                    United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 01-1751
                                    ___________

John Peacock, Norma Harvey,           *
Mildred Sorrell, Jennifer Short,      *
Jim Mattson,                          *
                                      *
           Appellants,                * Appeal from the United States
                                      * District Court for the
     v.                               * Eastern District of Arkansas
                                      *
  st
21 Century Wireless Group, Inc.,      *
                                      *
           Appellee.                  *
                                 ___________

                             Submitted: November 12, 2001

                                   Filed: April 12, 2002
                                    ___________

Before McMILLIAN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and
      SMITH,1 District Judge.
                              ___________

McMILLIAN, Circuit Judge.

       John Peacock, Norma Harvey, Mildred Sorrell, Jennifer Short, and Jim Mattson
(collectively referred to as appellants) appeal from a judgment entered in the United




      1
       The Honorable Ortrie D. Smith, United States District Judge for the Western
District of Missouri, sitting by designation.
States District Court2 for the Eastern District of Arkansas following a trial. Although
the district court allowed appellants to rescind their contract for the sale of securities
with 21st Century Wireless Group, Inc. (hereinafter 21st Century or the company), the
district court denied them relief under breach of contract and fraud claims. For
reversal, appellants argue that the district court erred in dismissing a constructive
fraud claim and in calculating rescissory damages and attorney's fees. We affirm.

BACKGROUND

       On January 11, 1996, appellants and several others entered into a stock
purchase agreement (hereinafter the agreement) with 21st Century. The agreement
provided that 21st Century would buy 100% of the stock in Peacock's Radio & Wild’s
Computer Service, Inc. (hereinafter Peacock's Radio) for $800,000 to be paid in 21st
Century stock to be issued on closing. Section 2.1 of the agreement provided that
the number of 21st Century shares to be issued was to "be determined by using the
closing bid price . . . for the stock on the first day it was listed on a national, regional
or over-the-counter stock exchange." Section 6.2(e) of the agreement provided that,
subject to appellants' discretion, at closing the 21st Century stock would "be listed
on a national, regional or over-the-counter exchange." After the agreement, appellant
Peacock, who had owned about 40% of the Peacock's Radio stock, became a member
of 21st Century's board of directors and the company's vice-president for regulatory
affairs. He also served as a representative of the other appellants in dealing with 21st
Century. Although at the August 1996 closing, the 21st Century stock was not listed
on an exchange, appellants, who owned collectively about 50 percent of the Peacock's
Radio stock, exchanged their stock for the 21st Century stock. In addition to not being
listed on a public exchange, the 21st Century stock was not registered or exempt from



       2
       The Honorable James M. Moody, United States District Judge for the Eastern
District of Arkansas.
                                            -2-
registration, as required by Arkansas securities law.           See Ark. Code Ann.
§ 23-42-504.3

       In June 1997, Peacock and Harvey agreed to waive the provision in section 2.1
of the agreement providing that the stock would be priced as of the first day of public
trading in exchange for receiving additional shares of 21st Century stock.4 Peacock,
who had received about 63,000 shares in 1996, received an additional 63,000 shares
of 21st Century common stock, which also were not registered. On December 31,
1997, the State of Arkansas revoked the corporate status of Peacock's Radio and its
operations were consolidated into the operations of 21st Century.

       In February 1999, appellants filed the instant action against 21st Century,
seeking rescission of the agreement or alternatively damages. In an amended
complaint, they asserted that 21st Century had violated Arkansas securities law by
failing to register the stock and had breached the agreement and committed fraud by
failing to have the stock listed on a public exchange. 21st Century moved for partial
summary judgment on the three claims. 21st Century did not dispute that the sale of
the unregistered stock violated Ark. Code Ann. § 23-42-504. However, it argued that
the remedy for the statutory violation was prescribed by Ark. Code Ann.
§ 23-42-106(a)(1), which provides that the buyer of an unregistered security may
recover from the seller "the consideration paid for the security, together with interest
at six percent (6%) per year . . . , costs, and reasonable attorney fees, less the amount
of any income received on the security, upon tender of the security, or for damages
if [the buyer] no longer owns the security." Because appellants still held the 21st
Century stock, the company argued that their remedy was limited to rescission and


      3
          The stock was exempt from registration under the federal securities law.
      4
       The district court stated that it only had record evidence of Peacock's waiver,
but believed that all appellants had executed waivers. Our review of the record
indicates that, as 21st Century represents, Harvey also signed a waiver.
                                           -3-
that the "consideration paid" was their pro rata portion of the $800,000 purchase
price. Appellants opposed the motion, arguing that they were entitled either to the
return of their Peacock's Radio stock or to the profits 21st Century earned on the
stock.

       The district court granted 21st Century's motion in part and denied it in part.
The district court agreed with 21st Century that the remedy for the statutory violation
was prescribed by Ark. Code Ann. § 23-42-106(a)(1) and that, upon tender of the 21st
Century stock, appellants would receive their pro rata portion of the $800,000
purchase price, plus interest, costs, and attorney's fees, less any income received. The
district court denied the motion as to the breach of contract and fraud claims.

       At trial, which began before a jury, appellants' counsel spent much time
examining witnesses concerning the fact that the 21st Century stock was not
registered. The district court questioned counsel about the relevancy of the testimony
in light of its grant of summary judgment on the statutory rescission claim arising
from the lack of registration. Counsel told the district court that the statutory
violation was not relevant to either the breach of contract or fraud claims. When
counsel continued with the line of questioning, the district court again questioned the
relevancy of the testimony. Counsel again assured the district court that the breach
of contract and fraud claims were based on alleged promises to take the 21st Century
stock public, not on the failure to register the stock.

       Concerning the alleged promise to go public, Peacock and Harvey testified that
trading on a public exchange was an important inducement to their entering into the
stock purchase agreement. Although they believed that if the 21st Century stock had
been traded publicly, it would have increased in value, they admitted its value might
have declined. Rodney Hutt, who was 21st Century's executive vice-president and
executed the agreement on the company's behalf, testified that the company had every



                                          -4-
intention of going public, but, despite spending a lot of time, money, and effort, it
could not do so.

       At the close of the evidence, 21st Century moved for judgment as a matter of
law. Appellants' counsel told the district court that "there [wa]s no point to submit
the issues of fraud, common law or statutory fraud to the jury" and that the jury could
be released because all that remained to be decided were equitable remedies. The
district court asked counsel, "So you're moving to dismiss your remaining fraud
claims?" Appellants counsel responded, "Yeah, both of them." After the district
court stated it would dismiss the fraud claims with prejudice, counsel stated "that's
what I thought I was asking." The district court then dismissed the jury.

       In January 2001, the district court issued an order disposing of the remaining
claims. The district court held that 21st Century had not breached the agreement by
failing to list the stock on a public exchange. As to the fraud claims, the district court
noted that, although appellants had voluntarily dismissed the claims with prejudice,
they raised a constructive fraud claim in their post-trial brief. The district court went
on to hold that, even if the constructive fraud claim had not been dismissed, it was
without merit. The district court found that any representations 21st Century had
made about going public could not, under Arkansas law, serve as a basis for a fraud
claim because they related to future events and were made in good faith. See Delta
Sch. of Commerce, Inc. v. Wood, 766 S.W.2d 424, 426 (Ark. 1989).

       As to the statutory rescission claim, the district court held that, upon tender of
      st
the 21 Century shares appellants had received, both in 1996 and 1997, they would
receive $281,027.05 to be distributed on a pro rata basis according to their ownership
of the stock. The district court's calculation of the rescissory damages was based on
the total value of the original block of the 21st Century stock ($800,000), less a
$55,000 advance made by 21st Century before closing, multiplied by appellants'



                                           -5-
percentage of the 21st Century stock,5 plus 6% interest from the closing date of
August 21, 1996, until the entry of the order, and less a $144,179 cash distribution.

       Appellants filed motions for new trial or reconsideration and for attorney's fees
and costs. The district court denied the motion for new trial or reconsideration. As
to the statutory damages, the district court rejected appellants' argument that they
were entitled to a separate rescissory measure of damages in return for the tender of
stock received in 1997, finding that the 1997 transaction was "part and parcel of the
overall effort to ensure that [appellants] received the full value of the agreed upon
purchase price for their shares of $800,000." Add. at 2. As to the fraud and breach
of contract claims based on alleged promises to take 21st Century public, the district
court noted that even if it were inclined to fashion an equitable rescission remedy on
the claims, it could not do so because there was a failure of proof of damages. As to
attorneys fees and costs, the district court held that appellants could not recover fees
and costs associated with their unsuccessful breach of contract and fraud claims and
awarded them fees and costs of $3,305.25 associated with the statutory violation
claim. This appeal followed.

       Jurisdiction in the district court was proper under 28 U.S.C. § 1332.
Jurisdiction in this court is proper under 28 U.S.C. § 1291.

DISCUSSION

       We first address appellants' argument that the district court erred in dismissing
their constructive fraud claim. 21st Century argues that appellants have waived
review of the claim because they dismissed it with prejudice at trial. Appellants
contend that they dismissed only their claim for a legal remedy based on fraud, not


      5
       The district court took into account that under a stock repurchase plan that
three appellants had tendered back some of their 21st Century stock.
                                          -6-
for an equitable rescission based on fraud. In an attempt to side-step the statutory
measure of rescissory damages under Ark. Code Ann. § 23-42-106(a), appellants
assert that an equitable rescission based on fraud would require disgorgement of any
profits 21st Century made on the Peacock's Radio stock.

       Although we believe that appellants waived their fraud claims, because the
district court rejected the constructive fraud claim on the merits, we will address the
issue. The district court did not err in holding that, as a matter of law, appellants'
constructive fraud claim was without merit. As the district court noted, "the tort of
constructive fraud requires that material representations of fact be made." South
County, Inc. v. First Western Loan Co., 871 S.W.2d 325, 327 (Ark. 1994). Generally,
under Arkansas law, "an action for fraud or deceit may not be predicated on
representations relating solely to future events.'" Morrison v. Back Yard Burgers,
Inc., 91 F.3d 1184, 1188 (8th Cir. 1996) (quoting Delta Sch. Of Commerce., 766
S.W. 2d at 427). "However, the general rule is inapplicable if the person making the
representation or prediction knows it to be false at the time it is made." Delta School
of Commerce, 766 S.W. 2d at 427. In this case, there was ample evidence to support
the district court's finding that 21st Century's representations about going public were
made in good faith. Indeed, in their brief, appellants concede that 21st Century's
actions indicated its intent to go public. Brief for Appellants at 33.

       In their brief, appellants attempt to construct a fraud claim based on the fact
that the 21st Century stock was not registered. Their attempt must fail. At trial,
appellants' counsel repeatedly assured the district court that their theory of fraud was
based on representations about going public, not on the failure to register. Counsel
told the district court that the failure to register the stock was not an element of either
the fraud or breach of contract claims. Indeed, counsel conceded that "[t]he fact [the
stock] wasn't registered, frankly, I'm afraid I can't make it . . . to the jury" on the
claim. The concession was not surprising in light of evidence indicating that



                                            -7-
Peacock, who was a member of the 21st Century board of directors and its vice-
president, knew about the registration problem.

       We also agree with the district court that 21st Century did not breach the stock
purchase agreement. There is no dispute that the agreement provided that, at
appellants' discretion, they could waive conditions of closing, including the condition
that, as provided in Section 2.1, the 21st Century stock would be listed on an
exchange. There is also no dispute that at the August 1996 closing, appellants
exchanged their shares of Peacock's Radio stock for the unlisted 21st Century stock.
Moreover, the agreement provided that it could not be amended or modified except
by written agreement. Thus, any oral representations could not modify the agreement.
In any event, as the district court held, there was a failure of proof concerning any
damages appellants may have sustained because the stock was not listed on a public
exchange. Both Peacock and Harvey testified that if the stock had been listed, its
value may have declined. Indeed, Peacock admitted that the stock of another
company that had sought to acquire Peacock's Radio stock in a "stock-swap" had
declined in market value from $6.00 a share to 17 cents.

       We next address appellants' arguments that the district court erred in
calculating damages under Ark. Code Ann. § 23-42-106(a)(1). As previously
indicated, as relevant here, the statute provides that a buyer of an unregistered
security can recover from the seller "the consideration paid for the security, together
with interest at six percent . . . , costs, reasonable attorney fees, less the amount of
income received on the security, upon tender of the security." Appellants do not
dispute that "[t]his language sets forth a rescissory calculation designed to restore the
plaintiff to the position he held before he entered into the wrongful transaction."
Farley v. Henson, 11 F.3d 827, 837 (8th Cir. 1993) (applying Arkansas law); see
also Robertson v. White, 81 F.3d 752, 757 (8th Cir. 1996) (Robertson) ("rescissory
damages contemplate a return of the injured party to the position he occupied before



                                           -8-
he was induced by the wrongful conduct to enter into the transaction") (internal
quotation omitted).

       Appellants assert that to restore them to the position they occupied before
executing the 1996 agreement, the district court should have ordered 21st Century to
return their Peacock's Radio stock. If 21st Century still held the stock, their argument
could have had merit. See Wigand v. Flo-Tek, Inc, 609 F.2d 1028, 1036 (2d Cir.
1980) ("If the consideration is not money but property that is intact at the time of
judgment, then the district court can . . . avoid valuation problems by ordering return
of the consideration per se."). However, as the district court held, the only record
evidence was that the Peacock's Radio stock no longer existed, and thus 21st Century
could not return it.

       Appellants next argue that the district court erred in holding that the
"consideration paid" was their pro rata portion of the $800,000 purchase price set
forth in the agreement, asserting they are entitled to any profits 21st Century made on
the Peacock's Radio stock. In cases of fraud under the Securities and Exchange Act
of 1934, 15 U.S.C. § 78j(b), this court has stated "where the application of rescissory
damages result in an undeserved windfall remaining with the defendant, it is proper
to use the defendant's profits as the measure of damages." Robertson, 81 F.3d at 758.
"This alternative standard aims at preventing the unjust enrichment of a fraudulent
buyer." Randall v. Loftsgaarden, 478 U.S. 647, 663 (1986). However, as the district
court held, this case involves unregistered securities, not fraud. The Arkansas
Supreme Court has "made it clear that failure to register . . . securities is an adequate
ground for rescission notwithstanding the absence of fraud, misrepresentations or
scienter on the seller's part." Cole v. PPG Indus., Inc., 680 F.2d 549, 557 n.11 (8th
Cir. 1982) (citing Graham v. Kane, 576 S.W.2d 711, 713 (Ark. 1979)).

      Appellants' reliance on Wigand v. Flo-Tek, Inc., 609 F.2d at 1036, is
misplaced. In that case, the court noted that "where . . . the consideration plaintiff

                                           -9-
gave defendant in exchange for the stock was uncertain in value at the time of the
transaction . . ., the court must set a value upon it." Id. However, here, as the district
court held, the value of the consideration paid at the time of the transaction was not
uncertain. Rather, it was set forth in the stock purchase agreement at $800,000.

       Nor did the district court err in rejecting appellants' argument that they were
entitled to an additional rescissory measure of damages for the 21st Century shares
they received in June 1997. Although they argue that the transaction "had nothing
to do with the purchase price paid by [21st Century] for [appellants'] stock," Brief for
Appellants at 29, the district court found otherwise, relying on Hutt's testimony that
the transaction was part of "an overall effort to ensure that appellants receive full
value of the agreed upon price for their shares of $800,000." Add. at 2. Nor could
appellants receive rescissory damages and also retain the shares they received in
1997. See Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017, 1031 (9th Cir.
1999) (holding that to allow plaintiffs to " receive the full purchase price of the stock
and also retain the stock itself" would violate "the principle of rescission"). As 21st
Century notes, the tender upon a securities rescission must result in a complete
rescission. See Louis Loss, Securities Regulation, § 11(B)(8), n. 118 (3ed. 1992).
In other words, rescissory damages seek "to return [both] parties to the status quo
[before] the sale." Robertson, 81 F.3d at 757.

         Last, appellants challenge the district court's award of attorney's fees under
Ark. Code Ann. § 23-42-106(a)(1), which provides for reasonable attorney's fees and
costs to a prevailing plaintiff in a failure to register case. The district court found that
only 15% of appellants' counsel's time was related to the failure to register claim and
that most of the trial preparation and the entire trial were related to appellants'
unsuccessful claims. The district court was in "the best position to determine whether
hours were reasonably expended" in pursuit of the successful claim, and we have no
basis to substitute our judgment for that of the district court. Collins v. Burg, 169
F.3d 563, 565 (8th Cir. 1999). Although appellants invite this court to review their

                                            -10-
lawyers' time records, we cannot do so. In their fee motion, appellants admitted that
"[n]either of [their] lawyers kept time records."

      Accordingly, we affirm the district court's judgment.

      A true copy.

             Attest:

                CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                        -11-
