TEXAS: DALLAS, FORT WORTH & SURROUNDS: An Introduction to Litigation: General Commercial
Commercial and Business Litigation Trends in DFW and Beyond
The state and federal courts in Texas are busier than ever with new developments including the unveiling of the Texas Business Courts, new guidance from the Texas Supreme Court on the burden to oppose the enforcement of arbitration clauses, changing trends on where patent infringement cases are being filed and the developing battle shaping up in Texas against the FTC’s near total non-compete ban.
Texas State Court Recent Statistics
Statewide and North Texas trends reflect a heavy civil litigation load. There were 665,299 statewide active cases pending as of 31 August 2023, an uptick of 17,078 cases from the prior year. Of those active cases, about 22% were considered “contract” cases. Closer to home, the Dallas Court of Appeals disposed of 1,019 civil cases in 2023, an uptick from 997 civil cases in 2022. Tarrant County also noted a 38% increase in civil cases over the last 10 years. It remains to be seen whether business courts can provide much needed relief for civil matters.
Unveiling of the New Texas Business Courts
In 2024, Texas commercial litigation will undergo its largest reform in decades with the introduction of the Texas Business Courts. The Business Courts (with an accompanying, dedicated appellate court) will feature appointed (rather than elected) judges with experience in commercial litigation and are designed to create a dedicated body of law for use in commercial litigation.
New litigation filed after 1 September 2024, may be eligible for filing in these courts in the following types of lawsuits:
(1) derivative suits;
(2) proceedings regarding governance or governance documents;
(3) securities litigation;
(4) suits by an organization against an owner, control person, or manager for actions taken in that person’s representative capacity;
(5) breach of fiduciary duty cases;
(6) piercing the corporate veil cases; or
(7) actions arising out of the Texas Business Organizations Code.
The Business Courts are available for any of the above actions if a party to the action is a publicly traded company (without any amount in controversy threshold) or a private organization (if the amount in controversy exceeds USD5 million). In addition, contract claims or qualified transactions where the amount in controversy exceeds USD10 million also are subject to the Business Court’s jurisdiction.
The Business Courts initially only apply to cases filed in certain urban regions (Dallas, Houston, Austin, San Antonio and Fort Worth).
While there will likely be a multi-year adjustment period, we anticipate that the Business Courts will help Texas bolster its “Best State to Do Business” reputation.
New Texas Supreme Court Ruling on Arbitration
Parties seeking to enforce arbitration agreements welcomed the Texas Supreme Court’s recent ruling on unconscionability challenges. Lennar Homes of Tex. Inc. v. Rafiei, No. 22-0830 (Tex. Apr. 5, 2024).
In Rafiei, a homeowner sued his builder. The parties’ contract contained an arbitration agreement and delegation clause. The builder filed a motion to compel arbitration and the homeowner opposed on unconscionability grounds, claiming arbitration was cost prohibitive. The trial court denied the motion, and a divided Fourteenth Court of Appeals affirmed. The court reversed and remanded, holding the record failed to show the delegation clause was unconscionable.
Takeaways from Rafiei:
• When a delegation clause is present, the non-movant needs to show the cost of arbitrating the delegated threshold issue itself was excessive and prevented the party from enforcing its rights.
• The non-movant’s affidavit must contain quantifiable amounts. Terms like “astronomically higher” will not suffice.
• The non-movant must explain why it can afford litigation expenses in court, but not in arbitration.
Texas Federal Courts Recent Statistics
Federal District Courts in Texas continue to handle heavy civil litigation caseloads, with nearly 20,000 cases filed in 2023. Texas runs a close fourth place behind Florida, New York and California. The Eastern District, former hotbed for patent lawsuits, has seen a steady flow of 3,000+ cases filed and 3,000+ cases resolved over the past few years. The Northern District, however, seems to be aggressively moving to clear up backlogs following Covid and a reduced judicial headcount. There were about 5,000 new civil suits filed in 2022 and 2023 but about 9,000 cases terminated in each of those years.
Venue Trends for Intellectual Property Cases in Texas
As of 2020, the Western District of Texas became the most popular venue for new patent cases, surpassing the Eastern District of Texas and the District of Delaware, which had held the reins as the top two patent suit venues in the U.S. for a number of years. This shift was largely due to the influence of Judge Alan Albright. Judge Albright implemented practices that streamlined the litigation process and moved cases quickly to trial. At the peak in the first half of 2022, Judge Albright commanded 18% of all patent suit filings in the country. But, in July 2022, following substantial pressure from the defense bar, the Chief Judge of the Western District ordered that patent cases would be randomly scattered among the 12 Western District Judges. In the 18 months following the 2022 order, patent case filings in the Western District declined by a staggering 57%. Judge Albright’s Court remains a top target for patent plaintiffs’, but recent trends have led many patent plaintiffs back to the Eastern District of Texas and the District of Delaware. The Austin Division of the Western District has also begun to surge in popularity.
FTC Ruling on Non-Competes Challenged in Texas Federal Court
On 23 April the Federal Trade Commission announced a nationwide near-total ban on non-competes. Depending on pending litigation, the FTC rule will be effective on 4 September. The FTC’s unprecedented ban sets the stage for massive changes to contractual rights and obligations—and recruiting and retention strategies—of employers and employees and a wave of litigation.
The FTC’s rule bans non-competes for all workers after the effective date. Pre-existing non-competes involving “senior executives” will remain in effect subject to existing state laws. Pre-existing non-competes with workers other than senior executives will not be enforceable after the effective date. The rule includes exceptions for “bona fide sales of business” and “existing causes of action.” Non-solicitation agreements are not expressly covered by the rule.
Mere hours after the FTC announced the ban, Ryan LLC, a Dallas-based tax firm, sued the FTC in the U.S. District Court for the Northern District of Texas. The next day, the U.S. Chamber of Commerce filed a similar suit that is now joined with the Ryan suit in the NDTX. Both Ryan and the Chamber contend the FTC lacks legal authority to enact the nationwide non-compete ban.
The NDTX issued an expedited briefing schedule to govern requests to stay or preliminarily enjoin the effective date of the rule. The schedule includes a deadline of 3 July, for the court’s decision on the merits. Regardless of the decision on 3 July there will, in all likelihood, be an immediate appeal and continued litigation.
All of these developments are signs of a booming litigation economy in Texas with many opportunities and challenges for businesses across the state.