GUEST-POST | Texas “Loser Pays” Rules May Exclude Mediation in Some Small Cases But Overall Impact Muted

By Mike Schless and Don Philbin

The “Loser Pays” Legislation that passed the 82^nd Legislature and became effective September 1, 2011 did not contain the highly controversial loser pay provision of earlier drafts, but did direct the Texas Supreme Court to adopt rule revisions, one of which could impact ADR practice in smaller cases.

Among other things, HB 274 required 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 attorney’s fees does not exceed $100,000. Tex. Gov’t Code §22.004(h).

The Supreme Court appointed a Task Force for Rules in Expedited Actions.[1] The central issue in Task Force deliberations became whether the Expedited Rules would be mandatory, voluntary, or a hybrid.

The Texas Trial Lawyers Association (TTLA), the Texas Association of Defense Council (TADC), and the Texas Chapter of the American Board of Trial Lawyers (TEX-ABOTA) (an association of trial lawyers representing plaintiffs and defendants) aligned to recommend a purely voluntary rule. In doing so, they also recommended that the voluntary rule prohibit trial judges from ordering ADR procedures when the parties elect to proceed under the expedited process.

A dozen current and former leaders of Association of Attorney Mediators (AA-M), the State Bar of Texas ADR Section, and the Supreme Court Advisory Committee on Court-Annexed Mediation responded by urging that this language not be included in the rule.

The Task Force issued its Final Report on January 25, 2012. The report unanimously adopted the TTLA/TADC/TEX-ABOTA position with helpful changes after carefully considering various communications from ADR practitioners extolling the efficiencies of ADR procedures and emphasizing the State’s longstanding public policy in favor of ADR initiatives and made helpful revisions as a result:

Alternative Dispute Resolution. Unless the parties have agreed to engage in alternative dispute resolution or are required to do so by contract, the court must not – by order or local rule – require the parties to engage in alternative dispute resolution.

The submissions and Task Force deliberations were heard by the Supreme Court Rules Advisory Committee (SCAC) on January 27, 2012. Four representatives of the ADR-provider community attended that meeting.[2] Most of the discussion continued to turn on the issue of whether the rule should be mandatory or voluntary. A non-binding straw poll was taken, and by a margin of nearly two to one, the SCAC favored a voluntary rule.

So, assuming no change in the Task Force recommended language regarding ADR, and further assuming that the rule remains voluntary, there should be minimal impact on ADR users in Texas.

Users will still have a choice. If they wish to use an ADR process, they can simply opt out of the expedited trial procedure. Conversely, if they choose the expedited procedure, they can still avail themselves of an ADR procedure if the other parties agree or if a contract requires it.

Even if the rule is mandatory, and both parties agree, there can still be an ADR procedure. If one party desires an ADR procedure, even though the other party does not, a party could potentially avoid the application of the mandatory rule by pleading out of it. There are several ways to do that under the current proposal.

The impact will likely be in cases where all parties plead within the rule and one party wants to use an ADR procedure but there is no agreement to do so. In such cases, Texas might have the anomalous situation in which a statute[3] authorizes a judge to order an ADR procedure, but a Supreme Court rule prevents the judge from doing so.

For the DRCs and others who mediate cases within the ambit of HB 274 in district and county courts, a mandatory rule could significantly impact the availability of mediation services when fewer than all of the parties want both an expedited trial process and an ADR process.

The issue is now in the hands of the Texas Supreme Court.

Don Philbin is an AV-rated attorney-mediator, negotiation consultant and trainer, and arbitrator. He has resolved disputes and crafted deals for more than two decades as a business and commercial litigator, general counsel, and president of communications and technology-related companies. Don holds a Masters of Law degree from Pepperdine‘s top-ranked Straus Institute for Dispute Resolution, where he is now an adjunct professor, has trained and published at Harvard’s Program on Negotiation, is an elected Fellow of the International Academy of Mediators and the American College of Civil Trial Mediators, a member of the Texas Academy of Distinguished Neutrals, and was one of the first U.S. mediators certified under the international standards established by the International Mediation Institute. He has mediated hundreds of individual and class matters in a wide variety of substantive areas and serves as a neutral on several panels, including CPR’s Panels of Distinguished Neutrals. Don has published widely in the field, is Chair of the ABA Dispute Resolution Section‘s Negotiation Committee, and a member of the ADR Section Council of the State Bar of Texas. Mr. Philbin is listed in THE BEST LAWYERS IN AMERICA, TEXAS SUPER LAWYERS, and THE BEST LAWYERS IN SAN ANTONIO. His firm is listed in the inaugural edition of U.S. News and Best Lawyers “Best Law Firm” survey and the BAR REGISTER OF PREEMINENT LAWYERS.