HB 274 – “Loser Pay Rule”

On May 25, 2011, the Texas Legislature passed House Bill 274, commonly referred to as the “loser pays” bill. The title is a bit deceiving as there is no real “loser pays” provision in the final bill that was passed. There are six articles in the final bill that replace or amend specific sections of several state codes. Within those six articles there are, among other things, instructions for the state supreme court to create a new dismissal provision and adopt rules to expedite the litigation process for claims with smaller damages. These six articles apply across all causes of action and all industries that are involved in litigation. The only exceptions to the applicability of these new articles are the Family Code, the Property Code, and the Tax Code.

The relevant articles are described below.

Article 1 requires the Texas Supreme Court to create a “dismissal cause of action” similar to the federal motion that allows the dismissal of a claim for failing to state a claim upon which relief can be granted. This article also includes a provision that the losing party to such motions must pay the prevailing parties fees.

Article 2 requires the Texas Supreme Court to adopt rules that allow for an expedited and cost-effective trial process where the amount in controversy is less than $100,000.

Article 3 allows for the approval of an interlocutory appeal process (for a controlling question of law) that does not require the approval of both parties. Previously, these appeals could only go forward if both parties agreed to it.

Article 4 adds “reasonable deposition costs” into the definition of “litigation costs” as it is used in statutory offers of settlement under Section 42.003 of the Civ. Prac. & Rem. Code. It also removes the 50% limitation on economic damages under the same provision.

Article 5 states that a defendant can no longer designate a responsible third party after the applicable limitations period on the cause of action has expired (regarding that third party) if the defendant knew of the party during the limitations period.

Article 6 simply states that the Act goes into effect on September 1, 2011.