[Federal Register Volume 82, Number 83 (Tuesday, May 2, 2017)]
[Rules and Regulations]
[Pages 20444-20447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08835]


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LEGAL SERVICES CORPORATION

45 CFR Part 1609


Fee-Generating Cases

AGENCY: Legal Services Corporation.

ACTION: Final rule.

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SUMMARY: This final rule revises the Legal Services Corporation (LSC or 
Corporation) regulation regarding fee-generating cases. This 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: This final rule is effective on June 1, 2017.

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 
the original 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.
    To balance these considerations, LSC (1) defined ``fee-generating 
case'' to prohibit recipients from accepting cases that a private 
attorney would take, and (2) provided exceptions to the prohibition 
when adequate representation by the private bar is unavailable and 
contains 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.'' Id. 
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. In Sec.  1609.3, LSC established 
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 LSC did 
not intend to change the definition and sought to avoid confusion about 
its intent, the Board of Directors (``Board'') rejected the numerical 
changes proposed in the Notice of Proposed Rulemaking (``NPRM''). Id.
    Nevertheless, the Board implemented 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

[[Page 20445]]

to the definition of ``fee-generating case'' since this revision.
    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 fees to be remitted to the recipient. 41 
FR 38505, Sept. 10, 1976. In 1984, LSC adopted a new section, Sec.  
1609.6, that requires 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 funds 
a case half with LSC funds and half with private funds, Sec.  1609.6 
requires the recipient to allocate any attorneys' fees received to each 
fund in equal proportion. Section 1609.6 also requires 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), Pub. L. 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, Pub. L. 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 17, 2016, the Operations and Regulations 
Committee (``Committee'') of the Board voted to recommend that the 
Board authorize rulemaking on part 1609. The Board voted to authorize 
rulemaking on July 18, 2016. On January 26, 2017, the Committee voted 
to recommend that the Board approve publication of an 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 the NPRM. LSC published the notice of proposed 
rulemaking in the Federal Register on February 13, 2017. 82 FR 10446, 
Feb. 13, 2017. The comment period remained open for thirty days and 
closed on March 15, 2017.
    Materials regarding this rulemaking are available in the open 
rulemaking section of LSC's Web site at http://www.lsc.gov/about-lsc/laws-regulations-guidance/rulemaking. After the effective date of the 
rule, those materials will appear in the closed rulemaking section at 
http://www.lsc.gov/about-lsc/laws-regulations-guidance/rulemaking/closed-rulemaking.

II. Section-by-Section Discussion of Comments and Regulatory Provisions

    LSC received two comments during the public comment period. One 
comment was submitted by Northwest Justice Project (NJP), an LSC-funded 
recipient. The other comment was submitted by the National Legal Aid 
and Defender Association (NLADA) by its Civil Council, the elected 
representative body that establishes policy for the NLADA Civil 
Division, and its Regulations Committee. Both commenters were generally 
supportive of LSC's proposed changes to part 1609.

III. Proposed Changes


Section 1609.1   Purpose.

    LSC proposed no changes to this section. LSC received no comments 
on 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 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 proposed removing ``from public 
funds or from the opposing party'' from the definition.
    Additionally, LSC proposed revising part 1609 to clarify that a 
recipient may provide brief services to an eligible client despite the 
possibility that the case ultimately 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 proposed incorporating this clarification into part 1609 
by adding a separate paragraph to Sec.  1609.2(b). The proposed 
paragraph explained 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, 
current 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. LSC did not propose to change this language in the NPRM.
    Comments: NJP ``assume[d] that deletion of the source of the award 
to a client in proposed Sec.  1609.2(a) is intended to denote the 
availability of an attorneys' fee from funds that are paid to a lawyer 
from a monetary award to compensate the client for the injury or claim 
that is the subject to the litigation.'' NJP continued, ``As LSC notes, 
recipients may request, collect and retain an award of attorney fees as 
provided by law, so long as such a request is in the name of the 
recipient or the award is remitted to the recipient and accounted for 
pursuant to Sec.  1609.4.'' NJP provided no comment on proposed Sec.  
1609.2 besides its assumption.

[[Page 20446]]

    NLADA ``fully supports'' clarifying that advice and counsel or 
limited services do not fall within the meaning of fee-generating case. 
In NLADA's view, ``[t]he provision is beneficial to LSC eligible 
clients by affording them the opportunity to receive brief advice or 
services regarding a fee generating case. The program can provide legal 
advice or take limited action that can be critical to preserving the 
client's rights[.]''
    Response: LSC is unsure what NJP's assumption means. If NJP is 
assuming the proposed language means that a case in which a court 
awards fees directly to the attorney rather than awarding fees to the 
client is no longer a ``fee-generating case'' for purposes of part 
1609, the assumption is incorrect.
    LSC intends part 1609 to require recipients and their attorneys to 
consider whether cases that may result in fee awards are ones that can 
be handled by the private bar before accepting such cases. LSC does not 
intend to permit a recipient to accept a fee-generating case without 
first attempting to refer the case to the private bar simply because 
the court may award the attorneys' fee portion of an award directly to 
the recipient or its attorney instead of the client. Nevertheless, this 
restriction does not prohibit a recipient from accepting cases where 
permitted by Sec.  1609.2(b) or Sec.  1609.3.
    LSC believes the language in the proposed rule provides sufficient 
clarity regarding the intent of the rule and therefore adopts the 
proposed version in this final rule.


Section 1609.3  General requirements.

    LSC proposed 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 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 proposed to rename Sec.  1609.3 
Authorized representation in a fee-generating case. LSC received no 
comments on this change and therefore adopts the proposed version in 
this final rule.


Section 1609.4  Accounting for and use of attorneys' fees.

    LSC proposed to revise part 1609's requirement to account for 
receipt of attorneys' fees. Currently, Sec.  1609.4 requires that 
attorneys' fees received in a case that the recipient used some amount 
of LSC funds to handle be allocated to the LSC grant account in 
proportion to which the LSC funds were used. 45 CFR 1609.4(a). This 
language requires the 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 proposed the following revisions to Sec.  1609.4. 
First, LSC proposed 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's 
name, this change would help ensure that the court would award 
attorneys' fees to the organization and not to an individual staff 
attorney. LSC proposed placing this addition as Sec.  1609.4(a), and 
redesignating paragraphs (a) and (b) of existing Sec.  1609.4 as 
paragraphs (b) and (c), respectively.
    Second, LSC proposed to state explicitly in Sec.  1609.4(b) that, 
in the event a jurisdiction requires attorneys' fee petitions to 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 believed that these two changes 
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 
proposed changing the heading to Requesting and receiving attorneys' 
fees.
    Comment: NJP had no concerns about requiring fee petitions to be 
made in the recipient's name to the extent permitted by law. NLADA 
generally supported the proposed revision clarifying that attorneys' 
fees are to be awarded to the recipient. NLADA, however, relayed a 
recipient's concern that state court rules may require licensed, 
individual attorneys to be designated on a petition for attorneys' fees 
instead of an organization. This contrasts with the proposed rule, 
which requires petitions for attorneys' fees to be filed in the name of 
the recipient ``to the extent permitted by law.'' Recognizing there may 
be differences among statutes, court rules, and other rules, NLADA 
recommended that the rule be revised to state ``to the extent required 
by law or rules in the jurisdiction.''
    Response: LSC will adopt the recommendation with one change. As 
NLADA noted, LSC does not intend for an attorney to violate any 
applicable law or any applicable rule in his or her petition for 
attorney fees. To clarify that the regulation requires compliance with 
both the law and rules, LSC will add the language recommended by NLADA, 
except that LSC will use the conjunction ``and'' between the phrases 
``to the extent permitted by law'' and ``rules in the jurisdiction.''


Section 1609.5   Acceptance of reimbursement from a client.

    To create consistency in the verbs used in the headings for 
Sec. Sec.  1609.4 and 1609.5 and more aptly describe the substance of 
the latter section, LSC proposed to change the heading to Receiving 
reimbursement from a client. LSC proposed no substantive changes to 
this section. LSC received no comments on this section. Consequently, 
LSC adopts the language proposed in the NPRM in this final rule


Section 1609.6  Recipient policies, procedures and recordkeeping.

    LSC proposed no changes to this section. LSC received no comments 
on 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 amends 45 CFR part 1609 as follows:

PART 1609--FEE-GENERATING CASES

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

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

0
2. In Sec.  1609.2:
0
a. Revise the section heading and paragraph (a);
0
b. Remove ``, or'' at the end of paragraph (b)(1) and add a semicolon 
in its place;
0
c. Remove the period at the end of paragraph (b)(2) and add ``; or'' in 
its place; and
0
d. Add paragraph (b)(3).
    The revision and addition read as follows:


Sec.  1609.2   Definitions.

    (a) Fee-generating case means any case or matter which, if 
undertaken on

[[Page 20447]]

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:


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 and rules in the jurisdiction, 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: April 26, 2017.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2017-08835 Filed 5-1-17; 8:45 am]
 BILLING CODE 7050-01-P