[Federal Register Volume 82, Number 83 (Tuesday, May 2, 2017)]
[Rules and Regulations]
[Pages 20444-20447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08835]
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LEGAL SERVICES CORPORATION
45 CFR Part 1609
Fee-Generating Cases
AGENCY: Legal Services Corporation.
ACTION: Final rule.
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SUMMARY: This final rule revises the Legal Services Corporation (LSC or
Corporation) regulation regarding fee-generating cases. This rule
clarifies the definition of ``fee-generating case,'' clarifies that
brief advice is permitted by the regulation, and revises how a
recipient accounts for attorneys' fees awards.
DATES: This final rule is effective on June 1, 2017.
FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC
20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
Section 1007(b)(1) of the Legal Services Corporation Act of 1974
prohibits recipients from using LSC funds ``to provide legal assistance
(except in accordance with guidelines promulgated by the Corporation)
with respect to any fee-generating case[.]'' 42 U.S.C. 2996f(b)(1). LSC
implemented this provision through 45 CFR part 1609. In the preamble to
the original part 1609, LSC explained that the private bar is generally
``eager to accept contingent fee cases and cases in which there may be
an award of attorneys' fees to be paid by the opposing party pursuant
to [statute].'' 41 FR 38505, Sept. 10, 1976. LSC therefore drafted part
1609 to ``insure that recipients do not use scarce legal services
resources when private attorneys are available to provide effective
representation and . . . assist eligible clients to obtain appropriate
and effective legal assistance.'' 45 CFR 1609.1(a), (b). Nevertheless,
LSC recognized that ``there may be instances when no private attorney
is willing to represent an individual, because the recovery of a fee is
unlikely, the potential fee is too small, or some other reason.'' 41 FR
38505.
To balance these considerations, LSC (1) defined ``fee-generating
case'' to prohibit recipients from accepting cases that a private
attorney would take, and (2) provided exceptions to the prohibition
when adequate representation by the private bar is unavailable and
contains safeguards to prevent recipients from taking cases the private
bar would accept. Id. The definition of ``fee-generating case''
includes ``every situation in which an attorney reasonably may expect
to receive a fee for services from any source except the client.'' Id.
Specifically, LSC defined ``fee-generating case'' as ``any case or
matter which, if undertaken on behalf of an eligible client by an
attorney in private practice, reasonably may be expected to result in a
fee for legal services from an award to a client, from public funds, or
from the opposing party.'' Id. In Sec. 1609.3, LSC established
circumstances in which a recipient may use LSC funds to provide legal
assistance in a fee-generating case, such as after the case has been
rejected by the local lawyer referral service or by two private
attorneys. 45 CFR 1609.3(a)(1).
In 1996, LSC proposed two changes to clarify the meaning of ``fee-
generating case.'' First, LSC proposed ``[a] technical numerical
change'' to the definition of ``fee-generating case'' which was
intended ``to clarify that the definition includes fees from three
sources: an award (1) to a client, (2) from public funds, or (3) from
the opposing party.'' 61 FR 45765, Aug. 29, 1996. This proposed change
resulted in comments about whether LSC intended to make substantive
changes to the definition. 62 FR 19398, Apr. 21, 1997. Because LSC did
not intend to change the definition and sought to avoid confusion about
its intent, the Board of Directors (``Board'') rejected the numerical
changes proposed in the Notice of Proposed Rulemaking (``NPRM''). Id.
Nevertheless, the Board implemented a second proposed change by
adopting language that explained what is not a ``fee-generating case.''
Id. The revision excluded court appointments from the definition
because such cases, even where fees are paid, are considered a
professional obligation. Id. Additionally, the revision excluded
situations where recipients undertake representation under a contract
with a government agency or other entity and the agency or entity pays
the recipient ``because a contract payment does not constitute fees
that come from an award to a client or attorneys' fees that come from
the losing party in a case, or from public funds.'' Id.; see 45 CFR
1609.2(b). LSC has not made substantive changes
[[Page 20445]]
to the definition of ``fee-generating case'' since this revision.
When a recipient may take a fee-generating case, part 1609 also
prescribes how recipients account for attorneys' fees received in the
case. Part 1609 requires the fees to be remitted to the recipient. 41
FR 38505, Sept. 10, 1976. In 1984, LSC adopted a new section, Sec.
1609.6, that requires attorneys' fees received by the recipient to be
returned to the fund from which the resources to litigate the case
came. 49 FR 19657, May 9, 1984. In other words, if the recipient funds
a case half with LSC funds and half with private funds, Sec. 1609.6
requires the recipient to allocate any attorneys' fees received to each
fund in equal proportion. Section 1609.6 also requires that fees be
recorded during the accounting period in which the program receives the
award. Id.
In 1996, LSC's appropriation legislation provided that no LSC funds
could be used to provide financial assistance to a recipient that
receives attorneys' fees pursuant to any federal or state law. Sec.
504(a)(13), Pub. L. 104-134, 110 Stat. 1321, 1321-55; 75 FR 21507, Apr.
26, 2010. To implement this legislation, LSC created a separate rule,
45 CFR part 1642. 62 FR 25862, May 12, 1997 (final rule); 61 FR 45762,
Aug. 29, 1996 (interim final rule). LSC moved Sec. 1609.6 to part 1642
and revised the provision to require recipients to allocate fees from
cases or matters supported in whole or in part with LSC funds to the
LSC fund in the same proportion that the case or matter was funded with
LSC funds. Id. In a departure from then-existing Sec. 1609.6, LSC did
not propose to dictate how recipients allocated remaining fees to their
non-LSC accounts. Id.
In 2010, Congress repealed the prohibition on accepting and
retaining attorneys' fees. Sec. 533, Pub. L. 111-117, 123 Stat. 3034,
3157. LSC subsequently repealed part 1642 but retained two provisions
relevant to accounting for attorneys' fee awards and accepting
reimbursement of costs from a client. 75 FR 6816, Feb. 11, 2010
(interim final rule); 75 FR 21506, Apr. 26, 2010 (final rule). LSC
placed these two provisions in part 1609 at Sec. Sec. 1609.4 and
1609.6, respectively. 75 FR 21508. LSC has made no changes to either
section since then.
LSC added rulemaking on part 1609 to its annual rulemaking agenda
in June 2015. On July 17, 2016, the Operations and Regulations
Committee (``Committee'') of the Board voted to recommend that the
Board authorize rulemaking on part 1609. The Board voted to authorize
rulemaking on July 18, 2016. On January 26, 2017, the Committee voted
to recommend that the Board approve publication of an NPRM in the
Federal Register for notice and comment. On January 28, 2017, the Board
accepted the Committee's recommendation and voted to approve
publication of the NPRM. LSC published the notice of proposed
rulemaking in the Federal Register on February 13, 2017. 82 FR 10446,
Feb. 13, 2017. The comment period remained open for thirty days and
closed on March 15, 2017.
Materials regarding this rulemaking are available in the open
rulemaking section of LSC's Web site at http://www.lsc.gov/about-lsc/laws-regulations-guidance/rulemaking. After the effective date of the
rule, those materials will appear in the closed rulemaking section at
http://www.lsc.gov/about-lsc/laws-regulations-guidance/rulemaking/closed-rulemaking.
II. Section-by-Section Discussion of Comments and Regulatory Provisions
LSC received two comments during the public comment period. One
comment was submitted by Northwest Justice Project (NJP), an LSC-funded
recipient. The other comment was submitted by the National Legal Aid
and Defender Association (NLADA) by its Civil Council, the elected
representative body that establishes policy for the NLADA Civil
Division, and its Regulations Committee. Both commenters were generally
supportive of LSC's proposed changes to part 1609.
III. Proposed Changes
Section 1609.1 Purpose.
LSC proposed no changes to this section. LSC received no comments
on this section.
Section 1609.2 Definition.
Recipients have repeatedly requested guidance regarding what
constitutes a fee-generating case as defined in Sec. 1609.2(a).
Questions have included whether paid court appointments are fee-
generating cases and whether ``advice and counsel'' or ``brief
services'' are prohibited if the case may, during subsequent extended
representation, develop into a fee-generating case. Recipients have
also sought guidance regarding permissible sources of fees.
Section 1609.2 currently provides, ``Fee-generating case means any
case or matter which, if undertaken on behalf of an eligible client by
an attorney in private practice, reasonably may be expected to result
in a fee for legal services from an award to a client, from public
funds or from the opposing party.'' 45 CFR 1609.2(a). A reader could
interpret ``award'' as modifying only ``to a client'' and not to
include an ``award . . . from public funds or [an award] from the
opposing party.'' Thus, under the current definition, a recipient might
accept a case that may result in an award from public funds, a result
not intended by LSC. Therefore, LSC proposed removing ``from public
funds or from the opposing party'' from the definition.
Additionally, LSC proposed revising part 1609 to clarify that a
recipient may provide brief services to an eligible client despite the
possibility that the case ultimately may result in fees otherwise
restricted by part 1609. In AO-2015-002, LSC considered whether a
recipient may provide ``advice and counsel'' or ``limited services''
(as defined in 45 CFR 1611.2(a) and (e)) to an eligible client where
the matter might constitute a fee-generating case if extended services
were provided. Based on the language of Sec. 1609.3, which prohibits
recipients from using LSC funds to provide assistance in ``every
situation in which an attorney reasonably may expect to receive a
fee[,]'' LSC concluded an ``attorney's reasonable expectation of such
fees would not typically arise until after . . . initial advice or
brief services was under way or had been completed.'' AO-2015-002, June
17, 2015. LSC proposed incorporating this clarification into part 1609
by adding a separate paragraph to Sec. 1609.2(b). The proposed
paragraph explained that ``advice and counsel'' or ``limited services''
in matters that may later constitute fee-generating cases are not
prohibited by part 1609.
Finally, in response to questions regarding court appointments,
current Sec. 1609.2(b) states that a court appointment pursuant to a
statute or court rule or practice that is equally applicable to all
attorneys in the jurisdiction is not a fee-generating case. 45 CFR
1609.2. LSC did not propose to change this language in the NPRM.
Comments: NJP ``assume[d] that deletion of the source of the award
to a client in proposed Sec. 1609.2(a) is intended to denote the
availability of an attorneys' fee from funds that are paid to a lawyer
from a monetary award to compensate the client for the injury or claim
that is the subject to the litigation.'' NJP continued, ``As LSC notes,
recipients may request, collect and retain an award of attorney fees as
provided by law, so long as such a request is in the name of the
recipient or the award is remitted to the recipient and accounted for
pursuant to Sec. 1609.4.'' NJP provided no comment on proposed Sec.
1609.2 besides its assumption.
[[Page 20446]]
NLADA ``fully supports'' clarifying that advice and counsel or
limited services do not fall within the meaning of fee-generating case.
In NLADA's view, ``[t]he provision is beneficial to LSC eligible
clients by affording them the opportunity to receive brief advice or
services regarding a fee generating case. The program can provide legal
advice or take limited action that can be critical to preserving the
client's rights[.]''
Response: LSC is unsure what NJP's assumption means. If NJP is
assuming the proposed language means that a case in which a court
awards fees directly to the attorney rather than awarding fees to the
client is no longer a ``fee-generating case'' for purposes of part
1609, the assumption is incorrect.
LSC intends part 1609 to require recipients and their attorneys to
consider whether cases that may result in fee awards are ones that can
be handled by the private bar before accepting such cases. LSC does not
intend to permit a recipient to accept a fee-generating case without
first attempting to refer the case to the private bar simply because
the court may award the attorneys' fee portion of an award directly to
the recipient or its attorney instead of the client. Nevertheless, this
restriction does not prohibit a recipient from accepting cases where
permitted by Sec. 1609.2(b) or Sec. 1609.3.
LSC believes the language in the proposed rule provides sufficient
clarity regarding the intent of the rule and therefore adopts the
proposed version in this final rule.
Section 1609.3 General requirements.
LSC proposed a technical change to the heading of Sec. 1609.3 to
more accurately reflect the topic it addresses. Section 1609.3 briefly
sets forth the general prohibition on a recipient using LSC funds to
provide legal assistance in a fee-generating case. The bulk of Sec.
1609.3, however, prescribes the circumstances and procedures under
which recipients may accept fee-generating cases. To more aptly reflect
the substance of Sec. 1609.3, LSC proposed to rename Sec. 1609.3
Authorized representation in a fee-generating case. LSC received no
comments on this change and therefore adopts the proposed version in
this final rule.
Section 1609.4 Accounting for and use of attorneys' fees.
LSC proposed to revise part 1609's requirement to account for
receipt of attorneys' fees. Currently, Sec. 1609.4 requires that
attorneys' fees received in a case that the recipient used some amount
of LSC funds to handle be allocated to the LSC grant account in
proportion to which the LSC funds were used. 45 CFR 1609.4(a). This
language requires the accounting only for attorneys' fees received by
the recipient, which could be interpreted to mean that attorneys' fees
awarded to a staff attorney in his or her own name need not be remitted
to the recipient or be subject to the accounting requirement.
To clarify that attorneys' fee awards received by either the
recipient or a recipient's staff attorney are subject to the accounting
requirement, LSC proposed the following revisions to Sec. 1609.4.
First, LSC proposed to require recipients to file any petitions for
attorneys' fees in the name of the recipient and not in the name of any
staff attorney. To the extent a jurisdiction may allow an attorneys'
fee petition in the recipient's name rather than a staff attorney's
name, this change would help ensure that the court would award
attorneys' fees to the organization and not to an individual staff
attorney. LSC proposed placing this addition as Sec. 1609.4(a), and
redesignating paragraphs (a) and (b) of existing Sec. 1609.4 as
paragraphs (b) and (c), respectively.
Second, LSC proposed to state explicitly in Sec. 1609.4(b) that,
in the event a jurisdiction requires attorneys' fee petitions to be
made in a staff attorney's name, the staff attorney must remit the
award to the recipient, which must then allocate an award of attorneys'
fees to its LSC grant account in proportion to the amount of LSC funds
used to obtain the award. LSC believed that these two changes
accommodate variations in state and local rules governing the award of
attorneys' fees and help ensure that any attorneys' fee awards
supported by LSC funds are adequately credited to LSC funds.
Finally, to more aptly describe the substance of Sec. 1609.4, LSC
proposed changing the heading to Requesting and receiving attorneys'
fees.
Comment: NJP had no concerns about requiring fee petitions to be
made in the recipient's name to the extent permitted by law. NLADA
generally supported the proposed revision clarifying that attorneys'
fees are to be awarded to the recipient. NLADA, however, relayed a
recipient's concern that state court rules may require licensed,
individual attorneys to be designated on a petition for attorneys' fees
instead of an organization. This contrasts with the proposed rule,
which requires petitions for attorneys' fees to be filed in the name of
the recipient ``to the extent permitted by law.'' Recognizing there may
be differences among statutes, court rules, and other rules, NLADA
recommended that the rule be revised to state ``to the extent required
by law or rules in the jurisdiction.''
Response: LSC will adopt the recommendation with one change. As
NLADA noted, LSC does not intend for an attorney to violate any
applicable law or any applicable rule in his or her petition for
attorney fees. To clarify that the regulation requires compliance with
both the law and rules, LSC will add the language recommended by NLADA,
except that LSC will use the conjunction ``and'' between the phrases
``to the extent permitted by law'' and ``rules in the jurisdiction.''
Section 1609.5 Acceptance of reimbursement from a client.
To create consistency in the verbs used in the headings for
Sec. Sec. 1609.4 and 1609.5 and more aptly describe the substance of
the latter section, LSC proposed to change the heading to Receiving
reimbursement from a client. LSC proposed no substantive changes to
this section. LSC received no comments on this section. Consequently,
LSC adopts the language proposed in the NPRM in this final rule
Section 1609.6 Recipient policies, procedures and recordkeeping.
LSC proposed no changes to this section. LSC received no comments
on this section.
List of Subjects in 45 CFR Part 1609
Administrative practice and procedure, Grant programs--law, Legal
services.
For the reasons set forth in the preamble, the Legal Services
Corporation amends 45 CFR part 1609 as follows:
PART 1609--FEE-GENERATING CASES
0
1. The authority citation for part 1609 is revised to read as follows:
Authority: 42 U.S.C. 2996g(e).
0
2. In Sec. 1609.2:
0
a. Revise the section heading and paragraph (a);
0
b. Remove ``, or'' at the end of paragraph (b)(1) and add a semicolon
in its place;
0
c. Remove the period at the end of paragraph (b)(2) and add ``; or'' in
its place; and
0
d. Add paragraph (b)(3).
The revision and addition read as follows:
Sec. 1609.2 Definitions.
(a) Fee-generating case means any case or matter which, if
undertaken on
[[Page 20447]]
behalf of an eligible client by an attorney in private practice,
reasonably may be expected to result in a fee for legal services from
an award to a client.
(b) * * *
(3) A recipient provides only advice and counsel or limited
services, as those terms are defined in 45 CFR 1611.1(a) and (e), to an
eligible client.
0
3. Revise the heading of Sec. 1609.3 to read as follows:
Sec. 1609.3 Authorized representation in a fee-generating case.
* * * * *
0
4. Revise Sec. 1609.4 to read as follows:
Sec. 1609.4 Requesting and receiving attorneys' fees.
(a) Any petition seeking attorneys' fees for representation
supported in whole or in part with funds provided by LSC, shall, to the
extent permitted by law and rules in the jurisdiction, be filed in the
name of the recipient.
(b) Attorneys' fees received by a recipient or an employee of a
recipient for representation supported in whole or in part with funds
provided by LSC shall be allocated to the fund in which the recipient's
LSC grant is recorded in the same proportion that the amount of LSC
funds expended bears to the total amount expended by the recipient to
support the representation.
(c) Attorneys' fees received shall be recorded during the
accounting period in which the money from the fee award is actually
received by the recipient and may be expended for any purpose permitted
by the LSC Act, regulations, and other law applicable at the time the
money is received.
0
5. Revise the heading of Sec. 1609.5 to read as follows:
Sec. 1609.5 Receiving reimbursement from a client.
* * * * *
Dated: April 26, 2017.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2017-08835 Filed 5-1-17; 8:45 am]
BILLING CODE 7050-01-P