Texas Gov. Rick Perry signs HB 274 into law on May 30.
The American Tort Reform Foundation has released its annual "Judicial Hellholes" report, and this year's report includes some good news – and some bad news – for the Lone Star State.
The good news is that the Foundation saw the passage of Texas' new "loser pays" and anti-barratry legislation as a "Point of Light."
The bad news is that the federal courts for the Eastern District of Texas made the report's "Watch List."
Since 2002, the American Tort Reform Foundation's Judicial Hellholes program has published the annual report of what is sees as various abuses within the civil justice system and jurisdictions where courts are radically out of balance.
For years, Jefferson County ranked as one of the top hellholes, but since Texas implemented major tort reforms in 2003 the area has fallen from the dubious list.
This year, the Foundation has given kudos to the Texas Legislature for continuing important reforms to the state's legal system.
"As anemic economic growth and high unemployment continued to plague much of the country throughout the past year, many governors and state legislators were determined to make their states more competitive and attractive to employers," the report states. "Thus enactment of a variety of tort reform measures figured prominently in these policymakers' pro-growth, job-creation agendas."
House Bill 274, known as the "loser-pays" legislation, allows the winning party to recover the costs of litigation in breach of contract suits and other cases. Supporters say the bill would encourage parties to settle, would make it easier to dismiss frivolous lawsuits and would expedite cases, improve court efficiency and decrease court costs.
In addition, Texas passed Senate Bill 1716, which protects accident victims from improper solicitations from lawyers, known as an anti-barratry law.
The bad news
The Judicial Hellholes project calls attention to jurisdictions that bear watching, but don't necessarily rank as a "hellhole."
In the current report, the federal court in the Eastern District of Texas made the Watch List as the "Center of the Patent Litigation Universe."
"The Judicial Hellholes report has rarely found it necessary to shine its spotlight on federal courts," the report states. "But continuing practices in the U.S. District Court for the Eastern District of Texas, which have driven an ongoing surge of patent litigation there, demand special consideration this year."
The report notes that the U.S. Supreme Court has now heard seven major patent cases in the past six years, most recently ruling in Microsoft v. i4i.
"The frequency of such cases signals that patent law is complex and seems subject to varying interpretations by different federal courts," the report states. "In any case, patent litigation is a growing business (and costly to consumers), and nowhere is that business growing faster than in the ED Texas."
Behind that growing business are the so-called "patent trolls" who buy up patents for the purpose of filling infringement lawsuits. ATRF says the litigation "threatens some of America's most innovative job creators and financial service providers."
In 2002, only 32 patent cases were filed in Eastern Texas. By 2010, there were 299 filings, according to the report.
"That was more than all other federal court districts, respectively, including the corporate headquarter-rich District of Delaware (255) and Southern District of New York (102), and even the Northern District of California (180), home to Silicon Valley technology leaders," the report states.
The report notes that many defense attorneys who are critical of the jurisdiction point to local rule changes initiated years ago by former Chief Judge T. John Ward (Marshall Division) and embraced by Judge Leonard Davis (Tyler Division) and current Chief Judge David Folsom (Texarkana Division).
"These problematic rules in the ED Texas have served to speed up trials, largely to the advantage of patent plaintiffs who enjoy both a rate of success and average award for damages there that are among the highest of all federal court districts," the report states.
The result is that patent defendants in the ED Texas "find it all but impossible to have flimsy claims against them dismissed on summary judgment, meaning they must undertake the significant expense of preparing for trial or, fearing the risk of gigantic jury verdicts, engage in invariably costly settlement negotiations," the ATRF report states.
Plaintiff attorneys, on the other hand, say they flock to Eastern Texas because the court understands complicated patent laws and is a "model of efficiency."
Judge Ward retired from the bench this year and has joined a patent law practice based in Longview.
The full text of the ATRF's "Judicial Hellholes" report can be viewed at http://www.atra.org/reports/hellholes/.