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Article of Interest

“Loser Pays” Bill Provides New Weapons, But Also New Risks
By: Daniel Elms & Heath Cheek, Bell Nunnally & Martin LLP

On May 30, 2011, Texas Governor Rick Perry signed House Bill 274, described as a “loser pays” reform bill designed to lower litigation costs.  HB 274 provides Texas litigators with several new tools, but practitioners should be wary of the risks involved.

I. Motion to dismiss

HB 274 provides Texas’s first ever motion to dismiss mechanism.  Tex. H.B. 274, 82nd Leg., R.S. at § 1.01 (2011).  The proposal currently before the Texas Supreme Court limits its application to those claims that:

(1) are “not warranted by existing law or by a reasonable argument for the extension, modification, or reversal or existing law or the establishment of new law;” and 

(2)  “no reasonable person could believe that the material allegations are true.”  Inadmissible, TEXAS LAWYER, November 28, 2011, at 3

The Legislature built in a dangerous provision, however, that provides a mandatory award of attorneys’ fees to the “prevailing party” on a motion to dismiss.  Tex. H.B. 274 at § 1.02.  Thus, a motion to dismiss should be filed only when there is a strong likelihood of victory, because if the movant loses, it will be responsible for the opposing party’s attorneys’ fees for defending against the motion.  This mandatory fees provision will most likely put a chilling effect on the use of motions to dismiss in Texas.  Most litigators will probably continue to use special exceptions and/or motions for summary judgment to reach the same result without the risk of paying the other side’s attorneys’ fees.

II. Expansion of settlement offer award

The settlement offer award provision under Texas Civil Practice & Remedies Code Chapter 42 has been in existence since 2003, but is rarely invoked.  Chapter 42 provides that a party who makes a reasonable settlement offer is entitled to a mandatory attorneys’ fees award in the event the other side rejects the offer and the final judgment is within 120% of the offer (if defendant is the rejecting party) or 80% of the offer (if plaintiff is the rejecting party).  TEX. CIV. PRAC. & REM. CODE § 42.004.  Any attorneys’ fees award is offset against awarded damages, subject to a cap of 50% of economic damages and 100% of non-economic and punitive damages.  To take advantage of Chapter 42, a party must opt in.  Id. at § 42.003.  The provision is designed to encourage the early settlement of cases and to give parties an incentive to accept reasonable offers of settlement. 

HB 274 modifies Chapter 42 by raising the cap on the amount of fees that can be awarded.  Tex. H.B. 274 at § 4.04.  Now, the entire damages award may be offset by the attorneys’ fees awarded under Chapter 42.  Chapter 42 is rarely used, however, because if a party opts in, it risks an award of attorneys’ fees against it if the opposing party also opts in.  Unfortunately, the changes to Chapter 42 by HB 274 do nothing to alleviate this concern and, therefore, the changes are unlikely to increase the use of Chapter 42.

III. Expedited appeals of controlling questions of law

The Legislature also modified the rules to allow for expedited interlocutory appeals of “questions of law as to which there is a substantial ground for difference of opinion.”  Id. at § 3.01.  The discretion to allow the interlocutory appeal is vested with the trial court.  This provision would presumably be available only in circumstances where the trial court’s ruling on the issue did not dispose of all claims and parties and where the trial court is willing to allow an appellate court to review its decision on a key legal issue while the remainder of the case is ongoing.

IV. Expedited disposition and lower discovery costs for cases under $100,000.

Finally, the Legislature asked the Texas Supreme Court to develop procedures that both lower costs and expedite discovery for cases with less than $100,000 in controversy.  Id. at § 2.01.  The Supreme Court has appointed a task force that recently provided its recommendations to the Supreme Court Advisory Committee.  Look for the Supreme Court to extend Discovery Control Plan Level 1 to these cases and possibly add other restrictions on discovery and trial length.  Depending on the rules ultimately issued, this provision could be a powerful tool to lower the costs associated with small dollar figure cases. 

CONCLUSION

While HB 274 purports to add new weapons to Texas litigators’ arsenal, most of the provisions are so weakly designed that they are likely unusable in all but a small number of cases. 

This article originally appeared in the January 2012 issue of The Dicta and has been reprinted with the permission of the authors and the Dallas Association of Young Lawyers.