Authors: Jennifer Piskun Johnson, Daniela Peinado Welsh, John McFarland
The Governor of Texas recently signed House Bill 19, which creates Business Courts throughout Texas. The courts will begin accepting civil cases September 1, 2024. Where the courts will be physically located and who the appointed judges will be remains to be determined; however, here is what we do know and what you need to know about House Bill 19.
What is House Bill 19?
Many counties throughout Texas have specialized courts to hear defined matters: criminal courts, family courts, and probate courts – as examples. Like these courts, House Bill 19 creates trial courts to hear defined, business-related matters. But unlike these other courts, judges of the business courts will be appointed by the governor and not subject to elections.
Under the framework of House Bill 19, there will be one statewide judicial district with eleven business court divisions throughout the State of Texas. Our city of Austin, Texas, will be in the Third Business Court Division.
What Type of Cases Will the Business Courts Have the Power to Hear?
The business courts will have civil jurisdiction concurrent with district courts in two central areas. First, the business courts will have jurisdiction over certain civil actions with an amount in controversy over $5M (exclusive of interest, statutory damages, exemplary damages, penalties, attorney’s fees, and court costs). Examples include actions regarding whether an owner breached their fiduciary duties to the organization or should be personally liable for an obligation of the organization. Further, there is no amount-in-controversy requirement for such actions where the claim is against a publicly traded company. Second, the business courts will have jurisdiction over certain civil actions where the amount in controversy is over $10M (exclusive of same) and the dispute involves a contract to pay, lend, or receive consideration or a contract where the parties have consented to the business court’s jurisdiction. Specifically, the business courts will have jurisdiction over:
• Civil actions with an amount in controversy exceeding $5M to include an:
– Action asserting a claim under a state or federal securities law against an organization;
– Action that is derivative, such as a shareholder derivative suit;
– Action alleging that an owner, controlling person, or managerial official breached fiduciary duties owed to the organization;
– Action regarding the governance or internal affairs of an organization;
– Action seeking to hold an owner liable for an obligation of the organization, which may include one seeking to pierce the corporate veil; and
– Action arising out of the Texas Business Organizations Code.
• The business court will also have jurisdiction to hear any of the claims above – no matter the amount in controversy – if the claim involves a publicly traded company.
• Civil Actions with an amount in controversy exceeding $10M to include an:
– Action arising out of a qualified transaction (that is, a contract to pay, lend, or receive consideration over $10 million, other than one with a bank or similar institution); and
– Action that arises out of a contract (except an insurance contract) in which the parties to the contract agreed that the business court has jurisdiction of the action.
What Type of Cases Cannot be Heard by the Business Courts?
• Unless the claims fall within the business court’s supplemental jurisdiction and the parties and court agree that the supplemental issue can be heard, the business courts do not have the power to hear claims involving:
– Action brought by or against a governmental entity;
– Foreclosure of a lien on real or personal property;
– Covenant not to compete;
– Antitrust or deceptive trade practices;
– Texas Estates Code, Texas Family Code, or Texas Insurance Code;
– Mechanic’s, contractor’s, or materialman’s lien;
– Trusts;
– Consumer transactions; and
– Obligations under an insurance policy.
• The business court cannot hear the following claims even if the claim falls within the business court’s supplemental jurisdiction:
– Claims of medical or legal malpractice.
– Claims in which a party seeks damages for bodily injury or death.
What Power Will the Business Courts Have?
– Jurisdiction concurrent with the civil district courts.
– Authority to issue writs of injunction, mandamus, attachment, garnishment, and supersedeas.
– Authority to grant declaratory relief under the Texas Civil Practice and Remedies Code.
How are Lawsuits Filed in the Business Courts?
– Original Filing, or
– Removal from the Court of Original Filing within 30 days from when the basis for jurisdiction is discernable.
Are Jury Trials possible in the Business Courts?
Yes, to the extent they are required by the Texas Constitution.
Can an Order or Judgment from a Business Court be Appealed?
Yes. Notwithstanding instances when the Supreme Court has exclusive or concurrent jurisdiction, a newly created 15th Court of Appeals will have exclusive jurisdiction over all appeals from an order or judgment from a business court.
Who will be the Judges Presiding Over the Business Courts?
The Judges have yet to be appointed. Unlike other state trial and appellate courts, the presiding judges of the business courts will be appointed by the Governor of Texas with the approval of the Texas Senate.
The term of office is two years with reappointment possible. The judges must meet certain qualifying criteria including being at least 35 years of age, citizens of the United States and residents of a county within the business court division to which the judge is appointed, a licensed attorney who has at least ten years of business-related litigation or transactional experience and who will not engage in the private practice of law.
Are the Business Courts Constitutional?
What we know is the Texas Supreme Court will have exclusive and original jurisdiction over a challenge to the constitutionality of this Act.