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Texas Business Courts – What, Why, and How?

In 2023, Texas adopted HB 19, establishing the Texas Business Courts ("TBC"). The TBC will operate in several metropolitan areas, the TBC will have specific jurisdictional and procedural rules, and they will have their own appellate court.


But where did this idea come from? What type of cases will they hear? Why are these courts necessary? And how will cases qualify for, and work their way through, the new business court system?


Background


Texas district courts hear a variety of cases, from felonies to land disputes, to billion dollar-cases, all the way to... cases with an amount in controversy exceeding $500.00.


That's right; Texas district courts hear cases where the amount in controversy begins at $500.01 at the low end, and there is no maximum. Tex. Gov. Code section 24.007. Texas district courts naturally get clogged with larger cases that are unlikely to settle promptly, resulting in lengthy, expensive litigation and lengthy, expensive trials. Those cases might also involve particular issues with which district court judges might not have much practical experience.


Beginning around 2007, Texas court reformers began pushing for a complex case designation. California previously adopted a complex case designation, where the judge looks to several factors (number of represented parties, witnesses, many expected motions, etc.) to determine whether a case should be subject to stricter judicial supervision. Other states have similar designations, and some states even maintain a distinction between courts of law and courts of equity (e.g., Delaware, Tennessee) (NOTE: this distinction has roots in the Medieval period, if not earlier; as interesting as that history may be, it's unfortunately outside the scope of this post).


Ultimately, the Texas legislature decided that, rather than a complex case designation, Texas would have specialized business courts. Although this likely won't fix the entire problem of backlog, it will remove many complex cases from the more typical district court docket, and put them before specialized judges with extensive business and corporate backgrounds.


What are they?


The TBC are specialized courts, with judges selected based on their business and corporate litigation experience. They will hear typically larger cases involving corporate and related issues.


The courts will be compromised of 11 geographic divisions, five of which are permanent, the other six of which will expire on September 1, 2026 unless reauthorized. Tex. Gov. Code section 25A.003. Appeals from the business courts will be heard by the new 15th Court of Appeals based in Austin, and appeals from there will be heard by the Supreme Court of Texas. Tex. Gov. Code section 25A.007.


What Kinds of Cases Will They Hear?


A court's power to hear certain kinds of cases is called "subject matter jurisdiction" (SMJ). The business courts' SMJ is based on (1) an amount in controversy requirement, and (2) a subject matter requirement. In general, the type of cases that end up in front of the business court depend upon an amount in controversy of at least $5 million or an amount in controversy of at least $10 million (in both instances excluding interest, statutory damages, exemplary damages, penalties, attorney's fees, and court costs).


It should be noted that it does not appear that the TBC haveoriginal jurisdiction over any cases. That means that there are no cases that must be filed in the TBC.


The Exception: Publicly Traded Companies


Publicly traded companies are not subject to the $5 million and $10 million minimums. "The business court has civil jurisdiction concurrent with district courts in an action described by [the $5 million minimum] regardless of the amount in controversy if a party to the action is a publicly traded company." Tex. Gov. Code section 25A.004(c).


And "publicly traded company" refers to "an entity whose voting equity securities are listed on a national securities exchange registered with the United States Securities and Exchange Commission under Section 6, Securities Exchange Act of 1934 (15 U.S.C. Section 78f) and any entity that is majority owned or controlled by such an entity." Tex. Gov. Code section 25A.001(13).


$5 Million Minimum


The business court has jurisdiction in cases over $5 million involving (1) a derivative action, (2) actions involving corporate governance (specifically governance, governing documents, or internal affairs of an organization), (3) certain claims involving violations of securities laws, (4) alleged acts and omissions cases against controlling or managing individual, (5) breach of fiduciary duties, (6) veil piercing, and (7) "an action arising out of the Business Organizations Code." Tex. Gov. Code section 25A.004(b).


$10 Million Minimum


For the higher minimum, TBC will hear cases (1) involving a "qualified transaction," (2) involving non-insurance contracts where the parties agreed to be heard in TBC, and (3) an action that arises out of a violation of the Finance Code or Business & Commerce Code by an organization or an officer or governing person acting on behalf of an organization other than a bank, credit union, or savings and loan association. Tex. Gov. Code section 25A.004(d).


Exclusions


TBC won't have jurisdiction to hear (1) civil cases against public agencies or to foreclose liens on real property, (2) arising out of the Family Code, Insurance Code, Estates Code, non-compete agreements, the Deceptive Trade Practices Act, or Prop. Code Chapter 53 (mechanic's liens), (3) a claim arising out of the production or sale of a farm product (as defined), (4) a claim related to a consumer transaction (as defined), or (5) a claim related to the duties and obligations under an insurance policy. Tex. Gov. Code section 25A.004(g).


However, those claims may be heard under the court's supplemental jurisdiction.


Some matters are excluded even if they would otherwise be heard by the court's supplemental jurisdiction. These include claims of medical liability, legal malpractice, and bodily injury or death. Tex. Gov. Code section 25A.004(h).


Supplemental Jurisdiction


"Supplemental jurisdiction" refers to claims where a court might not have SMJ, but it is related enough to a claim in which the court does have SMJ. For example, I file a suit based on the breach of two related "qualified transactions," one for $15 million, one for $1 million. If these were separate and unrelated, I could file suit in the TBC for the $15 million breach, but not the $1 million breach.


However, because they are related, the $1 million breach may be heard in the TBC. Both parties and the business court judge must agree; otherwise, that breach will have to be brought separately in district court. Tex. Gov. Code section 25A.004(f).


How are the Judges Selected?


The governor, on advice and consent of the Texas Senate, nominates and appoints the business court judges. This includes two for about half of the divisions, and one for the remaining divisions. They're nominated for two-year terms, and may be renominated. Tex. Gov. Code section 25A.009.


The 15th Court of Appeals will have five justices, and those justices will be nominated by the governor initially, but will later be elected in statewide, partisan elections. Tex. Gov. Code section 22.216(n-1), (n-2).


Will they issue written opinions?


Yes. The Texas Supreme Court is required by statute to adopt rules for those written opinions. Tex. Gov. Code section 25A.016.


On February 6, 2024, the Texas Supreme Court issued proposed changes to the Texas Rules of Civil Procedure, specifically Rule 359. Proposed Rule 359 requires opinions with regard to dispositive rulings (on the request of a party) and on a matter of importance to the state of Texas. And it allows for opinions at the judge's election on any order.


Do Other Jurisdictions Have Them?


Multiple states (and some cities) have their own business or commercial courts (or divisions of existing trial courts). Some examples include North Carolina, New Jersey, and Massachusetts. Some states have complex litigation designations, including California, Minnesota, and Oregon.


And business courts aren't limited to the United States. England and Wales, Quebec, Scotland, Belgium, Bermuda, and Rwanda, among several others, have similar courts.


Conclusion


The TBC are courts of limited subject matter jurisdiction, but they may increase the administration of justice, unclog the trial courts (to an extent), and create an informed, specialized body of business and corporate law.


In addition, Texas is famously business-friendly. This perception has only increased in recent years, as more and more businesses leave states that are less friendly to businesses. The addition of the TBC might well increase that perception, if not the reality, of being friendly to business.

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