The United States — unlike nearly every other industrialized nation — does not have a loser-pays rule for lawsuits.
Gee, what a coincidence that a country ruled by lawyers has no limits on them…
Typically, loser-pays demands that if I sue you and lose, I have to pay your attorney fees. A loser-pays rule would have prevented travesties of justice like the one that befell a Washington, D.C. family dry cleaner recently dragged through two years of litigation by a customer seeking $54 million for a lost pair of pants. To date, the cleaning business’s legal costs have totaled $100,000. Not surprisingly, the plaintiff who brought this absurd lawsuit was a D.C. judge.
LOSER-PAYS RULES have been around since Homo sapiens decided to settle disputes not with stone axes, but with lawyers (ah, for the good old days). Yet all attempts to introduce reform have been stonewalled. The GOP floated the idea of losers-pay back in the early 1990s in the Contract with America, and when a U.S. News & World Report poll asked, “If someone sues you and you win the case, should he pay your legal costs?” a whopping 85 percent surveyed said yes. But the organized bar was steadfastly against the reform so the idea stalled. Leading the opposition were the influential plaintiffs lawyers and the American Bar Association.
The benefits of a loser-pays system will be courts that are less clogged with nuisance lawsuits, litigants who are guaranteed speedier trials, and the withering of the litigatious, speculative mindset that has for decades plagued our courts, and, perhaps best of all, fewer lawyers. It is easy to see why the organized bar objects.
This year Texas Governor Rick Perry made loser pays the law of the land in Texas by signing H.B. 274 in May. He had made passage of a modified version of the English loser-pays rule a top priority during this year’s biennial session of the Texas Legislature, emphasizing the need for such tort reform during his State of the State address in February.
Besides the obvious common sense of it all, the economic appeal of loser pays is already paying off in Texas.
Loser pays, which took effect on Thursday, is expected to have a positive impact on the already booming Texas economy once it takes effect. Jeff Moseley, president and chief executive officer of the Greater Houston Partnership, states that “loser pays legislation protects businesses and helps us grow jobs and paychecks.”
After Texas was rated as the top state in which to do business for the past seven years by CEO Magazine, it was hard for some to imagine how to make Texas an even more attractive place for employers to create jobs. Yet, with the passage of loser pays, Mr. Perry has found a way to do just that. There is a strong case to be made that Perry-style reforms could help revive the sluggish national economy.
This is not the first time Mr. Perry has tackled necessary pro-growth tort reform. The implementation of loser pays in Texas comes on the heels of Mr. Perry’s landmark 2003 medical liability reforms, which established a burden of proof for punitive damages similar to criminal law by requiring a unanimous jury verdict and capped non-economic damages at $750,000. A 2008 report by the Perryman Group found those reforms to be directly responsible for an immediate first-year influx of almost 2,000 new physicians into Texas as well as a 70 percent drop in lawsuits against hospitals. The Texas Public Policy Foundation estimates that the state has netted more than 25,000 doctors since. Following the 2003 reforms, Texas doctors saw medical liability insurance rates decline by an average of more than 21 percent, with some seeing nearly a 50 percent rate cut. Those savings enabled hospitals to expand charity care by 24 percent. Three years after these lawsuit reforms, Texas became the first state ever to be removed from the American Medical Association’s list of states experiencing a liability crisis.