Thank You For Submiting Feedback!
A minority shareholder in a close corporation, by that status alone, who contractually agrees to the repurchase of his shares upon termination of his employment for any reason, acquires no right from the corporation or majority shareholders against at-will discharge. However, it is necessary to appreciate and keep distinct the duty a corporation owes to a minority shareholder as a shareholder from any duty it might owe him as an employee.
Plaintiff Gallagher purchased stock in the defendant Eastdil Realty, a close corporation, with which he was employed. The purchase of his 8.5% interest was subject to a mandatory buy-back provision: if the employment ended for any reason before January 31, 1985, the stock would return to the corporation for book value. Eastdil Realty fired Gallagher prior to the fulcrum date, after which the buy-back price would have been higher. Gallagher demanded payment for his shares calculated on the post-January 31, 1985 buy-back formula. Eastdil refused and Gallagher sued, asserting eight causes of action. Defendant Lambert is its founder, principal shareholder and chief executive officer. The other defendants are officers and shareholders of the corporation. The trial court denied defendants' motion for summary judgment on these claims, stating that factual issues were raised relating to defendants' motive in firing plaintiff. The Appellate Division, by divided vote, reversed, dismissed those claims and ordered payment for the shares at book value.
Should Gallagher’s dismissed causes of action, seeking the higher repurchase price based on an alleged breach of a fiduciary duty, be reinstated?
The court concluded that the causes should not be reinstated and affirmed the dismissal. The court found that there was no cognizable breach of any fiduciary duty owed to Gallagher under the plain terms of the parties' repurchase agreement.