The case is today's Hartzell v. S.O. (majority opinion by Justice Lehrmann); the court concludes the power is implicit in the statutory scheme authorizing the Texas public university systems, though it also holds that the university must provide due process before revoking a degree. There's also a short concurrence by Justice Boyd, and a long dissent by Judge Blaylock. An excerpt from the dissent:
The only resource in Texas legal history bearing on the question presented is a 1969 Attorney General Opinion, with which I largely agree. The Attorney General Opinion concludes that a state university wishing to rescind a graduate's degree must do what any other regretful grantor of property must do to rescind the grant. It must ask a court to require the property's return. That is correct. A party seeking rescission of someone else's property is quite obviously not managing its own internal affairs. It is seeking to manage the affairs of the party resisting its claims, and for this it typically needs the judicial power of a court. Nor is it exercising a power that flows naturally from the power to confer the property in the first place. The power to bestow something of value on another normally does not entail the power to unilaterally take it back. This kind of "self-help" remedy is rarely found in the law. It is so rare that I would expect it to be stated clearly in the governing statutes if the Legislature indeed gave it to universities.
An excerpt from the majority's response:
Further, the Attorney General's conclusion that a "[c]ourt of competent jurisdiction" is the only appropriate forum for revocation of a degree is inconsistent with our recognition that "[j]udicial interposition in the disciplinary decisions of state supported schools raises problems requiring care and restraint." The need for such restraint is particularly acute when those disciplinary decisions involve the exercise of academic judgment…. "[C]ourts are ill equipped to evaluate the academic judgment of professors and universities" … The Attorney General opinion also ignores the fact that conferring a degree amounts to a continuing certification regarding the recipient's fulfillment of the university's requirements. That characteristic distinguishes revocation of a degree from rescission of other transactions requiring court intervention, like a sale of property.
And an important note about the limited question the court was resolving:
[T]he University officials rely solely on events that transpired while K.E. and S.O. were students in pursuit of their respective degrees as the basis for revoking those degrees. The University officials do not claim, and for good reason, that they may take such action against K.E., S.O., or any other former student based on conduct occurring after a degree is conferred. Instead, they argue that they may rescind a degree upon determining that it was not earned—and thus should not have been awarded—in the first place. We thus consider only whether the University officials may revoke the degrees of former students who are found to have engaged in academic misconduct while enrolled at the Universities.
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