The Texas Legislature recently passed and sent to Governor Abbott House Bill 19, a bill that creates new, specialized courts with jurisdiction over certain types of civil actions involving large business disputes. This news comes as a relief to many in the Texas legal and business community, as the state’s ever-growing economy and corresponding increase in business disputes have created a need for Texas to join the growing number of states with courts designed to handle large business disputes. Proponents of the bill hope that a more robust body of law governing business disputes will develop and that the business courts will relieve some of the burden on other courts, increase the predictability of the resolution of business disputes through the appointment of judges with a background in business law and increase the speed and efficiency of the resolution of business disputes. The business courts are expected to commence operations on September 1, 2024.
The business court is divided into 11 geographic divisions that match the existing Administrative Judicial Regions for Texas appellate courts. Five of the divisions encompassing Dallas, San Antonio, Fort Worth, Houston and Austin and their surrounding counties will commence operations on September 1, 2024. The remaining six divisions of the business court covering the remaining more rural counties are conditioned on new appropriations and funding being passed in the 2025 Texas Legislature and will commence operating on September 1, 2026. The five more urban divisions of the court will have two judges each, while the six other divisions will have only one judge.
Jurisdiction and Trial
The provisions of the new statute governing the jurisdiction of the business court are complicated and resulted from many back-room negotiations among legislators, lobbyists and interested parties. The business court will have civil jurisdiction to hear actions:
- involving securities laws, the Texas Business Organizations Code, breach of duty by managerial officials, internal affairs disputes and derivative claims, among other types, in which the amount in controversy, excluding interest, statutory damages, exemplary damages, penalties, attorneys’ fees and court costs, exceeds $5,000,000, although this minimum does not apply if any party to the action is a publicly traded company; and
- involving certain lending transactions, contract actions and violations of the Texas Finance Code or Texas Business & Commerce Code, among other actions, in which the amount in controversy, excluding interest, statutory damages, exemplary damages, penalties, attorneys’ fees and court costs, exceeds $10,000,000.
The business court will not have jurisdiction over claims for healthcare liability, bodily injury or death or legal malpractice. Unless falling within the business court’s supplemental jurisdiction, it will also not have jurisdiction over a different list of claims or actions, including, for example, claims under insurance policies, claims arising under covenants not to complete or deceptive trade practices, foreclosure actions or claims arising out of mechanics’ liens or trusts.
Jury trials will be permitted in business court, and must be held in any county in which the case could have been filed under Section 15.002 of the Texas Civil Practice and Remedies Code, unless the parties’ contract specifies a county for venue.
Unlike other Texas courts, business court judges will be appointed by the Texas Governor, with the advice and consent of the Texas Senate, rather than elected. To qualify for appointment, the individual must be at least 35 years old, a US citizen, a resident of the county within the division of their respective judicial district for at least five years and be licensed to practice law in Texas with at least 10 years of experience in complex commercial litigation, business transactions law or serving as a judge for a civil court in Texas. Business court judges will sit for two years and may be reappointed.
Filing, Removal and Remand
A lawsuit within the jurisdiction of the business court initially may be filed in that court. If the court finds it does not have jurisdiction over the matter, the court, at the election of the party filing the action, shall dismiss the action without prejudice or transfer the action to a district court or county court at law of proper venue. A party to a lawsuit filed in a district court or county court at law that is within the jurisdiction of the business court may remove the action to the business court and, if the business court determines that it lacks jurisdiction, the court must remand the lawsuit back to the court in which it was filed initially.
Except in instances in which the Supreme Court of Texas has concurrent or exclusive jurisdiction, the Fifteenth Court of Appeals, a soon-to-be-created, statewide court of appeals, will have exclusive jurisdiction over an appeal from a business court decision. The procedures for appeal will be the same as an appeal from a Texas district court.
Opinions and Rules
Under the current system, trial-level court opinions rarely are issued, but business court judges in certain instances will be required to issue opinions. The Supreme Court will be required to adopt rules governing opinions as well as rules of procedure governing fees, removal, remand and case assignment as it deems necessary. The business courts also will be permitted to create their own local rules of practice, provided the rules are consistent with the Texas Rules of Civil Procedure and the Texas Rules of Evidence.
Remote proceedings, other than a jury trial, may be used in business court. However, a business court may not require a party or attorney to remotely attend a court proceeding in which oral testimony is to be heard, unless the parties agree.
Potential Attacks on HB 19
Opponents question whether the business court would qualify as a district court under the Texas Constitution, as district court judges are required to be elected. The Texas Supreme Court will have original jurisdiction over any constitutional challenges to the new statute.
Texas attorneys and businesses operating in Texas will need to become familiar with the business court. Businesses may also want to revisit certain provisions in their contracts to address, among other things, the jurisdiction and venue of disputes arising out of those contracts. Hunton Andrews Kurth LLP is prepared to assist clients with all aspects of their business court needs.