[Federal Register Volume 62, Number 236 (Tuesday, December 9, 1997)]
[Proposed Rules]
[Pages 64790-64794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32107]


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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: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend the 
Rules of Practice of the Board of Veterans' Appeals (Board) to 
discontinue VA's paying attorney fees from past-due benefits, establish 
safeguards in the case of ``disinterested third-party'' payers, and 
simplify certain notice procedures. We believe that discontinuance of 
VA's paying attorney fees from past-due benefits is warranted because 
the administrative resources that it consumes would be better spent in 
activities more directly beneficial to veterans; the establishment of 
safeguards regarding ``disinterested third-party'' payers will help 
prevent circumvention of the law restricting payments by claimants and 
appellants; and simplified notice procedures relating to motions to 
review attorney-fee agreements or to challenge expense charges are 
adequate for establishing proof of service.

DATES: Comments must be received on or before February 9, 1998.

ADDRESSES: Mail or hand deliver written comments to: Director, Office 
of Regulations Management (02D), Department of Veterans Affairs, 810 
Vermont Ave., NW., Room 1154, Washington, DC 20420. Comments should 
indicate that they are submitted in response to ``RIN 2900-AI98''. All 
written comments will be available for public inspection at the above 
address in the Office of Regulations Management, Room 1158, between the 
hours of 8:00 a.m. and 4:30 p.m., Monday through Friday (except 
holidays).

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


[[Page 64791]]


SUPPLEMENTARY INFORMATION: The Board of Veterans' Appeals (Board) is an 
administrative body that decides appeals from denials of claims for 
veterans' benefits.
    This document proposes to amend the Board's Rules of Practice to 
(1) exercise the option provided in 38 U.S.C. 5904(d)(3) not to pay 
attorney fees directly to an attorney out of past-due benefits; (2) 
establish safeguards where a ``disinterested third party'' pays an 
attorney's fees or salary on behalf of a claimant or appellant; and (3) 
simplify notice procedures in connection with motions to review fee 
agreements for reasonableness and to review a representative's 
expenses.

Paying Attorney Fees From Past-Due VA Benefits

    Beginning during the Civil War, and continuing for more than a 
century, attorneys and agents were forbidden from charging more than 
$10 for services in connection with a claim for veterans benefits. In 
1988, the ``Veterans' Judicial Review Act'' (VJRA), Pub. L. No. 100-
687, Div. A, Sec. 104, 102 Stat. 4105, 4108-09 (1988), removed that 
limitation, and provided that, under certain circumstances, an attorney 
or agent could charge a ``reasonable'' fee for such services. 38 U.S.C. 
5904.
    VJRA permitted a veteran to pay an attorney directly or, under 
certain conditions, to have the attorney paid by VA directly out of 
``past-due benefits'' awarded in connection with a successful claim. 
Specifically, section 5904(d) of title 38, United States Code, as added 
in 1988 by VJRA and modified in 1992 by Pub. L. 103-446, permits the 
Secretary of Veterans Affairs to pay an attorney's fee directly to an 
attorney out of past-due VA benefits if (1) an agreement between the 
attorney and the client provides for such a payment; (2) the total fee 
is contingent on whether or not the matter is resolved in a manner 
favorable to the claimant; and (3) the total fee does not exceed 20 
percent of past-due benefits. In 1992, VA added Sec. 20.609 to title 38 
of the Code of Federal Regulations, by which, among other things, the 
Secretary undertook to exercise this discretionary authority.
    This document proposes to change the regulations to state that VA 
will not pay attorney fees out of past-due benefits. This proposal is 
based on a number of reasons.
    First, the program puts a strain on the already overburdened 
Veterans Benefits Administration (VBA), which operates VA's 58 regional 
offices. Paying attorney fees from past-due benefits requires that some 
of the money due a claimant be withheld pending a determination--made 
by the Board of Veterans' Appeals--that the agreement meets the 
statutory and regulatory requirements for payment. Because almost all 
awards of benefits are made at individual regional offices, and because 
section 5904 permits VA to pay attorney fees only from past-due 
benefits, VBA has had to develop strict and complex procedures for 
withholding money. This in turn has required the designation of at 
least one ``attorney fee coordinator'' at each of the 58 regional 
offices, the involvement of at least one employee from the finance 
activity and from the agent cashier at those offices, as well as a 
significant amount of correspondence between the Board and the various 
regional offices on this issue--direct participation by as many as 175 
VBA employees.
    Second, the anticipated growth in attorney representation before VA 
has not materialized. The percentage of appellants represented by 
attorneys in completed Board proceedings has varied only slightly 
during the period 1993-96: 3.0 percent (786/26,400) (1993); 3.9 percent 
(861/22,045) (1994); 3.1 percent (873/28,195) (1995); and 3.4 percent 
(1,160/33,944) (1996).
    Third, few attorneys ever qualify for payment from past-due 
benefits. In every case which results in the payment of past-due 
benefits and in which an attorney has filed an agreement with the 
claimant to be paid directly from past-due benefits, the Board makes a 
determination as to whether the agreement meets the statutory and 
regulatory standards for payment. Of the 110,584 decisions the Board 
issued during fiscal years 1993 through 1996, only 222 were decisions 
on fee agreements in which an attorney was to be paid from past-due 
benefits awarded. Those 222 decisions made over four years have 
required the special support of as many as 175 VBA employees per year, 
most of whom would have been spending their time in activities more 
directly benefiting veterans and their families: deciding claims and 
coordinating benefit payments.
    Finally, a recently-completed study ordered by Congress recommends 
that VA get out of the business of paying attorney fees. Thus, the 
Veterans' Claims Adjudication Commission, established by Congress to 
determine means for increasing the efficiency of the VA system for 
claims disposition, found that:
    The provision for payment by VA of attorney fees from past-due 
benefits is administratively cumbersome and distorts the role of 
government. Attorney representatives and veterans should be expected to 
transact fee payments between themselves. VA should not be involved in 
these transactions. * * * The provision for VA to compensate attorneys 
from awards of past-due benefits thrusts VA into a business that is 
excessively far from its central purpose. VA is not well suited to 
perform this function, and the requirement that it do so represents a 
significant opportunity cost. The resources used for this purpose would 
be better spent in activities of more direct benefit to veterans.
    The Veterans' Claims Adjudication Comm'n, Report to Congress 130 
(Dec. 1996). VA concurs in those findings and the conclusion.
    While we believe that the right to hire an attorney is an important 
one, we do not believe that eliminating payment by the Department will 
materially affect the availability of such services. We think that a 
veteran is as able as anyone else to transact a fee payment without the 
intervention of the Department. These proposed amendments will not 
interfere with a claimant's ability to pay attorney fees directly to 
his or her attorney out of past-due benefits.
    For all these reasons, we propose to amend 38 CFR 20.609(h), which 
provides the rules for payment of attorney fees from past-due benefits, 
by deleting all the current text and replacing it with the following 
statement: ``The Department of Veterans Affairs will not pay fees 
directly to an attorney at law from past-due benefits.''

Safeguards Where a ``Disinterested Third Party'' Pays an Attorney's 
Fee

    In 1988, VA amended part 14 of title 38, Code of Federal 
Regulations, to reflect an opinion from the Office of Legal Counsel of 
the Department of Justice which concluded that the then-current $10 fee 
limitation did not apply to third parties not standing to benefit from 
a veteran's claim. 53 FR 52416, 52418 (Dec. 28, 1988) (38 CFR 14.634(a) 
(1989)). VA has incorporated the exception for third parties not 
standing to benefit from a veteran's claim into the current rules 
governing the payment of attorney fees. An organization, governmental 
entity, or other disinterested third party may pay attorney fees under 
circumstances in which a claimant or appellant may not, for example, 
when there has been no final Board decision with respect to an issue. 
See 38 CFR 20.609(d)(2).
    In dealing with this exception over the years, we have reviewed fee 
agreements that list individuals as ``disinterested third parties'' who 
appear to be no more than ``straw men,'' i.e., nominal fee payers who 
really serve as a mere conduit for a prohibited payment

[[Page 64792]]

by a claimant or appellant. Typically, such ``disinterested third 
parties'' will agree to pay a fee equal to some percentage of the 
amount of any past-due benefits awarded the claimant, contingent on a 
successful outcome. Indeed, some contracts we have reviewed call for 
payment of a percentage of the actual past-due benefits by these third 
parties, a legally impossible feat because of the nonassignability of 
veterans benefits under 38 U.S.C. 5301.
    In this context, VA's General Counsel has informally advised that, 
if a third party acts as a mere conduit for a prohibited payment by a 
claimant, the exception in the regulation would not apply.
    Accordingly, we propose three amendments to Rule 609(d)(2) (38 CFR 
20.609(d)(2)), relating to payment of fees by disinterested third 
parties.
    First, we propose to prohibit, in any case involving a third-party 
payer, a fee which is contingent, in whole or in part, on whether or 
not the matter is resolved in a manner favorable to the claimant or 
appellant. The contingent fee functions as a financing device that 
enables a client to assert and prosecute an otherwise unaffordable 
claim. See, e.g., Lester I. Brickman, Contingent Fees Without 
Contingencies: Hamlet Without the Prince of Denmark?, 37 UCLA L. Rev. 
29, 43 (1989). 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. Nevertheless, we have seen a number of agreements in 
which a ``disinterested third party'' agrees to pay an amount equal to 
some percentage of a veteran's past-due benefits, an arrangement that 
appears to merely set the stage for a transfer from the veteran to the 
third party to the attorney. In our view, making a fee to be paid by a 
disinterested third party contingent on the outcome of the claim 
encourages the parties to break the law. Accordingly, we propose to bar 
contingent fees in such circumstances.
    Second, we propose to establish a presumption that a person who is 
the spouse, child, or parent of the claimant or appellant, or who 
resides with the claimant or appellant, is not a disinterested third 
party. In our view, persons in such relationships usually have some 
financial or other interest in the success of the claim and are 
therefore unlikely to be disinterested.
    Finally, we propose to require that the attorney or agent file a 
statement certifying that no agreement exists under which the claimant 
or appellant will provide anything of value to the third party in 
return for payment of the fee or salary. We believe that it is the 
responsibility of an attorney, as an officer of the court, and an 
agent, as a licensee of VA, to make appropriate inquiries. Cf. Fed. R. 
Civ. P. 11(b) (signature of attorney on court papers certifies, among 
other things, inquiry by the attorney which is reasonable under the 
circumstances). We also propose to amend Rule 609(g) (38 CFR 
20.609(g)), relating to fee agreements, to clarify that any agreement 
for the payment of fees must include the name and mailing address of 
the disinterested third party. This will allow VA to advise such third 
parties of legal requirements regarding disinterested third parties.

Simplifying Notice Procedures

    Both 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, require service of papers on opposing 
parties by certified mail, return receipt requested, and require filing 
signed certificates of receipt with the Board. We do not believe that 
this level of proof is necessary to ensure that all parties receive 
copies of various material. Accordingly, we propose to amend both rules 
to provide that proof of service in such cases will be by filing a 
statement with the Board certifying that copies have been sent to the 
other parties by first-class mail, postage prepaid. This is in line 
with general rules of service in the Federal Rules of Civil Procedure. 
Fed. R. Civ. P. 5(d) (generally, a certificate of service by a party 
(or attorney) is sufficient proof of service).

Other Changes

    In addition to the changes noted above, we propose to make 
nonsubstantive changes required for purposes of clarity. We also 
propose to make changes to correspond to new organization names within 
the Board.

Regulatory Flexibility Act

    The Secretary hereby certifies that this proposed 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 proposed rule is exempt from the initial and final 
regulatory flexibility analyses requirements of Secs. 603 and 604.

List of Subjects in 38 CFR Part 20

    Administrative practice and procedure, Claims, Veterans.

    Approved: December 1, 1997.
Hershel W. Gober,
Acting Secretary of Veterans Affairs.
    For the reasons set out in the preamble, 38 CFR part 20 is proposed 
to be 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).

    2. In subpart A, Sec. 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:


Sec. 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, Sec. 20.609, paragraphs (d)(2), (f), (g), (h), and 
(i) are revised and paragraph (j) is added to read as follows:


Sec. 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

[[Page 64793]]

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) 
(Sec. 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)), 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 Chief Counsel (01C), Board of 
Veterans' Appeals, 810 Vermont Avenue NW, Washington, DC 20420.
    (h) Payment of fees by Department of Veterans Affairs directly to 
an attorney-at-law from past-due benefits. The Department of Veterans 
Affairs will not pay fees directly to an attorney at law from past-due 
benefits.
    (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 Chief Counsel (01C), 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 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 Court of 
Veterans Appeals.
    (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 Sec. 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.

(Authority: 38 U.S.C. 5902, 5904, 5905)

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


Sec. 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 Chief Counsel 
(01C), 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 Sec. 14.633 of this

[[Page 64794]]

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. 97-32107 Filed 12-8-97; 8:45 am]
BILLING CODE 8320-01-P