Texas Bills May Reshape the State’s High-Stakes Business Litigation Landscape

As two bills make their way over to Governor Greg Abbott’s desk, Texas lawyers are bracing for impact. The bills would create a new set of business trial courts with jurisdiction over high-stakes commercial disputes and a Fifteenth Court of Appeals that would hear the appeals of those disputes. If the bills pass constitutional muster, companies doing business in Texas will find themselves before the new courts when litigating certain high-dollar disputes. Proponents maintain that the new trial courts—whose appointed judges would be required to have a certain level of experience—would create efficiency, while opponents argue that the Texas Constitution does not allow the Legislature to create a court with statewide jurisdiction and appointed judges.

Gov. Abbott is expected to sign the bills, which would go into effect on September 1, 2023, and would apply to civil actions filed on or after September 1, 2024. Under House Bill 19, the business courts would have concurrent jurisdiction with district courts over:

• Business disputes involving derivative actions, governance disputes, securities and trade actions brought against organizations, and actions arising out of the Texas Business and Commerce Code, where the amount in controversy exceeds $5 million or the involved entity is a publicly traded company;
• Disputes involving violations of the Texas Finance or Business and Commercial Codes, and disputes arising from a “qualified transaction” where a party paid or received $10 million or more in consideration (transactions involving loans or advances by banks, credit unions, and savings and loans institutions are not “qualified transactions”), and the amount in controversy exceeds $10 million; and
• Business disputes exceeding $10 million in controversy where the parties have agreed to the business courts’ jurisdiction.

An action that is subject to the business courts’ jurisdiction can be filed directly in the business court or can be removed there from a district court. Importantly, certain types of actions are explicitly excluded from the business courts’ jurisdiction except by supplemental jurisdiction, including cases involving the Deceptive Trade Practices Act, the Insurance Code and/or duties arising under an insurance policy; lawsuits brought against government entities; actions to foreclose on liens involving real property; and family law and estate cases. If the business court does have supplemental jurisdiction, the parties must agree and the district court judge must consent to the case proceeding in the business court. The business courts cannot exercise supplemental jurisdiction over cases involving bodily injury or death or over legal and medical malpractice cases.

The judges who preside over the business courts must have at least 10 years of experience practicing complex civil business litigation or transactional law, or serving as a judge in Texas. Proponents of the bills urge that having dedicated courts for business disputes coupled with the judges’ pertinent experience will benefit litigants and lead to quicker disposition of cases. The judges’ terms will be two years, but a judge may be reappointed.

Appointed judges will serve in judicial divisions that will mimic the state’s administrative courts, which are much larger than the areas served by the district courts where these types of disputes are currently litigated. The business courts in the state’s largest metropolitan areas (Dallas, Austin, San Antonio, Fort Worth, and Houston) will receive two judges each, while the other districts will receive one judge each. Those opposing the bill point to the judges’ seemingly unrestricted ability to swap benches with each other as evidence that the bill essentially creates one statewide court rather than separate courts serving distinct geographic areas as required by the state constitution.

With respect to practicing in the new courts, the bill provides that the Texas Rules of Civil Procedure governing district courts apply to the business courts, but the new courts may adopt additional rules of practice and procedure consistent with the Texas Rules of Civil Procedure and Evidence.

Senate Bill 1045 would create the Fifteenth Court of Appeals, which would hear appeals of the disputes litigated in the business courts, in addition to appeals involving the state, the governor’s office and its various departments, state universities, and the officers of each.

While it is a virtual certainty that Governor Abbott will sign both bills into law, it remains to be seen whether the Texas Supreme Court will uphold the new bills as constitutional if and when they are challenged. The bills provide that the Texas Supreme Court has exclusive jurisdiction over any challenges to them, and news reports suggest that various trade groups will likely bring challenges when the bills are signed into law.

If you have any questions about the information in this alert, please contact Thomas Sanders (TSanders@dykema.com or 210-554-5420), Priscila Mosqueda (PMosqueda@dykema.com or 210-554-5525), or your Dykema relationship attorney.