Monday, May 11, 2015

Time for Chancery Courts to come to Texas?

There is a currently bill in the Texas House of Representatives which would create the first Chancery Courts in Texas.  What are chancery courts and why would Texas benefit from them?

Chancery courts specialize in complex business disputes, especially those involving mergers and acquisitions and corporate and securities matters. The theory is that a court that specializes in complex business disputes is likely to understand the issues better, provide swifter justice, and provide more consistent and therefor more predicable business law decisions.

Of course, the most famous chancery courts are those in the State of Delaware. Part of the reason Delaware is such a popular state in which to incorporate a business is that companies know they can gain access to the Delaware chancery courts, which are regarded is especially good at delivering (relatively) swift, certain, and fair decisions. That may not always be the case in other states where "regular" courts cannot focus on complex business issues because they must also hear cases involving family law, torts, probate, and a myriad of other non-business matters.

As you might have guessed, I think having chancery courts in Texas is a terrific idea. It helps underscore the message that Texas is business-friendly and a great place to start a business and to obtain justice for your business, if necessary.

A copy of the bill that would create the Texas Chancery Court system (House Bill 1603) is available here. The bill would grant Texas Chancery Courts jurisdiction to hear cases involving the following matters:
  1. a derivative action on behalf of an organization;
  2. an action arising out of or relating to a qualified transaction in which the amount in controversy exceeds $10 million, excluding interest, statutory damages, exemplary damages, penalties, attorney ’s fees, and costs;
  3. an action regarding the governance or internal affairs of an organization;
  4. an action in which a claim under a state or federal securities or trade regulation law is asserted against: (A) an organization; (B) a governing person of an organization for an act or omission by the organization or by the person in the person ’s capacity as a governing person; (C) a person directly or indirectly controlling an organization for an act or omission by the organization; or (D) a person directly or indirectly controlling a governing person for an act or omission by the governing person; 
  5. an action by an organization, or an owner or a member of an organization, if the action:(A) is brought against an owner, managerial official, or controlling person of the organization; and (B) alleges an act or omission by the person in the person’s capacity as an owner, managerial official, or controlling person of the organization;
  6. an action alleging that an owner, managerial official, or controlling person breached a duty, by reason of the person ’s status as an owner, managerial official, or controlling person, including the duty of care, loyalty, or good faith;
  7. an action seeking to hold an owner of an organization, a member of an organization, or a governing person liable for an obligation of the organization, other than on account of a written contract signed by the person to be held liable in a capacity other than as an owner, member, or governing person;
  8. an action in which the amount in controversy exceeds $10 million excluding interest, statutory damages, exemplary damages, penalties, attorney’s fees, and costs that: (A) arise against, between, or among organizations, governing authorities, governing persons, members, or owners, relating to a contract transaction for business, commercial, investment, agricultural, or similar purposes; or (B) involve violations of the Finance Code or Business & Commerce Code;
  9. an action brought under Chapter 37, Civil Practice and Remedies Code, involving: (A) the Business Organizations Code; (B) an organization’s governing documents; or (C) a dispute based on claims that fall within the provisions of the applicable subsection of the bill; and
  10. an action arising out of the Business Organizations Code.
The bill was introduced by Texas State Representative Jason Villalba, who represents North Dallas in the Texas House, and is a very capable corporate and securities lawyer. Rep. Villalba's occupation and experience make him especially well qualified to understand the value of chancery courts.  As he notes on his website here: "By creating this business-focused, specialized Chancery Court, we are telling the world that Texas is open for business and that there is no greater state in the United States to incorporate and begin operations.”



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