[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Rules and Regulations]
[Pages 45765-45767]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21669]


      

  Federal Register / Vol. 61, No. 169 / Thursday, August 29, 1996 / 
Rules and Regulations  

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LEGAL SERVICES CORPORATION

45 CFR Part 1609


Fee-Generating Cases

AGENCY: Legal Services Corporation.

ACTION: Proposed rule.

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SUMMARY: This proposed regulation would completely revise the Legal 
Services Corporation's (``Corporation'' or ``LSC'') regulation relating 
to fee-generating cases. A major revision is the removal of the current 
regulation's provisions on attorneys' fees. Attorneys' fees are 
addressed in part 1642 of the Corporation's regulations, which is also 
being published as an interim rule in this publication of the Federal 
Register. This proposed rule also makes substantive and clarifying 
revisions to several sections. In addition, some sections have been 
merged and unnecessary provisions have been eliminated.

DATES: Comments should be received on or before October 28, 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 M. Fortuno, General Counsel, 
(202) 336-8910.

SUPPLEMENTARY INFORMATION: This rule has been under review by the 
Operations and Regulations Committee (``Committee'') of the LSC Board 
of Directors (``Board'') since September 1994. The Committee held 
public hearings on September 17 and October 28, 1994, and February 17, 
1995, on proposed revisions. When it became apparent that Congress was 
considering substantially revised legislation related to this rule, the 
Committee suspended consideration until the new legislation became law. 
Public Law 104-134, 110 Stat. 1321 (1996), the Corporation's FY 1996 
appropriations act became law on April 26, 1996. The new legislation 
did not contain any restrictions on taking of fee-generating cases, but 
it did prohibit recipients from claiming, or collecting and retaining, 
any attorneys' fees pursuant to any Federal or State law permitting or 
requiring the awarding of such fees. See Sec. 504(a)(13) of Pub. L. 
104-134. On May 19, 1996, the Committee directed LSC staff to prepare 
an interim rule to implement a new legislative restriction on the 
taking of attorneys' fees by LSC recipients, an issue implicated in the 
current version of this rule.
    LSC staff recommended and the Committee decided to promulgate a 
separate rule, 45 CFR Part 1642, to address the attorneys' fees issue 
which is also published as an interim rule in this volume of the 
Federal Register. The Committee met on July 10 and 19, 1996, to 
consider a draft of a revised Part 1609 prepared by LSC staff and, 
after making some changes, made a recommendation to the Board and the 
Board voted to publish this proposed rule in the Federal Register for 
public notice and comment.
    This proposed rule would revise the current rule entirely. It 
deletes the attorneys' fees provisions in order to address, in a 
separate part, provisions responsive to the Corporation's FY 1996 
appropriations. The other changes made to the rule were under 
consideration by the Committee last year. Recipients should note that, 
upon publication of an interim rule on attorneys' fees, the attorneys' 
fees provisions in the current part 1609 will no longer have the force 
and effect of law, regardless of whether any revisions to this proposed 
rule are adopted and published as final by the LSC Board.
    A section-by-section analysis of this proposed rule is provided 
below.

Section 1609.1  Purpose

    This section is revised to state more clearly the purposes of this 
regulation, which are: (1) To ensure that recipients do not use scarce 
resources for cases where private attorneys are available to provide 
effective representation, and (2) to assist eligible clients to obtain 
appropriate and effective legal assistance.

Section 1609.2  Definition

    This section defines ``fee-generating case.'' A technical numerical 
change is made 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. The definition is also revised to explain what is 
not a ``fee-generating case.'' The revision makes it clear that court 
appointments are not to be considered fee-generating cases, even where 
fees are paid, since such cases are a professional obligation of all 
attorneys. The definition also does not include situations where 
recipients undertake representation under a contract with a government 
agency or other entity. Acceptance of a payment under a contract 
arrangement in such a situation does not constitute a fee-generating 
case, because a contract payment does not constitute fees that come 
from an award to a client or attorneys' fees that come from public 
funds or the losing party in a case.

Section 1609.3  General Requirements

    This section defines the limits within which recipients may 
undertake fee-generating cases. This new section reorganizes and 
replaces Secs. 1609.3 and 1609.4 of the current rule in order to make 
them easier to understand. It is also retitled. The provision requiring 
recipients to establish procedures for the referral of fee-generating 
cases is deleted, and a new section on policies and procedures is added 
to the rule.
    Paragraph (a) provides that, except as provided in paragraph (b) of 
this section, a recipient may undertake a fee-generating case only 
after the case has been rejected by the local lawyer referral service 
or by two private attorneys, or when neither the referral service nor 
two attorneys will take the case without a consultation fee. The 
current rule states that ``neither the referral service nor any 
attorney will consider the case without payment of a consultation 
fee.'' [emphasis added] The current rule sets up an impossible burden 
for a recipient to meet, and the Committee has decided that the 
proposed new standard is reasonable and consistent with the purposes of 
this rule.
    Paragraph (b) clarifies those circumstances under which a recipient 
may undertake a fee-generating case without first attempting to refer 
the case to the private bar. The first situation is delineated in 
Sec. 1609.3(b)(1) and is based on Sec. 1609.4(d) of the current 
regulation. This provision is revised to include any cases which, like 
Social Security cases, meet the terms of the underlying statutory 
provision. A 1977 amendment to Sec. 1007(b)(1) of the Legal Services 
Corporation Act, 42 U.S.C. 2996, prohibits the Corporation from issuing 
guidelines on fee-generating cases that would preclude recipients from 
taking ``cases in which a client seeks only statutory benefits and 
appropriate private representation is not available.'' 42 U.S.C. 
2996f(b)(1). The legislative history of this amendment clearly 
indicates that Congress intended the provision to apply to the Social 
Security Act (``SSA'') and Supplemental Security Income (``SSI'') cases 
that are covered by both the current and the proposed rules, and to 
``such other cases as the Corporation deems appropriate because the 
only recovery sought by the eligible client is the amount of 
subsistence benefits to which he or she is statutorily entitled.'' S. 
Rep. No. 172, 95th Cong., 1st Sess. 15 (1977). The Committee has 
decided to add language to the rule that would include not only Social 
Security cases but also any other similar statutory benefits cases. The 
Committee is aware that, since the 1977

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amendments to the LSC Act, the rules governing fees in veterans' 
benefits appeals, for example, have been changed and seeks comments on 
whether those cases or other similar cases should be treated in the 
same manner as Social Security cases.
    Another circumstance under which a recipient may undertake a fee-
generating case without first attempting to refer the case to the 
private bar is set out in Sec. 1609.3(b)(2). This provision is based, 
in part, on a provision that appeared in the original LSC regulation 
adopted in 1976 that allowed a recipient to determine that the case was 
of the type that private attorneys did not accept or did not accept 
without a fee. LSC removed that provision as part of its 1984 revision, 
in part because of concern that it gave too much discretion to project 
directors. This proposal suggests a middle ground between the two 
positions. It restores to the discretion of the recipient the decision 
about what kinds of cases would qualify, but requires that the 
recipient consult with appropriate representatives of the private bar 
in making that determination. The recipient has the authority to 
determine the appropriate representatives, which could include 
representatives of the organized bar, the local referral service or 
private attorneys who handle plaintiffs' tort cases, depending on the 
make-up of the local bar and the kind of cases being considered. The 
provision does not specify whether the governing body or the director 
of the recipient is authorized to do the consultation and make the 
determination, leaving that judgment to the local decision-making 
process.
    Numerous revisions are proposed to be made in the language and 
organization of Sec. 1609.3(b)(3), which is based on the remaining 
provisions of Sec. 1609.4 of the current regulation. The current 
regulation uses the term ``free referral'' instead of ``referral to the 
private bar.'' The Committee decided that the term ``free referral'' 
was too vague and has substituted ``referral of the case to the private 
bar'' which is more descriptive. This provision makes it clear that the 
director of the recipient (or the director's designee) has the express 
authority, subject to policies adopted by the recipient, to make the 
determinations listed.
    Section 1609.3(b)(3)(i) is a new proposal. It recognizes that, in 
certain cases, past experience in trying to refer out similar cases has 
shown that referral efforts would be futile. The Corporation does not 
wish scarce resources to be expended for efforts that the recipient 
knows will prove useless. This provision, which is intended to address 
the specific circumstances in a particular case, differs from 
Sec. 1609.3(b)(2), which deals with categories of case types.
    Section 1609.3(b)(3)(ii) is essentially the same as the comparable 
provision in the current regulation. It allows a recipient to take a 
case if emergency circumstances require immediate action before 
referral procedures can be undertaken.
    Section 1609.3(b)(3)(iii) is a revised version of the current 
1609.4(b). It is included under the category of cases where the 
recipient's director or designee needs to make a case-by-case 
determination of the appropriate treatment of the case. The Committee 
also added the language on statutory fees to make it clear that if 
adequate statutory fees were available to attract private counsel, the 
recipient should try to refer the case out to the private bar, 
regardless of whether recovery of damages is a principal object of the 
client's case. This is not clear under the current regulation. Thus, 
for such cases, the Committee wished to clarify that if substantial 
fees might be available and the cases did not fall under any of the 
other categories authorizing representation, then the program was 
obligated to attempt referral in accordance with Sec. 1609.3(a).
    The language in the current rule relating to ancillary relief and 
counterclaims is proposed to be deleted because it is confusing and 
unnecessarily complicated, and the Committee wanted the commentary to 
include examples of the kinds of circumstances under which the 
recipient's director could determine that the recovery of damages was 
not the principal object of the case. For example, if the principal 
relief sought is equitable or a declaratory judgement, inclusion of a 
prayer for damages would not turn the matter into a fee-generating 
case. Similarly, if the recipient is representing the defendant in a 
case, the inclusion of a counterclaim for damages to protect the 
defendant's rights would not make the matter a fee-generating case.
    Finally, because this proposed rule has deleted provisions on 
attorneys' fees, paragraph (c) directs recipients to refer to the 
Corporation's new rule on attorneys' fees, 45 CFR Part 1642.

Section 1609.4  Recipient Policies, Procedures and Recordkeeping

    This new section requires that recipients establish written 
policies, procedures and recordkeeping requirements that will guide 
recipient staff to ensure compliance with this rule.

Miscellaneous Changes

    Sections 1609.5 through 1609.7 of the current regulation are 
proposed to be deleted and are superseded by a new interim regulation, 
45 CFR Part 1642, also published in this publication of the Federal 
Register. Accordingly, Secs. 1609.5 through 1609.7 no longer have the 
force of law.

List of Subjects in 45 CFR Part 1609

    For reasons set forth in the preamble, 45 CFR Part 1609 is proposed 
to be revised to read as follows:

PART 1609--FEE-GENERATING CASES

Sec.
1609.1  Purpose.
1609.2  Definition.
1609.3  General requirements.
1609.4  Recipient policies, procedures and recordkeeping.

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


Sec. 1609.1  Purpose.

    This part is designed (1) to ensure that recipients do not use 
scarce legal services resources when private attorneys are available to 
provide effective representation and (2) to assist eligible clients to 
obtain appropriate and effective legal assistance.


Sec. 1609.2  Definition.

    (a) As used in this part, ``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 (1) to a client, (2) from public 
funds or (3) from the opposing party.
    (b) ``Fee-generating case'' does not include a case where (1) 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, or 
(2) a recipient undertakes representation under a contract with a 
government agency or other entity.


Sec. 1609.3  General Requirements.

    (a) Except as provided in paragraph (b) of this section, a 
recipient may provide legal assistance in a fee-generating case only 
if:
    (1) The case has been rejected by the local lawyer referral 
service, or by two private attorneys; or
    (2) Neither the referral service nor two private attorneys will 
consider the case without payment of a consultation fee.

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    (b) A recipient may provide legal assistance in a fee-generating 
case without first attempting to refer the case pursuant to paragraph 
(a) of this section only when:
    (1) An eligible client is seeking only statutory benefits, 
including but not limited to, subsistence benefits under Subchapter II 
of the Social Security Act, 42 U.S.C. 401 et seq., as amended, Federal 
Old Age, Survivors, and Disability Insurance Benefits; or Subchapter 
XVI of the Social Security Act, 42 U.S.C. 1381 et seq., as amended, 
Supplemental Security Income for Aged, Blind, and Disabled;
    (2) The recipient, after consultation with appropriate 
representatives of the private bar, has determined that the type of 
case is one that private attorneys in the area served by the recipient 
ordinarily do not accept, or do not accept without prepayment of a fee; 
or
    (3) The director of the recipient, or the director's designee, has 
determined that referral of the case to the private bar is not possible 
because:
    (i) Documented attempts to refer similar cases in the past 
generally have been futile;
    (ii) Emergency circumstances compel immediate action before 
referral can be made, but the client is advised that, if appropriate 
and consistent with professional responsibility, referral will be 
attempted at a later time; or
    (iii) Recovery of damages is not the principal object of the 
recipient's client's case and substantial statutory attorneys' fees are 
not likely to be available.
    (c) Recipients should refer to 45 CFR Part 1642 for restrictions on 
claiming, or collecting and retaining attorneys' fees.


Sec. 1609.4  Recipient policies, procedures and recordkeeping.

    Each 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. 96-21669 Filed 8-28-96; 8:45 am]
BILLING CODE 7050-01-P