Texas Creates New Specialized Business Courts

The State of Texas is soon to join more than half of the other American states in establishing a set of civil courts dedicated solely to business litigation. Although Texas is a business-friendly state with low taxation and minimal business entity regulations, it has not historically had a court dedicated exclusively to resolving business disputes. Businesses in Texas, even those with high-dollar disputes, have thus far had to litigate those disputes in county or district courts throughout the state in front of judges and staff with no particular expertise in the area of complex commercial litigation. These business disputes can overwhelm district courts with complicated commercial agreements and complex securities issues and the courts’ ability to adjudicate other cases.

This summer, Texas's legislature enacted House Bill 19 (HB19) which will create specialized business trial courts called the Texas Business Courts (the “TBC”). The TBC’s stated primary objective is to provide a faster, more efficient, and more cost effective dispute resolution for businesses. Supporters of HB19 argue that the TBC will have the resources and expertise to handle complex commercial disputes, thereby streamlining the litigation process and relieving pressure on the other civil courts. These courts are scheduled to open on September 1, 2024.

Jurisdiction

The TBC will have jurisdiction over business matters in which the amount in controversy exceeds $5 million in some categories of cases, such as securities actions, breach of fiduciary duty, and piercing the corporate veil. In other types of business cases, including those involving purchase and sale agreements or mergers, the TBC’s jurisdictional minimum will be $10 million. The TBC will not hear cases involving medical malpractice, personal injury, or legal malpractice, even when one or more of the parties involved is a business and the amount at issue exceeds the TBC’s jurisdictional minimum.

System

The TBC will begin with five divisions that will oversee five regions of the state, including major cities in Texas. Eventually, the TBC system will expand to include more areas in Texas.

Judges

Unlike most courts in Texas in which judges are elected, the judges of the TBC will be appointed by the Governor for two-year terms, with reappointment possible. As HB19 is currently written, to be considered for appointment, a candidate for TBC judge must have at least ten years of experience practicing complex civil business litigation or transactional law, or serving as a judge of a Texas state court with civil jurisdiction. Upcoming guidance from the Texas Supreme Court is expected to encourage TBC judges to issue written opinions in all cases. Because Texas district court judges are not required to publish decisions, a robust body of caselaw on complex business matters has not formed in Texas. A more extensive body of commercial caselaw should enable businesses to be more proactive in seeking to comply with statutes and/or avoid common pitfalls in commercial transactions.

Process / Appeals

HB19 provides businesses the opportunity to transfer an existing case originally filed in a state court elsewhere to the TBC if if the dispute is within the TBC’s jurisdiction. HB19 also allows state court judges to transfer these cases to the TBC if within the TBC’s jurisdiction - even over the parties’ objections. Appeals from the TBC will be heard by a new statewide 15th Court of Appeals, also created in the most recent legislative session.

To navigate complex commercial disputes successfully, parties should consider whether the dispute could fall under the jurisdiction of the new Texas Business Court. The creation of these courts may also affect the drafting of commercial agreements. For example, companies may begin to include choice-of-venue clauses for Texas in order to have any disputes heard by the Texas Business Court. Parties should consult legal experts to ensure they make informed decisions in drafting commercial agreements and potentially filing suit in high-dollar commercial disputes.

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