“LOSER PAYS” LAW

Potential clients need to be aware of the fact that there has been much lawsuit reform enacted in the state of Texas. The purpose of the reform is to limit frivolous lawsuits. However, in doing so, Texas has made it increasingly difficult for plaintiffs (the party filing lawsuits) with legitimate claims to recover monetary damages. Texas Governor Rick Perry, a Republican, signed into law what is commonly referred to as the “Loser Pays”, effective September 1, 2011.

The “Loser Pays” law is multi-faceted. One provision of same mandates that the trial court grant or deny motions to dismiss within forty-five days of filing. It also provides for mandatory attorneys’ fees and costs to the prevailing party, including a plaintiff who successfully avoids dismissal. Texas has not had such an early dismissal requirement before the enactment of the “Loser Pays” law.

The “Loser Pays” law applies to cases such as personal injury cases and other types of cases taken on a contingency fee basis. Significantly, this law affects the amounts that parties may recover. Specifically, Texas Civil Practice and Remedies Code §42.004 addresses the award of litigation and states the following:

(a)  If a settlement offer is made and rejected and the judgment to be rendered will be significantly less favorable to the rejecting party than was the settlement offer, the offering party shall recover litigation costs from the rejecting party.

(b)  A judgment will be significantly less favorable to the rejecting      party than is the settlement offer if:

(1)  the rejecting party is a claimant and the award will be    less than 80 percent of the rejected offer; or

(2)  the rejecting party is a defendant and the award will be

more than 120 percent of the rejected offer.

(c) The litigation costs that may be recovered by the offering party under this section are limited to those litigation costs incurred by the offering party after the date the rejecting party rejected the settlement offer.

(d) The litigation costs that may be awarded under this chapter to any party may not be greater than the total amount that the claimant recovers or would recover before adding an award of litigation costs under this chapter in favor of the claimant or subtracting as an offset an award of litigation costs under this chapter in favor of the defendant.

 

Therefore, if a defendant offers a settlement of $100,000, but the plaintiff rejects the settlement offer and goes to trial and obtains a jury verdict of $80,000, then the defendant could collect attorneys’ fees and costs up to $80,000. Alternatively, if the plaintiff wins a jury verdict of $120,000, then the plaintiff could collect attorneys’ fees and costs but the amount would be limited to $120,000.

 

WHAT DEBTORS NEED TO KNOW ABOUT DEBT COLLECTION

Credit card issuers and their debt collectors have a certain amount of time within which they may legally collect on their debts. This time period is called the statute of limitations. In Texas, the statute of limitations to collect on an open account Is four years from the date of the last payment on the account. However, the four year statute of limitations may unknowingly be extended by a debtor if the debtor makes a payment on his or her account, even if it is a nominal amount such as twenty dollars, or if the debtor makes a promise to pay to the creditor. In such a case, the statute of limitations is reset for another four years from the date the last payment was made or from the date of the promise to pay.

Under Texas law, a debtor has the right to request that the creditor verify or validate the debtor’s debt if the debtor has been contacted by the creditor. The debtor should mail the creditor his debt validation request by certified mail, return receipt requested and request that the creditor respond in writing. Debtors should also know that many debts are sold by creditors to various third party debt collectors. If it is a third party debtor collector who is attempting to collect on the debt, they must be able to prove that they are the legitimate owner of the debt. The third party debt collector must also provide the debtor with specific information about the debt which verifies or validates the debt on which they are attempting to collect payment.

Pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. §1692G(a), within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing –

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

 

Pursuant to Texas Finance Code, §392.202(b),the third party debt collector has thirty (30) calendar days to respond to a debt validation request by sending a written statement to the debtor, either denying the inaccuracy; admitting the inaccuracy; or stating that the third party debt collector has not had sufficient time to complete the investigation of the inaccuracy. And, pursuant to Texas Finance Code, §392.202(c), if the third party debt collector admits that the item is inaccurate, they shall not later than the fifth business day after the date of the admission, correct the item in the relevant file and immediately cease collection efforts. Failure by the third party collection agency to comply with the debt collection statute subjects the third party debt collector to certain civil and criminal penalties.

            

RESOLUTION OF CASES

Lawsuits can settle at any time prior to trial. In Harris County, the district court judges usually order mediations in an attempt to get parties to resolve cases on the courts’ dockets without the necessity of a trial because this is more expeditious and less costly. Mediators are appointed to handle the mediations. A mediator is an attorney who is a neutral third party who facilitates communication among the parties, identifies key issues and interests, and encourages settlement.

Another way that a case may be resolved is through arbitration. Like mediations, arbitrations are out of court proceedings. However, arbitrations are unlike mediations in that they are like mini trials where witness testimony and evidence are introduced. There are some disadvantages to arbitration. Arbitrations are usually binding, meaning that the decisions of the arbitrators are final and not appealable. And, arbitrations are much more costly than mediations. The need for arbitration arises when an arbitration clause is part of a contract. An example of an arbitration clause is as follows:

“All claims and disputes arising under or relating to the Agreement

are to be settled by binding arbitration in the state of Texas. Any

decision or award as a result of any such arbitration proceeding

shall be in writing and shall provide an explanation of all conclusions

of law and finding of fact and shall include the assessment of costs,

expenses, and reasonable attorneys’ fees.”

 

Arbitration clauses can be found in the fine print of certain contracts, including insurance contracts and credit card agreements.

THE LITIGATION PROCESS

Litigation occurs when a party, the plaintiff, files suit against another party, the defendant. There can be more than one party on either side of a lawsuit. A party may consist of either an individual or a corporation. A lawsuit is brought when a party perceives that a wrong has been committed and seeks damages against the opposing party, usually for monetary damages. Sometimes, the defendant may also file a claim against the plaintiff, known as a counter-claim, if the defendant believes that he or it has been wronged by the Plaintiff. By law, there are certain time limitations within which a plaintiff must file suit, or else the plaintiff will be forever barred from exercising its legal rights and recovering. On the flip side, a defendant must respond to a lawsuit within a certain time or else risk a default judgment being rendered against the defendant. Thus, both parties to a lawsuit need to take the lawsuit seriously and should seek legal representation as soon as possible in order to protect their respective interests.

THE DISCOVERY PHASE OF LITIGATION

After a lawsuit is filed and prior to trial, both parties to a lawsuit have the right to discover more information about the opposing party’s case in preparation for trial. This is called “discovery” and is basically a fact gathering process. Discovery can be in the form of written questions, which are sent to the opposing party for them to answer and/or to produce documents. Certain objections may be raised by the opposing party if they believe that the requesting party is not entitled to the requested information. These objections may include that the information sought is irrelevant or protected by privilege. If there is a discovery dispute, the party requesting the discovery can request an oral hearing before the court to compel the opposing party to respond.

 

Discovery can also include depositions. The attorney for each party has the right to interview the witnesses for the opposing party. A deposition typically occurs in an attorney’s office. The attorneys for both sides are present as is the witness, otherwise known as the deponent. The deposition is taken under oath before a court reporter and carries the same weight as if the witness were testifying live before a judge and jury. Depositions can be used for various reasons. One reason is so that a party can learn what the other party knows about the case. Another reason is that a party can use the witness’ testimony at trial against the witness if the witness has testified differently in the deposition than at trial. Another reason why a deposition may be taken is to preserve the witness’ testimony if it is anticipated that the witness will be unavailable for trial.

 

The discovery phase should be considered the most important part of the lawsuit since it is during this phase that a party learns the strengths and weaknesses of the opposing party’s case.