Kensington Title-Nevada, LLC v. Texas Department of State Health Services

Supreme Court of Texas
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No. 23-0644
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Kensington Title-Nevada, LLC,
Petitioner,

v.

Texas Department of State Health Services,
Respondent

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On Petition for Review from the
Court of Appeals for the Third District of Texas
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Argued December 5, 2024

JUSTICE BUSBY delivered the opinion of the Court.

Section 2001.038(a) of the Administrative Procedure Act allows a
plaintiff to seek a declaratory judgment regarding the validity or
applicability of an administrative rule without going through an agency
proceeding. In this case, we address when a plaintiff has standing to
seek a declaration regarding a rule’s applicability and what kinds of
applicability declarations are within the scope of the statute’s waiver of
immunity.
The rule at issue here prohibits possession of radioactive material
without a license. The plaintiff landowner seeks a declaration that the
rule does not apply to it, alleging that radioactive personal property
located on its land is owned and held by other parties who are licensed.
This declaration would redress the agency’s efforts to fine the landowner
for violating the rule, so we hold the landowner has standing. In
addition, because the landowner seeks a declaration regarding whether
the rule applies at all, we hold it has alleged a proper rule-applicability
challenge within the scope of the statute. We therefore reverse the court
of appeals’ judgment dismissing the suit for lack of subject-matter
jurisdiction and remand for further proceedings.

BACKGROUND

In December 2018, Kensington Title-Nevada, LLC, a Nevada-
based real estate company, acquired real property in Denton, Texas
after foreclosing on a lien granted by the previous owners, NuView Life
Sciences, Inc. and NuView Molecular Pharmaceuticals, Inc. Located on
the real property was radioactive personal property owned by US
Radiopharmaceuticals, Inc. (USR). The personal property included a
linear accelerator and cyclotron for creating medical radioisotopes,
which are used to diagnose and treat cancers and other illnesses. That
use had ceased in 2009, and NuView and USR were unable to reopen
their business due to financial issues and unpaid property taxes. Earlier
in 2018, the Texas Department of State Health Services had denied
USR’s application for a radioactive material license and ordered USR to
begin decommissioning and properly disposing of the radioactive
material.

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Before foreclosing on the real property, Kensington warned the
Department that it intended to do so and that it anticipated USR might
abandon the radioactive material on the property. Kensington asked
the Department to accept possession of the radioactive material to
complete decommissioning, but the Department declined. Kensington
then proposed a decommissioning plan to the Department under which
Kensington would pay a Department-licensed contractor to remove the
material. The Department approved the plan and issued the contractor
a license to clean up the material. The contractor obtained a key to
access the radioactive material on the property and began to clean up
the material. Kensington did not have a key, and the Department
declined to provide access to Kensington.
During this time, there was a pending suit by the City of Denton,
Denton County, and Denton Independent School District against USR
concerning unpaid taxes on the radioactive personal property. In
April 2019, the taxing entities added Kensington as a party to the suit.
In July, the court in that case rendered judgment against USR and
authorized the taxing entities to request an order to sell USR’s business
personal property. The taxing entities did not act on their judgment
liens. Instead, according to Kensington, they threatened to sue
Kensington for theft if its contractor continued to remove USR’s
business personal property. At that point, Kensington’s contractor
ceased decommissioning activities before they were completed.
In October 2020, the Department sent Kensington a “Notice of
Violation” of Title 25, Section 289.252(a)(2) of the Texas Administrative
Code. This licensing rule provides that “[u]nless otherwise exempted,

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no person shall manufacture, produce, receive, possess, use, transfer,
own, or acquire radioactive material except as authorized by . . . a
specific license” to conduct an approved activity using the radioactive
material. 25 TEX. ADMIN. CODE § 289.252(a)(2). The Department sought
an administrative penalty of $8,000 against Kensington, alleging that
Kensington took possession of radioactive material, did not complete
decommissioning in a timely manner, and did not have a license for the
radioactive material.
Kensington was thus caught between the conflicting demands of
the government. Kensington could (1) continue decommissioning
radioactive material it did not own that had been abandoned on its real
property and risk being sued by the taxing entities holding a lien on that
material; or (2) cease decommissioning the radioactive material and be
forced to pay fines to the Department for violating the licensing rule.
Furthermore, the land was useless to Kensington so long as the
radioactive material remained there as Kensington could neither lease
nor redevelop it.
In response to the Department’s notice, Kensington amended its
pleading in the ongoing Denton County tax dispute in January 2021,
adding a cause of action against the Department under the
Administrative Procedure Act to declare the licensing rule inapplicable.
Kensington relied on Section 2001.038(a) of the Act, which provides:
“The validity or applicability of a rule . . . may be determined in an
action for declaratory judgment if it is alleged that the rule or its
threatened application interferes with or impairs, or threatens to

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interfere with or impair, a legal right or privilege of the plaintiff.” TEX.
GOV’T CODE § 2001.038(a).
Kensington asserted that because it was not a licensee of USR
and did not own or possess the radioactive material, the licensing rule
relied on by the Department did not apply to Kensington. This claim
under Section 2001.038(a) of the Act was later severed and transferred
to Travis County on the Department’s motion.
The Department’s notice of violation and Kensington’s suit under
the Act then proceeded on parallel tracks. The notice was referred for a
contested case hearing in February 2021. In her proposal for decision,
the administrative law judge found that Kensington “possessed” the
radioactive material without a license in violation of the rule because it
“exercised dominion” and “actual control” over the material by
(1) “hiring contractors to prepare a decommissioning plan [approved by
the Department] and start decommissioning . . . the [material] through
its [Department-licensed] contractor”; and (2) “controlling access to [the
material]” by “hir[ing] a caretaker to ensure security of the [real
property]” and “arrang[ing] and le[ading a] tour” of the property. The
Department offered no evidence that the tour group or anyone else
without a Department license accessed the radioactive material.
The ALJ recommended a $7,000 penalty, the Department issued
a final order adopting the ALJ’s findings and conclusions, and
Kensington sought judicial review. That proceeding has been abated.
Meanwhile, the Department filed a plea to the jurisdiction in
Kensington’s Section 2001.038(a) suit, arguing that Kensington
improperly challenged the Department’s application of the rule rather

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than the applicability of the rule. Kensington amended its petition to
request the following declarations:
[The Department] may not attempt to force owners of real
property to accept liability for radioactive materials
abandoned on their real property or assert that owners are
possessors of radioactive materials when such materials
are so abandoned. Thus, [the Department]’s rules
regarding radioactive materials do not apply to such
owners of real property, which includes Kensington.
....
[The Department] may not create “accidental licensees” to
force owners of real property to decommission radioactive
materials abandoned on their property. Further, [the
Department] exceeds its statutory authority when
asserting that its rules apply to Kensington and attempts
to force Kensington to decommission such equipment.
The trial court denied the Department’s plea, but the court of
appeals reversed, holding that Kensington failed to allege a proper rule-
applicability challenge under Section 2001.038(a) because a party must
challenge whether a rule is capable of being applied to a factual
situation, not how it should be applied to that situation. See 704 S.W.3d
16, 18-19 (Tex. App.—Austin 2023). The court observed that although
Kensington sought a declaration regarding whether the rule applies to
non-licensees, it merely argued that it did not own or possess the
radioactive materials without disputing that the rule could apply to an
entity other than itself. Id. The court concluded that Kensington thus
failed to plead a proper rule-applicability challenge as required to waive
the Department’s immunity. Kensington then filed a petition for review,
which we granted.

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ANALYSIS

In this Court, the Department challenges Kensington’s Section
2001.038(a) action on two grounds. First, the Department argues that
the district court lacked subject-matter jurisdiction over the suit
because Kensington has no standing. Second, the Department asserts
that Kensington’s challenge improperly asks the Court to declare how
the rule applies to its fact situation and therefore falls outside the scope
of the statute and is barred by sovereign immunity.
We disagree on both grounds. We begin by addressing the
requirements for standing to bring a Section 2001.038(a) action. Then
we examine whether Kensington alleged a proper rule-applicability
challenge as required to waive the Department’s sovereign immunity.

I. Kensington has standing to bring a Section 2001.038(a)
action.

“Subject matter jurisdiction requires that the party bringing the
suit have standing, that there be a live controversy between the parties,
and that the case be justiciable.” State Bar of Tex. v. Gomez, 891 S.W.2d
243, 245 (Tex. 1994); see also Tex. Ass’n of Bus. v. Tex. Air Control Bd.,
852 S.W.2d 440, 443-46 (Tex. 1993). To have constitutional standing, a
party must show that it is personally injured, the injury is fairly
traceable to the defendant’s conduct, and the injury is likely to be
redressed by the requested relief. Heckman v. Williamson County, 369
S.W.3d 137, 155 (Tex. 2012).
The Department argues that Kensington lacks standing because
its injury—the Department’s notice seeking an $8,000 penalty—is
unlikely to be redressed by the requested relief. In particular, the

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Department contends that Kensington’s requested declarations would
not negate the grounds on which the ALJ concluded that Kensington
“possess[ed]” radioactive material in violation of the licensing rule.
We disagree with the Department’s limited view of standing in
the context of a Section 2001.038(a) action. The statute permits parties
to bring an action for declaratory judgment “if it is alleged that the rule
or its threatened application interferes with or impairs, or threatens to
interfere with or impair, a legal right or privilege of the plaintiff.” TEX.
GOV’T CODE § 2001.038(a). Kensington’s petition includes factual
allegations that, if proven, would show interference or impairment: that
even though Kensington “has never been a licensee of [the Department]
or taken possession of radioactive material in any way,” the Department
“seeks an administrative penalty against Kensington in the amount of
$8,000.” Such a threatened out-of-pocket loss “is a prototypical form of
injury in fact.” Mosaic Baybrook One, L.P. v. Simien, 674 S.W.3d 234,
251 (Tex. 2023) (quoting Collins v. Yellen, 594 U.S. 220, 243 (2021)).
Kensington also requests a declaration that the licensing rule
does not apply to it, which would redress the Department’s threat to fine
it for violating the rule. For standing purposes, it is unnecessary for us
to consider whether the declaration as initially pled would fully negate
each detail of the ALJ’s later findings and conclusions regarding the
rule’s application to Kensington in the separate administrative
proceeding. Section 2001.038 authorizes a “court [to] render a
declaratory judgment without regard to whether the plaintiff requested
the state agency to rule on the validity or applicability of the rule in
question.” TEX. GOV’T CODE § 2001.038(d). Nor does redressability turn

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on which party is right about whether Kensington has alleged a proper
rule-applicability challenge under the statute, as that question—which
we address next—goes to the merits rather than to subject-matter
jurisdiction. See Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d 763, 774
(Tex. 2020). For these reasons, we conclude Kensington has standing.

II. Sovereign immunity is waived because Kensington
alleged a proper rule-applicability challenge.

Sovereign immunity generally bars suits against the State or its
subdivisions absent a waiver. Texas Dep’t of Transp. v. Sefzik, 355
S.W.3d 618, 620-21 (Tex. 2011). Section 2001.038 waives sovereign
immunity by expressly providing for a declaratory judgment action to
determine the validity or applicability of a rule and requiring that “[t]he
state agency . . . be made a party.” TEX. GOV’T CODE § 2001.038(c); see
City of El Paso v. Heinrich, 284 S.W.3d 366, 373 n.6 (Tex. 2009); Wichita
Falls State Hosp. v. Taylor, 106 S.W.3d 692, 697-98 (Tex. 2003). Thus,
whether the Department can prevail on its plea to the jurisdiction turns
on whether Kensington’s action is within the scope of the statute.
In several cases, including this one, the court of appeals has
attempted to define the scope of an authorized declaratory judgment
regarding the “applicability of a rule” by distinguishing between the
rule’s applicability and its application. 1 We conclude this distinction is
not well grounded in the statutory text, which uses the terms

1 704 S.W.3d at 19-20; see also, e.g., LMV-AL Ventures, LLC v. Tex. Dep’t

of Aging & Disability Servs., 520 S.W.3d 113, 124-25 (Tex. App.—Austin 2017,
pet. denied); Texas Alcoholic Beverage Comm’n v. D. Houston, Inc., No. 03-13-
00327-CV, 2017 WL 2333272, at *2 (Tex. App.—Austin May 25, 2017, pet.
denied).

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interchangeably. Specifically, the statute provides that an
“applicability” challenge concerns whether the rule’s actual or
“threatened application” would harm the plaintiff in one or more of the
specified ways. TEX. GOV’T CODE § 2001.038(a).
But another way the court of appeals has described an
applicability challenge is perhaps more intuitive: the statute applies if
the plaintiff challenges whether a rule applies to it, but not if the
plaintiff challenges how that rule applies to it—that is, the plaintiff
disputes what the correct outcome should be when the rule is applied to
it. See LMV-AL Ventures, LLC v. Tex. Dep’t of Aging & Disability Servs.,
520 S.W.3d 113, 124-25 (Tex. App.—Austin 2017, pet. denied). For
example, in LMV-AL Ventures, a memory care facility sought a
declaratory judgment under Section 2001.038 to compel the Texas
Department of Aging and Disability Services to license thirty rooms for
double occupancy. Id. at 117. The Department had concluded the rooms
did not qualify under its rule setting minimum dimensions for
double-occupancy rooms. Id. The court of appeals held the facility’s
claim was not a valid one under Section 2001.038 and therefore
rendered a judgment of dismissal for want of jurisdiction. Id. at 125.
The court explained that the facility had not sought a declaration of
whether the rule applied to it, but rather a determination whether the
Department complied with the rule in applying it to the facility. Id.
We observe that the language of Section 2001.038 is taken almost
verbatim from Section 7 of the 1961 Model State Administrative

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Procedure Act. 2 All fifty states have a statute allowing plaintiffs to sue
in court to challenge agency rules. Of the twenty-one other states that
have adopted statutes like ours authorizing court challenges to the
validity as well as the applicability of administrative rules, 3 only one
other state—Arkansas—has explicitly adopted this whether versus how
distinction. Much like the court of appeals here, the Arkansas Supreme
Court relied on Black’s Law Dictionary and the Oxford English
Dictionary to hold that “[t]he applicability of a rule is different from the
application of a rule.” Ark. Dep’t of Fin. & Admin. v. Naturalis Health,
LLC, 549 S.W.3d 901, 907 (Ark. 2018). In that case, the court held that
the plaintiff improperly sought a declaration that the application of the
state agency’s rules was “improper, unfair, and arbitrary” rather than
challenging the applicability of a rule or seeking a declaration regarding
whether the rules should have been applied. Id.
To decide this case, we need not adopt the court of appeals’
whether versus how understanding of the scope of Section 2001.038(a)
applicability claims. 4 But we agree with that court’s conclusion in

2 MODEL STATE ADMIN. PROC. ACT § 7 (UNIF. L. COMM’N 1961).

3 See ALA. CODE § 41-22-10; ARK. CODE § 25-15-207(a); CONN. GEN.
STAT. § 4-175; IDAHO CODE § 67-5278(1); 5 ILL. COMP. STAT. 100/5-150; LA.
STAT. § 49:968(A)(1), (D); MICH. COMP. LAWS § 24.264; MONT. CODE § 2-4-
506(a); NEV. REV. STAT. § 233B.110(1); N.H. REV. STAT. § 541-A:24; N.M. STAT.
§ 12-8-8(A); N.Y. A.P.A. LAW § 205; N.C. GEN. STAT. §§ 150B-4, 150B-43-45;
OHIO REV. CODE § 199.12; OKLA. STAT. TIT. 75, § 306(A); 42 R.I. GEN. LAWS
§ 42-35-7; S.C. CODE § 1-23-150; S.D. CODIFIED LAWS § 1-26-14; TENN. CODE
§ 4-5-225; UTAH CODE § 63G-3-602; VT. STAT. TIT. 3, § 807.
4We also note that the Fifteenth Court of Appeals will hear future
appeals in Section 2001.038(a) declaratory judgment actions. See Act of
May 21, 2023, 88th Leg., R.S., ch. 459, § 1.10, sec. 2001.038(f), 2023 Tex. Sess.

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LMV-AL Ventures that, at minimum, applicability challenges under
Section 2001.038(a) include suits seeking a declaration of whether a rule
applies to the plaintiff. We also recognize that some proper applicability
claims may, in seeking a declaration of whether a rule applies, also yield
guidance on how the rule would apply or the outcome of its application.
Beyond that, we express no view regarding the extent to which
Section 2001.038(a) includes declarations about how a rule applies to
the plaintiff.
Applying this understanding of Section 2001.038(a) here, we
conclude that Kensington has alleged an applicability claim within the
statute’s scope. Kensington sought a declaration that owners of real
property are not “accidental licensees” or “possessors of radioactive
materials when such materials are . . . abandoned” on their property,
and an “adjudication regarding whether [Department] rules apply at all
to non-licensees” in this situation. In other words, Kensington asked the
trial court to declare whether the licensing rule, which applies to (among
others) those who possess radioactive personal property, can be applied
to a non-licensee who simply owns real property on which radioactive
material was abandoned. These allegations present one of the core
factual scenarios covered by Section 2001.038(a), which expressly allows
parties who do not believe an administrative rule governs them to
challenge its applicability in a judicial proceeding when that rule
threatens to interfere with their rights. Kensington thus pled a proper

Laws. That court is not bound by precedent of the Third Court of Appeals. See
Dallas Area Rapid Transit v. Amalgamated Transit Union Loc. No. 1338, 273
S.W.3d 659, 664-65 (Tex. 2008).

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rule-applicability challenge within the scope of the statute’s immunity
waiver.
The court of appeals disagreed, holding that the statute is limited
to determining whether a rule is “relevant to a factual situation” in
“some way” and noting that Kensington itself argued the licensing rule
applied to some other entity. 704 S.W.3d at 19-20. In the court’s view,
“whether Kensington may be viewed as possessing the radioactive
personal property is irrelevant for these purposes because the only
permissible judicial inquiry is whether the Rule applies to the factual
scenario—the possession of radioactive personal property by an entity
that lacks a proper license.” Id. at 20.
This analysis misunderstands the nature of a declaration under
Section 2001.038(a). Nothing in the text indicates that the statute
applies only if it is alleged that the rule is irrelevant to anyone in the
factual situation at hand; it authorizes a declaration when it is alleged
that a rule or its threatened application would interfere with “a legal
right or privilege of the plaintiff.” TEX. GOV’T CODE § 2001.038(a)
(emphasis added).
The court of appeals also reasoned that “the Rule applies to the
factual situation . . . and therefore Kensington has not presented a
proper rule-applicability challenge.” 704 S.W.3d at 20. This reasoning
improperly collapses the threshold question whether Kensington alleged
a proper rule-applicability challenge into the separate merits question
of how that challenge should be resolved, using the latter to answer the
former. Moreover, the court assumed the answer to the merits question,
summarily concluding that the rule applies because this case involves

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“possession of radioactive personal property by an entity that lacks a
proper license.” Id. That is the very disputed applicability question
presented by this petition: whether Kensington—the only unlicensed
entity involved—possessed the radioactive personal property. The trial
court did not err in concluding that Section 2001.038 gave it jurisdiction
to answer that question, and we will remand for the court to do so.
The Department, for its part, argues that the question whether
Kensington “possessed” the radioactive material involves factual
disputes that should be decided in an administrative proceeding
followed by judicial review. Indeed, it points out that the issue was
already litigated in Kensington’s SOAH contested case proceeding and
the ALJ found that Kensington had exercised control over the
radioactive material. The court of appeals agreed, concluding that “the
question of who possesses the radioactive personal property . . . should
be resolved in the context of an administrative contested-case hearing”
so that the agency can “exercise its discretion and apply its expertise.”
Id.
These efforts to invoke concepts of primary jurisdiction and
exhaustion of administrative remedies are misplaced. As we have
already explained, the statute expressly authorizes a “court [to] render
a declaratory judgment without regard to whether the plaintiff
requested the state agency to rule on the validity or applicability of the
rule in question.” TEX. GOV’T CODE § 2001.038(d). 5 And the court’s
authority to resolve factual disputes relevant to such a challenge is

5 See also Pieter M. Schenkkan, When and How Should Texas Courts

Review Agency Rules?, 47 BAYLOR L. REV. 989, 1036 (1995).

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confirmed by the Legislature’s recent addition of subsection (f), which
allows the Fifteenth Court of Appeals to direct the trial court to conduct
any necessary evidentiary hearings in connection with the challenge.
Id. § 2001.038(f).
For these reasons, we hold that Kensington pled a proper
rule-applicability challenge under Section 2001.038(a). The trial court
should resolve the merits of that challenge on remand.

CONCLUSION

We hold that the court of appeals erred by reversing the trial
court’s order denying the Department’s plea to the jurisdiction. We
reverse the court of appeals’ judgment dismissing Kensington’s suit for
lack of subject-matter jurisdiction, and we remand the cause to the trial
court for further proceedings.

J. Brett Busby
Justice

OPINION DELIVERED: March 28, 2025

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