NCPA - National Center for Policy Analysis

Loser Pays, Everyone Wins

December 28, 2010

Republicans picked up 16 governorships and at least 675 state legislative seats in November, and some of them are using this new running room to get creative.  One governor out of the gate early is Texan Rick Perry, who wants to extend his state's impressive tort reform record, says the Wall Street Journal.

  • Most notably, Mr. Perry is proposing a British-style "loser pays" rule, which would require plaintiffs to pick up the legal costs of their targets if they lose their suits.
  • Almost all of America's economic competitors follow a similar standard, but trial lawyers blocked states from making this revolutionary improvement to U.S. civil justice.

A procedural reform like loser pays to deter junk lawsuits would make the legal system less of a drag on the economy and less of a political tool for redistributing wealth.

Mr. Perry's proposal isn't the pure version of loser pays, in which the losing party -- plaintiff or defendant -- is responsible for the winner's attorneys fees, says the Journal.

  • Instead, it adds an extra disincentive for the tort industry to bring suits that Texas law already defines as "groundless."
  • The lawyers and firms that file such claims would in almost all cases pay the penalty, a downside they'd have to weigh against their chances of personal enrichment.

At the same time, to speed compensation to genuine victims, Mr. Perry would create new legal channels to expedite smaller claims (below $100,000).  Judges would also be barred from creating causes of action from the bench that haven't been approved by the state legislature.

This Texas upgrade would build on reforms in 2003 and 2005 that have vastly improved the legal climate.

Source:  "Loser Pays, Everyone Wins," Wall Street Journal, December 15, 2010.


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