In June 2023, Governor Greg Abbott signed new legislation that will change the landscape in Texas for resolving business disputes. Texas House Bill 19 (HB 19) creates new Texas “Business Courts” with jurisdiction over certain high-dollar business transactions. While HB 19 was set to take effect on September 1, 2023, the bill would only apply to suits filed on or after September 1, 2024. The one-year interim allows time for (1) judges to be appointed and confirmed by the Senate; (2) promulgation of rules of procedure for removal and remand of cases; (3) adoption of rules of civil procedure similar to the TRCP and TRE; and (4) the adoption of rules for issuance of written opinions by the Texas Business Court.

HB 19 provides for 11 business court districts. The first five divisions will be created by September 1, 2024, including the major metropolitan areas of Austin, Dallas, Fort Worth, Houston, and San Antonio. The remaining six divisions will be deferred to the 2025 Legislature Term for funding, if necessary, otherwise, “[t]he division is abolished on September 1, 2026, unless reauthorized by the Legislature and funded through additional legislative appropriations.” These six divisions will address the needs of more remote and rural areas in Texas.

Jurisdiction

The Texas Business Courts will handle cases where the amount in controversy exceeds EITHER:

• $5 million derivative actions on behalf of an organization, business-related actions claiming breach of duty, or actions regarding governance and other internal affairs of an organization; OR
• $10 million in minimum aggregate value (excluding loans by financial institutions).

Parties can file directly in the Business Court, or a party can remove an action from district or county court to the Texas Business Court.  Should a case be filed in Business Court without the proper jurisdiction, the court can remand the case to the proper court.  The Business Court will have concurrent jurisdiction with the district and county courts and could grant the same relief.  However, the business court will not have authority over suits for legal or medical malpractice, personal injury, and against governmental entities without government consent.  Similar to district or county courts, juries will decide issues of fact in the Texas Business Courts.

Judges

Each court will have two judges. The qualifications to be a Business Court judge are as follows:

• At least 35 years old;
• United States citizen;
• Resident of a county within the division of the appointed business court for at least five (5) years before the appointment;
• Licensed attorney in Texas who has ten (10) or more years of experience in practicing complex civil business litigation or business transactional law, or serving as a judge of court in this state with civil jurisdiction; and
• Law license may not have been revoked, suspended, or subject to a probated suspension.

Business Court judges will be appointed by Governor Greg Abbott, with the advice and consent of the Senate, for a fixed term of two years.  The term will begin September 1 of every even-numbered year (i.e., starting September 1, 2024), and the judges may be reappointed.  A qualified or retired judge may be assigned as a visiting judge by the chief justice of the Texas Supreme Court but is subject to recusal, objection, or disqualification as any other visiting judge.

Appellate Court

In conjunction with the establishment of the Business Courts, HB19 also creates a Fifteenth Court of Appeals to hear all appeals from the Texas Business Courts unless the Texas Supreme Court has concurrent or exclusive jurisdiction.  The new appellate court will operate independently from the other state appellate courts.  Initially, the court will be comprised of a single chief justice and two additional justices, but after September 1, 2027, the court will expand to a chief justice and four additional justices.

Takeaways

Pros

• Prompt rulings and potentially quicker resolutions with fewer cases on the dockets
• Decreased litigation costs
• Judges with specialized knowledge and experience of complex and high-value business disputes
• Consistent rulings vis-à-vis the written opinions
• Approximately 25 other states have enacted similar courts that can be models for Texas
• Potential to attract more business to Texas with the promise of specialized and expedient resolution of sophisticated matters

Cons:

• Some question the constitutionality of the Bill
• Larger companies that litigate more in the courts will have an advantage
• Governor-appointed judges could mean too much influence over the judicial system
• Lack of precedent cases for many years
• Two-year term limits could result in political pressure and possibly inconsistent rulings in the same case
• Option for either bench or jury trial

What Does this Mean for Oil and Gas?

It remains to be seen.  Some cases and matters will fall into the jurisdiction of the business courts.  For these more complex matters, these courts could provide a more efficient solution to many years of litigation before a uniquely qualified judge.   The hope of consistency and written opinions offers certain advantages.  However, with so much production and activity in the more rural counties (Permian Basin, Eagle Ford Shale, etc.), it may take several years until these courts expand into the more rural counties in 2025 or later to know the full effect.