Texas may establish new court for businesses

Texas lawmakers are crafting legislation that would establish a court system to manage disputes between large corporate entities.

Texas businesses may soon be under the jurisdiction of a new court designed specifically for them.

State legislation is moving forward in Austin that would create a business court to preside over cases including situations in which transactions larger than $5 million between corporate entities are being disputed or situations in which a company owner is accused of negligence.

The new court would join nearly 30 similar similar business courts in states across the nation and is intended to expedite resolutions to disputes between large corporations, saving time and money for the businesses involved and potentially further boosting the state’s business-friendly image.

The new judicial entity would also preside over cases of derivative action: lawsuits against officers or directors of a company brought by shareholders on behalf of that entity. It would operate within the state’s existing district court system and cost taxpayers nearly $16 million over the course of two years.

The legislation that would create the court is working its way through the State Capitol. The lower chamber has approved House Bill 19 — introduced by Rep. Andrew Murr, R-Junction — and the Senate Committee on Judiciary and Civil Jurisprudence on May 10 gave the legislation a nod of approval. It’s now waiting to be heard by the full Senate.

The legislation is moving forward under an amendment introduced by Sen. Bryan Hughes that would subdivide cases between business governance disputes, commercial disputes and equitable relief. Most importantly, the change drops the minimum value from $10 million to $5 million for a case to be heard by the proposed court.

These cases include officer mismanagement and shareholder actions. The $10 million minimum drafted in Murr’s proposal will remain in effect for commercial disputes arising from qualified transactions, but not include any loan or extension of credit made by a bank, credit union or other savings and loan association.

“The hope is that businesses on both sides of a dispute are going to want to be here,” Hughes, Judiciary and Civil Jurisprudence chairman, said during a May 8 committee discussion of the bill. “We also hope that this will encourage businesses to form in Texas, to avail themselves of this.”

The amended bill would also establish the first five courts in the largest of the state’s 11 judicial regions by Sept. 1, 2024 and the remaining courts in the six other districts to be funded by future legislatures.

“We are going to foster and create a judicial environment that is worthy of the business that is attracted to the great state of Texas,” Murr said May on the House floor. “We do not have a court focused solely on complex business disputes. We as a body have also invested significant time and resources in making Texas a national leader in job creation and attracting employers to our state. But once these companies are here, our current court system simply isn’t set to handle these disputes efficiently.”

Murr said the court would preside over corporate governance disputes, actions from contracts and other transactions, as well as actions seeking injunctive or declaratory relief.

The court would not review personal injury or wrongful death actions.

Murr also introduced an amendment to exclude banks and other financial institutions from qualified transactions recognized by the bill as well as a note that the court will not have jurisdiction over medical malpractice claims, legal malpractice claims or damages from bodily injury or death.

Appeals in the business court would either go to the district court of appeals where the case was heard or to a new court currently being considered by the legislature.

When the bill was in the House, Rep. Dustin Burrows, R-Lubbock, and Rep. Julie Johnson, D-Farmers Branch, also introduced amendments to exclude insurance claims from the court.

“We fight a lot in this House, but it is so refreshing to have a member who thoughtfully sits down and works with you try to make it better,” Johnson said. “I am very grateful for that.”

A point of contention

If approved, the legislation would make Texas the 30th state with a dedicated business court. Others include California and Arizona.

The court would be administered by a single court clerk based in Travis County and the court would use existing venues across the state.

Critics of the effort are concerned that the legislation authorizes the governor to perpetually appoint judges to the court, with Senate approval, upending the long-running standard of Texas judges being elected by voters.

As planned, the judges would be appeared every two years by the state’s chief executive. Rep. Joe Moody, D-El Paso, recommended the state amend its conditions to change the qualifications needed for judges to serve on the court instead of having the governor make specific selections for each court.

“It is the right way to do things and we should do it here,” Moody said. “Big businesses have a presence in every single district, and when they get wrapped up in complex litigation, they are likely going to be pulled into these business courts and in front of judges who no voter ever approved or disapproved of. … You have conflicts of interest. You are going to create the appearance of impropriety that will destroy public faith in these business courts. When a judge gets replaced by a hand-picked appointee mid-case, which is going to happen repeatedly under this bill, there is going to be rampant speculation.”

Murr shared the intention behind having judges appointed by the governor will ensure that they have “enhanced qualifications.”

Ultimately, Moody’ attempted amendment failed in the House.

The bill is supported by Texans for Lawsuit Reform, the state’s largest tort reform organization. Richard Trabulsi Jr., the group’s president, said the bill would reduce pressures on the state’s court system and ensure employers operating in Texas can have access to a specialized court to “resolve complex business-to-business litigation.”

“We commend the House for ensuring this court is led by expert judges with a deep background in commercial law, appointed by the governor with approval by two-thirds of the Senate,” Trabulsi said.