House sends ‘loser pays’ bill to Senate

One key change involves home valuation disputes.

By Chuck Lindell

The Texas House on Monday approved a watered-down version of “loser pays” legislation that seeks to add financial penalties for filing frivolous lawsuits.

The bill, approved largely on a party-line vote, could impose a hefty penalty on lawsuit winners, leading to a tongue-in-cheek Democratic amendment to rename it the Loser Pays and Sometimes the Winners Pay Act.

And, thanks to a floor amendment whose passing surprised many, the bill heads to the Senate with a bonus for homeowners who successfully contest property tax appraisals: their court costs and attorney fees would be paid by the losing appraisal district.

Gov. Rick Perry praised the bill, saying it moves Texas “one step closer to implementing a loser pays system that will help expedite legitimate legal claims and crack down on junk lawsuits.”

Perry declared the bill a legislative emergency last week after Democrats temporarily derailed it on a parliamentary technicality known as a point of order.

As originally introduced, the bill would have created a true loser pays system — lawsuit losers would have to pay the other side’s court costs and lawyer fees.

But House Bill 274 was changed in committee to assess legal fees against somebody who files a lawsuit that is tossed out under a so-called motion to dismiss for failing to state a valid legal claim.

Texas is among eight states that do not allow motions to dismiss before evidence is presented in civil court, and the bill would direct the Texas Supreme Court to adopt rules creating that option.

Monday’s House debate was largely devoid of the partisan hostilities that boiled over Saturday when the Republican majority invoked a rarely used rule to pass the loser pays bill on second reading without allowing debate or amendments. Their unusual move was provoked by stalling tactics that the Democratic minority used to derail a number of Republicans’ priority bills.

Democrats focused their objections on changes that could force some lawsuit winners to pay their opponent’s legal costs under the “offer of settlement” rule, which was adopted to encourage pretrial settlements as part of the 2003 tort reform legislation, aimed at limiting the number of civil lawsuits and the size of many damage awards.

The penalty would apply when plaintiffs, or those who file suit, reject a settlement offer and go to trial. If the judge or jury were to award less than 80 percent of the defendant’s settlement offer, the plaintiff would have to pay legal fees accrued by the defense from the time the offer was rejected.

Under current law, the legal fees are capped at no more than 50 percent of economic damages and 100 percent of all other damage awards.

The loser pays bill would strip out the cap. Rep. Craig Eiland, D-Galveston, said that unfairly turns winners into losers who could end up being required to pay more than they won in court.

“This is not about frivolous lawsuits; this is about valid, justifiable lawsuits,” Eiland said. “The jury could find that I was correct in filing that lawsuit, that I was wronged, but I would still end up having to pay their attorney fees.”

Bill supporters say a similar provision protects plaintiffs who make a counteroffer that is rejected. Defendants would have to pay a plaintiff’s legal fees if the court award were 120 percent of the counteroffer.

“This evens the playing field,” said Rep. Brandon Creighton, R-Conroe, the bill’s author.

Because no amendments were allowed during Saturday’s second reading of the bill, Monday’s hearing was the first chance to propose changes from the floor. But House rules require two-thirds approval for amendments to bills on third and final reading, creating a high hurdle that Rep. Roland Gutierrez, D-San Antonio, met with his “taxpayer relief amendment.”

Gutierrez proposed allowing homeowners to collect legal fees when they successfully contest their home values. If the appraisal district wins, however, the agency is entitled to nothing because “they have their own attorneys.”

Rep. Phil King, R-Weatherford, opposed the amendment, saying that while he was sympathetic to its goals, the change would impose a large, unexpected financial burden on taxing districts that would ultimately be paid by taxpayers.

“Our taxes have gone way too high,” Gutierrez responded. “This is a vote to give them the relief they need and send the tax appraiser where he needs to go.”

The amendment passed 100-45.