Texans for Lawsuit Reform article in Houston Chronicle misses the point on HB 274

Leo Linbeck, Jr., a senior chairman for lobby group Texans for Lawsuit Reform, has authored an article published in the May 19, 2011 issue of the Houston Chronicle extolling the virtues of HB 274, otherwise known as the “loser pays” bill. You can read the full article here. Part of Mr. Linbeck’s analysis of HB 274 in the article reads as follows:

HB 274 also amends Texas’ current offer of settlement law to encourage parties in a lawsuit to make reasonable settlement offers earlier in cases rather than later. Since most cases settle, it will save everyone time and money if we can encourage this to happen earlier. The idea behind the offer-of-settlement law is that if either side turns down a reasonable offer to settle, it might have to pay the other side’s litigation costs after the offer because it is at fault for keeping the lawsuit going and continuing the cost of time and money. HB 274 makes the risk of paying litigation costs for both sides equal.” (Emphasis added).

This analysis of HB 274 is flawed. The risk of paying litigation costs is not equal for both sides. In order for either side to be exposed to paying the other side’s litigation costs, the Defendant must invoke the provision of the “loser pays” statute. See, Texas Civil Practice & Remedies Code Sec. 42.002(c): “This chapter does not apply until a defendant files a declaration that the settlement procedure allowed by this chapter is available in the action. If there is more than one defendant, the settlement procedure allowed by this chapter is available only in relation to the defendant that filed the declaration and to the parties that make or receive offers of settlement in relation to that defendant.”

If the Defendant files a declaration and thereby invokes the statute, the Plaintiff can respond in kind and inform the Defendant that if the Plaintiff proceeds to trial and recovers greater than 120% of the settlement offer, Plaintiff can recover her litigation costs. The critical part Mr. Linbeck’s analysis misses is that under HB 274 the Plaintiff does not have the opportunity to invoke the statute when the Plaintiff wants to: the Plaintiff can only respond to the Defendant invoking the statute.

This creates a situation where the Defendant can stonewall, delay, behave unreasonably and make no genuine good faith effort to settle the lawsuit, then at the eleventh hour make a settlement offer and invoke the loser pays statute. If the Plaintiff then responds in kind and invokes the statute too, under HB 274 the Plaintiff can only recover her attorneys’ fees incurred after the Plaintiff invokes the statute. The problem with that is by then the damage has already been done: due to the Defendant’s stall tactics the Plaintiff has already incurred significant attorneys’ fees that, no matter what the outcome at trial, the Plaintiff cannot recover under HB 274.

Contrary to Mr. Linbeck’s analysis that HB 274 makes the risk of paying litigation costs for both sides equal, the Defendant has no risk of incurring any of the Plaintiff’s litigation costs unless the Defendant invokes the statute in the first place, and even if the Defendant does so, what the Plaintiff can recover for attorneys’ fees can be strategically limited by the Defendant choosing to invoke the loser pays statute late in the lawsuit.

Mr. Linbeck’s analysis also ignores that there is commonly a huge disparity between Plaintiffs and Defendants in terms of the ability to absorb the risk of incurring the other side’s litigation costs. If the Plaintiff is a private individual and the Defendant is insured by Allstate, Farmers Insurance or some other multi-billion dollars insurance company, being responsible for the Defendant’s litigation costs could financially ruin a private individual Plaintiff yet to an insurance company is not even a bump in the road. As such HB 274 sets up a tremendous inequality in risk.

Contrary to Mr. Linbeck’s analysis HB 274 does not create  equal risk for both sides. HB 274 gives yet another strategic advantage to Defendants.