Texas “Loser Pays” Lawsuit Reform Signed Into Law

We previously reported on our blog about Texas’ aim to follow the English Rule that requires the loser of a civil suit to compensate the winner for his or her attorney’s fees. At the end of May, Texas Governor Rick Perry signed the Texas “Loser Pays” bill into law, after both Texas Houses adopted the ‘Loser Pays’ lawsuit reform.

Under the new law, a plaintiff must pay the winning party’s legal fees if the complaint is found to be groundless. The law creates expedited civil actions for cases less than $100.000 and allows judges to dismiss meritless lawsuits early in the process. It is now on Texas Supreme Court to define and to adopt rules for early dismissal of lawsuits that have no basis in law or fact.

Although the new law is not the groundbreaking “Loser Pays” system that some believed, it should result in fewer frivolous lawsuits, lower litigation costs, and release more capacity for legitimate claims. The reactions before and after signing of the bill were and are very controversial and especially the question whether the bill is good for small businesses are assessed differently.

Supporters point out the new bill will help to create jobs, still allow legitimate cases to proceed but protect defendants from meritless cases. And, if Texas “Loser Pays” law leads to fewer tort lawsuits overall, small business owners should see a drop in those numbers. Some trial lawyer groups oppose the bill, claiming it would give corporations the upper hand in lawsuits, especially in situations where a dispute arises between a small business owner and a company that has more resources. The law might also prevent individuals who want to file a lawsuit, because people would not risk paying the defendant’s legal fees.

The Texas “Loser Pays” law will go into effect on September 1, 2011.

(c) Picture: Texas Legislature Online

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Reinhard von Hennigs