author: KALODNER, Circuit Judge.

text:
    Frederick BEACH and Vincent Di Rubbio, Appellants in No. 72-1857. v. KDI CORPORATION, Appellant in No. 72-1856, et al., OPI Corp. and Edward J. Eggart, Intervenors. KDI Corporation and Ordnance Products, Inc., [OPI Corp.] Appellants in No. 72-1856.
    Nos. 72-1856, 72-1857.
    United States Court of Appeals, Third Circuit.
    Argued May 22, 1973.
    Decided Jan. 11, 1974.

      E. N. Carpenter, II, Richard J. Abrams, Richards, Layton & Finger, Wilmington, Del., for appellants in No. 72-1856 and appellees in No. 72-1857.
    Peter J. Walsh, Converse Murdoch, Murdoch, Longobardi, Schwartz & Walsh, Wilmington, Del., for appellees in No. 72-1856 and appellants in No. 72-1857.
    Before KALODNER, ALDISERT and ADAMS, Circuit Judges.
   OPINION OF THE COURT

KALODNER, Circuit Judge.

Did the district court err in holding that it had “pendent jurisdiction” with respect to intervening defendants’ counterclaim, presenting state claims, in the instant action of Frederick Beach and Vincent Di Rubbio against KDI Corporation for rescission of a “Reorganization Agreement,” grounded on alleged violations of the federal laws pertaining to securities transactions ?

That is the primary question presented by these cross-appeals from the June 30, 1972 Final Judgment of the district court which granted in part, and denied in part, the various state claims asserted in the counterclaim of KDI, Ordnance Products, Inc. (“OPI”) and Edward J. Eggart, chairman of the trustees of the OPI Employees’ Profit-Sharing Plan (“Plan”).

Although it has not been presented by the appellants, we raise, sua sponte, the critical primary question as to existence of “pendent jurisdiction.” It is settled that “the issue whether pendent jurisdiction has been properly assumed is one which remains open throughout the litigation,” and that we may raise it sua sponte

The relevant facts gleaned from the record may be highlighted as follows:

The plaintiffs Beach and Di Rubbio are citizens of North East, Maryland.

The defendant KDI Corporation (“KDI”) is a Delaware corporation with principal offices in Cincinnati, Ohio.

The intervening defendant OPI is a Delaware corporation with principal offices in North East, Maryland.

The intervening defendant Edward J. Eggart is president of OPI and trustee of the Plan.

Under a Reorganization Agreement, effective May 20, 1969, Beach and Di Rubbio transferred to KDI the capital stock of OPI, which they owned in equal shares, in exchange for 92,407 shares of KDI, valued in the Agreement at $2,525,000.00. The Agreement provided that KDI would issue additional shares of KDI stock to plaintiffs on January 31, 1971, based on certain specified for-mulae. It also provided in Section 3A that plaintiffs would reimburse KDI with respect to any liability of OPI incurred by reason of “renegotiation or adjustment on government contracts relating to the period from November 1, 1967 to the Transfer Date” (May 20, 1969).

The Agreement also specified that plaintiffs would be employed as officers of OPI for a two-year term expiring May 20, 1971 at a salary of $64,500.00 each, and that they could purchase at their cash surrender value policies which OPI had taken out on their lives, on delivery to OPI of their two-year 7/2% promissory notes.

Plaintiffs filed an action against KDI on November 27, 1970, for rescission of the Agreement, return of their OPI stock, and damages. They alleged in their 6-count complaint that KDI had violated the Securities Act of 1933, and the Securities and Exchange Act of 1934, in effecting the Agreement. The complaint was later amended by adding as additional defendants some of the officers of KDI.

On December 30, 1970, KDI filed a petition for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq., in the United States District Court for the Southern District of Ohio,' and in connection therewith obtained a general stay order which operated to halt further prosecution of plaintiffs’ November 27, 1970 action in the court below.

On May 21, 1971, a day after plaintiffs’ two-year employment contract expired, they were removed as officers and directors of OPI by a new board of directors elected by KDI as sole stockholder of OPI.

On May 24, 1971, plaintiffs filed a motion in the court below for a preliminary injunction to effect their reinstatement as officers, directors and employees of OPI.

On May 28, 1971, the Ohio bankruptcy court, on plaintiffs’ application, entered an order modifying its general stay order of December 30, 1970 so as to permit plaintiffs to proceed in the court below with their May 24, 1971 motion for a preliminary injunction.

On June 4, 1971, OPI notified plaintiffs that they were removed as trustees of the Plan.

On June 7, 1971, KDI filed a motion in the court below for a restraining order and preliminary injunction prohibiting plaintiffs from continuing to act as two of the three authorized trustees of the Plan.

On June 9, 1971, the court below denied KDI’s June 7, 1971 motion, and further ordered plaintiffs (1) to file a supplemental complaint relating to their May 24, 1971 motion for a preliminary injunction, and (2) to apply to the Ohio bankruptcy court for authorization to do so.

On June 24, 1971, an order was entered by the Ohio bankruptcy court authorizing the filing of a supplemental complaint relating to the plaintiffs’ May 24, 1971 motion for a preliminary injunction.

On June 29, 1971, plaintiffs filed an Amended and Supplemental Complaint. It added to their original 6-count complaint, seeking rescission of their Reorganization Agreement with KDI, a Count VII which alleged events occurring after the filing of their original complaint. Count VII alleged in relevant part that KDI had ousted plaintiffs as directors of OPI as part of a scheme to compel them to withdraw their rescission action, and prayed for a preliminary injunction ordering KDI to reinstate the plaintiffs as directors of OPI and to further reconstitute the OPI board of directors as it existed on May 21, 1971.

On July 23, 1971, KDI and the individual defendants filed an Answer to the Amended and Supplemental Complaint which denied any wrongdoing and asserted certain affirmative defenses. KDI alone therein prayed for an order declaring as valid plaintiffs’ removal as officers, directors and employees of OPI, and as trustees of the Plan; and for further orders requiring plaintiffs (1) to account to OPI and to the Plan for all distributions made to them; (2) to surrender to the trustees of the Plan all of the latter’s assets, books and records; and (3) to restrain plaintiffs from acting as trustees of the Plan or as officers, directors or employees of OPI.

On August 2, 1971, plaintiffs filed an answer to the KDI counterclaim in which they challenged its allegations and asked for its dismissal.

On December 1, 1971, the district court granted leave to KDI to file an Amended and Supplemental Answer and Counterclaim, and further granted the motion of OPI and Eggart, as president of OPI and as trustee of the Plan, “for leave to intervene as parties defendant with respect to Count VII (only) of the plaintiffs’ Amended and Supplemental Complaint, and with respect to the defendants’ Amended and Supplemental Answer to plaintiffs’ Amended and Supplemental Complaint and Counterclaim.” The motion to intervene alleged as follows:

“The grounds for this motion are, that OPI is a party which would be directly affected by the relief sought by plaintiffs, and is a proper party to assert defenses against plaintiffs’ claims; that OPI is a proper party to seek the affirmative relief sought against plaintiffs by the defendants’ Amended and Supplemental Answer and Counterclaim; and that OPI and Eggart are parties directly affected by the relief sought by plaintiffs’ complaint in respect to the OPI Employees' Profit Sharing Plan and sought by defendants’ Amended and Supplemental Answer and Counterclaim in respect to said Plan.”

The defendants’ Amended and Supplemental Answer and Counterclaim was filed December 6, 1971. The counterclaim, which ran only to OPI, was captioned “Counterclaim by KDI Corporation, OPI Corporation and Edward J. Eggart.” It alleged in relevant part as follows:

“75. Plaintiffs are liable to OPI for the following items, recoverable against plaintiffs individually or as offsets from such amounts, if any, as may be attributable to them as terminated employees under the OPI Employees’ Profit Sharing Plan; [emphasis supplied]
“(a) Excessive salary payments in violation of the terms of the Reorganization Agreement with KDI and of agreements with third-party creditors of OPI;
“(b) Amounts recovered or recoverable by the Federal Government against OPI under renegotiation or [sic] defective pricing claims, for which plaintiffs are personally liable under the terms of the Reorganization Agreement with KDI;
“(c) Insurance notes due and payable to OPI in the aggregate amount of $36,264.07;
“(d) Personal advance and loan accounts with OPI aggregating $22,246.-70;
“(e) Personal expenses improperly charged to OPI as business expenses;
“(f) Unauthorized and improper advance employer contributions to the OPI Employees’ Profit Sharing Plan in the amount of $32,525.23.
“76. The Answering Defendants have no adequate remedy at law.
“77. An accounting is necessary to determine the exact amount of plaintiffs’ personal liabilities to OPI and KDI as alleged in paragraph 75 here-inabove.”

On December 8, 1971, plaintiffs filed an Answer to the Counterclaim of KDI, OPI and Eggart, in which they (1) asked for its dismissal; and (2) an order directing a distribution to plaintiffs of $295,099.00 from the Plan, plus punitive damages and attorneys’ fees incurred in their defense of the Counterclaim.

On December 14, 1971, plaintiffs filed an Amended Answer to the KDI, OPI and Eggart Counterclaim in which they claimed liability of plaintiffs to OPI m connection with the Federal Government’s defective pricing claim, and the overdue $36,264.07 two-year promissory notes given by plaintiffs to OPI when they purchased OPI’s insurance policies on their lives. pleaded affirmative defenses of failure of consideration with respect to the

It may be noted parenthetically that in June 1971, OPI settled for $114,000.-00 a so-called “defective pricing claim” of the Federal Government arising out of OPI sales to the Government prior to May 20, 1969, and that the Government deducted the $114,000.00 in 1971 from amounts otherwise due OPI on current sales to the Government.' Plaintiffs never reimbursed KDI or OPI with respect to the stated $114,000.00 “defective pricing claim” settlement.

The issues presented by Count VII of the plaintiffs’ Amended and Supplemental Complaint, the KDI-OPI-Eggart Counterclaim, and plaintiffs’ Counterclaims, were tried to the district court in a six-day trial in December 1971.

The district court in an opinion filed December 28, 1971, reported at 336 F. Supp. 229 (D.Del.1971), spelled out the sweep of the trial as follows:

“To summarize, three issues have been tried: (1) plaintiffs’ right to be reinstated as officers and directors of OPI, (2) plaintiffs’ right to their proportionate part of the OPI profit sharing fund monies, and (3) the right of OPI and KDI to an accounting from plaintiffs. Under rule 42(b) these issues have been tried as issues separate from Counts I through VI.” 336 F.Supp. at 231. (emphasis supplied).

After defining the issues tried, the district court held that “pendent jurisdiction” existed with respect to them. In doing so, it said:

“Jurisdiction over Counts I through VI exists under Section 22(a) of the Securities Act of 1933, as amended, and Section 20 [sic] of the Securities Exchange Act of 1934, as amended. Pendant jurisdiction exists as to Count VII. The pendant jurisdiction likewise supports the counterclaim.” 336 F.Supp. at 231-232. (emphasis supplied).

The December 28, 1971 opinion disposed of issues (1) and (2), presented by plaintiffs’ Count VII and counterclaims. It reserved for later disposition issue (3), presented by the KDI-OPI-Eggart Counterclaim, and plaintiffs’ application for counsel and accountants’ fees.

It decided as to issue (1) that the May 21, 1971 removal of plaintiffs as officers and directors of OPI was valid, and that plaintiffs were not entitled to an injunction directing their reinstatement. It held as to issue (2) that plaintiffs were each entitled to a distribution of $121,251.31, plus interest, from the Plan.

The district court’s December 30, 1971 judgment, entered pursuant to its opinion, was not appealed.

The district court, in a second opinion filed June 16, 1972, reported at 344 F. Supp. 1230 (D.Del.1972), disposed of issue (3), and plaintiffs’ application for counsel and accountants’ fees, as follows:

(1) it held OPI was entitled to a judgment of $19,092.12 against Beach, and a judgment of $17,171.95 against Di Rubbio, with interest, on their notes in exchange for the OPI insurance policies on their lives;
(2) it denied defendants’ claim that plaintiffs were liable to OPI for excessive salary payments and business expenses;
(3) it denied defendants’ claim that plaintiffs had caused OPI to make improper advance contributions to the Plan;
(4) it denied OPI indemnification against plaintiffs with respect to the Federal Government’s recovery of $114,000.00 from OPI on its “defective pricing claim,” on the ground that plaintiffs’ indemnification obligation under the Agreement was “discharged” by reason of KDI’s failure to issue additional shares to plaintiffs on January 31, 1971 as provided by the Agreement; and
(5) it denied plaintiffs’ application for counsel and accountants’ fees in contesting defendants’ counterclaim “in the exercise of its discretion.”

The foregoing dispositions were given effect in a Final Judgment entered by the district court on June 30,1972.

Plaintiffs have appealed from the judgment insofar as it made them liable to OPI on their insurance notes and denied their application for counsel and accountants’ fees.

Defendants have appealed from the dismissal of their claim that plaintiffs were liable to OPI under the indemnification provisions of the Agreement with respect to the Federal Government’s $114,000.00 recovery from OPI on its “defective pricing claim,” and dismissal of OPI’s counterclaim for “personal advances and loan accounts” allegedly due by plaintiffs.

The parties have not challenged the district court’s “pendent jurisdiction” holding in these cross-appeals. It is settled, however, that jurisdiction of a federal court cannot be created by consent of the parties.

We have, sua sponte, raised the threshold question whether the district court erred in holding that it had “pendent jurisdiction” as to the counterclaim adjudicated in its June 30, 1972 Final Judgment.

The district court reasoned that since it had jurisdiction of the federal claim presented in Counts I-VI of plaintiffs’ complaint, “[pjendant jurisdiction exists as to Count VII,” and, “[t]he pendant jurisdiction likewise supports the counterclaim.”

The pendent jurisdiction doctrine affords no nourishment to the district court’s reasoning.

The doctrine may be epitomized as follows:

Pendent jurisdiction, in the sense of judicial power, exists as to a plaintiff’s state claim which lacks independent basis of jurisdiction, when it is joined with a federal claim, provided, however, that the state and federal claims “derive from a common nucleus of operative fact.”

Here, the district court disregarded the fact that the pendent jurisdiction doctrine pertains only to a state claim of a plaintiff when it held that pendent jurisdiction extended to the counterclaim of intervening defendants.

The district court further disregarded the circumstance that the doctrine applies only where a state claim is joined with a federal claim, and both claims are derived “from a common nucleus of operative fact.”

Neither Count VII nor the counterclaim to Count VII presented a federal claim. They presented only state claims: Count VII for reinstatement; the counterclaim for alleged indebtedness of plaintiffs to OPI.

The claims in Count VII and the counterclaim were not derived from a “common nucleus of operative fact.” The “operative fact” in Count VII was the ouster of plaintiffs from their OPI offices and directorships as part of an alleged KDI scheme to force plaintiffs to abandon their action for rescission of the Agreement, set forth in Counts IVI; the “operative fact” in the counterclaim was the alleged indebtedness of plaintiffs to OPI.

Further, since the “operative fact” in rescission Counts I-VI was KDI’s alleged violation of federal laws in effectuating the Agreement, there was no “common nucleus of operative fact” with respect to that claim and the claims of Count VII and the counterclaim. Notation of the absence of a “common nucleus of operative fact” as to Counts I-VI, Count VII and the counterclaim is relevant because the district court premised its holding that pendent jurisdiction existed as to Count VII and the counterclaim on the existence of jurisdiction as to the federal claim presented by Counts I-VI.

Count VII did present a claim to which ancillary jurisdiction attached because it charged KDI with conduct designed to thwart the judicial process, viz., prosecution of plaintiffs’ rescission action. Ancillary jurisdiction is not necessarily pendent jurisdiction. See Schwab v. Erie Lackawanna R. R. Co., 438 F.2d 62, 70 n.18 (3d Cir. 1971).

The existence of ancillary jurisdiction as to Count VII afforded no prop to the district court’s holding that “[t]he pendant jurisdiction likewise supports the counterclaim.”

In light of the considerations stated we are of the opinion that the district court erred in holding that it had “pendent jurisdiction” as to the counterclaim.

We are further of the opinion that the district court was without jurisdiction of any kind as to the counterclaim for these l’easons:

OPI and Eggart were granted leave to intervene as defendants only as to Count VII, pursuant to the “Permissive Intervention” provision of Rule 24(b), Fed.R. Civ.P.

Rule 24(b), provides in relevant part: “Permissive Intervention. Upon timely application anyone may be permitted to intervene in an action: (1) when a statute of the United States confers a conditional right to intervene; or (2) when an applicant’s claim or defense and the main action have a question of law or fact in common.” (emphasis supplied).

Putting aside the fact that the “claim or defense” of OPI and Eggart, and the main action, Count VII, did not “have a question of law or fact in common,” the district court was foreclosed from considering the intervenors’ counterclaim for this reason:

It is settled that “[i]f the intervention is a permissive one the claim must be supported by independent jurisdictional grounds,” Babcock & Wilcox Company v. Parsons Corporation, 430 F.2d 531, 540 (8th Cir. 1970), otherwise “it will be excluded from the case.” Diamond v. Terminal Railway Alabama State Docks, 421 F.2d 228, 236 (5th Cir. 1970) (emphasis supplied).

Here, the counterclaim was not supported by independent jurisdictional grounds, viz., diversity jurisdiction, inasmuch as plaintiffs, OPI and Eggart are all citizens of Maryland.

For all the reasons stated we are of the opinion that the district court was without jurisdiction to entertain the counterclaim.

This, too, must be said:

As earlier detailed, the federal government recovered $114,000.00 from OPI in an adjustment of its “defective pricing claim.” Schedule 3A of the Agreement provided that plaintiffs would reimburse KDI for such an adjustment. The counterclaim, however, alleged that plaintiffs were liable to OPI for the $114,000.00.

The district court after holding that “Schedule 3A does not in terms provide for reimbursement of OPI but only KDI” nevertheless construed Schedule 3A to give “KDI an option” to be reimbursed “directly or, . . indirectly through OPI,” and held that KDI had opted to make the reimbursement run to OPI. The district court then decided the plaintiffs were “discharged from their obligation to reimburse OPI” because KDI had failed to issue additional KDI shares to plaintiffs as provided by the Agreement, (emphasis supplied).

It is clear that even if the district court had jurisdiction generally as to the counterclaim it was without jurisdiction to adjudicate issues as to KDI’s rights under the indemnification provisions of the Reorganization Agreement since the bankruptcy court alone had exclusive jurisdiction on that score. In Matter of Imperial “400” National, Inc., 429 F.2d 671 (3d Cir. 1970).

There was no basis for the district court’s holding that Section 3A gave KDI “an option” to assign to OPI its right of reimbursement. Assuming that Schedule 3A did provide such an option and that KDI did exercise it, it was an exercise in futility since it was without express authorization of the bankruptcy court and the district court should have taken cognizance of that fact. Since Schedule 3A provided that the indemnification claim ran only to KDI, it was an asset of the bankrupt estate as to which the bankruptcy court had exclusive jurisdiction.

The bankruptcy court’s general stay order was a bar to the district court’s adjudication of KDI’s right to the indemnification claim. The modification of the stay order to permit filing of plaintiffs’ Count VII for reinstatement was a limited modification. It implicitly gave KDI the right to defend the merits or legality of the reinstatement claim. It did not, however, give KDI the right to sue — counterclaim—for the pricing claim nor did it permit KDI to assign the claim to OPI.

There remains for disposition plaintiffs’ contention that the district court erred in denying its claims for counsel and accountants’ fees in its June 30, 1972 Final Judgment.

On review of the record we cannot say that the district court abused its permissible discretion in denying plaintiffs’ application for counsel and accountants’ fees.

For the reasons stated the Final Judgment of the district court of June 30, 1972 will be reversed and vacated except as to its denial of plaintiffs’ application for attorneys’ and accountants’ fees, and the cause will be remanded to the dis-' trict court with directions to dismiss defendants’ counterclaim for want of jurisdiction.

      . United Mine Workers of America v. Gibbs, 383 U.S. 715, 727, 86 S.Ct. 1130, 16 L.Ed. 2d 218 (1966).

      . Sedivy v. Richardson, 485 F.2d 1115 (3d Cir. 1973).

      . 15 U.S.C.A. § 77a et seq.

      . 15 U.S.C.A. § 78a et seq.

      . 344 F.Supp. at 1243.

      . “Final Judgment
      “And Now, to Wit, this 30th day of June, 1972, certain issues having been tried and an opinion having been rendered with respect thereto on June 10, 1972, and it appearing that the United States District Court for the Southern District of Ohio, Western Division, has issued a stay whicli prevents plaintiffs from litigating pending issues which have not yet been resolved,
      “It Is Ordered and Adjudged:
      “1. OPI is entitled to a judgment of $19,-092.12 against Beach, and a judgment of $17,171.95 against Di Rubbio, in each instance with interest from May 13, 1971;
      “2. Except as stated in paragraph 1, the counterclaim of defendants is dismissed;
      “3. Plaintiffs’ application for attorneys’ and accountants’ fees is denied.
      “Pursuant to Rule 54(b) the Court expressly determines that there is no just reason for delay in entering final judgment with respect to the above matters and the Clerk is expressly directed to enter such a judgment.”

      . Plaintiffs also challenge the district court’s ruling that $114,000.00 was the “net” effect of the Federal Government’s “defective pricing claim” albeit defendants’ claim with respect to the pricing claim was dismissed.

      . American Fire & Cas. Co. v. Finn, 341 U.S. 6, 17-18, 71 S.Ct. 534, 95 L.Ed. 702 (1951) ; People’s Bank v. Calhoun, 102 U.S. 256, 260-261, 26 L.Ed. 101 (1880) ; Babcock & Wilcox Company v. Parsons Corporation, 430 F.2d 531, 540 (8th Cir. 1970).

      . United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). To the same effect, see Moor v. County of Alameda, 411 U.S. 693, 712, 93 S.Ct. 1785, 36 L.Ed .2d 596 (1973).

      . Morrow v. District of Columbia, 135 U.S. App.D.C. 160, 417 F.2d 728, 740 (1969).

      . Count VII charged that KDI ousted plaintiffs as officers and directors of OPI as part of a KDI scheme to compel plaintiffs to withdraw their pending action to rescind the Agreement. The counterclaim asserted claims for alleged indebtedness of plaintiffs to OPI.

      . See too 3B Moore, Federal Practice, ¶ 24.18 [1], at 24-753 (2d ed. 1969), and Wriglit, Federal Courts, § 75, at 331 (2d ed. 1970).

      . 344 F.Supp. at 1237.

      . In so holding the court said:
      “The undertaking by plaintiffs in the reorganization agreement, including the indemnification and reimbursement obligations in Section 8(b) and Schedule 3A were given in exchange for the promises of KDI to issue to plaintiffs the KDI shares specified in the agreement. The failure of KDI to issue the ‘guarantee shares’ constituted a material failure of consideration and breach of the agreement which discharged plaintiffs from their obligations to reimburse OPI. . ” 344 F.Supp. at 1239. (emphasis supplied).
      The stated holding is utterly inconsistent with the district court’s simultaneous rejection of plaintiffs’ contention that KDI’s failure to deliver additional shares constituted a failure of consideration for the insurance notes which they gave to OPI. In rejecting the contention the district court said :
      “Plaintiffs gave the notes to OPI not to KDI. OPI did not breach the reorganization agreement. It was not a party to it. Because KDI may have done so is no reason to discharge plaintiffs from paying their obligation to OPI.” 344 F.Supp. at 1233. (emphasis supplied).

      . Section 311 of the Bankruptcy Act, 11 U.S. C.A. § 711, provides in relevant part that the court in which a Chapter XI petition is filed “shall . . . have exclusive jurisdiction of the debtor and his property, wherever located.”

      . The counterclaim was not a “compulsory counterclaim” within the meaning of Rule 13 (a) of the Fed.R.Civ.P. It had no “logical relationship” to Count VII. Great Lakes Rubber Corporation v. Herbert Cooper Co., Inc., 286 F.2d 631, 634 (3d Cir. 1961). Disposition of Count VII in plaintiffs’ favor would not have bound OPI in a res judicata sense insofar as its debt claims against plaintiffs were concerned.


source: Caselaw Access Project

author: WARREN L. JONES, Circuit Judge:

license: Public Domain

text:
    UNITED STATES of America, Appellee, v. Robert Eugene MAJORS, Appellant.
    No. 73-1403.
    United States Court of Appeals, Tenth Circuit.
    Submitted Oct. 15, 1973.
    Decided Jan. 30, 1974.

      Robert J. Roth, U. S. Atty., Thomas A. Hamill and E. Edward Johnson, Asst. U. S. Attys., for appellee.
    Robert D. Inman, Denver, Colo., for appellant.
    Before LEWIS, Chief Judge, and JONES and McWILLIAMS, Circuit Judges.

       Of the Fifth Circuit, sitting by designation.

   WARREN L. JONES, Circuit Judge:

The appellant, Robert Eugene Majors, was convicted on a plea of guilty of escaping from a Federal penitentiary in violation of 18 U.S.C.A. § 751(a). He has appealed from a judgment on the guilty plea and a sentence of three years imprisonment.

While enjoying his temporary freedom following his escape from prison, Majors stole a car and drove it across a state line and in so doing made himself liable to prosecution under the Dyer Act, 18 U.S.C.A. § 2311 et seq. At the hearing when Majors withdrew his not guilty plea and made his plea of guilty to the escape charge, he was informed of the maximum sentence. He gave the usual assurances that he had been given no promise of a lesser than maximum sentence. After being prompted by defense counsel, the Government attorney reported to the court that the Government had agreed not to prosecute on the Dyer Act offense if the plea on the escape charge was accepted. Inquiry was made as to whether there were any matters of aggravation to be considered. Government counsel advised the court of the ear theft. A presentence investigation was made and the presentence report contained a reference to the car theft. A sentence of three years was imposed. At the time of sentencing the court mentioned the car theft and commented that Majors might have been prosecuted for it. It was provided that the three year sentence would run consecutively with the prior sentence then being served.

In his appeal Majors says that the usual term imposed for escape is a year and a day, and that the rest of the three years was for the Dyer Act violation. Two contentions are made. It is urged that the appellant’s rights were violated by the prosecuting attorney in relying upon the car theft as an aggravation after agreeing to dismiss the Dyer Act charge when the guilty plea to the escape was accepted. The appellant further contends that the court should not have considered the car theft in imposing sentence since it had been dismissed as a result of the bargain which resulted in the plea of guilty to the escape charge.

The single issue presented by the appeal is whether, in sentencing the appellant, the judge erred in considering the theft and interstate transportation of an automobile by the appellant.

In the exercise of the difficult discretionary function of imposing sentence upon a convicted or confessed criminal, the sentencing judge is entitled to all the help he can get. In fixing punishment, matters and things other than a defendant’s guilt of the particular crime are to be considered. Appropriate, perhaps necessary, to the inquiry are the history, background, character and criminal activities of the defendant. Both aggravating and mitigating circumstances are relevant. Pertinent information is not generally to be disregarded because of exclusionary rules of evidence. Williams v. New York, 337 U.S. 241, 69 S.Ct. 1079, 93 L.Ed. 1337, reh. den. 337 U.S. 961, 69 S.Ct. 1529, 93 L.Ed. 1760, reh. den. 338 U.S. 841, 70 S.Ct. 34, 94 L.Ed. 514; Williams v. Oklahoma, 358 U.S. 576, 79 S.Ct. 421, 3 L.Ed.2d 516; reh. den. 359 U.S. 956, 79 S.Ct. 737, 3 L.Ed.2d 763; Hoover v. United States, 10th Cir. 1959, 268 F.2d 787; Wagstaff v. United States, 10th Cir. 1966, 370 F.2d 444; United States v. Donohoe, 10th Cir. 1972, 458 F.2d 237, cert. den. 409 U.S. 865, 93 S.Ct. 157, 34 L.Ed.2d 113.

From the principles herebefore stated it would follow that the judge, in sentencing Majors, properly considered the automobile offense. However, it can be plausibly urged that United States v. Tucker, 404 U.S. 443, 92 S.Ct. 589, 30 L.Ed.2d 592, requires a different result. Tucker had been convicted of armed bank robbery. At his trial he testified on his own behalf. He denied participation in the robbery and offered an alibi defense. To impeach his credibility, the Government, on cross-examination, ásked whether he had been convicted of any felonies. Tucker stated that he had three previous felony convictions. Before imposing the maximum sentence of 25 years, the trial judge inquired into Tucker’s background, and gave explicit attention to his three previous felony convictions.

It was later determined that two of Tucker’s prior convictions were constitutionally invalid under Gideon v. Wainwright, 372 U.S. 335, 83 S.Ct. 792, 9 L.Ed.2d 799, because Tucker had not been represented by counsel, and had not been advised of his right to counsel or intelligently and understandingly waived his right to counsel. Tucker brought a proceeding under 28 U.S.C.A. § 2255 on the theory that the introduction of evidence of his prior invalid convictions had tainted the jury’s verdict of guilty. The district court found this to be harmless error viewed in the light of the overwhelming evidence of guilt. On appeal the Ninth Circuit Court of Appeals agreed that the prior convictions did not contribute to the guilty verdict, but decided that the invalid convictions might have caused the trial court to impose a heavier sentence than it might have otherwise imposed. The bank robbery conviction was upheld but the sentence was vacated and the cause was remanded for resentencing without consideration of any prior invalid convie-tions. Tucker v. United States, 9th Cir. 1970, 431 F.2d 1292.

In the Supreme Court the Government argued that a United States District Judge has almost unreviewable discretion in imposing sentence, and that he is entitled to know to what extent a defendant has in fact engaged in criminal or antisocial conduct. The Government contended that in view of other detrimental information known about Tucker at sentencing, it was unlikely that a different sentence would have been given even if the court had known of the invalidity of the prior convictions. The Supreme Court approved the principle that a trial judge has wide discretion in sentencing, and that before imposing sentence he may make a broad inquiry about the defendant, almost unlimited as to the kind, or source, of information, and that a sentence is not generally subject to review. However, the Court held that it was not dealing with “a sentence imposed in the informed discretion of a trial judge, but with a sentence founded at least in part upon misinformation of constitutional magnitude.” 404 U.S. 443, at 447, 92 S.Ct. 589, at 591. The Court said that the issue before it was whether the 1953 sentence “might have been different if the sentencing judge had known that at last two of the respondent’s [Tucker’s] previous convictions had been unconstitutionally obtained.” 404 U.S. 443, 448, 92 S.Ct. 589, 592. In deciding the issue which it posed, the Supreme Court held that:

“. . . if the trial judge in 1953 had been aware of the constitutional infirmity of two of the previous convictions, the factual circumstances of the respondent’s background would have appeared in a dramatically different light at the sentencing proceeding . . . . We cannot agree with the Government that a reevaluation of the respondent’s sentence by the District Court even at this late date will be either ‘artificial’ or ‘unrealistic.’ ” 404 U.S. 443, at 448, 92 S.Ct. 589, 592.

The Court commented that in Burgett v. Texas, 389 U.S. 109, 88 S.Ct. 258, 19 L.Ed.2d 319, it had been held that to permit a conviction obtained in violation of Gideon, supra, to be used against a person either to support guilt or enhance punishment for another offense would erode the Gideon principle. The judgment of the Court of Appeals remanding for resentencing was affirmed.

The differences between the Tucker case and that now before this Court for decision require a different conclusion. In Tucker the convictions were nullified by the application of the Gideon principle. The presumption of innocence shielded Tucker from enhancement of his sentence by reason of the constitutionally invalid convictions. By his plea bargain and the subsequent dismissal of the indictment against him for interstate transportation of a stolen motor vehicle, Majors was neither acquitted nor convicted, and the dismissal of the indictment for this offense did not deprive him of any constitutional or other right. The dismissed indictment and the charge contained in it are within the kind of information which a court may properly consider in passing sentence. The plea bargain and the indictment dismissal resulting from it did not and, indeed, could not, deprive the judge of the right and probably the duty of giving consideration to it. While a constitutionally invalid conviction cannot be considered by a sentencing judge, it does not follow that there must be a constitutionally valid conviction in order that criminal conduct may be considered.

It is our decision that the judgment and sentence of the district court should be affirmed. In accord with the conclusion here reached are United States v. Doyle, 2nd Cir. 1965, 348 F.2d 715, cert. den. 382 U.S. 843, 86 S.Ct. 89, 15 L.Ed. 2d 84, decided before Tucker, and Davenport v. United States, 3rd Cir. 1972, 470 F.2d 1140, cert. den. 411 U.S. 919, 93 S.Ct. 1558, 36 L.Ed.2d 311, decided after Tucker.

The judgment of the district court is affirmed.


author: HOLLOWAY, Circuit Judge.

text:
    SENECA NURSING HOME et al., Plaintiffs-Appellees, v. The KANSAS STATE BOARD OF SOCIAL WELFARE et al., Defendants-Appellants.
    No. 72-1242.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted Jan. 9,1973.
    Decided Jan. 18, 1974.

      J. J. B. Wigglesworth, Topeka, Kan. (Charles V. Hamm, Topeka, Kan., on the brief), for defendant-appellant Kansas State Bd. of Social Welfare.
    T. Richard Liebert, Coffeyville, Kan. (Liebert & Liebert, Coffeyville, Kan., Jack A. Quinlan, Scott, Quinlan & Hecht, Topeka, Kan., and William A. Geoghegan, Pierson, Ball & Dowd, Washington, D. C., on the brief), for plaintiffs-appellees.
    Before SETH, HOLLOWAY and DOYLE, Circuit Judges.

       The action was brought by thirty-three named plaintiffs who were allowed to maintain the suit as a class action on their own behalf and for others similarly situated.

       Defendants in the District Court, in addition to the Kansas State Board of Social Welfare, included the Director of the Department of Social AYelfare, the Chairman and other members of the Board of Social AVelfare and the Secretary of the Department of Health, Education and Welfare of the United States. Of these only the State Officers and the Kansas State Board of Social Welfare are appealing.

   HOLLOWAY, Circuit Judge.

This case involves a dispute between a group of licensed nursing homes in Kansas and the State Board of Social Welfare (the Board) over payment for nursing services provided under state and federal welfare programs. The nursing homes seek to recover unspecified sums claimed for “reasonable, usual and customary charges” which they say they are entitled to by law and by contract and are unlawfully denied by a pay structure, essentially based on a formula of allowable cost plus a limited profit, that the Board claims is proper under controlling law and regulations, there being no contract. The trial court upheld the principal contention of the plaintiffs for the period prior to July 1, 1971, and we agree.

The court allowed the case to be maintained as a class action by named plaintiffs, who are appellees here, on behalf of themselves and the class of nursing homes similarly situated. Under licenses issued by the Kansas State Board of Health (the Board of Health), some plaintiffs are homes providing “skilled nursing care” as “nursing homes” and others are homes providing “simple nursing care” as “personal care homes,” as defined under Kansas law.

Under Kansas law, K.S.A. Chap. 39, Art. 7, the State Board of Social Welfare, defendant-appellant here, is charged with developing state plans to provide care and assistance to chronically ill and infirm aged persons qualified for assistance under the federal Social Security law and with determining state policy and supervising such programs under a plan not inconsistent with federal or state law.

This action was commenced in the state court and removed subsequently by the defendants, who were all then state officers and agencies, to the federal district court on the basis that the case involved the construction and interpretation of federal law and regulations.

After trial the district court made detailed findings and conclusions. A declaratory judgment was entered sustaining the plaintiffs’ main contention and deciding that they were entitled to payment on the standard of “reasonable, usual and custohiary charges” for the period before amendment of the Kansas Statutes in July, 1971. The damage claims for exact amounts of recovery were reserved. The state defendants appealed from the declaratory judgment in favor of the plaintiffs and no cross-appeal is being prosecuted by the plaintiffs on findings favorable to the defendants.

On this appeal the following questions are presented:

(1) Whether the action could properly have been brought in the federal court as one arising under federal law within 28 U.S.C.A. § 1331 and was thereby properly removed ; and
(2) whether the plaintiffs were entitled to payment for services under K.S.A. 39-708 (x) on the standard of “reasonable, usual and customary” charges rather than on the cost plus basis provided by a manual of the State Department of Social Welfare and regulations of the Board; and
(3) whether there was a contractual basis for suit by plaintiffs entitling them to maintain the action against the State agencies; and
(4) whether the manual was required to be promulgated in accordance with the notice, hearing and other procedural requirements of K.S.A. 77-415 et seq., which was not done; and
(5) whether the finding that all members of the plaintiffs’ class were “medical providers” within the meaning of K.S.A. 39-708(x) was proper.

The trial court’s opinion made a thorough statement of all the background facts, numerous contentions made and its rulings. We limit our statement to the facts necessary to treat the principal issues the appeal presents. These facts will be detailed in discussing the issues, to which we now turn.

(1) Federal court jurisdiction.

As stated above, this Court has raised the question of subject matter jurisdiction on its own motion. We were concerned whether the action was one arising under federal law within the meaning of 28 U.S.C.A. § 1331 and therefore properly removable under 28 U.S.C.A. § 1441. Supplemental briefs were requested and have been filed by the parties. They both take the position that subject matter jurisdiction was proper in the trial court for the reason that the action is one arising under the Constitution and laws of the United States.

We will focus on the amended and supplemental complaint filed in the federal court after removal since the removing defendants went to trial on that pleading without objecting to federal jurisdiction or the filing of the amendment. See Craig v. Champlin Petroleum Co., 421 F.2d 236, 239 (10th Cir.); cf. Grubbs v. General Electric Credit Corp., 405 U.S. 699, 705-706, 92 S.Ct. 1344, 31 L.Ed.2d 612. We must determine whether from the face of that complaint it appears that a right or immunity created by the Constitution or laws of the United States is an element, and an essential one, of the plaintiffs’ cause of action. See Pan American Petroleum Corp. v. Superior Court, 366 U.S. 656, 663, 81 S.Ct. 1303, 6 L.Ed.2d 584; Gully v. First National Bank, 299 U.S. 109, 112-113, 57 S.Ct. 96, 81 L.Ed. 70. And it is no substitute that the defendant was almost certain to raise a federal defense. Pan American Petroleum Corp. v. Superior Court, supra at 663 of 366 U.S., 81 S.Ct. 1303.

The amended and supplemental complaint alleges several claims as deriving from the laws and Constitution of the United States. It is unnecessary to analyze all the various claims. We are satisfied that claims A and F as stated in the margin are sufficient to support federal jurisdiction as substantial claims arising under federal law.

Claim A averred that qualified recipients are being denied a right allegedly guaranteed by the federal Social Security Act to receive care at the nursing home of their choice. See 42 U.S.C. A. § 1396a(a)(23). And claim F stated that Kansas Administrative Regulation 30-5-27 is in conflict with 42 U.S.C.A. § 1396a(a)(30) which stipulates essentially that state plans must provide methods and procedures relating to utilization and the payment for care and services as may be necessary to safeguard against unnecessary utilization and to assure that payments are not in excess of reasonable charges consistent with efficiency, economy and quality of care. We express no view on the merits of such claims of conflict between the Kansas manual and regulations and the federal statutes beyond saying that they are not so wholly insubstantial that federal jurisdiction does not exist. See Harmony Nursing Home, Inc. v. Anderson, 341 F.Supp. 957 (D.Minn.). We conclude that the claims made could not be dismissed as obviously without merit and defective as a jurisdictional base. See Levering & G. Co. v. Morrin, 289 U.S. 103, 105, 53 S.Ct. 549, 77 L.Ed. 1062; see also Goosby v. Osser, 409 U.S. 512, 518, 93 S.Ct. 854, 35 L.Ed.2d 36. And the plaintiffs as recipients of payments would have standing for themselves and for the interest of those served by them to assert these claims in view of the relationship to the indigents cared for. See Harmony Nursing Home, Inc. v. Anderson, supra at 959 of 341 F.Supp.; see also Sierra Club v. Morton, 405 U.S. 727, 737, 92 S.Ct. 1361, 31 L.Ed.2d 636; Barrows v. Jackson, 346 U.S. 249, 256-258, 73 S.Ct. 1031, 97 L.Ed. 1586.

While not granting relief to the plaintiffs on federal grounds the trial court sustained the plaintiffs’ principal position under state law. In so doing the court exercised pendent jurisdiction over these claims. When the declaratory judgment was entered on state grounds the federal claims had not been dismissed or abandoned. In these circumstances and in view of the complexity of the intertwined federal issues, the exercise of pendent jurisdiction was within the reasonable discretion of the trial court. See United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218.

(2) The validity of the Board’s cost plus formula for payment.

The district court held that the formula of the Board based on allowable cost plus a limited profit was repugnant to K.S.A. 39-708 (x), as the statute existed until July 1, 1971. This holding was expressed by declaring that such provisions of the manual effective July 1, 1970, were unlawful in view of the statute. The holding also was expressed by declaring that the regulation of the Board, K.A.R. 30-5-27, which likewise adopted the formula, was contrary to the statute.

We should refer briefly to the federal and state statutory provisions involved as a background for our discussion.

The federal Social Security Act consists of several enactments under which the federal government makes funds available to the states for the care of various categories of needy individuals. The sections of the federal statute with which we are concerned are Title XVI (Grants to the States for Aid to the 'Aged, Blind or Disabled or for Such Aid and Medical Assistance for the Aged, 42 U.S.C.A. §§ 1381 et seq.) and Title XIX (Medicaid) (Grants to States for Medical Assistance Programs, 42 U.S.C.A. §§ 1396 et seq.).

Of particular relevance here are those sections of the federal statute providing for grants to states for assistance to needy individuals for institutional care under Title XVI in “intermediate care facilities,” 42 U.S.C.A. §§ 1320a and 1385(b). We are also concerned with Title XIX provisions dealing with “skilled nursing homes,” 42 U.S.C.A. §§. 1396a(a) (13) (C) (ii) and 1396d(a)(4) (A). For the purposes of Title XVI, intermediate care facilities are defined so as to include only those facilities not providing the degree of care required of skilled nursing homes under Title XIX. See 42 U.S.C.A. § 1320a(e).

A state may participate and receive -funds under these programs by submit-ting to the Secretary of Health, Education and Welfare a plan meeting requirements of federal law and regulations. As stated earlier, under Kansas law, K.S.A. Chap. 39, Art. 7, the appellant Kansas State Board of Social Welfare is charged with the duty of providing care and assistance under the federal Social Security Act and of determining state policies and supervising and administering the plans, which have been filed for participation in Title XVI and Title XIX programs. See K.S.A. 39-708. Under these plans the Kansas Board of Health, which is the licensing agency for Kansas nursing, personal care and boarding homes, K.S.A. 39-923, has been designated as the state authority responsible for establishing and maintaining standards for institutions in which recipients may receive care or services, as required by 42 U.S.C.A. §§ 1396a(a)(9) and 1382(a)(9).

Plaintiffs’ class of nursing homes provides nursing care under licenses issued by the Kansas Board of Health. Those licensed as “nursing homes” provide “skilled nursing home care” and those licensed as “personal care homes” provide “simple nursing care.” As defined by the Board of Health, the skilled nursing homes are required to provide a level of medical care and health services commonly performed by or under the immediate supervision of a licensed registered nurse. The personal care homes are required to provide the “selected acts in the care of the ill, aged or infirm requiring certain knowledge and specialized skills, but not requiring the substantial specialized skills, judgment and knowledge required in skilled nursing care.” See K.S.A. 39-923..

The facts are not entirely clear, but it appears that sometime in the spring of 1970 an “Adult Care Homes Manual” with a program for centralized payment was issued at the Board’s direction. The Director of Social Welfare ordered the County Boards to put the manual into effect as of July 1, 1970, with some of the program covered thereby to become effective July 1, 1971. The manual provided that adult care homes, including the plaintiffs’ class, were to be compensated by an allowable cost plus fixed fee formula for services provided to qualified recipients under the programs. Previously these services had been paid for on a negotiated basis by the 105 County Welfare Boards.

After this suit was filed in the state court a preliminary injunction was issued there “against the manual.” Subsequently on August 5, 1970, the State Department of Social Welfare issued an amended regulation 30-5-27, set out in the margin. This regulation contains the cost plus formula that is the primary issue in this case. The formula provided that the fees were to be paid on the basis of cost plus a reasonable profit, subject to budgetary limitations. On January 1, 1971, the regulation became permanent, with minor changes and deletion of the provision on budgetary limitations.

The trial court found, as is in effect conceded by defendants, that there was no regulation before August 5, 1970, by the Kansas Department of Social Welfare authorizing the provisions of the manual. And more importantly for our purposes, the trial court found that the regulation, K.A.R. 30-5-27 as adopted in 1968 and as subsequently amended, and the manual, were inconsistent with K.S. A. 39-708(x) until amendment of the statute on July 1, 1971, when the terms “usual and customary” were dropped from the statutory standard of “reasonable, usual and customary.”

Among other things the state defendants argue that the Board must take availability of funds into account and adopt payment methods considering such circumstances which the Board’s formula did. And they say that the Board’s method of payment was a proper administrative action under the statutory standard of “reasonable, usual and customary” charges, which was directory and not mandatory or to be followed literally.

In view of the statutory provisions and Kansas decisions we agree with the trial court’s holding that the cost plus formula was repugnant to the Kansas Statutes. Subsequent to the trial court’s decision the Kansas Supreme Court decided Rhodes v. Harder, 508 P.2d 959, opinion modified, 512 P.2d 354, also involving K.S.A. 39-708(x). There another regulation, K.A.R. 30-5-29, dealing with payments for medical and professional services was challenged. Asserting that he was authorized to do so by the regulation, the Director of Social Welfare imposed a 25% discount on the regular charges for certain providers of medical services.

The Court held that the regulation and the administrative action attempting the discount were beyond the authority of K.S.A. 39-708(x) requiring that fees for medical and professional services be the reasonable, usual and customary charges. While payment for a different category of services was involved in the Rhodes case, the issue there under the statutory provision on “reasonable, usual and customary” charges parallels the issue involved in this case. We therefore agree with the views of the district court. While there are some differences in the issue before us, we agree with the views of the resident District Judge on the unsettled law of his state which are persuasive and ordinarily accepted. Sade v. Northern Natural Gas Co., 483 F.2d 230, 234 (10th Cir.).

For these reasons we affirm the declaratory judgment which determined that the manual and the regulation were inconsistent with K.S.A. 39-708(x) from its enactment until its amendment effective July 1, 1971.

(3) The trial court’s finding of a contract and the governmental immunity provisions of K.S.A. 46-901.

The state defendants challenge the trial court’s finding that a unilateral contract existed between the State Board and the plaintiffs. They argue that K.S.A. 39-708(k), which provides for the making of contracts in the name of the Board, contemplates a written document, which was not found to exist in this case;, that without such a written contract suit may not be maintained against the Board in view of K.S.A. 39-708(k); that K.S.A. 39-708(x) cannot support a finding of a contract because it is a legislative act and therefore not a contract of the Board; that the Board cannot be a party to an implied contract because it has retained no funds of a county, state or federal source under Title XIX or Title XVI other than up to one dollar per patient-day for Title XIX skilled nursing homes; that any claim against the Board based on an implied contract was required to be presented to the Joint Claims and Accounts Committee of the State Legislature by K.S.A. 46-901 et seq., which was not done; and that there can be no impairment of a contract right, since none exists.

We feel that the trial court did not err in finding the existence of a unilateral contract. The terms and conditions for performance of services required of the plaintiffs were set forth by the state plans filed with the Secretary of Health, Education and Welfare. Payment pursuant to the statutory standard of reasonable, usual and customary charges became part of the arrangement. See Securities Acceptance Corp. v. Perkins, 182 Kan. 169, 318 P.2d 1058, 1061. And such a contract may be made binding and mutual by the performance contemplated, and the receipt of promised benefits. Commercial Asphalt, Inc. v. Smith, 196 Kan. 164, 409 P.2d 796.

The trial court’s opinion did not discuss K.S.A. 46-901, the governmental immunity statute. 46-901 does declare that state boards, commissions and the like are immune from liability and suit on an implied contract, among other things. And the trial court’s opinion did state that there was an implied contract between the state and the plaintiffs. However, this statement was not made with a view to K.S.A. 46-901, and we feel it improper to infer any such effect. In view of the plan, the statutory measure of payments and the requirements for licenses granted by the State Board of Health, we feel there was an understanding as to the essential terms. In such circumstances an express contract existed. See In re Rogers’ Estate, 184 Kan. 24, 334 P.2d 830. Stark County v. State, 160 N.W.2d 101 (N.D.), relied on by defendants, is not persuasive since the circumstances recited above support the finding of a unilateral contract in our case.

We agree with the trial court’s view that there was a unilateral contract and accept the finding of such a contract under Kansas law.

(4) The validity of the manual under the procedural requirements for notice, hearing and the like prescribed by K.S.A. 77-416 and 77-421 for rules and regulations.

The trial court found that the manual, “which contains rules, regulations, standards and statements of policy and general orders applicable to all adult care homes of every classification in the State affects private rights and interests and is directed to a group which does constitute a general class and must therefor be filed in accordance with K. S.A. 77-416 with notice required by K. S.A. 77-421.” There was no compliance with the procedural requirements and the sole question is whether the manual came within the procedural requirements of the statutes.

K.S.A. 77-415(4) defines “Rule or regulation” and enumerates certain exemptions from the definition and requires that “ . . . every statement of general policy and every interpretation of a statute specifically adopted by an agency to govern its enforcement or administration of legislation shall be adopted by the agency and filed as a regulation as provided” by the act.

The language of K.S.A. 77-415(4) logically applies to the manual as a rule or regulation governing enforcement and administration of legislation. Moreover the exemptions in K.S.A. 77-415(4) (inter alia, purchases of materials, equipment or supplies by state agencies, and rates, prices, charges and the like for common carriers) contemplate that provisions like those in the manual come within the statute unless specifically exempted therefrom.

We are persuaded that the trial court’s holding that the manual came within the provisions of the statutes was correct.

(5) The trial court’s ruling that the plaintiffs’ class provides medical assistance unthin the meaning of K. S.A. 39-702 and 39-708(x).

Finally the defendants challenge the trial court’s determination that the plaintiffs’ class provides medical assistance within the meaning of K.S.A. 39-702 and K.S.A. 39-708 (x). The determination was made in the declaratory judgment as well as in findings of fact 2 and 7, all of which are attacked. Specifically the defendants argue that only those nursing homes coming within the definition of a “skilled nursing home” under Title XIX provide medical assistance within the meaning of the Kansas Statutes, and that other facilities do not afford such services or come within the provisions of K.S.A. 39-708 (x) on payment for medical assistance.

We must agree again with the trial court’s determination as reasonable under the Kansas Statutes and regulations. First we note that the manual itself recognizes that under the existing licensing system personal care homes, which provide the lowest standard of care in plaintiffs’ class, are qualified to offer intermediate care # 2 under the manual which includes care for persons with relatively minor chronic incapacity or infirmity. Such intermediaté care # 2 also includes care for minor and usual ills, and occasional periods of illness. See Manual, p. 12. Moreover K.S.A. 39-923 defines “simple nursing care” provided by a “personal care home” as including acts in the care of the ill, injured or infirm requiring certain knowledge and specialized skills, but not requiring the substantial specialized skills, judgment and knowledge required in skilled nursing care. And similar standards are recognized in the definition of a “personal care home” in the rules and regulations of the Kansas State Board of Health. See K.A.R. 28-38-1.01.

Viewing the record as a whole we are satisfied that the determination of the trial court concerning the plaintiffs’ class was a reasonable and proper interpretation of the Kansas Statutes and regulations.

For these reasons we agree with the challenged rulings of the trial court. The declaratory judgment is, therefore, affirmed and the cause is remanded for disposition of the reserved claims for damages as provided in the order of the trial court.

      . In the federal court the Secretary of the Department of Health, Education and Welfare was made an additional defendant. No relief was granted against him and he is not participating in this appeal.

      . The parties have raised no federal jurisdictional questions on appeal. However this Court on its own motion at argument requested supplemental briefs as to whether the action was properly removable as one arising under federal law within the meaning of 28 U.S.C.A. § 1331. That question and related subsidiary ones are considered below.

      . While the state defendants did not challenge the jurisdiction on the basis that a federal tribunal as such lacked power to hear the suit, they have maintained that because of the lack of a contract with the plaintiffs, no suit could be maintained against them at all in view of K.S.A. 39-708(k).

      . Among other things in essence these allegations were:
      A. Qualified recipients are being denied a right allegedly guaranteed by the federal Social Security Act, to receive care at the nursing home of their choice.
      B. The Kansas plan is in violation of federal law because it does not make adult home care “available to some” on the same basis it is available to the general public.
      C. The provisions of the new “Nursing Home Manual” impair obligations of long term contracts of the nursing homes to provide nursing care to persons qualified to receive such care and that the changes violated rights protected by Article I, § 10 of the United States Constitution.
      D. The prohibition against supplemental payments constitutes a taking of property without due process of law and such provision does not comply with the five basic priorities of Title XIX of the Social Security Act. 42 U.S.C.A. § 1396a (a) (13).
      E. Plaintiffs were denied equal protection of the laws by the manual because it required them to provide special personnel, equipment, and services to recipients for less than the reasonable, usual and customary charge.
      F. The Kansas Administrative Regulation 30-5-27 is in conflict with 42 U.S.C.A. § 1396a(a) (30) [§ 1902(a) (30) of the federal Social Security Act].
      G. Kansas Regulation 30-5-27 is in violation of the equal protection clause of the Fourteenth Amendment to the United States Constitution because it requires partiality in the amount of payments.
      H. The system administered by the defendants is contrary to the federal Social Security Act because no amended plan for providing care in “intermediate care facilities” has been filed and approved as required by 42 U.S.C.A. § 1320a.

      . As discussed in detail below the manual was also held invalid for lack of compliance with procedural requirements for its promulgation.

      . The trial court also held this regulation invalid as to earlier provisions allowing payment at rates negotiated by the County Departments of Social Welfare. For reasons that follow we also agree with this holding under K.S.A. 39-708(x).

      . “ICA.R. 30-5-27 FEES FOR [NURSING HOME] ADULT CARE HOME SERVICES. The fee for payment for levels of care and i» establishments with registered: nurses and licensed pr&etieal nurses on Hie staff sfe&H net exceed the rate paid by the eounty welfare department for similar eare and services provided to recipients of the other categories of assistance.] in adult care homes shall be based upon the home’s cost determined by data submitted by the home as required by the department plus a reasonable profit and subject to the department’s budgetary limitations so that such fee for skilled nursing home services for patients qualifying for Title XIX benefits shall be the reasonable usual and customary charges for such home as determined by the above method. Eor adult care homes other than those qualifying as skilled nursing homes under the Title XIX program, the above method may be waived for the year July 1, 1970 to the year July 1, 1971, during which time the fees will be determined by the County Board of Social Welfare with the approval of the State Board.” [Deletions in brackets — additions italicized.]

      . “K.A.R. 30-5-27 FEES FOR ADULT CARE HOME SERVICES. The fee for payment for levels of care in adult care homes shall be based upon the home’s cost plus a reasonable profit which fee shall be determined by cost and other data submitted by the home as required by the department so that such fee for skilled nursing home services for patients qualifying for Title XIX benefits shall be the reasonable, usual and customary charges for such home as determined by the above method. For adult care homes other than those qualifying as skilled nursing homes under the Title XIX Program, the above method may be waived until July 1, 1971 during which time the fees will be determined by the County Board of Social Welfare with the approval of the State Board.”

      . Prior to the July 1, 1971, amendment, the statute allowed payment for certain qualifying providers of services under the federal Social Security Act for “reasonable, usual and customary charges.” The July 1, 1971, statutory amendment, dropped the words “usual and customary.” As amended effective July 1, 1971, K.S.A. 39-708 (x) reads as follows:
      “(x) The state board shall take such action as may be necessary to assure that persons, firms and corporations selling property or providing services and licensed practitioners, within the scope of their practice as defined by state law who provide professional services under the provisions of the federal social security act, shall be paid [thorn] reasonable [usual an# eustemary] charges. Payment for other medical assistance under the provisions of the federal social security act shall be [Gift] reasonable [usual as# eue-temar-y] charges: Provided, however, That if such payments are otherwise limited by federal law, such payments shall be as near the reasonable [wsu-al an# euot-omary] charges as may be permitted by federal law.” As noted by the Kansas Supreme Court in Rhodes v. Harder, 512 P.2d 354, modifying 508 P.2d 959, in 1972 the Kansas legislature enacted a “substantively duplicate” counterpart to K.S.A.1972 Supp. 39-708 (x). This counterpart was K.S.A.1972 Supp. 39-708b (x) and it contained once again the language of “reasonable, usual and customary charges.” In K.S.A.1972 Supp., 39-708(x) still also appeared containing the term “reasonable charges.” Later 39-708 (x) and 39-708b(x) were expressly repealed and 39-708c(x) was enacted, again containing only the term “reasonable charges.”
      These statutory changes are noted but are not controlling in our case which concerns only periods of time prior to this 1972 amendment. And the original holding in Rhodes v. Harder was in no way altered by the modifying opinion.

      . No issue is before us concerning the manual or regulation for the period subsequent to July 1, 1971.

      . 39-702 provides that medical assistance shall mean medical, remedial, preventive or rehabilitative care and services furnished by licensed practitioners.
      39-708 (x) covers licensed practitioners providing professional services and also makes provision for payment for other medical assistance under the provisions of the federal Social Security Act.