## Facts

- Ched Realty Corp. was a closely held corporation formed in 1957 to hold Manhattan real estate.
- Shareholders repeatedly used buy-sell agreements restricting transfers and setting buyout prices for a deceased shareholder’s stock, generally using a book-value formula (except a temporary 1964 agreement using fair market value).
- In 1971, after a shareholder’s death, a new agreement reinstated book-value pricing for post-mortem buyouts; decedent shareholders Charles McGuire and Jeannette Priddy were familiar with these arrangements.
- In 1981, Allen and Frank Rosiny (attorneys and shareholders) entered a fourth shareholders’ agreement with McGuire and Priddy.
- The 1981 agreement restricted lifetime transfers unless first offered to other shareholders and provided that, on a shareholder’s death, the survivors could buy the decedent’s shares at book value or $200 per share, whichever was greater; the agreement could be terminated by selling the property.
- At the time, the corporation’s book value was negative despite substantial market value for the real estate, making the contractual buyout price far below market value.
- In 1985, the shareholders considered selling the property; after consulting counsel, McGuire and Priddy chose not to sell.
- In 1988, McGuire and Priddy died; their estates refused to sell shares under the 1981 formula, asserting unconscionability and breach of fiduciary duty.

## Issues

1. Whether the 1981 post-mortem buyout provision (book value or $200 per share) was unenforceable as unconscionable due to disparity between contractual price and market value and differences in the parties’ age and sophistication.
2. Whether the Rosinys, as attorney-shareholders, owed and breached a fiduciary duty to McGuire and Priddy by failing to explain or disclose the effect of the buyout provision.

## Decision

- The Appellate Division, First Department reversed the Surrogate’s Court.
- The court held the post-mortem buyout provision enforceable and found the record did not support unconscionability.
- The court rejected the fiduciary-duty claim, finding no basis for a heightened duty arising from the Rosinys’ status as attorneys or from the shareholders’ relationship.

## Legal Principles

- Unconscionability generally requires both procedural unconscionability (absence of meaningful choice) and substantive unconscionability (terms unreasonably favorable to one party).
- Disparities in age or education, without proof of overreaching, coercion, deception, or lack of meaningful choice, are insufficient to establish procedural unconscionability.
- A long course of prior similar agreements and parties’ familiarity with the pricing method supports enforceability and undermines claims that a party did not understand essential terms such as “book value.”
- A large gap between book value and market value does not, by itself, render a closely held corporation’s buy-sell clause unconscionable where the clause reflects an agreed pricing mechanism for succession and liquidity.
- Attorney status alone does not create an attorney-client relationship or special fiduciary obligation to co-shareholders absent evidence the attorney actually represented them in the transaction.

## Conclusion

The court enforced the shareholders’ agreement’s book-value/$200-per-share post-mortem buyout clause, holding that the estates failed to prove both procedural and substantive unconscionability and that the attorney-shareholders did not owe or breach a special fiduciary duty in negotiating the agreement.


Rosiny v. Schmidt, 185 A.D.2d 727 (1st Dep’t 1992)