[Federal Register Volume 60, Number 10 (Tuesday, January 17, 1995)]
[Proposed Rules]
[Pages 3366-3371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1072]



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LEGAL SERVICES CORPORATION

45 CFR Part 1604


Outside Practice of Law

AGENCY: Legal Services Corporation.

ACTION: Proposed rule.

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SUMMARY: This proposed regulation would amend the Legal Services 
Corporation's (``Corporation'' or ``LSC'') regulation relating to the 
outside practice of law by full-time legal services attorneys. The rule 
is substantively restructured and revised to clarify the exact scope of 
the restrictions on compensated and uncompensated outside practice so 
that program attorneys will not be unduly restricted from complying 
with their professional obligations. The proposed rule also amends 
definitions and allows for the separate treatment of court 
appointments.

DATES: Comments should be received on or before March 20, 1995.

ADDRESSES: Comments should be submitted to the Office of the General 
Counsel, Legal Services Corporation, 750 First St., NE, 11th Floor, 
Washington, DC 20002-4250.

FOR FURTHER INFORMATION CONTACT: Victor M. Fortuno, General Counsel, 
(202) 336-8810.

SUPPLEMENTARY INFORMATION: On September 16 and October 27, 1994, the 
Operations and Regulations Committee (``Committee'') of the LSC Board 
of Directors held public hearings on proposed revisions to 45 CFR Part 
1604, LSC's regulation on the outside practice of law. At the October 
27, 1994, meeting in Washington, DC, the Committee approved a proposed 
rule to be published in the Federal Register for public comment, and 
agreed to extend the customary 30-day comment period to 60 days.
    The Corporation recognizes that legislation to amend the LSC Act 
and reauthorize appropriations for the Corporation may be considered by 
Congress. If such legislation does become law, the Corporation's 
regulations will be revisited and revised accordingly.

Section Analysis

Section 1604.1  Purpose

    This section sets out the framework for other changes that appear 
in this proposed rule. The Committee added language to authorize a 
recipient to adopt written policies to permit its program attorneys to 
engage in pro bono legal assistance and to comply with their 
obligations as members of the Bar and officers of the court. The rule 
recognizes, however, that those demands must not interfere with the 
attorneys' overriding responsibility to serve the program's eligible 
clients. The Committee also added language to clarify that this part 
should not be construed to permit recipients to unduly restrict legal 
services attorneys from engaging in those activities. The use of the 
word ``unduly'' acknowledges that there may be some restrictions 
imposed by the LSC Act or by recipients that are necessary to 
accomplish the overriding goals of the LSC Act.

Section 1604.2  Definitions

Section 1604.2(a)  ``Full-time Attorney''

    The definition of ``attorney'' is deleted, because it is 
inconsistent with the definition of ``attorney'' in Part 1600. Instead, 
a definition of ``full-time attorney'' is added that incorporates the 
definition of ``attorney'' in Part 1600. A ``full- time attorney'' is 
defined as an attorney who is a full-time employee of a recipient.
    A separate definition of ``full-time'' has not been included. The 
decision of what constitutes ``full-time'' is left to the recipient's 
own personnel and outside practice policies and to any appropriate 
statutory definitions found elsewhere.

Section 1604.2(b)  ``Outside Practice of Law''

    This definition explains what outside practice is, rather than what 
it is not. The regulation is intended to apply only to outside practice 
of law by recipients' employees and not to other outside activities by 
recipients' employees that do not constitute the outside practice of 
law.
    The words ``receiving that'' are substituted for ``entitled to 
receive.'' This revision makes it clear that an attorney could 
represent a client who is eligible for representation from the 
[[Page 3368]] recipient in an outside practice case even if the client 
is also receiving legal assistance from the recipient, as long as the 
recipient is representing the client on a different matter.
    This definition is not intended to include work done by legal 
services attorneys when serving in the military reserves as JAG Corps 
attorneys. Although the Committee chose not to include language on this 
issue in the rule, it intends to continue the policy established in 
prior General Counsel opinions, which have consistently found that an 
attorney is not engaged in the outside practice of law while serving as 
a JAG Corps reserve officer. Comments are solicited as to whether the 
rule should include language expressly stating this policy.

Section 1604.2(c)  ``Court Appointment''

    The essence of the current definition of ``court appointments'' is 
incorporated into this proposed provision. The regulatory definition is 
used rather than the following language in Sec. 1006(d)(6) of the Act:
    Attorneys employed by a recipient shall be appointed to provide 
legal assistance without reasonable compensation only when such 
appointment is made pursuant to a statute, rule, or practice applied 
generally to attorneys practicing in the court where the appointment is 
made.
    The regulatory definition on appointments is broader than the 
statutory one, which applies only to uncompensated appointments; but 
the regulatory definition is more protective of program resources.

Section 1604.3   General Policy

    Paragraph (a) would require recipients to adopt written policies 
relating to outside practice, rather than permitting programs to 
determine, on an ad hoc basis, whether outside practice is to be 
permitted in a particular instance. However, the policies would give 
the project director substantial discretion to decide.
    Paragraph (b) addresses the concern that, in revising this 
regulation to take account of the evolving obligations of all attorneys 
to do pro bono work, recipients would be subject to pressures from 
their attorneys to do outside practice that was not absolutely required 
by professional obligations and that interfered with the program's 
ability to serve the clients it is funded to serve. This concern is 
especially important in view of the fact that LSC recipients lack 
adequate resources to serve more than a small fraction of the eligible 
clients who have real legal needs. This provision is included in order 
to insure that recipients can adopt policies that balance the demands 
of the profession, the attorney's desire to do outside work, and the 
needs of the community served by the program.
    The restrictions of this part apply only to full-time attorneys. 
Although recipients are not required to do so, paragraph (c) would 
allow them to adopt restrictions on outside practice by part-time 
attorneys.

Section 1604.4   Permissible Outside Practice

Section 1604.4(a)
    Proposed paragraph (a) states the rule in the affirmative, rather 
than as a restriction. It also refers to a full-time attorney's 
responsibilities to clients, rather than ``full-time 
responsibilities.'' The Committee intends a director to make a case-by-
case determination as to whether involvement in a specific case or 
matter would be consistent with a full-time attorney's responsibilities 
to the program's clients. An full-time attorney's responsibilities to 
program clients should be determined by reference to the program's 
definition of ``full-time,'' not by reference to a specific attorney's 
working habits. Thus, an attorney in the habit of working substantial 
amounts of overtime on program activities should not be penalized for 
deciding to allot some of that overtime to an outside practice case 
rather than to program activities. In addition, an attorney should be 
permitted to take reasonable amounts of leave to engage in permitted 
outside practice.
Section 1604.4(b)
    Paragraph (b) is included to address a concern that, if program 
attorneys handled outside practice cases that were controversial or 
dealt with areas prohibited to the recipient (e.g., abortion 
litigation), the recipients would be seen as handling the cases and 
viewed as using outside practice as a way to get around other 
restrictions. This language, which is similar to language in the 
regulation on prohibited political activities, would require the 
attorney to make it clear that this was not a program case, and to do 
whatever was necessary to insure that it not be perceived as such.
    In practical terms, the restriction might require the attorney to 
use a home address or post office box for correspondence, or a home 
telephone number or direct dial number that would not go through the 
recipient's switchboard or voice mail greeting, or other similar 
processes to insure that the recipient was not identified as the 
sponsor of the representation.
    The restriction on identification does not apply to court 
appointments, which are treated separately throughout this part, since 
attorneys handle these cases as officers of the court. Recipients do 
not have great discretion to refuse to permit attorneys to accept them, 
as long as they are made under a statute, rule or practice that is 
generally applicable. The restriction also does not apply to cases 
which are undertaken to fulfill a mandatory pro bono obligation, see 
Sec. 1604.7(d).
Section 1604.4(c)
    Paragraph (c)(1) is intended to make explicit what has always been 
implicit under the current Part 1604, i.e., that work for a client from 
a previous practice should not be done on program time.
    The Committee proposes to add language to paragraph (c)(2) to make 
it clear that an attorney may represent another member of the 
recipient's staff without having to prove that the individual is a 
close friend. The Committee also proposes to add language to make it 
clear that the attorney may represent him or herself.
    The Committee proposes to revise paragraph (c)(4) to make it clear 
that, in addition to representing a religious, community, or charitable 
group, an attorney may represent a client who has been referred to him 
or her by such a group through a formal pro bono or referral program 
that does regular referrals. For example, it is permissible for an 
attorney to represent a client who has been referred by the ACLU, NAACP 
or Catholic Charities. This is an issue that was raised in a recent 
case involving Evergreen Legal Services. LSC said that an Evergreen 
attorney could not handle a case for an individual who had been 
referred to her by the Lawyers' Guild, although presumably she could 
have represented the Guild itself. Prior General Counsel opinions 
permitted outside practice both on behalf of organizations such as the 
ACLU as well as on behalf of individuals referred by those 
organizations, but those opinions did not distinguish between those two 
situations.
    The Committee added paragraph (c)(5) to make it clear that legal 
services attorneys should be permitted to act in the same way as other 
attorneys with respect to pro bono work that is undertaken to meet 
professional obligations, whether the obligation is aspirational, as 
under state rules that are modeled on Rule 6.1 of the American Bar 
Association's (``ABA'') Model Rules of Professional Conduct, or 
mandatory, [[Page 3369]] as is now the case in a few local 
jurisdictions across the country.

Section 1604.5  Compensation

    Although the statute prohibits all compensated outside practice, 
the exception in proposed paragraph (a) for work on cases held over 
from a previous private practice is justified under the general 
principle that neither LSC nor the recipient can interfere with an 
attorney's professional responsibilities to a client. Since the 
representation was undertaken before the lawyer became a legal services 
attorney, fairness dictates that the attorney should be permitted to 
take fees for completion of the work.
    Paragraph (b) proposes that a recipient may permit an attorney to 
accept attorneys' fees for Sec. 1604.4(c)(2)-(5) cases, as long as the 
fees are remitted to the recipient. Several project directors have 
questioned why an attorney cannot keep fees awarded for outside 
practice approved by the recipient. The answer is simple. The LSC Act 
provision on outside practice, Sec. 1007(a)(4), prohibits all 
compensated outside practice, subject to overriding considerations of 
professional responsibility, but permits uncompensated outside practice 
under LSC guidelines.
    What this section does, in essence, is to define as ``uncompensated 
outside practice'' any representation where the attorney does not seek 
or receive personal compensation for the representation. Thus, the 
attorney can perform work pro bono, without any fee, but can also 
undertake work where fees could potentially be awarded, as long as the 
attorney does not keep any such fee but remits it to the recipient.
    Proposed Sec. 1604.5(b)(2) provides that attorneys' fees shall be 
remitted to a recipient when allowed by applicable rules of 
professional responsibility. The Committee added the reference to the 
rules of professional responsibility because of a concern that 
restrictions on fee-splitting could, in some states, prohibit an 
attorney from turning over attorneys' fees from an outside practice 
case to the recipient. Recipients would need to consult the status of 
the law in their state. The Committee understands that, in general, 
fee-splitting between a staff attorney and a legal services 
organization such as a recipient is not restricted under state or local 
rules, but requests comments on the issue.
    The Committee also raised the issue of how such attorneys' fees 
would be treated for tax purposes. Because the Corporation does not 
generally regulate the tax obligations of recipients' employees, this 
issue does not appear to be one that should be addressed by regulation. 
Rather, it is a matter of local concern which a recipient may want to 
consider when drafting its policies on outside practice.
    The LSC Act and LSC's regulation on fee-generating cases, 45 CFR 
Part 1609, have consistently been interpreted as prohibiting recipients 
from taking attorneys' fees from a client's recovery of damages or 
retroactive statutory benefits. That restriction is accordingly 
incorporated into this provision of the rule.
    Paragraph (b)(3) is intended to make it clear that if a recipient 
receives attorneys' fees from one of its attorneys' outside practice 
cases, it could reimburse the attorney, the client, the pro bono or 
legal referral organization, or anyone else who had contributed 
resources to cover costs or out-of-pocket expenses to support the 
representation.

Section 1604.6  Use of Recipient Resources

    For the five types of outside practice cases described in 
Sec. 1604.4(c)(1)-(5), this provision proposes to allow attorneys to 
use some recipient resources if necessary to carry out the attorney's 
professional responsibilities. However, it would be up to the local 
recipient to establish policies that would determine whether its 
attorneys could use recipient resources for a specific case to the 
extent allowed by this rule. For Sec. 1604.4(c)(1) cases, a recipient 
may allow its attorneys to use only a de minimis amount of program 
resources, including time. Under a ``de minimis'' standard, an attorney 
could make a brief phone call or use the fax machine during working 
hours, but would have to take leave for court appearances.
    For Sec. 1604.4(c)(2)-(5) cases, the standard is somewhat less 
strict. A recipient may allow its attorneys to use a limited amount of 
program resources, including time, for those cases. Under the 
``limited'' standard, in addition to whatever an attorney could do 
under the de minimis standard, the attorney could, for example, make a 
brief court appearance during normal working hours without taking 
leave. An attorney could also be permitted to use a program computer or 
typewriter to prepare pleadings or other documents. However, if the 
attorney participated in a long trial or extended negotiation, he or 
she would normally be required to take leave to do so.
    The Committee also agreed that, if a recipient had a procedure to 
identify copying, postage and similar costs, and the attorney 
reimbursed the recipient, the use of those resources would also be 
permissible under either standard. This position is consistent with the 
longstanding LSC policy, which has been in place for most of LSC's 
history.
    Finally, language is included that allows an attorney to use a 
recipient's resources only when the recipient's LSC or private funds 
are not used for any activities for which the use of such funds is 
prohibited.
    The Committee seeks comments on the appropriateness of using 
recipient resources for any outside practice, and whether or not the 
distinction between ``de minimis'' and ``limited'' use of resources 
makes sense and is workable.

Section 1604.7  Court Appointments

    This proposed section treats court appointments and mandatory pro 
bono representation separately from outside practice, because there are 
substantially different considerations for court appointments and 
mandatory pro bono than there are for pro bono or other outside cases 
that an attorney undertakes on a strictly voluntary basis.
    Paragraph (a)(1) simply restates a general rule that applies to 
court appointments as well as to outside practice under the current 
Part 1604. Paragraph (a)(2) is based on Sec. 1006(d)(6) of the LSC Act. 
It is intended to protect recipients from efforts that have been made 
by some judges to appoint legal services attorneys to handle court 
appointments in lieu of private attorneys, and/or to refuse to provide 
compensation for appointed cases handled by legal services attorneys, 
when private attorneys appointed to similar cases would have been paid. 
Paragraph (a)(3) is also a requirement carried over from the current 
Part 1604, although it makes more sense under this proposal, since the 
proposed rule makes it clear that legal services attorneys can handle 
court appointments on program time.
    Paragraph (b) would allow a full-time attorney to use program 
resources to undertake representation permitted by this section, and 
paragraph (c) would allow the attorney to identify the recipient as his 
or her employer when engaged in such representation.
    Paragraph (d) provides that, if an attorney is mandated to engage 
in pro bono representation by applicable state or local court rules or 
practices or by rules of professional responsibility, such 
representation shall be treated in the same manner as court 
appointments for the purposes of paragraphs (a)(1), (a)(3), (b) and (c) 
of this section. While the Committee recognizes that the ABA Model 
Rules do not currently mandate pro bono services for any attorney, the 
Committee also recognizes that mandatory pro bono is under active 
[[Page 3370]] consideration in a number of states and is a reality in 
certain local jurisdictions. It is the intent of the Committee that 
legal services attorneys be permitted to undertake outside 
representation to fulfill any mandatory professional obligations to 
provide pro bono assistance to which they are now or may be subject in 
the future.

List of Subjects in 45 CFR Part 1604

    Legal services.

    For the reasons set forth in the preamble, LSC proposes to revise 
45 CFR part 1604 to read as follows:

PART 1604--OUTSIDE PRACTICE OF LAW

Sec.
1604.1  Purpose.
1604.2  Definitions.
1604.3  General policy.
1604.4  Permissible outside practice.
1604.5  Compensation.
1604.6  Use of recipient resources.
1604.7  Court appointments.

    Authority: 42 U.S.C. 2996e(b)(3), 2996e(d)(6), 2996f(a)(4), 
2996g(e).


Sec. 1604.1  Purpose.

    This part is designed to authorize recipients to adopt written 
policies that permit legal services attorneys employed by recipients to 
engage in pro bono legal assistance and to comply with the reasonable 
demands made upon them as members of the Bar and as officers of the 
Court, as long as those demands do not hinder fulfillment of their 
overriding responsibility to serve those eligible for assistance under 
the Act. Nothing in this part shall be construed to permit recipients 
to unduly restrict the ability of any attorney to engage in such 
activities.


Sec. 1604.2  Definitions.

    As used in this part--
    (a) Full-time attorney means an attorney who is employed full-time 
by a recipient in legal assistance activities supported in major part 
by the Corporation, and who is authorized to practice law in the 
jurisdiction where assistance is provided.
    (b) Outside practice of law means the provision of legal assistance 
to a client who is not receiving that legal assistance from the 
employer of the full-time attorney rendering assistance, but does not 
include court appointments except where specifically stated.
    (c) Court appointment means an appointment in a criminal or civil 
case made by a court or administrative agency under a statute or court 
rule or practice.


Sec. 1604.3  General policy.

    (a) A recipient shall adopt written policies governing the outside 
practice of law by full-time attorneys that are consistent with the 
applicable rules of professional responsibility.
    (b) A recipient's policies may permit the outside practice of law 
by full-time attorneys only to the extent allowed by this part, but may 
impose additional restrictions as necessary to meet the recipient's 
responsibilities to eligible clients.
    (c) A recipient may also adopt policies that apply to outside 
practice by attorneys employed part-time by the recipient, but are not 
required to do so under the provisions of this part.


Sec. 1604.4  Permissible outside practice.

    A recipient may permit a full-time attorney to engage in a specific 
case or matter that constitutes the outside practice of law if:
    (a) The director of the recipient or the director's designee 
determines that representation in such case or matter is consistent 
with the attorney's responsibilities to the recipient's clients;
    (b) The attorney does not intentionally identify the case or matter 
with the Corporation or the recipient; and
    (c) The attorney is--
    (1) Newly employed and has a professional responsibility to close 
cases from a previous law practice, and does so on the attorney's own 
time as expeditiously as possible; or
    (2) Acting on behalf of him or herself, a close friend, family 
member or another member of the recipient's staff; or
    (3) Acting on behalf of a religious, community, or charitable 
group; or
    (4) Participating in a pro bono or legal referral program 
affiliated with or sponsored by a bar association, other legal 
organization or religious, community or charitable group; or
    (5) Satisfying an obligation to participate in pro bono work under 
applicable State or local rules or practices of professional 
responsibility.


Sec. 1604.5  Compensation.

    (a) A recipient may permit a full-time attorney to seek and receive 
personal compensation for work performed pursuant to Sec. 1604.4(c)(1).
    (b) A recipient may permit a full-time attorney to seek and accept 
a fee paid by, awarded or approved by a court or administrative body or 
included in a settlement if--
    (1) The attorney is acting pursuant to Sec. 1604.4(c) (2) through 
(5);
    (2) Subject to the applicable law and rules of professional 
responsibility, any such fees paid to the attorney are remitted to the 
recipient; and
    (3) The fee is not deducted from the individual client's recovery 
of compensatory damages or retroactive benefits.
    (c) From the fees remitted to the recipient pursuant to paragraph 
(b)(2) of this section, the recipient may reimburse any individual or 
organization for actual costs or out-of-pocket expenses incurred in the 
representation.


Sec. 1604.6  Use of recipient resources.

    (a) For cases undertaken pursuant to Sec. 1604.4(c)(1), a 
recipient's written policies may permit a full-time attorney to use de 
minimis amounts of the recipient's resources for permissible outside 
practice if necessary to carry out the attorney's professional 
responsibilities, as long as the recipient's Corporation or private 
funds are not used for any activities for which the use of such funds 
is prohibited.
    (b) For cases undertaken pursuant to Sec. 1604.4(c) (2) through 
(5), a recipient's written policies may permit a full-time attorney to 
use limited amounts of the recipient's resources for permissible 
outside practice if necessary to carry out the attorney's professional 
responsibilities, as long as the recipient's Corporation or private 
funds are not used for any activities for which the use of such funds 
is prohibited.


Sec. 1604.7  Court appointments.

    (a) A recipient may permit a full-time attorney to accept a court 
appointment if the director of the recipient determines that:
    (1) Such an appointment or case is consistent with the attorney's 
responsibilities to the recipient's clients;
    (2) The appointment was made and the attorney will receive 
compensation for the court appointment under the same terms and 
conditions as are applied generally to attorneys practicing in the 
court where the appointment is made; and
    (3) Subject to the applicable law and rules of professional 
responsibility, the attorney agrees to remit to the recipient any 
compensation received.
    (b) A recipient may permit a full-time attorney to use program 
resources to undertake representation pursuant to a court appointment.
    (c) A full-time attorney may identify the recipient as his or her 
employer when engaged in representation pursuant to a court 
appointment.
    (d) If, under the applicable State or local court rules or 
practices or rules of professional responsibility, legal services 
attorneys are mandated to provide pro bono legal assistance in addition 
to the attorneys' work on [[Page 3371]] behalf of the recipient's 
clients, such legal assistance shall be treated in the same manner as 
court appointments under paragraphs (a)(1), (a) (3), (b) and (c) of 
this section.

    Dated: January 10, 1995.
Victor M. Fortuno,
General Counsel.
[FR Doc. 95-1072 Filed 1-13-95; 8:45 am]
BILLING CODE 7050-01-P