Rochez Bros., Inc. v. Rhoades

In 1964, Rochez Bros., Inc. (plaintiffs) owned 50 percent of MS & R, Inc. Charles R. Rhoades (defendant) owned 50 percent of MS & R and served as the full-time chairman, chief executive officer and president of the company. Joseph Rochez, the president of Rochez Bros., was the vice president of MS & R and a member of its board. Disagreements between Rhoades and Rochez lead to increasing tension and hostility. The animosity grew, and eventually Rochez and Rhoades received authorization from the MS & R board to seek to a purchaser for the company. As part of these sales efforts, Rhoades contacted Wingate Royce to discuss finding a purchaser for MS & R. After being introduced to Royce, Rochez declined to hire Royce to find a buyer for MS & R. At that time, Rhoades personally retained Royce to assist in the sale of MS & R. Rhoades never told Rochez that he had hired Royce, nor did Rhoades share Royce’s leads and efforts with Rochez. When those efforts achieved no result, Rochez and Rhoades began discussing buy-out options, whereby one would buy the other’s interest in MS & R. By September 11, 1967, Rochez Bros. named its price to sell its MS & R stock to Rhoades. On September 16, 1967, the sales agreement was executed. Afterward, Rhoades followed up on leads to prospective buyers that Royce had identified. By November 13, 1967, the sale had closed. The next year, Rhoades entered negotiations with a third party that ultimately purchased MS & R from Rhoades. Rochez Bros. filed suit alleging violations of federal securities law and Pennsylvania state fraud claims. The trial court determined that Rhoades had violated securities law in his dealing with Rochez Bros. and the ultimate sale of MS & R to a third party. Rochez Bros. appealed.