[Federal Register Volume 67, Number 100 (Thursday, May 23, 2002)]
[Rules and Regulations]
[Pages 36102-36105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12866]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 20

RIN 2900-AI98


Board of Veterans' Appeals: Rules of Practice--Attorney Fee 
Matters

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This document amends the Rules of Practice of the Board of 
Veterans' Appeals (Board) by establishing safeguards in the case of 
``disinterested third-parties'' who pay a veteran's attorney fees and 
by simplifying certain notice procedures. We have carefully considered 
the comments submitted in response to our notice of proposed rulemaking 
(NPRM), and have decided to adopt the amendments we proposed concerning 
those two matters, but not to adopt the provisions relating to payment 
of attorney fees from past-due benefits.

DATES: Effective Dates: This rule is effective June 24, 2002, except 
for  20.609(i) which is effective July 22, 2002.
    Applicability Date: Amendments to 38 CFR 20.609(i) will apply to 
third-party agreements received at the Board of Veterans' Appeals on or 
after July 22, 2002. Third party fee agreements received prior to that 
date will be subject to the pre-existing rules, which require that all 
fee agreements--including third-party agreements--be filed with the 
Board.

FOR FURTHER INFORMATION CONTACT: Steven L. Keller, Senior Deputy Vice 
Chairman, Board of Veterans' Appeals, Department of Veterans Affairs, 
810 Vermont Avenue, NW., Washington, DC 20420, (202) 565-5978.

SUPPLEMENTARY INFORMATION: On December 9, 1997, VA published in the 
Federal Register at 62 FR 64790 a Notice of Proposed Rulemaking (NPRM) 
which would (1) discontinue VA's practice of paying attorney fees from 
past-due benefits; (2) establish safeguards in the case of 
``disinterested third-party'' payers; and (3) simplify certain notice 
procedures. We provided a 60-day comment period that ended February 9, 
1998.
    We received more than 80 comments from attorneys, individuals, 
local veterans' groups, Vietnam Veterans of America, Veterans' Due 
Process, National Organization of Veterans' Advocates, a county bar 
association, and members of Congress.
    Most of the comments related to the issue of paying attorney fees 
from past-due benefits. Some comments addressed the ``third-party'' 
issue. None of those comments supported either change.
    There were no comments relating to the notice procedures.
    In this document, we will consider the notice procedures, the fee 
payment procedures, and the third-party procedures, in that order. We 
will also separately discuss the effective date provisions of this 
rule.
    Based on the rationales given in the NPRM and in this document, we 
adopt as a final rule the provisions of the proposed rule with the 
changes discussed below.

I. Simplifying Notice Procedures

    In our NPRM, we proposed to amend Rule 609(i) (38 CFR 20.609(i)), 
relating to motions to review attorney fee agreements, and Rule 610(d) 
(38 CFR 20.610(d)), relating to motions challenging expenses. The 
amendments would eliminate the requirement of mailing by certified mail 
and replace it with a certification by the mailer.
    We received no comments on this proposal. For the reasons set forth 
in the NPRM, we adopt it as published.

II. Taking VA Out of the Business of Paying Attorney Fees

    In our NPRM, we proposed to end VA's discretionary practice of 
paying attorney fees out of a veteran's past-due benefits. No commenter 
supported this proposal.
    We have decided not to adopt the proposed amendments as a final 
rule.

III. Third-Party Agreements

    Eleven commenters, all attorneys, commented on the ``third-party 
payer'' rule. Those comments fell into eight categories:
    1. VA has no business examining contracts where fees are not to be 
paid from past-due benefits.
    2. VA has no business examining contracts where the veteran does 
not pay the fee.
    3. Without a contingency agreement, third-party payers would have 
unlimited liability.
    4. Prohibiting third-party contingency agreements will discourage 
attorneys from representing veterans.
    5. The additional requirements VA proposed on third-party fee 
agreements will increase the administrative burden VA is trying to 
reduce.
    6. Include in the presumption of ``not disinterested'' only 
dependent parents.
    7. Do not adopt the proposed amendments because people will violate 
the law anyway.
    8. Without third-party contingent fee agreements, claimants will 
not be able to afford attorneys.
    As discussed below, we find none of these arguments persuasive and 
publish the rule as proposed.

A. VA Has No Business Examining Contracts Where Fees Are Not To Be Paid 
from Past-Due Benefits

    Some commenters said that VA has no business examining agreements 
where fees are not to be paid from past-due benefits. The law itself 
permits the Board to review fee agreements for reasonableness 
regardless of whether or not they call for payment of fees from past-
due benefits. 38 U.S.C. 5904(c)(2). We make no change based on the 
commenters' argument.

B. VA Has No Business Examining Contracts Where the Veteran Does Not 
Pay the Fee

    Some commenters stated that VA has no authority to examine a fee 
agreement when the claimant is not paying the fee.
    VA is the part of the Executive Branch charged with enforcing, 
among other things, the provisions of 38 U.S.C. 5904. Id. 501(a) 
(Secretary has authority to prescribe all rules and regulations 
necessary or appropriate to carry out the laws administered by the 
Department). VA is neither required nor expected to turn a blind eye to 
attempts to evade the law. Indeed, it is a criminal offense to charge a 
fee in VA cases except as provided by statute. 38 U.S.C. 5905.
    It has been our experience that the majority of third-party 
agreements are rather blatant attempts to avoid the

[[Page 36103]]

restriction, imposed by the Veterans' Judicial Review Act (VJRA), 
Public Law 100-687, Div. A, 102 Stat. 4105 (1988), that attorneys may 
not charge veterans for services which are rendered prior to the first 
final Board decision on an issue. The Congress was quite clear that 
attorneys should not be paid until the veteran had gone through the 
system once using the free representation provided by veterans service 
organizations (VSOs). That clarity is shown in this statement by the 
Chairman of the Senate Committee on Veterans' Affairs during the 1988 
debate on the VJRA:

    The compromise agreement before us today prohibits attorneys 
fees until after the BVA makes its first final decision, thus 
contemplating that the current practice of veterans being assisted 
by skilled veterans' service officers throughout the VA and initial 
BVA administrative processes would continue to operate exactly as it 
does now.

134 Cong. Rec. S16632, 16646 (daily ed. Oct. 18, 1988) (debate on the 
VJRA) (remarks of Sen. Cranston). See also id. at H10333, H10344 (daily 
ed. Oct. 19, 1988) (remarks of Rep. Montgomery, Chairman of the House 
Committee on Veterans' Affairs) (VJRA was designed to permit VSOs to 
continue to have the predominant role in helping veterans get the 
benefits they deserve).
    In addition, the disinterested third-party exception to the 
restriction on payment of attorney fees is just that: an exception. Not 
any third party may pay a veteran's legal bills--only a 
``disinterested'' third party. VA cannot know if an arrangement meets 
this criterion unless it is able to examine the agreement.
    VA has the authority to review agreements, so we make no change 
based on the argument to the contrary.

C. Without a Contingency Agreement, Third--Party Payers Would Have 
Unlimited Liability

    In our NPRM, we proposed barring any contingent fee agreements by 
third parties. The primary basis for this proposal was that contingent 
fee agreements function as a financing device that enables a client to 
assert and prosecute an otherwise unaffordable claim. If a third party 
agrees to pay an attorney to represent a veteran (or other claimant) 
because the law bars the attorney from charging the veteran a fee, the 
issue of ``financing'' the cost of the litigation through a successful 
outcome is moot: By definition, a disinterested third party will 
receive no benefit from any award to the veteran, so that the outcome 
can generate no funds with which to pay the attorney. 62 FR at 64792.
    Some commenters argued that contingent fee agreements were useful 
because such agreements would limit the liability of the payer.
    We make no change based on the commenters' argument. Agreeing to 
pay a percentage of an award does not, in any real sense, limit the 
liability of the third-party payer. Such a payer still has no idea at 
the outset how much that award will be. Some past-due benefits amount 
to a few hundred dollars, some to hundreds of thousands. In many cases, 
there is simply no way to predict what that amount will be.

D. Prohibiting Third-Party Contingency Agreements Will Discourage 
Attorneys from Representing Veterans

    Some commenters argued that prohibiting third-party contingency 
agreements will discourage attorneys from representing veterans. For 
the reasons discussed above and in the Supplementary Information to our 
NPRM, we do not believe that contingency agreements make any sense in 
the third-party context. Their use encourages evasion of the law. The 
only attorneys who will be ``discouraged'' will be those who rely on 
the veteran to reimburse the so-called ``disinterested'' third party. 
We make no change on the commenters'' argument.

E. The Additional Requirements VA Proposed on Third-Party Fee 
Agreements Will Increase the Administrative Burden VA is Trying to 
Reduce

    Three commenters argued that our proposed increased requirements 
relating to third-party agreements will increase the administrative 
burden that VA is attempting to reduce by this rulemaking. While that 
is true as far as it goes, it is also true that these changes are 
necessary to help enforce statutory limitations on payment that are 
being violated. As discussed above and in the Supplementary Information 
to our NPRM, it is our experience that third-party agreements are being 
used to evade those limitations. We cannot quantify the effect of the 
increased requirements, but, since the number of cases involving 
attorney representation is relatively small--2,132 of 34,028 appeals in 
FY 2000 (6.3%)'and since we assume that most attorneys follow the law 
and regulations relating to filing fee agreements, we have no reason to 
believe that the overall cost to VA will be high. We make no change 
based on the commenters' argument.

F. Include in the Presumption of ``not disinterested'' Only Dependent 
Parents

    One commenter suggested that we amend 38 CFR 609(d)(2)(ii), which 
provides that a parent is presumed not to be a disinterested third 
party, to provide that only dependent parents would be so presumed. As 
we discussed in our NPRM, one of our concerns in third-party issues is 
the creation of ``straw men,'' i.e., individuals who nominally pay the 
attorney fee, but who in fact are, at best, mere conduits for the 
client's money. We note that the same regulation permits a person who 
is presumed not to be disinterested to demonstrate, by clear and 
convincing evidence, that he or she has no financial interest in the 
success of the claim. Accordingly, we reject this suggestion.

G. We Should Not Publish the Rules Because People Will Violate the Law 
Anyway

    One commenter suggested that we abandon our third-party rules 
because people will violate the law anyway. We do not find this a 
persuasive argument.

H. Without Third-Party Contingent Fee Agreements, Claimants will not be 
Able to Afford Attorneys

    One commenter suggested that, without third-party contingent 
agreements, claimants will not be able to afford attorneys. As we 
discussed above and in our NPRM, if an attorney's fee is being paid by 
a disinterested third party, the represented claimant's ability to pay 
is simply irrelevant. The whole point of payment by a disinterested 
third party is that someone other than the claimant pays the attorney's 
fee. Accordingly, we make no change based on this argument.

IV. Effective Dates

    Most of the amendments made by this notice are effective June 24, 
2002. However, the amendments to 38 CFR 20.609(i) requiring specific 
information and certifications in the case of third-party fee 
agreements will apply only to third-party agreements received at the 
Board of Veterans' Appeals on or after July 22, 2002. Third-party fee 
agreements received prior to that date will be subject to the pre-
existing rules which, since 1992, have required that all fee 
agreements--including third-party agreements--be filed with the Board. 
Rule 609(g), 38 CFR 20.609(g). We are delaying the applicability date 
of the third-party changes to give attorneys time to modify their 
contracts with clients, if necessary.

[[Page 36104]]

Paperwork Reduction Act

    This document contains no provisions constituting a collection of 
information under the Paperwork Reduction Act (44 U.S.C. 3501-3520).

Executive Order 12866

    This document has been reviewed by the Office of Management and 
Budget under Executive Order 12866.

Regulatory Flexibility Act

    The Secretary hereby certifies that this final rule will not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-
612. This rule will affect only the processing of claims by VA and will 
not affect small businesses. Therefore, pursuant to 5 U.S.C. 605(b), 
this final rule is exempt from the initial and final regulatory 
flexibility analyses requirements of sections 603 and 604.

List of Subjects in 38 CFR Part 20

    Administrative practice and procedure, Claims, Veterans.

    Approved: March 1, 2002.
Anthony J. Principi,
Secretary of Veterans Affairs.

    For the reasons set out in the preamble, 38 CFR part 20 is amended 
as set forth below:

PART 20--BOARD OF VETERANS' APPEALS: RULES OF PRACTICE

    1. The authority citation for part 20 continues to read as follows:

    Authority: 38 U.S.C. 501(a) and as noted in specific sections.

    2. In subpart A,  20.3, paragraphs (n), (o), and (p) are 
redesignated as paragraphs (o), (p), and (q), respectively; and a new 
paragraph (n) is added to read as follows:


 20.3  Rule 3. Definitions.

* * * * *
    (n) Past-due benefits means a nonrecurring payment resulting from a 
benefit, or benefits, granted on appeal or awarded on the basis of a 
claim reopened after a denial by the Board of Veterans' Appeals or the 
lump sum payment which represents the total amount of recurring cash 
payments which accrued between the effective date of the award, as 
determined by applicable laws and regulations, and the date of the 
grant of the benefit by the agency of original jurisdiction, the Board 
of Veterans' Appeals, or an appellate court.
* * * * *

    3. In subpart G,  20.609, paragraphs (d)(2), (f), (g), and 
(i) are revised and paragraph (j) is added to read as follows:


 20.609  Rule 609. Payment of representative's fees in 
proceedings before Department of Veterans Affairs field personnel and 
before the Board of Veterans' Appeals.

* * * * *
    (d) *-*-*
    (2) Payment of fee by disinterested third party. (i) An attorney-
at-law or agent may receive a fee or salary from an organization, 
governmental entity, or other disinterested third party for 
representation of a claimant or appellant even though the conditions 
set forth in paragraph (c) of this section have not been met. In no 
such case may the attorney or agent charge a fee which is contingent, 
in whole or in part, on whether the matter is resolved in a manner 
favorable to the claimant or appellant.
    (ii) For purposes of this part, a person shall be presumed not to 
be disinterested if that person is the spouse, child, or parent of the 
claimant or appellant, or if that person resides with the claimant or 
appellant. This presumption may be rebutted by clear and convincing 
evidence that the person in question has no financial interest in the 
success of the claim.
    (iii) The provisions of paragraph (g) of this section (relating to 
fee agreements) shall apply to all payments or agreements to pay 
involving disinterested third parties. In addition, the agreement shall 
include or be accompanied by the following statement, signed by the 
attorney or agent: ``I certify that no agreement, oral or otherwise, 
exists under which the claimant or appellant will provide anything of 
value to the third-party payer in this case in return for payment of my 
fee or salary, including, but not limited to, reimbursement of any fees 
paid.''.
* * * * *
    (f) Presumption of reasonableness. Fees which total no more than 20 
percent of any past-due benefits awarded, as defined in Rule 20.3(n) 
( 20.3(n) of this part), will be presumed to be reasonable.
    (g) Fee agreements. All agreements for the payment of fees for 
services of attorneys-at-law and agents (including agreements involving 
fees or salary paid by an organization, governmental entity or other 
disinterested third party) must be in writing and signed by both the 
claimant or appellant and the attorney-at-law or agent. The agreement 
must include the name of the veteran, the name of the claimant or 
appellant if other than the veteran, the name of each disinterested 
third-party payer (see paragraph (d)(2) of this section), the 
applicable Department of Veterans Affairs file number, and the specific 
terms under which the amount to be paid for the services of the 
attorney-at-law or agent will be determined. A copy of the agreement 
must be filed with the Board of Veterans' Appeals within 30 days of its 
execution by mailing the copy to the following address: Office of the 
Senior Deputy Vice Chairman (012), Board of Veterans' Appeals, 810 
Vermont Avenue, NW, Washington, DC 20420.
* * * * *
    (i) Motion for review of fee agreement. The Board of Veterans' 
Appeals may review a fee agreement between a claimant or appellant and 
an attorney-at-law or agent upon its own motion or upon the motion of 
any party to the agreement and may order a reduction in the fee called 
for in the agreement if it finds that the fee is excessive or 
unreasonable in light of the standards set forth in paragraph (e) of 
this section. Such motions must be in writing and must include the name 
of the veteran, the name of the claimant or appellant if other than the 
veteran, and the applicable Department of Veterans Affairs file number. 
Such motions must set forth the reason, or reasons, why the fee called 
for in the agreement is excessive or unreasonable; must be accompanied 
by all evidence the moving party desires to submit; and must include a 
signed statement certifying that a copy of the motion and any evidence 
was sent by first-class mail, postage prepaid, to each other party to 
the agreement, setting forth the address to which each such copy was 
mailed. Such motions (other than motions by the Board) must be filed at 
the following address: Office of the Senior Deputy Vice Chairman (012), 
Board of Veterans' Appeals, 810 Vermont Avenue, NW, Washington, DC 
20420. The other parties may file a response to the motion, with any 
accompanying evidence, with the Board at the same address not later 
than 30 days following the date of receipt of the copy of the motion 
and must include a signed statement certifying that a copy of the 
response and any evidence was sent by first-class mail, postage 
prepaid, to each other party to the agreement, setting forth the 
address to which each such copy was mailed. Once there has been a 
ruling on the motion, an order shall issue which will constitute the 
final decision of the Board with respect to the motion. If a reduction 
in the fee is ordered, the attorney or agent must

[[Page 36105]]

credit the account of the claimant or appellant with the amount of the 
reduction and refund any excess payment on account to the claimant or 
appellant not later than the expiration of the time within which the 
ruling may be appealed to the United States Court of Appeals for 
Veterans Claims.
    (j) In addition to whatever other penalties may be prescribed by 
law or regulation, failure to comply with the requirements of this 
section may result in proceedings under  14.633 of this 
chapter to terminate the attorney's or agent's right to practice before 
the Department of Veterans Affairs and the Board of Veterans' Appeals.
* * * * *

    4. In subpart G,  20.610, paragraph (d) is revised, and 
paragraph (e) is added to read as follows:


 20.610  Rule 610. Payment of representative's expenses in 
proceedings before Department of Veterans Affairs field personnel and 
before the Board of Veterans' Appeals.

* * * * *
    (d) Expense charges permitted; motion for review of expenses. 
Reimbursement for the expenses of a representative may be obtained only 
if the expenses are reasonable. The Board of Veterans' Appeals may 
review expenses charged by a representative upon the motion of the 
claimant or appellant and may order a reduction in the expenses charged 
if it finds that they are excessive or unreasonable. Such motions must 
be in writing and must include the name of the veteran, the name of the 
claimant or appellant if other than the veteran, and the applicable 
Department of Veterans Affairs file number. Such motions must 
specifically identify which expenses charged are unreasonable; must set 
forth the reason, or reasons, why such expenses are excessive or 
unreasonable; must be accompanied by all evidence the claimant or 
appellant desires to submit; and must include a signed statement 
certifying that a copy of the motion and any evidence was sent by 
first-class mail, postage prepaid, to the representative. Such motions 
must be filed at the following address: Office of the Senior Deputy 
Vice Chairman (012), Board of Veterans' Appeals, 810 Vermont Avenue, 
NW, Washington, DC 20420. The representative may file a response to the 
motion, with any accompanying evidence, with the Board at the same 
address not later than 30 days following the date of receipt of the 
copy of the motion and must include a signed statement certifying that 
a copy of the response and any evidence was sent by first-class mail, 
postage prepaid, to the claimant or appellant, setting forth the 
address to which the copy was mailed. Factors considered in determining 
whether expenses are excessive or unreasonable include the complexity 
of the case, the potential extent of benefits recoverable, whether 
travel expenses are in keeping with expenses normally incurred by other 
representatives, etc. Once there has been a ruling on the motion, an 
order shall issue which will constitute the final decision of the Board 
with respect to the motion.
    (e) In addition to whatever other penalties may be prescribed by 
law or regulation, failure to comply with the requirements of this 
section may result in proceedings under  14.633 of this 
chapter to terminate the attorney's or agent's right to practice before 
the Department of Veterans Affairs and the Board of Veterans' Appeals.
* * * * *
[FR Doc. 02-12866 Filed 5-22-02; 8:45 am]
BILLING CODE 8320-01-P