The Texas House and Senate have given final approval to House Bill 19, legislation that marks a significant change for the landscape of business litigation in Texas. The bill establishes a new court to exercise trial-level jurisdiction over certain large or complex business disputes. If signed by the Governor as anticipated, the bill will become law on September 1, 2023, and will apply to civil actions filed on or after September 1, 2024.
This client alert provides a summary of key provisions in the bill, including the new court’s organization, its jurisdiction and powers, and its procedures for removal and appeal.
Although the bill describes the new court as a single business court, the legislation provides for a court that will be divided into eleven geographic divisions tracking existing administrative judicial regions under the Texas Government Code. Notably, only five of these divisions are certain to be created under the language of the bill. The remaining six divisions covering the rest of the state are described as coming into existence only “subject to funding through legislative appropriations” and are stated to expire in 2026 unless reauthorized by the legislature.
The five permanent divisions of the court correspond to the first, third, fourth, eighth, and eleventh administrative judicial regions, which include, respectively: (1) Dallas County and six surrounding counties; (2) a 27-county region in central Texas centered around Travis County; (3) 22 counties in south Texas, including Bexar County; (4) 18 counties in north Texas, including Tarrant County; and (5) Harris County and five other nearby counties.
The Governor will appoint judges to the court, subject to confirmation by the Texas Senate. The judges will serve two-year terms, and they may be re-appointed. Two judges would be appointed from each of the five permanent divisions, and one would be appointed from each of the six remaining divisions, assuming those divisions are in existence. The bill establishes necessary qualifications for judges, including a requirement of ten years of experience practicing complex business litigation, practicing business transaction law, serving as a judge in a civil court, or some combination of these.
Jurisdiction and Powers
The bill lays out two major categories of civil jurisdiction for the business court:
- The first category is cases in which the amount in controversy is greater than $5 million (or which involve a publicly traded company, regardless of the amount in controversy) and which fit within the description of one of seven specified types of proceedings. These proceedings generally relate to organizational disputes within a business, duties owed within a business, securities claims, or claims arising under the Business Organizations Code.
- The second category is cases in which the amount in controversy is greater than $10 million and the action either (1) involves a “qualified transaction,” defined as one in which a party does, or is obligated to, pay, receive, lend, or borrow money, credit, or consideration in this amount, excluding loans by banks, credit unions, and savings and loans; (2) arises from a transaction in which the parties have agreed that the business court has jurisdiction of the action, excluding insurance contracts; or (3) arises from a violation of the Finance Code or Business and Commerce Code by a business organization or a person acting on behalf of an organization (other than a bank, credit union, or savings and loan).
In addition, the court has jurisdiction over actions seeking injunctive or declaratory relief that involve a dispute falling within one of the two broad categories above.
The bill provides that the court may exercise “supplemental jurisdiction” over other claims that are part of the same case or controversy as claims that fall within the court’s primary jurisdiction – but only if all parties and the presiding judge agree. If any party objects to supplemental jurisdiction, that claim may be litigated in district court concurrently with the claims proceeding in the business court.
The bill lays out several exceptions and exclusions to this jurisdictional structure. Certain types of cases may not proceed in the business court unless falling within the court’s supplemental jurisdiction, making their litigation in the court subject to the parties’ consent. Among these are claims brought by or against a governmental entity, foreclosures on a lien, antitrust claims, Deceptive Trade Practices Act claims, and claims relating to duties or obligations under an insurance policy. Finally, the bill clarifies that certain claims may not be litigated in the business court under any circumstances – namely, claims for medical liability, legal malpractice, or monetary damages for bodily injury or death.
Especially in the initial years of the court, judicial decisions and opinions further elucidating the precise scope of the court’s jurisdiction are likely.
For cases within its jurisdiction, the business court will have all of the same powers as a civil district court, including the ability to issue judgments, order injunctive relief, and preside over bench and jury trials in a county of proper venue.
Removal and Appeals
Parties may file actions directly in the business court. If an action filed in district or county court is within the business court’s jurisdiction, a party will be able to remove that action to the business court. A party may not, however, remove to a business court an action filed in a district or county court of proper venue that is not within an operating division of the business court. If the business court is found to lack jurisdiction, the business court may transfer or remand the action to a proper district or county court.
Appeals of judgments and orders of the business court will go to the newly created Fifteenth Court of Appeals. This intermediate appellate court, which will have five justices elected statewide, is also in the process of being created during the current legislative session. At the time of this client alert, the enacting legislation for the Fifteenth Court of Appeals – Senate Bill 1045 – had been passed by both chambers and was awaiting signature by the Governor.
During legislative consideration of both House Bill 19 and Senate Bill 1045, some observers questioned whether the business court and the Fifteenth Court of Appeals may be created by statute without a constitutional amendment. It is possible that this question will be litigated once the bills are effective.
Upon House Bill 19’s final passage into law, familiarity with the Texas business court will become essential for Texas litigators, in-house counsel, transactional attorneys, and executives dealing with large and complex business transactions and disputes.