Texas “Loser Pays” Law

As business lawyers in Houston, Texas, we are often asked about the rights of defendants in litigation.  You may have read or heard in recent news that Texas legislators were debating about a “Loser Pays” law or “the English Rule” dealing with litigation in Texas.  The “Loser Pays” law passed and was signed into law on May 30, 2011 and becomes effective on September 1, 2011.  The law enhances defendants’ rights in litigation in Texas state courts.  The law changes some of the procedural rules of Texas litigation and also allows for the recovery of attorney’s fees under certain circumstances.  The “Loser Pays” law provides a new procedural vehicle for disposal of cases and the award of attorneys fees in Texas.  Additionally, the “Loser Pays” law amends the current Civil Practice and Remedies Code Chapter 42 provisions regarding the award of litigation costs after an offer of settlement.

The law directs the Texas Supreme Court to adopt new rules that provide for the dismissal of causes of action that have no basis in law or fact on motion and without evidence.  In a civil proceeding, on the court’s granting or denial, in whole or in part, of a motion to dismiss, the court must award costs and reasonable attorney’s fees to the prevailing party.

Additionally, the “Loser Pays” law amends the Texas Civil Practice and Remedies Code (“CPRC”) regarding offers of settlement.  Chapter 42 of the CPRC allows for the award of litigation costs to an offering party incurred after a settlement offer is rejected and the judgment to be rendered is significantly less favorable (20% or more less favorable) to the rejecting party than was the settlement offer.  For example, if a plaintiff offers to settle for $100,000.00, the defendant rejects the offer, and plaintiff gets a judgment in the amount of $120,000.00 or higher, the plaintiff is awarded litigation costs.  Likewise, if a defendant offers to settle for $100,000.00, the plaintiff rejects the offer, and plaintiff gets a judgment of $80,000.00 or less (but greater than $0.00), the defendant is awarded its litigation costs, to be offset from the amount of the plaintiff’s judgment.

The “Loser Pays” law amends the CPRC limit on the amount of litigation costs that may be awarded.  Previously the maximum amount of litigation costs that could be recovered was computed by (1) determining the sum of: (a) 50% of the economic damages to be awarded to the claimant in the judgment; and (b) 100% of the noneconomic and exemplary or additional damages to be awarded to the claimant in the judgment; and (2) subtracting from the amount determined under part (1) the amount of any statutory or contractual liens in connection with the occurrences or incidents giving rise to the claim.  The “Loser Pays” law amends the limit, providing that the litigation costs awarded under the Chapter 42 of the CPRC may not be greater than the total amount the claimant recovers or would recover before adding an award of litigation costs or subtracting an offset of litigation costs.  This change increases the amount that can be recovered as litigation costs.  Essentially, litigation costs can potentially be awarded to plaintiffs in an amount up to the total amount of the judgment (before litigation costs are added).  Similarly, litigation costs can potentially be awarded to defendants in an amount up to the total amount of the judgment (before litigation costs are subtracted).

The current CPRC definition of “litigation costs” includes (1) court costs; (2) reasonable fees for not more than two testifying expert witnesses; and (3) reasonable attorney’s fees.  The new law adds reasonable deposition costs to “litigation costs”.  The procedure for making a settlement offer pursuant to the CPRC remains unchanged.  A CPRC settlement offer must still: (1) be in writing; (2) state that it is made under Chapter 42 of the CPRC; (3) state the terms by which the claims may be settled; (4) state a deadline by which the settlement offer must be accepted; and (5) be served upon all parties to whom the settlement offer is made.  The new law specifies that the parties are not required to file the settlement offer with the court.
The “Loser Pays” law provides the basis for a new procedural vehicle for disposal of cases and the award of attorneys fees in Texas.  The Texas Supreme Court will have to promulgate new rules before the law is implemented.  Additionally, the “Loser Pays” law amends the current Civil Practice and Remedies Code Chapter 42 provisions regarding the award of litigation costs after an offer of settlement.  Litigants should be aware of these changes and adjust their tactics accordingly.