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'Loser Pays' Reform a Win for Texas Small Business?

By Stephanie Rabiner, Esq. on June 02, 2011 | Last updated on March 21, 2019

After passing with overwhelming support in both houses of the Texas State Legislature, Governor Rick Perry signed Texas' "loser pays" bill into law earlier this week.

An extension of tort reform bills passed in the last 10 years, the "loser pays" law is being championed as the antidote to an overcrowded court system and frivolous lawsuits.

But is "loser pays" good for small businesses?

The intended purpose of Texas' "loser pays" law is to dissuade residents from filing low-merit lawsuits; arguably, fewer people will risk paying the defendant's legal fees if there is little chance of winning.

The National Federation of Independent Businesses places tort litigation costs for small businesses at about $105 billion annually, a third of which is paid by business owners themselves, reports the National Review.

Theoretically, if Texas' "loser pays" law leads to fewer tort lawsuits overall, small business owners should see a drop in those numbers. This would be especially true of small, but costly lawsuits that are backed by little evidence.

However, the law still leaves room for the filing of these suits.

Plaintiffs can still use the threat of a suit to extract settlements, and even file lawsuits that they can eventually have dismissed.

And then there's the other side of the coin: what if you want to file a lawsuit?

There are situations where a dispute arises between a small business owner and a supplier or company that has more resources. What happens when the suit is meritorious, but the law is not incredibly clear?

Will Texas' "loser pays" law prevent you from seeking recovery?

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