Value of Texas ‘Loser Pays’ Statute Questioned

A law in Texas that assigns court costs to “losers” in cases deemed to be “frivolous” is not all that effective, says one Austin-based attorney.

Joanna Salinas, partner and manager of the Austin-based law firm of Fletcher, Farley, Shipman & Salinas, questioned the value of the law in a presentation before insurance adjusters recently in Scottsdale, Ariz.

The Texas “Loser Pays” statute, which went into effect Sept. 1, 2011, allows a judge to declare an early dismissal of a lawsuit. If a judge throws out a case because it has “no basis in law or fact,” the court may award attorneys’ fees to the prevailing party.

It applies to breach of contract claims; it also applies to offers of settlements, Salinas said. According to Salinas, the defendant in a case has to invoke the process by making a settlement offer that is not accepted, trial has to occur, and the plaintiff has to receive less than 120 percent of the offer.

Reasonable and necessary attorney fees are considered from the date of offer. While the plaintiff gets cash added onto the judgment, the defendant only gets a credit. Salinas said this might come in handy if the case is a loser, but that’s at the risk of attorney fees exposure.

“Where’s the upside?” she asked. “In reality, it [loser pay statute] is useless.”

Within this statute the legislature also recommended the Supreme Court create rules to address non-meritorious claims by potentially dismissing them early on in litigation. This isn’t hard to do, Salinas said. If an insurer has competent defense counsel assigned to the case, dismissal of an obvious frivolous lawsuit should be considered early on anyway.

The statute also addresses the extraordinary costs of litigation, Salinas said. Lawmakers want to make litigation easier and more efficient, especially in smaller cases, targeting cases with a monetary value between $10,000 and $100,000 for inclusion in an expedited process. According to Salinas, there hasn’t been any agreement on whether inclusion in the process would be mandatory or voluntary.

Salinas foresees problems with the proposed expedited process. Because the values stated in a complaint are determined by the plaintiff pleadings, she said adjusters should expect to receive complaints with damage pleadings above the monetary value range in order to avoid participation in the expedited case process.

For cases involving a question of law, there’s been a rule change relating to the permissive interlocutory appeal process, Salinas said. The Texas Legislature approved the amendment to the rules last year. The trial court can now state a request for an interlocutory review in the order. Parties have 15 days to file a petition with the court of appeals stating their reasoning for such a request. According to the rules, the petition must be no more than 15 pages in length.