Texas Business Court: August 2026 Roundup

Transcript

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Nick Burns: That's what happened here. These interests were not certificated. They had the option to, but they didn't, and because of that, there was no physical document, no physical item to actually be converted. So the court threw out the conversion claim.

Brian Elliott: The Texas Business Court is coming up on its second birthday. It's now put out something north of 120 written opinions, and if you go read them, the striking thing is how many never reached the merits, something like 71 out of the 123 opinions were resolved on a threshold ground, like timing, jurisdiction, and removal. In other words, the court has spent two years building the front door, and the lawyers get to spend two years arguing over who has the key. In practice in Texas, the most important body of law coming out of this court right now isn't about who wins. It's about where you end up standing when the music stops. I'm Brian Elliott.

Chuck Kraus: And I'm Chuck Kraus. This is Y'all Street Law.

Brian Elliott: What we should do first, Chuck, is introduce our guest today, a new member of the Y'all Street podcast, we have with us today Nick Burns. Nick is counsel at Scale LLP, a business litigator, and the right person to talk with us about the Texas Business Courts.

Nick Burns: All right, thanks for having me on, y'all. This will be exciting.

Brian Elliott: We're going to make this a monthly thing, Nick's going to come on, walk us through what came out of the business court, and Chuck is going to do what Chuck always does, which is ask: how could we have papered our way out of this fight in the first place?

Chuck Kraus: Yeah, that's a bias that shows up when we do these, Brian, I'm a transactional lawyer. When I read these litigation opinions, I'm not just reading for the holding. I really want to know what was in the operating agreement that caused this problem, what wasn't there that should have been, and what the parties could have written eighteen months earlier that would have made the whole opinion unnecessary. So I guess, in some way, Nick's trying to take work from you and allocate it over to us on the transactional side of the job. Fair warning, in every one of these, I'm going to ask you the same annoying questions.

Nick Burns: Yeah. So just to level-set here on the business court, I think a lot of listeners will know this, but just to set the table quickly: there are technically eleven divisions authorized for the Texas Business Court, but right now only five are operating, in the major metropolitan areas, Dallas, Houston, Austin, San Antonio, and Fort Worth. The court just reached two years; September 1, 2024 was when it opened. Jurisdictional questions took up the bulk of the opinions to start out. We're now at a point where you're getting a lot more substantive questions answered, which I think is great. The jurisdictional thresholds are established under Texas Government Code Chapter 25A, and those threshold-heavy questions, especially early on, make sense when you have a new court; people are testing the limits of what can get you into business court and what can't. That predominated the court's opinions, certainly for the first year, maybe beyond. At two years, you're getting more substantive questions answered than threshold questions, because the threshold questions have largely been resolved and gone up, some to the Fifteenth Court of Appeals, the designated court of appeals for the business court. So now we can really, for lack of a better word, get down to business. I think that's great for businesses in this court, because now you have some predictability, both on the threshold questions and on the substantive disputes businesses want resolved. And there are a lot of ways to track the court, one, a great feature is they publish every written opinion the business court has put out. But also, SMU's Corporate Governance Institute has a dashboard that's really great for tracking the business court.

Chuck Kraus: That's great.

Brian Elliott: Thanks, Nick. Why don't we jump right into it and take a look at some of the decisions that have come out recently. We can start with one that really does touch on a threshold question, In re Radical Hoops. Set the table for us, Nick, what happened in this one?

Nick Burns: Yeah, so this one is going to be interesting, it has some Mark Cuban entities, involves the Dallas Mavericks, so it's going to grab some headlines. What happened here, essentially, I think we all know, Mark Cuban sold his interest in the Dallas Mavericks to the Adelson Group, and supposedly part of that arrangement is that Mark Cuban would still be kept in the loop on business decisions relating to the Mavericks. The Mavericks have announced that, I think in 2030, they're going to leave the American Airlines Center and build and open their own arena, apparently at the Valley View Mall site. What happened is Mark Cuban's entities filed a Rule 202 pre-suit deposition petition. Brief background: that's essentially, and this is the tension in the case, not really a lawsuit. It's a petition to the court that says, 'I want to take a deposition. I think I have a claim, but I want to learn more before I file suit, may I please depose the defendant.' So Mark Cuban's entities filed that in district court, the Adelson side removed it to business court, and then Mark Cuban moved to send it back to state district court. He later withdrew that petition, but this jurisdictional holding still stands. And that's really the background as it relates to the facts. So the fight here isn't really about the arena, it's about whether the court can even hear a pre-suit discovery petition. The framing is on the word 'action,' which goes to the jurisdiction of the business court. Is this actually an action? And when you get a bunch of lawyers talking about what the definition of 'action' is, it's really why they invite us to parties. This is what we do.

Brian Elliott: Yeah, yeah, riveting discussion, what is an action and what isn't an action.

Nick Burns: But like I was saying, that's exactly where the tension is, which is it's not really a lawsuit. You're not pleading claims like breach of contract; you might set forth why you think you have a claim as the basis for the deposition. But as it relates to Texas Business Court jurisdiction, the removal statute, Section 25A.006(d), speaks in terms of, quote, 'action.' A business court has jurisdiction over an 'action.' So Mark Cuban's entities' argument was that a Rule 202 proceeding isn't an 'action', it's a procedural device, ancillary to an action. In this opinion, Judge Whitehill said no, it actually is an action, we'll talk through the reasoning, but that was, in short, the answer.

Brian Elliott: So what do you think, Nick, what do practitioners take away from this?

Chuck Kraus: You know, practically, I know you said the petition was ultimately withdrawn, but how do you think, in light of the ruling, the parties could have specified an outcome ahead of time?

Nick Burns: Well, I think one, in your agreements, and this is again the tension in the case, we all assume we know what 'action' means, and you'll have a venue clause or forum-selection clause that involves 'actions.' Before this, parties may not have thought to slow down and consider that a Rule 202 petition qualifies as an 'action' and can get you into business court. Now, I'll add the caveat that a Rule 202 petition isn't a blanket ground to get into business court, you still have to show that the dispute you'd bring after the deposition would qualify for business court jurisdiction. Think about your most straightforward qualified transactions, you need $5 million in dispute, and here you're looking at a $50-plus-million property option. So the court ruled yes, this is an action, and it appears that, had this case ultimately been brought, it would satisfy the jurisdictional threshold well above the $5 million requirement. So what you want to think about is: A, am I considering 'action' in my agreements to include a Rule 202 petition; and B, if I want this in business court, can I show that the dispute I'm entitled to bring after the deposition would otherwise have business court jurisdiction.

Chuck Kraus: So my mind goes to, the underlying dispute was really about information rights after a control sale, right? Sold down, still held a minority position, and expected, apparently, more information and perhaps some consultation about this potential move. So my mind goes to things like post-closing information and inspection rights, spelling them out, not just relying on fiduciary duty or common law. Some advance notice of potential material transactions, obviously with confidentiality around it, and minority-shareholder protection rights. And then, what would you say, Nick, on forum and speed-of-resolution clauses? How could this have been worded differently, in light of the decision, for more certainty of outcome?

Nick Burns: Yeah, well, you can have a clause that says this either explicitly includes Rule 202 petitions or explicitly does not, or, in your defined terms, if you're defining 'action,' you can list what it means and either include the Rule 202 petition or say the definition specifically excludes it. I think the takeaway is you just need to be specific. If you want to be in business court with a Rule 202 petition, it helps that you have this opinion now, and we'll see what the other divisions do with it, but if you want to be extra safe, include it in your contract. Or the opposite: if you really don't want to be in business court, make sure that's specified too. Rule 202 is a discovery mechanism, it gives parties the chance to ask a question if the underlying documents don't give them those information rights. So one of the lessons here is: give them the option, but if you want to avoid this outcome, put that option to ask the question in the underlying documents. I think that wraps up this case, it's a genuine trap, and we need to be aware of it and see how the other divisions look at it.

Brian Elliott: Well, let's move on, Nick, to Cam Industrial Solutions versus Brown and Root Industrial Services. What's that one all about?

Nick Burns: Yeah, so this one is interesting. Cam alleged that Brown and Root, a competitor of theirs, misappropriated confidential information involving the alleged recruitment of a site manager named Sydney Daily. Essentially, Daily took pictures of proprietary rate sheets, and he was, the court used the term 'bounty', given $100,000 by Brown and Root to do this, at least that's alleged. Cam sued Brown and Root in Texas district court in 2024. That case went to a jury. It did involve a deposition of Daily, he was a prominent factor in the trial but wasn't a named party in that suit. The case goes to a jury, and Cam loses across the board. A day before the state district court signs the final judgment, Cam files this lawsuit in business court against Brown and Root and also Daily, the employee who allegedly got the money to take the proprietary information.

Brian Elliott: So, second bite of the apple here, Nick?

Nick Burns: That's exactly right. And the key distinction is that the first suit was Brown and Root only, well, there were some other parties, but it didn't include Daily. So you have two lawsuits with some overlapping defendants; Daily wasn't in the first one but was in the second. The court is analyzing which lawsuit controls here, as far as claim preclusion.

Chuck Kraus: So the court is looking at the first final judgment, not the first-filed petition, tell us why that matters. It seems like it's not enough to be first; you also have to finish. Is that where this is going?

Nick Burns: Yeah, that's right. You're looking at which judgment was signed first, because your instinct is often that it's a race to the courthouse, you think about abatement or dominant jurisdiction, and a lot of people think that naturally. But here, it's the first final judgment that controls, whichever judgment is reached first has a preclusive effect on the other, regardless of filing order. To be clear, the state district court case was filed earlier and also got a judgment earlier, but regardless, the court applied that judgment, even though it technically hadn't been signed when the business court case was filed, to bar Cam's claims against Brown and Root, since it's essentially the same transaction, same facts, already decided. But as it related to Daily, the court said that judgment doesn't apply to him, he wasn't a party, and Brown and Root failed to establish privity with him, which is also some of the tension here: an employer-employee relationship doesn't automatically mean privity for claim preclusion.

Brian Elliott: So that's interesting, let's dig into that. Maybe define what privity means in this context and how it played out.

Nick Burns: Right, so privity is a substantive test, not a status, you're looking at things like: did you have control over the prior defense, was there a representation of the same interest, perhaps successorship. Being the employer defending a trade-secret claim like we had here doesn't automatically make the employer's employee a privy. So the result here is: Daily is a defendant in this case but wasn't a defendant in the first-filed case. He was never at the trial, had no say in the representation. The court acknowledged he had, you could say, a brooding interest in his employer winning that case, but no real involvement, and so there was no privity between them, meaning in the business court case, he's on his own.

Brian Elliott: So what's the real litigation takeaway, Nick?

Nick Burns: Yeah, racing to file something just to get it on file and hopefully beat the clock doesn't really get you anything. It's the judgment you're racing towards. If you're the defendant in the slower case, there's value in accelerating the other case. If you're the plaintiff, I think the real lesson here is: sue everyone the first time. If you have a claim against someone, get them involved. The court walked through this in the opinion, they took Daily's deposition with plenty of time to have added him to the lawsuit; they were well aware of these facts and could have added him. They didn't. So you want to be clear, especially in your scheduling orders, if you think you could add someone to a lawsuit, make sure you develop the facts to get them on file in your first lawsuit, so you don't have to deal with a second lawsuit altogether. But watch for this doctrine to get litigated hard in the business court and district court dockets, increasingly, as it covers these same kinds of disputes.

Chuck Kraus: So, Nick, coming back to the substance, I'm thinking about how to prevent this in the future, and I'm thinking about the bounty you mentioned. To me, this sounds like it was predominantly a trade-secret-protection, departing-employee case, and I often think employers, to their own peril, are overly broad in applying labels or categories to a whole host of information but then don't follow through in actually treating that information with the appropriate confidentiality or trade-secret protection. In my mind, if someone's able to photograph a rate sheet sitting out on a desk, and that's easy to do, it's hard to call that a trade secret if it's just open and available in an office space. Can you speak to how those facts may have influenced what happened here?

Nick Burns: Yeah, you're exactly right, it's a common fight in trade-secret cases: what protections did you have in place to protect that secret? Here, the facts were that he used his wife's cell phone, I think that's what the court said, to take these pictures, so it sounds like this information was broadly available and easy to access. So you'll want to make sure you have protections in place, but know that a broad definition of confidentiality may be good to have, but it doesn't end there, you need to actually take actions to protect it. I don't recall the opinion getting into 'this wasn't well protected' specifically, but that's something that could come up, and I have seen it come up before. Maybe another takeaway, for employers, now that you have the business courts and these mixed cases where two companies are suing one another, is it possible that when you looked at venue in the employer-employee relationship, that was a different jurisdiction, or maybe subject to arbitration? How should a company think about that, to make sure they can consolidate the action in the appropriate place? I think you have two options, you include these in your forum-selection and venue provisions, whether or not you want arbitration, and you include business court for the cases that would have jurisdiction there, but also a backup option, likely the same county where the business court sits, for claims that wouldn't have business court jurisdiction, so you're spelling out where you want to be in both instances, and they're complementary to one another.

Brian Elliott: Yeah, and I think one of the other important points is that it's always a good time to look across all your documents to make sure you're consistent in your forum-selection clauses across your employment agreement, your employee handbook, and any other ancillary agreements, confidentiality agreements, invention-rights agreements, and so on, so they all line up and you don't have these kinds of disputes in the future. Let's move to case three, Chuck, this one's right up your alley. It's an LLC governance case, Carrington versus Corsi.

Chuck Kraus: Yeah, Nick, the facts here, I think they'll be familiar to anybody who's ever taken a minority interest in a closely held company. What went on here?

Nick Burns: Yeah, so this one involves a brewing company. Carrington and Hiller were early investors, they ultimately held a little over 77,000 Class 1A units, which gave them economic and distribution rights but not voting power. In May 2023, some managers, as well as some of the defendant entities, executed a contribution and exchange agreement that essentially restructured the ownership. Insiders rolled over into equity in the new entity as, quote, 'rollover members.' Carrington and Hiller received roughly 7% on a $1.1 million convertible promissory note. That note later converted into non-voting Class A common shares, about 945 shares each. They sued for a number of claims, but the one we're talking about is conversion, they said their ownership interest got diluted by these actions, so their interest was effectively converted. And the court here actually threw out the conversion claim.

Chuck Kraus: So let's talk about the phrase 'may but need not be certificated', how did that become the outcome-determinative phrase?

Nick Burns: Yeah, so quickly, some background, Texas conversion law requires tangible personal property; it often comes up as a physical item. But for intangible property, intangible rights have to be merged into a physical document, where the document itself is what's converted, think of a stock certificate or a note. And when you say 'converted,' you're substituting the common word, like 'stolen' or 'taken.' You use the word 'convert' because 'stolen' carries criminal connotations you don't want. But essentially, yes, converted, stolen. The Texas Business Organizations Code, for ownership interests like we're dealing with here, presumes them uncertificated, meaning they haven't been merged into a document, unless the governing documents say otherwise. The operating agreement here, which ended up controlling, said the units 'may, but need not be' certificated, meaning you have the option to certificate them, but they're not presumptively certificated. So without certificating them, there's no merger into a physical document, and so no physical item to actually convert, to steal. And that's what happened here: these interests were not certificated, they had the option to, but they didn't, and because of that, there was no physical document to be converted. So the court threw out the conversion claim.

Chuck Kraus: But the courthouse door is still open for these plaintiffs, right, they just can't get this remedy, but they have others available?

Nick Burns: That's right, if you have a breach-of-fiduciary-duty claim, breach of the company agreement, statutory claims, those are fine, those are fair game. But conversion isn't going to work here, because conversion requires a physical taking of an object, and since they had the option to certificate and didn't, that doomed the claim. The strategic cost is that conversion claims are often a vehicle for certain damage models and against certain defendants, and without going through certification, that claim isn't available. It's fascinating, because so many companies now just aren't using as much paper, we have an entire ecosystem of service providers offering online cap-table management, and often none of that involves a printed physical certificate. So there's a fuzzy line for when something is 'certificated' or not, for purposes of a conversion claim, if your only ownership interest is being a party to an operating agreement, that's one riverbank, versus a physical stock certificate delivered to you as the other riverbank, and there's a whole range of things in between, including digital certificates and an entry in Carta that has an assigned number. It's really interesting to think through the potential impact of that, in terms of whether a conversion claim could apply in those middle scenarios.

Chuck Kraus: Yeah, when I was reading the opinion, I was thinking of an old physical stock certificate, and thinking, in the present day, how are people really still carrying these around? To your point, Nick, how would a conversion claim even work in this context, when a lot of this is digital and not really physical?

Brian Elliott: Well, I think the other point, isn't it, Chuck, that if you agree in an operating agreement that you're not going to certificate, you've already given up one of your potential remedies, the conversion claim goes out the window, and that's not something that's normally negotiated; everybody overlooks it. I think after this case, it should be more on the radar.

Nick Burns: Yeah, potentially so. And there's a whole cost-benefit analysis that goes into a company agreeing to issue certificates, because then they get lost, they need to be replaced, someone sells down part of their interest and needs it reissued, and so on. It feels like a bit of an uphill battle, given how much we've trended away from physical certificates, to demand them here just to preserve a conversion claim.

Brian Elliott: But maybe what you're saying, Nick, is that the potential remedy for a conversion claim is worth the squeeze of fighting for that, right?

Nick Burns: Yeah, no, that's exactly right, you mentioned the point, it's going to be a cost-benefit analysis; I think each instance will be different, but something for businesses to certainly think about.

Chuck Kraus: Yeah, I guess the takeaway is: non-voting economic interests are only as good as the contract around them, and Texas law is going to give you exactly what you wrote down, after this case, if you don't have the certificate, you have a little less in terms of the right to pursue a conversion claim.

Brian Elliott: Amazing, this has been a really great roundup, Nick, appreciate you doing this for us.

Nick Burns: Of course.

Brian Elliott: Let's review, if you could summarize, in a single sentence, the key takeaway for Texas business litigators on each of these three cases?

Nick Burns: Yeah, so Radical Hoops, the Mark Cuban case: business court's reach is now going to extend to proceedings that don't look like normal lawsuits. Cam, the trade-secrets case: the finish line matters more than the starting gun. And then Carrington: form determines your remedy.

Chuck Kraus: Yeah, it's fascinating, from the transactional-practice perspective, all three of these seem to be documentation cases wearing litigation clothes. The first one is post-closing information rights, if you have an expectation to it, say so in the document. The second case: make sure you're aligning your forum clauses, and remember, it's first to judgment that wins, not first to file. And then this last one, a certification decision made without much thought can have real implications down the line.

Brian Elliott: Amazing, all three of these opinions, plus the full data set on the business courts for the first two years, are up on the SMU Corporate Governance Initiative's Texas Business Court dashboard, and we'll put the link to that in the show notes. Nick, thanks for coming on, assuming we don't get too much negative feedback here, we plan to do this every month, so we hope this will be a regular segment on the Y'all Street podcast.

Nick Burns: Yeah, thanks for having me.

Chuck Kraus: Thanks, Nick, that was great, really enjoyed the conversation.

Nick Burns: Yeah, likewise, y'all.

Brian Elliott: All right, thanks for tuning in to the Scale LLP Y'all Street Law Podcast. We hope you enjoyed today's episode and found it valuable. If you liked what you heard, don't forget to subscribe and leave us a review. For more insights and updates, visit scalefirm.com or follow us on LinkedIn. Until next time, we'll see y'all later.