Texas Business Court Countdown: Time to Update Your Forum Selection Clause?
In this article for The Texas Lawbook, partner Nick Brown discusses considerations for forum selection leading up to the September 2024 launch of the new Texas business court.
With the appointment of the first business court judges this month, the excitement surrounding the Texas business court is palpable. Many litigants feel that Sept. 1 can’t come fast enough, and with it the promise to usher in a new era for high-stakes Texas commercial litigation. But others are quick to caution that, for all the anticipation, plenty of open questions remain. With clients growing ever more interested in the business court, practitioners are increasingly confronting the jurisdictional complexities and procedural hurdles they must clear to litigate in the new court. No one yet knows for sure how busy the new courts will be or how quickly they will resolve disputes. Only time and data will create the certainty that the new business court promises to bring.
Fortunately, lawyers thrive in uncertainty. Some want to take advantage of the new system, making the Texas business court the exclusive option for all qualifying disputes. Others prefer to stick with the tried-and-true courts that have served them their entire careers. But one way or another, every lawyer advising on a new contract that potentially qualifies for dispute resolution in the business court may confront the same question: Should we push for a forum selection clause that preemptively agrees to have new disputes heard in the new court?
Ultimately, it depends on the client’s risk tolerance. Because of the uncertainties, selecting the Texas business court as the exclusive option may be too big a risk for most contracting parties. Still, parties with qualifying contracts should seriously consider the business court among their dispute resolution options. And with the business court launching in just a short few months, companies will want to keep a close eye on developments to see how their assumptions match up to reality. In doing so, parties can position themselves to potentially leverage this new legal arena as it becomes a fixture of Texas jurisprudence.
The Texas Business Court Looks Alluring, but the Proof Will Be in the Pudding
Lawmakers adopted the Texas business court system to create a forum for complex disputes on fast timetables with predictable outcomes. Existing trial courts in major commercial centers — particularly in Houston, Dallas, San Antonio and Austin — have busy dockets and only a finite amount of time to devote to the relatively small percentage of large commercial cases before them. These busy trial courts must sometimes wait years to have an opening for a case requiring a multiweek trial, as many high-dollar complex commercial disputes demand. The availability to consider pretrial motions can similarly vary. And, because Texas trial courts rarely publish reasoned decisions, trial lawyers generally have to rely on anecdotal evidence from colleagues about how different judges view evidentiary and procedural issues.
Although the Texas business court hopes to address these issues in a few short months, potential litigants must weigh the benefits against the inherent uncertainty of litigating in a new forum. On the one hand, the business court has limited jurisdiction (discussed in our prior article), which may allow trials to occur sooner and give judges more time to carefully consider complex motions. The new court’s initial judges were just appointed by the governor and each had to have specific business-oriented qualifications to get the job. Each business court district will have only one or two judges deciding issues and writing opinions, ideally promoting consistent treatment of similar issues across cases. The new Fifteenth Court of Appeals, which was created, in part, to hear Texas Business Court appeals, promises to create statewide consistency in commercial case law.
On the other hand, until the new court opens, the promises of the Texas business court remain theoretical. The business court’s limited jurisdiction will reduce the number of disputes it hears but also may create opportunities for jurisdictional wrangling that don’t often exist in the Texas state district courts of general jurisdiction. Anyone who has litigated in federal court knows that disputes over removal and remand sometimes take months or years to resolve. And the Texas business court will face unique issues. For example, there is no mandatory supplemental jurisdiction, creating the possibility of parallel litigation and complex preclusion issues. Likewise, the ins-and-outs of the hefty amount-in-controversy requirements (at the low end, still almost 70 times higher than their federal counterparts) have yet to be determined. With new rules will come new disputes. If jurisdictional disputes and procedural litigation pervades the court’s docket, it could interfere with judges’ ability effectively to attend to the substantive matters the court was designed to resolve.
And though the governor has now appointed the initial business court judges to much acclaim, it is worth keeping in mind that they do not have life tenure or even the four-year term of a regular Texas district judge. Their terms instead last only two years, creating the potential for judicial turnover during the course of complex disputes that commonly last longer — particularly if a case is filed six months or more into the new judges’ terms. That could lead to unique disruptions or delays in the business court that may not exist elsewhere.
In short, there is real reason for optimism, but the jury is still out on whether the Texas business court will deliver as promised.
Consider Acting Now to Preserve the Texas Business Court as an Option Later
Businesses sign contracts every day, including some that bind the parties for years. Given the uncertainties, parties should carefully consider whether it makes sense to agree in advance to mandatory Texas business court jurisdiction in their dispute resolution agreements. Other popular forums — anything from state or federal courts in Texas to Delaware Chancery Court to arbitration — will continue to attract litigants who desire a degree of familiarity that the Texas business court cannot immediately provide.
But a wait-and-see approach to the Texas business court may result in foreclosing the opportunity to litigate in a forum that could one day be perceived as highly desirable. Not all companies are satisfied with their existing alternatives, and not all of them (such as federal court and Delaware Chancery Court) are always available. These companies should consider how to preserve the Texas business court as an option to avoid losing any rights they may have to invoke should they one day wish to do so.
Contracting parties can achieve this outcome in different ways. For example, the parties could consent to Texas business court jurisdiction if it exists, further consent to the jurisdiction of one or two other fora if the business court lacks jurisdiction, and agree against submitting disputes to any other forum. Or the parties can opt for a more definite hierarchy. For example, parties could agree to submit a dispute to the Texas business court or federal court if jurisdiction exists, while specifying “backup” forums if the preferred forum lacks jurisdiction.
There are innumerable variations for contracting parties to choose. The parties could specify everything from geographic venue to whether multiple courts have removal jurisdiction (i.e., federal courts and Texas business court) to whether a party could attempt to relocate a case filed in federal court to the Texas business court or vice versa.
Businesses with Texas ties should continually reevaluate their forum selection practices for the next several years, while the new court’s precedent develops. As judges are appointed, written opinions issue and norms develop, the business court may very well prove to be Texas’s flagship forum for commercial litigation. Lawmakers in the Texas Legislature are already discussing ways to expand the business court’s jurisdiction and resources when the next legislative session arrives in January 2025. If the court develops as planned, businesses operating in Texas may well want to update every forum selection clause to mandate that qualifying litigation occurs in the business court. But many unknowns remain. It thus behooves dealmakers, litigation managers and business leaders alike to stay abreast of developments in the Texas business court. In just a few months, the business court will launch. Whether trying to get into it or stay out of it, anyone who faces the prospect of business litigation will want to know how this new fixture of Texas jurisprudence develops.
