[Federal Register Volume 62, Number 76 (Monday, April 21, 1997)]
[Rules and Regulations]
[Pages 19398-19400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10038]


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Part II

Legal Services Corporation


45 CFR Part 1609

Fee-Generating Cases; Final Rule

45 CFR Part 1612

Restrictions on Lobbying and Certain Other Activities; Final Rule

45 CFR Part 1620

Priorities in Use of Resources; Final Rule and Interim Rule

45 CFR Part 1626

Restrictions on Legal Assistance to Aliens; Final Rule

45 CFR Part 1627

Subgrants and Membership Fees or Dues; Final Rule

45 CFR Part 1636

Client Identity and Statement of Facts; Final Rule

45 CFR Part 1637

Representation of Prisoners; Final Rule

45 CFR Part 1638

Restriction on Solicitation; Final Rule

45 CFR Part 1640

Application of Federal Law to LSC Recipients; Final Rule

Federal Register / Vol. 62, No. 76 / Monday, April 21, 1997 / Rules 
and Regulations

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45 CFR Part 1609

Fee-Generating Cases

AGENCY: Legal Services Corporation.

ACTION: Final rule.


SUMMARY: This final rule revises the Legal Services Corporation's 
(``Corporation'' or ``LSC'') regulation relating to fee-generating 
cases. A major revision is the removal of the old regulation's 
provisions on attorneys' fees. Attorneys' fees now are addressed in 45 
CFR part 1642 of the Corporation's regulations. In addition, other 
substantive and clarifying revisions are made, some sections have been 
merged, and unnecessary provisions have been eliminated.

DATES: Effective May 21, 1997.

FOR FURTHER INFORMATION CONTACT: Victor M. Fortuno, General Counsel, 
(202) 336-8910.

SUPPLEMENTARY INFORMATION: This rule, which includes provisions on fee-
generating cases and attorneys' fees 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 legislation that would significantly affect this rule, the 
Committee suspended consideration until the new legislation became law 
on April 26, 1996. See Public Law 104-134, 110 Stat. 1321 (1996), the 
Corporation's FY 1996 appropriations act.
    The new legislation did not affect this part's provisions on fee-
generating cases but it did change the law on attorneys' fees by 
prohibiting 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 the new legislative restriction on the 
taking of attorneys' fees by LSC recipients. The Corporation adopted a 
separate rule, 45 CFR part 1642, to address the attorneys' fees issue, 
which was published as an interim rule on August 29, 1996.
    In order to delete the attorneys' fees provisions from part 1609 
and make other revisions, the Committee met on July 10 and 19, 1996, to 
consider draft revisions to part 1609 and make a recommendation to the 
Board. The Board authorized the publication of a proposed rule, which 
was published in the Federal Register for public notice and comment on 
August 29, 1996.
    The Corporation received 37 timely comments. The Committee held 
public hearings on the rule on December 14, 1996, and January 5, 1997, 
and made revisions to the proposed rule, which they recommended to the 
Board. The Board adopted the Committee's recommended version on January 
6, 1997, as a final rule.
    This final rule deletes the attorneys' fees provisions in the old 
rule. The issue of attorneys' fees is now addressed in 45 CFR part 
1642. This rule also retains the Corporation's longstanding definition 
of a ``fee-generating case,'' but has added clarification of what is 
not considered to be a fee-generating case. In addition, the rule has 
been clarified and simplified by structural and minor substantive 
changes. Several changes have also been made to the requirements 
related to the referral of cases.
    A section-by-section analysis of this final 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.'' The proposed rule 
made a technical change in numbering intended to clarify what is 
intended in the definition. However, the change raised comments on 
whether substantive changes to the definition were intended. To avoid 
such an interpretation, the Board rejected the changes in the proposed 
rule and retained the longstanding definition from the prior rule. The 
Board did adopt language in the proposed rule that was added to explain 
what is not a ``fee-generating case.'' This 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. The definition also does not include situations where 
recipients undertake representation under a contract with a government 
agency or other entity in which the agency or entity pays the recipient 
for each case taken. Such cases are not considered fee-generating under 
the rule, because a contract payment does not constitute fees that come 
from an award to a client or attorneys' fees that come from the losing 
party in a case, or from public funds.
    It is important to clarify that, while this rule permits recipients 
to provide representation in certain fee-generating cases under the 
conditions set out in this rule, recipients are precluded from claiming 
or collecting and retaining any attorneys' fees as prohibited under 
part 1642.

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 old 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 old 
rule stated that ``neither the referral service nor any attorney will 
consider the case without payment of a consultation fee.'' [emphasis 
added] The old rule set up an impossible standard for a recipient to 
meet, and the Board has decided that the standard in this final rule is 
reasonable and consistent with the rule's purposes.
    Paragraph (b) clarifies when 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). 
The proposed rule would have revised this section to include any cases 
which, like Social Security cases, meet the terms of the underlying 
statutory provision, Sec. 1007(b)(1) of the Legal Services Corporation 
Act, under which the Corporation may not preclude recipients from 
taking ``cases in which a client seeks only statutory benefits and 
appropriate private representation is not available.'' 42 U.S.C. 
Sec. 2996f(b)(1). The Committee sought comments in the proposed rule on 
whether there are other similar cases that should be treated in the 
same manner as Social Security cases. No comments urging extension of 
the provision to other types of cases were provided to the Corporation, 
and the Board decided to continue to limit the provision to Social 
Security cases. The only other similar type of case identified

[[Page 19399]]

to the Board was Veterans' benefits cases, and oral comments indicated 
that there has not been much demand for LSC program assistance in such 
cases. If a particular case should arise, a program could decide to 
take the case after attempted referral or pursuant to Sec. 1609.3(b)(2) 
or (3).
    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 in 1984, in part because of 
concern that it gave too much discretion to project directors. The 
final rule adopts 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 individual private 
practitioners with knowledge about practices in the area, particularly 
related to fee-generating matters. The provision contemplates either 
the governing body or the director of the recipient undertaking the 
consultation based on local conditions.
    Finally, recipients that have State-wide, multiple or exceptionally 
large service areas are encouraged to make separate determinations when 
appropriate for different sub-areas within their total service area. 
For example, a area that includes a large city may have attorneys that 
normally accept a particular type of case, while rural areas may not.
    Numerous revisions are 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 old rule. The old rule used the term ``free 
referral'' instead of ``referral to the private bar.'' The Board has 
decided that the term ``free referral'' was too vague and has 
substituted the more descriptive term, ``referral of the case to the 
private bar.'' This provision specifically authorizes the director of 
the recipient (or the director's designee) to make the determinations 
listed, subject to policies adopted by the recipient.
    Section 1609.3(b)(3)(i) is new. It recognizes that in certain cases 
prior experience 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 
    Section 1609.3(b)(3)(ii) is essentially the same as the comparable 
provision in the old rule. It allows a recipient to take a case if 
emergency circumstances require immediate action before referral 
procedures can be undertaken. The recipient must advise the client 
that, if appropriate, referral of the case will be attempted at a later 
time. However, any referral of the case must be done consistent with 
professional responsibility requirements.
    Section 1609.3(b)(3)(iii) is a revised version of the old 
Sec. 1609.4(b) and 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. Language on 
statutory fees has been added to make it clear that if adequate 
statutory fees are 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 was not clear under the old rule. The Board wants it to be clear 
that, if fees might be available sufficient to attract private counsel 
and the case does not fall under any of the other categories 
authorizing representation, the recipient is obligated to attempt 
referral in accordance with Sec. 1609.3(a).
    The language in the old rule relating to ancillary relief and 
counterclaims is deleted because it was confusing and unnecessarily 
complicated. Instead, this commentary includes 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 
judgment, 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 final rule has deleted provisions on 
attorneys' fees, paragraph (c) directs recipients 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 old rule are deleted and are 
superseded by 45 CFR part 1642.

List of Subjects in 45 CFR Part 1609

    Grant programs, Legal services.

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


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:
    (a) To ensure that recipients do not use scarce legal services 
resources when private attorneys are available to provide effective 
representation and
    (b) To assist eligible clients to obtain appropriate and effective 
legal assistance.

Sec. 1609.2  Definition.

    (a) 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 to a client, from public funds or 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 not provide legal assistance in a fee-generating case 
    (1) The case has been rejected by the local lawyer referral 
service, or by two private attorneys; or

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    (2) Neither the referral service nor two private attorneys will 
consider the case without payment of a consultation fee.
    (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 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; 
    (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 
    (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: April 14, 1997.
Victor M. Fortuno,
General Counsel.
[FR Doc. 97-10038 Filed 4-18-97; 8:45 am]