Home Court Advantage

The State of Texas is home to 52 of the Fortune 500, tied with New York and just behind California. The state’s Office of Economic Development and Tourism reports that Texas produces 9% of the nation’s GDP and 22% of all U.S. exports. Texas’ population just topped 30 million, and its economy clocks in as the eighth largest in the world, just behind France.

Soon, Texas could be home to three stock markets. The new Texas Stock Exchange, backed by Wall Street heavyweights, is set to launch next year in Dallas. Not to be outdone, both the New York Stock Exchange and NASDAQ recently said they, too, plan to open trading floors in North Texas around the same time.

“A dedicated court says it matters to Texas that, as a company, you are here and that this is a place where you can build your business,” says Sandra Phillips ’91, senior vice president, general counsel, and chief legal officer for Toyota Motor North America. “The courts are an important part of the emergence of what’s being called ‘Y’all Street’ … I just think that’s terrific.”

Swift Justice

The state’s boost in commercial activity, however, places greater demand on an already overburdened state judiciary. Historically, complex commercial litigation — such as disputes over corporate governance, contracts, or securities issues — fought for space on the court calendar against bread-and-butter civil and criminal cases. With a constitutional priority for speedy criminal prosecutions, civil cases can languish. For businesses, a start-stop-restart trial process can be costly.

“There’s this complex web of parties and entities, LLCs, and partnerships, and it takes a good 20 minutes to give the most basic summary of those relationships,” says Fourth Business Court Judge Stacy Sharp ’06, a longtime appellate attorney, Texas Law adjunct faculty, and newly appointed judge. “On a typical rotating [district court] docket, judges can change, and you have to outline those relationships every time.”

The Texas Business Court, which began taking cases on September 1, aims to remove those roadblocks. One judge — who must have at least 10 years’ experience in complex civil business litigation and business transaction law — manages a case from start to finish. Appointed by Texas Governor Greg Abbott, 10 judges have been named in five urban districts — Houston, Dallas, Fort Worth, San Antonio, and Austin. (The remaining courts in six rural districts are expected to begin operations in 2026.)

A more efficient judicial assembly line for business cases can also help the civil and criminal courts operate more smoothly. “Other courts will soon start to feel a benefit as well, in terms of unclogging their dockets and just making the whole system work better,” says Phillips, who is also a University of Texas Law School Foundation trustee.

Reshaping the State’s Judiciary

State lawmakers established the business court in 2023, capping a 20-plus year debate on whether to have a business court and, if so, which cases it would accept — yes to securities disputes, but not product liability claims, and yes to governance matters, but no for personal injury suits. Legislators specifically wrestled with how to reconcile the fact that well-run business courts typically are equipped with experienced, appointed judges in a state judicial system that prefers to vet judges through elections.

One constant in this effort was Mike Tankersley ’80, a co-founder in 1989 of the Texas Business Law Foundation (TBLF) and its former chair. Tankersley has spent nearly half of his law career since the late 1990s advocating for a specialized Texas business court.

In 2015, Byron Egan ’68, also a co-founder of TBLF, and Jason Villalba ’96, a Dallas business lawyer serving his second term in the Texas House of Representatives, introduced the first bill to create the court, an effort repeated in the next four legislative sessions. “We rolled forward session after session, developing consensus and confidence in the idea,” Tankersley recalls. “And each time, we got a little farther.”

COVID-19 disruptions to case management helped boost the case for a separate court to litigate commercial disputes. By the 2023 legislative session, enough of the state’s leadership agreed. Gov. Abbott signed the Texas Business Court into law — the most significant change to the state’s judiciary since its founding.

The law also created a new 15th Court of Appeals to hear appellate cases out of the business court. Unlike its peers in other states, the 15th Court of Appeals also has jurisdiction over cases involving state agencies or challenges to the state’s laws or constitution, removing a slate of cases from the 3rd Court of Appeals in Austin, a move some view as a partisan workaround.

Given the new appellate court’s dual mandate, The Honorable Scott Field ’95 says he anticipates some jurisdictional challenges to arise. “Might there be a little forum shopping for cases that don’t really belong with us? Will other appellate courts transfer cases into the 15th Court even though we are supposed to be a specialty court?” he asks.

So Long, Delaware

Thirty U.S. states have dedicated business courts, but the world’s preeminent legal hub is the Delaware Court of Chancery. Founded in 1792, the court began issuing written opinions over 100 years ago, forming the backbone of U.S. commercial law. Today, more than two million companies — including two-thirds of the S&P 500 — are incorporated in Delaware.

Electric carmaker Tesla was one of them. But when the Delaware court rejected a record-breaking $56 billion compensation package for CEO Elon Musk last summer, Musk responded by abruptly moving the company to Texas. His high-profile decampment sparked hopes that the state could emerge as a viable competitor to Delaware. Professor Henry T.C. Hu, the Allan Shivers Chair in the Law of Banking and Finance, and a leading expert on the Delaware Court of Chancery, is watching the “Texas versus Delaware” battle closely. “For Texas, Delaware provides a great, stress-tested model to consider,” Hu says.

And Texas is, Hu adds, rightly copying Delaware in one important way: Requiring business court judges to issue written opinions. Those lower court decisions tell businesses and their lawyers how the court interpreted the law in that case, creating a roadmap for resolving future disputes.

“Big-time trial lawyers seem like swashbuckling types of people, but they’re actually extremely risk-averse,” Tankersley says. “They’re looking for as much certainty as possible.”

As the Texas Legislature reconvenes this spring, Tankersley and the TBLF are again at work. Changes sought this session include tactical tweaks such as staggering judges’ terms, creating a carve-out for liability claims related to directors and officers insurance, and reducing the jurisdictional threshold for “qualified transactions” to $5 million from the current $10 million. The bill is also expected to ask for one additional judge in both Houston and Dallas — where most of the cases have been filed — and to make operational the rural business court districts.

This iterative crawl-walk-run approach to building the business court is by design, Tankersley says. “A lot of what we were trying to do was avoid having a flood of cases show up on September 1, [2024] before the court was in a position to handle them,” he explains.

Lawmakers are also expected to propose amending the state constitution to increase judicial terms on the business court from two years to six years. Most commercial cases take longer than two years to resolve, so even the possibility that a judge could be replaced midstream injects uncertainty into the process, defeating the purpose of having a specialized court in the first place. (Delaware Chancery Court judges, by contrast, serve 12-year terms.)

As Hu notes, “A two-year term makes no sense — it takes longer to get a law degree. Longer terms bring stability to proceedings and enlarges the pool of really qualified people,” he adds, “all of which is better for the court’s success in the long run.”

Creating the Texas Standard

By mid-March, the Texas Business Court was managing 70 cases, with judges handing down a dozen or so written opinions.

The state’s legal community is examining those rulings for clues to some outstanding questions. Can claims be aggregated to meet the minimum dollar-value threshold? What if a dispute involves some claims that are within the business court’s purview and others that aren’t?

The judges’ rulings will provide more clarity to those questions, and Phillips says she is actively considering the possibility of including the business court as a preferred venue in contracts. Though most of the company’s cases aren’t eligible for the business court, she adds that “this is a chance to get creative” in commercial matters. Specialized commercial courts represent an opportunity for companies to help shape the laws that will ultimately govern how they do business. After all, the business court works only if businesses bring cases for the judges to rule on.

For now, Delaware is likely to maintain its first-mover advantage as a legal marketplace, one reason being that Delaware judges, in Hu’s words, have “traditionally enjoyed rock star status in business and legal worlds.” But the Texas Business Court is gaining momentum. Recently, Meta CEO Mark Zuckerberg said he might follow Musk’s footsteps and reincorporate the social media company in Texas, in part because of the new business court.

Class in Session

Like many start-ups, the new Texas Business Court is a more distributed work environment, conducting some sessions online and holding hearings in surplus state buildings or borrowed classrooms around the state.

Texas Law hosts sessions of the 15th Court of Appeals, giving Texas Law students a rare front-row seat to this new court in action. The court held its first session in the Kraft W. Eidman ’35 Courtroom in January and continues to hear arguments on campus monthly.

“I’ve been on two different courts, and crowds larger than this were very unusual,” reflected Chief Justice Scott Brister after January’s oral arguments at Texas Law. “The crowd helps us to focus on different issues because it’s not just a bunch of experts. Having the students here helps put things in perspective.”