[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Rules and Regulations]
[Pages 45762-45764]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21660]


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LEGAL SERVICES CORPORATION
45 CFR Part 1642


Attorneys' Fees

AGENCY: Legal Services Corporation.

ACTION: Interim rule with request for comments.

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SUMMARY: This interim rule is intended to implement a provision in the 
Legal Services Corporation's (``Corporation'' or ``LSC'') FY 1996 
appropriations act that prohibits LSC recipients from seeking 
attorneys' fees in cases filed after the date of enactment of the 
appropriation. Although this interim rule is effective upon 
publication, the Corporation also solicits public comment on the 
interim rule in anticipation of adoption of a final rule at a later 
time.

DATES: This interim rule is effective on August 29, 1996. Comments must 
be submitted on or before October 28, 1996.

ADDRESSES: Comments should be submitted to the Office of 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 Legal Services Corporation 
(``LSC'' or ``the Corporation'') Board of Directors (``Board'') 
requested the LSC staff to prepare interim rules to implement 
Sec. 504(a)(13) of the Corporation's FY 1996 appropriations act, Public 
Law 104-134, 110 Stat. 1321 (1996), prohibiting LSC recipients and 
their employees from claiming, or collecting and retaining attorneys' 
fees. The Committee held hearings on July 10 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 in effect and which carries severe 
penalties for noncompliance. Because of the 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. 5 U.S.C. 553(b)(3)(B) and 553(d)(3). 
Accordingly, this rule is effective upon publication.
    However, the Corporation also solicits public comments on the rule 
for review and consideration by the Committee. After receipt of written 
public comment, the Committee intends to hold public hearings to 
consider the written comments and to hear oral comments. The Committee 
anticipates that a final rule will be issued which will supersede this 
interim rule.
    This rule is based, in part, on provisions in 45 CFR Part 1609, the 
Corporation's regulation dealing with attorneys' fees in relation to 
fee-generating cases. The Corporation has determined that, although 
related, the issues of fee-generating cases and attorneys' fees are 
sufficiently separate to warrant separate rules. Accordingly, the 
provisions on attorneys' fees and acceptance of reimbursement for costs 
and expenses in this part supersedes the comparable provisions in Part 
1609. A revised version of part 1609 is also published in this 
publication of the Federal Register as a proposed rule.
    A section-by-section discussion of this interim rule is provided 
below.

Section 1642.1  Purpose

    The purpose of this rule is to ensure that LSC recipients and their 
employees do not seek or retain attorneys' fees awarded pursuant to 
Federal or State law, including common law, permitting or requiring 
such fees.

Section 1642.2  Definitions

    This section defines ``attorneys' fees'' as an award that is 
intended to compensate an attorney of the prevailing party as permitted 
or required by Federal or State law. An ``award'' is defined as an 
order of a court or administrative agency that an unsuccessful party 
pay the attorneys' fees of the prevailing party. The definition makes 
clear that the term includes attorneys' fees that are awarded as part 
of a court or agency approved settlement agreement. The Corporation has 
received a number of comments arguing that the restriction was not 
intended to apply to attorneys' fees in Social Security cases, because 
such fees are paid pursuant to an agreement by the client to pay the 
fees out of the client's back benefits. The court or administrative 
agency merely approves the agreement, but does not ``award'' the fees. 
The definition of ``award'' reflects this interpretation.
    Programs which seek fees out of favorable awards to clients should 
be aware that the Corporation's interpretation of the statute reflected 
in this interim rule may change following receipt of public comment and 
any such change could affect a recipient's practices.

[[Page 45763]]

Section 1642.3  Prohibition

    This section states the restriction on attorneys' fees contained in 
Sec. 504(a)(13) of the Corporation's FY 1996 appropriations act, which 
prohibits LSC recipients from claiming, or collecting and retaining 
attorneys' fees in any cases. This rule uses the term ``cases'' and 
does not refer to ``matters,'' as does the underlying statute, because 
attorneys' fees may only be derived from cases. Paragraph (a) prohibits 
recipients or their employees from claiming, or collecting and 
retaining attorneys' fees in any case, unless allowed under paragraph 
(c). Paragraph (b) provides that private attorneys who are paid by LSC 
recipients to handle cases for eligible clients as part of a 
recipient's PAI program, under a contract or judicare program, may not 
seek fees in those cases unless allowed under paragraph (c). The 
prohibition applies to those private attorneys who receive funds from a 
recipient, because they are persons receiving financial assistance 
under the appropriations bill and are thus subject to the prohibition 
on attorneys' fees. This would not include pro bono attorneys who 
receive no compensation from a recipient to handle cases, because they 
are not receiving financial assistance to provide the services.
    Paragraph (c) clarifies that the prohibitions in paragraphs (a) and 
(b) do not apply to four situations. First, the statute expressly 
allows programs to seek and retain attorneys' fees for cases filed 
prior to April 26, 1996, but this exception does not extend to any 
additional claims for the client filed after April 26, 1996, in any 
pending case.
    Second, the prohibitions in paragraphs (a) and (b) do not apply to 
activity allowed pursuant to 42 U.S.C. 2996e(d)(6) of the LSC Act, 
which permits recipient attorneys to accept compensation for legal 
services that they provide as officers of the court, i.e., court 
appointments.
    Third, paragraph (c) clarifies that sanctions imposed by courts on 
parties in litigation for behavior that violates court rules may be 
accepted by recipients because they are considered to be sanctions 
rather than attorneys' fees. Such sanctions often include compensation 
for the time spent by the opposing lawyer in litigating against the 
sanctioned behavior.
    Finally, the restrictions do not apply to the reimbursement of 
costs and expenses made by an opposing party.

Section 1642.4  Accounting for and use of Attorneys' Fees

    This section is a revised version of Sec. 1609.6, which is 
superseded by this interim rule. It includes an accounting requirement 
for attorneys' fees that are permitted under Sec. 1642.3(c) of this 
part that are received by a recipient. Recipients are required to 
allocate such fees that are received 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. Thus, if a 
particular case was funded 60% by LSC funds and 40% from non-LSC funds, 
a recipient would be required to allocate 60% of the fees received to 
the LSC account. There is no requirement that the program allocate the 
remaining 40% to any particular account. This is a change from current 
law that required allocation to the same fund to which expenses had 
been charged. The change is based on a policy that, if a non-LSC funder 
does not require that its fund be reimbursed from attorneys' fees 
awarded in litigation supported with its funds, LSC should not dictate 
how those funds are to be allocated.

Section 1642.5  Acceptance of Reimbursement From a Client

    This section allows recipients to accept reimbursement from clients 
for out-of-pocket costs and expenses incurred in connection with cases 
where the client recovers damages or statutory benefits, provided that 
the client has agreed in writing to reimburse the recipient for such 
costs and expenses out of any recovery. This section also authorizes 
recipients to require clients who do not qualify for in forma pauperis 
to pay court costs.

Section 1642.6  Recipient Policies, Procedures and Recordkeeping

    This section requires the recipient to establish written policies 
and procedures to guide the recipient's staff to ensure compliance with 
this rule. Recipients are also required to maintain sufficient 
documentation to demonstrate compliance with this part.

List of Subjects in 45 CFR Part 1642

    Attorneys' fees; Grant programs--law; Legal services.

    For reasons set forth in the preamble, 45 CFR Chapter XVI is 
amended by adding part 1642 as follows:

PART 1642--ATTORNEYS' FEES

Sec.
1642.1  Purpose.
1642.2  Definitions.
1642.3  Prohibition.
1642.4  Accounting for and use of attorneys' fees.
1642.5  Acceptance of reimbursement from a client.
1642.6  Recipient policies, procedures and recordkeeping.

    Authority: Sec. 504(a)(13), Pub. L. 104-134, 110 Stat 1321; 42 
U.S.C. 2996e(d)(6).


Sec. 1642.1  Purpose.

    This part is designed to insure that recipients or employees of 
recipients do not claim, or collect and retain attorneys' fees 
available under any Federal or State law permitting or requiring the 
awarding of attorneys' fees.


Sec. 1642.2  Definitions.

    (a) Attorneys' fees means an award to compensate an attorney of the 
prevailing party made pursuant to common law or Federal or State law 
permitting or requiring the awarding of such fees.
    (b) An award is an order by a court or an administrative agency 
that the unsuccessful party pay the attorneys' fees of the prevailing 
party or an order by a court or administrative agency approving a 
settlement agreement of the parties which provides for payment of 
attorneys' fees by an adversarial party.


Sec. 1642.3  Prohibition.

    (a) Except as permitted by paragraph (c) of this section, 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.
    (b) Except as permitted by paragraph (c) of this section, no 
recipient and no private attorney who receives compensation from a 
recipient to provide legal assistance to eligible clients under the 
recipient's private attorney involvement (PAI) program, judicare 
program, contract or other arrangement, may claim, or collect and 
retain attorneys' fees for such legal assistance.
    (c) The prohibitions contained in paragraphs (a) and (b) of this 
section shall not apply to:
    (1) Cases filed prior to April 26, 1996, except that the 
prohibition shall apply to any additional claim for the client made in 
a case pending on April 26, 1996;
    (2) Cases to which a court appoints a recipient or an employee of a 
recipient to provide representation in a case pursuant to a statute or 
a court rule or practice equally applicable to all attorneys in the 
jurisdiction, and in which the recipient or employee receives 
compensation under the same terms and conditions as are applied 
generally to attorneys practicing in the

[[Page 45764]]

court in which the appointment is made;
    (3) Sanctions imposed by a court for violations of court rules, 
including Rule 11 or discovery rules of the Federal Rules of Civil 
Procedure, or similar State court rules; or
    (4) Reimbursement of costs and expenses from an opposing party.


Sec. 1642.4  Accounting for and use of attorneys' fees.

    (a) Attorneys' fees received by a recipient pursuant to 
Sec. 1642.3(c) for work 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 work.
    (b) Attorneys' fees 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.


Sec. 1642.5  Acceptance of reimbursement from a client.

    (a) When a case results in a 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.


Sec. 1642.6  Recipient policies, procedures and recordkeeping.

    The recipient shall adopt written policies and procedures to guide 
its staff in complying with this part and shall maintain records 
sufficient to document the recipient's compliance with this part.

    Dated: August 20, 1996.
Suzanne B. Glasow,
Senior Counsel for Operations & Regulations.
[FR Doc. 96-21660 Filed 8-28-96; 8:45 am]
BILLING CODE 7050-01-P