Late in the Texas Legislative session that just ended, the Legislature passed and the Governor signed House Bill 274 which makes a number of significant changes to our civil justice system. Dubbed the “Loser Pays” bill by the media, HB 274 has been the subject of a fair number of media reports and legislative advocacy pieces that have attracted some attention. As often happens with controversial legislation, much of the media attention and legislative advocacy materials have not been entirely accurate in their reporting on HB 274 and what the bill actually does. Here is a brief, section-by-section summary of HB 274 as passed by the Legislature and signed by the Governor that we hope will assist in understanding this important piece of legislation.  

Sec. 1 Early Dismissal of Certain Actions

HB 274 instructs the Texas Supreme Court to write new rules of procedure to provide for the “dismissal of causes of action with no basis in law or fact.” This is commonly referred to as a “motion to dismiss” procedure and is part of the procedure in federal courts and 42 other states. This will allow Texas courts to address certain legal challenges to claims without having to go through the summary judgment process or wait until after discovery is completed. In addition to instructing the Supreme Court to write rules to implement a motion to dismiss practice, HB 274 also provides that courts shall award costs and reasonable and necessary attorney’s fees to the prevailing party whenever a motion to dismiss is granted or denied. This will require parties to carefully evaluate both whether to file a motion to dismiss and whether to contest one if it is filed. If the legal question is a close one that could go either way, the summary judgment process will still be available and will pose less risk of exposure to a fee award.

Sec. 2 Expedited Civil Actions

HB 274 also instructs the Texas Supreme Court to write new procedural rules to expedite cases in which the amount in dispute is $100,000 or less. Our civil justice system is the most open in the world, but it can be expensive. When you have a relatively small claim—and in our civil justice system a $75,000 claim is a relatively small claim—it can sometimes be prohibitively expensive and time consuming to actually litigate the case through a trial or to final judgment. HB 274 instructs the Supreme Court to write new procedural rules that will address the length of time and expense that are imposed on smaller cases under our current rules and provide for some mechanism to reduce the time and expense required. HB 274 does not detail what the rules should look like or how they should work, so we do not know what the system for handling smaller cases will be as yet. This will be a significant piece of rulemaking for the Texas Supreme Court to tackle and could dramatically alter the litigation environment in Texas for lawsuits with less than $100,000 in dispute. The Legislature does exclude cases under the Family Code, Tax Code, Chapter 74 of the Civil Practice and Remedies Code (medical liability claims), and the Property Code from this procedure.

Sec. 3 Interlocutory Appeal of Controlling Questions of Law

HB 274 amends the current interlocutory appeal sections of the Government Code to allow the appeal of a controlling question of law on an interlocutory basis if the trial court and intermediate appellate court agree that the legal question is one that should be answered before incurring the expense of a trial. Our current interlocutory appeal statute allows such an appeal only if the parties agree to it. HB 274 does away with the requirement that the parties agree and replaces it with the requirement that the trial court permit the appeal and the appellate court accept the appeal. This brings Texas procedure in line with federal procedure on this point. This kind of interlocutory appeal will not happen often because both the trial judge and the appellate court have to agree that the appeal should be taken. However, in certain types of litigation where the answer to a pure question of law from an appellate court or the Supreme Court could avoid potentially years of protracted and expensive litigation, the new procedure should save time and money.

Sec. 4 Allocation of Certain Litigation Costs

HB 274 also amends our current law relating to certain types of offers of settlement that could be the basis of the award of litigation costs. Under current law, if a defendant invokes the offer of settlement statute, parties may make offers under the statute that could involve the award of litigation costs—including attorneys’ fees—if the offers are turned down. The idea behind the offer of settlement law is that if you turn down a reasonable offer to settle a lawsuit you might have to pay the other side’s litigation costs after the offer because it is your fault that the lawsuit kept going and kept costing time and money. Our current offer of settlement statute does not get used very often because it does not impose equal risk on the parties and is complicated in how and when it applies. The current offer of settlement statute has a rather complicated cap on the amount of litigation costs that can be awarded based on a percentage of how much the plaintiff recovers. HB 274 simplifies this cap and provides that the amount of litigation costs that may be awarded to any party cannot exceed the amount of the plaintiff’s recovery before cost-shifting is applied. While not a dramatic change in current law relating to offers of settlement, this change could promote some additional use of the statute.

Sec. 5 Responsible Third Party Practice

Our current law relating to the designation and potential joinder of responsible third parties in lawsuits has a provision that allows parties in lawsuits to override statutes of limitation. The result is that, in certain circumstances, parties could face claims and have to defend themselves in lawsuits when the claims would otherwise be barred by limitations. HB 274 corrects this problem and makes clear that statutes of limitation do not get overridden by the law relating to responsible third party practice. HB 274 does, however, provide that if the defendant fails to disclose to a plaintiff the existence of a responsible third party in a timely manner and causes a plaintiff to lose the opportunity to join the third party in the lawsuit because limitations has run, the defendant will not get the benefit of designating the third party as a responsible third party. This places the burdens on the correct parties—those in the lawsuit—and does not result in a nonparty facing revived claims that should have been barred by limitations.