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Feb 10, 2012

Fighting Fire With Fire – A Closer Look at Additional Remedies Available to Licensees in Enforcement Proceedings with a Focus on the Texas Department of Licensing and Regulation.

The Hard-Line Approach Advanced by the Texas Department of Licensing and Regulation.The Texas Department of Licensing and Regulation ("TDLR"), in the past few years and as an ongoing concern, continues to wage a very aggressive, hard line approach in its concerted efforts to curb and restrict various licensees/practice areas that it regulates.  Based on current cases on our courts' dockets and cases that our firm has handled, it appears that the TDLR has taken broad liberties in their reading and interpretation of statutory provisions and regulatory rules against licensees.  Hit hardest by this approach employed by the TDLR are those licensees in the so-called beauty industry; namely aestheticians, salon owners, cosmetologists, nail shop owners, and even cosmetology schools/colleges.  Currently, there are several pending matters between licensees and the TDLR in ongoing litigation in our courts.  A sample of the ongoing disputes in litigation includes whether eye brow threading/threaders are required to have a cosmetology license because this practice, according to the TDLR, is the practice of cosmetology.  In another example, the TDLR has taken the position that a stylist, who has been licensed as a cosmetologist, may not use a safety razor to remove hair from the face and/or neck of a client deeming this only within the purview of a barber.  What appears as novelty positions or attempts to further define a licensee’s practice are not so novel given the deleterious damage to reputation, loss of the ability to make a living, restrictions on one’s ability to practice, and even in certain cases, the ability to practice altogether.

The Declaratory Judgment Action.

Licensees  who believe that the TDLR has incorrectly misapplied the statute and/or rules that form the basis of disciplinary proceedings have additional remedies available to them.  These remedies, as with all other matters juxtaposed to the underlying disciplinary proceeding, must be explored carefully and thoughtfully as these remedies may not be appropriate in all cases.  These remedies come in the form of a declaratory judgment action based on two statutes that authorize such action:  (1) the Uniform Declaratory Judgment Act (“UDJA”); and (2) the Administrative Procedure Act ("APA").   

Under the UDJA, a Texas court “has the power to declare rights, status, and other legal relations whether or not further relief is or could be claimed.”  See TEX. CIV. PRAC. & REM CODE ANN. § 37.003(a) (Vernon 1997) (emphasis added).  The underlying effect of a declaratory judgment is the focus on the adjudication of disputed law and on telling the parties what their respective rights and duties are.  Under the Texas APA, a party is able to seek a declaratory judgment action concerning either or both the validity and /or the applicability of an administrative agency rule.  See  TEX. GOV’T CODE ANN § 2001.038 (Vernon 2000). 

The Firm's Recent Success in Defending a Cosmetology School Using This Remedy Against the TDLR.

The firm had occasion last year regarding a client it represented to file a declaratory judgment action based on both of these statutory provisions in state district court based on contemplated disciplinary action by the TDLR against the client.  The firm represented a cosmetology college/school who had received a Notice of Alleged Violation (“NOAV”) from the TDLR.  In essence the TDLR alleged that the firm’s client had improperly calculated tuition/fee reimbursement to students who had withdrawn from the college prior to completion of the scheduled courses.  Although the complaint was based on a single instance limited to one former student, the firm’s client had broad exposure as it, a college, routinely had/has numerous students withdrawing from school, and thus, is required to determine the correct tuition reimbursement to the extent applicable in each of these situations.  Given that the client had been in operation for several years, the exposure in terms of discipline faced by the client cannot be understated. 

The firm’s client, like most every other cosmetology school in the State of Texas, had based its refund calculation on its understanding and interpretation of the statute and applicable rules in effect for nearly twenty years.  Without reason or explanation to the client (or any other licensee), the TDLR determined that this method of determining  the tuition refund was improper and thus, grounds for disciplinary action that included a substantial monetary fine.  After consulting with the client, we determined that rather than accepting the proposed settlement (i.e., admission of wrongdoing through a public order and paying a monetary fine) as other similar colleges/licensees had done or going through the regular administrative route to the State Office of Adminstrative Hearings (“SOAH”), we chose to pursue a declaratory judgment action both under the UDJA and Texas APA in order to have the courts determine that the TDLR’s action and interpretation were improper and that several of its rules relating to tuition reimbursement were invalid on its face and thus, unenforceable.  As an additional consideration to protect our client, the firm also sought immediate injunctive relief to preserve the status quo of the parties and to prevent the TDLR from taking discipline against the client while the case was being considered in the court system. 

Shortly after we filed our declaratory judgment action with a request for injunctive relief, the Attorney General’s Office (who was representing the TDLR) responded to the suit and then proceeded to contact us and informed us that it was quietly dismissing all charges against the firm’s client and even agreed, in principal, to pay my client's attorneys fees which are authorized under the statue.  Although no official/unofficial explanation was provided, we believe that the TDLR was faced with the real possibility of having the courts strike down its position and invalidate some of its rules regarding tuition reimbursement that would not only affect cosmetology, but all other areas such as barbers, et al.  Perhaps the biggest conundrum the TDLR faced in light of our declaratory judgment action and the likely basis for their wanting to dismiss the case against the client would be what would happen to those licensees in which it had already entered disciplined on the grounds of statute ad/or rules that were later declared null and void.  These questions, for now, are academic in light of the dismissal of the underlying matter against the firm's client.

What Lessons Can be Learned.

The overall lesson here is that although atypical, time consuming (based on the tactics employed by the TDLR in filing jurisdictional pleas, and taking the matter on appeal to the Court of Appeals), and cost prohibitive in most cases, when the TDLR or any regulatory agency takes a heavy-handed approach in its interpretation of a statute and/or its rules and uses such interpretation to take disciplinary action, a declaratory judgment action may lie and be crucial in preserving the rights of licensees.  In other words, one must consider fighting fire (the TDLR’s action) with fire (a declaratory judgment action).

Note:  The author wishes to acknowledge that his use of the title was chosen with full acknowledgement and sensitivity to the fact that Texas is currently in the recesses of a record drought with 2011 seeing some devastating wildfires near our state’s capitol and throughout the reaches of our state.

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