[Federal Register Volume 67, Number 176 (Wednesday, September 11, 2002)]
[Proposed Rules]
[Pages 57550-57554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23089]


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LEGAL SERVICES CORPORATION

45 CFR Part 1604


Outside Practice of Law

AGENCY: Legal Services Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Legal Services Corporation proposes to amend its 
regulation relating to the outside practice of law by full-time legal 
services attorneys. The rule would be substantively restructured and 
revised to clarify the scope of the restrictions on outside practice so 
that program attorneys would not face undue restrictions in complying 
with their professional obligations. The proposed rule would also amend 
several definitions and allow for the separate treatment of court 
appointments.

DATES: Comments should be received on or before November 12, 2002.

ADDRESSES: Comments must be submitted in writing and may be sent by 
regular mail, or may be transmitted by fax or email to: Mattie C. 
Condray, Senior Assistant General Counsel, Office of Legal Affairs, 
Legal Services Corporation, 750 First St., NE., 11th Floor, Washington, 
DC 20002-4250; 202/336-8952 (fax); [email protected] (email).

FOR FURTHER INFORMATION CONTACT: Mattie C. Condray, Senior Assistant 
General Counsel, Office of Legal Affairs, Legal Services Corporation, 
750 First St., NE., 11th Floor, Washington, DC 20002-4250; (202) 336-
8817 (phone); 202/336-8952 (fax); [email protected] (email).

SUPPLEMENTARY INFORMATION: On January 17, 1995, the Legal Services 
Corporation (LSC or the Corporation) published for public comment 
proposed revisions to 45 CFR part 1604, LSC's regulation on the outside 
practice of law. 60 FR 3367. Although LSC received public comment on 
the proposed revisions, no final action was ever taken on the rule. 
Many of the issues outstanding in 1995 remain important today and LSC 
is interested in adopting final revisions to part 1604. LSC is not, 
however, issuing a final rule because several of the prior proposed 
revisions may not be consistent with statutory changes imposed by 
Congress in the intervening years. Moreover, there may be other issues 
with the regulation which have arisen in the past seven years which are 
not adequately addressed by the prior proposed rule without further 
consideration. Accordingly, LSC is re-issuing a Notice of Proposed 
Rulemaking (NPRM). LSC

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specifically invites comment on the impact of the restriction on 
claiming and accepting attorneys' fees, other restrictions stemming 
from the 1996 appropriations act, program integrity requirements, and 
time-keeping requirements on the proposals contained herein and the 
general issue of outside practice of law by LSC recipient attorneys.

Section-by-Section Analysis

Section 1604.1 Purpose

    This section sets out the framework for other changes that appear 
in this NPRM. LSC proposes to add language to authorize a recipient to 
adopt written policies to permit its program attorneys to engage in pro 
bono legal assistance and to comply with their obligations as members 
of the Bar and officers of the court. The proposed rule recognizes, 
however, that those demands must not interfere with the attorneys' 
overriding responsibility to serve the program's clients. LSC further 
proposes to clarify that this part should not be construed to permit 
recipients to unduly restrict legal services attorneys from engaging in 
those activities. The use of the word ``unduly'' acknowledges that 
there may be some restrictions imposed by the LSC Act, LSC 
appropriations or other legislation and/or LSC regulations, or by 
recipients that are necessary to comply with applicable law or 
accomplish the overriding goals of the LSC Act.

Section 1604.2 Definitions

Section 1604.2(a) ``Full-time Attorney''
    LSC proposes to delete the definition of ``attorney,'' because it 
is inconsistent with the definition of ``attorney'' in part 1600 of the 
Corporation's regulations, Definitions. Instead, LSC proposes to 
substitute a definition of ``full-time attorney'' that incorporates the 
definition of ``attorney'' in Part 1600. Under the proposed rule, a 
``full-time attorney'' would be defined as an attorney who is a full-
time employee of a recipient. LSC has not proposed a separate 
definition for the term ``full-time,'' preferring to leave the decision 
as to what constitutes ``full-time'' to the recipient's own personnel 
and outside practice policies and to any appropriate statutory 
definitions found elsewhere.
Section 1604.2(b) ``Outside Practice of Law''
    LSC proposes to amend this definition to explain what outside 
practice is, rather than what it is not. The regulation is intended to 
and currently applies only to the outside practice of law by 
recipients' employees and not to other outside activities by 
recipients' employees that do not constitute the outside practice of 
law. LSC believes that this amendment will clarify this point and aid 
in the comprehension and usability of the regulation.
    LSC further proposes to substitute the words ``receiving that'' for 
``entitled to receive.'' This revision would make it clear that an 
attorney could represent a client in an outside practice case who is 
eligible for representation from the recipient even if the client is 
also receiving legal assistance from the recipient, as long as the 
recipient is representing the client on a different matter.
    LSC notes that this definition is not intended to include work done 
by legal services attorneys when serving in the military reserves as 
JAG Corps attorneys. Although LSC has chosen not to include language on 
this issue in the rule, it intends to continue the policy established 
in prior General Counsel opinions, which have consistently found that 
an attorney is not engaged in the outside practice of law while serving 
as a JAG Corps reserve officer. Comments are solicited as to whether 
the rule should include language expressly stating this policy.
Section 1604.2(c) ``Court Appointment''
    LSC proposes to add a definition for the term ``court 
appointment.'' The proposed definition, ``an appointment in a criminal 
or civil case made by a court or administrative agency under a statute 
or court rule or practice,'' is based on the language relating to court 
appointments currently found in sections 1604.4 and 1604.5 of the 
regulation, rather than the following language in Sec.  1006(d)(6) of 
the Act:
    Attorneys employed by a recipient shall be appointed to provide 
legal assistance without reasonable compensation only when such 
appointment is made pursuant to a statute, rule, or practice applied 
generally to attorneys practicing in the court where the appointment is 
made.
    The proposed definition on appointments is broader than the 
statutory one, which applies only to uncompensated appointments; but 
LSC believes it is appropriate because it is more protective of program 
resources.

Section 1604.3 General Policy

    LSC proposes to expand and amend this section to require recipients 
to adopt written policies relating to the outside practice of law, 
rather than permitting programs to determine on an ad hoc basis, 
whether outside practice is to be permitted in a particular instance 
(as is the case under the existing rule). LSC anticipates, however, 
that such policies would give the recipient's executive director 
substantial discretion in making outside practice of law 
determinations.
    Under the proposed rule, the required policies would be permitted 
to permit the outside practice of law by full-time attorneys only to 
the extent permitted by Part 1604, but would be permitted to contain 
additional limitations not imposed by Part 1604. This provision is 
intended to address the concern that, in revising this regulation to 
take account of the evolving obligations of all attorneys to do pro 
bono work, recipients would be subject to pressures from their 
attorneys to do outside practice that was not absolutely required by 
professional obligations and that interfered with the program's ability 
to serve the clients it is funded to serve. This concern is especially 
important in view of the fact that LSC recipients lack adequate 
resources to serve more than a small fraction of the eligible persons 
who have real legal needs. LSC believes that the proposed language will 
ensure that recipients can adopt policies that balance the demands of 
the profession, the attorney's desire to do outside work, and the needs 
of the community served by the program.
    The restrictions of this part, as currently applicable and as 
proposed, apply only to full-time attorneys. Although LSC does not 
propose to address the outside practice of law by part-time attorneys, 
the regulation would expressly provide that recipients' policies may 
include restrictions on outside practice by part-time attorneys.

Section 1604.4 Permissible Outside Practice

    LSC proposes to combine and revise the provisions currently in 
sections 1604.4, Compensated Outside Practice, and 1604.5, 
Uncompensated Outside Practice, into one section retitled Permissible 
Outside Practice.
    Under the current structure of the regulation, the general rule on 
the outside practice of law is stated in the negative; that is, the 
outside practice of law is prohibited except as provided. LSC proposes 
to, instead, state the rule in the affirmative, providing guidance on 
the terms under which the outside practice of law may be approved. The 
proposed revision also refers to a full-time attorney's 
responsibilities to clients, rather than simply ``full-time 
responsibilities.'' LSC intends an executive director to make a case-
by-case determination as to whether involvement in a specific case or 
matter would be consistent with a full-time

[[Page 57552]]

attorney's responsibilities to the program's clients. A full-time 
attorney's responsibilities to program clients should be determined by 
reference to the program's definition of ``full-time,'' not by 
reference to a specific attorney's working habits. Thus, an attorney in 
the habit of working substantial amounts of overtime on program 
activities should not be penalized for deciding to allot some of that 
attorney's own time to an outside practice case rather than to program 
activities. In addition, an attorney should be permitted to take 
reasonable amounts of leave to engage in permitted outside practice.
    LSC proposes to include language intended to address a concern 
that, if a program attorney handled outside practice cases that were 
controversial or dealt with areas prohibited to the recipient (e.g., 
abortion litigation), the employing recipient would be seen as handling 
the cases and viewed as using outside practice as a way to get around 
other restrictions. The proposed language, which is similar to language 
in the regulation on prohibited political activities, would require the 
attorney to make it clear that this was not a program case, and to do 
whatever was necessary to ensure that it not be perceived as such. In 
practical terms, the restriction might require the attorney to use a 
home address or post office box for correspondence, or a home telephone 
number or direct dial number that would not go through the recipient's 
switchboard or voice mail greeting, or other similar processes to 
ensure that the recipient was not identified as the sponsor of the 
representation. The proposed restriction on identification would not 
apply to court appointments or to cases which are undertaken to fulfill 
a mandatory pro bono obligation, which are treated separately in the 
regulation.
    Proposed paragraph (c) sets forth the five specific situations in 
which the outside practice of law would be permitted: a newly employed 
closing cases from a previous law practice; when the attorney is acting 
on behalf of him or herself, a close friend, family member or another 
member of the recipient's staff; when the attorney is acting on behalf 
of a religious, community, or charitable group; when the attorney is 
participating in a pro bono or legal referral program affiliated with 
or sponsored by a bar association, other legal organization or 
religious, community or charitable group; or when the attorney is 
satisfying an obligation to participate in pro bono work under 
applicable State or local rules or practices of professional 
responsibility.
    With respect to newly employed attorneys, proposed paragraph (c)(1) 
is intended to make explicit what has always been implicit under the 
current part 1604, i.e., that work for a client from a previous 
practice should not be done on program time.
    LSC proposes to expressly permit an attorney to represent another 
member of the recipient's staff without having to prove that the 
individual is a close friend. LSC also proposes to add language to make 
it clear that the attorney may represent him or herself.
    LSC also proposes to amend the current provision permitting 
representation of religious, community or charitable groups, to permit 
the representation of an individual client who has been referred to him 
or her by such a group through a formal pro bono or referral program 
that does regular referrals. For example, under the proposed rule it 
would be permissible for an attorney to represent a client who has been 
referred by the ACLU, NAACP or Catholic Charities. Prior General 
Counsel opinions have permitted outside practice both on behalf of 
organizations as well as on behalf of individuals referred by those 
organizations and LSC believes that it is appropriate to incorporate 
these interpretations into the rule.
    LSC proposes to add a paragraph, (c)(5), to make it clear that 
legal services attorneys should be permitted to act in the same way as 
other attorneys with respect to pro bono work that is undertaken to 
meet professional obligations, whether the obligation is aspirational, 
as under state rules that are modeled on Rule 6.1 of the American Bar 
Association's (``ABA'') Model Rules of Professional Conduct, or 
mandatory, as is now the case in a few local jurisdictions across the 
country.

Section 1604.51 Compensation

    The 1995 NPRM contained a new proposed provision on compensation, 
providing, among other things, that a recipient would be allowed to 
permit an attorney to accept attorneys' fees for certain cases, as long 
as the fees would be remitted to the recipient. While this proposed 
provision was clearly permissible at the time it was proposed, LSC is 
concerned that it is no longer consistent with the current statutory 
and regulatory restrictions on the claiming, collecting and retention 
of attorney's fees. In order to solicit comment on this issue, LSC is 
reprinting the original text of the preamble and the proposed 
regulatory text as they appeared in 1995:
    Although the statute prohibits all compensated outside practice, 
the exception in proposed paragraph (a) for work on cases held over 
from a previous private practice is justified under the general 
principle that neither LSC nor the recipient can interfere with an 
attorney's professional responsibilities to a client. Since the 
representation was undertaken before the lawyer became a legal services 
attorney, fairness dictates that the attorney should be permitted to 
take fees for completion of the work.
    Paragraph (b) proposes that a recipient may permit an attorney to 
accept attorneys' fees for Sec.  1604.4(c)(2)-(5) cases, as long as the 
fees are remitted to the recipient. Several project directors have 
questioned why an attorney cannot keep fees awarded for outside 
practice approved by the recipient. The answer is simple. The LSC Act 
provision on outside practice, Sec.  1007(a)(4), prohibits all 
compensated outside practice, subject to overriding considerations of 
professional responsibility, but permits uncompensated outside practice 
under LSC guidelines.
    What this section does, in essence, is to define as ``uncompensated 
outside practice'' any representation where the attorney does not seek 
or receive personal compensation for the representation. Thus, the 
attorney can perform work pro bono, without any fee, but can also 
undertake work where fees could potentially be awarded, as long as the 
attorney does not keep any such fee but remits it to the recipient.
    Proposed Sec.  1604.5(b)(2) provides that attorneys' fees shall be 
remitted to a recipient when allowed by applicable rules of 
professional responsibility. The Committee added the reference to the 
rules of professional responsibility because of a concern that 
restrictions on fee-splitting could, in some states, prohibit an 
attorney from turning over attorneys' fees from an outside practice 
case to the recipient. Recipients would need to consult the status of 
the law in their state. The Committee understands that, in general, 
fee-splitting between a staff attorney and a legal services 
organization such as a recipient is not restricted under state or local 
rules, but requests comments on the issue.
    The Committee also raised the issue of how such attorneys' fees 
would be treated for tax purposes. Because the Corporation does not 
generally regulate the tax obligations of recipients' employees, this 
issue does not appear to be one that should be addressed by regulation. 
Rather, it is a matter of local concern which a recipient may want to 
consider when drafting its policies on outside practice.
    The LSC Act and LSC's regulation on fee-generating cases, 45 CFR 
part 1609,

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have consistently been interpreted as prohibiting recipients from 
taking attorneys' fees from a client's recovery of damages or 
retroactive statutory benefits. That restriction is accordingly 
incorporated into this provision of the rule.
    Paragraph (b)(3) is intended to make it clear that if a recipient 
receives attorneys' fees from one of its attorneys' outside practice 
cases, it could reimburse the attorney, the client, the pro bono or 
legal referral organization, or anyone else who had contributed 
resources to cover costs or out-of-pocket expenses to support the 
representation.

Section 1604.6 Use of Recipient Resources

    For the five types of outside practice cases described in proposed 
Sec.  1604.4(c)(1)-(5), this proposed provision proposes would allow 
attorneys to use some recipient resources if necessary to carry out the 
attorney's professional responsibilities. However, it would be up to 
the local recipient to establish policies that would determine whether 
its attorneys could use recipient resources for a specific case to the 
extent allowed by this rule.
    More specifically, LSC proposes, for newly employed attorneys 
closing old cases, that a recipient may allow its attorneys to use only 
a de minimis amount of program resources, including time. Under a ``de 
minimis'' standard, an attorney could make a brief phone call or use 
the fax machine during working hours, but would have to take leave for 
court appearances. For other cases, LSC proposes a somewhat less strict 
standard. In those situations, a recipient would be permitted to allow 
its attorneys to use a limited amount of program resources, including 
time, for those cases. Under the ``limited'' standard, in addition to 
whatever an attorney could do under the de minimis standard, the 
attorney could, for example, make a brief court appearance during 
normal working hours without taking leave. An attorney could also be 
permitted to use a program computer or typewriter to prepare pleadings 
or other documents. However, if the attorney participated in a long 
trial or extended negotiation, he or she would normally be required to 
take leave to do so. LSC also proposes that if a recipient has a 
procedure to identify copying, postage and similar costs, and the 
attorney reimbursed the recipient, the use of those resources would 
also be permissible under either standard. This position is consistent 
with the longstanding LSC policy. Finally, language is included that 
would allow an attorney to use a recipient's resources only when the 
recipient's LSC or private funds are not used for any activities for 
which the use of such funds is prohibited.
    LSC seeks comments on the appropriateness of using recipient 
resources for any outside practice, and whether or not the distinction 
between ``de minimis'' and ``limited'' use of resources makes sense and 
is workable. In particular, LSC invites comment on the impact the 1996 
restrictions, LSC's program integrity rules at 45 CFR Part 1610 and 
LSC's timekeeping rules at 45 CFR part 1635 on the proposals set forth 
herein.

Section 1604.7 Court Appointments

    This proposed section would treat court appointments and mandatory 
pro bono representation separately from outside practice, because there 
are substantially different considerations for court appointments and 
mandatory pro bono than there are for pro bono or other outside cases 
that an attorney undertakes on a strictly voluntary basis.
    Proposed paragraph (a)(1) simply restates a general rule that 
applies to court appointments as well as to outside practice under the 
current part 1604 regarding the permissibility of a full-time attorney 
accepting a court appointment to provide representation. Proposed 
paragraph (a)(2) is based on Sec.  1006(d)(6) of the LSC Act. It is 
intended to protect recipients from efforts that have been made by some 
judges to appoint legal services attorneys to handle court appointments 
in lieu of private attorneys, and/or to refuse to provide compensation 
for appointed cases handled by legal services attorneys, when private 
attorneys appointed to similar cases would have been paid. Proposed 
paragraph (a)(3) is also a requirement carried over from the current 
part 1604, although it makes more sense under this proposal, since the 
proposed rule makes it clear that legal services attorneys can handle 
court appointments on program time.
    LSC proposes to add a new paragraph providing that, if an attorney 
is mandated to engage in pro bono representation by applicable state or 
local court rules or practices or by rules of professional 
responsibility, such representation shall be treated in the same manner 
as court appointments for the purposes of paragraphs (a)(1), (a)(3), 
(b) and (c) of this section. While LSC recognizes that the ABA Model 
Rules do not currently mandate pro bono services for any attorney, LSC 
also recognizes that mandatory pro bono is under active consideration 
in a number of states and is a reality in certain local jurisdictions. 
It is the intent of LSC that legal services attorneys be permitted to 
undertake outside representation to fulfill any mandatory professional 
obligations to provide pro bono assistance to which they are now or may 
be subject in the future.
    Finally, this section would allow a full-time attorney to use 
program resources to undertake representation required by court 
appointment or mandatory pro bono, and would allow the attorney to 
identify the recipient as his or her employer when engaged in such 
representation.

List of Subjects in 45 CFR Part 1604

    Legal services.

    For the reasons set forth in the preamble, LSC proposes to revise 
45 CFR part 1604 to read as follows:

PART 1604--OUTSIDE PRACTICE OF LAW

Sec.
1604.1 Purpose.
1604.2 Definitions.
1604.3 General policy.
1604.4 Permissible outside practice.
1604.5 Compensation.
1604.6 Use of recipient resources.
1604.7 Court appointments.

    Authority: 42 U.S.C. 2996e(b)(3), 2996e(d)(6), 2996f(a)(4), 
2996g(e).


Sec.  1604.1  Purpose.

    This part is designed to authorize recipients to adopt written 
policies that permit legal services attorneys employed by recipients to 
engage in pro bono legal assistance and to comply with the reasonable 
demands made upon them as members of the Bar and as officers of the 
Court, as long as those demands do not hinder fulfillment of their 
overriding responsibility to serve those eligible for assistance under 
the Act. Nothing in this part shall be construed to permit recipients 
to unduly restrict the ability of any attorney to engage in such 
activities.


Sec.  1604.2  Definitions.

    As used in this part--
    (a) Full-time attorney means an attorney who is employed full-time 
by a recipient in legal assistance activities supported in major part 
by the Corporation, and who is authorized to practice law in the 
jurisdiction where assistance is provided.
    (b) Outside practice of law means the provision of legal assistance 
to a client who is not receiving that legal assistance from the 
employer of the full-time attorney rendering assistance, but does not 
include court appointments except where specifically stated.

[[Page 57554]]

    (c) Court appointment means an appointment in a criminal or civil 
case made by a court or administrative agency under a statute or court 
rule or practice.


Sec.  1604.3  General policy.

    (a) A recipient shall adopt written policies governing the outside 
practice of law by full-time attorneys that are consistent with the 
applicable rules of professional responsibility.
    (b) A recipient's policies may permit the outside practice of law 
by full-time attorneys only to the extent allowed by this part, but may 
impose additional restrictions as necessary to meet the recipient's 
responsibilities to clients.
    (c) A recipient may also adopt policies that apply to outside 
practice by attorneys employed part-time by the recipient, but are not 
required to do so under the provisions of this part.


Sec.  1604.4  Permissible outside practice.

    A recipient may permit a full-time attorney to engage in a specific 
case or matter that constitutes the outside practice of law if:
    (a) The director of the recipient or the director's designee 
determines that representation in such case or matter is consistent 
with the attorney's responsibilities to the recipient's clients;
    (b) Except as provided in Sec.  1604.7, the attorney does not 
intentionally identify the case or matter with the Corporation or the 
recipient; and
    (c) The attorney is--
    (1) Newly employed and has a professional responsibility to close 
cases from a previous law practice, and does so on the attorney's own 
time as expeditiously as possible; or
    (2) Acting on behalf of him or herself, a close friend, family 
member or another member of the recipient's staff; or
    (3) Acting on behalf of a religious, community, or charitable 
group; or
    (4) Participating in a pro bono or legal referral program 
affiliated with or sponsored by a bar association, other legal 
organization or religious, community or charitable group; or
    (5) Satisfying an obligation to participate in pro bono work under 
applicable State or local rules or practices of professional 
responsibility.


Sec.  1604.5  Compensation.

    (a) A recipient may permit a full-time attorney to seek and receive 
personal compensation for work performed pursuant to Sec.  
1604.4(c)(1).
    (b) A recipient may permit a full-time attorney to seek and accept 
a fee paid by, awarded or approved by a court or administrative body or 
included in a settlement if--
    (1) The attorney is acting pursuant to Sec.  1604.4(c)(2) through 
(5);
    (2) Subject to the applicable law and rules of professional 
responsibility, any such fees paid to the attorney are remitted to the 
recipient; and
    (3) The fee is not deducted from the individual client's recovery 
of compensatory damages or retroactive benefits.
    (c) From the fees remitted to the recipient pursuant to paragraph 
(b)(2) of this section, the recipient may reimburse any individual or 
organization for actual costs or out-of-pocket expenses incurred in the 
representation.


Sec.  1604.6  Use of recipient resources.

    (a) For cases undertaken pursuant to Sec.  1604.4(c)(1), a 
recipient's written policies may permit a full-time attorney to use de 
minimis amounts of the recipient's resources for permissible outside 
practice if necessary to carry out the attorney's professional 
responsibilities, as long as the recipient's Corporation or private 
funds are not used for any activities for which the use of such funds 
is prohibited.
    (b) For cases undertaken pursuant to Sec.  1604.4(c)(2) through 
(5), a recipient's written policies may permit a full-time attorney to 
use limited amounts of the recipient's resources for permissible 
outside practice if necessary to carry out the attorney's professional 
responsibilities, as long as the recipient's Corporation or private 
funds are not used for any activities for which the use of such funds 
is prohibited.


Sec.  1604.7  Court appointments.

    (a) A recipient may permit a full-time attorney to accept a court 
appointment if the director of the recipient determines that:
    (1) Such an appointment or case is consistent with the attorney's 
responsibilities to the recipient's clients;
    (2) The appointment was made and the attorney will receive 
compensation for the court appointment under the same terms and 
conditions as are applied generally to attorneys practicing in the 
court where the appointment is made; and
    (3) Subject to the applicable law and rules of professional 
responsibility, the attorney agrees to remit to the recipient any 
compensation received.
    (b) A recipient may permit a full-time attorney to use program 
resources to undertake representation pursuant to a court appointment.
    (c) A full-time attorney may identify the recipient as his or her 
employer when engaged in representation pursuant to a court 
appointment.
    (d) If, under the applicable State or local court rules or 
practices or rules of professional responsibility, legal services 
attorneys are mandated to provide pro bono legal assistance in addition 
to the attorneys' work on behalf of the recipient's clients, such legal 
assistance shall be treated in the same manner as court appointments 
under paragraphs (a)(1), (a)(3), (b) and (c) of this section.

Victor M. Fortuno,
Vice President for Legal Affairs and General Counsel.
[FR Doc. 02-23089 Filed 9-10-02; 8:45 am]
BILLING CODE 7050-01-P