Loser-Pays Bill Clears Texas House

State Rep. Craig Eiland (r), D-Galveston, speaks against HB274 the lawsuit reform bill as Rep. Brandon Creighton, R-Conroe, listens on May 9, 2011.
State Rep. Craig Eiland (r), D-Galveston, speaks against HB274 the lawsuit reform bill as Rep. Brandon Creighton, R-Conroe, listens on May 9, 2011.

Texas got one step closer today to becoming one of the few states with a rule that awards legal fees to prevailing parties in lawsuits. 

After House Republicans "called the question" Saturday — suspending all debate to slap down Democratic efforts to derail the legislation on technicalities — HB 274, from Rep. Brandon Creighton, R-Conroe, got initial approval from the body. This afternoon, it passed the lower chamber on third reading. Now it goes on to the Senate. 

The bill enacts a modified loser-pays rule that allows winning parties to recover litigation costs in breach of contract suits or if a judge grants a motion to dismiss. (On the floor, Creighton offered an amendment, which was accepted, that would make it only apply in situations in which parties have not already made an contractual attorneys' fees arrangement.) It directs the Texas Supreme Court to create a procedure for the early dismissal of certain civil claims and expedites the discovery process for cases with claims between $500 and $100,000. And, most objectionable to some Democrats and the plaintiff's bar, it contains a provision that awards attorneys' fees to defendants if they make an offer to settle, and it's turned down — if the jury finds for the plaintiff and makes an award less than 80 percent of the initial settlement offer.

Current law allows defendants to recover attorneys' fees in that scenario — but it limits the amount defendants can recover to less than whatever the plaintiff finally wins. Creighton's legislation removes that limit. 

For example, if a defendant made a settlement offer of $100,000 and the plaintiff rejected it, then went on to win the suit, but only with an award of $79,000, that would mean the plaintiff would have to pay the opposing party's legal costs — even if that added up to more than the final award. That prompted Rep. Craig Eiland, D-Galveston, to dub the legislation the "the loser pays and sometimes the winner pays, too" bill.

Rep. Roland Gutierrez, D-San Antonio, also succeeded in tacking on a "tax relief" amendment that would require appraisal districts to pay attorneys' fees to plaintiffs who successfully contest property tax rates — at the protest of Rep. Tracy King, D-Batesville, who argued that the burden on appraisal districts would actually result in higher taxes at the county level. 

Proponents of lawsuit reform, including Gov. Rick Perry, who praised loser pays in his February State of the State address and on Friday added tort reform to his list of emergency items, say loser-pays rules help keep junk lawsuits out of court. HB 274's provisions, they say, would create a more streamlined judicial system and encourage reasonable and fair settlement negotiations. 

But many in the legal community believe loser-pays provisions obstruct all litigation — without regard to merit — and keep those with plausible legal claims from seeking justice. Civil rights advocates also say loser-pays rules unfairly target the poor because they add a greater financial risk to bringing litigation. And legal scholars aren't persuaded that a frivolous lawsuit problem even exists. According to Charles Silver, a professor at the University of Texas School of Law, no serious academic study outside of the context of securities class actions has found it to be an issue in the U.S.

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