FIRM NEWS
On June 9, 2023, Gov. Greg Abbott signed into law House Bill 19, a bipartisan effort to create a more specialized trial court system, like those operating in Delaware, California, and New York. With the creation of its own specialized business court, Texas aims to create a new system to provide more stability, expertise, predictability, and efficiency in handling complex commercial litigation to benefit the state’s growing business community. Anyone doing business in Texas should become familiar with the Business Court of Texas and how it will function while the state prepares to implement this groundbreaking legislation.
Creation of the Business Court and Its Geographic Divisions
The new law amends sections of the Texas Government Code and creates a new business-focused court, “The Business Court of Texas,” to hear certain types of complex commercial disputes. Although H.B. 19 goes into effect on September 1, 2023, litigants will need to have patience, as the newly created court will only hear disputes filed on or after September 1, 2024.
The Texas legislature has divided the Business Court into 11 distinct geographic divisions based on the Administrative Judicial Regions for Texas appellate courts. The first five divisions (First, Third, Fourth, Eighth, and Eleventh Divisions) will encompass San Antonio, Houston, Dallas, Fort Worth, and Austin and their surrounding counties. The remaining six divisions (Second, Fifth, Sixth, Seventh, Ninth, and Tenth Divisions) will serve the state’s more rural counties but are still subject to future legislative approval in the 2025 Texas Legislature. If approved, these six divisions will commence operations on September 1, 2026.
Business Court Judges Are To Be Appointed
The five urban divisions of the court will have two judges each, and the six rural divisions will have only one judge. Drawing criticism, business court judges will not be elected like other judges in Texas. Instead, each will be appointed by the Governor of Texas with the advice and consent of the Texas Senate. Each judicial nominee must meet certain qualifications for appointment. A judicial nominee must be at least thirty-five years old, a U.S. citizen, a resident of the county within the division for five years, be licensed to practice law in Texas, and—perhaps most importantly—have at least 10 years of experience in complex commercial litigation, business transactions, or service as a judge of a court in Texas with civil jurisdiction.
Term-length for business court judges has been another source of criticism. An appointed judge will be limited to a two-year term but may be eligible for reappointment. Notably, the new law does not limit the number of reappointments that a jurist may seek.
Business Court Serves As A Court of Limited Jurisdiction
The Business Court is designed specifically to address disputes between businesses, among businesses and their owners, and directors and management. Cases may arrive in the Business Court in one of two ways. First, where a party has pled facts or established venue in a county in a division of the Business Court, a case may be initially filed and assigned into the applicable Business Court division. Second, when an action is filed in a Texas district court or county court at law that lies within the jurisdiction of the Business Court, a party may remove the action to the Business Court provided it meets the statutory requirements.
Parties should understand the timing requirements for removal of an action to the Business Court. As with removal of a state court action to federal court, a thirty-day time limit may apply in certain circumstances. Specifically, a party must file a notice of removal not later than the 30th day after the date the party requesting removal of the action discovered, or reasonably should have discovered, facts establishing the Business Court’s jurisdiction over the action (or, if a temporary injunction is pending, the date the application is granted, denied, or denied as a matter of law) in situations where all parties do not agree to removal. But, where all parties agree to removal, any party may file an agreed notice of removal at any time during the pendency of the action for cases that meet the statutory requirements. Parties could use that wrinkle as an opportunity for removal to the Business Court well into existing litigation if mutually unsatisfied with the handling of a case by the applicable Texas district court or county court at law, so long as it is not being presented for any improper purpose, including to harass or to cause unnecessary delay or needless increase in the cost of litigation, provided the notice of removal comports with Section 10.001 of the Texas Civil Practice and Remedies Code.
The Business Court has jurisdiction concurrent with district courts where the minimum amount in controversy exceeds $5 million for cases involving:
For these specific claims, the amount in controversy requirement is set aside if the action involves a publicly traded company.
Beyond that, the Business Court has jurisdiction concurrent with district courts where the minimum amount in controversy exceeds $10 million, excluding interest, statutory damages, exemplary damages, penalties, attorney’s fees, and court costs, in cases involving:
The Business Court will also be allowed to exercise supplemental jurisdiction over other claims if: (1) all parties and the court judge agree and (2) those claims are so closely connected as to make them part of the same case or controversy.
Jurisdiction of the Business Court extends to actions seeking injunctive relief or a declaratory judgment under Chapter 37 of the Civil Practice and Remedies Code involving a dispute based on a claim that falls within the court’s jurisdiction.
The new law also limits the jurisdiction of the Business Court over certain types of claims. It will not have jurisdiction over claims for healthcare liability, bodily injury or death, or legal malpractice, even if the claim is otherwise within the court’s supplemental jurisdiction. Other claims, such as those under insurance policies, the Estates Code, the Family Code, the Insurance Code, non-compete agreements, or state-based deceptive trade practices acts, may be heard but only if they fall under the purview of the court’s supplemental jurisdiction.
Trial Practice, Opinions, Rules, and Appeals in the Business Court
A party in an action pending in the Business Court has the right to a trial by jury when required by the Texas or U.S. Constitution. A jury trial for an action originally filed in the Business Court shall be held in any county in which the case could have been filed under Section 15.002, Civil Practice and Remedies Code, as chosen by the plaintiff. For removed actions, a jury trial shall be held in the county in which the action was originally filed. Of course, if a written contract includes an enforceable forum selection clause, a jury trial shall be held in that county where venue is specified. Parties and the applicable business court judge may agree to hold a jury trial in any other county, but a party may not be forced to agree to hold a jury trial in a different county.
The new law aims to incorporate the use of technology to allow for expeditious and less costly hearings. Notably, the new law instructs that the Business Court may conduct a proceeding other than a jury trial as a “remote proceeding” to facilitate the resolution of a matter, but it may not require a party or attorney to remotely attend a court proceeding in which oral testimony is heard, absent the agreement of the parties. The Business Court also may adopt rules of practice and procedure that are consistent with the Texas Rules of Civil Procedure and the Texas Rules of Evidence.
The Texas Supreme Court is still in the process of adopting rules governing the issuance of business court opinions. Business court judges, unlike most Texas civil district court judges, will be required to issue written opinions in order to provide more predictability for Texas businesses on how the courts will decide critical legal issues related to corporate governance, fiduciary duty responsibilities, etc.
Gov. Abbott also signed into law Senate Bill 1045, which creates a new five-justice appellate court, the Fifteenth Court of Appeals. The newly minted appellate court will begin operations on September 1, 2024, and will have exclusive jurisdiction over appeals from business court decisions. Procedures for an appeal will be exactly the same as an appeal from a Texas district court.
Looking to the Future of the Business Court
Although signed into law, much can change between now and September 1, 2024, when the Business Court is scheduled to begin hearing cases. The statute requires later rulemaking, by the Texas Supreme Court regarding written opinions, removal, remand, and assignment of cases. Beyond that, the Business Court may adopt its own rules of practice and procedure consistent with the Texas Rules of Civil Procedure and the Texas Rules of Evidence. The devil remains in the details as to how such rules will affect the new court’s operation in practice. Judicial challenge to the Business Court on constitutional grounds, particularly about the appointment of judges, looms large and could halt its operation altogether.
For now, companies doing business in Texas should take note of the new court structure and remain up-to-speed as the specialized business court ramps up. Companies should be mindful to review their existing contracts and evaluate whether existing forum selection clauses, choice of law provisions, and ADR provisions are affected by the new system as future disputes arise. Should the Business Court of Texas proceed forward and result in more written opinions, as intended, in-house counsel should understand how those opinions augment the existing body of Texas law. Along the way, companies and their counsel may find themselves reevaluating things like permissive arbitration or removal to federal court (where applicable) in light of this new forum option. Businesses should also be aware of potential drawbacks, such as whether the designated two-year judicial term length creates unnecessary uncertainty for any complex commercial matter whose expected lifespan could extend beyond that period.
The attorneys at Gordon Arata stand ready to help you and your business address the complexities of the Business Court of Texas as its rollout occurs. For more information, please contact Adam J. Russ at aruss@gamb.com or (713) 333-5573.
