.png)
Texas has introduced a significant overhaul in its legal system to better accommodate business-related litigation with the enactment of Chapter 25A of the Texas Government Code (entitled “Business Court”) effective as of September 1, 2023. This new legislation, which will come into full effect for cases initiated on or after September 1, 2024, establishes specialized trial and appellate courts geared towards resolving complex commercial disputes and will be staffed by judges appointed by the governor with the advice and consent of the senate.
The passage of this legislation is in response to the need for specialized business courts that focus on complex commercial and business litigation. The initiative sets up courts specifically aimed at handling a variety of business conflicts, including issues around contracts, fiduciary responsibilities, and corporate governance. The objective is to speed up legal processes, improve the courts' expertise in these matters, and to develop a more uniform body of business law in this state.
Here are some of the key features of this ground-breaking legislation:
1. Creation of Specialized Courts: A business court will be created in key metropolitan areas across Texas, complemented by a newly-established 15th District Court of Appeals to hear appeals originating from the business court.
2. Jurisdiction of the Business Court: Cases can be filed directly in the business court or transferred from other Texas trial courts. Eligibility for transfer hinges on several factors, including the financial stakes of the dispute or its nature, focusing on cases where the controversy exceeds certain monetary thresholds or involves specific business-related issues. Section 25A.004(b)-(h) of the statute describes the limits of the business court’s jurisdiction as follows:
(b) Subject to Subsection (c), the business court has civil jurisdiction concurrent with district courts in the following actions in which the amount in controversy exceeds $5 million, excluding interest, statutory damages, exemplary damages, penalties, attorney's fees, and court costs:
(1) a derivative proceeding;
(2) an action regarding the governance, governing documents, or internal affairs of an organization;
(3) an action in which a claim under a state or federal securities or trade regulation law is asserted against:
(A) an organization;
(B) a controlling person or managerial official of an organization for an act or omission by the organization or by the person in the person's capacity as a controlling person or managerial official;
(C) an underwriter of securities issued by the organization; or
(D) the auditor of an organization;
(4) an action by an organization, or an owner of an organization, if the action:
(A) is brought against an owner, controlling person, or managerial official of the organization; and
(B) alleges an act or omission by the person in the person's capacity as an owner, controlling person, or managerial official of the organization;
(5) an action alleging that an owner, controlling person, or managerial official breached a duty owed to an organization or an owner of an organization by reason of the person's status as an owner, controlling person, or managerial official, including the breach of a duty of loyalty or good faith;
(6) an action seeking to hold an owner or governing person of an organization liable for an obligation of the organization, other than on account of a written contract signed by the person to be held liable in a capacity other than as an owner or governing person; and
(7) an action arising out of the Business Organizations Code.
(c) The business court has civil jurisdiction concurrent with district courts in an action described by Subsection (b) regardless of the amount in controversy if a party to the action is a publicly traded company.
(d) The business court has civil jurisdiction concurrent with district courts in the following actions in which the amount in controversy exceeds $10 million, excluding interest, statutory damages, exemplary damages, penalties, attorney's fees, and court costs:
(1) an action arising out of a qualified transaction [a qualified transaction is one “other than a transaction involving a loan or an advance of money or credit by a bank, credit union, or savings and loan institution, under which a party: (A) pays or receives, or is obligated to pay or is entitled to receive, consideration with an aggregate value of at least $10 million; 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 value of at least $10 million.” § 25A.001(14)]
(2) an action that arises out of a contract or commercial transaction in which the parties to the contract or transaction agreed in the contract or a subsequent agreement that the business court has jurisdiction of the action, except an action that arises out of an insurance contract; and
(3) subject to Subsection (g), an action that arises out of a violation of the Finance Code or Business & Commerce Code by an organization or an officer or governing person acting on behalf of an organization other than a bank, credit union, or savings and loan association.
(e) The business court has civil jurisdiction concurrent with district courts in an action seeking injunctive relief or a declaratory judgment under Chapter 37, Civil Practice and Remedies Code, involving a dispute based on a claim within the court's jurisdiction under Subsection (b), (c), or (d).
(f) Except as provided by Subsection (h), the business court has supplemental jurisdiction over any other claim related to a case or controversy within the court's jurisdiction that forms part of the same case or controversy. A claim within the business court's supplemental jurisdiction may proceed in the business court only on the agreement of all parties to the claim and a judge of the division of the court before which the action is pending. If the parties involved in a claim within the business court's supplemental jurisdiction do not agree on the claim proceeding in the business court, the claim may proceed in a court of original jurisdiction concurrently with any related claims proceeding in the business court.
(g) Unless the claim falls within the business court's supplemental jurisdiction, the business court does not have jurisdiction of:
(1) a civil action:
(A) brought by or against a governmental entity; or
(B) to foreclose on a lien on real or personal property;
(2) a claim arising out of:
(A) Subchapter E, Chapter 15 [Covenants Not to Compete], and Chapter 17 [DTPA], Business & Commerce Code;
(B) the Estates Code;
(C) the Family Code;
(D) the Insurance Code; or
(E) Chapter 53 [Mechanic’s, Contractor's, or Materialman's Lien] and Title 9, Property Code [Trusts];
(3) a claim arising out of the production or sale of a farm product, as that term is defined by Section 9.102, Business & Commerce Code;
(4) a claim related to a consumer transaction, as that term is defined by Section 601.001, Business & Commerce Code, to which a consumer in this state is a party, arising out of a violation of federal or state law; or
(5) a claim related to the duties and obligations under an insurance policy.
(h) The business court does not have jurisdiction of the following claims regardless of whether the claim is otherwise within the court's supplemental jurisdiction under Subsection (f):
(1) a claim arising under Chapter 74, Civil Practice and Remedies Code [Medical Liability];
(2) a claim in which a party seeks recovery of monetary damages for bodily injury or death; or
(3) a claim of legal malpractice.
3. Judicial Expertise: Judges appointed to the business court must have significant experience in complex business litigation or law, ensuring they bring a wealth of knowledge to the bench. These judges, appointed for initial two-year terms, aim to enhance the quality of judicial decisions and bolster confidence that complex business disputes will be adjudicated efficiently.
4. Issuance of Written Opinions: Unlike the norm in most Texas civil district courts, business court judges are expected to provide written opinions that clarify their rulings. This approach is intended to make legal outcomes more predictable for businesses and offer valuable insights into complex legal matters.
The establishment of the business court represents an important commitment of government resources by the State of Texas to support the business community by offering a judicial system tailored to manage complex commercial disputes effectively. The Texas Supreme Court has already proposed new Texas Rules of Civil Procedure 352-359 that will apply to cases in the business court. The court has invited public comment on the proposed rules through May 1, 2024, after which time the new rules will be finalized and are expected to take effect on September 1, 2024.
The attorneys at Little & McCool, P.C. are closely following the latest developments as the new Texas business court model goes into effect and court operations commence in September 2024. If you have any questions about how this new legislation will impact your business, please contact us for more information at (830) 321-0120.