### TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-02-00578-CV

Rhonda Lane, Appellant

v.

Texas Department of Health, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT

NO. GN102473, HONORABLE F. SCOTT MCCOWN , JUDGE PRESIDING

M E M O R A D U M O P I N I O N

This is an appeal from a summary judgment in a Texas Whistleblower Act case. Tex.

Gov’t Code Ann. §§ 554.0 01-.010 (West 1994 & Supp. 2003). Rhonda Lane sued her former

employer, the Texas Department of Health, for wrongfully terminating her employment because she

alleges the discharge resulted from her report of a violation of law by the Department. Although the

violation that she reported amounted to only a breach of an internal agency policy, she argues that,

at the time of the report, she had an objectively reasonable, good faith belief that the violation

constituted a breach of federal law, entitling her to protection under the Act. Finding her arguments

without merit, we will affirm.1 The federal grant program was established in the Ryan White CARE Act. S ee 42 U.S.C.A.

§§ 300ff-300ff-111 (West 2003). The grants were limited in number and were awarded among the

2 FACTUAL BACKGROUND

Lane began working for the Department in 1984 as its Program Di r ector for the

Women, Infants & Children Program (“WIC”), which was federally funded. In February 1987, Lane

was promoted to Special Project Director of the Nutritional Education Cancer Prevention Program,

and when that program failed to receive funding she became the nutritionist for the WIC Program.

In May 1988, Lane went into the private sector where she ac ted as a nutritional consultant, the

prog ram director for the weight control program at Austin Regional Clinic, and instructor in nutrition

and chemistry at Austin Community College and San Antonio Community College.

Lane went back to work for the Department in May 1991 and served as a Health

Program Specialist in the Division of Chronic Disease Prevention, then Assistant Bureau Chief for

Administration in the Bureau of Chronic Disease Prevention, and eventually Staff Services Officer

in the Grants Management Division. In July 1999, she was promoted to Program Administrator of

the Clinical Resources Division, Bureau of HIV/STD Prevention. Up to that time, Lane had not been

reprimanded or suffered any adverse employment action at the Department. However, on May 17,

2001, after some sixteen years with the Department, she was fired fo r what she claims were

pretextual reasons.

Lane’s responsibilities in the Clinical Resources Division included administering the

Texas HIV Medica t ion Program and the AIDS Drug Assistance Program, both programs were

primarily funded with federal grants. Her responsibility included applying for and administering the

federal grant associated with the HIV program. 1 Lane’s first grant application to prepare for the HIVstates on a competitive basis. There were detailed application and periodic reporting requirements

associated with these grants, and recipient state agencies were subject to potential audits by the

United States Department of Health and Human Services (“DHHS”) or the Office of Management

and Budget (“OMB”). In fiscal year 1999, Texas received grants of approximately $50 million for

its HIV program.

2 “Indirect cost” is a percentage of a federal grant which a state agency charges for

administering a federal program; its purpose is to cover the cost of administrative overhead incurred

by the agency in administering the program.

3 medication program was for fiscal year 2000. In reviewing grant applications from previous years,

Lane noticed that the HIV medication program had not paid its allotted “indirect c osts” to the

Department. 2 Lane knew that Department operating policy required that all federal grant programs

pay “indirect costs” to the Department, unless a particular grant specifically prohibited such charges.

Lane went to her s upervisor, Linda Moore, and inquired about the failure to pay

“indirect costs” for the HIV medication program. Lane alleges that Moore and another manager,

Patty Melchior, advised her that they believed that the Department had received a waiver from

paying “indirect costs.” Moore then instructed Lane to “leave the matter alone.” Lane continued

pressing the issue as to why no documentation of a “waiver” could be found.

In early May, 2000, Lane went to Mary Alexander, in the Grants M anagement

Division, who was responsible for monitoring the Department’s grant applications and reports to the

federal government. Alexander confirmed Lane’s suspicions that the HIV medication program

should have paid “indirect costs” to the Department. As a result of Lane’s pressure, the HIV

medication program had to refund $2.9 million o f its grant money to the Department as “indirect

costs” for the 1999 fiscal year.

Lane argues that at the time of her report she had formed a belief “that the Indirect

Costs Policy was based upon federal laws governing the receipt of funds from federal grants.” She4

concluded that if the Department failed to pay “indirect costs” from grant monies it would “violate

federal grant laws” which could affect whether Texas would receive future grants should DHHS or

OMB audit the Texas program. Lane contends that her underlying concern was the risk that the

violations posed to the continuation of the HIV and AIDS medication programs in Texas.

The parties do not dispute that after Lane’s rep ort to the Department’s Grants

Management Division that Lane’s relationship with the other members of the Department, including

her supervisor, sharply deteriorated. Lane received reprimands and her authority was repeatedly

reduced and supervision over her increased. She was eventually terminated by Moore on May 17,

2001. Lane pursued an internal grievance procedure, then filed suit under the Whistleblower Act.

DISCUSSION

The parties appear to agree that the Grants Management Division was the appropriate

authority within the Department to address the “violation” reported by Lane. The question in this

case is whether she reported a violation of law protected by the act.

Standard and Scope of Review

The Department challenged Lane’s cause of action with a no evidenc e motion for

summary judgment. S ee Tex. R. Civ. P. 166a(i). The test for granting a “no evidence” motion for

summary judgment is whether there is evidence presented supporting each of the essential elements

of the claims on which the responding party would have the burden of proof at trial. I d

. A movant

of a no evidence motion does not have the burden of establishing its right to judgment as a matter

of law, unlike the traditional motion. D uvall v. Texas Dep’t of Human Servs.

, 82 S.W.3d 474, 4775

(Tex. App.—Austin 2002, no pet.). Rather, a no evidence motion puts the opposing party to its

burden of producing more than a scintilla of probative evidence on each element of each claim or

defense challenged in the motion. Tex. R. Civ. P. 166a(i).

The responding party is not required to marshal its proof, but it must present enough

evidence to raise a genuine fact issue on the challenged elements. S outhwestern Ele c. Power Co.

v. Grant

, 73 S.W.3d 211, 215 (Tex. 2002). Summary judgment will be granted if the opposing party

fails to produce more than a scintilla of evidence on the matters challenged in the motion. D uvall

,

82 S.W.3d at 478. Evidence amounts to more than a scintilla when it “rises to the level that would

enable reasonable and fair-minded people to differ in their conclusions.” M errell Dow Pharm., Inc.

v. Havner

, 953 S.W.2d 706, 711 (Tex. 1997) (quoting Transportation Ins. Co. v. Moriel

, 879 S.W.2d

10, 25 (Tex. 1994)). If the evidence produced by the opposing party is “so weak as to do no more

than create a mere surmise or suspicion,” it is only a scintilla and cannot with stand a no evidence

motion for summary judgment. S ee Tex. R. Ci v. P. 166a(i) and cmt.; D uvall

, 82 S.W.3d at 478

(quoting Kindred v. Con/Chem, Inc ., 650 S.W.2d 61, 63 (Tex. 1983)).

On the other hand, when reviewing no evidence summary judgments, just as with

traditional motions for summary judgment, appellate cou rts construe the evidence, indulge all

reasonable inferences, and resolve any doubts in favor of the opposing party. G rant

, 73 S.W.3d at

215; see also Nixon v. Mr. Prop. Mgmt Co. , 690 S.W.2d 546, 548-49 (Tex.1985).

Here, the Department specified in its motion that Lane failed to make the requisite

showing that she reported a violation of law in good faith. The district court agreed and the order

granting summary judgment clearly and concisely set forth the court’s reasoning for its decision. It3 The act provides:

(a) A state or local government entity may not suspend or terminate the

employment

of, or take other adverse personnel action against, a public

employee who in good faith reports a violation of law by the employing

governmental entity or another public employee to an appropriate law

6 noted that all of Lane’s evidence involved the Department’ s failure to charge indirect costs to the

federal HIV program grant, whic h violated the Department’s i nternal policies

, but did not violate

state or federal law. The court concluded there was no evidence that Lane reported a violation of

law, therefore, her report did not satisfy the good-faith requirement of the act. We agree.

Texas Whistleblower Act

The Texa s Whistleblower Act protects public employees from adverse retaliatory

employment actions when an employee in good faith reports a violation of law by the employing

governmental entity or another public employee to an appropriate law enforcement authority. Tex.

Gov’t Code Ann. §554.002(a) (West Supp. 2003). The purpose of the Act is to enhance openness

in government and compel government’s compliance with the law by protecting those who report

wrongdoing. H ill v. Burnet County Sheriff’s Dept

, 96 S.W.3d 436, 440 (Tex. App.—Austin 2002,

pet. denied); see Castaneda v. Texas Dep’t of Agric.

, 831 S .W.2d 501, 503 (Tex. App.—Corpus

Christi 1992, writ denied).

To prevail on a whistleblower claim, one must show that: (1) a public employee; (2)

acting in good faith made a report; (3) the report involved conduct violating law by the agency or a

public employee; (4) the report was made to an appropriate law enforcement authority; and (5) the

public employe e suffered retaliation for making the report. Tex. Gov’t Code Ann. § 554.002; 3enforcement authority.

(b) In this section, a report is made to an appropriate law enforcement authority

if the authority is a pa rt of the state or local governmental entity or of the

federal government that the employee in good faith believes is authorized to:

(1) regulate under or enforce the law alleged to be violated in the report; or

(2) investigate or prosecute a violation of criminal law.

Tex. Gov’t Code Ann. § 554.002 (West Supp. 2003)

4 Section 554.001(1)(a) defines “law” as: “(A) a state or federal statute; (B) an ordinance of

a local governmental entity; or (C) a rule adopted under a statute or ordinance.” Tex. Gov’t Code

Ann. § 554.001(1)(a) (West Supp. 2003).

7 Duvall

, 82 S.W.3d at 478. The act is remedial in nature and should be liberally construed to effect

its purpose. D uvall

, 82 S.W.3d at 478; Stinnett v. Williamson County Sheriff’s Dep’t

, 858 S.W.2d

573, 575 (Tex. App.—Austin 1993, writ denied).

“Good faith” is not defined in the act, but the supreme court has interpreted it to have

both a subjective and an objective component. W ichita County v. Hart

, 917 S.W.2d 779, 784 (Tex.

1996). In H

art

, the supreme court held that “good faith” means that “(1) the employee believed that

the conduct reported was a violation of law 4 and (2) the employee’s belief was reasonable in light

of the employee’s training and experience.” Id.

To meet the ob

jective prong of the “good faith” test, one must establish that a

reasonably prudent public employee in similar circumstances, with similar training and experience,

would have believed that the facts as reported amounted to a violation of law. S ee Hart

, 917 S.W.2d

at 784-85; Donlevy v. City of The Colony

, 8 S.W.3d 754, 757 (Tex. App.—Fort Wort h 1999, no5 On the other hand, the reporting employee does not ultimately have to have been correct

about the violation of law. For instance, if an investigation reveals that there was no actual legal

violation, the employee is still protected if the report was objectively reasonable considering the

circumstances. S ee, e.g.

, Llanes v. Corpus Christi Indep. Sch. Dist

., 64 S.W.3d 638, 642 ( Tex.

App.—Corpus Christi 2001, pet. denied); L astor v. City of Hearne

, 810 S.W.2d 742, 744 (Te x

. App.—Waco 1991, writ denied). Moreover, an employee need not identify the specific law when

making the report, but there must be a law prohibiting the conduct being reported. L lanes

, 64

S.W.3d at 643.

8 pet.); Duvall

, 82 S.W.3d at 482. 5 The mere fact that the public employee has considerable

experi ence and training by itself does not transform the employee’s subjective belief into an

objective conclusion. S ee Duvall

, 82 S.W.3d at 483; Texas Dep’t of Criminal Justice v. Terrell

, 18

S.W.3d 272, 277 (Tex. App.—Tyler 2000, pet. denied). Objectiveness is a fact-intensive question

determined on a case-by-case basis.

Courts have determined that the act does not protect reports of violations of internal

agency policy not promulgated pursuant t o a statute or ordinance. H arris County Precinct Four

Constable Dep’t v. Grabowski

, 922 S.W.2d 954, 956 (Tex. 1996); Ruiz v. City of San Antonio

, 966

S.W.2d 128, 130 (Tex. App.—Austin 1998, no pet.). Here, the district court concluded that Lane’s

report involved merely a report about th e violation of internal agency policy and not a statute or

ordinance.

On appeal, Lane argues that her subjective belief that the conduct she reported was

a legal violation was reasonable under the circumstances and satisfied the objective prong of the

good-faith test. We disagree. The supreme court addressed this argument in Grabowski

. There, the

reporting employee argued that his subjective belief that a law had been violated, if reasonable, could

satisfy the objective prong of the go od-faith test. The supreme court concluded that it did not.9

Grabowski

, 922 S.W.2d at 955-56; see also Donlevy

, 8 S.W.3d at 757-58 (“Even if Donlevy

subjectively believed a law had been violated, this belief was not reasonable.”) (footnote omitted).

Grabowski presented summary judgment proof that he honestly believed that his

supervisor’s conduct violated the law. Nevertheless, the Court found that his subjective belief “fails

to satisfy the second prong because his belief was not reasonable in light of his experience as a peace

officer.” G rabowski , 922 S.W.2d at 956. The court noted that it would carefully scrutinize a law

enforcement officer’s assessment of legal violations because they have considerably more experience

and training to assess whether conduct is illegal. Id.

Although Lane is not a law enforcement officer, she did have considerable experience

in applying for and administering federal grant programs. Between 1984 and 1987, she worked for

the Department as Program Director for the WIC Program, a federally funded program for women,

infants and children. She also worked for the Grants Management Division of the Department from

February 1998 through July 1999. Lane judicially admitted in her pleadings that she had extensive

experience applying for and administering federal grants. Based on this record, the district court was

authorized to closely scrutinize the reasonableness of her belief.

In addition, Lane admitted in her pleadings that her report was about a violation of

agency policy. Her Plaintiff’s Original Petition alleged in paragraph 12 that:

Based on her prior work experience , Lane had extensive knowledge of grant

application procedures and requirements and, as a result, noted that THM P [Texas

HIV Medication Program] had not paid “indirect costs” during fiscal years 1999 and

2000. Based on Lane’s experience, apparently in accordance with federal law, the

Department had implemented a pol i cy which required that programs within state

agencies (including the Department itself) that received federal grants must pay6 Apparently, the failure to pay “indirect costs” to the Department meant that there was $2.9

million more of grant monies to be spent on HIV and AIDS medication. Likewise, when the HIV

medication program was forced to repay “indirect costs” to the Department, as a result of Lane’s

action, it meant that those funds could not be spent on medication.

10 “indirect costs” at the rate approved by the [DHHS] to the Department’s Budget

Office, in order to cover administrative and other expenses.

She alleged that she told Alexander that the grants “did not meet the Department’s policy regarding

‘indirect costs.’” 6

In describing the retaliation she suffered, Lane’s petition alleges that the retaliation

was “done to retaliate against L ane because she had reported a potential violation of Department

policy (and possibly federal law).” In paragraph 26, Lane refers to her termination as “retaliation

for her report of policy violations (and potential illegal activity).” In her affidavit, submitted in

response to the Department’s motion for summary judgment, Lane averred that:

TDH has written p olicies which require that all programs receiving federal grants

must earmark a percentage of its funds to be recouped as “indirect costs” by

TDH.

. . . I believed in good faith, that this policy was based upon federal rules or

requirements governing the receipt of federal funds, in part because “indirect costs”

are calculated by applying rates set by the [DHHS], which controls TDH’s receipt of

funds.

Additionally, I believed, in good faith, that it was a violation of law to submit a false,

inaccurate or misleading document–such as a grant application or financial report–

to the federal government. My belief was based in part on having seen news reports

concerning people who have been held liable under both civil and criminal laws for

providing false information to state or federal government [sic].

. . . I believed, in

good faith, that THMP’s grant applications were false, inaccurate or misleading

because they failed to note that, under TDH policies, approximately 8.1% of the

THMP budget could be u sed to pay “indirect costs” rather than purchasing

medication for program participants.11

Lane ’s amended pleadings contain virtually the same allegations. The statements in Lane’s

pleadings that the “violation” could “possibly” or “potentially” involved federal law only highlight

the lack of a federal statute requiring that indirect costs be deducted from the HIV medication grant.

The deposition testimony of both the fiscal manager of the Department’s HIV

program and Mary Alexander established that “indirect costs” was money that the state insisted on

collecting, rather than the federal government. The federal government limited the states to charging

only 8.1% of the amount of the grants for recouping administrative costs.

Federal Claims Act

Lane does not affirmatively identify a statue or ordinance the violation of which her

report could have arguably addressed. She does cite to and intimates that the False Claims Act

(“FCA”) could have covered the conduct in question, but she does not affirmatively assert that the

FCA actually covers the conduct in question. See 31 U.S.C.A. § 3729 (West 2003).

The FCA creates liability against any person who, among other things, knowingly

presents a false or fraudulent claim to be paid or approved, or knowingly makes or uses a false record

or statement to get a false or fraudulent claim paid or approv e d by the federal government. The

liability created by the FCA is in qui tam

, meaning that it creates a private cause of action by which

a private party may sue, as “relator,” on behalf of the government for restitution and to recover

damages against anyone involved in defrauding the federal government. However, the United States

Supreme Cou r t held that a state bears no qui tam liability under the FCA by virtue of sovereign

immunity. V

ermont Agency of Natural Res. v. United States

, 529 U.S. 765, 784-85 (2000); B lyMagee v. California , 236 F.3d 1014, 1017 (9th Cir. 2001). Also, even if individual state officials12

or employees are sued in their individual capacities, no FCA liability arises unless there is evidence

that the offic ial or employee converted the federal funds or property to their own personal use or

benefit. S ee Alexander v. Gilmore

, 202 F. Supp.2d 478, 481-82 (E.D. Va. 200 2). There is no

indication in this case that any public monies were converted to anyone’s personal use.

Finally, regardless of whether the $2.9 million of federal funds had been paid to the

Department as “indirect costs” or spent on HIV/AIDS medication, the federal government was not

deprived of any money or property. The federal government was not deprived of money it otherwise

would have kept but for

the reported conduct. Without monetary deprivation, no liability arises

under the FCA. S ee Hutchins v. Wilentz

, 253 F.3d 176, 184 (3d Cir. 2001) (“The False Claims Act

seeks to redress fraudulent activity which attempts to or actually causes economic loss to the United

States government.

. . . It was not intended to impose liability for every false statement made to the

government.”); Costner v. URS Consultants, Inc. , 153 F.3d 667, 776 (8th Cir. 1998) (“Only those

actions

. . . which have the purpose and effect of causing the United States to pay out money it is not

obligated to pay,

. . . ” are considered “claims” within the meaning of the FCA). As a matter of law,

the FCA could not have been the legal basis of Lane’s report regarding “indirect costs.”

While we agree that a reporting employee’s objective belief need not be correct and

that a non-law enforcement employee need not prove up each element of the legal violation allegedly

reported, we hold that t here must be some actual legal basis to support the employee’s subjective

belief that a violation of l aw occurred. S ee Grabowski

, 922 S.W.2d at 955; Llanes

, 64 S.W.3d at

642-43 (“Otherwise, every complaint, grievance, and misbehavior could support a claim under the

Act.”); Ruiz , 966 S.W.2s at 130.13 CONCLUSION

For the reasons set forth above, appellant’s issues on appea l are overruled. The

judgment of the district court is affirmed.

Mack Kidd, Justice

Before: Justices Kidd, Yeakel and Patterson

Affirmed

Filed: July 30, 2003