On June 9, 2023, Texas Governor Abbot signed House Bill 19 (HB 19) into law, prompting the creation of a new court system in Texas dedicated to resolving business disputes.
The law took effect on September 1, 2023, but the newly created business courts will not begin accepting cases until September 1, 2024, giving the state time to establish the courts and appoint judges.
Which Cases Will Be Heard by the Texas Business Courts?
These new Texas business courts will have jurisdiction (concurrent with Texas district courts) over legal actions in which the amount in controversy exceeds $5 million, such as:
- A derivative proceeding
- An action regarding the governance, governing documents, or internal affairs of an organization.
- An action where a claim under federal or state securities or trade regulation is asserted against an organization, a controlling or managerial officer acting in their official capacity, an underwriter, or the auditor
- An action brought by an organization or the owner of an organization if the action (1) is brought against the owner, manager, or other controlling individual or (2) alleges an act or omission by an owner, manager, or controlling individual in their official capacity
- An action alleging that an owner, manager, or controlling individual breached a duty owed to an organization or an owner of an organization by reason of the person’s status as owner, manager, or controlling individual
- An action seeking to hold an owner or governing person of an organization liable for an obligation to the organization, other than on account of a written contract signed by the person to be held liable in a capacity other than as owner or governing person
- An action arising out of the Business Organizations Code
Additionally, the business court will have jurisdiction over the following legal actions when the amount in controversy exceeds $10 million:
- An action arising out of a qualified transaction
- An action that arises out of a contract or commercial transaction in which the parties agreed in the contract or subsequent agreement that the business court has jurisdiction over the action (excepting actions that arise out of an insurance contract)
- An action that arises out of a violation of the Finance Code or the Business and Commerce Code by an organization, or an officer or governing person acting on behalf of an organization (excluding a bank, credit union, or savings and loan association)
If a company is publicly traded, the business court will have jurisdiction over matters related to any of the claims above regardless of the amount in controversy.
The business courts will also have authority to hear actions requesting injunctive relief or a declaratory judgment involving a dispute within the court’s jurisdiction.
The business court does not have jurisdiction over:
- A civil action brought against a government entity;
- Family Code or Estates Code claims;
- Personal injury claims; and
- Medical or legal malpractice claims, among other actions.
What Powers & Procedures Will Texas Business Courts Have?
Texas’s new business courts will have the same powers as a Texas district court, including the power to:
- Issue writs (orders) of injunction, mandamus, sequestration, attachment, garnishment, and supersedeas (staying the execution of the court’s decision while an appeal is pending); and
- Grant any relief (such as damages) that may be granted by a district court.
Texas business courts will operate much like the state’s district court system, following the same procedures, practices, rules of evidence, etc. Parties that bring their case before the business courts will have the right to a jury trial when required by the constitution.
Appeals from the business court will be handled by the newly created statewide Fifteenth Court of Appeals. The Fifteenth Court of Appeals was created by Senate Bill 1045, which was signed into law the same day as HB 19 and will begin operations on September 1, 2024.
Will Texas' New Business Court Have Virtual Options?
The new business court law does specifically call on the business courts to use “the most advanced technology feasible when necessary and appropriate to facilitate expeditious proceedings.” This means that, as determined by the court, counsel and parties may appear before the business court by means of videoconference technology, such as Zoom and Facetime, rather than always in person. Jury trials must be conducted in person.
Why Did Texas Establish a Separate Business Court?
Delaware established the first business or “Court of Chancery” in 1792, but it wasn’t until the 1990s that more states followed suit. By 2020, 25 states had some type of specialized business court or docket as a feature of their judicial systems. In 2023, two additional states – Texas and Utah – enacted their own specialized business courts.
Key reasons cited for establishing separate business courts are to:
- Help resolve business disputes faster;
- Develop a bench of judges experienced in complex business litigation; and
- Foster a “business-friendly” climate.
During his 2023 State of the State address, Texas Governor Abbott stated “local businesses will flourish even more if we reduce the gridlock in our courts by creating specialized courts with the expertise to deal with complex commercial litigation.”
To ensure judicial experience, business court judges will be required to have a minimum of 10 years’ experience either practicing or teaching complex business litigation or transactional law, or serving as a civil judge in this state.
How Will a Separate Business Court System Impact Texas?
There have been some predictions that the number of lawsuits filed in Texas will increase once the business court system is up and running since businesses may be more likely to choose Texas as the jurisdiction for complex commercial disputes. This will depend on whether the business court system proves to be more efficient and predictable, and presided over by experienced judges, as intended.
An efficient business court system may also lead to more businesses choosing to incorporate in Texas and more entrepreneurs starting Texas-based businesses.