Recent High Court Rulings: Texas Whistleblowers Beware

by Tom Melsheimer and Natalie Arbaugh

More and more Texas workers are filing lawsuits under state and federal laws designed to protect those who expose wrongdoing on the part of their employers, and two recent Texas Supreme Court rulings are providing an important lesson for state court plaintiffs who may rely on the Texas Whistleblower Act in the future.

Many whistleblower lawsuits are filed in Texas and other states when an employee identifies what they believe to be mismanagement, corruption, fraud, illegal practices or some other wrongdoing on the part of their employer or co-workers.

Such claims often arise when an employee believes he or she has been retaliated against for reporting the alleged wrongdoing. If the bad conduct can be proven in court, then the whistleblower stands to reap considerable financial rewards.

Whistleblower lawsuits in the Lone Star State have remained largely under the radar in the years since the state’s Whistleblower Act was enacted in 1983, but such cases have gained in popularity based on recent high-profile settlements and courtroom wins for whistleblowers under state and federal statutes.

Texas whistleblower claims have been bolstered by Attorney General Greg Abbott, who filed a legislative request for additional manpower in 2007 to help resolve a backlog of Medicaid fraud cases, including many involving whistleblower complaints. Since then, the AG’s Medicaid fraud division has grown from nine to 33 lawyers, and increased the state’s related financial recoveries from $41.3 million in 2007 to $411 million in 2012. A recent analysis showed that Texas has recovered more in Medicaid fraud lawsuits in the past decade ($1.2 billion) than any other state.

Recent Rulings

The first recent Texas Supreme Court ruling under the Texas Whistleblower Act involved a hospital doctor who warned his supervisor about possible illegal billing practices, but ended up being demoted and was later fired.

Former University of Texas Southwestern Medical Center (UTSW) trauma surgeon Dr. Larry Gentilello failed to convince the Texas Supreme Court that the state’s Whistleblower Act should hold the hospital liable for his demotion and subsequent dismissal.

Gentilello claimed he was demoted after contacting his supervisor with allegations that co-workers were engaging in unfair billing practices and providing lax supervision of resident doctors at Dallas’ Parkland Hospital, which is served by UTSW. Gentilello later was fired after hospital officials claimed he was a poor administrator. (Side note: UTSW agreed to pay a $1.4 million settlement to state and federal officials in September 2011 based on many of the same claims alleged by Gentilello.)

Rather than ruling on the merits of Gentilello’s claims, the Supreme Court instead focused on the surgeon’s decision to initially contact his supervisor and whether the supervisor was qualified as “an appropriate law enforcement entity” as required by the Texas Whistleblower Act.

Under the Act, employees have 90 days to file a lawsuit after facing retaliation or discovering retaliatory actions. In order to sustain such a filing, employees must report the violation “to an authority the employee believes is authorized to regulate or enforce the law alleged to be violated” or “who is authorized to investigate or prosecute a violation of criminal law.”

Gentilello had won two lower court rulings that his allegations were reported to the appropriate authority based on a UTSW policy that describes department chairmen as being responsible for “ensuring the goals of billing compliance are met.”

Despite the earlier rulings, the Supreme Court disagreed, finding that “a whistleblower cannot reasonably believe his supervisor is an appropriate law-enforcement authority if the supervisor’s power extends no further than ensuring the governmental body itself complies with the law.”

The state’s highest court relied on the same reasoning in its second recent decision when it refused whistleblower claims filed by former Texas A&M University-Kingsville vice president and comptroller Gertrud Moreno. Ms. Moreno was dismissed from her job after contacting the university president with allegations that the daughter of the school’s vice president was paying illegally-discounted tuition rates.

Lessons Learned

Despite hailing from decidedly different backgrounds and having somewhat dissimilar whistleblower experiences, the trauma surgeon and the comptroller essentially found themselves on the outside looking in for the same reason: they didn’t report their findings to the correct parties.

Public entities such as universities and university hospitals should seek out legitimate whistleblower complaints in order to protect the public good, regardless of how such complaints may reflect on individual administrators. One way to make that happen is to let employees know specifically how and to whom they should report allegations of wrongdoing.

In addition to consulting with an attorney who is familiar with whistleblower rules and protections, employees who think they may have a whistleblower complaint also should review the extensive information available online about whistleblower laws and how employees should report any whistleblower claims. One great resource is an informative brochure offered by the Texas Attorney General’s Office (https://www.oag.state.tx.us/newspubs/publications.shtml).

The two recent decisions from the Texas Supreme Court show the importance of starting off on the right track when an employee believes they have discovered a violation. Here’s hoping that a more focused approach on the part of potential whistleblowers and their employers will lead to the improvement of our public institutions across the board.

Attorneys Tom Melsheimer and Natalie Arbaugh are principals in the Dallas office of Fish & Richardson. They represented the plaintiff in a whistleblower lawsuit that concluded in 2012 with the largest Medicaid fraud settlement in Texas history.