Understanding the Third Court of Appeals Decision in the Texas Attorney General Whistleblowers Case

In October 2020, seven top officials at the Texas Attorney General’s Office (OAG) reported potential criminal conduct by Attorney General Ken Paxton to the FBI and Travis County District Attorney’s Office.

• They were: the First Assistant Attorney General, Deputy First Assistant Attorney General, Deputy Attorney General for Policy & Strategy Initiatives, Deputy Attorney General for Civil Litigation, Deputy Attorney General for Legal Counsel, Deputy Attorney General for Administration and Deputy Attorney General for Criminal Justice.

First Assistant Attorney General Jeffrey Mateer resigned upon reporting Mr. Paxton’s alleged misconduct. Others were fired, or resigned in the face of alleged harassment conducted by OAG personnel at Paxton’s request.

Four of the former officials filed a whistleblower lawsuit against the OAG, which it moved to dismiss, arguing it was immune because Ken Paxton was not “a public employee” as required by the whistleblower statute. The OAG further asserted the whistleblowers had failed to make a good-faith report of illegal conduct.

• A Travis County trial court refused to dismiss the whistleblowers’ action but allowed an immediate appeal of that decision pursuant to a statutory change advocated by TLR allowing an immediate appeal of a controlling question of law.

On Oct. 21, 2021, Texas’ Third Court of Appeals confirmed that Paxton is, in fact, an employee of the state of Texas. The court also found that the whistleblowers made a good-faith report of criminal conduct. 

• According to the appeals court, the entire matter revolves around Paxton’s relationship with real estate developer Nate Paul.
• The whistleblowers alleged that Paul and a law firm PAC representing his interests each donated $25,000 to Paxton’s campaign, that Paul employed a woman with whom Paxton had an alleged extramarital affair, and that Paul or his entities assisted in a major remodeling project at Paxton’s home.

The backstory on Nate Paul:

• By 2019, at least 16 of Paul’s entities had filed for bankruptcy, foreclosure proceedings related to more than a dozen of his entities had begun and he was being investigated by the FBI and other law enforcement agencies.
• In August 2019, the FBI obtained warrants to search Paul’s home and offices. Appellees alleged that starting in 2019, Paxton used OAG resources in Paul’s favor and improperly interfered in Paul’s civil disputes and criminal matters.

According to the court of appeals, the allegations fall into four categories:

1. Paxton pressured OAG employees to release information to Paul related to Paul’s ongoing criminal investigations. Paul sent open records requests to state agencies asking for information from criminal investigators. One of the whistleblowers informed Paxton his directives “would overturn decades of settled expectations among sister law enforcement agencies, compromise the OAG’s own law enforcement information, and likely spark innumerable lawsuits challenging the newly announced application of the law.”

• • Paxton “personally took” the OAG’s file, “which included documents sealed by a federal court,” and kept it for about a week. He then instructed OAG personnel to take no position on whether the documents should be released.

2. Paxton forced the OAG’s Charitable Trust Division to intervene in a lawsuit against Paul, “for the purpose of exerting pressure on the Mitte Foundation to settle on terms favorable” to Paul. “So intense and bizarre was Paxton’s desire to help Nate Paul,” that two of the whistleblowers “had to talk Paxton out of personally attending and appearing” in the trial court hearing the case, which would have been “unprecedented” given that Paxton “has not appeared in any court on behalf of the OAG in the memory of any of [the whistleblowers], if he ever has.”

3. Paxton asked whether COVID-19 restrictions on in-person gatherings should prevent foreclosures. Paxton “made clear he wanted the OAG to express a specific conclusion: that foreclosure sales should not be permitted to continue.”

• • The whistleblowers said Paxton was “adamant” and characterized his personal interest in the issue as “surprising” and “bizarre.”
  • “Even more bizarre was the speed and timing of the release of the opinion Paxton sought.” It was released around 1:00 a.m. on Sunday, Aug. 2, 2020, stopping several foreclosure sales of Paul’s properties on August 4.

4. Paul filed a criminal complaint with the Travis County DA against federal and state law enforcement officers, an assistant U.S. attorney and the federal magistrate who signed warrants to search Paul’s property. The DA referred the matter to the OAG for investigation. After OAG staff concluded that Paul’s criminal complaint was baseless and sought to close the investigation, Paxton attempted to have the OAG hire an outside lawyer to investigate Paul’s allegations.

• • OAG attorneys refused to approve the contract because of a lack of credible evidence to support Paul’s claims. In a meeting with Paxton, the OAG lawyer reiterated he “could not in good conscience approve the contract” because there was “no factual basis for the absurd investigation ordered by Nate Paul of the FBI agents and federal prosecutor involved in obtaining search warrants for Paul’s home and offices.”
  • Paxton apparently signed the contract anyway, and the outside lawyer proceeded to issue subpoenas to gather documents and testimony, claiming to be a “Special Prosecutor” authorized to represent the OAG.