Unreported / Non-Citable
Background
Dr. Rickey Fain formed Fain Family First Limited Partnership in 1998 and transferred assets to it. Fain Property Company, LLC, whose sole member is Dr. Fain, held the partnership’s 1% general-partner interest. Dr. Fain initially held an 89% limited-partner interest, while his daughter, Katherine Moore, held 10%. In 2012, Dr. Fain gave Katherine his entire limited-partner interest, but Fain Property remained the sole general partner.
After disagreements arose over management of the partnership, Katherine voted her limited-partner interest to remove Fain Property as general partner, formed Moore Family First Property Company, LLC, and purported to appoint it as the replacement general partner. Moore Family First sued for declarations confirming those actions and sought to stop Fain Property from interfering with partnership operations. The appellees counterclaimed and sought declarations invalidating the attempted removal and appointment.
The trial court granted summary judgment for the appellees and entered a final judgment declaring that the partnership agreement did not authorize either Fain Property’s removal or Moore Family First’s appointment. It also granted declaratory relief concerning management contracts between the partnership and Quail Ridge Management Corporation. Moore Family First appealed.
The Court’s Holding
The Tenth Court of Appeals affirmed. Reading Section 8.5 of the partnership agreement as a whole, the court held that a general partner could not be removed unless another general partner remained in place. The opening phrase stating that rule applied to removals both with and without cause. The later “notwithstanding the foregoing” language changed the required limited-partner vote from 100% for removal without cause to 51% for removal with cause; it did not eliminate the requirement that a general partner remain.
Because Fain Property was the sole general partner, Katherine could not remove it under Section 8.5. Nor could she use Section 7.2’s successor-general-partner provision to appoint Moore Family First simultaneously: that provision applied only after a sole general partner had validly ceased serving. Section 10.3 also barred admission of an additional general partner without every partner’s consent, and Fain Property had not consented.
The court rejected Moore Family First’s argument that this interpretation rendered other provisions meaningless, noting that the agreement contemplated the possibility of multiple general partners. Because the appellate court resolved the first two issues solely through contract interpretation, it did not reach Moore Family First’s alternative challenge to the denial of its motion for new trial.
Key Takeaways
- A partnership agreement’s express requirement that one general partner remain applied to removals both with and without cause.
- A successor-general-partner provision could not be used until the existing sole general partner had validly ceased serving.
- A limited partner could not avoid the removal restriction by purporting to remove the sole general partner and appoint its replacement at the same time.
Why It Matters
The decision underscores that Texas courts enforce partnership governance provisions according to the agreement’s text as a whole, including clauses that establish which terms control when provisions appear to conflict. Voting control over limited-partner interests does not necessarily carry authority to remove or replace a general partner.
Parties drafting or reviewing partnership agreements should address directly how a sole general partner may be removed, whether a successor may be appointed contemporaneously, and whose consent is required to admit an additional general partner.