Fish v. Tex. Legislative Serrv.
Facts:
Russell H. Fish III sued his brothers Andrew and John Fish, alleging they violated
the terms of the Texas Legislative Service (TLS) partnership agreement by paying themselves
salaries, bonuses, and other compensation without the unanimous consent of all partners as
required by the 1979 agreement. Andrew and John, who hold the majority interest, argued that
they were free to determine their own rates of compensation as co-workers under the terms of the
agreement. The trial court ruled in favor of Andrew and John, but Russell appealed, arguing that
the agreement required unanimous partner consent for compensation decisions.
Issue:
Did the 1979 TLS partnership agreement require unanimous consent of all
partners for the compensation of working partners, or could the majority interest holders set their
own compensation without unanimous approval?
Rule:
Under Texas’s general partnership law, “partners are not entitled to compensation for
services performed on behalf of the partnership, except compensation for services rendered in
winding up partnership business or if the partners have executed an agreement authorizing
compensation”.
Appellate court
Plaintiff:
During the appellate court proceedings, the plaintiff, Russell H. Fish III, argued
that the 1979 TLS partnership agreement unambiguously required the unanimous consent of all
partners for any working partner to receive compensation, including salaries, bonuses, and other
payments. He contended that the agreement's language, specifically the phrase "partners
mutually agree," clearly meant that all partners, not just the working partners or majority interest
holders, must agree on compensation decisions. Russell emphasized that Andrew and John had
paid themselves without this unanimous approval, violating the terms of the agreement. He also
argued that the explicit contractual language was not replaced by the historical practice of setting
salaries without unanimous approval, and that payments made more frequently than monthly
violated the terms of the agreement.
Defendant: During the appellate court proceedings, the defendants, Andrew and John Fish,
argued that the 1979 TLS partnership agreement either explicitly or implicitly authorized them,
as majority interest holders and working partners, to set their own salaries without the unanimous
consent of all partners. They contended that the term "partners mutually agree" did not require
unanimous approval and that the historical practice of working partners setting their
compensation supported this interpretation. Andrew and John asserted that section 2.5 of the
agreement was either unambiguous in permitting them to determine their salaries or,
alternatively, ambiguous, and the long-standing practice should guide its interpretation. They
also argued that the agreement's mention of "monthly" payments did not affect the time or nature
of their salary, and that the bonuses and special payments they received were delayed
compensation based on the company's financial flow.
Conclusion:
The appellate court reversed and remanded the trial court’s decision, ruling that
the 1979 TLS partnership agreement required unanimous consent of all partners for
compensation decisions involving working partners. The court rejected Andrew and John's
argument that majority interest holders could set their own compensation without unanimous
approval, concluding that the lower court's decision was incorrect.