DALLAS, /Shields Legal/ — The reputation of Texas as business friendly is in full view with the establishment of 11 business court divisions and a dedicated appellate court to be set up to handle exclusively certain complex business disputes. Texas trial courts are courts of general jurisdiction and, thus, in many counties, hear a wide variety of cases including criminal and family; some rarely see a complex commercial dispute. The new “Business Courts” are designed to address the need for specialized expertise by the judges and justices to oversee high dollar and complex commercial disputes. The process is intended to not only have judges with the needed expertise but to streamline the dispute process for complex commercial disputes.
The first five divisions for Austin, Dallas, Fort Worth, Houston, and San Antonio are set to open in September 2024 (the law will only apply to lawsuits commenced on or after September 1, 2024). The remaining six divisions for more rural counties are subject to future legislative approvals. The legislation also calls for the creation of a new 15th Court of Appeals with exclusive jurisdiction over appeals from the Business Courts.
Notably, the judges are not going to be elected, but rather appointed by the Governor, subject to Senate confirmation. The judges will be subject to two-year terms but may be eligible for reappointment. There may be a constitutional challenge to the appointment vs. election of the trial court judges and the Court of Appeals Justice. While The Texas Constitution provides that the “Legislature may establish such other courts as it may deem necessary and prescribe the jurisdiction and organization thereof …,” the Texas Constitution clearly requires that justices sitting on the Courts of Appeal and District Court judges “shall be elected by the qualified voters of their respective districts at a general election”. So, a constitutional challenge may be in the future, although there has been no notice from any constituent of any interest in making that challenge. Note too, though, that the Texas Supreme Court can assign a retired or former judge or justice to a court which may be how the statute skirts the Constitution.
The Business Courts have concurrent jurisdiction with district courts to preside over business and commercial disputes:
- Contract disputes involving at least $10M, with the agreement of all parties
- Finance Code and Business Code disputes involving at least $10M
- “qualified transaction” disputes involving at least $10M[1]
- Corporate disputes[2] involving at least $5M
- Any corporate dispute if one party is publicly traded
Attorney’s fees, interest, court costs, statutory damages, penalties, and punitive damages are not included in the dollar value limitations and the Courts will not hear probate, family, Deceptive Trade Practices Act, consumer, insurance, injury, death, or medical or legal malpractice disputes, or matters brought by or against governmental entities.
The business courts may also become an attractive alternative to arbitration, especially with the ability to appeal a verdict, an often-frustrating part of arbitration.
It may be advisable to consider adding venue/forum selection clauses to agreements in order to take advantage of these courts.
1 Transactions not involving a loan/advance/credit under which party a) receives/is entitled to receive/obligated to pay consideration with an aggregate value of at least $10M or b) lends, advances, borrows, receives, is obligated to lend or advance, or is entitled to borrow or receive money or credit with an aggregate of value of at least $10M.
2 Derivative proceedings, actions regarding governance, governing documents, or internal affairs of an organization, actions under state/federal securities or trade laws, actions challenging acts/omissions of owner/controlling/managing person, actions alleging an owner/controlling or managing person breached a duty to the organization, action seeking to hold owner or governing person liable for organization’s obligation.
Please see the enacted bill and Texas House Research Organization analysis for additional details.
The following Shields Legal attorney(s) assisted in preparing this client update: Daena Goldsmith Ramsey
Shields Legal’s lawyers are available to assist in addressing any questions you may have regarding these developments.
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