The Texas Two-Step: Dethroning Delaware with Business Courts and the End of Jury Trials for Internal Disputes

The most recent legislative session in Austin was not merely an exercise in routine governance; it was a calculated salvo in the intensifying national competition for corporate charters. For decades, Delaware has reigned as the undisputed sovereign of American corporate law, its preeminence built on a foundation of judicial expertise and an unparalleled body of precedent. However, a series of legislative maneuvers in Texas signals a direct and sophisticated challenge to that long-held supremacy. Under the banner of the “Incorporate Texas” initiative, state leaders have made their objective clear: to transform Texas into the nation’s most attractive jurisdiction for corporate formation and governance.

This ambitious campaign is being waged on two coordinated fronts. The first was the 2023 creation of a specialized, statewide system of Texas Business Courts, established by House Bill 19 to provide an expert forum for complex commercial disputes. The second, and more profound, is the passage of Senate Bill 29 during the 89th Legislature, a landmark piece of legislation that enacts sweeping reforms to the Texas Business Organizations Code (TBOC). These are not independent developments but a cohesive, two-pronged strategy designed to replicate, and in some aspects surpass, the legal infrastructure that has made Delaware the domicile of choice for over two-thirds of Fortune 500 companies.

At the heart of this strategic overhaul lies a provision that is both elegant in its design and revolutionary in its impact: the new Section 2.116 of the TBOC. This section authorizes Texas business entities to include an enforceable waiver of the right to a jury trial for internal corporate disputes within their governing documents. While other reforms in SB 29, such as the codification of the business judgment rule, are significant, the jury waiver is the legislative masterstroke. It directly addresses the most fundamental structural difference between the Texas judicial system and the Delaware Court of Chancery, the latter of which has never used juries.

This analysis will argue that while the new Texas Business Courts provide the necessary venue for sophisticated adjudication, the jury waiver provision in TBOC § 2.116 provides the critical mechanism for Texas to offer the judge-centric, expert-driven, and predictable dispute resolution that has been the bedrock of Delaware’s success. This report will dissect the mechanics of this game-changing statute, provide a deep comparative analysis of the competing judicial systems, and advance a well-researched argument that the elimination of juries for complex internal corporate claims is not merely a pro-business convenience but a necessary precondition for sound, predictable, and efficient corporate governance.

The centerpiece of Texas’s corporate law modernization is the newly enacted Section 2.116 of the Texas Business Organizations Code. This provision, while concise, represents a fundamental shift in the landscape of corporate litigation within the state.

The Statutory Language and Its Broad Scope

The operative clause of the new law is found in TBOC § 2.116(b), which states: “The governing documents of a domestic entity may contain an enforceable waiver of the right to a jury trial concerning any internal entity claim, regardless of whether the applicable governing document is signed by the members, owners, officers, or governing persons”.

The power of this provision lies in its expansive scope, which is defined by the term “internal entity claim.” As specified in the preceding section, TBOC § 2.115(a), an internal entity claim is “a claim of any nature, including a derivative claim in the right of an entity, that is based on, arises from, or relates to the internal affairs of the entity”. This definition is intentionally broad, designed to capture the full spectrum of complex and contentious disputes that arise within a business organization. It encompasses:

• Shareholder Derivative Lawsuits: Actions brought by shareholders on behalf of the corporation against directors or officers for alleged wrongdoing.
• Breach of Fiduciary Duty Claims: Allegations that directors or officers violated their duties of care or loyalty to the corporation and its shareholders.
• Shareholder Oppression and Squeeze-Out Claims: Disputes, common in closely held corporations, where minority owners allege unfair treatment by the majority.
• Disputes Over Governing Documents: Conflicts regarding the interpretation and enforcement of certificates of formation, bylaws, partnership agreements, or LLC company agreements.
• Actions for Inspection of Books and Records: Contests over a shareholder’s right to access corporate information.

By covering this wide range of actions, the statute ensures that the most sensitive, complex, and high-stakes corporate litigation can be channeled away from juries and toward a bench trial.

Preempting Constitutional Challenges: The “Knowing and Informed” Safe Harbors

The drafters of SB 29 were keenly aware of a significant legal obstacle: Article I, Section 15 of the Texas Constitution, which declares that the “right of trial by jury shall remain inviolate”. A direct legislative abolition of this right for a certain class of civil cases would almost certainly be unconstitutional. To navigate this constraint, the statute was engineered not as an abolition of a right, but as a framework for its contractual waiver.

The legislation’s design is a brilliant piece of legal engineering. It circumvents the state constitutional barrier by reframing the issue from one of public right to one of private contract. The Texas Legislature, unable to eliminate the jury trial right directly, has instead empowered private entities to do so contractually. By embedding the waiver within an entity’s governing documents—its bylaws, company agreement, or partnership agreement—the act of becoming a shareholder or member is legally transformed into an act of consent to a bench trial. This effectively privatizes a key component of the judicial process for Texas entities, giving them a powerful tool to create a “Delaware-style” adjudicative environment within a Texas courtroom.

To fortify these contractual waivers against inevitable legal challenges, TBOC § 2.116(c) establishes specific “safe harbors.” These provisions create a statutory presumption that a waiver is “knowing and informed” if a person challenging it has engaged in certain actions. A waiver is deemed knowing and informed if the person:

• Voted for or affirmatively ratified the governing document that contains the waiver;
• Acquired an equity security of the entity at a time when the waiver was already included in the governing documents; or
• Is otherwise shown by evidence satisfactory to a court to have knowingly and informedly consented or acquiesced to the waiver.

These safe harbors are critical. They create a high bar for a plaintiff shareholder or member to argue that they were unaware of the jury waiver. For publicly traded companies, any investor purchasing shares after the adoption of such a bylaw would be automatically deemed to have consented. For private entities, the act of signing a company or shareholder agreement containing the waiver would be dispositive. This proactive legislative drafting is intended to ensure the durability of the waiver and provide corporations and their counsel with the certainty that these provisions will be enforced.

The enactment of TBOC § 2.116 cannot be understood in a vacuum. It is the essential software designed to run on Texas’s new judicial hardware: the Texas Business Court. To appreciate its significance, one must compare this nascent Texas system with the long-established Delaware model it seeks to emulate and ultimately supplant.

A. The Delaware Model: A 230-Year Legacy of Equity and Expertise

The preeminence of the Delaware Court of Chancery is no accident; it is the product of a unique legal history stretching back to the English judicial system. Anglo-American law historically maintained a dual-track system of justice, with separate courts of “law” and courts of “equity”.

Courts of law were rigid, procedure-bound forums that primarily offered monetary damages as a remedy. Critically, they relied on juries to resolve factual disputes. Courts of equity, by contrast, emerged to address situations where the strict application of common law would lead to an unjust result. The Chancellor, acting as the “keeper of the King’s conscience,” was empowered to provide flexible remedies that courts of law could not, such as injunctions (ordering a party to stop an action), specific performance (ordering a party to fulfill a contract), and the administration of trusts.

This historical distinction is the fundamental reason why the Court of Chancery does not use juries. The very purpose of an equity court was to have an expert jurist—the Chancellor—weigh complex facts, balance the equities between parties, and craft nuanced, bespoke remedies. This was a task considered entirely unsuitable for a lay jury, whose function was limited to the binary, fact-finding decision of “liable” or “not liable” for money damages. While most states merged their law and equity courts over time, Delaware is one of the few that has preserved a separate Court of Chancery, a decision that proved to be the cornerstone of its corporate law dominance.

Today, the success of the Delaware Court of Chancery rests on three pillars:

• An Expert Judiciary: The court is composed of a Chancellor and several Vice-Chancellors who are appointed by the governor for lengthy 12-year terms. This long tenure ensures they are insulated from short-term political pressures and allows them to develop unparalleled expertise in the complex and evolving field of corporate law.
• A Vast Body of Precedent: For over two centuries, the Chancellors have issued detailed, written opinions explaining their reasoning. This has created a deep and rich body of case law that provides an extraordinary degree of predictability for corporate planners, executives, and their legal advisors. Businesses can structure complex transactions with a high degree of confidence about how a Delaware court will interpret their actions.
• Speed and Sophistication: The court’s rules and procedures are specifically tailored for the rapid resolution of time-sensitive corporate disputes, such as merger challenges and proxy fights. The court is known for its ability to handle complex litigation on an expedited basis, a critical feature for the fast-paced world of corporate transactions.

B. The Texas Experiment: A Hybrid System in the Making

The new Texas Business Court system, established in 2023 by House Bill 19, represents Texas’s attempt to build a rival institution. It is a specialized statutory court with jurisdiction over a defined set of complex commercial cases, including derivative proceedings, internal governance disputes, and actions arising under the TBOC, provided certain monetary thresholds are met (generally over $5 million, or any amount if a publicly traded company is a party).

Despite its specialized nature, the Texas Business Court has several crucial structural differences from the Delaware model:

• Jury Trials as the Default: Unlike Chancery, the Texas Business Court was created within a state legal system where the right to a jury trial is constitutionally guaranteed for claims at law. Consequently, a jury, not a judge, is the default fact-finder in the Business Court unless that right is waived. This is the single greatest structural impediment to replicating the Delaware model.
• Appointed, but Short-Term, Judiciary: While the judges are appointed by the governor based on their expertise in business law—a key similarity to Delaware—they serve short, two-year initial terms. This raises concerns about their ability to remain insulated from political influence and to develop the deep, career-long expertise characteristic of the Delaware judiciary.
• A Nascent Body of Precedent: The Texas Business Court began with a clean slate. It has none of the accumulated precedential authority that gives Delaware its core value proposition of predictability. This body of law must be built from the ground up, one case at a time.

These differences are starkly illustrated in the following comparison:

The jury waiver provision of TBOC § 2.116 is not merely about avoiding juror bias in a single case; it is a systemic necessity for the long-term viability of the Texas Business Court as a genuine competitor to Delaware. The primary value Delaware offers is predictability, which is derived almost exclusively from its massive library of judge-written opinions. Jury verdicts, by their very nature, are general pronouncements of liability that are delivered without written reasoning. They resolve a single dispute but create no binding precedent for future actors.

Recognizing this, the architects of the Texas Business Court included a crucial mandate in its procedural rules: judges are required to issue written opinions for dispositive rulings. This is a clear and deliberate attempt to begin the decades-long process of building a body of Texas-specific corporate case law. However, this mechanism would be rendered largely ineffective if the most significant internal affairs cases were resolved by jury verdicts. A jury trial precludes most dispositive motions and results in a verdict that provides no basis for a detailed judicial opinion on the merits of complex corporate law doctrines.

Therefore, § 2.116 serves as an essential tool to channel cases toward bench trials. By doing so, it ensures that the expert judges of the Business Court, not lay juries, are the ones making findings of fact and applying the law. This, in turn, empowers those judges to write the detailed, reasoned opinions that will, over time, build the robust body of precedent necessary for Texas to compete with Delaware on the critical metric of legal predictability. The jury waiver is the fuel for the court’s precedent-building engine.

While the jury system is a revered cornerstone of American jurisprudence for resolving many types of disputes, its application to complex internal corporate litigation is fundamentally flawed. These cases, which turn on nuanced legal doctrines and sophisticated financial analysis, present a subject matter that is uniquely ill-suited for determination by a panel of lay citizens. The argument against the jury in this context is not an attack on the institution itself, but rather a professional assessment of a profound mismatch between the tool and the task.

A. The Complexity Barrier: Asking Laypeople to be Corporate Law Scholars

Internal corporate disputes are not simple “who-done-it” factual contests. They are intricate inquiries into the conduct of corporate fiduciaries, governed by abstract legal principles and evaluated through the lens of complex financial evidence.

First, the legal standards at issue are notoriously difficult for non-lawyers to grasp. Concepts such as the duty of care, the duty of loyalty, the business judgment rule, the corporate opportunity doctrine, and entire fairness are not matters of common sense; they are sophisticated legal doctrines developed over centuries of jurisprudence. Multiple studies have demonstrated that jurors struggle to comprehend and correctly apply even basic legal instructions on concepts like negligence; the expectation that they can master the subtleties of fiduciary duty law after a brief instruction from a judge is unrealistic. One study found that jurors typically understand only about half of the instructions they receive, with a fifth of their references to the law being “clearly, seriously wrong”.

Second, the evidence presented in these cases is often impenetrable to the layperson. A trial over the fairness of a merger price, for example, will involve competing expert testimony on discounted cash flow (DCF) analyses, comparable company valuations, and the intricacies of a board’s sale process. A derivative suit alleging corporate waste may require the jury to analyze complex accounting principles, general ledgers, and business valuation models. Research and practitioner experience confirm that when faced with such esoteric financial and economic data, jurors are prone to confusion. This can lead them to either disregard the complex evidence entirely in favor of simpler, more emotionally resonant themes, or to fundamentally misunderstand its significance, resulting in arbitrary or irrational outcomes.

Finally, juries are particularly susceptible to the powerful cognitive trap of hindsight bias. A business decision—to pursue a merger, launch a product, or enter a new market—that was perfectly reasonable based on the information available at the time can appear negligent or foolish in retrospect after it has failed. The business judgment rule is the legal doctrine specifically designed to protect directors from being second-guessed by such hindsight. An expert judge, trained in corporate law, understands the necessity of evaluating a board’s decision-making process based on the contemporaneous record, not the ultimate outcome. A lay jury, lacking this training, is far more likely to improperly penalize directors for a decision that simply turned out poorly.

B. The Bias Factor: Emotion and “Deep Pockets” over Evidence

Beyond the cognitive challenges, the use of juries in corporate cases introduces a significant risk of verdicts being driven by emotion and prejudice rather than a dispassionate evaluation of the evidence.

The very structure of a shareholder lawsuit often creates a “David versus Goliath” narrative that is highly prejudicial to the corporate defendant. The case is easily framed as a sympathetic individual plaintiff—a small shareholder, a wronged employee, an injured consumer—against a faceless, wealthy, and powerful corporation. This dynamic can tap into a latent and pervasive anti-corporate sentiment. A 2025 study by Orrick revealed that anti-corporate sentiment among potential jurors has nearly doubled since before the pandemic, with 45% of jurors now admitting to a bias against large corporations. Another survey found that 85% of respondents agreed with the statement that large corporations prioritize profit over safety. This predisposition means that corporate defendants often enter the courtroom at a significant disadvantage, presumed to be in the wrong before a single piece of evidence is presented.

This bias often manifests in the “deep pockets” effect. Numerous empirical studies have shown that juries award substantially higher damages against corporate defendants than against individual defendants, even when the underlying facts of the case are held constant. This suggests that damage awards are frequently influenced not by a rational calculation of the plaintiff’s actual harm, but by the jury’s perception of the defendant’s ability to pay. As one study noted, the identity of the litigant was the “most important determinant of the size of the jury award”.

It is important to acknowledge that the data on jury behavior is not monolithic. Some studies show high rates of agreement between judges and juries, and in some cases, juries do find in favor of corporate defendants. However, this does not negate the core problem. The issue is not that juries are always biased or always wrong, but that their susceptibility to cognitive and emotional biases makes their verdicts fundamentally unpredictable.

C. The Unpredictability Problem: The Enemy of Capital Formation

In the realm of corporate law, unpredictability is the ultimate vice. The entire edifice of modern commerce is built upon a foundation of predictable legal rules. Predictability allows boards of directors to take the calculated business risks necessary for innovation and growth. It allows investors to commit capital with a clear understanding of the governance framework protecting their investment. It allows insurers to rationally price Directors and Officers (D&O) liability policies.

The jury introduces a radical element of chaos into this system. Because jury deliberations are conducted in secret and their general verdicts are delivered without any explanation of their reasoning, their decisions are often idiosyncratic and create no useful precedent for others to follow. The jury acts as a “black box,” making its decision-making process opaque and its outcomes difficult to forecast. This legal uncertainty acts as a direct tax on business activity, discouraging risk-taking and increasing the cost of capital and insurance.

This is precisely why, for over a century, sophisticated businesses have willingly paid a premium to incorporate in Delaware. They are not paying for a specific substantive rule, but for the stability and predictability that comes from having their internal affairs governed by a small group of expert, precedent-bound jurists. The absence of the jury is not an incidental feature of the Delaware system; it is the central pillar upon which its value proposition rests.

Ultimately, the case against the jury in this context is not just about competence or bias, but about a fundamental philosophical mismatch. The historical function of the jury is to resolve discrete factual disputes and inject community norms into the legal process. Its strength lies in its application of common sense to everyday situations. Corporate law, however, is not about applying general community norms; it is a specialized, forward-looking economic framework designed to facilitate commerce and capital formation through a stable and predictable set of rules. When a jury decides a corporate governance case, it applies its inherent function—reliance on emotion, simple narratives, and broad concepts of fairness—to a system that requires the opposite: dispassionate expertise, economic logic, and strict adherence to precedent. In this highly specialized context, the jury’s greatest “feature”—its human element—becomes a critical “bug.”

Texas has launched an ambitious, sophisticated, and multi-faceted campaign to unseat Delaware as the nation’s premier corporate domicile. The creation of the Texas Business Court provides the necessary arena for this contest, but it is the enactment of TBOC § 2.116—the jury trial waiver—that provides the critical, game-changing rule. This provision allows Texas, for the first time, to offer the judge-centric, expert-driven adjudication that sophisticated business entities and investors demand.

The jury waiver should not be viewed in isolation. It is the linchpin of a broader package of management-friendly reforms enacted in Senate Bill 29. This includes the statutory codification of a robust business judgment rule that shields directors from liability except in cases of fraud or intentional misconduct, the authorization for corporations to set minimum ownership thresholds for bringing derivative suits, and new restrictions on shareholder books-and-records demands. Together, these reforms create an interlocking legal regime that is not merely copying Delaware, but attempting to create a more predictable and favorable alternative.

To be sure, Texas faces a long and arduous path in its quest for corporate law supremacy. Significant hurdles remain, most notably the short two-year terms for its business court judges, which may compromise judicial independence, and the decades it will take to build a body of case law that can rival Delaware’s deep well of precedent. Nevertheless, the adoption of the jury trial waiver is the essential first step that makes this long-term goal achievable. By enabling the Business Court to conduct bench trials, the legislature has empowered its new expert judges to begin the vital work of writing the opinions that will form the foundation of Texas corporate jurisprudence for the next century.

For a business attorney and their clients, the implications of these changes are immediate and profound. Counsel for any Texas-based corporation, limited liability company, or partnership should be undertaking an immediate review of their clients’ governing documents. It is now a matter of strategic urgency to consider amendments that incorporate two key provisions: first, an exclusive forum-selection clause designating the new Texas Business Courts as the sole venue for internal entity claims, pursuant to TBOC § 2.115; and second, a clear and enforceable jury trial waiver pursuant to the new § 2.116. Adopting these provisions is not a mere administrative update; it is a crucial strategic decision to maximize legal predictability, mitigate litigation risk, and take full advantage of the new legal architecture that Texas is aggressively building in its bid to become the new capital of American corporate law.