[Federal Register Volume 61, Number 157 (Tuesday, August 13, 1996)]
[Rules and Regulations]
[Pages 41960-41963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20414]


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LEGAL SERVICES CORPORATION

45 CFR Part 1610


Use of Non-LSC Funds

AGENCY: Legal Services Corporation.

ACTION: Interim rule with request for comments.

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SUMMARY: This interim rule completely revises the Legal Services 
Corporation's (``Corporation'' or ``LSC'') regulation concerning the 
use of funds from a source other than the Corporation (``non-LSC 
funds''). The revisions are intended to implement the Corporation's FY 
1996 appropriations act that applies most of the restrictions contained 
in that act to all of a recipient's funds and to make certain technical 
corrections to the regulation. Although this rule is effective upon 
publication, the Corporation solicits public comment on the interim 
rule in anticipation of adoption of a final rule at a later time.

DATES: The interim rule is effective on August 13, 1996. Comments must 
be submitted on or before September 12, 1996.

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 Fortuno, General Counsel, (202) 
336-8910.

SUPPLEMENTARY INFORMATION: On May 19, 1996, the Operations and 
Regulations Committee (``Committee'') of the LSC Board of Directors 
(``Board'') requested the LSC staff to prepare an interim rule to 
implement Section 504 in the Corporation's FY 1996 appropriations act, 
Public Law 104-134, 110 Stat. 1321 (1996), which applies most 
restrictions contained therein to any person or entity receiving LSC 
funds, effectively restricting all of a recipient's funds to the same 
degree that it restricts LSC funds. The Committee held hearings on 
staff proposals on July 8 and 19, and the Board adopted this interim 
rule on July 20 for publication in the Federal Register.
    The Committee recommended and the Board agreed to publish this rule 
as an interim rule. An interim rule is necessary in order to provide 
prompt and critically necessary guidance to LSC recipients on 
legislation that is already effective and carries severe penalties for 
noncompliance. Because of this great need for guidance on how to comply 
with substantially revised legislative requirements, prior notice and 
public comment are impracticable, unnecessary, and contrary to the 
public interest. See 5 U.S.C. 553(b)(3)(B) and 553(d)(3). Accordingly, 
this interim rule is effective upon publication.
    However, the Corporation also solicits comments on this interim 
rule for review and consideration by the Committee and Board. After 
receipt of written public comment, the Committee intends to hold public 
hearings to discuss the written comments and to hear oral comments. It 
is anticipated that a final rule will be issued which will supersede 
this interim rule.
    Part 1610 is completely revised by this interim rule. Generally, 
this rule serves two purposes. First, it incorporates the restrictions 
imposed by the Corporation's FY 1996 appropriations act, 110 Stat. 1321 
(1996), which apply to both a recipient's LSC funds and its non-LSC 
funds. Past appropriations acts have applied restrictions contained in 
those acts only to the funds appropriated thereunder. In contrast, the 
FY 1996 appropriations act prohibits LSC from funding any recipient 
that engages in certain specified activities or that fails to act in a 
manner consistent with certain appropriations act requirements. This 
rule also makes several technical revisions to the prior rule to 
correct those provisions that were never revised to be consistent with 
longstanding amendments to the LSC Act.
    A section-by-section discussion of this interim rule is provided 
below.

Section 1610.1  Purpose

    The purpose of this rule is to implement statutory restrictions on 
a recipient's use of non-LSC funds. The statutory restrictions are 
found in the LSC Act, 42 U.S.C. 2996 et seq., and the Corporation's FY 
1996 appropriations act, Public Law 104-134, 110 Stat. 1321 (1996).

Section 1610.2  Definitions

    ``Purposes prohibited by the LSC Act.'' The definition of 
``purposes prohibited by the LSC Act'' has been revised in several 
ways. First, reference to a prohibition on the representation of 
juveniles has been deleted because it is no longer in the LSC Act. 
Second, it is revised to reflect the fact that certain restrictions on 
activities in the LSC Act no longer reflect the law, because broader 
restrictions on those activities are included in the Corporation's FY 
1996 appropriations act. Accordingly, references to the LSC Act's 
prohibitions on legislative and administrative representation, 42 
U.S.C. 2996f(a)(5), and on advocacy training, 42 U.S.C. 2996f(b)(5), 
have been deleted from this definition and are incorporated instead 
into the definition of ``activity prohibited by or inconsistent with 
Section 504'' in Sec. 1610.2(b). Third, the definition now references 
the Corporation's regulations which implement the various restrictions. 
Fourth, citations to the LSC Act for the restrictions on political 
activities, criminal proceedings, actions challenging criminal 
convictions, organizing activities, school desegregation, Selective 
Service and military desertion have been revised to correspond to the 
numbering changes that were made by amendments to the LSC Act. Fifth, 
this definition includes only those restrictions on private funds 
required by Section 1010(c) of the LSC Act which applies only to an 
activity identified as a ``purpose prohibited by [the LSC Act].'' 
Accordingly, the reference to fee-generating cases has been deleted 
because involvement in a fee-generating case is not a purpose 
prohibited by the LSC Act. Neither the LSC Act nor the appropriations 
act prohibits legal services programs from undertaking representation 
in fee-generating cases. The LSC Act simply requires that any fee-
generating cases undertaken by a recipient must be ``in accordance with 
guidelines promulgated by the Corporation.'' The Corporation's 
guidelines on fee-generating cases is 45 CFR Part 1609. With a few 
exceptions, this rule requires recipients to first determine whether 
private representation is available for any particular fee-generating 
case before accepting the case. This implements the Congressional 
intent that scarce Federal funds not be used for cases for which 
private representation is available. Recipients should note that the 
issue of attorneys' fees, which had been included in part 1609 is now 
the subject of section 504(a)(13) of the Corporation's FY 1996 
appropriations act, and is dealt with in a new interim rule, 45 CFR 
Part 1642. In this rule, attorneys' fees are appropriately included in 
Sec. 1610.2(b)(9).
    ``Activity prohibited by or inconsistent with Section 504'' is a 
new

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definition that lists the restrictions and prohibitions in Section 
504(a) of the Corporation's FY 1996 appropriations act that completely 
restrict the listed activities, regardless of the source of funding. 
The definition also makes reference to subsections 504(b) and 504(e), 
which provide exceptions to those prohibitions on activities supported 
by non-LSC funds.
    ``IOLTA funds'' is a new definition and is used in the revised 
section on authorized uses of non-LSC funds. IOLTA funds are defined as 
funds derived from programs established by State court rules or 
legislation that collect and distribute interest earned on lawyers' 
client trust accounts.
    ``Non-LSC funds'' are defined as funds derived from a source other 
than the Corporation and would include both public and private funds.
    ``Private funds'' are defined as funds derived from an individual 
or entity other than a governmental source or LSC.
    The definition of ``public funds'' is similar to the definition for 
``public funds'' in part 1600 of the Corporation's regulations. The 
definition clarifies that, for the purposes of this part, IOLTA funds 
will be treated in the same manner as public funds.
    The definition of ``tribal funds'' is revised from the definition 
of ``tribal funds'' in part 1600 of these regulations in order to track 
the statutory language of section 504. ``Tribal funds'' are defined as 
funds received by a recipient from an Indian tribe or from a private 
nonprofit foundation or organization that are given for the benefit of 
Indians or Indian tribes.
    The definition of ``private attorney'' and the corollary definition 
of ``law firm'' are included to help clarify the meaning of the 
applicability section of this regulation. A ``private attorney'' means 
an attorney engaged in the practice of law on a for-profit basis. A 
``law firm'' is two or more private attorneys who have formed a 
partnership, corporation, or similar entity for the private practice of 
law on a for-profit basis.
    ``State or local entity of attorneys'' would include a State or 
local bar association, a pro bono or judicare program, or other similar 
entity, such as a panel of attorneys participating in a pre-paid legal 
services program.

Section 1610.3  Prohibition

    The prohibition section has been revised to include the 
restrictions on various activities in Section 504 of the Corporation's 
FY 1996 appropriations act.

Section 1610.4  Authorized Use of Other Funds

    This section has been revised to reflect the fact that the 
restrictions in Section 504 apply to activities supported by all funds 
except tribal funds, while those restrictions in the LSC Act which are 
not covered by Section 504, still apply only to LSC and private funds.
    Section 1610.4(a): Paragraph (a) sets out an exception included in 
both the LSC Act and Section 504 for tribal funds. The exception 
exempts tribal funds from the general prohibition on the use of non-LSC 
funds, as long as the tribal funds are used for the purposes for which 
they were provided.
    Section 1610.4(b). Section 1610.4(b) continues the exception in the 
LSC Act for public funds which permits recipients to use public funds 
in accordance with the purposes for which the funds were provided. 
However, because the Corporation's FY 1996 appropriations act contains 
no exception for public funds for most of its restrictions on 
activities, language is added providing that public funds may not be 
used for any activity prohibited by or inconsistent with Section 504. 
In accordance with current LSC policy, the section also provides that 
for purposes of applying this regulation, IOLTA funds are to be treated 
the same as public funds.
    Section 1610.4(c). Paragraph (c) states the exception that allows 
recipients to use private funds if they use them for the purposes for 
which they were provided and if they do not use their private funds for 
any activity prohibited by the LSC Act or prohibited by or inconsistent 
with section 504.
    Section 1610.4(d). Section 1610.4(d) reflects section 504(d)(2)(B) 
of the Corporation's FY 1996 appropriations act, which provides that a 
recipient may use non-LSC funds to provide legal assistance to 
financially ineligible persons, provided that the funds are used for 
the specific purpose for which they were received and are not used in a 
manner that violates the LSC Act or Section 504.

Section 1610.5  Notification

    This section incorporates the requirement of section 504(d)(1) of 
the Corporation's FY 1996 appropriations act that recipients may not 
accept funds from non-LSC sources unless they provide written notice to 
the funders that their funds may not be used in any manner inconsistent 
with the LSC Act or section 504. The requirement applies only to cash 
contributions; recipients are not required to notify persons or 
organizations who make non-cash donations or volunteer their time or 
services to the recipient.
    In an effort to relieve recipients of some of the administrative 
burden that might be imposed by this requirement, the proposed 
regulation contains a de minimis exception. The exception relieves 
recipients of the notice requirement for contributions of less than 
$250. This exception is intended to apply to relatively small 
contributions made by clients, attorneys or other funders who are 
generally supportive of the recipient's program. The $250 threshold was 
chosen because section 170(f)(8) of the Internal Revenue Code requires 
donors who contribute $250 or more to a charity to obtain documentation 
of the contribution in the form of an acknowledgement; and the Board 
decided that, if the recipient had to provide an acknowledgement to the 
donor anyway, it did not constitute any significant additional burden 
to incorporate the required notification into the acknowledgement.

Section 1610.6  Applicability

    The title to this section has been changed from ``waiver'' to 
``applicability'' to reflect the fact that section 1010(c) of the LSC 
Act, upon which it is based, provides that certain types of grants are 
not subject to the statutory prohibition. Because by law such 
situations are not covered by the prohibition, there should be no need 
for a waiver. Indeed, it has always been LSC's practice to allow the 
activities covered by this section, without affirmatively granting 
waivers.
    Section 1610.6(a). Paragraph (a) deals with the issue of criminal 
representation and is intended to clarify the applicability of both the 
LSC Act's provisions on criminal representation and Section 504's 
prohibition on representation of persons who are incarcerated in 
Federal, State or local prisons. The provision in the Corporation's FY 
1996 appropriations act prohibiting recipients from representing such 
incarcerated persons was not intended to amend section 1010(c) of the 
LSC Act which permits LSC to award grants and contracts to, and LSC 
recipients to enter into subgrants, contracts or judicare arrangements 
with, private attorneys or law firms or legal aid organizations which 
handle criminal cases in their non-LSC funded practices. Accordingly, 
this paragraph makes it clear that the restrictions of the FY 1996 
appropriations act on the representation of incarcerated persons does 
not apply to the non-LSC funded representation of clients in criminal 
cases or matters of

[[Page 41962]]

such private attorneys, law firms or State or local entities of 
attorneys. Nor does it apply to legal aid organizations that provide 
criminal legal services through a separately funded public defender 
program, regardless of whether any of their clients are prisoners. 
Finally, this paragraph makes it clear that a recipient may accept 
court appointments in criminal cases, under certain circumstances, even 
if the clients they are appointed to defend are incarcerated.
    Section 1610.6(b). This new provision makes it clear that if 
recipients use non-LSC funds to contract with individuals or entities, 
such as bar associations, pro bono programs or other non-profit 
organizations to provide legal services under a recipient's PAI or 
similar program, the restrictions of this part would apply to the funds 
transferred but would not apply to the individual or entity's other 
non-LSC funds. This provision is consistent with current LSC policy 
that states that a transfer of non-LSC funds to another organization is 
not a subgrant under 45 CFR Part 1627. Although the non-LSC funds 
transferred under contract are subject to the restrictions of this 
part, these restrictions do not attach to any other funds of the person 
or entity.
    Section 1610.6(c). This section clarifies that, except as provided 
in paragraph (a) of Sec. 1610.6, this part does not apply to transfers 
of LSC funds which are already governed by 45 CFR Part 1627. It should 
be noted that when LSC funds are transferred to a subrecipient, the 
subrecipient cannot engage in any activities restricted by Sec. 504 and 
the restriction attaches to both the subrecipient's LSC funds and its 
non-LSC funds. This ensures compliance with the Congressional intent 
that no funds provided by the Corporation for financial assistance are 
provided to a person or entity that engages in activities prohibited by 
Section 504.

Section 1610.7  Accounting

    This section has been renumbered but has not been otherwise 
revised. There has been no change to this statutory accounting 
requirement. Currently, recipients are directed by the accounting 
provisions in both the 1981 and 1986 versions of the Corporation's 
Audit and Accounting Guide for Recipients and Auditors (``Guide'') to 
account for their LSC and non-LSC funds separately. See page 12 in the 
1986 Guide and pages 2-3 in the 1981 Guide.

List of Subjects in 45 CFR Part 1610

    Grant programs--law, Legal services.

    For reasons set forth in the preamble, LSC revises 45 CFR Part 1610 
to read as follows:

PART 1610--USE OF NON-LSC FUNDS

Sec.
1610.1  Purpose.
1610.2  Definitions.
1610.3  Prohibition.
1610.4  Authorized use of other funds.
1610.5  Notification.
1610.6  Applicability.
1610.7  Accounting.

    Authority: 42 U.S.C. 2996i; 110 Stat. 1321 (1996).


Sec. 1610.1  Purpose.

    This part is designed to implement statutory restrictions on the 
use of non-LSC funds by LSC recipients.


Sec. 1610.2  Definitions.

    (a) Purpose prohibited by the LSC Act means any activity prohibited 
by the following sections of the LSC Act and those provisions of the 
Corporation's regulations that implement such sections of the Act:
    (1) Sections 1006(d)(3), 1006(d)(4), 1007(a)(6), and 1007(b)(4) of 
the LSC Act and 45 CFR Part 1608 of the LSC Regulations (Political 
activities);
    (2) Section 1007(a)(10) of the LSC Act (Activities inconsistent 
with professional responsibilities);
    (3) Section 1007(b)(2) of the LSC Act and 45 CFR Part 1613 of the 
LSC Regulations (Criminal proceedings);
    (4) Section 1007(b)(3) of the LSC Act and 45 CFR Part 1615 of the 
LSC Regulations (Actions challenging criminal convictions);
    (5) Section 1007(b)(7) of the LSC Act and 45 CFR Part 1612 of the 
LSC Regulations (Organizing activities);
    (6) Section 1007(b)(8) of the LSC Act (Abortions);
    (7) Section 1007(b)(9) of the LSC Act (School desegregation); and
    (8) Section 1007(b)(10) of the LSC Act (Violations of Military 
Selective Service Act or military desertion).
    (b) Activity prohibited by or inconsistent with Section 504 means 
any activity prohibited by, or inconsistent with the requirements of, 
the following sections of 110 Stat. 1321 (1996) and those provisions of 
the Corporation's regulations that implement those sections:
    (1) Section 504(a)(1) and 45 CFR Part 1632 of the LSC Regulations 
(Redistricting);
    (2) Sections 504(a)(2) through (6), as modified by Sections 504(b) 
and (e), and 45 CFR Part 1612 of the LSC Regulations (Legislative and 
administrative advocacy);
    (3) Section 504(a)(7) and 45 CFR Part 1617 of the LSC Regulations 
(Class actions);
    (4) [Reserved]
    (5) Section 504(a)(9) and 45 CFR Part 1620 of the LSC Regulations 
(Priorities);
    (6) Section 504(a)(10) and 45 CFR Part 1635 of the LSC Regulations 
(Timekeeping);
    (7) Section 504(a)(11) and 45 CFR Part 1626 of the LSC Regulations 
(Aliens);
    (8) Section 504(a)(12) and 45 CFR Part 1612 of the LSC Regulations 
(Public policy training);
    (9) [Reserved]
    (10) Section 504(a)(14) (Abortion litigation);
    (11) [Reserved]
    (12) [Reserved]
    (13) Section 504(a)(17) and 45 CFR Part 1633 of the LSC Regulations 
(Drug-related evictions); and
    (14) [Reserved]
    (c) IOLTA funds means funds derived from programs established by 
State court rules or legislation that collect and distribute interest 
on lawyers' trust accounts.
    (d) Non-LSC funds means funds derived from a source other than the 
Corporation.
    (e) Private funds means funds derived from an individual or entity 
other than a governmental source or LSC.
    (f) Public funds means non-LSC funds derived from a Federal, State, 
or local government or instrumentality of a government. For purposes of 
this part, IOLTA funds shall be treated in the same manner as public 
funds.
    (g) Tribal funds means funds received from an Indian tribe or from 
a private nonprofit foundation or organization for the benefit of 
indians or Indian tribes.
    (h) Private attorney means any attorney who is engaged in the 
private practice of law on a for-profit basis. A ``law firm'' is a 
group of two or more private attorneys who are engaged in the private 
practice of law as a partnership, professional corporation, or similar 
arrangement.
    (i) State or local entity of attorneys means a State or local 
voluntary or mandatory bar association, pro bono or judicare program, 
or other similar entity of attorneys.


Sec. 1610.3  Prohibition.

    A recipient may not use non-LSC funds for any purpose prohibited by 
the LSC Act or for any activity prohibited by or inconsistent with 
section 504 , unless such use is authorized by Secs. 1610.4 or 1610.6 
of this part.


Sec. 1610.4  Authorized use of other funds.

    (a) A recipient may receive tribal funds and expend them in 
accordance

[[Page 41963]]

with the specific purposes for which the tribal funds were provided.
    (b) A recipient may receive public or IOLTA funds and use them in 
accordance with the specific purposes for which they were provided, if 
the funds are not used for any activity prohibited by or inconsistent 
with section 504.
    (c) A recipient may receive private funds and use them in 
accordance with the purposes for which they were provided, provided 
that the funds are not used for any activity prohibited by the LSC Act 
or prohibited or inconsistent with section 504.
    (d) A recipient may use non-LSC funds to provide legal assistance 
to an individual who is not financially eligible for services under 
part 1611 of this chapter, provided that the funds are used for the 
specific purposes for which those funds were provided and are not used 
for any activity prohibited by the LSC Act or prohibited by or 
inconsistent with section 504.


Sec. 1610.5  Notification.

    (a) Except as provided in paragraph (b) of this section, no 
recipient may accept funds from any source other than the Corporation, 
unless the recipient provides written notification to the source of the 
funds that the funds may not be expended for any purpose or activity 
prohibited under this part.
    (b) A recipient is not required to provide such notification for 
contributions of less than $250.


Sec. 1610.6  Applicability.

    (a) The prohibitions referred to in Secs. 1610.2(a)(3) (Criminal 
proceedings), (a)(4) (Actions challenging criminal convictions) or 
(b)(11) (Prisoner litigation) of this part will not apply to the non-
LSC funds of the attorney, law firm, entity of attorneys, or the public 
defender program or project and will not apply to funds received to 
support criminal or related cases accepted pursuant to a court 
appointment, if the Corporation or a recipient makes a contract or 
other arrangement for the provision of civil legal assistance with:
    (1) A private attorney, law firm or state or local entity of 
attorneys that represents clients in criminal cases or matters,
    (2) A legal aid organization that provides criminal and related 
legal assistance through a separately funded public defender program or 
project; or
    (3) A legal aid organization that accepts criminal or related cases 
pursuant to a court appointment.
    (b) If a recipient uses non-LSC funds to enter into a contract or 
other arrangement with another person or entity for the provision of 
civil legal assistance, the restrictions referred to in this part will 
apply to the funds transferred, but will not apply to the other non-LSC 
funds of the person or entity.
    (c) Except as provided in paragraph (a) of this section, this part 
does not apply to a transfer of LSC funds. Transfer of LSC funds is 
governed by 45 CFR part 1627.


Sec. 1610.7  Accounting.

    Funds received by a recipient from a source other than the 
Corporation shall be accounted for as separate and distinct receipts 
and disbursements in a manner directed by the Corporation.

    Dated: August 6, 1996.
Victor M. Fortuno,
General Counsel.
[FR Doc. 96-20414 Filed 8-12-96; 8:45 am]
BILLING CODE 7050-01-P