When a Texas regulator takes a position with serious consequences for a business, the administrative proceeding may not be the only place to challenge it. In some disputes involving agency rules, Texas law allows a business to go directly to court without waiting for the agency process to end.
The Texas Supreme Court clarified that option in Kensington Title-Nevada, LLC v. Texas Department of State Health Services. The Texas Department of State Health Services accused Kensington of violating a licensing rule and sought a financial penalty. Kensington disputed whether the rule applied to it. Rather than wait for the agency process to run its course, Kensington invoked Section 2001.038 of the Texas Administrative Procedure Act and took the rule question directly to court. Kensington Title-Nevada, LLC v. Texas Department of State Health Services, 710 S.W.3d 225, 226–33 (Tex. 2025). Section 2001.038 reflects a legislative choice to provide direct access to the courts for certain disputes over agency rules: it authorizes challenges to a rule’s validity or applicability without requiring the plaintiff to ask the agency to decide the question first. Tex. Gov’t Code § 2001.038(a), (d).
The ability to put a threshold rule question before a court can have practical consequences for the cost and scope of a regulatory dispute. An ordinary administrative appeal generally comes only after the agency has developed a record and issued its decision. But if the dispute turns on whether the agency’s rule is valid or applies to the business at all, Section 2001.038 may allow that threshold question to reach a court without waiting for the entire administrative process to run its course.
Before committing substantial resources to the administrative process, counsel should identify whether the dispute is primarily about the facts, how the agency is applying its rule, or a threshold question about the rule itself. Not every disagreement with an agency qualifies for a direct court challenge, and going to court will not always be the most efficient strategy. But Section 2001.038 should be part of that early assessment rather than something considered only after the Texas agency has issued its final decision.
