Reliable Ambulance Service, Inc. v. Mercy Hospital of Laredo; Medical Ambulance Services, Inc..; Adonis Zuniga-Goldwater, M.D.; Adriana P. Zuniga-Goldwater; Arturo A. Garza, M.D.; Sheila M. Garza; Arturo Garza-Gongora, M.D. & Clarisa Garza-Gongora--Appeal from 49th Judicial District Court of Webb County

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MEMORANDUM OPINION
No. 04-02-00188-CV
RELIABLE AMBULANCE SERVICE, INC.,
Appellants
v.
MERCY HOSPITAL OF LAREDO, Medical Ambulance Services, Inc.,
Adonis Zuniga-Goldwater, M.D., Adriana P. Zuniga-Goldwater,
Arturo A. Garza, M.D., Sheila M. Garza, Arturo Garza-Gongora, M.D.,
and Clarisa Garza-Gongora,
Appellees
From the 49th Judicial District Court, Webb County, Texas
Trial Court No. 2000-CVQ-001113-D1
Honorable Manuel R. Flores, Judge Presiding

Opinion by: Sarah B. Duncan, Justice

Sitting: Alma L. L pez, Chief Justice (concur without opinion)

Sarah B. Duncan, Justice

Karen Angelini, Justice

Delivered and Filed: August 20, 2003

AFFIRMED

Reliable Ambulance Service, Inc. appeals the take-nothing summary judgment rendered against it. We affirm.

Factual and Procedural Background

Reliable Ambulance Service provides ambulance services in the Laredo area. A substantial portion of the ambulance business in Laredo is referred by Mercy Hospital. Before 1998, Mercy referred ambulance business on a rotating basis, except when patients requested a specific provider. Under this system, Reliable grew to be the largest provider in the area. Medical Ambulance Services, Inc. (MAS) was formed in 1997 by a group of doctors and their wives. In 1998, MAS entered into a provider service contract with Mercy. Pursuant to the agreement, Mercy will refer all ambulance and wheelchair van services to and from the hospital to MAS, unless a patient requests another provider. The agreement requires MAS to have continuous service available at all times, sets out required response times, and specifies equipment and staffing requirements. The contract also sets out the prices Mercy will pay for transportation of patients which are paid for by Mercy and are not reimbursed by the federal government or other third party. MAS and Mercy continue to operate under this agreement.

Reliable contends the prices MAS charges Mercy for ambulance services are below MAS's cost and are lower than what MAS charges Medicare and Medicaid for the same services. The gist of Reliable's complaint is that MAS offered and Mercy knowingly accepted a deep price discount in exchange for Mercy's agreement to refer the much more lucrative Medicare/Medicaid-reimbursed ambulance service business to MAS. According to Reliable, the agreement violates the anti-kickback provision of the Social Security Act ("the anti-kickback statute"). See 42 U.S.C. 1320a-7b(b).

Reliable sued Mercy, MAS, and the doctors and nurses who formed MAS. Reliable alleged a single cause of action for "unfair competition" and sought actual and exemplary damages and equitable relief. Defendants specially excepted to the petition on the grounds it failed to state a cause of action and damages are not available under the theory pled. The trial court sustained the exceptions and ordered Reliable to replead; however, it did not. Defendants then filed motions for summary judgment on the grounds that: (1) Reliable has failed to state a common law cause of action for damages and public policy precludes the award of injunctive relief; (2) Reliable's claim is preempted by federal law; and (3) Reliable's claim is preempted by the Texas Free Enterprise and Antitrust Act. The trial court granted judgment for the defendants without stating its reasons. Reliable appeals the judgment, arguing the trial court erred in sustaining the special exceptions and in granting summary judgment.

Scope and Standard of Review

We review a summary judgment de novo. Valores Corporativos, S.A. de C.V. v. McLane Co., 945 S.W.2d 160, 162 (Tex. App.-San Antonio 1997, writ denied). Accordingly, we will uphold a traditional summary judgment only if the summary judgment record establishes the absence of a genuine issue of material fact and the movant is entitled to judgment as a matter of law on a ground set forth in the motion. Id.; Tex. R. Civ. P. 166a(c). When the trial court's decision in based on the plaintiff's failure to state a cause of action, we "must take the allegations in the pleadings as true in determining whether a cause of action exists." Perry v. S.N., 973 S.W.2d 301, 303 (Tex. 1998).

Discussion

Reliable's claim is based solely on the allegations that "MAS, a competitor in the ambulance business ..., and Mercy entered into an agreement which is illegal, violates the criminal law, and such agreement has been the cause of injury to" Reliable. The criminal law allegedly violated is the federal anti-kickback statute. All parties agree there is no express or implied private cause of action under the anti-kickback statute. See West Allis Mem'l Hosp., Inc. v. Bowen, 852 F.2d 251, 255-56 (7th Cir. 1988); United States ex rel. Barrett v. Columbia/HCA Health Care Corp., 251 F. Supp. 2d 28, 37 (D. D.C. 2003). However, Reliable contends that violation of this federal criminal statute may properly be alleged as the sole basis of a Texas common law claim for unfair competition, for which it can recover injunctive relief and damages from both MAS and Mercy. We disagree.

"Unfair competition" is not, in and of itself, a separate tort. Rather, it is an "umbrella for all statutory and nonstatutory causes of action arising out of business conduct which is contrary to honest practice in industrial or commercial matters." United States Sporting Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 217 (Tex. App.-Waco 1993, writ denied) (quoting American Heritage Life Ins. Co. v. Heritage Life Ins. Co., 494 F.2d 3, 14 (5th Cir. 1974)). Within the broad scope of "unfair competition," as a general area of the law, Texas recognizes a number of independent causes of action. Id.; see, e.g., Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711 (Tex. 2001) (interference with prospective business relations); Browning-Ferris, Inc. v. Reyna, 865 S.W.2d 925, 926 (Tex. 1993) (tortious interference with an existing contract); Hurlbut v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762, 766 (Tex. 1987) (business disparagement); All Am. Builders, Inc. v. All Am. Siding of Dallas, Inc., 991 S.W.2d 484, 488 (Tex. App.-Fort Worth 1999, no pet.) (trade name infringement); United States Sporting Prods., 865 S.W.2d at 217 (misappropriation). And the Texas Legislature has created private causes of action to redress harm caused by some types of unfair competition. See, e.g., Tex. Bus. & Com. Code Ann. 15.21 (Vernon 2002) (providing private cause of action for person whose business or property is injured by unlawful restraint-of-trade, monopolization, or price-fixing); Tex. Ins. Code Ann. art. 21.21 16 (Vernon Supp. 2002) (providing private cause of action for person damaged by unfair method of competition or unfair or deceptive act or practice in the business of insurance). However, Reliable expressly disavows reliance on any of these common law or statutory causes of action; rather, it contends it has alleged the "generic tort of wrongful competition" it argues was "recognized" in Featherstone v. Indep. Serv. Station Ass'n of Texas, 10 S.W.2d 124 (Tex. Civ. App.-Dallas 1928, no writ).

In Featherstone, a service station operator sued some of his competitors claiming their use of a lottery scheme in violation of the Texas Penal Code was injuring his business. Featherstone, 10 S.W.2d at 125. The court noted the general rule that a court of equity will not enjoin acts "merely on the ground that they constitute violations of penal statutes." Id. at 127. However, because the undisputed facts established the existence of an illegal lottery, and it would be a "Herculean" task for Featherstone to institute criminal prosecutions against all those involved in the scheme, the court held "equity will interfere" and rendered a judgment granting injunctive relief. Id. at 126, 128-29. Contrary to Reliable's contention, Featherstone did not create a "generic tort of wrongful competition" or recognize a legal duty owed by businesses to their competitors or to their former customers or suppliers. The court did not discuss the concepts of duty or breach; nor did it contemplate the award of monetary damages. Thus, the claim Reliable seeks to pursue was neither recognized in nor authorized by Featherstone. We must therefore determine whether Reliable's claim may otherwise be pursued under Texas law.

Reliable seeks damages and injunctive relief based solely upon proof it was injured by violation of a federal criminal statute. Under Texas law, the fact that a criminal statute is enacted "does not necessarily mean that [the courts] may recognize a civil cause of action predicated upon that statute." Reeder v. Daniel, 61 S.W.3d 359, 362 (Tex. 2001). "In determining whether a penal statute provides the basis for a civil cause of action, we must consider whether recognizing such an accompanying civil action would be inconsistent with legislative intent." Id. Relevant considerations in this inquiry are how actively Congress has regulated the area, whether it enacted separate criminal and civil schemes relating to the conduct, whether Congress considered and rejected a private right of action, and whether courts in other jurisdictions have recognized a similar cause of action. See Reeder, 61 S.W.3d at 363-64.

The anti-kickback statute prohibits the knowing and willful solicitation, receipt, offer, or payment of any type of benefit to induce referrals or business covered by a federal health care program. 42 U.S.C. 1320a-7b(b). The United States Department of Justice is responsible for criminal enforcement of the statute. 28 U.S.C. 516. Each violation is a felony punishable by up to five years imprisonment, a fine of up to $25,000, or both. 42 U.S.C. 1320a-7b(b)(1)-(2). The criminal anti-kickback provision was first added to the Social Security Act in 1972 when Congress made the solicitation, offering, or receipt of kickbacks or bribes in connection with furnishing items or services reimbursable by Medicare a misdemeanor punishable by a fine of up to $10,000 and imprisonment for up to a year. Act of Oct. 30, 1972, Pub. L. No. 92-603, 242, 86 Stat. 1419, 1454 (1972) (current version at 42 U.S.C. 1320a-7b (b)). In 1977, Congress amended the Social Security Act to "to strengthen the capability of the Government to detect, prosecute, and punish fraudulent activities under the medicare and medicaid programs ...." H.R. Rep. No. 95-393 (II) (1977), reprinted in 1977 U.S.C.C.A.N. 3039, 3040. The 1977 amendment enacted the statutory prohibition in substantially the form it appears today by making it illegal to solicit, receive, offer or pay "any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind" to induce business reimbursable by Medicare or State health care programs. Medicare-Medicaid Anti-Fraud and Abuse Amendments of 1977, Pub. L. No. 95-142, 4(a), (b), 91 Stat. 1175, (1977) (current version at 42 U.S.C. 1320a-7b (b)). Congress included two exclusions - practices that technically fall within the terms of the prohibition, but which Congress believed should not be illegal. Id. The 1977 amendments also strengthened the penalties to their current level. Id. The legislative history clearly reflects Congress' concern was for the beneficiaries of the health care programs, the taxpayers, and state and local governments:

In whatever form it is found, however, fraud in these health care financing programs adversely impacts on all Americans. It cheats taxpayers who must ultimately bear the financial burden of misuse of funds in any government-sponsored program. It diverts from those most in need, the nation's elderly and poor, scarce program dollars that were intended to provide vitally needed quality health services. The wasting of program funds through fraud also further erodes the financial stability of those state and local governments whose budgets are already overextended and who must commit an ever-increasing portion of their financial resources to fulfill the obligations of their medical assistance programs. In addition to these adverse financial consequences, the activities of those who seek to defraud these programs unfairly call into question [the] honesty and integrity of the vast majority of practitioners and health care institutions.

H.R. Rep. No. 95-393 (II) (1977), reprinted in 1977 U.S.C.C.A.N. 3039, 3047.

By 1987, Congress was concerned that "the breadth of th[e] statutory language has created uncertainty among health care providers as to which commercial arrangements are legitimate and which are proscribed." S. Rep. No. 100-109 (1987), reprinted in 1987 U.S.C.C.A.N. 682, 707. It therefore directed the Secretary of Health and Human Services ("HHS"), in consultation with the Attorney General, to promulgate regulations specifying additional "safe harbors" - payment practices that will be protected from criminal prosecution under the anti-kickback statute. Medicare and Medicaid Patient Program Protection Act of 1987, Pub. L. No. 100-93, 14, 101 Stat. 680, 697 (1987). Continued uncertainty about what business arrangements are proscribed by the statute led Congress to amend the anti-kickback statute again in 1996:

Providers want to comply with the fraud and abuse statute, but many are unsure of how the statute affects them. These providers should be able to receive guidance from the government regarding financial arrangements. Little or no guidance is currently provided because there are no regulations and only insufficient safe harbors. Without this ability, a chilling effect is placed on legitimate arrangements, particularly when providers are attempting to structure new and innovative health care delivery systems to contain health care costs.

H.R. Rep. No. 104-496(I), 84 (1996), reprinted in 1996 U.S.C.C.A.N. 1865, 1884. The 1996 amendments thus require HHS, in consultation with the Department of Justice, to annually publish a solicitation of proposals for modifying existing safe harbors and promulgating new safe harbors. Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, 205, 110 Stat. 1936, 2000 (1996) (current version at 42 U.S.C. 1320a-7d (a)). Payment practices specified in such regulations are not treated as a criminal offense under the anti-kickback statute. 42 U.S.C. 1320a-7b(b)(3)(E), 1320a-7d(a)(1)(A). HHS has issued complex, detailed regulations setting out twenty-two safe harbors. See 42 C.F.R. 1001.952.

Congress has also enacted separate civil mechanisms to assist HHS in redressing violations of the anti-kickback statute. First, the Office of Inspector General ("OIG") of HHS has discretionary authority to exclude an individual or entity from participation in federal health care programs if it is determined the party engaged in a prohibited remuneration scheme. Medicare and Medicaid Patient and Program Protection Act of 1987, Pub. L. No. 100-93, 2(b)(7), 101 Stat. 680 (1987) (current version at 42 U.S.C. 1320a-7(b)(7)). This sanction authority, granted in 1987, was "intended to provide an alternative civil remedy, short of criminal prosecution, that will be a more effective way of regulating abusive business practices than is the case under criminal law." Medicare and State Health Care Programs: Fraud and Abuse; OIG Anti-Kickback Provisions, 56 Fed. Reg. 3592, 3592 (July 19, 1991) (rules codified at 42 C.F.R. Part 1001). Second, the Secretary of HHS may impose civil monetary penalties and assessments. Congress first authorized the Secretary to impose civil monetary penalties and assessments in medicare fraud and abuse cases in 1981 when it found that many medicare fraud cases were not being prosecuted by the Justice Department. See S. Rep. No. 97-139 (1981), reprinted in 1981 U.S.C.C.A.N. 396, 728. The purpose of the penalties and assessments was not only to deter fraud and abuse but to ensure that offenders would not have penalty-free use of federal funds. Id. Congress specifically authorized civil penalties and assessments for violations of the anti-kickback statute in 1997. Balanced Budget Act of 1997, Pub. L. No. 105-33, 4304(b), 111 Stat. 251, 383 (current version at 42 U.S.C. 1320a-7a(a)(7)). The administrative sanction is $50,000 for each act and an assessment of not more than three times the amount of remuneration offered, paid, solicited or received, without regard to whether a portion of such remuneration was offered, paid, solicited or received for a lawful purpose. Id. HHS has promulgated detailed regulations implementing the civil penalty and exclusion provisions. See 42 C.F.R. Parts 1001, 1003, 1005. Third, if the OIG has reason to believe any person has, is, or is about to engage in any activity that would make the person liable for a civil monetary penalty, including violation of the anti-kickback statute, the OIG may bring suit to enjoin the activity. 42 U.S.C. 1320a-7a(k). Finally, as part of its effort to encourage "new and innovative health care delivery systems to contain health care costs," Congress, in 1996, directed the Secretary, in consultation with the Attorney General, to issue written advisory opinions. Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, 205, 110 Stat. 1936, 2000 (1996) (current version at 42 U.S.C. 1320a-7d(b)). Pursuant to that directive, HHS, through the OIG, issues binding opinions regarding whether proposed payment arrangements violate the anti-kickback statute or are within the scope of a safe harbor. See 42 C.F.R. Part 1008. The OIG may, in an advisory opinion, find that a particular arrangement facially violates the anti-kickback statute and does not fall within an existing safe harbor but also find that the arrangement poses little risk of fraud and abuse. In such a case, the OIG may bind HHS not to seek civil sanctions against the parties to the arrangement. See, e.g. OIG Advisory Opinion 01-18 (Nov. 7, 2001).

In sum, Congress has actively developed a comprehensive bifurcated civil and criminal scheme for addressing fraudulent and abusive payment practices in federal health care programs. HHS has passed detailed regulations to guide the Attorney General, the Department, and health care service and product providers in determining whether particular business arrangements are prohibited by the anti-kickback statute or protected under the safe harbor provisions. Further guidance is available from the OIG through the advisory opinion process. The Department of Justice may criminally prosecute violations of the anti-kickback statute; and HHS may enjoin activity it has reason to believe violates the statute, exclude violators from further participation in federal health care programs, and impose civil monetary penalties and assessments. Although there is no indication that Congress has considered and rejected a private right of action by competitors for violations of the anti-kickback statute, this is hardly surprising since Congress' stated purpose has been the protection of the beneficiaries of federal health care programs, the taxpayers, and governmental budgets.

We have found no other jurisdiction that has recognized an action for damages or injunctive relief based solely on the allegation that the anti-kickback statute was violated. Indeed, the courts that have addressed the question have all rejected it. See e.g. West Allis, 852 F.2d at 255-56 (holding no private right of action under anti-kickback statute); Action Ambulance Serv., Inc. v. Atlanticare Health Servs., Inc., 815 F. Supp. 33 (D. Mass. 1993) (holding allegation that competitor is violating anti-kickback statute insufficient basis for liability under state consumer protection statute); State Med. Oxygen & Supply, Inc. v. American Med. Oxygen Co., 230 Mont. 456, 750 P.2d 1085 (Mont. 1988) (holding competitor alleging violation of anti-kickback statute has no cause of action under state unfair competition statute that provides action for one "who suffers detriment from the unlawful act or omission of another," because anti-kickback statute not enacted for the benefit of competitors). (1)

We conclude that recognizing a common law cause of action by a competitor for damages and injunctive relief for violation of the anti-kickback statute would be inconsistent with the intent of Congress. We agree with MAS and Mercy that "[a]llowing a private citizen to assert a common law claim based [solely] on an alleged violation of this criminal statute, in a case in which the federal government has not sought to prosecute[, enjoin, or civilly sanction] the alleged violation, would thwart the carefully-crafted remedies provided by Congress in enacting this legislation and contravene Congress' decision not to create a private right of action for a violation of the statute."

Conclusion

We hold Reliable has not stated a cognizable claim under Texas law. We therefore do not address appellees' arguments that the claim is preempted. The judgment of the trial court is affirmed.

Sarah B. Duncan, Justice

1. We recognize that some courts have left open the possibility that conduct allegedly violating the anti-kickback statute may form the basis for liability under some recognized common law cause of action, assuming all other elements of the cause of action are present. See, e.g., Donovan v. Rothman, 106 F. Supp. 2d 513, 517-18 (S.D. N.Y. 2000) (breach of fiduciary duty by corporate president); State Med. Oxygen, 750 P.2d at 462-63 (tortious interference with contract). We need not decide that question in this case because Reliable did not plead any claim other than its putative "generic tort of wrongful competition" based solely on the alleged violation of the anti-kickback statute.

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