Spring 2006

In This Issue

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Message from the General Counsel

As David Bowie sang 30 years ago, “Time may change me, but I can’t trace time.” Well, I guess I never really knew what that lyric meant, but I always liked it. Maybe we will just go with, “change is inevitable.” Regardless, our challenge is to manage the change that does occur towards continuous improvement. At OGC, I strive to have us focused on the goal of continuously improving service to our clients. If we can’t timely, competently manage legal matters to arrive at real solutions for our clients, we won’t add value to the process. The value we add is the measure of our success.

In an effort to add more value in our business law department, Jim Phillips and I are excited to announce a reorganization of the business law section of OGC. The impending retirement of Georgia Harper, increased need from our clients in the intellectual property, real estate, and tax and gift planning areas and our desire to more clearly focus our efforts in some key areas, gave us the impetus to take a hard look at how we were structured to meet client needs. While we’ll truly miss Georgia and her unparalleled expertise in copyright law, the restructuring will offer the following benefits:

  • Adding 2 new attorneys in our business law group
  • Folding the intellectual property group into the business law section to better synergize IP expertise across all business transactions
  • Overlaying a practice group structure in 4 key areas in the business law section

I could detail it all right here, but a picture is worth a 1000 words.

In conjunction with this reorganization please join Jim and me in welcoming Caren Burbach and Katy Lumpkin to OGC. Caren will work in the IP and technology procurement areas. Katy will specialize in the real estate practice working with Mark Bentley.  In addition, we are currently interviewing for and will add an attorney to work in tax and gift planning and a third attorney with IP experience.

All and all we hope you’ll see enhanced and focused resources to assist you with all your business law needs. As always, we welcome your feedback and thoughts.

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The U.S. Supreme Court just issued an important new ruling on free speech in the employment context. The case, Garcetti v. Ceballos, involved a deputy district attorney who alleged he suffered an adverse employment action as a result of his memorandum recommending dismissal of a criminal case. Noting that the plaintiff’s memorandum was speech undertaken as part of his official duties, the court held that while there may be other applicable statutes, the First Amendment does not insulate such communication from employer discipline.” In future cases, whether the speech in question is part of an employee’s official duties will be an important (likely determinative) factual issue. However, it appears likely that much less employee speech will be constitutionally protected as a result of the decision in Garcetti. If you have questions as to the impact of this case, please call OGC.

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Outside Counsel Contracts

by Bev Hurst (OCC Manager)

One of the administrative functions performed by OGC for our clients is acting as the clearinghouse and coordination point for requests to the Attorney General (AG) to retain outside counsel. In this capacity, OGC works with our clients to properly craft the request to retain and acts as a liaison with the AG’s office on all outside counsel arrangements. While things run smoothly 90% of the time, recently and increasingly OGC has run into a few instances where valid outside counsel contracts were not in place prior to law firms beginning work or law firms have taken very long periods of time in which to return a signed contract. In working through those situations, OGC has had discussions with the AG’s office regarding use of outside counsel. In sum, the AG is beginning to seriously enforce its procedures as authorized by Texas Government Code §402.0212 regarding use of outside counsel. Payments to firms for legal services not authorized by the AG pursuant to a valid, approved contract with that firm are prohibited and making a payment to a law firm without a valid contract can result in UT System and UT institutions losing their pre-approval code (one approval code for the group). Thus, the easy, expedited approval process UT System and the UT institutions now enjoy with the AG could be jeopardized by any one institution’s failure to follow the AG’s procedures. In one recent instance, the AG refused to later authorize payment to a law firm that was retained by a UT institution without proper procedure through the AG. None of us wants that to happen. Therefore, it is vital that you make sure you do not have legal services performed by a law firm without a valid contract in place.

New Procedures

As most of you know, it is almost time to enter into new outside counsel contracts for the period September 1, 2006 through August 31, 2008. The Request for Information appeared in the May 19, 2006 issue of the Texas Register with a deadline for responses of 11:59 p.m., June 19, 2006. Law firms completed only one response (regardless of the number of offices) including all areas of law for which it desired to respond. All law firms with which UT System or a UT institution currently contracts responded to the RFI in order to renew the contract for the 2-year period referenced above. Completed responses will soon be online. You will receive notification from OGC when the responses are available for online viewing.

The AG has approved the changes that OGC requested to the form of Outside Counsel Contract (OCC)--the major change being the addition of Billing Guidelines as Addendum C. The form of OCC and Billing Guidelines were posted for review by the law firms on the RFI Response web page. Each law firm was required to acknowledge and accept the OCC and Billing Guidelines in order to submit its response. UT institutions must enforce the Billing Guidelines in all outside counsel arrangements.

New procedures for outside counsel will begin for this contracting period. OGC will prepare all contracts and amendments. A list of existing contracts was sent to the UT institutions requesting that the list be reviewed and returned with indications of renewal and amount. These contracts will not require a Request to Retain. For new contracts, a firm should be selected from the RFI Responses. A Request to Retain should be completed and sent to Bev Hurst via email. Additionally, beginning September 1, 2006, each UT institution will be responsible for entering its outside counsel invoices into OGC’s Legal Tracking/Outside Counsel database. Look for communications from OGC in mid-July indicating the dates of training sessions regarding selecting a law firm from the RFI Responses and preparing the Request to Retain. Training for entering invoices will be in September.

The Bottom Line:   To ensure smooth interaction with outside counsel and avoid jeopardizing representation on key matters, it is important to follow required procedures to retain outside counsel.

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Attorney General Interprets Tuition and Laboratory Fee Exemption for "Fire Science" Courses

by Esther L. Hajdar (General Law Section)

Recently, Attorney General Greg Abbott (AG) issued an opinion regarding the scope of “fire sciences” courses that firefighters may enroll in and receive a tuition and laboratory fees exemption. The AG’s interpretation greatly expands the number of courses that a firefighter may take and receive the exemption.

Texas Education Code §54.208 provides that a fireman employed by a political subdivision of the state is exempt from payment of tuition and laboratory fees for any courses offered as part of a fire science curriculum. In response to complaints from a constituent, Senator Jon Lindsey requested an opinion from the AG regarding the scope of §54.208 (RQ-0371-GA).

On February 13, 2006, the AG issued an opinion (Atty Gen Op. GA-0397 (2006)) that expanded the applicability of §54.208. In interpreting the scope of the statute, the AG relied on various rules issued by the Texas Commission on Fire Protection due to its expert knowledge on firefighting and its legislative duty to identify the necessary education for Texas firefighters to be effective emergency responders. The AG concluded that the exemption applies to all “courses that fall within a designated fire science curriculum, as well as a course that is primarily related to fire service, emergency medicine, emergency management, or public administration, regardless of whether that course falls within a curriculum designated ‘fire science.’” This opinion encompasses numerous courses that UT institutions previously did not include within the exemption. Thus, it impacts various schools, colleges, departments and programs that may not have previously offered the exemption, including nursing and public administration programs.

Fire departments and firefighter associations have already contacted some UT institutions inquiring as to what courses are exempt from tuition and laboratory fees in accordance with the AG’s opinion.

Therefore, OGC recommends that UT institutions review course offerings and identify courses that fall within the categories identified by the AG as being “fire science” courses (i.e. courses that are primarily related to fire service, emergency medicine, emergency management, or public administration). This prior review will prevent the need to make this determination on an ad hoc basis in response to individual requests for an exemption from tuition and laboratory fees. In addition, a consistent and well-thought out approach to these determinations will enhance UT institutions’ interactions with the firefighting community.

Also of interest, the opinion addressed to what extent a “general fee” charged for a course may be considered tuition and, thus subject to the statute’s exemption. The AG noted the institution’s broad authority to charge fees and deferred to the institution’s determination of whether a charge is tuition or a fee. Therefore, eligible firefighters are not exempt from payment of any course fees associated with a course. The statute only exempts payment of tuition and laboratory fees issued pursuant to Texas Education Code §54.501.

The Bottom Line:   Firemen enrolled in courses primarily related to fire service, emergency medicine, emergency management, or public administration are exempt from paying tuition and laboratory fees, but not any other fees associated with the course. UT institutions should inventory all courses that fall within these categories and be prepared to meet expanded demands from the firefighting community.

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IRS Continues Crackdown on Political Activities by Exempt Organizations

by Cecilia Gonzalez (Business Law Section)

The Internal Revenue Service (IRS) continues to strengthen its enforcement in the tax-exempt organizations area. Included in the targeted enforcement areas in the IRS strategic plan for 2005 to 2009 is a crackdown on prohibited political intervention. The Federal Elections Commission reported that organizations spent $4 billion in the 1999-2000 election cycle and more than $10 billion in the 2003-2004 election cycle on political campaigns.

Under the Internal Revenue Code, all 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign – federal, state, or local - on behalf of (or in opposition to) any candidate for elective public office. Violations of this prohibition may result in the denial or revocation of the organization’s tax-exempt status and the imposition of certain excise taxes.

UT System and UT institutions are not 501(c)(3) organizations therefore not subject to these IRS provisions but rather are regulated by state laws that limit lobbying activities by state agencies. There are, however, numerous supporting nonprofit organizations and foundations that benefit UT System and UT institutions that are subject to these prohibitions on political campaigning. As such, UT System and UT institution administrators, business officers, and development officers should be aware of these limitations on political campaign activities in their dealings with these supporting nonprofit organizations and foundations.

Any and all activities that favor or oppose one or more candidates for public office are prohibited. Tax-exempt organizations may not endorse candidates, contribute to political campaign funds or allow a candidate to use an organization’s assets or facilities unless other candidates are given the access to the assets and facilities. Additionally, a tax-exempt organization may not make public statements in favor of or in opposition to any candidate for public office nor distribute such a statement prepared by another.

Tax-exempt organizations are permitted to participate in voter education activities, including voter registration, get out the vote drives, public forums and the publication of voter education guides so long as they are carried out in a non-partisan manner.

In almost three-quarters of the 82 examinations of tax-exempt organizations that the IRS conducted for the 2003-2004 election cycle, it identified prohibited political activity ranging from contributions to political campaign funds to endorsement of political candidates from church pulpits. Three of the tax-exempt organizations examined will lose their exempt status as a result of prohibited political activities.

The IRS is intent on combating abusive activity by tax-exempt organizations and will use part of its increased 2006 budget to continue these efforts. The enhanced education and enforcement efforts are designed to help ensure that 501(c)(3) organizations have advance notice of the types of problems that occurred in prior election cycles and how to avoid them. Understanding the problems and how to avoid them will help 501(c)(3) organizations avoid the denial or revocation of tax-exempt status and the imposition of excise taxes.

The Bottom Line:   Be aware that 501(c)(3) organizations and foundations that support UT System or UT institutions are prohibited from engaging in political activities.

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Phillips v. Dafonte: The 14th Court of Appeals’ View of Tort Reform

by Melodie Krane (Health Law Section)

On February 7, 2006, the 14th Court of Appeals rendered an opinion in Phillips v. Dafonte, one of the first cases interpreting the tort reform measures adopted by the 78th Legislature. This case interprets the new election of remedies provisions specifically applicable to governmental entities and their employees. The Court affirmed the trial court’s judgment determining that the defendant physicians had not proved that the case “could have been brought under the Texas Tort Claims Act.”

Since the passage of tort reform in 2003, plaintiffs, defendants and courts have struggled with the meaning of Tex. Civ. Prac. & Rem. Code §101.106(f). Under this provision, “[i]f a suit is filed against an employee of a governmental unit based on conduct within the general scope of that employee’s employment and if it could have been brought under this chapter against the governmental unit, the suit is considered to be against the employee in the employee’s official capacity only.” Further, “[o]n the employee’s motion, the suit against the employee shall be dismissed unless the plaintiff files amended pleadings dismissing the employee and naming the governmental unit as defendant on or before the 30th day after the motion is filed.” (emphasis added)

In Dafonte, two physicians at The University of Texas Medical Branch at Galveston (UTMB) were sued by a patient with breast cancer who had undergone a mastectomy and reconstruction of her left breast. During this surgery, a biopsy was also taken of a nodule in her right breast that showed evidence of early breast cancer. Neither the surgeon nor the pathologist informed the patient of this finding at the time. The patient later required a modified radical mastectomy of her right breast with reconstruction. Following this surgery, the patient obtained her medical records and learned of the earlier cancer diagnosis of the right breast. She sued the surgeon for breach of fiduciary duty, fraudulent concealment and negligence and sued the pathologist for negligence for failing to inform her of the earlier biopsy results of her right breast. The physicians filed motions to dismiss under §101.106(f) but these motions were denied by the trial court.

The 14th Court of Appeals noted that the real complaint against the physicians was their intentional or negligent failure to communicate a diagnosis to the patient. Only three situations permit suit against UTMB under the Tort Claims Act: injury caused by an employee’s use of a motor-driven vehicle, injury caused by a condition or use of tangible personal or real property, and injury caused by a premise defect. Tex. Civ. Prac. & Rem. Code §§101.021 and 101.022. Relying on UTMB v. York, the court determined that Dafonte could not have brought her claim against UTMB because information is not considered tangible property. Further, intentional torts are not subject to the Tort Claims Act. Tex. Civ. Prac. & Rem. Code §101.057(2). According to the Court, therefore, Dafonte’s claim could not be brought against UTMB.

While this opinion provides some guidance under the new law it leaves many open questions. What elements must the defense prove before the case “shall be dismissed”? Will identification by the defense of the tangible property used result in dismissal of the governmental employees? Does the defense have the burden of proving that the identified tangible property was the proximate cause of the Plaintiffs’ injury? Must the defense prove that the governmental unit of the employees had adequate notice under the Tort Claims Act? If the answers to these questions are “yes”, then what must the Plaintiffs’ prove, if anything, given that they have the burden of proof?

The Bottom Line:    The legislature’s intent in modifying Tex. Civ. Prac. & Rem. Code §101.106(f) seemed clear that state employees not be subjected individually to litigation that could have been brought against the state institution that employs the individual. However, the opinion in Phillips places the burden on individual employees at least initially to make a case against their employer. The extent of proof required remains uncertain.

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Use of the Warrant Hold as a Collection Tool

by Kent Kostka (Claims & Bankruptcy Section)

UT institutions have a powerful resource available to assist them in recovering debts owed to them. The Warrant Hold Statute, codified in Texas Government Code §403.055, prohibits the State Comptroller from issuing most types of payments from state funds to a debtor against whom a warrant hold has been filed. The Comptroller also has the ability in some cases, after certain notices are given, to deduct the amount of the warrant hold from the warrant amount, and send it to the agency in full or partial satisfaction of the debt.

Under this statute, “a state agency shall report to the comptroller each person who is indebted to the state,” and once the debt has been properly reported, funds may not be issued to the debtor until the debt has been satisfied. Only debts which have become delinquent per institutional policy should be reported.

A properly filed warrant hold will attach to future lottery winnings, travel compensation, miscellaneous state tax refunds, and any service or contract payments due the debtor. One notable exception is normal salary and compensation for state employees, which cannot be garnished except to repay the state for a salary overpayment. In cases of salary overpayment, a state employee’s salary may be reduced by the amount owed the state, after certain notices have been given (Texas Government Code, Chapter 666).

There is no charge for filing a warrant hold, and UT institutions should file warrant holds with the Comptroller prior to referring certain types of debt to OGC. A warrant hold will remain in effect for up to 2 years, after which time it can be renewed. Accounting Policy Statement 28 (APS 28) contains additional details, requirements and filing information.

The Bottom Line:    UT institutions should utilize the warrant hold process, under the guidelines established in APS 28.

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Where Can You Find Template Research-Related Agreements, Master Clinical Trial Agreements, Guidance on Different Research-Related Topics and Much, Much More?

by BethLynn Maxwell (Intellectual Property Section)

Where can you find template research-related agreements, master clinical trial agreements between UT institutions and pharmaceutical companies, guidance on scientific misconduct and conflicts of interest, handy checklists for use when negotiating research-related agreements, all sorts of wonderful information about copyright law and much, much, more? All of this valuable information can be found on the intellectual property website for OGC.

Template Agreements

For example, there are more than 60 sample template agreements. These template agreements can be used “as is” – just fill in the blanks -- or used as a starting point to tailor an agreement to your specific deal. Here are some of the template agreements:

Master Agreements

Also at your fingertips are over 30 different pre-negotiated and pre-approved master agreements between one or more UT institutions and a third party. Many of these are for clinical trial studies. It takes a long time to negotiate one of these agreements but in the long run it saves our UT institutional contract negotiators time, manpower, and money and adds consistency from one UT institution to another. Some examples include:


This website also has numerous checklists which are used as diagnostic tools to assess problems with sponsor-offered clauses and provide solutions to troublesome clauses. These checklists help you analyze sponsor-offered clauses to determine what editing they require to bring them into conformance with the Regents' Rules and Regulations regarding intellectual property. Each checklist section summarizes the important features or concepts to look for (or in some cases, to avoid) as you analyze a contract clause that is not one of our standards or otherwise already approved. The checklists also include links to conforming clauses that will fix the problem.

There are four major areas that can play a critical role when negotiating most types of research-related agreements, e.g., patent and technology license agreements, clinical trial agreements, and research agreements: publication, confidentiality, intellectual property, and indemnification. You can find a checklist for each of these areas on our website:

Here are some other checklists available on the website to help make your job easier:


Also on the website, UT institutions can find guidance on many different topics as they relate to intellectual property. Here are some examples:

The Crash Course in Copyright

On this same website, you can also find one of the world’s most cited online addresses on copyright law – The Crash Course in Copyright. Numerous articles are also included on this site, such as:

The Bottom Line:   The OGC intellectual property website is a resource-rich tool for our clients that provides guidance on many different research-related areas and has numerous research-related agreements to make your job easier and more efficient. Please contact OGC if you can’t find what you are looking for, or with suggestions on how to improve this website.

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Resources from this e-Newsletter

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