United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                ___________

                                No. 98-2527
                                No. 98-2528
                                ___________

Great Rivers Cooperative of        *
Southeastern Iowa; Sawyer          *
Cooperative Equity Exchange;       *
and Roger Tacey,                   *
                                   *
      Plaintiffs/Appellants/       *
      Cross-Appellees,             *
                                   * Appeal from the United States
             v.                    * District Court for the
                                   * Southern District of Iowa
Farmland Industries, Inc.;         *
Harry Cleberg; H. Wayne Rice;      *
and Albert Shively                 *
                                   *
      Defendants/Appellees/        *
      Cross-Appellants.            *
                                   *
_____________________________      *
                                   *
National Council of Farmer         *
Cooperatives                       *
                                   *
      Amicus Curiae                *
                              ___________

                           Submitted: May 10, 1999
                               Filed: December 16, 1999
                               ___________
Before LOKEN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and
      WATERS,1 District Judge.

WATERS, District Judge.

       In this class action, Great Rivers Cooperative of Southeastern Iowa, an Iowa
farm cooperative, Sawyer Cooperative Equity Exchange, a Kansas farm cooperative,
and Roger Tacey, a Nebraska resident and hog producer,2 both individually and on
behalf of the class, appeal the district court's3 partial summary judgment orders
rejecting their securities claims, their unjust enrichment claim, and a portion of their
breach of fiduciary duty claims.           Farmland Industries, Inc., a Kansas farm
cooperative, Harry Cleberg, the Chief Executive Officer (CEO), President, and a
director of Farmland, H. Wayne Rice, a former director of Farmland Foods (Foods)
a subsidiary of Farmland, and Albert Shively, a director on, and the chair of, the
Farmland's board of directors,4 appeal from the district court's order certifying the
class. Because we affirm the district court's summary judgment rulings, we find it
unnecessary to reach the issues raised by the cross-appeal.




      1
        The Honorable H. Franklin Waters, United States District Judge for the Western
District of Arkansas, sitting by designation.
      2
        Unless the facts or case law require otherwise, the court will collectively refer
to the appellants/cross-appellees as the class.
      3
      The Honorable Harold D. Vietor, Senior United States District Judge for the
Southern District of Iowa.
      4
       Unless the facts or case law require otherwise, the court will collectively refer
to appellees/cross-appellants as Farmland.

                                          –2–
                              I. A Jurisdictional Issue

      We have jurisdiction over final orders and certain types of interlocutory orders.
See 28 U.S.C. §§ 1291, 1292. In general, a pretrial order dismissing less than all of
a plaintiff’s claims is interlocutory and cannot be appealed unless it includes the grant
or denial of an injunction, see § 1292(a)(1); or the district court has certified a
controlling issue of law under 28 U.S.C. § 1292(b); or the court has directed entry of
a partial final judgment with the determination required by Rule 54(b) of the Federal
Rules of Civil Procedure; or the interlocutory order is appealable under the narrow,
judicially created “collateral order” doctrine.

       In this case, after certifying a class, the district court ordered partial summary
judgment dismissing the class’s claims under Rule 10b-5 and § 12(2) of the federal
securities laws, and nearly all of its breach of fiduciary duty and unjust enrichment
claims under state law. The court left unresolved the class’ federal law claims under
RICO, § 14(e) of the Securities Exchange Act of 1934, and the Agricultural Fair
Practices Act of 1967, plus state law claims against defendant Rice arising out of one
transaction. Though the two summary judgment orders were interlocutory, at the
class’ request the district court both directed the entry of judgment pursuant to a Rule
54(b) determination there was no just reason for delay, and certified its rulings as
controlling issues of law under 28 U.S.C. § 1292(b). The class then appealed, but we
declined to exercise our discretion to permit a § 1292(b) appeal, rejected the district
court’s Rule 54(b) determination, and dismissed the appeals for lack of a final order.
See Great Rivers Coop. of S.E. Iowa v. Farmland Ind., Inc., No. 97-8119 (8th Cir.
June 25, 1997), and Nos. 97-2904 & 97-2906 (8th Cir. Aug. 21, 1997).

      Returning to the district court, the class moved for dismissal of its remaining
claims without prejudice under Rule 41(a)(2), explaining that its purpose was to
“remove this obstacle” to immediate appellate review of the prior dismissal of its other
claims. A notice, approved by the court, was sent to the class advising that the motion

                                          –3–
to dismiss had been filed “to facilitate appellate review” of the prior dismissals, and
that the claims to be voluntarily dismissed could be reinstated if the appeal was
successful. After giving the class an opportunity to comment, the district court granted
the dismissal motion over Farmland’s objection. The Clerk filed a separate judgment
document. See Fed. R. Civ. P. 58. That document concluded, “Based on the
foregoing and the prior rulings of the court, Plaintiffs’ fourth amended complaint now
stands DISMISSED in its entirety.” The class then commenced these appeals.

        Farmland argues we lack appellate jurisdiction because “plaintiffs cannot
manufacture appellate jurisdiction over interlocutory orders . . . simply by dismissing
temporarily” their remaining claims without prejudice. Our prior dismissals
established that the district court’s partial summary judgment rulings were non-
appealable until the case had proceeded to final judgment. Thus, there can be little
doubt that basing this appeal on a disingenuous voluntary dismissal was contrary to
the strong policy that parties must “raise all claims of error in a single appeal following
final judgment on the merits.” Firestone Tire & Rubber Co. v. Risjord, 

,
374, 

, 

(1981). A plaintiff whose strongest claims have
been dismissed in an interlocutory order may expedite appeal by dismissing its
remaining claims with prejudice. But a dismissal without prejudice, coupled with the
intent to refile the voluntarily dismissed claims after an appeal of the interlocutory
order, is a clear evasion of the judicial and statutory limits on appellate jurisdiction.

       Some district courts, frustrated by appellate court resistance to Rule 54(b)
determinations and § 1292(b) certifications, have been willing to assist efforts to create
apparent but illusory final orders. See, e.g., Horwitz v. Alloy Automotive Co., 

, 1432-33 (7th Cir. 1992). But the circuit courts are understandably and
uniformly hostile to these tactics. Many circuits have dismissed such appeals for lack
of jurisdiction, concluding that, in the absence of a Rule 54(b) determination, a
voluntary dismissal without prejudice is not a final judgment because the dismissed
claims can be later revived. See Chappelle v. Beacon Commun. Corp., 

,

                                           –4–
654 (2d Cir. 1996); Mesa v. United States, 

, 21 (11th Cir. 1995); Cook v.
Rocky Mountain Bank Note Co., 

, 148 (10th Cir. 1992); Cheng v.
Commissioner, 

, 309-11 (9th Cir. 1989); Ryan v. Occidental Pet. Corp.,

, 303 (5th Cir. 1978). Farmland urges us to follow those decisions and
dismiss these appeals. Our problem is that these decisions ignore the well-established
test for determining whether a district court judgment that seemingly ends the case is
an appealable “final decision” within the meaning of 28 U.S.C. § 1291.

        A dismissal without prejudice can be an appealable final order. See United
States v. Wallace & Tiernan Co., 

, 794 n.1, 

, 

(1949); United States v. National City Lines, Inc., 

, 577, 

, 

(1948). “To be a final order or judgment, there must be ‘some
clear and unequivocal manifestation by the trial court of its belief that the decision
made, so far as [the court] is concerned, is the end of the case.’” Goodwin v. United
States, 

, 151 (8th Cir. 1995), quoting Fiataruolo v. United States, 

, 937 (2d Cir. 1993). Here, we have the requisite “clear and unequivocal
manifestation” -- a final judgment of the district court dismissing the class’s complaint
“in its entirety.” That is a final decision, and while we have no more desire to permit
“manufactured interlocutory appeals” than our sister circuits, we find no authority in
§ 1291 to decide that some “final decisions” are appealable but others are not. Thus,
in our view, the question whether parties will be permitted to “manufacture” appeals
in this fashion is not jurisdictional, as we observed without discussing the issue in
Chrysler Motors Corp. v. Thomas Auto Co., 

, 540 (8th Cir. 1991).

       Concluding that we have appellate jurisdiction does not leave us defenseless
against this kind of accelerated interlocutory appeal. In Chrysler, the parties jointly
stipulated to the dismissal without prejudice under Fed. R. Civ. P. 41(a)(1)(ii), a form
of dismissal that is an “unconditional right” of the parties “which contains no
exceptions that call for the exercise of judicial discretion by any court.” See Gardiner
v. A.H. Robins Co., Inc., 

, 1190 (8th Cir. 1984). Here, on the other

                                          –5–
hand, the class moved to dismiss its remaining claims without prejudice under Rule
41(a)(2). “It is axiomatic that a dismissal pursuant to Rule 41(a)(2) is not one of right
but is rather a matter for the discretion of the trial court.” United States v. Gunc, 

, 467 (8th Cir. 1970). Thus, what Farmland presents as a jurisdictional issue
is in fact the question whether the district court abused its discretion when it dismissed
the remaining claims without prejudice for the purpose of allowing the class to appeal
the court’s interlocutory summary judgment orders. See, e.g., Hamm v. Rhone-
Poulenc Rorer Pharm., Inc., 

, 951 (8th Cir. 1999) (affirming discretionary
denial of Rule 41(a)(2) voluntary dismissal).5

       This Rule 41(a)(2) issue arises in a number of different contexts that may call
for different responses. For example, in rejecting the jurisdictional challenge in
Missouri ex rel. Nixon v. Coeur D’Alene Tribe, 

, 1106 (8th Cir.), cert.
denied, 

(1999), we noted that a dismissal without prejudice of
additional defendants does not do the same violence to the policy against piecemeal
appeals as a dismissal without prejudice of remaining claims against the same
defendants. In most cases, however, a district court does abuse its discretion when it
frustrates the limitations on federal appellate jurisdiction by entering a Rule 41(a)(2)
order dismissing remaining claims without prejudice for the purpose of facilitating the
immediate appeal of an earlier interlocutory order. Certainly in this case, after we
dismissed the initial appeals of the district court’s interlocutory summary judgment
orders, granting the class’s Rule 41(a)(2) motion was a clear abuse of discretion.



      5
        As Chrysler illustrates, the prevailing party to a significant interlocutory ruling
may sometimes be willing to help create a bogus appearance of finality by stipulation.
In the future, parties in this circuit who may be tempted to use a Rule 41(a)(1)(ii)
stipulation to appeal an earlier interlocutory order should beware of the well-recognized
limits on appellate review of such stipulations, an issue we did not address in Chrysler.
See 8 MOORE’S FEDERAL PRACTICE § 41.34[7]; see also Empire Volkswagen Inc. v.
World-Wide Volkswagen Corp., 

, 94-95 (2d Cir. 1987).

                                           –6–
       There remains a difficult question of remedy. In most cases, the proper remedy
will be to reverse the Rule 41(a)(2) order and remand for completion of the case,
without considering the merits of the earlier interlocutory order(s). But that is not the
only alternative. In Minnesota Pet Breeders, Inc. v. Schell & Kampeter, Inc., 

, 1245 (8th Cir. 1994), for example, we deemed an ambiguous voluntary
dismissal of remaining claims to be with prejudice and went on to consider an appeal
from the district court’s earlier grant of partial summary judgment. Unfortunately, that
is not an option in this case because the district court’s Rule 41(a)(2) dismissal order
was premised upon a notice to the class that the dismissal would be without prejudice,
and it would be unfair to absent class members for us to rule otherwise. We
nonetheless recognize that the parties and the district court went to great lengths to
create a final order, including notice to the class, and the parties have fully briefed and
argued the merits of summary judgment orders entered nearly three years ago. Though
we strongly disapprove of this use of a dismissal without prejudice to create what is
in substance an impermissible interlocutory appeal, our prior case law did not
foreclose that effort here. In this unique procedural posture, we conclude that fairness
to the certified class of plaintiffs justifies our reaching the merits of their appeal. As
the question is one of discretion, not jurisdiction, we will do so.

                                      II. The Facts

       We review a district court's grant of summary judgment de novo applying the
same standard used by the district court. Lynn v. Deaconess Med. Center-West
Campus, 

, 486 (8th Cir. 1998). "Summary judgment is proper if the
evidence, viewed in the light most favorable to the nonmoving party, demonstrates that
there is no genuine issue as to any material fact and that the moving party is entitled
to judgment as a matter of law." 

Blaske v. UNUM Life Ins. Co. of
America, 

, 764 (8th Cir. 1997)(We will affirm the district court only if
we find that no genuine issue of material fact exists and that Farmland is entitled to


                                           –7–
judgment as a matter of law), cert. denied, ___ U.S. ___, 

, 

(1998).

       The facts of this case are extensive and complex and the court finds it necessary
to recite them in some detail to, hopefully, define and explain the issues the court now
must decide. Farmland is a regional agricultural cooperative organized under the laws
of Kansas. Through the combined market power of its membership, the cooperative
places individual farmers in a better bargaining position in the sale of their products
and seeks to provide products and services at cost.

       Under the Kansas Cooperative Marketing Act, the owners of a cooperative's
voting common stock must be "persons engaged in the production of agricultural
products." Kan. Stat. Ann. § 17-1606(a).     "Membership in Farmland is limited to
agricultural producers and associations of such producers maintaining a minimum
investment of $1,000 in par value of Common Stock." Class (hereinafter Cl.)
Appendix, at 293-94.

       Farmland enters into patronage agreements with each of its members "regarding
the calculation and distribution of patronage refunds." 

Additionally,
Farmland enters into patronage agreements "with persons (hereinafter referred to as
'patrons') who meet the qualifications to be members or associate members but have
not yet requested admission as such or who meet the qualifications to be members
except the requirement to hold a minimum equity investment of $1,000 in par value of
Farmland common stock (a 'growing member')." 

on a cooperative basis distributing to its members and
patrons, in accordance with its patronage agreements, part or all of its net annual
income resulting from transactions with its members and patrons. 

are referred to as patronage refunds or patronage dividends. The amount
of the refund is "based on the cooperative's annual net income multiplied by a fraction,

                                          –8–
the numerator of which is the quantity or value of business done by the member with
the cooperative in the period and the denominator of which is the quantity or value of
business done by all members with the cooperative during the period." 

margins" on transactions with nonmembers that are
reflected as profit. Cl. Appendix, at 852. These earnings or profits are placed in a
"surplus account that is available to drive down the equity requirements of the
members to sustain and rejuvenate the business." 

these earnings
is "at the full and complete discretion of the board." 

portion of the patronage refund is distributed in cash and the balance
is distributed in common stock or associate member common stock to members and
associate members, or in capital credits to patrons. Cl. Appendix, at 295. The
Farmland Board of directors annually determines the cash and non-cash portions of the
patronage refund. 

December of 1979, Article V of Farmland's Articles of incorporation
provided in relevant part as follows:

      The capital stock of this Association shall be $750,000,000.00,
      consisting of 20,000,000 shares of common stock of the par value of
      $25.00 per share, 2,000,000 shares of associate member common stock
      of the par value of $25.00 per share and 8,000,000 shares of preferred
      stock of the par value of $25.00 per share.

Article II of Farmland's Bylaws provided for the distribution of fiscal year net savings.
According to this article, savings from marketing operations and the savings from
purchasing and service operations would be apportioned and distributed first as a
limited amount of dividends on outstanding preferred stock. Next, amounts
attributable to nonmember patronage and nonpatronage transactions were set aside in

                                          –9–
a surplus account. The remaining savings were to be apportioned and distributed in
the following manner:

      From the remaining net savings of each of the said divisions there shall
      be deducted the portion thereof attributable to patronage transactions
      with members and associate members of the Association. Such amount,
      in each instance, shall be apportioned among the member patrons of the
      appropriate division upon any equitable patronage basis or bases
      approved by the board of directors and paid to them not less than twenty
      percent (20%) in cash and the balance in common stock to members and
      associate member common stock to associate members, at par value, as
      determined by the board of directors . . . .

      Because of the statutory limitations on the type of person who could hold voting
common stock, Farmland in 1980 decided it was necessary to create a new class of
equity. In a "Special Report to the Board of Directors on the Amendment of
Farmland's Articles of Incorporation," it is stated:

      [T]he Articles provide for two classes of members -- holders of common
      stock and holders of associate member common stock.

      Associate membership is offered to cooperatives that may not qualify as
      voting members but do pay refunds and operate on a cooperative basis
      (or prefer to be an associate member because of other affiliations).

      We have a need for a third class of equity and we are proposing that it
      be entitled, "Capital Credits."

      The reason for this proposal is that we have had cases where
      cooperatives changed to a noncooperative, or where a cooperative

                                        –10–
      falsified its membership applications and was later discovered not to be
      a cooperative.

      Because of theses circumstances we are reluctant to pay off their equities
      in cash, and would prefer to transfer their equities from the present two
      classes of equities mentioned above. Therefore, our proposal is to
      transfer their equities to "Capital Credits," and let them remain there until
      such time as it is appropriate to redeem them.

Cl. Appendix, at 102.

       At a December 5, 1980, shareholders' meeting, new sections to Farmland's
Articles of incorporation were adopted. One new section, regarding capital credits,
read as follows:

      Section 5. Capital Credits. The Association may issue at any time, and
      record on its books and records, capital credits in the Association. . . .
      Holders of Capital Credits shall not be entitled to vote. The Board of
      Directors may at any time or times authorize the retirement of any capital
      credits, in whole or in part, including but not limited to the retirement of
      capital credits to facilitate an association's retirement of the equities of
      its deceased or retired members. No interest shall be paid on outstanding
      capital credits. This Association shall have a lien on (and right of setoff
      against) all capital credits for all indebtedness of the holder(s), whether
      due or to become due, thereof to the Association.* * *

Cl. Appendix, at 108.

     At the same time, the members voted to modify sections 2 and 3 of Article VI.
Under the amendments, if an equity holder no longer qualified to hold common or

                                          –11–
associate member common stock, the Board, "at its option," could either redeem the
member's equity or convert it into capital credits in an equivalent amount. Cl.
Appendix, at 106.

       Capital credits were first issued in 1982 to dissolved or liquidated cooperatives
in exchange for their Farmland common stock. Cl. Appendix, at 821. The dissolved
or liquidated cooperatives are ineligible to hold common stock with its attendant
voting rights. 

credits were designated by Farmland as Type 5 or
"Series of Ten" capital credits.

       In 1983, the Board of directors authorized the issuance of Type 4 capital credits
to a local cooperative in Lebo, Kansas. Cl. Appendix, at 821. In 1989, Type 4 capital
credits were issued to a local cooperative in Van Buren, Arkansas. 

agreement, Type 4 capital credits are payable upon the dissolution of Farmland. 

Type 4 capital credits have been issued.

       In 1990, Farmland implemented a business plan called the base capital plan
("BCP"). As part of the BCP, Farmland planned to purchase the outstanding equity
of its wholly owned subsidiary, Foods, with newly created Type 12 capital credits.
Farmland distributed a letter discussing the BCP and held informational meetings. See
Great Rivers 

. Portions of Farmland's Articles of incorporation
relating to capital credits were amended. Specifically, section 5 was amended to make
the capital credits transferable with the consent of the Board. The section read as
follows:

      Section 5. Capital Credits. The Association may issue at any time, and
      record or transfer on its books and records, capital credits in the
      Association. . . . Holders of Capital Credits shall not be entitled to vote.
      The capital credits of this Association may be transferred, and
      common stock and associate member common stock may be

                                         –12–
      converted to capital credits and transferred, only with the consent
      of the Board of Directors of the Association and on the books of the
      Association. The Board of Directors may at any time or times authorize
      the transfer or retirement of any capital credits. . . .

Cl. Appendix, at 166 (bold language represents portions that were added).

       In late November, 1990, Farmland's general counsel sent the board of directors
background materials relating to the upcoming December 5, 1990, meeting, including
a resolution authorizing the issuance of capital credits and explaining the terms under
which the capital credits could be converted into common stock. Specifically, the
correspondence stated that:

      Farmland's Capital Credits constitute a "right to purchase" Common
      Stock of Farmland within the meaning of K.S.A. Section 17-6407.
      Accordingly, Farmland's Articles of Incorporation will not need to be
      amended to specify the amount of Capital Credits that Farmland is
      authorized to issue. As "rights to purchase" Common Stock, Capital
      Credits are not "stock" and would likely enjoy a payment preference in
      the event of liquidation or dissolution of Farmland, limited to the actual
      dollar amount of Capital Credits outstanding. The statute requires that
      the rights inherent in the Capital Credits be evidenced by a certificate.
      Additionally, resolutions of the Board of Directors are required
      authorizing the issuance of capital credits and stating the terms and
      conditions upon which the Capital Credits may be converted into
      Common Stock and the duration of such rights. The proposed
      resolutions address these statutory requirements in the Capital Credits.

Cl. Appendix, at 195.


                                         –13–
      At the December 5-6, 1990, meeting, the board passed the following resolution:

             RESOLVED, that the president and secretary of the Association
      be, and they hereby are, authorized to issue up to $75,000,000 of Capital
      Credits to the members and patrons of the Association in accordance
      with the Articles of Incorporation and Bylaws, which Capital Credits
      shall be evidenced by the form of Certificate of Capital Credits
      previously approved by the Board of Directors together with a copy of
      these resolutions which shall be attached thereto and incorporated by
      reference therein.

Cl. Appendix, at 264.

       As distinguished from "Series of 10" capital credits issued previously in 1982
(which were only issued to dissolved or liquidated cooperatives), these capital credits,
referred to as "Type 12" capital credits, were given to:

      local associations and producers who ceased doing business with
      Farmland, or to producers who did not hold a sufficient amount of equity
      to qualify for membership in Farmland or who may hold sufficient equity
      but have not applied for membership. Formerly active members in
      Farmland who fail to do business with Farmland for a period of more
      than two years become ineligible for full voting membership. Farmland's
      Board of Directors authorizes the issuance of Type 12 Capital Credits to
      such cooperatives at the time the local associations or producers become
      ineligible.

Cl. Appendix, at 821.




                                         –14–
      Thus, Type 12 capital credits were issued to cooperatives or producers who
ceased doing business with Farmland but had not dissolved. Farmland's underlying
reasoning for this distinction between inactive cooperatives or producers and dissolved
cooperatives or producers was that it:

      could not be in a position where we were rapidly redeeming equity in
      that situation, because that would encourage cooperatives to stop doing
      business with Farmland wholesale, completely with an eye toward
      getting immediate or quick cash redemption at which point they would
      be free again to begin doing business with Farmland. And we didn't want
      to be in a position where our equity management could be manipulated
      with that kind of practice. It would, No. 1, go a long way toward
      destroying Farmland just with respect to business volume, but then also
      with respect to having adequate capitalization.

Cl. Appendix, at 906.

       In 1991, Tacey received his Type 12 capital credits in exchange for his Foods
equity. In making the exchange,

      Tacey relied on Farmland's representations that (1) within one to two
      years of August 1991, the owners of the capital credits would be able to
      recoup their investment, either through redemption or by sale in a
      secondary market to be created by Farmland; (2) the value of the capital
      credits would be similar to the equity the offerees already held in Foods;
      and (3) the face value of the capital credits would be equal to the
      redemption value or the secondary market value.

Great Rivers 

.


                                         –15–
       On July 10, 1991, Farmland's counsel sent a letter to the Securities and
Exchange Commission (SEC) requesting that it concur with Farmland's view that it
could establish and operate a limited information system to facilitate the purchase and
sale of its various forms of equity including capital credits among members, patrons,
and holders of capital credits without registering as an investment adviser, a securities
information processor, etc. Cl. Appendix, at 292-310. The information system would
"take the form of a network of personal computers currently available to 36% of
Farmland's members. Information will be distributed in written form to the remaining
participants." 

       The letter noted that under the articles of incorporation common stock, associate
member common stock, and capital credits were each convertible into the other on an
equivalent par value or face amount basis by members who meet the requirements to
own the resulting security. Cl. Appendix, at 297. Capital credits, which were
described as nonvoting, non-interest bearing, and receiving no dividends, were issued
to patrons as the non-cash portion of a patronage refund and to reflect a change in
status. 

"Capital Credits have no preemptive rights, no sinking fund
provisions and are not liable to further calls or assessments." 

stated that
"[a]lthough Capital Credits are subject to redemption at the discretion of the members
or the Board of Directors of Farmland to the extent funds are available therefor, it is
expected that any funds available for redemption will be utilized to redeem Common
Stock and Associate Member Common Stock under the base capital plan." 

      In 1991, Farmland registered the capital credits with the SEC. On August 1,
1991, Farmland distributed to its equity holders a prospectus dated June 19, 1991,
describing the implementation of the BCP and the information system. In an
accompanying letter, Farmland stated:

      The registration of [Farmland] Common Stock, Associate Member
      Common Stock and Capital Credits has been completed. These

                                          –16–
      securities have been registered with the [SEC] and various state
      securities authorities so that holders . . . may freely resell any of these
      securities . . . . Farmland expects that as a result of the implementation
      of the base capital certain holders of Farmland equity securities may
      desire to increase their investment in Farmland through the purchase of
      additional Common Stock, Associate Member Common Stock or Capital
      Credits. As discussed in the enclosed prospectus, each type of these
      securities is convertible one into the other.

       Farmland's articles of incorporation state that "[i]n the event the Board of
Directors of [Farmland] shall find, following a hearing, that any holder of the common
stock of [Farmland] does not meet the qualifications as may be established by the
Board of Directors for holders thereof . . . [Farmland] shall have the right . . . in
exchange for such common stock . . . to issue or record on the books of [Farmland],
capital credits in an equivalent amount." In practice, the decision to convert common
stock to capital credits was made in the following manner: (1) the board would
receive and consider a list of non-qualifying members; (2) individual board members
had an opportunity to seek additional information, make comments, and discuss the
identified non-qualifying cooperatives or producers; and (3) the board would vote on
the conversion. The non-qualifying cooperatives or producers were not given notice
of the board's intended action.

      In its October 30, 1991, meeting, the board, consisting of twenty-two directors,
converted over $8.7 million of common stock held by cooperatives who did not
conduct business with Farmland during the 1991 fiscal year into capital credits. Both
Cleberg and Shively were present at these meetings, voted for the conversions, and
approved the minutes of the meetings.

      Great Rivers and Sawyer received their credits through this conversion. Great
Rivers and Sawyer had received the common stock as the retained portion of those

                                         –17–
cooperatives' patronage refunds. Additionally, Sawyer received approximately half
of its capital credits in exchange for equity it held in an Oklahoma cooperative, Union
Equity Co-Operative Exchange, after Farmland acquired its assets in 1992.

       The class contends Farmland has an obligation to redeem capital credits when
financially able. Further, the class argues cooperative principles require Farmland to
redeem the equity of inactive or dissolved members. Despite this obligation, the class
contends various internal Farmland memoranda contain many statements on the issue
of equity redemption which illustrate Farmland has no plan or intent to redeem the
equity and establish Farmland knew the capital credits were worthless when they were
issued. By way of example, the class points to the following statements:

      BCP does not provide for any value to inactive members – assumes that
      they can receive cash by liquidating their equity holdings in a secondary
      market. * * * No secondary market exists and its implementation is
      unknown. (Cl. Appendix, at 318-19).

      Although Capital Credits are subject to redemption at the discretion of
      the members or the Board of Directors of Farmland to the extent funds
      are available therefor, it is expressed that any funds available for
      redemptions will be utilized to redeem common stock and associate
      member common stock . (Cl. Appendix, at 296).

      No program currently exists which gives inactive members an
      opportunity to receive par value for equities. (Cl. Appendix, at 93).

      No provision will be made for the redemption of Farmland Industries'
      Capital Credits issued to associations other than Capital Credits issued
      in "Series of 10." (Cl. Appendix, at 99).


                                         –18–
      Capital credits are not currently covered under any equity redemption
      program. (Cl. Appendix, at 771).

      In an undated "Outline of Equity Management Plan," Farmland stated that:

      [n]o provision will be made for the redemption of Farmland Industries'
      Capital Credits issued to associations other than Capital Credits issued
      in series of 10. These ineligible capital credits are issued to existing and
      operating associations which no longer meet Farmland membership
      requirements due to insufficient equity investment and/or lack of business
      with Farmland.

      Despite these statements, Farmland between 1988 and 1995 redeemed
$6,881,414 of the Type 12 capital credits. Farmland (hereinafter Fml'd) Appendix, at
676. Interestingly, a portion of Great Rivers' equity, Type 12 capital credits, was
redeemed in 1991 and 1992. 

       In August of 1993, Great Rivers sold its assets to Double Circle Farm Supply.
Prior to this sale, Great Rivers contends they were told by a Farmland employee that
Great Rivers' equity would be redeemed within the year following the final sale of
assets, provided Farmland was financially able.

       At the November 30, 1993, shareholders' meeting an amendment to the capital
credits section of the articles was adopted which specifically provided for the creation
of "one or more classes of" capital credits that would allow for the different types of
capital credits for different purposes. According to the class, the shareholders were
not told that different classes of capital credits had already been created and that the
different types of credits would have a different schedule for redemption. The articles
were also amended to delete the provision requiring a hearing for conversion of
common stock into capital credits as the board did not have "hearings" as such.

                                         –19–
      At an April 20, 1994, board meeting, an equity redemption plan (the Plan),
designated as Secretary's Document No. 390, was adopted. The document provides:

      This Equity Redemption Plan was prepared in accordance with directives
      from the Board of Directors or [Farmland]. The adoption of this plan
      does not obligate the Board of Directors to follow the plan nor does it
      delegate authority to management to redeem equities based upon the
      plan. Management will use this plan to facilitate financial planning, to
      communicate the general intent of the Board of Directors with respect to
      redemption of equities and to develop proposals for the redemption of
      equities for Board consideration. The Board of Directors retains their
      discretionary authority to redeem the equities of the Association at such
      time and under such conditions as they deem to be in the best interest of
      the Association. The Board may from time to time redeem or not redeem
      equities in line with this plan.

       According to the Plan, redemptions were to be made first pursuant to the base
capital program, then for estate settlement, and finally for a category identified as
special redemptions. The base capital program portion of the Plan provided for the
redemption of the common stock and associate member common stock held by active
members and associate members. The estate settlement portion of the plan called for
the redemption at par value, with certain limitations, of the equity holdings of a
deceased equity holder. The special redemptions portion of the plan called for
redemptions on a prioritized basis subject to the financial position of Farmland.

       The special redemptions portion of the Plan prioritized twelve categories of
equity holdings. In October of 1994, the Board passed a resolution providing for the
redemption of the first three categories of special redemptions and for a portion of the
fourth category. Three of these four categories applied only to Series of Ten capital


                                         –20–
credits. In October of 1995, the Board authorized redemption of certain capital credits
and adopted a new equity redemption plan.

       Farmland asserts it often disclosed, and Great Rivers itself understood, that
capital credit redemption was discretionary. In addition, Farmland asserts that it has
redeemed capital credits of liquidated and inactive cooperatives, like Great Rivers,
before and throughout this litigation. Farmland points out that the class has
successfully moved – twice – to stop capital credit redemptions during this litigation.

       In July of 1992, a complaint was filed against Farmland in the United States
District Court for the District of Colorado. Consumers Gas & Oil, Inc. v. Farmland
Indus., Inc., No. 92-K-1394 (D. Colo.) ("Consumers"). This class action involved
small, liquidated cooperatives that had exchanged common stock for capital credits
and allegedly later discovered that Farmland would not redeem the credits. See
generally Great Rivers 

. The Consumers plaintiffs claimed
Farmland had engaged in "freeze-out" schemes. They alleged RICO violations,
securities fraud, breach of fiduciary duties, and unjust enrichment.

       The Consumers case was settled in 1993. In mid-1994, Tacey, after learning
of the Consumers suit, contacted a Farmland representative about redeeming his Type
12 capital credits. See Great Rivers 

. Tacey learned that Farmland
would redeem the credits for not more than three cents on the dollar and that the
promised secondary market was a failure. See Great Rivers 

.

      Thereafter, Tacey filed this class action. The district court defined the class as
follows:

      Local cooperatives, individuals, persons, and other entities who, between
      January 1, 1991 and July 29, 1994, held a legal, equitable, or beneficial
      interest in Farmland's unpaid profits and equity represented by capital

                                         –21–
      credits type 12. Excluded from the class are cooperatives and
      individuals who (i) participated as class members in the Consumers Gas
      and Oil v. Farmland lawsuit; (ii) opted out of participation as a class
      member in Consumers; or (iii) as an officer, director, or employee of
      Farmland participated in or wrongfully benefitted from the alleged
      fraudulent conduct.

       Farmland subsequently moved for summary judgment against Tacey on the
basis of time bar. The district court granted the motion as to the securities fraud
claims finding that as a matter of law, Tacey had inquiry notice of Farmland's alleged
misrepresentations more than one year before he filed his claims. We affirmed. See
Great Rivers 

.

       On March 12, 1997, the district court granted Farmland's motion for summary
judgment on the class' unjust enrichment claim and granted the motion on the class'
breach of fiduciary duty claims against Farmland, Rice (with the exception of the
breach of fiduciary duty claims stemming from the Foods equity exchange), Cleberg,
and Shivley. On May 5, 1997, the district court granted Farmland's motion for
summary judgment on Great Rivers' and Sawyers' federal securities claims on the
ground that the capital credits are not "securities" within the meaning of the federal
securities laws. The class appeals the district court's summary judgment rulings.

                              III. The Securities Claims

       To invoke the protections of the securities laws, the class must show, or create
a genuine issue of material fact as to whether, the capital credits are securities. The
class first points out that until this suit was filed Farmland treated Type 12 capital
credits as securities, i.e., it registered the credits as securities with the SEC and in
various states, emphasized their transferability, referred to them as securities, and


                                         –22–
openly described the equity as the provision of risk capital through the passive
accumulation of equities.

       The class contends that the capital credits fall within four categories of
instruments that are securities under the plain language of the federal securities
definition. Specifically, the class asserts that capital credits are: rights to purchase
stock, certificates of interest or participation in a profit sharing agreement, transferable
shares, or evidence of indebtedness.

       The class argues the capital credits are securities under the "family
resemblance" test set forth by the Supreme Court in Reves v. Ernst & Young, 

, 61, 

, 949, 

(1990) or the investment contracts
test set forth in S.E.C. v. W.J. Howey Co., 

, 

, 

(1946). It points to the following characteristics of the capital credits which it
believes demonstrate that the credits are "securities:" (1) the capital credits are
transferable; (2) the capital credits represent retained equities and are issued by
Farmland in an effort to raise, or retain, capital; (3) members gave value for the capital
credits either in the form of equities given up or in the form of a deferred-cash, dollar-
valued entitlement that the capital credits represent; (4) capital credit holders expect
and receive distribution of Farmland's earnings; (5)Farmland profits that benefit equity
holders, including capital credit holders, are derived from the managerial efforts of
others; (6) capital credits give the owner the right to purchase common stock of
Farmland; (7) capital credits evidence Farmland's retention of monies ultimately owed
by Farmland to the member – which is a debt; and (8) a majority of the capital credit
holders had the credits because their common stock had been converted to capital
credits. Additionally, the class points out there is no other regulatory scheme that
protects holders of capital credits, other than the federal security laws.

     A cause of action falls under the 1933 Securities Act and the 1934 Securities
Exchange Act only if the interest involved constitutes a "security." 15 U.S.C. §

                                           –23–
77b(a)(1); 15 U.S.C. § 78c(a)(10). Although there are slight differences in the way
the two acts define the term "security," the two definitions are considered to be
virtually identical. E.g., Landreth Timber Co. v. Landreth, 

, 686 n. 1,

, 2301 n. 1, 

(1985).

      The Securities Exchange Act defines "security" as follows:

      The term "security" means any note, stock, treasury stock, bond,
      debenture, certificate of interest or participation in any profit-sharing
      agreement or in any oil, gas, or other mineral royalty or lease, any
      collateral-trust certificate, preorganization certificate or subscription,
      transferable share, investment contract, voting-trust certificate, certificate
      of deposit for a security, any put, call, straddle, option, or privilege on
      any security, certificate of deposit, or group or index of securities
      (including any interest therein or based on the value thereof), or any put,
      call, straddle, option, or privilege entered into on a national securities
      exchange relating to foreign currency, or in general, any interest or
      instrument commonly known as a "security"; or any certificate of
      interest or participation in, temporary or interim certificate for, receipt
      for, or warrant or right to subscribe to or purchase, any of the
      foregoing....

15 U.S.C. § 78c(a)(10).

       Congress broadly defined the term security "so as to include within that
definition the many types of instruments that in our commercial world fall within the
ordinary concept of a security." United Housing Foundation, Inc. v. Forman, 

, 847-48, 

, 2058-2059, 

(1975)(quoting H.R.Rep.
No. 85, 73d Cong., 1st Sess., 11 (1933)). "Congress therefore did not attempt
precisely to cabin the scope of the Securities Acts. Rather, it enacted a definition of

                                          –24–
'security' sufficiently broad to encompass virtually any instrument that might be sold
as an investment." 

, 110 S. Ct. at 949.

        Nevertheless, "Congress did not . . . 'intend to provide a broad federal remedy
for all fraud.'" 

Bank v. Weaver, 

, 556, 

, 1223, 

(1982)). Ultimately, the federal courts must "'decide
which of the myriad financial transactions in our society come within the coverage of
these statutes.'" Reves, 409 U.S. at 

(quoting 

, 95 S. Ct. at 2059).

       The class points out Farmland's own legal counsel described the capital credits
as "rights to purchase" stock. As the stock is in the class' view a security, the class
argues the capital credits which can be exercised to acquire the stock are also
securities. In opposition, Farmland argues the securities laws do not apply to stock
that reflects cooperative membership capital contributions for membership
participation rights.

       Notwithstanding the fact that Farmland registered these instruments as
securities, a registration it states was made out of caution, we agree that the
characterization of the capital credits as "rights to purchase" stock did not transform
the capital credits into securities. The fact remains that the exercise of this right to
purchase is dependent on the holders' qualification for membership in the cooperative.
As is discussed more fully below, the capital credits lack the essential characteristics
of securities. United Housing Foundation , Inc. v. Forman, 

, 

, 

(1975); Seger v. Federal Intermediate Credit Bank, 

(8th Cir. 1988).

       In Reves, the Court was asked to determine whether certain demand notes
issued by a farmers cooperative were securities. Because the statute defines "security"
to include "any note," the Court began "with the presumption that every note is a

                                         –25–
security." 

, 110 S. Ct. at 951. To rebut that presumption, the
Court held, the issuer must show "the note in question 'bear[s] a strong family
resemblance' to an item on the judicially crafted list of exceptions, or convince[] the
court to add a new instrument to the list." 

at 

(citations omitted). The Reves approach is not applicable here because "capital
credits" are not specificaly included in the statutory definition of "security." Instead,
the Supreme Court's more general test applies: "The touchstone [of a security] is the
presence of an investment in a common venture premised on a reasonable expectation
of profits to be derived from the entrepreneurial or managerial efforts of others."

, 95 S. Ct. at 2060.

       Applying that test to this case, we conclude the capital credits lack the essential
characteristics of a security. First, the class members enter into the cooperative
relationship not in expectation of the profits that will be generated from such a
relationship but instead to reap the benefits of that relationship. The capital credits are
non-interest bearing and thus do not provide the valuable return on an investment
normally expected from the purchase of a security. See e.g., Co-Operative Grain &
Supply Co. v. Commissioner of Internal Revenue, 

, 1163 (8th Cir.
1969)("Advantages which accrue to a member of a cooperative accrue primarily
because of his patronage with the association and not because of any financial
investment he may have made therein.")(internal quotation marks and citation
omitted).

       To bolster its securities' claims, the class seeks to distance its members from the
cooperative relationship. It places great emphasis on the fact that a large number of
its members received the credits not as members of Farmland but instead in exchange
for other instruments they once held in other agricultural cooperatives such as Union
Equity or Foods. In the class' view, these holders received the credits in investment
exchanges. Yet other class members obtained the credits through conversions of their
common stock in Farmland when they became ineligible to hold voting rights. The

                                           –26–
class therefore contends the credits are not incidents of membership but instead are
commonly held by non-members.

      Regardless of how the Farmland credits were ultimately obtained, all represent
equity interests that were initially obtained as an incident of membership in a
cooperative. The credits were not sold to members of the investing public or for that
matter to members of the cooperative. Rather, the equity interests now represented
by the capital credits whether issued by Farmland as part of an exchange, a
conversion, or as part of a patronage refund or dividend are in fact incidents of the
cooperative relationship.

      Second, the capital credits were not issued to raise money for the general
business use of Farmland or to finance substantial investments. Their issuance did,
however, allow Farmland to retain substantial sums of money which provided an
equity basis and was used to finance its operations. There is no common trading for
speculation of investment of the capital securities. They are not offered for sale by
Farmland at all. Instead, Farmland, on its own initiative, provides its members, former
members, or patrons the capital credits during what is to the holder an exchange or
conversion of stock and/or the provision of a patronage refund.

      Third, the capital credits are not fundamentally an investment. Although
Farmland did characterize their member's equity interests as an investment in some
publications and referred to the capital credits as securities, it is clear that the class
knew the capital credits did not bear interest and were not readily convertible into
cash. Further, the credits were transferable only with the consent of Farmland's Board.



      The class suggests the district court erred by putting too much weight on the
supposed limitation on the right to transfer and failed to follow Reves stated deference
to public perceptions. We disagree. Farmland's articles of incorporation clearly

                                          –27–
require consent of the board of directors for transfer of capital credits. The back of
the capital credit certificates also states the "capital credits of this Association may
be transferred . . . only with the consent of the Board of Directors of the Association."
Cl. Appendix, at 339. The credits are therefore not freely transferable. Moreover,
Reves does not require deference to public perception. Instead, Reves requires the
court to consider the reasonable expectations of the investing public. Farmland's
registration of the credits as securities and its reference in various communications to
the credits as securities and investments weighs in favor of a finding that the public
perception was the credits were securities. However, the characteristics of the credits
themselves provide countervailing factors that would lead a reasonable person to
question the characterization of the credits as investments or securities. The capital
credits are patronage refunds or equity interests reflecting a membership or former
membership in the cooperative and/or commercial transactions conducted with
Farmland or an entity Farmland now owns. The credits earn no interest, pay no
dividends, do not appreciate in value, and have no liquidity, i.e., the credits were not
freely transferable, were not traded on any securities exchange, and, in fact, had no
secondary market. The sole value of the capital credits lies in future redemption at
face amount. Given this, the public perception factor does not weigh heavily on the
determination of whether the credits are securities.

       While there is no other regulatory scheme applicable to the capital credits,
patrons of a cooperative ordinarily base their decisions to join a cooperative on the
effectiveness of the services provided rather than on the risk inherent in an investment.
Regulation as a security would do little to protect or advance the interests of the
cooperatives' members or patrons.

       In Howey, the Supreme Court established a test to be utilized in determining
whether an investment contract is a security within the meaning of the federal
securities laws. S.E.C. v. W.J. Howey Co., 

, 

, 

(1946). The instrument is a security if (1) there is an investment of money, (2)

                                          –28–
in a common enterprise, (3) with the reasonable expectation of profits, (4) to be
derived from the entrepreneurial or managerial efforts of others. This same test has
been applied to participations. See Union Nat. Bank of Little Rock v. Farmers Bank,

, 884 (8th Cir. 1986)("For a participation to be considered a security
under the Act, it must satisfy the elements of a test developed in S.E.C. v. W.J. Howey
Co., 

, 

, 

(1946).").

       Here there was no investment of money in the traditional sense; that is, the class
members did not invest capital with a reasonable expectation of receiving a return on
their investment. Rather, class members obtained the Type 12 capital credits either
through conversion of their common stock into capital credits, an exchange of equity
from one entity to another, or as part of a patronage refund. In other words, the capital
credits were received as part of the commercial relationship that exists between an
agricultural cooperative and its members, patrons, and former members.

      Further, any distribution of "profits" were patronage refunds, i.e., a price or cost
adjustment, resulting from the member's own transactions with Farmland. Patronage
refunds are not based on Farmland's activities or its utilization of the member's funds.
While the possibility exists for the distribution of "profits" from non-member
transactions, there is no evidence indicating that any class members ever received a
distribution which included "surplus funds" much less evidence that these distributions
occurred on a regular basis.6 See 14 Neil E. Harl, Agricultural Law § 136.01[3] at
136-14 to 136-15 (2d ed. 1991)("A cooperative that distributes to members earnings
made from handling non-members' business is making a distribution of profits rather
than of patronage dividends. If such distributions occur on a regular basis, a member's
interest would meet the requirements for a security."). We disagree with the class'
assessment of the import of Cleberg's deposition testimony. Cleberg testified the


      6
      As of January 25, 1996, Farmland's surplus was "creeping up on $200 million."
Cl. Appendix, at 853.

                                          –29–
surplus could, in the Board's discretion, be used to "pay out a higher percentage of
cash to the members or to reduce the base capital equity requirements on the
subscription formula to the members." Cl. Appendix, at 853. However, when asked
whether he could "trace profits generated from non-member business as to whether
and when the profits are distributed to members?" Cleberg answered, "No." Cl.
Appendix, at 852. He did not testify, as the class suggests, that Farmland distributes
earnings from non-members in the form of cash and as a reduction in member base
capital requirements. He merely testified that the surplus funds could be used for
those purposes.

       Although there was some effort on Farmland's part to create a secondary market
for the capital credits, the class has produced no evidence showing that Farmland was
successful in this endeavor or that the capital credits were ever actively traded.

       We also reject the class' argument that Farmland is somehow estopped from
asserting the capital credits are not securities because it registered them as securities
and referred to them as securities in various written and oral communications. It is the
economic substance of the particular instrument or arrangement and not the labels used
by the parties that determines whether a security is involved.         The district court
correctly concluded that the capital credits lacked the essential characteristics of a
security and that no genuine issues of material fact existed.



                      IV. The Breach of Fiduciary Duty Claims

       The class contends that by directing and overseeing the creation and issuance
of the Type 12 capital credits, and by refusing to redeem the credits, Cleberg and
Shively breached their fiduciary duties to the class. "Kansas imposes a very strict
fiduciary duty on officers and directors of a corporation to act in the best interests of
the corporation and its stockholders. This duty requires the officer or director to work

                                          –30–
for the general interests of the corporation." Miller v. Foulston, Siefkin, Powers &
Eberhardt, 

, 415 (Kan. 1990).

       A fiduciary's duties encompass both a duty of care and a duty of loyalty. See
e.g., Delano v. Kitch, 

, 995 & 998 n.9 (8th Cir. 1981)(duty of loyalty);
Sampson v. Hunt, 

(Kan. 1983)(duty of care). See also 

(employing a burden-shifting approach to a duty of loyalty case) (citing
Cookies Food Products, Inc. v. Lakes Warehouse Distributing, Inc., 

(Iowa 1988)). "Most disagreements are over corporate policy and hence involve only
the fiduciary's duty of due care." 

n.9.

       With respect to the duty of care, "[t]he standard of duty by which the conduct
of a director of a corporation is to be judged should be that measure of attention, care,
and ability which the ordinary director and officer of corporations of a similar kind
would be reasonably and properly expected to bestow upon the affairs of the
corporation." Federal Savings & Loan Ins. Corp. v. Huff, 

, 378 (Kan.
1985)(citing Speer v. Dighton Grain, Inc., 

(Kan. 1981)). The
"[d]irectors and officers are liable to the corporation and the stockholders for losses
resulting from their malfeasance, misfeasance or their failure or neglect to discharge
the duties imposed by their offices." 

have the power to control and direct the affairs of the
corporation, and in the absence of fraud, Kansas courts will generally not interfere on
behalf of a dissatisfied stockholder with the discretion of the directors on questions of
corporate management, policy or business. See Richards v. Bryan 

, 648
(Kan. Ct. App. 1994). This rule, commonly referred to as the business judgment rule,
shields a director from liability in the case of good faith decisions within the director's
discretion.




                                           –31–
       For reversal, the class first argues the Type 12 capital credits were a "new
class" or "new series" of stock and were created, in violation of the Kansas
Corporation Code (the "Code"), Kan. Stat. Ann. § 17-6401(a), without proper
authority or public disclosure. The class asserts that the district court erred when it
held that Farmland's actions were governed by the Kansas Cooperative Marketing Act
(the "Act") rather than the Code.

        We disagree. Under the Code, "[e]very corporation . . . may issue one or more
classes of stock or one or more series of stock within any class thereof . . . as shall
be stated and expressed in the articles of incorporation or of any amendment thereto,
or in the resolution or resolutions providing for the issue of such stock adopted by the
board of directors pursuant to authority expressly vested in it by the provisions of its
articles of incorporation." Kan. Stat. Ann. § 17-6401(a). The Act provides that: "[t]he
provisions of the general corporation code of this state and all powers and rights
thereunder shall apply to the associations organized hereunder, except where such
provisions are in conflict with or inconsistent with the express provisions of this act,
or acts amendatory thereto." Kan. Stat. Ann. § 17-1628.

      Under the Act:

      capital stock may be divided into preferred and common stock. If so
      divided, the application for charter must contain a statement of the
      number of shares of stock to which preference is granted and the number
      of shares of stock to which no preference is granted and the nature and
      extent of the preference and privileges granted to each.

Kan. Stat. Ann. § 17-1607(b).

      Since the Act explicitly addresses the contents of a cooperative's articles of
incorporation including the requirement that the articles contains specific information

                                         –32–
about the cooperative's capital stock, application of the Code's different requirements
with respect to equity interests would "directly conflict" with the Act. The district
court correctly concluded Farmland's actions were governed by the Act.
       In the class' opinion, Type 12 capital credits were a new class of stock and not
patronage equity. According to the class, Farmland's redemption of the capital credits
highlights the difference in the classes. It points out that Farmland has treated the
"Series of Ten" credits in a more favorable manner than the "Type 12" credits in that
it redeemed "Series of Ten" credits in full before redeeming any of the "Type 12"
credits – thereby differentiating between the two types of credits.

       We find the class' arguments unpersuasive. The capital credits were clearly a
type of patronage equity and the Act does not require that this type of equity be listed
or described in the articles of incorporation. Type 12 and Series of 10 capital credits
are identical in that they carry no voting rights, pay no dividends or interest, share
equally in liquidation, and are all redeemable at the discretion of the Board.

       Second, the class asserts that Farmland's bylaws specifically mandate that the
capital credits be retired in the order of their issuance. Thus, the class asserts that
Cleberg and Shively breached their fiduciary duty by failing to redeem the Type 12
credits. The Kansas Supreme Court has stated that the "[b]ylaws of a cooperative
association organized under K.S.A. 17-1601 et seq. are a contract between the
cooperative and its members or stockholders and govern transactions between them."
Atchison County Farmers Union Co-op Association v. Turnbull, 

, 921
(Kan. 1987). If the bylaws require mandatory redemption of equity, the Kansas courts
will compel payment. See Claassen v. Farmers Grain Cooperative, 

,
379-80 (Kan. 1971).

      The class contends Farmland's bylaws mandate redemption and cite to a section
of Farmland's prospectus, dated June 11, 1991, which states: "Farmland Capital
Credits shall be retired in the order of their issuance or entry, by years, as and when

                                         –33–
the financial condition of Farmland will permit, as conclusively determined by
Farmland's members." Cl. Appendix, at 289. The class fails to quote the remainder
of the section regarding retirement of equity interests. The section continues by
saying:

      In its discretion, Farmland's Board of Directors may at any time or times
      authorize the retirement of any such credits, in whole or in part, ahead of
      priority, in order to facilitate the liquidation of a member association or
      to enable it to retire the equities of a deceased member. If the amount
      available for retirement of a series is less than the total amount of such
      series, the series shall be retired on a pro rata basis.

      The Farmland Board of Directors will consider, in its full discretion, as
      provided in Articles of Incorporation and Bylaws of Farmland, the
      retirement of . . . Capital Credits held by producers who are natural
      persons upon the death of such natural person or upon the request of the
      member-owner who is age 65 or older, provided that the stock or credits
      to be retired have been issued and outstanding to the natural person for
      at least five (5) years.

Cl. Appendix, at 289.

       Contrary to the class' assertion, the board clearly had discretionary authority
with respect to the retirement of the capital credits. Even the passage relied on by the
class, which appears in a prospectus and not in the articles of incorporation or bylaws,
included the right to retire such credits "ahead of priority" under stated circumstances.
 Section 5 of the Articles of incorporation provide that the "Board of Directors, in its
sole discretion, may at any time or times and on any basis deemed appropriate
authorize the transfer or retirement of any capital credits, in whole or in part." Fml'd


                                          –34–
Appendix, at 174. The capital credit certificates incorporate the Articles of
incorporation and also refer specifically to section 5. Cl. Appendix, at 339.

        Finally, the class asserts that Shively and Cleberg made several
misrepresentations in relation to the issuance of the capital credits and falsely
represented to members of the class, by, for example, signing the registration
statement, that the credits would have value through the redemption plan. Although
Farmland has an obligation to redeem the credits at some point, nothing in the articles
or the bylaws specify a time frame for redemption. Rather, the discretion granted to
the Board in connection with the redemption of capital credits, of necessity, includes
the Board's determination of the timing of the redemptions and Farmland's financial
ability to redeem the credits. Farmland utilizes the retainage funds in the interim to
finance operations. It is not uncommon for a cooperative to redeem patronage
dividends many years after the dividends have been allocated. See e.g., Gold Kist,
Inc. v. Commissioner of Internal Revenue, 

(11th Cir.
1997)(cooperative's typical holding period for patronage dividends was twenty years);
In re Bonnema, 

(Bankr. N.D. Tex. 1998)(Patronage dividends will
eventually be paid to patrons in cash, but often this occurs many years after the
dividends have been allocated). The district court correctly concluded the class had
failed to present sufficient evidence from which the trier of fact could find director self
interest, fraud, or an abuse of discretion sufficient to overcome the business judgment
rule.

                           V. The Unjust Enrichment Claim

      The class asserts the district court erred when it concluded the Kansas courts
would not allow resort to the equitable cause of action for unjust enrichment when the
equitable remedy would nullify statutory law and result in the substitution of the trier
of fact's own view for that of the cooperative's board of directors. In so ruling, the
district court considered: the general rule that unjust enrichment is not available where

                                           –35–
there is an express contract; Kansas' public policy of encouraging cooperative
marketing associations; decisions of the Kansas courts indicating disfavor for equitable
setoffs against cooperative marketing associations and disfavor for allowing the trier
of fact to substitute its judgment for that of the cooperative's board. Although the
district court noted there are significant differences between a corporation's bylaws
and traditional contracts, it nevertheless concluded a cause of action for unjust
enrichment would not be appropriate in this situation.

       The gist of the class' claims are that the Board has acted unfairly, or illegally,
in making its decisions regarding the creation, distribution, and redemption of Type
12 capital credits. Under Kansas law, to prevail on a claim of unjust enrichment, there
must be: " '(1) a benefit conferred upon the defendant by the plaintiff; (2) an
appreciation or knowledge of the benefit by the defendant; and (3) the acceptance or
retention by the defendant of the benefit under such circumstances as to make it
inequitable for the defendant to retain the benefit without payment of its value.' "
Haz-Mat Response, Inc. v. Certified Waste Services Ltd., 

(Kan. 1996)
(quoting J.W. Thompson Co. v. Welles Products Corp., 

(Kan. 1988)).

       We conclude the district court correctly dismissed the unjust enrichment claim.
Allowing such a remedy under the circumstances of this case would amount to the
court's instituting its own equity redemption plan for that of the board and eviscerating
the discretion specifically placed with the board of directors. No unfair transactions
occurred which resulted in unjust enrichment for Clerberg or Shively. Hunt v. Dresie,

, 1053 (Kan. 1987). It is not inequitable to allow the board to exercise
the discretion it has been granted to determine when the cooperative is financially able
to redeem patronage equity.

      The judgment is affirmed.




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A true copy.

      ATTEST:

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




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