Texas makes losers pay for frivolous lawsuits

It’s no wonder that Texas Gov. Rick Perry has recently been the focus of speculation about whether he might run for president in 2012. Texas has been on an economic roll since 2001, creating far more new jobs than any other state in the nation even as its population increased to 25 million. Love him or hate him, Perry is in his fourth term in Austin and thus deserves a big chunk of the credit for many of the good things happening in the Lone Star State.

Texas also has implemented some of the nation’s most significant state-level reforms aimed at reducing or eliminating lawsuit abuse.

The latest of these is a “loser pays” provision requiring plaintiffs to pay the winners’ legal costs in civil suits seeking punitive damages. The provision is included in the 2011 Omnibus Tort Reform Act Perry signed Monday. In addition to the provision, the new law:
Allows a trial judge to send a question of law directly to the appellate court without requiring all parties to agree if a ruling by a court of appeals could decide the case.
Allows plaintiffs seeking less than $100,000 in damages to request an expedited civil action.
Allows a trial court to dismiss a frivolous lawsuit immediately if there is no basis in law or fact for the lawsuit.

Because such litigation is controlled at the state level, the U.S. is unique among the industrialized nations in not having a national loser-pays law. That fact is likely among the key reasons why the American media so frequently report new examples of people suing for the most outrageous of reasons. Take, for example, Mark S. Gold, a Miami traffic court lawyer who got drunk at a local strip club in November, then woke up the next morning with a tab of nearly $19,000. He promptly sued the strip club’s corporate owner, claiming he should not be held responsible for the huge bill because the bar “continuously served plaintiff alcoholic beverages to the extent that he was rendered intoxicated, partially or temporarily unconscious, and further to the extent that he had a complete loss of judgment, rational thought or ability to enter into lawful contracts or agreements.”

Odds are Gold will walk away with most, if not all, of his bar tab forgiven since the defendants know it could lose big-time if he convinces a jury to award him punitive damages. As things now stand, plaintiffs like Gold have nothing to lose and everything to gain by clogging the courts with frivolous litigation. How many such suits would be filed if losing plaintiffs everywhere that they would have to pay the defendants’ legal fees?

The absence of loser-pays provisions in the vast majority of states helps explain why class-action plaintiff litigation cost more than $248 billion last year, according to the Towers Watson 2010 Update on U.S. Tort Cost Trends. That’s $808 for every man, woman and child in the country. It also makes the U.S. legal system twice as expensive — measured as a percentage of gross domestic product — as those of other industrialized nations, according to the Institute for Legal Reform.