Opinion
A-22-CV-294-RP
01-31-2023
THE HEIDI GROUP, INC., Plaintiff, v. TEXAS HEALTH AND HUMAN SERVICES COMMISSION; et al., Defendants.
TO THE HONORABLE ROBERT PITMAN UNITED STATES DISTRICT JUDGE:
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
MARK LANE, UNITED STATES MAGISTRATE JUDGE.
Before the court are the Official State Defendants' Motion for Judgment on the Pleadings (Dkt. #2), the Individual State Defendants' Motion for Judgment on the Pleadings (Dkt. #3), Defendant Phyllis Everette Morgan's Motion for Judgment on the Pleadings (Dkt. #21), and all related briefing. Having considered the parties' written submissions, the pleadings, the relevant case law, as well as the entire case file, the undersigned submits the following Report and Recommendation to the District Court.
The motions were referred by United States District Judge Robert Pitman to the undersigned for a Report and Recommendation as to the merits pursuant to 28 U.S.C. § 636, Rule 72 of the Federal Rules of Civil Procedure, and Rule 1 of Appendix C of the Local Rules of the United States District Court for the Western District of Texas.
I. Background
The following factual recitation is taken directly from the Complaint, Dkt. #1-2, and all well-pleaded facts are accepted as true at this stage of the case.
Plaintiff, The Heidi Group, Inc. (“Heidi”), filed its Complaint in state court against Texas Health and Human Services Commission (“HHSC”); Cecile Erwin Young in her official capacity as Commissioner of HHSC; the Office of the Inspector General for HHSC (“OIG”); Sylvia Kauffman in her official capacity as Inspector General of the OIG; Dirk Johnson in his official capacity as Chief Counsel of OIG and in his individual capacity; Jennifer Kaufman in her official capacity as Director of Internal Affairs (formerly Senior Counsel) of OIG and in her individual capacity; Gaylon Dacus in his official capacity as Senior Investigator for OIG and in his individual capacity; Phyllis Everette Morgan, a former Heidi employee; and several Jane/John Does.Defendants timely removed under federal question jurisdiction.
All Defendants except Morgan are State Defendants. The “Official State Defendants” are the state agencies and employees sued in their official capacities. The “Individual State Defendants” are those state employees who are also sued in the individual capacities.
In 2016, after Texas defunded health providers that provided abortion services, Texas, through HHSC, implemented two new state-funded programs to provide healthcare services to indigent Texas women: Healthy Texas Women “(HTW”) and Family Planning Program (“FPP”) (collectively, “Programs”). Compl. ¶¶ 5.03, 6.04. Heidi, founded by Carol Everett, contracted to be a provider under the Programs. Id. at 6.05. However, Heidi did not plan to directly provide care; instead, Heidi planned to serve as an umbrella for a network of independent pro-life clinics and providers. Id. Neither Everett nor Heidi had ever operated as state contractor, but they were assured the State would provide assistance in operating under the new Programs. Id.
Things did not go smoothly for Heidi/ Contrary to its expectations, and despite “substantial encouragement and assistance” from Assistant HHSC Commissioner Lesley French, Heidi “encountered substantial resistance from the HHSC employees assigned to work with it in implementing the Programs.” Id. ¶ 6.09. Heidi recognizes that part of the problem within HHSC may been caused by the newness of the Programs, and even HHSC did not know how they should be administered. Id. But, Heidi primarily blames the “swamp, which subsequently seized on technical non-compliance issues [with the contracts or Programs] to attempt to destroy Heidi” because of Heidi's pro-life beliefs. Id. ¶ 6.10.
In August 2017, HHSC renewed both of Heidi's contracts, but the issues continued. Heidi describes that “[h]elp did not arrive until April 2018 when HHSC deployed auditors from its Fiscal Monitoring Unit (“FMU”) to review Heidi's activities, which was a standard contract management practice at HHSC.” Id. ¶ 6.11. A new HHSC Contract Manager for Heidi arrived with the auditors, questions were finally answered, and procedures were able to be implemented. Id.
The FMU auditors reviewed the operations of HEIDI over the period of September 1, 2017 through April 13, 2018. Id. ¶ 6.12. An Initial FMU Report was issued July 12, 2018, and a nearly identical Final FMU Report was issued October 12, 2018. Id. These Reports noted several accounting and documentation issues. Id. ¶ 6.13. After the Initial FMU Report, HHSC renewedboth contracts in July 2018. Id. ¶ 6.18.
The Complaint states an “amendment/renewal” was signed.
In September 2018, the Texas Observer published a critical article on Everett and Heidi, including factually false allegations. Id. ¶ 6.20. Heidi alleges portions of the false information was provided by HHSC personnel. Id. The Dallas Morning News reprinted the article later that month. Id. The next month, HHSC terminated both of Heidi's contracts for “convenience” and referred the contracts to OIG for a formal investigation. Id. ¶¶ 6.22, 6.35. Heidi alleges that Assistant HHSC Commissioner Lesley French “confirmed to Everett that there had been an internal plot for Heidi to fail.” Id. ¶ 6. 23. Moreover, an HHSC spokesperson publicly treated the contract terminations as if they were “for cause,” noting issues that had been addressed when the contracts were renewed. Id. ¶ 6.24.
Defendant Phyllis Morgan was Heidi's Program Director from September 2017 until her termination in July 2018. Id. ¶¶ 6.25-.26. After her termination, Morgan repeatedly accessed Heidi's electronic drop box files, including correspondence, accounting records, and reports, and provided those documents to OIG. Id. ¶¶ 6.26-28. Morgan's access to Heidi's files was discovered in May 2019, and Heidi's administrator deleted her access. A police investigation was opened, and Morgan was arrested, but the County Attorney did not pursue prosecution. Id. ¶¶ 6.29-.30.
OIG continued its investigation into Heidi, including collecting documents twice from Heidi, but it did not interview Everett during the investigation. In November 2019, OIG released its 2019 OIG Final Report, which “rubber-stamp[ed]” the earlier FMU Reports, and concluded that Heidi owed over $1.5 million for the period in question and noted the investigation was being expanded to cover the entirety of the contracts' duration. Id. ¶¶ 6.44-.45, 6.49.
The 2019 OIG Final Report “dealt almost exclusively with the 7 ½-month period of September 1, 2017 through April 13, 2018. Id. ¶ 6.46.
In December 2019, OIG began a new 19-month audit of Heidi that encompassed the full contract period for both of Heidi's contracts. Id. ¶¶ 6.51, 6.53. Unlike the earlier audit, this audit included meetings with Heidi and Everett, who were able to respond to questions and issues raised by the auditors. Id. ¶ 6.54. On July 30, 2021, OIG released the new 2021 OIG Audit Report, which concluded that Heidi only owed a total of $136,755.42 in unallowable or inadequately supported costs. Id. The 2021 OIG Audit Report expressly stated that the OIG auditors “did not find evidence of fraud during the course of this audit or during its investigation” and acknowledged that the causes underlying its assessment included poor “contract oversight” by the state Id. ¶¶ 6.54-.54.
Heidi brings suit asserting a myriad of claims against a host of defendants. The claims will be discussed more below, but generally Heidi sues its former employee Morgan, HHSC, OIG, and various state employees in their official capacities, and some state employees in both their official and individual capacities. The Official State Defendants have moved for judgment on the pleadings. Dkt. #2. The Individual State Defendants have also moved for judgment on the pleadings. Dkt. #3. Finally, Morgan has moved for judgment on the pleadings. Dkt. #21. The motions will be taken up in turn.
II. Standard of Review
“A motion for judgment on the pleadings under Rule 12(c) is subject to the same standard as a motion to dismiss under Rule 12(b)(6).” Ackerson v. Bean Dredging LLC, 589 F.3d 196, 209 (5th Cir. 2009). When evaluating a motion to dismiss for failure to state a claim under Rule 12(b)(6) the complaint must be liberally construed in favor of the plaintiff and all facts pleaded therein must be taken as true. Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). Although Federal Rule of Civil Procedure 8 mandates only that a pleading contain a “short and plain statement of the claim showing that the pleader is entitled to relief,” this standard demands more than unadorned accusations, “labels and conclusions,” “a formulaic recitation of the elements of a cause of action,” or “naked assertion[s]” devoid of “further factual enhancement.” Bell Atl. v. Twombly, 550 U.S. 544, 555-57 (2007). Rather, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Id. at 570. The Supreme Court has made clear this plausibility standard is not simply a “probability requirement,” but imposes a standard higher than “a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The standard is properly guided by “[t]wo working principles.” Id. First, although “a court must ‘accept as true all of the allegations contained in a complaint,' that tenet is inapplicable to legal conclusions” and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678. Second, “[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. Thus, in considering a motion to dismiss, the court must initially identify pleadings that are no more than legal conclusions not entitled to the assumption of truth, then assume the veracity of well-pleaded factual allegations and determine whether those allegations plausibly give rise to an entitlement to relief. If not, “the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Id. at 679 (quoting FED. R. CIV. P. 8(a)(2)).
III. Official State Defendants' Motion
Against the Official State Defendants, Heidi asserts claims for state and federal constitutional violations, including equal protection claims, search and seizure claims, due process claims, establishment clause claims, and free exercise claims. Heidi also asserts some Official State Defendants violated the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030, et seq. Heidi separately asserts claims under 42 U.S.C. § 1983 for violations of the CFAA and search and seizure violations. Finally, Heidi asserts claims under Texas Civil Practices and Remedies Code § 106.001 and Texas Government Code § 2400.002.
A. State and Federal Constitutional Claims
1. Stand-Alone Federal Constitutional Claims
First, Defendants assert federal constitutional claims cannot be asserted as standalone claims-they must be brought under § 1983. Heidi contends the claims are properly brought under the Texas Declaratory Judgment Act.
For brevity, the court refers to the groups of Defendants as simply “Defendants.”
In its sur-reply, Heidi contends Defendants have wrongly tried to dismiss its state constitutional claims for the first time in Defendants' reply brief. The undersigned does not read Defendants' reply brief to raise that issue. Accordingly, the court's analysis does not reach Heidi's stand-alone state constitutional claims. Further, Heidi argues that in their reply brief, Defendants improperly raised for the first time that claims cannot be brought under the Federal Declaratory Judgment Act. The undersigned disagrees. Defendants clearly argued in their motion that these claims can only be brought under § 1983; their reply brief merely responded to Heidi's argument that the claims could be brought under the Declaratory Judgment Act.
Courts construe claims under the Texas Declaratory Judgment Act as Federal Declaratory Judgment Act claims when cases are removed to federal court. Edionwe v. Bailey, 860 F.3d 287, 294 n.2 (5th Cir. 2017). However, the Federal Declaratory Judgment Act is a procedural device that does not create a cause of action. Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 601 (5th Cir. 1983). Section 1983 is the necessary vehicle through which a plaintiff must assert a federal constitutional claim. Hearth, Inc. v. Dep't of Pub. Welfare, 617 F.2d 381, 382-83 (5th Cir.1980); Hunt v. Smith, 67 F.Supp.2d 675, 681 (E.D. Tex. Oct. 13, 1999); see Wickerham v. Waterman, No. SA-14-CA-766-XR, 2014 WL 5469816, at *6 (W.D. Tex. Oct. 28, 2014). Accordingly, to the extent Heidi seeks to assert these claims as free standing, non-§ 1983 claims, they should be dismissed.
Defendants also argue the claims cannot be asserted under § 1983. Accordingly, the court addresses the viability of the claims if they were repleaded under § 1983.
2. Equal Protection Claim
Heidi asserts an equal protection claim under both the federal and state constitutions. Heidi alleges it was “singularly subjected to intrusive harassment by HHSC and OIG, including unlawful search and seizure, bias-based contract terminations, unending audits, and the other actions described above, unlike any other program participant .... because of its pro-life beliefs.” Compl. ¶ 7.07.
Because “the federal analytical approach applies to equal protection challenges under the Texas Constitution,” courts do not address separately a plaintiff's claim under the Texas Constitution. Lindquist v. City of Pasadena Texas, 669 F.3d 225, 233 (5th Cir. 2012).
The parties agree that Heidi must ultimately show that “(1) [it] was intentionally treated differently from others similarly situated and (2) there was no rational basis for the difference in treatment.” Lindquist v. City of Pasadena Tex., 669 F.3d 225, 233 (5th Cir. 2012); Dkt #2 at 7; Dkt. #9 at 6. Defendants argue Heidi's claim should be dismissed because in the context of an Equal Protection class-of-one claim because Heidi points to no specific person or persons who was treated differently and provides no specifics. Dkt. #14 at 3 (citing Rountree v. Dyson, 892 F.3d 681, 685 (5th Cir. 2018)). Heidi argues it has not brought a class-of-one claim and is not required to plead who was treated differently, which it cannot do until discovery. Dkt. #9 at 7 (citing Johnson v. Johnson, 385 F.3d 503 (5th Cir. 2004)).
Typically, a class of one involves a discrete group of people, who do not themselves qualify as a suspect class, alleging the government has singled them out for differential treatment absent a rational basis. Integrity Collision Ctr. v. City of Fulshear, 837 F.3d 581, 586 (5th Cir. 2016). Heidi alleges it was discriminated against because of its pro-life beliefs. Compl. ¶ 7.07. Further, Heidi alleged that Assistant HHSC Commissioner French “confirmed to Everett that there had been an internal plot for HEIDI to fail.” Id. ¶ 6. 23.
Defendants have not shown Heidi has failed to plead a plausible claim for relief.
3. Search and Seizure Claim
Heidi asserts a search and seizure claim under both the federal and state constitutions.Heidi alleges Dacus, a senior OIG investigator, and Defendants colluded with Defendant Morgan's unlawful computer intrusions into Heidi's network, to illegally search and seize Heidi's properties. Compl. ¶ 7.09. Heidi alleges Morgan acted as a de facto agent of the State through her conspiracy with Defendants.
Texas courts generally interpret Article I, Section 9 of the Texas Constitution similarly to how the federal courts interpret the Fourth Amendment to the U.S. Constitution. See Holder v. State, 595 S.W.3d 691, 701-02 (Tex. Crim. App. 2020).
Defendants contend Heidi's claim fails because the constitution only protects property where there is a “legitimate expectation of privacy.” Dkt. #2 at 8 (citing Byrd v. United States, 138 S.Ct. 1518, 1526 (2018)). Defendants argue Heidi could have no expectation of privacy because OIG had contractual and statutory authority to obtain Heidi's documentation and Heidi was legally obligated to permit OIG to view the documents. Id. Defendants argue the contracts provided that Heidi
will permit the System Agency or any of its duly authorized representatives, as well as duly authorized federal, state or local authorities, unrestricted access to and the right to examine any site where business is conducted or Services are performed, and all records, which includes but is not limited to financial, client and patient records, books, papers or documents related to the Contract.Dkt. #14 at 6 (quoting Dkt. #2-1 at 17 (Section 7.02 of the Uniform Terms and Conditions; id. at 60 (same)). Defendants also point to statutes that grant OIG broad subpoena power. Dkt. #2 at 8 (citing Tex. Gov't Code § 531.1021).
Defendants' arguments fail. Under Defendants argument, they are allowed to surreptitiously hack into the computer systems of any party that contracts with the State. Unsurprisingly, Defendants fail to cite a case approving of that proposition. Nor is the OIG's ability to subpoena documents persuasive, as the subpoena process would allow Heidi the opportunity to object.
Defendants have not shown Heidi has failed to plead a plausible claim for relief.
4. Due Process Claim
Again, under both the Texas and federal constitutions, Heidi asserts a due process claim. Heidi asserts Defendants' investigations and reports, which did not allow Heidi the opportunity to defend itself, violated its rights, resulted in its contract terminations, and harmed its business and reputation. Defendants move to dismiss, arguing that Heidi had no property interest in the contracts because they were terminable at will and reputation damage alone cannot support the claim.
Texas courts generally follow federal procedural due process precedent when analyzing claims under Article I, Section 19 of the Texas Constitution. See Univ. of Tex. Med. Sch. at Houston v. Than, 901 S.W.2d 926, 929 (Tex. 1995) (“While the Texas Constitution is textually different in that it refers to ‘due course' rather than ‘due process,' we regard these terms as without meaningful distinction. As a result, in matters of procedural due process, we have traditionally followed contemporary federal due process interpretations of procedural due process issues.”).
Procedural due process under the Fourteenth Amendment of the United States Constitution is implicated where an individual is deprived of life, liberty, or property, without due process of law. Meza v. Livingston, 607 F.3d 392, 399 (5th Cir. 2010), decision clarified on denial of reh'g, No. 09-50367, 2010 WL 6511727 (5th Cir. Oct. 19, 2010). The Supreme Court has adopted a two-step analysis to examine whether an individual's procedural due process rights have been violated. Id. The first question “asks whether there exists a liberty or property interest which has been interfered with by the State; the second examines whether the procedures attendant upon that deprivation were constitutionally sufficient.” Id. (quoting Kentucky Dept. of Corr. v. Thompson, 490 U.S. 454, 460 (1989) (citations omitted)).
Although Defendants argue there can be no property interest in a contract that can be terminated at will, neither side directs the court to any case in this context. Defendants analogize cases in the employment-at-will context. Defendants argue that just as there is no property interest in employment-at-will relationships, there can be no property interest in a contract that is terminable at will. See Wallace v. Shreve Mem'l Libr., 79 F.3d 427, 429-30 (5th Cir. 1996) (“In order for Wallace to prove that she has a property interest in her job, she must establish that she is not an employee at will.”). In response, Heidi does not refute this argument but contend Defendants have misunderstood its claim. Heidi asserts Defendants deprived Heidi of its documents without due process and publicly smeared Heidi's reputation, costing it time, money energy, and resources. In its surreply, Heidi argues its claim is analogous to the due process rights violated when an at- will employee is terminated in a matter that creates a false and defamatory impression about him. See Miller v. Metrocare Servs., 809 F.3d 827, 833 (5th Cir. 2016).
Given the parties' arguments, the court accepts that the employment-at-will context is similar to the contractual context here. As argued by Defendants, there can be no property interest in a contract that is terminable at will. However, a liberty interest is infringed, and the right to notice and an opportunity to clear one's name arises, when a contract is terminated in a manner that creates a false and defamatory impression about a plaintiff and thus stigmatizes the plaintiff and forecloses the plaintiff from other employment opportunities. See Miller, 809 F.3d at 833. Heidi has pleaded that HHSC's termination of its contracts was done in a manner that damaged Heidi's reputation and financial status. Thus, Heidi has pleaded a plausible right to relief under this theory.
However, Heidi did not contest Defendants' assertion that the court should dismiss Heidi's due process claim against Sylvia Kauffman, Dirk Johnson, Jennifer Kaufman, and Gaylon Dacus because they were employed by OIG, not HHSC, and had no authority to terminate Heidi's contracts with HHSC. Accordingly, the undersigned will recommend the claim be dismissed as to those defendants only.
5. Establishment Clause and Free Exercise Claims
Heidi alleges Defendants, acting on behalf of OIG and HHSC, intentionally targeted and discriminated against Heidi for its pro-life religious beliefs. Compl. ¶¶ 7.17, 7.20. Defendants argue that it is not clear these claims apply to third-party contractors or that auditing a contractor or terminating its contracts violates either the establishment or free exercise clause. Defendants ignore Heidi's allegations that Defendants' conduct went far beyond the typical audit and termination of contracts and was intentionally based on Heidi's beliefs. Accordingly, Defendants have not shown these claims should be dismissed at this time.
B. CFAA
Heidi alleges Defendants violated the CFAA by conspiring with Morgan to access its computer files. The CFAA provides a private right of action to those harmed by CFAA violations. 18 U.S.C. § 1030(g). To recover under the civil action authorized by § 1030(g), a plaintiff must prove: (1) a defendant violated § 1030; (2) the plaintiff suffered “damage” or “loss” by reason of that violation; and (3) one of the factors set forth in § 1030(c)(4)(A)(i) is satisfied. Id. Defendants argue that Heidi has failed to state a claim because Heidi cannot demonstrate a “loss” under the statute. Heidi argues its damages included costs associated with remedying the computer breach issues, including personnel costs; loss of $400,000 in donations directly attributable to the breaches; and loss of its contractual revenues.
The CFAA requires at least a $5000.00 loss to bring a civil action. 18 U.S.C. § 1030(a)(4)(i)(I). Heidi's allegation that “[t]he actions of the conspirators caused damage to HEIDI greatly in excess of the $5,000 (in one year) threshold set out in the statute” fails to provide adequate support for its claim. See Compl. ¶ 7.28. This allegation lacks any factual support and is no more than “a formulaic recitation of the elements of a cause of action,” See Twombly, 550 U.S. at 555-57. Heidi also argues its damages included costs associated with remedying the computer breach issues, including personnel costs; loss of $400,000 in donations directly attributable to the breaches; and loss of its contractual revenues. Heidi acknowledges the $400,000 loss of donations is not explicitly pleaded. See Compl. ¶ 6.53 (“Heidi's donor base virtually dried up.”). Defendants dispute that all of these are losses under the statute.
The statute defines “loss” as any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service[.] 18 U.S.C. § 1030(e)(11). Defendants argue that the statute limits losses to those that occur “because of an interruption in service.” Heidi argues its $400,000 loss of donations can be considered because § 1030(g) allows the recovery of compensatory damages. See 18 U.S.C. § 1030(g) (“Any person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief.”). However, there is a flaw in Heidi's reasoning. Even if it could recover lost donations as compensatory damages under § 1030(g), it must still meet the threshold $5000 “loss” as required by § 1030(a)(4)(A)(i)(I) and as “loss” is defined in § 1030(e)(11). The case Heidi cites to refute Defendants' assertion that all losses must be caused by an interruption of service highlights the error of Heidi's argument.
The plain language of the statutory definition includes two separate types of loss: (1) reasonable costs incurred in connection with such activities as responding to a violation, assessing the damage done, and restoring the affected data, program system, or information to its condition prior to the violation; and (2) any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.
Brown Jordan Int'l, Inc. v. Carmicle, 846 F.3d 1167, 1174 (11th Cir. 2017). Thus, to determine the amount of “loss,” lost revenue and other consequential damages are limited to those caused by an interruption of service. Heidi did not plead that its computer services were ever interrupted. At most, Heidi alleges its systems administrator had to delete Morgan's access to the system. Compl. ¶ 6.29. But, as Defendants point out, it is unbelievable that this could cost $5000 is personnel expenses, and it is something that should have been routinely done when employees leave Heidi's employment. Accordingly, Heidi has failed to plead a plausible claim under the CFAA. The undersigned will recommend this claim be dismissed.
The Eleventh Circuit was addressing this issue as a matter of first impression and agreed with the Fourth and Sixth Circuits. Neither party here cited a relevant Fifth Circuit case, and the Fifth Circuit does not appear to have decided whether “because of interruption of service” modifies all of the loss definition or only the last part of the definition.
C. Section 1983 Claims
Heidi alleges violations of the CFAA and the Fourth Amendment under §1983. These claims rise and fall with the court's earlier analysis. Defendants raise no new arguments here except that Young and Kaufman should be dismissed because Heidi did not make a specific allegation with respect to them under § 1983. Notably, Defendants did not seek to dismiss the search and seizure claim against Young or Kaufman. Dkt. #2 at 7-8. As Heidi's federal search and seizure claim can only be brought under § 1983 and Young and Kaufman did not seek dismissal of that claim against them as inadequately pleaded, the undersigned will not recommend the claim against them be dismissed.
Defendants also argue HHSC and OIG should be dismissed because the State is not a proper party to a § 1983 claim, but Heidi did not assert its § 1983 claim against HHSC or OIG. Compl. ¶ 7.31.
D. Texas Civil Practices and Remedies Code § 106.001
Heidi alleges Defendants violated Texas Civil Practices and Remedies Code § 106.001(a)(4)-(5) by targeting and discriminating against Heidi due to its pro-life religious beliefs. Comp. ¶ 7.47. Under the statute, a state employee cannot-because of a person's religion:
(4) refuse to permit the person to participate in a program owned, operated, or managed by or on behalf of the state or a political subdivision of the state;
(5) refuse to grant a benefit to the person;
(6) impose an unreasonable burden on the person; or
(7) refuse to award a contract to the person.TEX. CIV. PRAC. & REM. CODE § 106.001(a). Defendants argue Heidi cannot invoke subsections (4) or (5) because Heidi was not a woman seeking to receive the state-funded healthcare. They argue Heidi cannot invoke subsection (6) because conducting an audit and terminating a contract is not an unreasonable burden. Defendants argue Heidi cannot invoke subsection (7) because it was awarded, and re-awarded the contracts, and termination of the contracts is not actionable under this statute. Finally, Defendants argue the court should dismiss HHSC and OIG because the statute only applies to state employees not agencies and the court should dismiss Sylvia Kaufman, Johnson, Jennifer Kaufman, and Dacus because they are employed by OIG and had no authority to award or terminate any contract.
As they have done repeatedly their brief, Defendants failed to cite any cases supporting these points in their motion. Citing authority in a reply brief is not sufficient. LOC. R. CV-7(c) (“All motions must state the grounds therefor and cite any applicable rule, statute, or other authority justifying the relief sought.”). Accordingly, their motion is denied as to this claim.
E. Texas Government Code § 2400.002
This statute provides that:
Notwithstanding any other law, a governmental entity may not take any adverse action against any person based wholly or partly on the person's membership in, affiliation with, or contribution, donation, or other support provided to a religious organization.TEX. GOV'T CODE § 2400.002. An “adverse action” means any action taken by a governmental entity to:
withhold, reduce, exclude, terminate, or otherwise deny any grant, contract, subcontract, cooperative agreement, loan, scholarship, license, registration, accreditation, employment, or other similar status from or to a person[.]TEX. GOV'T CODE § 2400.001(1)(A). Heidi alleges “HHSC and OIG have withheld, excluded, and denied, and continue to withhold, exclude, and deny, contracts for HEIDI to participate in the HTW and FPP programs based on HEIDI's affiliation with and support of prolife religious organizations.” Compl. ¶ 7.57. Defendants argue this claim should be dismissed because the statute took effect after the contracts were terminated and Heidi has not pleaded membership in, affiliation with, or support provided to any “religious organization” as that term is defined by Texas Civil Practice and Remedies Code § 110.001. Heidi argues it pleaded that Defendants have “continued to withhold, exclude, and deny contracts for Heidi” and Heidi pleaded that it and Everett were national leaders in the pro-life movement. Heidi argues that movement includes numerous churches and other religious organization. In Defendants' reply, they point out that Heidi did not plead it has reapplied for any contracts and Heidi failed to plead its affiliation with any “religious organization” as defined by statute. Heidi did not address this claim in its reply brief.
Defendants also summarize their arguments that Heidi's religious discrimination claims should be dismissed. The court has already addressed those arguments.
As Defendants have shown, Heidi has failed to state a claim under this statute. Its contracts were terminated before the statute took effect. See Dohlen v. City of San Antonio, 643 S.W.3d 387, 396 (Tex. 2022) (holding this statute could not have been violated before it took effect on Sept. 1, 2019). Additionally, Heidi did not plead it has attempted to contract with HHSC after the statute took effect. Finally, Heidi has also not pleaded any relationship to any “religious organization,” as that term is statutorily defined. Accordingly, the undersigned will recommend this claim be dismissed.
IV. Individual State Defendants' Motion
In this motion, the Individual State Defendants-Dirk Johnson, Jennifer Kaufman, and Gaylon Dacus-assert their defenses of qualified and official immunity. Heidi asserts claims against the Individual State Defendants under the CFAA, § 1983, and Texas Penal Code Chapter 33. As Heidi has failed to plead a viable CFAA claim, the court does not reach the Individual State Defendants' qualified immunity arguments as to that claim.
A. Section 1983 Claim
Defendants contend they are entitled to qualified immunity as to Heidi's § 1983 search and seizure claim related to their procurement of Heidi's documents through Morgan.
Qualified immunity protects government officials “from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.” Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982). First, courts ask whether the facts, taken in the light most favorable to the plaintiff, show the official's conduct violated a federal constitutional or statutory right. Tolan v. Cotton, 134 S.Ct. 1861, 1865 (2014) (per curiam). Second, courts ask whether the right in question was “clearly established” at the time of the violation. Id. at 1866. A court has discretion to decide which prong to consider first. Id.; Whitley v. Hanna, 726 F.3d 631, 638 (5th Cir. 2013) (evaluating qualified immunity at the motion to dismiss stage). “The relevant, dispositive inquiry in determining whether a right is clearly established is whether it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted.” Lytle v. Bexar Cty., 560 F.3d 404, 410 (5th Cir. 2009) (quotations omitted). “When considering a defendant's entitlement to qualified immunity, [a court] must ask whether the law so clearly and unambiguously prohibited his conduct that ‘every reasonable official would understand that what he is doing violates [the law].'” Morgan v. Swanson, 659 F.3d 359, 371 (5th Cir. 2011) (en banc) (quoting Ashcroft v. al-Kidd, 563 U.S. 731, 741 (2011)). Courts should define the “clearly established” right at issue on the basis of the “specific context of the case,” but at the same time “must take care not to define a case's ‘context' in a manner that imports genuinely disputed factual propositions.” Tolan, 134 S.Ct. at 1866. A plaintiff has the burden of overcoming the qualified immunity defense. Bennett v. City of Grand Prairie, 883 F.2d 400, 408 (5th Cir. 1989).
Similar to their arguments in the Official State Defendants' motion, Defendants argue they are entitled to qualified immunity because Heidi cannot show a privacy interest in the documents. They also argue Heidi cannot show any clearly established law that would have put reasonable OIG employees on notice that they were violating Heidi's federal rights. In response, Heidi points to the Fourth Amendment, its progeny, and the CFAA.
Heidi also relies on Chapter 33 of the Texas Penal Code, but § 1983 only provides a cause of action for a deprivation of rights under the federal constitution or federal laws. 42 U.S.C. § 1983. Accordingly, the Texas Penal Code cannot establish Heidi's privacy interest for its § 1983 claim.
Although Heidi failed to state a private claim under the CFAA, that does not mean the CFAA cannot provide an expectation of privacy in its computer files. Defendants' arguments to the contrary fail. They argue that Heidi can have no expectation of privacy since Morgan still had electronic access after her termination. But simply because a window is left open, the State does not have a right to climb through and search a house. Similarly, just because the State has contractual authority to access and review documents does not give Defendants the right to break into a contractor's office in the middle of the night and rifle through its filing cabinet. The law is clear on this, and to the extent there is no case directly on point, that is likely because no one has tried to make such absurd arguments. Defendants have not shown they are entitled to qualified immunity on Heidi's Fourth Amendment claim.
B. Texas Penal Code Claim
Heidi asserts a claim under Texas Penal Code § 33.02(a), (b-1) for Defendants' unauthorized access to Heidi's electronic files. Compl. ¶¶ 7.61-.67. Texas Civil Practice and Remedies Code § 143.001 creates a private right of action for this claim. Defendants contend they are entitled to official immunity for this claim.
State-law claims against state officials who are sued in their individual capacities are subject to Texas' “official immunity” doctrine. See, e.g., Dupont v. Linden, 81 F.3d 155, 1996 WL 101418, at *2 (5th Cir. 1996) (per curiam) (unpublished) (applying Texas' official immunity doctrine to claims brought under state law against a state official in his individual capacity). As the Fifth Circuit has observed, “Texas' law of qualified or official immunity is substantially the same as federal immunity law,” with the exception that Texas' official immunity doctrine does not include the “clearly established law” element that federal qualified immunity doctrine includes. Cantu v. Rocha, 77 F.3d 795, 808-09 (5th Cir. 1996).
Under Texas' official immunity doctrine, “Government employees are entitled to official immunity from suit arising from the performance of their (1) discretionary duties in (2) good faith as long as they are (3) acting within the scope of their authority.” City of Lancaster v. Chambers, 883 S.W.2d 650, 653 (Tex. 1994). A state employee bears the burden to establish these elements. Id.
Like they did in the Official State Defendants' motion, Defendants rely on their subpoena power under Texas Government Code § 531.1021 and the contractual provisions allowing them to obtain documents. Defendants also contend their “good faith” is “apparent” because there is nothing wrong with obtaining documents from a former employee. This argument, of course, ignore how Heidi alleges Morgan obtained the documents and that Defendants knew how Morgan was obtaining the documents. It also ignores that subpoena power is subject to objections by the party whose documents are subpoenaed.
As they often did in the Official State Defendants' motion, Defendants provided no legal support-other than citing the standard for official immunity-for their position. They cite no caselaw that describes what constitutes discretionary functions, good faith, or scope of authority.
They cite no caselaw that supports their assertion that the State is allowed to secretly hack into any state contractor's computer system to review the contractor's documents. They cite no authority that contractual access to documents and records also includes unfettered and unsupervised access to the systems on which those documents and records are stored. It is not until their reply brief that the Individual State Defendants even address these issues. As noted before, “[a]ll motions must state the grounds therefor and cite any applicable rule, statute, or other authority justifying the relief sought.” LOC. R. CV-7(c). Defendants' motion failed to show that they are entitled to official immunity as to this claim. Chambers, 883 S.W.2d at 653 (a state employee bears the burden to establish entitlement to official immunity).
Heidi did not respond to Defendants' arguments in its sur-reply. It is unclear whether Heidi intended to acquiesce to Defendants' arguments or intended to rely on its responsive brief arguments, as it did with its § 1983 claim. See Dkt. #29 at 6. However, the court puts this confusion on Defendants' shoulders, as it was their failure to cite any authority in their motion that created this issue.
V. Morgan'S Motion
Heidi implicates Morgan in its state and federal search and seizure claims, CFAA claim, its § 1983 claims for violating the CFAA and Fourth Amendment, and Texas Penal Code Chapter 33 claim.
Like the State Defendants, Morgan argues Heidi's CFAA claim fails because Heidi has not plausibly pleaded a $5000 loss as required by the statute. As previously explained, the court agrees, and Heidi's CFAA claim against Morgan fails for this reason.
A. State and Federal Constitutional Search and Seizure Claims
1. Stand-Alone Federal Constitutional Claim
As previously determined, Heidi's search and seizure claim against state actors can only be brought under § 1983. Heidi's and Morgan's arguments in this motion do not change that or require additional analysis.
2. Stand-Alone State Constitutional Claim
Morgan did not move to dismiss Heidi's state constitutional claim in her motion. Dkt. #21. In her reply brief, she argues that Heidi cannot seek equitable relief from her because she is not a state actor. As this issue was not raised in her motion, it was waived. Loc. R. CV-7(c)(1) (“All motions must state the grounds therefor and cite any applicable rule, statute, or other authority justifying the relief sought.”).
B. Statutes of Limitations
Morgan argues Heidi's remaining claims are barred by their two-year limitation periodsbecause Heidi learned Morgan had accessed its files on May 21, 2019 and did not bring suit until February 2, 2022. Heidi does not dispute the two-year limitation periods but does dispute when the limitation periods began to run. Specifically, Heidi argues that while it knew of Morgan's May 21, 2019 intrusion into its computer system, it did not learn about the earlier intrusions or that Morgan was conspiring with the State Defendants to violate its rights until it received records from the police department pursuant to its Open Records Request in January 2021. Additionally, Heidi has carefully crafted its claims to only allege the pre-May 21, 2019 intrusions as the basis of its claims. Although it strains credibility, Heidi argues it does not know whether the May 21, 2019 intrusion was part of the conspiracy.
Regarding the § 1983 claim, see Helton v. Clements, 832 F.2d 332, 334 (5th Cir. 1987), and Tex. Civ. Prac. & Rem. Code § 16.003. Regarding the CFAA, see 18 U.S.C. § 1030(g). Regarding the Texas Penal Code claim, see Tex. Civ. Prac. & Rem. Code § 143.001.
The parties agree on the applicable legal framework. “Under federal law, a cause of action accrues the moment the plaintiff knows or has reason to know of the injury that is the basis of his complaint. Thus, the statute of limitations begins to run from the moment the plaintiff becomes aware that he has suffered an injury or has sufficient information to know that he has been injured.” Helton v. Clements, 832 F.2d 332, 334-35 (5th Cir. 1987). “A plaintiff's awareness encompasses two elements: ‘(1) The existence of the injury; and (2) causation, that is, the connection between the injury and the defendant's actions.'” Piotrowski v. City of Houston, 237 F.3d 567, 576 (5th Cir. 2001) (“Piotrowski II”). A plaintiff need not know that they have a legal cause of action; they need know only the facts that would ultimately support a claim. Id. Actual knowledge is not required if the circumstances would lead a reasonable person to investigate further. Id.
In the conspiracy context, the cause of action accrues as soon as the plaintiff knew or should have known of the overt acts involved in the alleged conspiracy. Helton, 832 F.2d at 335. The actionable injury results from the overt acts, not the mere continuation of the conspiracy. Id. However, those acts must be such that the plaintiff knew or should have known of the conspiracy. See Way v. Mueller Brass Co., 840 F.2d 303, 308 (5th Cir. 1988). Until that time, the plaintiff has no conspiracy claim. Id. Thus, the limitations issue presented here is whether Heidi should have known of either the pre-May 21, 2019 intrusions or Morgan's conspiracy with the State Defendants based on discovering Morgan's May 21, 2019 intrusion.
In rebuttal to Heidi's arguments that it did not learn of the conspiracy or Morgan's earlier intrusions into Heidi's computer system until January 2021, Morgan relies on declarations filed by Heidi with a state court in December 2020 seeking pre-suit discovery. See Dkt. #24-1. In the most detailed declaration, Heidi's attorney states that in the “fall of 2019” he and Everett met with a Williamson County investigator who told them that Morgan “had confessed to him that she illegally intruded into [Heidi's] electronically stored record with the intent to alter or copy them [and] that the HHSC/OIG had been using Ms. Morgan as a source for its ongoing investigations of [Heidi].” Id. at 41.
Not present litigation counsel.
This evidence does not conclusively establish that Heidi was on notice or should have known that Morgan had previously accessed its systems and was using documents from those intrusions to assist the State Defendants with their knowledge. It is equally possible to read the attorney's statement to mean HHSC/OIG was using Morgan as a source based on her knowledge of Heidi's operations from her employment. Additionally, while it seems obvious that upon learning of one unauthorized access, a company would search its system history for other intrusions, there is no evidence Heidi did that, that Heidi should have done that, or that it would have been easy or standard procedure to do so. Accordingly, Morgan has not shown at this time the claims against her should be dismissed based on the applicable statutes of limitations.
V. Recommendations
For the reasons given above, the undersigned RECOMMENDS that the District Court GRANT in part and DENY in part the Official State Defendants' Motion for Judgment on the Pleadings (Dkt. #2), the Individual State Defendants' Motion for Judgment on the Pleadings (Dkt. #3), and Defendant Phyllis Everette Morgan's Motion for Judgment on the Pleadings (Dkt. #21).
Specifically, the undersigned recommends:
• Dismissal of all standalone federal constitutional claims with leave to replead those claims under § 1983;
• Dismissal of Heidi's due process claim against Sylvia Kauffman, Dirk Johnson, Jennifer Kaufman, and Gaylon Dacus;
• Dismissal of Heidi's CFAA claim, both as a freestanding claim and under § 1983; and • Dismissal of Heidi's Texas Government Code § 2400.002 claim.
VI. Objections
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battles v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen (14) days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Services Auto. Ass'n, 79 F.3d 1415 (5th Cir. 1996)(en banc).