equally true when the State brings a TMFPA claim, because
nothing in the TMFPA prohibits counterclaims or third-party claims.
III. The State has asserted sovereign immunity arguments on Xerox’s
behalf, and Xerox would welcome an affirmance on that ground. But if the
claims against Xerox are reinstated, Xerox may assert immunity arguments
on its own behalf at a later date, once the Dental Group’s claims are clearer.
Any holding that the State has waived immunity should not implicate Xerox,
because Xerox has not asserted its own claims for affirmative relief. See
Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371, 377 (Tex. 2006).
8
ARGUMENT
I. The Court Should Decide Xerox’s Original Proceeding Along with this
Appeal to Ensure that the Entire Litigation Is Procedurally Consistent.
Before turning to the merits, it bears emphasis that the issues in this appeal
are closely related to the issue presented in Xerox’s original proceeding, which is
currently pending in this Court. See Cause No. 03-15-00401-CV. In that
proceeding, Xerox challenges orders striking its third-party claims against the
providers and denying it leave to designate providers as responsible third parties.
Xerox argues in that proceeding that Chapter 33 applies to the State’s fraud claim
for damages and thus permits it to bring third-party claims for contribution and to
designate responsible third parties. Because the two causes are on virtually parallel
tracks with nearly identical briefing schedules, it would be appropriate for the
Court to decide them together.
Further, it would promote efficiency and ensure fairness in this entire
landscape of litigation for the Court to decide all the issues presented by the Dental
Group and Xerox together. While the issues in each cause are interrelated, they are
not identical. Considering all the issues together would therefore assist the Court
in understanding all the consequences of its holdings for all of the State’s lawsuits.
The trial court’s rulings have resulted in a multiplicity of lawsuits that are
procedurally skewed in the State’s favor. The due process rights of all the
defendants hinge on correcting these errors now.
9
II. Counterclaims and Third-Party Claims May Be Brought When the
State Brings a TMFPA Claim.
The threshold issue presented by this appeal is whether the State has waived
sovereign immunity. Xerox agrees that the governing standard for waiver is set by
Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371, 377 (Tex. 2006). The State
has asserted an affirmative claim for monetary relief and therefore “must
participate in the litigation process as an ordinary litigant.” Id. To the extent the
Dental Providers show that their counterclaims satisfy the standard set forth in
Reata, they should be allowed to bring them. Xerox takes no position on whether
the Dental Group has met that burden.
The State has argued that Reata does not apply because its claim under the
TMFPA is an “enforcement action.” CR48. Xerox does take a position with
respect to this conclusory assertion, which is the foundation for all of the State’s
arguments—including its position that third-party claims may not be brought in a
suit under the TMFPA. Xerox agrees with the Dental Group that when the State
brings a TMFPA claim, it is like any litigant subject to the rules of civil procedure.
A. The ordinary rules of civil procedure apply when the State brings
a TMFPA claim.
The State has never presented any authority for its assertion that a TMFPA
claim is an “enforcement action” that somehow trumps the rules of procedure
related to counterclaims and third-party claims. Yet the trial court agreed with this
10
argument in the State v. Xerox suit and presumably agreed with it here. CR297
(premising ruling on characterization of State’s suit as an “enforcement action”).
There is no basis for displacing these rules of civil procedure when the State
brings suit under the TMFPA. It is immaterial whether the State calls its suit an
“enforcement action” or simply a tort suit for damages. The label is irrelevant to
the legal analysis.
The TMFPA does not address third-party claims or counterclaims, and there
is no basis to infer from the Legislature’s silence that it intended to displace the
ordinary rules of procedure. Where statutes are silent on an issue, courts “presume
the silence is a careful, purposeful, and deliberate choice.” See Texas Mut. Ins. Co.
v. Ruttiger, 381 S.W.3d 430, 453 (Tex. 2012).
Absent any statutory directive in the TMFPA itself, the controlling rules are
the same rules that apply to ordinary litigants. The Texas Supreme Court recently
reaffirmed that these rules apply equally to the State when it becomes a litigant:
“where the Legislature has given no indication to the contrary the State must abide
by the same rules to which private litigants are beholden.” State v. Naylor, No. 11-
0114, 2015 WL 3852284, at *6 (Tex. June 19, 2015). “As a general rule, the State
litigates as any other party in Texas courts.” Texas Dep’t of Corr. v. Herring, 513
S.W.2d 6, 7 (Tex. 1974).
11
This principle is settled:
[W]hen a State enters the Courts as a litigant, it must be held subject
to the same rules that govern the other litigants, and abide the
consequences of the suit . . . . When a state appears as a party to a
suit, she voluntarily casts off the robes of her sovereignty, and stands
before the bar of a court of her own creation in the same attitude as an
individual litigant; and her rights are determined and fixed by the
same principles of law and equity . . . .
Wortham v. Walker, 128 S.W.2d 1138, 1145–46 (Tex. 1939) (orig. proceeding)
(internal quotation marks omitted); accord Reata, 197 S.W.3d at 377 (“Once it
asserts affirmative claims for monetary recovery, the City must participate in the
litigation process as an ordinary litigant . . . .”); Sec. Trust Co. of Austin v.
Lipscomb Cnty, 180 S.W.2d 151, 159 (Tex. 1944) (“When the state becomes a
party to a suit it is subject to the same rules that govern other parties . . . .”). These
rules likewise apply here.
B. Because the State has brought a tort claim for damages, Chapter
33 applies and permits contribution claims as well.
The Dental Group has set forth the correct analysis about counterclaims and
third-party claims generally, but their analogy to the False Claims Act goes too far.
Specifically, because contribution claims are not permitted in federal cases under
the False Claims Act, the Dental Group incorrectly assumes that they are likewise
unavailable under Texas law. This assumption is incorrect. Chapter 33’s
contribution scheme under the Texas Civil Practice and Remedies Code is the
controlling law in state court.
12
Federal law has no analogue to the Texas contribution scheme in Chapter 33.
Instead, federal law provides a right to contribution or indemnity only in limited
circumstances:
A defendant held liable under a federal statute has a right to
contribution or indemnification from another who has also violated
the statute only if such right arises (1) through the affirmative creation
of a right of action by Congress, either expressly or implicitly, or (2)
via the power of the courts to formulate federal common law.
Mortgages, Inc. v. U.S. Dist. Court for Dist. of Nev., 934 F.2d 209, 212 (9th Cir.
1991) (citing Texas Indus., Inc. v. Radcliff Materials, 451 U.S. 630, 638 (1981);
Northwest Airlines v. Transport Workers Union of Am., 451 U.S. 77, 90–91
(1981)).
The False Claims Act does not contain an express or implied right to
contribution, and over the last quarter century, federal courts have uniformly
refused to create such a right as a matter of federal common law. See Mortgages,
934 F.2d at 212 (“We decline, therefore, to formulate federal common law on this
basis.”).5 The federal rule—that contribution and indemnification claims are
unavailable under the False Claims Act—prohibits all claims (no matter how
styled) that are in substance claims for contribution or indemnity. If the instant
case were a False Claims Act case in federal court, there is no doubt this rule
would apply.
5
See, e.g., United States v. Campbell, No. CIV.A. 08-1951, 2011 WL 43013, at *10 (D.N.J. Jan.
4, 2011) (citing Mortgages, Inc. v. U.S. Dist. Court of Nev., 934 F.2d 209 (9th Cir. 1991)); U.S.
ex rel. Miller v. Bill Harbert Intern. Const., Inc., 505 F. Supp. 2d 20, 25 (D.D.C. 2007) (same).
13
The Dental Group relies on this federal framework, arguing that their claims
do not sound in contribution and would therefore not be barred by the False Claims
Act. This may be true, but it is irrelevant to whether their claims are permissible in
a Texas court under the TMFPA. In this case, the controlling legal framework for
contribution claims is found in Chapter 33. Analogizing to the False Claims Act is
helpful in many respects, but not where conflicting state law controls the issue.
Xerox therefore disagrees with any suggestion in the Dental Group’s arguments
that contribution claims cannot be brought in a TMFPA suit. See Dental Group Br.
20-21 (counterclaims), 29-32 (third-party claims).
Xerox’s mandamus petition fully sets forth the analysis for why a TMFPA
claim is a “cause of action based on tort,” and thus is governed by Chapter 33.
TEX. CIV. PRAC. & REM. CODE § 33.002(a)(1). In short, the State’s claim is merely
a statutory fraud claim seeking to recover damages, so it is subject to Chapter 33’s
proportionate responsibility and contribution schemes.
Rather than fully briefing this argument here, Xerox incorporates it by
reference. Tab F. It would be more appropriate to decide that issue in Xerox’s
original proceeding, where the issue will be fully joined by the State.
So long as the Dental Group is conceding that none of its claims sounds in
contribution, the Court need not decide whether Chapter 33 applies in this appeal.
The Court could narrowly hold that the Dental Group’s claims are permissible on
their own terms—regardless of whether contribution claims are permissible.
14
III. Xerox Will Raise Immunity Arguments Once the Providers’ Claims Are
Clearer.
Xerox has not yet filed a plea to the jurisdiction or raised an affirmative
defense of immunity. Instead, the State raised immunity on Xerox’s behalf.
CR54-57. While Xerox would welcome an affirmance on this basis (rather than on
the incorrect premise that the TMFPA prohibits third-party claims), it leaves it to
the State to assert those arguments. For now, Xerox addresses the issue simply to
clarify that it would be premature to hold that Xerox does not have an immunity
defense.
Xerox can and likely will raise immunity arguments in the trial court if the
claims against it are reinstated. There is no deadline or risk of waiver, because
sovereign immunity implicates subject-matter jurisdiction and can be raised at any
time. See Rusk State Hosp. v. Black, 392 S.W.3d 88, 95 (Tex. 2012) (defense of
governmental immunity is jurisdictional and can be raised for first time on appeal).
Xerox may well benefit from sovereign immunity as to acts taken as a contractor
for the State. Likewise, official immunity is an affirmative defense, which Xerox
can still plead.
Any holding in this appeal about waiver of sovereign immunity under Reata
should be limited to the State, because Xerox has not asserted any affirmative
claims for relief. Reata holds that an entity waives immunity from affirmative
damage claims brought against it as an offset by asserting its own affirmative
15
claims for monetary relief. Reata, 197 S.W.3d at 377. Under Reata, parties sued
by the government may “assert, as an offset, claims germane to, connected with,
and properly defensive to those asserted by the governmental entity.” Id. Because
Xerox has not brought any claims in this case, none of the Dental Group’s claims
against Xerox satisfies the Reata waiver standard.
PRAYER FOR RELIEF
The Court should either affirm the order on immunity grounds or reverse the
trial court’s order. The Court should not allow the order to stand on the basis of an
interpretation of Texas law that imposes a blanket prohibition on counterclaims
and third-party claims when the State brings suit under the TMFPA.
16
Respectfully submitted,
By: /s/ Eric J.R. Nichols By: /s/ Constance H. Pfeiffer
Eric J.R. Nichols Constance H. Pfeiffer
State Bar No. 14994900 State Bar No. 24046627
enichols@beckredden.com cpfeiffer@beckredden.com
Christopher R. Cowan BECK REDDEN LLP
State Bar No. 24084975 1221 McKinney St., Ste. 4500
ccowan@beckredden.com Houston, TX 77010
BECK REDDEN LLP (713) 951-3700
515 Congress Ave., Ste. 1900 (713) 951-3720
Austin, TX 78701
(512) 708-1000
(512) 708-1002 (Fax)
Robert C. Walters C. Andrew Weber
State Bar No. 20820300 State Bar No. 00797641
RWalters@gibsondunn.com andrew.weber@kellyhart.com
GIBSON, DUNN & CRUTCHER LLP KELLY HART & HALLMAN LLP
2100 McKinney Ave., Ste. 1100 301 Congress, Ste. 2000
Dallas, TX 75201 Austin, TX 78701
(214) 698-3100 (512) 495-6451
(214) 571-2900 (Fax) (512) 495-6930 (Fax)
COUNSEL FOR APPELLEES, XEROX CORPORATION AND XEROX STATE
HEALTHCARE, LLC, F/K/A ACS STATE HEALTHCARE, LLC
17
CERTIFICATE OF SERVICE
I hereby certify that on August 10, 2015, a true and correct copy of the
above and foregoing Brief of Appellees was forwarded to all counsel of record by
the Electronic Service Provider, if registered, otherwise by email, and to
Respondent, by hand delivery, as follows:
Counsel for Appellants:
Jason Ray E. Hart Green
Riggs, Aleshire & Ray, P.C. Weller, Green, Toups & Terrell, L.L.P.
700 Lavaca, Suite 920 Post Office Box 350
Austin, TX 78701 Beaumont, TX 77704-0350
jray@r-alaw.com hartgr@wgttlaw.com
Counsel for Appellee State of Texas:
J. Campbell Barker Philip A. Lionberger
Deputy Solicitor General Assistant Solicitor General
Office of the Attorney General Office of the Attorney General
P.O. Box 12548 (MC 059) P.O. Box 12548 (MC 059)
Austin, TX 78711-2548 Austin, TX 78771-2548
Cam.Barker@texasattorneygeneral.gov Philip.Lionberger@texasattorneygeneral.gov
Raymond Winter Reynolds Brissenden
Chief, Civil Medicaid Fraud Division Assistant Attorney General
Office of the Attorney General Office of the Attorney General
P.O. Box 12548 P.O. Box 12548
Austin, TX 78711-2548 Austin, TX 78711-2548
raymond.winter@texasattorneygeneral.gov reynolds.brissenden@texasattorneygeneral.gov
By: /s/ Constance H. Pfeiffer
Constance H. Pfeiffer
18
CERTIFICATE OF COMPLIANCE
1. This brief complies with the type-volume limitation of
Tex. R. App. P. 9.4 because it contains 3,843 words, excluding the parts of the
brief exempted by Tex. R. App. P. 9.4(i)(2).
2. This brief complies with the typeface requirements of Tex. R. App. P.
9.4(e) because it has been prepared in a proportionally spaced typeface using
Microsoft Word 2007 in 14 point Times New Roman font.
Dated: August 10, 2015.
/s/ Constance H. Pfeiffer
Constance H. Pfeiffer
Counsel for Appellees
19
No. 03-15-00252-CV
IN THE COURT OF APPEALS
FOR THE THIRD DISTRICT OF TEXAS AT AUSTIN
DR. BEHZAD NAZARI, D.D.S., ET AL.,
Appellants,
v.
THE STATE OF TEXAS,
Appellee,
v.
XEROX CORPORATION, XEROX STATE HEALTHCARE, LLC
F/K/A ACS STATE HEALTHCARE, LLC,
Appellees.
On Appeal from the 53rd Judicial District Court of Travis County, Texas,
Trial Court Cause No. D-1-GN-14-005380
APPENDIX TO
BRIEF OF APPELLEES
TAB
A Order Granting State’s Plea to the Jurisdiction and
Motion to Dismiss Third Party Claims
B Plaintiff’s Original Petition in Cause No. D-1-GV-14-000581
C Office of Inspector General Report dated August 29, 2008
D Providers’ Plea in Interventions in Cause No. D-1-GV-14-000581
E Xerox’s Original Answer to Defendants’ Original Third Party Petition
F Xerox Corporation and Xerox State Healthcare, LLC f/k/a
ACS State Healthcare, LLC’s Mandamus Petition
Tab A
Order Granting State’s Plea to the Jurisdiction
and Motion to Dismiss Third Party Claims
DC BK1 5120 PG81
Filed in The Distric~ Court
of Travis County, texas
µ-
CAUSE NO. D-1-GN-14-005380 At _ _--41.....:.....!::==--4-F-..__M .
Velv a L. Pri
THE STATE OF TEXAS § IN THE DISTRICT COURT OF
§
Plaintiff, §
§
v. §
§
DR. BEHZAD NAZARI, D.D.S. § TRAVIS COUNTY, TEXAS
D/B/A ANTOINE DENTAL §
CENTER, DR. BEHZAD NAZARI, §
DR. WAEL KANAAN, §
HARLINGEN FAMILY §
DENTISTRY, P.C., NIKIA, §
PRACTICAL BUSINESS §
SOLUTIONS, SERIES LLC, JUAN §
D. VILLAREAL D.D.S., SERIES, §
PLLC D/B/A HARLINGEN §
FAMILY DENTISTRY GROUP, §
DR. JUAN VILLAREAL, DR. §
VIVIAN TEEGARDIN, 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 L. SALINAS, §
D.D.S. PA, AND DR. ROCKY §
SALINAS § 53RD JUDICIAL DISTRICT
§
Defendants. §
ORDER GRANTING STATE'S PLEA TO THE JURISDICTION
AND MOTION TO DISMISS THIRD PARTY CLAIMS
On April 15, 2015, the Court heard the State of Texas's Plea to the Jurisdiction, Plea
in Bar and Motion to Dismiss Third Party Claims, filed on January 20, 2015. All parties
appeared through their respective counsel and announced ready.
Case# D-1-GN-14-005380
1~~m~m~m~m~u~M~M~w~w1a~
004002256
383
DC BK15120 PG82
r b~ \-tlN- l tf- 00?3 go
~&9 (?.; i of 2-
Having considered the Pleas, Motion, response briefs, and arguments of counsel,
the Court ORDERS that the State of Texas's Plea to the Jurisdiction is GRANTED.
Defendants' counterclaims against the State are DISMISSED with prejudice. The Court
further ORDERS that the State of Texas' s Motion to Dismiss Third Party Claims is also
GRANTED. Consistent with this Court's rulings in the State' s litigation against Xerox,
the Court finds that the State is entitled to bring this action against defendants to the
exclusion of other parties. Defendants' third party claims against Xerox are DISMISSED.
J-h A~
Signed this.{li day of~' 2015
I
Jud~J'h;;lle{osky l
I
2
384
Tab B
Plaintiff’s Original Petition in Cause No. D-1-GV-14-000581
5/9/20141:05:46 PM
Amalia Rodriguez-Mendoza
District Clerk
D-1-GV-14-000581 Travis County
CAUSE NO. ~-------
D-1-GV-14-000581
THE STATE OF TEXAS, IN THE DISTRICT COURT
PJaintiff,
v.
53 RD JUDICIAL DISTRICT
XEROX CORPORATION; XEROX STATE
HEALTHCARE,LLC;ACSSTATE
HEALTHCARE, LLC, A XEROX
CORPORATION,
Defendants TRAVIS COUNTY, TEXAS
PLAINTIFF·' S ORIGINAL PETITION
The State of Texas. by and through the Attorney General of Texas, Greg Abbott, brings
this law enforcement action pursuant to the Texas Medicaid Fraud Prevention Act, ("TMFP A"),
TEX. HUM. RES. CODE ANN. chapter 36. The State would show the Court:
I. DISCOVERY CONTROL PLAN
L Plaintiffs designate this case as a Level 3 case requiring a discovery control p lan
tailored to the circumstances of 1he specific suit.
TI. THE PARTIES
2. Plaintiff is the State of Texas, by and through the Attorney General of Texas
("Texas" or "the State").
3. Defendant Xerox Corporation is a corporation organized under the laws of New
York and may be served with process upon its registered agent, Prentice Hall Corporation, 211
E. 7111 Street, Suite 620, Au~ Texas 78701-3218. Defendant Xerox State Health Care, LLC, is
a whoIIy-owned subsidiary of Xerox Corporation organized under the laws of the State of
Delaware with Texas offices at 2828 N. Haskell Ave., Dallas, Texas 75204, and may be served
with process upon its registered agent, CSC-Lawyers Incorporating Service Company, 211 E. 71h
Street, Suite 620. Austin. Te~as 78701-3218. Dt:fom.lattl ACS Healthcare, LLC. a Xcmx
Corporation, is a wholly-owned subsidiary of Xerox Corporation organized under the laws of the
State of Delaware with its Texas otlices ai 2828 N. I IaskeH Ave., Dallas, Texas 75204 1 and may
be served with process upon ils registered agent, CSC-Lawye.rs lncorpQrating Service Company.
70 I Brazos Street. Suite l 050, Austltl, Texas 7870 I. Defendant Xerox Corporation acquired
Defendant ACS in 2010. On info11nation and belief, ACS State Healthcare, LLC, changed its
name to Xerox State Healthcare. LLC, on April 1. 2012. Defendants are referred tu hereatter as
"Xerox.··
Ul. JURISDICTION ANO VENUE
4. This Court has subject-matter jurisdiction over this action pursu~mt to section
.36.052(d) of the TMFPA, which provides statutory rerncdi~s to redress the conduct of
Defendants. The TMFP A provides authority for this action to be brought by the Attorney
General. Tex. Hum. Res. Code §§ 36.052. 36. 102. Jurisdiction is further proper be.cause the
amounts sought from each Dcfondtint arc in exce~ of the minimum jurisdictional limits of this
Coun.
5. This Court has jurisdiction over the Detendants named in this Petition, because
each Defendant does busines~ in the State of Texas and committed the unlawful acts alleged in
this Petition in whole or in part in Texas.
6. Venue is proper in T.-avis Co.unty under section 36.052fd) of the TMFPA and
because many of the unlaw'ful acts committed by Defendants were committed in Travis County,
including the making of false statements and misrepresentations of material fact to the Texas
Medicaid Prngram.
PLAIN rlFF'S ORIGINAL PETITION PAGE2
IV. PRELlMlNARY STATEMENT ANO NATURE OF THIS ACTION
7. This is a law en.forcemenl action alleging unlawtiJJ acts and seeking civil remedies
under the TMFPA
8. Xerox's unlawful acts resulted in a slibstantial breach of safoguards intended to
protect ta:.xpayer dollars, maintain the integriry of Medicaid policies, and ensure the appropriate
delivery of services to Medicaid clients. Xerox permitted an unpreeedented loss of Medicaid
funds to predatory and unscrupulous dental providers. As a result of the conduct of both Xerox
and these providers, the Medicaid program wa~ deeply ~omprnmised. During the time periocJ
beginning January 1, 2004, when Xerox began its tenure as the State's Medicaid contractor, and
ending March l, 2012, when Texas shifted most of its dental benefits to managed care, Texas
Medicaid expended approximately $1.l billlo,1- dollars for orthodontic services to Medicaid
chems. Although a comprehensive damage estimate has not been completed, initial reviews of
t h ose expenditures indicate that a substantial percentage was paid in violation of Medicaid
policies, policies Xerox repeatedly assured Texas it was enforcing. Additionally, because of its
misrepresentations, Xerox was paid tens of millions of dollars for services it was, in fact, not
performing.
9. Xerox's liability arises from its misrepresentations regarding, and c-0ncealment of,,
material facts regarding its discharge of contractual obligations. Xerox bid for, and won,
contracts with the Texas Healtb and Human Services Commission (''HHSC') and its
predecessors to perfonn program administra tion for T~xas Medicaid. Included among the
administration responsibilities was evaluation .and proper disposition of prior authorization
requests s ubmitted lo Med[caid by dental providers for approval of orthodontic treatment. Xerox
repeatedly represented to Texas Medicaid of1jcia!s that its prior authorization system ensured
PLAINTIFf' SORJGINAL PETfTlON P.AGE 3
propt.!r pre-determinations of medical necessity and enforcement of Medicaid po.Jicy. Contrary to
those repre-sentat!ons. Xerox knowingly failed to adequately review the orthodontic PA requests
and documentation submitted by providers to obtain prior authorizatio11 for orthodontic
treatment. Onhodontic PA requests were routinely "rubber-stamped" by Xerox employees
without proper review. Vast numbers of these orthodontic PA requests were for children whose
condition did nol meet Medicaid criteria for treatment. Xerox·s failure lo properly review these
applications penniued Medicaid dentaJ providers to re\.,-eive payment for services that were not
within the scope of medically necessary services pennitted by Medicaid Jcntal policy. Xerox's
conduct violates the TMFPA.
I 0. The State seeks to recover: ( l) the amount of any payments or the value of any
monetar~ or in-kind benefits provided under the Medicaid program, directly or indirectly, as a
result of the Detcndants' unlawful acts~ (2) pre-judgment interest on the amount of the payments
or the value of such payments; (3) two times the amount of the payments or the value of such
payments; ( 4) civil penalties in an amount not kss than $5,5.00 Of more than $11.000 for each
unlawful act ~ommitted by Defendants~ 1 ( 5) costs, attorneys· fees, and expenses; and ( 6) any and
all other remedies that may be allowed under the TMFPA.
V. BACKGROUND
A. The Texas Medicaid Orthod.ontic Benefit
11. Orthodontic services for children covered by Texas Medicaid arc limited by rufe
and by policy. To quallfy for orthodontic treatment, a child must meet a Mcdicaid~dcfinetl test of
medical necessity. In general 1 a child must be age twelve or older, or ha:vc lost all primary
1
This maximurn civil penalty would rise to not.more than $15,000, for each unlawful act which results in
injury 10 a ch ild under 18. disabled person. or elderly person. See TMFPA § 36.052(a)(3)( A).
PLAINTIFF'S ORIGINAi PETl'I ION PAGF. 4
dentition (sometimes known as "baby teeth"), and suffer from ~i severe handicapping
malc..,cclusion. Medicaid does not authorize orthodontic treatment for cosmetic cotTectio11.
12. To ensure compliance with policy, Texas requires dental providers to obtain pdor
authorization of orthodontic treatment plans. Claims submitted for treatment are not considered
for payment unless prior authorization is obtained in advance. Each prior authorization request
must include- documentation specified by effecti.ve policy, These requirements include the
submission of a treatment plan, a properly-completed and scored Handicapping Labio~Ungual
Deviation score sheet ("HLD sheet;') with a minim.um score, and clinical documentation
supporting medical necessity incl uding but not limit.e d to facia1 and intraoral photographs and
radiographs. Medical necessity for the requested treatment can be verified only by examination
and verification of the clinical documentation by a licensed dental professional. HHSC expected
and required the prior authorization process implemented by Xerox to include a proper review of
all documentation and verification o.f the client's eligibility fot the services requested; that is, a
thorough review to·ascertain that the dient a1:id treatment plan met all program requirements.
8. The 2003 Contract
l3 . On nr about May 1, 2002, HHSC released a Request for Proposal (''2002 RFP")
for fiscal and business adminii:.tration D( the Texas Medicaid Program. The 2002 RFP described
the prior authorization performance required of a successful bidder:
Prior authorization (PA} is a mechanism to determine the medfoal necessity of selected
non-emergency, Medicaid-covered, and medical services prior to service delivery, . . •The
PA function will serve as a utilization tnanagernent measure allowing payment for only
those services that are medically necessary, appropriate, and cost-effective, and reducing
tbe misuse of specified services.
Additionally, the 2002 RfP listed Vendor Responsibilities that included:
Receive, correctly disposition (i.e., approve, deny, modify, or determine
incomplete) ..• prior authorization requesls for services.. . .
PLA!NTIFF'S.ORJGIN AL PETfflON PAGES
PAC-5 Ensure that non-covered services are not prior authorized.
PAC-8 Conduct quality assurance reviews to ensure appropriateness of Medicaid , . .
PA analyst decisions.
PAC-15 Ensure PA staff use welt-defined processes and procedures for analysis and
research for PA approvals.
PAC-17 Provide sufficient. and adequate professional medical staff for staffing and
managing the [>A function, induding medically knowledgeable PA analysts
for processing requests and availability of licensed medical protess.ionals to
provide consultative services regarding all Medicaid . . . covered service
types.
PAC-40 Implement a quality assurance process and e~tab lfah procedures to
periodically sample and review dispositioned [sic I PA requests to determine if
PA policy and procedures are being followed.
14. Ln response, Xero}( submitted a proposal 011 August 21, 2002 (''2002 Proposal"). In
lhe 2002 Proposal, Xerox represented to Texas Medicaid tha.t its prior authorization process
would ensure the implemerttation of HHSC-approved dental criteria and policy and prevent
medically unnecessary services and identify over-utilization of ~rvices. Xerox represented that
qualified PA staff would review each request ant! determine whether the orthodontic: PA requests
complied with Medicaid policy anETJT!ON PAGE9
$52.6 million.'' 'HHSC-OJG made the formal recommendation that Xerox .should sample the
01thodontic PA requests approved by its per~onnel to ensure the PA re.quests meet the crit~ria for
Texas Medicaid benefits. ln its management response to the audit findings and
recommendations, Xerox represented that it reviewed the orthodontic PA requests "in
accordance with the Medicaid administration contract, policies and rules.'' Xerox further
r.epresented, "[T]he absence of PA reviews by a licensed dental professional does not mean that
payments for orthodontic treatment during the audit period of September 2007 through February
2008 were inappropriate." Xerox maintained that dental d irector review was not required by the
contrac;t, only statTing by "medically knowledgeable analysts,'' Xerox rnade that represeniation,
knowing that, in f~c(, none of the clerical personnel processing orthodontic PA requests were
medically knowledgeable. Xerox never implemented a process to sample for and confirm
compliance with Medicaid policy and/or the documentation of med.ical necessity in applications
apptoved by its personnel.
24. In or arouod March, 2009, in response to demands by HHSC for updated P&Ps
for all areas of operations, Xerox submitted Dental Prior Authorfaation P&Ps and Werk
Jnstructions to HHSC that indicated that aJI reqllests for dental PA were scrutinized 10 determine
that all required d ocumentation was submitted, that the dental and ot1hodontrc PA requests and
H LD sheets mer Medh:aid policy requirements. anc..1 that F' S ORIGINAL PETITION PAGE l3
PAC-03 R~tain and retrieve al I PA records in accordance with the State~
approved record-retention and retrieval guidelines.
PAC-04 Establish and follow State-apt'roved policies and procedures. for
analyzing and researching PA determinations.
PAC-06 Submit to the State for review and approval a quality assurance
plan and procedures for verifying the accuracy of analyst and
medical director prior authorization dispositions/decisions
(approval, denial, incomplete and modification). The quality
assurance p!an must include al least a bi-annum review schedule
for all types of Prior Authorization decisions, and be submitted to
the State annually. Changes to the quality assurance plan and
procedures must be approved by the State prior to implementation.
Prior Authorization Processing tasks and activities were iocluded in the 2008 RFP to
describe lh.c "results/outcomes'' the Vendor mt1sl achieve:
PAC-20 Receive1 correctly disposition (i.e. approve, denY.. modify., or
determine incomplete). . . . -prior authorization requests for aH
services....
PAC-23 Eslablish and maintain State-approved processes and procedures to
ensure that non-covered services are not prior aul~orized unless
specifically directed by the State.
Tbe 2008 RFP also identified specific criteria to "ensme chat appropriate Medical
Necessity evaJuation i-s conducted for PA determinations,\' including:
Pt\C- 36 Research, analyze and evaluate all PA decisions and ensure all
medical facts arc considered and documented prior to
determination,
The 2008 RFP specified the following with regard to PA staffing:
The Vendor's PA staff must have the education and professional credentials
defined by the State to penorm the PA tasks and activities.
PAC-37 Provide and maintain a st1fficienl number of knowledgeable and
profossional medical personnel to perform the PA function, in
accordanc.e with State-approved proce$ses a(ld procedures.
PA personnel must include:
PLAINTIFF'S ORIGINAL PETJTION PAGE 14
• Medically knowledgeable PA analysts, to process teguests;
• Licensed medical professionals available at all times to
provide consultative services with regard to all covered
service types; and
• Licensed nurses acting within their scope-of practice ...
31. On or about January 27, 2009, Xerox submitted its Proposal for Medicaid/Child1·en
with Special llt!altb Cart! Needs Services Program Claims .Processing, Primary Care Case
Management and Pharmacy Claims and Rehate Administraiiou (''2009 Proposal") to HHSC. The
Proposal included representations specific to Prior Authorization management:
The [Xerox} Prior Authori>tation department offers clients. providers~ and the
State the benefits of detailed knowledge of medical policy authorization criteria
cmd program services limitations, industry standard evidenced based criteria; as
well as the clinical knowledge to faciJitate medical necessity determinations.
The Prior Authorization (PA) department consistently demonstrates the principles
of good health ca:re program management. enabling the State to conserve health
care funds while ensuring the provision of necessary servfoes to clients who
genuinely need them.
The director of the PA department . . . accepts responsibility for pmcessing
provider authorization requests according to . . . Medicaid . . . program
requfrements. The director ensures compliance with State and Federal regulafions
for authorization of services. Along witb [Xerox's) medical affairs officer and the
medical director, [the PA dire~tor} feads the prior authorization activities and is
responsible for processing provider authorization reqltests in accordance with
HHSC approved medical policies. We review authori2at1oo requests for clients
who are eligible for services .•. 011 a case-by-case basis.
Xerox represented that its PA department met the "primary business objective of the PA function
. . . to redi1ce the excessive utilization or abuse of specified serviees by requiring prior
uuthorization based on Medicaid policy and sound medical/dental criteria before allo\\>ing
payment ... [ensuring] 'that the services are medically necessary,. appropriate~ and cost-eITective.
Xero" represented that it meets this objectiv~ by "maintaining a.o efftcient prior authorization
process using HHSC approved medical/dental criteria attd experienced qualified staff to review
authorizatio11 requests. 1• Xerox r~presented that it was meeting HHSC's Busjness Objective of
PLAINTl.FF 'S ORIGINAL PETITION PACE IS
Utilizatlon Review to Rn:-ure Appropriate Determinations for Requested Services and Supplies
through its reviews of authorization requests for ~ompleteness and lts determinations by
professional medical personnel for medical necessity. Xerox represented that its ·•p A policies
and procedures provide the ability for tne prospective review of requested services and benefits,"
allowing "a comprehensive medical necessity review." Xerox addressed the quality assurance
requirements as follows:
PA quality assurance activities include reviewing that PA determinations apply ..
. established policies and procedures appropriat~ly, thereby meeting the
applicable Federal and State laws, tules. and regulations and guidelines.
Xerox. stated:
PA staff review ·and consider all medical facts submitted by a provider • .. when
determining medical necessity for requested services. Before making a PA
determination. we research. analyze, evaluate. and ensure we consider all
d<>cumented medical facts, in accordance with State approved criteria.
Xerox represented U1at its PA pcrsonneJ includeS' "Medic.ally knowledgeable PA Specialists wno
analyze and process reque,sts.1' Xerox fUrther represented that medical necessity review~ were
perfonned only by medically qualified personnel. All oftbese representations were false.
32. On or about S~ptember I. 2010. Xerox was awarded the new contract ("'2010
Contract"). The 20 IO contract. 1nc its
current work instmctions aJong with what purported to be "draft" work instructio11s, The
"current" work instructions still described all dental prior atnhorization requests going to the
l'LAfN f IFF'S ORJGrNAL Pl:.TI flON PAGE 16
dental director. The "draft'" work instructions describe a process wherein the Dental Specialist
ensures that the request is complete, ensures that the HLD score is 26 or more, and sends
orthodqntic PA re-quests for dental director review if the score is less than 26.. On or about .June
8, 201 1~ Xerox sent a "follow-up•• SAR response to the Oral Notice of Deficiency-. In it, Xerox
represented to HHSC that the PA specialists who process requests for orthodontia serviees are
·•medically knowledgeable PA analysts who do not make final .determinations of medical
necessity; therefore, these staff are not licensed or certified ," Xerox represented to HHSC that
the "medically knowledgeable'' analysts only approved those applications with a "verified" score
of26 or ~bove. In fact, Xerox personnel were not trained to check the validity of a score of 26 or
above. On or about July 19. 2011, in response to continuing requests for ·clarifi.catjon by l-IFISC,
Xerox finally admitted; "[Xerox) ' validates' the score by 111a.theml)tically calculating I.he
providers recorded numbers to ensure the score totals 26 or higher!'
34. In or about October, 2011, at HHSC's insiscence, Xerox implemented new
pfocedures including a review by a licensed dental (Yrotessional of all orthodontic PA requests.
35. ln or about January~ 2012, HHSC instructed Xerox to discontinue processing
dental prior authoriz.ation requests in anticipation of the implementation of managed care.
VI. APPLICABLE TEXAS STATUTORY PROVISIONS
36. Prior to August 31~ 2005, a person committed an unlawful act as defined under the
Texas MeCLicaiq F"raud Prevention Act by, among other things:
A. Knowingly or intentionally making or causing to be made a false
statement or misrepresentation of material fact on an application for a.
contract, benefit, or payment under the Medicaid Progra;m; or that is
intended to be used to determine a person ~s eligibiiity for a benefit or
payment under the Medicaid program. TEX. HUM. Res. CooE §
36.002(l)(A) & (B).
PLAINTIFF'S ORfGJNAI., PETITION PAGl: 1'7
B. Knowingly or intentionally concealing or failing to disclose an event that
the person knows affects the initial or cominued right of the person to a
benefit or payment under the Medicaid program and to pennit a person to
receive a benefit or payment that is not authorized, or that is greater than
the benefit or payment that is authorized.. TEX. HUM. RES. CODE §
36.002(2).
C. Knowingly or intentionally making, or causing lX> be made, inducing, or
seeking to induce the makirtg of a false statement or misrepresentatiou of a
material fact concerning 'information required to be provided by a federal
or stare law. rule, regulation or provider agreement pertaining to the
Medicaid Program. TEX. HUM. RES. CODE § 36.002(4)(8). .
D. Knowingly or intentionally entering into an agreement. combin,ation. or
conspiracy to defraud the state by obtaining or aiding another person in
obtaining an unauthorized payment or benefit from the Medkaid program
or a fiscal agent TEX. HUM. RES. CODE § 36.002(C>).
37. Since August 3'1, 2005, a person commits an unlawful ac1 as defined under the
Texas Medicaid Ji'rnud Prevention Act by, among other things:
A Knowingly making or causing to be made a false statement or
misrepresentation of,a material fact to permit a person to receive a benefit
or payment under the Medicaid program that 1s not aulhorized or tbat is
greater than the benefit or payment that is authorized. TEX. HUM. RES.
CODE ANN.§ 36.002(l)(A) & (B).
13. Knowingly concealing or failing to disclose information that pennits a
pers0n to receive a benefit or payment under the Medicaid program that is
not authori7.ed or that is greater than the benefit or payment that is
authorized. TEX, HUM. RES. CODE ANN. § 36.002(2).
C. Knowingly making, causing to be made, inducing, or seeking to induce the
making of a false statement or misrepresentation of material fact
concerning information required to be provided by a federal or state law,
rule, regulation, or provider agreement pertaining to the Medjcaid
program. TEX. HUM. RES. CODE ANN. § 36.002(4 )(R).
PLA INTIFF'S ORIGlNAL Pl:".Tl'rlON PAGE 18
VU. DEFENDANTS' VTOLATlONS OF T HE
TEXAS MEDICAID FRAUD PREVENTION ACT;i
38. The State re-alleges and incorporates by reference as set forth her~in the
allegations contained in Paragraphs t through 35 of this Petition.
39. Xerox knowingly made or caused to be made false statements or
misrepresentations of material facts to HHSC authorities charged with overseeing Xerox's
contractual perfonnance tegardi ng:
• The application and enforcement of M~dicaid policy with regard to orthodontic
treatment~
• The conducting of medical necessity reviews of requests for orthodontic prior
aulhori;r.ation;
• The provision of adequate rnedicalJy knowledgeable personnel to make medical
necessity determinations;
• The application and .appropriate enforcement of Medicaid pollcy with regard to
the review of documentation submitted by providers to support medical necessity
fot orthodontic treatment
• The implementation of quality assurance processes necessary to assess the
dispositions of requests for orthodontic prior authorizations;
• The retention of reco·rds necessary to justify the dispositions of requests for
orthodontic p.rior authorizations.
Xerox•s false statements and/or misrepresentations permitted orthodontic providers to receive
benefits under the Medicaid pro~ran1 in violation ofSection 36.002{1) of the TMF~A.
2
rn August of 2005, applicable provisions of the TMFPA were amended as set forth in 1[~
36 through 37 above. Plaintjff:s are seeking the appropriate remedies for Defendants' unlawfol
acts (which Include Defendants' conduct both prior to and after August 2005 for purposes of this
lawsuit) as.defined in the TMFPA at the time such unlawful acts were- committed.
PLAlNTTFf'S ORIGINAL PETITION J>AGE 19
40. Xerox knowingly concealed from, or failed to di.sclose to. l JHSC authorities
charged with overseeing Xerox's contractual performance events or information regarding:
• The application and enforcement of Med.icaid policy with regard to orthodontic
treatment;
• The conducting of med1cal necessity reviews of requests for orthodontic prior
authorjzation;
• The provision of adequate medicalJy knowledgeable personnel to conduct medical
necessity tletermitiations;
• The application and appropriate enforce1rteL1l of Medicaid policy with regard to
the submission by providers. of medical documentation to support medical
necessity for orthodontic treatment:
• The implementation of quality assurance processes necessary to assess the
dispositions of requests for orthodontic prior authorizations~
• The retention of records necessary to justify the dispositions of requests for
orthodontic prior authorizations,
Xerox's concealment and failure to disclose material information pennt~ted orthodontic
providers to receive payments under the Medicaid program that were not authorized o r that were
greater than the benefits autJ1orized in violation of Section 36.002(2) of the TMFP A.
41 . Xerox knowingly or intentionally made, or caused to be made, induced, or sol,lght
to induce the making of false statements or misrepresentations of material facts concerning
information required to be provjded by a foderal or state law, rule, regulation or provider
agreement pertaini.ng to the Medicaid Program in violation of Section 36.002(4) of the TMFPA.
Xerox's conduct permitted Xerox to receive payments for services it failed to perfotm and
PLA!NTiFF'S ORJGINAL PETITION
induced the Texas Medicaid program to. make payments to both Xerox and orthodontic providers
that should not have been paid.
42. As a result of Xerox's conduct, hundreds of millions of dollars in pay'tnents were
made for services not performed and orthodontic. benefits not authorized by Medicaid policy by
the State of Texas.
43. Under the TMFPA, Xerox is liable to the State of Texas for the value of any
payments or any monetary or in-kind benefits provided unde1· the Medicaid program, directly or
indirei.!tly~ as a result of its unlawful acts. two times the amount of those payments, plus pre-
judgment intetest on the value of those payments, and a civil penalty for each unlawful act
committed, in addition to the fees, expenses, and costs of the State of Texas in investigating and
obtaining civil r~medies in this matter. TEX. HUM . RES. C ODE§§ 3.6.052, 36.007.
44. The State invokes ~JI relief possible at law or in equity under TEX. HUM. RES.
CODE §36.052, whether specified in this pleading or not
45. The amounts sought from Xerox; are in excess orthe minimum jurisdictional limils
of this Court.
vrn. STATUTORY TNJUNCTION UNDER§ 36.051 OF THE ACT
46. The Attorney General bas good reason to believe the Defendants are committing,
have committed, or are about to commit lln1awfo1 acts as defined by the TMFPA. These illegal
acts may be enjoined under§ 36.051 Of the Act, and under TEX. GOVT. CODE§ 200L202.
lX. JURV DEMA~D
47. The State respectfully requests a trial by jury on all claims pursuant to Texas Rules
of Civil Procedm'e 2 l 6.
PLATNTIFF'S ORIGINA L PETITION PAGE: 21
X. PRAYER
48. The State asks that judgment be. entered upon trial (}[this case it1 favor of the State
against Xerox to the maximum extent allowed by law.
49. The State asks for injunctive relief pursuant to§ 36.051 of the TMFPA and ·under
TEX. GOVT. CODE § 2001.202.
50'. The State asks that it recover from Xerox:
A. restitution of overpayments made as a result ofXerox7 s unlawful acts;
B. lwo. times the value of any overpayments made as a result of Xer0x's
ur1iawful (lets;
C. civil penalties~
D. prejudgment interest;
E. expenses, costs and attorneys· lees: and
F. post-judgment interest al the Jega1 rate.
Respectfully stJbmitted,
GREG ABBOTT
Attorney General of Texas
OANlEL T. HODGE
First Assistant Attorney General
JOHN SCOTT
Deputy First Assistant Attorney General
PLAINTIFF'S ORlGINAl Pf.1Tf!ON PACE.22
/\ss1st,m1 AUurni.;ys Ot:nernl
P.O. Ao\ I2~·lN
Auslm. Tc u 787 1t-2548
51 :?l 4 ~9-0 I:! tu\
rro.u t·V. FOR THE s l'ATE OF fE ·"·
Pt.ANTIFl- '.\ U U.ilNAI Pl· llK • . lJ
,~,
Tab C
Office of Inspector General Report dated August 29, 2008
TEXAS
Health and Human
Services Commission
Albert Hawkins, Executive Commissioner
Office of Inspector General
Performance Audit Report
Texas Medicaid Healthcare Partnership
Prior Authorization Audit
August 29, 2008
Bart Bevers, Inspector General
OlG Report No 08-70-Sl903t91-MA-03j
CONTENTS
...
Transmittal Letter
Executive Su·mmary ........ ,...,. ........................................ ,. ............................................................... ~.....•....•. J
Detailed. Findings and Reconunendations ................................................................................................. 3
Appendix A - Objective, Scope, and Methodology ......................................... ,. ..................................... I 0
Appendix. B-Report Distribution ........................................................................................................... 12
August 29, 2008 Performance Audir Rep 1\ffflilltecf C\1mpu11.~r Services.
August 29. 2008 Performance Aud1t Report Page 1
fMHP Prior Authorization Audit
OIG Report No. 08-70-5290319 l -MA·il3
111is Medicaid ad1ni11istration contruct incorporates the Request for Propo::icd (RFP) . Sc:ction 8, Vendor
Rcsponsihilitic::s, of the RFP states ~ Prior authorizatio n (PA) is a mechanism to determine the medical
necessity of selected non·c:mergency, Medicaid-covered. and medical services prior to service d~livery
(and retrouctively m special casi:s). Providers submit requests for PA to pcrionn s~ificd services.
The PA funct ion will ser\'e as a utilization manag~ent measure.: allowing payment for only those
serv1ces that arc medically ncce~sury, appmpriat~. an~rformance Audit Repl)rt
TMHP Prior Au(J10riz.atioo Audit
OJG Report No. 08· 70-5~9031 l) l -MA-1) '
DETAILED FINDINGS AND RECOMl\ifENDATJONS
Finding - Opportunity for Improvement in the Orthodontic Prior Authorization Requests
Process
An <)pp\lrtunity for improvement was noted in the documentation review process for orthc> A employees wht:thcr on-site or in-hoine are required to comply
Pcrfomiance Audtl Rt:port Page 7
TMHP Prior Authorization Audie
OIG Report No. 08-70-52903 l9l·M/\·03
with all TMHP infomiation technology security policies, which state that they will not save
confidential information dn.ta on a worker-provided system or- removnble storage media. However, in
order to mitigate any risk, a tcm1inaJ server gateway solution is currently being researched1 which
would prevent the download of darn from the TMHP network to the local machine or removable
storage media over the VPN connection.
August 29, ~008 Pe.rfonnance Audit Report Pageil
TM.HP Prior Authorization Audjt
QIG Report No. 08-70-529"03 L9 l-MA-OJ
APPE~ll l XES
Augul>t 21), .:!OOR Pertbrrnance Audi! R~port Pagl! 9
l"Mf1P Prior Authorfaation Audi\
OIG Report No. 08-7Ch)l'l0J I<> J -MA .OJ
APPENDIX A
OBJECTIVE, SCOPE, AND l\1ETHODOLOGY
Objecti\'e
To .det~n11i11e if ThtHP'.s prior authorization process ~omphes with contracttlal obligations. Texas
Administrative Code, and federal regulations
The initial scope of the audit of TMHP's prior authorization covered the period beginning S~tember
l , 2006 and ending March 31 , 2008 . An engagement letter was issu<..>d to TMHP outlining the
understanding of the OlG witb respect to the audit of the TMHP Prior Authorization Division for the
period September I, 2006 to March 3 l, 200~ . The scope of procedu1es was based upon an assessment
of ~isk and results of prejiminary audit cesting. The final scope of the audit for fieldwork testing was
determined to be September 1, 2007 to February 29, 2008. Professional judgment was exercised in
planning, t!xecuting ande H-390
Mr. David M , Griffith, CPA. CIA, Director Internal Audit
1 exas Health and Human Services Cum.mission
4900 North Lamar Blvd.
Austin. Texas 78751
Mail code BH-1600
August 29, 200S Perfonnance Audit Report Page l1
TMHP Prior Autl\orization Audit
OIG Report No, 08-70~52903191-MA-OJ
Tab D
Providers’ Plea in Interventions in Cause No. D-1-GV-14-000581
CAUSE NO. D-1 -GV-14-000581
ATLAS DENTAL, LP, AND § IN THE DISTIUCT COURT
DR. IDEU HUYNH, §
lNTERVENORS, §
§
vs. §
§
THE STATE OF TEXAS, §
PLAINTIFF, §
§ 53rd JUDICIAL DISTRICT
vs. §
§
XEROX CORPORATION; XEROX §
STATE HEALTHCARE, LLC; ACS §
STATE HEALTHCARE, LLC, A XEROX §
CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TEXAS
PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, Atlas Dental, LP and Dr. Hieu Huynh, hereinafter lntervenors, and file
this Plea in Intervention, and in support hereof, would respectfully show the Court the following:
I. Parties and Service
l. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of
this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0.
Box 12548, Austin, Texas 78711-2548.
2. Defendant Xerox Corporation is a corporation organized under the laws of New York has
agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State
Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS
State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation
organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave.,
Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit.
Plea in Intervention
Page 1 of25
Defendant Xerox Corporation acquired Defendant ACS in 2010. On infonnation and belief,
ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April l, 2012.
Defendants are referred to hereinafter as "Xerox Defendants."
3. Atlas Dental, LP, (hereinafter ATLAS) is an approved Medicaid provider. ATLAS can be
served through the undersigned counsel.
4. Dr. Hieu Huynh 1 is a licensed Texas dentist, approved Medicaid provider, and the owner
of ATLAS. Dr. Hieu Huynh can be served through his undersigned counsel.
II. Jurisdiction and Venue
5. This Court has subject-matter jurisdiction in that the amounts sought by lntervenors from
all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this
court. Tntervenors affirmatively plead that this suit is not governed by the expedited-actions
process in TEXAS RULE OF CrvIL PROCEDURE 169 because intervenors seek monetary relief over
$100,000.
6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to lntervenors' claims;
b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawfu l acts alleged in this petition
in whole or part in Texas.
7. Venue is proper in Travis County under TRCP §15.020 because this suit involves a
"major transaction"; Venue is permissive under TRCP §I 5.035(a) because Intervenor asserts
claims for breach of contract. Venue is proper pursuant to TRCP §15.02 because all or a
substantial part of the events or omissions giving rise to the claim occurred in Travis County.
Many of the unlawful acts committed by the State and Xerox Defendants were committed in
1
For the sake of simplicity, the lntervenors will be collectively referred to as "ATLAS" unless expressly noted.
Plea in Intervention
Page 2 of25
Travis County, including the making of false statements and misrepresentations of material fact.
ill. Intervenors' Interest in the Suit
8. Intervenors ATLAS and Dr. Hieu Huynh have a judicial interest in the matters and
controversy in this litigation. The relationship between Intervenors, the State as the Plaintiff and
the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of judicial
economy and justice, all claims be bound and subsumed into one cause of action. Upon
infonnation and belief, lntervenors were initially sued by the State in a qui tam action wherein
the State alleged that Lntervenors defrauded the State. The State has elected to pursue its
remedies against the lntervenors in an administrative hearing. Now, the State has sued Xerox in
State Court on the same facts, alleging that Xerox has committed fraud against the
State. Intervenors have c laims against both the State and Xerox. It is assumed that Xerox will
have claims against the State, and perhaps allege claims against the lntervenors. All of the
different parties' claims are inextricably intertwined, as they relate to [ntervenors' submission of
prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the
State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and
legal duties, and State's subsequent legal action against the Intervenors for services approved by
Xerox.
IV. Facts
What is Prior Authorization?
9. Texas Medicaid requires that orthodontic services be independently and objectively
scrutinized before the State consents to treatment and payment. Prior authorization is the
mechanism the State uses to determine the medical necessity of non~emergency orthodontic
items/services prior to delivery of those items/services. Pursuant to Texas Health and Human
Plea in Intervention
Page 3 of25
Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will
pay for orthodontic services:
Orthodontic services for cosmetic reasons only are not a covered Medicaid
service. Orthodontic services must be prior authorized and are limited to
treatment of severe handicapping malocclusion and other related conditions as
described and measured by the procedures and standards published in the
[TMPPM2].
25 TEX. ADMIN. CODE §33.7 1 (emphasis added). Prior authorization is a statement of assurance
to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the
requested orthodontic serv ice has been deemed by Xerox to be medically necessary, and
therefore approved by the State.
I 0. The prior authorization process is straightforward. Texas Medicaid requires that a dental
provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's
orthodontic condition to Xerox for review. In addition, the 01thodontic provider submits his
professional opinion of the patient on a Handicapping Labio-lingual Deviation index (HLD)
score sheet. Xerox knew providers relied entirely on the prior authorization process because
approval was a mandatory prerequisite to provid ing orthodontic services and being paid. Once
Xerox issued its prior authorization decision, the decision was not appealable by the provider.
11. The HLD scoring system combines a number of treatable orthodontic conditions into an
index. HLD score sheets use a mix of objective and subjective conditions to detennine whether a
Medicaid patient qualifies for orthodontic services. The fact that the HLD score sheet requires
both objective and subj ective fmdings highlights the importance of Xerox performing a thorough
prior authorization review.
T he Histor y of O rthodontic Prior Authorization.
2
"TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides
valuable guidance to Medicaid providers.
Plea in Intervention
Page 4 of25
12. The process for reviewing and approving orthodontic prior authorization requests pre-
dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage
Insurance Corporation (NHIC) was responsible for reviewing prior authorization requests before
Xerox assumed the contract in January 2004. Starting January l, 2004, Xerox acted as an
independent contractor, and was a contracted agent of the State, under the contract with HHSC.
Xerox was responsible for reviewing each orthodontic service request, and Xerox was further
charged with the respons ibility to grant or deny each prior authorization req uest per the program
requirements. The resu lt was that Xerox had the final say in detem1ining the medical necessity of
each request for orthodontic services.
13. Prior to assuming the NHIC contract, and for a period ohime after assuming the contract
from NHIC, Xerox received training from NHIC personnel regarding the proper method for
receiving and processing orthodontic prior authorization requests. NI-llC personnel explained
how and why the review of each prior authorization submission was important, and walked
Xerox through the process. Despite its training from NHIC, Xerox had no intention of following
the prior authorization system that had been in place for years, nor d id Xerox intend to otherwise
meet the prior authorization requirements set out in its contract, the TMPPM and required by
state law.
Xerox rejects its contractual responsibilities.
14. When Xerox took over the contract in 2004, it immediately abandoned the prior
authorization review process that had been setup by NHTC. Xerox never intended to fulfill its
orthodontic prior authorization responsibi Iities to HHSC. From 2004 to 20 11 , Xerox continually
misrepresented that it was acting in compliance with its contractual duties.
IS. It is now known that Xerox failed to adequately staff their prior authorization division
Plea in Intervention
Page 5 of25
with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004
through 20 I I , which was far short of the manpower necessary to handle the review of tens of
thousands of orthodontic prior authorization requests every year. Xerox could not reasonably
have expected to handle such a workload by employing only one dentist.
Xerox potentially comm its thousands of violations.
16. It is believed Xerox allowed "dental specialists"- unlicensed, unqualified individuals-
to render prior authorization opinions regarding the medical necessity of requested orthodontic
services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed
dental director or another qualified dental professional. These actions not only violated Xerox's
contractual obl igations, they may have also violated other Texas law such as the Dental Practice
Act. 3 lt is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior
authorization approvals/medical opinions in violation of Texas law.
17. Xerox was paid by the state for each prior authorization decision that was made. It is
believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a
profit generating measure.
18. From January 2005 through February 2012, Intervenor submitted prior authorization
requests, as required, to Xerox for a detennination of med ical necessity. Unbeknownst to
[ntervenor, Xerox's dental specialists-not the dental director- approved almost all of
Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or
b) the approval had been issued by a licensed dentist, and/or
3
Texas Occupations Code §251.003 prevents unUcensed individuals from diagnosing conditions of the human teeth
and mouth. Section 256.001 states that a person may not practice dentistry without a license. Thus, state law requires
that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section
264.151 prescribes penalties for certain violations of the Dental Practice Act.
Plea in lntervention
Page 6 of25
c) the approval was an actual and legitimate dental diagnosis, and/or
d) the requested orthodontic services were allowable under Texas law and as permitted
by Medicaid policy, the TMPPM, and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or
t) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervenfog disqualification (such as the patient's ineligibility).
19. Because Xerox was charged with determining medical necessity, and because prior
autho rization approval was a mandatory prerequisite to furni shing services, the promises were
material. lntervenors expected performance of these promises. lntervenors relied on Xerox.
Further, Xerox promised that its subsequent payments to lntervenors (after the services had
actually been delivered) were made because the services had been, in fact, properly approved as
medically necessary. Each prior authorization approval represents a separate violation of the law
if Xerox 's approval was issued illegally and/or in violation of its contractual obligations.
Xerox actively concealed its potentially illegal activity.
20. Xerox withheld the truth regarding its prior authorization program. In an attempt to
publicly appear consistent with NHIC's prior authorization process, Xerox continued to require
that dental providers (such as Intervenor) submit all supporting documentation for each HLD
score sheet. lt is now believed that, incredibly, Xerox did nothing with that documentation, other
than assure that it had been submitted by the provider. It is believed that Xerox's specialists were
instructed to forward to its dental director only those requests lhat had scored below the
threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some
provider j usti fi cation attached. As a result, only I 0% of the orthodontic prior authorization
requests were actually forwarded to Xerox's one licensed dentist. Xerox 's actions were
Plea in Intervention
Page 7 of25
calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox
knew that its actions we re entirely inconsistent with the letter and spirit o f its obligations.
Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving
services without determining their medical necessity, but Xerox 's deception also exacerbated the
problem by failing to give providers guidance regarding the proper standard for medical
necessity, thus caus ing these providers substantial damages.
2 1. For the past ten years, Xerox has continued to publicly represent to the world that it was
fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was
fulfilJing its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004
through the present. Each year that Xerox had its contract renewed, it represented that it would
fulfill its contractual obligations and abide by Texas law requiring that decisions about medical
necessity be rendered onl y by licensed dentists. Xerox made those representations knowing that
it had not done so in the past, and had no intention of changing its procedures to do so in the
future.
The Frew decisio n magnifies Xerox's acts.
22. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to
implement a corrective action plan that increased the Medicaid reimbursement rates to all dental
providers. That plan was required pursuant to the Frew case 4 , which was a 1993 c lass-action
lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that
they prevented indigent children from receiving timely, comprehensive health care .
4
Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir.
2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and
affd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins,
401 F. Supp. 2d 619 (E.D. Tex. 2005) aff'd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v.
Frew, 549 U.S. 111 8, 127 S. a. !039, 166 L. Ed. 2d 714 (2007).
Plea in Intervention
Page 8 of25
23. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707
million ($1.8 billion in state and federal funds combined) to increase medical and dental
reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists
to become Medicaid providers. It worked. The state raised payment rates for dental services, and,
as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to
63.4% in 20 l 0. As expected indeed, as intended spending on Texas's dental services increased
dramatically.
24. Although the number of prior approval requests increased by 240% between 2007 and
20 L0, Xerox continued to employ only one dentist. That dentist was neither tasked with nor
responsible for supervising the clerical specialists that were issuing the approvals.
25. By 20 I0, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox
was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper
for the approval and payment of orthodontic services. Although the Texas Legislature had
increased funding to attract dentists into the Medicaid program, all of the budgeted funds were
required to be spent only on medically necessary services.
The Office of Inspector General seeks recovery from Medicaid providers.
26. In early 20 I 1, a series of news stories began highlighting the large amount of money
being spent on orthodontics in Texas. In July 20 I 1, the Federal government notified Texas of its
intent to audit whether Texas' prior authorization process was ensuring that only medically
necessary orthodontic cases were being approved and paid. With the prospect of a federa l
clawback action looming against Texas because of Xerox's prior authorization failures, the
Texas Office of fnspector General (hereinafter "State") took a drastic step. Beginning in 2011,
the State generated a list of the top Medicaid orthodontic billers and placed them on "payment
Plea in Intervention
Page 9 of25
hold." Intervenor was one of those providers.
27. Given Intervenors' proximity to some of the state's poorest children, and the mandates of
the Frew decision, Intervenor served a large Medicaid patient population. Because it served a
large Medicaid population, it submitted a large number of prior authorization requests to Xerox
from 2004 through 20 I 1.
28. fntervenors did not know that Xerox was failing to perform a true and accurate review for
medical necessity. lntervenors relied on Xerox's prior authorization approvals to confirm that
dentists' analysis was proper and consistent with Medicaid standards and requirements.
29. Again unbeknownst to Intervenors, State audits in 2008 and 2012 concluded that most, if
not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater
(indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State
audits made the Federal government's pending audit especially dangerous to Texas, because the
2008 and 2012 audits were admissions that Xerox had been approving and paying claims that
may not have met the federal standards for prior authorization. T hus the State, through the
Attorney General, concluded that a true finding of medical necessity had in reality not occurred.
The Attorney General claimed that billing for services that are not necessary is fraud, despite
Xerox's prior authorization approvals.
30. It is now believed that rather than prosecute Xerox for its failure to properly evaluate
dentists ' prior authorization requests, the State and the Texas Attorney General protected Xerox.
This protection included the State failing to allow TMHP to hire additional medically licensed
staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the
Attorney General took immediate action against the providers, the Attorney General refused to
hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its
Plea in Intervention
Page 10 of25
violation of State law. Instead, the Attorney General made fraud allegations against each of the
top 25 dental providers, including Intervenor, which has caused more injury and damages to
lntervenors. Stated d ifferently, Xerox issued its approvals through a process that gutted the
State's belief in che accuracy of Xerox's decision, and the Texas Attorney General punished the
providers instead of Xerox.
3 L. Because the acts/omissions of Xerox so undermined the process, the State
eventuallyinstituted a "payment hold" against Intervenor. A payment hold temporarily freezes
future Medicaid payments to a provider, despite the provider's ongoing participation in the
Medicaid program. The payment hold against lotervenor was issued pursuant to what the State
called a "credible allegation of fraud" regarding intervenor's orthodontic prior authorization
requests. The State placed a I00% payment hold against Intervenor's orthodontic billings.
32. At the time the Attorney General began prosecuting Intervenor and similarly situated
Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to
authorize orthodontic services and payments. The Attorney General knew that the State's audits
of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State,
violating its own State-approved policies and procedures, and violating State law. Nevertheless,
the Attorney General continued to only prosecute dental providers like the Intervenor; the
Attorney General refused to hold Xerox responsible. ln fact, in one shameless and brazen
demonstration of State' s unwavering protection of Xerox, the Deputy Director of Texas' Office
of the Inspector General testified in a hearing that Xerox' s acts and omissions were so egregious
they were outside the course and scope of Xerox's agency with State.5 Upon information and
' Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a
dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the
State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it
was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox.
Plea in Intervention
Page 11 of25
belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing
the State's culpability would subject the State to a federal clawback for hundreds of millions of
dollars. Instead, the State and the Attorney General pointed at the dental providers.
33. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for
over 6 years, became too much to hide. Three months after some providers filed suit against
Xerox, and fo llowing a series of news stories questioning why Xerox had not suffered for its
failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas
Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed
approximately I 00 days earlier by similarly situated providers. The State's claims in this fraud
lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were
improper.
34. As a result of the payment hold, Intervenor was required to make significant financial
concessions and changes to its business. Intervenor also engaged legal counsel to defend itself
from the State's claims, at a significant expense that continues today.
35. The State 's allegations against lntervenor are rooted in two assumptions. First, the State
assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is,
Xerox approved Intervenor's requests without knowing whether approval was actually proper.
Because Xerox is not a party to lntervenor's administrative case, Intervenor is prevented from
determining whether Xerox did, in fact, perform a proper review of lntervenor's prior
authorization requests. By intervening in this lawsuit, lntervenor seeks to address that question,
and finally detennine whether Xerox reviewed Intervenor's requests as required by its contract
and the law.
36. Regarding the State's second assumption, the State alleges some of lntervenor's requests
Plea in Intervention
Page 12 of25
were approved when, in fact, they should have been denied. Intervenor denied that assertion in
the administrative case, and Intervenor continues to deny that c laim here. All services provided
to Intervenor's patients were actually medically necessary, regardless of what Xerox decided and
in any event under Medicaid guidelines once the authorization was approved, Intervenor was
required to provide the services.
37. The State continues to aggressively fight any allegation or affirmative defense that could
result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's
contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action
A. Jntervenors ' Claims Against Xerox
Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement)
38. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's prior authorization approvals were fa lse representations made to Intervenor. It is
believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew
that it was approving requests without a proper medical review, and/or because it approved the
prior authorization requests without any knowledge of their truth. It is believed Xerox intended
for rntervenor to rely on the approvals as a prerequisite fo r prov iding the requested services.
Approval was material because it was a mandatory prerequisite for payment. Intervenor actually
and justifiably relied on Xerox's fraudulent approvals.
39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in
the same o r similar manner, and led Intervenor to believe that their requests were consistent with
Medicaid standards and requirements.
40. Xerox's fraudu lent approvals caused injury to Intervenor. As a resu lt of Xerox's actions,
Plea in Intervention
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Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor
was placed on payment ho ld, Intervenor is fo rced to defend itself in an administrative payment
hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including
claims for treble damages and attorney fees). Intervenor's reputation and business have suffered
severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs,
and attorney fees.
Breach of the Xerox-State of Texas Contract
41. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State
for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper,
thorough and legal review of prior authorization requests for the purpose of determining medical
necessity. To that end, Xerox should have employed a licensed dentist.
42. Xerox was an agent of the State of Texas engaged specifically for the purpose of
determining medical necessity. The third party beneficiaries of that Xerox-State of Texas
contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic
services that were medically necessary. Intervenor was responsible for actually delivering the
orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third
party beneficiary that relied on Xerox's approvals.
43. Xerox breached its contract by, inter alia, failing to provide qualified staff; possibly
violating Texas law; permitting non-dentists to make detenn inations of medical necessity; and
issuing medical opinions without conducting a reasonable and prudent examination of evidence.
The breaches were material, and recurred across many different Medicaid patients and for many
years.
Plea in Intervention
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44. Xerox's actions proximately caused Jntervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, lntervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary
intelligence should have anticipated that issuing a decision without actually reviewing or
considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and
reliabiJity of the decision. Once the State assumed that Xerox's approvals were not trustworthy,
it was foreseeable that the State would demand repayment, and/or would require Intervenor to
independently do Xerox's job after the fact by proving that payment was proper because the
services were medically necessary and reimbursable under Texas Medicaid law.
45. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages
that would have given the lntervenors the benefit of the bargain by putting them in as good a
position as they would have been in if the contract had been perfonned. Intervenor seeks
reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's
contract with the state and the approvals that Xerox made under that contract. Intervenor also
seeks damages for its restitution interest to restore money sought by the Office of the Inspector
General from Intervenor. Such damages wou ld put the lntervenors in as good a position as it
would have been in if the contract had been properly fulfilled. In addition, Intervenor seeks
liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal
counsel to defend itself from the State's charges, and those legal expenses continue today.
Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost
future profits, loss of credit, and Joss of goodwill. Intervenor seeks recovery of actual and
Plea in Intervention
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exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel)
46. Intervenor re-alleges and incorporates the above facts and allegatio ns as if fully set out
herein. In the alternative, Xerox's actions constitute promissory estoppel.
47. Xerox's prior authorizations constitute promises to Intervenor in numerous ways.
Because prior authorization was a prerequisite to furnishing services, and because Xerox was the
entity charged with discharging prior authorization duties, Interveno r reasonably, substantially,
and foreseeab ly relied on Xerox's promises.
48. Intervenor suffered and continues to suffer significant damage. [ntervenor suffered
reliance damages by investing time, labor, equipment, and o rthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact-namely, demonstrate that the services were medically necessary and
properly reimbursable under Texas Medicaid law. lntervenor has incurred benefit of the bargain
damages, o ut-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of
goodwill. All of these damages were directly and/or prox imately caused by Xerox's promises.
Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and atto rney
fees.
Negligent Hiring/Negligent Supervision
49. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was
required to render medical diagnoses. To that end, Xerox was required by law to employ a
licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by
Plea in Intervention
Page 16 of25
law to properly supervise its employees to make sure diagnoses were made only by licensed
dentists.
50. Xerox knew or should have known that decisions regarding medical necessity can only
be rendered by licensed personnel. Texas Occupations Code section 251.003 defines the practice
of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.00 1 states that a
person may not practice dentistry without a license; section 264.1 5 l makes it a third-degree
felo ny to practice dentistry without a license.
5 1. Xerox's actions proximately caused Intervenor's injury. lntervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factua l
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
inte ll igence should have anticipated that paying Intervenor for services that have not properly
been determ ined to be medically necessity would precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact by proving that payment
was proper because those services were medically necessary and were reimbursable under Texas
Medicaid law.
52. fntervenor suffered and continues to suffer significant damage. Intervenor suffered
re liance damages by investing the cost of services for each Medicaid patient that Xerox
approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and
those legal expenses continue today. Intervenor suffered and continues to suffer significant
damage to its reputation, business, referral base, earnings and earning power. Intervenor has
suffered inconvenience and loss of enjoyment of li fe in that he has had to dedicate significant
Plea in Intervention
Page 17 of25
mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages
because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct
should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligence
53. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox 's actions constitute negligence and gross negligence. Xerox was required to render
medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a
diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel
had appropriate education, training and experience to render such a finding. Xerox had a duty to
review the supporting prior authorization documentation (such as x-rays and photos) to
determine whether the requested services were medically necessary.
54. Xerox's actions breached the standard of care because Xerox: failed to provide prior
authorization staff that were properly licensed, qualified and experienced dental professionals;
violated the law, specifically the Dental Practice Act, by permitting non-dentists to make
determinations of medical necessity, and; issued medical opinions (prior authorizations) without
conducting a reasonable and prudent examination of evidence.
55. Xerox's actions proximately caused lntervenor's injury. intervenor' s injuries were
caused-in-fact by Xerox 's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable .in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
Plea in Intervention
Page 18 of25
been detennined to be medically necessity wou ld precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox 's job after the fact.
56. Intervenor suffered and continues to suffer significant damage to its reputation, business,
referral base, earnings and earning power. Intervenor has engaged legal counsel to defend itself
from the State's charges, and those legal expenses continue today. Dr. Hieu Huynh has suffered
inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and
personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because
Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be
penalized so that it is deterred in the future. lntervenor seeks recovery of actual and exemplary
damages, interest, court costs, and attorney fees.
Negligent Misrepresentation
57. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent misrepresentation. Xerox's actions constitute
mi srepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization
approval was a prerequisite to furnishing services, these representations guided and controlled
Intervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox
represented that its prior authorization approvals were dispositive of medical necessity;
Intervenor expected that, once approved, no further inquiry into the medical necessity of the
services would be required. Further, Xerox represented that its subsequent payments to
Intervenor (after the serv ices had actually been delivered) were made because services had been,
in fact, properly approved as medically necessary.
58. Xerox did not exercise reasonable care or competence in making its determinations and
representations. Xerox knew or should have known that its representations were false.
Plea in Intervention
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59. Because prior authorization was a prerequisite to furnishing services, and because Xerox
was the entity charged with discharging prior authorization duties, Intervenor reasonably,
substantially, foreseeably, and justifiably relied on Xerox's representations.
60. Intervenor suffered and continues to suffer signifi cant damage. Intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket
damages, lost profits, loss of credit, and loss of goodwill. All of these damages were directly
and/or proximately cause by Xerox's negligent misrepresentations. Jntervenor seeks recovery of
actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property
6 I. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary
property which would entitle Intervenors to unlimited punitive damages.
B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity
62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. For a number of reasons, the State has waived sovereign immunity for claims by
Intervenor, including the facts that the State brought, threatened and/or has taken civil and/or
administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise
63. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
Plea in Intervention
Page 20 of25
herein. In the alternative, fonner Deputy Inspector General Jack Stick has stated publicly that
acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's
agency relationship with the State. Assuming same to be true, then the State conspired with
Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from
Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime.
64. The State conspired with Xerox to allow Xerox to violate its various contractual duties.
The State permitted Xerox to process as many prior authorizations as possible without the
required clinical dental review and without using medically knowledgeable personnel. The State
conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox
created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations
submitted by the dentists. The conspiracy was committed with the intent to shift blame from the
State and its agent, improperly blame the lntervenors, and enrich the State and Xerox. By
recouping money from providers that were not actually to blame, the State and Xerox hoped to
limit their own liability in the event of a Federal clawback action, and/or respond to unflattering
news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the
party to blame the dentist providers for their own improper acts and omissions is a proximate
cause of the injury to lntervenors.
Not Liable for Illegal Acts of Third Party
65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein . As alleged by the State in Section VlTI paragraph 46 of the State' s petition, Xerox has
committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide
proper prior authorization review in rubber stampi ng the doctors prior authorization reque.sts is
not the fault of the doctors. The doctors are not responsible for or liable to the State for the
Plea in Intervention
Page 21 of25
illegal acts of a third party for which the doctors had no control; the State should not withhold
money from the lntervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract
66. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. lntervenors are a direct or third party beneficiary of the contract with Xerox and the State
of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox
and/or reviewing the work product of Xerox. This breach by State, which allowed non-
performance by Xerox, has created the pretext by which the State affirmatively sued lntervenors
for repayment. To the extent that the State has withheld money and/or made claims for damages
against lntervenors based on the contracts in question, the State has waived immunity and is
liable up to those amounts plead.
Conversion
67. Intervenor re-alleges and incorporates the above facts and allegations as if fuUy set out
herein. State and Federal law required lntervenor to request prior authorization for orthodontic
services. Those prior authorization requests were approved by Xerox, which required lntervenors
to provide the services. The State has unilaterally made a decision to that, based on the acts and
omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor
on a payment hold. To the extent that lntervenor has provided services for which lntervenor
should be paid, and money which has been earmarked by the State for that payment but withheld,
the State has converted the funds. In addition, the States' acts/omissions are a violation of the
Texas Constitution Section 9 in that the acts/om issions constitute a seizure of money held under
the pretext of a payment hold.
Plea in Intervention
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VI. Damages
68. Intervenors have suffered and are entitled to recover damages inc luding, but not limited
to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to
business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees
and expenses, interest, punitive/exemplary damages, and attorney fees.
VU. Conclusion
69. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent
hiring, negligence, and gross neg ligence. Xerox's actions have subjected lntervenor to
unnecessary civi l and adminfatrative legal action, and that, in turn has caused additional inj ury.
Xerox's actions have required Intervenor to perform Xerox's job after-the-fact, by proving to the
State that the orthodontic services rendered were medically necessary and appropriate for
reimbursement. The State's actions have harmed Intervenor because the state's conspiracy to
improperly blame the dentists has resulted in meritless legal claims against the lntervenors and
conversion of the Intervenor's property.
VIII. Jury Demand
70. Intervenors respectfully request a trial by j ury.
IX. Request for Disclosure
71. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State
d isclose, within SO days of the service of this request, tbe information or material described in
Rule 194.2.
72. Wherefore, premises considered, [ntervenors Atlas Dental, LP and Dr. Hieu Huynh pray
that upon final hearing of the cause, judgment be entered jointly and seve rally against the
Plea in Intervention
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Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for damages, together
with pre-judgment and post judgment interest at the legal rate, costs of court, and other such
relief to which the lntervenors may be entitled.
Respectfully ..submitted,
~ J son Ray
Texas Bar No. 240
RIGGS, ALESHIRE & RAY, P.C.
700 Lavaca, Suite 920
Austin, Texas 7870 l
(5 12) 457-9806 (Telephone)
(5 12) 457-9866 (Fax)
jray@r-alaw.com
Isl Hart Green w/ permission by J Ray
E. Hart Green
Texas Bar No. 08349290
Mitchell A. Toups
Texas Bar No. 20151600
WELLER, GREEN, TOUPS & TERRELL, L.L.P.
Post Office Box 350
Beaumont, Texas 77704-0350
(409) 838-0101 (Telephone)
(409) 832-8577 (Fax)
hartgr@wgttlaw.com
matoups@wgttlaw.com
ATTORNEYS FOR INTERVENORS
ATLAS DENTAL, LP AND DR. RIEU H UYNH
Plea in Intervention
Page 24 of25
CERTIFICATE OF SERVICE
l hereby certify that a true and correct copy of the foregoing Plea in Intervention was
served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on
the following:
Eric J.R. Nichols
Beck Redden
515 Congress A venue, Suite 1750
Austin, Texas, 78701
ENICHOLS@beckredden.com
Attorney for Xerox Defendants
Raymond Winter
Chief, Civil Medicaid Fraud Division
Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711 -2548
raymond.winter@texasattomeygeneral.gov
Attorney for the Plaintiff State of Texas
Plea in Intervention
Page 25 of25
CAUSE NO. D-1-GV-14-000581
DR. STEPHEN CHU, § IN THE DISTRICT COURT
INTERVENOR, §
§
VS. §
§
THE STATE OF TEXAS, §
PLAINTIFF, §
§ 53rd JUDICIAL DISTRICT
vs. §
§
XEROX CORPORATION; XEROX §
STATE HEALTHCARE, LLC; ACS §
STATE HEALTHCARE, LLC, A XEROX §
CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TEXAS
PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, Dr. Stephen Chu, hereinafter Intervenor, and file this Plea in
intervention, and in support hereof, would respectfully show the Court the follow ing:
I. Parties and Service
1. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of
this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0.
Box 12548, Austin, Texas 787 l 1-2548.
2. Defendant Xerox Corporation is a corporation organized under the laws of New York has
agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State
Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS
State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation
organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave.,
Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit.
Plea in Intervention
Pagel of25
Defendant Xerox Corporation acquired Defendant ACS in 2010. On information and belief,
ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April l, 2012.
Defendants are referred to hereinafter as "Xerox Defendants."
3. Dr. Stephen Chu is a licensed Texas dentist, approved Medicaid provider. Dr Chu can be
served through his undersigned counsel.
n. Jurisdiction and venue
4. This Court has subject-matter jurisdiction in that the amounts sought by Intervenor from
all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction Limits of this
court. Intervenor affirmatively pleads that this suit is not governed by the expedited-actions
process in TEXAS Ruu::: OF CrvIL PROCEDURE 169 because Intervenor seeks monetary relief over
$100,000.
5. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenor's claims;
b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in thi s petition
in whole or part in Texas.
6. Venue is proper in Travis County under TRCP §15.020 because this suit involves a
"major transaction"; Venue is permissive under TRCP § l 5.035(a) because intervenor asserts
claims for breach of contract. Venue is proper pursuant to TRCP § I5.02 because all or a
substantial part of the events or omissions giving rise to the claim occurred in Travis County.
Many of the unlawful acts committed by the State and Xerox Defendants were committed in
Travis County, including the making of false statements and misrepresentations of material fact.
Plea in lntervention
Page 2 of25
ID. Intervenor's Interest in the Suit
7. Intervenor has a judicial interest in the matters and controversy in this litigation. The
relationship between Lntervenor, the State as the Plaintiff and the Xerox Defendants is a tripartite
arrangement necessitating that, in the interest of judicial economy and justice, all claims be
bound and subsumed into one cause of action. Upon information and belief, Intervenor was
initially sued by the State in a qui tam action wherein the State alleged that Intervenor defrauded
the State. The State has elected to pursue its remedies against the lntervenor in an administrative
hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has
committed fraud against the State. Intervenor has claims against both the State and Xerox. It is
assumed that Xerox will have claims against the State, and perhaps allege claims against the
lntervenor. All of the different parties' claims arc inextricably intertwined, as they relate to
Intervenor's submission of prior authorization requests to Xerox, the handling of those claims by
the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's
performance of its contractual and legal duties, and State's subsequent legal action against the
Intervenors for services approved by Xerox.
IV. Facts
What is Prior Authorization?
8. Texas Medicaid requires that orthodontic services be independently and objective ly
scrutinized before the State consents to treatment and payment. Prior authorization is the
mechanism the State uses to detennine the medical necessity of non-emergency orthodontic
items/services prior to delivery of those items/services. Pursuant to Texas Health and Human
Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will
pay for orthodontic services:
Plea in Intervention
Page 3 of25
Orthodontic services for cosmetic reasons only are not a covered Medicaid
service. Orthodontic services must be prior authorized and are limited to
treatment of severe handicapping malocclusion and other related conditions as
described and measured by the procedures and standards published in the
[TMPPM 1].
25 TEX. ADM IN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance
to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the
requested orthodontic service has been deemed by Xerox to be medically necessary, and
therefore approved by the State.
9. The prior authorization process is straightforward. Texas Medicaid requires that a dental
provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's
orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his
professional opinion of the patient on a Handicapping Labio-lingual Deviation index (HLD)
score sheet. Xerox knew providers relied entirely on the prior authorization process because
approval was a mandatory prerequisite to providing orthodontic services and being paid. Once
Xerox issued its prior aulhorization decision, the decision was not appealable by the provider.
l 0. The HLD scoring system combines a number of treatable orthodontic conditions into an
index. HLD score sheets use a mix of objective and subjective conditions to determine whether a
Medicaid patient qualities for orthodontic services. The fact that the HLD score sheet requires
both objective and subjective findings highlights the importance of Xerox performing a thorough
prior authorization review.
The History of Orthodontic Prior Authorization.
l l. The process for reviewing and approving orthodontic prior authorization requests pre-
dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage
1
"TMPPM" is the Texas Medicaid Provider Procedures Manual, whi.ch is issued yearly by the HHSC and provides
valuable guidance to Medicaid providers.
Plea in Intervention
Page4 of25
Insurance Corporation (NHlC) was responsible for reviewing prior authorization requests before
Xerox assumed the contract in January 2004. Starting January I, 2004, Xerox acted as an
independent contractor, and was a contracted agent of the State, under the contract with HHSC.
Xerox was responsible for reviewing each orthodontic service request, and Xerox was further
charged with the responsibility to grant or deny each prior authorization request per the program
requirements. The result was that Xerox had the final say in determ ining the medical necessity of
each request for orthodontic services.
12. Prior to assuming the NHIC contract, and for a period ohime after assum ing the contract
from NHIC, Xerox received training from NHJC personnel regarding the proper method for
receiving and processing orthodontic prior authorization requests. NHTC personnel explained
how and why the review of each prior authorization submission was important, and walked
Xerox through the process. Despite its training from NHIC, Xerox had no intenlion of following
the prior authorization system that had been in place for years, nor did Xerox intend to otheiwise
meet the prior authorization requirements set oul in its contract. the TMPPM and required by
state law.
Xerox rejects its contractual responsibilities.
13. When Xerox took over the contract in 2004, it immediately abandoned the prior
authorization review process that had been setup by NHIC. Xerox never intended to fulfill its
orthodontic prior authorization responsibilities to HHSC. From 2004 to 20 11, Xerox continually
misrepresented that it was acting in compliance with its contractual duties.
14. It is now known that Xerox failed to adequately staff their prior authorization division
with knowledgeable medical professionals. Xerox employed only one licen sed dentist from 2004
through 2011, which was far short of the manpower necessary to handle the review of tens of
Plea in Intervention
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thousands of orthodontic prior authorization requests every year. Xerox could not reasonably
have expected to handle such a workload by employing only one dentist .
Xerox potentially commits thousands of violations.
15. It is believed Xerox allowed "dental specialists"-unlicensed, unqualified individuals-
to render prior authorization opinions regarding the medical necessity of requested orthodontic
services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed
dental director or another qualified dental professional. These actions not only violated Xerox's
contractual obligations, they may have also violated other Texas law such as the Dental Practice
Act. 2 It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior
authorization approvals/medical opinions in violation of Texas law.
16. Xerox was paid by the state for each prior authorization decision that was made. It is
believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a
profit generating measure.
17. From January 2005 through February 2012, Intervenor submitted prior authorization
requests, as required, to Xerox for a determination of medical necessity. Unbeknownst to
lntervenor, Xerox's dental specialists-not the dental director-approved almost all of
Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or
b) the approval had been issued by a licensed dentist, and/or
c) the approval was an actual and legitimate dental diagnosis, and/or
d) the requested orthodontic services were allowable under Texas law and as permitted
2
Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth
and mouth. Section 256.001 states that a person may not practice dentistry without a license. Thus, state law requires
that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section
264.151 prescribes penalties for certain violations of the Dental Practice Act.
Plea in Intervention
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by Medicaid policy, the TMPPM. and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or
f) future orthodontic services would be properly reimburseable to Intervenor, absent some
intervening disquali fication (such as the patient's ineligibility).
18. Because Xerox was charged with detennining medical necessity, and because prior
authorization approval was a mandatory prerequisite to furn ishing services, the promises were
material. Intervenor expected performance of these promises. Intervenor rel ied on Xerox.
Further, Xerox promised that its subsequent payments to Intervenor (after the services had
actually been delivered) were made because the services had been, in fact, properly approved as
medically necessary. Each prior authorization approval represents a separate violation of the law
if Xerox's approval was issued illegaJly and/or in violation of its contractual obligations.
Xerox actively concealed its potentially illegal activity.
l 9. Xerox withheld the truth regarding its prior authorization program. In an attempt to
publicly appear consistent with NHIC's prior authorization process, Xerox continued to require
that dental providers (such as intervenor) submit all supporting documentation for each HLD
score sheet. It is now believed that, incredibly, Xerox did nothing with that documentation, other
than assure that it had been submitted by the provider. It is believed that Xerox's speciaJists were
instructed to forward to its dental director only those requests that had scored below the
threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some
provider justification attached. As a result, only 10% of the orthodontic prior authorization
requests were actua lly forwarded to Xerox's one licensed dentist Xerox's actions were
calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox
knew that its actions were entirely inconsistent with the letter and spirit of its obligations.
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Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving
services without determining their medical necessity, but Xerox's deception also exacerbated the
problem by failing to give providers guidance regarding the proper standard for medical
necessity, thus causing these providers substantia l damages.
20. For the past ten years, Xerox bas continued to publicly represent to the world that it was
fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was
fulfilling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004
through the present. Each year that Xerox had its contract renewed, it represented that it would
fulfill its contractual obligations and abide by Texas law requiring that decisions about medical
necessity be rendered only by licensed dentists. Xerox made those representations knowing that
it bad nm done so in the past, and had no intention of changing its procedures to do so in the
future.
The Frew decision magnifies Xerox's acts.
21. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to
implement a corrective action plan that increased the Medicaid reimbursement rates to all dental
providers. That plan was required pursuant to the Frew case3 , which was a 1993 class-action
lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that
they prevented indigent children from receiving timely, comprehensive health care.
22. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707
million ($1.8 billion in state and federal funds combiJ1ed) to increase medical and dental
3
Frew v. Gilbert, 109 P. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir.
2002) rev'd sub nom. Frew ex rel. Frew v. llawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and
a.ffd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins,
40 1 F. Supp. 2d 619 (E.D. Tex. 2005) afj'd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v.
Frew, 549 U.S. 1118, 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007).
Plea in Intervention
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reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists
to become Medicaid providers. It worked. The state raised payment rates for dental services, and,
as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to
63.4% in 20 I 0. As expected indeed, as intended spending on Texas's dental serv ices increased
dramatically.
23 . Although the number of prior approval requests increased by 240% between 2007 and
2010, Xerox continued to employ only one dentist. That dentist was neither tasked with nor
responsible for superv ising the clerical specialists that were issuing the approvals.
24. By 20 I0, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox
was the sole entity responsible fo r overseeing this increase, because it was the sole gatekeeper
for the approval and payment of orthodontic services. Although the Texas Legislature had
increased funding to attract dentists into the Medicaid program, all of the budgeted funds were
required to be spent only on medically necessary services.
The Office of Inspector General seeks recovery from Medicaid providers.
25. In early 2011, a series of news stories began highlighting the large amount of money
being spent on orthodontics in Texas. ln July 201 1, the Federal government notified Texas of its
intent to audit whether Texas' prior authorization process was ensuring that only medically
necessary o rthodontic cases were being approved and paid. With the prospect of a federal
clawback action looming against Texas because of Xerox 's prior authorization failures, the
Texas O ffice of lnspector General (hereinafter "State") took a drastic step. Beginning in 20 I I,
the State generated a list of the top Medicaid orthodontic billers and placed them on "payment
hold." Intervenor was one of those providers.
26. Given Intervenor's proximity to some of the state's poorest children, and the mandates of
Plea in Intervention
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the Frew decision, Intervenor served a large Medicaid patient population. Because it served a
large Medicaid populatio n, it submitted a large number of prior authorization requests to Xerox
from 2004 through 2011.
27. Intervenor d id not know that Xerox was faili ng to perform a true and accurate review for
medical necessity. Intervenor relied on Xerox's prior authorization approvals to confirm that
dentists ' analysis was proper and consistent w ith Medicaid standards and requirements.
28. Again unbeknownst to Intervenor, State audits in 2008 and 2012 concluded that most, if
not almost all, of the prior authorization requests for patients with HLD scores o f 26 or greater
(indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State
audits made the Federal government's pending audit especially dangerous to Texas, because the
2008 and 2012 audits were admissions that Xerox had been approving and paying claims that
may not have met the federal standards for prior authorization. T hus the State, through the
Attorney General, concluded that a true fi nding o f med ical necessity had in reality not occurred.
The Attorney General claimed that billing for services that are not necessary is fraud, despite
Xerox's prior authorization approvaJs.
29. It is now believed that rather than prosecute Xerox for its failure to properly evaluate
dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox.
This protection included the State failing to a llow TMHP to hire additional medically licensed
staff. and in 2008-2009 telling TMHP to continue its prior authorization practices . Although the
Attorney General took immediate action against the providers, the Attorney General refused to
ho ld Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its
violation of State law. lnstead, the Attorney General made fraud allegations against each of the
top 25 dental providers, including Intervenor, which has caused more injury and damages to
Plea in Intervention
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Intervenor. Stated differently, Xerox issued its approvals through a process that gutted the State's
belief in the accuracy o f Xerox's decision, and the Texas Attorney General punished the
providers instead of Xerox.
30. Because the acts/omissions of Xerox so undermined the process, the Slate eventually
instituted a " payment hold" against Intervenor. A payment hold temporarily freezes future
Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid
program. The payment hold against Intervenor was issued pursuant to what the State called a
"credible allegation of fraud" regarding Intervenor's orthodontic prior authorization requests.
The State placed a IOO% payment hold against Intervenor's orthodontic billings.
3 1. At the time the Attorney General began prosecuting Intervenor and similarly situated
Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to
authorize orthodontic services and payments. The Attorney General knew that the State's audits
of Xerox in 2008 and 2012 bad concluded that Xerox was violating its contract with the State,
violating its own State-approved policies and procedures, and violating State law. Nevertheless,
the Attorney General continued to only prosecute dental providers like the Intervenor; the
Attorney General refused to hold Xerox responsible. In fact, in one shameless and brazen
demonstration of State 's unwavering protection of Xerox, the Deputy Director of Texas' Office
of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious
they were outside the course and scope of Xerox's agency with State.4 Upon infonnation and
belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing
the State's culpability would subject the State to a federal clawback for hundreds of millions of
4
Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a
dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the
State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it
was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox.
Plea in Intervention
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dollars. Instead, the State and the Attorney General pointed at the dental providers.
32. Ultimately, the ev idence of Xerox's failu res, and the State's refusal to correct Xerox for
over 6 years, became too much to hide. Three months after some providers filed suit against
Xerox, and following a series of news stories question ing why Xerox had not suffered for its
failures, the Attomey General reversed course. On May 9, 20 14, the State, through the Texas
Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed
approximately 100 days earlier by similarly situated providers. The State's c laims in this fraud
lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were
improper.
33. As a result of the payment hold, Intervenor was required to make significant finan cial
concessions and changes to its business. Intervenor also engaged legal counsel to defend itself
from the State's claims, at a significant expense that continues today.
34. The State's allegations against Intervenor are rooted in two assumptions. First, the State
assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is,
Xerox approved fntervenor's requests without knowing whether approval was actually proper.
Because Xerox is not a party to Intervenor's adm inistrative case, Intervenor is prevented from
determining whether Xerox did, in fact, perform a proper review of Intervenor's prior
authorization requests. By intervening in this lawsuit, lntervenor seeks to address that question,
and finally detennine whether Xerox reviewed Intervenor's requests as required by its contract
and the law.
35. Regarding the State's second assumption, the State alleges some of Intervenor's requests
were approved when, in fact, they should have been denied. Intervenor denied that assertion in
the administrative case, and Intervenor continues to deny that claim here. All services provided
Plea in Intervention
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to Intervenor's patients were actually medically necessary, regardless of what Xerox decided and
in any event under Medicaid guidelines once the authorization was approved, Intervenor was
required to provide the services.
36. The State continues to aggressively fight any allegation or affirmative defense that could
result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's
contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action
A. Intervenor's Claims Against Xerox
Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement)
37. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein . Xerox's prior authorization approvals were false representations made to Intervenor. It is
believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew
that it was approving requests without a proper medical review, and/or because it approved the
prior authorization requests without any knowledge of their truth. lt is believed Xerox intended
for Intervenor to rely on the approvals as a prerequisite for providing the requested services.
Approval was material because it was a mandatory prerequisite for payment. Intervenor actually
and justifiably relied on Xerox's fraudulent approvals.
38. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in
the same or similar manner, and led Intervenor to believe that their requests were consistent with
Medicaid standards and requirements.
39. Xerox's fraudulent approvals caused injury to Intervenor. As a result of Xerox's actions,
Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor
was placed on payment hold, Intervenor is forced to defend itself in an administrative payment
Plea in Intervention
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hold hearing, and lntervenor is facing administrative claims by HHSC for repayment (including
claims for treble damages and attorney fees). Intervenor's reputation and business have suffered
severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs,
and attorney fees.
Breach of the Xerox-State of Texas Contract
40. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State
for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper,
thorough and legal review of prior authorization requests for the purpose of detennining medical
necessity. To that end, Xerox should have employed a licensed dentist.
41 . Xerox was an agent of the State of Texas engaged specifically for the purpose of
detem1ining medical necessity. The third party beneficiaries of that Xerox-State of Texas
contract were Medicaid patients and Intervenor. T he patients were entitled to receive orthodontic
services that were medically necessary. Intervenor was responsible for actually delivering the
orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third
party beneficiary that relied on Xerox's approvals.
42. Xerox breached its contract by, inter alia, failing to provide qualified staff; possibly
violating Texas law; permitting non-dentists to make determinations of medical necessity; and
issu ing medical opinions without conducting a reasonable and prudent examination of evidence.
The breaches were material, and recurred across many different Medicaid patients and for many
years.
43. Xerox' s actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeab le. Because Xerox's prior
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authorization was a necessary prerequisite to providing services, lntervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary
intelligence should have anticipated that issuing a decision without actually reviewing or
considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and
reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy,
it was foreseeable that the State would demand repayment, and/or would require Intervenor to
independently do Xerox's job after the fact by proving that payment was proper because the
services were medically necessary and reimbursable under Texas Medicaid law.
44. Intervenor suffered and continues to surfer s ignificant damage. rntervenor seeks damages
that would have given the Intervenor the benefit of the bargain by putting them in as good a
position as they would have been in if the contract had been performed. Intervenor seeks
reliance interest damages to restore the expenditures lntervenor made in reliance on Xerox 's
contract with the state and the approvals that Xerox made under that contract. Intervenor also
seeks damages for its restitution interest to restore money sought by the Office of the Inspector
General from Intervenor. Such damages wou ld put the Intervenor in as good a position as it
would have been in if the contract had been properly fulfilled. In addition. Intervenor seeks
Liquidated damages as set out in the Xerox-State of Texas contract. Jntervenor has engaged legal
counsel to defend itself from the State's charges, and those legal expenses continue today.
lntervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost
future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel)
Plea in lntervention
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45. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute promissory estoppel.
46. Xerox's prior authorizations constitute promises to Intervenor in numerous ways.
Because prior authorization was a prerequisite to furnishing services, and because Xerox was the
entity charged with discharging prior authorization duties, Intervenor reasonably, substantially,
and foreseeably relied on Xerox 's promises.
4 7. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
rel iance damages by investing time, labor, equipment, and orthodontic appl iances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact-namely, demonstrate that the services were medically necessary and
properly reimbursable under Texas Medicaid law. Intervenor has incurred benefit of the bargain
damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of
goodwill. All of these damages were directly and/or proxjmately caused by Xerox's promises.
Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney
fees.
Negligent Hiring/Negligent Supervision
48. lntervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was
required to render medical diagnoses. To that end, Xerox was required by law to employ a
licensed dentist to render a diagnosis regarding med ical necessity. Xerox was a lso req uired by
law to properly supervise its employees to make sure diagnoses were made only by licensed
dentists.
Plea in Intervention
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49. Xerox knew or should have known that decisions regarding medical necessity can only
be rendereID. Intervenor's Interest in the Suit
7. Intervenor has a judicial interest in the matters and controversy in this litigation. The
relationship between Intervenor, the State as the Plaintiff and the Xerox Defendants is a tripartite
arrangement necessitating that, in the interest of judicial economy and justice, all claims be
bound and subsumed into one cause of action. Upon information and belief, Intervenor was
initially sued by the State in a qui tam action wherein the State alleged that Intervenor defrauded
the State. The State has elected to pursue its remedies against the Intervenor in an administrative
hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has
committed fraud against the State. Intervenor has claims against both the State and Xerox. It is
assumed that Xerox will have claims against the State, and perhaps allege claims against the
Intervenor. All of the different parties' claims are inextricably intertwined, as they relate to
Intervenor's submission of prior authorization requests to Xerox, the handling of those claims by
the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's
performance of its contractual and legal duties, and State's subsequent legal action against the
lntervenors for services approved by Xerox.
IV. Facts
What .is Prior Authorization?
8. Texas Medicaid requires that orthodontic services be independently and objectively
scrutinized before the State consents to treatment and payment. Prior authorization is the
mechanism the State uses to detennine the medical necessity of non-emergency orthodontic
items/services prior to delivery of those items/services. Pursuant to Texas Health and Human
Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will
pay for orthodontic services:
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Orthodontic services for cosmetic reasons only are not a covered Medicaid
service. Orthodontic services must be prior autho1·ized and are limited to
treatment of severe handicapping malocclusion and other related conditions as
described and measured by the procedures and standards published in the
[TMPPM 1].
25 Tux. ADMIN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance
to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the
requested orthodontic service has been deemed by Xerox to be medically necessary, and
therefore approved by the State.
9. The prior authorization process is straightforward. Texas Medicaid requires that a dental
provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's
orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his
professional opin ion of the patient on a Handicapping Labia-lingual Deviation index (HLD)
score sheet. Xerox knew providers relied entirely on the prior authorization process because
approval was a mandatory prerequisite to providing orthodontic services and being paid. Once
Xerox issued its prior authorization decision, the decision was not appealable by the provider.
l 0. The HLD scoring system combines a number of treatable orthodontic conditions into an
index. HLD score sheets use a mix of objective and subjective conditions to determine whether a
Medicaid patient qualifies for orthodontic services. The fact that the HLD score sheet requires
both objective and subjective findings highlights the importance of Xerox perfom1ing a thorough
prior authorization review.
The History of Orthodontic Prior Authorization.
11. The process for reviewing and approving orthodontic prior authorization requests pre-
dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage
1
"TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides
valuable guidance to Medicaid providers.
Plea in Intervention
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Insurance Corporation (NHIC) was responsible for reviewing prior authorization requests before
Xerox assumed the contract in January 2004. Starting January l, 2004, Xerox acted as an
independent contractor, and was a contracted agent of the State, under the contract with HHSC.
Xerox was responsible for reviewing each orthodontic service request, and Xerox was further
charged with the responsibility to grant or deny each prior authorization request per the program
requirements. The result was that Xerox had the final say in determining the medical necessity of
each request for orthodontic services.
12. Prior to assuming the NHIC contract, and for a period of time after assuming the contract
from NHIC, Xerox received training from NHIC personnel regarding the proper method for
receiving and processing orthodontic prior authorization requests. NHIC personnel explained
how and why the review of each prior authorization submission was important, and walked
Xerox through the process. Despite its training from NHIC, Xerox had no intention of following
the prior authorization system that had been in place for years, nor did Xerox intend to otherwise
meet the prior authorization requirements set out in its contract, the TMPPM and required by
state law.
Xerox rejects its contractual responsibilities.
13. When Xerox took over the contract m 2004, it immediately abandoned the prior
authorization review process that had been setup by NHIC. Xerox never intended to fulfill its
orthodontic prior authorization responsibilities to I-IHSC. From 2004 to 2011, Xerox continually
misrepresented that it was acting in compliance with its contractual duties.
14. It is now known that Xerox failed to adequately staff their prior authorization division
with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004
through 2011, which was far short of the manpower necessary to handle the review of tens of
Plea in Intervention
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thousands of orthodontic prior authorization requests every year. Xerox could not reasonably
have expected to handle such a workload by employing only one dentist.
Xerox potentially commits thousands of violations.
15. It is believed Xerox allowed " dental specialists"-unlicensed, unqua lifi ed individuals-
to render prior authorizatio n opinions regarding the medica l necessity of requested orthodontic
services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed
denta l director or another qualified dental profess ional. These actions not only violated Xerox's
contractual obligations, they may have also violated other Texas law such as the Dental Practice
2
Act. It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior
authorization approvals/medical opin ions in violatio n of Texas law.
16. Xerox was paid by the state for each prior authorization decision that was made. It is
believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a
profit generating measure.
17. From January 2005 through February 20 12, Intervenor subm itted prior authorization
requests, as required, to Xerox for a determ ination of medical necessity. Unbeknownst to
Intervenor, Xerox's dental specialists-not the dental director-approved a lmost all of
Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or
b) the approval had bee n issued by a licensed dentist, and/or
c) the approval was an actual and legitimate denta l diagnosis, and/or
d) the requested orthodontic services were allowable under Texas law and as permitted
2
Texas Occupations Code §25 .1.003 prevents unlicensed individuals from diagnosing conditions of the human teeth
and mouth. Section 256.00 I states that a person may not practice dentistry without a license. Thus, state law requires
that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section
264 .15 I prescribes penalties for certain violations of the Dental Practice Act.
Plea in Intervention
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by Medicaid policy, the TMPPM, and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or
t) future orth odontic services would be properly reimburseable to Intervenor, absent some
intervening disqualification (such as the patient's ineligibility).
18. Because Xerox was charged with determining medical necessity, and because prior
authorization approval was a mandatory prerequisite to furnishing services, the promises were
material. Intervenor expected performance of these promises. Intervenor relied on Xerox.
Further, Xerox promised that its subsequent payments to Intervenor (after the services had
actually been delivered) were made because the services had been, in fact, properly approved as
medically necessary. Each prior authorization approval represents a separate violation of the law
if Xerox's approval was issued illegally and/or in violation of its contractual obligations.
Xerox actively concealed its potentially illegal activity.
19. Xerox withheld the truth regarding its prior authorization program. In an attempt to
publicly appear consistent with NHIC's prior authorization process, Xerox continued to require
that dental providers (such as Intervenor) submit all supporting documentation for each HLD
score sheet. Jt is now believed that, incredibly, Xerox did nothing with that documentation, other
than assure that it had been submitted by the provider. It is believed that Xerox's specialists were
instructed to forward to its dental directo r only those requests that had scored below the
threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some
provider justification attached. As a result, only I 0% of the orthodontic prior authorization
requests were actually forwarded to Xerox's one licensed dentist. Xerox's actions were
calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox
knew that its actions were entirely inconsistent with the letter and spirit of its obligations.
Plea in Intervention
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Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving
services without detenn ining their medical necessity, but Xerox's deception also exacerbated the
problem by failing to give providers guidance regarding the proper standard for medical
necessity, thus causing these providers substantial damages.
20. For the past ten years, Xerox has continued to publicly represent to the world that it was
fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was
fulfil ling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004
through the present. Each year that Xerox had its contract renewed, it represented that it would
fulfill its contractual obligations and abide by Texas law requiring that decisions about medical
necessity be rendered o nly by licensed dentists. Xerox made those representations knowing that
it had not done so in the past, and had no intention of changing its procedures to do so in the
fucure.
The Frew decision magnifies Xerox's acts.
21. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to
implement a corrective action plan that increased the Medicaid reimbursement rates to all dental
providers. That plan was required pursuant to the Frew case3 , which was a 1993 class-action
lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that
they prevented indigent children from receiving timely, comprehensive health care.
22. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707
million ($1.8 billion in state and federal funds combined) to increase medical and dental
3
Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir.
2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and
aff'd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins,
40 I F. Supp. 2d 619 (E.D. Tex. 2005) affd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v.
Frew, 549 U.S. 1118, 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007).
Plea in Intervention
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reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists
to become Medicaid providers. It worked . The state raised payment rates for denlal services, and,
as a result, the number of dentists participating in Medicaid increased fro m 45.4% in 2007 to
63.4% in 2010. As expected indeed, as intended spending on Texas's dental services increased
dramatically.
23 . Although the num ber of prior approval requests increased by 240% between 2007 and
2010, Xerox continued to employ only one dentisL That dentist was ne ither tasked with nor
responsible for supervising the clerical specialists that were issuing the approvals.
24. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox
was the sole entity responsible for overseeing th is increase, because it was the sole gatekeeper
for the approval and payment of orthodontic services. Although the Texas Legislature had
increased fundin g to attract dentists into the Medicaid program, all of the budgeted fund s were
required to be spent only on medically necessary services.
The Office of Inspector General seeks recovery from Medicaid providers.
25. In early 20 11 , a series of news stories began highlight ing the large amount of money
being spent on orthodontics in Texas. In July 20 11, the Federal government notified Texas of its
intent to audit whether Texas' prior authorization process was ensuring that only medically
necessary orthodontic cases were being approved and paid. With the prospect of a federal
clawback action looming against Texas because of Xerox's prior authorization failures, the
Texas Office of Inspector General (hereinafter "State") took a drastic step. Beginning in 2011,
the State generated a list of the top Medicaid orthodontic billers and placed them on " payment
hold." Intervenor was one of those providers.
26. Given £ntervenor's proximity to some of the state's poorest children, and the mandates of
Plea in Intervention
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the Frew decision, Intervenor served a large Medicaid patient population. Because it served a
large Medicaid population, it submitted a large number of prior authorization requests to Xerox
fro m 2004 through 20 11.
27. Intervenor d id not know that Xerox was failing to perform a true and accurate review for
medical necessity. Intervenor relied on Xerox's prior authorization approvals to confirm that
dentists' analysis was proper and consistent with Medicaid standards and requirements.
28. Again unbeknownst to Intervenor, State audits in 2008 and 2012 concluded that most, if
not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater
(indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State
audits made the Federal government's pending audit especially dangerous to Texas, because the
2008 and 20 12 audits were admissio ns that Xerox had been approving and paying c laims that
may not have met the federal standards for prior authorization. Thus the State, through the
Attorney General, concluded that a true fi nding of med ical necessity had in reality not occurred.
The Attorney General claimed that billing for services that are not necessary is fraud, despite
Xerox's prior authorization approvals.
29. It is now believed that rather than prosecute Xerox for its failure to properly evaluate
dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox.
This protection included the State failing to allow TMHP to hire additional medically licensed
staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the
Attorney General took immediate action against the providers, the Attorney General refused to
hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its
violation of State law. Instead, the Attorney General made fraud allegations against each of the
top 25 dental providers, including Intervenor, which has caused more injury and damages to
Plea in Intervention
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Intervenor. Stated differently, Xerox issued its approvals through a process that gutted the State's
belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the
providers instead of Xerox.
30. Because the acts/omissions of Xerox so undermjned the process, the State eventually
instituted a "payment hold" against Intervenor. A payment hold temporarily freezes future
Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid
program. The payment hold against Intervenor was issued pursuant to what the State called a
"credible allegation of fraud" regarding Intervenor's orthodontic prior authorization requests.
The State placed a I00% payment hold against Intervenor's orthodontic billings.
3 l. At the time the Attorney General began prosecuting Intervenor and similarly situated
Medicaid providers, it knew Xerox, not [ntervenor, had the sole authority and responsibility to
authorize orthodontic services and payments. The Attorney General knew that the State's audits
of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State,
violating its own State-approved policies and procedures, and violating State law. Nevertheless,
the Attorney General continued to only prosecute dental providers like the Intervenor; the
Attorney General refused to hold Xerox responsible. ln fact, in one shameless and brazen
demonstration of State's unwavering protection of Xerox, the Deputy Director of Texas' Office
of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious
they were outside the course and scope of Xerox's agency with State. 4 Upon information and
belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing
the State' s culpability would subject the State to a federal clawback for hundreds of millions of
4
lncredibly, that testimony came in an administrative proceeding ia which the State was seeking $8 million from a
dental provider for following Xerox' s instructions to provide braces to the provider's patients. The idea that the
State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it
was actiug outside ofi1s contract is a novel and imaginative reason not to prosecute Xerox.
Plea in Intervention
Pagel l of25
dollars. lnstead, the State and the Attorney General pointed at the dental providers.
32. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for
over 6 years, became too much to hide. Three months after some providers filed suit against
Xerox. and following a series of news stories questioning why Xerox had not suffered for its
failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas
Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed
approximately I 00 days earlier by similarly situated providers. The State 's claims in this fraud
lawsuit include admissions that the State knew as early as 2006 that Xerox 's actions were
improper.
33. As a result of the payment hold, Intervenor was required to make significant financial
concessions and changes to its business. Intervenor also engaged legal counsel to defend itself
from the State's claims, at a significant expense that continues today.
34. The State's allegations against lntervenor are rooted in two assumptions. First, the State
assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is,
Xerox approved Intervenor's requests without knowing whether approval was actually proper.
Because Xerox is not a party to Intervenor's administrative case, Intervenor is prevented from
determining whether Xerox. did, in fact, perform a proper review of Jntervenor's prior
authorization requests. By intervening in this lawsuit, lntervenor seeks to address that question,
and finally determine whether Xerox reviewed Intervenor's requests as required by its contract
and the law.
35. Regarding the State's second assumption, the State alleges some of Intervenor's requests
were approved when, in fact, they should have been denied. lntervenor denied that assertion in
the administrative case, and Intervenor continues to deny that claim here. A11 services provided
Plea in Intervention
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to Intervenor's patients were actually medically necessary, regardless of what Xerox decided and
in any event under Medicaid guidelines once the authorization was approved, lntervenor was
required to provide the services.
36. The State continues to aggressively fight any allegation or affirmative defense that could
result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's
contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action
A. Intervenor's Claims Against Xerox
Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement)
37. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
here in. Xerox's prior authorization approvals were false representations made to Intervenor. lt is
believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew
that it was approving requests without a proper medical review, and/or because it approved the
prior authorization requests without any knowledge of their truth. It is believed Xerox intended
for Intervenor to rely on the approvals as a prerequisite for providing the requested services.
Approval was material because it was a mandatory prerequisite for payment. lntervenor actually
and justifiably relied on Xerox's fraudulent approvals.
38. Xerox's approvals induced lntervenor to continue to grade subsequent HLD requests in
the same or similar manner, and led Intervenor to believe that their requests were consistent with
Medicaid standards and requirements.
39. Xerox's fraudulent approvals caused injury to Intervenor. As a result of Xerox's actions,
Intervenor subm itted requests for payment and Xerox actually paid for those services, Intervenor
was placed on payment hold, Intervenor is forced to defend itself in an administrative payment
Plea in Intervention
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hold hearing, and Intervenor is fac ing administrative claims by HHSC for repayment (including
claims for treble damages and attorney fees). lntervenor's reputation and business have suffered
severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs,
and attorney fees.
Breach of the Xerox-State of Texas Contract
40. Intervenor re-alleges and incorporates the above facts and allegations as if fu lly set out
herein. In the alternative, Xerox's actio ns constitute a breach o f Xerox's contract with the State
for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper,
thorough and legal review of prior authorization requests for the purpose of determining medical
necessity. To that end, Xerox should have employed a licensed dentist.
41.. Xerox was an agent of the State of Texas engaged specifically for the purpose of
determining medical necessity. The third pa1ty benefi ciaries of that Xerox-State o f Texas
contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic
services that were medically necessary. Intervenor was responsible for actually delivering the
orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third
party beneficiary that relied on Xerox's approvals.
42. Xerox breached its contract by, inter alia, failing to provide q ualified staff; possibly
violating Texas law; permitting non-dentists to make determinations of medical necessity; and
issuing medical opinions without conducting a reasonable and prudent examination of evidence.
The breaches were material, and recurred across many different Medicaid patients and for many
years.
43. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox 's actions, and they were foreseeable. Because Xerox's pr ior
Plea in Intervention
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authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary
intelligence should have anticipated that issuing a decision without actually reviewing or
considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and
reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy,
it was foreseeable that the State would demand repayment, and/or would require Intervenor to
independently do Xerox's job after the fact by proving that payment was proper because the
services were medically necessary and reimbursable under Texas Medicaid law.
44. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages
that would have given the Intervenor the benefit of the bargain by putting them in as good a
position as they would have been in if the contract had been performed. Intervenor seeks
reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's
contract with the state and the approvals that Xerox made under that contract. Intervenor also
seeks damages for its restitution interest to restore money sought by the Office of the Inspector
General from Intervenor. Such damages would put the Intervenor in as good a position as it
would have been in if the contract had been properly fulfilled. ln addition, Intervenor seeks
liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal
counsel to defend itself from the State's charges, and those legal expenses continue today.
Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost
future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Plea in Intervention
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Breach of Contract (Promissory Estoppel)
45. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute promissory estoppel.
46. Xerox' s prior authorizations constitute promises to Intervenor in numerous ways.
Because prior authorization was a prerequisite to fu rnishing services, and because Xerox was the
entity charged with discharging prior authorization duties, Intervenor reasonably, substantially,
and foreseeably relied on Xerox's promises.
47. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Cntervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox 's job after the fact-namely, demonstrate that the services were medically necessary and
properly reimbursable under Texas Medicaid law. Lntervenor has incurred benefit of the bargain
damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of
goodwill. All of these damages were directly and/or proximately caused by Xerox's promises.
Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney
fees.
Negligent Hiring/Negligent Supervision
48. lntervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was
requ ired to render medical diagnoses. To that end, Xerox was required by law to employ a
licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by
law to properly supervise its employees to make sure diagnoses were made only by licensed
Plea in Intervention
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dentists.
49. Xerox knew or should have known that decisions regarding medical necessity can only
be rendered by licensed personnel. Texas Occupations Code section 251.003 defines the practice
of dentistry to include a diagnosis of the human mouth ancl/or teeth; section 256.001 states that a
person may not practice dentistry without a license; section 264.15 1 makes it a third-degree
felony to practice dentistry without a license.
50. Xerox's actions proximately caused Intervenor' s injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact by proving that payment
was proper because those services were medically necessary and were reimbursable under Texas
Medicaid law.
51. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing the cost of services for each Medicaid patient that Xerox
approved. lntervenor has engaged legal counsel to defend itself from the State's charges, and
those legal expenses continue today. Intervenor suffered and continues to suffer significant
damage to its reputation, business, referral base, earnings and earning power. Intervenor has
suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant
mental and personal capital to doing Xerox' s job. Intervenor has suffered exemplary damages
Plea in Intervention
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because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct
should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligence
52. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render
medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a
diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel
had appropriate education, training and experience to render such a finding. Xerox had a duty to
review the supporting prior authorization documentation (such as x-rays and photos) to
detennine whether the requested services were medically necessary.
53. Xerox's actions breached the standard of care because Xerox: failed to provide prior
authorization staff that were properly licensed, qualified and experienced dental professionals;
violated the law, specifically the Dental Practice Act, by pennitting non-dentists to make
determinations of medical necessity, and; issued medical opin ions (prior authorizations) without
conducting a reasonable and prudent examination of evidence.
54. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox 's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's detenninations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
Plea in Intervention
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would requ ire Tntervenor to independently do Xerox's job after the fact.
55. Intervenor suffered and continues to suffer significant damage to its reputation, business,
referral base, earnings and earning power. Intervenor has engaged legal counsel to defend itself
from the State's charges, and those legal expenses continue today. Dr. Richard F. Herrscher has
suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant
mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages
because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct
should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation
56. interveno r re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent misrepresentation. Xerox' s actions constitute
misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization
approval was a prerequisite to furnishing services, these representations guided and controlled
intervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox
represented that its prior authorization approvals were dispositive of medical necessity;
Intervenor expected that, once approved, no further inquiry into the medical necessity of the
services would be required. Further, Xerox represented that its subsequent payments to
Intervenor (after the services had actually been delivered) were made because services had been,
in fact, properly approved as medically necessary.
57. Xerox did not exercise reasonable care or competence in making its detenninations and
representations. Xerox knew or should have known that its representations were false.
58. Because prior authorization was a prerequisite to furnish ing services, and because Xerox
Plea in Intervention
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was the entity charged with discharging prior authorization duties, Intervenor reasonably,
substantially, foreseeab ly, and justifiably relied on Xerox's representations.
59. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket
damages, lost profits, loss of credjt, and loss of goodwill. All of these damages were directly
and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of
actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property
60. Lntervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary
property which would entitle Intervenors to unlimited punitive damages.
B. lntervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity
61. Lntervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. For a number of reasons, the State has waived sovereign immunity for claims by
Intervenor. including the facts that the State brought, threatened and/or has taken civil and/or
administrative action against Intervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint E nterprise
62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that
Plea in Intervention
Page 20 of2S
acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's
agency relationship with the State. Assuming same to be true, then the State conspired with
Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from
Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime.
63. The State conspired with Xerox to allow Xerox to violate its various contractual duties.
The State permitted Xerox to process as many prior authorizations as possible without the
required clinical dental review and without using medically knowledgeable personnel. The State
conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox
created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations
submitted by the dentists. The conspiracy was committed with the intent to shift blame from the
State and its agent, improperly blame the Intervenors, and enrich the State and Xerox. By
recouping money from providers that were not actually to blame, the State and Xerox hoped to
limit their own liability in the event of a Federal clawback action, and/or respond to unflattering
news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the
party to blame the dentist providers for their own improper acts and omissions is a proximate
cause of the injury to Intervenors.
Not Liable for Illegal Acts of Third Party
64. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. As alleged by the State in Section VIII paragraph 46 of the State's petition, Xerox has
committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide
proper prior authorization review in rubber stamping the doctors prior authorization requests is
not the fault of the doctors. The doctors are not responsible for or liable to the State for the
Plea in Intervention
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illegal acts of a third party for which the doctors had no control; the State should not withhold
money from the Intervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract
65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Intervenors are a direct or third party beneficiary of the contract with Xerox and the State
of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox
and/or reviewing the work product of Xerox. This breach by State, which allowed non-
performance by Xerox, has created the pretext by which the State affirmatively sued Intervenors
for repayment. To the extent that the State has withheld money and/or made claims for damages
against Intervenors based on the contracts in question, the State has waived immunity and is
liable up to those amounts plead.
Conversion
66. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. State and Federal law required Intervenor to request prior authorization for orthodontic
services. Those prior authorization requests were approved by Xerox, which required Intervenors
to provide the services. The State has unilaterally made a decision to that, based on the acts and
om issions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor
on a payment hold. To the extent that Intervenor has provided services for which Intervenor
should be paid, and money which has been eannarked by the State for that payment but withheld,
the State has converted tbe funds. Jn addition, the States' acts/omissions are a violation of the
Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under
the pretext of a payment hold.
Plea in Intervention
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VI. Damages
67. lntervenors have suffered and are entitled to recover damages including, but not limited
to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to
business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fe.es
and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion
68. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent
hiring, negligence, and gross negligence. Xerox's actions have subjected Intervenor to
unnecessary civil and administrative legal action, and that, io turn has caused additional injury.
Xerox's actions have required Intervenor to perform Xerox's j ob after-the-fact, by proving to the
State that the orthodontic services rendered were medically necessary and appropriate for
reimbursement. The State's actions have harmed lntervenor because the state's conspiracy to
improperly blame the dentists has resulted in meritless legal claims against the Intervenor and
conversion of the Intervenor's property.
VIII. Jury Demand
69. Intervenor respectfully requests a trial by jury.
IX. Request for Disclosure
70. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State
disclose, within SO days of the service of this request, the information or material described in
Rule 194.2.
71. Wherefore, premises considered, Intervenor Dr. Richard F. Herrscher pray that upon final
hearing of the cause, judgment be entered jointly and severally against the Plaintiff the State of
Plea in [ntervention
Page 23 of25
Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and
post judgment interest at the legal rate, costs of court, and other such relief to which the
Intervenor may be entitled.
Respectfully _submitted,
J son Ray
Texas Bar No. 240
RIGGS, ALESHIRE & RAY, P.C.
700 Lavaca, Suite 920
Austin, Texas 7870 l
(512) 457-9806 (Telephone)
(512) 457-9866 (Fax)
jray@r-alaw.com
Isl Hart Green wl permission by J Ray
E. Hart Green
Texas Bar No. 08349290
Mitchell A. Toups
Texas Bar No. 20151600
WELLER, GREEN, TOUPS & TERRELL, L.L.P.
Post Office Box 350
Beaumont, Texas 77704-0350
(409) 838-0l01 (Telephone)
(409) 832-8577 (Fax)
hartgr@wgttlaw .com
matoups@wgttlaw.com
ATTORNEYS FOR INTERVENOR
DR. RICHARD F. HERRSCHER
Plea in Intervention
Page 24 of25
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing Plea in Intervention was
served via e-mail and certified mail, return receipt requested on th is 15th day of May, 2014 on
the follow ing:
Eric .J.R. Nichols
Beck Redden
5 15 Congress A venue, Suite 1750
Austin, Texas, 78701
EN£CHOLS@beckredden.com
Attorney for Xerox Defendants
Raymond Winter
Chief, Civil Medicaid Fraud Division
Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711 -2548
raymond.winter@texasattomeygeneral.gov
Attorney for the Plaintiff State of Texas
Plea in Intervention
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CAUSE NO. D-1-GV-14-000581
IRMA CANTU-THOMPSON, DDS, PC, AND § IN THE DISTRICT COURT
IRMA CANTU-THOMPSON, §
INTERVENORS, §
§
vs. §
§
THE STATE OF TEXAS, §
PLAINTIFF, §
§ 53rd JUDICIAL DISTRICT
vs. §
§
XEROX CORPORATION; XEROX §
STATE HEALTHCARE, LLC; ACS §
STATE HEALTHCARE, LLC, A XEROX §
CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TEXAS
PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, lnna Cantu-Thompson, DDS, PC and fnna Cantu-Thompson,
hereinafter lntervenors, and file this Plea in Intervention, and in support hereof, would
respectfully show the Court the following:
1. Parties and Service
1. Plaintiff, State o f Texas, has appeared in this action and may be served with a notice of
this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0.
Box 12548, Austin, Texas 78711-2548.
2. Defendant Xerox Corporation is a corporation organized under the laws of New York has
agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State
Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS
State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation
organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave.,
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Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit.
Defendant Xerox Corporation acquired Defendant ACS in 2010. On in formation and beliet:
ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012.
Defendants are referred to hereinafter as "Xerox Defendants."
3. Irma Cantu-Thompson, DDS, PC, (hereinafter Thompson) is an approved Medicaid
provider. Thompson can be served through the undersigned counsel.
4. Irma Cantu-Thompson 1 is a licensed Texas dentist, approved Medicaid provider, and the
owner of Thompson Irma Cantu-Thompson can be served through her undersigned counsel.
II. Jurisdiction and Venue
5. This Court has subject-matter jurisdiction in that the amounts sought by lntervenors from
all parties (both Plaintiff and Defendants) arc in excess of the minimal jurisdiction limits of this
court. Intervenors affirmatively plead that this suit is not governed by the expedited-actions
process in TEXAS Ruu~ OF CIVIL PROCEDURE 169 because intervenors seek monetary relief over
$100,000.
6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenors' claims;
b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in this petition
in whole or part in Texas.
7. Venue is proper in Travis County under TRCP §15.020 because this suit involves a
" major transaction"; Venue is permissive under TRCP §15.035(a) because Intervenor asserts
claims for breach of contract. Venue is proper pursuant to TRCP §15.02 because all or a
1
For the sake of simplicity, the intervenors will be collectively referred to as ..THOMPSON" unless expressly
noted.
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substantial part of the events or omissions giving rise to the claim occurred in Travis County.
Many of the unlawful acts committed by the State and Xerox Defendants were committed in
T ravis County, including the making of false statements and misrepresentations of material fact.
m. Intervenors' Interest in the Suit
8. lntervenors T HOMPSON and Irma Cantu-Thompson have a judicial interest in the
matters and controversy in this litigation. T he relationship between Intervenors, the State as the
Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of
judicial economy and justice, all claims be bound and subsumed into one cause of action. Upon
information and belief, lntervenors were initially sued by the State in a qui tam action wherein
the State alleged that lntervenors defrauded the State. The State has elected to pursue its
remedies against the Jntervenors in an administrative hearing. Now, the State has sued Xerox in
State Court o n the same facts, alleging that Xerox has committed fraud against the
State. lntervenors have claims against both the State and Xerox. It is assumed that Xerox will
have claims against the State, and perhaps allege claims against the Intervenors. All of the
different parties' claims are inextricably intertwined, as they relate to l ntervenors' submission of
prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the
State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and
legal duties, and State's subsequent legal action against the lntervenors for services approved by
Xerox.
IV. Facts
What is Prior Authorization?
9. Texas Medicaid requires that orthodontic services be independently and objectively
scrutinized before the State consents to treatment and payment. Prior authorization is the
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mechanism the State uses to determine the medical necessity of non-emergency orthodontic
items/services prior to delivery of those items/services. Pursuant to Texas Health and Human
Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will
pay for orthodontic services:
Orthodontic services for cosmet ic reasons only are not a covered Medicaid
service. Orthodontic services must be prior authorized and are limited to
treatment of severe handicapping malocclusion and other related conditions as
described and measured by the procedures and standards published in the
(TMPPM2].
25 TEX. ADMIN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance
to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the
requested orthodontic service has been deemed by Xerox to be medically necessary, and
therefore approved by the State.
I 0. The prior authorization process is straightforward. Texas Med icaid requires that a dental
provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's
orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his
professional opinion of the patient on a Handicapping Labia-lingual Deviation index (HLD)
score sheet. Xerox knew providers relied entirely on the prior authorization process because
approval was a mandatory prerequisite to providing orthodontic services and being paid. Once
Xerox issued its prior authorization decision, the decision was not appealable by the provider.
11. The HLD scoring system combines a number of treatable orthodontic conditions into an
index. HLD score sheets use a mix of objective and subjective conditions to detenn ine whether a
Medicaid patient qualifies for orthodontic services. The fact that the 1-ILD score sheet requires
both objective and subjective findings high lights the importance of Xerox perform ing a thorough
2
"TMPPM" is lhe Texas Medicaid Provider Procedures Manual, whicb is issued yearly by Lhe HHSC and provides
valuable guidance to Medfoaid providers.
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prior authorization review.
The History of Orthodontic Prior Authorization.
12. The process for reviewing and approving orthodontic prior authorization requests pre-
dates the defendant Xerox's handling of Medicaid claims process ing. The National Heritage
Jnsurance Corporation (NHIC) was responsible for reviewing prior authorization requests before
Xerox assumed the contract in January 2004. Starting January I, 2004, Xerox acted as an
independent contractor, and was a contracted agent of the State, under the contract with HHSC.
Xerox was responsible for reviewing each orthodontic service request, and Xerox was further
charged with the responsibility to grant or deny each prior authorization request per the program
requirements. The result was that Xerox had the final say in determining the medical necessity of
each request for orthodontic services.
13. Prior to assuming the NHIC contract, and for a period of time after assuming the contract
from NHTC, Xerox received training from NHlC personnel regarding the proper method for
receiving and processing orthodontic prior authorization requests. NHIC personnel explained
how and why the review of each prior authorization submission was important, and walked
Xerox through the process. Despite its training from NHIC, Xerox had no intention of following
the prior authorization system that had been in place for years, nor did Xerox intend to otherwise
meet the prior authorization requirements set out in its contract, the TMPPM and required by
state law.
Xerox rejects its contractual responsibilities.
J4. When Xerox took over the contract in 2004, it immediately abandoned the prior
authorization review process that had been setup by NHIC. Xerox never intended to fulfill its
orthodontic prior authorization responsibilities to HHSC. From 2004 to 2011, Xerox continually
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misrepresented that it was acting in compliance with its contractual duties.
l5. It is now known that Xerox failed to adequately staff their prior authorization division
with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004
through 20 11, wh ich was far short of the manpower necessary to handle the review of tens of
thousands of orthodontic prior authorization requests every year. Xerox could not reasonably
have expected to handle such a workload by employing only one dentist.
Xerox potentially commits thousands of violations,
16. It is bel ieved Xerox allowed "dental specialists"-unlicensed, unqualified individuals -
to render prior authorization opinions regarding the medical necessity of requested orthodontic
services. The " dental specialist" approvals were not reviewed or ratified by Xerox's licensed
dental director or another qualified dental pro fessional. These actions not only violated Xerox's
contract ual obligations, they may have also violated other Texas law such as the Dental Practice
Act. 3 1t is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior
authorization approvals/medical opinions in violation of Texas Jaw.
L7. Xerox was paid by the state for each prior authorization decision that was made. lt is
believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a
profit generating measure.
18. From January 2005 through February 20 12, Intervenor submitted prior authorization
requests, as required, to Xerox for a determination of medical necessity. Unbeknownst to
Intervenor, Xerox' s dental specialists-not the dental director-approved almost all of
Intervenor's requests. Xerox's prior authorization approvals were promises that:
3
Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth
and mouth. Section 256.00 I states that a person may not practice dentistry without a license. Thus, state law requires
that opinions regarding medical necessity of onhodontic treatment must be made by licensed dentists. Section
264.15 1 prescribes penalties for certain violations of the Dental Practice Act.
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a) the requested orthodontic services were m edically necessary, and/or
b) the approval had been issued by a licensed de11tist, and/or
c) the approval was an actual and legitimate dental diagnosis, and/or
d) the requested orthodontic serv ices were a llowable under Texas law and as permitted
by Medicaid policy, the TMPPM, and HHSC ru les, and/or
e) a proper, thorough and legal review had been made, and/or
f) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervening disqualification (such as the patient's ineligibility).
19. Because Xerox was charged with determining medical necessity, and because prior
authorization approval was a mandatory prerequisite to furn ishing services, the promises were
material. lntervenors expected performance of these promises. Intervenors relied on Xerox.
Further, Xerox promised that its subsequent payments to Intervenors (after the services had
actually been delivered) were made because the services had been, in fact, properly approved as
medically necessary. Each prior authorization approval represents a separate violation of the law
if Xerox's approval was issued illegally and/or in violation o f its contractual obligations.
Xerox actively concealed its potentially illegal activity.
20. Xerox withheld the truth regarding i.rs prior authorization program. In an attempt to
publ icly appear consistent with NHIC ' s prior authorization process, Xerox continued to require
that dental providers (such as Intervenor) submit all supponing documentation for each HLD
score sheet. It is now believed that, incredibly, Xerox d id nothing wit h that documentation, other
than assure that it had been submitted by the provider. It is believed that Xerox's specialists were
instructed to forward to its dental director only those requests that had scored below the
threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some
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provider j ustification attached. As a result, on ly I0% of the orthodontic prior authorization
requests were actual ly forwarded to Xerox's one licensed dentist. Xerox's actions were
calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox
knew that its actions were entirely inconsistent w ith the letter and spirit of its obligations.
Effecti vely, then, Xerox's actions not only damaged the Med icaid program directly by approvi ng
services without determining their medical necessity, but Xerox's deception also exacerbated the
problem by failing to give providers guidance regarding the proper standard for medical
necessity, thus causing these providers substantial damages.
21. For the past ten years, Xerox has continued to publicly represent to the world that it was
fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was
fulfilling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004
through the present. Each year that Xerox had its contract renewed, it represented that it would
fulfill its contractual obligations and abide by Texas law requiring that decisions about medical
necessity be rendered on ly by licensed dentists. Xerox made those representations knowing that
it had not done so in the past. and had no intention of changing its procedures to do so in the
future.
The Frew decision magnifies Xerox's acts.
22. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to
implement a corrective action plan that increased the Medicaid reimbur sement rates to all dental
4
providers. T hat plan was required pursuant to the Frew case , which was a 1993 class-action
4
Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir.
2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) aod
afj'd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins,
401 F. Supp. 2rl 619 (E.D. Tex. 2005) affd sub nom. Frazar v. Ladd, 457 P.3d 432 (5th Cir. 2006); Hawkins v.
Frew, 549 U.S. 1118, 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007).
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lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that
they prevented indigent children from receiving timely, comprehensive health care.
23. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707
million ($1.8 billion in state and federal funds combined) to increase medical and dental
reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists
to become Medicaid providers. It worked. The state raised payment rates for dental services, and,
as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to
63.4% in 20 I 0. As expected indeed, as intended spending on Texas's dental services increased
dramatically.
24. Although the number of prior approval requests increased by 240% between 2007 and
20 I 0, Xerox continued to employ only one dentist. That dentist was neither tasked with nor
responsible for supervising the clerical specialists that were issuing the approvals.
25. By 20 10, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox
was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper
for the approval and payment of orthodontic services. Although the Texas Legislature had
increased funding to attract dentists into the Medicaid program, all of the budgeted funds were
required to be spent only on medically necessary services.
The Office of Inspector General seeks recovery from Medicaid providers.
26. In early 20 11, a series of news stories began high lighting the large amount of money
being spent on orthodontics in Texas. In July 2011, the Federal government notified Texas of its
intent to audit whether Texas' prior authorization process was ensuring that only medically
necessary orthodontic cases were being approved and paid. With the prospect of a federal
clawback action looming against Texas because of Xerox 's prior authorization failures, the
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Texas Office of Inspector General (hereinafter "State") took a drastic step. Beginning in 201 l ,
the State generated a list of the top Medicaid orthodontic billers and p laced them on "paymenl
hold." Intervenor was one of those providers.
27. Given Tntervenors' proximity to some of the state's poorest children, and the mandates of
the Frew decision, Intervenor served a large Medicaid patient population. Because it served a
large Medicaid population, it submitted a large number of prior authorization requests to Xerox
from 2004 through 20 I I.
28. Intervenors did not know that Xerox was failing to perform a true and accurate review for
medical necessity. Jntcrvenors relied on Xerox' s prior authorizatio n approvals to confirm that
dentists• analysis was proper and con sistent w ith Medicaid standards and requ iremen ts.
29. Again unbeknownst to Intervenors, State audits in 2008 and 20 J 2 concluded that most, if
not almost all, o f the prior authorization requests for patients with HLD scores of 26 or greater
(indicating medical necessity) had not been actually "evaluated" at all by Xerox. T hese State
audits made the Federal government's pending audit especially dangerous to Texas, because the
2008 and 2012 audits were admissions that Xerox had been approv ing and paying claims that
may not have met the federal standards for prior authorization . Thus the State, through the
Attorney General , concluded that a true finding o f medical necessity had in reality not occurred.
The Attorney General claimed that b illing for services that are not necessary is fraud, despite
Xerox's prior authorization approvals.
30. It is now believed that rather than prosecute Xerox for its fail ure to properly evaluate
dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox.
This protection included the State failing to allow TMHP to hire additional medically licensed
staff, and in 2008-2009 telling TMHP to continue its prior authorization pract ices. Although the
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Attorney General took immediate action against the providers, the Attorney General refused to
hold Xerox accountable for its orthodontic "approvals," its repeated contractua l fai lures, or its
violation of State law. Instead, the Attorney General made fraud allegations against each of the
top 25 dental providers, including Intervenor, which has caused more injury and damages to
lntervenors. Stated differently, Xerox issued its approvals through a process that gutted the
State's belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the
providers instead of Xerox.
3I. Because the acts/omissions of Xerox so undermined the process, the State
eventuallyinstituted a "payment hold" agajnst Intervenor. A payment hold temporarily freezes
future Medicaid payments to a provider, despite the provider's ongoing participation in the
Medicaid program. The payment hold against Intervenor was issued pursuant to what the State
called a "credible allegation of fraud" regarding Intervenor's orthodontic prior authorization
requests. The State placed a l 00% payment hold against Intervenor's orthodontic billings.
32. At the time the Attorney General began prosecuting Intervenor and similarly situated
Med icaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to
authorize orthodontic services and payments. The Attorney General knew that the State's audits
of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State,
violating its own State-approved policies and procedures, and violating State law. Nevertheless,
the Attorney General continued to only prosecute dental providers like the Intervenor; the
Attorney General refused to hold Xerox responsib le. ln fact, in one shameless and brazen
demonstration of State's unwavering protect ion of Xerox, the Deputy Director of Texas' Office
of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious
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they were outside the course and scope of Xerox's agency with State. 5 Upon information and
belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing
the State's culpability would subject the State to a federal clawback for hundreds of millions of
dollars. Instead, the State and the Attorney General pointed at the dental providers.
33. Ultimately, the evidence of Xerox's fai lures, and the State's refusal to correct Xerox for
over 6 years, became too much to hide. Three months after some providers filed suit against
Xerox, and following a series of news stories questioning why Xerox had not suffered for its
fail ures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas
Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit fi1ed
approximately I 00 days earlier by simi larly situated providers. The State's claims in this fraud
lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were
improper.
34. As a result of the payment hold, Intervenor was required to make sign ificant financial
concessions and changes to its business. Intervenor also engaged legal counsel to defend itself
from the State's claims, at a significant expense that continues today.
35. The State's allegations against Intervenor are rooted in two assumptions. First, the State
assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is,
Xerox approved lntervenor's requests without knowing whether approval was actually proper.
Because Xerox is not a party to Intervenor's administrative case, Intervenor is prevented from
determining whether Xerox did, in fact, perform a proper review of Intervenor's prior
authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question,
s Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a
dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the
State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it
was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox.
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and finally detenn ine whether Xerox reviewed Intervenor's requests as required by its contract
and the Jaw.
36. Regarding the State's second assumption, the State alleges some ofln tervenor's requests
were approved when, in fact, they should have been denied. Intervenor denied that assertion in
the administrative case, and intervenor continues to deny that claim here. All services provided
to Intervenor's patients were actually medically necessary, regardless of what Xerox decided and
in any event under Medicaid guidelines once the authorization was approved, Intervenor was
required to provide the serv ices.
37. The State continues to aggressively fight any allegation or affirmative defense that could
result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's
contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action
A. lntervenors ' Claims Against Xerox
Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement)
38. Intervenor re-alleges and incorporates the above facts and allegations as if folly set o ut
herein. Xerox's prio r authorization approvals were false representations made to Intervenor. It is
believed Xerox knowi ngly issued these prior authorizations to Intervenor because Xerox knew
that it was approving requests without a proper medical review, and/or because it approved the
prior authorization requests without any knowledge of their truth. It is believed Xerox intended
for Lntervenor to rely on the approvals as a prereq uisite for providing the requested services.
Approval was material because it was a mandatory prerequisite for payment. Intervenor actually
and justifiably relied on Xerox 's fraudulent approvals.
39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in
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the same or similar manner, and led Intervenor to believe that their requests were consistent with
Medicaid standards and requirements.
40. Xerox's frau dulent approvals caused injury to Intervenor. As a result of Xerox's actions,
Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor
was placed on payment hold, Intervenor is forced to defend itself in an administrative payment
hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including
claims for treble damages and attorney fees). lntervenor's reputatio n and business have suffered
severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs,
and atto rney fees.
Breach of the Xerox.State of Texas Contract
41. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State
for the benefit of lntervenor. Xerox's contract with the state required that it conduct a proper,
thorough and legal review of prior authorization requests for the purpose of determining medical
necessity. To that end, Xerox should have employed a licensed denti st.
42. Xerox was an agent of the State of Texas engaged specifically for the purpose of
determining medical necessity. The third party beneficiaries of that Xerox-State of Texas
contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic
services that were medically necessary. Intervenor was responsible for actually delivering the
orthodontic services that Xerox had deemed medically necessary. Thus, lntervenor was a third
party benefic iary that relied on Xerox' s approvals.
43. Xerox breached its contract by, inter alia, fa iling to provide qualified staff; possibly
violating Texas law; permitting non-dentists to make determinations of medical necessity; and
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issuing medical opinions without conducting a reasonable and prudent examination of evidence.
The breaches were material, and recurred across many different Medicaid patients and for many
years.
44. Xerox's actions proximately caused intervenor's injury. [ntervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, intervenor relied entirely on
Xerox's determ inations regarding medical necessity; thus, Xerox's actions were the direct factua l
cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary
intelligence should have anticipated that issuing a decision without actually reviewing or
considering the evidence (x-rays, photos, mode ls, etc.) would eviscerate the cred ibility and
reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy,
it was foreseeab le that the State would demand repayment, and/or would requ ire Intervenor to
independently do Xerox's job after the fact by proving that payment was proper because the
services were medically necessary and reimbursable under Texas Medicaid law.
45. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages
that would have given the lntervenors the benefi t of the bargain by putting them in as good a
position as they would have been in if the contract had been performed. Intervenor seeks
reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's
contract with the state and the approvals that Xerox made under that contract. Intervenor also
seeks damages for its restitution interest to restore money sought by the Office of the Inspector
General from lntervenor. Such damages would put the lntervenors in as good a position as it
would have been in if the contract had been properly fulfilled. In addition, Intervenor seeks
liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal
Plea in Intervention
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counsel to defend itself from the State's charges, and those legal expenses continue today.
Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost
future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel)
46. Intervenor re-alleges and incorporates the above facts and allegations as if fu lly set out
herein. In the alternative, Xerox's actions constitute promissory estoppel.
47. Xerox's prior authorizations constitute promises to Intervenor in numerous ways.
Because prior authorization was a prerequisite to furnishing services, and because Xerox was the
entity charged with discharging prior authorization duties, Intervenor reasonably, substantially,
and foreseeably relied on Xerox's promises.
48. Intervenor suffered and continues to suffer significant damage. intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. lntervenor has been required to do
Xerox's job after the fact-namely, demonstrate that the services were medically necessary and
properly reimbursable under Texas Medicaid law. Intervenor has incurred benefit of the bargain
damages, out-of-pocket damages, lost profits, lost futu re profits, loss of credit, and loss of
goodwill. All of these damages were directly and/or proximately caused by Xerox's promises.
Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney
fees.
Negligent Hiring/Negligent Supervision
49. lntervenor re-alleges and incorporates the above facts and allegations as if fully set out
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herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was
required to render medical diagnoses. To that end, Xerox was required by law to employ a
licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by
law to properly supervise its employees to make sure diagnoses were made only by licensed
dentists.
50. Xerox knew or should have known that decisions regarding medical necessity can only
be rendered by Ii.censed personnel. Texas Occupations Code section 25 I .003 defines the practice
of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a
person may not practice dentistry without a license; section 264.151 makes it a third-degree
fe lony to practice dentistry without a license.
SI. Xerox's actions proximately caused intervenor' s injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox 's determinations regarding medical necessity; thus, Xerox 's actions were the direct factua l
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
wou ld require Jntervenor to independently do Xerox's job after the fact by proving that payment
was proper because those services were medically necessary and were reimbursable under Texas
Medicaid law.
52. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing the cost of services for each Medicaid patient that Xerox
approved. Intervenor has engaged legal counsel to defend itself from the State' s charges, and
Plea in Jntervention
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those legal expenses continue today. Intervenor suffered and continues to suffer significant
damage to its reputation, business, referral base, earnings and earning power. Intervenor has
suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant
mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages
because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct
should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligence
53. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render
medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a
diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel
had appropriate education, training and experience to render such a finding. Xerox had a duty to
review the supporting prior authorization documentation (such as x-rays and photos) to
determine whether the requested services were medically necessary.
54. Xerox's actions breached the standard of care because Xerox: fai led to provide prior
authorization staff that were properly licensed, qualified and experienced dental professionals;
violated the law, specifically the Dental Practice Act, by permitting non-dentists to make
determinations of medical necessity, and; issued medical opinions (prior authorizations) without
conducting a reasonable and prudent examination of evidence.
55. Xerox's actions proximately caused intervenor's injury. Intervenor' s injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Plea in lntervention
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Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeab le in that any person of ordinary
intelligence should have anticipated that paying intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
would require fntervenor to independently do Xerox's job after the fact.
56. Intervenor suffered and continues to suffer significant damage to its reputation, business,
referral base, earnings and earning power. Intervenor has engaged legal counsel to defend itself
from the State's charges, and those legal expenses continue today. Jrma Cantu-Thompson has
suffered inconvenience and loss of enjoyment of life in that she has had to dedicate significant
mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages
because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct
should be penalized so that it is deterred in the future. lntervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation
57. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent misrepresentation. Xerox's actions constitute
misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization
approval was a prerequisite to furnishing services, these representations guided and controlled
intervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox
represented that its prior authorization approval s were dispositive of medical necessity;
Intervenor expected that, once approved, no further inquiry into the medical necessity of the
services would be required. Further, Xerox represented that its subsequent payments to
Intervenor (after the serv ices had actually been delivered) were made because services had been,
Plea in Intervention
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in fact, properly approved as medically necessary.
58. Xerox did not exercise reasonable care or competence in making its determinations and
representations. Xerox knew or should have known that its representations were false.
59. Because prior authorization was a prerequisite to furnishing services, and because Xerox
was the entity charged with discharging prior authorization duties, Intervenor reasonably,
substantially, foreseeably, and justifiably relied on Xerox's representations.
60. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
rel iance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Cntervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact. Intervenor has incurred benefit of the. bargain damages, out-of-pocket
damages, lost profits, loss of credit, and loss of goodwill. All of these damages were directly
and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of
actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property
61. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary
property which would entitle Intervenors to unlimited punitive damages.
B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity
62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. For a number of reasons, the State has waived sovereign immunity for claims by
Intervenor, including the facts that the State brought, threatened and/or has taken civil and/or
Plea in Intervention
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administrative action against Intervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise
63. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Jn the alternative, former Deputy Inspector General Jack Stick has stated publicly that
acts and omissions of Xerox were so egregious as to be outside the course o f scope of Xerox's
agency relationship with the State. Assuming same to be true, then the State conspired with
Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from
Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime.
64. The State conspired with Xerox to allow Xerox to violate its various contractual duties.
The State permitted Xerox to process as many prior authorizations as possible without the
required clinical dental review and without using medically knowledgeable personnel. The State
conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox
created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations
submitted by tbe dentists . The conspiracy was committed with the intent to shift blame from the
State and its agent, improperly blame the rnrervenors, and enrich the State and Xerox. By
recouping money fro m providers that were not actually to blame, the State and Xerox hoped to
limit their own tiabi lity in the event of a Federal clawback action, and/or respond to unflattering
news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the
party to blame the dentist providers for their own improper acts and omissions is a proximate
cause of the inj ury to lntervenors.
Not Liable for Illegal Acts of Third Party
65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. As alleged by the State in Section V lH paragraph 46 of the State's petition, Xerox has
Plea in Intervention
Page 21 of25
committed or is about to commit unlawful acts. The illegal acts of Xerox in fa iling to provide
proper prior authorization review in rubber stamping the doctors prior authorization requests is
not the fault of the doctors. The doctors are not responsible for or liable to the State for the
illegal acts of a third party for which the doctors had no control; the State should not withhold
money from the lntervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract
66. Intervenor re-alleges and incorporates lhe above facts and allegations as if fully set out
herein. 1ntervenors are a direct or third party beneficiary of the contract with Xerox and the State
of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox
and/or reviewing the work product of Xerox. This breach by State, which allowed non-
performance by Xerox, has created the pretext by which the State affirmatively sued [ntervenors
for repayment. To the extent that the State has withheld money and/or made claims for damages
against Intervenors based on the contracts in question, the State has waived immunity and is
liable up to those amounts plead.
Conversion
67. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. State and Federal law required [ntervenor to request prior authorization for orthodontic
services. Those prior authorization requests were approved by Xerox, which required lntervenors
to provide the services. The State has unilaterally made a decision to that, based on the acts and
om issions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor
on a payment hold. To the extent that Intervenor has provided services for which Intervenor
should be paid, and money which has been earmarked by the State for that payment but withheld,
tbe State has converted the funds. In addition, lhe States' acts/omissions are a violation of the
Plea in Intervention
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Texas Constitution Section 9 in that the acts/om issions constitute a seizure of money held under
the pretext of a payment hold.
VI. Damages
68. Intervenors have suffered and are entitled to recover damages including, but not limited
to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to
business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees
and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion
69. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent
hiring, negligence, and gross negligence. Xerox's actions have subj ected Intervenor to
unnecessary civil and adm inistrative legal action, and that, in turn has caused additional injury.
Xerox's actions have required Intervenor to perform Xerox's j ob after-the-fact, by proving to the
State that the orthodontic services rendered were medically necessary and appropriate for
reimbursement. The State's actions have hann ed Intervenor because the state's conspiracy to
improperly blame the dentists has resulted in meritless legal claims against the lntervenors and
conversion of the Intervenor's property.
VIII. Jury Demand
70. Intervenors respectfully request a trial by jury.
IX. Request for Disclosure
71. Under Texas Rule of Civil Procedure L94, Intervenor requests that Plaintiff the State
disclose, within 50 days of the service of this request, the information or material described in
Rule 194.2.
Plea in Intervention
Page 23 of25
X.Prayer
72 . Wherefore, premises considered, Intervenors Irma Cantu-Thompson, DDS, PC and Inna
Cantu-Thompson pray that upon final hearing of the cause, judgment be entered jointly and
severally against the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for
damages, together with pre-judgment and post judgment interest at the legal rate, costs of court,
and other such relief to which the lntervenors may be entitled.
RIGGS, ALESHlRE & RAY, P.C.
700 Lavaca, Suite 920
Austin, Texas 78701
(512) 457-9806 (Telephone)
(512) 457-9866 (Fax)
jray@r-alaw.com
Isl Hart Green w/ permission by J Ray
E. Hart Green
Texas Bar No. 08349290
Mitchell A. Toups
Texas Bar No. 20151600
WELLER, GREEN, TOUPS & TERRELL, L.L.P.
Post Office Box 350
Beaumont, Texas 77704-0350
(409) 838-0101 (Telephone)
(409) 832-8577 (Fax)
hartgr@wgttlaw.com
matoups@wgttJaw.com
ATTORNEYSFORINTERVENORS
IRMA CANTU-THOMPSON, DDS, PC AND
IRMA CANTU-THOMPSON
Plea in Intervention
Page 24 of25
CERTIFICATE OF SERVICE
l hereby certify that a true and correct copy of the foregoin g Plea in Intervention was
served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on
the following:
Eric J.R. Nicho ls
Beck Redden
5 15 Congress Avenue, Suite 1750
Austin, Texas, 78701
ENTCHOLS@beckredden.com
Attorney for Xerox Defendants
Raymond Winter
Chief:, Civi l Medicaid Fraud Division
Assistant Attorney Genernl
Office of the Attomey General
P.O. Box 12548
Austin, Texas 78711-2548
raymond. w inter@texasattorneygeneral.gov
Attorney for the Plaintiff State of Texas
Plea in Intervention
Page 25 of25
CAUSE NO. D-1-GV-14-000581
MAN & CFN ORTHO, PLLC, NAVARRO § IN THE DISTRICT COURT
ORTRODONTIX OF IRVING, PC, NAVARRO§
ORTHODONTIX OF FT. WORTH, PLLC, §
NAVARRO ORTHODONTIX OF MCALLEN, §
PLLC, NAVARRO ORTHODONTIX OF §
EDINBURG, PLLC, NAVARRO §
ORTBODONTIX, PC, AND DR. CARLOS F. §
NAVARRO §
INTERVENORS, §
§
vs. §
§
THE STATE OF T EXAS, §
PLAINTIFF, §
§ 53rd JUDICIAL DISTRICT
VS. §
§
XEROX CORPORATION; XEROX §
STATE HEALTHCARE, LLC; ACS §
STATE HEALTHCARE, LLC, A XEROX §
CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TEXAS
PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, MAN & CFN Ortho, PLLC, Navarro Orthodontix of Irving, PC,
Navarro Orthodontix of Ft. Worth, PLLC, Navarro Orthodontix of McAllen, PLLC, Navarro
Orthdontix of Edinburg, PLLC, Navarro Orthodontix, PC and Dr. Carlos F. Navarro, hereinafter
Intervenors, and file this Plea in Intervention, and in support hereof, would respectfully show the
Court the following:
I. Parties and Service
I. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of
this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0.
Box 12548, Austin, Texas 78711 -2548.
Plea in Intervention
Page I of26
2. Defendant Xerox Corporation is a corporation organized under the laws of New York has
agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State
Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS
State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation
organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave.,
Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit.
Defendant Xerox Corporation acquired Defendant ACS in 2010. On information and belie(,
ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April l, 2012.
Defendants are referred to hereinafter as "Xerox Defendants."
3. MAN & CFN Ortho, PLLC, Navarro Orthodontix of Irving, PC, Navarro Orthodontix of
Ft. Worth, PLLC, Navarro Orthodontix of McAllen, PLLC, Navarro Orthdontix of Edinburg,
PLLC, Navarro Orthodontix, PC and Dr. Carlos F. Navarro, (hereinafter Navarro) are approved
Medicaid providers, and can be served through the undersigned counsel.
4. Dr. Carlos F. Navarro 1 is a licensed Texas dentist, approved Medicaid provider, and the
owner of Navarro. Dr Navarro can be served through his undersigned counsel.
II. Jurisdiction and Venue
5. This Court has subject-matter jurisdiction in that the amounts sought by Intervenors from
all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this
court. Intervenors affirmatively plead that this suit is not governed by the expedited-actions
process in TEXAS RULE OF CIVIL PROCEDURE 169 because intervenors seek monetary relief over
$100,000.
6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenors' claims;
1
For the sake of simplicity, the Intervenors will be collectively referred to as "Navarro" unless expressly noted.
Plea in Intervention
Page 2 of26
b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and comm itted the unlawful acts a lleged in thi s petition
in whole or part in Texas.
7. Venue is proper in Travis County under TRCP §15.020 because this suit involves a
" major transaction"; Venue is permissive under TRCP § 15.035(a) because Int ervenor asserts
claims for breach of contract. Venue is proper pursuant to TRCP § 15.02 because all or a
substantial part of the events or omissions giving rise to the claim occurred in Travis County.
Many of the unlawful acts committed by the State and Xerox Defendants were committed in
Travis County, including the making of false statements and misrepresentations of material fact.
ID. Intervcnors' Interest in the Suit
8. Intervenors MAN & CFN Ortho, PLLC, Navarro Orthodontix of Irving, PC, Navarro
Orthodontix of Ft. Worth, PLLC, Navarro Orthodo ntix of McAllen, PLLC, Navarro Orthdontix
of Edinburg, PLLC, Navarro Orthodontix, PC and Dr. Carlos F. Navarro have a judicial interest
in the matters and controversy in this litigation. The relationship between lntervenors, the State
as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the
interest of judicial economy and j ustice, all claims be bound and subsumed into one cause of
action. Upon information and belief, Intervenors were initially sued by the State in a qui tam
action wherein the State alleged that lntervenors defrauded the State. The State has elected to
pursue its remed ies against the Intervenors in an administrative hearing. Now, the State has sued
Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the
State. lntervenors have claims against both the State and Xerox. It is assumed that Xerox will
have claims against the State, and perhaps allege claims against the Intervenors. All of the
different parties' c laims are inextricably intertwined, as they relate to Intervenors' submission of
Plea in Intervention
Page 3 of26
prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the
State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and
legal duties, and State's subsequent legal action against the Intervenors for services approved by
Xerox.
IV.Facts
Wbat is Prior Authorization?
9. Texas Medicaid requires that orthodontic services be independently and objectively
scrutinized before the State consents to treatment and payment. Prior authorization is the
mechanism the State uses to determine the medical necessity of non-emergency orthodontic
items/services prior to delivery of those items/services. Pursuant to Texas Health and Human
Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will
pay for orthodontic services:
Orthodontic services for cosmetic reasons only are not a covered Medicaid
service. Orthodontic services must be prior authorized and are limited to
treatment of severe handicapping malocclusion and other related conditions as
described and measured by the procedures and standards published in the
2
[TMPPM ] .
25 TEX. ADMIN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance
to the orthodontic provider that, absent an intervening d isqualifying factor, lhe delivery of the
requested orthodont ic service has been deemed by Xerox to be medically necessary, and
therefore approved by the State.
I 0. The prior authorization process is straightforward. Texas Medicaid requires that a dental
provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's
orthodontic condition to Xerox for rev iew. In addition, the orthodontic provider submits his
2
"TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides
valuable guidance to Medicaid providers.
Plea in Intervention
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professional opinion of the patient on a Handicapping Labio-lingual Deviation index (HLD)
score sheet. Xerox knew providers relied entire ly on the prior authorization process because
approval was a mandatory prerequisite to providing orthodontic services and being paid. Once
Xerox issued its prior authorization decision, the decision was not appealable by the provider.
I l. The HLD scoring system combines a number of treatable orthodontic conditions into an
index. HLD score sheets use a mix of objective and subjective conditions to determine whether a
Medicaid patient qualifies for orthodontic serv ices. The fact that the HLD score sheet requires
both objective and subjective findings highlights the importance of Xerox performing a thorough
prior authorization review.
The History of Orthodontic Prior Authorization.
12. The process for reviewing and approving orthodontic prior authorization requests pre-
dates the defendanl Xerox's handling of Medicaid claims processing. The National Heritage
Lnsurance Corporation (NHIC) was responsible for reviewing prior authorization requests before
Xerox assumed the contract in January 2004. Starting January 1, 2004, Xerox acted as an
independent contractor, and was a contracted agent of the State, under the contract with HHSC.
Xerox was responsible for reviewing each orthodontic service request, and Xerox was further
charged with the responsibility to grant or deny each prior authorization request per the program
requirements. The result was that Xerox had the final say in determining the medical necessity of
each request fo r orthodontic services.
13. Prior to assuming the NHIC contract, and for a period of time after assuming the contract
from N HlC, Xerox received training from NHIC personnel regarding the proper method for
receiving and processing orthodontic prior authorization requests. NHlC personnel explained
how and why the review of each prior authorization subm ission was important, and walked
Plea in Intervention
Page 5 of26
Xerox through the process. Despite its training from NHIC, Xerox had no intention of following
the prior authorization system that had been in place for years, nor did Xerox intend to otherwise
meet the prior authorization requirements set out in its contract, the TMPPM and required by
state law.
Xerox rejects its contractual responsibilities.
14. When Xerox took over the contract m 2004, it immediately abandoned the prior
authorization review process that had been setup by NHIC. Xerox never intended to fulfill its
orthodontic prior authorization responsibilities to HHSC. From 2004 to 2011, Xerox continually
misrepresented that it was acting in compliance with its contractual duties.
15. It is now known that Xerox failed to adequately staff their prior authorization division
with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004
through 2011, which was far short of the manpower necessary to handle the review of tens of
thousands of orthodontic prior authorization requests every year. Xerox could not reasonably
have expected to handle such a workload by employing only one dentist.
Xerox potentially commits thousands of violations.
16. It is believed Xerox allowed "dental specialists"-unlicensed, unqualified individuals-
to render prior authorization opinions regarding the medical necessity of requested orthodontic
services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed
dental director or another qualified dental professional. These actions not only violated Xerox's
contractual obligations, they may have also violated other Texas law such as the Dental Practice
Act. 3 It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior
3
Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth
and mouth. Section 256.001 states that a person may not practice dentistry without a license. Thus, state law requires
that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section
264.151 prescribes penalties for certain violations of the Dental Practice Act.
Plea in Intervention
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authorization approvals/medical opinions in violation of Texas law.
17. Xerox was paid by the state for each prior authorization decision that was made. It is
believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a
profit generating measure.
18. From January 2005 through February 20 12, Intervenor subm itted prior authorization
requests, as required, to Xerox for a determ ination of medical necessity. Unbeknownst to
Intervenor, Xerox's dental specialists-not the dental director-approved almost all of
Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or
b) the approval had been issued by a licensed dentist, and/or
c) the approval was an actual and legitimate dental diagnosis, and/or
d) the requested orthodontic services were allowable under Texas law and as permitted
by Medicaid policy, the TMPPM, and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or
f) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervening disqualification (such as the patient's ineligibility).
19. Because Xerox was charged w ith dete1111ining medical necessity, and because prior
authorizatjon approval was a mandatory prerequisite to furnishing services, the promjses were
material. lntervenors expected performance o f these promises. Intervenors rel ied on Xerox.
Further, Xerox promised that its subsequent payments to lntervenors (after the services had
actually been delivered) were made because the services had been, in fact, properly approved as
medically necessary. Each prior authorization approval represents a separate violation of the Jaw
if Xerox's approval was issued illegally and/or in violation of its contractual obligations.
Plea in Intervention
Page 7 of26
Xerox actively concealed its potentially illegal activity.
20. Xerox withheld the truth regarding its prior authorization program. In an attempt to
publicly appear consistent with NHIC's prior authorization process, Xerox continued to require
that dental providers (such as Intervenor) submit all supporting documentation for each HLD
score sheet. lt is now believed that, incredibly. Xerox did nothing with that documentation. other
than assure that it had been subm itted by the provider. It is believed that Xerox's specialists were
instructed to forward to its dental director on ly those requests that had scored below the
threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some
provider justification attached. As a result, only I0% of the orthodontic prior authorization
requests were actually forwarded to Xerox 's one licensed dentist. Xerox's actions were
calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox
knew that its actions were entirely incons istent with the Letter and spirit of its o bligations.
Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving
services without detem1 ining their medical necessity, but Xerox's deception also exacerbated the
problem by failing to give providers guidance regarding the proper standard for medical
necessity, thus causing these providers substantia l damages.
21 . For the past ten years, Xerox has continued to publicly represent to the world that it was
fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was
fulfi lling its duties to the State, Xerox had its contract with HH SC repeatedly renewed from 2004
through the present. Each year that Xerox had its contract renewed, it represented that it would
fu lfi ll its contractual obligations and abide by Texas law requiring that decisions about medical
necessity be rendered only by licensed dentists. Xerox made those representations knowing that
it had not done so in the past, and had no intent ion of changing its procedures to do so in the
Plea in Intervention
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future.
The Frew decision magnifies Xerox's acts.
22. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to
implement a corrective action plan that increased the Medicaid reimbursement rates to all dental
providers. That plan was required pursuant to the Frew case4 , which was a 1993 class-action
lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that
they prevented indigent children from receiving timely, comprehensive health care.
23. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707
million ($1.8 billion in state and federal funds combined) to increase medical and dental
reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists
to become Medicaid providers. It worked. The state raised payment rates for dental services, and,
as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to
63 .4% in 2010. As expected indeed, as intended spending on Texas's dental services increased
dramatically.
24. Although the number of prior approval requests increased by 240% between 2007 and
20 l 0, Xerox continued to employ only one dentist. That dentist was neither tasked with nor
responsible for supervising the clerical specialists that were issuing the approvals.
25. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox
was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper
for the approval and payment of orthodontic services. Although the Texas Legislature had
4
Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir.
2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and
a.fl'd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins,
401 F. Supp. 2d 619 (E.D. Tex. 2005) ajj'd sub nom. Frazar v. Ladd, 457 F.3d 432 (Slh Cir. 2006); Hawkins v.
Frei!', 549 U.S. 1118. 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007).
Plea in Intervention
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increased funding to attract dentists into the Medicaid program, all of the budgeted funds were
required to be spent only on medically necessary services.
The Office of Inspector General seeks recovery from Medicaid providers.
26. In early 201 I, a series of news stories began highlighting the large amount of money
being spent on orthodontics in Texas. In July 2011, the Federal government notified Texas of its
intent to audit whether Texas' prior authorization process was ensuring that only medically
necessary or1hodontic cases were being approved and paid. With the prospect of a federal
clawback action looming against Texas because of Xerox's prior authorization failures, the
Texas Office of Inspector General (hereinafter "State") took a drastic step. Beginning in 2011,
the State generated a list of the top Medicaid 011hodontic billers and placed them on " payment
hold." Intervenor was one of those providers.
27. Given lntervenors' proxim ity to some of the state's poorest ch ildren, and the mandates of
the Frew decision, Intervenor served a large Medicaid patient population. Because it served a
large Medicaid population, it submitted a large number of prior authorization requests to Xerox
from 2004 through 20 11 .
28. lntervenors did not know that Xerox was failing to perfonn a true and accurate review for
medical necessity. lntervenors rel ied on Xerox 's prior authorization approvals to confinn that
dentists' analysis was proper and consistent with Medicaid standards and requirements.
29. Again unbeknownst to lntervenors, State audits in 2008 and 2012 concluded that most, if
not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater
(indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State
audits made the Federal government's pending audit especially dangerous to Texas, because the
2008 and 2012 audits were admissions that Xerox had been approving and paying claims that
Plea in Intervention
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may not have met the federal standards for prior authorization. Thus the State, through the
Attorney General, concluded that a true finding of medical necessity had in reality not occurred.
The Attorney General claimed that billing for services that are not necessary is fraud, despite
Xerox's prior authorization approvals.
30. Lt is now believed that rather than prosecute Xerox for its failure lo properly evaluate
dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox.
This protection included the State failing to allow TMHP to hire additional medically licensed
staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the
Attorney General took immediate action against the providers, the Attorney General refused to
hold Xerox accountable for its orthodontic "approvaJs," its repeated contractual failures, or its
violation of State law. Instead, the Attorney General made fraud allegations against each of the
top 25 dental providers, including Intervenor, which has caused more injury and damages to
lntervenors. Stated d ifferently, Xerox issued its approvals through a process that gutted the
State's belief in the accuracy o f Xerox's decision, and the Texas Attorney General punished the
providers instead of Xerox.
31. Because the acts/omissions of Xerox so undermined the process, the State
eventuallyinstituted a " payment hold" against Intervenor. A payment hold temporarily freezes
future Medicaid payments to a provider, despite the provider's ongoing participation in the
Medicaid program. The payment hold against intervenor was issued pursuant to wbat the State
called a "credible allegation of fraud " regarding Intervenor's orthodontic prior authorization
requests. The State placed a 100% payment hold against Intervenor's orthodontic billings.
32. At the time the Attorney General began prosecuting Intervenor and similarly situated
Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to
Plea in Intervention
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authorize orthodontic services and paym ents. The Attorney General knew that the State's audits
of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State,
violating its own State-approved policies and procedures, and violating State law. Nevertheless,
the Attorney General continued to only prosecute dental providers like the Intervenor~ the
Attorney General refused to hold Xerox responsible. [n fact, in one shameless and brazen
demonstration of State' s unwavering protection of Xerox, the Deputy Director of Texas' Office
of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious
they were outside the course and scope of Xerox's agency with State.5 Upon information and
belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing
the State's culpability would subject the State to a federal clawback for hundreds of millions of
dollars. Instead, the State and the Attorney General pointed at the dental providers.
33. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for
over 6 years, became too much to hide. Three months after some providers filed suit against
Xerox, and following a series of news stories questioning why Xerox had not suffered for its
failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas
Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed
approximately 100 days earlier by similarly situated providers. The State's claims in this fraud
lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were
improper.
34. As a result of the payment hold, Intervenor was required to make significant financial
concessions and changes to its business. Intervenor a lso engaged legal counsel to defend itself
s Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a
dental provider for following Xerox's instructions to provide braces to the provider's patientS. The idea that the
State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it
was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox.
Plea in Intervention
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from the State's claims, at a significant expense that continues today.
35. The State's allegations against [ntervenor are rooted in two assumptions. First, the State
assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is,
Xerox approved Intervenor's requests without knowing whether approval was actually proper.
Because Xerox is not a party to Intervenor's administrative case, lntervenor is prevented from
determining whether Xerox did, in fact, perform a proper review of Intervenor's prior
authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question,
and finally determine whether Xerox reviewed Intervenor's requests as required by its contract
and the law.
36. Regarding the State's second assumption, the State alleges some of Intervenor's requests
were approved when, in fact, they should have been denied. intervenor denied that assertion in
the administrative case, and Intervenor continues to deny that claim here. All services provided
to Intervenor's patients were actually medically necessary, regard less o f what Xerox decided and
in any event under Medicaid guidelines once the authorization was approved, Intervenor was
required to provide the services.
37. The State continues to aggressively fight any allegation or affirmative defense that could
result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's
contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action
A. Intervenors' Claims Against Xerox
Common Law Fraud (Fraudulent Misrepresentation and Fraudulent foducement)
38. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox 's prior authorization approvals were fa lse representations made to Intervenor. It is
Plea in Intervention
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believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew
that it was approving requests without a proper medical review, and/or because it approved the
prior authorization requests without any knowledge of their truth . It is believed Xerox intended
for Intervenor to rely on the approvals as a prerequisite for providing the requested services.
Approval was material because it was a mandatory prerequisite for payment. Intervenor actually
and justifiably relied on Xerox's fraudulent approvals.
39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in
the same or simi lar manner, and led Intervenor to believe that their requests were consistent with
Medicaid standards and requirements.
40. Xerox's fraudulent approvals caused injury to Intervenor. As a resu lt of Xerox's actions,
intervenor submitted requests for payment and Xerox actually paid for those services, Lntervenor
was placed on payment hold, Intervenor is forced to defend itself in an administrative payment
hold hearing, and [ntervenor is facing administrative claims by HHSC for repayment (including
claims for treble damages and attorney fees). Intervenor's reputation and business have suffered
severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs,
and attorney fees.
Breach of the Xerox-State of Texas Contract
41. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State
for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper,
thorough and legal review of prior authorization requests for the purpose of determining medical
necessity. To that end, Xerox should have employed a licensed dentist.
42. Xerox was an agent of the State of Texas engaged specifically for the purpose of
Plea in Intervention
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determining medical necessity. The third party beneficiaries of that Xerox-State of Texas
contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic
services that were medically necessary. Intervenor was responsible for actually delivering the
orthodontic services that Xerox had deemed medicaJly necessary. Thus, Intervenor was a third
party beneficiary that relied on Xerox's approvals.
43. Xerox breached its contract by, inter alia, fai ling to provide qualified staff; possibly
violating Texas law; permitting non-dentists to make determinations of medical necessity; and
issuing medical opinions without conducting a reasonable and prudent examination of evidence.
The breaches were material, and recurred across many different Medicaid patients and for many
years.
44. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary
intelligence should have anticipated that issuing a decision without actually reviewing or
considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and
reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy,
it was foreseeable that the State would demand repayment, and/or would require Intervenor to
independently do Xerox's job after the fact by proving that payment was proper because the
services were medically necessary and reimbursable under Texas Medicaid law.
45. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages
that would have given the lntervenors the benefit of the bargain by putting them in as good a
Plea in Intervention
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position as they would have been in if the contract had been performed. Intervenor seeks
reliance interest damages to restore the expend itures Intervenor made in reliance on Xerox's
contract with the state and the approvals that Xerox made under that contract. Intervenor also
seeks damages for its restitution interest to restore money sought by the Office of the Inspector
General from Intervenor. Such damages would put the Cntervenors in as good a position as it
would have been in if the contract had been properly fulfilled. In add ition, Intervenor seeks
liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal
counsel to defend itself from the State's charges, and those legal expenses cont inue today.
Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost
future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel)
46. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute promissory estoppel.
47. Xerox's prior authorizations constitute promises to Intervenor in numerous ways.
Because prior authorization was a prerequisite to furnishing services, and because Xerox was the
entity charged with discharging prior authorization duties, Intervenor reasonably, substantially,
and foreseeably relied on Xerox's promises.
48. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appl iances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact-namely, demonstrate tbat the services were medically necessary and
Plea in Intervention
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properly reimbursable under Texas Medicaid law. lntervenor has incurred benefit of the bargain
damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of
goodwill. All of these damages were directly and/or proximately caused by Xerox' s promises.
Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney
fees.
Negligent Hiring/Negligent Supervision
49. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negl igent hiring and/or negligent supervision. Xerox was
required to render medical diagnoses. To that end, Xerox was required by law to employ a
licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by
law to properly supervise its employees to make sure diagnoses were made only by licensed
dentists.
50. Xerox knew or should have known that decisions regarding medical necessity can only
be rendered by licensed personnel. Texas Occupations Code section 25 1.003 defines the practice
of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a
person may not practice dentistry without a license; section 264.151 makes it a third-degree
felony to practice dentistry without a license.
51. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox 's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
Plea in Intervention
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been determined to be medically necessity wou ld precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact by proving that payment
was proper because those services were medically necessary and were reimbursable under Texas
Medicaid Jaw.
52. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing the cost of services for each Medicaid patient that Xerox
approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and
those legal expenses continue today. intervenor suffered and continues to suffer significant
damage to its reputation, business, referral base, earnings and earning power. Intervenor has
suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant
mental and personal capital to doing Xerox's job. intervenor has suffered exemplary damages
because Xerox's conduct was grossly negligent, outrageous and malicio us, and such conduct
should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligence
53. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render
medical diagnoses. To that end, Xerox bad a duty to employ a licensed dentist to render a
diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel
had appropriate education, training and experience to render such a finding. Xerox had a duty to
review the supporting prior authorization documentation (such as x-rays and photos) to
determine whether the requested services were medically necessary.
54. Xerox's actions breached the standard of care because Xerox: failed to provide prior
Plea in Intervention
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authorization staff that were properly licensed, qualified and experienced dental professionals;
violated the law, specifically the Dental Practice Act, by permitting non-dentists to make
determinations of medical necessity, and; issued medical opinions (prior authorizations) without
conducting a reasonable and prudent exam ination of evidence.
55. Xerox' s actions proximately caused Intervenor's injury. lntervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying fntervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact.
56. Intervenor suffered and continues to suffer significant damage to its reputation, business,
referral base, earnings and earning power. fntervenor has engaged legal counsel to defend itself
from the State's charges, and those legal expenses continue today. Dr. Navarro has suffered
inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and
personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because
Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be
penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary
damages, interest, court costs, and attorney fees.
Negligent Misrepresentation
57. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent misrepresentation. Xerox ' s actions constitute
Plea in Intervention
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misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization
approval was a prerequisite to furnishing services, these representations guided and controlled
Intervenor's responses. intervenor justifiably relied on these representations. Further, Xerox
represented that its prior authorization approvals were dispositive of medical necessity;
Intervenor expected that, once approved, no further inquiry into the medical necessity of the
serv ices would be required. Further, Xerox represented that its subsequent payments to
Intervenor (after the services had actually been delivered) were made because services had been,
in fact, properly approved as medically necessary.
58. Xerox did not exercise reasonable care or competence in making its determ inations and
representations. Xerox knew or should have known that its representations were fa lse.
59. Because prior authorization was a prerequisite to furnis hing services, and because Xerox
was the entity charged with discharging prior authorization duties, Intervenor reasonably,
substantially, foreseeably, and justifiably rel ied on Xerox's representations.
60. Intervenor suffered a nd continues to suffer signi ficant damage. fn tervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox 's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket
damages, lost profits, loss of credit, and loss of goodwill. All of these dam ages were directly
and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of
actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property
61. Intervenor re-alleges and incorporates the above facts and a11egations as if fully set out
Plea in Intervention
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herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduc iary
property which would entitle Intervenors to unlimited punitive damages.
B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity
62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. For a number of reasons, the State has waived sovereign immunity for claims by
Intervenor, including the facts that the State brought, threatened and/or has taken civil and/or
administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise
63. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein . In the alternative, former Deputy Inspector General Jack Stick has stated publicly that
acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's
agency relationship with the State. Assuming same to be true, then the State conspired with
Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from
Intervenor but not Xerox, and conspired to fal sely accuse Intervenor of fraud/crime.
64. The State conspired with Xerox to a llow Xerox to violate its various contractual duties.
The State perm itted Xerox to process as many prior authorizations as possible without the
required clinical dental review and without using medically knowledgeable personnel. The State
conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox
created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations
submitted by the dentists. The conspiracy was committed with the intent to shift blame from the
State and its agent, improperly blame the lntcrvenors, and enrich the State and Xerox. By
recouping money from providers that were not actually to blame, the State and Xerox hoped to
Plea in Intervention
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limit their own liability in the event of a Federal clawback action, and/or respond to unflattering
news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the
party to blame the dentist providers for their own improper acts and omissions is a proximate
cause of the injury to Intervenors.
Not Liable for Illegal Acts of Third Party
65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. As alleged by the State in Section VIII paragraph 46 of the State's petition, Xerox has
committed or is about to commit unlawful acts. The iUegal acts of Xerox in failing to provide
proper prior authorization review in rubber stamping the doctors prior authorization requests is
not the fault of the doctors. The doctors are not responsible for or liable to the State for the
illegal acts of a third party for which the doctors had no control; the State should not withhold
money from the lntervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract
66. lntervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Intervenors are a direct or third party beneficiary of the contract with Xerox and the State
of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox
and/or reviewing the work product of Xerox. This breach by State, which allowed non-
perfonnance by Xerox, has created the pretext by which the State affinnatively sued Intervenors
for repayment. To the extent that the State has withheld money and/or made claims for damages
against lntervenors based on the contracts in question, the State has waived immunity and is
liable up to those amounts plead.
Conversion
67. Jntervenor re-alleges and incorporates the above facts and allegations as if fully set out
Plea in Intervention
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herein. State and Federal law required Intervenor to request prior authorization for orthodontic
services. Those prior authorization requests were approved by Xerox, which required Intervenors
to provide the services. The State has unilaterally made a decision to that, based on the acts and
omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor
on a payment hold. To the extent that Intervenor has provided services for which Intervenor
should be paid, and money which has been earmarked by the State for that payment but withheld,
the State has converted the funds. In addition, the States' acts/omissions are a violation of the
Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under
the pretext of a payment hold.
VI. Damages
68. Intervenors have suffered and are entitled to recover damages including, but not limited
to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to
business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees
and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion
69. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent
hiring, negligence, and gross negligence. Xerox's actions have subjected Intervenor to
unnecessary civil and administrative legal action, and that, in turn has caused additional injury.
Xerox's actions have required Intervenor to perform Xerox's job after-the-fact, by proving to the
State that the orthodontic services rendered were medically necessary and appropriate for
reimbursement. The State's actions have harmed Intervenor because the state's conspiracy to
improperly blame the dentists has resulted in meritless legal claims against the Intervenors and
conversion of the Intervenor's property.
Plea in Intervention
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VIII. Jury Demand
70. Intervenors respectfully request a trial by jury.
IX. Request for Disclosure
71. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State
disclose, within 50 days of the service of this request, the information or material described in
Rule 194.2.
72. Wherefore, premises considered, Intervenors MAN & CFN Ortho, PLLC, Navarro
Orthodontix of Irving, PC, Navarro Orthodontix of Ft. Worth, PLLC, Navarro Orthodontix of
McAllen, PLLC, Navarro Orthdontix of Edinburg, PLLC, Navarro Orthodontix, PC and Dr.
Carlos F. Navarro pray that upon final bearing of the cause, judgment be entered jointly and
severally against the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for
damages, together with pre-judgment and post judgment interest at the legal rate, costs of court,
and other such relief to which the Intervenors may be entitled.
Plea in Intervention
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Respectfully.submitted,
RIGGS, ALESHIRE & RAY, P.C.
700 Lavaca, Suite 920
Austin, Texas 78701
(512) 457-9806 (Telephone)
(512) 457-9866 (Fax)
jray@r-alaw.com
Isl Hart Green wl permission by J Ray
E. Hart Green
Texas Bar No. 08349290
Mitchell A . Toups
Texas Bar No. 20151600
WELLER, GREEN, TOUPS & TERRELL, L.L.J>.
Post Office Box 350
Beaumont, Texas 77704-0350
(409) 838-0101 (Telephone)
(409) 832-8577 (Fax)
hartgr@wgttlaw.com
matoups@wgttlaw.com
ATTORNEYS FOR INTERVENORS
MAN & CFO ORTHO, PLLC, NAVARRO
ORTHODONTIX OF IRVING, PC, NAVARRO
ORTHODONTIX OF FT. WORTH, PLLC,
NAVARRO ORTHODONTIX OF EDINBURG,
PLLC, NAVARRO ORTHODONTIX, PC, AND
DR.CARLOSF.NAVARRO
Plea in Intervention
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CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing Plea in Intervention was
served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on
the following:
Eric J.R. Nichols
Beck Redden
515 Congress Avenue, Suite 1750
Austin, Texas, 78701
ENICHOLS@beckredden.com
Attorney for Xerox Defendants
Raymond Winter
Chief, Civil Medicaid Fraud Division
Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711-2548
raymond. winter@texasattomeygeneral.gov
Attorney for the Plaintiff State of Texas
Plea in Intervention
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CAUSE NO. D-1-GV-14-000581
RGV SMILES BY ROCKY L. SALINAS, § IN THE DISTRICT COURT
DDS, PA, AND DR. ROCKY SALINAS, §
INTERVENORS, §
§
vs. §
§
THE STATE OF TEXAS, §
PLAINTIFF, §
§ 53rd JUDICIAL DISTRICT
VS. §
§
XEROX CORPORATION; XEROX §
STATE HEALTHCARE, LLC; ACS §
STATE HEALTHCARE, LLC, A XEROX §
CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TE XAS
PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, RGV Smiles by Rocky L. Salinas, DDS, PA and Dr. Rocky Salinas,
hereinafter lntervenors, and file this Plea in Intervention, and in support hereof, would
respectfully show the Court the following:
I. Parties and Service
1. Pl aintiff~ State of Texas, has appeared in this action and may be served with a notice of
this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0.
Box 12548, Austin, Texas 78711-2548.
2. Defendant Xerox Corporation is a corporation organized under the laws of New York has
agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State
Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS
State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation
organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave.,
Plea in Intervention
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Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit.
Defendant Xerox Corporation acquired Defendant ACS in 20 l 0. On information and belief,
ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012.
Defendants are referred to hereinafter as "Xerox Defendants."
3. RGV Smiles by Rocky L. Salinas, DDS, PA, (hereinafter RGV) is a Texas professional
association, and an approved Medicaid provider, with its principal place of business listed as 805
N. Cage, Pharr, Texas 78577. RGV can be served through the undersigned counsel.
4. Dr. Rocky Salinas 1 is a licensed Texas dentist, approved Medicaid provider, and the
owner ofRGV. Dr Salinas can be served through his undersigned counsel.
II. Jurisdiction and Venue
5. This Court has subject-matter jurisdiction in that the amounts soui:,rht by lntervenors from
all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this
court. lntervenors affirmatively plead that this suit is not governed by the expedited-actions
process in TEXAS RULE OF CIVIL PROCEDURE 169 because intervenors seek monetary relief over
$100,000.
6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immun ity and is subject to Intervenors' claims;
b) This Court has j urisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in this petition
in whole or part in Texas.
7. Venue is proper in Travis County under TRCP § 15.020 because this suit involves a
" major transaction"; Venue is permissive under TRCP § 15.035(a) because lntervenor asserts
claims for breach of contract. Venue is proper pursuant to TRCP § 15.02 because alJ or a
1
For the sake of simplicity, the Intervenors will be collectively referred to as "RGV" unless expressly noted.
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substantial part of the events or omissions giving rise to the claim occurred in Travis County.
Many of the unlawful acts committed by the State and Xerox Defendants were committed in
Travis County, including the making of false statements and misrepresentations of material fact.
ill. Intervenors' Interest in the Suit
8. lntervenors RGV Smiles and Dr. Rocky Salinas have a judicial interest in the matters and
controversy in this litigation. The relationship between Intervenors, the State as the Plaintiff and
the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of j udicial
economy and j ustice, all claims be bound and subsumed into one cause of action. Upon
information and belief: Intcrvenors were initially sued by the State in a qui Lam action wherein
the State alleged that lntervenors defrauded the State. The State has elected to pursue its
remedies against the lntervenors in an administrative bearing. Now, the State has sued Xerox in
State Court on the same facts, alleging that Xerox has committed fraud against the
State. lntervenors have claims against both the State and Xerox. It is assumed that Xerox will
have claims against the State, and perhaps allege claims against the Intervenors. All of the
different parties' claim s are inextricably intertwined, as they relate to Tntervenors' submission of
prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the
State' s handling and oversight of its agent Xerox in Xerox's performance of its contractual and
legal duties, and State's subsequent legal action against the Intervenors for services approved by
Xerox.
IV. Facts
What is Prior Authorization?
9. Texas Medicaid requires that orthodontic services be independently and obj ectively
scrutinized before the State consents to treatment and payment Prior authorization is the
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mechanism the State uses to determine the medical necessity of non-emergency orthodontic
items/services prior to delivery of those items/services. Pursuant to Texas Health and Human
Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will
pay for orthodontic services:
Orthodontic services for cosmetic reasons only are not a covered Medicaid
service. Orthodontic services must be prior authorized and are limited to
treatment of severe handicapping malocclusion and other related conditions as
described and measured by the procedures and standards published in the
[TMPPM2] .
25 TEX. ADMrN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance
to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the
requested orthodontic service has been deemed by Xerox to be medically necessary, and
therefore approved by the State.
I 0. The prior authorization process is straightforward. Texas Medicaid requires that a dental
provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's
orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his
profess ional opin ion of the patient on a Handicapping Labio-lingual Deviation index (HLD)
score sheet. Xerox knew providers relied entirely on the prior authorization process because
approval was a mandatory prerequisite to providing orthodontic services and being paid. Once
Xerox issued its prior authorization decision, the decision was not appealable by the provider.
l I. The HLD scoring system combines a number of treatable orthodontic conditions into an
index. HLD score sheets use a mix of objective and subjective conditions to detennine whether a
Medicaid patient qualifies for orthodontic services. The fact that the HLD score sheet requires
both objective and subjective findings highlights the importance of Xerox performing a thorough
2
"TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides
valuable guidance to Medicaid providers.
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prior authorization review.
The History of Orthodontic Prior Authorization.
12. The process for reviewing and approving orthodontic prior authorization requests pre-
dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage
fnsurance Corporation (NHIC) was responsible for reviewing prior authorization requests before
Xerox assumed the contract in January 2004. Starting January I, 2004, Xerox acted as an
independent contractor, and was a contracted agent of the State, under the contract with HHSC.
Xerox was responsible for reviewing each orthodontic service request, and Xerox was further
charged with the responsibility to grant or deny each prior authorization request per the program
requirements. The result was that Xerox had the final say in determining the medical necessity of
each request for orthodontic services.
13. Prior to assuming the NHIC contract, and for a period of time after assuming the contract
from NHlC, Xerox received training from NHTC personnel regarding tbe proper method for
receiving and processing orthodontic prior authorization requests. NHIC personnel explained
how and why the review of each prior authorization submission was important, and walked
Xerox through the process. Despite its training from NHIC, Xerox had no intention of following
the prior authorization system that had been in place for years, nor did Xerox intend to otherwise
meet the prior authorization requirements set out in its contract, the TMPPM and required by
state law.
Xerox rejects its contractual responsibilities.
14. When Xerox took over the contract in 2004, it immediately abandoned the prior
authorization review process that bad been setup by NHIC. Xerox never intended to fulfill its
orthodontic prior authorization responsibilities to HHSC. From 2004 to 2011, Xerox continually
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m isrepresented that it was acting in compliance with its contractual duties.
15. It is now known that Xerox failed to adequately staff their prior authorization division
with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004
through 20 11, which was far short of the manpower necessary to handle the review o f tens of
thousands of orthodontic prior authorization requests every year. Xerox could not reasonably
have expected to hand le such a w orkload by employing only one dentist.
Xerox potentia lly commits thousands of violations.
16. It is be lieved Xerox allowed "dental specialists"-unliccnsed, unq uali fied individuals-
to render prior author ization opinio ns regarding the med ical necessity of requested orthodontic
services. The "dental specialist" approvals were not reviewed or ratifi ed by Xerox's licensed
dental d irector or another qualified dental professional. These actions not only violated Xerox's
contractual obligations, they may have also violated other Texas law such as the Dental Practice
Act. 3 It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior
authorization approvals/medical opinions in violation of Texas law.
L7. Xerox w as paid by the state for each prio r authorization decision that was made. It is
believed that Xerox employed unlicensed " specialists," rather than licensed Texas dentists, as a
pro fit generating measure.
18. From January 2005 through February 2012, lntervenor subm itted prior author ization
requests, as required, to Xerox for a determ ination of medical necessity. Unbeknownst to
Intervenor, Xerox ' s dental specialists-not the dental d irector-approved almost all of
Intervenor's requests. Xerox's prior authorization approvals were promises that:
3
Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth
and mouth. Section 256.00 I states that a person may not practice dentistry without a license. Thus, state law requires
that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section
264.15 1 prescribes penalties for certain violations of the Dental Practice Act.
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a) the requested orthodontic services were med ically necessary, and/or
b) the approval had been issued by a licensed dentist, and/or
c) the approval was an actual and legitimate dental diagnosis, and/or
d) the requested orthodontic services were allowable under Texas law and as permitted
by Medicaid pol icy, the TMPPM, and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or
f) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervening disqualification (such as the patient's ineligibility).
19. Because Xerox was charged with determining medical necessity, and because prior
authorization approval was a mandatory prerequisite to furnishi ng services, the promises were
material. lntervenors expected performance of these promises. lntervenors relied on Xerox.
Further, Xerox promised that its subsequent payments to lntervenors (after the services had
actually been delivered) were made because the services had been, in fact, properly approved as
medically necessary. Each prior authorization approval represents a separate violation of the law
!f Xerox's approval was issued illegally and/or in violation of its contractual obligations.
Xerox actively concealed its potentially illegal activity.
20. Xerox withheld the truth regarding its prior authorization program. In an attempt to
publicly appear consistent with NHIC's prior authorization process, Xerox continued to require
that dental providers (such as lntervenor) submit all supporting documentation for each HLD
score sheet. It is now believed that, incredibly, Xerox did nothing with that documentation, other
than assure that it had been submitted by the provider. lt is believed that Xerox' s specialists were
instructed to forward to its dental director only those requests that had scored below the
th reshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some
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provider justification attached. As a result, only J 0% of the orthodontic prior authorization
requests were actually fotwarded to Xerox's one licensed dentist. Xerox's actions were
ca lculated to make Xerox appear comp liant with its contract and HHSC policies, while Xerox
knew that its actions were entirely inconsistent with the letter and spirit of its obligations.
Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving
services without detennining their medical necessity, but Xerox's deception also exacerbated the
problem by failing to give providers guidance regarding the proper standard for medical
necessity, thus causing these providers substantial damages.
21. For the past ten years, Xerox has continued to publicly represent to the world that it was
fulfi lling its contractual and legal responsibil ities. Based on Xerox's representations that it was
fu lfilli ng its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004
through the present. Each year that Xerox had its contract renewed, it represented that it would
fu lfill its contractual obligations and abide by Texas law requiring that decisions about medical
necessity be rendered only by licensed dentists. Xerox made those representations knowing that
it had not done so in the past, and had no intention of changing its procedures to do so in the
future.
The Frew decision magnifies Xerox's acts.
22. Jn September 2007, after fifteen years of litigation on the subject, Texas was ordered to
implement a corrective action plan that increased the Medicaid reimbursement rates to all dental
providers . That plan was required pursuant to the Frew case4, which was a 1993 class-action
•Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert , 300 F.3d 530 (5th Cir.
2002) rev'd sub nom. Frew ex rel Frew v. Hawkins, 540 U.S. 431 , 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and
afj'd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F .3d 444 (5th Cir. 2004); Frew v. Hawkins,
401 F. Supp. 2d 619 (E.D. Tex. 2005) affd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v.
Frew, 549 U.S. 1118, 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007).
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lawsuit against the .HHSC alleging that Texas' Medicaid reimbursement rates were so low that
they prevented indigent children from receiving timely, comprehensive health care.
23. In response to Frew's corrective action plan, the 2007 Texas Legislature allocated $707
million ($1.8 billion in state and federal funds combined) to increase medical and dental
reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists
to become Medicaid providers. It worked. The state raised payment rates for dental services, and,
as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to
63.4% in 2010. As expected indeed, as intended spending on Texas's dental services increased
dramatically.
24. Although the number of prior approval requests increased by 240% between 2007 and
201 O, Xerox continued to employ only one dentist. That dentist was neither tasked with nor
responsible for supervising the clerical specialists that were issuing the approvals.
25. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox
was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper
for the approval and payment of orthodontic services. Although the Texas Legislature had
increased fund ing to attract dentists into the Medicaid program, all of the budgeted fonds were
required to be spent only on medically necessary services.
The Office of lnspector General seeks recovery from Medicaid providers.
26. In early 2011, a series of news stories began highlighting the large amount of money
being spent on orthodontics in Texas. In July 2011, the Federal government notified Texas of its
intent to audit whether Texas' prior authorization process was ensuring that only medically
necessary orthodontic cases were being approved and paid. With the prospect of a federal
clawback action looming against Texas because of Xerox's prior authorization failures, the
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Texas Office of Jnspector General (hereinafter "State") took a drastic step. Beginning in 2011,
the State generated a list of the top Medicaid orthodontic billers and placed them on " payment
hold." Intervenor was one of those providers.
27. Given Intervenors' proximity to some of the state's poorest children, and the mandates of
the Frew decision, lntervenor served a large Medicaid patient population. Because it served a
large Medicaid population, it submitted a large number of prior authorization requests to Xerox
from 2004 through 201 l.
28. lntervenors did not know that Xerox was faili ng to perform a true and accurate review for
medical necessity. Intervenors relied on Xerox 's prior authorization approvals to confirm that
dentists' analysis was proper and consistent with Medicaid standards and requirements.
29. Again unbeknownst to lntervenors, State audits in 2008 and 2012 concluded that most, if
not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater
(indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State
audits made the Federal government' s pend ing aud it especially dangerous to Texas, because the
2008 and 2012 audits were admissions that Xerox had been approving and paying claims that
may not have met the federal standards for prio r authorization. T hus the State, through the
Attorney General, concluded that a true finding of medical necessity had in reality not occurred.
T he Attorney General claimed that billing for services that are not necessary is fraud, despite
Xerox's prior authorization approvals.
30. It is now believed that rather than prosecute Xerox for its fai lure to properly evaluate
dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox.
This protection included the State failing to allow T MHP to hire additional medically licensed
staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the
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Attorney General took immediate action against the providers, the Attorney General refused to
hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its
violation of State law. Instead, the Attorney General made fraud allegations against each of the
top 25 dental providers, includ ing Intervenor, which has caused more injury and damages to
lntervenors. Stated differently, Xerox issued its approvals through a process that gutted the
State's belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the
providers instead of Xerox.
31. Because the acts/omissions of Xerox so undermined the process, the State
eventuallyinstituted a "payment hold" against Intervenor. A payment hold temporarily freezes
future Medicaid payments to a provider, despite the provider's ongoing participation in the
Medicaid program. The payment hold against Intervenor was issued pursuant to what the State
called a "credible allegation of fraud" regarding Intervenor's orthodontic prior authorization
requests. The State placed a 100% payment hold against Intervenor's orthodontic billings.
32. At the time the Attorney General began prosecuting Intervenor and similarly situated
Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to
authorize orthodontic services and payments. The Attorney General knew that the State's audits
of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State,
violating its own State-approved policies and procedures, and violating State law. Nevertheless,
the Attorney General continued to only prosecute dental providers like the lntervenor; the
Attorney General refused to hold Xerox responsible. In fact, in one shameless and brazen
demonstration of State's unwavering protection of Xerox, the Deputy Director of Texas' Office
of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious
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they were outside the course and scope of Xerox's agency with State.5 Upon information and
belief, the State and the Attorney General protected Xerox. for over 6 years fearing that revealing
the State's cuJpability would subject the State to a federal clawback for hundreds of millions of
dollars. [nstead, the State and the Attorney General pointed at the dental providers.
33. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for
over 6 years, became too much to bide. Three months after some providers filed suit against
Xerox, and following a series of news stories questioning why Xerox had not suffered for its
failures, the Attorney General reversed course. On May 9, 20 14, the State, through the Texas
Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed
approximately I00 days earlier by similarly situated providers. The State's claims in this fraud
lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were
improper.
34. As a result of the payment hold, Intervenor was required to make significant financial
concessions and changes to its business. Intervenor also engaged legal counsel to defend itself
from the State's cla ims, at a s ignificant expense that continues today.
35. The State's allegations against intervenor are rooted in two assumptions. First, the State
assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is,
Xerox approved Intervenor's requests without knowing whether approval was actually proper.
Because Xerox. is not a party to Intervenor's administrative case, rntervenor is prevented from
determining whether Xerox did, in fact, perform a proper review of In tervenor's prior
authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question,
s Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a
dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the
State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it
was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox.
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and finally detennine whether Xerox reviewed Intervenor's requests as required by its contract
.
and the law.
36. Regarding the State's second assumption, the State alleges some of rntervenor's requests
were approved when, in fact, they should have been denied. Intervenor denied that assertion in
the administrative case, and Intervenor continues to deny that claim here. All services provided
to Intervenor's patients were actually m edically necessary, regardless of what Xerox decided and
in any event under Medicaid guidelines once the authorization was approved, Intervenor was
required to provide the services.
37. The State continues to aggressively fight any allegation or affirmative defense that could
result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's
contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action
A. Intervenors ' Claims Against Xerox
Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement)
38. Intervenor re-a lleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's prior authorization approvals were fa lse representations made to Intervenor. It is
believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew
that it was approving requests without a proper medical review, and/or because it approved the
prior authorization requests without any knowledge of their truth. It is believed Xerox intended
for Intervenor to rely on the approvals as a prerequisite for providing the requested services.
Approval was material because it was a mandatory prerequisite for payment. Intervenor actuaJly
and justi fiably relied on Xerox's fraudulent approvals.
39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in
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the same or similar manner, and led Intervenor to believe that their requests were consistent with
Medicaid standards and requirements.
40. Xerox's fraudulent approvals caused injury to Intervenor. As a result of Xerox's actions,
Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor
was placed on payment hold, Intervenor is forced to defend itself in an administrative payment
hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including
claims for treble damages and attorney fees). Intervenor's reputation and business have suffered
severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs,
and attorney fees.
Breach of the Xerox-State of Texas Contract
4 l. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State
for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper,
thorough and legal review of prior authorization requests for the purpose of determining medical
necessity. To that end, Xerox should have employed a licensed dentist.
42. Xerox was an agent of the State of Texas engaged specifically for the purpose of
determining medical necessity. The third party beneficiaries of that Xerox-State of Texas
contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic
services that were medically necessary. Intervenor was responsible for actually delivering the
orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third
party beneficiary that relied on Xerox's approvals.
43. Xerox breached its contract by, inter a/ia, failing to provide qualified statl; possibly
violating Texas law; permitting non-dentists to make determinations of medical necessity; and
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issuing medical opinions without conducting a reasonable and prudent examination of evidence.
The breaches were material, and recurred across many different Medicaid patients and for many
years.
44. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor' s injuries. Xerox's actions were foreseeable in that a person of ordinary
intelligence should have anticipated that issuing a decision without actually reviewing or
considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and
reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy,
it was foreseeab le that the State would demand repayment, and/or would require Intervenor to
independently do Xerox's j ob after the fact by proving that payment was proper because the
services were medically necessary and reimbursable under Texas Medicaid law.
45. Intervenor suffered and continues to suffer sign ificant damage. Intervenor seeks damages
that would have given the lntervenors the benefit of the bargain by putting them in as good a
position as they would have been in if the contract had been performed. Intervenor seeks
reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's
contract with the stale and the approvals that Xerox made under that contract. Intervenor also
seeks damages for its restitution interest to restore money sought by the Office of the Inspector
General from Intervenor. Such damages would put the lntervenors in as good a position as it
would have been in if the contract had been properly fulfilled. [n addition, intervenor seeks
liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal
Plea in Intervention
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counsel to defend itself from the State's charges, and those legal expenses continue today.
Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost
future profits, loss of credit, and loss of goodwill. Intervenor seeks recovt::ry of actual and
exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel)
46. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute promissory estoppel.
47. Xerox's prior authorizations constitute promises to Intervenor in numerous ways.
Because prior authorization was a prerequisite to furnishing services, and because Xerox was the
entity charged with discharging prior authorization duties, Intervenor reasonably, substant ially,
and foreseeably relied on Xerox's promises.
48. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel lo defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact-namely, demonstrate that the services were medically necessary and
properly reimbursable under Texas Medica id law. Intervenor has incurred benefit of the bargain
damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of
goodwill. All of these damages were directly and/or proximately caused by Xerox's promises.
Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney
fees.
Negligent Hiring/Negligent Supervision
49. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
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herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was
required to render medical diagnoses. To that end, Xerox was required by law to employ a
licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by
law to properly supervise its employees to make sure diagnoses were made only by licensed
dentists.
50. Xerox knew or should have known that decisions regarding medical necessity can only
be rendered by licensed personnel. Texas Occupations Code section 251.003 defines the practice
of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a
person may not practice dentistry without a license; section 264.151 makes it a third-degree
felony to practice dentistry without a license.
51. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact by proving that payment
was proper because those services were medically necessary and were reimbursable under Texas
Medicaid law.
52. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing the cost of services for each Medicaid patient that Xerox
approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and
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those legal expenses continue today. Intervenor suffered and continues to suffer significant
damage to its reputation, business, referral base, earnings and earning power. Intervenor has
suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant
mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages
because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct
should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligence
53. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render
medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a
diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel
had appropriate education, training and experience to render such a finding. Xerox had a duty to
review the supporting prior authorization documentation (such as x-rays and photos) to
detennine whether the requested services were medically necessary.
54. Xerox's actions breached the standard of care because Xerox: failed to provide prior
authorization staff that were properly licensed, qualified and experienced dental professionals;
violated the law, specifically the Dental Practice Act, by permitting non-dentists to make
determinations of medical necessity, and; issued medical opinions (prior authorizations) without
conducting a reasonable and prudent examination of evidence.
55. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, lntervenor relied entirely on
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Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact.
56. Intervenor suffered and continues to suffer significant damage to its reputation, business,
referral base, earnings and earning power. Intervenor has engaged legal counsel to defond itself
from the State's charges, and those legal expenses continue today. Dr. Salinas has suffered
inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and
personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because
Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be
penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary
damages, interest, court costs, and attorney fees.
Negligent Misrepresentation
57. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent misrepresentation. Xerox's actions constitute
misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization
approval was a prerequisite to furnishing services, these representations guided and controlled
Intervenor' s responses. Intervenor justifiably relied on these representations. Further, Xerox
represented that its prior authorization approvals were dispositive of medical necessity;
Intervenor expected that, once approved, no further inquiry into the medical necessity of the
services would be required. Further, Xerox represented that its subsequent payments to
Intervenor (after the services had actually been delivered) were made because services had been,
Plea in Intervention
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in fact, properly approved as medically necessary.
58. Xerox did not exercise reasonable care or competence in making its determinations and
representations. Xerox knew or should have known that its representations were false.
59. Because prior authorization was a prerequisite to furnishing services, and because Xerox
was the entity charged with discharging prior authorization duties, Intervenor reasonably,
substantially, foreseeably, and justifiably relied on Xerox's representations.
60. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approve-el. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket
damages, lost profits, loss of credit, and loss of goodwill. All of these damages were directly
and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of
actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property
61. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary
property which would entitle lntervenors to unlimited punitive damages.
B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity
62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. For a number of reasons, the State has waived sovereign immunity for claims by
Intervenor, including the facts that the State brought, threatened and/or has taken civil and/or
Plea in Intervention
Page 20 of25
administrative action against Intervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise
63. Inteivenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that
acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's
agency relationship with the State. Assuming same to be true, then the State conspired with
Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from
Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime.
64. The State conspired with Xerox to allow Xerox to violate its various contractual duties.
The State permitted Xerox to process as many prior authorizations as possible without the
required clinical dental review and without using medically knowledgeable personnel. The State
conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox
created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations
submitted by the dentists. The conspiracy was committed with the intent to shift blame from the
State and its agent, improperly blame the lntervenors, and enrich the State and Xerox. By
recouping money from providers that were not actually to blame, the State and Xerox hoped to
limit their own liability in the event of a Federal clawback action, and/or respond to unflattering
news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the
party to blame the dentist providers for their own improper acts and omissions is a proximate
cause of the injury to Intervenors.
Not Liable for Illegal Acts of Third Party
65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. As alleged by the State in Section Vlll paragraph 46 of the State's petition, Xerox has
Plea in Intervention
Page 21 of25
committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide
proper prior authorization review in rubber stamping the doctors prior authorization requests is
not the fault of the doctors. The doctors are not responsible for or liable to the State for the
illegal acts of a third party for which the doctors had no control; the State should not withhold
money from the Intervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract
66. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. lntervenors are a direct or third party beneficiary of the contract with Xerox and the State
of Texas. The State of Texas has breached terms o f the contract by failing to supervise Xerox
and/or reviewing the work product of Xerox. This breach by State, which allowed non-
performance by Xerox, has created the pretext by which the State affirmatively sued lntervenors
for repayment. To the extent that the State has withheld money and/or made claims for damages
against Lntervenors based on the contracts in question, the State has waived immunity and is
liable up to those amounts plead.
Conversion
67. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. State and Federal law required lntervenor to request prior authorization for orthodontic
services. Those prior authorization requests were approved by Xerox, which required Intervenors
to provide the services. The State has unilaterally made a decision to that, based on the acts and
omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor
on a payment hold. To the extent that Intervenor has provided services for which Intervenor
shou ld be paid, and money whlch has been eannarked by the State for that payment but withheld,
the State has converted the funds. In addition, the States' acts/omissions are a violation of the
Plea in Intervention
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Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under
the pretext of a payment hold.
VI. Damages
68. Intervenors have suffered and are entitled to recover damages including, but not limited
to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to
business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees
and expenses, interest, punitive/exemplary damages, and attorney fees.
VU. Conclusion
69. Xerox's actions have hanned Intervenor because Xerox committed fraud , negligent
hiring, negligence, and gross negligence. Xerox's actions have subjected fntervenor to
unnecessary civil and administrative legal action, and that, in tum has caused additional injury.
Xerox's actions have required Intervenor to perform Xerox's job after-the-fact, by proving to the
State that the orthodontic services rendered were medically necessary and appropriate for
reimbursement. The State's actions have banned Intervenor because the state's conspiracy to
improperly blame the dentists has resulted in meritless legal claims against the lntervenors and
conversion of the Intervenor's property.
VIIl. Jury Demand
70. Intervenors respectfully requests a trial by jury.
IX. Request for Disclosure
71. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State
disclose, within 50 days of the service of this request, the information or material described in
Rule 194.2.
Plea in Intervention
Page 23 of25
72. Wherefore, premises considered, Intervenors RGV Smiles by Rocky L. Salinas, DDS, PA
and Dr. Rocky Salinas pray that upon final hearing of the cause, judgment be entered jointly and
severally against the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for
damages, together with pre-judgment and post judgment interest at the legal rate, costs of court,
and other such relief to which the lntervenors may be entitled.
Respectfully .submitted,
J son Ray
Texas Bar No. 240
RIGGS, ALESlilRE & RAY, P.C.
700 Lavaca, Suite 920
Austin, Texas 78701
(512) 457-9806 (Telephone)
(512) 457-9866 (Fax)
jray@r-alaw.com
/s/ Hart Green w/ permission by J Ray
E. Hart Green
Texas Bar No. 08349290
Mitchell A. Toups
Texas Bar No. 20151600
WELLER, GREEN, TOUPS & TERRELL, L.L.P.
Post Office Box 350
Beaumont, Texas 77704-0350
(409) 838-0101 (Telephone)
(409) 832-8577 (Fax)
hartgr@wgttlaw.com
matoups@wgttlaw.com
ATTORNEYSFORINTERVENORS
RGV SMILES BY ROCKY L. SALINAS, DDS,
PA AND DR. ROCKY SALINAS
Plea in Intervention
Page 24 of25
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing Plea in Intervention was
served via e-mail and certified mail, return receipt requested on this l Sth day of May, 2014 on
the following:
Eric J.R. Nichols
Beck Redden
515 Congress A venue, Suite 1750
Austin, Texas, 7870 l
EN ICHOLS@beckredden.com
Attorney for Xerox Defendants
Raymond Winter
Chief, Civil Medicaid Fraud Division
Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 787 11-2548
raymond. winter@texasattorneygeneral.gov
Attorney for the Plaintiff State of Texas
Plea in Intervention
Page 25 of25
CAUSE NO. D-1-GV-14-000581
WESTMORELAND DENTAL, PA, § IN THE DISTRICT COURT
WESTMORELAND DENTAL OF GARLAND, §
PC, WESTMORELAND DENTAL AND §
ORTHODONTICS, PA, AND SCOTTIE H. §
NGUYEN, DDS §
lNTERVENORS, §
§
vs. §
§
THE STATE OF TEXAS, §
PLAINTIFF, §
§ 53•d JUDICIAL DISTRICT
vs. §
§
XEROX CORPORATION; XEROX §
STATE HEALTHCARE, LLC; ACS §
STATE HEALTHCARE, LLC, A XEROX §
CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TEXAS
PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, Westmoreland Dental, PA, Westmoreland Dental of Garland, PC,
Westmoreland Dental and Orthodontics, PA, and Scottie H. Nguyen, DDS, hereinafter
Intervenors, and file this Plea in Intervention, and in support hereof, would respectfully show the
Court the fo llowing:
I. Parties and Service
l. Plai ntiff, State of Texas, has appeared in this action and may be served with a notice of
this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0 .
Box 12548, Austin, Texas 78711-2548.
2. Defendant Xerox Corporation is a corporatio n organized under the laws of New York has
agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State
Plea in Intervention
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Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS
State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation
organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave.,
Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit.
Defendant Xerox Corporation acquired Defendant ACS in 2010. On information and belief,
ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012.
Defendants are referred to hereinafter as "Xerox Defendants."
3. Westmoreland Dental, PA, Westmoreland Dental of Garland, PC, Westmoreland Dental
and Orthodontics, PA (hereinafter Westmoreland) are approved Medicaid providers, and can be
served through the undersigned counsel.
4. Dr. Scottie H. Nguyen 1 is a licensed Texas dentist, approved Medicaid provider, and the
owner of Westmoreland. Dr Nguyen can be served through his undersigned counsel.
II. Jurisdiction and Venue
5. This Court has subject-matter jurisdiction in that the amounts sought by Intervenors from
all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this
court. Intervenors affirmatively plead that this suit is not governed by the expedited-actions
process in TEXAS RULE OF CIVIL PROCEDU RE 169 because intervenors seek monetary relief over
$100,000.
6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenors' claims;
b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in this petition
1
For the sake of simplicil:y, the lntervenors will be collectively referred to as "Westmoreland" unless expressly
noted.
Plea in Intervention
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in whole or part in Texas.
7. Venue is proper in Travis County under TRCP §15.020 because this suit involves a
"major transaction"; Venue is permissive under TRCP § 15.035(a) because Intervenor asserts
claims for breach of contract. Venue is proper pursuant to TRCP §15.02 because all or a
substantial part of the events or omissions giving rise to the claim occurred in Travis County.
Many of the unlawful acts committed by the State and Xerox Defendants were committed in
Travis County, including the making of false statements and misrepresentations of material fact.
III. lntervenors' Interest in the Suit
8. Intervenors Westmoreland Dental, PA, Westmoreland Dental of Garland, PC,
Westmoreland Dental and Orthodontics, PA, and Scottie H. Nguyen, DDS have a judicial
interest in the matters and controversy in this litigation. The relationship between Intervenors,
the State as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that,
in the interest of jud icial economy and justice, all claims be bound and subsumed into one cause
of action. Upon information and belief, Intervenors were initially sued by the State in a qui tam
action wherein the State alleged that Intervenors defrauded the State. The State has elected to
pursue its remedies against the lntervenors in an administrative hearing. Now, the State has sued
Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the
State. lntervenors have claims against both the State and Xerox. It is assumed that Xerox will
have claims against the State, and perhaps allege claims against the Intervenors. All of the
different parties' claims are inextricably intertwined, as they relate to Intervenors' submission of
prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the
State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and
legal duties, and State's subsequent legal action against the Intervenors for services approved by
Plea in Intervention
Page 3 of25
Xerox.
IV. Facts
What is Prior Authorization?
9. Texas Medicaid requires that orthodontic services be independently and objectively
scrutinized before the State consents to treatment and payment. Prior authorization is the
mechanism the State uses to detennine the medical necessity of non-emergency orthodontic
items/serv ices prior to delivery of those items/serv ices. Pursuant to Texas Health and Human
Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it w ill
pay for orthodontic services:
Orthodontic services for cosmetic reasons only are not a covered Medicaid
service. Orthodontic services must be prior authorized and are limited to
treabnent of severe handicapping malocclusion and other related conditions as
described and measured by the procedures and standards published in the
[TMPPM2].
25 TEX. ADMJN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance
to the orthodontic provider that, absent an intervening disqualify ing factor, the delivery of the
requested orthodontic service has been deemed by Xerox to be medically necessary, and
therefore approved by the State.
10. The prior authorization process is straightforward. Texas Medicaid requires that a dental
provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's
orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his
professional opinion of the patient on a Handicapping Labia-lingual Deviation index (HLD)
score sheet. Xerox knew providers relied entirely on the prior authorization process because
approval was a mandatory prerequisite to providing orthodontic services and being paid. Once
2
"TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides
valuable guidance to Medicaid providers.
Plea in Intervention
Page 4 of25
Xerox issued its prior authorization decision, the decision was not appealable by the provider.
11. The HLD scoring system combines a number of treatable orthodontic conditions into an
index. HLD score sheets use a mix of objective and subjective conditions to determine whether a
Medicaid patient qualifies for orthodontic services. The fact that the HLD score sheet requires
both objective and subjective findings highlights the importance of Xerox perfonning a thorough
prior authorization review.
The History of Orthodontic Prior Authorization.
12. The process for reviewing and approving orthodontic prior authorization requests pre-
dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage
1nsurance Corporation (NHIC) was responsible for reviewing prior authorization requests before
Xerox assumed the contract in January 2004. Starting January l, 2004, Xerox acted as an
independent contractor, and was a contracted agent of the State, under the contract with HHSC.
Xerox was responsible for reviewing each orthodontic service request, and Xerox was further
charged with the responsibility to grant or deny each prior authorization request per the program
requirements. The result was that Xerox had the final say in determining the medical necessity of
each request for orthodontic services.
13. Prior to assuming the NHIC contract, and for a period ohime after assuming the contract
from NHIC, Xerox received training from NHIC personnel regarding the proper method for
receiving and processing orthodontic prior authorization requests. NHIC personnel explained
how and why the review of each prior authorization submission was important, and walked
Xerox through the process. Despite its training from NHIC, Xerox had no intention of following
the prior authorization system that had been in place for years, nor did Xerox intend to otherwise
meet the prior authorization requirements set out in its contract, the TMPPM and required by
Plea in Intervention
Page 5 of25
state law.
Xerox rejects its contractual responsibilities.
14. When Xerox took over the contract in 2004, it immediately abandoned the prior
authorization review process that had been setup by NHIC. Xerox never intended to fulfill its
orthodontic prior authorization responsibilities to HHSC. From 2004 to 20 LI, Xerox continually
misrepresented that it was acting in compliance with its contractual duties.
15. It is now known that Xerox failed to adequately staff their prior authorization division
with knowledgeable medical professionals. Xerox employed only one licensed dentist fro m 2004
through 2011, which was far short of the manpower necessary to handle the review of tens of
thousands of orthodontic prior authorization requests every year. Xerox could not reasonably
have expected to handle such a workload by employing only one dentist.
Xerox ootentially commits thousands of violations.
16. It is believed Xerox allowed "dental specialists"-unliccnsed, unqualified individuals-
to render prior authorization opinions regarding the medical necessity of requested orthodontic
services. The " dental specialist" approvals were not reviewed or ratified by Xerox's licensed
dental director or another qualified dental professional. These actions not only violated Xerox's
contractual obligations, they may have also violated other Texas law such as the Dental Practice
Act. 3 lt is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior
authorization approvals/medical opinions in violation of Texas law.
17. Xerox was paid by the state for each prior autho rization decision that was made. It is
bel ieved that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a
3
Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth
and mouth. Section 256.001 states that a person may not practice dentistry without a license. Thus, state law requires
that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section
264. 151 prescribes penalties for certain violations of the Dental Practice Act.
Plea in Intervention
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profit generating measure.
18. From January 2005 through February 20 12, Intervenor submitted prior authorization
requests, as required, to Xerox for a determination of medical necessity. Unbeknownst to
intervenor, Xerox's dental specialists-not the dental director-approved almost all of
Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or
b) the approval had been issued by a licensed dentist, and/or
c) the approval was an actual and legitimate dental diagnosis, and/or
d) the requested orthodontic services were allowable under Texas law and as permitted
by Medicaid policy, the TMPPM, and HHSC rules, and/or
e) a proper, thorough and legal review hod been made, and/or
t) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervening disqualification (such as the patient's ineligibility).
19. Because Xerox. was charged with determining medical necessity, and because prior
authorization approval was a mandatory prerequisite to furnishing services, the promises were
material. lntervenors expected performance of these promises. Jntervenors relied on Xerox.
Further, Xerox promised that its subsequent payments to Intervenors (after the services bad
actually been delivered) were made because the services had been, in fact, properly approved as
medically necessary. Each prior authorization approval represents a separate violation of the law
if Xerox's approval was issued illegally and/or in violation of its contractual obligations.
Xerox actively concealed its potentially illegal activity.
20. Xerox withheld the truth regarding its prior authorization program. In an attempt to
publicly appear consistent with NHIC's prior authorization process, Xerox continued to require
Plea in Intervention
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that dental providers (such as I.ntervenor) submit all supporting documentation for each HLD
score sheet. It is now believed that, incredibly, Xerox did nothing with that documentation, other
than assure that it had been submitted by the provider. lt is believed that Xerox's specialists were
instructed to forward to its dental director only those requests that had scored below the
threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some
provider justification attached. As a result, only I 0% of the orthodontic prior authorization
requests were actually forwarded to Xerox's one licensed dentist. Xerox's actions were
calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox
knew that its actions were entirely inconsistent with tbe letter and spi rit of its obligations.
Effectively, then, Xerox 's actions not only damaged the Medicaid program directly by approving
services without determining their medical necessity, but Xerox's deception also exacerbated the
problem by failing to give providers guidance regarding the proper standard for medical
necessity, thus causing these providers substantial damages.
21. For the past ten years, Xerox bas continued to publicly represent to the world that it was
fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was
fulfilling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004
through the present. Each year that Xerox had its contract renewed, it represented that it would
fulfill its contractual obligations and abide by Texas law requiring that decisions about medical
necessity be rendered on ly by licensed dentists. Xerox made those representations knowing that
it had not done so in the past, and had no intention of changing its procedures to do so in the
future.
The Frew decision magnifies Xerox's acts.
22. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to
Plea in Intervention
Page 8 of2S
implement a corrective action plan that increased the Medicaid reimbursement rates to all dental
4
providers. That plan was required pursuant to the Frew case , which was a 1993 class-action
lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that
they prevented indigent children from receiving time ly, com prehensive health care.
23. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707
million ($1.8 billion in state and federal funds combined) to increase medical and dental
reimbursement rates. The increase in dental reimbursement rates was intended lo entice dentists
to become Medicaid providers. It worked. The state raised payment rates for dental services, and,
as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to
63 .4% in 20 I 0. As expected indeed, as intended spending on Texas's dental services increased
dramatically.
24. Although the number of prior approval requests increased by 240% between 2007 and
20 I0, Xerox continued to employ on ly one dentist. That dentist was neither tasked with nor
responsible for supervising the clerical specialists that were issuing the approvals.
25. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox
was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper
for the approval and payment of orthodontic services. Although the Texas Legislature had
increased funding lo attract dentists into the Med icaid program, all o f the budgeted funds were
required to be spent only on med ically necessary services.
The Office o f Inspector General seeks recovery from Med icaid providers.
4
Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir.
2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and
affd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins,
401 F. Supp. 2d 619 (E.D. Tex. 2005) afj'd sub nom. /•razor v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v.
Frew, 549 U.S. 1118, 127 S. a. l039, 166 L. Ed. 2d 714 (2007).
Plea in Intervention
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26. In early 2011, a series of news stories began highlighting the large amount of money
being spent on orthodontics in Texas. In July 201 l, the Federal government notified Texas of its
intent to audit whether Texas' prior authorization process was ensuring that only medically
necessary orthodontic cases were being approved and paid. With the prospect of a federal
clawback action looming against Texas because of Xerox's prior authorization failures, the
Texas Office of Inspector General (hereinafter "State") took a drastic step. Beginning in 2011,
the State generated a list of the top Medicaid orthodontic billers and placed them on " payment
hold." Intervenor was one of those providers.
27. Given Intervenors' proximity to some of the state's poorest children, and the mandates of
the Frew decision, lntervenor served a large Medicaid patient population. Because it served a
large Medicaid population, it submitted a large number of prior authorization requests to Xerox
from 2004 through 20 l l.
28. Intervenors did not know that Xerox was failing to perform a true and accurate review for
medical necessity. lntervenors relied on Xerox's prior authorization approvals to confirm that
dentists' analysis was proper and consistent with Medicaid standards and requirements.
29. Again unbeknownst to Intervenors, State audits in 2008 and 2012 concluded that most, if
not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater
(indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State
audits made the Federal government's pending audit especially dangerous to Texas, because the
2008 and 2012 audits were admissions that Xerox had been approving and paying claims that
may not have met the federal standards for prior authorization. Thus the State, through the
Attorney General, concluded that a true finding of medical necessity had in reality not occurred.
The Attorney General claimed that billing for services that are not necessary is fraud, despite
Plea in Intervention
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Xerox's prior authorization approvals.
30. It is now believed that rather than prosecute Xerox for its failure to properly evaluate
dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox.
This protection included the State failing to allow ™HP to hire additional medically licensed
staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the
Attorney General took immediate action against the providers, the Attorney General refused to
hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its
violation of State law. Instead, the Attorney General made fraud allegations against each of the
top 25 dental providers, including Intervenor, which has caused more injury and damages to
Intervenors. Stated differently, Xerox issued its approvals through a process that gutted the
State's belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the
providers instead of Xerox.
31. Because the acts/omissions of Xerox so undermined the process, the State
eventuallyinstituted a "payment hold" against intervenor. A payment hold temporarily freezes
future Medicaid payments to a provider, despite the provider's ongoing participation in the
Medicaid program. The payment hold against Intervenor was issued pursuant to what the State
called a "credible allegation of fraud" regard ing Intervenor's orthodontic prior authorization
requests. The State placed a 100% payment hold against Intervenor's orthodontic billings.
32. At the time the Attorney General began prosecuting Intervenor and similarly situated
Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to
authorize orthodontic services and payments. The Attorney General knew that the State's audits
of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State,
violating its own State-approved policies and procedures, and violating State law. Nevertheless,
Plea in Intervention
Page 11 of 25
the Attorney General continued to only prosecute dental providers like the Intervenor; the
Attorney General refused to hold Xerox responsible. In fact, in one shameless and brazen
demonstration of State's unwavering protection of Xerox, the Deputy Director of Texas' Ot1ice
of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious
they were outside the course and scope of Xerox's agency with State. 5 Upon infonnation and
belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing
the State's culpability would subject the State to a federal clawback for hundreds of millions of
dollars. Instead, the State and the Attorney General pointed at the dental providers.
33. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for
over 6 years, became too much to hide. Three months after some providers filed suit against
Xerox, and following a series of news stories questioning why Xerox had not suffered for its
failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas
Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed
approximately 100 days earlier by similarly situated providers. The State's claims in this fraud
lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were
improper.
34. As a result of the payment hold, Intervenor was required to make significant financial
concessions and changes to its business. Intervenor also engaged legal counsel to defend itself
from the State's claims, at a significant expense that cont inues today.
35. The State's allegations against Intervenor are rooted in two assumptions. First, the State
assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is,
5
Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a
dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the
State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it
was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox.
Plea in Intervention
Page 12 of25
Xerox approved Intervenor's requests without knowing whether approval was actually proper.
Because Xerox is not a party to Intervenor's admin istrative case, Intervenor is prevented from
determining whether Xerox did, in fact, perform a proper review of Intervenor's prior
authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question,
and finally determine whether Xerox reviewed Intervenor's requests as required by its contract
and the law.
36. Regarding the State's second assumption, the State alleges some of Intervenor's requests
were approved when, in fact, they should have been denied. Intervenor denied that assertion in
the administrative case, and Intervenor continues to deny that claim here. All services provided
to Intervenor' s patients were actually medically necessary, regardless of what Xerox decided and
in any event under Medicaid guidelines once the authorization was approved, Intervenor was
required to provide the services.
37. The State continues to aggressively fight any allegation or affinnative defense that could
result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's
contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action
A. Intervenors' Claims Against Xerox
Common Law Fraud (Fraudulent Misrepresentation and Fraudulent inducement)
38. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's prior authorization approvals were false representations made to Jntervenor. It is
believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew
that it was approving requests without a proper medical review, and/or because it approved the
prior authorization requests without any knowledge of their truth. It is believed Xerox intended
Plea in Intervention
Page 13 of25
for Intervenor to rely on the approvals as a prerequisite for providing the requested services.
Approva1 was material because it was a mandatory prerequisite for payment. Intervenor actually
and justifiably relied on Xerox's fraudulent approvals.
39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in
the same or similar manner, and led Intervenor to believe that their requests were consistent with
Medicaid standards and requirements.
40. Xerox's fraudulent approvals caused injury to Intervenor. As a result of Xerox's actions,
Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor
was placed on payment hold, Intervenor is forced to defend itself in an administrative payment
hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including
claims for treble damages and attorney fees). Intervenor's reputation and business have suffered
severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, cou1t costs,
and attorney fees.
Breach of the Xerox-State of Texas Contract
41. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State
for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper,
thorough and legal review of prior authorization requests for the purpose of determining medical
necessity. To that end, Xerox should have employed a licensed dentist.
42. Xerox was an agent of the State of Texas engaged specifically for the purpose of
determining medical necessity. The third party beneficiaries of that Xerox-State of Texas
contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic
services that were medically necessary. Intervenor was responsible for actually delivering the
Plea in Intervention
Page 14 of25
orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a thlrd
party beneficiary that relied on Xerox's approvals.
43. Xerox breached its contract by, inter a/ia, failing to provide qualified staff; possibly
violating Texas law; permitting non-dentists to make determinations of medical necessity; and
issuing medical opinions without conducting a reasonable and prudent examination of evidence.
The breaches were material, and recurred across many different Medicaid patients and for many
years.
44. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing serv ices, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary
intelligence should have anticipated that issuing a decision without actually reviewing or
considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and
reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy,
it was foreseeable that the State would demand repayment, and/or would require Intervenor to
independently do Xerox's job after the fact by proving thal payment was proper because the
services were medically necessary and reimbursable under Texas Medicaid law.
45. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages
that would have given the lntervenors the benefit of the bargain by putting them in as good a
position as they would have been in if the contract had been performed. Intervenor seeks
reliance interest damages to restore the expenditures lntervenor made in reliance on Xerox' s
contract with the state and the approvals that Xerox made under that contract. Intervenor also
Plea in Intervention
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seeks damages for its restitution interest to restore money sought by the Office of the Inspector
General from Intervenor. Such damages would put the Intervenors in as good a position as it
would have been in if the contract had been properly fu lfi lled. In addition, Intervenor seeks
liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal
counsel to defend itself from the State's charges, and those legal expenses continue today.
Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost
future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel)
46. Intervenor re-alleges and incorporates the above facts and a llegations as if fully set out
herein. In the alternative, Xerox's actions constitute promissory estoppel.
47. Xerox 's prior authorizations constitute prom ises to Intervenor m numerous ways.
Because prior authorization was a prerequisite to furnishing services, and because Xerox was tbe
entity charged with discharging prior authorization duties, Intervenor reasonably, substantially,
and foreseeably relied on Xerox's promises.
48. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Tntervenor has been required to do
Xerox's job after the fact-namely, demonstrate that the services were medicaUy necessary and
properly reimbursable under Texas Medicaid law. Intervenor has incun-ed benefit of the bargain
damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of
goodwill. All of these damages were directly and/or proximately caused by Xerox's promises.
Plea in Intervention
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Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney
fees.
Negligent Hiring/Negligent Supervision
49. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was
required to render medical diagnoses. To that end, Xerox was required by law to employ a
licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by
law to properly supervise its employees to make sure diagnoses were made only by licensed
dentists.
50. Xerox knew or should have known that decisions regarding medical necessity can only
be rendered by licensed personnel. Texas Occupations Code section 251 .003 defines the practice
of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a
person may not practice dentistry without a license; section 264.151 makes it a third-degree
felony to practice dentistry without a license.
51. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelJigence should have anticipated that paying Intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact by proving that payment
was proper because those services were medically necessary and were reimbursable under Texas
Plea in Intervention
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Medica id law.
52. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing the cost of services for each Medicaid patient that Xerox
approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and
those legal expenses continue today. Intervenor suffered and continues to suffer significant
damage to its reputation, business, referral base, earnings and earning power. Intervenor has
suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant
mental and personal capital to doing Xerox's job. intervenor has suffered exemplary damages
because Xerox's conduct was grossly negligent, outrageous and malic ious, and such conduct
should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligence
53. Intervenor re-alleges and incorporates the above facts and allegations as if fu lly set out
herein. Xerox 's actions constitute negligence and gross negl igence. Xerox was required to render
medical diagnoses. To that end, Xerox bad a duty to employ a licensed dentist to render a
diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel
had appropriate education, training and experience to render such a finding. Xerox had a duty to
review the supporting prior authorization documentation (such as x-rays and photos) to
determine whether the requested services were medically necessary.
54. Xerox's actions breached the standard of care because Xerox: failed to provide prior
authorization staff that were properly licensed, qualified and experienced dental professionals;
violated the law, specifically the Dental Practice Act, by permitting non-dentists to make
determinations of medical necessity, and; issued medical opinions (prior authorizations) without
Plea in Intervention
Page 18 of25
conducting a reasonable and prudent examination of evidence.
55. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Tntervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying In tervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact.
56. Intervenor suffered and continues to suffer s ignificant damage to its reputation, business,
referral base, earnings and earning power. [ntervenor has engaged legal counsel to defend itself
from the State's charges, and those legal expenses continue today. Dr. Nguyen bas suffered
inconvenience and loss of enjoyment of life in that he has had to dedicate s ignificant mental and
personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because
Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be
penalized so that it is deterred in the future. [ntervenor seeks recovery of actual and exemplary
damages, inlerest, court costs, and attorney fees.
Negligent Misrepresentation
57. lntervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligent misrepresentation. Xerox's actions constitute
misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization
approval was a prerequisite to furnishing services, these representations guided and controlled
lntervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox
Plea in Intervention
Page 19of25
represented that its prior authorization approvals were dispositive of medical necessity;
Intervenor expected that, once approved, no further inquiry into the medical necessity of the
services would be required. Further, Xerox represented that its subsequent payments to
Intervenor (after the services had actually been del ivered) were made because services bad been,
in fact, properly approved as medically necessary.
58. Xerox did not exercise reasonable care or competence in making its determinations and
representations. Xerox knew or should have known that its representations were false.
59. Because prior authorization was a prerequisite to furnish ing services, and because Xerox
was the entity charged with djscharging prior authorization duties, Intervenor reasonably,
substantially, foreseeably, and justifiably relied on Xerox' s representations.
60. Intervenor suffered and continues to suffer significant damage. Intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact. Intervenor bas incurred benefit of the bargain damages, out-of-pocket
damages, lost profits, loss of credit, and loss of goodwi ll. All of these damages were directly
and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of
actual and exem plary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property
61. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
here in. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary
property which would entitle lntervenors to unlimited punitive damages.
B. lntervenors' Claims Against The State of Texas
Plea in lntervention
Page 20 of25
Waiver of Sovereign Immunity
62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. For a number of reasons, the State has waived sovereign immunity for claims by
lntervenor, including the facts that the State brought, threatened and/or has taken civil and/or
administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise
63. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that
acts and om issions of Xerox were so egregious as to be outside the course of scope of Xerox's
agency relationship with the State. Assuming same to be true, then the State conspired with
Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from
Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime.
64. The State conspired with Xerox to allow Xerox to violate its various contractual duties.
The State permitted Xerox to process as many prior authorizations as possible without the
required clinical dental review and without using medically knowledgeable personnel. The State
conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox
created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations
submitted by the dentists . The conspiracy was committed with the intent to shift blame from the
State and its agent, improperly blame the Intervenors, and enrich the State and Xerox. By
recouping money from providers that were not actually to blame, the State and Xerox hoped to
limit their own liability in the event of a Federal clawback action, and/or respond to unflattering
news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the
party to blame the dentist providers for their own improper acts and omissions is a proximate
Plea in Intervention
Page21 of25
cause of the injury to lntervenors.
Not Liable for Illegal Acts of Third Party
65. [ntervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. As alleged by the State in Section VUI paragraph 46 of the State's petition, Xerox has
committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide
proper prior authorization review in rubber stamping the doctors prior authorization requests is
not the fau lt of the doctors. The doctors are not responsible for or liable to the State for the
illegal acts of a third party for which the doctors had no control; the State should not withhold
money from the Intervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract
66. Intervenor rc-aJJeges and incorporates the above facts and allegations as if fully set out
herein. lntervenors are a direct or third party beneficiary of the contract with Xerox and the State
of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox
and/or reviewing the work product of Xerox. This breach by State, which allowed non-
performance by Xerox, bas created the pretext by which the State affirmatively sued lntervenors
for repayment. To the extent that the State has withheld money and/or made claims for damages
against Intervenors based on the contracts in question, the State has waived immunity and is
I iable up to those amounts plead.
Conversion
67. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. State and Federal law required Intervenor to request prior authorization for orthodontic
services. Those prior authorization requests were approved by Xerox, which required Intervenors
to provide the services. The State has unilaterally made a decision to that, based on the acts and
Plea in Intervention
Page 22 of25
omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor
on a payment hold. To the extent that Intervenor has provided services for which Intervenor
should be paid, and money which has been earmarked by the State for that payment but withheld,
the State has converted the funds. In addition, the States' acts/omissions are a violation of the
Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under
the pretext of a payment hold.
VI. Damages
68. lntervenors have suffered and are entitled to recover damages including, but not limited
to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to
business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees
and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion
69. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent
hiring, negligence, and gross negligence. Xerox's actions have subjected Intervenor to
unnecessary civil and administrative legal action, and that, in tum has caused additional injury.
Xerox's actions have required Intervenor to perform Xerox's job after-the-fact, by proving to the
State that the orthodontic services rendered were medically necessary and appropriate for
reimbursement. The State's actions have harmed Intervenor because the state's conspiracy to
improperly blame the dentists has resulted in meritless legal claims against the lntervenors and
conversion of the Intervenor's property.
VIII. Jury Demand
70. Intervenors respectfully requests a trial by jury.
IX. Request for Disclosure
Plea in Intervention
Page 23 of25
71. Under Texas Rule of Civil Procedure 194, Intervenors request that Plaintiff the State
disclose, within 50 days of the service of this request, the infonnation or material described in
Rule 194.2.
72. Wherefore, premises considered, Intervenors Westmoreland Dental, PA, Westmoreland
Dental of Garland, PC, Westmoreland Dental and Orthodontics, PA, and Scottie H. Nguyen,
DDS pray that upon final hearing of the cause, judgment be entered jointly and severally against
the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for damages,
together with pre-judgment and post judgment interest at the legal rate, costs of court, and other
such reliefto which the Tntervenors may be entitled.
Respectfully .submitted,
J son Ray
Texas Bar No. 240 05
RIGGS, ALESHIRE & RAY, P.C.
700 Lavaca, Suite 920
Austin, Texas 78701
(512) 457-9806 (Telephone)
(512) 457-9866 (Fax)
jray@r-alaw.com
/s/ Hart Green w/ pennission by J Ray
E. Hart Green
Texas Bar No. 08349290
Mitchell A. Toups
Texas Bar No. 20151600
WELLER, GREEN, TOUPS & TERRELL, L.L.P.
Post Office Box 350
Beaumont, Texas 77704-0350
(409) 838-0 I 0 I (Telephone)
(409) 832-8577 (Fax)
hartgr@wgttlaw.com
matoups@wgttlaw.com
Plea in Intervention
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ATTORNEYS FOR INTERVENORS,
WESTMORELAND DENTAL PA,
WESTMORELAND DENTAL OF GARLAND,
PC, WESTMORELAND DENTAL AND
ORTHODONTICS, PA, AND SCOTTIE H.
NGUYEN, DDS
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing Plea in Intervention was
served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on
the fo llowing:
Eric J.R. Nichols
Beck Redden
515 Congress Avenue, Suite 1750
Austin, Texas, 7870 I
EN IC HOLS@beckredden.com
Attorney for Xerox Defendants
Raymond Winter
Chief, C ivil Medicaid Fraud Division
Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 787 11-2548
raymond. winter@texasattomeygeneral.gov
Attorney for the Plaintiff State of Texas
Plea in Intervention
Page 25 of25
CAUSE NO. D-t-GV-14-000581
VICTOR M. ZURITA, DDS § IN THE DISTRICT COURT
INTERVENOR, §
§
vs. §
§
THE STATE OF TEXAS, §
PLAINTIFF, §
§ 53rt1 JUDICIAL DISTRICT
vs. §
§
XEROX CORPORATION; XEROX §
STATE HEALTHCARE, LLC; ACS §
STATE HEALTHCARE, LLC, A XEROX §
CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TEXAS
PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, Victor M. Zurita, DDS, hereinafter Intervenor, and file this Plea in
Intervention, and in support hereof, would respectfully show the Court the fo llowing:
I. Parties and Service
1. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of
this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0 .
Box 12548, Austin, Texas 78711-2548.
2. Defendant Xerox Corporation is a corporation organized under the laws of New York has
agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State
Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS
State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation
o rganized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave.,
Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit.
Plea in Intervention
Page l of25
Defendant Xerox Corporation acquired Defendant ACS in 2010. On information and belief,
ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012.
Defendants are referred to hereinafter as "Xerox Defendants."
3. Victor M. Z urita. DDS is a licensed Texas dentist, approved Medicaid provider. Victor
M. Zurtita, DDS can be served through his undersigned counsel.
II. Jurisdiction and Venue
4. This Court has subject-matter jurisdiction in that the amounts sought by lntervenor from
all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this
court. Intervenor affirmatively pleads that this suit is not governed by the expedited-actions
process in TEXAS RULE OF CIVIL PROCEDURE 169 because Intervenor seeks monetary relief over
$100,000.
5. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenor's claims;
b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in th is petition
in whole or part in Texas.
6. Venue is proper in Travis County under TRCP § 15.020 because this suit involves a
" major transaction"; Venue is pennissive under TRCP §15.035(a) because Intervenor asserts
claims for breach of contracL Venue is proper pursuant to TRCP § 15.02 because all or a
substantial part of the events or omissions giving rise to the claim occurred in Travis County.
Many of the unlawful acts committed by the State and Xerox Defendants were committed in
Travis County, including the making of false statements and misrepresentations of material fact.
Plea in Intervention
Page 2 of25
m. Intervenor's Interest in the Suit
7. Intervenor has a judicial interest in the matters and controversy in this litigation. The
relationship between Intervenor, the State as the Plaintiff and the Xerox Defendants is a tripartite
arrangement necessitating that, in the interest of judicial economy and j ustice, all claims be
bound and subsumed into one cause of action. Upon information and belief, Intervenor was
initially sued by the State in a qui tam action wherein the State alleged that Intervenor defrauded
the State. The State has elected to pursue its remedies against the Intervenor in an administrative
hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has
committed fraud against the State. Intervenor has claims against both the State and Xerox. It is
assumed that Xerox will have claims against the State, and perhaps allege claims against the
Intervenor. All of the different parties' claims are inextricably intertwined, as they relate to
Intervenor's submission of prior authorization requests to Xerox, the handling of those claims by
the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's
performance of its contractual and legal duties, and State's subsequent legal action against the
lntervenors for services approved by Xerox.
IV. Facts
What is Prior Authorization?
8. Texas Medicaid requires that orthodontic services be independently and objectively
scrutinized before the State consents to treatment and payment. Prior authorization is the
mechanism the State uses to determine the medical necessity of non-emergency orthodontic
items/services prior to delivery of those items/services. Pursuant to Texas Health and Human
Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will
pay for orthodontic services:
Plea in Intervention
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Orthodontic services for cosmetic reasons only are not a covered Medicaid
service. Orthodontic services must be prior authorized and are limited to
treatment of severe handicapping malocclusion and other related cond itions as
described a nd measured by the procedures and standards published in the
[TMPPM 1].
25 Tux. ADMTN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance
to the orthodontic provider that, absent an interven ing disqualifying factor, the deli very of the
requested orthodontic service has been deemed by Xerox to be med ically necessary, and
therefore approved by the State.
9. The prior authorizatio n process is straightforward. Texas Medicaid requires that a dental
provider send docwnentation (x-rays, cephalographs, photos, etc.) regarding the patient's
orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his
professional opinion of the patient on a Handicapping Labio-lingual Deviation index (HLD)
score sheet. Xerox knew prov iders relied entfrely on the prior authorization process because
approval was a mandatory prerequisite to providing orthodontic serv ices and being paid . Once
Xerox issued its prior authorization decision, the decision was not appealable by the provider.
10. The HLD scoring system combines a number of treatable orthodontic conditions into an
index. HLD score sheets use a mix of objective and subjective conditions to determine whether a
Medicaid patient quali fies for orthod ontic serv ices. The fact that the HLD score sheet requires
both objective and subjective findings highl ights the importance of Xerox performing a thorough
prior authorization review.
The History of Orthodontic Prior Authorization.
l l. The process for reviewing and approving orthodontic prior authorization requests pre-
dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage
1
"TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides
valuable guidance to Medicaid providers.
Plea in Intervention
Page4 of25
Insurance Corporation (NHIC) was responsible for reviewing prior authorization requests before
Xerox assumed the contract in January 2004. Starting January I, 2004, Xerox acted as an
independent contractor, and was a contracted agent of the State, under the contract with HHSC.
Xerox was responsible for reviewing each o rthodontic service request, and Xerox was further
charged with the responsibility to grant or den y each prior authorization request per the program
requirements. The result was that Xerox had the final say in determining the medical necessity of
each request for orthodontic services.
12. Prior to assuming the NHIC contract, and for a period of time after assuming the contract
from NHIC, Xerox received training from NHIC personnel regarding the proper method for
receiving and processing orthodontic prior authorization requests. NH TC personnel explained
how and why the review of each prior authorization submission was important, and walked
Xerox through the process. Despite its training from NHIC, Xerox had no intention of following
the prior authorization system that had been in place for years, nor did Xerox intend to otherwise
meet the prior authorization requirements set out in its contract, the TMPPM and required by
state law.
Xerox rejects its contractual responsibilities.
13. When Xerox took over the contract in 2004, it immediately abandoned the prior
authorization review process that had been setup by NHIC. Xerox never intended to fulfill its
orthodontic prior authorization responsibilities to HHSC. From 2004 to 2011, Xerox continually
misrepresented that it was acting in compliance with its contractual duties.
14. It is now known that Xerox failed to adequately staff their prior authorization division
with knowledgeable med ical professionals. Xerox employed only one licensed dentist from 2004
through 2011, which was far short of the manpower necessary to handle the review of tens of
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thousands of 01t hodontic prior authorization req uests every year. Xerox could not reasonably
have expected to handl e such a workload by employing only one dentist.
Xerox potentially commits thousands of violations.
15. It is believed Xerox allowed "dental specialists"-unlicensed, unquali fied individuals-
to render prior authorization opinions regarding the medical necessity of requested orthodontic
services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed
dental director or another qualified dental professional. These actions not only violated Xerox's
contractual obl igations, they may have also violated other Texas law such as the Dental Practice
Act.2 It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior
authorization approvals/medical opinions in violation of Texas law.
16. Xerox was paid by the state for each prior authorization decision that was made. It is
believed that Xerox em ployed unlicensed "specialists," rather than licensed Tex.as dentistc;, as a
profit generating measure.
17. From January 2005 through February 2012, lntervenor submitted prior authorization
requests, as required, to Xerox for a determ ination of medical necessity. Unbeknownst to
Intervenor, Xerox's dental specialists-not the dental director- approved almost all of
lntervenor's requests. Xerox's prior authorizat ion approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or
b) the approval had been issued by a licensed dentist, and/or
c) the approval was an actual and legitimate dental diagnosis, and/or
d) the requested orthodontic services were allowable under Texas law and as permitted
2
Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditioDs of the human teeth
and mouth. Section 256.001 state.s that a person may not practice dentistry without a license. Thus, state law requi res
that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section
264.151 prescribes penalties for certain violations of the Dental Practice Act.
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by Medicaid po licy, the TMPPM, and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or
f) future orthodontic services w ould be properly reimburseable to lntervenor, absent some
intervening disqualification (such as the patient's ineligibility).
18. Because Xerox was charged with determining medical necessity, and because prior
authoriz ation approval was a mandatory prerequisite to furnishing services, the promises were
material. Intervenor expected perfonnance of these promises. Intervenor relied on Xerox.
Further, Xerox promised that its subsequent payments to Intervenor (after the services had
actually been delivered) were made because the services had been, in fact, properly approved as
medically necessary. Each prior authorizat ion approval represents a separate violation of the law
if Xerox's approval was issued illegally and/or in violation of its contractual obl igations.
Xerox actively concealed its potentially illegal activity.
19. Xerox withheld the truth regarding its prior authorization program. ln an attempt to
publicly appear consistent with NHIC 's prior authorization process, Xerox continued to require
that dental providers (such as Intervenor) submit all supporting documentation for each HLD
score sheet. It is now believed that, incredibly, Xerox did nothing with that documentation, other
than assure that it had been submitted by the provider. It is believed that Xerox's specialists were
instructed to forward to its dental director only those requests that had scored below the
threshold for orthodontic services (i .e. below 26 points on the HLD score sheet), or had some
prov ider justification attached. As a resu lt, only I 0% of the orthodontic prior authoriz.ation
requests were actually forwarded to Xerox's one licensed dentist Xerox's actions were
calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox
knew that its actions were entfrely inconsistent with the letter and spirit of its obligations.
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Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving
services without detennining their medical necessity, but Xerox's deception also exacerbated the
problem by failing to give providers guidance regarding the proper standard for medical
necessity, thus causing these providers substantial damages.
20. For the past ten years, Xerox has continued to publicly represent to the world that it was
fulfi lling its contractual and legal responsibi lities. Based on Xerox's representations that it was
fulfilling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004
through tbe present. Each year that Xerox had its contract renewed, it represented that it would
fulfill its contractual obligations and abide by Texas law requiring that decisions about medical
necessity be rendered only by licensed dentists. Xerox made those representations knowing that
it had not done so in the past, and had no intention of changing its procedures to do so in the
future.
The Frew decision magnifies Xerox 's acts.
21. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to
implement a corrective action plan that increased the Medicaid reimbursement rates to all dental
providers. That plan was required pursuant to the Frew case3, which was a 1993 class-action
lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that
they prevented indigent children from receiving timely, comprehensive health care.
22. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707
million ($1.8 billion in state and federal funds combined) to increase med ical and dental
3
Frew v. Gilbert, I 09 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir.
2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431 , 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and
ajfd in parl, appeal dismissed in part sub nom. Frazar v. llawki11s, 316 F.3d 444 (5th Cir. 2004); Frew v. Hawkins,
401 F. Supp. 2d 619 (E.D. Tex. 2005) affd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v.
frew, 549 U.S. 1118, 127 S. a. 1039, 166 L. Ed. 2d 7 14 (2007).
Plea in Intervention
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reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists
to become Medicaid providers. It worked. The state raised payment rates for dental services, and,
as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to
63.4% in 2010. As expected indeed, as intended spending on Texas's dental services increased
dramatically.
23. Although the number of prior approval requests increased by 240% between 2007 and
20 I0, Xerox continued to employ only one dentist. That dentist was neither tasked with nor
responsible for supervising the clerical specialists that were issuing the approvals.
24. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox
was the sole entity responsible fo r overseeing thi s increase, because it was the sole gatekeeper
for the approval and payment of orthodontic services. Although the Texas Legislature had
increased fu nding to attract dentists into the Medicaid program, all of the budgeted funds were
required to be spent only on medically necessary services.
The Office of Inspector General seeks recovery from Medicaid providers.
25. In early 2011, a series of news stories began highlighting the large amount of money
being spent on orthodontics in Texas. ln July 2011, the Federal government notified Texas of its
intent to audit w hether Texas' prior authorization process was ensuring that only medically
necessary orthodontic cases were being approved and paid. With the prospect of a federal
clawback action looming against Texas because of Xerox's prior authorization failures, the
Texas O ffice of Inspector General (hereinafter "State") took a drastic step. Beginning in 20 I l,
the State generated a list of the top Medicaid orthodontic billers and placed them on " payment
hold." lntervenor was one of those providers.
26. Given Intervenor's proximity to some of the state's poorest chi ldren, and the mandates of
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the Frew decision, Intervenor served a large Medicaid patient population. Because it served a
large Medicaid population, it submitted a large number of prior authorization requests to Xerox
from 2004 through 20 I I .
27. Intervenor did not know that Xerox was fa iling to perform a true and accurate review for
medical necessity. lntervenor relied on Xerox's prior authorization approvals to confirm that
dentists' analysis was proper and consistent with Medicaid standards and requirements.
28. Again unbeknownst to Intervenor, State audits in 2008 and 2012 concluded that most, if
not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater
(indicating medical necessity) bad not been actually "evaluated" at all by Xerox. These State
audits made the Federal government's pending audit especially dangerous to Texas, because the
2008 and 2012 audits were admissions that Xerox had been approving and paying claims that
may not have met the federal standards for prior authorization. Thus the State, through the
Attorney General, concluded that a true finding of medical necessity had in reality not occurred.
The Attorney General claimed that billing for services that are not necessary is fraud, despite
Xerox's prior authorization approvals.
29. It is now believed that rather than prosecute Xerox for its failure to properly evaluate
dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox.
This protection included the State failing to allow TMHP to hire additional medically licensed
staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the
Attorney General took immediate action against the providers, the Attorney General refused to
hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its
violation of State law. Instead, the Attorney General made fraud allegations against each of the
top 25 dental providers, including Intervenor, which has caused more injury and damages to
Plea in Intervention
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Intervenor. Stated differently, Xerox issued its approvals through a process that gutted the State's
belief in the accuracy of Xerox's decis ion, and the Texas Attorney General punished the
providers instead of Xerox.
30. Because the acts/omissions of Xerox so undermined the process, the State eventually
instituted a " payment hold" against intervenor. A payment hold temporarily freezes future
Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid
program. The payment hold against Intervenor was issued pursuant to what the State called a
"credible allegation of fraud" regardi ng Intervenor's orthodontic prior authorization requests.
The State placed a I 00% payment hold against Intervenor's orthodontic billings.
31. At the time the Attorney General began prosecuting Intervenor and similarly situated
Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to
authorize orthodontic services and payments. The Attorney General knew that the State's audits
of Xerox in 2008 and 20 l 2 had concluded that Xerox was violating its contract with the State,
violating its own State-approved pol icies and procedures, and violating State law. Nevertheless,
the Attorney General continued to only prosecute dental providers like the Intervenor; the
Attorney General refused to hold Xerox responsible. In fact, in one shameless and brazen
demonstration of State 's unwavering protection of Xerox, the Deputy Director of Texas' Office
of the Inspector Genera! testified in a hearing that Xerox's acts and omissions were so egregious
they were outside the course and scope of Xerox' s agency with State.4 Upon in fonnation and
belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing
the State's culpability would subject the State to a federal clawback for hundreds of millions of
4
Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a
dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that !he
State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it
was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox.
Plea in Intervention
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dollars. Instead, the State and the Attorney General pointed at the dental providers.
32. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for
over 6 years, became too much to hide. Three months after some providers filed suit against
Xerox, and following a series of news stories questioning why Xerox had not suffered for its
failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas
Attorney General, fil ed this lawsuit against Xerox for fraud, basically mirroring the suit filed
approximately I 00 days earlier by similarly situated providers. The State's claims in this fraud
lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were
improper.
33. As a result of the payment hold, Intervenor was required to make significant financial
concessions and changes to its business. Intervenor also engaged legal counsel to defend itself
from the State 's claim s, at a significant expense that continues today.
34. The State's allegations against Intervenor are rooted in two assumptions. First, the State
assumes Intervenor' s prior authorization requests were not properly velted by Xerox; that is,
Xerox approved Intervenor's requests without knowing whether approval was actually proper.
Because Xerox is not a party to Intervenor's administrative case, Intervenor is prevented from
detennining whether Xerox did~ in fact, perform a proper review of Intervenor's prior
authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question,
and finally detennine whether Xerox reviewed Intervenor's requests as required by its contract
and the law.
35. Regarding the State's second assumption, the State alleges some of Intervenor's requests
were approved when, in fact, they should have been denied. Intervenor denied that assertion in
the administrative case, and Intervenor continues to deny that claim here. All services provided
Plea in Intervention
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to Intervenor's pat ients were actually medically necessary, regardless of what Xerox decided and
in any event under Medicaid guidelines once the authorization was approved, Intervenor was
required to provide the services.
36. The State continues to aggressively fight any allegation or affirmative defense that could
result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's
contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action
A. Intervenor's Claims Against Xerox
Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement)
37. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herei n. Xerox's prior authorization approvals were false representations made to Intervenor. It is
believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew
that it was approving requests without a proper medical review, and/or because it approved the
prior authorization requests without any knowledge of their truth. It is believed Xerox intended
for Intervenor to rely on the approvals as a prerequisite for provid ing the requested services.
Approval was material because it was a mandatory prerequisite for payment. Intervenor actually
and justifiably relied on Xerox's fraudulent approvals.
38. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in
the same or sim ilar manner, and led Intervenor to believe that their requests were consistent with
Medicaid standards and requirements.
39. Xerox's fraudu lent approvals caused injury to Intervenor. As a result of Xerox's actions,
Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor
was placed on payment hold, Intervenor is forced to defend itself in an administrative payment
Pica in Intervention
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hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including
claims for treble damages and attorney fees). Intervenor's reputation and business have suffered
severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs,
and attorney fees.
Breach of the Xerox-State of Texas Contract
40. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State
for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper,
thorough and legal review of prior authorization requests for the purpose of determining medical
necessity. To that end, Xerox should have employed a licensed dentist.
41. Xerox was an agent of the State of Texas engaged specifically for the purpose of
determining medical necessity. The third party beneficiaries of that Xerox-State of Texas
contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic
services that were medically necessary. Intervenor was responsible for actually delivering the
orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third
party beneficiary that relied on Xerox's approvals.
42. Xerox breached its contract by, inter alia, failing to provide qualified staff; possibly
vio lating Texas law; permitting non-dentists to make determinations of medical necessity; and
issuing medical opinions without conducting a reasonable and prudent examination of evidence.
The breaches were material, and recurred across many different Medicaid patients and for many
years.
43. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
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authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary
inteUigence should have anticipated that issuing a decision w ithout actually reviewing or
considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and
rel iability of the decision. Once the State assumed that Xerox's approvals were not trustworthy,
it was foreseeable that the State would demand repayment, and/or wou ld require Intervenor to
independently do Xerox's job after the fact by proving that payment was proper because the
services were medically necessary and reimbursable under Texas Medicaid law.
44. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages
that would have g iven the Intervenor the benefit of the bargain by putting them in as good a
position as they would have been in if the contract had been performed. Intervenor seeks
reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's
contract with the state and the approvals that Xerox made under that contract. Intervenor also
seeks damages for its restitution interest to restore money sought by the Office of the Inspector
General from Intervenor. Such damages would put the Intervenor in as good a position as it
would have been in if the contract had been properly fulfilled. ln addition, Intervenor seeks
liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal
counsel to defend itself from the State's charges, and those legal expenses continue today.
Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost
future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Plea in lntervention
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Breach of Contract (Promissory Estoppel)
45. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, Xerox's actions constitute promissory estoppel.
46. Xerox's prior authorizations constitute promises to Intervenor in numerous ways.
Because prior authorization was a prerequisite to furnishing services, and because Xerox was the
entity charged with discharging prior authorization duties, Intervenor reasonably, substantially,
and foreseeably relied on Xerox's promises.
47. Intervenor suffered and continues to suffer significant damage. intervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. lntervenor has engaged legal counsel lo defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact-namely, demonstrate that the services were medically necessary and
properly reimbursable under Texas Medicaid law. Intervenor has incurred benefit of the bargain
damages, out-of-pocket damages, lost profits, lost future profit s, loss of credit, and loss of
goodwill. All of these damages were directly and/or proximately caused by Xerox's promises.
Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney
fees.
Negligent Hiring/Negligent Supervision
48. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negl igent hiring and/or negJigent supervision. Xerox was
required to render medical diagnoses. To that end, Xerox was required by law to employ a
licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by
law to properly supervise its employees to make sure diagnoses were made only by licensed
Plea in Intervention
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dentists.
49. Xerox knew or shou ld have known that decisions regarding medical necessity can only
be rendered by licensed personnel. Texas Occupations Code section 251.003 defines the practice
of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a
person may not practice dentistry without a license; section 264.151 makes it a third-degree
felony to practice dentistry without a license.
SO. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
would require Intervenor to independently do Xerox's job after the fact by proving that payment
was proper because those services were medically necessary and were reimbursable under Texas
Medicaid law.
5 1. lntervenor suffered and continues to suffer significant damage. intervenor suffered
reliance damages by investing the cost of services for each Medicaid patient that Xerox
approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and
those legal expenses continue today. Intervenor suffered and continues to suffer significant
damage to its reputation, business, referral base, earnings and earning power. lntervenor has
suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant
mental and personal capital to doing Xerox's job. intervenor has suffered exemplary damages
Plea in Intervention
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because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct
should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligence
52. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render
medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a
diagnosis supporting o r denying medical necessity. Xerox bad a duty to assure that tbe personnel
had appropriate education, training and experience to render such a finding. Xerox had a duty to
review the supporting prior authorization documentation (such as x-rays and photos) to
determine whether the requested services were medically necessary.
53. Xerox's actions breached the standard of care because Xerox: fai led to provide prior
authorization staff that were properly licensed, qualified and experienced dental professionals;
violated the law, specifically the Dental Practice Act, by perm itting non-dentists to make
determinations of medical necessity, and; issued medical opinions (prior authorizations) without
conducting a reasonable and prudent examination of evidence.
54. Xerox 's actions proximately caused [ntervenor's injury. Intervenor's injuries were
caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox 's prior
authorization was a necessary prerequisite to providing services, Intervenor relied entirely on
Xerox's determinations regarding medical necess ity; thus, Xerox's actions were the direct factual
cause of Intervenor's injuries. Xerox 's actions were foreseeable in that any person of ordinary
intelligence should have anticipated that paying Intervenor for services that have not properly
been determined to be medically necessity would precipitate a demand for repayment, and/or
Plea in Intervention
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would require Intervenor to independently do Xerox 's job after the fact.
55. Intervenor suffered and continues to suffer sign ificant damage to its reputation, business,
referral base, earnings and earning power. Intervenor has engaged legal counsel to defend itself
from the State's charges, and those legal expenses continue today. Victor M. Zurita, DDS has
suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant
mental and personal capital to doing Xerox 's job. Intervenor has suffered exemplary damages
because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct
shou ld be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and
exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation
56. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Xerox 's actions constitute negligent misrepresentation. Xerox's actions constitute
misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization
approval was a prerequisite to fam ishing serv ices, these representations guided and controlled
Intervenor's responses. intervenor justifiably relied on these representations. Further, Xerox
represented that its prior authorization approvals were dispositive of medical necessity;
Intervenor expected that, once approved, no further inquiry into the medical necessity of the
services would be required. Further, Xerox represented that its subsequent payments to
Intervenor (after the services had actually been delivered) were made because services had been,
in fact, properly approved as medically necessary.
57. Xerox did not exercise reasonab le care or competence in making its determinations and
representations. Xerox knew or should have known that its representations were false.
58. Because prior authorization was a prerequisite to furnishing services, and because Xerox
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was the entity charged with discharging prior authorization duties, Intervenor reasonably,
substantially, foreseeab ly, and justifiably relied on Xerox's representations.
59. Intervenor suffered and continues to suffer significant damage. lntervenor suffered
reliance damages by investing time, labor, equipment, and orthodontic appliances in each
Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from
the State's charges, and those legal expenses continue today. Intervenor has been required to do
Xerox's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket
damages, lost profits, loss of credit, and loss of goodwi ll. All of these damages were directly
and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery o f
actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property
60. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary
property which would entitle Intervenors to unlimited punitive damages.
B. lntervenors' Claims Against T he State of Texas
Waiver of Sovereign Immunity
6 1. Intervenor re-alleges and incorporates the above facts and allegalions as if fully set out
herein. For a number of reasons, the State has waived sovereign immunity for claims by
lntervenor, including the facts that the State brought, threatened and/or has taken civil and/or
administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint E nterprise
62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that
Plea in Intervention
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acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's
agency relationship with the State. Assuming same to be true, then the State conspired with
Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from
Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime.
63. The State conspired with Xerox to allow Xerox to violate its various contractual duties.
The State pennitted Xerox to process as many prior authorizations as possible without the
required clinical dental review and without using medically knowledgeable personnel. The State
conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox
created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations
submitted by the dentists. The conspiracy was committed with the intent to shift blame from the
State and its agent, improperly blame the Intervenors, and enrich the State and Xerox. By
recouping money from providers that were not actually to blame, the State and Xerox hoped to
limit their own liability in the event of a Federal clawback action, and/or respond to unflattering
news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the
party to blame the dentist providers for their own improper acts and omissions is a proximate
cause of the injury to lntervenors.
Not Liable for Illegal Acts of Third Party
64. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. As alleged by the State in Section VUJ paragraph 46 of the State's petition, Xerox has
committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide
proper prior authorization review in rubber stamping the doctors prior authorization requests is
not the fault of the doctors. The doctors are not responsible for or liable to the State for the
Plea in Intervention
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illegal acts of a third party for which the doctors had no control; the State should not withhold
money from the Tntervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract
65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. lnterven.ors are a direct or third party beneficiary of the contract with Xerox and the State
of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox
and/or reviewing the work product of Xerox. This breach by State, which allowed non-
performance by Xerox, has created the pretext by which the State affirmatively sued Intervenors
for repayment. To the extent that the State has withheld money and/or made claims for damages
against lntervenors based on the contracts in question, the State has waived immunity and is
liable up to those amounts plead.
Conversion
66. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out
herein. State and Federal law required intervenor to request prior authorization for orthodontic
services. Those prior authorization requests were approved by Xerox, which required Intervenors
to provide the services. The State has unilaterally made a decision to that, based on the acts and
omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor
on a payment hold. To the extent that Intervenor has provided services for which Intervenor
should be paid, and money which has been earmarked by the State for that payment but withheld,
the State has converted the funds. In addition, the States' acts/om issions are a violation of the
Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under
the pretext of a payment hold.
Plea in Intervention
Page 22 of25
VI. Damages
67. lntervenors have suffered and are entitled to recover damages including, but not limited
to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to
business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees
and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion
68. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent
hiring, negligence, and gross negligence. Xerox's actions have subjected Intervenor to
unnecessary civil and administrative legal action, and that, in tum has caused additional inj ury.
Xerox's actions have required Intervenor to perform Xerox 's job after-the-fact, by proving to the
State that the orthodontic services rendered were medically necessary and appropriate for
reimbursement. The State's actions have harmed Intervenor because the state's conspiracy to
improperly blame the dentists has resulted in meritless legal claims against the Intervenor and
conversion of the Intervenor's property.
VID. Jury Demand
69. Intervenor respectfully requests a trial by jury.
IX. Request for Disclosure
70. Under Texas Rule of Civil Procedure 194, Lntervenor requests that Plaintiff the State
disclose, within 50 days of the service of this request, the information or material described in
Rule 194.2.
71. Wherefore, premises considered, Intervenor Victor M. Zurita, DDS pray that upon final
hearing of the cause, judgment be entered jointly and severally against the Plainti ff the State of
Plea in Intervention
Page 23 of25
Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and
post judgment interest at the legal rate, costs of court, and other such relief to which the
Intervenor may be entitled.
J son Ray
Texas Bar No. 240 05
RIGGS, ALESHIRE & RAY, P.C.
700 Lavaca, Suite 920
Austin, Texas 7870 I
(512) 457-9806 (Telephone)
(512) 457-9866 (Fax)
jray@r-alaw.com
/s/ Hart Green w/ permission by J Ray
E. Hart Green
Texas Bar No. 08349290
Mitchell A. Toups
Texas Bar No. 2015 l 600
WELLER, GREEN, TOUPS & TERRELL, L.L.P.
Post Office Box 350
Beaumont, Texas 77704-0350
(409) 838-0 l 0 l (Telephone)
(409) 832-8577 (Fax)
hartgr@wgttlaw.com
matoups@wgttlaw.com
ATTORNEYS FOR INTERVENOR
VICTOR M. ZURITA, DDS
Plea in Intervention
Page 24 of25
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing Plea in Intervention was
served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on
the following:
Eric J.R. Nichols
Beck Redden
515 Congress A venue, Suite 1750
Austin, Texas, 7870 I
ENICHOLS@beckredden.com
Attorney for Xerox Defendants
Raymond Winter
Chief, Civil Medicaid Fraud Division
Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711-2548
raymond.winter@texasattorneygeneral.gov
Attorney for the Plaintiff State of Texas
Plea in Intervention
Page 25 of25
Tab E
Xerox’s Original Answer to Defendants’ Original Third Party Petition
2/9/2015 8:11:28 AM
Velva L. Price
District Clerk
CAUSE NO. D-l-GN-1 4-005380 Travis County
D-1-GN-14-005380
THE STATE OF TEXAS, § INTHEDISTRJCTCOURTOF
§
Plaintiff, §
v. §
§
DR. BEHZAD NAZARI, D.D.S. D/B/A §
ANTOINE DENTAL CENTER, et. al. §
§ 53RD JUDIC IAL DISTRICT
Defendants/Third Party §
Plaintiffs, §
§
v. §
§
XEROX CORPORATION, et al. §
§ TRAVIS COUNTY, TEXAS
Third-Party Defendants. §
XEROX'S ORIGINAL ANSWER TO
DEFENDANTS' ORIGINAL THIRD PARTY PETITION
TO THE HONORABLE JUDGE OF THIS COURT:
COME NOW Xerox Corporation, and Xerox State Healthcare, LLC, formerly known as
ACS State Healthcare, LLC (collectively the "Xerox Parties") and file this original answer,
pursuant to Rule 92 of the Texas Rules of Civil Procedure, in order to respond to the allegations
and causes of action asserted in the Original Answer and Third Party Petition filed by
Defendants/Third Party Plaintiffs Dr. Behzad Nazari, D.D.S. d/b/a Antoine Dental Center, Dr.
Behzad Nazari, Harlingen Family Dentistry, PC a/k/a Practical Business Solutions, Series LLC,
Juan D. Villarreal D.D.S., Series PLLC d/b/a/ Harlingen Family Dentistry Group, Dr. Juan
Villarreal, Dr. Richard F. Herrscher, D.D.S., M.S.D., P.C., Or. 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 (collectively "Defendants/Third Party Plaintiffs") and any subsequenrly amended or
supplemented third party petition . In support thereof, the Xerox Parties would respectfully show
the Court as fo llows:
GENERAL DENIAL
Subject to stipulations or admissions that may hereafter be made, the Xerox Parties enter
their general denial, pursuant to Rule 92 of the Texas Rules of Civil Procedure, thereby denying
each and every, all and singular, of the material allegations made by Defendants/Third Party
Plaintiffs, and the Xerox Parties request that each of Defendants/Third Party Plaintiffs be
required to prove all charges and allegations by the applicable standard of proof required by the
laws of the State of Texas.
AMENDMENT AND SUPPLEMENTATION OF ANSWER
The Xerox Parties reserve their rights to amend and/or supplement their answer pursuant
to the Texas Rules of Civil Procedure and orders of the Court.
PRAYER
WHEREFORE, PREMISES CONSIDERED, The Xerox Parties respectfully request that
this Court. upon fu ll and final hearing of this matter, eater judgment that Defendants!Third Party
Plaintiffs take nothing against the Xerox Parties by way of their claims in this action and for such
other relief, both special and general, in law and in equity, to which the Xerox Parties may show
themselves to be justly entitled.
2
Respectfully submitted,
G IBSON , DUNN & CRUTCHER LLP
By: Isl Robert C. Walters
Robert C. Walters
State Bar No. 20820300
E-mail: RWalters@gibsondunn.com
2100 McKinney Avenue, Suite 1100
Dallas, Texas 75201
Tel: 214-698-3100
Fax: 214-571-2900
BECK IREDDEN LLP
By: Isl Eric JR. Nichols
Eric J.R. Nichols
State Bar No. 14994500
E-mail: enichols@beckredden.com
Christopher R. Cowan
State Bar No. 24084975
E-mail: ccowan@beckredden.com
515 Congress Avenue, Suite 1750
Austin, Texas 7870 l
Tel: 512-708-1000
Fax: 512-708-1002
W. Curt Webb
State Bar No. 21035900
E-mail: cwebb@beckredden.com
Constance H. Pfeiffer
E-mail: cpfeiffer@beckredden.com
State Bar No. 24046627
1221 McKinney Street, Suite 4500
Houston, Texas 770 l 0
Tel: 713-951-3700
Fax: 713-951-3720
ATTORNEYS FOR
XEROX CORPORATlON, XEROX STATE
HEALTHCARE, LLC, F/K/A ACS STATE
HEALTHCARE, LLC
3
CERTIFICATE OF SERVICE
I hereby certify that on this 9th day of February, 2015, I caused a copy of the foregoing to
be served to the followi ng counsel via e-mail:
Counsel for PlaintiffState of Texas:
Raymond Winter
Chief, Civil Medicaid Fraud Division
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711-2548
E-mail: raymond.winter@texasattorneygeneral.gov
Reyno lds Brissenden
Assistant Attorney General
Office of the Attorney General
P.O. Box 12548
Austin, Texas 7871 1~2548
Email: reynolds.brissenden@texasattomeygeneral.gov
Cou11sel for Defendantsnhird-Party Plaintiffe:
Jason Ray
R iggs, Aleshire & Ray, P.C.
700 Lavaca, Suite 920
Austin, Texas 7870 l
E-mail: jray@r-alaw.com
E. Hart Green
Weller, Green, Toups & Terrell, L.L.P.
Post Office Box 350
Beaumont, Texas 77704-0350
E-mail: harlgr@wgttlaw.com
ls/Christopher R. Cowan
Christopher R. Cowan
4
Tab F
Xerox Corporation and Xerox State Healthcare, LLC
f/k/a ACS State Healthcare, LLC’s Mandamus Petition
ACCEPTED
03-15-00401-CV
5900102
THIRD COURT OF APPEALS
AUSTIN, TEXAS
7/1/2015 1:29:01 PM
No. __________________
JEFFREY D. KYLE
CLERK
IN THE THIRD COURT OF APPEALS
AUSTIN, TEXAS
IN RE XEROX CORPORATION AND XEROX STATE HEALTHCARE, LLC
F/K/A ACS STATE HEALTHCARE, LLC,
Relators.
Original Proceeding from the 53rd District Court,
Travis County, Texas, Trial Court Cause No. D-1-GV-14-000581
The Honorable Stephen Yelenosky, Presiding
PETITION FOR WRIT OF MANDAMUS
BECK REDDEN LLP BECK REDDEN LLP
Eric J.R. Nichols Constance H. Pfeiffer
State Bar No. 14994900 State Bar No. 24046627
enichols@beckredden.com cpfeiffer@beckredden.com
Gretchen Sween 1221 McKinney St., Ste. 4500
State Bar No. 24041996 Houston, TX 77010
gsween@beckredden.com Tel: 713.951.3700
Christopher R. Cowan Fax: 713.951.3720
State Bar No. 24084975
ccowan@beckredden.com
515 Congress Ave., Ste. 1900
Austin, TX 78701
Tel: 512.708.1000
Fax: 512.708.1002
GIBSON, DUNN & CRUTCHER LLP KELLY HART & HALLMAN LLP
Robert C. Walters C. Andrew Weber
State Bar No. 20820300 State Bar No. 00797641
rwalters@gibsondunn.com andrew.weber@kellyhart.com
2100 McKinney Ave., Ste. 1100 301 Congress, Ste. 2000
Dallas, TX 75201 Austin, TX 78701
Tel: 214.698.3100 Tel: 512.495.6451
Fax: 214.571.2900 Fax: 512.495.6930
COUNSEL FOR RELATORS
Oral Argument Requested
IDENTITY OF PARTIES AND COUNSEL
Relators (Defendants in the Trial Court):
Xerox Corporation;
Xerox State Healthcare, LLC f/k/a ACS State Healthcare, LLC
Counsel for Relators:
Eric J.R. Nichols (SBN 14994500)
enichols@beckredden.com
Gretchen Sween (SBN 24041996)
gsween@beckredden.com
Christopher R. Cowan (SBN 24084975)
ccowan@beckredden.com
BECK REDDEN LLP
515 Congress Avenue, Suite 1900
Austin, TX 78701
Constance H. Pfeiffer (SBN 24046627)
cpfeiffer@beckredden.com
BECK REDDEN LLP
1221 McKinney Street, Suite 4500
Houston, TX 77010
Robert C. Walters (SBN 20820300)
rwalters@gibsondunn.com
GIBSON, DUNN & CRUTCHER LLP
2100 McKinney Avenue, Suite 1100
Dallas, TX 75201
C. Andrew Weber (SBN 00797641)
andrew.weber@kellyhart.com
KELLY HART & HALLMAN LLP
301 Congress, Ste. 2000
Austin, TX 78701
Respondent:
Honorable Stephen Yelenosky
Judge, 345th District Court
Travis County Courthouse
P.O. Box 1748
Austin, TX 78767
Tel: 512.854.9374
Real Party in Interest (Plaintiff in the Trial Court):
The State of Texas
Counsel for Real Party in Interest The State of Texas:
Raymond Winter (SBN 21791950)
Chief, Civil Medicaid Fraud Division
raymond.winter@texasattorneygeneral.gove
Reynolds B. Brissenden (SBN 24056969)
Managing Attorney, Civil Medicaid Fraud Division
reynolds.brissenden@texasattorneygeneral.gov
Assistant Attorneys General
Civil Medicaid Fraud Division
P.O. Box 12548 MC 056-1
Austin, TX 78711
Tel: 512.935.1709
Fax: 512.499.0712
REQUEST FOR ORAL ARGUMENT
Relators request the opportunity to present oral argument.
ii
TABLE OF CONTENTS
Page
IDENTITY OF PARTIES AND COUNSEL ...........................................................................i
REQUEST FOR ORAL ARGUMENT ................................................................................ ii
TABLE OF CONTENTS ................................................................................................ iii
INDEX OF AUTHORITIES............................................................................................... v
STATEMENT OF THE CASE ..........................................................................................xi
STATEMENT OF JURISDICTION .................................................................................. xii
ISSUE PRESENTED..................................................................................................... xii
STATEMENT OF FACTS................................................................................................. 1
SUMMARY OF THE ARGUMENT .................................................................................... 9
ARGUMENT ............................................................................................................... 10
I. THE TRIAL COURT ERRED IN ITS LEGAL CONCLUSIONS. ...................... 10
A. Chapter 33 Applies to Claims “Based on Tort.”....................... 11
1. Chapter 33 broadly applies to torts, with limited
exceptions. ...................................................................... 11
2. A TMFPA claim is a statutory tort that is not
excepted from Chapter 33............................................... 13
3. The State’s arguments to the contrary are
unpersuasive. .................................................................. 16
4. The trial court rejected the State’s arguments
but erred for different reasons. ...................................... 18
B. The State Seeks “Recovery of Damages” Within the
Scope of Chapter 33. ................................................................. 21
iii
1. The State is seeking recovery of damages. ..................... 22
2. The trial court failed to recognize that the State
is seeking damages. ........................................................ 23
C. Refusing to Apply Chapter 33 Was an Abuse of
Discretion. ................................................................................. 24
1. The trial court improperly denied Xerox leave
to designate responsible third parties. ............................ 25
2. The trial court improperly struck Xerox’s third-
party claims. .................................................................... 26
II. THERE IS NO ADEQUATE REMEDY BY APPEAL. .................................... 27
A. Appellate Remedies Are Held Inadequate in This
Context. ..................................................................................... 28
B. Appellate Remedies Are Inadequate in This Case. .................. 31
CONCLUSION AND PRAYER FOR RELIEF .................................................................... 35
RULE 52.3(J) CERTIFICATION .................................................................................... 36
CERTIFICATE OF SERVICE .......................................................................................... 37
APPENDIX
Order Granting Motion to Strike Petitions in Intervention and Plea
to the Jurisdiction .....................................................................................Tab A
Order Denying The Xerox Parties’ Motion for Leave to Designate
Responsible Third Parties ........................................................................ Tab B
Order Granting State’s Plea to the Jurisdiction and Motion to
Dismiss Third Party Claims ..................................................................... Tab C
iv
INDEX OF AUTHORITIES
CASES PAGE(S)
In re Altec Indus., Inc.,
No. 10-12-00207-CV, 2012 WL 2469542
(Tex. App.—Waco June 22, 2012,
orig. proceeding)(mem. op.) ...................................................................25, 30, 34
In re Arthur Andersen, LLP,
121 S.W.3d 471 (Tex. App.—Houston
[14th Dist.] 2003, orig. proceeding) ............................................................passim
In re Brokers Logistics, Ltd.,
320 S.W.3d 402 (Tex. App.—El Paso
2010, orig. proceeding) .................................................................................30, 34
Casa Ford, Inc. v. Ford Motor Co.,
951 S.W.2d 865 (Tex. App.—Texarkana
1997, pet. denied)................................................................................................ 30
Davis v. Estridge,
85 S.W.3d 308 (Tex. App.—Tyler
2001, pet. denied)..........................................................................................12, 16
Del Lago Partners, Inc. v. Smith,
307 S.W.3d 762 (Tex. 2010) .............................................................................. 17
Dugger v. Arredondo,
408 S.W.3d 825 (Tex. 2013) .......................................................................passim
Elston v. City of Panhandle,
50 S.W.2d 1090 (Tex. 1932) .............................................................................. 19
Eslon Thermoplastics v. Dynamic Sys., Inc.,
49 S.W.3d 891 (Tex. App—Austin
2001, no pet.) ...................................................................................................... 27
F.F.P. Operating Partners, L.P. v. Duenez,
237 S.W.3d 680 (Tex. 2007) .......................................................................passim
In re Frank Kent Motor Co.,
361 S.W.3d 628 (Tex. 2012)
(orig. proceeding)................................................................................................ 10
v
In re Greyhound Lines, Inc.,
No. 05-13-01646-CV, 2014 WL 1022329
(Tex. App.—Dallas Feb. 21, 2014,
orig. proceeding) (mem. op.) .............................................................................. 25
Grogan v. Garner,
498 U.S. 279 (1991) ............................................................................................ 16
Harlingen Family Dentistry, P.C. v. Tex. Health & Human Servs.
Comm’n.,
452 S.W.3d 479 (Tex. App.—Austin
2014, pet. filed) ................................................................................................... 15
Huie v. DeShazo,
922 S.W.2d 920 (Tex. 1996) (orig. proceeding) ................................................ 10
Issacs v. Bishop,
249 S.W.3d 100 (Tex. App.—Texarkana
2008, pet. denied)................................................................................................ 11
JCW Elecs., Inc. v. Garza,
257 S.W.3d 701 (Tex. 2008) .......................................................................passim
Jones v. Ray,
886 S.W.2d 817 (Tex. App.—Houston
[1st Dist.] 1994, orig. proceeding) ................................................................20, 29
United States ex rel. Jordan v. Northrop Grumman Corp.,
No. CV 95-2985, 2002 WL 35454612
(C.D. Cal. Aug. 5, 2002) ..................................................................................... 14
In re Lewis Casing Crews, Inc.,
No. 11-14-00137-CV, 2014 WL 3398170
(Tex. App.—Eastland July 10, 2014,
orig. proceeding) (mem. op.) ..................................................................25, 30, 34
In re Masonite,
997 S.W.2d 194 (Tex. 1999) .............................................................................. 33
Nabors Well Servs., Ltd. v. Romero,
456 S.W.3d 553 (Tex. 2015) ............................................................................ 1, 2
vi
In re Oncor Elec. Delivery Co.,
355 S.W.3d 304 (Tex. App.—Dallas
2011, orig. proceeding) .................................................................................25, 31
Parker v. Highland Park, Inc.,
565 S.W.2d 512 (Tex. 1978) ................................................................................ 1
Pemex Exploracion y Produccion v. BASF Corp.,
2011 WL 9523407 (S.D. Tex. Oct. 20, 2011) .................................................... 12
PPG Indus., Inc. v. JMB/Hous. Ctrs. Partners Ltd. P’ship,
146 S.W.3d 79 (Tex. 2004)................................................................................. 15
In re Prudential Ins. Co. of Am.,
148 S.W.3d 124 (Tex. 2004) (orig. proceeding) ....................................27, 28, 33
Reata Const. Corp. v. City of Dallas,
197 S.W.3d 371 (Tex. 2006) .............................................................................. 21
Sec. Trust Co. of Austin v. Lipscomb Cnty,
180 S.W.2d 151 (Tex. 1944) .............................................................................. 21
Shipp v. Malouf,
439 S.W.2d 432 (Tex. App.—Dallas
2014, pet. denied).................................................................................................. 4
Shoemake v. Fogel, Ltd.,
826 S.W.2d 933 (Tex. 1992) .............................................................................. 27
In re Smith,
366 S.W.3d 282 (Tex. App.—Dallas
2012, orig. proceeding) .................................................................................25, 31
Smith v. Sewell,
858 S.W.2d 350 (Tex. 1993) .............................................................................. 20
In re State,
355 S.W.3d 611 (Tex. 2011) .............................................................................. 33
State v. Naylor,
No. 11-0114, 2015 WL 3852284 (Tex. June 19, 2015) ..................................... 20
Stewart Title Guar. Co. v. Sterling,
822 S.W.2d 1 (Tex. 1991)................................................................................... 19
vii
Sw. Bank v. Info. Support Concepts, Inc.,
149 S.W.3d 104 (Tex. 2004) ........................................................................11, 18
In re Team Rocket, L.P.,
256 S.W.3d 257 (Tex. 2008) (orig. proceeding) ..........................................27, 33
In re Tex. Educ. Agency,
441 S.W.3d 747 (Tex. App.—Austin
2014, orig. proceeding) ....................................................................................... 10
Texas Dep’t of Corr. v. Herring,
513 S.W.2d 6 (Tex. 1974)................................................................................... 20
Texas v. Merck & Co.,
385 F. Supp. 2d 604 (W.D. Tex. 2005) .............................................................. 22
In re Unitec Elevator Servs. Co.,
178 S.W.3d 53 (Tex. App.—Houston
[1st Dist.] 2005, orig. proceeding) ...................................................................... 31
United States v. Hero,
No. 78 CIV-4587, 1981 WL 1982
(S.D.N.Y. July 27, 1981) .................................................................................... 14
United States v. RePass,
688 F.2d 154 (2d Cir. 1982) ............................................................................... 14
United States v. Temple,
299 F.2d 30 (7th Cir. 1962) ................................................................................ 14
Villarreal v. Wells Fargo Brokerage Servs., LLC,
315 S.W.3d 109 (Tex. App.—Houston
[1st Dist.] 2010, no pet.) ...............................................................................11, 12
Walker v. Packer,
827 S.W.2d 833 (Tex. 1992) (orig. proceeding) ................................................ 10
Werner v. KPMG LLP,
415 F. Supp. 2d 688 (S.D. Tex. 2006) ................................................................ 13
United States ex rel. Westmoreland v. Amgen, Inc.,
738 F. Supp. 2d 267 (D. Mass. 2010) ................................................................. 14
viii
Wortham v. Walker,
128 S.W.2d 1138 (Tex. 1939) (orig. proceeding) .............................................. 21
RULES & STATUTES
31 U.S.C.
§ 3729(a)(1)(A) ................................................................................................... 14
§ 3729(a)(1)(G) ................................................................................................... 14
42 U.S.C.
§ 1320a-7b .......................................................................................................... 16
§ 1320a-7b(g) ...................................................................................................... 16
25 TEX. ADMIN. CODE § 33.71 (2015) ....................................................................... 3
TEX. CIV. PRAC. & REM. CODE
§ 33.001............................................................................................................xi, 1
§ 33.002(a)(1) .............................................................................................. xii, 11
§ 33.002(c) ....................................................................................................11, 15
§ 33.002(c)(1) ....................................................................................................... 2
§ 33.002(c)(3) ....................................................................................................... 2
§ 33.003............................................................................................................... 13
§ 33.003(a) ....................................................................................................17, 21
§ 33.004(f)........................................................................................................... 25
§ 33.004(g) .......................................................................................................... 25
TEX. CIV. PRAC. & REM. CODE § 33.011 .................................................................. 21
§ 33.011(6) .......................................................................................................... 24
§ 41.002(d)(3) ..................................................................................................... 15
TEX. GOV’T CODE § 22.221(b) ................................................................................ xii
ix
TEX. HUM. RES. CODE
§ 36.002 ................................................................................................................. 5
§ 36.002(1) .......................................................................................................... 13
§ 36.007................................................................................................................. 5
§ 36.052................................................................................................................. 5
§ 36.052(a)(1) .........................................................................................17, 22, 23
§ 36.052(a)(3)(A) ................................................................................................ 24
§ 36.101............................................................................................................... 26
§ 36.106............................................................................................................... 26
§ 36.113............................................................................................................... 26
§ 36.131............................................................................................................... 16
§ 36.1021 ............................................................................................................. 22
TEX. R. CIV. P.
2........................................................................................................................... 27
38(a) .................................................................................................................... 26
OTHER AUTHORITIES
Act of June 17, 2005, 79th Leg. R.S., ch. 806, 2005 Tex. Sess. Law
Serv. Ch. 806 (West) (codified at TEX. HUM. RES. CODE § 36.131) .................. 16
Black’s Law Dictionary (10th ed. 2014) ...........................................................14, 23
John E. Clark,
The Texas Medicaid Fraud Prevention Statute: Sharp New Teeth
for the State and Cash Rewards for Relators Exposing
Wrongdoers,
65 TEX. B.J. 120 (2002) ........................................................................................ 5
May 8, 2014
(https://www.texasattorneygeneral.gov/oagnews/release.php?id=47
34) ......................................................................................................................... 5
x
STATEMENT OF THE CASE
Nature of the case This is a civil Medicaid fraud case brought by the State
of Texas for damages that allegedly exceed $1 billion.
The alleged fraud involves multiple parties, triggering the
contribution and fault-allocation scheme of Chapter 33.
TEX. CIV. PRAC. & REM. CODE § 33.001 et seq.
In this lawsuit, the State has sued only Xerox, seeking to
recoup from Xerox payments the State made to others.
The State has sued the third parties in separate lawsuits.
Respondent Honorable Stephen Yelenosky
345th Judicial District Court of Travis County
Respondent’s action: The trial court ruled that Chapter 33 does not apply to the
State’s claim. Thus, the trial court:
(1) granted the State’s motion to strike Xerox’s
third-party claims, Tab A, and
(2) denied Xerox’s motion for leave to
designate responsible third parties. Tab B.
xi
STATEMENT OF JURISDICTION
This Court has mandamus jurisdiction under TEX. GOV’T CODE § 22.221(b).
ISSUE PRESENTED
Chapter 33 broadly applies to “any cause of action based on tort.” TEX. CIV.
PRAC. & REM. CODE § 33.002(a)(1). Did the trial court erroneously conclude that
the State’s statutory fraud claim is not a tort claim subject to Chapter 33?
xii
STATEMENT OF FACTS
This is a fraud suit brought by the State of Texas against two Xerox entities.
But the alleged fraud also involves third parties and claims that are intertwined.
The State simultaneously accuses Xerox and third-party Medicaid providers of a
fraudulent scheme and is suing them in separate lawsuits for the same damages.
Choosing to sue in tort, the State has pleaded itself right into Chapter 33.
Chapter 33 sets a broad legislative mandate
“Gone is the ‘harsh system of absolute victory or total defeat.’” Nabors
Well Servs., Ltd. v. Romero, 456 S.W.3d 553, 559 (Tex. 2015) (quoting Parker v.
Highland Park, Inc., 565 S.W.2d 512, 518 (Tex. 1978)). For more than four
decades, the Texas Legislature has required fact-finders to apportion responsibility
according to the relative fault of the actors. Id. Plaintiffs cannot put 100% of the
liability on a single actor when multiple actors contribute to causing the harm.
This directive is so well known that it is often simply called “Chapter 33.” See
TEX. CIV. PRAC. & REM. CODE § 33.001 et seq.
Chapter 33 “casts a wide net over conduct that may be considered in this
determination.” Nabors Well Servs., 456 S.W.3d at 560. “Whereas the 1987
version had expressly excluded intentional torts, the 1995 amendments removed
that exclusion” and now broadly applies to “any cause of action based on tort.”
JCW Elecs., Inc. v. Garza, 257 S.W.3d 701, 704 (Tex. 2008). It likewise applies to
statutory torts. Id.
The exceptions to Chapter 33 are very few. “When the Legislature intends
an exception to Chapter 33’s broad scheme, it creates specific exceptions for
matters that are outside the scope of proportionate responsibility.” Dugger v.
Arredondo, 408 S.W.3d 825, 832 (Tex. 2013). The statute excepts claims for
workers compensation benefits and for damages arising from methamphetamine
manufacturing, for example. TEX. CIV. PRAC. & REM. CODE § 33.002(c)(1), (3).
No express exception is at issue in this case.
When Chapter 33 applies, it sets a clear directive: “fact-finders should
consider each person’s role in causing, ‘in any way,’ harm for which recovery of
damages is sought.” Nabors Well Servs., 456 S.W.3d at 560.
Against the backdrop of this broad statutory directive, the State has brought
a tort suit for damages and seeks to be relieved of the legislature’s dictates.
HHSC contracts for processing of Medicaid claims
The Texas Health and Human Services Commission oversees the Texas
Medicaid program, which serves low-income Texans. The program includes a
process for reimbursing providers for the services provided to eligible children.
HHSC has in recent years hired contractors to assist it in claims processing.
R.409. During the time period from 2004 to 2014, HHSC contracted with a private
entity to be its fiscal agent and claims processor. R.30. That entity was acquired
by Xerox Corporation. R.2.
2
Long known as a brand name for copiers, Xerox now has a business division
that provides analytic, consulting, revenue improvement, technological, and
business process outsourcing solutions to the healthcare industry worldwide. The
Xerox entity that contracted with HHSC is Xerox State Healthcare, LLC. R.2.1
HHSC contracted with Xerox State Healthcare in 2003 and again in 2010 to
provide multiple Medicaid administrative and technical services, including the
processing of “prior authorizations” for orthodontic services submitted by the
providers. R.7, R.16. The “prior authorization” process requires providers to
submit forms, materials, and certifications related to the provider’s diagnosis and
the patient’s condition in order to receive prior approval for the orthodontic
services. R.131. Instead of performing services first and then submitting the bill
for payment, Medicaid “[o]rthodontic services must be prior authorized” before the
provider performs the service. 25 TEX. ADMIN. CODE § 33.71 (2015).
Under the contract, Xerox State Healthcare established the Texas Medicaid
& Healthcare Partnership (TMHP), a consortium of Xerox State Healthcare and
other subcontractors. TMHP processed hundreds of thousands of prior-
authorization requests for orthodontic services over the span of a decade. During
that time period, the State alleges that it spent approximately $1.1 billion for
orthodontic services to Medicaid-eligible children. R.3, R.131.
1
HHSC first contracted with ACS State Healthcare LLC, which changed its name to
Xerox State Healthcare, LLC after it was acquired by Xerox Corporation. R.2. Xerox
Corporation and Xerox State Healthcare, LLC are distinct entities with separate legal arguments
about the underlying claims; references to them jointly as “Xerox” are solely for ease of reading.
3
HHSC approved the contract and prior authorization policies under which
TMHP operated, and it oversaw the work of Xerox State Healthcare (and the other
TMHP contractors). R.406-20. In fact, HHSC’s Office of Inspector General
conducted a full contract audit of the prior authorization process, and the results
were made public in a 2008 report. Id. (OIG audit report). Xerox State Healthcare
continued to perform under its contract until May 2014, when the State terminated
the contract and simultaneously filed this suit.
Negative publicity prompts the State to cast blame
This lawsuit followed a cycle of negative publicity about HHSC and the
State’s spending on Medicaid orthodontic services. See, e.g., R.310-11, 315-16,
357-58, 360-63.2 A series of “investigative” news reports in 2011 raised questions
about the State’s spending on orthodontic services to Medicaid-eligible children
and about the medical judgments of orthodontic providers, causing HHSC to
second-guess that spending and begin casting blame on others.
HHSC’s Office of Inspector General, led by a now-departed deputy, R.360-
63, R.365-78, made sweeping pronouncements of a vast fraud against the Medicaid
program by orthodontic providers across the State. Then, in this lawsuit, filed in
May 2014, the State accused Xerox of failing to “catch” the providers’ alleged
fraud through the prior authorization process.
2
See e.g., Shipp v. Malouf, 439 S.W.2d 432, 437–38 (Tex. App.—Dallas 2014, pet.
denied) (discussing publicity about Medicaid provider).
4
In a press release that accompanied this lawsuit, the State declared that
“Xerox had not been properly reviewing orthodontic claims as required by its
contract with the State.”3 But the lawsuit did not plead a claim for breach of
contract.
Instead, the State sued for fraud, taking the view that contract breaches can
be cast as “misrepresentations” and “nondisclosures” about how the contract was
performed. By doing this, the State has sought to dramatically up the ante. Instead
of seeking ordinary contract remedies, the State seeks extraordinary statutory tort
remedies—available to it only under the Texas Medicaid Fraud Prevention Act.
The State brings a claim under the Texas Medicaid Fraud Prevention Act
The TMFPA defines “unlawful acts,” beginning with knowing
misrepresentations and nondisclosures. See TEX. HUM. RES. CODE § 36.002.
It also provides substantial civil remedies. A person who commits an
“unlawful act” can be sued for the amount of payments made “as a result of the
unlawful act,” plus double damages, civil penalties for each unlawful act between
$5,500 and $15,000, prejudgment interest, and reimbursement of the State’s
reasonable attorneys’ fees, expenses, and costs. See id. §§ 36.052, 36.007. When
aggregated, these damages claims “can amount to huge sums.” John E. Clark, The
Texas Medicaid Fraud Prevention Statute: Sharp New Teeth for the State and
Cash Rewards for Relators Exposing Wrongdoers, 65 TEX. B.J. 120, 123 (2002).
3
May 8, 2014 (https://www.texasattorneygeneral.gov/oagnews/release.php?id=4734).
5
The State seeks the same recovery
from Xerox and the providers in separate lawsuits
The State’s suit against Xerox seeks “all relief possible” under the TMFPA.
R.21. This relief includes the value of payments made under the Medicaid
program to the Medicaid orthodontic-service providers—not to Xerox. R.21.
Meanwhile, the State has sued the orthodontic-service providers for the same
Medicaid payments in separate proceedings and lawsuits. R.156-81, R.286-308.
For example, HHSC has issued payment holds and recoupment claims against
providers and has brought administrative claims against them. R.320-325, R.534-
606. And the State has also alleged a TMFPA claim against other providers.
R.286-308. The providers have likewise sued the State and Xerox in separate
lawsuits, all involving the same basic facts and allegations at issue in the State’s
suit against Xerox.
As a result, several orthodontic-service providers intervened in this lawsuit,
asserting common-law tort claims against both the State and Xerox and seeking to
recover for losses incurred as a result of the State’s payment holds. The State
moved to strike the intervention, and its motion was granted. R.98-99.
Xerox then invoked its rights as a tort defendant under Chapter 33. It filed a
third-party petition suing 27 specific providers for contribution. R66-76. But the
State moved to strike the third-party petition, and the motion was granted. Tab A
(R.629).
6
The trial court explained its reasoning: (1) there “is no authority for treating
an enforcement action [under the TMFPA] by the State as a statutory tort;” (2) “the
civil remedy in the TMFPA is not a damage provision;” and (3) “[i]f [the Xerox
Parties] have any right to contribution, it must be pursued in a separate action
between alleged wrongdoers.” R.232-33. The trial court further emphasized that
the TMFPA does not have a fault-allocation scheme: “There is no comparative
fault, joint-and-several liability, contribution, single-satisfaction, or settlement
credit in a TMFPA action.” R.232.
Xerox then moved for leave to designate the same providers as responsible
third parties. The State opposed the motion on the same grounds as before, and the
trial court ruled that Chapter 33 does not apply. R.632-33. The trial court denied
Xerox’s motion for leave. Tab B (R.631).
In deference to the trial court, Xerox first sought the court’s permission for
an interlocutory appeal. It presented briefing on why immediate appellate review
would be appropriate. The trial court declined to certify the issue. R.634.
Xerox now petitions this Court for mandamus relief from the two orders
denying it fundamental procedural rights under Chapter 33 afforded to defendants
facing tort claims.
7
The providers bring an appeal in Nazari v. State of Texas
The issues in this original proceeding are related to the issues before the
Court on direct appeal in Nazari v. State of Texas, No. 03-15-00252-CV, in which
Medicaid providers filed their opening brief on June 19, 2015.
The various lawsuits between the State, Medicaid providers, and the Xerox
entities have all been specially assigned, through the Travis County district court
administrative process, to one district judge. The trial court was made aware that
the State is seeking the same damages against separate parties in separate lawsuits
based on factually related allegations. Yet the trial court has ruled that the
defendants in each case cannot bring claims against each other in the same lawsuit:
Consistent with this Court’s rulings in the State’s litigation against
Xerox, the Court finds that the State is entitled to bring this action
against defendants to the exclusion of other parties.
Tab C (order dismissing providers’ counterclaims against the State and third-party
claims against Xerox, on appeal in Nazari v. State of Texas).
The issues in the Nazari appeal and this proceeding are not identical, but
they underscore that the State’s claims against Xerox and the providers are
intertwined and that it is not only impermissible but also fundamentally unfair to
permit the State to take a divide-and conquer approach.
8
SUMMARY OF THE ARGUMENT
The Texas Supreme Court is quite clear about Chapter 33’s broad scope.
It honors Chapter 33’s plain language, which applies to “any cause of action based
on tort” for “recovery of damages.” It further holds that Chapter 33’s statutory
mandates are “not discretionary.” F.F.P. Operating Partners, L.P. v. Duenez, 237
S.W.3d 680, 694 (Tex. 2007).
Chapter 33 applies to the State’s fraud claim against Xerox because it is
“based on tort” and seeks “recovery of damages.” The State’s claim is merely a
statutory tort, and such torts are subject to Chapter 33 so long as the Legislature
has not excepted the statute from Chapter 33’s broad scope. See JCW Elecs., Inc.
v. Garza, 257 S.W.3d 701, 704–06 (Tex. 2008). Further, the State has repeatedly
acknowledged that it seeks to recover “damages” from Xerox. Chapter 33 squarely
applies, and the trial court erred by holding otherwise.
Courts frequently grant mandamus relief from refusals to apply Chapter 33.
They recognize that trials without all potentially responsible parties are unfairly
skewed. In exceptional cases like this one, with an enormous damage model,
multiple parties, and hundreds of thousands of transactions, a trial without all
responsible parties is thus “destined to fail in the appellate process.” See In re
Arthur Andersen, LLP, 121 S.W.3d 486 (Tex. App.—Houston [14th Dist.] 2003,
orig. proceeding). Like many of its sister courts across the state, this Court should
grant mandamus relief.
9
ARGUMENT
“Mandamus relief is proper to correct a clear abuse of discretion when there
is no adequate remedy by appeal.” In re Frank Kent Motor Co., 361 S.W.3d 628,
630 (Tex. 2012) (orig. proceeding); see In re Tex. Educ. Agency, 441 S.W.3d 747,
750 (Tex. App.—Austin 2014, orig. proceeding). Both prongs are satisfied here.
I. THE TRIAL COURT ERRED IN ITS LEGAL CONCLUSIONS.
Whether Chapter 33 applies to a claim is a matter of statutory construction
and thus a question of law. See F.F.P. Operating Partners, L.P. v. Duenez, 237
S.W.3d 680, 683 (Tex. 2007). “A trial court has no ‘discretion’ in determining
what the law is or applying the law to the facts.” Walker v. Packer, 827 S.W.2d
833, 840 (Tex. 1992) (orig. proceeding). This is true even when addressing
questions of first impression. “[T]he trial court’s erroneous legal conclusion, even
in an unsettled area of law, is an abuse of discretion.” Huie v. DeShazo, 922
S.W.2d 920, 927-28 (Tex. 1996) (orig. proceeding).
This case presents a paradigmatic scenario for bringing contribution claims
and designating responsible third parties. Factually intertwined fraud claims
against multiple parties resulted in the same alleged injury. Yet the trial judge held
that the State’s TMFPA claim does not sound in “tort” or seek “damages.” R.232.
Each of these conclusions is incorrect. The State is bringing a tort claim for
damages, which squarely triggers Chapter 33.
10
A. Chapter 33 Applies to Claims “Based on Tort.”
1. Chapter 33 broadly applies to torts, with limited exceptions.
Chapter 33 applies to “any cause of action based on tort.” TEX. CIV. PRAC.
& REM. CODE § 33.002(a)(1). It applies to intentional torts. See, e.g., JCW Elecs.,
Inc. v. Garza, 257 S.W.3d 701, 704–06 (Tex. 2008); Issacs v. Bishop, 249 S.W.3d
100, 116–17 (Tex. App.—Texarkana 2008, pet. denied) (fraud). And it applies to
statutory torts, so long as the tort statute does not include its own separate fault-
allocation scheme. E.g., Sw. Bank v. Info. Support Concepts, Inc., 149 S.W.3d
104, 107 (Tex. 2004) (Chapter 33 does not apply where tort statute has separate
fault-allocation scheme); Villarreal v. Wells Fargo Brokerage Servs., LLC, 315
S.W.3d 109, 124–25 (Tex. App.—Houston [1st Dist.] 2010, no pet.) (synthesizing
rule for statutory torts in light of Garza and Southwest Bank).
The exceptions to Chapter 33 are very few. “When the Legislature intends
an exception to Chapter 33’s broad scheme, it creates specific exceptions for
matters that are outside the scope of proportionate responsibility.” Dugger v.
Arredondo, 408 S.W.3d 825, 831 (Tex. 2013) (citing Duenez, 237 S.W.3d at 690–
91). The Legislature expressly excepts certain claims in Chapter 33 itself, or it
creates a separate fault-allocation scheme. See TEX. CIV. PRAC. & REM. CODE
§ 33.002(c) (“This chapter does not apply to . . . .”); Sw. Bank, 149 S.W.3d at 107.
Unless the Legislature excepts a claim, then Chapter 33—by its plain terms—
applies to “any cause of action based on tort.”
11
Following these rules, courts have held that Chapter 33 applies to statutory
tort claims under:
 the Wrongful Death Act, Dugger v. Arredondo, 408 S.W.3d 825, 831
(Tex. 2013);
 the Dram Shop Act, Duenez, 237 S.W.3d at 689;
 UCC-based implied warranty claims, Garza, 257 S.W.3d at 702;
 the Texas Securities Act, Villarreal, 315 S.W.3d at 124;
 the Texas Trust Act, id.; and
 the Texas Theft Liability Act, Pemex Exploracion y Produccion v. BASF
Corp., 2011 WL 9523407, at *13 (S.D. Tex. Oct. 20, 2011).
The lone outlier is a 2001 Tyler Court of Appeals decision holding that
Chapter 33 does not apply to a claim under the Fraud in Real Estate and Stock
Transactions statute. See Davis v. Estridge, 85 S.W.3d 308, 312 (Tex. App.—
Tyler 2001, pet. denied). Because Davis predated the supreme court’s recent
guidance in Garza and Southwest Bank, the First Court of Appeals rejected its
holding as unpersuasive:
Since Davis, the Texas supreme court has held that Chapter 33 applied
to a statutory tort claim in JCW Electronics, Inc. v. Garza, 257
S.W.3d 701, 705–06 (Tex. 2008). Moreover, the express language of
section 33.002(a) provides that Chapter 33 applies “to any action
based in tort.”
Villarreal, 315 S.W.3d at 125 n.7. In light of Duenez, Garza, and Dugger, courts
now recognize that Chapter 33 broadly includes statutory torts as well.
12
2. A TMFPA claim is a statutory tort that is not excepted from
Chapter 33.
No one can dispute that “fraud” is a tort. And “fraud” is the TMFPA’s
middle name. The Texas Medicaid Fraud Prevention Act merely codifies a
particular species of fraud against the State. The statute generally requires the
plaintiff to prove that the defendant “knowingly ma[de] or cause[d] to be made a
false statement or misrepresentation of a material fact.” TEX. HUM. RES. CODE
§ 36.002(1). In this case, the State alleges that Xerox “knowingly made or caused
to be made false statements or misrepresentations of material facts.” R.19, ¶39.
These allegations plainly sound in tort.
In Garza, the supreme court explained that “[a]lthough the 1995 statute does
not define the term ‘tort,’ its meaning is nevertheless clear from section 33.003.”
257 S.W.3d at 704. It encompasses claims for negligence, products liability, and
harm caused by conduct or activity “that violates an applicable legal standard.” Id.
at 705 (quoting TEX. CIV. PRAC. & REM. CODE § 33.003(a)).
The court then held: “The language ‘other conduct or activity that violates
an applicable legal standard’” was “clearly broad enough” to encompass a claim
for breach of an implied warranty under UCC article 2. Id. The same language in
Chapter 33 is likewise broad enough to encompass the State’s statutory fraud
claim. See Werner v. KPMG LLP, 415 F. Supp. 2d 688, 703 (S.D. Tex. 2006)
(“Texas courts apply Chapter 33 to fraud claims and to statutory tort claims[.]”).
13
Other sources further confirm that a TMFPA claim sounds in tort. Black’s
Law Dictionary defines “tort” as: “A civil wrong, other than breach of contract,
for which a remedy may be obtained, usu. in the form of damages[.]” Black’s Law
Dictionary, Tort (10th ed. 2014). It is undisputed that the State’s TMFPA claim is
civil, not criminal. See R.3, ¶7 (the State seeks “civil remedies”). And while the
State could have brought its claim in contract, it did not. By choosing to bring its
claim in tort, the State must live with all of Texas tort law—including Chapter 33.
The TMFPA’s closest federal analogue is the False Claims Act,4 which
federal courts characterize as authorizing the federal government to bring “tort”
claims. United States v. RePass, 688 F.2d 154, 157 (2d Cir. 1982) (“The gravamen
of this [False Claims Act] claim is the tort of intentional fraud and
misrepresentation.”); United States v. Temple, 299 F.2d 30, 32 (7th Cir. 1962)
(characterizing a False Claims Act suit as “an action sounding in tort”).5 The
unanimous recognition that False Claims Act claims sound in tort is a strong basis
to hold a TMFPA claim does as well.6
4
Like the TMFPA, the False Claims Act creates liability for a person who “knowingly
presents, or causes to be presented, a false or fraudulent claim for payment or approval” and
permits the government to recover “3 [three] times the amount of damages which the
Government sustains because of the act.” 31 U.S.C. § 3729(a)(1)(A), (G).
5
See also United States ex rel. Westmoreland v. Amgen, Inc., 738 F. Supp. 2d 267, 271-
72 (D. Mass. 2010) (“Since the False Claims Act creates a statutory tort . . . .”); United States ex
rel. Jordan v. Northrop Grumman Corp., No. CV 95-2985, 2002 WL 35454612, at *20 (C.D.
Cal. Aug. 5, 2002) (same); United States v. Hero, No. 78 CIV-4587, 1981 WL 1982, at *3
(S.D.N.Y. July 27, 1981) (same).
6
Analogizing to federal decisions interpreting the False Claims Act is helpful in properly
characterizing a TMFPA claim as one sounding in “tort” and seeking “damages.” But federal
law also has limited utility, as Chapter 33’s scheme for tort claims has no federal counterpart.
14
A TMFPA claim plainly sounds in tort, and the Texas Legislature has not
excepted it from the dictates of Chapter 33. The TMFPA does not include
provisions for allocating responsibility among parties who caused or contributed to
causing the State’s injury, so it has no competing fault allocation scheme. Indeed,
the trial court acknowledged this point and embraced it in its letter ruling: “There
is no comparative fault, joint-and-several liability, contribution, single-satisfaction,
or settlement credit in a TMFPA action.” R.232.
Further, Chapter 33 does not expressly except the TMFPA. See TEX. CIV.
PRAC. & REM. CODE § 33.002(c) (“This chapter does not apply to . . . .”). The
TMFPA is not among the claims that are excluded. By contrast, the exemplary
damages provisions in Chapter 41 expressly exclude the TMFPA. See TEX. CIV.
PRAC. & REM. CODE § 41.002(d)(3) (“Notwithstanding any provision to the
contrary, this chapter does not apply to . . . an action brought under Chapter 36,
Human Resources Code.”).
The inference is straightforward: when the Legislature intends to exclude a
TMFPA claim from general statutes governing civil litigation, it does so expressly.
See Dugger, 408 S.W.3d at 831; PPG Indus., Inc. v. JMB/Hous. Ctrs. Partners Ltd.
P’ship, 146 S.W.3d 79, 84 (Tex. 2004) (explaining expressio unius est exclusio
alterius); Harlingen Family Dentistry, P.C. v. Tex. Health & Human Servs.
Comm’n., 452 S.W.3d 479, 482 (Tex. App.—Austin 2014, pet. filed) (same).
It is undisputed that the TMFPA has not been expressly excluded from Chapter 33.
15
3. The State’s arguments to the contrary are unpersuasive.
At first the State sought to avoid Chapter 33 by relying on the 2001 Tyler
decision. R.80 (citing Davis v. Estridge, 85 S.W.3d 308, 312 (Tex. App.—Tyler
2001, pet. denied)). The State did not appear to have realized that Davis may be
bad law in light of the supreme court’s more recent decisions in Duenez, Garza,
and Dugger.
When confronted with the supreme court’s cases, the State switched tacks.
The State argued that the TMFPA has its origins in criminal law, and therefore
does not sound in tort. R.195 (citing 42 U.S.C. § 1320a-7b). But the State failed
to notice that the same statute it cited to support its position indicates that the civil
remedies it seeks in this case would be available only through a civil action under
federal law. See 42 U.S.C. § 1320a-7b(g). Under federal law, claims to recover
damages for overpayments based on false statements for Medicaid reimbursement
are “substantive causes of action for fraud.” Grogan v. Garner, 498 U.S. 279, 288
(1991). There is no reason for Texas courts to reach a different result.
Moreover, the Texas Legislature amended the TMFPA in 2005 to remove
“Criminal Penalties” from TEX. HUM. RES. CODE § 36.131. See Act of June 17,
2005, 79th Leg. R.S., ch. 806, 2005 Tex. Sess. Law Serv. Ch. 806 (West).
Whatever criminal origins the TMFPA may have had, it is now exclusively a civil
statute.
16
The State also argued that a TMFPA violation is not a statutory tort because
“traditional common law notions of reliance and causation are wholly absent from
the TMFPA.” R.199. But the State overlooked the TMFPA’s causation standard:
the statute makes “a person who commits an unlawful act” liable for the amount of
the payment or benefit provided “as a result of the unlawful act.” TEX. HUM. RES.
CODE § 36.052(a)(1). The TMFPA’s causation requirement is consistent with
concluding it is a tort that is subject to apportionment for “causing or contributing
to cause in any way the harm for which recovery of damages is sought.” TEX. CIV.
PRAC. & REM. CODE § 33.003(a).
The State also argued that Chapter 33 does not apply “because under the
TMFPA, Xerox can only ever be held responsible for damages resulting from its
own conduct” and “can never be held responsible for the actions of third parties.”
R.200. This argument is a non sequitur. Black-letter law provides: “There may be
more than one proximate cause of an event[.]” Del Lago Partners, Inc. v. Smith,
307 S.W.3d 762, 774 (Tex. 2010). Under the State’s theory of liability, its
damages resulted from Xerox’s conduct in combination with the conduct of third
parties. R.3, ¶8. That multiple parties allegedly caused the State’s harm is
precisely why Chapter 33 applies.
Last, the State argued that it is not “workable” to “mesh” Chapter 33 with
the TMFPA, because “the TMFPA does contain its own ‘separate and conflicting
legislative fault-allocation scheme.’” R.201. This argument attempts to bring the
17
TMFPA within the holding of Southwest Bank, where the supreme court held that
Chapter 33 was displaced where a statute includes “a comprehensive and carefully
considered allocation of responsibility among parties to [a] relationship[].” Sw.
Bank, 149 S.W.3d at 107. This exacting standard was satisfied in Southwest Bank
because the UCC statute had “its own comparative negligence provisions.” Id.
By contrast, the TMFPA does not allocate liability among parties or have
comparative fault provisions, and the State has not seriously contended otherwise.
The State has pointed only to the TMFPA’s scienter requirements and argued the
statute does not “differentiate between the culpability of potential violators,
holding a person who acts with reckless disregard equally as liable as a person who
acts with actual knowledge or conscious indifference.” R.202.
This observation about scienter is the exact opposite of showing a fault-
allocation scheme. It is perfectly acceptable under Chapter 33 to hold persons of
different levels of culpability responsible for their share of the harm. Indeed, that
is the point. The State cannot manufacture a fault-allocation scheme out of the fact
that the TMFPA (like all intentional torts) has a scienter requirement.
4. The trial court rejected the State’s arguments but erred for
different reasons.
The trial court correctly rejected the State’s arguments and recognized that
the TMFPA does not have its own separate fault-allocation scheme. R.232. This
conclusion should have bound the trial court to apply Chapter 33 to a statutory tort
18
that “does not undertake a comprehensive fault scheme.” Garza, 257 S.W.3d at
706; see also Dugger, 408 S.W.3d at 831; Duenez, 237 S.W.3d at 689.
However, the trial court did not fully apply the supreme court cases.
Instead, the trial court appeared to interpret the lack of a fault-allocation scheme in
the TMFPA to mean that those principles do not apply:
Each wrongful actor is liable for a civil remedy . . . in multiples of the
State’s actual loss that is undiminished by the civil remedy . . . paid by
another actor. … There is no comparative fault, joint-and-several
liability, contribution, single satisfaction, or settlement credit in a
TMFPA action.
R.232. In short, the trial court read the TMFPA as if Chapter 33 did not exist.
Xerox respectfully submits that such a reading is erroneous.
In addition, such an interpretation of the TMFPA is unsound because it
would create extraordinary liability unknown to the common law. The bar against
double recovery existed long before 1995, when the TMFPA was enacted. See,
e.g., Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 6 (Tex. 1991) (“There is no
reason we should allow a windfall double recovery in cases involving multiple
defendants when double recovery is clearly prohibited against a single
defendant.”); see also Elston v. City of Panhandle, 50 S.W.2d 1090, 1090–91 (Tex.
1932) (“There was but one injury and there can be but one satisfaction of the
damages arising from the injury, whether the satisfaction was reached through the
act of one or all of the tort-feasors.”).
19
Thus, the notion that the TMFPA permits double recoveries could be created
only expressly by a statute’s plain text. See Smith v. Sewell, 858 S.W.2d 350, 354
(Tex. 1993). The TMFPA’s silence regarding contribution, single satisfaction,
etcetera cannot be interpreted as expressly permitting a double recovery. See also
Jones v. Ray, 886 S.W.2d 817, 822 (Tex. App.—Houston [1st Dist.] 1994, orig.
proceeding) (describing “two different judgments for full compensation for the
same injuries” as a “nonsensical result”). Instead, the TMFPA’s silence about a
comprehensive fault-allocation scheme is precisely why Chapter 33 applies.
Separately, the trial court incorrectly concluded that the State’s claim is
brought as an “enforcement action” and thus is not a “statutory tort.” R.232. The
State presented no authority for such an argument, and we have found none.
Calling the state’s claim an “enforcement action” seems to contemplate that
the State is special, and that when it sues as a plaintiff under the TMFPA the rules
apply differently. But the State is bound here by the same rules that apply to
private litigants.
The Texas Supreme Court recently reaffirmed: “where the Legislature has
given no indication to the contrary the State must abide by the same rules to which
private litigants are beholden.” State v. Naylor, No. 11-0114, 2015 WL 3852284,
at *6 (Tex. June 19, 2015). “As a general rule, the State litigates as any other party
in Texas courts.” Texas Dep’t of Corr. v. Herring, 513 S.W.2d 6, 7 (Tex. 1974).
20
This principle is settled:
[W]hen a State enters the Courts as a litigant, it must be held subject
to the same rules that govern the other litigants, and abide the
consequences of the suit . . . . When a state appears as a party to a
suit, she voluntarily casts off the robes of her sovereignty, and stands
before the bar of a court of her own creation in the same attitude as an
individual litigant; and her rights are determined and fixed by the
same principles of law and equity . . . .
Wortham v. Walker, 128 S.W.2d 1138, 1145–46 (Tex. 1939) (orig. proceeding)
(internal quotation marks omitted); accord Reata Const. Corp. v. City of Dallas,
197 S.W.3d 371, 377 (Tex. 2006) (“Once it asserts affirmative claims for monetary
recovery, the City must participate in the litigation process as an ordinary
litigant . . . .”); Sec. Trust Co. of Austin v. Lipscomb Cnty, 180 S.W.2d 151, 159
(Tex. 1944) (“When the state becomes a party to a suit it is subject to the same
rules that govern other parties . . . .”). These rules likewise apply here.
In short, there is no basis for concluding that the State’s claim falls outside
Chapter 33’s broad scope.
B. The State Seeks “Recovery of Damages” Within the Scope of
Chapter 33.
The proportionate responsibility and contribution provisions of Chapter 33
apply to claims resulting from harm for which “recovery of damages” is sought.
TEX. CIV. PRAC. & REM. CODE § 33.003(a) (proportionate responsibility); id.
§ 33.011 (contribution). Here, Chapter 33 also applies because the State seeks
recovery of damages.
21
1. The State is seeking recovery of damages.
The TMFPA expressly recognizes that its civil remedies include the
recovery of “damages”: “In an action under this subchapter, the state or person
bringing the action must establish each element of the action, including damages,
by a preponderance of the evidence.” TEX. HUM. RES. CODE § 36.1021 (emphasis
added); see also Texas v. Merck & Co., 385 F. Supp. 2d 604, 606 (W.D. Tex.
2005) (Yeakel, J.) (“Texas brought suit against Merck for damages and civil
penalties pursuant to the [TMFPA].”). There can be no debate that the TMFPA
creates liability for “damages.”
The TMFPA permits the State to recover money as compensation in “the
amount of any payment or the value of any monetary or in-kind benefit provided
under the Medicaid program, directly or indirectly, as a result of the unlawful act,
including any payment made to a third party.” Id. § 36.052(a)(1). This provision
is plainly a measure of “damages.”
The State’s Original Petition states that it is “seeking civil remedies under
the TMFPA.” R.3. It alleges: “As a result of Xerox’s conduct,” the State made
“hundreds of millions of dollars in payments.” R.21. It therefore seeks from
Xerox “the value of any payments or any monetary or in-kind benefits provided
under the Medicaid program, directly or indirectly, as a result of its unlawful acts,
22
[and] two times the amount of those payments.” R.21, ¶43 . This is precisely the
language used in Section 36.052(a)(1) of the TMFPA—a damages provision.7
In fact, the State has repeatedly admitted that it is seeking damages. See
R.80, ¶5 (referring to “damages that are awarded to the State in this TMFPA
lawsuit”); R.193 (referring to “the State’s theory of damages”); Id. (noting that
“amounts unlawfully paid to Xerox as well as amounts unlawfully paid to
providers” are “a measure of damages”); R.200 (“Xerox can only ever be held
responsible for damages resulting from its own conduct.”); R.205 (describing
payments to providers as “one potential measure of damages”); R.133 (disclosures
regarding the “amount of damages [that will be] requested by Texas at trial”). The
State’s repeated concessions correctly recognize that it has a claim for damages.
2. The trial court failed to recognize that the State is seeking
damages.
Despite the TMFPA’s plain text and the State’s repeated acknowledgements
that it was seeking damages, the trial court concluded that “the civil remedy in the
TMFPA is not a damage provision.” R.232. The trial court did not offer reasoning
to support this assertion.
7
The ordinary meaning of the word “damages” plainly includes compensation to the
State for overpayments. “Damages” refers to “[m]oney claimed by, or ordered to be paid to, a
person as compensation for loss or injury.” Black’s Law Dictionary, Damages (10th ed. 2014).
“Compensatory damages” are “[d]amages sufficient in amount to indemnify the injured person
for the loss suffered.” Black’s Law Dictionary, Compensatory Damages (10th ed. 2014).
23
It is possible the trial court was focused on the State’s claim for civil
penalties, wherein it seeks $5,500 to $15,000 for each “unlawful act.” R.21–22;
TEX. HUM. RES. CODE § 36.052(a)(3)(A). But the alleged basis for the civil
penalties sought against Xerox is the alleged misrepresentations about the prior
authorization process—not the Medicaid providers’ claims for payment. Xerox
seeks to apply Chapter 33 to the State’s damages claims, which seek the amounts
of alleged overpayments made to the Medicaid providers. There is no basis for
concluding that the alleged overpayments are anything but damages, and thus
subject to Chapter 33.
C. Refusing to Apply Chapter 33 Was an Abuse of Discretion.
The State’s liability theory presents a classic case for applying Chapter 33.
According to the State, “predatory and unscrupulous dental providers” sought
payment for orthodontic services that were outside the scope of Medicaid
coverage. R.3. It alleges that Xerox “failed to adequately review the orthodontic
prior authorization requests and documentation submitted by providers.” R.4.
The State seeks damages for overpayments made to Medicaid providers—
not to Xerox. Even if these overpayments resulted from Xerox’s unlawful acts—
which is adamantly denied—the providers “caused or contributed to causing . . .
the harm for which recovery of damages is sought.” TEX. CIV. PRAC. & REM.
CODE § 33.011(6). As a tort defendant facing damages for these allegations, Xerox
is entitled to invoke Chapter 33.
24
Based on the trial court’s conclusion that Chapter 33 does not apply, the trial
court issued two orders that represent a clear abuse of discretion.
1. The trial court improperly denied Xerox leave to designate
responsible third parties.
In one order, the trial court improperly denied Xerox’s motion for leave to
designate responsible third parties. Tab B.
Courts uniformly hold that denying leave to designate responsible third
parties without first granting leave to replead is an abuse of discretion. 8 This is
because Chapter 33 imposes a mandatory duty on trial courts: “A court shall grant
leave to designate the named person as a responsible third party[.]” TEX. CIV.
PRAC. & REM. CODE § 33.004(f); see Duenez, 237 S.W.3d at 694 (Chapter 33’s
statutory mandates are “not discretionary”).
The only basis for denying leave to designate a responsible third party is if
the defendant fails to plead sufficient facts concerning the alleged responsibility
after an opportunity to replead. TEX. CIV. PRAC. & REM. CODE § 33.004(g). That
did not happen here. Because Chapter 33 applies, the trial court had no discretion
to deny Xerox leave to designate responsible third parties.
8
See, e.g., In re Lewis Casing Crews, Inc., No. 11-14-00137-CV, 2014 WL 3398170, at
*1 (Tex. App.—Eastland July 10, 2014, orig. proceeding) (mem. op.); In re Greyhound Lines,
Inc., No. 05-13-01646-CV, 2014 WL 1022329, at *3 (Tex. App.—Dallas Feb. 21, 2014, orig.
proceeding) (mem. op.); In re Smith, 366 S.W.3d 282, 284 (Tex. App.—Dallas 2012, orig.
proceeding); In re Altec Indus., Inc., No. 10-12-00207-CV, 2012 WL 2469542, at *2 (Tex.
App.—Waco June 22, 2012, orig. proceeding)(mem. op.); In re Oncor Elec. Delivery Co., 355
S.W.3d 304, 306 (Tex. App.—Dallas 2011, orig. proceeding).
25
2. The trial court improperly struck Xerox’s third-party
claims.
In a second order, the trial court improperly struck Xerox’s third-party
petition asserting contribution claims against Medicaid providers. Tab A.
In urging the court to strike this pleading, the State argued (1) that Chapter
33 does not apply and (2) that the TMFPA bars Xerox from joining third parties.
R.78-82. The first argument is already refuted, and the second can be swiftly
rejected.
The State argued that Xerox cannot join third parties based on the statutory
text in Subchapter C of the TMFPA, which governs “Action[s] By Private
Persons,” a.k.a. qui tam actions. See TEX. HUM. RES. CODE § 36.101. That
subchapter prohibits “interventions” by “other parties” into qui tam or copy-cat
actions by other parties based on the same underlying facts as those asserted in a
first-filed qui tam action or an existing state action. See id. §§ 36.106, 36.113. But
Xerox’s third-party petition is plainly not a “qui tam action,” and by filing it,
Xerox was plainly not seeking to “intervene” in such an action or bring an action
under Subchapter C. Sections 36.106 and 36.113 simply do not apply.
Instead, Rule 38(a) allows a defendant to bring into a lawsuit “a person . . .
who is or may be liable to him or the plaintiff for all or part of the plaintiff’s claim
against him.” TEX. R. CIV. P. 38(a). A Rule 38 third-party claim does not involve
an independent theory of recovery; it is a contribution claim derivative of the
26
plaintiff’s claim. See Shoemake v. Fogel, Ltd., 826 S.W.2d 933, 935 (Tex. 1992);
Eslon Thermoplastics v. Dynamic Sys., Inc., 49 S.W.3d 891, 901-02 (Tex. App—
Austin 2001, no pet.). Xerox has a right to bring these third parties into the suit
under Rule 38(a), because the rules of civil procedure apply to the State’s claim.
See TEX. R. CIV. P. 2 (civil rules of procedure “shall govern the procedure … in all
actions of a civil nature” absent exceptions within the rules).
Because Chapter 33 applies to claims seeking damages under the TMFPA,
this Court should hold that both rulings constitute an abuse of discretion.
II. THERE IS NO ADEQUATE REMEDY BY APPEAL.
“The adequacy of an appellate remedy must be determined by balancing the
benefits of mandamus review against the detriments.” In re Team Rocket, L.P.,
256 S.W.3d 257, 262 (Tex. 2008) (orig. proceeding). The benefits of mandamus
review can be critically important, as it allows appellate courts to:
 “preserve important substantive and procedural rights from impairment or
loss,”
 “give needed and helpful direction to the law that would otherwise prove
elusive in appeals from final judgments,” and
 “spare private parties and the public the time and money utterly wasted
enduring eventual reversal of improperly conducted proceedings.”
In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex. 2004) (orig.
proceeding). Indeed, in exceptional cases, mandamus review of significant rulings
“may be essential.” Id.
27
A. Appellate Remedies Are Held Inadequate in This Context.
The adequacy of appellate remedies depends heavily upon the circumstances.
See id. at 137. A car wreck or slip-and-fall suit presents different considerations
from massive fraud cases involving enormous damage models, multiple parties,
and hundreds of thousands of transactions. The mandamus proceedings dealing
with joinder and responsible third party denials recognize that large, complex and
high-stakes cases cannot be tried piecemeal or remedied by ordinary appeal when
the defendant has a right to try all the facts in one proceeding.
In another complex fraud suit, the Fourteenth Court of Appeals granted
mandamus relief from the denial of leave to join responsible third parties. See
In re Arthur Andersen, LLP, 121 S.W.3d 471 (Tex. App.—Houston [14th Dist.]
2003, orig. proceeding). There, the plaintiffs sued Arthur Andersen and certain top
executives for fraud related to the collapse of Enron, and Arthur Andersen moved
for leave to join Enron employees and major financial institutions as responsible
third parties. Id. at 474-75.
After the trial court denied its motion, Arthur Andersen sought mandamus
relief. Id. at 476. The court of appeals held that the trial court’s denial of Arthur
Andersen’s motion to join the responsible third parties was an “error of law” that
constituted an abuse of discretion. Id. at 485.
28
In holding that Arthur Andersen had no adequate remedy on appeal, the
court emphasized several points. One, trying complicated cases piecemeal affects
a defendant’s substantial rights: A defendant facing complex, intertwined facts
“has a substantial right to present the complete set of intertwined facts and issues
germane to [its] claims, to one factfinder, in one proceeding, rather than in two
separate suits that are all but foreordained to generate, collectively, a decision
destined to fail in the appellate process.” Id. at 486 (quoting Jones v. Ray, 886
S.W.2d 817, 822 (Tex. App.—Houston [1st Dist.] 1994, orig. proceeding)
(granting mandamus relief from a severance order)).
Two, restricting a complex fraud trial to only a few parties in the alleged
scheme is unquestionably harmful, but demonstrating that harm may prove elusive.
The absence of the third parties “would likely profoundly affect the conduct and
outcome of this suit in ways unlikely to be apparent in the appellate record.” Id. at
486.
Three, when a lawsuit is high-stakes and involves extensive, complicated
facts, even one trial takes a serious toll on judicial and public resources.
Multiplying that toll by two (or more) is unjustified. “[A]ny separate action
against the third parties, or even a successful appeal in this suit, would result in an
enormous waste of resources.” Id. An enormous waste of judicial resources is a
proper consideration in granting mandamus relief. Id. (citing Jones, 886 S.W.2d at
822 n.9).
29
Four, defendants could potentially lose their contribution rights because the
law is not settled on whether contribution claims may be brought after judgment.
Id. at 485 (citing Casa Ford, Inc. v. Ford Motor Co., 951 S.W.2d 865, 877 (Tex.
App.—Texarkana 1997, pet. denied), as holding that “Chapter 33 does not permit a
tortfeasor subject to a judgment to bring a post-judgment contribution claim
against a tortfeasor who was not a party to the primary suit”). This issue has not
been decided by this Court or the supreme court. Until it is settled, tort defendants
risk substantial losses if they cannot sue for contribution in the primary suit.
Based on these kinds of considerations, courts across the state have held that
mandamus relief should be granted because appellate remedies are inadequate
when a defendant is denied leave to designate responsible third parties. Some
courts focus generally on the tendency of an absent responsible third party to
“skew the proceedings” and the unjustified waste of having two trials. See, e.g., In
re Altec Indus., Inc., No. 10-12-00207-CV, 2012 WL 2469542, at *2 (Tex. App.—
Waco June 22, 2012, orig. proceeding) (mem. op.); In re Brokers Logistics, Ltd.,
320 S.W.3d 402, 408 (Tex. App.—El Paso 2010, orig. proceeding) (same).
Other courts have adopted bright-line holdings that a trial court’s improper
denial of leave to designate a responsible third party can never be adequately
remedied on appeal. See, e.g., In re Lewis Casing Crews, Inc., No. 11-14-00137-
CV, 2014 WL 3398170, at *1 (Tex. App.—Eastland July 10, 2014, orig.
proceeding) (mem. op.) (declining to limit mandamus relief to “extraordinary
30
circumstances”); In re Smith, 366 S.W.3d 282, 289 (Tex. App.—Dallas 2012, orig.
proceeding) (“[A]ppeal is ordinarily an inadequate remedy when a trial judge
erroneously denies a motion for leave to designate a responsible third party without
granting leave to replead.”); In re Oncor Elec. Delivery Co., 355 S.W.3d 304, 306
(Tex. App.—Dallas 2011, orig. proceeding) (“An improper denial of leave to
designate a responsible third party may not be adequately addressed by appeal.”).
The few decisions declining to grant mandamus relief have arisen in the
personal injury context. E.g., In re Unitec Elevator Servs. Co., 178 S.W.3d 53, 64
(Tex. App.—Houston [1st Dist.] 2005, orig. proceeding) (distinguishing Arthur
Anderson “because here, we are not dealing with the complex, intertwined facts
surrounding the collapse of a major corporation, but a relatively straightforward
personal injury case.”). Small personal injury cases are not analogous here.
B. Appellate Remedies Are Inadequate in This Case.
For several reasons, this is an exceptional case. The facts will span nearly a
decade of Xerox State Healthcare’s performance under a contract (2004 to 2014).
R7, R.17. During that time, TMHP was the claims processor for hundreds of
thousands of prior-authorization requests. R.29. The State alleges that it spent
approximately $1.1 billion on orthodontic services for most of these years, and it is
claiming not just damages for overpayments but also doubling of damages, civil
penalties, fees, interest and costs. R.3-4. The complexity, scale, and stakes of this
suit put it in a class of its own.
31
The State admits that its allegations against the providers and Xerox are
intertwined: “As a result of the conduct of both Xerox and these providers,” the
State claims it was harmed. R.3 (original petition). The State claims that the
providers submitted fraudulent requests that Xerox fraudulently approved. The
State has thus sued the providers separately for TMFPA claims arising out of the
same set of facts. R.156-81, R.286-308.
The State’s fraud theory triggers Xerox’s “substantial right to present the
complete set of intertwined facts and issues germane to [its] claims, to one
factfinder, in one proceeding, rather than in two separate suits that are all but
foreordained to generate, collectively, a decision destined to fail in the appellate
process.’” Arthur Anderson, 121 S.W.3d at 486. Having piecemeal trials on the
State’s claims would be fundamentally unfair.
The trial court recognized that its rulings would create multiple lawsuits.
R.633 (“Separate suits Xerox may bring against third parties will not revisit my
ruling - they result from it.”). But the trial court failed to adequately account for
the unfairness of piecemeal litigation to the parties, whose claims and defenses
would be harmed if not tried in one proceeding before one factfinder. Separate
lawsuits “are all but foreordained to generate, collectively, a decision destined to
fail in the appellate process.” Arthur Anderson, 121 S.W.3d at 486.
32
Multiple trials and appeals would also be an enormous waste of resources.
The State has acknowledged as much when it sought mandamus relief in the
supreme court, asking for review of a severance order requiring it to try eight
separate lawsuits instead of one. In re State, 355 S.W.3d 611, 615 (Tex. 2011).
In granting mandamus relief, the supreme court emphasized that each lawsuit had
essentially identical factual issues, such that eight separate trials required the
parties to pay “the same lawyers to argue, and the same experts to testify, in eight
separate cases, an issue that could be tried once.” Id. at 614.
The supreme court further emphasized that an appeal from these trials would
be inadequate because of the “enormous waste of judicial and public resources.”
Id. at 615. It noted that it had granted mandamus relief where:
 An erroneous venue ruling “subject[ed] taxpayers, defendants and all of
the state’s district courts to meaningless proceedings and trials.” Id.
(quoting In re Team Rocket, L.P., 256 S.W.3d 257, 262 (Tex. 2008)); and
 An order severing two suits into sixteen had no adequate appellate
remedies because there would be “no remedy at all for the irreversible
waste of judicial and public resources that would be required here if
mandamus does not issue.” Id. (citing In re Masonite, 997 S.W.2d 194,
196 (Tex. 1999)).
Thus, the public interests of the system itself—not to mention the litigants in the
lawsuits—provided a sound basis for mandamus relief. Id.; see also Prudential,
148 S.W.3d at 137 (mandamus relief considers broader public concerns, such as
“putting the civil justice system . . . to the trouble of grinding through proceedings
that were certain to be ‘little more than a fiction.’”).
33
Further, multiple separate proceedings without all relevant parties would be
fundamentally skewed. But showing how the outcomes would have been different
would likely prove elusive on appeal. Denying Xerox its right to join or designate
the providers as responsible third parties might “skew the proceedings, potentially
affect the outcome of the litigation, and compromise the presentation of [Xerox’s]
defense in ways unlikely to be apparent in the appellate record.” Brokers
Logistics, Ltd., 320 S.W.3d at 408 (citing Arthur Anderson, 121 S.W.3d at 486).
Courts have granted mandamus relief in this context in recognition that the trial
would be skewed and it might be too difficult to show harm on appeal in the wake
of a jury verdict. See id.; accord Lewis Casing Crews, 2014 WL 3398170, at *5;
Altec Indus., 2012 WL 2469542, at *2.
Last, the statutory question presented in this case may evade review entirely
unless reached by mandamus. No appellate court in Texas has ever decided
whether Chapter 33 applies to a claim under the TMFPA. While Xerox sought to
certify this issue for permissive interlocutory appeal, the trial court declined to
certify it. R.634. And while Xerox believes the ruling is reversible error, it should
not be required to face an expensive array of skewed trials without knowing this
Court’s view of the issue. Meanwhile, this Court will be reviewing on direct
appeal a related issue in the State’s separate lawsuit against the providers, see p. 8
supra, and it would advance both the fairness and efficiency of this entire
landscape of lawsuits to ensure that the decisions are consistent.
34
For all of these reasons, the benefits of mandamus review far outweigh any
detriments, and Xerox has no adequate remedy on appeal.
CONCLUSION AND PRAYER FOR RELIEF
Xerox respectfully requests that mandamus relief be conditionally granted.
The trial court should be directed to vacate its order striking Xerox’s third-party
petition and to grant Xerox’s motion for leave to designate responsible third parties
under Chapter 33. Xerox prays for any further relief to which it may be entitled.
Respectfully submitted,
By: /s/ Eric J.R. Nichols By: /s/ Constance H. Pfeiffer
Eric J.R. Nichols Constance H. Pfeiffer
State Bar No. 14994900 State Bar No. 24046627
Gretchen Sween BECK REDDEN LLP
State Bar No. 24041996 1221 McKinney St., Ste. 4500
Christopher R. Cowan Houston, TX 77010
State Bar No. 24084975 Tel: 713.951.3700
BECK REDDEN LLP
515 Congress Ave., Ste. 1900
Austin, TX 78701
Tel: 512.708.1000
Robert C. Walters C. Andrew Weber
State Bar No. 20820300 State Bar No. 00797641
GIBSON, DUNN & CRUTCHER LLP 301 Congress, Ste. 2000
2100 McKinney Ave., Ste. 1100 KELLY HART & HALLMAN LLP
Dallas, TX 75201 Austin, TX 78701
Tel: 214.698.3100 Tel: 512.495.6451
COUNSEL FOR RELATORS
35
CERTIFICATE OF COMPLIANCE
1. This brief complies with the type-volume limitation of
Tex. R. App. P. 9.4 because it contains 8,507 words, excluding the parts of the
brief exempted by Tex. R. App. P. 9.4(i).
2. This brief complies with the typeface requirements of Tex. R. App. P.
9.4(e) because it has been prepared in a proportionally spaced typeface using
Microsoft Word 2007 in 14 point Times New Roman font.
Dated: July 1, 2015.
/s/ Constance H. Pfeiffer
Constance H. Pfeiffer
Counsel for Relators
RULE 52.3(J) CERTIFICATION
I have reviewed the petition and concluded that every factual statement in
the petition is supported by competent evidence included in the appendix or record.
/s/ Constance H. Pfeiffer
Constance H. Pfeiffer
36
CERTIFICATE OF SERVICE
I hereby certify that on July 1, 2015, a true and correct copy of the above
and foregoing Petition for Writ of Mandamus was forwarded to all counsel of
record by the Electronic Service Provider, if registered, otherwise by email, and to
Respondent, by hand delivery, as follows:
Raymond Winter Reynolds Brissenden
Chief, Civil Medicaid Fraud Division Assistant Attorney General
OFFICE OF THE ATTORNEY GENERAL Office of the Attorney General
P.O. Box 12548 P.O. Box 12548
Austin, TX 78711-2548 Austin, TX 78711-2548
raymond.winter@texasattorneygeneral.gov reynolds.brissenden@texasattorneygeneral.gov
Counsel for Real Party in Interest, The State of Texas
Jason Ray E. Hart Green
Riggs, Aleshire & Ray, P.C. Weller, Green, Toups & Terrell, L.L.P.
700 Lavaca, Suite 920 Post Office Box 350
Austin, TX 78701 Beaumont, TX 77704-0350
jray@r-alaw.com hartgr@wgttlaw.com
Counsel for Intervenors,
Atlas Dental, LP, et al. and Antoine Dental Center, et al.
Honorable Stephen Yelenosky
Judge, 345th District Court
Travis County Courthouse
P.O. Box 1748
Austin, TX 78767
Respondent
By: /s/ Constance H. Pfeiffer
Constance H. Pfeiffer
37
No. __________________
IN THE THIRD COURT OF APPEALS
AUSTIN, TEXAS
IN RE XEROX CORPORATION AND XEROX STATE HEALTHCARE, LLC
F/K/A ACS STATE HEALTHCARE, LLC,
Relators.
Original Proceeding from the 53rd District Court,
Travis County, Texas, Trial Court Cause No. D-1-GV-14-000581
The Honorable Stephen Yelenosky, Presiding
APPENDIX TO
PETITION FOR WRIT OF MANDAMUS
TAB
A Order Granting Motion to Strike Petitions in Intervention and
Plea to the Jurisdiction
B Order Denying The Xerox Parties’ Motion for Leave to
Designate Responsible Third Parties
C Order Granting State’s Plea to the Jurisdiction and Motion to
Dismiss Third Party Claims
Tab A
Order Granting Motion to Strike Petitions in
Intervention and Plea to the Jurisdiction
SEP-19-2014 11:59 P.003/005
v~ fl°CiliiS t.iOllOiy, ft;X;:~·
CAUSE NO. D-t-GV-14-000581
THE STATE OF TEXAS, § IN THE DISTRlCT COURT
Plaintiff, §
§
v. §
§
XEROX CORPORATION; XEROX § TRAVIS COUNTY, TEXAS
STATEHEALTHCARE,LLC; ACS §
HEATHCARE LLC, A XEROX §
CORPORATION, §
Defendants. § 53Ro JUDICIAL DISTRICT
ORDRR GRANTING MOTION TO STIKE PETITIONS IN INTERVENTION
ANO PLEA TO THE .roRISDICTION
On Monday, September 15, 2014, the Court heard the State of Texas's Motion to
Strike Petitions in Intervention and Plea. lo the Jurisdiction. After review and
consideration of the motions and the responses thereto, the Court finds that the State of
Texas's Motion to Strike Petitions in Intervention and Plea to the Jurisdiction should be
GRANTED, and therefore,
TT IS ORDERED that the State of Texas's Motion to Strike Pcticions in
Intervention and Plea to the Judsdiction is GRANTED, and all claims asserted by
lntervenors (Dr. Stephen Chu; Dr. Richard F. Herrschcr; Atlas Dental, L.L.P.) and Dr.
Hicu Huynh; Man & CFN Ortho, PLLC, NavaTt'o Orthordontix of fort Worth, PLLC
Navarro Orthodontix of Irving, PC, Navarro Orthordontix of Edinburg, PLLC, Navarro
Orthordontix of McAllen. PLLC~ Navarro Onhordontix, PC, and Dr. Carlos F. Nararro;
RGV Smiles by Rocky L. Salinas, DDS, PA, and Dr.Rocky Sakinas; Inna Cantu-
Thompson, DDS , PC, and Inna CantuThompson; Westmoreland Dental, PA,
P.004/006
SEP-19-201 4 11:69
Westmoreland Dental of Garland, PC Westmoreland Dental and Othodontics, PA. and
Scottie H. Nguyen. DDS; and Victor M. Zurita, DDS) in this case are DISMISSED.
SIGNED this l81h Day ofSeptember2014.
Tab B
Order Denying The Xerox Parties’ Motion for
Leave to Designate Responsible Third Parties
Filed in The District Court
of Travis County, Texas
APR 15 2015
At c2,:o--:r- M.
CAUSE NO. D-1-GV-14-000581 Velva L. Prlce, District Clerk
THE STATE OF TEXAS § . IN THE DISTRICT COURT OF
§
Plaintiff, §
§
v. §
§
§ TRAVIS COUNTY, TEXAS
XEROX CORPORATION; XEROX §
STATE HEALTHCARE, LLC; §
ACS HEALTHCARE LLC, §
A XEROX CORPORATION, §
§
Defendants. § 53RD JUDICIAL DISTRICT
§
ORDER DENYING THE XEROX PARTIES' MOTION FOR LEAVE
TO DESIGNATE RESPONSIBLE TIDRD PARTIES
On April 15, 2015, the Court heard the Xerox Parties' Motion for Leave to
Designate Responsible Third Parties filed on March 13, 2015. A~l parties appeared through
their respective counsel and announced ready.
Having considered the Motion, response briefs, and arguments of counsel, the Court
ORDERS that the Xerox Parties' Motion for Leave to Designate Responsible Third Parties
is DENIED.
Signed thiS JS~y of~ 2015
~Ll/
Jud~n Y~nosky ,
1
I /
Tab C
Order Granting State’s Plea to the Jurisdiction
and Motion to Dismiss Third Party Claims
APR-28-2015 14:22 345TH DISTRICT COURT
P.05/06
Fi\ed in The District Court
of Travis county, Texas ;iJ---
CAUSE NO. D-1-GN-14-005380
APR 28 .201
THE STATE OF TEXAS § IN THE DISTRICT COURT OF
§
Plaintiff, §
§
v. §
§
DR. BEHZAD NAZARI, D.D.S. § TRAVIS COUNTY, T~XAS
D/B/A ANTOINE DENTAL §
CENTER, DR. BEHZAD NAZARI, §
DR.WAELKANAAN, §
HARLINGEN FAMILY §
DENTISTRY, P.C., NIKIA, §
PRACTICAL BUSINESS §
SOLUTIONS, SERIES LLC, JUAN §
D. VILLAREAL D.D.S., SERIES, §
PLLC D/B/A HARLINGEN §
FAMILY DENTISTRY GROUP, §
DR. JUAN VILLAREAL, DR. §
VIVIAN TEEGARDIN, 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 L. SALINAS, §
D.D.S. PA, AND DR. ROCKY §
SALINAS § SJRD JUDICIAL DISTRICT
§
Defendants. §
ORDER GRANTING STATE'S PLEA TO THE JURISDICTION
AND MOTION TO DISMISS THIRD PARTY CLAIMS
On April 15, 2015, the Court heard the State of Texas's Plea to the Jurisdiction, PJea
in Bar and Motion to Dismiss Third Party Claims, filed on January 20, 2015. All parties
appeared through their respective counsel and announced ready.
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APR-28-2015 14:22 345TH DISTRICT COURT P.06/06
D-\-6 r0- l Lf-OiY73 go
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Having considered the Pleas, Motion, response briefs, and arguments of counsel,
the Court ORDERS that the State of Texas's Plea to the Jurisdiction is GRANTED.
Defendants' counterclaims against the State are DISMISSED with prejudice. The Court
further ORDERS that the State of Texas's Motion to Dismiss Third Party Claims is also
GRANTED. Consistent with this Court's rulings in the State's litigation against Xerox,
the Court finds that the State is entitled to bring this action against defendants to the
exclusion of other parties. Defendants' third party claims against Xerox are DISMISSED.
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Signed thi.z.li day of~ 2015
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TOTAL P.06