For those who do business in Texas or are considering doing so, mark your calendars. September 1, 2024, is the birthdate of a new judicial system in Texas—the Texas Business Courts. This dramatic change aims to resolve complex business disputes more efficiently than under the current civil court system. Texas is somewhat late to the party as the 30th state to create such courts. Although the law (House Bill 19) became effective September 1, 2023, the new Business Courts won't hear cases until after September 1, 2024. Big things require considerable preparation: there is a 12-month ramp-up time to confirm judges, put in rules and erect the necessary infrastructure.
Why is Texas doing this?
There are several reasons, but the general idea is to have a forum for businesses to resolve their business disputes more quickly, to have judges with a business background or prior judicial experience decide such cases, and to try to foster a business-friendly environment. Time will tell whether the Business Courts will achieve such goals.
How many Business Courts will there be, and when will they open?
For starters, five judicial divisions will cover the Austin, Dallas, Fort Worth, Houston and San Antonio areas. These first divisions are pilot projects. The goal is to have 11 Business Court divisions throughout Texas eventually. The creation of the other six divisions, which would serve rural Texas, is deferred to the 2025 Texas Legislature for approval and funding.
How are Business Court judges qualified?
Business Court judges must be at least 35; a U.S. citizen; a resident of the division for at least five years; and a licensed attorney with at least 10 years of experience in corporate transactional work, complex business litigation, previous experience as a civil court judge in Texas or a combination of the three. With the advice and consent of the Texas Senate, the governor will appoint Business Court judges to two-year renewable terms. Each of the five initial divisions will have two judges, and the remaining six rural divisions—if created and funded by the 2025 Legislature—will have one.
How will the Business Courts work?
A party can file a suit in the Business Courts or remove a case to the Business Courts from the court in which the case was originally filed. HB 19 also has a transfer provision that will allow a court in which a case was initially filed to request the transfer of the case to the Business Court if it is deemed to be within the Business Court's jurisdiction.
What about jury trials?
Business Court cases can be tried by a jury when required by the Texas Constitution. Although the Business Courts will be statewide, jury trials will be held in the county where the case could have originally been filed. But if a contract between the parties to a Business Court case contains a venue provision, a jury trial of that case will occur in the agreed venue. The parties to a Business Court case can also agree to have a trial in any county they choose.
Will the Business Courts Issue Written Opinions?
Yes. One of the reasons the business community supported HB 19 is the requirement for the Business Courts to issue written opinions. Proponents say this should lead to a more developed commercial law body and inform businesses how their future disputes may pan out.
How does a party appeal a judgment from the Business Courts?
A new appeals court (the 15th Court of Appeals in Austin) will have exclusive intermediate appellate jurisdiction over the Business Courts. This appeals court will have five justices, initially appointed by the governor but elected after that.
Companies should examine contracts and consider whether to have such disputes handled in the Business Courts.”
What disputes will the Business Courts hear?
The Business Courts will hear disputes over $5 million or $10 million that fit within specific categories in the statute. A few examples include disputes regarding an organization's governance or internal affairs, securities litigation, and breach of contract in which the parties agreed to venue in the Business Courts. Regardless of the amount of controversy, if a company is publicly traded, the Business Courts will have jurisdiction if the case pertains to certain types of disputes, such as securities litigation.
Can parties agree to sue or be sued in the Business Courts?
Yes. HB 19 will likely influence how parties address venue and jurisdiction in their contracts. HB 19 authorizes parties to agree to the jurisdiction of the Business Court through their contract (provided at least $10 million is in controversy). Due to the small number of Business Court divisions and the appointment of judges, sophisticated parties may prefer having their commercial disputes heard in the Business Courts. But the devil is in the details. If one of the Business Court districts that is not yet authorized is the appropriate district, a company may consider including one of the districts already operating in the forum selection clause.
What do opponents of the Business Courts say?
Opponents say that the Business Courts create two justice systems and that no empirical studies show the need for judicial reforms in Texas. Further, the 15th Court of Appeals will prevent Texans from appealing their cases directly to locally elected judges. Expect constitutional challenges to the Business Courts, including the argument that appointing judges violates the Texas Constitution, which requires district court judges to be elected. Opponents further argue that the limited jurisdiction of the Fifteenth Court of Appeals violates the Texas Constitution, which requires that the Court of Appeals must have appellate jurisdiction co-extensive with the limits of their respective districts. Another potential challenge is that the Business Courts may violate the right to a jury trial.
Won't the Texas Business Courts lead to more commercial litigation?
Possibly, and here's how. One of HB 19's purposes is to require written opinions to have a more well-developed body of case law on complex business disputes. Without cases being filed in the Business Courts, there can be no judgments or written opinions. The more cases filed, the more written opinions. It will, of course, take time for a body of case law from the Texas Business Courts and the 15th Court of Appeals to develop.
Finally, is there anything businesses should be doing to prepare?
Like it or not, the Business Courts will be here before you know it. Now is the time to prepare and plan. Companies should examine contracts and consider whether to have such disputes handled in the Business Courts.
By talking now to your legal department or outside counsel to determine how the Business Courts may impact your company, you may be one step ahead of your adversaries by better understanding how the Business Courts will work to resolve certain commercial disputes.
Alan Dabdoub is a partner with Lynn Pinker Hurst & Schwegmann, representing plaintiffs and defendants in business torts, contract disputes, trade secrets litigation, fiduciary duty litigation, partnership disputes, and bankruptcy litigation.
