The New “Loser Pays” Rule in Texas Litigation

The “American rule” refers to the general policy (there are statutory exceptions) that all litigants—even the party that prevails at trial—must bear their own attorney’s fees.  The Texas Legislature has recently altered this rule pursuant to a controversial “emergency session” called by Governor Rick Perry. 


The new law, which takes effect on September 1, 2011, allows Texas courts the authority to order the “losing” party pay for the prevailing party’s attorney fees and costs under certain conditions.  The new law also instructs Texas courts to develop and implement procedures to dismiss “frivolous” lawsuits early on in litigation.


Governor Rick Perry describes the new law as "important legislation [that] will help make Texas that much more attractive to employers seeking to expand or relocate from countries all over the world by allowing them to spend less time in court and more time creating jobs."

Pursuant to the new law, the Texas Supreme Court will draft rules allowing for motions to dismiss for “causes of action that have no basis in law or fact on motion and without evidence” within 45 days of its filing.  See H.B. 274 § 1.01.  The Court’s rules will also require a trial court to award costs and reasonable attorney fees to a party that prevails on a motion to dismiss.  See H.B. 274 § 1.02.  As of the date of this post, the Texas Supreme Court has not yet drafted any rules relating to the new law.


The following include highlights of the new law: 

  • Actions under under $ 100,000 in total recovery to be expedited.  See H.B. 274 § 2.01. 
  • Under certain circumstances, orders that are otherwise non-appealable may now be appealed.  See H.B. 274 § 3.01.
  • The timing for a defendant to identify or name third-party defendants is affected. See H.B. 274 § 5.01.
  • The statutory settlement procedure has also been amended to expand recoverable litigation costs to include reasonable deposition costs in an award of litigation costs.


According to the ABA, the Texas House Research Organization’s report characterizes the new law as “solid, fair, and necessary reforms to the Texas civil justice system to lower the cost of litigation.” The report further states that supporters see the law as “level[ing] the playing field between plaintiffs and defendants,” and “do[ing] a great deal to improve business confidence in Texas and encourage investment.”  The ABA further cites supports of the new law to include the Texas Association of Defense Counsel, the Greater Houston Partnership, and Texans for Lawsuit Reform.


According to the ABA, those opposing the law disagree with the rationale that courts are “clogged with frivolous lawsuits” and further note that plaintiff attorneys work on a contingent-fee basis and, as such, “have a strong incentive to take only cases they feel have merit in order to maximize their chances of winning the case and receiving their commission.”  The ABA further cites opponents of the new law to include the Texas Trial Lawyers Association and the Texas AFL-CIO. Those entities view the law’s changes as unnecessary and harmful to individual litigants.