If you have been reading this page throughout the session, you are aware of our discussions of the implications of SB 14 for business. SB 14, of course, is the bill that prohibits minors from receiving gender transitioning or gender reassignment care.
Setting aside the larger philosophical debate over whether state power should intervene in the relationship between a physician, a minor patient, and the minor’s parent or legal guardian in this fashion, the bill puts physicians and other health care providers at serious risk of liability in two ways: (1) for the direct provision of care to a child that the physician, the child, and the child’s parent or legal guardian deem necessary in his or her best medical judgment for the child’s health and well-being, and (2) for not providing treatment the physician, the child, and the child’s parent or guardian believe necessary, the absence of which leads to death or injury to the child. As we are already seeing in the abortion context, legal prohibitions of certain women’s health care procedures and treatments have created a widening gray area in which physicians and other providers must decide either to risk their professional and financial well-being (up to and including imprisonment) by treating a pregnancy-related complication or allowing the complication to worsen, threatening the health and life of the patient. It seems likely that a failure to treat a child for certain conditions associated with gender dysphoria could have a similar effect, leaving a physician damned for treating and damned for not treating. As the bill does not recognize the potential existence of the gray area or the legal limbo in which it maroons health care providers, the only thing left is a Hobson’s choice that hurts everyone involved.
We also have to set aside the very real equal protection problems associated with outlawing the same treatments for some minors rather than others (i.e., treatments “for the purpose” of transitioning a minor’s biological sex but not for “other” purposes), the central problem for business in the bill is mandate that applices to entities that receive “public money” Presumably, that can mean anything from a state or local government contract to a tax incentive or abatement. Giving that the bill gives the attorney general enforcement authority over this question, this is a serious matter, indeed.
ERISA pre-emption. Let’s begin with a subject nobody understands very well but could present a serious problem for SB 14, ERISA pre-emption. The Employee Retirement Income Security Act of 1974 (ERISA) pre-empts “any and all State laws insofar as they may now or hereafter relate to any “employee benefit plan” covered by the Act. 29 U.S.C. §1144(a). SCOTUS has held that “[A] state law related to an ERISA plan if it has a connection with or reference to such a plan.” Egelhoff v. Egelhoff, 532, U.S. 141, 147 (2001). In the words of the Court, “ERISA is therefore primarily concerned with pre-empting state laws that require providers to structure benefit plans in particular ways, such as by requiring payment of specific benefits, Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983), or by binding plan administrators to specific rules for determining beneficiary status, Egelhoff, 532 U.S. 141. A state law may also be subject to pre-emption if ‘acute, albeit indirect, economic effects of the state law force an ERISA plan to adopt a certain scheme of substantive coverage.’ Gobeille, 577 U.S., at 320). As a shorthand for these considerations, this Court asks whether a state law ‘governs a central matter of plan administration or interferes with nationally uniform plan administration.’ Ibid. If it does, it is pre- empted.” Rutledge v. Pharmaceutical Care Management Association, 141 S.Ct. 474, 480 (2020).
In our view, SB 14 almost certainly violate ERISA pre-emption. The offending provision is proposed § 161.704, Health and Safety Code, which provides that “[p]ublic money may not directly or indirectly be used, granted, paid, or distributed to any health care provider medical school, hospital, physician, or any other entity, organization, or individual that provides or facilitates the provision of a procedure or treatment” prohibited by the bill. This provision is as broad as it is vague, but there is no question that it covers any business entity that receives any funds from the state or local governments for any purpose. If that business has an ERISA plan that covers procedures or treatments that may be prohibited by the bill, simply maintaining the plan can easily be construed as “providing” or “facilitating” those procedures.
When confronted with the construction of the statute, a court will look to the plain meaning of the statutory text, which ordinarily will be found in a widely used dictionary such as Merriam- Webster. This dictionary tells us that “provide” means “to supply or make available” or “make something available to.” It also tells us that “facilitate” means “to make easier: help bring about.” The question then becomes whether a health benefit plan that pays for certain procedures or treatments “makes available” those treatments or “makes [them] easier” to obtain. The answer is almost certainly yes. Insurance coverage is intended to make health care available and easier to obtain. SB 14’s proscription of public funds thus applies to an entity that does business with the state or local governments and provides health care benefits that may run afoul of the bill’s prohibitions.
The effect of SB 14 is to compel a business either to drop certain coverage from its health benefit plan (because the plan “facilitates” prohibited treatment) or forfeit its business with governmental entities. This Hobson’s choice is exactly the kind of ‘acute, albeit indirect, economic effects of the state law [that] force an ERISA plan to adopt a certain scheme of substantive coverage’ in violation of the pre-emption bar. ERISA pre-emption protects the uniformity of plan structure and administration from an individual state’s mandates. SB 14 mandates that businesses with state or local government contracts or other business relationships change the benefit structure of their plans in one state at the risk of punitive action.
Unfortunately, the bill does not explicitly exempt ERISA plans, so the issue will have to be litigated, probably all the way to the U.S. Supreme Court. In the meantime, the bill’s enforcement mechanism will expose businesses to investigative and legal action from the Office of the Attorney General. Though ERISA pre-emption might be raised as an affirmative defens in such an action, the risk of liability remains and will remain unless the bill is amended to exempt ERISA plans.
Extraterritorial Application. Proponents of SB 14 may insist that the bill only applies to prohibited procedures and treatments performed in Texas. Nothing in the language of the bill, however, limits the application of the bill only to acts occurring within the borders of the state. In view of the plain language of the bill, consequently, we must consider the possibility that a physician or health care provider in a state that does not prohibit certain treatments for gender dysphoria and who provides care to minor who resides in Texas has committed a violation of the bill. Additionally, a business with insurance coverage that pays for the minor’ travel and treatment, as discussed above, would likewise have liability exposure. The bill’s proponents will say that because the bill assigns enforcement against the physician to the Texas Medical Board, it will only apply to Texas physicians performing unlawful procedures in Texas. But this claim ignores the bill’s other enforcement mechanism in the Office of the Attorney General. This authority will extend not only to physicians, but to health care providers and entities that do business with the state and local governments, and nothing in the bill confines the exercise of that authority to procedures and treatments performed in Texas. The question is, can the attorney general enforce SB 14 against a business in Texas for the provision of health care that is legal in another state? The law of extraterritorial jurisdiction is complex, but the short answer to the question is an uncomfortable maybe. The jurisprudence largely concerns the extraterritorial enforcement of criminal statutes, but though SB 14 does not at this point create a criminal offense per se (although a physician can lose his or her license, a quasi-criminal punishment if there ever was one), the bill is definitely punitive in nature and imposes severe sanctions for violations. We think it fair and reasonable, therefore, to analyze the bill’s potential extraterritorial effect in light of this body of law. In short, SB 14 creates the perfect opportunity to “make an example” of any business entity that bucks the official line.
The basis of a general presumption that a state criminal statute may not be enforced beyond the state’s borders lies in the Sixth Amendment of the U.S. Constitution, the so-called “Vicinage” amendment. This provision states that “[I]n all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law . . . .” As many courts have pointed out, however, criminal activity may occur in multiple states. A 1911 U.S. Supreme Court decision promulgated the “effects doctrine,” which holds that “[a]cts done outside a jurisdiction, but intended to produce and producing detrimental effects within it, [can] justify a State in punishing the cause of the harm.” Strassheim v. Daily, 221 U.S. 289, 285 (1911). The effects doctrine was incorporated into the Modern Penal Code published by the American Law Institute in 1962 and has become a mainstream feature of determining whether a state may prosecute another state’s citizens for crimes, the “effects” of which are felt in that state.
There are, however, constitutional limits to the application of the effects doctrine, specifically the Due Process Clause of the Fourteenth Amendment. We are generally familiar with a due process analysis to determine whether a state court has personal jurisdiction over an out-of-state party, but the analysis is not quite the same in the criminal context. Whereas personal jurisdiction is a matter of “minimum contacts” with the forum state and whether exercising jurisdiction “comports with fundamental notions of fair play and substantial justice,” the standard in a criminal proceeding involves the “fundamental fairness” of the extraterritorial application of a state penal statute in light of the Sixth and Fourteenth Amendments. See United States v. Cores, 356 U.S. 875, 877 (1958) (“The provision for trial in the vicinity of the crime is a safeguard against the unfairness and hardship involved when an accused is prosecuted in a remote place.”); United States v. Cobrales, 524 U.S. 1, 6 (1998) (“Proper venue in criminal proceedings was a matter of concern to the Nation’s founders.”)
Thus, for example, it does not violate the Sixth Amendment that a crime committed in multiple states may be prosecuted in each state. United States v. Rodriguez-Moreno, 526 U.S. 275, 281 (1999) (“[W]here a crime consists of distinct parts which have different localities, the whole may be tried where any part can be proved to have been done.”). The due process “fundamental fairness” analysis scrutinizes the nexus between the defendant, the defendant’s acts, and the forum state. As the Fourth Circuit has ruled, “Fair warning does not require that the defendants understand that they could be subject to prosecution in the United States so long as they would reasonably understand that their conduct was criminal and would subject them to prosecution somewhere.” United States v. Brehm, 691 F.3d. 547, 554 (4 th Cir. 2012). The D.C. Circuit echoed this reasoning, stating that “[W]hat appears to be the animating principle governing the due process limitations of extraterritorial jurisdiction is the idea that ‘no man shall be held criminally responsible for conduct which he could not reasonably understand to be proscribed. . . The ‘ultimate question’ is whether ‘application of the statute to the defendant [would] be arbitrary or fundamentally unfair.’” United States v. Ali, 718 F.3d. 929, 944 (D.C. Cir. 2013); see also Bouiev. City of Columbia, 378 U.S. 347, 351 (1964) (holding that the South Carolina Supreme Court deprived the accused of their right to fair warning of a criminal prohibition, thus violating theDue Process Clause).
These cases, however, involve conduct that has been universally criminalized by federal and state statutes, such as fraud and smuggling illicit drugs. By contrast, SB 14 punishes conduct that is legal in other states. Under these circumstances, it is not at all clear how the federal constitutional analysis would play out. If, for example, SB 14 seeks to hold an entity doing business with the state or local governments responsible for facilitating treatment for gender dysphoria in another state, which it appears on its face to do, one question would be whether that entity might “reasonably understand” that its conduct was unlawful and may b prosecuted “somewhere.” But even if that entity knew that some states proscribed that conduct and some did not, would it be “arbitrary and fundamentally unfair” for a Texas statute to penalize the provision of insurance coverage for health care treatment in another jurisdiction? Stated another way, is it “arbitrary and fundamentally unfair” to put a business in the position of providing insurance coverage to employees based not on their medical condition but on their state of residence?
In short, we don’t know. SB 14 leaves the question wide open and only decades of litigation is likely to produce an answer. In assessing the risks imposed by HB 1686/SB 14 on businesses, however, the potential for extended and highly publicized litigation, as well as the negative consequences that flow from that litigation, should not be underestimated.
The Legislature refused to consider language proposed by the business community to clarify SB 14. This is doubly unfortunate because (1) the Legislature did other things this session that will benefit the business community, and (2) it had the choice of removing business from middle of the ideological debate altogether. Whether SB 14 will stand up in court is a question for the future, but however matters are ultimately resolved, businesses will have to make decisions that affect their employees and customers today.
