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Jun 21, 2024

Courtroom Capitalism: A New Era for Commercial Litigation in Texas

By: Nathan Flanigin and Luke Bezney

On September 1, 2024, the Lone Star State is set to begin handling complex commercial litigation through its new business court system. The formation of the Texas business courts is part of a broader, multi-faceted strategy aimed at attracting businesses to the state. Texas is currently tied with New York for having the second-highest number of Fortune 500 companies in the nation and is the eighth-largest economy in the world. The announcement of the Texas Stock Exchange, with plans to begin listing companies in 2026, is the latest example of this strategic approach.

The new business courts, similar the to Delaware Court of Chancery, are intended to be specialized venues that facilitate efficient proceedings and deliver more predictable outcomes for businesses. Alongside the patent “rocket docket” in the U.S. District Court for the Eastern District of Texas, the incoming business courts position Texas to become the premier forum for high-stakes commercial litigation. This article provides an overview of the Texas business court system and analyzes their potential impact on commercial litigation in the state of Texas.

The specialized business court system, along with its appellate counterpart, the Court of Appeals for the Fifteenth Court of Appeals, was established through bipartisan legislation and signed into law by Governor Abbott on June 9, 2023. Recently, with the advice and consent of the senate, Governor Abbott started appointing judges with specialized experience to serve two-year terms across eleven divisions of the business courts.

Metropolitan areas with a high concentration of commercial litigation will receive two business court judges, while all other districts will be allotted one judge. Based in Austin and initially composed of a three-justice panel, the Fifteenth Court of Appeals will have exclusive appellate jurisdiction over cases originating from the new business courts.

Prospective judges for the business courts must have at least ten years of combined experience in practicing complex civil business litigation or business transaction law, or as a judge in a civil state court. To date, Governor Abbott has appointed eight judges across the business courts located in Dallas, Fort Worth, San Antonio, and Austin. The newly appointed class of judges is made up of former state district court and court of appeals judges, private practice commercial and appellate lawyers, and former government attorneys specializing in commercial disputes.

Earlier this year, the Texas Supreme Court approved a provisional set of rules set to be implemented when the business courts open on September 1, 2024. These business court rules will be added to the Texas Rules of Civil Procedure 352 through 359.

The objective of these rules is to establish procedures to resolve complex commercial disputes with greater predictability. For example, Texas Rule of Civil Procedure 359 requires a business court to issue a written opinion in connection with (1) any dispositive ruling at a party’s request; and (2) any ruling on an issue important to Texas jurisprudence. The provision is broad by design to expedite the establishment of legal precedent in the business court system.

The incoming business courts will have concurrent civil jurisdiction with district courts for certain business disputes where the amount in controversy exceeds $5 million in some instances, $10 million in others, and for specific types of claims regardless of the amount in controversy when involving publicly traded companies. They will adjudicate derivative actions, certain securities actions, claims involving corporate governance, breach of fiduciary duty, violations of the Texas Business Organizations Code, and commercial transactions in which the parties stipulated to jurisdiction. Once the business courts are operational, any case before a state district court or county court at law that satisfies these conditions may be removed to the new business court system.

Texas Rule of Civil Procedure 355 describes the process for removing cases from state district courts and county courts at law to the business courts. The removal process requires a party to file a notice of removal with the removing court and the business court within thirty days of when the party “discovered, or reasonably should have discovered, facts establishing the business court’s authority to hear the action.” Tex. R. Civ. P. 355(c)(2)(A).

However, this deadline may be extended when there is a pending application for a temporary injunction. The rule allows the removal deadline to be extended to “30 days after the date the [temporary injunction] application is granted, denied, or denied by operation of law.” Tex. R. Civ. P. 355(c)(2)(A). This rule also sets forth the process to remand a case by motion, or sua sponte, when the court does not have authority to hear the case. See Tex. R. Civ. P. 355(f). In practice, the more flexible removal process could result in an influx of cases to the business courts that might have otherwise been litigated in federal court.

If history serves as our guide, the one thing that practitioners can count on is that the incoming business courts will produce unexpected consequences. Similar court systems in other states have shown that business courts often do not function as originally intended. It took five legislative efforts to enact a business court system in Texas, and the new system already is facing constitutional challenges to the Fifteenth Court of Appeals.

Nevertheless, its advocates argue that the incoming business court system will enhance the entire judiciary’s efficiency and bolster the state’s economic growth. Businesses and practitioners must be prepared to navigate the novel issues that will arise from the high-stakes commercial litigation that is likely to become commonplace in the state’s reimagined legal landscape.