## Facts

- Eastdil Realty, Inc., a closely held corporation, sold equity to executive employees under a stockholders’ agreement containing a mandatory repurchase (“buy-back”) provision.
- James J. Gallagher, an at-will employee and senior executive, purchased an 8.5% equity interest, becoming a significant minority shareholder.
- The agreement required the corporation to repurchase Gallagher’s shares at book value if his employment ended “for any reason” before January 31, 1985; after that date, the repurchase price would be determined by an earnings-based formula.
- Gallagher was terminated on January 10, 1985, 21 days before the January 31 “fulcrum date.”
- Gallagher did not sue for wrongful termination; he claimed the termination was timed to force a book-value repurchase rather than the higher post-date formula.
- Gallagher asserted claims against the corporation’s controlling insiders for breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, seeking to avoid the book-value repurchase price.

## Issues

1. Whether controlling shareholders/officers of a close corporation breach fiduciary duties owed to a minority shareholder by terminating the minority shareholder’s at-will employment to trigger a contractual book-value stock repurchase before a higher valuation date.
2. Whether the implied covenant of good faith and fair dealing or close-corporation fiduciary principles can override unambiguous repurchase terms negotiated in a stockholders’ agreement.

## Decision

- The Court of Appeals affirmed summary judgment for defendants.
- The court held there was no cognizable breach of fiduciary duty or good faith where the corporation exercised rights expressly provided by the repurchase agreement.
- Because Gallagher’s employment ended before January 31, 1985, the repurchase price was book value under the agreement.
- The certified question—whether the intermediate appellate court’s order was properly made—was answered in the affirmative.

## Legal Principles

- Courts enforce clear, unambiguous stock repurchase provisions as written, including pricing mechanisms tied to employment status and specified dates.
- An employer may terminate an at-will employee for any reason or no reason; a lawful termination motive does not become actionable solely because it affects a contractually defined buy-back price.
- Fiduciary duties in a close corporation do not permit a court to rewrite a negotiated shareholder agreement to reallocate economic risk that the parties expressly accepted.
- The implied covenant of good faith and fair dealing cannot be used to add obligations inconsistent with the contract’s plain terms or to negate a risk that the contract expressly contemplates.

## Conclusion

The court enforced the parties’ negotiated repurchase formula and held that terminating an at-will executive before a valuation date to obtain a lower contractual buy-back price did not, without more, constitute a breach of fiduciary duty or the implied covenant of good faith and fair dealing.


Gallagher v. Lambert, 74 N.Y.2d 562 (N.Y. 1989)