Has the time come for business-only courts in Texas?

By Mark Curriden

For more than two decades, executives at large corporations in Texas have quietly discussed creating their own justice system – business courts staffed with seasoned judges who have deep experience handling complex commercial disputes.

Such Texas business courts would tackle large-dollar bet-the-company lawsuits, such as contract disputes between companies, shareholder litigation, theft of trade secrets and allegations of corporate fraud.

In other words, a Delaware Chancery Court but with judges sporting custom leather boots, belt buckles from Buc-ee’s and the Lone Star on their truck’s license plates.

Multiple previous efforts by pro-business advocates to create specialty courts in Texas to manage corporate disputes were adamantly opposed by trial lawyers and sitting district court judges. As a result, the legislation never made it out of committee.

But last month, Gov. Greg Abbott revived the idea of business courts when he released his priorities in the 2022 budget that included funds for a parallel complex commercial court, which he said would attract even more companies to Texas and away from Delaware, which gets hundreds of millions of dollars in revenues from companies technically incorporated there.

Texas House Rep. Brooks Landgraf (R-Odessa) on March 11 introduced legislation, HB 1875, that would create a standalone statewide business court system in which the governor appoints the judges who would handle company versus company disputes of $10 million or more.

HB 1875 has two primary goals, according to those who help write: make the Texas courts as predictable in high-stakes litigation as the Delaware Chancery Court and steal away some of those high-dollar trials away from the first state in the union to ratify the U.S. Constitution.

“This legislation is absolutely critical to the development of the Texas economy,” said former state Rep. Jason Villalba, who is actively supporting the Landgraf bill. “We need this as part of our future growth.”

The Texas business court proposal has two significant differences from the ever-popular Delaware Chancery Courts:

• Texas business courts would still have juries – not judges – deciding questions of fact; and

• Texas would be the first state in the U.S. to create an entirely new business court of appeals that operates separately from the current regional appellate courts – a move many lawyers see as a response to Democrats winning control of the Texas appellate courts in Dallas and Houston during the past two elections.

Landgraf’s legislation does not allow the business courts to have jurisdiction in personal injury or wrongful death lawsuits, litigation brought under the Texas Deceptive Trade Practices Act or cases against government entities as parties.

Landgraf did not respond to multiple requests for an interview. Neither did Rep. Jeff Leach, who chairs the Texas House Judiciary and Jurisprudence Committee and was the sponsor of a similar bill in 2019.

Corporate leaders say they fear getting hit with large jury verdicts in Texas courts and many of them still point to Pennzoil’s tortious interference with a contract lawsuit against Texaco, which resulted in a $10.5 billion judgment against Texaco in 1985 and led to Texaco’s eventual bankruptcy.

Of course, much has changed during the past 35 years. Texas passed several major so-called tort reform laws that severely limit the ability of plaintiffs to obtain large damage verdicts. In addition, voters elected an all-Republican state Supreme Court that has a pro-business reputation.

Villalba, who is counsel at the corporate law firm Foley & Lardner, said current district judges have overcrowded dockets and don’t have the time or the expertise to deal with large complex commercial lawsuits in a speedy manner.

“When you are dealing with billions of dollars and thousands of jobs are on the line, you don’t want to be rolling the dice,” said Villalba, who is working with Landgraf and the Texas Business Law Foundation in support of the legislation. “There needs to be a judicial ecosystem in place that better handles these types of cases.”

Austin appellate lawyer Evan Young, who helped draft the bill, said that a majority of states now have business courts. Many national and global companies that have relocated to Texas still choose to litigate their legal disputes in Delaware.

“Why are they often incorporated in Delaware and not in Texas? It isn’t because of the charms of Wilmington or even Rehoboth Beach,” Young said. “It is for legal reasons that go back deep in history. It isn’t even that Delaware – or other states’ – law is so good or clear. Texas business and commercial law is excellent, now more than ever.”

Delaware has earned a pro-business reputation, he said, because it has invested in its court system by having a “small group of truly world-class business judges to focus on business cases.”

“Those judges have developed expertise and meaningful precedents, and they can resolve cases with blinding speed,” he said.

More than two-dozen states have some form of commercial dispute courts that are part of their general jurisdiction courts, according to the National Center for State Courts. Three states created business courts but later abandoned their use. Pennsylvania is the most recent to pass legislation to create “commerce courts,” which will be formed by the judges in each local jurisdiction.

The Texas legislation already has doubters.

Sen. Nathan Johnson (D-Dallas) said he doesn’t think the bill creating a business court “has any chance of passage” in this current legislative session and called it “elitism.”

“I don’t want Texas becoming Delaware,” said Johnson, who sits on the senate’s jurisprudence committee. “Texas is a real state with real businesses. Explain to me exactly what the current court system is lacking. This legislation doesn’t do anything but try to give the governor the control over our courts.”

Under Landgraf’s bill, the governor would appoint seven trial judges who each would have at least a decade of experience handling complex commercial litigation to the business court, which would have statewide jurisdiction. The proposal states that only four of the judges can be from the same political party and that the state senate must approve the selections. The same procedures apply for the appellate bench.