Oil, Gas Industry Unites Behind Texas Business Court Plan (1)

Oil and gas giants irked by lengthy litigation delays are throwing their weight behind a Texas plan to establish a dedicated business court they said is needed to speed up multi-million dollar cases.

A bill (HB 19) creating a specialized court for business-related suits worth at least $10 million is ready to receive a vote in the state House floor. The measure, which has a companion bill in the state Senate, puts a policy shift that’s taken off across the country since the 1990s—and backed by Texas industry in bills since at least 2015—on the precipice of enactment this legislative term.

For big business, the benefits are legion: a new seven-member court with small dockets could expedite cases lowering costs for litigation, which firms say can drag on for years in the state’s current district court system. But detractors raise a host of concerns, pointing to the bill’s questionable constitutionality, the governor’s appointment power for the new bench, and whether the court could create disparities in the second largest state’s justice system.

The bill, which is up for a vote in the Texas House Monday, has backers making up a laundry list of the state’s big business organizations, including the Texas Chemical Council, the Texas Pipeline Association, and the Texas Royalty Council. Together the groups represent different facets of the nearly $200 billion oil and gas extraction and refining industry that powers the state’s economy with Texas’ 160,768 oil wells and 70,246 gas wells.

“It’s important for businesses to have cases decided expeditiously,” said Lee Applebaum, an attorney in the Philadelphia office of Fineman Krekstein & Harris P.C. and national business court researcher.

“Even if you lose, if the case is moving apace, and the judge has reasons—you might not agree with them—for why you’re losing, most businesses can live with that,” he said.

Detractors say the court is a poor use of taxpayer funds—it’ll cost $8 million annually to run—and could create procedural headaches for individuals, such as insurance policy holders or employees, that could get sucked into the court’s jurisdiction.

“It’s setting up a separate justice system for the rich and powerful, and it’s twisting our justice system in knots to make sure the corporate elite don’t have to mix with common people,” said Rick Levy, President of Texas AFL-CIO.

Predictability, Fast

Emergency legal matters in the Texas trial courts’ dockets, including criminal defendants’ rights to a speedy trial, or emergency family law matters, routinely bump business law hearings and trials that companies have prepared months or years to bring, Sam Hardy, the associate general counsel for Energy Transfer LP, an oil and gas giant with a $38 billion market valuation, said in a hearing for the bill.

“I have five cases, going on six-plus years,” he said. “Timeliness is very important for expense as well as for certainty and predictability in relationships,” and the company needs predictability when working through “20-year gas and oil contracts that might have $1 billion to $2 billion in revenue for the life of that contract.”

States from New York to Wisconsin have found the specialty business courts can drastically increase speed by limiting the amounts of cases and court jurisdiction to business-to-business and internal business disputes, including corporate governance cases and shareholder suits.

Brent Benoit, the deputy general counsel for drilling equipment company NOV Inc., said having high-dollar-value cases involving these issues before one statewide court would centralize decisions, making them more uniform.

Currently, in cases like this, “the results can be unpredictable,” he said during testimony on the bill. “In the context of business disputes, predictability matters. These cases often arise out of consensual business arrangements that were negotiated based on the parties’ expectation of how the relevant law will be applied.”

The bill’s primary author, Rep. Andrew Murr, a former Texas county judge, didn’t respond to a request for comment.

The Senate version of the bill is still in committee and hasn’t been sent to the chamber’s floor.

‘One Justice System’

The bill’s detractors worry the new court would set up a bifurcated system while creating extra expenses for individual litigants who can’t bear those costs.

The bill’s language is intended to limit the court’s scope to business disputes. But Laura Tamez, president of the Texas Trial Lawyers Association, said individuals, such as people suing their insurers or employees suing their workplace, could get dragged into the court. Opposing the venue would require a motion to remand back to a district court, and perhaps an appeal of that motion, dragging things out and increasing legal expenses.

“At the start of any project like this, there are going to be cases that are going to be removed that do not meet the jurisdictional requirements,” she said. “The parties are going to have to bear the cost and expense and attorney fees.”

Levy with the Texas AFL-CIO said labor groups are worried that lawsuits alleging civil rights violations by a business would be taken from locally elected judges to judges appointed by the governor.

“It’s a horrible idea,” he said. “We should have one justice system. If it’s good enough for working people, it should be good enough for businesses.”

Constitutional Hurdles

Beyond pros-and-cons arguments for the court lies a lurking problem: the bill’s language appears to violate the Texas Constitution.

The state constitution requires that the state be “divided into judicial districts” and requires that each district judge “be elected by the qualified voters at a General Election.” To make it work, the bill would either have to change to make local elected business court positions that fit into the state’s district system, or change the state Constitution, University of Texas Law School Professor Stephen I. Vladeck said in a memo analyzing the bill.

“The critical point for present purposes is that, for better or worse, the Texas Constitution does not empower the legislature to create such a tribunal,” he said.

The sponsor amended the original version of the bill to address some of Vladeck’s concerns. But the measure kept the appointment-not-election mechanism for filling the bench.

The principle under-girding these state constitutional requirements is that judges be accountable to their local communities, said Darlene Byrne (D), chief justice of the Third Court of Appeals of Texas, which handles appeals from 26 counties. Without local votes, she said, the large urban portions of Texas—through their disproportionate votes for the governor—would be selecting judges impacting local communities.

“The governor is voted statewide, so those individuals in Houston are going to have a say on who gets to decide cases up in Amarillo, instead of those folks in Amarillo picking the jurist they trust and go to church with and see at the grocery store and the baseball field deciding disputes of businesses in their neighborhood,” she said.

Byrne had her office look into data about business disputes in their home of Travis County, which includes Austin. Most business litigation there is resolved within 18 months, and within the last three years less than a handful of cases arising out of her region would have met the $10 million threshold, she said.

“Spending taxpayer dollars for an unneeded court is no small lift,” she said.