Legislature has little appetite to fund Ken Paxton’s settlement with whistleblowers

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Texas lawmakers are facing a choice: approve $3.3 million in state funds to end a lawsuit accusing Attorney General Ken Paxton of improperly firing four whistleblowers or reject an out-of-court settlement — potentially adding millions of dollars in costs while leaving the outcome of the lawsuit to fate in a long-shot attempt to make Paxton pay.

The multimillion-dollar settlement announced in February would resolve a 2-year-old lawsuit that alleges Paxton fired former high-ranking deputies in retaliation for accusing him of using his office to benefit a friend and political donor. The settlement would give the former employees back pay and several other concessions while ridding Paxton of one of several ongoing legal problems.

But in a blow to the former agency executives, lawmakers have shown little appetite to use state funds to help Paxton settle the case.

Plano Rep. Jeff Leach, a Republican who heads the House Judiciary and Civil Jurisprudence Committee, has said he was “troubled” that taxpayers would be on the hook for the settlement. House Speaker Dade Phelan, a Beaumont Republican, said he does not support the use of taxpayer money to settle the lawsuit.

Neither legislative chamber included money for the settlement in the first drafts of the “miscellaneous claims” bill that includes state payments for legal cases.

Richard R. Carlson, a law professor at South Texas College of Law in Houston, said the case is “politically charged like I haven’t seen in a whistleblower case in a long time.”

Paxton, a Republican who won a third four-year term in November, is seen as a vulnerability by many in the Texas GOP because of his multiple legal entanglements. He’s been under indictment for felony securities fraud for seven years, has been sued by the State Bar of Texas for alleged professional misconduct and is being investigated by the U.S. Justice Department for corruption related to the whistleblowers’ allegations.

Paxton has denied wrongdoing.

He’s also a target for Democrats who vehemently oppose his socially conservative politics.

It’s not just lawmakers who oppose using state funds to pay the settlement. Public Citizen Texas, a consumer advocacy group, has set up an online petition urging lawmakers to reject it.

Adrian Shelley, the group’s Texas director, said public dollars should not go toward bailing Paxton out of legal trouble. Paxton, he said, should be held accountable and pay the settlement out of his own funds, not the state’s.

“If there were a settlement that the parties agreed to, particularly one paid for by Paxton, then we would agree there’s a separate resolution,” he said.

But lawyers for both Paxton and the former employees who accused him of crimes say that’s impossible. Under the Texas Whistleblower Act, employees can sue a government agency, not an individual person, for firing them after reporting a crime. That means any fees Paxton would pay must come from state funds, not his own pocket, they argue.

“There is no legal mechanism by which the whistleblowers in this case could hold Ken Paxton personally liable, or recover damages directly from him,” said TJ Turner, an attorney for David Maxwell, who ran the attorney general’s law enforcement division before being fired. “Like it or not, this is how the law works.”

Chris Hilton, a lawyer for the attorney general’s office, told lawmakers the same thing during a committee hearing in February, when Paxton was asked if he’d be willing to pay the settlement out of his campaign fund.

“There is no whistleblower case where an individual has paid anything because the individual is not liable under the terms of the statute,” Hilton said.

That argument has not swayed lawmakers. State Rep. Jarvis Johnson, D-Houston, who asked about the use of campaign funds to pay the settlement, said the former employees should seek “other means” by which to be compensated and that taxpayers should not have to pay for Paxton’s actions.

The apparent impasse at the Legislature has affected the course of the whistleblower lawsuit.

Last month, lawyers for the fired executives asked the Texas Supreme Court to pause the case after both sides worked out a potential settlement, subject to legislative approval.

On Wednesday, they asked the court to resume the case, saying Paxton refused to agree to a May deadline and was trying to “perpetually” stall the case amid the Legislature’s reluctance to fund the settlement.

Lawyers for the former employees said an impasse at the Legislature was troubling and could erode whistleblower protections.

Turner said the 1983 whistleblower law was intended to prevent retaliation against public employees who reported corruption. Refusing to approve the agreement amounted to the Legislature “breaking its promise and turning its back” on whistleblowers, he said.

“The Act encourages public employees to report criminal activity by providing a safety net if their employer retaliates against them,” Turner said in a statement. “If the legislature refuses to approve the settlement, it will be sending a strong message to future public employees who consider reporting public corruption: don’t bother. You’re on your own.”

Carlson said he agrees that future whistleblowers may be deterred from speaking out if the settlement is not approved. Even so, he said he understands the hesitation from lawmakers.

“I am very sympathetic to the whistleblowers, and I think they need to be compensated,” Carlson said. “But I also understand the people in the Legislature who are saying we shouldn’t let this go away without some accounting.”

The whistleblower lawsuit started after eight of Paxton’s former top deputies accused him of corruption in October 2020, alleging that the attorney general had used his position to improperly benefit his friend, real estate investor Nate Paul, who had donated $25,000 to Paxton’s campaign in 2018. All eight of the employees were fired or resigned from the attorney general’s office.

In November 2020, four of those employees — Maxwell, Blake Brickman, Mark Penley and Ryan Vassar — filed a whistleblower lawsuit arguing they had been fired for reporting the alleged crimes.

The whistleblowers alleged that Paxton had done favors for Paul, including helping the Austin businessman gain access to investigative documents related to 2019 searches of Paul’s home and businesses by state and federal authorities. They also claimed that Paxton rushed through a written opinion that said foreclosure sales had to be suspended under pandemic safety rules, allowing Paul to delay a foreclosure sale for one of his properties two days later.

In filings in the case, the whistleblowers alleged that in return, Paul had helped Paxton remodel his home and had given a job to a woman with whom Paxton was allegedly in a relationship. Paxton is married to state Sen. Angela Paxton, R-McKinney.

Paxton and Paul have denied wrongdoing.

Under state law, any legal fees by state agencies that exceed $250,000 must be approved by the Legislature.

The $3.3 million price tag for Paxton’s settlement isn’t unusual.

In 2021, lawmakers approved $2.6 million after losing a case about a state abortion law, and more than $10 million for payments in a lawsuit against the state’s foster care system.

This year, the Legislature is considering paying more than $6 million for its defense of the voter ID law, which lawmakers initially approved in 2011 and courts later found to be unconstitutional, leading to revisions in the law. Joe Knight, an attorney for Vassar, said the voter ID payment was no different than the settlement his client was seeking.

“Not one member of the Legislature has contended that those who voted for the unconstitutional law should pay the State’s debt out of their own pockets,” Knight said in a statement.

“Our case shouldn’t be treated differently,” Knight said. “The State’s liability for [the Office of the Attorney General] wrongfully firing our clients should come from the same funds the Legislature is using to pay for its own members’ conduct in wrongfully enacting an unconstitutional law.”

Turner also criticized lawmakers for opposing the settlement.

“They say they want to save taxpayer money, but they gave the office of the Attorney General a $1.3 billion budget which includes $43 million for outside lawyers” to handle an antitrust lawsuit against Google, Turner said.

Prior to the departure of top agency staff, staff lawyers were handling that case.

The state has spent $600,000 defending Paxton in the whistleblower case. Hilton said the $3.3 million settlement, which would cover back pay and lawyer fees, is in the state’s financial interest. If the Legislature rejected the agreement, the case would continue and the state could potentially end up paying more than $3.3 million, even if Paxton were to win, he said. That could lead to a scenario in which lawmakers would be asked to approve another legal resolution in the future, only with a higher price tag.

“Financially speaking, there is no upside for the state to this case,” Hilton added. “Even total vindication at trial results in a significant expenditure.”

In 2013, state lawmakers approved a $1 million payment in a whistleblower case against the Texas Youth Commission that involved only one plaintiff. Paxton’s lawsuit has four plaintiffs.

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