Texas Legislature Considers HB 274 to Create “Loser Pays” Framework in Litigation

Texans should be afraid.  Very afraid.  The Texas Legislature, which is currently in session, is considering HB 274, a bill that would drastically limit Texans’ access to the judicial system, or at least raise the stakes exponentially.  As things currently exist, Texans may have their good faith disputes heard in court.  With just a few exceptions, there is generally no penalty on a plaintiff if they do not prevail.  The reasoning behind this setup–which is unique to the American justice system–is to avoid barriers to the court system.  If a party has a good faith dispute, but is fearful of having to pay the other side’s attorney’s fees if a jury doesn’t see things their way, then they will naturally be hesitant to bring their claim.

The notion that the loser in litigation pays the other side’s expenses, including attorney’s fees, is generally known as the “British Rule” because that is how the British courts are set up.  The United States, however, has a long history of rejecting the idea of loser pays because it essentially limits access to the courts to large corporations who can afford to pay the other side’s legal fees or extremely poor individuals who are considered “judgment-proof.”  For most middle-class Americans and small- to medium-sized businesses, the prospect of having to pay tens of thousands of dollars for the other side’s expenses could be devastating.

Texas HB 274, which is currently pending in the Texas legislature, proposes the creation of a loser-pay system.  In other words, if HB 274 becomes law, if you bring a claim and lose you may be responsible for paying the other side’s legal fees and expenses.  I believe this has the real potential to discourage legitimate claimants from seeking justice in court–particularly in developing areas of law. 

Once upon a time, product manufacturers faced almost no liability for putting out dangerous products.  We’ve all heard about Ford being sued for exploding Pintos and producers of asbestos-laced products facing legal liability, but that wasn’t always the case.  This area of law took time to develop, and the “legal pioneers” lost cases in court in the early days.  But those pioneers continued to fight, and the result is our current product liability law which encourages companies to produce safe products and holds them accountable for producing dangerous ones.

If HB 274’s “loser pays” rule had been in effect in the early days of product liability law, Americans would not have the protections we take for granted today (and we’d probably still be breathing asbestos).  I believe foreclosure law is in a similar state of development.  Securitization of mortgage loans has changed the banking and residential housing industries, and our legal system is just now starting to catch up.  A “loser pays” system will wrongly discourage homeowners from taking their good faith disputes to court.  We’ve seen what happens when the banking industry was left unchecked–it nearly sank the U.S.’s and the world’s economy completely, it created the deepest and longest lasting recession since the Great Depression, and it created a wave of unemployment that has remained near double-digits for years.  Just imagine how it will develop from here on out knowing there is little possibility they will be held responsible in court.

I’m not trying to imply that foreclosure lawyers are some sort of superheros.  However, open access to our court system is what keeps our society in order and what holds businesses and individuals responsible for their actions.  Anything that limits that access is a threat to our ability to seek justice.

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