With Governor Abbott signing House Bill 19 into law on June 9, Texas joins more than two dozen US states with a specialized business court system designed to preside over specific high-value business and commercial disputes. Although HB 19 is scheduled to go into effect on September 1, 2023, the new business courts will not open until September 1, 2024. HB 19 will undoubtedly reshape the litigation landscape for business and commercial cases in Texas.¹

This legal alert examines the practical applications of the new business court system established under HB 19, its impact on Texas businesses and prospective litigants, the benefits associated with such specialized business courts, and sample contractual venue selection clauses for the Texas Business Court. Texas businesses will want to monitor the rollout of the business courts and consider proactively incorporating venue selection clauses into existing contracts even before the courts are fully operational.

Background

New Courts: HB 19 establishes 11 geographically divided business court divisions. The first five divisions, to open September 1, 2024, will serve counties in and around Austin, Dallas, Fort Worth, Houston, and San Antonio. The six additional divisions will serve more rural counties and are subject to future legislative approvals. In tandem, the Texas Legislature also created a new 15th Court of Appeals with exclusive jurisdiction over appeals arising from the business courts. Although most disputes will likely be heard from the bench, HB 19 allows for jury trials in the business courts, subject to venue restrictions under Section 15.002 of the Texas Civil Practice and Remedies Code, unless contractually agreed to otherwise.

Jurisdiction: Business courts will have concurrent jurisdiction with district courts to preside exclusively over certain business and commercial disputes, summarily including:

• $10 million+ contract disputes, provided the parties agree to business court jurisdiction
• $10 million+ Texas Finance and Business Code disputes
• $10 million+ “qualified transaction” disputes (i.e., payment obligations by nonfinancial groups)
• $5 million+ corporate disputes (e.g., governance, derivatives, securities claims)
• corporate disputes of any value if one party is publicly traded

Excluded from the amount in controversy requirements are attorneys’ fees, interest, court costs, statutory damages, penalties, and punitive damages. Excluded disputes involve (i) probate law, family law, the Deceptive Trade Practices Act, and consumer complaints; (ii) insurance, injury, death, or medical or legal malpractice; and (iii) matters brought by or against governmental entities.

Judicial Appointments: Business court judges will be appointed by the Texas Governor and subject to Senate confirmation beginning September 1, 2024. Judges will be limited to a two-year term but may be eligible for reappointment. Judges must be attorneys licensed in Texas with ten or more years of experience in (1) practicing complex civil business litigation, (2) practicing transactional business law, or (3) serving as a judge of a court in Texas with civil jurisdiction.

Timing: Business courts will be available for civil actions filed on or after September 1, 2024. The Legislature incorporated a one-year implementation period to allow time for (1) appointment and Senate confirmation of judges, (2) adoption of rules of practice and procedure consistent with the Texas Rules of Civil Procedure and the Texas Rules of Evidence, (3) adoption of rules of civil procedure regarding removal and remand of cases and the assignment of cases to the business court judges, and (4) adoption of rules for the issuance of written opinions by the business courts.

Potential Benefits of the Business Courts

In our view, the Texas Business Court will offer a number of benefits:

Predictability and Consistency: The business courts will provide businesses a more predictable and consistent application of business laws and regulations than district courts do. Their written opinions will in time create reliable precedent to guide Texas businesses in risk assessment and dispute management, even in complex commercial cases.

Experienced Local Judges: The courts will have judges with extensive knowledge and experience in resolving commercial and business-related disputes, enhancing the quality of decision-making and yielding better results for all parties. Judicial candidates must have over ten years of experience in complex business litigation, in business transactions, or as a Texas civil court judge. They must have lived for more than five years in the division’s area.

Efficient Case Management: The courts will offer streamlined case management procedures for complex business cases, dedicated judges, and other specialized resources designed to provide efficient and expedited resolution of business disputes. The jurisdictional limitations will alleviate court congestion and help parties reach resolutions in a timely manner.

Proximity and Convenience: Texas is a large state. The geographically dispersed courts are intended to provide businesses a nearby business court– even in rural Texas (i.e., with the six future divisions). This will reduce costs and logistical challenges associated with managing disputes in distant courts. These courts ought to be amenable dispute resolution venues to most commercial counterparties, even if they are located outside Texas.

Business-Friendly Environment: Texas is known for its business-friendly legal and regulatory environment. The business courts will further provide parties with a favorable legal landscape that supports their commercial interests, including the enforcement of contracts as written. They will also reduce the risk of defending a complex business dispute in a civil district court before the then-presiding and politically elected judge, who may not have experience commensurate with the dispute.

Preserving Business Relationships: Commercial counterparties agreeing to the business courts can mitigate the risk of disputes escalating into protracted and contentious litigation. The expected predictability and consistency of the business courts will reduce the likelihood of ill-positioned parties gambling on lucky trial results and increase good-faith negotiations toward amicable resolutions. This ought to preserve business relationships and minimize damage to ongoing collaborations.

Benefits Over Arbitration: Many companies include arbitration provisions in their agreements to avoid state courts, but business courts may change that practice. Unlike arbitrations, which require the parties to pay the administrative association and the arbitrators, the courts are free. The courts may also provide more predictability with a known judge rather than an appointed arbitrator. Finally, it remains to be seen whether business courts can move cases to resolution as fast as or faster than an arbitration.

Selecting the Business Court

Texas businesses need to consider implementing venue selection clauses for the Texas Business Court. If the business courts would benefit your company, consider engaging counsel to discuss including a variation on the following clauses in future contracts.

Sample (If Within Five Initial Divisions): Any dispute, controversy, or legal action arising out of or relating to [this Agreement / any conduct related to the performance of this Agreement] (the Dispute) shall be exclusively brought before a business court in the [First, Third, Fourth, Eight, Eleventh] Business Court Division of the State of Texas (the Business Court) if the Dispute meets the jurisdictional requirements of such Business Court and the Business Court is then accepting new case filings; and, if the Dispute does not meet the jurisdictional requirements of such Business Court or the Business Court is not then accepting new case filings, then the Dispute shall be exclusively brought [insert preferred choice of venue provisions].

Sample (If Located in Six Future Divisions): Any dispute, controversy, or legal action arising out of or relating to [this Agreement / any conduct related to the performance of this Agreement] (the Dispute) shall be exclusively brought before a business court in the Business Court Division of the State of Texas nearest in geographical proximity to [city] (the Business Court) if the Dispute meets the jurisdictional requirements of such Business Court and the Business Court is then accepting new case filings; and, if the Dispute does not meet the jurisdictional requirements of such Business Court or the Business Court is not then accepting new case filings, then the Dispute shall be exclusively brought [insert preferred choice of venue provisions].

Takeaway

Specialized business court systems have been implemented in several states, including Delaware, California, Florida, Georgia, Illinois, Michigan, and New York. Recent rollouts demonstrate the positive influence such courts have on the efficient and competent handling of business cases. The introduction of the Texas Business Court likely will elicit positive reactions from Texas businesses seeking a specialized forum for efficient resolution of complex business and commercial disputes before experienced judges who can, over time, draw a roadmap of precedent, further guiding predictable, equitable, and efficient results for all parties involved. Businesses should carefully consider incorporating venue selection clauses aligned with the Texas Business Court system to benefit from its specialized expertise and streamlined procedures.

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¹HB 19 is likely to be challenged as unconstitutional under the Texas Constitution because, among other reasons, the business courts’ judges are appointed and not elected.

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