[Federal Register Volume 75, Number 28 (Thursday, February 11, 2010)]
[Rules and Regulations]
[Pages 6816-6818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-2895]


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LEGAL SERVICES CORPORATION

45 CFR Parts 1609, 1610, and 1642


Attorneys' Fees; Fee-Generating Cases; Use of Non-LSC Funds, 
Transfers of LSC Funds, Program Integrity

AGENCY: Legal Services Corporation.

ACTION: Interim final rule and request for comments.

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SUMMARY: LSC is repealing its regulatory prohibition on the claiming 
of, and the collection and retention of attorneys' fees pursuant to 
Federal and State law permitting or requiring the awarding of such 
fees. This action is taken in accordance with the elimination on the 
statutory prohibition on attorneys' fees in LSC's FY 2010 appropriation 
legislation. LSC is also moving provisions on accounting for and use of 
attorneys' fees and acceptance of reimbursements from clients from Part 
1642 (which is being eliminated) to Part 1609 of LSC's regulations. LSC 
is also making technical changes to Part 1609 and Part 1610 of its 
regulations to remove cross references to the obsolete statutory and 
regulatory citations.

DATES: This Interim Final Rule is effective March 15, 2010. Comments on 
this Interim Final Rule are due on March 15, 2010.

ADDRESSES: Written comments may be submitted by mail, fax or e-mail to 
Mattie Cohan, Senior Assistant General Counsel, Office of Legal 
Affairs, Legal Services Corporation, 3333 K Street, NW., Washington, DC 
20007; 202-295-1624 (ph); 202-337-6519 (fax); mcohan@lsc.gov.

FOR FURTHER INFORMATION CONTACT: Mattie Cohan, Senior Assistant General 
Counsel, 202-295-1624 (ph); mcohan@lsc.gov.

SUPPLEMENTARY INFORMATION:

Background

    LSC's FY 1996 appropriation legislation provided that none of the 
funds appropriated in that Act could be used to provide financial 
assistance to any person or entity (which may be referred to in this 
section as a recipient) that claims (or whose employee claims), or 
collects and retains, attorneys' fees pursuant to any Federal or State 
law permitting or requiring the awarding of such fees. Section 
504(a)(13), Public Law 104-134, 110 Stat. 1321 (April 26, 1996). Since 
appropriations legislation expires with the end of the Fiscal Year to 
which it applies, for the statutory restriction on attorneys' fees to 
remain in place by statute, it needed to be, and was, carried forth in 
each subsequent appropriation law by reference. See, e.g., Consolidated 
Appropriations Act, 2009, Public Law 111-8, 123 Stat. 524 (March 11, 
2009).
    LSC adopted regulations found in 1996 and 1997 which implemented 
the statutory attorneys' fees restriction. 45 CFR part 1642; 61 FR 
45762 (August 29, 1996); 62 FR 25862 (May 12, 1997). The attorneys' 
fees regulation restates the basic prohibition on claiming or 
collecting and retaining attorneys' fees, providing that except as 
permitted by Sec.  1642.4 (providing exceptions cases filed prior to 
the prohibition and for cases undertaken by private attorneys providing 
pro bono services in connection with a recipient's private attorney 
involvement program), no recipient or employee of a recipient may 
claim, or collect and retain attorneys' fees in any case undertaken on 
behalf of a client of the recipient. 46 CFR 1642.3. The regulation 
provides further guidance to recipients by, among other things, 
providing a regulatory definition of attorneys' fees; setting forth 
rules for the applicability of the restriction to private attorneys 
providing legal assistance to a recipient's private attorney 
involvement program; and providing express authority to recipients to 
accept reimbursements of costs from a client. The regulation also sets 
forth rules for the accounting for and use of those attorneys' fees 
which recipients are not prohibited from claiming, collecting or 
retaining.
    On December 16, 2009 President Obama signed the Consolidated 
Appropriations Act of 2010 into law. Public Law 111-117. This act 
provides LSC's appropriation for FY 2010. Like its predecessors, this 
law incorporates the various restrictions first imposed by the FY 1996 
legislation by reference. However, section 533 of that same law also 
provides that Section 504(a) of the Departments of Commerce, Justice, 
and State, the Judiciary, and Related Agencies Appropriations Act, 1996 
(as contained in Pub. L. 104-134) is amended by striking paragraph 
(13). Taken together, these provisions serve to incorporate by 
reference all of the restrictions in section 504 of the FY 1996 law, 
except for paragraph (a)(13), which contained the restriction on 
attorneys' fees. As such, there is no current statutory restriction on 
LSC providing the money FY 2010 appropriated to it to any recipient 
which claims, or collects and retains attorneys' fees.
    The current law lifts the statutory restriction, but does not 
affirmatively provide recipients the right to claim or collect and 
retain attorneys' fees, nor does it prohibit LSC from restricting a 
recipient's ability to claim or collect and retain attorneys' fees. As 
such, in accordance with LSC inherent regulatory authority, the 
regulation

[[Page 6817]]

remains in place notwithstanding the lifting of the statutory 
restriction unless and until repealed.

Repeal of Part 1642

    At its Board Meeting on January 30, 2010, the LSC Board of 
Director's determined that retaining the regulatory restriction is no 
longer either necessary or appropriate. LSC's determination reflects a 
number of considerations. First, LSC notes that the lifting of the 
restriction indicates that Congress itself has had a change of heart 
regarding this restriction. Although Congress did not prohibit LSC from 
retaining the restriction, the fact that Congress chose not to reimpose 
this particular restriction (and no others) does indicate that support 
for this restriction has waned and that the policy arguments in support 
of the original restriction are no longer reflective of the will of 
Congress. Rather, the legislative history suggests that Congress chose 
not to reimpose the attorneys' fees restriction in express recognition 
of the fact that the restriction imposes several significant burdens on 
recipient. See, H. Rpt. 111-149 at p. 163; Transcript of Hearing of the 
Subcommittee on Commerce, Justice and Science of the House Committee of 
Appropriations of April 1, 2009 at pp. 220-223. As such, LSC believes 
that repealing the regulatory restriction is consistent with the 
expectations of Congress.
    Moreover, LSC agrees that the restriction imposes unnecessary 
burdens on recipients and places clients at a disadvantage with respect 
to other litigants. Specifically, the ability to make a claim for 
attorneys' fees is often a strategic tool in the lawyers' arsenal to 
obtain a favorable settlement from the opposing side. Restricting a 
recipient's ability to avail itself of this strategic tool puts clients 
at a disadvantage and undermines clients' ability to obtain equal 
access to justice. The attorneys' fees restriction can also be said to 
undermine one of the primary purposes of fee-shifting statutes, namely 
to punish those who have violated the rights of persons protected under 
such statutes. In addition, in a time of extremely tight funding, the 
inability of a recipient to obtain otherwise legally available 
attorneys' fees places an unnecessary financial strain on the 
recipient. If a recipient could collect and retain attorneys' fees, it 
would free up other funding of the recipient to provide services to 
additional clients and help close the justice gap.\1\ More fundamental, 
the restriction results in clients of grantees being treated 
differently and less advantageously than all other private litigants, 
which LSC believes is unwarranted and fundamentally at odds with the 
Corporation's Equal Justice mission.
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    \1\ It should be noted that the LSC Act's restriction on 
recipients taking fee-generating cases (and the implementing 
regulatory restriction on fee-generating cases) are not affected by 
the lifting of the statutory ban on the claiming and collecting and 
retention of attorneys' fees and would not be affected by any 
regulatory amendment to part 1642. Accordingly, amendment of part 
1642 would not have an adverse impact on the private bar nor provide 
any incentive for recipients to seek out fee-generating cases at the 
expense of the needs of other clients.
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    This action lifts the regulatory prohibition on claiming, or 
collecting and retaining attorneys' fees available under Federal or 
State law permitting or requiring the awarding of such fees. 
Accordingly as of the effective date of the regulation, recipients will 
be permitted make claims for attorneys' fees in any case in which they 
are otherwise legally permitted to make such a claim.\2\ Recipients 
will also be permitted to collect and retain attorneys' fees whenever 
such fees are awarded to them.
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    \2\ Until this Interim Final Rule becomes effective, LSC has 
adopted a policy under which it will exercise its enforcement 
discretion and not take enforcement action against any recipient 
that filed a claim for or collected and retained attorneys' fees 
between the period of December 16, 2009 and the effective date of 
the regulation.
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    With the repeal of the restriction, recipients will be permitted to 
claim and collect and retain attorneys' fees with respect to any work 
they have performed for which fees are available to them, without 
regard to when the legal work for which fees are claimed or awarded was 
performed. LSC considered whether recipients should be limited seek or 
obtain attorneys fees related to ``new'' work; that is, work done only 
as of the date of the statutory change or the effective date of this 
Interim Final Rule. LSC rejected that position because the attorneys' 
fees prohibition applies to the particular activity of seeking and 
receiving attorneys' fees, but is irrelevant to the permissibility of 
the underlying legal work. Limiting the ability of recipients to seek 
and receive attorneys' fees on only future case work would create a 
distinction between some work and other work performed by a recipient, 
all of which was permissible when performed. LSC finds such a 
distinction to be artificial and not necessary to effectuate Congress' 
intention.
    LSC also believes that not limiting the work for which recipients 
may now seek or obtain attorneys' fees will best afford recipients the 
benefits of the lifting of the restriction. There may well be a number 
of ongoing cases where the newly available option of the potentiality 
of attorneys' fees will still be effective to level the playing field 
and afford recipients additional leverage with respect to opposing 
counsel in those cases. Likewise, being able to obtain attorneys' fees 
in cases in which prior work has been performed would likely help 
relieve more financial pressure on recipients than a ``new work only'' 
implementation choice would because it would increase sources and 
amount of work for which fees might potentially be awarded.

Amendment of Part 1609 and Part 1610

    As noted above, part 1642 contains two provisions not directly 
related to the restriction on claiming and collecting attorneys' fees. 
These provisions address the accounting for and use of attorneys' fees 
and the acceptance of reimbursement from a client. 45 CFR 1642.5 and 
1642.6. These provisions used to be incorporated into LSC's regulation 
on fee-generating cases at 45 CFR part 1609, but were separated out and 
included in the new part 1642 regulation when it was adopted. Amending 
these provisions is not necessary to effectuate the lifting of the 
attorneys' fees restriction and they provide useful guidance to 
recipients. In fact, with recipients likely collecting and retaining 
fees more often than they have since 1996, the provision on accounting 
for and use of attorneys' fees will be of greater importance than it 
has been. Retaining these provisions would continue to provide clear 
guidance to the benefit of both recipients and LSC. Accordingly, LSC is 
moving these provisions back into part 1609 as Sec. Sec.  1609.4 and 
1609.5, with only technical amendment to the regulatory text to remove 
references to part 1642. The current Sec.  1609.4 will be renumbered as 
1609.6.
    LSC is also making technical conforming amendments to delete 
references to part 1642 and the attorneys' fees statutory prohibition 
that are now obsolete. Having obsolete and meaningless regulatory 
provisions is not good regulatory practice and can at the very least 
lead to unnecessary confusion. Accordingly, LSC is deleting paragraph 
(c) of section 1609.3, General requirements, to eliminate that 
paragraph's reference to the attorneys' fees restriction in part 1642. 
Similarly, LSC is making a technical conforming amendment to its 
regulation at part 1610. Part 1610 sets forth in regulation the 
application of the appropriations law restrictions to a recipient's 
non-LSC funds. Section 1610.2 sets forth the list of the restrictions 
as contained in section 504 of the FY 1996

[[Page 6818]]

appropriations act, and the implementing LSC regulations which are 
applicable to a recipient's non-LSC funds. Subsection (b)(9) is the 
provision that references the attorneys' fees restriction (504(a)(13) 
and part 1642) and is now obsolete.

Request for Comments

    LSC is implementing these changes as an Interim Final Rule with a 
Request for Comments. LSC believes this action is authorized and 
appropriate because LSC is removing (and not imposing any additional) 
prohibitions or requirements on recipients and is doing so in response 
to a specific statutory change removing a similar prohibition. LSC 
believes that this course of action will provide necessary clarity to 
recipients and will permit recipients and their clients to benefit from 
the statutory and regulatory changes at the earliest possible date. 
However, LSC is seeking comment on the changes being made herein and 
anticipates issuing a Final Rule discussing any comments. Interested 
parties may submit comments as provided herein. Comments are due to LSC 
no later than March 15, 2010.

List of Subjects

45 CFR Parts 1609 and 1610

    Grant programs--Law, Legal services.

45 CFR Part 1642

    Grant programs--Law, Lawyers, Legal services.

0
For reasons set forth above, and under the authority of 42 U.S.C. 
2996g(e), LSC hereby amends 45 CFR chapter XVI as follows:

PART 1609--FEE-GENERATING CASES

0
1. The authority citation for part 1609 continues to read as follows:

    Authority: 42 U.S.C. 2996f(b)(1) and 2996e(c)(6).


Sec.  1609.3  [Amended]

0
2. Paragraph (c) of Sec.  1609.3, is removed.


Sec.  1609.4  [Redesignated as Sec.  1609.6]

0
3. Section 1609.4 is redesignated as Sec.  1609.6.

0
4. A new Sec.  1609.4 is added to read as follows:


Sec.  1609.4  Accounting for and use of attorneys' fees.

    (a) Attorneys' fees received by a recipient for representation 
supported in whole or in part with funds provided by the Corporation 
shall be allocated to the fund in which the recipient's LSC grant is 
recorded in the same proportion that the amount of Corporation funds 
expended bears to the total amount expended by the recipient to support 
the representation.
    (b) 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. A new Sec.  1609.5 is added to read as follows:


Sec.  1609.5  Acceptance of reimbursement from a client.

    (a) When a case results in recovery of damages or statutory 
benefits, a recipient may accept reimbursement from the client for out-
of-pocket costs and expenses incurred in connection with the case, if 
the client has agreed in writing to reimburse the recipient for such 
costs and expenses out of any such recovery.
    (b) A recipient may require a client to pay court costs when the 
client does not qualify to proceed in forma pauperis under the rules of 
the jurisdiction.

PART 1610--USE OF NON-LSC FUNDS, TRANSFERS OF LSC FUNDS, PROGRAM 
INTEGRITY

0
6. The authority citation for part 1610 is revised to read as follows:

    Authority: 42 U.S.C. 2996i; Pub. L. 104-208, 110 Stat. 3009; 
Pub. L. 104-134, 110 Stat. 1321; Pub. L. 111-117; 123 Stat. 3034.


Sec.  1610.2  [Amended]

0
7. Section 1610.2 is amended by removing paragraph (b)(9) and 
redesignating paragraphs (b)(10) through (b)(14) as paragraphs (b)(9) 
through (b)(13) respectively.

PART 1642--[REMOVED AND RESERVED]

0
8. Part 1642 is removed and reserved.

Victor M. Fortuno,
Interim President.
[FR Doc. 2010-2895 Filed 2-10-10; 8:45 am]
BILLING CODE 7050-01-P