[Federal Register Volume 75, Number 79 (Monday, April 26, 2010)]
[Rules and Regulations]
[Pages 21506-21508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-9397]


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LEGAL SERVICES CORPORATION

45 CFR Parts 1609, 1610, and 1642


Fee-Generating Cases; Use of Non-LSC Funds, Transfers of LSC 
Funds, Program Integrity; Attorneys' Fees

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: On February 11, 2010, LSC issued an Interim Final Rule and 
Request for Comments repealing its regulatory prohibition on the 
claiming of, and the collection and retention of attorneys' fees 
pursuant to Federal and State law permitting or requiring the awarding 
of such fees. The action was taken in accordance with the elimination 
on the statutory prohibition on attorneys' fees in LSC's FY 2010 
appropriation legislation. The rule moved provisions on accounting for 
and use of attorneys' fees and acceptance of reimbursements from 
clients from part 1642 (which was eliminated) to part 1609 of LSC's 
regulations. LSC also made technical changes to its regulations to 
remove cross references to the obsolete statutory and regulatory 
citations. With this document, LSC is responding to the comments 
received and confirming the February 11 rule as final without change.

DATES: This final rule is effective April 26, 2010.

FOR FURTHER INFORMATION CONTACT: Mattie Cohan, Senior Assistant General 
Counsel, Office of Legal Affairs, Legal Services Corporation, 3333 K 
Street, NW., Washington DC 20007; 202-295-1624 (ph); 202-337-6519 
(fax); [email protected].

SUPPLEMENTARY INFORMATION:

Background

    LSC's FY 1996 appropriation legislation provided that none of the 
funds appropriated in that Act could be used to provide financial 
assistance to any person or entity (which may be referred to in this 
section as a recipient) that claims (or whose employee claims), or 
collects and retains, attorneys' fees pursuant to any Federal or State 
law permitting or requiring the awarding of

[[Page 21507]]

such fees. Section 504(a)(13), Public Law 104-134, 110 Stat. 1321 
(April 26, 1996). Since appropriations legislation expires with the end 
of the Fiscal Year to which it applies, for the statutory restriction 
on attorneys' fees to remain in place by statute, it needed to be, and 
was, carried forth in each subsequent appropriation law by reference. 
See, e.g., Consolidated Appropriations Act, 2009, Public Law 111-8, 123 
Stat. 524 (March 11, 2009).
    LSC adopted regulations found in 1996 and 1997 which implemented 
the statutory attorneys' fees restriction. 45 CFR Part 1642; 61 FR 
45762 (August 29, 1996); 62 FR 25862 (May 12, 1997). The attorneys' 
fees regulation restates the basic prohibition on claiming or 
collecting and retaining attorneys' fees, providing that except as 
permitted by Sec.  1642.4 (providing exceptions cases filed prior to 
the prohibition and for cases undertaken by private attorneys providing 
pro bono services in connection with a recipient's private attorney 
involvement program), 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. 46 CFR 1642.3. The regulation 
provides further guidance to recipients by, among other things, 
providing a regulatory definition of attorneys' fees; setting forth 
rules for the applicability of the restriction to private attorneys 
providing legal assistance to a recipient's private attorney 
involvement program; and providing express authority to recipients to 
accept reimbursements of costs from a client. The regulation also sets 
forth rules for the accounting for and use of those attorneys' fees 
which recipients are not prohibited from claiming, collecting or 
retaining.
    On December 16, 2009 President Obama signed the Consolidated 
Appropriations Act of 2010 into law. Public Law 111-117. This act 
provides LSC's appropriation for FY 2010. Like its predecessors, this 
law incorporates the various restrictions first imposed by the FY 1996 
legislation by reference. However, section 533 of that same law also 
provides that Section 504(a) of the Departments of Commerce, Justice, 
and State, the Judiciary, and Related Agencies Appropriations Act, 1996 
(as contained in Pub. L. 104-134) is amended by striking paragraph 
(13). Taken together, these provisions serve to incorporate by 
reference all of the restrictions in section 504 of the FY 1996 law, 
except for paragraph (a)(13), which contained the restriction on 
attorneys' fees. As such, there is no current statutory restriction on 
LSC providing the money FY 2010 appropriated to it to any recipient 
which claims, or collects and retains attorneys' fees

Repeal of Part 1642 and Issuance of the Interim Final Rule

    The current law lifts the statutory restriction, but does not 
affirmatively provide recipients the right to claim or collect and 
retain attorneys' fees, nor does it prohibit LSC from restricting a 
recipient's ability to claim or collect and retain attorneys' fees. As 
such, in accordance with LSC inherent regulatory authority, the 
regulation remained in place notwithstanding the lifting of the 
statutory restriction unless and until repealed. At its Board Meeting 
on January 30, 2010, the LSC Board of Director's determined that 
retaining the regulatory restriction was no longer either necessary or 
appropriate instructed staff to publish an Interim Final Rule repealing 
its regulatory prohibition on the claiming of, and the collection and 
retention of attorneys' fees pursuant to Federal and State law 
permitting or requiring the awarding of such fees. LSC published the 
Interim Final Rule and Request for Comments implementing the Board's 
direction on February 11, 2010, 75 FR 6816. The Interim Final Rule also 
moved provisions on accounting for and use of attorneys' fees and 
acceptance of reimbursements from clients from Part 1642 (which is 
being eliminated) to Part 1609 of LSC's regulations. LSC also made 
technical changes to Part 1609 and Part 1610 of its regulations to 
remove cross references to the obsolete statutory and regulatory 
citations. The Interim Final Rule became effective on March 15, 2010.
    LSC received ten (10) comments on the Interim Final Rule. All of 
the comments strongly supported the changes reflected in the Interim 
Final Rule and urged LSC to issue a Final Rule making permanent the 
Interim Final Rule without further amendment.\1\ At its meeting of 
April 17, 2010 the Board of Directors adopted the Interim Final Rule as 
permanent and instructed staff to publish this Final Rule in the 
Federal Register. Because this Final Rule is retaining the changes made 
by the Interim Final Rule without further amendment, prior notice is 
unnecessary and contrary to the public interest. See 5 U.S.C. 
553(b)(3)(B) and 553(d)(3). Accordingly, this Final Rule is effective 
upon publication.
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    \1\ One commenter requested that LSC provide clarification in 
two places of the preamble. LSC has responded to this request and 
the preamble reflects the commenter's concerns.
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    In adopting the Interim Final Rule and this Final Rule, LSC's 
determination reflects a number of considerations. First, LSC notes 
that the lifting of the restriction indicates that Congress itself has 
had a change of heart regarding this restriction. Although Congress did 
not prohibit LSC from retaining the restriction, the fact that Congress 
chose not to re-impose this particular restriction (and no others) does 
indicate that support for this restriction has waned and that the 
policy arguments in support of the original restriction are no longer 
reflective of the will of Congress. Rather, the legislative history 
suggests that Congress chose not to re-impose the attorneys' fees 
restriction in express recognition of the fact that the restriction 
imposes several significant burdens on recipient. See, H. Rpt. 111-149 
at p. 163; Transcript of Hearing of the Subcommittee on Commerce, 
Justice and Science of the House Committee of Appropriations of April 
1, 2009 at pp. 220-223. As such, LSC believes that repealing the 
regulatory restriction is consistent with the expectations of Congress.
    Moreover, LSC agrees that the restriction imposes unnecessary 
burdens on recipients and places clients at a disadvantage with respect 
to other litigants. Specifically, the ability to make a claim for 
attorneys' fees is often a strategic tool in the lawyers' arsenal to 
obtain a favorable settlement from the opposing side. Restricting a 
recipient's ability to avail itself of this strategic tool puts clients 
at a disadvantage and undermines clients' ability to obtain equal 
access to justice. The attorneys' fees restriction can also be said to 
undermine one of the primary purposes of fee-shifting statutes, namely 
to punish those who have violated the rights of persons protected under 
such statutes. In addition, in a time of extremely tight funding, the 
inability of a recipient to obtain otherwise legally available 
attorneys' fees places an unnecessary financial strain on the 
recipient. If a recipient could collect and retain attorneys' fees, it 
would free up other funding of the recipient to provide services to 
additional clients and help close the justice gap.\2\ More

[[Page 21508]]

fundamental, the restriction results in clients of grantees being 
treated differently and less advantageously than all other private 
litigants, which LSC believes is unwarranted and fundamentally at odds 
with the Corporation's Equal Justice mission.
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    \2\ It should be noted that the LSC Act and the implementing 
regulatory restriction on fee-generating cases found at 45 CFR Part 
1609 restrict recipients from taking fee-generating cases. This 
restriction is not affected by the lifting of the statutory ban on 
the claiming and collecting and retention of attorneys' fees and is 
not be affected by any regulatory amendment to Part 1642. 
Accordingly, amendment of Part 1642 does not have an adverse impact 
on the private bar nor provide any incentive for recipients to seek 
out fee-generating cases at the expense of the needs of other 
clients.
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    This action makes permanent the Interim Final Rule's lifting of the 
regulatory prohibition on claiming, or collecting and retaining 
attorneys' fees available under Federal or State law permitting or 
requiring the awarding of such fees. Accordingly as of March 15, 2010, 
recipients were and remain permitted make claims for attorneys' fees in 
any case in which they are otherwise legally permitted to make such a 
claim. Recipients are also permitted to collect and retain attorneys' 
fees whenever such fees are awarded to them.
    With the repeal of the restriction, recipients are permitted to 
claim and collect and retain attorneys' fees with respect to any work 
they have performed for which fees are available to them, without 
regard to when the legal work for which fees are claimed or awarded was 
performed. LSC considered whether recipients should be limited seek or 
obtain attorneys fees related to ``new'' work; that is, work done only 
as of the date of the statutory change or the effective date of the 
Interim Final Rule. LSC rejected that position because the attorneys' 
fees prohibition applies to the particular activity of seeking and 
receiving attorneys' fees, but is irrelevant to the permissibility of 
the underlying legal work. Limiting the ability of recipients to seek 
and receive attorneys' fees on only future case work would create a 
distinction between some work and other work performed by a recipient, 
all of which was permissible when performed. LSC continues to find such 
a distinction to be artificial and not necessary to effectuate 
Congress' intention.
    LSC also believes that not limiting the work for which recipients 
may now seek or obtain attorneys' fees will best afford recipients the 
benefits of the lifting of the restriction. There may well be a number 
of ongoing cases where the newly available option of the potentiality 
of attorneys' fees will still be effective to level the playing field 
and afford recipients additional leverage with respect to opposing 
counsel in those cases. Likewise, being able to obtain attorneys' fees 
in cases in which prior work has been performed would likely help 
relieve more financial pressure on recipients than a ``new work only'' 
implementation choice would because it would increase sources and 
amount of work for which fees might potentially be awarded.

Amendment of Part 1609 and Part 1610

    As noted above, Part 1642 contains two provisions not directly 
related to the restriction on claiming and collecting attorneys' fees. 
These provisions address the accounting for and use of attorneys' fees 
and the acceptance of reimbursement from a client. 45 CFR 1642.5 and 
1642.6. These provisions used to be incorporated into LSC's regulation 
on fee-generating cases at 45 CFR Part 1609, but were separated out and 
included in the new Part 1642 regulation when it was adopted. Amending 
these provisions was not necessary to effectuate the lifting of the 
attorneys' fees restriction and they provide useful guidance to 
recipients. In fact, with recipients likely collecting and retaining 
fees more often than they have since 1996, the provision on accounting 
for and use of attorneys' fees will be of greater importance than it 
has been. Retaining these provisions would continue to provide clear 
guidance to the benefit of both recipients and LSC. Accordingly, LSC is 
adopting as permanent the changes which moved these provisions back 
into Part 1609 as Sec. Sec.  1609.4 and 1609.5, with only technical 
amendment to the regulatory text to remove references to Part 1642 and 
which redesignated Sec.  1609.4 as Sec.  1609.6.\3\
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    \3\ For additional information about the provision on the 
accounting for attorneys' fees, see the preamble to the 1997 
Attorneys' Fees Final Rule: 62 FR 25862 (May 12, 1997) at 25864.
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    LSC is also adopting as permanent technical conforming amendments 
to delete references to Part 1642 and the attorneys' fees statutory 
prohibition that are now obsolete. Having obsolete and meaningless 
regulatory provisions is not good regulatory practice and can at the 
very least lead to unnecessary confusion. Accordingly, LSC adopts 
permanently the deletion of paragraph (c) of Sec.  1609.3, General 
requirements, to eliminate that paragraph's reference to the attorneys' 
fees restriction in Part 1642. Similarly, LSC adopts permanently a 
technical conforming amendment to its regulation at Part 1610. Part 
1610 sets forth in regulation the application of the appropriations law 
restrictions to a recipient's non-LSC funds. Section 1610.2 sets forth 
the list of the restrictions as contained in section 504 of the FY 1996 
appropriations act, and the implementing LSC regulations which are 
applicable to a recipient's non-LSC funds. Subsection (b)(9) was the 
provision that references the attorneys' fees restriction (504(a)(13) 
and Part 1642) and which became obsolete.

List of Subjects in 45 CFR Parts 1609, 1610, and 1642

    Grant programs--Law, Legal services.

0
Accordingly, for reasons set forth above, and under the authority of 42 
U.S.C. 2996g(e), LSC hereby adopts the interim rule published February 
11, 2010 (75 FR 6816) as final without change.

Mattie Cohan,
Senior Assistant General Counsel.
[FR Doc. 2010-9397 Filed 4-23-10; 8:45 am]
BILLING CODE 7050-01-P