Texas Appeals Court rules that DSHS did not have authority to schedule delta-8 THC

The Texas Court of Appeals 3rd district ruled yesterday that the Department of State Health Services did not follow procedure and did not have the power to ban delta-8 by placing it on the controlled substances list.

Ask anyone lately and their opinions vary on the substance being sold on shelves known as delta-8 THC. Answers can range from saying it’s wonderful for people’s health to stating it’s a public health crisis waiting to happen. However, this case did not rest entirely on the validity of anecdotal claims made at the bench over the past years.

What was the delta-8 case about?

The case revolves around the Department of State Health Services’ (DSHS) action of modifying the 2021 schedules and declaring delta-8 THC as a Schedule I controlled substance on its website without following the Administrative Procedure Act’s (APA) rulemaking procedures.

What took place in court?

The trial court placed a temporary injunction against amendments regarding the terms ‘tetrahydrocannabinols’ and ‘Marihuana extract’ in the 2021 Schedule of Controlled Substances. These amendments, as per the Commissioner, attempted to control Delta-8 THC derived from hemp due to its psychoactive properties, among other considerations. The Commissioner’s amendments to the 2021 Schedule of Controlled Substances also aimed to ensure that all forms of THC, except Delta-9 THC at concentrations not exceeding 0.3%, remain controlled substances in Texas.

Hometown Hero and other appellees challenged this action, asserting that it violated the APA and caused imminent and irreparable harm. Initially, the trial court found a valid claim under the APA against the Department and granted a temporary injunction to preserve the status quo before these actions took place. In court, they argued that these amendments were improperly made without following statutorily required procedures and sought to enjoin their enforcement.

The DSHS Plea to Jurisdiction: Sovereign immunity

• Sovereign immunity shields Texas and its entities from lawsuits and liabilities, and a plea to jurisdiction is the proper method to assert it.
• To overcome such a plea, plaintiffs must clearly show in their pleadings that sovereign immunity is waived or inapplicable.
• The court can consider evidence to resolve disputes over jurisdictional facts, akin to a traditional summary judgment motion.
• Orders on pleas to jurisdiction are reviewed de novo (anew).

Statutory Construction:

• The verdict text suggests a text-based approach to statutory construction, emphasizing looking at the legislation as a whole and giving effect to every word and clause.

Standing:

• The Department and Commissioner argue that the trial court erred in denying their plea to the jurisdiction as appellees lack standing.
• Standing is a component of subject matter jurisdiction and requires a plaintiff to demonstrate an actual or imminent injury that’s traceable to the challenged conduct and can be redressed by the requested remedy.
• The Department and Commissioner challenge the standing of appellees based on the argument that they can’t redress appellees’ alleged harm. DSHS also made claims that they are not an enforcement agency and do not extract penalties. The appeals court noted though that DSHS controls the licensing of companies and individuals seeking to sell hemp products and has been given legislative authority to issue fines for violating licensing rules as set forth by The Department.
• Despite this, the court found the appellees had shown injuries traceable to the Commissioner’s amendments to the schedules of controlled substances and that enjoining the effectiveness of the modifications could redress these injuries.

Ultra Vires Claim:

• The Department and Commissioner challenge the jurisdiction over the ultra vires claim against the Commissioner, arguing it lacks merit and seeks impermissible retrospective relief. This kind of claim is made when it’s believed that a government official has acted beyond their legal authority or powers. In this case, it’s argued against the Commissioner.
• The Department and the Commissioner are defending against this claim by saying that the Commissioner acted within her legal rights or powers according to a specific section of Texas law (Section 481.034(g) of the Texas Health & Safety Code).
• However, the text also notes that Texas law recognizes ultra vires claims for prospective injunctive relief against government officials in their official capacities. That means the Texas law does allow for these kinds of claims (ultra vires) to be made, but mainly when seeking a specific type of remedy known as “prospective injunctive relief.” This basically means asking a court to order the government official to stop doing something wrong moving forward, rather than trying to fix or penalize past wrong actions. So, in simple terms, the Department and Commissioner are saying “We didn’t do anything wrong, and the complaint against us is asking for something not allowed.” On the other hand, there’s a recognition in Texas law that claims like this can be made if they are about stopping wrong actions from continuing in the future.

APA (Administrative Procedure Act) Claim:

• The Department and Commissioner challenge the jurisdiction over the APA claim, arguing that the Commissioner’s actions are not subject to an APA rule challenge.
• They argue that the schedules have the force of legislative action and that the October 2021 statement on the Department’s website is valid, not a rule, and has no legal effect.
• The text outlines the criteria under which an APA claim can be made, explaining the need to challenge the ‘validity’ or ‘applicability’ of a rule under the APA and how such a rule or its application interferes with or impairs appellees’ legal rights or privileges.
• The jurisdictional inquiry centers on whether the Department’s challenged statement and modifications constitute a rule under the APA and if so, whether they interfere with or impair appellees’ legal rights or privileges.

At the end, the appellate court affirmed the trial court’s decisions, stating the trial court did not err in concluding it had jurisdiction over the appellees’ APA claim against the Department. DSHS claimed it had sovereign immunity from claims against it, and that appelles had no standing making the trial court outside the jurisdiction of the case.

The appeals court also agreed with the trial court on the issuance of a temporary injunction, acknowledging there was some evidence to support the trial court’s finding of probable, imminent, and irreparable injury in the interim.

So what does this mean?

The verdict signifies that state agencies must adhere to the established rule-making procedures as stipulated under the APA when making substantial changes that could impact personal rights or businesses.

DSHS had made claims at trial that the agency was able to skip over specific rules in given circumstances to change the state controlled substances list, and was allowed to add substances as they saw fit. But according to the verdict, the executive commissioner is required to adopt a rule to control a substance after considering certain statutory factors, indicating that the legislature intended for rule-making to occur to adopt such a rule. This implies that any action to control a substance like delta-8 THC should be carried out within the framework set by the legislature and following the proper rule-making procedures as laid out in the APA. The only time that a procedure outside of the legislative direction can take place is when the federal controlled substances list changes and the state has to adopt a new list to be in line with the federal list.

DSHS is given authority to object to changes when the federal list changes, and if DSHS had wished to keep delta-8 on the list it should have objected to the change and kept it in place. Even with that taking place, the agency would have been required to change the list again when the legislature changed the list by law using HB 1325 to exclude hemp of 0.3%THC(delta-9) and its derivatives.

The Texas legislature legalized hemp for the state in 2019 and wrote very specific language as to what was allowed. Delta-8 is a substance naturally found in hemp and could be considered a derivative of the plant. the legislature did not explicitly direct DSHS to pick substances it believed to be of issue within the plant and govern control of such substances as approved or not.

Will it go to the state supreme court?

There’s no absolute or definitive answer right now, though the likelihood is no. The AG office had initially asked the state supreme court to remove an injunction hear the case, of which in doing so skipped over the appeals court to request this. The result was the injunction was kept in place and directed to follow the path of going to the appeals court. Given the outline of the verdict, it’s highly doubtful that the state supreme court would reverse a decision that could wind up setting precedent that a 4th branch agency can usurp the power over it governed by the state legislature. The likelihood is that they may not take it unless there is a specific part of the case they want to overturn.

As well, given recent events that concern the AG he may not pursue this avenue as his attorney during the impeachment trial was Tony Buzbee. Buzbee has financial interest in ensuring that cannabinoids in Texas stay in place under the Texas hemp program.