Reilly v. Rangers Management, Inc.

• Decision Date: 01 April 1987
• Docket Number: No. C-5926,C-5926
• Citation: 727 S.W.2d 527
• Parties: Michael A. REILLY, Petitioner, v. RANGERS MANAGEMENT, INC. et al., Respondents.
• Court: Texas Supreme Court

Page 527

727 S.W.2d 527

Michael A. REILLY, Petitioner, v. RANGERS MANAGEMENT, INC. et al., Respondents.

No. C-5926.

Supreme Court of Texas.

April 1, 1987.

Rehearing Denied May 6, 1987.

Robert H. Mow, Jr. and Paul M. Koning, Hughes & Luce, Dallas, for petitioner.

John B. McAdams, Kelly, Appleman, Hart & Hallman, Fort Worth, for respondents.

SPEARS, Justice.

This case involves the validity of certain amendments to a limited partnership agreement. The trial court granted summary judgment holding that the amendments were valid as a matter of law. The court of appeals affirmed the judgment of the trial court, 717 S.W.2d 442. We reverse the judgment of the court of appeals and remand this cause for trial.

In 1974, Texas Rangers, Ltd. (TRL), a limited partnership, was created to purchase and operate an American League baseball franchise known as "The Texas Rangers." At that time, Rangers Management, Inc. (RMI) was the sole general partner and Michael A. Reilly (Reilly) was a limited partner. In 1980, RMI and the limited partners unanimously approved amendments to the limited partnership agreement which resulted in the "First Amended Agreement of Limited Partnership of the Texas Rangers, Ltd." (first amended agreement). One of these amendments allowed the admission of a second general partner, CCK, Inc. (CCK).

On March 13, 1984, RMI and CCK, which then owned 83.78% of the limited partnership units, proposed several amendments to the first amended agreement. The amendments were approved by 88.49% of the limited partnership units. The validity of two of these amendments is the subject of this litigation and appeal. The first would change the number of authorized units of TRL from 300 to an unlimited number. The second would change the minimum capital contributions for newly issued units of TRL from $50,000 to their fair market value to be determined by the managing general partner, RMI, on an annual basis.

Shortly after the alleged adoption of the amendments, RMI and CCK notified the limited partners of their intention to purchase 100 new partnership units at a price, established by RMI, of $10,000 per unit. Each limited partner was given seven days to exercise his preemptive rights to the newly issued units. If the limited partner chose not to exercise his preemptive rights, his percentage of the profits of TRL would be lowered.

Reilly objected to the validity of the amendments, the issuance of the new units, and the dilution of his interest. RMI and CCK then sued for a declaratory judgment under Tex.Rev.Civ.Stat.Ann. art. 2524-1 (repealed 1985) now codified at Tex.Civ.Prac. & Rem.Code § 37.004 (Vernon 1986), to have the amendments declared adopted and to have the "Second Amended Limited Partnership Agreement" (second amended agreement) declared to be in full force and effect. Both parties moved for partial summary judgment. The trial court overruled Reilly's motion and granted partial summary judgment for RMI and CCK. The court of appeals affirmed the judgment of the trial court.

The trial court and court of appeals interpreted Article XV of the first amended agreement to require that only 66 2/3% of the units approve these particular amendments. Article XV of the agreement provides in relevant part:

C. Unanimous Consent of Limited Partners. Subject to the provisions of ARTICLE IV hereof, any amendment to this Agreement which would adversely affect the general liabilities of the Limited Partners, or change the method of allocation of the profits or losses or the distribution of the Partnership funds or assets shall require the consent in writing of all Limited Partners.

D. Two-Thirds Consent of Partners. Subject to the provisions of ARTICLES XII and XIV hereof, any other amendments to this Agreement shall require the approval in writing of Partnership Percentages aggregating sixty-six and two thirds percent (66 2/3%).

The court of appeals held that the passage of these amendments was governed by Article XV(D) rather than (C) of the first amended agreement because the "allocation of profit and losses" and "distribution" terms from Article XV(C) were headings of Article VIII(A) & (B). Article VIII provides:

A. Allocation of Profits and Losses. The profits and losses of the Partnership as well as each Partner's separate distributive share of all taxable income gains, losses, deductions and credits of the Partnership shall be allocated to the Partners as follows:

(1) To the Managing General Partner that portion equal to an amount which is the result of multiplying the percent of Units owned by such Managing General Partner in the Partnership times one hundred fifty percent (150%) or its percentage of the total Units in the Partnership plus 7.5% of total profits and losses, whichever is less.

(2) To the Limited Partners and General Partners other than the Managing General Partner, the remaining share, after subtracting that allocated to the Managing General Partner, in proportion to each such Partner's Units to total Units owned by such partners.

B. Distributions. The Managing General Partner shall at all times maintain such liquid assets in the Partnership, as in his judgment shall be necessary to provide for the Partnership's operations, capital and expansion requirements, liabilities, debt service and contingencies of the Partnership and as may be required by any agreement to which the Partnership may be a party. Subject to the foregoing, the Managing General Partner may make cash distributions to the Partners at such times and in such amounts as the Managing General Partner may determine in his sole discretion; provided, however, that in no event shall any distribution be made in violation of the Texas Act. Such distributions shall be allocated to the Managing General Partner and to the other Partners in the same proportions as profits and losses are allocated as described in Paragraph A of Article VII hereof.

The court of appeals held that only amendments which "change" Article VIII require unanimous approval and that these amendments did not "change" Article VIII.

Reilly argues that the first amended agreement is at least ambiguous concerning whether the passage of these amendments is governed by Article XV(C) or (D). Whether a contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances existing at the time the contract was entered into. Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983). When a contract contains an ambiguity, the granting of a motion for summary judgment is improper because the interpretation of the instrument is a question of fact for the jury. Id. In deciding whether there is a disputed material fact issue precluding summary judgment, evidence favorable to the non-movant will be taken as true. Montgomery v. Kennedy, 669 S.W.2d 309, 311 (Tex.1984). Every reasonable inference from the evidence must be indulged in favor of the non-movant and any doubts resolved in his favor. Id.

The similarity in language between Article VIII and Article XV raises a fact issue as to whether the amendment's passage is governed by Article XV(C) or (D). See City of San Antonio v. Heath & Stich, Inc., 567 S.W.2d 56, 60 (Tex.Civ.App.--Waco 1978, writ ref'd n.r.e.). However, application of other rules of construction negates a holding that the amendment's passage was governed by Article XV(D) as a matter of law.

The interpretation of a written contract is a quest for the intention of the parties to it. Jim Walter Homes, Inc. v. Schuenemann, 668 S.W.2d 324, 330 (Tex.1984). Language should be given its plain grammatical meaning unless it definitely appears that the intention of the parties would thereby be defeated. Fox v. Thoreson, 398 S.W.2d 88, 92 (Tex.1966). Here, there is no clear intention that the parties intended to define the Article XV(C) "allocation of profits or losses" and "distribution" terms solely by Article VIII.

A fact issue is present even if the Article XV(C) language is limited and defined by Article VIII. The formula or "method" for the allocation of profits or losses in Article VIII(A) is dependent on the use of a fraction, the numerator of which is the number of units owned by the partner in question and the denominator of which is the total number of units owned by all of the partners. Under the first amended agreement's definition of "unit," the denominator could be no more than 300. Under the second amended agreement, the denominator is...