A Look at Texas' Loser Pays System
There was a lot of speculation in the comments to my Doomsday Post last week that the Republican controlled government in Mississippi will push for the Legislature to enact “loser pays” laws similar to what Texas recently enacted. Here is a link to an article in Inside Counsel Magazine that discusses the Texas “loser pays” law.
The article states:
The most significant feature of the 2011 Omnibus Tort Reform Bill is a modified loser-pays proposition that shifts fees to the loser when a case is disposed of on a motion to dismiss. While Perry has publicly touted the law as a landmark reform that will attract businesses to the state and allow employers “to spend less time in court and more time creating jobs,” the statute may prove to be a mixed blessing, and it certainly won’t deliver a deathblow to the plaintiffs bar.
I did not know that before this law, Texas did not have provisions that allow defendants to file a motion to dismiss that challenges the legal sufficiency of the allegations in the complaint:
Prior to passage of the latest tort reform bill, Texas was one of only eight states that didn’t permit parties to file motions to dismiss, which challenge the legal sufficiency of the allegations in the complaint. Not only does the new law create a motion-to-dismiss procedure, but it also makes it mandatory that the loser pays the winner’s fees for litigation of the motion. This has two advantages for businesses—courts can quickly dispose of meritless lawsuits prior to costly discovery, and a company can force the plaintiff who filed the case to foot the bill for the motion.
But the Texas “loser pays” provision goes both ways:
The flip side is that the loser-pays provision goes both ways. If a defendant files a motion to dismiss on which the plaintiff ultimately prevails, the defendant will be paying plaintiffs counsel’s bills. Many think the provision ultimately favors the plaintiffs bar.
The Texas provision also affects offers of judgment:
Finally, the reform attempts to encourage both sides of a dispute to settle cases before trial by clarifying the rules for making an offer of judgment. Similar to Federal Rule of Civil Procedure 68, the Texas law permits a party to protect itself from incurring additional legal fees early on by making a reasonable settlement offer or demand.
Under the new rule, if a plaintiff obtains a jury verdict of 80 percent or less of the settlement offer made by the defendant prior to trial, the defendant is entitled to its legal fees incurred after the date of the settlement offer, up to the total amount of the verdict. Likewise, if the plaintiff obtains a verdict of 120 percent or more than his settlement demand, the plaintiff is entitled to recover fees incurred after the demand was made. The statute also permits the prevailing party to recover costs associated with taking depositions, such as court reporter fees.
My Take:
I haven't formed an opinion yet on the offer of judgment aspect of the Texas rule. But how in the name of God's green earth could a state not have a rule that allowed a defendant to file a motion to dismiss? That's about as screwed up feature of litigation as I have ever heard. An early motion to dismiss allows a defendant to obtain dismissal in a case that does not state a viable claim. You've got to have that rule in the books.
In my opinion, this provision in the Texas form of “loser pays” would not hurt good plaintiff lawyers and their clients, so long as it does not change the legal standards for deciding a motion to dismiss. That standard is that the court must assume that all allegations in the complaint are true. Good plaintiff lawyers will hardly ever—if ever—lose a motion to dismiss with that standard.
If I am on the defense side of a case, I do not want this law on the books. If I am defending a case I want to be able to file a motion to dismiss without having to pay attorney's fees to the plaintiff lawyer if I lose.


