author: GIBSON, Chief Judge.

text:
    MOORHEAD CONSTRUCTION CO., INC., a corporation, Appellee-Cross-Appellant, v. CITY OF GRAND FORKS, a Municipal Corporation, Appellant-Cross-Appellee.
    Nos. 74-1216, 74-1234.
    United States Court of Appeals, Eighth Circuit.
    Submitted Nov. 11, 1974.
    Decided Jan. 3, 1975.

      John D. Kelly, Fargo, N. D., for appellant-cross-appellee.
    Gordon Caldis, Grand Forks, N. D., for appellee-cross-appellant.
    Before GIBSON, Chief Judge, CLARK, Associate Justice, Retired, and WEBSTER, Circuit Judge.

       Associate Justice Tom C. Clark, United States Supreme Court, Retired, sitting by designation.

   GIBSON, Chief Judge.

In this court-tried diversity case, the plaintiff Moorhead Construction Co., Inc., recovered a judgment of $109,994.26. for breach of contract. A counterclaim of the defendant City of Grand Forks, North Dakota, was dismissed with prejudice. In its original complaint Moor-head, a Minnesota corporation, sought $125,000 in extra expenses and lost profits incurred in performing a contract with the City to build a sewage treatment facility.

The City had divided the construction project into two phases, each to be performed by separate contractors. Phase I was designed by the City’s own engineering department and covered primarily the earth work and site preparation for four aerated-anaerobic treatment ponds, including installation of piping and appurtenances such as foundations for compressor and meter buildings. The four ponds or earthen cells were to be formed by building earthen dikes or embankments in a square pattern divided into four large, square, water-tight sections. The phase I contractor, Valley-Mayo, was scheduled to complete its work in September, 1969, before phase II was to commence. The phase I contractor, however, did not substantially complete its contract until November, 1970. The final acceptance by the City of the phase I work was not until October, 1971, when the contractor was paid in full and discharged.

Phase II of the project was designed by Richmond Engineering, Inc., of Grand Forks, the City’s agent and supervisor for the project. It consisted of completing the buildings, constructing manhole installations and access bridges into and over the ponds, and installing all electrical and mechanical equipment. When completed, the aeration equipment would treat the City’s sewage primarily in the aerated cells; secondary treatment would occur in lagoons. The separate phase II contract was awarded to the plaintiff Moorhead in July, 1969, with completion scheduled for October 30, 1969. Its accepted bid was $409,333.00. However, due to adverse weather, soil conditions, and delays, which are the subject 'of this litigation, phase II was not completed until November, 1971, and the facility commenced operations in January, 1972.

Moorhead posited two bases for recovery: (1) “changed conditions” requiring an equitable adjustment of the contract price under a clause contained in the contract, and (2) the City’s alleged breach of the contract by delay and failure to prepare the construction site as warranted. The City counterclaimed for liquidated damages due to delay and faulty work. The City’s appeal contests the District Court’s findings as to liability and its assessment of damages. Moorhead cross-appeals for lost profits which the court refused to award.

As an initial point on appeal, the City challenges the District Court’s July 25, 1973, grant of summary judgment on the City’s third party complaint against the phase I contractor, Valley-Mayo. Although Valley-Mayo has apparently not been fully joined as a party to this appeal, the issue of the propriety of the judgment is properly before this court. The grant of summary judgmenl pursuant to Valley-Mayo’s Rule 56 motion was based on the court’s holding that there existed no issues of material fact to be decided to determine Valley-Mayo’s liability to the City, and that the City was entitled, as a matter of law, to no relief. Fed.R.Civ.P. 56(c).

A review of the record indicates that the court’s factual findings are supported by the record and are not clearly erroneous. They are entitled to affirmance. Fed.R.Civ.P. 52(a). The only issue of law essential to the dismissal was whether, in the event Moorhead successfully recovered from Grand Forks, the City could in turn recover against Valley-Mayo under the phase I contract’s one-year “hold harmless” indemnity bond. The fundamental principle of third party practice is that in order to maintain a third party complaint, a direct line of liability must be alleged to exist between the third party plaintiff and third party defendant independent of that between the first party plaintiff and defendant. 6 C. Wright and A. Miller, Federal Practice and Procedure § 1442 at 206 (1971); Fed.R.Civ.P. 14(a); cf. United States Fidelity & Guaranty Co. v. American State Bank, 372 F.2d 449, 450 (10th Cir. 1967). Thus, the City’s arguments that Moorhead’s claim actually rests on delays and changed conditions caused ultimately by the phase I contractor, Valley-Mayo, and not by the City, are of no avail. The causal relationship is of no avail to the City if the legal basis for indemnity between it and Valley-Mayo has been terminated. The City previously had accepted Valley-Mayo’s work and discharged it from further obligations under its contract, without reserving any claims. Absent fraud or latent defects, the City thus waived any rights against Valley-Mayo which may have arisen because of delay or on the performance bond. 5 Williston on Contracts § 724 (3d ed. 1961). Valley-Mayo’s obligations to the City were discharged by the contractor’s acknowledged full and exact performance. 5A Corbin on Contracts § 1230 at 510 (1964). The District Court’s order dismissing the third party complaint against Valley-Mayo with costs is affirmed.

The City’s various assertions of error challenging its liability for Moor-head’s extra costs are essentially challenges to the District Court’s findings of fact intertwined with contract interpretation. On appeal this court is not authorized to conduct a de novo review of cases tried without a jury. The District Court’s findings must be sustained if not clearly erroneous. Fed.R.Civ.P. 52(a); Brown v. Scott, 454 F.2d 693, 694 (8th Cir.), cert. denied, 409 U.S. 846, 93 S.Ct. 50, 34 L.Ed.2d 86 (1972). The District Court based its finding of contract liability upon the “changed conditions” clause, and the City’s breach of an implied warranty that the site would be prepared and the soil compacted in accordance with phase I specifications.

At the time Moorhead bid on the phase II contract, the phase I earth work had just commenced. Because an inspection of the site by Moorhead would not then have disclosed the difficult site conditions which it would later face due to excess moisture and lack of compaction, Moorhead in estimating its bid necessarily relied upon the City to provide a construction site prepared in accord with the specifications of phase I. Those specifications, according to the District Court, called inter alia for 90% compaction of the soil embankments and cell bottoms. The court construed the phase I compaction specifications as implied warranties in the phase II contract. Construction of the contract is a matter for the court under North Dakota law. Eickhof Construction Co. v. City of Grafton, 123 N.W.2d 580, 584 (N.D.1963); Anderson v. First National Bank, 6 N.D. 497, 72 N.W. 916, 920 (1897), aff’d, 172 U.S. 573, 19 S.Ct. 284, 43 L.Ed. 558 (1899). The City’s assertion that phase II did not embody the phase I soil compaction specifications is without merit, and the court’s interpretation of the contract is correct.

The court’s findings as to the delays and the deficiencies in soil conditions which the City permitted are fully supported by the record. Moorhead was not given access to the site to begin its phase II work until January, 1970, two months after its work was originally scheduled to be completed. Moorhead suffered additional delays from the unanticipated necessity of performing in the winter months, not contemplated by the contract, and from the soft soil conditions which required slower construction methods and increased footings.

Before January, 1970, when Moorhead was notified to proceed, its president inspected the site and refused to take responsibility for it. The bottom surface of the lagoon cells was extremely soft. As a result of the unstable soil conditions actually encountered in the cell bottoms and on the embankments Moor-head was forced to work by different, more expensive methods without heavy equipment. Most of the foundation footings for the mechanical installations and access bridges had to be redesigned and spread apart for greater support. Moor-head does not claim that it had to redo any of the phase I work, nor is it demanding damages resulting solely from phase I delays. Its claim is that its phase II job was entirely changed and greatly increased in cost; it therefore demanded an equitable adjustment of the contract price pursuant to the contract’s terms.

The City contends that Moor-head is precluded from employing the changed conditions clause because it failed to take the steps required to bring the clause into operation. The District Court found, however, that Richmond Engineering, as agent for the City, had determined that changed conditions did exist and that failure to carry the administrative process to a final written contract modification was chargeable to the City’s neglect, not to Moorhead’s. The record supports the conclusion that the City waived its rights and is now estopped from denying Moorhead an equitable adjustment under clause F-20. Van Nice v. Christian Reformed Church, 59 N.D. 564, 231 N.W. 604, 607 (1930).

Specifically, the District Court found that the City’s failure during phase I to exercise its authority either to alleviate the soft soil conditions by employing a lime drying additive or to supervise the phase I work more closely had the effect of saving the City money but inequitably shifted the extra costs to Moorhead. Moorhead promptly gave the engineer notice after discovering the changed conditions. The engineer, in turn, notified the City, inspected the site, and concluded that changed conditions did exist. Eventually, the engineer and Moorhead redesigned nearly every major footing in the project’s structures. The District Court properly found liability predicated on changed conditions and breach of implied warranty as to site preparations in accordance with phase I specifications.

The total expenses incurred by Moor-head, as determined by the trial court were $537,934.58. The court, however, could not determine precisely which of Moorhead’s additional expenses were caused by the City’s breach of warranty and which were due to changed conditions calling for equitable adjustment of the contract price under clause F-20. Consequently, the court applied the total cost theory and awarded Moorhead $109,994.26, the difference between its actual expenses and the City’s payments. All of Moorhead’s expenses were found to have been fully documented and reasonably incurred.

The City contends that the court erred in finding that Moorhead’s damages were impossible of exact causal determination and in awarding Moorhead the full difference between its expenses and receipts. It argues that extra costs directly attributable to the City’s alleged breach, if any, have already been paid, and that Moorhead’s extra expenses are attributable solely to its own cost-overruns for which the City is not responsible. Moorhead cross-appeals for an additional award of profits, arguing that because its total cost figure of $537,934.58 represents actual expenditures, it recovered no profits whatever for the time consuming project.

In the court below, Moorhead presented its case premised on the combined theories of breach of contract and equitable adjustment under the contract’s own terms. It chose not to order its proof so as to show which damages were caused by the City’s breach and which were caused by changed conditions. Consequently, the court awarded Moorhead judgment without separating the two theories. It is confusing, however, for us to évaluate the District Court’s award which rests upon a combination of two theories, that of equitable adjustment under the contract for changed conditions and damages for its breach. As it was Moorhead’s .duty to prove which extra expenses were attributable to the breach of contract and which were attributable to changed conditions and it failed to do so, we are without a basis in the record to attempt to separate the award when the District Court could not.

The essential factual determination which nevertheless remains clear is that the City, rather than Moorhead, is solely responsible for all of the extra expenses. Even if the trial court’s findings as to the specific causes of the damages were more clearly delineated, this court could not alter them unless it found them to be clearly erroneous. On the contrary, in light of the circumstances, we believe the damages were fairly assessed.

In its memorandum opinion, the District Court, speaking in terms of awarding damages for breach of contract, relied on a Court of Claims case, J. D. Hedin Construction Co. v. United States, 171 Ct.Cl. 70, 347 F.2d 235, 259-260 (1965), for the proposition that profits will not be awarded on the amount of damages arising from breach of contract. When the evidence specifically links damages to a breach of contract, however, Hedin does not bar an award of reasonable profits if they are calculated as part of the original contract price; Hedin bars only those which might be calculated on the excess damage award. Hedin, supra at 259-260. Moreover, apart from the question of contract damages, profits can properly be included as one of the elements of an equitable adjustment pursuant to the contract’s terms. Cf. United States v. Callahan Walker Construction Co., 317 U.S. 56, 61, 63 S.Ct. 113, 87 L.Ed. 49 (1942).

Whether the District Court did, in fact, include an allowance for original contract profits in its award to Moor-head is not entirely clear. If the court awarded them as part of damages for breach, it did so properly; and if it did so as part of an equitable adjustment, the court’s finding is not subject to revision by us. Likewise, as a discretionary matter, the court could properly have denied Moorhead profits altogether. Included in Moorhead’s claim of total expenditures of $537,934.58 is an item of $62,502 for overhead. That item was allowed by the court in full. If the modest 5% profit demanded now by Moor-head were also granted, calculated solely on the basis of the original contract price, the profit alone would amount to $20,466, which, when added to the net judgment of $109,994.26, would yield $5,460 more than Moorhead’s original pleaded demand of $125,000. Obviously, neither we nor the District Court should award Moorhead more than it demanded in its complaint.

We are inclined to accept the District Court’s evaluation of the damages unless it can be shown that clear error was committed in applying a particular rule of damages. No such showing has been made here. While the total cost theory utilized by the District Court is not a preferred method for calculating damages, its use was justified by the circumstances of the instant case. As a practical matter, the court found that no other method was feasible and that the supporting evidence was substantial. As a guide, the Court of Claims has stated that:

The acceptability of the [total cost] method hinges on proof that (1) the nature of the particular losses make it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the plaintiff’s bid or estimate was realistic; (3) its actual costs were reasonable; and (4) it was not responsible for the added expenses.

Urban Plumbing & Heating Co. v. United States, 187 Ct.Cl. 15, 408 F.2d 382, 394 (1969), cert. denied, 398 U.S. 958, 90 S.Ct. 2164, 26 L.Ed.2d 542 (1970), quoting WRB Corp. v. United States, 183 Ct.Cl. 409, 426 (1968). See also Great Lakes Dredge & Dock Co. v. United States, 119 Ct.Cl. 504, 96 F.Supp. 923 (1951), cert. denied, 342 U.S. 953, 72 S.Ct. 624, 96 L.Ed. 708 (1952). The court determined that no excess charges were run up by Moorhead and that its bid was more realistic than the estimate prepared by the City’s own engineer. The contractor was obviously confronted with a situation not of its own making, but one induced by the City’s delay and failure to prepare the site properly. The total amount expended under these circumstances was reasonably used by the court as a basis for figuring the damage award.

The judgment of the District Court is affirmed.

      . Plaintiff Moorhead’s assertion that the City should have appealed the order of dismissal in 1973, and that its present appeal is therefore untimely, is without merit. An order dismissing a third party complaint which does not contain certification by the District Court that “there is no just reason for delay,” Fed. R.Civ.P. 54(b), is not a final and appealable order. Woodby v. Chesapeake & O. Ry., 345 F.2d 668 (6th Cir. 1965). In the instant case the District Court granted Valley-Mayo’s motion for summary judgment on the City’s third party complaint and directed that judgment with prejudice and with costs be entered in Valley-Mayo’s favor, but made no express determination of finality releasing the decision for appellate consideration. Thus, had the City attempted to appeal the order in 1973, it would have been dismissed for lack of jurisdiction. Gallon v. Lloyd-Thomas Co., 261 F.2d 26 (8th Cir. 1958); see Lockwood v. Hercules Powder Co., 172 F.2d 775 (8th Cir. 1949). Moreover, the failure by an appellant “to take any step other than the timely filing of a notice of appeal does not affect the validity of the appeal, but is ground only for such action as the court of appeals deems appropriate, which may include dismissal of the appeal.” Fed.R.App.P. 3(a). Thus, even if the City is responsible for failure to join Valley-Mayo as a party to the instant appeal — by failure of service or otherwise — the court need not dismiss the appeal on this issue for that reason. Further, the common questions of fact relating to both phases of the construction project reduce the court’s need for an appellee’s brief from Valley-Mayo.

      . The phase I work which was commenced in May, 1969, was scheduled to be completed on September 1. However, because of soft soil conditions encountered by the phase I contractor, work was suspended, with City approval, from May 30 to November 1. After November 1 the soil was again frozen hard enough to accommodate heavy earth moving equipment. The City then extended the completion date until one year later, October 1, 1970.

      . The appendix prepared by the District Court to supplement its memorandum opinion discloses that as early as December 2, 1969, Moorhead “expressed concern about increased costs related to the delay * * On December 19, 1969, Moorhead wrote to the City:
      I am very deeply concerned and perturbed in regards to the contract we hold with the City * * * tVe bid the project under certain stipulations * * * we had to follow and time limits to be adhered to. As of this date we have not even been given access to the project.
      * * * * * *
      * * * I went to inspect the project site and I definitely would not accept accessibility to the site and be responsible for it in its present condition. * * * We are going to incur additional costs, as to increased labor, material, sales tax, warehousing and scheduling material shipments and placement of our crews to complete this project.

      . In pertinent part, the contract reads:
      F-20. CHANGED CONDITIONS. Should the Contractor encounter or the Owner discover during the progress of the work subsurface or latent physical conditions at the site differing materially from those indicated in this contract, or unknown physical conditions at the site of an unusual nature, differing materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in the contract, the Engineer shall be promptly notified in writing of such conditions before they are disturbed. The Engineer will thereupon promptly investigate. the conditions and if he finds they do so materially differ and cause an increase or decrease in the cost of, or the time required for performance of the contract, an equitable adjustment will be made and the contract modified in writing accordingly.

      F-21. EXTRA WORK. The Contractor shall perform unforeseen work, for which there is no price included in the contract, whenever it is deemed necessary or desirable in order to complete fully the work as contemplated. Such work shall be performed in accordance with the specifications and as directed, and will be paid for as provided herein.
      ******
      F-22. ORAL AGREEMENTS. No oral order, objection, claim or notice by any party to the others shall affect or modify any of the terms or obligations contained in any of the Contract Documents; and none of the provisions of the Contract Documents shall * * * be held to be waived or modified by reason of any act whatsoever, other than by a definitely agreed waiver or modification thereof in writing, and no evidence shall be introduced in any proceeding of any other waiver or modification.

        F-23. AUTHORITY OF THE ENGINEER. The Engineer will decide all questions which may arise as to the quality and acceptability of materials furnished and work performed and as to the rate of progress of the work; all questions which may arise as to the interpretation of the plans and specifications; all questions as to the acceptable fulfillment of the contract on the part of the Contractor.

      ******
      1-06. THE ENGINEER
      a. The Engineer shall have general supervision of the work as the agent of the Owner. He shall have authority to direct the construction insofar as the proper execution of the contract is affected,
      (emphasis added).

      . On February 17, 1970, Moorhead wrote to Richmond:
      It is very difficult to construct a job under existing information and complete the same when the conditions and time of availability are not the same as stated under the bidding plans and specifications.
      According to the specifications of Phase I, the bottom and slopes shall have 90% compaction. This definitely is not there. * *

      . On February 18, 1970, Richmond, relaying Moorhead’s letter to the City, stated:
      As we all know, the soil conditions at the site are treacherous. It is entirely possible that 90% compaction by the Phase I Contractor was a physical impossibility considering the time of year the work was done.

      . On March 23, 1970, Richmond wrote to the City:
      In discussing the unstable soil matter with Moorhead, they again noted the soil conditions were beyond their control and that they bid the job under the premise that the Phase I Contractor would obtain 90% compaction in the cell bottoms and dikes. Since the dikes are not completely finished and are still frozen it is probably too early to comment on their density, but the bottoms are definitely a changed condition.

      (emphasis added).

      . Richmond’s March 23, 1970, letter to the City continued:
      Our own design has suffered from this unstable condition. * * * [w]e are now faced with a spread footing design pressure only some 15% of that used under anywhere near normal conditions.
      ******
      The Phase II contractor is making the best possible effort to prosecute the construction. He has been hampered not only by the soil condition, but also by not having the [building foundations] turned over to him.
      In short, we do not feel he is being at all unreasonable in disclaiming responsibility for the existing soil conditions.

        . Moorhead’s Actual Expenses according to the exhibits:
      Labor & Materials ..... $342,579.81
      Subcontracts ........... 133,052.77
      $475,632.58
      (Less $200 disallowed by District Court) ..... 200.00
      $475,432.58
      Plus overhead ..................... 62,502.00
      $537,934.58
      Actual payments made by the City .... 427,940.32
      Balance .......................... $109,994.26

      . The award of damages in this diversity case is governed by North Dakota law, regardless of the theory used to support it. In North Dakota, when the contract is silent as to the measure of damages for its breach, the statutory rule prevails. Russell v. Olson, 22 N.D. 410, 133 N.W. 1030, 1033 (1911). N.D. Cent.Code § 32-03-09 (I960), provides that:
      For the breach of an obligation arising from contract, the measure of damages, except when otherwise expressly provided by the laws of this state, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby or which in the ordinary course of things would be likely to result therefrom. No damages can be recovered for a breach of contract if they are not clearly ascertainable in both their nature and origin.

        This statute restates the common law rules that compensation is recoverable for all detriment naturally and proximately caused by the breach, Hayes v. Cooley, 13 N.D. 204, 100 N.W. 250 (1904); Needham v. H. S. Halver-son & Co., 22 N.D. 594, 135 N.W. 203, 204 (1912), and that the party claiming special damages has the burden of showing that his loss was reasonably within the contemplation of the parties, as a probable result of the breach, when they entered into the contract. Hadley v. Baxendale, 156 Eng.Rep. 145 (Ex. 1854); accord Bumann v. Maurer, 203 N.W.2d 434, 440 (N.D.1972).
      An award of equitable adjustment on the contract is a mixed question of fact and contract interpretation. Factual findings are not to be overturned unless clearly erroneous, Fed.R.Civ.P. 52(a), and contract interpretation is a matter for the court under North Dakota law. Eickhoff Construction Co. v. City of Grafton, supra; Anderson v. First National Bank, supra.

      . In Hedin, supra at 259-260, the Michigan contractor requested profits of 10% on certain excess costs attributable to the Government’s breach of contract. The Court of Claims granted the excess costs, without the excess profits, in addition to the original contract price — which itself apparently must have included profits.


source: Caselaw Access Project

author: CLARK, Circuit Judge:

license: Public Domain

text:
    Kelly McNEAL et al., Plaintiffs-Appellants, v. TATE COUNTY SCHOOL DISTRICT et al., Defendants-Appellees.
    No. 74-2738.
    United States Court of Appeals, Fifth Circuit.
    Feb. 12, 1975.

      Stanley L. Taylor, Oxford, Miss., Robert J. Kelly, Batesville, Miss., for plaintiff s-appellants.
    Roy E. Johnson, Senatobia, Miss., Semmes Luckett, Clarksdale, Miss., Leon E. Hannaford, Senatobia, Miss., for defendants-appellees.
    Before THORNBERRY, MORGAN and CLARK, Circuit Judges.
   CLARK, Circuit Judge:

The Tate County School system enrolls 3,519 students (2,152 black; 1,367 white) in five schools. Upon court-ordered abolition of freedom of choice in August 1970, the system elected to make pupil assignments to schools in the system based upon residence in one of three zones for elementary and junior high school students, and upon residence in one of two zones for high school students. However, the district also retained a ten-year-old classroom assignment plan for elementary and junior high school students which can best be described as faculty-predicted ability grouping. In this system the teacher evaluates the pupil’s past performance and recommends the next year’s assignment to the principal, who makes the final decision. Entering first grade students are placed into sections (classrooms) based upon whether they have attended the public preschool program. During the school year students are moved within the sections of their grade if their performance indicates that they were better or worse than initially predicted. High school classes are formed on the basis of student requests following a “first-come, first-served” formula.

The result of this student assignment program has been to produce one to four all-black sections in every elementary (1 — 6) grade and a few all-white sections in the advanced grades. Because this effect violated the court’s initial order enjoining the maintenance of segregated classrooms, the plaintiffs-appellants sought to hold district officials in contempt and to secure further relief barring segregated classrooms and requiring that the racial ratio in each classroom reflect the ratio in the respective grade.

The following findings were made by the district court. The system was unitary in faculty and staff assignments, transportation and extra curricular activities. The district technically had failed to comply with the earlier order barring segregated classrooms, but should be excused because of a change in the law evidenced by the Supreme Court’s allowance of all-black schools in the metropolitan systems of Richmond, Detroit and Memphis. A number of the all-black classrooms were taught by black teachers. Pupil assignments were not based on any specific tests but rather upon a grading of each child’s actual performance. It might well be that the segregated classrooms exist “because the black child has not had the advantages which the white child has had.” School authorities, who were honestly endeavoring to operate a unitary system affording the very best education possible, were in a better position than the court to determine how their schools should be operated. The court could suggest nothing which would result in better schools for the district — the only alternative being to abandon the present plan and require assignments based on race so as to create a classwide racial balance in each section, which would be educationally detrimental.

The court erred in determining that the approach to be taken in adjudging the constitutional permissibility of segregated classrooms had been changed by the recent decisions involving the segregating effects of metropolitan housing patterns upon some school populations in large urban districts. The situations are not comparable. Not only must the attendance zones in such urban areas initially be drawn with racial neutrality, but also the parents of students in those zones retain the right to relocate their residence and students in segregated schools must be granted the right to transfer to schools in which their race is in the minority. On the other hand, segregation caused by ability grouping is fixed. Notwithstanding the fact that tract assignments are made without regard to race, children who have been the victims of educational discrimination in the dual systems of the past may find themselves resegregated in any school in the district solely because they still wear a badge of their old deprivation— underachievement.

An analysis of today’s issue should begin with articulation of the basic rule that classrooms which are segregated by race are proscribed regardless of the degree of overall schoolwide desegregation achieved. See Adams v. Rankin County Board of Education, 484 F.2d 324 (5th Cir. 1973); Boykins v. Fairfield Board of Education, 457 F.2d 1091 (5th Cir. 1972), and Johnson v. Jackson Parish School Board, 423 F.2d 1055 (5th Cir. 1970). The district court finds no breach of this postulate in Tate County because it concludes that individual ability, not race, is the criterion for assignment.

The law of this circuit which bears on ability grouping of students began with dicta. The first decisional mention of student assignments based on a testing of their ability came in a brief ruling in our en banc holding in Singleton v. Jackson Municipal Separate School District, 419 F.2d 1211, 1219 (1969) in particular regard to the Marshall County and Holly Springs School Districts. There we barred the use of testing for school, as opposed to classroom, assignment of pupils in these words:

We pretermit a discussion of the validity per se of a plan based on testing except to hold that testing cannot be employed in any event until unitary school systems have been established.

Then came the per curiam decision in Lemon v. Bossier Parish School Board, 444 F.2d 1400, 1401 (5th Cir. 1971), which while again refusing to make a per se rule on the validity of student placement into one of two schools based on ability disclosed by testing, stated:

In Singleton we made it clear that regardless of the innate validity of testing, it could not be used until a school district had been established as a unitary system. We think at a minimum this means that the district in question must have for several years operated as a unitary system.

The first consideration of the use of testing as a basis for classroom assignment came in Moses v. Washington Parish School Board, 456 F.2d 1285 (5th Cir. 1972), where the school district was making classroom assignments based upon scores on standardized tests. The result was lower sections which were all-black. The district court found this- ability grouping to be violative of equal protection particularly in the slower sections which, in an ironic sort of self-fulfilling prophecy, were taught less and learned less. 330 F.Supp. 1340 (E.D.La.1971). This court’s brief order of affirmance found that substantial evidence supported the district court’s determination that ability grouping tended to perpetuate segregated classrooms within Bossier Parish’s otherwise desegregated system.

From these holdings, we synthesize the rule for this case to be that the court must assay the present district plan of student assignment which results in racial segregation with a punctilious care, to see that it does not result in perpetuating the effects of past discrimination. Ability grouping, like any other non-racial method of student assignment, is not constitutionally forbidden. Certainly educators are in a better position than courts to appreciate the educational advantages or disadvantages of such a system in a particular school or district. School districts ought to be, and are, free to use such grouping whenever it does not have a racially discriminatory effect. If it does cause segregation, whether in classrooms or in schools, ability grouping may nevertheless be permitted in an otherwise unitary system if the school district can demonstrate that its assignment method is not based on the present results of past segregation or will remedy such results through better educational opportunities.

In the case at bar the fact that such classroom groupings were used in each of the dual systems produced by freedom-of-choice cannot be made a justification for continuation of the practice in zonally integrated schools. In fact, the lack of educational equality would predictably cause students from the inferior system to immediately be resegregated within the lower classroom sections. Many of the segregated black students in this system have never been allowed to attend a unitary school system except under such ability groupings. The testing rationale of both Singleton and Lemon would bar the use of this method of assignment until the district has operated as a unitary system without such assignments for a sufficient period of time to assure that the underachievement of the slower groups is not due to yesterday’s educational disparities. Such a bar period may be lifted when the district can show that steps taken to bring disadvantaged students to peer sta-' tus have ended the educational disadvantages caused by prior segregation.

The district court was in error in assuming that its only alternative to approving ability grouping was to' command racial balance in every classroom. If the school district cannot substantiate its present system, it may choose any racially neutral method of classroom assignment it considers educationally sound. That method should be approved by the district court unless its effect is racial segregation or is substantially adverse to the quality of education available to some of the district’s children. See Arvizu v. Waco Independent School District, 495 F.2d 499 (5th Cir. 1974).

Since Tate County’s system results in substantial racial segregation in its classrooms, the defendant school district should be afforded an opportunity to meet the burden of proof established here. In the alternative, the district must submit some other plan of student assignment not based upon race or ability grouping. The district court may then proceed to hold such hearings as it deems necessary to permit interested parties and affected parents to respond. The court’s order approving such a plan, as submitted or modified, should be entered no later than May 1, 1975 to become effective with the commencement of the September 1975 school year. The judgment appealed from is reversed and the cause is remanded for further proceedings not inconsistent with this opinion.

Reversed and remanded.

      . Bradley v. School Bd. of Richmond, 462 F.2d 1058 (4th Cir. 1972), aff’d mem. by an equally divided court, 412 U.S. 92, 93 S.Ct. 1952, 36 L.Ed.2d 771 (1974); Milliken v. Bradley, 418 U.S. 717, 94 S.Ct. 3112, 41 L.Ed.2d 1069 (1974); Northcross v. Bd. of Educ. of Memphis City Schools, 489 F.2d 15 (6th Cir. 1973), cert. denied, 416 U.S. 962, 94 S.Ct. 1982, 40 L.Ed.2d 313 (1974).

      . Borders v. Rippy, 247 F.2d 268, 271 (5th Cir. 1957) stated:
      Pupils may, of course, be separated according to their degree of advancement or retardation, their ability to learn, on account of their health, or for any other legitimate reason, but each child is entitled to be treated as an individual without regard to his race or color.
      Stell v. Savannah-Chatham County Board of Education, 333 F.2d 55, 61-62 (5th Cir. 1964) was to the same effect:
      In this connection, it goes without saying that there is no constitutional prohibition against an assignment of individual students to particular schools on a basis of intelligence, achievement or other aptitudes upon a uniformly administered program but

        race must not be a factor in making the assignments. However, this is a question for educators and not courts. (Emphasis added.)

        But see the specific comment overruling the general principle on which these cases were based, in United States v. Jefferson County Board of Education, 380 F.2d 385, 389 (5th Cir. 1967).


author: PER CURIAM:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Robert L. COMPANION, Defendant-Appellant.
    No. 74-1436.
    United States Court of Appeals, Ninth Circuit.
    Sept. 30, 1974.

      Tom Kleinschmidt, Asst. Federal Public Defender (argued), Phoenix,. Ariz., for defendant-appellant.
    Patricia Whitehead, Asst. U. S. Atty. (argued), Phoenix, Ariz., for plaintiff-ap-pellee.
    Before ELY and WALLACE, Circuit Judges, and POWELL, District Judge.

       Honorable Charles L. Powell, Senior United States District Judge for the Eastern District of Washington, sitting by designation.

   OPINION

PER CURIAM:

The appellant was charged in a three count indictment with interstate transportation of counterfeit securities in the form of Bank of America Traveler’s Checks. The three checks described in the indictment were cashed using Companion’s identification. He was traveling with a man named Parizo. His defense was that Parizo had used his identification papers without authority. The F.B.I. handwriting expert testified from three known signatures of Companion that all of the counter signatures on the checks were genuine signatures of Companion. He also testified that the signature on an application for a credit card was that of Companion. The person before whom the application was signed gave a detailed description of Parizo, the man traveling with Companion, thus presenting a conflict in the testimony. No one was able to identify the appellant as the person who passed any of the traveler’s checks charged in the indictment.

In his closing argument government counsel commented that appellant knew about the checks being passed and that he and Parizo were acting in concert. The indictment does not charge appellant with aiding and abetting. Counsel knew from the earlier conference that the court would instruct the jury that to' convict appellant they must find he participated in passing the checks. Objection was made to the arguments at the time. Since appellant contended Parizo passed the checks the comments of counsel in closing argument, to which defendant could not reply, may have misled the jury into finding appellant guilty if he signed the checks or otherwise aided or abetted Parizo. The comments were prejudicial. The government’s case was not strong and included conflict in the testimony above noted.

The government’s arguments must be within the legal theories to be covered by the court’s instructions. United States v. Bohle, 445 F.2d 54, 69-71 (7 Cir. 1971); Graham v. United States, 257 F.2d 724, 729, 730 (6 Cir. 1958); Evans v. United States, 98 U.S.App.D.C. 122, 232 F.2d 379 (1956).

The argument of government counsel was not in support of the indictment. No instructions were given on aiding and abetting. We conclude that the arguments as made deprived the appellant of a fair trial. All other claims of error urged by the appellant are not sufficient to require the granting of the relief requested. The conviction is reversed.

Reversed and remanded for further proceedings.

      . “Evidence has been introduced by the defendant which amounts to a contention that the defendant was not present at the time when or at the place where he is alleged to have committed the offense charged in the indictment. If after consideration of all the evidence in the case you have a reasonable doubt as to whether the defendant was present at the times and places the alleged offenses were committed, you must acquit him.” (R.T. 324, 325.)


author: MULLIGAN, Circuit Judge:

text:
    Rodolphe NOEL et al., Plaintiffs-Appellants, v. Leonard H. CHAPMAN, as Commissioner of the Immigration and Naturalization Service and Sol Marks, as New York District Director of the United States Immigration and Naturalization Service, Defendants-Appellees.
    No. 86, Docket 74-1447.
    United States Court of Appeals, Second Circuit.
    Argued Nov. 8, 1974.
    Decided Jan. 3, 1975.
    Leon Friedman, New York City (American Civil Liberties Union Foundation, New York City, Melvin L. Wulf, New York City, Pollack & Kramer, Brooklyn, N. Y., Fried, Fragomen & Del Ray, New York City, Austin T. Frago-men, Jr., Martin L. Rothstein, New York City, of counsel), for plaintiffs-appellants.
    Lydia E. Morgan, Sp. Asst. U. S. Atty. (Paul J. Curran, U. S. Atty. for the Southern District of New York, Mary P. Maguire, Sp. Asst. U. S. Atty., of counsel), for defendants-appellees.
    Before KAUFMAN, Chief Judge, and ANDERSON and MULLIGAN, Circuit Judges.
   MULLIGAN, Circuit Judge:

This is an appeal from on order of Hon. Lee P. Gagliardi, United States District Judge for the Southern District of New York, entered on February 8, 1974, denying the motion of the appellants for a preliminary injunction in accordance with his opinion of February 6, 1974. We affirm.

I

Rodolphe Noel is an alien and a native and citizen of Haiti. He was admitted to this country on May-24, 1969 as a non-immigrant visitor for pleasure. This status permitted him to stay here for two months. He did not make a timely departure but remained here illegally until he was apprehended by agents of the Immigration and Naturalization Service (INS) on June 15, 1972. Deportation proceedings were thereupon promptly commenced. At a hearing on June 27, 1972, Noel admitted that he was deportable and represented that he was willing and able to leave the country at his own expense. He was given until September 27, 1972 to depart voluntarily. He again failed to leave and a warrant of deportation issued on July 12, 1973. Noel was advised by letter to report on August 21, 1973 for deportation. Instead of reporting, Noel requested an extension of his time to depart for an indefinite period because, on April 13, 1973, he had married Emiris Noel, a lawful permanent resident of the United States. This marriage, he urged, had exempted him from the requirement of obtaining a labor certification before applying for an immigration visa. 8 U.S.C. § 1182(a)(14). If an indefinite extension of voluntary departure were granted, Noel would, in effect, be allowed to remain in this country an additional period of as much as two years until a visa became available. The request was denied but deportation was stayed for seven days to permit the institution of court action.

Antoine Petit’s position is like unto Noel’s. He is an alien and a native and citizen of Haiti who was admitted here on August 4, 1970 as a visitor for pleasure for a two-month stay. He did not leave but rather obtained employment in violation of his non-immigrant status. Londono v. INS, 433 F.2d 635 (2d Cir. 1970) (per curiam). He was apprehended on June 7, 1973. Deportation proceedings were promptly commenced, and, at his hearing on June 8, 1973, Petit admitted that he was deportable and requested that he be permitted to depart volun-' tarily. He was extended the privilege of voluntary departure until July 8th, 1973. Instead of departing, Petit married Yan-ick Petit on June 26, 1973. His bride had entered the United States a week before as a permanent resident immigrant. Petit also applied for an extension of voluntary departure until a visa became available. The District Director, by letter dated July 18th, 1973, denied the request and ordered his departure by July 27th, 1973. Petit did not leave and, on August 6, 1973, a warrant of deportation was issued, ordering his departure for Haiti on September 5, 1973.

On August 24, 1973, Noel and Petit and their brides commenced this action in the United States District Court for the Southern District of New York, seeking a declaratory judgment that the policy of the INS as to extensions of voluntary departure for the relatives of resident aliens was unconstitutional, and further seeking a preliminary injunction enjoining the INS from deporting Noel and Petit. While initially commenced as a class action, the class claim has since been abandoned. Although technically the appeal here is from an order denying a preliminary injunction, the opinion of the court below finally determined the underlying legal and constitutional issues so that the case is ripe for plenary appellate review. Sound judicial administration requires us to avoid subsequent unnecessary proceedings in the district court. See FTC v. Cinderella Career & Finishing Schools, Inc., 131 U.S.App.D.C. 331, 404 F.2d 1308, 1311 (1968); Hurwitz v. Directors Guild of America, Inc., 364 F.2d 67 (2d Cir.), cert. denied, 385 U.S. 971, 87 S.Ct. 508, 17 L.Ed.2d 435 (1966); 9 J. Moore, Federal Practice H 110.25 [1] (2d ed. 1973).

II

it is undisputed that aliens who are the parents, children or spouses of an American citizen may enter the country without numerical limitation and need not obtain labor certification, regardless of where they are from. 8 U.S.C. §§ 1151(b) and 1182(a)(14). Aliens who are the parents,.children or spouse of a resident alien and who are not from the Western Hemisphere are also exempt from the labor certificate requirement, id. § 1182(a)(14), and receive a special right of preference over others seeking a visa within the relevant quota limit of 170,000, id. § 1153(a). However, if the aliens are from the Western Hemisphere and are parents, children or spouses of a resident alien, they are exempt from the labor certificate requirement, id. § 1182(a)(14), but they receive no preference rights, i. e., they, along with all other Western Hemisphere aliens, may obtain visas subject to the 120,000 numerical quota, Act of Oct. 3, 1965, Pub.L. No. 89 -236, § 21(e), 79 Stat. 921. These differences in treatment between aliens’ and citizens’ relatives and between Eastern Hemisphere and Western Hemisphere alien relatives of resident aliens were specifically provided for by the 1965 major congressional amendments to the Immigration and Nationality Act which abolished the national origins quota system. Act of Oct. 3, 1965, supra.

Since at least 1952, the law has provided that the privilege of voluntary departure may be granted to a deportable alien at the discretion of the Attorney General. Immigration and Nationality Act of 1952, ch. 5, § 244, 66 Stat. 214, presently codified at 8 U.S.C. § 1254. By regulation, the authority to extend the time within which to voluntarily depart is within the sole discretion of the District Director of the INS. 8 C.F.R. § 244.2. INS policy between 1968 and June 1972 in the New York District had been more liberal than that elsewhere in the nation. Western Hemisphere aliens, such as Noel and Petit, who were in this country and married to permanent resident aliens had been routinely granted extended voluntary departure until an immigrant visa became available. However, on June 27, 1972, Congressman Ro-dino, Chairman of the House Judiciary Committee, advised the Commissioner of INS that hearings of his Subcommittee on Immigration and Nationality had indicated that the employment of illegal aliens in this country was unfavorably influencing the domestic job market and that routinely permitting them to ■ remain in the United States to await visas was no longer justifiable. The Service informed all its District Directors that, as of July 31st, 1972, Western Hemisphere aliens should not routinely be granted extended departure time, but rather should be offered that privilege only in those cases where compelling circumstances warranted the relief. On April 10, 1973, the policy was liberalized to provide that the earlier New York policy granting extended departure would be applied to those aliens who were present in the United States and who had the requisite family status on or before April 10, 1973. Neither Noel nor Petit was married on April 10, 1973, and hence each is subject to deportation, which has been voluntarily extended by the Service until this litigation is terminated.

Had Noel and Petit married American citizens they would not have been subject to numerical immigration limits. 8 U.S.C. § 1151(b). The INS policy with respect to such aliens is to allow them the privilege of an extension of voluntary departure until they obtain visas, which involves a significantly shorter wait than in the case of an alien married to a resident alien who is subject to numerical limitations. Appellants contend that the INS policy is illegal. They claim (a) that there is nothing in the 1965 amendments to the law which requires the INS to distinguish between immediate family members of resident aliens, on the one hand, or of citizens, on the other, for the purpose of setting voluntary departure dates; (b) that the policy of the INS violates the equal protection concepts inherent in the due process clause of the fifth amendment, and constitutes an abuse of administrative discretion; and (c) that the policy was issued in violation of the Administrative Procedure Act, 5 U.S.C. § 553. They seek to have the policy voided and to receive the benefits of the old policy under which they may await visas here along with the immediate relatives of American citizens.

Ill

The attack upon the constitutionality of the policy of the Service is bottomed upon the contention that alienage is a suspect classification, that, since the policy provides for disparate treatment of the alien spouses of citizens and resident aliens, and, furthermore, since the classification impinges upon the fundamental right of the family to remain intact, the policy must be subject to strict scrutiny. Graham v. Richardson, 403 U.S. 365, 91 S.Ct. 1848, 29 L.Ed.2d 534 (1971).

The cases relied upon by appellants are not controlling here. In Graham v. Richardson, supra, the Court found unconstitutional two state programs which denied welfare benefits to non-citizens or granted them only to aliens who had resided in the United States for a specified time. In Sugarman v. Dougall, 413 U.S. 634, 93 S.Ct. 2842, 37 L.Ed.2d 853 (1973), the Court found that a New York statute violated equal protection rights since it provided that only citizens would be eligible for civil service appointments. In In re Griffiths, 413 U.S. 717, 93 S.Ct. 2851, 37 L.Ed.2d 910 (1973), the Court on a similar basis invalidated a citizenship requirement for admission to the Connecticut bar examination. These cases involved action by states which discriminated with respect to the rights and privileges which persons living in this country possess. None involved the power of INS to administer the immigration laws of the United States, which by their very nature involve the question of alienage.

The Supreme Court has consistently held that Congress has plenary power in the area of immigration. Thus in Galvan v. Press, 347 U.S. 522, 74 S.Ct. 737, 98 L.Ed. 911 (1954), Mr. Justice Frankfurter wrote:

Policies pertaining to the entry of aliens and their right to remain here are peculiarly concerned with the political conduct of government. In the enforcement of these policies, the Executive Branch of the Government must respect the procedural safeguards of due process. . . . But that the formulation of these policies is entrusted exclusively to Congress has become about as firmly embedded in the legislative and judicial tissues of our body politic as any aspect of our government.

347 U.S. at 531, 74 S.Ct. at 743 (citations omitted).

Recently, in Kleindienst v. Mandel, 408 U.S. 753, 766, 92 S.Ct. 2576, 2579, 33 L.Ed.2d 683 (1972), the Court reaffirmed the plenary power of Congress, quoting with approval the opinion of the first Mr. Justice Harlan in Lem Moon Sing v. United States, 158 U.S. 538, 547, 15 S.Ct. 967, 970, 39 L.Ed. 1082 (1895):

“The power of congress to exclude aliens altogether from the United States, or to prescribe the terms and conditions upon which they may come to this country, and to have its declared policy in that regard enforced exclusively through executive officers, without judicial intervention, is settled by our previous adjudications.”

There can be no doubt but that Noel and Petit as unadmitted and nonresident aliens have no constitutional right to enter and to remain in this country. See Galvan v. Press, supra, 347 U.S. at 530-532, 74 S.Ct. 737. It is equally clear that their wives as resident aliens have no constitutional right to keep them here on the theory that the integrity of the family is protected by equal protection principles. The cases relied upon by appellants to support the contrary contention, Loving v. Virginia, 388 U.S. 1, 87 S.Ct. 1817, 18 L.Ed.2d 1010 (1967) and Stanley v. Illinois, 405 U.S. 645, 92 S.Ct. 1208, 31 L.Ed.2d 551 (1972), involved interferences by states and not INS, and thus cannot control decision in an area in which, as we have noted, the Government has broad powers. Other precedents suggest the error of appellants’ position. In Zemel v. Rusk, 381 U.S. 1, 85 S.Ct. 1271, 14 L.Ed.2d 179 (1965), the Court upheld the right of the Government to refuse to validate an American passport for travel to Cuba despite the claim that there was an interference with the constitutional right of the citizen to travel. In Kleindienst v. Mandel, supra, the Court upheld the refusal of the Attorney General, through INS, to waive visa requirements of an alien scholar despite the claim of American intellectuals that their first amendment rights to hear, speak with and debate the foreign professor were violated. More directly in point is Silverman v. Rogers, 437 F.2d 102 (1st Cir. 1970), cert. denied, 402 U.S. 983, 91 S.Ct. 1667, 29 L.Ed.2d 149 (1971), in which the court refused to enjoin the deportation of an alien who was married to an American citizen despite the claim that the action was unconstitutional since it destroyed the constitutional rights of the parties to live together in marriage. The same argument was rejected in Swartz v. Rogers, 103 U.S.App.D.C. 1, 254 F.2d 338, cert. denied, 357 U.S. 928, 78 S.Ct. 1373, 2 L.Ed.2d 1372 (1958). Judge Prettyman commented succinctly:

Certainly deportation would put burdens upon the marriage. It would impose upon the wife the choice of living abroad with her husband or living in this country without him. But deportation would not in any way destroy the legal union which the marriage created. The physical conditions of the marriage may change, but the marriage continues. Under these circumstances we think the wife has no constitutional right which is violated by the deportation of her husband.

254 F.2d at 339.

In view of the plenary power vested in Congress to fix and in the executive to enforce, the terms and conditions of entry and stay in the United States, alienage cannot be a suspect classification in this context, nor is there an interference with any fundamental rights to marry and to raise a family. This being so, it follows that the strict or compelling interest test espoused by appellants cannot be applied in this case.

The Government has argued that the appropriate standard of review of the INS policy before us is the flexible approach taken by this court in Boraas v. Village of Belle Terre, 476 F.2d 806 (2d Cir. 1973). It had been suggested that Supreme Court doctrine in the equal protection area had evolved from a two-tiered standard to a less rigid formula which allowed for consideration of factors otherwise largely ignored. Gunther, The Supreme Court, 1971 Term — Fore-ward: In Search of Evolving Doctrine on a Changing Court: A Model for a Newer Equal Protection, 86 Harv.L.Rev. 1 (1972). Although the precise contours of an appropriate intermediate test remained somewhat unclear, Comment, Equal Protection in Transition: An Analysis and a Proposal, 41 Fordham L.Rev. 605 (1973), this court applied that test in Boraas. However, the Supreme Court refused to apply an intermediate test in San Antonio School District v. Rodriguez, 411 U.S. 1, 93 S.Ct. 1278, 36 L.Ed.2d 16 (1973), despite the strong urging of a dissent, 411 U.S. at 98-110, 93 S.Ct. 1278 (Marshall, J., dissenting), citing, inter alia, Gunther, supra. More recently, the Supreme Court reversed the decision of this court in Boraas and decided the issue of certain zoning restrictions on the basis of the traditional limited scrutiny standard. Village of Belle Terre v. Boraas, 416 U.S. 1, 94 S.Ct. 1536, 39 L.Ed.2d 797 (1974). It is thus unclear whether or not the Court accepts the intermediate test which courts and scholars had perceived in some of its recent decisions. Citizens Committee for Faraday Wood v. Lindsay, 507 F.2d 1065 (2d Cir. 1974). However, even if the intermediate test retains some vitality, we conclude, in light of the extensive power over immigration possessed by the INS, that the limited scrutiny test should be applied here, as it was in Rodriguez and Boraas, supra.

There is a rational relationship which supports the policy of INS under attack here. The 1965 amendments reflect the purpose of Congress “to protect the American economy from job competition and from adverse working standards as a consequence of immigrant workers entering the labor market ..” S.Rep.No.748, 89th Cong., 1st Sess., 1965 U.S.Code, Cong. & Admin. News., p. 3329. It was the Congress which made the distinction between immediate relatives of American citizens and permanent resident aliens and which entrusted the Attorney General with jurisdiction to grant extended voluntary departures to Western Hemisphere aliens. Although this policy was exercised liberally in the New York District, by 1972 a long waiting list of such aliens developed and the wait for an immigrant visa approached the period of two years. Western Hemisphere aliens were coming to the United States in large numbers and remaining illegally in the expectation of a marriage which would assure their continuing residence here. In view of domestic employment problems which continue to affect American workers, the policy of INS to discourage the practice is understandable and certainly bears a rational and substantial relationship to the avowed purpose of Congress to protect the American economy. Wong Wing Hang v. INS, 360 F.2d 715, 718-719 (2d Cir. 1966). The fact that greater liberality is accorded to the spouses of American citizens is, in our view, a matter of the discretion of INS which, as we have pointed out, is plenary in this area.

Certainly there is no abuse of discretion in the cases before us. Both Noel and Petit had been initially granted the privilege of voluntary departure pursuant to their request, but had then abused it. Under these circumstances, there is no reason for judicial interference. See Bowes v. INS, 443 F.2d 30 (9th Cir. 1971) (per curiam); United States ex rel. Lee Pao Fen v. Esperdy, 423 F.2d 6, 8-9 (2d Cir. 1970). In fact, granting the relief sought would place Noel and Petit in a position of precedence over those Western Hemisphere aliens who have made applications for visas in regular course and who are awaiting their turn for admission. There is no reason to prefer those who have flouted the immigration laws, which permitted their entry for a limited time and purpose, over those who have steadfastly and patiently followed legal procedures.

IV

The appellants here finally contend that the INS policy is invalid since it violates the Administrative Procedure Act, 5 U.S.C. § 551 et seq. Section 553(b) and (c) requires that an agency which proposes to issue a rule must publish a notice in the Federal Register indicating the time, place and nature of the public rulemaking procedure, and give interested parties an opportunity to participate in the rulemaking by submission of data. It is admitted that no such notice was provided here. Nor is there any contention made that the appellants had any actual notice of the INS policy change which would excuse publication in the Federal Register. See United States v. Aarons, 310 F.2d 341, 348 (2d Cir. 1962).

Although the Act does exempt from judicial review agency action which is committed to agency discretion by law, 5 U.S.C. § 701(a)(2), it seems settled that we do have jurisdiction to review exercises of INS discretion to determine whether they are arbitrary or capricious. See Foti v. INS, 375 U.S. 217, 228-230, 84 S.Ct. 306, 11 L.Ed.2d 281 (1963); United States ex rel. Hintopoulos v. Shaughnessy, 353 U.S. 72, 77, 77 S.Ct. 618, 1 L.Ed.2d 652 (1957). On this basis we have already determined that there was no such abuse here. Although no authority precisely in point has been found, it would seem clear that we also have jurisdiction to determine whether or not INS followed the Act’s rulemaking procedures. INS argues that the appellants have no standing to attack the procedure since none of them was married at the time the change in policy was made. Mrs. Petit was not even in the country on August 1, 1972 or on April 10, 1973, when the policy was made and modified respectively; her husband was not apprehended until June, 1973; and both Noel and Petit had represented pri- or to their marriages that they would leave voluntarily. The status or whereabouts of Mrs. Noel does not appear in the record; we know only that she did marry her husband on June 27, 1973, which was after the dates in question. We need not, however, reach the question of standing here since section 553(b)(A) exempts “general statements of policy” from the notice requirements of section 553(b). The court below found that the August 1, 1972 policy and the April 10, 1973 modification are within the statutory exception for general statements of policy. While the distinction between a rule as defined in section 551(4), which must be published, and a “general statement of policy,” which is not defined in the Act, is enshrouded in considerable smog, we hold that the policy statements complained of were properly held to be within the “general statements of policy” exception.

In the first place, the regulation governing the issue of extensions of time to depart which is here relevant explicitly provides that the “[authority to extend the time within which to depart is within the sole jurisdiction of the district director.” 8 C.F.R. § 244.2. The “instructions” complained of in this case do not purport to amend the published regulation or to oust the District Director of his “sole” discretion. In fact, the District Director of New York was the only INS officer who “routinely” extended the stay in the case of an alien married to a resident alien; the practice in the rest of the country was otherwise. We construe the instruction to be simply a statement by the agency of its general policy as a guideline for the District Directors. A distinctive characteristic of the general policy statement was indicated by Judge Friendly when he stated in his Holmes Lectures that “one of the values of the policy statement [is] the education of agency members in the agency’s work.” H. Friendly, The Federal Administrative Agencies 145-46 (1962) (emphasis added). One scholar has suggested that “[i]t may be that ‘general statements of policy’ are rules directed primarily at the staff of an agency describing how it will conduct agency discretionary functions, while other rules are directed primarily at the public in an effort to impose obligations on them.” Bonfield, Some Tentative Thoughts on Public Participation in the Making of Interpretative Rules and General Statements of Policy under the APA, 23 Admin.L.Rev. 101, 115 (1970-71). See also Parker, The A.P.A.: A Study in Overestimation, 60 Yale L.J. 581, 598 (1951).

The same thought is expressed in the so-called “substantial impact” test, which places within the rulemaking procedure only those rulés which have “a substantial impact on those regulated,” Texaco, Inc. v. FPC, 412 F.2d 740, 744 (3d Cir. 1969), that is, ordinarily rules that change “existing rights and obligations,” Lewis-Mota v. Secretary of Labor, 469 F.2d 478, 482 (2d Cir. 1972). We cannot conclude that the instructions at issue here changed the existing right of the appellants to have their applications for extensions of time to depart authorized in the sole discretion of the district director. As noted below, the appellants may still be entitled under the regulations to deferred voluntary departure on the basis of hardship.

The INS policy under attack here, considered according to the appropriate equal protection standard, does not violate the fifth amendment, and there was clearly no abuse of administrative discretion. Since the policy was a general statement of policy rather than a rule, there was no violation of the publication requirement of the APA. We conclude, therefore, that the decision below must be affirmed.

Affirmed.

      . Prior to 1965, immigration from the Western Hemisphere was not numerically controlled. The prior non-quota status of such aliens was abolished by the 1965 amendments and the special annual quota of 120,000 was established, separate from the annual 170,000 worldwide quota.

      . If a classification would violate the equal protection clause of the fourteenth amendment, then it would also be invalid under the due process clause of the fifth amendment. Johnson v. Robison, 415 U.S. 361, 364 n. 4, 94 S.Ct. 1160, 39 L.Ed.2d 389 (1974); Bolling v. Sharpe, 347 U.S. 497, 74 S.Ct. 693, 98 L.Ed. 884 (1954). The fourteenth amendment applies to the states but not to the federal government, which is restricted only by the fifth amendment.

      . In an effort to escape the argument that Graham, Sugarman and Griffiths involved actions by states infringing the rights of aliens, appellants also cite several cases in which Federal restrictions upon the rights of aliens have been struck down. Mow Sun Wong v. Hampton, 500 F.2d 1031 (9th Cir. 1974), cert. granted, 417 U.S. 944, 94 S.Ct. 3067, 41 L.Ed.2d 664 (1974); Ramos v. United States Civil Service Comm’n, 376 F.Supp. 361 (D.P.R.1974) (three-judge court); Diaz v. Weinberger, 361 F.Supp. 1 (S.D.Fla.1973) (three-judge court). Briefly stated, these cases hold that exclusion of aliens from federal civil service employment and imposition of a durational residency requirement as a condition for eligibility for Medicare are unconstitutional. With the Supreme Court cases discussed above, these cases do not go further than to declare that the federal and state governments cannot treat aliens legally residing in this country differently from citizens with regard to certain rights or privileges. The Supreme Court has stated the essential significance of these cases as follows:
      The Fourteenth Amendment and the laws adopted under its authority thus embody a general policy that all persons lawfully in this country shall abide “in any state” on an equality of legal privileges with all citizens under non-discriminatory laws.
      Takahashi v. Fish and Game Comm’n, 334 U.S. 410, 420, 68 S.Ct. 1138, 1143, 92 L.Ed. 1478 (1948), relied upon in Graham v. Richardson, supra, 403 U.S. at 374, 91 S.Ct. 1848.
      These authorities are inapposite in the context of the enforcement of the immigration laws against aliens who, rather than living lawfully in this country, are by their own admission deportable. An examination of some of the cases cited by appellants themselves reveals a recognition by the courts of the relevancy of the fact of alienage in certain situations and the breadth of executive power over enforcement of the immigration laws. Sugarman v. Dougall, 413 U.S. at 646-649, 93 S.Ct. 2842; Kleindienst v. Mandel, 408 U.S. 753, 765-767, 92 S.Ct. 2576, 33 L.Ed.2d 683 (1972); Graham v. Richardson, 403 U.S. at 376-380, 91 S.Ct. 1848; Ramos v. United States Civil Service Comm’n, 376 F.Supp. at 366 n. 8.

      . The appellants admit in their brief that “[u]nder present conditions, after the filing of a Western Hemisphere visa application and the contemporaneous assignment of a priority date for visa assignment, the subsequent wait for visa assignment can be as long as 22 months or more.”

      . Appellants relied in their brief upon a decision by Judge Motley granting a motion for a preliminary injunction in Felipe Demaren v. Attorney General, 73 Civ. 1079 (S.D.N.Y.1973). In that case, the plaintiff sought injunctive relief against denial of a stay of deportation pursuant to a policy similar to the one before us, and the court held that the policy ought to have been published pursuant to 5 U.S.C. § 553(b). However, subsequent to the filing of briefs in the case before us, Judge Motley vacated the preliminary injunction in Demaren, denied a motion for a permanent injunction and dismissed .the complaint, concluding on further consideration that there was no requirement that the policy at issue be published pursuant to section 553(b).

      . See T.S.C. Motor Freight Lines, Inc. v. United States, 186 F.Supp. 777, 786 (S.D.Tex.1960) (three-judge court), aff’d per curiam, 366 U.S. 419, 81 S.Ct. 1356, 6 L.Ed.2d 387 (1961) (regulation governing internal management of an agency need not be published because it was not designed for the guidance of the public).

      . See also Nader v. Butterfield, 373 F.Supp. 1175, 1178 (D.D.C.1974); Continental Oil Co. v. Burns, 317 F.Supp. 194, 197 (D.Del.1970); Pharmaceutical Mfgrs. Ass’n v. Finch, 307 F.Supp. 858, 863 (D.Del.1970); National Motor Freight Traffic Ass’n v. United States, 268 F.Supp. 90, 96 (D.D.C.1967) (three-judge court), aff’d per curiam, 393 U.S. 18, 89 S.Ct. 49, 21 L.Ed.2d 19 (1968); Seaboard World Airlines, Inc. v. Gronouski, 230 F.Supp. 44, 46 (D.D.C.1964).


author: ROSS, Circuit Judge. HEANEY, Circuit Judge

text:
    JUNIOR CHAMBER OF COMMERCE OF KANSAS CITY, MISSOURI, Plaintiff-Appellee, v. The MISSOURI STATE JUNIOR CHAMBER OF COMMERCE, Defendant, and The United States Jaycees, Defendant-Appellant.
    No. 74-1929.
    United States Court of Appeals, Eighth Circuit.
    Submitted Jan. 6, 1975.
    Decided Jan. 8, 1975.

      David C. Trowbridge, Kansas City, Mo., for defendant-appellant.
    William L. Turner, Kansas City, Mo., for plaintiff-appellee.
    Before GIBSON, Chief Judge, and HEANEY and ROSS, Circuit Judges.
   ROSS, Circuit Judge.

This is an expedited appeal from an order granting a preliminary injunction. The Junior Chamber of Commerce of Kansas City, Missouri (K. C. Jaycees) brought this action against the United States Jaycees (U. S. Jaycees) to enjoin that national organization from revoking the charter of the K. C. Jaycees and from removing a convention honoring its Ten Outstanding Young Men (TOYM Congress) from Kansas City, Missouri to another site. The district court granted a temporary injunction against removing the TOYM Congress from Kansas City, Missouri and deferred for later proceedings, the issue of charter revocation. We reverse and remand with directions to dissolve the injunction.

The 1975 TOYM Congress was awarded to the K. C. Jaycees chapter in January 1974 and a contract was then entered into between the K. C. Jaycees and the U. S. Jaycees relating thereto. This contract contained a provision that “this agreement is and shall be subject to all the terms and provisions of the U. S. JAYCEES’ By-Laws and Policy in ef-feet at the time of its execution insofar as they affect or control the CONGRESS.” The bylaws of the U. S. Jaycees limit membership to males and also provide that the bylaws of local and state Jaycee organizations must not be in conflict with the bylaws of the U. S. Jaycees.

In February of 1974 the K. C. Jaycees amended their bylaws to admit women to full and equal membership. This was in direct violation of the bylaws of the U. S. Jaycees and was therefore considered by the U. S. Jaycees to be in violation of the TOYM Congress contract. In August of 1974 the U. S. Jaycees, by resolution of its National Executive Committee, cancelled the contract for holding the TOYM Congress in Kansas City, Missouri. One of the reasons given for the cancellation was the amendment by the K. C. Jaycees of its bylaws granting full membership rights to females.

The K. C. Jaycees brought this action for preliminary and injunctive relief on October 17, 1974 pursuant to 42 U.S.C. §§ 1983, 1985(3), 2971c(b), and the first, fifth and fourteenth amendments. Jurisdiction was alleged under 28 U.S.C. §§ 1331 and 1343. The trial court found that “jurisdiction exists under 28 U.S.C. § 1331 (1970) as ‘arising under’ the Fifth Amendment, and that the undisputed evidence clearly establishes the requisite jurisdictional amount.” The trial court went on to find that “irrational sex discrimination is a violation of the equal protection guaranties of the Constitution” and further determined that the requisite governmental action was present by reason of the federal monetary grants received by the U. S. Jaycees (through its Foundation), which grants were used to fund many of their national programs.

On this appeal the U. S. Jaycees claim (1) that the trial court’s preliminary injunction violates Rules 52(a) and 65(d) of the Federal Rules of Civil Procedure, (2) that the trial court erred because it was not required to decide the constitutional issue raised and should have disposed of the case on nonconstitutional grounds, and (3) that the district court erred in assuming jurisdiction under 28 U.S.C. § 1331 because the U. S. Jaycees did not abrogate any rights of the K. C. Jaycees under the fifth amendment inasmuch as there was not a sufficiently close nexus between the federal government and the action of the U. S. Jaycees in cancelling the contract. We decline to rule on the first two of these points. However, we determine that the trial court should not have granted the preliminary injunction because the K. C. Jaycees did not show the required close nexus between the federal government and the action of the U. S. Jaycees in cancelling the contract.

The Supreme Court has often stated that private action, as distinguished from state action, is immune from the equal protection restrictions of the fourteenth amendment. Jackson v. Metropolitan Edison Co., 419 U.S. 345, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974); Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 173, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972); Shelley v. Kraemer, 334 U.S. 1, 13, 68 S.Ct. 836, 92 L.Ed. 1161 (1948). The parties concede that this same reasoning requires a finding of “federal action” before there is any deprivation of due process in violation of the fifth amendment. See Junior Chamber of Commerce v. United States Jaycees, 495 F.2d 883, 887 (10th Cir. 1974), cert. denied, 419 U.S. 1026, 95 S.Ct. 505, 42 L.Ed.2d 301 (1974); Jackson v. Statler Foundation, 496 F.2d 623, 627 n. 5 (2d Cir. 1974); New York City Jaycees, Inc. v. United States Jaycees, Inc., 377 F.Supp. 481, 487 (S.D.N.Y.1974); McGlotten v. Connally, 338 F.Supp. 448, 455 n. 31 (D.D.C.1972). In either case, it is essential to show that there is “a sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself.” Jackson v. Metropolitan Edison Co., supra, 419 U.S. 351, 95 S.Ct. 453.

We agree with the conclusion of the Tenth Circuit in Junior Chamber of Commerce v. United States Jaycees, supra, 495 F.2d at 887, where it states as follows:

We fail to see that there is present the essential state action. The Constitution applies [only] if the private action complained of is in essence the action of, the government.

Although the federal government supplies funds to the U. S. Jaycees for use in implementing the specific projects hereinbefore set forth, there is no close nexus between those programs and the TOYM Congress, the location of which is the subject matter of the injunction. In our opinion the nexus in this case is not as “close” as the nexus in either Jackson v. Metropolitan Edison Co., supra, or Moose Lodge No. 107 v. Irvis, supra.

It may well be that, in administering these federally financed programs, Jaycees in each local chapter are given an opportunity to develop and maintain leadership qualities which will be beneficial to them in business, and that women are now being deprived of the right to thus improve themselves. But, as heretofore stated, that is not the sufficiently “close nexus” required by Jackson v. Metropolitan Edison Co., supra, and Moose Lodge No. 107 v. Irvis, supra, to constitute state (governmental) action and thus fall within the ambit of the due process requirement of the fifth amendment.

The mere receipt of government funds is not enough to make the action of the grantee “state action,” Wahba v. New York University, 492 F.2d 96 (2d Cir. 1974), although a joint participation in the challenged activity may suffice under Burton v. Wilmington Parking Authority, 365 U.S. 715, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961). Here the scheduling and holding of the TOYM Congress is clearly not a joint venture or joint participation of the U. S. Jaycees and the federal government nor is the government an indirect partner in that undertaking as rationalized by the dissent. We do not think the heavy, suffocating hand of the federal government should fall upon every aspect of the private sector. Furthermore, here there are not even any federal funds allocated to, designed, or spent for the TOYM Congress.

We do not decide in this opinion whether or not the U. S. Jaycees have breached their contract with the K. C. Jaycees concerning the TOYM Congress or whether the U. S. Jaycees may revoke the charter of the K. C. Jaycees. We limit our holding to the determination that a preliminary injunction should not have been granted against the U. S. Jaycees prohibiting them from removing the TOYM Congress from Kansas City.

The order of the district court granting the preliminary injunction is reversed and the injunction is hereby dissolved. Mandate shall issue forthwith.

HEANEY, Circuit Judge

(dissenting).

I respectfully dissent. The record that we have before us on this appeal from an order granting a preliminary injunction is incomplete. It does show, however:

1. That the primary purpose of the Jaycees is to develop young men as leaders through community involvement;

2. That forty-five percent of all monies received by the U. S. Jaycees comes from the federal government;

3. That the federal funds are used by the Jaycees in community projects throughout the United States;

4. That much of the leadership training received by the Jaycees comes through participation in these govern-mentally financed projects;

5. That women are excluded from membership in the Jaycees and thus deprived of the opportunity to share in the leadership development opportunities made possible by the federal funds and that no justification for this policy has been demonstrated;

6. That the K. C. Jaycees amended their by-laws to admit women to membership in conflict with the by-laws of the U. S. Jaycees; and

7. That in response to the amendment of the local by-laws, the U. S. Jaycees cancelled the TOYM Congress scheduled to be held in Kansas City and threatened to revoke the charter of the K. C. Jaycees.

In the light of these facts, it is difficult to see how we can, at this stage of the matter, decide that Judge Collinson abused his discretion in enjoining the removal of the convention. It is clear that the K. C. Jaycees will suffer irreparable injury by the removal. Moreover, it is probable that Judge Collinson’s finding of unlawful sex discrimination will be upheld when the matter is fully tried on the merits. See Minnesota Bearing Company v. White Motor Company, 470 F.2d 1323 (8th Cir. 1973).

Judge Collinson’s preliminary findings that the federal government and the U. S. Jaycees are partners or joint ventur-ers in many of the leadership programs of the U. S. Jaycees is supported by this record. The substantial financing by the federal government contributes directly to the prestige of the U. S. Jaycees and to the prestige of its local chapters and its members. The government financing assists the Jaycees in achieving its stated purpose of developing leadership in young men through community involvement.

The by-laws of the U. S. Jaycees make it clear that they are not merely an organization designed to engage in good works. They are rather an organization primarily designed to train future leaders for civic and business responsibilities. It appears from this record that the government subsidizes the Jaycees in accomplishing its primary goal. If this proves to be the case when all the evidence is in, the subsidization must end unless the Jaycees are willing to open their membership to all young men and women who desire to participate in their program on a nondiscriminatory basis. Subsidizing, training programs foreclosed to women is a significantly greater involvement by government than was present in Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972). The governmental involvement here is more like that in Burton v. Wilmington Parking Authority, 365 U.S. 715, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961), for here, as in Burton, government funds support the discriminatory conduct of the U. S. Jaycees.

The fact that no federal monies are spent directly on the TOYM Congress does not obscure the fact that federal monies support the discriminatory training programs of the U. S. Jaycees and that it seeks to perpetuate the exclusion of women from those programs by means of the sanction imposed here. In my view, this satisfies the nexus requirement of Jackson v. Metropolitan Edison Co., 419 U.S. 345, 95 S.Ct. 449, 42 L.Ed.2d 477. The sanction of relocating the Congress is directly related to the continued effectiveness of the discriminatory by-law and the continued disadvantage placed upon women who desire to develop their leadership abilities and thereby enhance their possible success in the world of government or business.

The federal support of the U. S. Jaycees that enables them to attain their stated purpose of leadership development of young men goes to the core of the membership policy here attacked. A distinction between the membership policy’s effect on the management of the community programs and the holding of the TOYM Congress cannot realistically be made. The removal of the TOYM Congress is in direct response to the admittance of women to the K. C. Jaycees and will hinder their ability to develop leadership potential by association with the Jaycees program.

The development of community leaders is essential to our democracy and should be encouraged by all responsible persons. But when the federal government becomes involved to the degree present here, the leadership development opportunities it supports must be available to women as well as men.

      . The Missouri State Junior Chamber of Commerce was also named a party defendant but it is not a party to this appeal.

      . These national programs are as follows:
      1. Operation Threshold, an alcoholic rehabilitation and awareness program.
      2. Project Mainstream, relating to aid to the disadvantaged.
      3. Environmental program sponsored by H.E.W.
      4. A venereal disease awareness program.
      5. Criminal Justice program designed to assist inmates and ex-offenders.

      . The U. S. Jaycees claim that the TOYM Congress contract was cancelled for contractual reasons not related to the membership bylaw controversy including a failure by the K. C. Jaycees to make timely and adequate preparations for the convention.

      . U. S. Jaycees Policy 1-1, entitled “Definition,” states:
      A Jaycee organization is a constructive action organization of young men who devote a portion of their time to community service in the public interest, developing young men as leaders of their community.
      U. S. Jaycees By-Law 2-1, entitled “Purpose and Creed,” states:
      A. This Corporation shall be a non-profit Corporation, organized for such educational and charitable purposes as will promote and foster the growth and development of young men’s civic organizations in the United States, designed to inclucate in the individual membership of such organization a spirit of genuine Americanism and civic interest, and as a supplementary educational institution to provide them with opportunity for personal development and achievement and an avenue for intelligent participation by young men in the affairs of their community, state and nation, and to develop true friendship and understanding among young men of all nations.


author: DYER, Circuit Judge:

text:
    Raymond L. LUTGERT, Plaintiff-Appellant, v. The VANDERBILT BANK et al., Defendants-Appellees.
    No. 74-2184.
    United States Court of Appeals, Fifth Circuit.
    Feb. 27, 1975.

      George Vega, Jr., Naples, Fla., Carl L. Shipley, Washington, D. C., for plaintiff-appellant.
    Jose R. Garcia-Pedrosa, William C. Lewis, Jr., Miami, Fla., John W. Emerson, Naples, Fla., for defendants-appel-lees.
    Before DYER, MORGAN and GEE, Circuit Judges.
   DYER, Circuit Judge:

The sole issue to be determined on this appeal is whether the court below properly dismissed Lutgert’s action seeking declaratory relief for lack of subject matter jurisdiction under Rules 10b — 5 and 10b — 17, as a result of his failure to allege that he was a “purchaser or seller” of securities. We hold the dismissal to be proper and affirm.

Defendants Ingram, Rogers and Hahn were directors of the First National Bank and Trust Company of Naples (First National) and were organizers of defendant The Vanderbilt Bank (Vanderbilt). Ingram, Rogers and Hahn desired to distribute the subscription rights in the newly organized Vanderbilt to certain shareholders of First National and Citizens National Bank of Naples (Citizens). Because the interlocking directorate of these banks would cause Vanderbilt to become an “affiliate” bank, the Federal Deposit Insurance Corporation (FDIC) required in May of 1971, as a condition for obtaining FDIC insurance for Vanderbilt, that all shareholders of First National and Citizens be entitled to receive a 100% pro rata distribution of the Vanderbilt stock. An amended application to the FDIC was filed by the organizers in October and accepted in November of 1971. It provided that all shareholders of First National and Citizens as of the record date of March 31, 1971, would be entitled to a pro rata right to subscribe to Vanderbilt stock.

Lutgert instituted this action on behalf of the class of persons that purchased stock in First National after the record date of March 31, 19,71. He alleged that with the purchase of the First National stock these persons were entitled to all the rights enuring in that stock, including the Vanderbilt subscription rights, and that these persons were defrauded by the failure of defendants to disclose the March 31, 1971, record date until August 20, 1973.

The trial court, upon motion by defendants, dismissed the case for lack of subject matter jurisdiction. The dismissal was based upon the failure of Lutgert to allege in his complaint that he was a purchaser or seller of Vanderbilt stock.

Underlying this decision is the effect and application of the “purchaser-seller” requirement of Section 10(b) and Rule 10b — 5, known as the Birnbaum rule. Birnbaum v. Newport Steel Corp., 2 Cir. 1952, 193 F.2d 461. Lutgert urges that this Court modify or relax the Birnbaum rule in light of the “touch test” referred to by the Supreme Court in Superintendent of Insurance v. Bankers Life and Casualty Co., 1971, 404 U.S. 6, 92 S.Ct. 165, 30 L.Ed.2d 128. Lutgert does not specifically suggest what modifications would be appropriate.

This Court has recently clarified its interpretation of Bankers Life and its effect on the Birnbaum rule in Smallwood v. Pearl Brewing Co., 5 Cir. 1974, 489 F.2d 579, and Sargent v. Genesco, Inc., 5 Cir. 1974, 492 F.2d 750. In Sargent the Court eliminated any doubt that it continued to adhere to the Birnbaum rule by expressly reaffirming the vitality of the purchaser-seller requirement in this circuit. 492 F.2d at 764.

The Court in Sargent was careful to point out that as it interpreted Bankers Life, the “touch test” referred to by the Supreme Court applies to defendant’s conduct, not to plaintiff’s status. For a plaintiff to obtain standing it is not sufficient that he is somehow touched or affected by the purchase or sale of securities, but rather once the plaintiff establishes himself as a purchaser or seller, the “defendant’s fraudulent conduct need not specifically relate to the plaintiff’s securities transaction. Instead, the requisite nexus exists if such conduct merely touches upon the plaintiffs’ purchase or sale. See Smallwood v. Pearl Brewing Co.” Sargent v. Genesco, Inc., 492 F.2d at 763. To have subject matter jurisdiction the plaintiff must therefore demonstrate that he is a purchaser or seller of securities.

It is clear that Lutgert failed to allege that he was a purchaser of the Vanderbilt stock. Indeed, he would not have been able to do so since, in the words of the trial court, “his alleged cause of action springs from the claim that he has been ‘arbitrarily’ denied this right to purchase.” (Emphasis added).

Lutgert, however, attempts to bring himself within the purchaser-seller rule through his purchase of First National stock. He argues that the purchase of First National stock carries with it dividends, rights, and all other incidents of ownership, one of which is the right to purchase Vanderbilt stock. Indeed, a right to purchase a security is a “security” as defined in the Securities Exchange Act of 1934. 15 U.S.C.A. § 77b(l). Nevertheless, Lutgert’s argument must fail.

It is uncontroverted that the March 31, 1971, record date was selected and included in the amended application to the FDIC in October of 1971. The FDIC accepted this application in November of 1971. Lutgert’s first purchase did not take place until May of 1972. Consequently, since the record date had been set prior to Lutgert’s purchase, the First National stock at the time of his purchase did not carry with it the right to purchase the Vanderbilt stock. Lutgert, therefore, cannot qualify, through his purchase of First National stock, as a purchaser of the right to subscribe to Vanderbilt stock. It is difficult to perceive how Lutgert could have been defrauded by the failure of defendants to disclose the record date until August 20, 1973, when he was not entitled to subscribe to the Vanderbilt stock at the time of his First National purchases.

Lutgert also asserts a claim for relief based upon the failure of defendants Ingram, Rogers, Hahn and the Vanderbilt bank to disclose the record date of the right to purchase Vanderbilt stock within ten days prior to the setting of that date in contravention of Rule 10b-17.

Rule 10b — 17 was adopted by the SEC in June of 1971, and therefore was effective at the time the record date was set in October or November of 1971. Nevertheless, the Birnbaum purchaser-seller requirement would preclude Lutgert from standing to assert the violation.

Although Rule 10b — 17 does not contain a purchaser-seller requirement, § 10(b), under which Rule 10b-17 was promulgated, does contain such a provision. Thus a plaintiff must also be a purchaser or seller of securities to confer subject matter jurisdiction upon the federal courts under Rule 10b — 17.

For example, if the owner of First National stock prior to the record date were to sell his stock within the ten-day disclosure period referred to in Rule 10b-17 unaware, due to defendants’ nondisclosure, that the record date had been set, it is conceivable that he might make out a claim for relief under Rule 10b — 17. Plaintiff in such a case would have been a seller of First National stock and would have been defrauded in connection with that sale. It would appear that this is the type of claim for which Rule 10b — 17 was intended to provide relief. Lutgert, however, was not a seller of a security, and although he was a purchaser of First National stock, this purchase was in no way “touched” by any asserted deception, since the alleged harm is the deprivation of the right to purchase Vanderbilt stock, a right that is no way attached to the First National stock at the time of the purchase. Consequently, Lutgert is not a purchaser or seller within the meaning of Section 10(b), thereby depriving the federal courts of subject matter jurisdiction over the Rule 10b — 17 claim.

Finally, Lutgert attaches significance to the fact that he is not seeking damages, but rather is requesting declaratory relief. He relies on a footnote by this Court in Smallwood that other circuits “have explicitly relaxed the Birnbaum requirement for actions seeking injunctive relief,” thus suggesting that this Court might do so in a suit for declaratory judgment. 489 F.2d at 589, n. 8.

The rationale behind the relaxation of the Birnbaum rule in some jurisdictions when injunctive relief is sought, however, is to prevent the deception which if carried to its fruition, would have provided a plaintiff standing to sue for damages. See Mutual Shares Corp. v. Genesco, Inc., 2 Cir. 1967, 384 F.2d 540, 546; Kahan v. Rosenstiel, 3 Cir. 1970, 424 F.2d 161, 173, cert. denied, 398 U.S. 950, 90 S.Ct. 1870, 26 L.Ed.2d 290. In this case, even if we were to accept the attempted analogy of injunctive vis a vis declaratory relief, Lutgert’s argument is unpersuasive, since at no time would Lutgert have been able to satisfy the purchaser-seller requirement in a suit for damages.

Affirmed.

      . 15 U.S.C.A. § 78j provides:
      It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange— ******
      (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. (Emphasis supplied).

      . 17 C.F.R. § 240.1 Ob-5:
      It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
      (a) To employ any device, scheme, or artifice to defraud,
      ****** in connection with the purchase or sale of any security. (Emphasis supplied).

      . This analysis renders it unnecessary to consider whether under Florida law or under “federal common law” the right to purchase Vanderbilt stock would inherently enure to the First National stock holders.

      . 17 C.F.R. § 240.10b — 17:
      (a) It shall constitute a “manipulative or deceptive device or contrivance” as used in section 10(b) of the Act ... to fail to give notice in accordance with paragraph (b) of this section.
      * * * * * *
      (b) Notice shall be deemed to have been given in accordance with this section only if:
      (1) Given to the National Association of Securities Dealers, Inc., no later than 10 days prior to the record date involved.

      . This is not to intimate that this Court would relax the Birnbaum rule if injunctive relief were sought. As this Court stated in Small-wood, this is an open question. 489 F.2d at 589, n. 8.