TORT REFORM IN TEXAS
As the decade of the nineties began, Texas was known far and wide as the œWild West of American Law. Throughout the seventies and eighties, a small group of plaintiffs™ trial lawyers had inexorably moved Texas from traditional American legal principles by influencing the state legislature and electing a majority of judges to the Texas Supreme Court.
Through a combination of legislation and court decisions, these few trial lawyers succeeded in making Texas law and courts so biased in favor of a plaintiff, regardless of the merits of a particular suit, that defendants were often intimidated into settling non-meritorious lawsuits, rather than risking a financially ruinous result in a litigation environment stacked against them.
As we move toward a new millennium, however, Texas is solidly back in the mainstream of American law, having taken great strides toward restoring fairness and balance to our civil justice system. The 1980™s activist, politician-filled Supreme Court has been replaced by a Court of honest, competent and respected jurists.
A legislature that once was stymied by the formidable lobbying effort of the Texas Trial Lawyers Association has enacted meaningful tort reforms in each of the last four sessions.
Tort law is the law of injury. In America, we have a fault-based system. You are responsible for the injuries of another only if you are at fault for causing those injuries. This is a fair system for compensating persons injured by the negligent or intentional acts or omissions of another. When there is a disagreement about whether a defendant caused the injury, or a disagreement about the value of the damages suffered by the injured party, the remedy of last resort for resolving those disputes is a trial.
But if the litigation system is weighted unfairly in favor of either plaintiffs or defendants, so that one party or the other believes that a fair and impartial result is impossible, the system fails.
The system in Texas did fail, for a long while. At the heart of the failure were the following factors: First, we had œjoint and several liability, meaning that a defendant who was found only partially at fault (even only five or ten percent at fault) could be held liable for one hundred percent of the damages.
Secondly, Texas had extensive venue shopping, which meant that a plaintiff™s lawyer could file his lawsuit in any one of a number of counties in Texas, even if the chosen county did not have a compelling connection to the facts or the parties of a case. This meant that a car accident in Lubbock might be tried against, say, Ford Motor Co., in a court in Brownsville, if the plaintiff™s lawyer thought Brownsville would provide a friendlier forum to his client.
Thirdly, punitive damages were essentially unlimited. Not infrequently, a case where the compensatory damages were minimal resulted in punitive damages that could bankrupt a business.
Fourthly, the Texas Deceptive Trade Practices Act, originally designed to allow special remedies to consumers suing defendants for wrongs like a defect in a washing machine, was routinely used in business-against-business litigation, creating giant hurdles to a business defending against such a lawsuit.
Finally, junk science, expounded by œexperts who lack requisite knowledge and experience, was routinely introduced into evidence in Texas courts. The Return Of Texas To The Mainstream of American Civil Law.
Each of these serious flaws has been at least partially corrected by a combination of legislation and recent Texas Supreme Court decisions. The 1995 Legislature was particularly productive, passing four landmark bills (and other tort reform legislation) under the leadership of Governor George W. Bush and Lt. Governor Bob Bullock, with the cooperation of Speaker Pete Laney.
Prior to the 1995 reforms, a defendant found only partially at fault by a judge or jury could be held responsible for the entire amount of the judgment against all of the defendants, if the other defendants were unable to pay their respective shares of the judgment. The concept of paying more than your share of the fault violates common sense and the most basic instincts of fairness. The 1995 legislation modified Texas™ proportional liability law so that now a defendant who is found to be fifty percent or less at fault pays only its proportionate share of the judgment. Thus, for example, a defendant found to be forty percent at fault pays forty percent of the judgment. If a defendant is found to be more than fifty percent at fault, that defendant may be required to pay the entire judgment, if the plaintiff is unable to collect from the other defendants in the case. On the other hand, in a case in which a plaintiff is found to be more than fifty percent at fault for his own injury, then the plaintiff collects nothing from any defendant.
Unfortunately, because of a political compromise, this proportionate responsibility statute does not cover all situations. For example, a victim of a crime often sues the owner of the property where the crime occurred. The property owner has the right to œjoin the criminal as an additional defendant in the lawsuit. But if the criminal is unknown, or has fled the jurisdiction and cannot be served, then the fault of the criminal cannot be submitted to the jury. Juries find this very frustrating, since they are required to assess all of the fault to a property owner, even when the evidence shows that the criminal is primarily responsible for the plaintiff™s injury, and the property owner is only partially at fault.
One of the most intimidating aspects of the pre-reform civil justice system in Texas was open venue, in which a plaintiff™s lawyer could choose practically any jurisdiction in Texas to file a lawsuit, even if that jurisdiction had no rational nexus with the facts or the parties.
The most compelling cause of serious venue abuse arose because Texas law allowed a plaintiff to file a lawsuit in any county in which a defendant corporation merely had an agent or representative. This flaw was corrected by the 1995 legislation that establishes the principal place of business in the location where the firm™s decision-makers conduct daily affairs. The mere presence of an agent or a representative in a particular county is now insufficient to establish venue.
Texas in the 1980™s produced some of the most exorbitant and notorious punitive damage awards in the nation, sparking dismay and ridicule around the world. The fear of exorbitant punitive damage awards helped some plaintiffs™ lawyers to extort huge settlements from defendants, even when those defendants thought they had done nothing wrong, or that the damages produced by their actions were far lower than the amount being demanded by the plaintiffs.
A statute passed as part of the 1995 reforms now limits punitive damages to two times economic damages in most cases. Therefore, if a jury finds that the economic damages (such as property damage, medical bills, and lost wages) suffered by a plaintiff are $1,000,000, then the maximum punitive damages allowed in that case are $2,000,000. If, however, a defendant is found to have harmed the plaintiff by certain kinds of intentional (usually criminal) acts, there is no limit on punitive damages.
Deceptive Trade Practices Act
The goal of tort reform was to restore the DTPA to its original purpose of protecting true consumers in disadvantaged bargaining positions. This goal was largely met in 1995 by limiting the DTPA to cases with a total value of (i) less than $500,000, or (ii) less than $100,000 if the claim arises out of a written contract and the plaintiff receives independent legal advice prior to the signing of the contract (but neither limit applies to an action involving a residence).
The 1995 law disallows DTPA actions for personal injury or death. Damages under the 1995 statute are limited to economic damages only. In other words, the plaintiff cannot recover what are known as œsoft damages, such as pain and suffering, loss of consortium, and mental anguish, except that a plaintiff can recover for mental anguish if the defendant acted œknowingly (and can recover triple damages for mental anguish if the defendant acted œintentionally).
The Texas Supreme Court (and to some extent, the United States Supreme Court), through a series of decisions, is making it more difficult for unsubstantiated or discredited scientific opinion to be introduced as evidence in trials. Trial judges are taking a more active role in reviewing the credentials of scientific œexperts who are called to testify, either by plaintiffs or defendants. This trend toward tightening the requirements concerning scientific evidence should allow juries to make better informed decisions.
Other Important Tort Reform Successes
There have been many other important tort reform successes during the last five years.
Summary Judgment. The Texas Supreme Court passed a Rule, modeled on the rule in federal courts, giving trial judges greater leeway in granting summary judgments. When a trial judge is convinced that there is no credible evidence supporting either a claim by a plaintiff or a defense by a defendant, the judge is now more empowered to enter a judgment for the prevailing party without requiring a trial. This should help prevent frivolous lawsuits and non-meritorious defenses, and should expedite the trial load of Texas courts.
Forum Non Conveniens. It is a well established principle of Anglo-American jurisprudence that a lawsuit should be pursued in the court most convenient for a fair trial. Texas had moved away from this mainstream doctrine, allowing plaintiffs from all over the country and all over the world to access Texas courts, even if their cases could be more conveniently or logically pursued in the courts of their own states or nations. This open forum status of Texas courts allowed (and encouraged) certain Texas plaintiffs™ lawyers to recruit clients from throughout our nation and the world. At one time, there were over 30,000 non-Texas residents pursuing asbestos claims in Texas courts. In a 1997 statute, the Texas legislature empowered Texas judges to dismiss lawsuits that do not have a sensible connection to Texas so that they can be litigated in a more appropriate forum.
Checks And Balances On State Use Of Contingency Fee Lawyers.
Texas is having a bad experience with the arrangement made by former Texas Attorney General Dan Morales with contingency fee lawyers in the tobacco litigation. Current Texas Attorney General John Cornyn has uncovered evidence that has already resulted in one lawyer relinquishing his claim for a $260,000,000 legal fee from the people of Texas. (Yes, that™s the right number of zeros.) General Cornyn™s investigation of Mr. Morales™ arrangement with five other plaintiffs™ lawyers (who are expecting billions of dollars in fees) is continuing.
One of the great dangers to the legal system today, and to free enterprise in America, is the tendency of some politicians to team with their plaintiffs™ lawyer supporters to use the power of the state to sue entire industries that are selling legal products. The tobacco industry is only the most prominent example, but now paint and gun manufacturers are being sued, and members of the plaintiffs™ bar are reportedly targeting several other industries for government-sponsored lawsuits that could cripple or destroy those industries.
Contingency Fee Legislation
The 1999 Texas Legislature passed legislation that prevents any state officer, acting alone, from hiring outside lawyers on a contingency fee contract. Contingency fee lawyers hired by the state are required to keep complete time and expense records, subject to inspection by the state. Legitimate and proved expenses are reimbursed from settlement or judgment proceeds.
The ultimate legal fee is a multiplier of a base fee. The base fee shall not exceed $1,000 per hour, and the multiplier œmay not exceed four without approval of the legislature. This very sensible legislation will prevent a state officer from ever again awarding legal fees of tens of thousands or hundreds of thousands of dollars per hour!
There are several other tort reforms passed in recent legislative sessions that are meaningful, and many court decisions that are restoring rationality and balance to civil law, but space does not allow a detailing of them here.
The Benefits Of Tort Reform.
There are countless beneficial effects of the tort reform success in Texas. Foremost among them is that integrity is being returned to Texas civil law. Frivolous lawsuits are being reduced (but certainly have not been eliminated), freeing court dockets for serious disputes. The Texas Insurance Commissioner has certified that Texans have saved almost three billion dollars in insurance premiums directly related to just the 1995 legislative reforms.
In addition, Texas has gone from being one of the most uncompetitive insurance markets in the nation to being perhaps the most competitive insurance market in the nation.
Businesses and manufacturing facilities that were contemplating leaving Texas, have now expanded their operations in Texas. Businesses that once were hesitant to enter Texas are now coming here. Small businesspeople not long ago lived in fear that all that they, their families, and their employees had worked for, might be lost in one nightmarish lawsuit.
That fear is not eliminated, but most now rest easier that they can get fair treatment in the Texas civil justice system. This improved environment contributes to job creation, product innovation, and improved economic security at every level of our society.
There are still many occasions in which a defendant might be intimidated into settling a case where there is a non-meritorious allegation of fault or an outrageous demand for damages. But in many situations today, the rationality, fairness, and balance that have been achieved during the last five years allow a defendant to go to trial with an expectation of a fair and just outcome.
This ability to get a fair trial, in turn, means that a defendant need not surrender to exorbitant settlement demands. Tort reform has restored more balance to the respective bargaining positions in settlement negotiations. Thus more of the settlements that occur today are based on compensating a plaintiff for her injury rather than providing lottery-type windfall riches to her and her lawyer.
The Hard Part Lies Ahead.
Texas has made great improvement in its civil justice system, tort reform™s hardest work is ahead of it.
While Texas is now in the mainstream of American law on many tort issues, America itself is the most litigious country in the world. No other country is a close second.
The goal of Texas tort reform is to restore litigation to its appropriate role in society. A lawsuit should be the remedy of last resort to resolve specific disputes between parties who otherwise have been unable to resolve their divisive issues. Litigation should not be used to create and impose broad social policy on the American people. That is a function for the people™s elected representatives in the legislative and executive branches of government. It is not a function for a plaintiff™s lawyer, no matter how well meaning, and a jury, no matter how competent.
When a lawsuit is necessary to redress a wrong, settle a dispute, or compensate an injury, the purpose should be to set the wrong right, to resolve the dispute, or to make a party whole for the injury suffered. The purpose should not be to create windfall riches for the plaintiff or the plaintiff™s lawyer.
Trial lawyers, either for the plaintiff or the defendant, should be true officers of the court, and held accountable as such. As an officer of the court, the trial lawyer should advocate strongly and effectively for his client, but only within the framework of producing a fair and just result.
As an officer of the court, the attorney must always be true to her fiduciary duties to her client, including the duty to collect only a reasonable fee, based on all of the circumstances related to the attorney™s representation of her client.
On the Agenda
There are many tort reform measures on the agenda, measures that have yet to be enacted into law by the Texas legislature. I will discuss only two.
Class Actions. It is difficult to know for sure, but it is thought that only one class action has ever been tried to completion in a Texas court. The reasons are simple. First, a class action suit is so complex and lengthy to try that it would consume huge legal fees to defend. Secondly, damages, even in a non-meritorious case, are so potentially devastating that going to trial is œbetting the farm.
The clear incentive is to settle a case that has been œcertified by a trial judge as a class action rather than risking everything in a trial. Therefore, the essential, or only, battle in a class action lawsuit is over the trial court™s decision to allow a lawsuit to proceed as a class action.
What one judge might consider as an appropriate, or œcertifiable, class action, another judge might reject. There is great discrepancy in how trial judges decide class action certifications. This, of course, means that there is a great deal of venue shopping by class action lawyers, with the lawyer always trying to file a class action in front of the most compatible judge.
Texas must develop a coherent body of law concerning class certification. The best way to achieve this is to allow an appeal from a trial judge™s certification decision to the Texas Supreme Court. Currently, our Supreme Court is extraordinarily limited in the class certification decisions that it can hear. If the Supreme Court had greater jurisdiction to take appeals of class certifications, it would, within a few years, decide enough cases to give judges throughout Texas a clear and comprehensive body of law on which to make legally sound decisions on when to certify, or deny, a class action.
An Offer Of Settlement Rule:
England, the font of American law, has a œloser pay rule. If the plaintiff prevails in a lawsuit, the defendant pays damages to the plaintiff plus the plaintiff™s legal fees. If the defendant prevails, plaintiff pays defendant™s attorney fees.
Texas, and America, need a self-enforcing mechanism to restore litigation to its rational and appropriate role in American society. That mechanism needs to apply equally and fairly to both plaintiff and defendant. It should be a rule that will prevent a plaintiff from pursuing a non-meritorious claim or demanding extravagant damages. The rule, with equal force, should prevent a defendant from using the courts to intimidate a plaintiff from pursuing a meritorious claim.
Perhaps the best way to achieve this goal is an œoffer of settlement rule, a concept that can be illustrated with this example: A defendant analyzes the plaintiff™s lawsuit and decides that there is enough merit to plaintiff™s claim to make a settlement offer. The defendant offers to settle the case for $100,000. Plaintiff refuses, but counters with a $500,000 settlement offer. The case proceeds to trial because a settlement has not been reached.
If the jury at trial awards plaintiff $100,000 (the amount of defendant™s settlement offer), or less, then plaintiff pays the legal fees that defendant has incurred since the time of defendant™s settlement offer. If the jury awards plaintiff $500,000 (the amount of the plaintiff™s settlement offer), or more, then defendant pays plaintiff™s legal fees since the date of the settlement offer. If the jury award is between $100,000 and $500,000, each party pays its own legal fees.
This mechanism will cause all parties in a lawsuit to carefully consider their relative positions concerning liability and damages and will encourage quick and fair settlement of lawsuits. In fact, it would encourage settlement of claims even prior to a lawsuit being filed. For the first time ever, America would impose a cost to plaintiffs who pursue frivolous or exorbitant claims and defendants who wage stonewalling defenses merely to delay and intimidate the plaintiff.
The Texas tort reform coalition is working to craft the details of an offer of settlement rule for consideration by the Legislature in a future session.
In conclusion, while much has been accomplished, there is vastly more left to do. The Texas tort reform coalition is prepared to stay the course, with all of the persistence and tenacity needed to achieve a fair, balanced, and rational civil justice system for our children. We ascribe to the words of Texas cowboy philosopher Texas Bix Bender: œIf you™re gonna itch to have somethin™, better be ready to scratch for it.
Dick Trabulsi, a native Houstonian, is a graduate of the University of Texas at Austin and the University of Texas Law School, where he was a Chancellor and Articles Editor of the Texas Law Review. After graduation from law school, Dick clerked on the United States Court of Appeals for the Fifth Circuit for a year and practiced law briefly at Vinson & Elkins. In 1972, he started his business career. He has been active in real estate development, banking, financial asset investments and ranching. He is president of a family business founded by his father in 1950, Richard’s Liquors & Fine Wines, which is an upscale wine and spirits merchants with nine stores in west Houston. Dick serves on the boards of Compass Bank Houston, The University of Texas – Houston, The Houston Museum of Natural Science, and is a past chairman of The George Foundation and The Houston Committee on Foreign Relations. Along with Dick Weekley and Leo Linbeck, Jr., Mr. Trabulsi is a founder of Texans for Lawsuit Reform, a member of its Political Action Committee and chairman of its Legislative Affairs Committee.