United States Court of Appeals FOR THE EIGHTH CIRCUIT

_____________ No. 96-3695

_____________ Society National Bank, a National * Banking Association, * * Appellee, * * Appeal from the United States v. * District Court for the * District of Nebraska. Parsow Partnership, Ltd., a Nebraska * limited partnership; Alan S. Parsow, * * Appellants. *

_____________ Submitted: May 22, 1997 Filed: August 11, 1997

_____________ Before RICHARD S. ARNOLD, Chief Judge, BOWMAN an d MORRIS SHEPPARD ARNOLD, Circuit Judges.

_____________ BOWMAN, Circuit Judge. Societ y National Bank ("Society") served as the subscription and distributio n agent in connection with a securities offering. In the course of the offering, Societ y mist akenly issued 28,750 shares and warrants to Alan Parsow and his investmen t partnersh ip, Parsow Partnership, Ltd. (collectively "Parsow"), who, in turn, paid th e subscription price of $230,000 for these securities. Based on a d etermination of mutualThe H onorable Thomas M. Shanahan, United States District Judge for th e 1 District of Nebraska. -2- mistake, the District Court rescinde d the transaction and ordered Parsow to return the 1 securities and Society to refund the purchase price. Additi onally, Parsow was awarded interest at the statutory rate of six percent per annum for the period beginning on the date the offering closed and ending on the date Society first advised Parsow of th e mistake and offered to rescind the tr ansaction. On appeal, Parsow challenges only the interest component of the District Court's decision. We affirm.
Beca use the District Court's determination that the purchase and sale of th e securities in question

resulted from the parties' mutual mistake has not been appealed, we fo rego a detailed recitation of the circumstances in which the mutual mistak e occurred. Instead, we turn directly to Parsow's arguments that he has bee n undercompensated by the District Court's award of interest.
As part of its remedy, the District Court awarded Parsow interest, pursuant t o Neb. Rev. Stat. § 45-102 (1993), at the rate of six percent per annum on the principal sum of $230,000 for the period from January 27, 1993 (the date the rights offerin g closed) to June9, 1993 (the date of a letter whereby Society first informed Parsow of the mi stake and offered to rescind the transaction). The court reasoned that fro m June 9, 1993 forward, any loss in interest resulting from the $230,000 outlay shoul d rest with Parsow and not with Society. If Parsow had accepted Society's June 9, 1993 offer of re scission, then Parsow would have had the $230,000 back and could hav e invested it as he saw fit, while still retain ing the option to seek to recover from Society any additional amount he believed he was owed. Parsow argues that the District Court erred in failing to award hi m interest on the $230,000 from June 9, 1993 through the date of the court's judgment. Moreover,-3-

Par sow argues that he is entitled to statutory interest at the rate of twelve percent per annum pursuant to Neb. Rev. Stat. § 45-104 (1993). In a federal diversity action, the law of the s tate where the cause of action arises gov erns the award of prejudgment interest. See Fremont Nat'l Bank & Trust Co. v

. Collateral Control Cor

p. , 724 F.2d 1410, 1415 (8th Cir. 1983). Under Nebraska law, a trial court's decision to award interest as part of an equitable remedy is reviewed for abuse of discretion. See Newton v. Brown , 386 N.W.2d 424, 432 (Neb. 1986). "'[I]nterest i s sometimes allowed by courts of equity, in the exercise of a sound discretion, when it would not b e recoverable at law. These courts, ithas be en said, will, in their discretion, allow or withhold interest as , under all th e circumstances of the case, seems equitable and just, except in cases where interest is recoverable as a matter of right.'"
Id. (quoting Mid-States Equip. Co. v . Poehling , 285 N.W.2d 689, 691-92 (Neb. 1979) (further citation omitted)). Parsow argues that because a rescission, s uch as was sought in this case, does not become effective until a court so decrees, the June 9, 1993 letter from Society did not act to rescind the securities transaction; therefore, the letter should not mark the point at which interest on the $230,000 ceases to accrue. Additionally, he argues, notice, such as that provided to Parsow by Society's letter, is of no lega l significance in a case in equity where rescission is the remedy sought.
Parsow's arguments concerning the unique nature of equitable claims fo r re scission miss the point. While rescission in such cases is not effective until a court so decrees, see Kracl v. Loseke , 461 N.W.2d 67, 73 (Neb. 1990), Parsow's focus on the timing of the rescission f ails to consider adequately the broader notions of fairness and equit y that the District Court considered. "'Interest is not recovered according to a rigid theory of compensation for money withheld, but is given in response t o considerations of fairness; it is denied when its exaction would be inequitable.'"-4-

Newton , 386 N.W.2d at 432 (quoting 47 C.J.S. Interest & Usury§ 6, at 28 (1982)); see al so Welch v. Welch , 519 N.W.2d 262, 274 (Neb. 1994) (stating that court of equity has discretion to award interest when it is "re asonable and just"). As Parsow's counsel co nceded at oral argument, June 9, 1993 marked the time at which both Society an d Parsow realized that a mistake had been made. Although Parso w took the position that the mista ke was Society's alone, the District Court rejected that position. Given th e unappealed determination of mutual mistake, we cannot say that the District Court abused its discretion by treating Parsow's decis ion to withhold the shares after learning of the mistake as shifting the equities against an award of intere st on the $230,000 from June 9, 1993 forward. In evaluating the equities of the situation, the appreciation of the securities while Parsow held them is of no moment, because he was never entitled to owner ship. Similarly misplaced is Parsow's argument that notice of putative grounds for r escission before suit is unnecessary and thus that Society's letter is of no lega l consequence. While such prior notice is neither a prerequisite to a suit nor sufficient to effectuate a rescission, see Haumont v. Sec urity State Bank , 374 N.W.2d 2, 7 (Neb. 1985) , notice such as that provided by Society's letter, carefully explaining th e existence of a perceived mutua l mistake, surely qualifies as one of the "'circumstances of the case'" that determ

ines whether an award of interest "'seems equitable and just.'" Newton , 386 N.W.2d at 432 (quoting Mid-States Equip. Co. , 285 N.W.2d at 692).
Parsow a lso challenges the rate of the interest awarded. The District Cour t awarded interest at the rate of six percent per annum pursuant to Neb. Rev. Stat. § 45- 102 (1993). Parsow argues that he is entitled to interest at the rate of twelve percent per annum pursuant to Neb. Rev. Stat. § 45-104 (1993). Determination of th e appropriate statutory rate of interest is purely a question of law, which we review de novo. See Pete rson v. Abbott (In re Estate of Peterson) , 433 N.W.2d 500, 501 (Neb. 198 8). Section 45-102, entitled "Interest; legal rate; exception," provides: "Interes t upon the loan or forbearance of money, goods or things in action shall be at the rate of . . . six percent per annum . . . on the unpaid princi pal balance, unless a greater rate . . .-5-

be contracted for by the parties." Section 45-104, entitled "Interest; other contrac t obligations," provides:
Unless otherwise agreed, interest shall be allowed at the rate of twelv e percent per annum on money due on any instrument in writing, or o n settlement of the account from the day the balance shall be agreed upon, on money received to the use of ano ther and retained without the owner's con sent, express or implied, from the receipt thereof, and on mone y loaned or due and withheld by unreasonable delay of payment.
We are not convinced that either statute is applicable to the case at hand. Cf

. Lienemann v . State Farm Mut. Auto Fire & Cas. Co. , 540 F.2d 333, 343 (8th Cir

. 19 76) (holding § 45-104 inapplicable where "the action lies in tort rather than i n contract"); In re Estate of Peterson , 433 N.W.2d at 502 (holding § 45-102 inapplicable because "[a] devise under a will is neither a loan nor a forbearance"); I.P . Homeowners, Inc. v . Radtke , 558 N.W.2d 582, 593 (Neb. Ct. App. 1997) (noting that § 45-10 4 "allows for interest on certain contractual obligations," bu t does not provide for interest on propert y held in constructive trust). Because this case more closely fits within the parameters of § 45-102, howe ver, we agree with the District Court's decision to apply an int erest rate of six percent per annum. Cf. Priest v. Priest , 554 N.W.2d 792, 79 7 (Neb. 1996) (upholding decision to award husband eight percent interest on a deferred ma rital property distribution, even though no statute provided for payment of interest in such a case). The judgment of the District Court is affirmed. A true copy.
Attest: CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.