Court Opinion

ID: 6346055
Source: CourtListenerOpinion
Date Created: 2022-06-02 15:02:10.941854+00
Date Added: 2024-06-11T09:13:22.912382
License: Public Domain

Cite as 2022 Ark. App. 277
                   ARKANSAS COURT OF APPEALS
                                     DIVISIONS I & II
                                       No. CV-21-265

 JAMES PARSONS ON BEHALF OF     OPINION DELIVERED JUNE 1, 2022
 HIMSELF AND ALL OTHER
 SIMILARLY SITUATED TAXPAYERS   APPEAL FROM THE BENTON
                      APPELLANT COUNTY CIRCUIT COURT
                                [NO. 04CV-20-1302]

 V.
                                                HONORABLE JOHN R. SCOTT,
                                                JUDGE
 PREFERRED FAMILY HEALTHCARE,
 INC., A MISSOURI CORPORATION    AFFIRMED
 D/B/A/ HEALTH RESOURCES OF
 ARKANSAS; DECISION POINT;
 DAYSPRING BEHAVIORAL HEALTH
 SERVICES; AND WILBUR D. MILLS
 TREATMENT CENTER
                       APPELLEES

                              ROBERT J. GLADWIN, Judge

       James Parsons, on behalf of himself and all other similarly situated taxpayers, filed an

illegal-exaction complaint against appellees Preferred Family Healthcare, Inc. (PFH), a

Missouri Corporation d/b/a Health Resources of Arkansas; Decision Point; Dayspring

Behavioral Health Services; and Wilbur D. Mills Treatment Center. The Benton County

Circuit Court granted PFH’s dismissal motion, and Parsons argues on appeal that the circuit

court erred. We affirm.
                                    I. Applicable Caselaw

       There are three cases central to the issues raised by Parsons: Prince v. Arkansas State

Highway Commission, 2019 Ark. 199, 576 S.W.3d 1; Bowerman v. Takeda Pharmaceuticals USA,

2014 Ark. 388, 442 S.W.3d 839; and Nelson v. Berry Petroleum, 242 Ark. 273, 413 S.W.2d 46

(1967). Parsons relies on Nelson, wherein the Arkansas Supreme Court reversed the lower

court’s dismissal of a complaint filed by an Arkansas citizen and taxpayer. Nelson, 242 Ark.

at 274, 413 S.W.2d at 47. Nelson’s complaint alleged that the defendant oil companies

“have received unlawfully in excess of $3 million of taxpayers’ money; that the grades and

quantities of asphalt sold ‘to the taxpayers of this state’ have been of a lower grade and

quantity than paid for.” Id. The supreme court held that the complaint stated a cause of

action and that “it appears to be an action instituted pursuant to Article XVI, Section 13, of

the Constitution of the State of Arkansas.” Id. at 276, 413 S.W.2d at 48. The court stated,

              This is a broad provision of our Constitution, and has been utilized in various
       types of actions. The case of Starnes v. Sadler, 237 Ark. 325, 372 S.W.2d 585 [(1963)],
       contains a comprehensive discussion of the meaning of the term, ‘Illegal Exaction.’
       There, we said:

                     This Chancery Court action was instituted pursuant to Article XVI,
              Section 13, of the Constitution of the State of Arkansas, and the Chancery
              Court had jurisdiction of this Constitutional proceeding. This Constitutional
              provision is self-executing, and imposes no terms or conditions upon the right
              of the citizens there conferred. Samples v. Grady, 207 Ark. 724, 182 S.W.2d
              875; 8 Ark. Law Review 129 (1954).

                     “Illegal Exaction” under the Arkansas Constitution means both direct
              and indirect illegal exactions, thus comprehending any attempted invalid
              spending or expenditure by any government official, Quinn v. Reed, 130 Ark.
              116, 197 S.W. 15; Farrell v. Oliver, 146 Ark. 599, 226 S.W. 529.

                                              2
                     “Illegal Exaction” means far more than the mere collection of
             unlawfully levied taxes. With little limitation, almost any misuse or
             mishandling of public funds may be challenged by a taxpayer action. Even
             paying too much for cleaning public outhouses has been held by our courts as
             basis for a taxpayer’s right to relief, Dreyfus v. Boone, 88 Ark. 353, 114 S.W.
             718. Any arbitrary or unlawful action exacting taxes or tax revenues may be
             restrained and annulled by a taxpayer affected by such procedure, Bush v.
             Echols, 178 Ark. 507, 10 S.W.2d 906; McClellan v. Stuckey, 196 Ark. 816, 120
             S.W.2d 155; Park v. Hardin, 203 Ark. 1135, 160 S.W.2d 501; Brookfield v.
             Harahan Viaduct Improvement District, 186 Ark. 599, 54 S.W.2d 689.

                    The remotest effect upon the taxpayer concerning any unlawful act by
             a tax supported program or institution may be enjoined under Article XVI,
             Section 13, of the Constitution of the State of Arkansas, Green v. Jones, 164
             Ark. 118, 261 S.W. 43. . . .

                     Our Court thoroughly discussed ‘illegal exaction’ in the case of
             Arkansas Association of County Judges v. Green, 232 Ark. 438, 338 S.W.2d 672,
             wherein jurisdiction of the Chancery Court was questioned and illegal
             exaction was involved. This Court stated that the theory of an illegal exaction
             does not necessarily involve an illegal tax citing the case of Lee County v.
             Robertson, 66 Ark. 82, 48 S.W. 901, wherein the Court was not dealing with
             illegal tax, but with the question of illegal use or appropriation of county
             funds. . . . .

                   The case of Arkansas County Judges Association v. Green cited the case of
             Ward v. Farrell, 221 Ark. 636, 253 S.W.2d 353, wherein this Court stated
             concerning the involved Constitutional provision:

                           There is eminent authority for holding, even in the absence of
                    an express provision of the Constitution, such as referred to above, that
                    a remedy is afforded in equity to taxpayers to prevent misapplication of
                    public funds on the theory that the taxpayers are the equitable owners
                    of public funds and that their liability to replenish the funds exhausted
                    by the misapplication entitles them to relief against such
                    misapplication.

Nelson, 242 Ark. at 276–78, 413 S.W.2d at 48–49.

                                            3
       PFH relies on Bowerman, supra, wherein the United States District Court, Western

District of Louisiana, certified the following questions to the Arkansas Supreme Court: (1)

whether article 16, section 13 of the Arkansas Constitution provided Bowerman with an

illegal-exaction claim; and (2) whether Nelson, supra, is still good law. Bowerman, 2014 Ark.

388, at 1–2, 442 S.W.3d at 840. The supreme court stated, “We answer both questions in

the negative.” Id. at 2, 442 S.W.3d at 840. Bowerman claimed that the use of public funds

for reimbursements for a prescription drug, Actos, and health-care costs associated with the

drug’s use gave rise to a public-funds illegal-exaction claim against the pharmaceutical

company. Id. at 2–4, 442 S.W.3d at 840–41.

       Bowerman states,

              Article 16, section 13 of the Arkansas Constitution states that any citizen of
       any county, city, or town may institute suit, on behalf of himself and all others
       interested, to protect the inhabitants thereof against the enforcement of any illegal
       exactions whatever. An illegal exaction is defined as any exaction that either is not
       authorized by law or is contrary to law. Carnegie Pub. Library of Eureka Springs v. Carroll
       Cnty., 2012 Ark. 128. Two types of illegal-exaction cases can arise under article 16,
       section 13: “public funds” cases, where the plaintiff contends that public funds
       generated from tax dollars are being misapplied or illegally spent, and “illegal tax”
       cases, where the plaintiff asserts that the tax itself is illegal. Id. Here, the question
       before us involves a “public funds” case, because Bowerman only asserts that public
       funds were used improperly. He does not assert that any of the taxes used to generate
       the public funds are illegal.

       ....

       . . . Before a public-funds type of illegal exaction will be allowed to proceed, there
       must be facts showing that monies generated from tax dollars or arising from taxation
       are being misapplied or illegally spent. Dockery v. Morgan, 2011 Ark. 94, 380 S.W.3d
       377. Any arbitrary or unlawful action exacting taxes or tax revenues may be restrained
       and annulled by a taxpayer affected by such procedure. Nelson[, supra]. Therefore, in

                                                4
       order to state a claim for an illegal exaction, Bowerman must allege that the
       expenditure was illegal, misapplied, or arbitrary.

              Bowerman does not assert that the action of the State in expending funds on
       Actos was unlawful. Nor can he, as the State is authorized by Arkansas Code
       Annotated section 19-5-306(10)(a)(viii) (Supp. 2013) to use State funds to pay for
       prescription drugs. Bowerman also does not allege that the funds were misapplied or
       arbitrarily spent. In fact, Bowerman does not allege any wrongdoing on the part of
       the State in expending these funds. All the wrongdoing that Bowerman alleges is on
       the part of the Respondents.

               Even if Bowerman alleged wrongdoing in the use of state treasury funds, his
       allegations would not be sufficient to state a claim for illegal exaction. Actos was
       prescribed by physicians in the State of Arkansas, and certain amounts of the
       payments for these drugs were reimbursed by the State. Nothing in the Arkansas
       Code that indicates that the State could choose not to reimburse properly prescribed
       pharmaceuticals. Further, because the pharmaceuticals were prescribed by a
       physician, reimbursement for them cannot be said to be arbitrary. In Nelson, supra,
       the plaintiff alleged that the State overpaid for asphalt that was inferior to the grade
       of asphalt contracted by the State. Unlike Nelson, here the State paid reimbursement
       for exactly the drug that was prescribed. Thus, Bowerman’s claim fails as a matter of
       law.

Bowerman, 2014 Ark. 388, at 4–6, 442 S.W.3d at 842–43. Further, the supreme court held

that Nelson was inapplicable to the facts and circumstances of the case and declined to answer

whether Nelson is still good law because it would be advisory to do so. Id. at 6–7, 442 S.W.3d

at 843–44.

       Finally, in Prince, supra, the Arkansas Supreme Court affirmed the dismissal of an

illegal-exaction claim because there was an agreement between the Arkansas Highway

Department and the United States Wildlife Services (USFWS). Part of the Department’s

agreement in obtaining an easement from USFWS for the expansion of Highway 79 was to

demolish three bridges and restore the natural topography and reestablish native hardwood

                                              5
vegetation. Prince, 2019 Ark. 199, at 1–2, 576 S.W.3d at 2. To comply, the Department

planned to invite bids and enter into a contract with the winning bidder on the bridge-

demolition project, with an estimated cost of $ 10.8 million. Id. Prince filed a preliminary-

injunction motion and complaint for declaratory and injunctive relief alleging that the

contract was void and constitutes a windfall to USFWS. Id. at 2, 576 S.W.3d at 2–3. Prince

further alleged that because the contract was void, the monetary expenditures constitute an

illegal action. Id. at 2, 576 S.W.3d at 3. The circuit court dismissed the complaint. Id. at 3,

576 S.W.3d at 3.

       On appeal, the court held that Prince’s complaint did not state a cause of action for

an illegal exaction and stated,

               An illegal exaction is an exaction that is either not authorized by law or is
       contrary to law. Stromwall v. Van Hoose, 371 Ark. 267, 265 S.W.3d 93 (2007). Two
       types of illegal-exaction cases can arise under article 16, section 13: “public funds”
       cases, where the plaintiff contends that public funds generated from tax dollars are
       being misapplied or illegally spent, and “illegal-tax” cases, where the plaintiff asserts
       that the tax itself is illegal. McGhee [v. Ark. State Bd. of Collection Agencies], 360 Ark.
       363, 201 S.W.3d 375 (2005). This court has stated that citizens have standing to bring
       a “public funds” case because they have a vested interest in ensuring that the tax
       money they have contributed to a state or local government treasury is lawfully spent.
       Ghegan & Ghegan, Inc. v. Weiss, 338 Ark. 9, 991 S.W.2d 536 (1999). Accordingly, “a
       misapplication by a public official of funds arising from taxation constitutes an
       exaction from the taxpayers and empowers any citizen to maintain a suit to prevent
       such misapplication of funds.” Farrell v. Oliver, 146 Ark. 599, 602, 226 S.W. 529, 530
       (1921). When the expenditure is authorized by statute, no illegal exaction occurs.
       Sullins v. Cent. Ark. Water, 2015 Ark. 29, 454 S.W.3d 727.

              A review of appellants’ complaint reveals that it lacks sufficient facts to state a
       claim for an illegal exaction. Appellants do not allege in the complaint that the
       Department lacks the authority to enter into the agreement with USFWS. In fact, the
       Department has express statutory authority to “let all contracts for construction,
       improvement, and maintenance of roads comprising the state highway system.” Ark.

                                                6
       Code Ann. § 27-65-107(a)(2) (Supp. 2017). It also has the express authority to “enter
       into all agreements with the United States government relating to the survey,
       construction, improvement, and maintenance of roads under the provisions of any
       present or future congressional enactment.” Ark. Code Ann. § 27-65-107(a)(3)(A).
       Appellants also do not allege that the Department failed to follow any applicable
       statute, rule, or regulation with regard to the agreement.

               The complaint does not allege any wrongdoing on the part of the state at all.
       Instead, it alleges that USFWS took advantage of the Department’s highway-
       expansion project to force unreasonable terms on the state and attempts to assert
       various contract defenses on the state’s behalf. This is not sufficient to establish a
       claim for an illegal exaction. See Bowerman[, supra] (holding that a claim that the state’s
       treasury was diminished by reimbursements for a prescription medication alleged to
       have caused serious health problems was not one for illegal exaction where there was
       no claim that the state lacked authority to make the reimbursement payments and all
       allegations of wrongdoing were against the pharmaceutical company).

Prince, 2019 Ark. 199, at 5–6, 576 S.W.3d at 4.

                                            II. Facts

       On June 1, 2020, Parsons filed a “public funds” illegal-exaction complaint against

PFH. He described PFH as an Arkansas healthcare-service provider acting under various

names and entities and alleged that “between 2010 and 2017, PFH received $52,810,672 in

funds generated by Arkansas taxpayers which were distributed to it through the Department

of Human Services (DHS) state Medicaid programs.” Further, during the same time period,

PFH received State funds through the State’s General Improvement Fund (GIF). He claimed

that a significant portion of the funds that PFH received from the State were acquired using

unlawful means and were “utilized in a manner other than that represented by PFH.”

                                                7
         In support of his allegations against PFH, Parsons attached and incorporated an

affidavit of probable cause for the arrest warrant of Helen M. Balding.1 Balding was PFH’s

billing director, and Parsons claimed that from March 1, 2013, to June 30, 2018, PFH

engaged in a scheme to illegally bill the State of Arkansas Medicaid Program, which receives

a portion of its money through taxes. The affidavit describes how Balding manipulated

billing by entering false claims that were paid through Medicaid rather than Medicare.

         Parsons alleged that PFH bribed Arkansas legislators to further its fraud scheme and

attached and incorporated a federal indictment naming PFH officers and directors, Bonteia

Bernadette Goss and Tommy Ray Goss, and Arkansas State Senator Jeremy Young

Hutchinson.2 Parsons asserted that the indictment described “efforts of PFH to bribe elected

officials to not only impede any attempt to discover PFH’s fraudulent actions, but also to

steer taxpayer funds to PFH for which it would not have otherwise been entitled.” Parsons

alleged that the indictment

         describes PFH’s bribery of Arkansas legislators Micah Neal and Jon Woods to obtain
         grants of taxpayer funds via the [GIF]. The [GIF], consisting of “excess” taxpayer
         dollars, operated as a slush fund for legislators, and PFH’s legislators obtained funds
         in exchange for a cut of the proceeds.

         1
       Exhibit 1, Affidavit for Warrant of Arrest, Potential Defendant: Helen M. Balding,
Independence County District Court CR-2018-265-4 (Aug. 16, 2018).

         2
             Exhibit 2, United States v. Goss, No. 19-03048-01/03-CR-S-BCW (W.D. Mo. June 13,
2019).

                                                8
Parsons alleged that a federal plea agreement with Arkansas legislator Henry Wilkins IV is

attached and incorporated in his complaint.3 He claimed that the agreement “details PFH’s

bribery of Wilkins in exchange for him to act in his official capacity to steer taxpayer funds

to PFH and its subsidiaries.” Finally, Parsons attached and incorporated a plea agreement

between the federal government and Milton Rusty Cranford, an employee of PFH and a

registered lobbyist, “as further proof of PFH’s bribes for legislative action by Arkansas

legislators.”4

        Parsons alleged that

               [a]t all material times, both PFH and its bribed legislators took extensive steps
        to avoid detection of their scheme. These steps included, but are not limited to:

            a. Payments to Wilkins being directed to a church at which he was a pastor;

            b. PFH’s filing of false certifications with federal and state authorities asserting
               that PFH had not engaged in prohibited lobbying activities;

            c. PFH’s concealment of funds paid to its officers and directors by failing to file
               or filing false disclosures and returns with federal and state authorities;

            d. The payment of cash to Arkansas legislators which was not accounted for;

            e.   The providing of gifts such as sporting event tickets to Arkansas legislators
                 which was not accounted for.

        ....

        3
         The complaint states that exhibit 3 is a plea agreement in United States of America v.
Henry Wilkins IV, Case No. 4:18CR186, Eastern District of Arkansas. However, the record
reflects that exhibit 3 is a copy of the plea agreement between the United States and Milton
Russell Cranford.

        4
     Exhibit 4 is a plea agreement in United States v. Cranford, No. 18-03020-01-CR-S-
BCW (W.D. Mo. June 7, 2018).

                                               9
              The above-referenced acts of PFH, acting in concert with Arkansas legislators
       in their official capacities, constitute an illegal exaction of the funds of Arkansas
       taxpayers.

       PFH moved to dismiss under Rule 12(b)(6) of the Arkansas Rules of Civil Procedure,

arguing that Parsons’s complaint fails to state an illegal-exaction claim because it does not

assert any wrongdoing on the State’s part because it does not allege any State expenditure

that was illegal, misapplied, or arbitrary. See Bowerman, supra. PFH further argued that to

the extent that Parsons seeks a refund of payments made under Medicare or Medicaid, the

right and obligation to audit, review, and, if necessary, seek such refunds rests solely within

the Arkansas Attorney General’s (AG’s) purview pursuant to the Medicaid Fraud False

Claims Act. See Ark. Code Ann. §§ 20-77-901 et seq. (Repl. 2018 & Supp. 2021). It argued

that a “public funds” illegal-exaction case against private entities and individuals is only viable

in the event the AG or the Medicaid Inspector General fail to pursue civil- and

administrative-enforcement actions against those engaged in fraud, abuse, or illegal or

improper acts within the medical-assistance program.

       PFH claimed that it and the AG had entered into settlement agreements resulting in

PFH paying substantial sums as damages and in full and final settlement of all claims that

could be brought by the State. Additionally, PFH would pay $400,000 in costs incurred

during the investigation of the claims. A copy of the settlement agreement is attached to the

dismissal motion. Further, PFH entered into a separate settlement agreement with the

                                                10
federal government and the State that resolved all pending federal and state claims, and that

agreement is attached to the motion.5

       Parsons responded that PFH’s attached exhibits converted the dismissal motion into

one for summary judgment. Ark. R. Civ. P. 12(b). He argued that he had not had an

opportunity to conduct discovery. For example, he noted that he had not discovered

whether the amount reached in the settlement reflects the “full sum illegally exacted” by

PFH. Accordingly, he argued that he is entitled to conduct discovery.

       Parsons also argued that an illegal exaction occurs when the State does not receive

“what is due.” Parsons discussed Nelson, Bowerman, and Prince and claimed that even if he

did not allege wrongdoing by the State, the question remains whether the State was deprived

of that to which it was entitled. He argued that Nelson stands for the proposition that an

illegal-exaction complaint can be sustained against a private party and that Bowerman and

Prince did not overrule this point. He also argued that his complaint is replete with examples

of misapplication of public funds by public officials

       from payments by the State for fraudulent Medicaid reimbursement claims of [PFH]
       facilitated by legislative action, to specific grants to [PFH] by individual legislators
       which were used as kickbacks to those legislators or which they knew [PFH] would
       use to enrich its officers and directors rather than for the purposes intended.

       5
        The parties to the settlement agreement include United States of America, acting
through the United States Attorney’s Office for the Eastern District of Arkansas; the United
States Department of Health and Human Services, Office of Inspector General; the United
States Department of Veterans Affairs, Office of Inspector General; and the State of
Arkansas, acting through the Arkansas Attorney General, Medicaid Fraud Control Unit.

                                              11
       Parsons argued that the state legislators’ actions as set forth in his complaint can be

considered state action. See Leonards v. E.A. Martin Mach. Co., 321 Ark 239, 900 S.W.2d 546

(1995). And he argued that his complaint alleges multiple instances of wrongdoing by state

actors, “thus state action.” He pointed to the allegations regarding PFH’s “acquisition of

[GIF] through illegal means, namely the bribery of legislators.” See Wilson v. Walther, 2017

Ark. 270, 527 S.W.3d 709 (holding in part that acts appropriating funds from GIF to

planning and development districts facially violated legislative-appropriations provision of

Arkansas Constitution). He also pointed to the allegations in his complaint regarding the

allocation of GIF funds and the attached Cranford plea agreement describing the process

used in legislating GIF allocations. Finally, he pointed to his complaint’s allegations that

certain legislators were involved in a scheme to combat DHS’s ability to discover fraudulent

Medicaid billings.

       Parsons argued that his complaint and exhibits also allege a bribery scheme that

resulted in Cranford’s being paid $187,175 on the same date that the State deposited $1

million into a PFH account. He claimed, “Unless [PFH] is contending that the funds they

obtained were requested on the basis that nearly $200,000 of it would be paid to Mr.

Cranford, one of [PFH’s] own directors, for his ‘services,’ this is an obvious misapplication

of taxpayer funds.” He recounted several more allegations as set forth in his complaint and

claimed that there is ample evidence of the misapplication and illegally spent taxpayer funds

through improper state action.

                                             12
       On February 1, 2021, a hearing was held on PFH’s dismissal motion. PFH presented

its argument for dismissal, asking the circuit court to ignore the exhibits it had attached to

its motion as unnecessary for the court’s determination. PFH admitted that its employees

committed illegal acts for which they had been criminally charged, and in one instance, a

guilty plea was entered. It claimed that those acts do not amount to an action by the State,

which is required under Bowerman, supra. It argued that the fraudulent acts in regard to the

Medicaid funds is analogous to a state employee stealing money. However, PFH claimed

that the appropriation of those funds was proper. It argued that exhibit 1 to Parsons’s

complaint shows that the Office of Medicare Fraud has been actively involved in finding the

illegal actions of PFH’s former employees and that those people have been punished. In

regard to the GIF, PFH argued that when a state expenditure is authorized by statute, no

illegal exaction occurs. See Sullins, supra.

       Parsons argued that under Nelson, Bowerman, and Prince, the question is whether the

State has received what it is due. He claimed that Nelson was never overruled and that it does

not require an allegation of wrongdoing by the State; rather, it requires that the State did

not receive “what it contracted for.” He argued that here, PFH billed the State for Medicare

services; however, he claimed that the State did not receive what it paid for. He argued that

PFH misbilled the services to Medicaid when it should have billed Medicare. He claimed

that his complaint did not allege that the State did not receive services but that the State

overpaid for those services. He asserted that the State’s paying for Medicaid rather than

                                               13
Medicare is a misapplication of funds and that the payment of moneys to legislators from

the GIF was a misapplication if the money was used for something other than intended.

       The circuit court granted PFH’s dismissal motion, reasoning as follows:

              [Parsons’s Counsel], I appreciate you explaining Exhibit 1 to your Complaint.
       I did understand that the affidavit demonstrated [PFH] did illegal billings. No
       argument that the State received the services it contracted for. The billings were
       merely excessive and, arguably, illegal.

               In Justice Danielson’s concurrence in Bowerman, which Justice Corbin and
       Justice Hoofman joined, he argued that Nelson should be flat-out overruled. But stated
       some additional facts in Nelson. That concurrence says, “Nelson’s theory was that the
       grades and quantities of asphalt sold to the taxpayers of Arkansas were of a lower
       grade and quantity than paid for by the highway department.” I think that is a critical
       distinction.

              In this case, [PFH] did fraudulent billing. Services were of the grade and the
       quantity bargained for. Here, unlike in Nelson, or the allegation in Nelson, the State
       received what it bargained for. I think that is the distinguishing fact between Nelson
       and Bowerman, Prince. Bowerman and Prince clearly require that the State have done
       something wrong. It did not. The GIF process was followed correctly, what it was.
       There’s no question that the appropriation was appropriate.

       The circuit court’s order dismisses Parsons’s complaint, finding that he had failed to

state a claim for relief because he did not assert any wrongdoing on the State’s part and citing

Bowerman, supra. The court expressly incorporated its oral ruling into the dismissal order.

Parsons filed a timely notice of appeal, and this appeal followed. 6

                                    III. Standard of Review

       As stated in Prince,

       6
        The circuit court’s order reflected that Parsons had filed a previous illegal-exaction
complaint, which was dismissed without prejudice. Accordingly, this second dismissal was
with prejudice. Ark. R. Civ. P. 41(b) (2020).

                                              14
               In reviewing a trial court’s decision on a motion to dismiss under Ark. R. Civ.
       P. 12(b)(6), we treat the facts alleged in the complaint as true and view them in the
       light most favorable to the party who filed the complaint. Goforth v. Smith, 338 Ark.
       65, 991 S.W.2d 579 (1999). In testing the sufficiency of the complaint on a motion
       to dismiss, all reasonable inferences must be resolved in favor of the complaint, and
       pleadings are to be liberally construed. Hames v. Cravens, 332 Ark. 437, 442, 966
       S.W.2d 244, 247 (1998). However, our rules require fact pleading. A complaint must
       state facts, not mere conclusions, in order to entitle the pleader to relief. Brown v.
       Tucker, 330 Ark. 435, 438, 954 S.W.2d 262, 264 (1997); Ark. R. Civ. P. 8(a)(1) (2017).

Prince, 2019 Ark. 199, at 3–4, 576 S.W.3d 1, 3.

                                        IV. Argument

       First, Parsons argues that the circuit court failed to resolve all inferences in the

complaint in his favor. He argues that instead, the court made factual findings that

“[s]ervices were of the grade and the quantity bargained for,” “the State received what it

bargained for,” and the State did not do anything wrong. The court found, “The GIF process

was followed correctly,” and that “[t]here’s no question that the appropriation was

appropriate.” He argues that these findings are in conflict with the allegations in his

complaint, which he contends must be accepted as true and given all reasonable inferences.

He points to the specific allegations in his complaint regarding PFH’s failure to use Medicare

credentialed mental-health professionals and PFH’s conspiring with two state legislators to

disguise the fraudulent billing. He contends that it was a reasonable inference that the State

was not getting its due “when [PFH] billed the state for services performed by people not

qualified to bill for those services, and then legislators bribed by [PFH] pressured state

regulators to modify their quality control program so the fraudulent billing remained

undetected.” He further points to his allegations that PFH bribed legislators to obtain grants

                                             15
via the GIF and claims that examples of illegal state conduct pled include payment of bribes

and delivery of state funds to PFH. He contends that all reasonable inferences would lead

to the conclusion that if bribes are involved to obtain GIF funds, then the GIF process was

not followed correctly.

       Parsons contends that if the circuit court considered PFH’s two exhibits, then the law

on summary judgment would apply. Heinrich v. Anders, 2017 Ark. App. 413, 528 S.W.3d

277. Summary judgment should not be granted if a fact question remains. Sisson v. Ragland,

294 Ark. 629, 745 S.W.2d 620 (1988). He argues that if the court relied on information

outside the complaint, it still resolved questions of fact, which is reversible error.

       Second, Parsons argues that the circuit court erred in finding the facts alleged did not

constitute an illegal exaction. He argues that his complaint establishes a cause of action

under both Nelson and Bowerman. He contends that Nelson did not involve misconduct by

the State and emphasizes that the supreme court recognized its role to determine if the facts

pled were sufficient to overcome the dismissal motion. Nelson, 242 Ark. at 282–83, 413

S.W.2d at 51. He argues that Nelson is directly on point and stands for the proposition that

when a taxpayer alleges that the State did not receive what it bargained for from a third party,

then that allegation is sufficient to support a claim for illegal exaction against that third party.

He contends that PFH deprived the State of what it paid for “by billing the state for medical

services performed by people who were not qualified to bill for those services, just as the

Nelson defendants were not providing the quality of asphalt the state contracted to receive.”

Parsons argues that PFH furthered this scheme by bribing legislators to conceal its actions

                                                16
and that PFH obtained state money via the GIF program to bribe legislators and to pay for

luxuries for PFH officers.

       He claims that the circuit court misunderstood Bowerman as requiring wrongful state

action for every illegal-exaction claim. He argues that had Bowerman held such, it would have

overruled Nelson rather than distinguish it. He points out that the Bowerman court relied on

the fact that the State had paid for the drug it received; thus, it received what it was due.

Bowerman, 2014 Ark. 388, at 6, 442 S.W.3d at 843. Likewise, in Prince, the State received

what it was due under the agreement with USFWS. Prince, 2019 Ark. 199, at 14 n.3, 576

S.W.3d at 8 n.3. He further argues that in Bowerman, the defendant could point to a valid

law that authorized the State to purchase prescription drugs. Bowerman, 2014 Ark. 388, at

6, 442 S.W.3d at 843. He argues that here, there is no Arkansas statute that allows GIF

money to be used for bribery of state officials or that allows PFH to fraudulently bill Medicaid

for services. Accordingly, Parsons argues that the circuit court’s ruling is contrary to the

allegations in the complaint and should be reversed.

        PFH acknowledges that when courts look outside the complaint to exhibits,

arguments, or other supporting documents, the motion to dismiss shall be converted to one

for summary judgment. Barrows/Thompson, LLC v. HB Ven II, LP, 2020 Ark. App. 208 599

S.W.3d 637. However, it contends that it argued below that the circuit court did not have

to consider those exhibits and that the circuit court should ignore them. We agree that the

circuit court considered Parsons’s exhibit 1 “only as a means of determining” whether

Parsons had stated a cause of action under Rule 12(b)(6). Exhibit 1 is an affidavit to obtain

                                              17
an arrest warrant of a third party. In its ruling, the circuit court stated, “I did understand

that [exhibit 1] demonstrated that the [third party] did illegal billings. No argument that the

State [did not receive] services it contracted for. The billings were merely excessive and,

arguably, illegal.” The exhibit had been incorporated verbatim into the complaint, and the

circuit court looked at it only at the urging of Parsons’s counsel as the basis for the claim

that the State had not received what it bargained for. Accordingly, the circuit court’s

dismissal was consistent with Rule 12(b)(6) and should be reviewed under an abuse-of-

discretion standard.

       We hold that the circuit court duly considered the complaint and properly

determined that it failed to state a claim. Contrary to Parsons’s argument, the circuit court

is not to rubber stamp its approval of the nonmoving party’s version of events. Instead, the

circuit court must determine if the facts alleged are sufficient under the law to state a cause

of action. See, e.g., Ballard Grp., Inc. v. BP Lubricants USA, Inc., 2014 Ark. 276, 436 S.W.3d

445. Here, the circuit court found that the facts alleged did not establish wrongdoing by the

State, which is required by controlling caselaw. See Bowerman. “It is axiomatic that, before

a public-funds type of illegal-exaction case will be allowed to proceed, there must be facts

showing that monies generated from tax dollars or arising from taxation are being misapplied

or illegally spent.” McCafferty v. Oxford Am. Literary Project, Inc., 2016 Ark. 75 (2016) (citing

Dockery v. Morgan, 2011 Ark. 94, 380 S.W. 3d 377); see also Prince.

       PFH admits that its former employees committed criminal acts and claims that PFH

willingly cooperated with the Arkansas Medicare Fraud Control Unit. It argues that a

                                               18
corporation is not liable for its employees’ criminal acts when those employees are not acting

within the scope of their employment, i.e., when they are acting for their own personal

interests. See Sweeden v. Atkinson Imp. Co., 93 Ark. 397, 125 S.W.439 (1910); Holt Bonding

Co. v. First Fed. Bank of Ark., 82 Ark. App. 8, 110 S.W.3d 298 (2003). Here, the employees

were acting for their own personal gain and enrichment as evidenced by the indictment

details and guilty plea.

       In his reply brief, Parsons argues that PFH’s attempt to insulate itself from liability

should be rejected because the PFH employees were top executives and directors. He argues

that the entire PFH executive suite was engaged in the scheme to defraud taxpayers for PFH’s

benefit. He claims that there is nothing in the record to indicate that PFH objected to the

actions of its “founders and officers.” He contends that Holt Bonding, supra, ultimately held

the company liable for funds that its employee embezzled. We note that the company was

liable under the Uniform Commercial Code as an endorser on a returned check. Holt, 82

Ark. App. at 15, 100 S.W.3d at 303.

       Parsons has correctly stated the law; on a motion to dismiss, the court considers the

factual allegations to be true and views them in the light most favorable to the nonmoving

party. See, e.g., Wiseman v. Batchelor, 315 Ark. 85, 88, 864 S.W.2d 248, 249 (1993). If the

complaint fails to allege a required element of the alleged cause of action, dismissal is entirely

appropriate. In order to plea an illegal-exaction case, the complaint must sufficiently plead

that the State either (1) lacked authority to act or (2) failed to follow the applicable statute(s).

                                                19
Prince, 2019 Ark. 199 at 5-6. The circuit court found that the complaint failed to establish

either of these requirements.

       Reviewing the complaint, assuming all of the allegations are true and viewing it in the

light most favorable to Parsons, there is no allegation that the State, itself, acted wrongfully.

Further, after extended questioning regarding the relation of Parsons’s exhibit 1 to several

paragraphs within the complaint, the circuit court found that the State had “received what

it bargained for.” The court further pointed out that there was no specific allegation in the

complaint that the State had not received what it bargained for, and it specifically ruled that

the GIF appropriation was proper.

       As argued by PFH, Parsons has misconstrued billing fraud for a failure to provide

appropriate medical care. Although PFH’s former employees fraudulently billed Medicaid

instead of Medicare in order to personally pocket the difference, medical services were

provided to citizens of the State. PFH claims that the fraud occurred because of deliberate

billing errors—not because the medical providers were uncertified or unqualified to provide

the services rendered. Parsons hinges his argument that the State did not receive what it

bargained for on exhibit 1 to the complaint. But the fraud set out in exhibit 1 is that certain

healthcare providers were not properly “credentialed” to deliver Medicare services or that

they were not “registered.” Any lack of “qualification” was only the technical approval by

Medicare/Medicaid to bill—not a lack of medical qualification or experience. The facts as

alleged in the complaint show only what PFH readily admits—that many people, including

its former employees and state legislators, committed fraud against the State. Taking all of

                                               20
the facts alleged in the complaint as entirely true, the State was not the wrongful actor, which

is not sufficient to establish an illegal-exaction cause of action under Bowerman.

       In his reply brief, Parsons contends that Bowerman’s holding does not rest on whether

the fraud was committed by a third party. Instead, the claim failed because Bowerman could

not establish an arbitrary, misapplied, or illegal expenditure because the State had authorized

payment for prescription drugs by statute. Bowerman, 2014 Ark. 388, at 6, 442 S.W.3d at

843. Parsons claims that his complaint clearly alleges illegal and misapplied expenditures as

the “State was not authorized to pay for services rendered by people unqualified to bill for

them, nor was the State authorized to use GIF money to feather the nests of legislators who

had the power to direct taxpayer funds.”

       Parsons further argues that the wrongdoing by state legislators acting in concert with

PFH led to misapplication or the obtaining of State funds through illegal means. See

Leonards, 321 Ark. at 246, 900 S.W.2d at 551 (defining state action for purposes of

determining whether a deprivation of property in violation of due process occurred to

include “the party charged with the deprivation must be a person who may fairly be said to

be a state actor. This may be because he is a state official, because he has acted together with

or has obtained significant aid from state officials, or because his conduct is otherwise

chargeable to the State.”) (quoting Lugar v. Edmondson Oil Co., 457 U.S. 922, 937 (1982)).

Parsons argues that the state legislators’ wrongdoing described in his complaint led to a

misapplication or the obtaining of State funds through illegal means.

                                              21
       In Prince, the Arkansas Supreme Court affirmed that “citizens are constitutionally

permitted to sue the state for an illegal exaction, but found that the complaint was properly

dismissed because the plaintiffs had failed to plead sufficient facts upon which relief could

be granted. Prince, 2019 Ark. 199, at 4, 576 S.W.3d at 3–4. There was no illegal exaction

because USFWS “took advantage of the Department’s highway-expansion project to force

unreasonable terms on the state.” Id. This was not sufficient to establish a claim for illegal

exaction. Id.at 4–5, 576 S.W.3d at 4. Like the complaint in Prince, the complaint in this case

does not sufficiently plead wrongful action by the State. The complaint pleads that many

people committed multiple, wrongful, and criminal acts against the State through improper

billing practices involving Arkansas Medicaid funds.

       Further, even assuming that Nelson has not been de facto overturned by Bowerman,

and Prince, Parsons failed to plead an illegal-exaction claim because the State received the

mental-health care at the level contract. It was only after the fact, when those services were

billed, that PFH’s former employees committed fraud and committed other crimes to cover

up that billing fraud. Accordingly, as in Bowerman, Arkansas patients received precisely the

mental-health treatments prescribed by licensed medical personnel. Furthermore, the State

is statutorily authorized to distribute public funds to pay for the medical care of its citizens

who are enrolled in the Medicare and Medicaid programs. Ark. Code Ann. §§ 20-77-101 et

seq. All of the moneys spent by the State, whether for Medicaid reimbursement or GIF

grants, were appropriated by the legislature and were thus authorized by statute. “When the

                                              22
expenditure is authorized by statute, no illegal-exaction occurs.” Prince, 2019 Ark. 199, at 5,

576 S.W.3d at 4 (citing Sullins, supra).

       Affirmed.

       ABRAMSON, BARRETT, and KLAPPENBACH, JJ., agree.

       MURPHY and BROWN, JJ., dissent.

       MIKE MURPHY, Judge, dissenting. Today the majority holds that a scheme to

deliberately overbill the State for mental health services is not an illegal exaction. Further,

the majority holds that state legislators acting under color of law to facilitate this scheme is

not a “state action” for illegal-exaction purposes. I disagree that our constitution should be

construed so narrowly. To maintain the power and authority granted to the taxpayers

pursuant to our state constitution, reversal is necessary. Minimally, the complaint should

have been considered sufficient to withstand a motion to dismiss.

       The majority holds that Bowerman v. Takeda Pharmaceuticals USA, 2014 Ark. 388, 442

S.W.3d 839, is the controlling precedent. I would reverse, holding that Bowerman is

distinguishable and that Nelson v. Berry Petroleum, 242 Ark. 273, 413 S.W.2d 46 (1967), is

the more applicable case to these facts. I would further hold that Parsons did allege

wrongdoing on behalf of the State.

       PFH (1) intentionally overbilled the State and (2) billed for services provided by

uncredentialed mental-health professionals. It illegally kept the excess payments, which is a

misapplication of public funds. It defies logic that the circuit court found the services

provided by PFH were of the “grade and quantity bargained for.” The complaint clearly

                                              23
states, “Limited Benefit QMBs must receive Medicare services by properly credentialed

Medicare mental health professionals (MHPs). . . PFH did not use Medicare credentialed

MHPs for all of their QMB clients.” In other words, PFH billed for services provided by its

employees who were not qualified to bill Medicare for the services. In Bowerman, the State

got what it bargained for—the exact quantity and prescription requested. In Nelson, the State

of Arkansas got ripped off by overpaying for what it received. This case is more like Nelson;

the State was not authorized to overpay for services rendered by people unqualified to bill

for them. The supreme court has not overruled Nelson, instead choosing to distinguish it in

Bowerman. In fact, the supreme court was presented again with the opportunity in 2019, in

Prince v. Arkansas State Highway Commission, 2019 Ark. 199, 576 S.W.3d 1, to overrule Nelson

and, again, it chose to not do so.

       Still, the complaint should survive regardless of whether Nelson applies because there

is state action as contemplated in Bowerman. On the one hand, the majority and the trial

court are correct: the General Improvement Fund (GIF) enabling legislation was passed by

the legislature as a whole. At the time of the allegations herein, the legislation was presumed

constitutional. (It has since been ruled unconstitutional.) The act of individual legislators

directing state funds to particular entities is also contemplated by the law. It was agents of

PFH—not the State—who committed the overbilling. On the other hand, the allegations in

the complaint lay out a hybrid situation making it difficult to divorce the actions of PFH

from the State. Even still, the “state action” allegations are that these legislators facilitated

PFH’s “exacting.” Acting under color of law, legislators smoothed the way for PFH to avoid

                                               24
oversight and procedural controls in order to continue its illegal scheme of overbilling. State

funds were then kicked back or paid as bribes to these state actors.

       That is a misapplication of public funds. That is contrary to law. That is an illegal

exaction under our constitution and precedent.

       The Bowerman court reasoned, “Bowerman does not assert that the action of the State

in expending funds on Actos was unlawful . . . .” But in this case, it is alleged that the actions

of the State were unlawful: taking a bribe to corruptly apply a statute for the benefit of a

third party to the detriment of the taxpayers is contrary to the law. The overbilling by PFH

was, as alleged in the complaint, facilitated in part by the State, through its agents, namely

the state legislators. PFH offers no case law supporting that legislators, acting under color of

law and using their positions to help PFH avoid detection of their scheme of overbilling, are

not “state actors.”

       In Bowerman, the defendant could point to a valid law that authorized the state to

purchase prescription drugs. There is no Arkansas statute that allows GIF money to be used

for bribery of state officials or for PFH to bill the state for services performed by unqualified

professionals. There is no Arkansas law that allows PFH to fraudulently bill Medicaid for

services that would not be covered or covered at 20 percent of the reimbursement rate if

billed correctly. In fact, we have law prohibiting those actions. Specifically, Arkansas Code

Annotated section 19-11-107 (Supp. 2021) prohibits kickbacks; Arkansas Code Annotated

section 21-8-304 (Supp. 2021) prohibits any public servant from obtaining any special

privileges or exemptions as a result of his position; Arkansas Code Annotated section 21-8-

                                               25
604 (Repl. 2016) requires lobbyists to report all gifts to a public servant; and Medicaid fraud

is a criminal act pursuant to Arkansas Code Annotated section 5-5-111 (Repl. 2013).

       The bottom line is that the complaint described wrongdoing by state legislators acting

in concert with PFH. This led to a misapplication or the obtaining of state funds through

illegal means. The two criteria for state action were satisfactorily pleaded by Parsons because

(1) the legislators bribed by PFH enjoyed the privilege of being able to direct Arkansas

taxpayers’ funds individually via the GIF or via the intervention with state agencies by virtue

of threats to propose or kill legislation that would have negatively affected those agencies;

and (2) the state legislators were state actors because as constitutional officers, they were state

officials receiving a state salary as provided by state statute. See Ark. Code Ann. § 10-2-201

(Repl. 2012).

       The constitutional provision at issue is straightforward: “Any citizen of any county,

city or town may institute suit on behalf of himself and all others interested, to protect the

inhabitants thereof against the enforcement of any illegal exactions whatever.” Ark. Const.

art. 16, § 13. The plain language does not limit actions only against governmental entities.

Nelson certainly does not. The determination of whether there is “illegal exaction” turns on

the public nature of the funds wrongfully applied, not the public status of the wrongdoer.

Taking the allegations as true, the case should have, at a minimum, survived the motion to

dismiss.

       Bishop Law Firm, by: Matt Bishop; and Howerton Law Firm, by: Wendy R. Howerton, for

appellant.

                                                26
       Matthews, Campbell, Rhoads, McClure & Thompson, P.A., by: David R. Matthews and

Sarah L. Waddoups, for separate appellee Preferred Family Healthcare, Inc.

                                            27