[Federal Register Volume 82, Number 28 (Monday, February 13, 2017)]
[Proposed Rules]
[Pages 10446-10449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02717]


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

LEGAL SERVICES CORPORATION

45 CFR Part 1609


Fee-Generating Cases

AGENCY: Legal Services Corporation.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: This proposed rule revises the Legal Services Corporation (LSC 
or Corporation) regulation regarding fee-generating cases. This 
proposed rule clarifies the definition of ``fee-generating case,'' 
clarifies that brief advice is permitted by the regulation, and revises 
how a recipient accounts for attorneys' fees awards.

DATES: Comments must be submitted by March 15, 2017.

ADDRESSES: You may submit comments by any of the following methods:

[[Page 10447]]

     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include ``Comments on 
Revisions to Part 1609'' in the subject line of the message.
     Fax: (202) 337-6519.
     Mail: Stefanie K. Davis, Assistant General Counsel, Legal 
Services Corporation, 3333 K Street NW., Washington, DC 20007, ATTN: 
Part 1609 Rulemaking.
     Hand Delivery/Courier: Stefanie K. Davis, Assistant 
General Counsel, Legal Services Corporation, 3333 K Street NW., 
Washington, DC 20007, ATTN: Part 1609 Rulemaking.
    Instructions: Electronic submissions are preferred via email with 
attachments in Acrobat PDF format. LSC will not consider written 
comments sent to any other address or received after the end of the 
comment period.

FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1007(b)(1) of the Legal Services Corporation Act of 1974 
prohibits recipients from using LSC funds ``to provide legal assistance 
(except in accordance with guidelines promulgated by the Corporation) 
with respect to any fee-generating case[.]'' 42 U.S.C. 2996f(b)(1). LSC 
implemented this provision through 45 CFR part 1609. In the preamble to 
part 1609, LSC explained that the private bar is generally ``eager to 
accept contingent fee cases and cases in which there may be an award of 
attorneys' fees to be paid by the opposing party pursuant to 
[statute].'' 41 FR 38505, Sept. 10, 1976. LSC therefore drafted part 
1609 to ``insure that recipients do not use scarce legal services 
resources when private attorneys are available to provide effective 
representation and . . . assist eligible clients to obtain appropriate 
and effective legal assistance.'' 45 CFR 1609.1(a), (b). Nevertheless, 
LSC recognized that ``there may be instances when no private attorney 
is willing to represent an individual, because the recovery of a fee is 
unlikely, the potential fee is too small, or some other reason.'' 41 FR 
38505, Sept. 10, 1976.
    To balance these considerations, part 1609 (1) defines ``fee-
generating case'' to prohibit recipients from accepting cases that a 
private attorney would take, and (2) provides exceptions to the 
prohibition for when adequate representation by the private bar is 
unavailable and implements safeguards to prevent recipients from taking 
cases the private bar would accept. Id. The definition of ``fee-
generating case'' includes ``every situation in which an attorney 
reasonably may expect to receive a fee for services from any source 
except the client.'' 41 FR 38505. Specifically, LSC defined ``fee-
generating case'' as ``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.'' 
Id. Section 1609.3 then clarified circumstances in which a recipient 
may use LSC funds to provide legal assistance in a fee-generating case, 
such as after the case has been rejected by the local lawyer referral 
service or by two private attorneys. 45 CFR 1609.3(a)(1).
    In 1996, LSC proposed two changes to clarify the meaning of ``fee-
generating case.'' First, LSC proposed ``[a] technical numerical 
change'' to the definition of ``fee-generating case'' which was 
intended ``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.'' 61 FR 45765, Aug. 29, 1996. This proposed change 
resulted in comments about whether LSC intended to make substantive 
changes to the definition. 62 FR 19398, Apr. 21, 1997. Because the 
Board did not intend to change the definition and sought to avoid 
confusion about its intent, the Board rejected the numerical changes to 
the proposed rule. Id.
    Nevertheless, the Board adopted a second proposed change by 
adopting language that explained what is not a ``fee-generating case.'' 
Id. The revision excluded court appointments from the definition 
because such cases, even where fees are paid, are considered a 
professional obligation. Id. Additionally, the revision excluded 
situations where recipients undertake representation under a contract 
with a government agency or other entity and the agency or entity pays 
the recipient ``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.'' Id.; see 45 CFR 
1609.2(b). LSC has not made substantive changes to the definition of 
``fee-generating case'' since this revision. See 76 FR 23502, Apr. 27, 
2011.
    When a recipient may take a fee-generating case, Part 1609 also 
prescribes how recipients account for attorneys' fees received in the 
case. Part 1609 requires the proceeds be remitted to the recipient. 41 
FR 38505. In 1984, LSC adopted a new section, Sec.  1609.6, that 
required attorneys' fees received by the recipient to be returned to 
the fund from which the resources to litigate the case came. 49 FR 
19657, May 9, 1984. In other words, if the recipient funded a 
particular case half with LSC funds and half with private funds, Sec.  
1609.6 required the recipient to allocate any attorneys' fees received 
to each fund in equal proportion. The new section also required that 
fees be recorded during the accounting period in which the program 
receives the award. Id.
    In 1996, LSC's appropriation legislation provided that no LSC funds 
could be used to provide financial assistance to a recipient that 
receives attorneys' fees pursuant to any federal or state law. Sec. 
504(a)(13), Public Law 104-134, 110 Stat. 1321, 1321-55; 75 FR 21507, 
Apr. 26, 2010. To implement this legislation, LSC created a separate 
rule, 45 CFR part 1642. 62 FR 25862, May 12, 1997 (final rule); 61 FR 
45762, Aug. 29, 1996 (interim final rule). LSC moved Sec.  1609.6 to 
part 1642 and revised the provision to require recipients to allocate 
fees from cases or matters supported in whole or in part with LSC funds 
to the LSC fund in the same proportion that the case or matter was 
funded with LSC funds. Id. In a departure from then-existing Sec.  
1609.6, LSC did not propose to dictate how recipients allocated 
remaining fees to their non-LSC accounts. Id.
    In 2010, Congress repealed the prohibition on accepting and 
retaining attorneys' fees. Sec. 533, Public Law 111-117, 123 Stat. 
3034, 3157. LSC subsequently repealed part 1642 but retained two 
provisions relevant to accounting for attorneys' fee awards and 
accepting reimbursement of costs from a client. 75 FR 6816, Feb. 11, 
2010 (interim final rule); 75 FR 21506, Apr. 26, 2010 (final rule). LSC 
placed these two provisions in part 1609 at Sec. Sec.  1609.4 and 
1609.6, respectively. 75 FR 21508. LSC has made no changes to either 
section since then.
    LSC added rulemaking on part 1609 to its annual rulemaking agenda 
in June, 2015. On July 18, 2016, the Committee voted to recommend that 
the Board authorize rulemaking on part 1609. On January 26, 2017, the 
Committee voted to recommend that the Board approve publication of this 
NPRM in the Federal Register for notice and comment. On January 28, 
2017, the Board accepted the Committee's recommendation and voted to 
approve publication of this NPRM.

[[Page 10448]]

II. Proposed Changes

Section 1609.1 Purpose

    LSC proposes to make no changes to this section.

Section 1609.2 Definition

    Recipients have repeatedly requested guidance regarding what 
constitutes a ``fee-generating case'' as defined in Sec.  1609.2(a). 
Questions have included whether paid court appointments are ``fee-
generating cases'' and whether ``advice and counsel'' or ``brief 
services'' are prohibited if the case may, during the course of 
subsequent extended representation, develop into a ``fee-generating 
case.'' Recipients have also sought guidance regarding permissible 
sources of fees.
    Section 1609.2 currently provides, ``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.'' 45 CFR 1609.2(a). A reader could 
interpret ``award'' as modifying only ``to a client'' and not to 
include an ``award . . . from public funds or [an award] from the 
opposing party.'' Thus, under the current definition, a recipient might 
accept a case that may result in an award from public funds, a result 
not intended by LSC. Therefore, LSC proposes removing ``from public 
funds or from the opposing party'' from the definition.
    Additionally, LSC proposes to revise part 1609 to clarify that a 
recipient may provide brief services to an eligible client despite the 
possibility that the case may result in fees otherwise restricted by 
part 1609. In AO-2015-002, LSC considered whether a recipient may 
provide ``advice and counsel'' or ``limited services'' (as defined in 
45 CFR 1611.2(a) and (e)) to an eligible client where the matter might 
constitute a fee-generating case if extended services were provided. 
Based on the language of Sec.  1609.3, which prohibits recipients from 
using LSC funds to provide assistance in ``every situation in which an 
attorney reasonably may expect to receive a fee[,]'' LSC concluded an 
``attorney's reasonable expectation of such fees would not typically 
arise until after . . . initial advice or brief services was under way 
or had been completed.'' AO-2015-002, June 17, 2015. LSC proposes 
incorporating this clarification into part 1609 by adding a separate 
paragraph to Sec.  1609.2(b). The new paragraph would explain that 
``advice and counsel'' or ``limited services'' in matters that may 
later constitute fee-generating cases are not prohibited by part 1609.
    Finally, in response to questions regarding court appointments, 
revised Sec.  1609.2(b) states that a court appointment pursuant to a 
statute or court rule or practice that is equally applicable to all 
attorneys in the jurisdiction is not a fee-generating case. 45 CFR 
1609.2.

Section 1609.3 General Requirements

    LSC proposes a technical change to the heading of Sec.  1609.3 to 
more accurately reflect the topic it addresses. Section 1609.3 briefly 
sets forth the general prohibition on a recipient's using LSC funds to 
provide legal assistance in a fee-generating case. The bulk of Sec.  
1609.3, however, prescribes the circumstances and procedures under 
which recipients may accept fee-generating cases. To more aptly reflect 
the substance of Sec.  1609.3, LSC proposes to rename Sec.  1609.3 
``Authorized representation in a fee-generating case.''

Section 1609.4 Accounting For and Use of Attorneys' Fees

    LSC proposes to revise part 1609's accounting requirement for 
receipt of attorneys' fees. Currently Sec.  1609.4 requires that 
attorneys' fees received by a recipient supported at least in part by 
LSC funds be allocated to the LSC grant account in the proportion to 
which the LSC funds were used. Sec.  1609.4(a). This language requires 
this accounting only for attorneys' fees received by the recipient, 
which could be interpreted to mean that attorneys' fees awarded to a 
staff attorney in his or her own name need not be remitted to the 
recipient or be subject to the accounting requirement.
    To clarify that attorneys' fee awards received by either the 
recipient or a recipient's staff attorney are subject to the accounting 
requirement, LSC proposes the following revisions to Sec.  1609.4. 
First, LSC proposes to require recipients to file any petitions for 
attorneys' fees in the name of the recipient and not in the name of any 
staff attorney. To the extent a jurisdiction may allow an attorneys' 
fee petition in the recipient's name rather than a staff attorney, this 
change would help ensure that the court would award attorneys' fees to 
the organization and not to an individual staff attorney. LSC proposes 
placing this addition as Sec.  1609.4(a), and redesignating the current 
paragraphs (a) and (b) of this section as paragraphs (b) and (c), 
respectively.
    Second, LSC proposes to state explicitly that, in the event a 
jurisdiction requires that attorneys' fee petitions be made in a staff 
attorney's name, the staff attorney must remit the award to the 
recipient, which must then allocate an award of attorneys' fees to its 
LSC grant account in proportion to the amount of LSC funds used to 
obtain the award. LSC believes that these two changes will accommodate 
variations in state and local rules governing the award of attorneys' 
fees and help ensure that any attorneys' fee awards supported by LSC 
funds are adequately credited to LSC funds.
    Finally, to more aptly describe the substance of Sec.  1609.4, LSC 
proposes changing the heading to ``Requesting and receiving attorneys' 
fees.''

Section 1609.5 Acceptance of Reimbursement From a Client

    To create consistency in the verbs used in the headings for Sec.  
1609.4 and Sec.  1609.5 and more aptly describe the substance of the 
latter section, LSC proposes to change the heading to ``Receiving 
reimbursement from a client.'' LSC proposes no substantive changes to 
this section.

Section 1609.6 Recipient Policies, Procedures and Recordkeeping

    LSC proposes to make no changes to this section.

List of Subjects in 45 CFR Part 1609

    Administrative practice and procedure, Grant programs--law, Legal 
services.

    For the reasons set forth in the preamble, the Legal Services 
Corporation proposes to amend 45 CFR part 1609 as follows:

PART 1609--FEE-GENERATING CASES

0
1. The authority citation for part 1609 continues to read as follows:

    Authority:  42 U.S.C. 2996g(e).

0
2. Revise paragraph (a) and add paragraph (b)(3) to Sec.  1609.2 to 
read as follows:


Sec.  1609.2   Definitions.

    (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.
    (b) * * *
    (3) A recipient provides only advice and counsel or limited 
services, as those terms are defined in 45 CFR 1611.1(a) and (e), to an 
eligible client.
0
3. Revise the heading of Sec.  1609.3 to read as follows:

[[Page 10449]]

Sec.  1609.3   Authorized representation in a fee-generating case.

* * * * *
0
4. Revise Sec.  1609.4 to read as follows:


Sec.  1609.4   Requesting and receiving attorneys' fees.

    (a) Any petition seeking attorneys' fees for representation 
supported in whole or in part with funds provided by LSC, shall, to the 
extent permitted by law, be filed in the name of the recipient.
    (b) Attorneys' fees received by a recipient or an employee of a 
recipient for representation supported in whole or in part with funds 
provided by LSC shall be allocated to the fund in which the recipient's 
LSC grant is recorded in the same proportion that the amount of LSC 
funds expended bears to the total amount expended by the recipient to 
support the representation.
    (c) Attorneys' fees received shall be recorded during the 
accounting period in which the money from the fee award is actually 
received by the recipient and may be expended for any purpose permitted 
by the LSC Act, regulations and other law applicable at the time the 
money is received.
0
5. Revise the heading of Sec.  1609.5 to read as follows:


Sec.  1609.5   Receiving reimbursement from a client.

* * * * *

    Dated: February 6, 2017.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2017-02717 Filed 2-10-17; 8:45 am]
 BILLING CODE 7050-01-P