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Legislative Update – Texas Enacts Additional Tort Reform
By: Robert Booth, Attorney, Mills Shirley LLP

In December 2010, on the eve of the 82nd Legislative Session, Governor Perry proposed more tort reform, the centerpiece being a British-style “loser pays” rule that would require the losing party to pick up the other side’s legal costs. For his efforts, Governor Perry received a glowing editorial endorsement in the Wall Street Journal. However, many small businesses opposed the reforms because it would hamper their ability to enforce rights against their bigger brethren. Additionally, some lawyers, still reeling from the 2003 tort reform and a downturn in the legal market, were less than enthusiastic over the prospect of legislation calling for the client and attorney to be jointly and severally liable for losing in court.

After many months of the sausage making process, Governor Perry signed House Bill 274, which will become law on September 1, 2011. The bill includes the following reforms:

1. Expedited Motions to Dismiss with Cost Shifting

The bill amends the Government Code to direct the Texas Supreme Court to adopt rules to provide for the early dismissal of causes of action that “have no basis in law or fact” upon a no-evidence motion. The rules must provide that the motion should be granted or denied within 45 days of filing and that the court shall award costs and attorneys fees to the prevailing party. Given the cost shifting, a litigant will have to be very confident before filing the motion to dismiss. This is the provision that allowed the Governor to have a sound bite that he signed a loser pays provision into law, but this is far from the British-style system that was initially proposed.

The Texas Supreme Court has a rule making committee at work, and it is possible that it will produce rules similar to Federal Rule 12(b)(6). Importantly, Texas will be the first jurisdiction to combine a motion to dismiss with cost shifting, so we can certainly expect to see something different from just a reprint of the Federal Rule.

A key issue for the rule making process will be whether it will be possible to re-plead causes of action to avoid motions to dismiss.

2. Expedited Civil Actions for Disputes Involving Less than $100,000

The bill directs the Texas Supreme Court to adopt rules to allow for expedited trials for disputes in district, county, and probate courts involving less than $100,000. It is likely this will be an opt-in process and will severely limit depositions to just a few witnesses.

3. Interlocutory Appeals on Controlling Questions of Law

Article 3 of the bill provides for interlocutory appeals on a controlling question of law. Upon a party’s or even the court’s motion, the court may permit an appeal from an order that is otherwise unappealable if the order involves controlling issues of law for which there is substantial ground for difference of opinion and the immediate appeal may materially advance the ultimate termination of the litigation. The interlocutory appeal does not stay proceedings in the trial court unless the parties agree to a stay or the trial or appellate court orders a stay. This provision does not apply to family law cases. The final bill does not contain a cost-shifting award for interlocutory appeals. As such, it is possible that civil litigators will see more appeals in cases.

4. Offer of Settlement with Cost Shifting

The bill amends the offer of settlement provisions under Texas Civil Practice and Remedies Code Section 42. The bill changes the limits on litigation costs that a party can receive upon rejection of a written offer of settlement that is favorable when compared to the ultimate verdict. Litigation costs that may be awarded to any party may now not be greater than the total amount that the claimant recovers or would recover before adding an award of litigation costs in favor of the claimant or subtracting as an offset an award of litigation costs in favor of the defendant. The bill also allows the recovery of deposition costs as an element of litigation costs. Given that the offer of settlement procedure is rarely used because it is often difficult to predict a jury’s verdict within 20 percent, it is unlikely these changes will have a material effect on the practice of law.

5. Designation of Responsible Third Parties

Currently, under Texas Civil Practices and Remedies Code Section 33.004(e), when a party designates a responsible third party, the plaintiff has a 60 day window to join the third party regardless of limitations. Over the years, two primary concerns have developed. First, the statute allows for collusion between parties to add parties who would otherwise benefit from limitations. Second, given the abrogation of limitations, defendants could be forced to defend suits without the benefit of documents or witnesses because they relied on the limitations period for document retention policies.

The bill amends 33.004(e) to allow designations after the expiration of limitations, but a designation is not allowed if the “defendant has failed to comply with its obligation, if any, to timely disclose that the person designated may be designated as a responsible third party under the Texas Rules of Civil Procedure.” Essentially, if a party knew about the existence of a responsible third party before the expiration of limitations, but did not timely disclose the responsible third party’s identity, then the designation is not allowed. Additionally, a plaintiff is no longer able to affirmatively join a responsible third party to the action if the limitations period with respect to the responsible third party has expired.

Robert Booth practices with Mills Shirley LLP and focuses on civil litigation in Houston and Galveston involving construction and contract disputes.