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Alleged breach of university rules not law violation; Texas Whistleblower Act protections not triggered

Alleged violations of a university’s internal administrative policies were not violations of law as required by the Texas Whistleblower Act, nor were a university professor’s reports of them made to an appropriate law enforcement authority, ruled the Texas Supreme Court, finding the lower court lacked subject matter jurisdiction (University of Houston v Barth, June 14, 2013, per curiam). Accordingly, the university’s immunity was not waived under the Whistleblower Act, and the court reversed the lower court’s judgment and dismissed the suit against the university.

Procedural history. In early 1999, the tenured professor and attorney reported to the CFO and general counsel that his dean allegedly engaged in questionable accounting practices, mishandled funds, and entered into improper university contracts. A few months later, he reported the alleged violations to the university’s internal auditor and an associate provost. Allegedly in response, that year the dean rated him as “marginal” in one area during his annual evaluation, which affected his merit raise. He also was denied travel funds in 1999 and his annual legal symposium on hotel law was cancelled. His grievance alleging retaliation was never resolved, but two years later, the CFO did request an investigation, and the university audit report found the dean had violated internal administrative policies but not state criminal law.

Claiming he had reported three alleged violations of law (state penal code, the university’s administrative procedures, and state civil statutes on government contracting), the professor sued under the Whistleblower Act. He prevailed at trial; the court of appeals reversed; the state supreme court reversed and remanded the case to the court of appeals to consider whether the trial court had jurisdiction given its holding that the elements of a claim under the Whistleblower Act are jurisdictional and may not be waived. The court of appeals said yes, the trial court had jurisdiction and affirmed the judgment, finding the retaliation allegation based on the report that the dean violated the internal administrative policies was sufficient for purposes of establishing jurisdiction under the Whistleblower Act.

Administrative rules not “law.” Not so, said the Texas Supreme Court. The Whistleblower Act Sec. 554.001(1) defines “law” as a state or federal statute, an ordinance of a local governmental entity, or “a rule adopted under a statute or ordinance.” Noting it had never before construed the phrase “a rule adopted under a statute or ordinance,” the court first determined that the policies in the university’s System Administrative Memorandum (SAM) were not rules adopted under a statute or ordinance because there was no evidence that they were enacted by the Board of Regents as required by the university’s enabling statute. For the SAM’s administrative policies to be “rule[s] adopted under a statute,” the Board of Regents must have enacted the policies, said the court, and no testimony or evidence at trial established that the Board of Regents enacted or passed the SAM’s administrative policies. In fact, the record was unclear.

Addressing in detail the three levels of internal policies that govern the university, the court found that section 01.C.04 of the SAM designates the vice chancellor for administration as the “responsible party” and provides that the chancellor “approved” this particular memorandum — not the Board of Regents. Although the professor argued that even if the SAM’s policies were not enacted by the Board of Regents, they were adopted pursuant to the Board of Regents’ authority, the court refused to adopt such a broad construction. Section 111.35 of the Education Code expressly authorized only the Board of Regents to enact rules, said the court, discerning that the legislature therefore did not intend for whistleblower protection to extend to reports of violations of the SAM’s rules.

Good faith belief in reporting violation of law. The professor also argued that the university’s sovereign immunity was waived under the Whistleblower Act because he believed in “good faith” that he was reporting a violation of law. Here, the court agreed that the professor subjectively believed he was reporting violations of contracting guidelines that constituted a violation of law. But the court summarily found the professor failed to establish that his belief was objectively reasonable, given his legal training, experience as a former practicing attorney, and familiarity with the university’s rules from serving on the faculty senate. In so finding, the court did not address the fact that it had never before construed that provision of the Whistleblower Act, or that the litigation here had taken a protracted and conflicting course.

Further, the court held that none of the professor’s reports of purported violations of state civil and criminal law were made to an appropriate law enforcement authority under the Act. Specifically, the professor needed to demonstrate an objective good-faith belief that he was reporting violations of the penal code or statutes involving administration of government contracts to law enforcement that could have prosecuted such violations against third parties — not just internally discipline its own employees. None of the four people whom the professor told — general counsel, CFO, internal auditor, and associate provost — could have investigated or prosecuted criminal law violations against third parties outside the university. (Even though the professor made a report to the university’s police, that report was not made until after the alleged retaliatory acts occurred.)

Compliance with the SAM procedures that suspected criminal activity should be reported to either the campus police, the university’s system director, the director of internal auditing, the university’s counsel, or the university’s CFO, did not establish that the professor reported the violations to “an appropriate law enforcement authority,” said the court, and those people could not have investigated or prosecuted the alleged violations of criminal law.

Similarly, the professor never cited to which state government contracting laws he believed were violated but argued that the Government Code authorized the university’s internal auditor to conduct audits and investigations. Conducting an investigation does not mean that the auditor could “regulate or enforce” the law as required by Sec. 554.002(b)(1) of the Whistleblower Act against any third party outside of the university. Accordingly, the trial court lacked any basis for subject matter jurisdiction over the entirety of the professor’s Whistleblower Act claim.

The case number is 12-0358.