Nazari v. State

Full title: Dr. Behzad NAZARI, D.D.S., et al., Petitioners, v. The STATE of Texas…

Court: Supreme Court of Texas.

Date published: Jun 22, 2018

561 S.W.3d 495 (Tex. 2018)

Opinion

No. 16–0549

06-22-2018

Dr. Behzad NAZARI, D.D.S., et al., Petitioners, v. The STATE of Texas; Xerox Corporation; and Xerox State Healthcare, LLC f/k/a ACS State Healthcare, LLC, Respondents

William R. Peterson, Morgan, Lewis & Bockius LLP, Houston, TX, for Pharmaceutical Research and Manufacturers of America. Oscar Xavier Garcia, Attorney at Law, Brownsville, TX, Philip H. Hilder, Hilder & Associates PC, Houston, TX, William Graham, Hilder & Associates, Austin, TX, for Dr. Wael Kanaan. Jason D. Ray, Riggs & Ray, P.C, Austin, TX, J. Woodfin Jones, Alexander Dubose Jefferson & Townsend LLP, Austin, TX, E. Hart Green, Mitchell A. Toups, Weller Green Toups & Terrell, L.L.P., Beaumont, TX, Richard Bruce Pecore, Liles Parker, PLLC, Kingwood, TX, Robert M. Anderton, Law Offices of Hanna & Anderton, Austin, TX, J. A. (Tony) Canales, Canales & Simonson, P.C., Corpus Christi, TX, for Dr. Behzad Nazari, D.D.S., et al. J. Campbell Barker, Philip A. Lionberger, Raymond C. Winter, Scott A. Keller, Office of the Attorney General of Texas, Austin, TX, Jeffrey C. Mateer, First Assistant Attorney General, Austin, TX, Christopher R. Cowan, David M. Gunn, Constance H. Pfeiffer, Eric J.R. Nichols, Beck Redden LLP, Austin, TX, William C. Webb, Beck Redden LLP, Houston, TX, Robert C. Walters, Gibson, Dunn & Crutcher LLP, Dallas, for The State of Texas; Xerox Corporation; and Xerox State Healthcare, LLC, f/k/a ACS State Healthcare, LLC.

William R. Peterson, Morgan, Lewis & Bockius LLP, Houston, TX, for Pharmaceutical Research and Manufacturers of America.

Oscar Xavier Garcia, Attorney at Law, Brownsville, TX, Philip H. Hilder, Hilder & Associates PC, Houston, TX, William Graham, Hilder & Associates, Austin, TX, for Dr. Wael Kanaan.

Jason D. Ray, Riggs & Ray, P.C, Austin, TX, J. Woodfin Jones, Alexander Dubose Jefferson & Townsend LLP, Austin, TX, E. Hart Green, Mitchell A. Toups, Weller Green Toups & Terrell, L.L.P., Beaumont, TX, Richard Bruce Pecore, Liles Parker, PLLC, Kingwood, TX, Robert M. Anderton, Law Offices of Hanna & Anderton, Austin, TX, J. A. (Tony) Canales, Canales & Simonson, P.C., Corpus Christi, TX, for Dr. Behzad Nazari, D.D.S., et al.

J. Campbell Barker, Philip A. Lionberger, Raymond C. Winter, Scott A. Keller, Office of the Attorney General of Texas, Austin, TX, Jeffrey C. Mateer, First Assistant Attorney General, Austin, TX, Christopher R. Cowan, David M. Gunn, Constance H. Pfeiffer, Eric J.R. Nichols, Beck Redden LLP, Austin, TX, William C. Webb, Beck Redden LLP, Houston, TX, Robert C. Walters, Gibson, Dunn & Crutcher LLP, Dallas, for The State of Texas; Xerox Corporation; and Xerox State Healthcare, LLC, f/k/a ACS State Healthcare, LLC.

Justice Brown delivered the opinion of the Court, in which Chief Justice Hecht, Justice Green, Justice Guzman, and Justice Devine joined.

In this enforcement action under the Texas Medicaid Fraud Prevention Act (the Act), the State of Texas alleges that several dentists and their professional associations and employees (collectively, the Providers) fraudulently obtained Medicaid payments for providing dental and orthodontic treatments to children. In response, the Providers assert counterclaims and third-party claims alleging that the state and its contractor mismanaged the payment-approval process and misled the Providers regarding the requirements that the Texas Medicaid Program (the Program) imposes. The state filed a plea to the jurisdiction against the counterclaims and a motion to dismiss the third-party claims. The trial court granted both. The Providers filed this interlocutory appeal. We conclude that sovereign immunity bars the Providers' counterclaims against the state and that we lack interlocutory jurisdiction to address the trial court's dismissal of the Providers' third-party claims. We affirm the court of appeals' judgment.

I

Background

The facts giving rise to this dispute depend on whom you ask. According to the state, the Providers voluntarily agreed to participate in the Program by providing orthodontic treatments to qualifying children in exchange for payments from the state at reduced Medicaid rates.¹ See generally 42 U.S.C. §§ 1396 to 1396w–5 (authorizing each state to administer its own Medicaid program); TEX. HUM. RES. CODE § 32.001 (implementing the Texas Medicaid Program "to provide medical assistance on behalf of needy individuals and to enable the state to obtain all benefits for those persons authorized" by federal law). The Program pays for certain "medically necessary" orthodontic treatments, but it does not cover treatments that are for "cosmetic reasons only." 25 TEX. ADMIN. CODE §§ 33.40(b), 33.71(a). As one way of preventing improper payments, the Program requires dentists and orthodontists to obtain prior authorizations for all services and treatments. Id. § 33.71(a). During the events that spurred this litigation, Xerox administered the prior-authorization program under a contract with the state. The state alleges that the Providers routinely submitted prior-authorization and post-treatment-payment requests that misrepresented the severity or nature of the patients' conditions, sought payments for services that were never provided, falsely claimed that licensed employees had provided the services, and in some cases, accepted kickbacks. At the same time, the state alleges, Xerox failed to properly review the Providers' prior-authorization requests and instead simply rubber-stamped them.² The state thus maintains that the Providers and Xerox committed independent frauds in violation of the Act, ultimately costing the state "and its taxpayers millions of dollars."

1 The state's live petition alleges that the Providers fraudulently performed "general dental and/or orthodontic services." The remainder of this opinion refers to these services as "orthodontic services" or "orthodontic treatments."

2 The state's allegations against Xerox form the core of a separate Medicaid-fraud case, also announced today. See In re Xerox , 555 S.W.3d 518, 2018 WL 3077704 (Tex. 2018).

The Providers tell a different story. They deny knowingly submitting false prior-authorization or payment requests. Instead, they claim their requests and services complied with the Program's requirements as the state and Xerox explained and enforced those requirements. According to the Providers, the state permitted and even intended Xerox to approve as many treatments as possible. This instruction, the Providers say, was part of the state's plan to fend off additional liabilities in a series of long-running federal lawsuits related to allegations that the Program "did not satisfy the requirements of federal law." Frew ex rel. Frew v. Hawkins , 540 U.S. 431, 434, 124 S.Ct. 899, 157 L.Ed.2d 855 (2004) ; see also Frazar v. Ladd , 457 F.3d 432, 434 (5th Cir. 2006) (discussing "the latest chapter in the suit to improve Texas administration of the Medicaid program to afford health care to the certified class of indigent children").

The Providers allege that because the state was desperate to appear compliant with the federal-court orders, the state turned a blind eye to Xerox's routine rubber-stamping of the Providers' requests. This, the Providers say, led them to believe that the information they were submitting complied with the Program's requirements and established that their patients qualified for orthodontic services. But when reports of the state's exploding expenditures began to emerge, the Providers allege the state blamed them in an effort to avoid responsibility for its own actions, enrich itself, and limit its liability to the federal government for having mismanaged the Program. As a result, the Providers say they are not responsible for improper requests, if any, and are not liable for any overpayments. To the contrary, urge the Providers, the state and Xerox are liable for all losses, expenses, and attorney's fees that the Providers have incurred as a result of the state's and Xerox's "scheme."

The state's first step was to initiate administrative actions against various dentists—including the Providers—alleging they fraudulently obtained payments from the Program. An avalanche of legal proceedings involving the state, Xerox, and the Providers ensued. Throughout these proceedings, the state has sought to pursue its claims against Xerox and the Providers separately, while Xerox and the Providers have attempted, unsuccessfully, to join all of the claims in one proceeding. After the administrative-law judges ruled against the state in its administrative actions, the state filed this lawsuit against the Providers.

In this suit, the state alleges that the Providers committed fraud in violation of the Act by submitting false prior-authorization and payment requests, seeking payments for services never rendered, misrepresenting the qualifications of those who provided orthodontic services, and, in some cases, accepting illegal kickbacks. The state argued that the trial court could enjoin the Providers from committing fraud. See TEX. HUM. RES. CODE § 36.051(a) (authorizing injunctive relief). It also pleaded in its petition for a recovery "to the maximum extent allowed by law," including specifically:

(1) the amount of any payments provided under the [Program], directly or indirectly, as a result of each [Provider's] unlawful acts,

(2) prejudgment interest on the amount of the payments or the value of such payments,

(3) two times the amount of any payment provided under the [Program], directly or indirectly, as a result of each [Provider's] unlawful acts,

(4) civil penalties, and

(5) expenses, costs, and attorneys' fees.

See id. § 36.052 (authorizing civil remedies). The state alleges that each of the Providers is "jointly and severally liable for the damages which arose either directly or indirectly, as a result of each [of the Providers'] unlawful acts."

The Providers filed an answer generally denying the state's allegations. They also asserted counterclaims against the state for conspiracy, breach of contract, and conversion. The Providers seek "proportional recovery of actual and exemplary damages, interest, court costs, and attorney's fees against the State." They allege that the state has waived its sovereign immunity as to the Providers' "connected, germane, and defensive counterclaims" and that it "is liable up to those amounts plead[ed]." The Providers also asserted third-party claims against Xerox, seeking damages and contribution for common-law fraud, breach of contract, promissory estoppel, negligent hiring, negligent supervision, negligence, and gross negligence. They allege the state and Xerox were responsible for authorizing the Providers' services and conspired to rubber-stamp the Providers' authorization and payment requests. The Providers say this conspiracy led them to continue using the same standards to establish medical necessity, making the state and Xerox liable for any payments for services that were not medically necessary.

The state filed a plea to the jurisdiction against the Providers' counterclaims, asserting that sovereign immunity bars the counterclaims and that the Providers lack standing to assert any claims under the Act or for breach of the contract between the state and Xerox. The state also filed a motion to dismiss the Providers' third-party claims against Xerox, arguing that the Act does not permit a defendant to assert third-party claims and that sovereign immunity bars such claims against a state contractor acting within the scope of its contractual authority. The trial court granted both motions, expressly holding that "the state is entitled to bring this action against [the Providers] to the exclusion of other parties." The Providers filed an interlocutory appeal, and Xerox filed a brief supporting the Providers' appeal. The court of appeals affirmed the trial court's order dismissing the Providers' counterclaims. 497 S.W.3d 169, 171 (Tex. App.—Austin 2016). The court did not consider the merits of the Providers' appeal from the order dismissing the third-party claims, concluding that it lacked interlocutory jurisdiction over that order. See id. at 184.

We granted the Providers' petition for review. We need not and do not address the merits of the parties' claims or pick between their competing descriptions of the underlying facts. The only issues before us today are: (1) whether sovereign immunity bars the Providers' counterclaims against the state; and (2) whether the trial court erred by dismissing the Providers' third-party claims against Xerox. We conclude that sovereign immunity bars the counterclaims, and we agree with the court of appeals that we lack interlocutory jurisdiction to address the order dismissing the third-party claims.

II

Counterclaims

The trial court dismissed the Providers' counterclaims on the ground that sovereign immunity bars those claims, meaning the court lacked jurisdiction to hear them. The common-law doctrine of sovereign immunity prohibits suits against the state unless the state consents and waives its immunity. See Hall v. McRaven , 508 S.W.3d 232, 238 (Tex. 2017). Sovereign immunity from suit "implicates a court's subject-matter jurisdiction," Engelman Irrigation Dist. v. Shields Bros., Inc. , 514 S.W.3d 746, 755 (Tex. 2017), because it recognizes "the courts' limited authority over the sovereign creating them." Hall , 508 S.W.3d at 238 (citing Brown & Gay Eng'g, Inc. v. Olivares , 461 S.W.3d 117, 121 (Tex. 2015) ). When it applies, immunity from suit "operates to ‘shield the public from the costs and consequences of improvident actions of their governments.’ " Id. (quoting Tooke v. City of Mexia , 197 S.W.3d 325, 332 (Tex. 2006) ).

Although the state may elect to waive its sovereign immunity, that policy decision belongs largely to the legislature. See Engelman , 514 S.W.3d at 753. The legislature may waive the state's immunity "by statute or by legislative resolution." Fed. Sign v. Tex. S. Univ. , 951 S.W.2d 401, 405 (Tex. 1997), superseded by statute on other grounds as stated in Tex. Dep't of Parks & Wildlife v. Miranda , 133 S.W.3d 217, 224 (Tex. 2004). If the legislature elects to waive immunity, it must do so "by clear and unambiguous language." Tooke, 197 S.W.3d at 328–29 (citing TEX. GOV'T CODE § 311.034 ). In this court, the Providers do not argue that the Act expressly waives the state's immunity against their counterclaims, and we agree with the state and the court of appeals that it does not. See 497 S.W.3d at 175 ("Nothing in the provisions of the Act can be construed as a waiver of immunity for the claims at issue in this case.").

The Providers argue that the attorney general "waived" the state's sovereign immunity by filing this suit and voluntarily appearing in court. In support, the Providers rely on cases like Anderson, Clayton & Co. v. State ex rel. Allred , in which we held that "where a state voluntarily files a suit and submits its rights for judicial determination, it will be bound thereby, and the defense will be entitled to plead and prove all matters properly defensive." 122 Tex. 530, 62 S.W.2d 107, 110 (1933). "This includes the right," we explained, "to make any defense by answer or cross-complaint germane to the matter in controversy." Id. The Providers also cite cases stating, for example, that "[w]hen the state becomes a party to a suit it is subject to the same rules that govern other parties." Sec. Tr. Co. v. Lipscomb Cty. , 142 Tex. 572, 180 S.W.2d 151, 159 (1944) ; see also State v. Naylor , 466 S.W.3d 783, 792 (Tex. 2015) ("[T]he State must abide by the same rules to which private litigants are beholden."); Reata Constr. Corp. v. City of Dallas , 197 S.W.3d 371, 377 (Tex. 2006) ("[T]he City must participate in the litigation process as an ordinary litigant[ ] ...."); State v. Zanco's Heirs , 18 Tex.Civ.App. 127, 44 S.W. 527, 529 (San Antonio 1898, writ ref'd) ("When the state of Texas enters its courts as a litigant, it must be held subject to the same rules that govern other litigants[ ] ....").

The state disagrees, relying on cases like Borden v. Houston for the rule that the state's appearance as a plaintiff in its own courts does not waive its immunity against counterclaims. See 2 Tex. 594, 611–12 (1847) ("When individuals have rights against the government, the clearest principles of equity and justice demand that those rights shall be respected[ ] .... But however clear the right may be, ... it can be enforced against the government only by its consent, and in the manner it may prescribe."). And while the state may be bound to follow certain procedures when it appears in court, the state contends, procedural rules cannot waive the state's immunity.

We agree with the state that these decisions do not establish that the state waives its sovereign immunity by initiating suit. Many of the cases the Providers cite stand simply for the proposition that procedural rules apply to the state just as they would to any other litigant when the state appears in court. That proposition, though sound, does not answer the question whether sovereign immunity protects the state from having to defend certain actions to begin with. See Fed. Sign , 951 S.W.2d at 407 ("To state what happens if the State consents to be sued says nothing about whether the State consents to be sued.").

And while the quote from Anderson appears to support the Providers' waiver argument, we clarified that case and others like it in Reata Construction Corp. v. City of Dallas . See 197 S.W.3d at 374, 376–77 (citing Anderson , 62 S.W.2d at 110 ). We based our Reata holding not on a waiver theory, but on the scope of the City's immunity. See id. at 375 ("[I]t remains the judiciary's responsibility to ... determine under what circumstances sovereign immunity exists in the first instance."). So although we defer to the legislature to determine whether the state has waived immunity, "sovereign immunity is a common-law creation," and the "responsibility to define the boundaries of the doctrine" remains with the judiciary. Engelman , 514 S.W.3d at 753. One such boundary is that a governmental entity simply "does not have immunity from suit for monetary claims against it that are ‘germane to, connected with, and properly defensive to’ affirmative claims made by the entity," to the extent that the claims against the entity offset the entity's own claims. City of Dallas v. Albert , 354 S.W.3d 368, 372 (Tex. 2011) (quoting Reata , 197 S.W.3d at 378 ). "This is not because the governmental entity ‘waives’ its immunity by filing a claim for affirmative relief. Instead, the scope of governmental immunity simply does not reach the defensive counterclaims to the extent that any recovery on the counterclaims serves as an ‘offset’ against the government's recovery." C. Borunda Holdings, Inc. v. Lake Proctor Irrigation Auth. of Comanche Cty. , 540 S.W.3d 548, 550 (Tex. 2018) (per curiam) (citations omitted).

At issue here, then, is not whether the state waived its immunity against the Providers' counterclaims by filing this suit, but whether the scope of the state's immunity encompasses those counterclaims to begin with. See Albert , 354 S.W.3d at 375. We agree with the parties that the principles we announced in Reata govern the resolution of that issue. We explained in Reata that once a "governmental entity interjects itself into or chooses to engage in litigation to assert affirmative claims for monetary damages , the entity will presumably have made a decision to expend resources to pay litigation costs." 197 S.W.3d at 375 (emphasis added). We also recognized that "it would be fundamentally unfair to allow a governmental entity to assert affirmative claims against a party while claiming it had immunity as to the party's claims against it." Id. at 375–76.

To resolve the issue, we must first answer which part of the phrase "monetary damages" best captures Reata 's holding: is it the word "monetary," as the Providers argue, or is it the word "damages," as the state argues? See id. at 375. We conclude that Reata applies to damages, but that the question whether it applies further—and how much—is one of first impression. This conclusion gives rise to a second question: does Reata apply to penalties? We conclude that it does not. The third question is whether the state's action under the Act seeks to impose a penalty. We answer that question in Xerox , also decided today. See Xerox , 555 S.W.3d at 533–34. In that case, "[c]onstruing the statute as a whole, we conclude Section 36.052 of the [Act] employs a penalty scheme." Id. at 534. Since the Act is penal, Reata 's abrogation-of-immunity rule does not apply. Accordingly, the state's sovereign immunity protects it from the Providers' counterclaims.

A

The Providers argue that Reata applies broadly: anytime the state seeks a transfer of funds. They contend that we have given "broad application" to the rule waiving sovereign immunity when the state files a suit "in the form of affirmative claims for monetary relief." Thus, the Providers argue, " Reata simply does not contemplate or support a distinction between damages and penalties" and "the [court of appeals] was wrong to create one." The Act authorizes (and the state has pleaded for) a monetary award including: (1) the amount of any payment the state made as a result of each unlawful act, (2) prejudgment interest on that amount, (3) a civil penalty for each unlawful act, and (4) two times the amount of any payment made as a result of an unlawful act. See TEX. HUM. RES. CODE § 36.052(a). The Providers argue that although Reata happened to involve tort claims for compensatory damages, we did not limit our holding to only those types of claims seeking only that type of monetary relief. See, e.g. , 197 S.W.3d at 376–78 (referring three times to the governmental entity's claims for "monetary relief"); id. at 377 ("Once it asserts affirmative claims for monetary recovery , the City must participate in the litigation process as an ordinary litigant[ ] ...." (emphasis added) ); id. at 375 ("If the opposing party's claims can operate only as an offset to reduce the government's recovery , no tax resources will be called upon to pay a judgment[ ] ...." (emphasis added) ).

The state responds that Reata applies narrowly: only when the state seeks compensatory damages. Since Reata referred to the City's claim as "damages," the state says that damages are the only type of relief that Reata addressed. See id. at 377 ("[The City's decision] to file suit for damages encompassed a decision to leave its sphere of immunity from suit for claims against it which are germane to, connected with and properly defensive to claims the City asserts." (emphasis added) ); id. ("[T]he trial court acquired subject-matter jurisdiction over claims made against the City which were connected to, germane to, and properly defensive to the matters on which the City based its claim for damages ." (emphasis added) ); id. ("[T]he trial court did not acquire jurisdiction over a claim for damages against the City in excess of damages sufficient to offset the City's recovery, if any." (emphasis added) ); id. ("[T]he City's assertion of claims for damages against Reata means that the City does not have immunity from Reata's claims to the limited extent we have explained ...." (emphasis added) ).

We do not agree with either party's characterization of our precedent. In Reata and its progeny, we used broad terms like "monetary relief" simply to refer to the damages the government sought. That usage does not establish that Reata applies to all money claims, as the Providers suggest. But neither does it expressly limit the Reata rule to compensatory damages, as the state suggests. In other words, the issue whether the Reata rule covers the facts this case presents is one of first impression.

1. Pre- Reata decisions

Reata 's abrogation analysis cites eight cases, but it discusses only three of them in depth. See 197 S.W.3d at 376–77. Two cases appear only once each. See id. (first citing Tex. Nat. Res. Conservation Comm'n v. IT–Davy , 74 S.W.3d 849, 861 (Tex. 2002) (Hecht, J., concurring) ); and then citing City of La Porte v. Barfield , 898 S.W.2d 288, 297 (Tex. 1995), superseded by statute as stated in Manbeck v. Austin Indep. Sch. Dist. , 381 S.W.3d 528, 532 (Tex. 2012) (per curiam) ). Three more cases appear only in footnotes. See id. at 376–77 nn.2–3. (first citing Borden , 2 Tex. at 611 ; then citing Bates v. Republic of Texas , 2 Tex. 616, 618 (1847) ; and then citing Sw. Contract Purchase Corp. v. McGee , 120 Tex. 240, 36 S.W.2d 978, 979 (1931) ). The remaining cases are the three on which Reata 's analysis most relied. See id. (first discussing Anderson , 62 S.W.2d 107 ; then citing State v. Humble Oil & Ref. Co. , 141 Tex. 40, 169 S.W.2d 707 (1943) ; and then citing Kinnear v. Tex. Comm'n on Human Rights ex rel. Hale , 14 S.W.3d 299 (Tex. 2000) (per curiam). None of these cases support the view that Reata contemplated abrogating immunity anytime the state sues in its own courts to obtain money.

The first of the three principal cases on which Reata relied, Anderson , was an enforcement action in which the state sought "recovery of penalties" against a trucking company that was operating without a license. Anderson , 62 S.W.2d at 107. Importantly, although the state was seeking a penalty, the counterclaimants in Anderson "alleged that the agents of the state were acting unlawfully and in excess of their authority" and "sought an order enjoining such officers from interfering with the operating of the trucks over the highways." Id. at 109. That is, the counterclaimants were not seeking monetary relief. See id. We held that they could maintain their counterclaim against the state in that case, reasoning that

The state having invoked the jurisdiction of the district court ... for a judicial determination of the question as to whether the defendants were ... liable for the penalties ... became subject to the same rules as other litigants, except in so far as such rules may be modified in favor of the state by statute or may be inapplicable or unenforceable because of exemptions inherent in sovereignty.

Id. at 110. We concluded that a "state's immunity from suit does not extend to a suit against state officers to enjoin the enforcement of an invalid law." Id. We also noted the "further rule" that "where a state voluntarily files a suit and submits its rights for judicial determination, it will be bound thereby, and the defense will be entitled to plead and prove all matters properly defensive." Id. Since the counterclaimants in Anderson did not even seek any money from the state, that case—although it has figured prominently in subsequent claims for money—establishes little in determining which of the state's suits for money Reata 's abrogation rule applies to. If anything, Anderson 's reference to the "exemptions inherent in sovereignty" indicates that counterclaims for money are different from counterclaims for injunctive relief. Id.

The second case, State v. Humble Oil & Refining Co. , involved an operator that overpaid taxes in some months but underpaid them in another. See 169 S.W.2d at 708. When the state tried to recover the underpayments, the operator, relying on "the general rule announced in Anderson [,]" claimed the overpayments as an offset, and it paid the difference rather than the full tax it owed for the underpaid month. See id. at 709 (citing Anderson , 62 S.W.2d at 110 ). We rejected the operator's argument:

We have no fault to find with the rule of law announced in the Anderson, Clayton & Co. opinion, when applied in a proper case. It, however, can have no application in this suit, because to here apply it would allow it to abolish the rule that taxes due the State cannot be offset by an indebtedness due by the State to the tax debtor. Furthermore, here we have no offset claim which is dependent upon, connected with, or grew out of the subject matter of this suit. It is true that the subject matter of this suit is gross production taxes on oil, and the subject matter of the offset claim is the same character of taxes. But the one claim has no connection with the other, and the two claims are entirely independent of each other .... The two claims are not even involved in the same report.

Id. at 709–10 (emphasis added). Humble Oil thus recognized something that Anderson itself did not—that the "rule of law announced" in Anderson could apply to some monetary offsets. Id. at 709 ; see also Anderson , 62 S.W.2d at 110 (allowing a counterclaim for injunctive relief). If the rule were otherwise, the Humble Oil court would have had no reason to exempt taxes from Anderson 's ambit. Accordingly, one of the first cases recognizing that the Anderson rule could apply to money also recognized that the rule did not apply to all money. As such, Humble Oil , though it predates Reata , directly contradicts the proposition that the Reata rule applies to all monetary offsets. See Humble Oil , 169 S.W.2d at 709–10 ; see also Reata , 197 S.W.3d at 371 (noting approvingly that Humble Oil "acknowledged that in certain circumstances , a defendant would be entitled to assert a claim against the State" (emphasis added) ).

The third case, Kinnear v. Texas Commission on Human Rights ex rel. Hale , addressed a counterclaim for attorney's fees in response to the state's initiation of a suit under the Texas Fair Housing Act. See 14 S.W.3d at 300. We held that "the jurisdictional question [of immunity from suit] ... was answered when the Commission filed suit." Id. Because the state had waived immunity from liability by failing to plead it, we "render[ed] judgment awarding Kinnear his attorney fees and costs" under the Fair Housing Act. Id. The state's allegation brought with it a claim for monetary relief, see TEX. PROP. CODE § 301.153, but a jury found against the state, and we awarded Kinnear attorney's fees on that basis, see 14 S.W.3d at 300. In other words, the attorney's fees in Kinnear were not an offset. Thus, Kinnear had no reason to cite (and did not cite) Anderson or Humble Oil . So while Kinnear involved an abrogation of immunity, it was not the type of abrogation we announced in Anderson and expounded on in Reata . As a result, it provides scant reason to conclude anything about Reata 's scope.

In sum, of the three cases on which Reata grounded its analysis, the first did not even involve a counterclaim for money, see Anderson , 62 S.W.2d at 110, the second dealt primarily with sovereign immunity barring a counterclaim for money in the tax context, see Humble Oil , 169 S.W.2d at 709–10, and the third allowed attorney's fees against the state in response to a failed enforcement action that did not even involve an offset, see Kinnear , 14 S.W.3d at 300. Against this backdrop, the Providers ask us to conclude that Reata applies "without regard to the type of monetary relief" sought.

2. Reata

In Reata , a contractor sued a subcontractor, alleging that the subcontractor negligently drilled into a water main. See 197 S.W.3d at 373. The subcontractor filed a third-party claim against the City of Dallas. See id. Before answering the subcontractor's third-party claim, the City intervened and "assert[ed] claims of negligence against [the subcontractor] and a plea to the jurisdiction asserting governmental immunity from suit." Id. (emphasis added). That is, the City sought to recover for the subcontractor's negligence, and at the same time maintained that it was immune from answering for its own negligence. See id. We announced, in Reata 's introductory paragraph, that "the City does not have immunity from suit as to [the subcontractor's] claims which are germane to, connected with, and properly defensive to the City's claims, to the extent [the subcontractor's] claims offset those asserted by the City." Id. The remainder of the opinion confirms that our decision regarding the City's claims resulted from the claims' character as damages rather than their character as money . See generally id. at 374–77.

First, Reata uses the word "damages" more than a dozen times. By contrast, it refers but three times to the City's "recovery," twice to its claims for "monetary relief," and only once to a "monetary recovery." See id. at 373–78. This usage indicates that we decided the case based on the narrow theory of damages rather than the broad theory of a transfer of funds. See id. at 375 ("The United States Supreme Court has also recognized that suits for money damages against states ‘may threaten the financial integrity of the States' and that ‘at the time of the founding, many of the States could have been forced into insolvency but for their immunity from private suits for money damages .’ " (emphasis added) (quoting Alden v. Maine , 527 U.S. 706, 750, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999) ). Our purpose in using the broader phrase was benign: avoiding repetition. And to the extent we used "monetary relief" and its variants as something other than synonyms for "damages," our goal was to emphasize "monetary relief" as opposed to injunctive and other types of relief rather than to abrogate the state's sovereign immunity every time it enters a court in pursuit of a money judgment. See id. at 376–77 ; see also Hilco Elec. Co-op., Inc. v. Midlothian Butane Gas Co. , 111 S.W.3d 75, 81 (Tex. 2003) (applying the rule that "when words of a general nature are used in connection with the designation of particular objects or classes ... the meaning of the general words will be restricted to the particular designation").

Second, accepting the interpretation the Providers urge—that Reata applies "without regard to the type of monetary relief" sought—would require us to accept that Reata overruled Humble Oil sub silentio. Because if the Reata rule applies to every "monetary recovery," see 197 S.W.3d at 377, then the Reata rule applies anytime the state sues to collect taxes. But Humble Oil holds precisely the opposite. See 169 S.W.2d at 710 ("[T]axes due [to] the State cannot be offset by an indebtedness due by the State to the tax debtor."). Moreover, Reata relied heavily on Humble Oil as one of "our decisions that ... in effect, modified the common-law immunity doctrine and, to an extent, abrogated immunity of the entity that filed suit."See 197 S.W.3d at 377 (first citing Humble Oil 169 S.W.2d at 710 ; and then citing Anderson , 62 S.W.2d at 110 ). Had we intended to overrule Humble Oil , we would have done so directly, and we certainly would not have relied on it as one of the three foundational cases supporting the rule we announced. This suggests that the rule we adopted in Reata applies to something less than the full spectrum of legal actions the state has at its disposal for effecting a monetary transfer.

Third, if Reata abrogated immunity for some class of cases beyond damages, why is "monetary recovery" the limit rather than "recovery" in general or simply "any claim"—monetary or otherwise? See, e.g. , 197 S.W.3d at 375–76 ("In this situation, we believe it would be fundamentally unfair to allow a governmental entity to assert affirmative claims against a party while claiming it had immunity as to the party's claims against it." (emphasis added) ); id. at 376 ("[W]hen an affirmative claim for relief is filed by a governmental entity, subsequent cases indicate that under such circumstances immunity from suit no longer completely exists for the governmental entity." (emphasis added) ). Since the Providers' interpretation offers no upper limit on Reata 's ambit, we decline to adopt it. Though subsequent cases may modify, expand, or clarify its scope, in Reata itself the abrogation-of-immunity rule applied only to the City's claim for damages.

Moreover, our decisions following Reata also support the conclusion that the Reata rule applies to some, though not necessarily all, monetary claims. For example, in City of Dallas v. Albert , we characterized our decision in Reata as one "conclud[ing] that immunity from suit was abrogated to a limited degree." 354 S.W.3d at 379 (emphasis added) (citing Reata , 197 S.W.3d at 375–76 ); see also Reata , 197 S.W.3d at 377 ("[T]he City does not have immunity from Reata's claims to the limited extent we have explained ...." (emphasis added) ). Similarly, in City of Galveston v. State , just one year after Reata and Tooke v. City of Mexia , we noted that "we recently held in Reata ... that immunity does not exist when a government affirmatively files suit for money damages ." City of Galveston v. State , 217 S.W.3d 466, 471 (Tex. 2007) (emphasis added); see also Manbeck , 381 S.W.3d at 532 ("In Reata [,] ... we held that when a governmental entity asserts an affirmative claim for monetary damages against its opponent, [the Reata rule applies]." (emphasis added) ). These considerations convince us that the state's assertion of a claim for monetary relief, standing by itself, is not enough to trigger Reata 's abrogation-of-immunity rule. Said otherwise, the fact that the state seeks a transfer of funds is not sufficient to place it beyond the protections that immunity from suit affords. When it asserts an affirmative claim for damages, the state steps outside the sphere of its immunity from suit to the extent we described in Reata . See 197 S.W.3d at 375–76. But money is at issue in many more of the state's actions than those in which it seeks damages.

B

Having concluded that the Reata rule does not abrogate sovereign immunity in every suit in which the state seeks a transfer of funds, we must next consider whether the Reata rule applies to the action at issue in this case. Contrary to the Providers' argument, we have never held that the Reata rule always applies when the government seeks any transfer of funds. And contrary to the state's suggestion, nor have we ever held that Reata applies only to compensatory damages. We hold neither today. Instead, we hold that the Reata rule—under which the state, by participating in certain litigation, steps outside the sphere of protection that common-law immunity from suit provides—never applies when the state initiates litigation to enforce a substantive prohibition against unlawful conduct by imposing a monetary penalty. Sovereign immunity protects the state from counterclaims that seek to offset a penalty. Several strands in our jurisprudence support this rule.

First, "offsets" are never "germane to, connected with, and properly defensive to" whether a monetary penalty is due. See Reata , 197 S.W.3d at 377. Penalties are inherently one-sided. Citizens cannot claim a penalty against the state, but the state can and does frequently assess fines, penalties, and sanctions against its citizens. Accordingly, a citizen seeking to offset a penalty must assert some other, non-penal source of the state's liability—a tort, a contract, etc. But in that situation, "one claim has no connection with the other, and the two claims are entirely independent of each other." See Humble Oil , 169 S.W.2d at 710. Indeed, Humble Oil holds that taxes from one month are not "dependent upon[ or] connected with" taxes from another. Id. The same is true for penalties. When the state seeks to sanction primary conduct, a properly defensive response is that the conduct never occurred, or that it occurred to some lesser degree than the state alleges—not that the state cannot collect the penalty because the state itself owes some other, non-penal sum.

In their conspiracy and breach-of-contract counterclaims, the Providers contend, essentially, that they should not be liable for their fraud because the state let them get away with it. This argument has nothing to do with whether the Providers violated the Act. They may have strong arguments that they did not, though we express no opinion on that point. Even under Albert 's description of Reata 's connectedness prong—that a counterclaim is "germane" if it is "relevant to" or "would at least inferentially rebut" the state's claim—the Providers' counterclaims have not connection with whether they violated the Act. See Albert , 354 S.W.3d at 375–77 (discussing Reata , 197 S.W.3d at 377 ).

Similarly, the Providers' conversion counterclaim cannot meet Reata 's requirements. The Providers argue that the state has converted funds by holding money that is earmarked for services "for which [the Providers] should be paid." The problem with this argument is that whether the Providers "should be paid" is already one of the central issues in this case. That is, the conversion counterclaim is unavailable under Reata because it could never meet Reata 's other predicate—offset. See 197 S.W.3d at 378. A merits victory for the state would vindicate the state's current payment hold. The held payments would stay with the state, so they could not function as an offset for the Providers. By contrast, a merits victory for the Providers would earn them the held payments. But a win for the Providers would mean that the Providers owe no penalties and so have no judgment to offset. Nor can Reata answer whether the Providers presently deserve to possess the funds while this litigation unfolds. Offset is a requirement under Reata , see id. , and there will be nothing for the held funds to offset until this litigation concludes in the state's favor (if it does so conclude), at which point the temporary payment hold will no longer be relevant. The state's victory would eliminate the Reata hurdle, but it would also conclusively destroy the conversion counterclaim's basis. So regardless of whether the Providers seek a permanent determination that they "should be paid" or a temporary determination that they "should possess the payments" while this suit is ongoing, Reata does not help them.

Second, safeguarding the treasury is one of sovereign immunity's primary justifications in the modern era. See, e.g. , Tex. Dep't of Transp. v. Sefzik , 355 S.W.3d 618, 621 (Tex. 2011) (per curiam) ("[T]he doctrine of sovereign immunity originated to protect the public fisc from unforeseen expenditures that could hamper governmental functions ...."); City of El Paso v. Heinrich , 284 S.W.3d 366, 375 (Tex. 2009) ("Th[e] compromise between prospective and retroactive relief[ ] .... comports with the modern justification for immunity: protecting the public fisc."); Tooke , 197 S.W.3d at 332 (sovereign immunity "shield[s] the public from the costs and consequences of improvident actions of their governments"); IT–Davy , 74 S.W.3d at 854 ("Subjecting the government to liability may hamper governmental functions by shifting tax resources away from their intended purposes toward defending lawsuits and paying judgments.").

Many state programs and offices—including Medicaid, police departments, environmental agencies, etc.—depend at least in part for their continued existence on collecting revenue in the form of penalties. Hampering these entities' collections by abrogating their sovereign immunity injures the public fisc just as surely as allowing private citizens to sue them directly for damages. For example, under the Providers' view of Reata , any driver could assert a "selective enforcement" counterclaim to any speeding ticket. The driver could argue, as the Providers do here, that he thought his conduct was permissible because it went unpunished for several years. The driver might even argue that the police department and, for example, a toll-road operator, conspired to trick the driver into speeding as part of a scheme to boost tolls. Of course, such arguments would not be relevant to whether the offensive conduct actually occurred. But they would, if sovereign immunity did not protect governmental entities from their assertion, dramatically reduce entities' ability to collect revenue. That is why, in an analogous case, we recognized "the rule that taxes due [to] the State cannot be offset by an indebtedness due by the State to the tax debtor." Humble Oil , 169 S.W.2d at 710.

Third, sovereignty itself remains an important justification for sovereign immunity. See Hosner v. DeYoung , 1 Tex. 764, 769 (1847) ("[M]andamus is not a process that can be resorted to against the state without its consent, and ... no state can be sued in her own courts without her consent, and then only in the manner indicated by that consent."); see also Fed. Sign , 951 S.W.2d at 411 ("The State's immunity to suit is, purely as a matter of sovereignty, impervious to due process concerns."); Herring v. Houston Nat'l Exch. Bank , 114 Tex. 394, 269 S.W. 1031, 1032 (1925) ("[Immunity] is an attribute of sovereignty[ ] ...."). Penalties serve a law-enforcement function and the indiscriminate assertion of spurious counterclaims would severely undermine their effectiveness. Because such counterclaims would interfere with the state's ability to enforce its laws, we decline to abrogate the sovereign immunity that protects the state from their assertion.

A penalty cannot be offset against the state any more than a prison sentence. Because applying the Reata rule to penalties would run counter to Reata itself and would thwart the primary justifications underlying sovereign immunity's very existence, we conclude that the rule never applies to offset a penalty.

C

The Providers argue that even if Reata does not apply to penalties—or even if it applies only to damages—it applies in this case because the state is seeking damages, at least in part. The state responds that this proceeding is a "law-enforcement action" in which the state is seeking statutory "sanctions" or "penalties," or perhaps "liquidated damages" (as opposed to compensatory damages). Although some of the Act's penalties must be calculated with reference to the underlying fraud's monetary amount, see Xerox , 555 S.W.3d at 526, the state argues that the legislature is free to choose whatever measure of penalty it sees fit. That is, the state argues that the legislature can penalize for monetary losses just as it can for other infractions. The court of appeals agreed with the state, concluding that "the civil penalties that the state is seeking against the [Providers] do not qualify as damages or monetary relief as those terms were used in Reata. " 497 S.W.3d at 181. Instead, that court said, the state sued for a civil penalty to "punish" the Providers for violating a public-welfare statute and to deter others from doing the same. Id. at 179.

Our decision in In re Xerox , also announced today, conclusively rebuts the Providers' argument. See 555 S.W.3d at 521–22. We begin the relevant analysis with the observations that "Medicaid fraud exacts an immense toll from the system, not all of which is discoverable, recoverable, or quantifiable as damages" and that "[t]he civil remedy in Section 36.052(a) is undeniably punitive in the aggregate." See id. at 527. We also examine the amounts that the Act imposes in subsections 36.052(a)(1), (2), (3), and (4), in each instance observing that the amount is penal rather than compensatory. See id. at 525. Finally, we conclude that "Section 36.052 of the [Act] employs a penalty scheme and is not an ‘action for the recovery of damages’ to which [Texas Civil Practice and Remedies Code] Chapter 33's proportionate-responsibility mandate applies." Id. at 534.

Section 36.052 is penal for purposes of chapter 33 because the Act "employs a penalty scheme." See id. at 534. Our damages discussion in Xerox turns on the Act, not on chapter 33. See id. at 539. As a result, section 36.052 is penal for purposes of the chapter 33 analysis in Xerox as well as for the Reata analysis in this case. It would make little sense for the word "damages" to mean one thing in the proportionate-liability context and another in the sovereign-immunity context. And since Xerox depends on the Act rather than on some other statute, our conclusion in that case governs the outcome in this one. See id. at 539.

Reata 's abrogation-of-immunity rule does not apply when the state seeks to impose a monetary penalty to enforce a substantive prohibition against unlawful conduct. Since the state's action is punitive rather than compensatory, see id. at 527, the Reata rule does not apply here. Accordingly, we need not address the state's contentions that it is not suing as an ordinary litigant or that the Providers' counterclaims fail Reata 's"connectedness" prong. Because it is neither waived nor abrogated, sovereign immunity bars the Providers from asserting their counterclaims against the state.

III

Third–Party Claims

Finally, the Providers also complain that the trial court erred by dismissing their third-party claims against Xerox. The court of appeals refused to address this complaint, concluding that it lacked jurisdiction to consider the issue on interlocutory appeal. See 497 S.W.3d at 182–84. We agree with the court of appeals. The trial court's order dismissing the third-party claim was an interlocutory order, and "[a] party may not appeal an interlocutory order unless authorized by statute." Bally Total Fitness Corp. v. Jackson , 53 S.W.3d 352, 352 (Tex. 2001). The legislature has authorized interlocutory appeals from an order granting or denying a governmental unit's challenge to the trial court's jurisdiction. See TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8). But the state moved to dismiss the Providers' third-party claims against Xerox on the ground that the Act does not permit third-party claims.

Texas statutes do not authorize an interlocutory appeal from an order granting a governmental unit's motion to dismiss third-party claims on non-jurisdictional grounds. We do not address the merits of the Providers' third-party claims or whether those claims are permissible in this action. We simply agree with the court of appeals that we lack interlocutory jurisdiction to address those issues.

* * *

In 1847, this Court decided a trio of cases recognizing the fundamental principle that "[c]oercion ... is incompatible with sovereignty." Borden , 2 Tex. at 611 ; see also Hosner , 1 Tex. at 769 ; Bates , 2 Tex. at 617–18. Then, as now, we acknowledged that "[t]here may have occurred in the opinions some unguarded expressions in relation to the equitable rights of the defendants, and powers of the courts, on the subject of set-off against the government." Bates , 2 Tex. at 617. And then, as now, we were vigilant to prevent artful advocacy from reducing sovereign immunity to a nullity. There are some monetary actions for which no monetary setoff can be available. Penalties are among them. Accordingly, we affirm the court of appeals' judgment.

Justice Lehrmann filed an opinion concurring in part and dissenting in part, in which Justice Johnson joined.

Justice Boyd and Justice Blacklock did not participate in the decision.

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, and a judgment for or against her must be given the same effect as would have been given it had it been rendered in a case between private individuals.¹

1 State v. Cloudt , 84 S.W. 415, 416 (Tex. Civ. App. 1904, writ ref'd).

Over a decade ago, we considered "whether sovereign immunity continues to exist when an affirmative claim for relief is filed by a governmental entity." Reata Constr. Corp. v. City of Dallas , 197 S.W.3d 371, 376 (Tex. 2006). We determined that "under such circumstances immunity from suit no longer completely exists for the governmental entity." Id. (citing State v. Humble Oil & Ref. Co. , 141 Tex. 40, 169 S.W.2d 707, 708 (1943) ). This is because our modern jurisprudence rejects the "antiquated ‘feudal fiction’ " that the government can do no wrong. Brown & Gay Eng'g, Inc. v. Olivares , 461 S.W.3d 117, 121 (Tex. 2015) (quoting Wichita Falls State Hosp. v. Taylor , 106 S.W.3d 692, 695 (Tex. 2003) ). Rather, "modern-day justifications" for immunity "revolve around protecting the public treasury." Id. Consistent with these policies, we have narrowed the doctrine's scope in circumstances where "the governmental entity has joined into the litigation process by asserting its own affirmative claims for monetary relief," Reata , 197 S.W.3d at 376, because it would be "fundamentally unfair to allow [a governmental entity] to assert affirmative claims against [a] party while claiming immunity" as to the party's claims against it, City of Dallas v. Albert , 354 S.W.3d 368, 379 (Tex. 2011).

In this case, the State filed suit under the Texas Medicaid Fraud Prevention Act (Medicaid Fraud Act or Act), alleging that the defendants, several dental providers offering services through the Texas Medicaid program, fraudulently obtained Medicaid reimbursements. In filing suit, the State sought to recover any payments unlawfully provided under the Medicaid program; prejudgment interest; two times the amount of any payment provided under the Medicaid program; civil penalties; and expenses, costs, and attorney's fees, as provided by the Act's "civil remedies" provision. See TEX. HUM. RES. CODE § 36.052(a). The Providers counterclaimed for breach of contract, conversion, and fraud. The issue before the Court is whether sovereign immunity bars the Providers' counterclaims. Because the State seeks "monetary relief" under Reata , I would hold that the State's decision to file this action "encompassed a decision to leave its sphere of immunity from suit." Reata , 197 S.W.3d at 377. Because the Court holds otherwise, I must respectfully express my dissent.²

2 For the reasons the Court explains, I agree that we lack interlocutory jurisdiction to address the dismissal of the Providers' third-party claims.

I. Background

In 1993, the mothers of children in low-income families sued the Texas Department of Health and the Texas Health and Human Services Commission under 42 U.S.C. § 1983, alleging that the Texas Medicaid program did not comply with federal law.³ The plaintiffs, a class of more than 1.5 million indigent children in Texas, claimed that "the Texas program did not ensure eligible children would receive health, dental, vision, and hearing screens," "failed to meet annual participation goals," and "lacked proper case management and corrective procedures."⁴ The State ultimately agreed to settle the dispute by entering into a consent decree, which required the State, among other things, "to conduct outreach efforts aimed at increasing participation and the receipt of needed services" for Medicaid-eligible children.⁵ After years of litigation, in 2007 the State began allocating millions of dollars in state and federal funding to provide these increased services, including Medicaid dental services.⁶

3 Frew ex rel. Frew v. Hawkins , 540 U.S. 431, 434, 124 S.Ct. 899, 157 L.Ed.2d 855 (2004).

4 Frew v. Gilbert , 109 F.Supp.2d 579, 587 (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).

5 Id. at 588–89.

6 See Act of May 25, 2007, 80th Leg., R.S., ch. 1429, § 19, 2007 Tex. Gen. Laws 5834, 5838–39.

However well-intended, these efforts attracted the scrutiny of Texas news media, and a Dallas news station reported a series of stories highlighting the State's high expenditures for dental and orthodontic services.⁷ The Health and Human Services Commission, through its Office of Inspector General, subsequently attributed the high expenditures to dental fraud. The Commission imposed payment holds against various dental providers, including some of the Providers in this case.⁸ Following administrative hearings,⁹ the SOAH administrative law judges found that the State had failed to present prima facie evidence to support its fraud allegations and ruled that the payment holds should be reversed.¹⁰ But the Commission refused to release the funds, in one case "alter[ing] the ALJs' findings of fact and conclusions of law and issu[ing] a final order sustaining the HHSC–OIG's payment hold."¹¹

7 See, e.g. , Byron Harris, Crooked Teeth: Medicaid Millions , WFAA (Jan. 9, 2012 1:10 PM CST), http://www.wfaa.com/news/local/investigates/crooked-teeth-medicaid-millions_20161017055833341/336726628.

8 See Tex. Health & Human Servs. Comm'n v. Antoine Dental Ctr. , 487 S.W.3d 776, 777–78 (Tex. App.—Texarkana 2016, no pet.) ; Janek v. Harlingen Family Dentistry, P.C. , 451 S.W.3d 97, 99 (Tex. App.—Austin 2014, pet. denied).

9 A provider subject to a payment hold, which the Commission may impose without prior notice on a provider's Medicaid reimbursements upon a credible allegation of provider fraud, may request an expedited administrative hearing before the State Office of Administrative Hearings. Shamrock Psychiatric Clinic, P.A. v. Tex. Dep't of Health & Human Servs. , 540 S.W.3d 553, 555 (Tex. 2018) (citing Tex. Gov't Code § 531.102(g)(2), (3) ).

10 Antoine Dental Ctr. , 487 S.W.3d at 778, 789 ; Harlingen Family Dentistry , 451 S.W.3d at 102.

11 Antoine Dental Ctr. , 487 S.W.3d at 778, 791 ("Subsequently, [the HHSC Executive Commissioner] entered a final order on May 2, 2014, which also rejected the ALJs' decision. The order was presumably made under authority of Section 357.483 of the Texas Administrative Code, which states, ‘The judge is a designee of the HHSC Executive Commissioner for purposes of: (1) issuing default, final, and other orders, and (2) ruling on any motions for rehearing.’ ").

The Providers filed suit, challenging the Commissioner's authority to continue holding the funds.¹² The trial courts agreed with the Providers, in one case reversing the final order sustaining the payment hold and, in another, issuing a writ of mandamus commanding the State to pay the improperly held funds.¹³ The courts of appeals affirmed the trial courts' judgments in the payment-hold proceedings, ordering the State to release the held funds.¹⁴ The State nonsuited the administrative cases and did not release the withheld funds to the Providers.

12 Id. at 778 ; Harlingen Family Dentistry , 451 S.W.3d at 99.

13 Harlingen Family Dentistry , 451 S.W.3d at 104 ; Antoine Dental Ctr. , 487 S.W.3d at 802.

14 Harlingen Family Dentistry , 451 S.W.3d at 104 ("There is no evidence that is credible, reliable, or verifying, or that has indicia of reliability, that [the providers] committed fraud or misrepresentation."); Antoine Dental Ctr. , 487 S.W.3d at 802.

The State filed the instant suit under the Medicaid Fraud Act, pursuing the same allegations at issue in the nonsuited administrative cases.¹⁵ The Providers responded with counterclaims for "proportional recovery of actual and exemplary damages, interest, court costs, and attorney fees against the State" for conspiracy and breach of contract, in addition to a demand that the State release the monies held as ordered by the administrative law judges, trial courts, and courts of appeals in the nonsuited administrative proceedings. The State invoked sovereign immunity in a plea to the jurisdiction.

15 The State also filed a separate suit against Xerox Corporation, the private contractor charged with administering the Texas Medicaid program and assessing the medical necessity of providers' reimbursement claims, for violations of the Medicaid Fraud Act. See State v. Xerox Corp. , No. D–1–GV–14–000581 (53rd Dist. Ct., Travis County, Tex. May 9, 2014).

The trial court granted the State's plea without stating its reasons. The court of appeals affirmed, holding that the Reata rule did not apply because (1) "the civil penalties that the State is seeking against the Dental Groups do not qualify as damages or monetary relief as those terms were used in Reata ," and (2) "when the State pursues an enforcement action under the [Medicaid Fraud Act], it is not acting as an ordinary or private litigant as described in Reata but is instead acting in its sovereign capacity and exercising its police powers." 497 S.W.3d 169, 181 (Tex. App.—Austin 2016) (emphasis removed).

II. Analysis

The Providers contend that this case fits perfectly within our Reata holding: because the State asserted affirmative claims for monetary relief against the Providers, it does not have immunity against the Providers' offsetting counterclaims, which are connected, germane, and properly defensive to the State's claims. The State disagrees, arguing that in this Medicaid fraud (or any other) enforcement action, (1) the State does not seek the type of "monetary relief" we addressed in Reata , (2) the State does not appear as an "ordinary litigant," and (3) the defendants' counterclaims are not and cannot be connected, germane, and properly defensive to the State's claims. The Court sides with the State, holding that "the Reata rule ... never applies when the state initiates litigation to enforce a substantive prohibition against unlawful conduct by imposing a monetary penalty." Ante at 507. And, relying on our decision today in In re Xerox , 555 S.W.3d 518, 2018 WL 3077704 (Tex. 2018), the Court holds that because the Medicaid Fraud Act "employs a penalty scheme," the Act's civil remedies provision constitutes a monetary penalty and thus may not be offset. Ante at 502. I find the Court's analysis unpersuasive.

A. Judicial Abrogation of Immunity

In analyzing the reach of sovereign immunity, we must engage in a careful weighing analysis and consider the policy issues at hand. See, e.g. , Olivares , 461 S.W.3d at 123 ("Guiding our analysis of whether to extend sovereign immunity ... is whether doing so comports with and furthers the legitimate purposes that justify this otherwise harsh doctrine."). These policy considerations led us to permit offsetting counterclaims against the government because: "(1) ‘when the State sues a private party, the general public stands to lose nothing’; (2) doing so avoids ‘jurisdictional problems in asking courts to enforce a judgment against a government entity’; and (3) allowing such [claims] promotes ‘fundamental fairness.’ " C. Borunda Holdings, Inc. v. Lake Proctor Irrigation Auth. of Comanche Cty ., 540 S.W.3d 548, 552 (Tex. 2018) (quoting City of Galveston v. State , 217 S.W.3d 466, 472 (Tex. 2007) ). Properly applying these principles, I would hold that Reata , its predecessors, and its progeny dictate that the State's claims under the Medicaid Fraud Act constitute affirmative claims for monetary relief; the Providers' counterclaims are germane, connected, and defensive to those claims; and allowing the Providers to offset the State's recovery with their counterclaims comports with the policies underlying immunity.

B. Reata 's Scope

In Reata , the City of Dallas intervened in a pending tort action and asserted claims that the city's contractor and its subcontractor negligently caused the city damages when the subcontractor accidentally drilled through a water main. 197 S.W.3d at 373. The State distinguishes Reata , noting that, in this case, the State is not seeking compensatory damages under a conventional tort theory. Instead, the State contends, although this is a civil case, it is a "law-enforcement action" seeking statutory "sanctions" or "penalties," or perhaps "liquidated damages" (as opposed to compensatory damages), which are not based or calculated on the amount of damages or losses the State suffered as a result of the Providers' fraud.

The court of appeals agreed, concluding that the State sued for a "civil penalty" to "punish" the Providers for violating a public-welfare statute and to deter others from doing the same. 497 S.W.3d at 179. The court of appeals primarily relied on State v. Emeritus Corp. , 466 S.W.3d 233 (Tex. App.—Corpus Christi 2015, pet. denied), in which the court held that the Texas Medical Liability Act did not apply to the State's enforcement action against a healthcare provider because the State was acting "in its sovereign capacity and us[ing] its police powers to impose and recover a civil penalty," rather than as a "claimant" seeking "damages." 497 S.W.3d at 179–80. The court of appeals here concluded that "the civil penalties that the State is seeking against the Dental Groups do not qualify as damages or monetary relief as those terms were used in Reata. " Id. at 181.

The Providers argue that the court of appeals erred in that conclusion because, other than its claim for an injunction, all of the State's claims in this suit are for "monetary relief." Specifically, the Medicaid Fraud Act authorizes, and the State requests in its pleadings, a monetary award including (1) the "amount of any payment" the State made "as a result of" each "unlawful act"; (2) prejudgment interest on that amount; (3) a "civil penalty" for each unlawful act; and (4) two times "the amount of any payment" made as a result of an unlawful act. See TEX. HUM. RES. CODE § 36.052(a). The Providers argue that, although Reata happened to involve tort claims for compensatory damages, our holding was not limited to those types of claims seeking that type of monetary relief. The court of appeals thus created a "distinction that Reata neither contemplates nor supports."

I agree with the Providers. The Court superficially states that " Reata uses the word ‘damages’ more than a dozen times," concluding that "[t]his usage indicates that we decided the case based on the narrow theory of damages rather than the broad theory of a transfer of funds."Ante at 505. Admittedly, a word search for the term "damages" reveals that we used the word thirteen times throughout the opinion, but the majority of the references are not relevant to the issue before us.¹⁶ As relevant to the Court's analysis, we referred to the City's claim for "damages" four times in Reata , noting that the City had sued for damages and reasoning that the City's decision "to file suit for damages encompassed a decision to leave its sphere of immunity from suit for claims against it which are germane to, connected with and properly defensive to claims the City asserts"; that sovereign immunity did not apply to the subcontractor's counterclaims "made against the City which were connected to, germane to, and properly defensive to the matters on which the City based its claim for damages"; and that "the City's assertion of claims for damages against Reata means that the City does not have immunity from Reata's claims to the limited extent we have explained." 197 S.W.3d at 377. We referred once to "monetary damages," reasoning that, "if the governmental entity interjects itself into or chooses to engage in litigation to assert affirmative claims for monetary damages, the entity will presumably have made a decision to expend resources to pay litigation costs." Id. at 375.

16 For example, two of the references appear in a discussion of the United States Supreme Court's sovereign immunity jurisprudence. Reata , 197 S.W.3d at 375 ("The United States Supreme Court has also recognized that suits for money damages against states ‘may threaten the financial integrity of the States’ and that ‘at the time of the founding, many of the States could have been forced into insolvency but for their immunity from private suits for money damages.’ " (quoting Alden v. Maine , 527 U.S. 706, 750, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999) ) ). One reference is contained in a recitation of our often-repeated principle that "[s]overeign immunity protects the State from lawsuits for money damages." Id. at 374. Similarly, two references describe the relief sought by the private party, not the State. Id. at 377 ("Absent the Legislature's waiver of the City's immunity from suit, however, the trial court did not acquire jurisdiction over [the defendants'] claim for damages against the City in excess of damages sufficient to offset the City's recovery, if any."). And four of the references appear under the Court's analysis of waiver of immunity under the Texas Tort Claims Act, which is wholly separate from the abrogation issue. Id. at 377–78.

But our discussion and our holding in Reata utilized much broader terms. Addressing not just the City's claims but the principles underlying our holding, we referred twice to claims for "monetary relief." First, we reasoned that "where the governmental entity has joined into the litigation process by asserting its own affirmative claims for monetary relief, we see no ill befalling the governmental entity or hampering of its governmental functions by allowing adverse parties to assert, as an offset, claims germane to, connected with, and properly defensive to those asserted by the governmental entity." Id. at 376–77. Second, we held that because "the City asserted affirmative claims for monetary relief against Reata, the City does not have immunity from Reata's claims germane to, connected to, and properly defensive to claims asserted by the City, to the extent any recovery on those claims will offset any recovery by the City from Reata." Id. at 378. We referred once to "monetary recovery," explaining that, once the government "asserts affirmative claims for monetary recovery, the City must participate in the litigation process as an ordinary litigant." Id. at 377. And, most broadly, we referred three times simply to the government's "recovery." We reasoned that our holding would not disrupt the government's fiscal planning if "the opposing party's claims can operate only as an offset to reduce the government's recovery." Id. at 375. We further held that immunity would still preclude jurisdiction over any counterclaim "for damages against the City in excess of damages sufficient to offset the City's recovery." Id. at 377. Finally, we concluded that the City did not have immunity "to the extent any recovery on [the counterclaims] will offset any recovery by the City from Reata." Id. at 378.

We have since characterized Reata 's holding by using the broader terms, explaining that governmental entities "do not have immunity from offsetting claims germane to, connected to, and properly defensive to monetary claims by the entities." Albert , 354 S.W.3d at 376 (emphasis added).¹⁷ And more recently, we described Reata as holding that "when a governmental entity asserts claims for monetary relief , immunity does not protect the entity against the defendant's counterclaims for monetary relief that are ‘germane to, connected with, and properly defensive to’ the government's claims." Borunda , 540 S.W.3d at 549–50 (emphasis added) (quoting Reata , 197 S.W.3d at 376–77 ). In both of these cases, we described Reata 's holding as broadly addressing the State's claims for monetary "recovery."

17 See also City of Dallas v. Martin , 361 S.W.3d 560, 561 n.4 (Tex. 2011) ("In Reata we held that a governmental entity does not have immunity from monetary claims against it that are ‘germane to, connected with, and properly defensive to’ affirmative claims made by the entity, to the extent the claims against the entity offset the entity's claims."); City of Irving v. Inform Constr., Inc. , 201 S.W.3d 693, 694 (Tex. 2006) ("As we explained in Reata , however, the City retains immunity from suit ... to the extent Inform's damages exceed amounts offsetting the City's monetary recovery.").

Accordingly, I agree with the Providers that the language we used in Reata did not limit our analysis or our holding to government claims for "compensatory damages," but instead rested more broadly on the government's claims seeking a "monetary recovery." However, as the Court observes, Reata involved only claims for compensatory damages, and neither Reata nor any of our subsequent cases specifically address the distinction between the broader and narrower terms. In other words, this is an issue of first impression, and it may just be, as the State and the Court suggest, that we used the broader terms merely as convenient references to the compensatory-damage relief the government was seeking in those cases, rather than to limit the State's immunity when it seeks any form of monetary recovery. I would reject that suggestion, however, primarily for two reasons.

First, although Reata involved only claims for compensatory damages, the cases on which we relied to support our holding in Reata did not. Anderson, Clayton & Co. v. State , the case that provided the foundation for our Reata holding, was an enforcement action in which the State sought "recovery of penalties" against a trucking company operating without a license. 122 Tex. 530, 62 S.W.2d 107, 107 (1933). We held that the defendant could maintain a counterclaim against the State in that case, reasoning that the State,

having invoked the jurisdiction of the district court ... for a judicial determination of the question as to whether the defendants were subject to the provisions of the foregoing act and liable for the penalties described therein, it became subject to the same rules as other litigants, except in so far as such rules may be modified in favor of the state by statute or may be inapplicable or unenforceable because of exemptions inherent in sovereignty .... That court at the instance of the state acquired jurisdiction of the parties and subject-matter in controversy, and, the defendants having

sought affirmative relief in a cross-bill, the jurisdiction of the court cannot afterwards be defeated by the state upon a plea that the cross-petitioners were seeking an injunction against the enforcement of a penal statute.

Id. at 110 (emphasis added). The Court attempts to limit Anderson, Clayton , reasoning that although the State sought "recovery of penalties," the defendants sought only an injunction, not money damages, in their counterclaim. Ante at 503. But the Court gives short shrift to our language in that case. In determining that sovereign immunity did not bar the defendants' counterclaims, we identified two guiding rules:

The authorities sustain the exception to the foregoing rule that the state's immunity from suit does not extend to a suit against state officers to enjoin the enforcement of an invalid law to the injury of the legal rights of a citizen.

But the authorities sustain the further rule that, where a state voluntarily files a suit and submits its rights for judicial determination, it will be bound thereby, and the defense will be entitled to plead and prove all matters properly defensive. This includes the right to make any defense by answer or cross-complaint germane to the matter in controversy.

Anderson, Clayton & Co. , 62 S.W.2d at 110 (citations omitted) (emphases added). Dismissing the "rule" that a defendant is entitled to plead and prove all matters properly defensive, the Court concludes that the decision "establishes little" in resolving this case. Ante at 504. In addition to sidestepping that language, the Court ignores the fact that in Anderson, Clayton we expressly rejected the argument that the State's immunity could hinge on the "penal" nature of the statute being enforced, 62 S.W.2d at 108, a justification the Court relies on today. Further, the Court's reliance on the nature of the relief requested in the counterclaims is novel and misplaced. So long as the counterclaims are germane, connected, and properly defensive to the government's claims and do not seek more than is required to offset those claims, they are permitted under Reata , 197 S.W.3d at 377.

In Reata , we also relied on our decision in Humble Oil , which involved the State's action to recover unpaid production taxes "plus interest and penalties. " 169 S.W.2d at 708 (emphasis added). We held in Humble Oil that the defendant could not assert offsetting counterclaims based on alleged overpayments in other tax periods. Id. at 710. However, contrary to the Court's description, we did not base that holding on the nature of the State's affirmative claims. Rather, Humble Oil 's result rested on the fact that the defendant's counterclaims involved taxes due for different months and years than the taxes on which the State had sued, and thus the counterclaims were not "dependent upon" or "connected with" the State's affirmative claims. Id. Moreover, we affirmed that we had "no fault to find with the rule of law announced in the Anderson, Clayton & Co. opinion, when applied in a proper case." Id. at 709. Because we based our decision in Reata on these seminal cases, it is no surprise that we referred broadly to government claims for "monetary relief" and "monetary recovery" in Reata , even though Reata itself involved only claims for compensatory damages.

Consistent with my reading of Reata 's scope, several courts of appeals have applied Reata in cases involving government claims for monetary relief other than compensatory damages, including penalties, yet the Court neither cites, discusses, nor overrules those cases. For example, in Bandera County v. Hollingsworth , the San Antonio Court of Appeals held the County was not immune from a counterclaim for breach of a Rule 11 agreement where the underlying suit involved the State's claim for "taxes due, together with interest, penalties, costs, expenses, and attorney's fees." 419 S.W.3d 639, 642–44 (Tex. App.—San Antonio 2013, no pet.). Similarly, in Redburn v. Garrett , the City brought, among other claims, "an enforcement action for statutory penalties in the amount of $5,000 per day pursuant to Chapter 54 of the Texas Local Government Code." No. 13-12-00215-CV, 2013 WL 2149699, at *2 (Tex. App.—Corpus Christi, May 16, 2013, pet. denied) (mem. op.). Despite the inclusion of penalties in the monetary relief sought, the Corpus Christi Court of Appeals applied Reata , holding that the City did "not have immunity from suit for claims germane to, connected with, and properly defensive to its [cross-claims] to the extent [appellant's] claims act as an offset against the City's recovery." Id. at *10 (quoting Inform Constr. , 201 S.W.3d at 694 ). And in City of Conroe v. TPProperty LLC , the city sought judgment against the defendant for "unpaid taxes, and statutory penalties, attorneys' fees, and court costs." 480 S.W.3d 545, 564 (Tex. App.—Beaumont 2015, no pet.). Without distinguishing between any of these forms of monetary recovery, the Beaumont Court of Appeals compared the city's and the defendant's claims, concluding that they "arise from the same transactions" and "rely on the trial court's resolution of similar disputed facts." Id. Accordingly, the Court held that the city was not immune to the extent the defendant's "claims act as offsets to the City's [claims]." Id. (citing Reata , 197 S.W.3d at 376–77 ). As these cases illustrate, nothing in the language of Reata , its predecessors, or its progeny indicates that the Reata rule applies only when the government seeks to recover "damages" or "compensatory damages."

In addition to the absence of language in Reata and its predecessors indicating that the type of monetary recovery sought informs the offset analysis, the policies underlying the sovereign-immunity doctrine do not support the limitation the Court adopts. Consistent with our holdings in Anderson, Clayton and other earlier cases, we explained in Reata that our "determination that a governmental entity's immunity from suit does not extend to a situation where the entity has filed suit is consistent with the policy issues involved with immunity." 197 S.W.3d at 375. And "the primary concern in Reata was ensuring that any outcome in favor of a counterclaiming defendant would not be paid with taxpayer dollars." Borunda , 540 S.W.3d at 552. That is because the purpose of sovereign immunity is to "shield the public from the costs and consequences of improvident actions of their governments." Hall v. McRaven , 508 S.W.3d 232, 238 (Tex. 2017) (quoting Tooke v. City of Mexia , 197 S.W.3d 325, 332 (Tex. 2006) ); see also Olivares , 461 S.W.3d at 123 (considering "the general purpose of protecting the public fisc"). We thus limited the scope of immunity when the government files claims for monetary relief because, "if the governmental entity interjects itself into or chooses to engage in litigation to assert affirmative claims for monetary damages, the entity will presumably have made a decision to expend resources to pay litigation costs." Reata , 197 S.W.3d at 375. And if "the opposing party's claims can operate only as an offset to reduce the government's recovery, no tax resources will be called upon to pay a judgment, and the fiscal planning of the governmental entity should not be disrupted." Id.

Accordingly, the policy reasons behind our decision in Reata support the broad language we used in that case, as well as the conclusion that Reata 's holding applies when the government chooses to file a claim for "monetary relief" or "monetary recovery," not just for "damages" or "compensatory damages," as the State suggests. And here, the State is undeniably seeking monetary relief. In this circumstance, as in Reata , "the governmental entity has joined into the litigation process by asserting its own affirmative claims for monetary relief." Id. at 376–77. I therefore "see no ill befalling the governmental entity or hampering of its governmental functions" in this case by allowing the Providers to assert, as an offset, claims germane to, connected with, and properly defensive to those asserted by the State. Id.

Moreover, it is fundamentally unfair to allow the State to assert affirmative claims against the Providers—claims that could result in millions of dollars of recovery—but deny the Providers an opportunity to merely offset that recovery with counterclaims seeking, at a minimum, the release of money that every court to adjudicate the merits of the case has held to be unlawfully retained by the government. See Borunda , 540 S.W.3d at 553 (citing Reata , 197 S.W.3d at 375–76 ("[I]t would be fundamentally unfair to allow a governmental entity to assert affirmative claims against a party while claiming it had immunity as to the party's claims against it."), and Albert , 354 S.W.3d at 380 (noting that "here we do not see any fundamental unfairness or inequity occurring") ). The State has undoubtedly taken advantage of its sovereignty, unsuccessfully pursuing its fraud claims through several tribunals, modifying findings and orders in support of its position, and then, faced with court orders to release the withheld funds, abandoning its claims only to reappear here and assert immunity. I would hold that the State's pursuit of monetary relief under the Medicaid Fraud Act subjected it to the jurisdiction of the Court for offsetting, related counterclaims. "To hold otherwise would permit [the State] to use the court in the attainment of [its] object by piecemeal, by first adopting its judgment as right, and then repudiating it as wrong, and to avail [it]self of the advantages of its being both right and wrong." See Sec. Trust. Co. of Austin v. Lipscomb County , 180 S.W.2d 151, 158 (Tex. 1944) (citation and internal quotation marks omitted).

C. The Court's "Law-Enforcement" Exception

The Court ignores the policy and jurisprudential concerns discussed herein, concluding instead that "sovereignty itself remains an important justification for sovereign immunity." Ante at 508. But as we have already explained, protecting the public fisc and public reliance on government services, not fealty to an all-powerful sovereign, underlie our modern justifications for maintaining the doctrine. Olivares , 461 S.W.3d at 121. Regardless, the Court adopts the State's view that Reata does not apply here because the State is acting in its sovereign "law-enforcement" capacity. According to the Court, Reata "never applies when the state initiates litigation to enforce a substantive prohibition against unlawful conduct by imposing a monetary penalty." Ante at 507. Because "[p]enalties serve a law-enforcement function," the Court asserts, allowing "spurious counterclaims" would "severely undermine their effectiveness" and "would interfere with the state's ability to enforce its laws." Id. at 509.¹⁸ The Court's law-enforcement rationale is unfounded. First, the State highlights that, when it acts in a law-enforcement capacity, it necessarily is not acting as an "ordinary litigant" as Reata requires. But the State's argument mischaracterizes our description of the government as an "ordinary litigant" in Reata . We used the term in explaining that once the government "asserts affirmative claims for monetary recovery, [it] must participate in the litigation process as an ordinary litigant, save for the limitation that [it] continues to have immunity from affirmative damage claims against it for monetary relief exceeding amounts necessary to offset [its] claims." Reata , 197 S.W.3d at 377. We did not hold that the Reata rule applies only if the government is participating in litigation as an "ordinary litigant"; rather, we held that when the Reata rule applies the government must participate as an "ordinary litigant." Id. This is consistent with the well-recognized principle that our procedural and evidentiary rules apply to the State as they would to any other litigant when it appears in court. See State v. Naylor , 466 S.W.3d 783, 792 (Tex. 2015) ("[W]here the Legislature has given no indication to the contrary the State must abide by the same rules to which private litigants are beholden."). These references to the State as an "ordinary litigant" do not address the sovereign-immunity question of whether the State may be required to appear in court. Nothing in Reata 's text or reasoning limits its application to cases in which the State appears as an "ordinary litigant," as opposed to "enforcement actions." See Reata , 197 S.W.3d at 376 (discussing Kinnear v. Tex. Comm'n on Human Rights , 14 S.W.3d 299, 300 (Tex. 2000) (holding that the State was not immune from a counterclaim for attorney's fees in an enforcement action under the Texas Fair Housing Act) ).

18 The Court's reference to "spurious counterclaims" is curious, as it implies a connection between a claim's merits and the government's immunity. Whether the government is immune from suit has nothing to do with the strength or weakness of the claims asserted against it.

Second, a law-enforcement exception would swallow the Reata rule. The Court gives little guidance on how to determine whether the State is acting in a "law-enforcement" capacity as opposed to an "ordinary litigant," other than to state that the exception applies "when the state seeks to impose a monetary penalty to enforce a substantive prohibition against unlawful conduct" and that "action is punitive rather than compensatory." Ante at 510. But the Court's new rule obfuscates over a century of our sovereign immunity jurisprudence. As previously noted, our precedent before and after Reata unequivocally involved "substantive" claims, both statutory and under the common law, and many involved the imposition of "penalties." See, e.g. , Anderson, Clayton & Co. , 62 S.W.2d at 110 ("[T]he jurisdiction of the court cannot afterwards be defeated by the state upon a plea that the cross-petitioners were seeking an injunction against the enforcement of a penal statute.").

When any governmental body brings suit, it necessarily acts under its sovereign authority to police and enforce the laws of the State. See Reata , 197 S.W.3d at 384 (Brister, J., concurring) ("[W]hen governments bring suit, they must do so through agents who ultimately derive their authority from the Legislature .... But when they file suit on an affirmative claim, they must be doing so with legislative authorization. If the rule were otherwise, it is not clear how a government could ever assert its own claims."). The Court's decision today throws what has been a well-settled doctrine into limbo because almost any action brought by a governmental body arguably constitutes a "law-enforcement" action.¹⁹ I see no principled basis for adopting the State's position that the Medicaid Fraud Act enables it to bring a specialized law-enforcement action that justifies an exception to the Reata rule. By participating in the federal Medicaid program and enacting the Act and its enabling regulations, the Legislature has already established a balanced statutory scheme for protecting the public against fraud. Under federal law, a state must have a "Medicaid fraud control unit," 42 U.S.C. § 1396a(a)(42)(B)(ii)(IV)(cc), which investigates program violations and can refer matters for criminal prosecution or "to an appropriate State agency" for other action, 42 C.F.R. § 1007.11(b)(3) (2018). In Texas, such enforcement actions can take the form of criminal,²⁰ administrative,²¹ and civil proceedings.²² Here, if the State desired the deference and protection of its sovereignty, it could have brought (and can still bring) a criminal action against the Providers in this case, subject to, of course, the corresponding burden of proof. Likewise, the State could (and did) bring an administrative action for sanctions for the same alleged violations. The State was certainly entitled to pursue this civil action in lieu of its nonsuited administrative claims, see Albert , 354 S.W.3d at 375 ("Under litigation rules applicable to ordinary litigants ... the City was entitled to nonsuit its [claims]."), but "preventing all offsetting claims" by creating a law-enforcement exception here "looks less like sovereign immunity than sovereign inequity," Reata , 197 S.W.3d at 383 (Brister, J., concurring).

19 See, e.g. , Tex. Ag. Code §§ 17.152, .153 (providing for civil action for actual damages, treble damages, and civil penalties, or action under the DTPA for failing to post notice of fuel tax rates, or document or record those rates); Tex. Bus. & Com. Code §§ 15.21 (providing that any "person or governmental entity" who is harmed by unfair trade practices under the Antitrust Act "shall recover" actual damages, interest, and treble damages), 17.953 (providing for the State's recovery of restitution and civil penalties for violations of the Deceptive Trade Practices Act); Tex. Ins. Code § 541.151 (providing for civil penalties for unfair competition and deceptive acts in insurance industry); Tex. Occ. Code §§ 351.603, .604 (providing for civil penalties for violations of the Optometrists Act).

20 See Tex. Pen. Code § 35A.02(a)(1)–(12) ; see also Tex. Hum. Res. Code § 32.0391 (establishing a criminal offense for kickback and bribery schemes).

21 See Tex. Hum. Res. Code §§ 32.039 (outlining "Damages and Penalties" the State may seek in an administrative action against a provider accused of Medicaid fraud), 36.006 ("The application of a civil remedy under this chapter does not preclude the application of another common law, statutory, or regulatory remedy, except that a person may not be liable for a civil remedy under this chapter and civil damages or a penalty under Section 32.039 if the civil remedy and civil damages or penalty are assessed for the same act.").

22 See id. §§ 36.002 (defining "Unlawful Acts" relating to Medicaid fraud), .052 (establishing "civil remedies" and authorizing the State to initiate an action for civil remedies or an injunction under the Act).

D. Connected, Germane, and Defensive Nature of Counterclaims

Finally, the Court concludes that Reata does not apply to the Providers' counterclaims because they are not connected, germane, and properly defensive to the State's Medicaid fraud claims. Considering the underlying allegations, the appropriate legal standard, and the State's burden on the merits, I cannot agree with this conclusion.

Where, as here, a plea to the jurisdiction challenges the pleadings, we determine if the pleader has alleged facts that affirmatively demonstrate the court's jurisdiction to hear the cause. City of El Paso v. Heinrich , 284 S.W.3d 366, 378 (Tex. 2009). Whether a pleader has alleged facts that affirmatively demonstrate a trial court's subject matter jurisdiction is a question of law reviewed de novo. Tex. Dep't of Parks & Wildlife v. Miranda , 133 S.W.3d 217, 226 (Tex. 2004). We must construe the pleadings liberally in favor of the nonmovant and look to the nonmovant's intent. Heinrich , 284 S.W.3d at 378.

We explained in Albert that counterclaims are "germane"—that is, "relevant"—to the government's claims when they are based on the same question as the government's claim, and are "properly defensive" when they "would at least inferentially rebut" the government's allegations. 354 S.W.3d at 375. Here, the State claims that the Providers committed unlawful acts by submitting prior-authorization and post-treatment-payment requests and then accepting payments even though the services they provided did not qualify for reimbursement under the Medicaid program. The Providers' breach of contract and conspiracy counterclaims are based on their allegations that the State had an independent duty to determine whether the patient qualified for the services, that the State (through and in conspiracy with its contractor, Xerox) failed to fulfill that duty, and that the Providers reasonably relied on the State's decisions when providing the services. And the Providers' conversion counterclaim is based on the State's continued retention of Medicaid funds under a payment hold initiated on the same allegations, same facts, and same defendants as the State's failed administrative cases.

Unlike the Court, I conclude that the counterclaims are relevant and defensive to the State's claims. On the merits, the State must show that the Providers acted "knowingly" in undertaking the unlawful acts defined in the statute. See TEX. HUM. RES. CODE § 36.002. The Providers allege that the State and Xerox conspired to mislead the Providers into believing that their requests complied with the Program's requirements. As the Providers frame their complaint, "the State now seeks to recoup the payments that it made to the [Providers] after the [Providers] provided the very services the State had deemed to be medically necessary." (Footnote omitted). Thus, contrary to the Court's conclusion, the Providers' allegations, if true, negate the State's assertion that they knew the services submitted for reimbursement were not medically necessary, which is a material element of each of the State's claims. These allegations are clearly connected and relevant to the parties' claims, and if the Providers are correct, their counterclaims will rebut the allegations on which the State's claims are based. See State v. Martin , 347 S.W.2d 809, 814 (Tex.Civ.App.—Austin 1961) ("Appellee's claim to recover the very money which the State seeks to retain, the claim of each arising from the same single transaction between the parties, could not be more closely related or more germane."). Applying the appropriate standard of review at this early stage in the proceedings, I must conclude that the Providers have met their burden of alleging facts overcoming the State's assertion of immunity.

III. Conclusion

When we explained the limited scope of the government's immunity against counterclaims in Reata , we relied on the policies that justify the doctrine in the first instance. Because the Reata rule permits only germane and properly defensive counterclaims and permits relief only in the form of an offset against the government's monetary recovery, we concluded that it "would be fundamentally unfair to allow a governmental entity to assert affirmative claims against a party while claiming it had immunity as to the party's claims against it." 197 S.W.3d at 375–76. For the reasons explained, I reach the same conclusion here and would hold that the State is not entitled to dismissal of the Providers' counterclaims. Because the Court holds otherwise, I must respectfully express my dissent.