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.
Please join us on Thursday, April 1 at noon for a discussion about Texas House Bill 1875 on the creation of Business Courts in Texas. For the first time, all of Texas ACC members are invited to attend a webinar CLE together.
Key panelists will be discussing the pros and cons of HB 1875 with moderator Mark Curriden of The Texas Lawbook. Please register here.
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 type 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.
Former Quantlab Financial General Counsel Tim McInturf of Houston has successfully litigated cases in Texas and Delaware, and he “loved being in the Delaware courts.”
“The Delaware Chancery Court shortens the time it takes to decide disputes involving tons of money,” McInturf said. “When control of a company is up for grabs, it becomes very disruptive for business and it helps that the judges in Delaware think like business managers. You don’t find that in courts of general jurisdiction.”
McInturf said he also likes the idea of business trial courts because it will mean more litigation experience for law firms in Dallas and Houston, but he is not sure he supports the creation of a business appellate court.
“The more courts of appeals you create, the more possibilities of conflicting rulings,” he said. “You also have to guard against it becoming super clubby, which can be a problem in Delaware.”
Young said he believes a dedicated business court will actually bring unanimity to corporate law decision-making, pointing out that Texas has 458 state district judges and 510 county courts at law judges – all with potential jurisdiction in these large, complex commercial disputes.
“Our judges are generally excellent, but because so many have the same jurisdiction, none of them has the time or opportunity to develop the kind of specialization that other states’ business-court judges can hone,” he said.
“Texas is a big state and we have nearly 100 intermediate appellate justices,” Young said. “Being able to proceed rapidly through the appellate process, and not just the trial court, is essential to the goal of proving that Texas courts can expeditiously resolve business-law cases.
“Likewise, developing clear precedent is of outsized importance,” he said. “Spreading appeals among many dozens of justices will be less effective than having a smaller panel able to give greater focus on business appeals.”
Hogwash, said Dallas trial lawyer Jeff Tillotson, who represents businesses in high stakes litigation.
Tillotson notes that HB 1875 gives the governor the authority to appoint the business trial and appellate judges every two years. What if Texans elect Matthew McConaughey as governor next year? he asked.
“The next governor will appoint all new judges and then the judges in the middle of my cases change,” he said. “That reduces predictability. This seems to be a solution in search of a problem that doesn’t exist.”
Tillotson also questions the timing of the proposal to take jurisdiction in big cases away from the state appellate courts in Dallas and Houston, which turned completely Democratic during the past two elections.
“It is hard to see it any other way than playing politics,” he said. “There is zero doubt that this is an effort by some who don’t want to be accountable to the democratically elected judges in Dallas, Houston and elsewhere.”
Villalba rejects that argument.
“This is not about the current courts being unfair,” he said. “Our judges are highly qualified. We have some brilliant judges. This is about a specialty court that has expertise to deal with very complicated lawsuits in a fast and predictable manner. On this, Texas comes up short.”
Former Texas Supreme Court Chief Justice Wallace Jefferson said he remains uncommitted about the current legislation, but he said the idea needs to be studied. “There needs to be a vigorous debate,” the state’s former top judge said.
“The first question is not whether a new court needs to be created, but whether the current system of justice is working properly,” said Jefferson, who represents companies in business disputes at the appellate level.
“Big corporations feel that they get unfair treatment in our current court system,” he said. “But we need to realize that if a company that can pay lawyers millions of dollars feel they are not being treated fairly, then what about the poor person in the court system who cannot afford a lawyer at all.”
Editor’s note: On Tuesday, The Texas Lawbook published a Q&A with Evan Young and Jason Villalba, who provide more details on why they think a business court in Texas is needed. That Q&A is here.