As legislation to create a separate system of trial and appellate courts for high-dollar business disputes heads toward debate in the Texas House, pushback is coming from lawyers who represent clients on both sides of the docket.
A new letter signed jointly by the leaders of the Texas Association of Defense Counsel, TEX-ABOTA and the Texas Trial Lawyers Association highlights a legal brief from University of Texas School of Law professor Stephen Vladeck warning that House Bill 19 would violate requirements in the Texas Constitution that district courts be distributed geographically around the state and presided over by elected judges.
The trio of organizations represent over 4,000 lawyers, including some of the state’s most highly regarded litigators. They have joined forces in opposition to similar proposals in previous legislative sessions, but their mission has never been more urgent given that creating specialized business courts is a priority for Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Dade Phelan.
The litigator groups believe their united front lends credibility to arguments about the constitutional guardrails, lack of data to support a parallel court system and what they view as proponents’ failure to show the current civil justice system is harming the state’s hot business climate. But it remains to be seen whether they can slow the progress of the House bill, which could be set for floor debate as early as next week.
“I think it should be a red flag, red flare, any time you get the polar opposites of plaintiffs trial lawyers and defense lawyers agreeing on something,” said Bryan O. Blevins Jr., a Beaumont lawyer with Provost Umphrey and past president of TTLA.
“That’s like having the Hatfields and McCoys agreeing that the bridge ought to be built. Well, build the bridge then. If the two most warring parties can agree on that, there’s got to be something that makes sense.”
House Bill 19, filed by Rep. Andrew Murr, R-Junction, would create the Business Court Judicial District, a trial court with statewide jurisdiction and composed of divisions geographically consistent with the existing 11 administrative judicial regions. It would have civil jurisdiction concurrent with district courts in certain actions in which the amount in controversy exceeds $10 million, excluding interest, statutory damages, exemplary damages, penalties, attorney’s fees and court costs.
The business specialty court would not have jurisdiction over injury or death cases, deceptive trade practices, claims brought by or against a governmental entity, family law cases and issues involving trusts and estates. The filing party would have to plead facts to establish venue. A business court judge, on establishing jurisdiction and venue over an action, would have to declare by order the county for a jury trial under provisions in the bill.
Judges would be appointed by the governor, with the advice and consent of the Senate, and could be reappointed. The business court judges would be permitted to exchange benches and act for each other in any matter pending before the court.
The bill carries a fiscal note of $15.5 million for two years of court operations.
The concept is being pushed by Texans for Lawsuit Reform as needed to resolve complex business disputes. The organization says that Texas is lagging 29 states operating some form of business or complex litigation court system.
“If staffed by qualified and skilled judges, these courts will quickly develop a reputation for fairness, efficiency, and consistency, giving businesses confidence in Texas’ legal system and encouraging them to incorporate and headquarter in Texas,” TLR said in a handout distributed to legislators.
Additional Requirements for Judges
At a hearing last month before the House Judiciary & Civil Jurisprudence Committee, supporters of HB 19 focused on the need for skilled business judges. Michael Massengale, a former court of appeals judge who now arbitrates, said his experience in Delaware’s Court of Chancery inspired confidence that his clients were facing “jurists at the top of their game.”
The bill would require greater experience for business court judges than provided by the constitution. They would be required to have resided in a county within the division of the business court to which the judge was appointed for at least five years before the appointment and have 10 or more years of experience in complex civil business litigation or transaction law, teaching courses in those areas, serving as a judge of a civil court or any combination of those experiences.
Massengale also argued the trend toward arbitrating disputes deprives the public of precedential case law. The business court judges would explain their rulings in “reasoned opinions,” he said.
Tim Newsom, president of the Texas Chapters of the American Board of Trial Advocates, has been fighting the bill, along with his counterparts R. Douglas Rees of TADC and Laura Tamez of TTLA. The three signed a letter to lawmakers in March opposing what they called “a serious, costly, and problematic overhaul of our civil justice system.”
Newsom said TEX-ABOTA, which counts 400 litigators in its invitation-only organization, only would have joined the letter if both TADC and TTLA agreed. Newsom practices with The Law Offices of Frank L. Branson.
“You hear the phrase kicked around from time to time that ‘these are special courts for special people’ – the business court that is – and that’s not the way our republic was set up and that’s not the way our constitution was set up,” said Newsom. “It’s a very significant issue for the state, and this year it’s being pushed as hard or harder than it has.”
Statutory or Constitutional Courts?
The state constitutional debate centers on whether the business court would be a statutory court allowed under Article V, Section 1 or a constitutional court subject to provisions of Article V, Section 7. Also at play is Article V, Section 8, which states: “District Court jurisdiction consists of exclusive, appellate, and original jurisdiction of all actions, proceedings, and remedies, except in cases where … jurisdiction may be conferred by this Constitution or other law on some other court, tribunal, or administrative body.”
The litigator professional groups distributed a letter this week elaborating on their constitutional concerns. The memo analyzed language in the latest version of HB 19, which passed the Judiciary Committee on a 5-4 party line vote.
Vladeck, the Charles Alan Wright Chair in Federal Courts, opines that changes made to the bill to categorize the business court as a statutory court that does not have to comply with certain constitutional requirements ameliorates some but not all the problems.
He said the substituted bill “attempts to reconceive the Business Court as a ‘statutory’ court that does not have to comply with the requirements of Article V, Section 7” that the state be divided into judicial districts and each district judge be elected. But, he said, the statewide business court would have the powers provided to district courts with even broader jurisdiction.
“Indeed, the Second Committee Substitute tries (in vain) to fudge the statewide scope problem by purporting to create ‘divisions’ within the statewide ‘judicial district’ encompassing the Business Court,” Vladeck said. “But the bill undeniably creates a single ‘court’; subdividing a unitary court geographically does not turn it into multiple independent courts. And in any event, the 11 existing geographic divisions incorporated by new section … do not divide the state in the same way as the existing district courts; they are muchlarger.
Vladeck said he has some ambivalence about the policy wisdom of creating a statewide business court but the correct way to implement such a plan would be through a constitutional amendment. “The critical point for present purposes is that, for better or worse, the Texas Constitution does not empower the legislature to create such a tribunal,” he said. “It is therefore my opinion that adoption of the Second Committee Substitute in its current form would be unconstitutional — and would face serious jeopardy if and when it is challenged in the Texas courts.”
TLR has circulated its own memo concluding the business court would not be a district court and therefore its judges may be appointed. TLR cites the 1950 Texas Supreme Court ruling in Jordan v. Crudgington that a Potter County Court of Domestic Relations was a statutory, not a constitutional, court.
“Article V, Section 1 of the Texas Constitution is clear, as are Article V, Section 8 and the Texas Supreme Court’s opinion in Jordan v. Crudgington – the Texas Legislature has the constitutional authority to create ‘other such courts as it may deem necessary,’ to give them the jurisdiction it deems appropriate and to provide for judges by whatever means of selection it chooses,” said Lucy Nashed Cafrelli, a spokesperson for TLR. “The fact that the business court created by HB 19 has concurrent jurisdiction with a district court in a narrow subset of cases does not make it a district court. If the arguments made by the opponents were valid, that would mean county courts at law and statutory probate courts are unconstitutional, when they are clearly not.”
The trio of organizations also jointly signed letters against SB 1045 and HB 3166, legislation to create the Fifteenth Court of Appeals, which would have exclusive jurisdiction over disputes from the business courts as well as those involving the state or state agencies. SB 1045 passed the Senate in late March on a 19-12 vote. The new intermediate appellate court would consist of a chief justice and four justices elected statewide.
TEX-ABOTA member Marc Gravely said the business court plan would benefit the insurance industry in lawsuits with Texas companies. Gravely, who represents property owners in construction defect claims, said it’s significant that TADC members often represent insurers in such disputes.
“The fact that they’re against it doesn’t mean they’re breaking with the industry,” he said. “It means they’re standing for what’s right.”