Baseless Claims In Texas Now Have Financial Consequences

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Texas Law360 - September 30, 2013

On March 1, 2013, Rule 91a of the Texas Rules of Civil Procedure went into effect, permitting early challenges to allegedly baseless claims. The new rule permits a party to file a motion to dismiss a cause of action on the grounds that it has no basis in law or in fact. If the party prevails on its Rule 91a dismissal motion, it can recover attorney’s fees.

The provision is commonly referred to as a “Loser Pays” rule and was implemented as part of tort reform measures passed by the Texas Legislature in 2011. Supporters of the bill advocated that the early dismissal rule would help deter groundless lawsuits, while opponents argued that current law already contains sufficient checks on frivolous lawsuits and “if a motion to dismiss for failure to state a claim was created in Texas, it would move away from the general pleading system currently in use.”[1]

The Erosion of the American Rule

Tort reform measures of this nature are not unusual. Many states, such as Alaska, California, Florida, Indiana, New York, Oregon, Oklahoma and Tennessee, have some version of a “Loser Pays” law — often in the form of an offer of judgment provision such as the statute already in place in Texas.

To that end, Texas has been deviating from the “American Rule” regarding litigation fees and costs (requiring parties to bear their own fees) for some time, allowing a prevailing party to receive an award of reasonable attorney’s fees in declaratory judgment actions, suits for breach of contract, actions brought under the Deceptive Trade Practices Act as well as under various provisions of the Texas Probate Code, the Texas Property Code, the Texas Commission on Human Rights Act, the Texas Open Meetings Act and the Texas Theft Liability Act.[2]

House Bill 274

In May 2011, Texas Gov. Rick Perry signed into law HB 274 — tort reform legislation designed to “provide an ideal balance between lowering costs and improving fairness, while still providing access to the civil court system.”[3] As with other tort reform legislation, once House Bill 274 bill was enrolled, the Texas Supreme Court had authority to adopt and implement rules to carry out the legislation.

By its order dated Nov. 13, 2012, the Texas Supreme Court promulgated Rule 91a, which was subject to change following a public comment period that closed on Feb. 1, 2013. After that comment period, the court made certain minor revisions to the rule — which is now final, effective March 1, 2013.

Despite the fact that the original version of the bill made reference to the federal rules, the enrolled and enacted version eliminated any such reference. The text of the original version of HB 274 specified:

The Supreme Court shall adopt rules to provide for the fair and early dismissal of nonmeritorious cases ... and shall model the rules after Rules 9 and 12, the Federal Rules of Civil Procedure, to the extent possible.[4]

However, no reference to the Federal Rules is found in the enrolled version of HB 274, which provides:

The Supreme Court shall adopt rules to provide for the dismissal of causes of action that have no basis in law or fact on motion and without evidence. The rules shall provide that the motion to dismiss shall be granted or denied within 45 days of the filing of the motion to dismiss. The rules shall not apply to actions under the Family Code.

“Loser Pays” — Rule 91a

Pursuant to HB274, the Texas Supreme Court adopted Rule 91a, which states, “A cause of action has no basis in law if the allegations, taken as true, together with inferences reasonably drawn from them, do not entitle the claimant to the relief sought. A cause of action has no basis in fact if no reasonable person could believe the facts pleaded.”[5]

Notably, nothing in the text of Rule 91a indicates that a court must find an improper motive to award attorney’s fees. Rather, the award is based solely on a finding that the cause of action has no basis in law or in fact.

Also, because Rule 91a states that the motion to dismiss must be filed within 60 days after the first pleading containing the challenged cause of action is served on the movant, it does not address circumstances where a plaintiff continues to pursue a claim after facts or circumstances are discovered indicating the claim is baseless.

The specific language of Rule 91a provides:

91a.1 Motion and Grounds. Except in a case brought under the Family Code or a case governed by Chapter 14 of the Texas Civil Practice and Remedies Code, a party may move to dismiss a cause of action on the grounds that it has no basis in law or fact. A cause of action has no basis in law if the allegations, taken as true, together with inferences reasonably drawn from them, do not entitle the claimant to the relief sought. A cause of action has no basis in fact if no reasonable person could believe the facts pleaded.

91a.2 Contents of Motion. A motion to dismiss must state that it is made pursuant to this rule, must identify each cause of action to which it is addressed, and must state specifically the reasons the cause of action has no basis in law, no basis in fact, or both.

91a.3 Time for Motion and Ruling. A motion to dismiss must be:

(a) filed within 60 days after the first pleading containing the challenged cause of action is served on the movant;
(b) filed at least 21 days before the motion is heard; and
(c) granted or denied within 45 days after the motion is filed.

91a.4 Time for Response. Any response to the motion must be filed no later than seven days before the date of the hearing.

91a.5 Effect of Nonsuit or Amendment; Withdrawal of Motion.
(a) The court may not rule on a motion to dismiss if, at least three days before the date of the hearing, the respondent files a nonsuit of the challenged cause of action, or the movant files a withdrawal of the motion.

(b) If the respondent amends the challenged cause of action at least three days before the date of the hearing, the movant may, before the date of the hearing, file a withdrawal of the motion or an amended motion directed to the amended cause of action.

(c) Except by agreement of the parties, the court must rule on a motion unless it has been withdrawn or the cause of action has been nonsuited in accordance with (a) or (b). In ruling on the motion, the court must not consider a nonsuit or amendment not filed as permitted by paragraphs (a) or (b).

(d) An amended motion filed in accordance with (b) restarts the time periods in this rule.

91a.6 Hearing; No Evidence Considered. Each party is entitled to at least 14 days' notice of the hearing on the motion to dismiss. The court may, but is not required to, conduct an oral hearing on the motion. Except as required by 91a.7, the court may not consider evidence in ruling on the motion and must decide the motion based solely on the pleading of the cause of action, together with any pleading exhibits permitted by Rule 59.

91a.7 Award of Costs and Attorney Fees Required. Except in an action by or against a governmental entity or a public official acting in his or her official capacity or under color of law, the court must award the prevailing party on the motion all costs and reasonable and necessary attorney fees incurred with respect to the challenged cause of action in the trial court. The court must consider evidence regarding costs and fees in determining the award.

91a.8 Effect on Venue and Personal Jurisdiction. This rule is not an exception to the pleading requirements of Rules 86 and 120a, but a party does not, by filing a motion to dismiss pursuant to this rule or obtaining a ruling on it, waive a special appearance or a motion to transfer venue. By filing a motion to dismiss, a party submits to the court's jurisdiction only in proceedings on the motion and is bound by the court's ruling, including an award of attorney fees and costs against the party.

91a.9 Dismissal Procedure Cumulative. This rule is in addition to, and does not supersede or affect, other procedures that authorize dismissal.[6]

Baseless Versus Groundless

Although Rule 91a uses the phrase “no basis in law or fact”, it does not use the definition of “groundless” employed by both Rule 13 of the Texas Rules of Civil Procedure and Section 9 of the Texas Civil Practices and Remedies Code.

Rule 13 of the Texas Rules of Civil Procedure provides:

The signatures of attorneys or parties constitute a certificate by them that they have read the pleading, motion or other paper; that to the best of their knowledge, information and belief formed after reasonable inquiry the instrument is not groundless and brought in bad faith, or groundless and brought for the purpose of harassment .... 

Courts shall presume that pleadings, motions and other papers are filed in good faith. No sanctions under this rule may be imposed except for good cause, the particulars of which must be stated in the sanction order. “Groundless” for purposes of this rule means no basis in law or fact and not warranted by good faith argument for the extension, modification or reversal of existing law. A general denial does not constitute a violation of this rule. The amount requested for damages does not constitute a violation of this rule.[7]

Similarly, Section 9 of the Texas Civil Practices and Remedies Coddefines “groundless” as:

(A) no basis in fact; or

(B) not warranted by existing law or a good-faith argument for the extension, modification or reversal of existing law.[8]

Objective or Subjective Standard of Review

Texas courts have historically employed an objective standard in determining whether a pleading is groundless, looking to the facts available to the litigant and the circumstances at the time suit was filed.[9]

However, when it eliminated the use of the word “groundless” and permitted a court to disregard factual allegations that “a reasonable person could not believe,” did the Legislature impliedly adopt the federal subjective “plausibility standard” articulated in Bell Atlantic Corp. v. Twombly?[10]

Under a plausibility analysis, a court “begins by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.”[11]

Critics of the plausibility standard argue that it eliminates well-established notice pleading, denies access to justice and may lead to inconsistent results.[12] Advocates contend, however, that even notice pleading requires more than “a formulaic recitation of the elements of a cause of action.”[13] To subject a defendant to legal costs and the costs of discovery when a plaintiff only has a hunch is fundamentally unfair.[14]

Every lawyer should be mindful of the provisions of Rule 91a when drafting petitions and in answering pleadings, because as of March 1, 2013 — baseless claims now have financial consequences.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice. 

[1] House Research Organization, analysis of HB 274, page 7 (5/7/2011). 
 
[2] Id.
 
[3] Id. at page 4.

[4] Original Bill – page 9.
 
[5] Tex. R. Civ. P. 91a.

[6] Tex. R. Civ. P. 91a.

[7] Tex. R. Civ. P. 13 (emphasis added). 
 
[8] Tex. Civ. Prac. & Rem. Code § 9.001.
 
[9] See, e.g., In re United Servs. Auto. Ass'n, 76 S.W.3d 112, 116 (Tex.App.-San Antonio 2002, orig. proceeding) (“To determine if a pleading was groundless, the trial court uses an objective standard: did the party and counsel make a reasonable inquiry into the legal and factual basis of the claim?”). 

[10] 550 U.S. 544 (2007); See David Shank, Blawgletter, Barnett’s Notes on Commercial Litigation (January 9, 2012) (noting that the fact that the court can disregard certain factual allegations sounds an awful lot like the plausibility standard of Twombly and: “We don’t need no stinkin’ Twombly badges in Texas.”).

[11] Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

[12] A. Benjamin Spencer, Plausibility Pleading, 49 B.C. L. REV. 431, 479 (2008) (“The Twombly standard is troubling because, in relying on such concerns, the Court appears to have exalted goals of sound judicial administration and efficiency above the original core concern of the rules: progressive reform in favor of expanding litigant access to justice. Thus I believe what we are witnessing is simply the latest and perhaps final chapter in a long saga that has moved the federal civil system from a liberal to a restrictive ethos.”).

[13] Iqbal, 556 US. at 678.

[14] Stephen R. Brown, Reconstructing Pleading: Twombly, Iqbal, and the Limited Role of the Plausibility Inquiry, 43 AKRON L. REV. 1265, 1298-99 (2010).