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A scary Texas legal system

[Originally appeared as an op-ed in the Houston Post under the title, "Some of the very bad reasons our legal system is well-known", Feb. 20, 1993].

Not long ago the New York Times ran a story about a lawsuit between two big companies. The subject of the dispute seemed dry: cases like it were going on all over. But the writer said this suit was like "a horror movie monster", with Wall Street "sitting up and taking notice" of the potentially "devastating" damage it could do.

What made this legal case so frightening to business readers?

It was going to trial in Texas.

"On the mind of almost everyone involved in the case is the reputation of Texas juries," explained the Times' writer. Since the Pennzoil-Texaco affair, he wrote, national businesses have "lived in fear" of Texas courts.

Are your ears burning yet?

They should. People around the world are talking about Texas' legal system, and what they say isn't flattering.

"The big verdicts in the Lone Star State are a plaintiff lawyers' dream," the National Law Journal reported last month. "...many defense lawyers feel the game is rigged against them." Of 15 mega-verdicts (over $100 million) covered by the magazine in the past four years, seven have come from Texas.

It's one of the big negatives in what ought to be a great business climate.

"It might be prudent to move operations to another state altogether," an article in London's Financial Times warned after Dow v. Alfaro, the famous decision that invites people from all over the world to bypass their boring old hometown courts and sue here.

The Texas Supreme Court thought it was being very progressive in Alfaro, but other states didn't follow its rule. Nor was there a great rush to emulate the extreme Texas rule against "protective orders", under which lawyers can obtain internal memos and secrets from their opponents and use them to recruit more clients and stir up more litigation even if the opponent is never found to have done anything wrong at all.

Last year, another Texas jury, in a case the New York Times says "sent chills through defense lawyers," found an energy company liable for the "wrongful dismissal" of a manager. They ordered it to pay $124 million in damages -- a number they might have plucked from a spinning barrel. The company reportedly settled by paying a mere $9.5 million. It's like a state lottery, only with higher overhead.

One way to improve the chances of keeping your corporate treasury from being handed over to disgruntled ex-managers is to keep your management jobs out of Texas.

Other states know that, too. Angling for relocation business, they boast of having legal systems where it's considered just as important to keep innocent parties from getting dragged through litigation as it is to give everyone a swing at the solvent defendant's pinata. Lawmakers around the country are enacting legal-reform packages, amid talk of not wanting their states to be like Texas.

Of course, we also hear some lawyers talk as if suing people is a wonderful new industry in and of itself.

Last year, after filing a suit in Orange County on behalf of more than 1,700 Alabama residents claiming injury from asbestos, the plaintiff's lawyers told the Beaumont Enterprise-Journal that the mega-suit would do wonders for the area's economy: "Lawyers, expert witnesses, doctors from all over the world will by flying in and staying in Orange motels, eating at Orange restaurants and buying gas at Orange stations."

In Austin, word seems to be getting through, just in time before the last lawyer in River Oaks leaves. SB 4, which would overturn Alfaro, passed the Senate 31-0 and may go before the House Monday.

But even if the Legislature, or the Texas Supreme Court, cleans up a few of the problems, they'll face the same problem Mario Cuomo has with the New York income tax: do away with a few of its worst features and it still won't make it up to number 49 in the rankings.

For that, something more systematic is needed. Maybe a way of picking judges that doesn't leave them so dependent for campaign money on lawyers who practice before them. Maybe a further reform of punitive damages, now awarded under a very vague standard for finding gross negligence. Maybe more frequent sanctions against wrongful lawsuits, or even the germ of a "loser-pays" principle, the way Alaska (and most foreign countries) do it.

Until something like that happens, Texas courts will go on deserving their reputation as a place where out-of-state defendants get barbecued, carved up and served with paper napkins. And while a few lucky clients and hungry lawyers munch out, the rest of the state will go on paying the bill.