Texas requires losing parties of frivolous lawsuits to pay their own costs

From the Wall Street Journal, some good news on tort reform.


This week, Texas Gov. Rick Perry signed a law that will help free Lone Star State businesses from the threat of frivolous lawsuits by enacting “loser-pays” tort reform. Prior to the legislation, litigants faced a no-lose situation, while defendants stood to lose everything—even for the most outrageous, bizarre and wrongful accusations.

Even when defendants won, the legal fees associated with protecting themselves could add up to tens of thousands of dollars. As a result, many pre-emptively settled out of court, as the settlement payment would be less than the legal fees. Under Texas’s new legislation, however, litigants will be forced to pay for the defendant’s attorney fees if the case is determined groundless. This will compel would-be litigants to consider the practicality of their complaint before taking legal action, and it will protect defendants from the dire financial impact of frivolous cases.

The Texas legislation should serve as a national model, especially as we recover from the Great Recession. America has the most expensive civil-justice system in the world, costing $255 billion in 2008, or nearly 2% of gross domestic product, according to a 2009 study by the firm Towers Perrin (now Towers Watson). That’s more than twice as much as any other industrialized nation as a percent of the GDP.

Small businesses—the engines of our economy and the creators of 64% of American jobs—are usually the target of frivolous lawsuits. In fact, small businesses paid 81% of business tort liability costs in 2008. On average, a small business earning $1 million must spend $20,000 annually on lawsuits—money they could have otherwise spent on product development or new job creation.

Softening the threat of frivolous lawsuits sparks economic activity. In 2003, for example, Texas put limits on non-economic damages in medical malpractice cases. Since then, the number of doctors applying to practice in the Lone Star State has jumped by 60%. The same can be expected of businesses that no longer have to fear the financial impacts of civil-lawsuit abuse.

One of the reasons why we are in an economic mess is because we have not reined in the excesses of the trial lawyers. And the Democrats will never be able to rein them in because they are the core of the Democrat party, along with labor unions, teacher unions, word-smithing academics, criminals, welfare recipients and Hollywood celebrities. The sheltered, non-productive segments of society, who have never had to run a business or make payroll.

Let me add this tort reform law (loser pays) to the other list of policies we need at the national level:

  • National right-to-work law
  • National photo ID required for voting
  • National voucher system for education
  • National voucher for health care
  • Nation cap on damages for lawsuits
  • allow Opt-out of Social Security
  • allow Opt-out of Medicare
  • allow Opt-out of Medicaid
  • allow Opt-out of unemployment insurance
  • Flat income tax at 10% below 50,000 and 25% over 50,000, with no deductions except for charity and retirement contributions
  • Zero capital gains tax, phased in over four years
  • Tax-free savings accounts with no restrictions on withdrawals, limit $5,000 per year

I hope the Republicans will campaign on these ideas.

9 thoughts on “Texas requires losing parties of frivolous lawsuits to pay their own costs”

  1. This has been a long time coming and would be welcomed in my own socialist state of Illinois. There is no way that one should have to pay to be dragged over the coals when judged not to have deserved it.

    As to your list, a question or two:

    “◦National voucher system for education
    ◦National voucher for health care”

    As long as either is tied to our taxes, it makes sense. But the health care system should be totally privatized with any gov’t help for those who are truly in need of it.

    “◦Nation cap on damages for lawsuits”

    I understand the intent, but how do we decide on what is a just limit? If a man in his twenties is impacted for life by negligence on someone’s part, what compensation is just based on the degree of that impact? How do you weigh the potential lost by the negligence? Imagine if that man was a major league prospect sought by multiple teams, versus a man who only wished he could have such a life? Both will be impacted by, say, a loss of an arm, but not equally in terms of what his likely lifestyle could have been. And to maintain equality under the law, it must be legally assumed that either each man had equal potential to be major league players, or neither did and award accordingly.

    “◦Flat income tax at 10% below 50,000 and 25% over 50,000, with no deductions except for charity and retirement contributions”

    I believe in a true flat tax with everyone paying the same, though perhaps grandfathered for certain people already in the workforce. I also don’t believe there should be ANY deductions in theory. (In practice requires deeper thought as to why any should or would be allowed.) When entering the workforce, everyone should know that they must make life choices based on their ability to pay for them.

    But how did you arrive at your suggested rates of taxation? 25% above a mere 50K seems stiff.


    1. Hey, the cap for damages would be like California’s. Everything to put the situation right is exempt from the cap – i.e. – actually expsenses incurred, and then no more than an additional X amount, like $250,000 max. So no giving somoene a punch of free money, in other words.

      The flat tax I chose is from Fred Thompson. Just keep in mind the 50,000 limit is PER PERSON! So 100,000 for a household, whether the wife works OR NOT. I.e. the husband would get to add the wife’s limit if he files as married.

      Charity and retirement contributions are things we want to encourage. The income splitting for married couples tax the place of child tax deductions. That way, single mothers get squat.


      1. But again, WK, if I’m someone who has the talent to command big bucks in the pro market, and then that is taken from me, why is 250K justice in your mind? I say, if one can make a case that their earning potential was high before their injury, a hefty award is warranted and due the injured. Likewise, if one cannot make that case, then one is only entitled to an amount commensurate with their status before the injury. That is, I cannot say I had my chance at being a concert pianist taken if there is no proof that I ever had the talent or plan to achieve such a career.

        25% is still stiff even for 100K per year for a family’s income. In my neck of the woods, 100K for my family is finally getting comfortable—paying the bills, keeping up with the needs of car & home upkeep, saving for emergencies, retirement, college for the kids and, forgive us, a little “us” time once per year to get out and see God’s wonderful world. I don’t know that 25% is ideal, though whatever the rate, all must learn to live within what’s left over. THAT is always the key for the citizen. If that figure, however, is based on the nation’s debt, I would disagree with that as a reason to choose that rate.

        I would prefer that charity and retirement savings would be kept separate from gov’t support in the minds of citizens. Especially if a flat tax were in place. With a flat tax, which I support, one knows at all times the amount with which they can plan all other things in their lives. Thus, all savings, purchases, and charitable contributions are based on what is left over. That is, if I know my weekly paycheck is, say, $600, and I’m taxed at even that 25%, I must live my life on the remaining $450. When all deductions are eliminated, what other choice is there for people to do? And personally, I don’t base either my retirement savings OR my charitable giving on the tax consequences of either. Whether or not the IRS kicks back something for having done so is inconsequential and a bonus. But I don’t even think of it.


  2. Your flat tax would raise my income tax liability by more than 100%. Can’t say I really like that. It would be more equitable to entirely scrap the 16th Amendment and institution a national sales tax. Furthermore, I want the Feds ENTIRELY out of health care and education. They can’t even run a train company or a postal service- how much better do you think they will do with people’s health and the future of this nation?


    1. The flat tax is optional. You can file under the existing system if the flat tax not good for you. I agree with you on scrapping the 16th amendment and the new sales tax. That would be the best by far.


    1. I prefer the fair tax, if I can repeal the Income Tax, because I want illegal immigrants and other law-breakers to pay whether they earn income legally OR NOT. I want all teh poor people to have skin in the game. Let them get a “pre-bate” of $5000 when they FILE THEIR TAX RETURNS LEGALLY. If they don’t file their tax returns, then no pre-bate. I would like to see the illegals and drug dealers file tax returns in order to get money back.


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