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Texas' "loser pays" law mixed bag for business

State's new tort reform bill is designed to make litigation faster and less costly.

Texas Governor Rick Perry made tort reform a cornerstone of his campaign when he was elected in 2000. Under his leadership, the state has passed caps on noneconomic damages in medical malpractice cases, asbestos and silica litigation reforms and multidistrict litigation procedures to take matters away from plaintiff-friendly courts.

But Perry wasn’t content to stop there. He was after the holy grail of tort reform—a loser-pays law. Common in Europe but unprecedented stateside, a loser-pays system requires the loser to shoulder the prevailing party’s court costs and legal bills. And Perry almost made it happen when the Texas House of Representatives passed H.B. 274 in May. The statute would have made Texas the first state to shift the burden of litigation to the losing party, erecting a major barrier to plaintiffs without the financial wherewithal to risk incurring massive legal bills.

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.

“I like the mandatory award of fees for the prevailing party on a motion to dismiss,” says Brad Parker, director of legislative affairs for the Texas Trial Lawyers Association. The Association originally opposed the loser-pays bill, but it did not object to the version that was passed. “This will prevent defense attorneys from filing motions unless they really believe they’re meritorious,” Parker adds.

Adele Nicholas

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