Untitled Texas Attorney General Opinion ( 2000 )

November IO,2000
F.M. “Skip”Langley, D.V.M., M.D., J.D. Opinion No. JC-0304
Executive Director
Texas State Board of Medical Examiners Re: Whether the Texas Board of Medical
P.O. Box 2018 Examiners may certify a foreign nonprofit
Austin, Texas 78768-2018 corporation, organized under the laws of a
jurisdiction other than Texas, as anonprotit health
organization under section 162.001(b) of the
Occupations Code (RQ-0250-JC)
Dear Dr. Langley:
Section 162.001(b) of the Occupations Code directs the Board of Medical Examiners (the
“Board”) to certify a health organization that “is a nonprofit corporation under the Texas Non-Profit
Corporation Act” and that meets the other requirements set out in that section. TEX. Oct. CODE
ANN. 5 162.001(b) (Vernon 2000). The Board construes this provision to mean that it may certify
only nonprofit corporations organized under the Texas statute. The Texas Non-Profit Corporation
Act deals with both nonprofit corporations incorporated thereunder and nonprofit corporations
incorporated under the Jaws of other jurisdictions, namely, foreign corporations, Because of the
inadvertent certification of eight foreign corporations and their disagreement with the Board’s
interpretation of section 162.001 (b), your predecessor in office asked whether the Board may certify
foreign nonprofit corporations under this section. ’ We conclude that the Board’s long-standing
construction that the statute allows certification of only Texas nonprofit corporations is a reasonable
interpretation in harmony with the rest of the statute and is controlling.
We begin by briefly reviewing the provisions of the Texas Non-Profit Corporation Act (the
“Act”) and chapter 162 of the Occupations Code relevant to your question. The Act defines a non-
profit corporation as “a corporation no part of the income of which is distributable to its members,
directors, or officers.” TEX. REV. CIV. STAT.ANN. art. 1396-I .02 A(3) (Vernon 1997). A nonprofit
corporation organized under the Act is a domestic corporation. See id. art. 1396-1.02 A(1). A
nonprofit corporation organized under the laws of a jurisdiction other than Texas is a foreign
corporation and is prohibited from conducting affairs in this state until it has procured a certificate
of authority from the Secretary of State to do so. See id. a&.1396-1.02 A(2), 1396-8.01 A. A
foreign corporation that obtains a certificate of authority enjoys the same privileges and is subject
‘See Letter from Bruce A. Levy, M.D., J.D., Executive Director, Texas State Board ofMedical Examiners, to
Honorable John Comyn, Texas Attorney General (June 19,200O) (on tile with Opinion Committee) [hereinafter Request
Letter].
F.M. “Skip”Langley, D.V.M., M.D., J.D. - Page 2 (X-0304)
to the restrictions of a domestic corporation except with respect to its internal affairs and debt
liability of its members. Id. art. 1396-8.02 A.
Chapter 162 of the Occupations Code deals with Board certification of nonprofit health
organizations. Section 162.001(a) directs the “board by rule [to] certify a health organization” that
applies for certification and satisfies the further requirements of subsection (b) or (c). TEX. Oct.
CODE ANN. 5 162.001(a) (Vernon 2000). Subsection (b) directs the Board to approve and certify
a health organization that “is a nonprofit corporation under the Texas Non-Profit Corporation Act
[articles 1396-1.01 to 1396-11 .Ol oftheRevisedCivi1 Statutes] organized” to conductpublicinterest
research, support medical education, improve and develop medical education and practice, deliver
public health care, or provide public medical and health instruction. Id. 5 162.001(b)(l).
Additionally, the organization must be “organized and incorporated” only by persons licensed by the
Board; and its directors and trustees must also be Board licensed and actively practicing medicine.
Id. 5 162,001(b)(2), (3). Subsection(c) directs the Board to certify a health organization to contract
or employ licensed physicians if the organization is “a nonprofit corporation under the Act” and
section 501(c)(3) ofthe United States Code, and is organized and operated as amigrant, community,
or homeless health center or a federally qualified health center. Id. 5 162.001(c). Finally, section
162.003 authorizes the Board to refuse and revoke certification if the Board determines that the
organization is established or operated with the intent to violate or violates the provisions regarding
the practice of medicine. See id. $ 162.003.
Your predecessor’s question requires us to construe the phrase “anonprotit corporation under
the . Act” as used in section 162.001(b). The goal of statutory construction is to give effect to
legislative intent, and where the language in the statute is unambiguous, that intent must be found
in the plain and common meaning of the words used. Monsanto Co. v. Cornerstones Mm. Util.
Dist., 865 S.W.2d 937,939 (Tex. 1993); see also Texas Water Comm ‘n Y. Brushy CreekMun. Util.
Dist., 917 S.W.2d 19,21 (Tex. 1996) (“We resort to rules of construction only when the statute in
question is ambiguous.“). The language of section 162.001(b), however, is not unambiguous. A
“nonprofit corporation under the. Act”may reasonably be understood to mean: (1) a corporation
meeting the definition of a nonprofit corporation under the Act; (2) a nonprofit corporation
incorporated under the Act, i.e., a domestic corporation; or (3) anonprofit corporation subject to the
Act, i.e., a domestic corporation or a foreign corporation that has obtained a certificate of authority
to do business in Texas. See Teleprofits of Tex., Inc. v. Sharp, 875 S.W.2d 748, 750 (Tex.
App.-Austin 1994, no writ) (statute is ambiguous when it is capable of being understood by
reasonably well-informed persons in two or more senses); see also TEX.REV. CIV. STAT.ANN. arts.
1396-1.01-1396-11.01 (Vernon 1997 & Supp. 2000).
In these circumstances, “[i]f a statute can be reasonably read as the agency has ruled, and that
reading is in harmony with the rest of the statute, then [the court is] bound to accept that
interpretation even ifotherreasonable interpretations exist.” Berryv. State Farm Mut. Autolns. Co.,
9 S.W.3d 884, 893 (Tex. App.-Austin 2000, no pet.); see also Quick v. City ofAustin, 7 S.W.3d
109, 123 (Tex. 1998) (“While not controlling, contemporaneous construction of a statute by the
administrative agency charged with its enforcement is entitled to great weight.“). Additionally, we
may consider legislative history and former statutory provisions, the circumstances under which the
F.M. “Skip” Langley, D.V.M., M.D., J.D. - Page 3 (X-0304)
statute was enacted, the object sought to be obtained, and the consequences of a particular
construction. See Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278,280 (Tex. 1994).
For the past twenty-nine years, the Board has interpreted the statute to authorize certification
only of domestic nonprofit corporations. This interpretation is a reasonable interpretation in
harmony with the other certification requirements of the statute. SeeBewy, 9 S.W.3d at 893 (court
bound to accept administrative agency’s reasonable and harmonious reading). The legislature has
assigned to the Board the authority to enforce section 162.001 and other provisions of the
Occupations Code dealing with the practice of medicine. See TEX. OCC. CODE ANN. $5 15 1.003 (as
matter of public policy, necessary to regulate practice of medicine and Board to remain primary
means of licensing, regulating and disciplining physicians); 152.001 (Board authorized to regulate
practice of medicine); 162.001(a) (“The board by rule shall certify .“) (Vernon 2000). The
legislature adopted the substance of subsections (a) and (b) of section 162.001 in 1971. See Act of
May 25, 1971, 62d Leg., R.S., ch. 627, 5 4, 1971 Tex. Gen. Laws 2037, 2041 (amending
predecessor, former article 4509a of the Revised Civil Statutes). Since that time, the Board has
consistently construed the law to authorize certification only ofnonprofit corporations incorporated
under the Act. See Request Letter, supra note 1, at 10-12. The Board’s construction was set out
explicitly in the Texas Administrative Code from 1976 until 1996, when it was changed to comport
with the statutory language. See id.’ The Board’s construction comports with the other provisions
of the statute requiring the Board to investigate and ensure that nonprofit health organizations are
organized and operated in accordance with section 162.00 1 to regulate, in turn, the corporate practice
of medicine.
The corporate practice of medicine is prohibited under the Occupations Code. A physician
or an applicant for medical license is prohibited from aiding or abetting the practice of medicine by
a person, partnership, association, or corporation not licensed to practice medicine by the Board.
See TEX. Oct. CODE ANN. $ 164.052(17) (Vernon 2000); see also id. $5 155.001 (person may not
practice medicine without license), ,003 (to be eligible for medical license, person must be twenty-
one years old, of good professional character, and have completed medical school and training);
Sampson v. Baptist Mem’l Hosp. Sys., 940 S.W.2d 128, 137 n.6 (Tex. App.-San Antonio 1996),
rev’d on other grounds, 969 S.W.2d 945 (Tex. 1998) (“The prohibition ofthe corporate practice of
medicine is the law in all states except Nebraska and Missouri.“). Texas courts have held that a
corporation comprised of lay-persons that employs licensed physicians to treat patients and receives
fees for the services provided is engaged in the unlawful practice of medicine; and the licensed
physician so employed violates section 164.052(17) and is subject to having his or her medical
2Former section 177.2(a), which became effective on January 1, 1976, required the Board to obtain an
organization’s application for a charter from the Secretary of State and to establish that the “[alpplication is for charter
for a nonprofit corporation under the Texas Civil Statutes article 1396-1.Ol ef seq.” Tex. Board of Medical Examiners,
Rule 177.2 (effective l/l/76) (repealed 1992); see also Request Letter at 10-l 1. The 1976 provision was repealed in
1992 and replaced by a provision requiring “a copy of the certificate of incorporation under the Texas Non-Profit
Corporation Act.“proposed 17 Tex. Reg. 1171(1992), adopted 17 Tex. Reg. 2393,2394 (1992). The 1992 provision
was repealed in 1996 and replaced by a provision written to reflect the statutory language. Seeproposed 20 Tex. Reg.
9246,9247 (1996), adopted 21 Tex. Reg. 107 (1996) (codified at 22 TEX. ADMIN. CODE 5 177.3(3) (2000)).
F.M. “Skip” Langley, D.V.M., M.D., J.D. - Page 4 m-0304)
license cancelled, revoked or suspended by the Board. See Garcia v. Texas State Bd. ofhfaf.
Zhm’rs, 384 F. Supp. 434 (W.D. Tex. 1974), @‘d, 421 U.S. 995 (1975) (upholding
constitutionality ofpredecessor to sections 162,001(b)(2) and 164.052(17) ); see also Flynn Bras.,
Inc. v. FirstMed. Assocs., 715 S.W,2d782,784(Tex. App.-Dallas 1986,writrefdn,r,e.)(andcases
cited therein).
While the legislative history is silent regarding the purpose of section 162.001(b),” its
apparent purpose is to create a limited exception to the prohibition against the corporate practice of
medicine. See Union Bankers Ins. Co., 889 S.W.2d at 280 (when legislative intent cannot be
discerned from statutory language, circumstances under which statute was enacted, legislative
objective, and consequences ofparticularconstructionmay be considered). The statute, by its terms,
authorizes the Board to “certify” as health organizations those nonprofit corporations organized and
directed by physicians licensed by the Board. They are “special health organizations because they
allow the employment of physicians for the purpose of practicing medicine by a corporation, thus
providing an exception to the prohibition against the corporate practice of medicine in Texas.”
Request Letter, supra note 1, at 4. Although a foreign corporation that obtains a certificate of
authority to do business under the Act is generally subject to the restrictions and liabilities imposed
on similar domestic corporations with respect to affairs conducted within the state, the law of its
incorporating jurisdiction governs significant aspects of a foreign corporation. The Act provides
that:
[T]he laws of the jurisdiction of incorporation of a foreign
corporation shall govern (1) the internal affairs of the foreign
corporation, including but not limited to the rights, powers, and duties
of its board of directors and members and matters relating to its
membership, and (2) the liability, if any, of members of the foreign
corporation for the debts, liabilities, and obligations of the foreign
corporation for which they are not otherwise liable by statute or
agreement.
TEX. REV. CIV. STAT. ANN. art. 1396-8.02 A (Vernon 1997). Section 162.001(b) requires the Board
to investigate and regulate the internal affairs of a nonprofit health organization to ensure that it
is “organized and incorporated solely by persons licensed by the board” and “its directors and
trustees are licensed by the board; and actively engaged in the practice of medicine.” TEX.
Oct. CODEANN. 5 162,001(b)(2), (3) (V emon 2000); see id. 5 164.052(17). The Board is expressly
authorized to refuse certification if it determines that an organization is established, organized, or
operated in violation of the law or with intent to violate the law. See id. $162.003(l). And, it must
revoke a certification granted to such an organization. See id. §162.003(2). The Board asserts it
cannot effectively perform these duties with respect to foreign corporations whose internal affairs
and structure are governed by the laws of other jurisdictions; and we cannot say, as a matter of law,
that the Board is incorrect.
‘See House Coma ONPUBLICHEALTH,BILL ANALYSIS,Tex. H.B. 882,62d Leg., R.S. (1971). The legislature
did not begin audio-taping public bearings or floor debates until the following 1973 legislative session.
F.M. “Skip” Langley, D.V.M., M.D., J.D. - Page 5 (JC-0304)
The doctrine of legislative acceptance lends further support to the Board’s interpretation.
When the legislature reenacts without substantial change an ambiguous statute that has been
previously construed by an agency charged with its execution, a court should ordinarily adopt the
agency’s construction. See Sharp v. House of Lloyd, Inc., 815 S.W.2d 245, 248 (Tex. 1991);
Southwestern Life Ins. Co. v. Montemayor, 24 S.W.3d 581, 585 (Tex. App.-Austin 2000, pet.
denied). Since 197 1, the legislature has twice substantively amended the law now codified in section
162.001, but has not changed the language at issue to explicitly overrule the Board’s consistent and
long-standing interpretation that only domestic nonprofit corporations may be certified as nonprofit
health organizations. See Act ofMay 25, 1991,72d Leg., R.S., ch. 721, § 1, 1991 Tex. Gen. Laws
2559; Act of May 18, 1995,74th Leg., R.S., ch. 392, 5 1, 1995 Tex. Gen. Laws 2939. In fact, the
legislature again used the language at issue in the subsequently adopted subsection (c) authorizing
the Board to certify an organization that “is a nonprofit corporation under the” Act and section
501(c)(3) of the United States Code, and that is organized and operated as a migrant, community,
or homeless health center or a federally qualified health center. See TEX. Oct. CODE ANN.
5 162.001(c) (Vernon 2000); ActofMay 13,1999,76thLeg., RX, ch. 388,s 1, sec. 162.001,1999
Tex. Gen. Laws 1431, 1510.
Finally, we are unpersuaded that the Board’s interpretation violates the federal constitution.
A brief submitted on behalf of several foreign nonprofit corporations contends that a construction
denying certification to foreign nonprofit corporations wouldviolate the Full Faith and Credit Clause
ofthe United Constitution, because “Texas would be refusing to give full faith and credit to the laws
of the ofher states under which the foreign corporations are formed, instead requiring that the
corporations be formed as Texas Corporations in order to do business in the state.““ We are unaware
of any case law supporting this legal proposition. And the only case the brief cites in support, Wells
Y. Hiskett, 288 S.W.2d 257 (Tex. Civ. App.-Texarkana 1956, writ ref d n.r.e.), is inapposite. Wells
does not address the constitutionality, under the Full Faith and Credit Clause, of a state statute
excluding or restricting foreign corporations from engaging in an activity in that state. See also
Railway Express Agency, Inc. v. Virginia, 282 U.S. 440, 444 (1931) (“[Virginia is under its
constitution] simply refusing to grant a foreign corporation a permit to transact local business
without taking out a charter from the jurisdiction within which [the] business must be done. There
is no substantial evidence that the refusal would impose a burden on interstate commerce and it is
presumed to be constitutional.“). Instead, Wells merely deals withjudicial recognition ofa corporate
entity by giving “full faith and credit” to its validly issued foreign charter:
Appellees also alleged that the Corporation was not duly
incorporated; that its permit to do business in Texas was obtained
by fraud; and that its charter and permit were in violation of
the laws of Texas and Oklahoma. The record in this case
shows that the corporate charter of the Corporation granted by .
Oklahoma was regular and valid; [and] that the permit and renewal
permit issued. . . by. Texas was valid and legal We must
‘See Brief from David W. Hilgers, Hilgers & Watkins, to Honorable John Comyn, Texas Attorney General at
6-8(Sept. 11,200O) (on file with Opinion Committee).
F.M. “Skip” Langley, D.V.M., M.D., J.D. - Page 6 (JC-0304)
give ‘lb11 faith and credit’ to public acts of other states, which
includes the issuance of charters to corporations.
Wells, 288 S.W.2d at 263 (citations omitted).
In sum, although there may be other reasonable interpretations, the phrase “a nonprofit
corporation under the. Act” in section 162.001 (b) ofthe Occupations Code can reasonably be read
as the Board has interpreted it, i.e., a nonprofit corporation organized under the Texas Non-Profit
Corporation Act. As that interpretation is in harmony with the rest of the statute, we accept the
Board’s interpretation and it is controlling.
F.M. “Skip” Langley, D.V.M., M.D., J.D. - Page 7 (JC-0304)
SUMMARY
Because the phrase “a nonprofit corporation under the
Act” in section 162.001(b) of the Occupations Code can reasonably
be read as the Board of Medical Examiners has interpreted it, i.e., a
nonprofit corporation organized under the Texas Non-Profit
Corporation Act, and is in harmony with the rest of the statute, we
accept that interpretation and it is controlling.
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
CLARK KENT ERVIN
Deputy Attorney General - General Counsel
SUSAN D. GUSKY
Chair, Opinion Committee
Sheela Rai
Assistant Attorney General - Opinion Committee