Key Takeaways:

• House Bill 19 creates a novel, specialty court scheme in Texas that will be dedicated to the resolution of specific, significant and complex business disputes.
• Named the Business Courts, these courts will provide alternative venues for parties seeking to resolve specific actions that exceed $5 million.
• The Business Courts will consist of judges appointed by the Governor.
• The Business Courts will officially be created on Sept. 1, 2024.

Introduction

On June 10, Governor Greg Abbott signed House Bill 19 into law — creating a new specialty court in Texas. These new courts will have significantly limited jurisdiction and are intended to provide a more efficient venue for the resolution of large, complex business disputes. The fundamental features of the Business Courts include the following:

1. The Business Courts are intended to resolve matters of significant amounts in controversy.

The newly formed Business Courts have concurrent jurisdiction with the district courts regarding specific actions in which the amount in controversy exceeds $5 million. Additionally, there are specific actions in which the Business Courts do not have concurrent jurisdiction with the district courts unless the dispute exceeds $10 million. In imposing a heightened amount in controversy requirement, the legislature intended to alleviate backlogged courts by providing parties with a specialized venue to resolve significant, complex disputes.

The requirement of a significant amount in controversy will also serve to ensure that the Court is able to set its fees for filings and actions in the Court in amounts sufficient to cover the costs of the Court as required by the statute.

Additionally, to achieve efficient resolution of these complex cases, the Business Courts are specifically authorized to hold remote proceedings; however, when necessary, the Courts will utilize existing courtrooms and facilities for proceedings.

2. The Business Courts are intended to have limited jurisdiction over specific categories of business-related disputes.

The Business Courts are currently divided into 11 divisions based on the Administrative Judicial Regions set forth in Chapter 74 of the Government Code, covering the entire state, some of which are subject to sunset review in 2026. The Business Courts will have jurisdiction over actions in excess of $5 million that fall within the following general categories:

• Corporate governance and derivative proceedings;
• Certain actions by an organization or owner against the organization or owner concerning an act or omission by the owner in their organizational capacity;
• Certain actions against an owner, controlling person or managerial official of an organization for breach of a duty owed to the organization;
• Certain actions seeking to hold the owner or governing person of an organization liable for an obligation of the organization;
• Certain state and federal securities-related actions against an owner, controlling person or managerial official; and
• Actions arising out of the Business Organizations Code.

Separately, the Business Courts will have jurisdiction over actions described below only if the amount in controversy exceeds $10 million:

• Actions arising out a qualified transaction (as defined by the statute);
• Contractual or other commercial transactions in which the parties agreed that the Business Court has jurisdiction over the action (except insurance contracts); and
• Actions by an organization arising out of a violation of the Finance Code or Business and Commerce Code, subject to specific exclusions.[1]

The Court will also have supplemental jurisdiction over certain types of related claims with the agreement of the parties. If all parties do not agree to the Business Court’s exercising supplemental jurisdiction over a claim, the claim will proceed in the court of original jurisdiction.

3. The judges of the Business Courts will be appointed by the Governor.

The Governor, with the advice and consent of the Senate, will appoint two judges to the First, Third, Fourth, Eighth, and Eleventh Divisions of the Business Courts and one judge to the remaining divisions. These judges will serve two-year terms and may be reappointed (there is no current limitation on the number of terms). HB 19 did not provide for any specific procedure by which the Governor must act in determining the candidates for appointment. However, the appointed judges must meet the following qualifications:

• Be at least 35 years of age;
• Be a United States citizen;
• Have been a resident of a county within the division of the Business Court to which the judge is appointed for at least five years before appointment; and
• Be a licensed attorney in this state who has 10 or more years of experience in:
  • Practicing complex civil business litigation;
  • Practicing business transaction law; or
  • Serving as a judge of a court in this state with civil jurisdiction.

In particular, this attribute of the Business Courts has caused, and is likely to continue to cause, the most difficulty for the creation, existence and continuation of this specialty court scheme. Some of the most critical arguments against the enactment of HB 19 concern the constitutionality of the creation and operation of a court in Texas that is not composed of elected judges. It is impossible to be sure what the Supreme Court of Texas will find when the inevitable constitutional challenge to the creation of the Business Courts (and is provided with original and exclusive jurisdiction over such challenges) is filed; however, there are several actions concerning the implementation of the new court structure that must occur before the Business Courts arrive at that hurdle.

Things To Watch For:

1. While the act goes into effect on Sept. 1, 2023, the changes in the law will only apply to civil actions filed on or after Sept. 1, 2024. The Business Courts are officially created on Sept. 1, 2024.
2. Appointment of the judges
   • The Governor is directed to appoint judges to the First, Third, Fourth, Eighth and Eleventh Business Court Divisions as soon as possible after Sept. 1, 2023.
   • The judges for the Second, Fifth, Sixth, Seventh, Ninth and Tenth Business Court Divisions shall be appointed by the Governor no earlier than July 1, 2026, but no later than Sept. 1, 2026.

[1] The Business Courts will not have jurisdiction over specifically excluded actions as specifically enumerated in HB 19, such as some actions under the Estates Code, Family Code, Insurance Code and Property Code.

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