Texas Establishes New Business Courts
On June 9, 2023, Texas Governor Greg Abbott signed House Bill 19, establishing special state district courts that will hear complex business disputes. Texas will join several other states that have some form of specialized business court system. The new legislation becomes effective on September 1, 2023, but so that the Business Courts can be properly staffed and other administrative issues can be addressed, it will only apply to actions commenced on or after September 1, 2024.
The Business Courts will have civil jurisdiction concurrent with district courts for certain types of cases, including cases with an amount in controversy exceeding $5 million for derivative proceedings, matters of corporate governance, securities claims, breach of fiduciary duty claims, and claims for piercing the corporate veil. If a publicly traded company is a party to the case, the Business Courts will have jurisdiction over derivative proceedings, matters of corporate governance, securities claims, breach of fiduciary duty claims, and claims for piercing the corporate veil regardless of the amount in controversy. Lastly, the Business Courts will have jurisdiction for certain cases involving business transactions in which the amount in controversy exceeds $10 million, including when the parties agree in the applicable contract that the Business Courts have jurisdiction. The language of the new law appears to exclude insurance coverage litigation from the Business Courts’ jurisdiction.
At the outset, the Business Courts will begin handling cases in major metropolitan areas, including Dallas, Austin, San Antonio, Fort Worth, and Houston. Eventually, Business Courts will be added to more rural areas when funding is available. The Business Courts will initially have ten judges appointed by the Governor, with the advice and consent of the Senate, who have expertise related to complex commercial disputes. The judges will be appointed to serve a two-year term and may be reappointed by the Governor. The criteria and selection process for these judges is intended to bolster confidence in the judiciary’s ability to hear complex business litigation. A newly created Fifteenth Court of Appeals will have exclusive jurisdiction for appeals from all the Business Courts.
A departure from other state courts, the legislation directs the Texas Supreme Court to adopt rules for the Business Courts to issue written opinions. Having written opinions from the Business Courts is expected to increase predictability of legal issues for businesses operating in Texas and provide guidance on the legal issues at play in the cases within the jurisdiction of the Business Courts.
The formation of the Business Courts is expected to increase judicial economy and streamline large commercial disputes, thereby strengthening Texas’ reputation as a preferred state in which to do highly sophisticated and specialized business transactions. Proponents of the legislation argue that the creation of the Business Courts will be seen by companies outside the state as yet another reason to move their operations to Texas. As specific procedures for the Business Courts develop, the judges begin to be appointed, and the Business Courts eventually open for business, the effectiveness of this novel (for Texas, anyway) court system can be evaluated.
For more information, please contact Gary Morgan at gmorgan@mcslaw.com and Nate Wilkins at nwilkins@mcslaw.com.
This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions. The information contained herein is current as of the date of this article.