Fat chancery

Will Texas soon create separate chancery courts? With HB 1603, State Rep. Jason Villalba proposes to create a new state system of courts of chancery. The special chancery courts would have concurrent jurisdiction to hear business-oriented lawsuits, such as shareholder disputes, fiduciary duty cases and the like. The bill would also create a special intermediate chancery appellate court. The governor would appoint judges and justices to the respective courts. The courts would sit in Austin/Travis County. On balance, I don’t particularly think the proposed system is a good idea.

To me, the biggest issue with the proposed system is the potential for regulatory capture. I can see the desire to have a court well-versed in the nuance of business disputes hearing those disputes. Corporate governance disputes can be complex.  I suspect that most of the appointed judges and justices—particularly those appointed by a Republican governor–will have a big business background. That isn’t a problem per se, but, I suspect the deck will be somewhat stacked against individual shareholders, directors, or officers, particularly if the same businesses or types of businesses frequently appear before the chancery courts.

Rep. Villalba proposed the chancery courts scheme as a means to promote Texas as a State for businesses to incorporate. I’m not sure there’s much more that Texas can do to promote a more favorable business climate. Texas law already favors businesses vis-à-vis minority shareholders. The Supreme Court of Texas made this abundantly clear with Ritchie v. Rupe. In my experience, the vast majority of trial courts attempt to apply the laws enacted by the Legislature and interpreted by the Supreme Court of Texas. As long as Texas trial courts do this, there shouldn’t be much practical difference in justice dispensed by a chancery court versus that dispensed by a district court. So why do we need these new chancery courts?

The proposed chancery court scheme dovetails with this year’s Legislature other efforts to reduce the power of Texas cities and counties, particularly as more cities attempt to regulate certain businesses. Many Texas cities—particularly those more liberal than the Lege—have promulgated laws when the State has not acted on a particular subject. Denton voted to ban fracking. Houston promulgated its HERO ordinance. Other cities are considering a hike in the minimum wage. This chancery court scheme fits with the goals of many legislators of reigning in the power of urban Texas cities and counties, particularly those cities that lean left. By creating a separate and independent court system—one that is apparently unaccountable at the ballot box—the bill takes a whack out of the power of those more liberal jurisdictions.

I don’t think this additional chancery court system is a good idea. I prefer having local judges and juries decide disputes. The nature of the dispute should not make a difference on who decides it. This system does not attack an issue that’s proven to be a real problem. I haven’t heard too many judges or parties complaining about these cases clogging their dockets. I haven’t encountered many folks clamoring for a special court to decide business disputes.

At the end of the day, I think the odds of this bill passing are fair. Texas is a State where big business usually gets what it wants. If big business decides it wants a court of chancery, it will get it.

UPDATE: The House Business and Industry Committee held a hearing regarding HB 1603 on March 24. The bill hasn’t made it out of committee. Stay tuned!

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