Texas Senate Passes H.B. 19 to Create New Business Court

On Friday, May 12, 2023, the Texas Senate passed H.B. 19 that will affect how some commercial litigation cases are handled by creating a new specialized business trial court.

The bill’s stated purpose is to streamline resolutions of business disputes and ensure the court is staffed by qualified and skilled judges, ideally giving businesses confidence in Texas’ legal system to encourage additional business in the State of Texas. H.B. 19, first introduced by Rep. Andrew Murr of Kerrville in the House and sponsored by Sen. Bryan Hughes of Tyler in the Senate, is expected to be signed by Governor Abbott.

The full text is available here: https://capitol.texas.gov/BillLookup/Text.aspx?LegSess=88R&Bill=HB19.

The Business Court would have Concurrent Jurisdiction over Certain Large Complex Disputes.

The business court will have civil jurisdiction concurrent with district courts where the amount in controversy exceeds $5 million, excluding interest, statutory damages, exemplary damages, penalties, attorney’s fees, and court costs, involving:

  1. derivative proceedings;
  2. actions regarding governance and internal affairs of an organization;
  3. limited claims under state or federal securities laws;
  4. actions by an organization or an owner brought against owners or managers of an organization alleging acts or omissions in that role;
  5. actions alleging an owner or manager breached a duty owed to an organization or owner;
  6. actions seeking to hold an owner or manager liable for an obligation of the organization; and
  7. actions arising out of the Texas Business Organizations Code.

And when any of these actions involve publicly traded companies, there is no minimum amount in controversy to invoke the Court’s jurisdiction.

The business court will also have jurisdiction of actions involving an amount in controversy exceeding $10 million arising out of a contract or commercial transaction where the parties agreed to submit to jurisdiction of the business court (except for insurance contracts), or certain actions arising out of the Finance Code or Business and Commerce Code brought by specific persons.

The business court also has supplemental jurisdiction over any other claim related to a case or controversy within its jurisdiction, but those claims may only proceed in business court if all parties to the claim and the business court judge agree to do so.

Though colloquially called a business court, the court would not have jurisdiction over all business or commercial disputes in Texas. The business court’s jurisdiction focuses on disputes between corporate parties and generally excludes any disputes involving consumers or the state government. Actions excluded from the business court’s jurisdiction include those involving a governmental entity or to foreclose on a lien, a claim arising out of Chapters 15 and 17 of the Business and Commerce Code (regrading covenants not to compete and deceptive trade practices), and all claims arising out of the Estates Code, Family Code, the Insurance Code, or provisions Property Code regarding liens and trusts. Actions involving consumer transactions, claims related to insurance policies, medical liability claims, claims for bodily injury or death, and legal malpractice claims are also excluded.

The bill defines basic procedural rules.

The bill defines procedures for initiating an action in the business court and for transferring cases into and out of it.  If filing directly in the business court, the initiating party must plead facts to establish the court’s jurisdiction or the business court will have to either transfer the action to a district or county court or dismiss it without prejudice. The bill also provides a mechanism whereby a suit brought in district or county court can be removed to the business court, similar to removing an action to federal court.

Finally, the rules of evidence and procedure may not strictly apply in business court, but the Supreme Court of Texas must adopt rules of practice and procedure “consistent with” the Texas Rules of Procedure and the Texas Rules of Evidence.

Business Court Judges and Appeals.

The new law will require that judges, who must meet certain minimum qualifications, be appointed by the governor with senate approval. The judges must have 10 or more years of experience in complex civil business litigation or transactional law, have taught courses in those areas, or have served as a judge of a civil court. This is in stark contrast to the election of district court judges. Judges would serve two-year terms, which will require quick appointments or reappointments.

The timing of such appointments is intriguing: as soon as practicable after the effective date, the governor must appoint judges to the First, Third, Fourth, Eight, and Eleventh Business Court Divisions. Then, between June 1, 2026 and September 1, 2026, the governor will appoint judges to the Second, Fifth, Sixth, Seventh, Ninth, and Tenth Business Court Divisions. If signed by the Governor, the bill would take effect September 1, 2023 and apply to civil actions commenced on or after September 1, 2024.

H.B. 19 would also establish a Fifteenth Court of Appeals or, if that is not created, the bill would require an appeal of a business court dispute to be filed in the applicable intermediate court of appeals.

The practical effects of a Business Court.

The jurisdictional requirements of the business court limit its jurisdiction to large complex cases, so it remains to be seen how many cases will actually be handled there. Many complex business cases are already filed in or removed to federal court. With the amount in controversy satisfied, the business court arguably only supplements cases with jurisdiction where both parties are domestic. Further limiting the number of cases that will end up in business court will be the trend of many commercial disputes to be subject to contractual arbitration or forum selection clauses that already keep those cases out of Texas state courts all together. Critics of the bill have thus questioned if the business court is the best use of judicial resources.

Proponents suggest, though, that the business court could be helpful in having a special judge appointed by the governor and confirmed by the senate to hear complex business matters about specific issues such as mergers and acquisitions, corporate governance, and securities.

MH will continue to monitor the effects of the business court on litigation in Texas.