This is an appeal from a district court order granting the Securities and Exchange Commission's (SEC) motion for summary judgment and request for injunctive relief against Mick Stack Associates, Inc. (Mick Stack), a Wichita, Kansas, securities broker-dealer and its principals and employees Kenneth Mick, Richard E. Smith, and Robert Adrian. The district court found that these defendants had violated the provisions of section 10(b) of the Securities and Exchange Act of 1934, as amended, 15 U.S.C. § 78j(b), and Rule 10b-5 (17 C.F.R. § 240.10b-5) and Rule 10b-13 (17 C.F.R. § 240.10b-13) promulgated thereunder, in connection with a scheme to obtain control of Farm & Ranch Financial, Inc. (Farm & Ranch), a Kansas insurance holding company. In particular, the district court found that, while acting as managers of a tender offer for the stock of Farm & Ranch, defendants also made purchases on the open market of Farm & Ranch shares from Mick Stack customers in violation of section 10(b) and Rule 10b-13, which prohibits a person who has made a tender offer for a company's shares from purchasing that company's shares on the open market during the pendency of the tender offer. The district court also found that defendants violated section 10(b) and Rule 10b-5 by failing to disclose various material facts to Farm & Ranch shareholders at the time Mick Stack offered to purchase their shares.

The district court granted the SEC's motion for summary judgment and injunctive relief prior to the Supreme Court's decision in Aaron v. SEC, 446 U.S. 680, 100 S. Ct. 1945, 64 L. Ed. 2d 611 (1980). In Aaron the Court concluded that whether the plaintiff is a private party or the SEC, "scienter is a necessary element of a violation of § 10(b) and Rule 10b-5." Aaron v. SEC, 446 U.S. at 695, 100 S.Ct. at 1955; Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S. Ct. 1375, 47 L. Ed. 2d 668 (1976). The term "scienter" refers "to 'a mental state embracing intent to deceive, manipulate, or defraud.' " 446 U.S. at 686 n.5, 100 S. Ct. 1950 n.5 (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12, 96 S. Ct. 1375, 1381 n.12, 47 L. Ed. 2d 668 (1976)).

Because this case was tried before Aaron was decided, the SEC did not specifically allege scienter in its complaint, nor did the district court make specific findings concerning the defendants' intent to deceive, manipulate, or defraud the shareholders of Farm & Ranch. But see SEC v. Haswell, 654 F.2d 698, 699 (10th Cir. 1981). When the substantive law changes while a case is pending appeal, the general rule requires that the appellate court apply the law in effect at the time the appeal is to be decided, so long as manifest injustice does not occur. Key v. Rutherford, 645 F.2d 880, 883 (10th Cir. 1981). See Bradley v. Richmond School Board, 416 U.S. 696, 711-21, 94 S. Ct. 2006, 2016-21, 40 L. Ed. 2d 476 (1974). Aaron requires that scienter be pleaded and proved in any action brought pursuant to section 10, which proscribes the use of manipulative or deceptive devices in the purchase or sale of securities. Since scienter was not specifically alleged, on remand it will be necessary for the trial court to determine in the first instance whether the pleadings properly can be amended to permit appropriate allegations. Even if the trial court appropriately permits such amendment, we cannot determine the propriety of the court's grant of summary judgment and injunctive relief without specific findings with respect to the presence or absence of scienter on the part of each defendant. We must therefore remand this case to the district court for consideration of the pleadings and proof with respect to the alleged violations of Rule 10b-5 and Rule 10b-13.1 See Mustang Fuel Corp. v. Youngstown Sheet & Tube Co., 516 F.2d 33, 40-41 (10th Cir. 1975).