James Parsons v. Preferred Family Healthcare, Inc. , 2022 Ark. App. 277 ( 2022 )


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  •                                 Cite as 
    2022 Ark. App. 277
    ARKANSAS COURT OF APPEALS
    DIVISION I
    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