Texas Means Business: What to Expect Upon the Arrival of Texas’s New Business Courts
August 14, 2023 by
Texas has long been hailed as a haven for businesses. With companies flocking to the Lone Star State, Texas is taking decisive strides to preserve its business-friendly environment and encourage even more enterprise by overhauling its judicial system for complex commercial disputes.
On September 1, 2023, two new Texas laws, House Bill 19 and Senate Bill 1045, officially take effect ushering in the creation of specialized business courts. Texas will join nearly thirty other states with similar courts. HB 19 authorizes the creation of designated business courts to hear certain types of complex and high value business disputes. SB 1045 authorizes the creation of the Fifteenth Court of Appeals which will have sole jurisdiction over appeals from the business courts. Although both laws take effect this year, the business courts will only have jurisdiction for cases commenced on or after September 1, 2024. This article provides an overview of these new business courts and their practical effects for Texas businesses.
Overview of the Business Court
HB 19 divides the business courts geographically into eleven divisions following the existing judicial districts. The divisions will be established in two waves. The first five divisions, opening September 1, 2024, will serve the counties in and around Dallas, Fort Worth, Austin, Houston, and San Antonio. Each of these five divisions will have two judges. The remaining six divisions will serve more rural counties with one judge per division; however, these divisions will not open until July 1, 2026 (at the earliest) and require additional approvals from the legislature. The Governor will appoint business court judges, with the advice and consent of the Texas Senate. Judges will serve for terms of two years with the potential of reappointment.
Business courts will have jurisdiction to preside exclusively over certain business and commercial disputes that meet specific criteria briefly summarized below:
- Disputes where the minimum amount in controversy is $5 million and involves:
- Derivative proceedings
- Corporate governance
- State or federal securities laws
- Breach of fiduciary duty
- Actions arising out of the Texas Business Organizations Code
- Corporate disputes of any value if one party is publicly traded
- Disputes where the minimum amount in controversy is $10 million and involves:
- Contract disputes where the parties agree to business court jurisdiction (excluding insurance contracts)
- Texas Finance and Business Code disputes
- “qualified transactions” defined by HB 19 (i.e., payment obligations not involving a financial institution)
Business courts may also exercise supplemental jurisdiction over other claims that form part of the same case or controversy if all parties and a judge hearing the case consent. However, business courts do not have jurisdiction over claims involving medical liability, personal injury or death, or legal malpractice. Trials will either be a bench trial before a judge (rather than a jury), or in some circumstances, a party may elect for a trial by jury when permitted by the Texas constitution.
How a Case Gets to the Business Court
Under HB 19, business courts and district courts will have concurrent jurisdiction over cases meeting the jurisdictional requirements—meaning that either court could hear these cases. Parties are not required to file a case in the business court. But if a party desires to be in business court, they can file suit directly in the business court (beginning September 1, 2024). Parties may also remove cases not initially filed with the business court by filing a notice of removal with the current court and the appropriate business court within 30 days after the date the party received the initial pleading or summons that named the party. Upon proper removal, the clerk of the court where the action was originally filed must immediately transfer the action to the business court.
SB 1045 creates a new appellate court, the Fifteenth Court of Appeals, which will have exclusive jurisdiction over appeals from the Texas business courts. The Fifteenth Court will sit in Austin and initially will consist of a chief justice and two additional justices for the first three years. Two more justices will join in 2027. The Texas Supreme Court will continue to handle final appeals.
Benefits of the Business Court for Businesses
Establishing specialized business courts will help assuage concerns about litigation efficiency and provide many positives for Texas businesses.
First, having courts that specialize in complex business disputes will expedite resolution of cases. With dedicated business courts, large commercial matters will not be cast aside for cases that tend to require faster resolution, such as criminal or family law cases. This will provide more efficient dispute resolution, which is critical for businesses looking to manage disputes and control costs.
Second, attorneys eligible to serve as judges on the business court must have at least 10 years of complex business experience through either litigation or transaction law, or as a civil court judge. Requiring such expertise will likely lead to fewer errors and appeals, increasing efficiency and reducing costs.
Third, HB 19 directs the Texas Supreme Court to develop rules for the business courts to publish written decisions. This is different from the standard practices of many district courts in Texas which do not issue written opinions. Issuing written opinions and developing a body of caselaw covering complex business issues will increase the predictability of legal issues for Texas businesses and provide guidance for critical issues involving corporate governance and interpretation of complex business transactions. Similarly, SB 1045’s creation of a dedicated business appellate court will ensure continuity between the different divisions.
The Future of Business Law in Texas
As businesses look ahead at the future of Texas business law, they should consider several strategic issues.
To start, if your company would benefit from litigating disputes in Texas business court, consider adding clauses to new contracts that designate the appropriate business court as the proper forum. Without this, your company may be forced to litigate in a different and possibly less desirable forum.
It may also become advantageous and cost effective for companies to litigate in business courts instead of arbitrating disputes. As business courts develop, companies should continue to evaluate whether it continues to make sense to include arbitration provisions in contracts as a means to save costs and time.
Finally, until Texas establishes the six remaining business court divisions, litigants may strategically select venues that do not have a designated business court to avoid litigating in business court. Businesses should evaluate contracts with this in mind.
The creation of business courts in Texas is a significant event for both the judiciary and the business community. Businesses should benefit and Texas’s business friendly reputation will likely expand. As the implementation of HB 19 and SB 1045 unfolds over the next several years, it is important for companies to remain up to date on the new business courts’ procedures, monitor how early cases play out, and strategically consider favorable contractual clauses taking into account the access to business courts.