"Loser Pays" Tort reform Legislation Making its Way Through Texas Legislature

On March 10, 2011, Rep. Brandon Creighton (R-Conroe) introduced House Bill 274 (HB 274) in the Texas Legislature. The proposed legislation is widely-touted as a "tort reform" or "loser pays" initiative. A watered-down version of the bill passed the Texas House of Representatives on May 9, 2011 by a vote of 96 Yeas, 49 Nays, and 3 Present, not voting. It is now pending in the Texas Senate.

The original, introduced version of the bill contained the following policy statement:

It is the policy of this state that all civil actions be disposed of fairly, promptly, and with the least possible expense to the litigants and to the state.

Although that express statement was removed from the bill as it worked its way through the Texas House of Representatives, such an underlying intent is still readily apparent. Only now, the initiative is touted as one proposing "certain reforms to make the civil justice system more efficient, less costly, and more accessible." Without a doubt, the bill is designed to change the landscape of fee and cost shifting related to lawsuits filed in Texas.

Among other provisions, the measure would "reform" the procedures under which parties may recover costs and attorneys' fees, and would also make available new procedures whereunder lawsuits may be dismissed on an expedited basis with fees and costs awarded against the party filing the dismissed suit.

The following highlights from the Bill Analysis of HB 274, as revised by the House Judiciary & Civil Jurisprudence Committee reflect the major features of the bill (C.S. = Committee Substitute, which is the version of the legislation that was approved by the full texas House):

Early Dismissal of Actions

C.S.H.B. 274 amends the Government Code to require the supreme court to adopt rules to provide for the dismissal of certain causes of action that the supreme court determines should be disposed of as a matter of law on motion and without evidence.

C.S.H.B. 274 amends the Texas Civil Practice and Remedies Code to authorize a court, in a civil proceeding, on a trial court's granting or denial, in whole or in part, of a motion to dismiss filed under the rules adopted by the Texas supreme court Section 22.004(g), Government Code, to award costs and reasonable and necessary attorney's fees to the prevailing party that the court determines are equitable and just.

Expedited Civil Actions

C.S.H.B. 274 amends the Texas Government Code to require the supreme court to adopt rules to promote the prompt, efficient, and cost-effective resolution of civil actions in which the amount in controversy, inclusive of all claims for damages of any kind, whether actual or exemplary, a penalty, attorney's fees, expenses, costs, interest, or any other type of damage of any kind, is more than $10,000 but does not exceed $100,000. The bill requires the rules to address the need for lowering discovery costs in these actions and the procedure for ensuring that these actions will be expedited in the civil justice system. The bill prohibits the supreme court from adopting rules that conflict with the Family Code, the Property Code, the Tax Code or Chapter 74 of the Civil Practice and Remedies Code.

Appeal of Controlling Question of Law

C.S.H.B. 274 amends the Texas Civil Practice and Remedies Code to authorize a trial court in a civil action, on a party's motion or on its own initiative and by written order, to permit an appeal from an order that is not otherwise appealable if the order involves a controlling question of law as to which there is a substantial ground for disagreement, and an immediate appeal may materially advance the termination of the litigation.

Recovery of Attorney's Fees

C.S.H.B. 274 amends the Civil Practice and Remedies Code to establish that the prevailing party, rather than only the claimant, may recover reasonable attorney's fees from an individual, corporation, or other legal entity if a claim is for breach of an oral or written contract. The bill makes conforming changes and specifies that the bill's provisions relating to the recovery of attorney's fees are effective September 1, 2011.

Allocation of Litigation Costs

C.S.H.B. 274 amends the Civil Practice and Remedies Code to redefine "litigation costs" to include reasonable deposition costs and to redefine "settlement offer." The bill specifies that provisions of law relating to offers of settlement do not apply to an action filed in a small claims court. The bill specifies that an offer to settle or compromise a claim that does not comply with provisions of law relating to making a settlement offer does not entitle any party, rather than only the offering party, to recover litigation costs.

C.S.H.B. 274 authorizes a defendant filing a declaration under provisions of law relating to making a settlement offer and any party with a claim against that defendant to make a settlement offer to settle all claims in the action between the parties. The bill specifies that the parties are not required to file a settlement offer with the court. The bill specifies that the litigation costs that may be recovered by the offering party are limited to those litigation costs incurred by the offering party after the date the rejecting party rejected the earliest settlement offer that entitles the party to an award of litigation costs. The bill repeals provisions of law relating to a limitation on recovery of litigation costs and to the awarding of litigation costs as an offset.

Recovery of Attorney's Fees in Adverse Possession Cases

There is little doubt that adverse possession lawsuits can be costly. Litigants to these title disputes -- where the key evidence is necessarily historical and often pre-dates current ownership of a given property -- frequently incur substantial expense in surveys, document searches, depositions of prior owners, expert witnesses and title searches. Naturally, a real estate lawyer's time associated with weaving or undermining a credible claim for ownership which is contrary to "legal title" as it appears in the deed records can also translate into significant attorneys' fees. Thus, property owners with boundary disputes often inquire about the possibility of recovering their costs and attorneys' fees in the event that the prevail in an adverse possession case.

For all its criticism, the Texas Legislature has generally been sensitive to the sanctity of land ownership in Texas. For that reason, it enacted Section 16.034(a) of the Texas Civil Practice and Remedies Code to allow the Court (in its discretion) to award costs and reasonable attorneys' fees to the prevailing party in a suit for the possession of real property where one party is "claiming under record title to the property and one claiming by adverse possession." TEX. CIV. PRAC. & REM. CODE ANN. § 16.034(a). However, this grant of discretionary authority for trial courts to award fees didn't have much of an impact on the number of adverse possession suits, including those where claims of ownership by adverse possession were simply frivolous.

To address this concern, statutory revisions were made in 2009, and Section 16.034(a) now requires the trial court to award attorney’s fees “if the court finds that the person unlawfully in actual possession made a claim of adverse possession that was groundless and made in bad faith, . . . .” TEX. CIV. PRAC. & REM. CODE ANN. § 16.034(a) (Vernon Supp. 2009).

The issue of unlawful possession is still part and parcel of the availability of attorney’s fees under section 16.034(a). TEX. CIV. PRAC. & REM. CODE ANN. § 16.034(a). However, under the statutory revisions, the presence of these elements, together with a finding of bad faith, frivolity and/or groundlessness will necessarily result in the shifting of costs and attorneys' fees.

When considering whether to litigate a trespass, title dispute or adverse possession claim, a landowner shouldn't count on having the opposing party pay his or her attorneys' fees. However, given the 2009 revisions to Section 16.034(a), the frequency of such recovery in those cases involving groundless claims of adverse possession seem much better.

Did your HOA Jump the Gun When it sued you? If so, you may be spared paying their Attorneys' Fees

Homeowners Associations are filing more lawsuits than they used to. I'm not sure of the reason for this, but the types of suits are as varied as are the subdivisions in Texas. In many instances the suits seek to collect upon unpaid assessments. In others, they are filed to enforce declarations/CCRs/restrictive covenants. In virtually all cases -- irrespective of the nature of the HOA's claims -- there is a request for recovery of attorneys' fees and court costs. It is important to note that HOAs are not automatically entitled to recovery of their costs and fees in every case. Further, many times HOAs are required to provide written notice prior to filing suit. If an HOA or its attorney fails to follow the strict procedure required by the Texas Property Code, costs and/or fees may not be recoverable.

Section 209.006 of the Texas Property Code generally mandates notice before an enforcement lawsuit may be filed by a Homeowners Association. It provides:

(a) Before a property owners' association may suspend an owner's right to use a common area, file a suit against an owner other than a suit to collect a regular or special assessment or foreclose under an association's lien, charge an owner for property damage, or levy a fine for a violation of the restrictions or bylaws or rules of the association, the association or its agent must give written notice to the owner by certified mail, return receipt requested.

Subsection (b) of Section 209.006 provides that the notice must: (1) describe the violation or property damage that is the basis for the suspension action, charge, or fine and state any amount due the association from the owner; and

(2) inform the owner that the owner: (A) is entitled to a reasonable period to cure the violation and avoid the fine or suspension unless the owner was given notice and a reasonable opportunity to cure a similar violation within the preceding six months; and (B) may request a hearing under Section 209.007 on or before the 30th day after the date the owner receives the notice.

It is important to understand that certain types of suits -- those seeking a Temporary Restraining Order or Injunctive Relief -- are not subject to the notice provisions. However, a party to such a suit may request that the Court compel mediation. See Section 209.007(d)

Written notice is also a prerequisite in those instances where an HOA seeks recovery of attorneys' fees or costs. Such claims are governed by Texas Property Code Section 209.008(a), which provides:

"A property owners' association may collect reimbursement of reasonable attorney's fees and other reasonable costs incurred by the association relating to collecting amounts, including damages, due the association for enforcing restrictions or the bylaws or rules of the association only if the owner is provided a written notice that attorney's fees and costs will be charged to the owner if the delinquency or violation continues after a date certain."

Many times, an Association and/or its lawyer will fail to issue the notice required by Section 209.008. In those instances, there is a good chance that an Owner or other person sued by an HOA can avoid having the HOA's fees and costs taxed against them.

Any time you are sued -- whether by an HOA or otherwise -- you should make a timeline of events leading to the suit. The Property Code is not the only provision of Texas law that requires notice before attorneys' fees can be recovered. A similar provision exists in contract disputes and other legal contexts. Knowledge is power, and it is higly advisable to consult with both the applicable law and an experienced attorney any time you are faced with litigation.

Perhaps one day HOA litigation will slow down - there are initiatives pending at the Texas Legislature which might curtail the filing of some HOA-related suits. Until then, read your CCRs, abide by the covenants, and remain ever-vigilant of your rights under Texas law.