Travis County Texas v. Rylander Investment

United States Court of Appeals,

Fifth Circuit.

No. 96-50100.

TRAVIS COUNTY, TEXAS, Plaintiff-Counter Defendant-Appellee-Cross-
Appellant,

v.

RYLANDER INVESTMENT CO., INC., Defendant-Counter Claimant-
Appellant-Cross-Appellee.

March 25, 1997.

Appeals from the United States District Court for the Western
District of Texas.

Before REYNALDO G. GARZA, SMITH and EMILIO M. GARZA, Circuit
Judges.

REYNALDO G. GARZA, Circuit Judge:

While the parties to this case have presented us with several

questions to resolve in this appeal, only one merits extended

discussion: Does Texas law require an entity which brokers real

estate on behalf of a governmental body to obtain a real estate

license. We answer this question in the negative.

This case concerns a contract ("the Agreement") between Travis

County, Texas ("County") and Hill Rylander ("Rylander") for the

construction and operation of a farmers market ("the Market") in

Austin for a 20-year term. Rylander agreed to exercise his best

efforts and professional skill in managing the Market so as to

provide the County with an economic return and to "provide a

quality service at an affordable price for the public in the

marketing of produce by local growers and producers, and an

agricultural exhibit center, with related operations being a magnet

1
to attract citizens and tourists on a year-round basis." One of

his chief tasks involved leasing space at the Market to the vendors

who are, ultimately, the Market's raisons d'être. Rylander's

compensation was tied to the Market's performance which, in turn,

depended upon there being vendors at the Market whose wares were

desired by the shopping public in Travis County. These lease

agreements were not final, however, until the County gave its

approval to them.

For a variety of reasons, the parties' relationship soured to

the point of litigation. The County sued Rylander Investment

Company ("RIC"), which had been assigned all of Rylander's rights

and obligations under the Agreement, in state court in July 1994

alleging a number of claims and sought damages as well as

rescission of the contract. It based its rescission argument on a

claim that RIC failed to obtain a real estate license required

under both state law and the Agreement. Its failure to obtain this

license, the County asserted, resulted in RIC's breach of certain

fiduciary obligations it owed the County. RIC removed the case to

federal court1 and counter-claimed for damages it alleged to have

suffered from, inter alia, the County's refusal to approve

negotiated leases. The parties consented to the jurisdiction of a

magistrate judge and a two-week bench trial commenced.

The magistrate judge entered an opinion and order on December

1
Subject-matter jurisdiction was premised on an Americans with
Disabilities Act claim brought by Travis County. The court
dismissed this claim before trial but, "[d]ue to the advanced
posture of the case," elected to exercise supplemental jurisdiction
over the remaining claims.

2
13, 1995. With respect to the issue of the real estate license,

the magistrate determined, after hearing the testimony of an

attorney with the Texas Real Estate Commission, that RIC was

required to be licensed under state law. He excused RIC's

noncompliance with the Act, however, finding that its use of its

lawyer2 demonstrated good-faith compliance with the Act. Yet he

also determined that the Agreement required that RIC itself become

licensed and so ordered it to obtain this license. At the same

time he forgave the County's refusal to approve leases because of

RIC's lack of a license. Both parties appeal.

The issue of real estate licensure requires us to engage in an

interpretation of the Texas Real Estate License Act (RELA), Tex.

Rev. Civil Stat. Ann. art. 6573a. The County asserts that both the

Agreement and the RELA required RIC to obtain a real estate license

in connection with its duties in leasing space at the Market. It

is undisputed that RIC did not possess a license. Rylander

obtained one after the Agreement was signed but it subsequently

lapsed; he took the test again in 1993 but failed and currently

does not have one. RIC asserts that the RELA does not require

licensure because all of its real estate brokering was done on

behalf of Travis County, a local governmental body. The County

disputes this reading of the RELA, but argues that even if RIC was

not required by Texas law to become licensed, the Agreement itself

requires a license. We review de novo both the lower court's

2
Lawyers are not required to become licensed real estate
brokers under Texas law.

3
interpretation of the Agreement and its conclusions as to the

requirements of state law.

RIC first states that the magistrate judge erred in finding

that the Agreement required anything above and beyond compliance

with state law. The magistrate judge's opinion does not indicate

upon which section of the Agreement he relied in making this

determination. The only section we find that might bear upon this

situation is § 7(d), which requires RIC

[t]o comply with all licensing requirements in order to allow
[RIC] to serve in the capacity provided herein, and to comply
with all building codes, zoning, and licensing requirements,
and other requirements of federal, state, county, or municipal
authorities having jurisdiction over the Premises, with the
exception that [RIC] will not have to comply with any
requirements which are not applicable to the Owner.

We find that this section does no more than require adherence to

applicable law. In light of this finding, we must now determine

what the applicable law—the RELA—requires.

The RELA was enacted in an attempt to eliminate or reduce

fraud on the public caused by unlicensed, unqualified, or

unscrupulous persons dealing in real estate. See Henry S. Miller

Co. v. Treo Enters., 585 S.W.2d 674, 675-76 (Tex.1979). Among its

provisions is a requirement that certain individuals or entities

obtain a license from the Texas Real Estate Commission before

engaging in real estate transactions. It requires licensure for "a

person, who for another person and for a fee, commission, or other

valuable consideration, or with the intention or in the expectation

or on the promise of receiving or collecting a fee, commission, or

other valuable consideration from another person " sells, leases,

4
purchases, rents, leases real estate, or negotiates such

activities, and other related activities. RELA § 2(2) (emphasis

added). The RELA defines a "person" as "an individual, a limited

liability company, or a corporation, foreign or domestic." RELA §

2(5). RIC concedes that it is a "person," but argues that the

County is not a "person," thereby exempting it from the license

requirements of the RELA.

There exists no reported decision of a Texas court

interpreting the RELA with respect to this question. There do

exist, however, numerous decisions which set forth the rules of

statutory construction in Texas as well as decisions interpreting

the term "corporation" in other contexts. It is based upon these

precedents and our own reading of the RELA that we conclude that

RIC is exempt from its licensing requirement.

The RELA applies only to a person who represents another

person. If the County is not included within RELA's definition of

"person," RIC is not required to become licensed. This follows

from a general rule of statutory construction, followed in Texas,

that presumes that every word in a statute is used for a purpose

and every word excluded is excluded for a purpose. Cameron v.

Terrell & Garrett, 618 S.W.2d 535, 540 (Tex.1981). The plain

language of RELA's definition of person does not seem to permit the

inclusion of a local government body like Travis County. The

County is obviously not an individual or a limited liability

company and our reading of Texas case law leads us to conclude that

it cannot be considered a corporation.

5
 Texas courts have held in other contexts that the term

"corporation" does not include governmental bodies. See State v.

Central Power & Light Co., 139 Tex. 51, 161 S.W.2d 766, 768 (1942)

(antitrust case holding that "as a general rule the word

"corporation' is construed to apply only to private corporations

and does not include municipal corporations, unless the statute

expressly so provides"); Harris Mun. Util. Dist. v. Mitchell, 915

S.W.2d 859, 866 (Tex.App.—Houston [1st Dist.] 1995, writ denied)

(for purposes of attorney's fees statute, governmental unit not a

"corporation"); Base-Seal, Inc. v. Jefferson County, 901 S.W.2d

783, 787 (Tex.App.—Beaumont 1995, writ denied) (same); Lake LBJ

Mun. Util. Dist. v. Coulson, 839 S.W.2d 880, 892-93

(Tex.App.—Austin 1992, no writ) (same); Kerrville HRH v. City of

Kerrville, 803 S.W.2d 377, 381-82 (Tex.App.—San Antonio 1990, writ

denied) (holding that definition of "person" in Deceptive Trade

Practices Act, defined as "an individual, partnership, corporation,

association, or other group, however organized," does not include

local governmental bodies). We defer to this interpretation and

hold that the County was not a "person" for purposes of RELA.

Accordingly, § 2(2) does not require RIC to obtain a real estate

license.

In response, the County first argues that, notwithstanding the

foregoing discussion of § 2, § 4 of the RELA mandates licensure for

RIC. Section 4 provides as follows:

A person who, directly or indirectly for another, with the
intention or on the promise of receiving any valuable
consideration, offers, attempts, or agrees to perform, or
performs, a single act defined in Subdivisions 2 and 3,

6
 Section 2 of this Act, whether as a part of a transaction, or
as an entire transaction, is deemed to be acting as a real
estate broker or salesman within the meaning of this Act. The
commission of a single such act by a person required to be
licensed under this Act and not so licensed shall constitute
a violation of this Act.

RELA § 4. As RIC correctly argues, this section does not impose a

duty upon one who is already disqualified under the terms of §§

2(2) and 2(3). As discussed above, § 2(2) does not pick up RIC and

neither does § 2(3). Accordingly, § 4 does not require a license.

The County also argues that there is already a specific

exception in the RELA for public officials (§ 3(3)), which

exception RIC cannot utilize. While an accurate reading of the

statute, this does nothing to change our interpretation. The fact

that there is already a government-related exception from the

license requirement does not require an interpretation of the RELA

which pretends to ignore the language in § 2(2).

The remaining issues raised by the parties do not merit

extended discussion. Our review of the record satisfies us that

the magistrate judge did not err in finding that the County

fulfilled its obligations under the contract with respect to the

initial construction upgrades, but not because it spent what it was

required to spend. We agree with the magistrate judge's

conclusions that income received by RIC from the farmers' stall

fees constitutes "gross rental income," that RIC is not entitled to

damages from the County's interference with the Pumpkin Festival,

that the Agreement requires RIC to obtain fire and liability

insurance, that the amendment to the Agreement is supported by

consideration, and that RIC has no claim under 42 U.S.C. § 1983.

7
We find no abuse of discretion in the magistrate judge's refusal to

designate RIC as the prevailing party for purposes of an award of

attorney's fees. We find that RIC did not breach any fiduciary

duty it may have owed to the County and refuse to order rescission

of the Agreement. We agree with the magistrate judge that the

Agreement does not prevent RIC from conducting festivals at the

Market for profit.

We reverse the magistrate judge's order requiring RIC to

obtain a real estate license. As a consequence, we also reverse

that part of its order denying RIC's claim relating to the County's

refusal to approve leases submitted to it. The magistrate judge

found the County's refusal to approve did not amount to a breach of

the Agreement because it found that the County acted upon "a

reasonable (and ultimately justified) belief that RIC needed to

obtain a real estate license." Because we have found the County's

position with respect to the requirement of licensure to be

erroneous under both the Agreement and state law, we remand the

case for reconsideration of this aspect of RIC's breach of contract

claim.

AFFIRMED in part, REVERSED in part, and REMANDED with

instructions.

8