Texas will be the latest state to open a commercial court on Sept. 1. Roughly half of all states, from Delaware to Wyoming, have some form of equity or commercial court, broadly defined as specialized courts that handle civil business and commercial disputes.
What can Texas learn from the successes and challenges of business courts in other states? Here are some key lessons learned, including jurisdictional consent, court length, and feedback surveys.
Consent to Jurisdiction
Many states require that all parties to a dispute consent to jurisdiction before a lawsuit can be filed in a business court. For example, in Wyoming, if any party timely challenges jurisdiction, the court of chancery must dismiss the lawsuit without prejudice. Also, the parties cannot transfer the lawsuit to that court unless all parties consent in writing.
In New Hampshire, the Superior Court refused to transfer the dispute to the Commercial Court without the plaintiff’s consent because the applicable statutes and rules “expressly prohibit the Commercial Court’s jurisdiction over the case if one of the parties objects.”
Perhaps not surprisingly, state business courts that require unanimous consent on jurisdiction often dismiss cases due to party objections. In Wyoming, litigants filed 13 lawsuits within 11 months of the opening of the Court of Chancery. In 25% of those cases, defendants challenged jurisdiction and the cases were dismissed.
Georgia's state business court, which requires unanimous consent for jurisdiction, faces similar obstacles: Of the 86 cases filed in the court between its August 2020 opening and April 2023 opening, about 25% were dismissed because the parties refused to proceed in the business court.
Texas has largely avoided the consent issues faced by Georgia and Wyoming. The jurisdiction of Texas' new business court depends on the nature of the dispute and the amount at issue. Generally, the court will have jurisdiction over governance disputes over $5 million and commercial disputes over $10 million. Such claims may be brought in the business court regardless of the consent of the other party.
However, the business court's supplementary jurisdiction is a much trickier issue. A court can only exercise supplementary jurisdiction over a related claim if: The parties and the judge will agree. If they do not agree, the related claims may be heard simultaneously in a court of first instance.
Thus, where a plaintiff has multiple causes of action, only some of which fall within the original jurisdiction of the Commercial Court, the defendant or the judge may, by withholding consent, void the supplementary jurisdiction of the Commercial Court.
Based on data from the Wyoming Court of Chancery and the State Commercial Court of Georgia, litigants should expect that the defendant or judge will withhold consent approximately 25% of the time, which is sure to increase complexity and costs for litigants and force litigants to consider abandoning claims and pursuing litigation in multiple courts.
Length of Judges' Term
What business courts have in common is that each case is assigned to a single judge who presides over the case from start to finish. The single-judge system is designed to allow business courts to manage their dockets efficiently and streamlined. For this reason, many states have established relatively long terms for business court judges.
For example, state commercial court judges in Georgia serve five-year terms, while Wyoming court of chancery judges serve six-year terms. In North Carolina, commercial court judges serve eight-year terms, and in Delaware, court of chancery judges serve a whopping 12-year terms.
In contrast, the 16 judges appointed to Texas' Business Court serve only two-year terms at a time. Very few cases, especially those involving complex business issues, are resolved in less than two years. By comparison, Texas district court judges are elected to four-year terms.
A two-year term creates uncertainty and increases the likelihood that a new judge will take over a case midway through a case, and possibly more than once. Replacement of judges while a case is ongoing does not help the Business Court manage its caseload efficiently and rationally.
Some observers argue that the length of a business court judge's term is one of the most important factors in instilling confidence in litigants. If so, a two-year term may not be enough to instill confidence.
Get feedback
A final lesson: Texas should follow the lead of Wisconsin, which launched a commercial docket pilot project in 2017 and has extended it through July 2024.
All commercial litigation attorneys were sent a survey assessing their experiences with case management, discovery disputes, and other topics. Commercial litigation judges reported the largely positive survey results in their 2020 progress report.
Texas should consider a similar survey of business court litigants. The results, whether positive or negative, could influence future changes to the court.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Ryan Sullivan is a counsel in the Austin office of Reichman Jorgensen Lehman & Feldberg, where he specializes in complex commercial litigation for both plaintiffs and defendants.
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