Monday, May 9, 2011

Loser Pays Isn't a Bad Idea, But Texas is Doing it Badly

So, over in Texas they have passed a new law for breach of contract cases which moves the system to loser pays.

I don't think that the concept of loser pays is a bad idea in general. Too often, in the system used by a majority of states in which each side bares the burden of its own legal costs regardless of outcome, plaintiffs are not made whole after they are wronged by a defendant because they have to pay the cost to bring suit to their lawyers, experts, and others. Under a loser pays system, in contrast, such a plaintiff has the opportunity to actually be made whole.

Still, it should be kept in mind that the legal system is inherently biased against wronged plaintiffs. It is not enough that a wrong in violation of law has been done. It is necessary to prove that violation in a court of law after getting one's evidence properly admitted through the technical and complicated mess that is evidence law. This is not always an easy thing to do by any means and there are many instances where a legal wrong occurs without any sort of remedy as a result. If you can't prove it formally in a court of law in compliance with intricate rules of procedure, it is as though it never happened.

While loser pays is not in general a bad idea, the Texas law, not surprisingly given who is currently in power, is a somewhat imbalanced implementation of the loser pays system. It tips the scales in favor of defendants by requiring even winning plaintiffs to pay the defendant's attorney fees if they fail to properly estimate the value of a settlement offer. So, if the result after trial is less than 80% of a settlement offer, the plaintiff may end up owing the defendant more in attorney fees than they are awarded by prevailing in the lawsuit. Of course, given the inherent uncertainty of legal proceedings, knowing when to accept or reject a settlement offer is often very difficult. Here, the legislature is trying to coerce plaintiffs to accept unfair low-ball settlement offers by harshly punishing them if they guess wrongly. So, what you have is an unbalanced system which systematically favors those who violate the rights of others under the civil law.

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