TEXAS: HOUSTON & SURROUNDS: An Introduction to Litigation: General Commercial

The judicial landscape in Texas is evolving with the introduction of the Business Courts and Fifteenth Court of Appeals. These new courts became law in 2023, and they are set to become reality in 2024. (See TEX. GOV’T CODE Ch. 22 and 25A).

Fueled by pressure from energy companies and business interests, the Texas legislature created specialized Business Courts designed to handle complex business civil litigation matters outside the regular state courts of general jurisdiction. The Business Courts will have limited subject matter jurisdiction and be presided over by appointed judges, meeting certain statutory qualifications. The Fifteenth Court of Appeals was also created in part to handle appeals from the new Business Courts.

While the intent was lofty, implementation may take years to settle out. These newly created courts begin operations in September 2024 and will present challenges and opportunities for parties and counsel.

Texas Business Courts 

Jurisdiction of the Texas Business Courts 

Cases filed in the new Business Court must meet both the subject matter and amount in controversy requirements. These specialized courts will have concurrent (or shared) jurisdiction over certain commercial and business disputes, including the following:

• Contract disputes with amounts in controversy exceeding USD10 million if the parties to the contract agree.

• Corporate and governance disputes (such as actions concerning the internal affairs of a company, derivative proceedings, securities claims, and claims for breaches of corporate fiduciary duties) with amounts in controversy exceeding USD5 million.

• Corporate and governance disputes regardless of the amount in controversy if one of the parties is a publicly traded company.

Structure of the Texas Business Courts 

As opposed to elected district and appellate judges in Texas, Business Court judges will be appointed by the Governor and subject to Senate confirmation. Business Court judges will serve two-year terms and are subject to reappointment.

The statute requires the judges to meet certain criteria that include being a licensed attorney at least 35 years of age. The judges must possess at least ten years of experience in complex business litigation, business transaction law, or as a Texas judge with civil jurisdiction. This “qualification” requirement is much stricter than that prescribed for other Texas judges in courts of general jurisdiction.

The Texas Business Courts will be comprised of eleven divisions. Currently, only five divisions surrounding major urban areas have funding to operate. The remaining six will be funded at a later date. The Texas Governor will initially appoint two judges for each of the five initially funded divisions. That number will eventually grow to sixteen, with one judge appointed for each of the remaining divisions.

Commencement of Operations 

Parties may file in, or remove actions to, the new Business Courts starting September 1, 2024.

Texas Fifteenth Court of Appeals 

Jurisdiction of the Fifteenth Court of Appeals 

The Fifteenth Court of Appeals is a statewide appellate court with exclusive jurisdiction over appeals from orders and judgments issued by any of the Business Courts from across the State of Texas. This new court will also have exclusive intermediate appellate jurisdiction over significant matters identified by the State of Texas, including certain actions brought by or against state entities and officers, challenges to the constitutionality or validity of state statutes and rules, and other specified matters.

Structure of the Fifteenth Court of Appeals 

The Fifteenth Court of Appeals will consist of a chief justice and two additional justices when it is created in September 2024, but two more justices will be added three years later. The justices will initially be appointed by the Governor and later elected in statewide races. The court will be located in Austin, Texas, but it can conduct proceedings anywhere in the State as it determines is necessary and convenient.

Commencement of Operations 

The Fifteenth Court of Appeals will open on September 1, 2024, and all appeals perfected after that date that fall within the court’s exclusive jurisdiction will be made to the Fifteenth Court of Appeals. All cases pending in other courts of appeals that were filed on or after September 1, 2023, and of which the Fifteenth Court of Appeals has exclusive intermediate appellate jurisdiction, will be transferred to the newly-created appellate court.

Open Questions About the State’s New Courts 

Observers expect legal challenges to the new Business Courts and Fifteenth Court of Appeals. Challengers will likely argue that these new courts violate various provisions of the Texas Constitution requiring the State to be divided into judicial districts with judges elected by the voters within the district. Defenders will likely counter that such requirements only apply to “constitutional” courts while these new courts qualify as “statutory” courts. Each of the acts that created the business courts and Fifteenth Court of Appeals gives the Texas Supreme Court exclusive and original jurisdiction over any constitutional challenge to such courts.

If the courts survive legal challenges, many questions remain concerning the applicable procedural rules and substantive law. The Texas Legislature tasked the Texas Supreme Court with the promulgation of procedural rules in the new courts. A committee was formed and public comment on the proposed rules ended on May 1, 2024. The Texas Supreme Court will consider the comments and propose final versions of revisions to the Texas Rules of Civil Procedure and Texas Rules of Appellate Procedure upon which members of the Texas Bar will vote. The proposed rules are both substantive and procedural in nature and will undoubtedly lead to much debate on their scope and application.

Strategic and practical concerns are also important to note regarding the Business Courts. Plaintiffs (and defendants in instances of removal) will have to consider whether it will be more advantageous to pursue their matter in District Court or the new Business Court given overlapping concurrent jurisdiction. As for the Fifteenth Court of Appeals, it has no predecessor because it is a new appellate court that includes every county within its jurisdiction. As a result, it has no body of legal precedent. Practitioners will need to draw upon decisions from the Texas Supreme Court and sister appellate courts, federal precedent, and choice-of-law factors to help the Fifteenth Court of Appeals develop its own precedential body of substantive law over time.