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The Loser Pays (Sometimes) - Texas Legislature Passes Judicial Reforms | Jackson Walker - JDSupra
One of the most hotly-contested topics of the current legislative session has been whether to adopt provisions requiring unsuccessful litigants to pay the attorneys' fees of their opponents. On May 25, 2011, the Texas House concurred with the Senate's amendments to H.B. 274, which contains several significant judicial reforms, including certain versions of this "loser pays" concept. The bill is currently awaiting Governor Perry's signature. Although many of the "loser pays" provisions that were originally proposed have been substantially altered (or removed altogether) during the bill's journey through the legislature, the final product will impact Texas litigation practice in a number of ways.
May 27, 2011ResourcesJW Litigation PracticeAreaJW LitigationAttorneysJW LitigationPublicationsContact JWwww.jw.comOfficesAustin100 Congress AvenueSuite 1100Austin, TX 78701Dallas901 Main StreetSuite 6000Dallas, TX 75202Fort Worth777 Main StreetSuite 2100Fort Worth, TX 76102Houston1401 McKinney StreetSuite 1900Houston, TX 77010San Angelo301 W. BeauregardAvenueSuite 200San Angelo, TX 76903San Antonio112 E. Pecan StreetSuite 2400San Antonio, TX 78205 The Loser Pays (Sometimes) -TexasLegislature Passes Judicial ReformsBy William D. EllermanOne of the most hotly-contested topics of the current legislativesession has been whether to adopt provisions requiring unsuccessfullitigants to pay the attorneys' fees of their opponents. On May 25,2011, the Texas House concurred with the Senate's amendments toH.B. 274, which contains several significant judicial reforms,including certain versions of this "loser pays" concept. The bill iscurrently awaiting Governor Perry's signature. Although many of the"loser pays" provisions that were originally proposed have beensubstantially altered (or removed altogether) during the bill'sjourney through the legislature, the final product will impact Texaslitigation practice in a number of ways.I.SUMMARY OF RELEVANT PROVISIONSH.B. 274 will amend certain provisions of the Texas GovernmentCode and the Civil Practice and Remedies Code, and it will requirethe Texas Supreme Court to make some changes to the Rules ofCivil Procedure. The form of any rules of civil procedure to beadopted will be referred to the Supreme Court Advisory Committee,which is chaired by our partner, Chip Babcock. The rules enactedby H.B. 274 will apply to all civil actions filed on or after September1, 2011 (excluding application of certain of its provisions to FamilyCourt actions). The most significant changes that this law will maketo Texas litigation practice are summarized below.A. Rules Allowing for the Early Dismissal of Actions Until now, and differing from most states, Texas has had nocounterpart to a Federal Rule 12(b)(6) motion to dismiss for failureto state a claim. H.B. 274, however, requires that a similarmechanism be adopted in the Texas Rules of Civil Procedure. Specifically, the new law directs the Supreme Court to adopt rules ofcivil procedure "to provide for the dismissal of causes of action thathave no basis in law or in fact on motion and without evidence."82nd Leg., R.S., H.B. 274, § 1.01. The law further requires that anysuch motions be determined within 45 days of their filing. Id. Theparticular rules to be implemented under this mandate will fallwithin the rulemaking authority of the Texas Supreme Court.Differing substantially from Federal Rule 12(b)(6) practice, however,H.B. 274 imposes a "loser pays" penalty in conjunction with themotion to dismiss procedure. In particular, H.B. 274 contains anamendment to Chapter 30 of the Texas Government Code thatrequires trial courts to award attorneys' fees to parties whosuccessfully prosecute or defend motions to dismiss. According tothe new law, if a trial court grants or denies, "in whole or in part," amotion to dismiss, "the court shall award costs and reasonable andnecessary attorney's fees to the prevailing party." Id. at § 1.02(emphasis added). Thus, under this provision, trial courts will berequired to award fees to defendants who successfully obtaindismissal, or to plaintiffs who successfully avoid it. The obviousintent of this provision is to deter plaintiffs from filing frivolouslawsuits, while simultaneously discouraging defendants from seekingto dismiss meritorious ones. Because these mandatory fee awardsare a two-way street, it remains to be seen whether defendants inTexas state courts will avail themselves of this procedure asregularly as in federal courts.B. Amendments to the Offer of Settlement Statute Chapter 42 of the Texas Civil Practice and Remedies Code allowsparties to recover some amount of their attorneys' fees and costs(which would not otherwise be recoverable) if (1) they make asettlement offer that complies with the requirements of the statute,and (2) the judgment that is ultimately rendered is "significantly lessfavorable to the rejecting party than was the settlement offer." Tex.Civ. Prac. & Rem. Code § 42.003-004 (Vernon 2008). The amountof fees that are recoverable are capped, so that they may notexceed 50% of a plaintiff's economic damages or 100% of anynoneconomic or exemplary damages. Id. at § 42.004(d). The effectof this law is that any fees that a defendant may recover will nevercome out of a plaintiff's pocket; rather, they will simply be offsetagainst the plaintiff's recovery. In the instance of a take-nothingjudgment, a successful defendant cannot recoup any amount offees.As originally proposed, H.B. 274 would have made sweepingrevisions to Chapter 42 by completely eliminating the caps onrecovery of attorneys' fees, thus subjecting unsuccessful plaintiffs tothe risk of personal liability for defendants' fees. However, partieson both sides of the debate over this controversial aspect of the billappear to have reached a compromise in the final version. Aspassed, H.B. 274 does not eliminate the caps on recovery of fees—itmerely expands them. Now, rather than prohibiting the recovery offees that exceed 50% of a plaintiff's economic damages, Chapter 42will provide that any fees to be awarded "may not be greater thanthe total amount that the claimant recovers." 82nd Leg., R.S., H.B.274, § 4.04 (to be codified at Tex. Civ. Prac. & Rem. Code §42.004(d)). The net effect of this is that plaintiffs who rejectqualifying settlement offers will face the risk of having their entirerecovery offset, but they still will not be required to pay any amountof fees that exceed their total recovery (or any fees whatsoever inthe event of a take-nothing judgment).C. Rules Allowing for Interlocutory AppealsInterlocutory appeals are allowed only in very narrowcircumstances. In one such circumstance, the Texas Civil Practiceand Remedies Code permits interlocutory appeals of orders thatinvolve "controlling question[s] of law as to which there is asubstantial ground for difference of opinion." Tex. Civ. Prac. & Rem.Code § 51.014(d) (Vernon 2004). The only catch is that the currentlaw prohibits a trial court from certifying such an appeal unless theparties to the case agree to it. Id. at § 51.014(d)(1). H.B. 274,however, removes that impediment, allowing a trial court to permitan interlocutory appeal on a motion by any party, or on its owninitiative. 82nd Leg., R.S., H.B. 274, § 3.01 (to be codified at Tex.Gov't Code § 51.014(d)). Appellate courts would have the discretionto accept or reject such an appeal. Id. at § 51.014(f). This changein the law appears to bring Texas procedure in line with federalprocedure, which allows interlocutory appeals in similarcircumstances. See 28 U.S.C. § 1292(b) (2006).D. Rules Requiring Certain Actions to be ExpeditedH.B. 274 directs the Texas Supreme Court to adopt rules of civilprocedure that will facilitate the prompt resolution of certainactions. Specifically, the contemplated rules would require that anyaction in which the amount in controversy does not exceed $100,000be expedited, and that discovery costs in such actions be lowered. Id. at § 2.01 (to be codified at Tex. Gov't Code § 22.004(h)). Theparticulars of implementing this directive will fall to the SupremeCourt, under its rulemaking authority.E. Rules Governing the Designation of Responsible ThirdPartiesFinally, H.B. 274 contains amendments designed to close aperceived loophole in the procedure of designating "responsible thirdparties." Currently, the Texas Civil Practice and Remedies Codepermits the joinder of responsible third parties even if such joinderwould otherwise be barred by a statute of limitations. Tex. Civ.Prac. & Rem. Code § 33.004(e) (Vernon 2008). H.B. 274 revisesthat provision, such that limitations can bar a defendant fromjoining a responsible third party, but only if the defendant failed totimely disclose the party as a potential responsible third party inaccordance with the Texas Rules of Civil Procedure. 82nd Leg.,R.S., H.B. 274, § 5.01 (to be codified at Tex. Civ. Prac. & Rem. Code§ 33.004(d)). II.CONCLUSIONH.B. 274 makes a number of changes to Texas litigation practice;however, the scope of its impact remains to be seen, and it isunclear at this point whether it will have any material effect on thenumber of lawsuits filed in Texas. For instance, while many wouldargue that the motion to dismiss procedure is long overdue in Texas,the automatic "loser pays" provisions might serve as a deterrent tofiling those motions in all but the most egregious of circumstances. Undoubtedly, many defendants will opt to pursue summaryjudgment instead, since that procedure poses no risk of a feepenalty if unsuccessful. If you have any questions about this e-Alert, please contact RettaMiller at 214.953.6035 or rmiller@jw.com or William D.Ellerman at 214.953.6033 or wellerman@jw.com.If you wish to be added to this e-Alert listing, please SIGN UPHERE. 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