Loser Pays? New Texas Legislation

House Bill 274, colloquially called the Loser Pays act, goes into effect September 1, 2011. H.B. 274 § 6.02. The act is not retroactive, so it will only apply to suits brought on or after the effective date. Id. § 6.01. The act has five primary sections that will impact our practice: 1. early dismissal of actions; 2. expedited civil actions; 3. appeal of controlling question of law; 4. allocation of litigation costs; and 5. designation of responsible third parties.

1. Early Dismissal of Actions

The act amends Section 22.004, or the Government Code, to require the Texas Supreme Court to “adopt rules to provide for the dismissal of causes of action that have no basis in law or fact on motion and without evidence.” Id. § 1.01. The court will have to rule on the motion within 45 days. Id. In conjunction, the act amends Chapter 30 of the Civil Practice and Remedies Code to require courts to “award costs and reasonable and necessary attorney’s fees to the prevailing party” of a motion under Section 22.004. Id. § 1.02. The requirements to comply with this section are unknown right now because the supreme court has not promulgated rules under Section 22.004 yet.

2. Expedited Civil Actions

The act also amends Section 22.004 to require the supreme court to “adopt rules to promote the prompt, efficient, and cost-effective resolution of civil actions” in which damages are $100,000 or less. Id. § 2.01. Again, the supreme court has not promulgated these rules yet.

3. Appeal of Controlling Question of Law

The act gives trial courts the power to permit an appeal of an order under Section 51.014 of the Civil Practice and Remedies Code that involves “a controlling question of law as to which there is substantial ground for difference of opinion” and “an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Id. § 3.01. The act goes on to provide another judicial check for appellate courts in that the appellate court has discretion on whether or not to accept the appeal. Id. Therefore, the practical effect is the new motion that will be available under Section 51.014(d).

4. Allocation of Litigation Costs

The act amends the allocation of litigation costs under the “offer of settlement” rule. Section 42.004(d) will allow both the plaintiff and defendant to recover litigation costs, but the award of litigation costs “may not be greater than the total amount that the claimant recovers or would recover before adding an award of litigation costs under this chapter in favor of the claimant or subtracting as an offset an award of litigation costs under this chapter in favor of the defendant.” Id. § 4.04. The rest of Chapter 42 remains the same for the most part, but reasonable deposition costs are now included in litigation costs. Id. The derogative “Loser Pays and Sometimes Winners Pay Act” title comes from this section because the section removes the limits on the litigation costs imposed under the offer of settlement rule. For example, if a plaintiff wins a lawsuit but has rejected a settlement offer that otherwise fits the requirements to impose litigation costs on the plaintiff under Chapter 42, then the plaintiff may end up owing litigation costs that exceed the award recovered in trial.

5. Designation of Responsible Third Parties

The act prohibits a defendant from designating a person as a responsible third party after the limitations period has expired for the claimant’s cause of action against the responsible third party “if the defendant has failed to comply with its obligations, if any, to timely disclose that the person may be designated as a responsible third party un the Texas Rules of Civil Procedure.” Id. § 5.01. Apparently, the rule is intended to punish defendants that intentionally conceal the identity of responsible third parties until after the limitations period has run thereby eliminating the claimant’s recovery.