Texas Governor Rick Perry Proposes “Loser Pays” Tort Reform, But Does Anyone Win?

Andrew Pearce

November 17, 2010

Following his recent re-election, Texas Governor Rick Perry is apparently proposing a British-style “loser pays” rule.  Currently, only plaintiffs can recover litigation costs, and only in limited circumstances.  Under the “loser pays” rule, a plaintiff could be required to pick up the costs of the defendant if the plaintiff loses the lawsuit.

Not surprisingly, arguments are being made both for and against such a rule depending on the politics.  Some argue that there are too many frivolous lawsuits filed; others assert that a “loser pays” system would have the effect of closing the courthouse doors to ordinary citizens.

An opinion from the Wall Street Journal claims that the “loser pays” rule – which would only apply to claims defined as “groundless”  (in other words, any case that is lost) – would provide an extra disincentive for the tort industry to bring such groundless claims.  And in doing so, Texas would arguably build on reforms in 2003 and 2005 that have vastly improved the state’s legal climate.

However, an argument from legalaffairs.org provides that the “loser pays” system can actually have the opposite effect because plaintiffs are encouraged to file potentially strong cases involving trivial amounts without worrying about the expense.  Further, parties are less likely to settle because the motivation to avoid the expense of protracted litigation is lessened when a party believes it will recover the costs at trial.

Time will tell whether Governor Perry intends to aggressively pursue a “loser pays” system in Texas.  And, as with most things, the consequences of such a system are equally unclear.

To read more about the Wall Street Journal Opinion, visit:http://online.wsj.com/article/SB10001424052748703514904575602762974652860.html

The legalaffairs.org Argument can be read here: http://www.legalaffairs.org/issues/November-December-2005/argument_kritzer_novdec05.msp