By Chris Bankler & Byron Egan
In new legislation signed today by Governor Abbott, Texas has revamped its Court system for resolving business disputes with the creation of new trial and appellate courts with judges to be appointed by the governor with the consent of the Senate. The landmark legislation, known as House Bill 19 (H.B. 19), will be effective September 1, 2023, but will apply only to actions commenced on or after September 1, 2024.
As a result of some of the novel features of the Texas Business Courts detailed below, the creation of the Texas Business Courts has followed a long and winding road, with prior efforts having stalled in previous legislative sessions for myriad reasons. With the passage of H.B. 19, any challenges to the constitutionality of the Business Courts will be decided by the Texas Supreme Court, which has been given exclusive and original jurisdiction over any constitutionality disputes.
H.B. 19, which garnered bipartisan support, addresses the growing need for specialized courts to handle complex business litigation. The new courts are designed to handle a wide range of commercial disputes, including contract disputes, fiduciary duty claims, and other corporate governance issues. By creating a dedicated venue for these cases, lawmakers hope to expedite proceedings, enhance expertise, and deliver more predictable outcomes for businesses.
The major components of the Texas Business Courts bill include:
- Establishment of Specialized Courts and Court of Appeals: The legislation provides for the creation of specialized Business Courts in major metropolitan areas across Texas. Contemporaneous with the Texas Business Courts bill, the Texas Legislature has created a new 15th Court of Appeals to handle appeals from the Business Courts.
- Assignment of Cases: The Business Courts bill outlines a process for filing cases in the Business Courts or moving cases to the Business Courts from other Texas trial courts. Complex business disputes meeting specific criteria, such as the monetary value of the case or the subject matter involved, will be eligible for assignment to these specialized courts. While the specific criteria are too detailed to reproduce here, the Business Courts will generally be empowered to decide cases in which the amount in controversy exceeds $5 million for derivative proceedings, breach of fiduciary duty claims, matters of corporate governance, claims for piercing the corporate veil, and securities claims. If a publicly traded company is a party to the case, the Business Courts will be permitted to decide derivative proceedings, breach of fiduciary duty claims, matters of corporate governance, and securities claims regardless of the amount in controversy. In addition, the Business Courts will have jurisdiction to decide disputes in which the amount in controversy exceeds $10 million for cases involving business transactions, such as purchase and sale agreements or mergers in which the parties agreed thereon initially or subsequently to Business Court jurisdiction.
- Judges with Expertise and Training in Complex Business Matters: The Business Courts will be staffed with judges appointed by the Governor, with the advice and consent of the Senate, who possess specialized knowledge and expertise in handling complex commercial disputes. To be appointed to the Business Courts, judges must have 10 or more years of experience practicing complex civil business litigation or business transaction law, or otherwise have experience presiding as a judge over such matters. The judges of the Business Courts will also be aided by staff attorneys. Judges are appointed for a two year initial term and may be reappointed by the Governor. By fostering a high level of expertise among the judiciary, the aim is to improve the quality of decisions and instill confidence in the Texas judiciary’s ability to handle intricate business disputes.
- Written Opinions. It is anticipated that the Business Courts judges will issue written opinions explaining the Business Courts’ decisions, a departure from the standard practice of most Texas civil district courts. The development of written opinions of law covering complex business issues is anticipated to enhance the predictability of legal issues for Texas businesses, and provide concrete guidance for critical issues of Texas corporate governance, fiduciary duties of officers, directors, and managers, and interpretation of complex business transactional documents.
With a brand new Texas court system, new trial court judges, and a new court of appeals, there are certainly some issues that raise further questions to be determined in the Business Courts’ infancy. A few interesting initial issues include:
- Special Procedures for the Texas Business Courts. The legislation anticipates the creation of provisions for streamlined procedures within the Business Courts. These procedures may involve simplified filing requirements, expedited scheduling, and enhanced case management techniques tailored to the unique needs of commercial litigation. The expectation is that such measures will reduce delays, improve efficiency, and provide litigants with a more predictable and timely resolution of their disputes. But the exact form and substance of the Texas Business Courts rules of procedure have yet to be determined.
- Juries. The Business Courts bill provides that a party in an action pending in the business court has the right to a trial by jury “when required by the constitution.” How the Business Courts grapple with jury issues will be closely monitored.
- Number and Types of Cases. There will certainly be questions and challenges as which to lawsuits can and should be in the Business Courts. While the Texas Legislature has endeavored to define and narrow the scope of cases eligible to be heard in the Business Courts, every dispute is different, and some parties will certainly fight to stay in (or out of as the case may be) the Business Courts.
- Attracting Businesses and Promoting Economic Growth. By offering a specialized forum for resolving commercial disputes, Texas is looking to bolster its reputation as a jurisdiction that prioritizes the needs of the business community. It will be interesting to see how the Business Courts encourage more businesses to establish or expand their operations in the state, knowing that they will have access to a judicial system capable of efficiently handling their legal matters.
The creation of the Business Courts marks a significant milestone in the state’s legal landscape. Advocates argue that the specialized courts will not only enhance efficiency but also attract more businesses to Texas by offering a favorable environment for resolving commercial disputes. As these courts begin to operate and handle their first cases, their impact on the resolution of commercial disputes and the broader business environment in Texas will be closely examined.
The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information on H.B. 19 and the establishment of the Texas Business Courts, please contact Chris Bankler, Byron Egan, or a member of the Trial & Appellate Litigation practice.
Texas Business Court Attorneys
Chris Bankler focuses on the resolution of disputes for businesses and financial institutions. He counsels clients through the process of complex business litigation, including general business disputes, fraud claims, breach of fiduciary duty cases, and complex business bankruptcy litigation. He has served as litigation counsel in more than 100 cases in state and federal courts, as well as FINRA and AAA arbitrations.
Byron F. Egan regularly handles business combinations of corporations, limited liability companies, and partnerships, including mergers and acquisitions, purchases and sales of stock, and other equity interests, and sales and exchanges of assets. He also handles the related entity governance and structure issues. Byron is a sought-after writer and speaker in the areas of M&A, governance of corporations, partnerships and limited liability companies, securities laws, and financing techniques. In fact, he is the author of a treatise on corporations, partnerships and limited liability companies in Texas entitled EGAN ON ENTITIES: Corporations, Partnerships and Limited Liability Companies in Texas.