Source: https://www.federalregister.gov/documents/2011/04/27/2011-10116/fee-generating-cases
Timestamp: 2018-03-22 18:20:11
Document Index: 336829821

Matched Legal Cases: ['art 1609', 'art 1609', 'art 1609', '§\u20091007', '§\u20091609', 'art 1617', 'art 1609', '§\u20091609', 'art 1609', 'art 1642', '§\u20091609', 'art 1609', 'art 1609', 'art 1609', 'art 1609', '§\u20091610', '§\u20091610', '§\u20091610', 'art 1609', 'art 1609', 'art 1610', 'arts 1610', 'art 1609', 'arts 1609', 'art 1609', 'art 1609', 'art 1609', 'art 1609', 'art 1609', 'art 1610', 'art 1609', 'art 1609', 'art 1609', 'art 1610', 'art 1609', 'art 1609', '§\u20091609', 'arts 1609', 'art 1609', 'art 1609', '§\u20091609', 'art 1609', 'art 1609', 'arts 1609', 'arts 1609', 'art 1609', 'art 1610', 'art 1609', 'art 1610', 'art 1609', 'art 1610', 'art 1610', 'art 1609', 'art 1610', 'art 1609']

A Rule by the Legal Services Corporation on 04/27/2011
This final rule becomes effective on May 27, 2011.
2011-10116
Amendment of Part 1609
https://www.federalregister.gov/d/2011-10116 https://www.federalregister.gov/d/2011-10116
This final rule amends the Legal Services Corporation's regulation on fee-generating cases to clarify that it applies only to LSC and private non-LSC funds.
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); mcohan@lsc.gov.
This final rule follows the publication of a Notice of Proposed Rulemaking published by the Legal Services Corporation (LSC) on February 4, 2011 proposing to amend LSC's regulation at 45 CFR part 1609 on fee-generating cases to clarify that it applies only to LSC and private non-LSC funds. 76 FR 6381. On April 15, 2011, the LSC Board of Directors adopted the proposed changes and authorized the publication of this final rule.
Generally, the substantive LSC restrictions on LSC recipients fall into two categories: “entity restrictions” and “LSC funds restrictions.” “Entity restrictions” apply to all activities of a recipient regardless of the funding source (except for the use of tribal funds as intended) and generally originate in section 504 of LSC's FY 1996 appropriations act (the provisions of which have been carried forward in subsequent appropriations). In contrast, “LSC funds restrictions” usually originate from the LSC Act and apply to the use of LSC funds and private funds, but not to tribal or public non-LSC funds used as intended. LSC's regulation at 45 CFR part 1609, Fee-Generating Cases, is based on § 1007(b)(1) of the LSC Act, which provides that no funds made available by the Corporation may be used to provide legal assistance, except as per LSC regulation, with respect to any fee-generating case. The fee-generating case provision of the LSC Act is an “LSC funds restriction.” However, § 1609.3(a), as currently written, is not limited to the use of LSC funds. Rather it reads as an “entity restriction” reaching all of an LSC recipient's funds. Its wording follows the same structure as other entity restrictions such as part 1617—Class Actions, which states that “Recipients are prohibited from initiating or participating in any class action.” 45 CFR 617.3.
From its initial adoption in 1976 through 1996, part 1609 followed the language of the LSC Act and was expressly applied as an LSC funds restriction At that time, § 1609.3 provided that: “[n]o recipient shall use funds received from the Corporation to provide legal assistance in a fee-generating case unless” one of the regulatory exceptions applied. 41 FR 18528 (proposed rule May 5, 1976), 41 FR 38505 (final rule Sept. 10, 1976), and 49 FR 19656 (final rule May 9, 1984) (the last final rule prior to 1996) (emphasis added).
In 1996 LSC revised part 1609 in conjunction with the enactment of the part 1642 entity prohibition on recipients claiming or collecting and retaining attorneys' fees. In the revision the language was changed from the prior “Corporation funds” prohibition to the more general “no recipient” entity prohibition. Notably though, there is no discussion in the preamble to the proposed or final regulation of any Start Printed Page 23503significant substantive change in scope. 61 FR 45765 (proposed rule August 29, 1996) and 62 FR 19398 (final rule April 21, 1997). Nor is there any such discussion in any of the relevant LSC Board transcripts. Rather, the only mention of the change in language is the following discussion of the revised § 1609.3:
Notwithstanding the 1997 regulatory change, LSC has not applied part 1609 as an entity restriction, but has rather continued to apply it as an restriction applying only to a recipient's LSC and private non-LSC funds. For example, the LSC Compliance Supplement to the LSC Audit Guide, which provides guidance to auditors regarding recipient compliance with the substantive LSC restrictions, states that part 1609 means that “[r]ecipients may not use Corporation or private funds to provide legal assistance in a fee-generating case unless” one of the regulatory exceptions applies. It does not instruct auditors to read part 1609 as applying to tribal or public non-LSC funds. The Compliance Supplement was last revised in December 1998 (after part 1609 had been amended).
Section 1610.3 contains a general prohibition regarding the use of non-LSC funds, providing that recipient may not use non-LSC funds for any purpose prohibited by the LSC Act or for any activity prohibited by or inconsistent with Section 504, unless such use is authorized by §§ 1610.4, 1610.6 or 1610.7 of this part. Section 1610.4(b) contains a public non-LSC funds exception to the LSC Act restrictions but not the section 504 entity restrictions, providing that a recipient may receive public or IOLTA funds and use them in accordance with the specific purposes for which they were provided, if the funds are not used for any activity prohibited by or inconsistent with section 504. Thus § 1610.4(b) permits the use of public non-LSC or IOLTA funds for all activities categorized as “LSC Act restrictions” in § 1610.2, which includes Part 1609. Normally the exception for public non-LSC funds only applies to regulations that themselves are limited to LSC funds and private funds. Part 1609 is an anomaly in that it uses “entity” language to apply to the use of all funds, but is treated by part 1610 as an “LSC Act” restriction that does not apply to public non-LSC funds. There is, thus, a conflict between the language of parts 1610 and 1609.[2]
In sum, while the language of part 1609 changed in 1996 from a restriction on LSC funds to a restriction on all funds, the preamble to the rule indicates that substantive changes to the rule were not intended. In addition, parts 1609 and 1610 are in direct conflict regarding the scope of part 1609. Finally, LSC has not itself applied part 1609 as an entity restriction in practice and has issued guidance in the form of the LSC Compliance Supplement to the Audit Guide applying the restriction only as a restriction on a recipient's LSC and private non-LSC funds (and not applying to a recipient's available public-non LSC funds). Accordingly, LSC believes that the part 1609 needs to be clarified to correct the apparent mistake in drafting and to the express language of part 1609 into conformance with: the apparent intent of the Corporation in 1996 when it revised part 1609; the clear language of part 1610; and LSC practice.
As discussed above, LSC believes that the 1997 change to the language of part 1609 appearing to extend the scope of the fee-generating case restrictions beyond LSC and private non-LSC funds to be an entity restriction was not intended, but instead was a mistake made in the attempt to “simplify” the language of the regulation without any substantive change to the meaning of the regulation. LSC bases this belief upon the various indicia discussed above, such as the preamble to the final rule amending part 1609; the clear scope of the language in the LSC Act; the treatment of part 1609 in part 1610; LSC's own guidance in the LSC Compliance Supplement to the Audit Guide and LSC's ongoing practice.
LSC thus proposed to amend the language of part 1609 to clarify that it reaches only LSC and private non-LSC funds. 76 FR 6381 (Feb. 4, 2011). LSC received only three comments on the proposed rule, all of which fully supported the change. Accordingly, LSC is amending part 1609 as proposed without further change.
LSC believes that amending the regulation in this way is preferable to maintaining the status quo. Although LSC has not previously encountered significant problems being caused by Start Printed Page 23504the apparently inaccurate wording of § 1609.3, the matter came to LSC's attention through a question raised in the course of a compliance visit being conducted by the Corporation's Office of Compliance and Enforcement. Given the question being raised internally at LSC and the clear conflict between the regulations (1609 and 1610), LSC does not believe it would be appropriate to permit this situation to continue, particularly when there is a simple and straightforward solution to the problem.
LSC further believes that amending the regulation in this way brings the regulation into conformity with the provisions of the LSC Act (and is not inconsistent with anything in the applicable appropriations acts). Moreover, it resolves the conflict between parts 1609 and 1610 and reflects the intention of the Corporation in 1997 to refrain from making a substantive change to the previously existing (pre-1997) scope of the regulation. In addition, amending part 1609 in this way is consistent with the existing LSC guidance and practice. As noted above, the LSC Compliance Supplement to the Audit Guide guidance to auditors does not instruct them to apply the restrictions to a recipient's public non-LSC funds and to our knowledge the auditors have not been reporting instances of a recipient's use of public non-LSC funds as problematic with respect to the regulation. Further, LSC's practice has not been to apply the restriction to a recipient's public non-LSC funds. Finally, to LSC's knowledge, the general understanding and practice in the field has been that the restriction does not apply to a recipient's public non-LSC funds. This understanding was confirmed in the comments LSC received on the proposed rule. Thus, amending part 1609 to clarify that it applies as an restriction on LSC and private non-LSC funds, rather than as an entity restriction, does not create any substantive change from current practice.
In light of the above, LSC amends § 1609.3(a) to clarify that a recipient may not use Corporation funds to provide legal assistance in a fee-generating case (unless one of the exceptions apply). As 45 CFR 1610.4 is being amended, that provision will continue to subject a recipient's private funds to the fee-generating case restrictions in part 1609.
For reasons set forth above, and under the authority of 42 U.S.C. 2996g(e), LSC amends 45 CFR part 1609 as follows:
2. It is worth noting that parts 1609 and 1610 were revised contemporaneously in 1996 and 1997. Parts 1609 and 1610 were issued as interim rules on August 29, 1996. 61 FR 45765 (Part 1609) and 61 FR 45740 (Part 1610). At this time, part 1609 contained the revised language while part 1610 continued to treat it as an LSC Act restriction. Part 1609 was finalized on April 21, 1997, with the revised language, while Part 1610 was still under revision. 62 FR 19398. A new final rule on part 1610 was subsequently published on May 21, 1997. 62 FR. 27695. Notwithstanding the final language of part 1609 (appearing to apply the fee-generating case restriction as an entity restriction), the finalized part 1610 continued to apply the fee-generating case restriction as applying only to LSC and private non-LSC funds as had been the case prior to the revision of part 1609.
[FR Doc. 2011-10116 Filed 4-26-11; 8:45 am]