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Roulette With Your Money

May 31, 2011

Yay, Texas:

In a unanimous vote last week, the Texas senate adopted ‘loser pays’ tort-reform legislation, which says that a plaintiff must pay the winning party’s legal fees if their complaint is judged to be groundless. On Wednesday, the Texas house concurred. Governor Perry, who had championed the legislation from its inception, signed it Monday night.

The Wall Street Journal editorialized, “This Texas upgrade will build on reforms in 2003 and 2005 that have vastly improved the legal climate in what has not coincidentally become the country’s best state for job creation. Texas rewrote everything from class-action certification to product liability” — and I would add the state’s medical-malpractice reforms to that list.

The business environment has been nothing but toxic lately, and this is a nice breath of fresh air.  I have no problems with the legal system as we have it in America.  It’s a reasonable system that manages to capture most of the bad guys while keeping most of the good guys out of jail.  Yes, there are always exceptions, but I have to be a pragmatist at some point.  The biggest issue I’ve seen is the fight against frivolous lawsuits, and it’s one that’s driven people out of high-risk businesses (i.e. medicine) due to insurance and general hassle.

This bill now means that businesses can feel free to act like a business instead of worrying about every little risk.  For instance: my wife runs a small promotions business, and we’ve logoed both cars.  Now if there’s an accident, the business is at risk, since the car has a logo on it.  I don’t necessarily fault people for using the system to gain the most.  People have a built-in greed calculator that sees opportunity.  In Texas, that opportunity comes with a splash of risk if you’re just planning to wildly sue.

You want that in real money?

The cost of tort litigation is strangling the U.S. and small businesses in particular. According to Marie Gryphon of the Manhattan Institute, the cost of tort litigation topped $247 billion in 2006. The National Federation of Independent Business estimates that tort litigation costs small businesses over $105 billion annually, $35 billion of which comes out of their pockets, not insurance.

There’s your real money.

I hope other states move in this direction.  I’d think about Federal legislation, but they’d just mess it up, and exempt the DOJ along with whatever they do.  Anyway, I hope this catches on.  And it probably will once businesses start flowing to Texas.


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