It took only a few minutes this afternoon for the Texas Senate to pass unanimously a new version of the loser-pays bill, with changes limiting types of suits subject to early dismissal and limiting attorney’s fees parties can recover after some rejected settlement offers.

“I’m very pleased the bill was passed unanimously out of the Senate. I think its testament to the fact that it’s good legislation — fair,” says Sen. Joan Huffman, R-Southside Place, who sponsored the bill in the Senate.

Because the Senate version differs from the bill the House passed on May 9, both chambers must now appoint members for a conference committee to negotiate a final version of the loser-pays bill.

“Every word of the bill has been carefully crafted. Hopefully the House will follow suit and concur. I’ve spoken with the House author, and I believe his commitment is to honor that and to do what he can to get it out of the House in the form the Senate sent it to him. I’m very confident that’s going to happen,” Huffman says.

H.B. 274 author Rep. Brandon Creighton, R-Conroe, e-mailed a statement through a spokeswoman that the bill was “a major landmark for tort reform in Texas.”

“I am pleased with the outcome in the Senate today, and am positive that this bill, once enacted, will make litigation in Texas fair, expedient, and affordable,” Creighton writes in the e-mail.

The Senate’s Version

Passage of the Senate’s version of the bill came after intense weeklong negotiations among stakeholders resulted in a substitute bill the Committee on State Affairs unanimously approved on Saturday.

Groups that previously fought on opposing sides — Texans for Lawsuit Reform and the Texas Trial Lawyers Association, among others — lined up in support of Committee Substitute House Bill 274.

Among the important changes in the Senate’s version are revisions limiting a provision providing for early dismissal of some claims and the awarding of costs and attorney’s fees to the winners of those dismissed suits. Another big change limits the amount of money in costs and attorney’s fees a defendant could collect after a plaintiff rejected the defendant’s settlement offer and went on to win a lesser jury verdict. Also, the Senate version further changes current law about adding responsible third parties to suits — a provision the House added in a last-minute amendment.

Speaking in interviews before the Senate passed the bill, Mike Gallagher, past president of Texas Trial Lawyers Association and Alan Waldrop, outside counsel for Texans for Lawsuit Reform, shared their views on the committee substitute.

“It’s obviously much better than the House version,” said Gallagher, who said he participated in “heated negotiations” over the substitute bill. He said he thought the Senate would not pass loser pays without trial lawyers’ input.

“They had to have our support in order to get it out,” said Gallagher, of The Gallagher Law Firm in Houston.

Waldrop said stakeholders negotiated provisions in the substitute bill throughout the week in multiple in-person and telephone meetings. Negotiations were “hard” but they were “fair,” said Waldrop, partner in Locke Lord Bissell & Liddell in Austin.

“I think it’s a good bill. I think it’s an excellent product,” he said.

Early dismissal and attorney’s fees

The first section of C.S.H.B. 274 covers early dismissal of meritless suits. It tells the Texas Supreme Court to adopt rules for early dismissal of suits “that have no basis in law or fact,” the substitute bill says — eight words that were not in the text of the House bill. Courts would decide motions to dismiss before hearing evidence on the claims.

The Senate’s version adds a 45-day deadline for courts to rule on motions to dismiss. As with the House version, it exempts all family law claims from the early-dismissal provision.

The Senate version adopts the House’s language mandating that courts would award costs and attorney’s fees to prevailing parties after dismissing meritless suits. However, the Senate version exempts the government from loser pays.

Gallagher said he opposed the House version because he thought even valid claims may have been subject to early dismissal and the award of attorney’s fees.

The Senate version was better, he said. “If you bring a lawsuit that has no basis in law or fact, that is a definition of a frivolous lawsuit, and you ought to be liable,” said Gallagher.

Waldrop said he thought the Senate’s change was subtle, because he thought the House bill meant to do the same thing: dismiss meritless suits.

“What some folks wanted was they wanted some language that would make that extremely clear,” Waldrop said.

Attorney’s fees after offers of settlement

The Senate made a substantial change to a provision that would award attorney’s fees to defendants who made a declaration of settlement offer under Texas Civil Practice and Remedies Code Chapter 42, but the plaintiff refused the offer.

Current law says defendants can recover costs and attorney’s fees after a plaintiff refuses settlement only to win a jury verdict less than 80 percent of the settlement offer.

The Senate version says defendants in these situations cannot recover costs and attorney’s fees that total more than a plaintiff’s jury verdict.

But if a plaintiff wins a verdict more than 120 percent of the settlement offer, then the plaintiff could collect costs and attorney’s fees from the defendant. But the Senate version limits that amount.

A fact sheet from Huffman’s office gives this example to explain the Senate’s revised provision: A defendant offers settlement of $100,000, but the plaintiff refuses and goes on to trial only to win a jury verdict of $80,000. The defendant could collect costs and attorney’s fees, but couldn’t collect more than $80,000.

Alternatively, if the plaintiff won a verdict of $120,000, then the plaintiff could collect costs and attorney’s fees from the defendant. The amount would be limited to $120,000.

Gallagher said the House version would have allowed a defendant entitled to attorney’s fees to recover the plaintiff’s entire verdict — and more.

“The plaintiff’s personal assets were exposed under the House version,” he said.

He explained that under current law, the plaintiff would pay a defendant’s attorney’s fees by taking money from his exemplary and non-economic damages awards and up to 50 percent of his economic-damages award.

Under C.S.H.B. 274, the plaintiff could end up paying the entire verdict amount — even the economic damages, he said.

“It’s bad, but it doesn’t put your home, your car, your savings account, your whatever you had in an investment portfolio or what else. It doesn’t put that at risk,” Gallagher said.

Waldrop said the new language wasn’t exactly what TLR wanted from the bill.

“When you get into this kind of process, compromises need to be made, and that was one of the compromises. It’s a legitimate and fair compromise,” he said.

Third-party defendants

C.S.H.B. 274 makes changes to a last-minute House amendment that changed current law regarding plaintiffs who join third-party defendants to suits.

The House had repealed a section of law that allowed a plaintiff to join a third-party defendant even outside the statute of limitations.

The Senate version still repeals that provision, but it also changes current law to stop defendants who know about a third-party defendant from being able to designate that defendant as a responsible party after expiration of the statute of limitations.

Gallagher said he thought the House version was unfair, because it still allowed a defendant to lessen his liability by naming another responsible party, regardless of the statute of limitations, but the plaintiff would no longer get to sue that party.

“What we did, to try to make this better, is to limit when the defendant could bring a person in. We limited it to a circumstance in which the defendant was not aware of the existence of the third party prior to the running of the statute of limitations,” Gallagher said.

Waldrop said he thought the Senate’s change was fair. He explained what the provision meant: If the defendant holds blame for not disclosing a responsible third party before the statute of limitations runs out, the defendant bears the burden by no longer being able to designate the third party. However, if the defendant properly designates a third-party defendant, but the plaintiff fails to join the third party to her suit before limitations run out, then the plaintiff would bear the burden by no longer being able to sue the third party.

“That’s a completely fair exception. It was just a little complicated to write. But there’s nothing wrong with it at all. It makes complete sense,” Waldrop said.

Other provisions

The Senate didn’t make substantial changes to the House version’s provision instructing the Supreme Court to make rules to limit discovery costs and expedite suits through the justice system for all claims less than $100,000.

The Senate version exempts all family law cases from the House bill’s provision that makes it easier for litigants to appeal more types of judge’s orders if the order involved “a controlling question of law” with “substantial ground for difference of opinion.”

Also notable about C.S.H.B. 274 are its omissions. The Senate version deletes a provision that would have awarded attorney’s fees to the prevailing party in any breach-of-contract suit.

The new bill doesn’t include the third section of the House version, which said, “A statute may not be construed to create a cause of action unless the statute by clear and unambiguous language creates a cause of action.”

Also, the Senate version deletes a House amendment that would have entitled people who successfully disputed their property appraisals from collecting attorney’s fees from appraisal districts.

It omits another House amendment meant to stop courts from recognizing Islamic law in family-law cases.

See related stories:

Speakers Line Up on Both Sides of Loser-Pays Bill at Senate Committee Hearing”