Source: http://openjurist.org/164/f3d/757/velazquez-v-legal-services-corporation
Timestamp: 2013-12-19 01:17:48
Document Index: 738071487

Matched Legal Cases: ['§ 2996', '§ 2996', '§ 2996', '§ 2996', '§ 1610', '§ 1610', '§ 1610', '§ 1610', '§ 504', '§ 2996', '§ 501', '§ 501', '§ 501', '§ 501']

164 F3d 757 Velazquez v. Legal Services Corporation | OpenJurist
164 F. 3d 757 - Velazquez v. Legal Services Corporation	Home164 f3d 757 velazquez v. legal services corporation
164 F3d 757 Velazquez v. Legal Services Corporation 164 F.3d 757
Carmen VELAZQUEZ, et al, Plaintiffs-Appellants,v.LEGAL SERVICES CORPORATION, Defendant-Appellee,United States of America, Intervenor-Appellee.
Argued March 20, 1998.Decided Jan. 7, 1999.Rehearing and Rehearing En Banc Denied July 2, 1999.
Stephen W. Preston, Deputy Assistant Attorney General, Washington, D.C. (Frank W. Hunger, Assistant Attorney General, Washington, D.C., Zachary W. Carter, United States Attorney for the Eastern District of New York, Brooklyn, N.Y., Barbara L. Herwig and Matthew M. Collette, Attorneys, Department of Justice, Washington, D.C., on the brief), for Intervenor-Appellee.
A. The Legal Services Corporation and the Challenged Statute. LSC is a non-profit government-funded corporation, created by the Legal Services Corporation Act of 1974 ("LSCA"), 42 U.S.C. § 2996 et seq., "for the purpose of providing financial support for legal assistance in noncriminal proceedings or matters to persons financially unable to afford legal assistance." 42 U.S.C. § 2996b(a). LSC fulfills this mandate by making and administering grants to hundreds of local organizations that in turn provide free legal assistance to between 1,000,000 and 2,000,000 indigent clients annually. See Texas Rural Legal Aid v. Legal Services Corp., 940 F.2d 685, 688 (D.C.Cir.1991); S. Rep. 104-392 at 2-3 (1996). Many LSC grantees are funded by a combination of LSC funds and other public or private sources. S. Rep. 104-392 at 3; A. 225, A. 297. LSC grantees are governed by local Boards of Directors who set policies and priorities in response to local conditions and client needs. LSC is empowered to implement the LSCA through the traditional administrative rulemaking process. Tex. Rural Legal Aid, 940 F.2d at 692.
From the outset of the LSC program, LSC grantees have been restricted in the use of LSC funds. See 42 U.S.C. § 2996f(b)(1)-(10) (prohibiting use of LSC funds in, inter alia, most criminal proceedings, political activities, and litigation involving nontherapeutic abortion, desegregation, or military desertion). Recipient organizations are also barred from using most nonfederal funds for any activity proscribed by the LSCA. See 42 U.S.C. § 2996i(c).
In August 1996, LSC proposed regulations to implement the 1996 Revisions, which, inter alia, (1) prohibited a grantee from "us[ing] non-LSC funds for any purpose prohibited by the LSC Act," 61 Fed.Reg. 41960, 41962 (1996); (2) prohibited any organization controlled by a grantee from pursuing restricted activities (the "interrelated organizations prohibition"), see id.; 50 Fed.Reg. 49276, 49279 (1985) (defining "control" as "the ability to determine the direction of [or] influence the management or policies" of another organization); and (3) applied the OCRAA restrictions to any third party to whom a grantee transfers LSC funds, and to any private funds transferred from a grantee to a third party irrespective whether the funds were private or public (the "transfer of funds provision"). 61 Fed.Reg. 63749, 63752 (1996). The combined effect of the regulations was to prohibit LSC grantees from engaging in any restricted activity, even through a legally distinct affiliate organization. These regulations were promulgated in December 1996. See 45 C.F.R. §§ 1610.3, 1610.8 (1996).
Soon after this suit was filed, and before the hearing on plaintiffs' application for a preliminary injunction, a federal district court in Hawaii issued an order partially granting a motion by a different set of plaintiffs to preliminarily enjoin enforcement of the OCRAA restrictions. See Legal Aid Society of Hawaii v. Legal Servs. Corp., 961 F.Supp. 1402 (D.Haw.1997) ( "LASH I "). LASH I concluded that under Rust v. Sullivan, 500 U.S. 173, 111 S.Ct. 1759, 114 L.Ed.2d 233 (1991) and other Supreme Court decisions, congressional restrictions on the activities of federally-funded entities were permissible only so long as they "left open adequate channels for [protected] speech."3 961 F.Supp. at 1414. Applying this standard, the court found that the LSC regulations unduly burdened grantees' protected First Amendment rights to lobby, to associate, and to have meaningful access to courts. Central to the court's analysis was its finding that the interrelated organizations prohibition barred LSC grantees from creating affiliate organizations that could engage in restricted activity. See LASH I, 961 F.Supp. at 1415-16. The court held that as implemented, the 1996 restrictions denied to grantees not only the ability to undertake restricted activity directly, but also all alternative channels for exercise of these constitutionally protected activities. The court therefore determined that plaintiffs' constitutional challenge was likely to prevail on the merits and enjoined enforcement of portions of the OCRAA restrictions. See id. at 1421-22.
In order to cure these constitutional infirmities, LSC issued "interim regulations" in March 1997 modelled after the restrictions upheld by the Supreme Court in Rust. See 62 Fed.Reg. 12101, 12101-04 (1997) (interim regulations "are intended to address constitutional challenges raised by the previous rule"); Legal Aid Society of Hawaii v. Legal Services Corp., 981 F.Supp. 1288, 1290 (D.Haw.1997) ("LASH II "); Velazquez v. Legal Services Corp., 985 F.Supp. 323, 332-333 (E.D.N.Y.1997). The interim regulations modified the earlier rules in two important respects. LSC revised the transfer of funds rules so that, in most cases, non-federal funds transferred by a grantee to a controlled affiliate would cease to be subject to the restrictions. Compare 62 Fed.Reg. 12101, 12103, § 1610.7 (1997) with 45 C.F.R. § 1610.7 (1996)(61 Fed.Reg. 63749, 63752). Equally important, a new section entitled "Program Integrity of Recipient," 62 Fed.Reg. 12101 at 12103-04, § 1610.8, provided that grantees could maintain a relationship with "affiliate" organizations, which could in turn engage in restricted activities so long as the association between the organizations met standards of "program integrity." The nonexclusive list of factors relevant to the determination of program integrity were (1) the existence of separate personnel; (2) the existence of separate accounting and timekeeping records; (3) the existence of separate facilities; and (4) the extent to which signage and identification distinguishes recipient from affiliate. Id. at 12104.
On May 21, 1997, LSC replaced the interim regulations with a "Final Rule" (the "final regulations"). See id. As the district court noted, "[t]he revised program integrity section eliminates virtually every difference between the interim regulations and the Rust regulations in respect to program integrity requirements." Id. at 335. The three differences between the LSC regulations and the Title X regulations approved in Rust noted by the court at the March hearing were eliminated. See id. Concluding that the final regulations represented a permissible construction of the 1996 Act, see id. at 338-39, and were consistent with the First Amendment, the district court determined that the statute and regulations were not likely to be invalidated and therefore denied the motion for a preliminary injunction. See id. at 326-27.4 This appeal followed.II. Discussion
Plaintiffs argue that Congress plainly intended to bar LSC grantees from undertaking restricted activities through affiliate organizations. This argument relies principally on § 504(d)(2)(B) of the Act, which provides that LSC grantees may "use[ ] funds received from a source other than the Legal Services Corporation to provide legal assistance ... except that such funds may not be expended by recipients for any purpose prohibited by this Act or by the Legal Services Corporation Act." According to plaintiffs, this language plainly articulates Congress's desire to prohibit grantees from engaging in restricted activity through an affiliate, even with non-federal funds. By permitting grantees to fund affiliates who engage in restricted activity, argue plaintiffs, the final rules impermissibly allow non-LSC funds to be "expended by recipients" for prohibited purposes. Plaintiffs claim to find support in the legislative history, which explains that "[t]he legislation prohibits the use of alternative corporations to avoid or evade the provisions of the law." S.Rep. No. 104-392 at 13 (1996). Plaintiffs contend that the final rules--which authorize grantees to create affiliates and fund them with nonfederal moneys allowing them to conduct activity proscribed under the Act--facilitate a purpose expressly precluded by Congress, and thus fail under the first step of Chevron.
We are not persuaded. Nowhere in the statute does Congress speak directly to the question whether grantees may create and support affiliate organizations. The Act does not indicate whether a transfer of non-federal funds by a grantee to an affiliate, or the affiliate's subsequent use of such transferred non-federal funds for a prohibited purpose, constitutes an "expend [iture] by [a] recipient[ ]" under the Act. We conclude that Congress has not spoken clearly regarding grantees' authority to design and fund affiliate organizations, so that the first prong of Chevron is inapplicable.
Nor need we resolve it here. Even if we assume that an "all-encompassing" lawyer-client relationship enjoys heightened protection from government regulation, the lawyer-client relationships funded by LSC are no more "all-encompassing" than the doctor-patient relationships funded under Title X, which were considered in Rust. As noted above, the LSCA has always limited the range of legal services available through LSC grantees. See 42 U.S.C. § 2996i(c). Indeed, grantees have historically limited their representations to selected issues, and are typically "able to meet only a fraction of the demand for their services." See Overview of LSC at 4 (1996)(http://ltsi.ncs/lsc/about.html). Because grantee lawyers are bound to explain to prospective and actual clients the limitations imposed by the 1996 restrictions, and may refer clients to lawyers unencumbered by the restrictions, there is no reason to fear that clients will detrimentally rely on their LSC lawyers for a full range of legal services. The LSC lawyer-client relationship cannot, therefore, be considered "sufficiently all encompassing so as to justify an expectation on the part of the [client] of comprehensive [legal] advice." Rust, 500 U.S. at 200, 111 S.Ct. 1759. Accordingly, we need not decide whether the traditional lawyer-client relationship enjoys constitutional protection, because (as in Rust ) such a relationship does not exist for practitioners and clients operating under the challenged statutory scheme.
Three Supreme Court cases provide the framework for evaluating plaintiffs' unconstitutional conditions claim. In Regan v. Taxation With Representation, 461 U.S. 540, 103 S.Ct. 1997, 76 L.Ed.2d 129 (1983), Taxation With Representation (TWR), a non-profit organization devoted to studying tax issues and lobbying for tax reform, challenged Section 501(c)(3) of the Internal Revenue Code, which provided that organizations engaged in lobbying could not receive tax-deductible contributions. See I.R.C. § 501(c)(3). TWR argued that § 501(c)(3) impermissibly conditioned the benefit of contribution deductibility on the relinquishment of the First Amendment right to lobby. See Taxation With Representation, 461 U.S. at 545, 103 S.Ct. 1997. Because this was not an instance where "Congress [had] discriminate[d] invidiously in its subsidies in such a way as to aim at the suppression of dangerous ideas," the Court applied minimal scrutiny and upheld the law. Id. at 548, 103 S.Ct. 1997 (alteration and internal quotation marks omitted). Nevertheless, Justice Rehnquist's majority opinion noted, and a concurring opinion relied upon, the fact that the I.R.C. allowed § 501(c)(3) organizations to establish financially independent but wholly controlled lobbying affiliates under I.R.C. § 501(c)(4) without comprom