Fred Schultz Personal Injury Law Blog on Lawyers.com

“LOSER PAY” LAWS ARE A GIMIC –

AND IGNORE OUR OWN TRADITIONS

Texas Governor Rick Perry recently signed into law a tort reform bill that drastically reshapes the civil justice system in that state.  The new law requires plaintiffs who lose civil lawsuits to pay the attorneys’ fees of defendants and punishes plaintiffs who do not accept settlement offers, in certain circumstances.  Make no mistake; the real intent of this law is to discourage legitimate claims by injured people, not “frivolous” ones.  It is not surprise that this law comes out of Texas, as Texas has already instituted major changes in tort law over the last decade, including changing their state constitution to allow artificial caps on non-economic damages in medical malpractice cases.  In other words, the people of Texas were conned into narrowly voting to give up their own rights to hold bad doctors accountable for the full measure of the harm they cause.

Some provisions of the law bring Texas in line with other states. For example, the law introduces a procedure called a “motion to dismiss” into the state’s civil procedure rules. Before the new law, trial court judges were limited in the way they could dismiss meritless lawsuits early in the process. Forty-two other states have similar provisions on the books, including Indiana.  These types of procedures are actually legitimate ways to eliminate claims with little or no merit.

Unfortunately, the Texas law does not stop there.  Instead, the Texas legislature went “where very few other states have gone,” by requiring plaintiffs who lose in court to pay the attorney fees of the defendants.  The law also contradicts hundreds of years of jurisprudence in America.  The “American Rule”—rejected and replaced by the new Texas law—has long recognized that facilitating access to the civil justice system for all litigants (regardless of wealth) was more important than reaching the correct result in any one case on the awarding of attorneys’ fees. In fact, in 1796, the U.S. Supreme Court declined to award attorneys’ fees to the winning party because it went against the “general practice of the United States.”

Proponents of the new law claim it will increase efficiency and rid the state legal system of frivolous lawsuits. The sponsor of the bill in the Texas House of Representatives, Brandon Creighton, argues that the law will “make a party think twice about bringing a case without merits.”  Governor Perry adds, “Employers will spend less time in court and more time creating jobs.”

Critics respond that the law will prevent injured plaintiffs with legitimate claims from being made whole in court.  These critics assert that the new law “takes away rights from the injured” and “attempts to limit access to our civil courthouse.”  Individuals with valid, but not guaranteed, claims may never file a lawsuit because they simply cannot afford to lose with their limited financial means, or are intimidated by the very thought of paying the other side’s fees.

Joanne Doroshow, executive director of the Center for Justice and Democracy, explains, “This is not about frivolous lawsuits; it’s about blocking legitimate lawsuits. So if you or your child is injured as a result of corporate wrongdoing and even if you have a strong case, you probably won’t ever bring that case because of the economic devastation you might face if you lose.”  Doroshow contends that the argument in favor of the new law rests on an inaccurate assumption that the legal system is full of frivolous lawsuits. “There’s absolutely no evidence of that,” she says.

Governor Perry put the passage of the new law on his list of “emergency items,” but legal scholars contend there is little indication that frivolous litigation was a problem in Texas. Charles M. Silver, a professor at the University of Texas School of Law, reports that no serious academic study has found frivolous litigation to be a significant problem in the United States (outside of an isolated area of law in securities class actions). Silver says it’s “just ridiculous” to think that, before the new law, plaintiffs were filing suits that were not “overwhelmingly meritorious.”

Trial court judges in Texas certainly weren’t clamoring for additional tort reform.  An article in a law journal in Texas found that 86 percent of Texas trial court judges opined there was no need for additional tort law reforms after a law passed in Texas in 2003 that placed strict caps on damages awards. "Those judges are not shy about asking for additional tools to resolve cases if they need them," personal injury attorney Earl Drott says.  Drott acknowledges that tort reform law is “complicated and misleading” but important to the lives of both liberals and conservatives alike. "I have represented many conservatives and small business owners who are aghast when tort reform is applied to them and they find out how unfair it is and how different it is than the way that was presented to them," he says.

The new law also includes a second provision that severely punishes a plaintiff for rejecting a settlement offer that is greater than what the judge or jury ultimately awards in the case at trial.  Specifically, the new law requires plaintiffs who reject a settlement offer, and later win a verdict at trial, to pay the defendant’s attorneys’ fees if the amount of trial verdict is less than the original settlement.

One legal scholar illustrated the provision of the law this way: “Consider a person who has been hurt in a car accident and sues an insurance company for $100,000. The insurance company invokes the Texas ‘Loser Pays’ rule with the newly passed amendments to the state law and offers $80,000. The injured person, or plaintiff turns the offer down and decides to opt for a jury trial, where he is awarded $50,000 by the jury. But the accident victim would not recover that $50,000, because the insurance company incurs an additional $25,000 in attorney's fees by going to trial.  The newly enacted revisions to the Texas law states that the accident victim would not receive that full amount—instead, he would get $25,000. The other $25,000 of the settlement would go toward the insurance company lawyer's fees and other court costs associated with that trial.”  The new provisions of the law that works to shift costs to prevailing plaintiffs can “wipe out” an entire award and leave the plaintiff with nothing.

Texas State Representative Craig Eiland, who opposes the new law, put in context this second provision of the new law with a real-life example from his former law practice. "This is not just the loser pays bill. This is the loser pays, and sometimes the winner pays," Eiland explains. He tells the story of a client of his who rejected a settlement offer of $80,000 “because it contained a confidentiality clause that the client believed would prevent him from clearing his name of a crime he said he didn't commit.” The case went to trial, and Eiland's client eventually won $75,000, just under the original settlement offer with the confidentiality clause. Under the new law, Eiland’s client would be forced to pay the defendant’s legal fees, even though the plaintiff won at trial. "I don't think that's right,” Eiland declared.

Fortunately, the law was moderated slightly towards the end of the legislative session.  A compromise provision allows the plaintiff to collect attorney fees from the defendant’s insurance carrier if the plaintiff beats the final offer to settle by 20%.  So, if the final offer is $100,000 and the plaintiff recovers $120,000 or more, then the plaintiff can invoke the new law and collect their attorney fees. 

The Texas law could become even more relevant to the lives of Hoosiers, as some commentators have speculated that the move in Texas will “blaze the trail” for governors in other states to push “loser pays” laws.  Check back at this blog for updates on this and other issues of civil justice in Indiana.