The race to construct a new system of specialized business and appellate courts for high-dollar commercial cases officially begins Friday, although efforts are well under way to identify judges and write rules for the courts.
These and other preparations needed for the courts to be operational by September 2024 are expected to continue for the next year, even if lawsuits emerge to challenge the constitutionality of the laws creating the new courts.
Gov. Greg Abbott is accepting applications for the 10 judges who will preside over business court divisions based in regions surrounding Dallas, Austin, San Antonio, Houston and Fort Worth. A panel of lawyers and judges who advise the Texas Supreme Court are working to craft proposed rules for court procedures, including the issuance of written opinions, the efficient removal and remand of cases to and from the business court and the assignment of cases to judges of the business court.
The Supreme Court is in the interesting position of implementing the new system while potentially ruling on its constitutionality. Chief Justice Nathan Hecht, who has experience at the district and court of appeals, called for the creation of a business court in a speech to lawmakers early this year.
House Bill 19 and Senate Bill 1045 take effect Sept. 1, commencing the one-year countdown to creation of the new system. HB 19 establishes the Business Court Judicial District, a trial court with statewide jurisdiction to resolve complex business disputes. Senate Bill 1045 establishes an intermediate court of appeals with exclusive statewide jurisdiction over appeals from the business court and cases to which the state is a party.
“I think you could potentially see an argument that just slapping a title on it as some sort of specialty court isn’t enough. This is a district court. It’s just a district court of a different form. The judges need to be elected.”
— Kaylan Dunn
The business court has jurisdiction over organizational and governing disputes in which the amount in controversy is greater than $5 million or which involve a publicly traded company. The court will hear transaction-related cases in which the amount in controversy is greater than $10 million. The business court also has supplemental jurisdiction over claims related to any case within its jurisdiction, setting up the potential for two cases based on the same facts moving on parallel tracks in business court and district court.
The final version of HB 19 was the product of a hard-fought process that found members of the plaintiffs and defense bars joining forces against the bill. Some of the opposition softened as lawmakers exempted claims involving insurance contracts and financial loans, consumer transactions, personal injury and wrongful death.
The first day of September also marks the time when any newly filed appeals could be subject to transfer to the Fifteenth Court, if they remain pending next September. The new appeals court will begin with a chief justice and two justices, with two additional justices anticipated in 2027.
Jason R. LaFond, senior counsel at Yetter Coleman, said he hopes those charged with implementing HB 19 will look at states all over the country that have successful specialized business courts.
“North Carolina, for example, has used business courts for over 15 years. Complex business litigation in North Carolina has benefitted greatly — cases are decided quicker and at much lower cost,” LaFond said. “So, my hope and expectation is that those charting the course for the Texas business courts will take a close look at what’s worked, and what hasn’t, elsewhere.”
Opponents of HB 19 argued that the appointment of business court judges would violate provisions in the Texas Constitution that require district courts be presided over by elected judges. University of Texas School of Law professor Stephen Vladeck said in a legal brief sent to legislators that a constitutional amendment would be the proper way to create a business court using appointed judges.
Bill drafters framed the business court as a “statutory” court that they said does not have to comply with constitutional requirements for elected judges, similar to a few types of specialized courts that have been created by the Legislature.
M. Kaylan Dunn, a partner at Hunton Andrew Kurth in Houston, said the carving out of many cases from business court jurisdiction may have lessened opposition, but she still expects that a party will file a direct action at the Supreme Court, which was given original, exclusive jurisdiction over constitutional challenges to HB 19.
“I think you could potentially see an argument that just slapping a title on it as some sort of specialty court isn’t enough. This is a district court. It’s just a district court of a different form. The judges need to be elected,” she said.
There also could be a challenge to the at-large election of those who will sit on the Fifteenth Court of Appeals. Unlike the existing 14 intermediate courts of appeal which serve defined regions and are elected by voters living in those regions, justices on the new appeals court will be elected statewide. The initial vacancies will be filled by gubernatorial appointment.
The legislative discussion focused on how the new court will lessen the influence of the Third Court of Appeals, which is based in Austin and covers a 24-county region of Central Texas. All six of the justices on the Third Court are Democrats, and the new statewide court is likely to be dominated by Republicans. The new COA also will be based in Austin.
“There may be some groups out there who don’t care one way or the other so much about the business court piece but may very well care about a different set of judges — statewide elected judges — hearing the intermediate appeals about certain governmental issues as opposed to the current Third Court of Appeals,” said David Harper, a Dallas partner at Haynes Boone who represents clients in IP and complex business disputes.
A challenge to SB 1045 also would be filed directly at the Supreme Court.
Writing the Rules
The law directs the Supreme Court to adopt rules for the business court to issue written opinions, set filing fees and adopt rules of civil procedure as the court deems necessary, including rules for the timely and efficient removal and remand of cases to and from the business court and the assignment of cases to judges. The statute also allows the business court to adopt its own rules of practice and procedure.
On Aug. 18, at the state bar headquarters, the Supreme Court advisory committee began discussing rules for the new courts. Chairman Charles L. “Chip” Babcock noted that “our timeline is not leisurely” for the courts to spring to life in a year.
A business court subcommittee has been meeting every other week to begin the drafting. It is led by Marcy Hogan Greer, managing partner with Alexander Dubose & Jefferson.
Among the early stumbling blocks is what set of rules to amend and how complex the rules should be, given the presumption that existing rules apply “except where they don’t,” said Greer.
“My hope and expectation is that those charting the course for the Texas business courts will take a close look at what’s worked, and what hasn’t, elsewhere.”
— Jason LaFond
A concern with adding pages to the Rules of Civil Procedure for what is expected to be a small number of cases is that it could bulk up the printed book for those lawyers who tote it to court. Some committee members thought some of the additional text could go in the Rules of Judicial Administration.
The consensus of the committee appeared to be that the rules should be easy to find and written in plain language.
Among those watching the rule-making process, Dunn said she would love to see the Supreme Court adopt comprehensive rules on electronic discovery for large commercial cases.
“Here we’re looking at tens of thousands, hundreds of thousands of documents. And to have them be treated the same as documents you pull from your file cabinet, it’s just not the same thing,” she said. “There are rules now that mention electronic discovery, but they are somewhat cursory. I think there could be attention there given that could really help the discovery process.”
The law allows the business court to conduct a proceeding other than a jury trial as a remote proceeding but may not require a party or attorney to remotely attend a proceeding in which oral testimony is heard, absent agreement by the parties.
Dunn is encouraged that the law references remote proceedings, which could be especially important as business court judges may not have permanently assigned courtrooms.
The Legislature appropriated $1.3 million for fiscal 2024 and $510,000 for fiscal 2025 to operate the business court. The fee structure being considered eventually will cover the operational costs, according to the statute.
Who’s Your Judge?
Among the most interesting topics is who will preside over the business courts. Some expect announcements could come quickly while others expect Abbott to wait until next year, given the two-year terms for the judges begin on Sept. 1 of every even-numbered year. Nominations by the governor are subject to Senate approval.
The governor’s press office did not provide information about the timing of appointments.
Candidates for the business courts and the Fifteenth Court of Appeals may include former judges and justices who lost reelection as urban voters skewed Democratic in recent elections.
“They have the experience with these types of cases and there’s less of a learning curve than somebody that’s never sat on a bench before,” said Dunn.
She said business lawyers might be the most knowledgeable about the type of transactional disputes likely to land in business court but may lack litigation experience.
“We recently did a presentation on this and were kidding around, saying could you imagine one of our M&A partners taking the bench and calling balls and strikes on your evidence and procedure,” said Dunn, a litigator.. “And while we love them and they’re highly competent at what they do, I don’t know if we’d want them in that position.”
Harper wonders if the ability to recruit judicial candidates might be chilled if a constitutional challenge delays the opening of the business court. Under that scenario, an appointee’s legal practice could be stalled for six to twelve months with the potential that the law could be struck down.
“People are talking about it, but there’s a whole bunch of wait-and-see, because you don’t really know exactly what’s going to happen,” he said.