Opinion ID: 795610
Heading Depth: 2
Heading Rank: 2

Heading: Velazquez II and III

Text: 13 On appeal, we rejected the facial challenge to the regulation, holding that it did not impose an unconstitutional condition on the exercise of free speech rights. See Velazquez II, 164 F.3d at 766. We explained that in appropriate circumstances, Congress may burden the First Amendment rights of recipients of government benefits if the recipients are left with adequate alternative channels for protected expression. Id. Because the Velazquez plaintiffs had provide[d] no basis for concluding that the program integrity rule[s] cannot be applied in at least some cases without unduly interfering with [a recipient's] First Amendment freedoms, we held that they could not sustain a facial challenge. Id. at 767. 14 However, we also noted in passing that the Velazquez plaintiffs remain[ ] free to bring an as-applied challenge and demonstrate that the program integrity rules will, in the case of some recipients, prove unduly burdensome and inadequately justified, with the result that the 1996 Act and the regulations will suppress impermissibly the speech of certain funded organizations and their lawyers. Id. 15 Finally, we upheld as viewpoint neutral the 1996 Act's statutory restrictions that the Velazquez plaintiffs challenged, with the exception of one proviso, which we found viewpoint discriminatory and invalid on its face under the First Amendment. Id. at 770-72. Our invalidation and consequent severance of the proviso were ultimately affirmed by the Supreme Court in Legal Servs. Corp. v. Velazquez (Velazquez III), 531 U.S. 533, 549, 121 S.Ct. 1043, 149 L.Ed.2d 63 (2001), but that Court declined to review the rest of our decision, in particular as it related to our judgment on the regulation, 532 U.S. 903, 121 S.Ct. 1224, 149 L.Ed.2d 135 (2001) (Mem.) (denying certiorari). III Present Proceedings 16 Following the Supreme Court's decision in Velazquez III, the litigation leading to the present appeal commenced. Having returned to the district court from the halls of One First Street, the Velazquez plaintiffs decided to pursue the as-applied challenge to the regulation contemplated by our Velazquez II opinion. Meanwhile, a new set of plaintiffs had filed a second, virtually identical action in the same district court, captioned Dobbins v. Legal Servs. Corp., No. 1:01-CV-08371 (E.D.N.Y.2001), and the two actions were consolidated. 17 The joint plaintiffs sought a preliminary injunction against LSC's enforcement of both the 1996 Act and the program integrity regulation, raising the following challenges: (1) the as-applied challenge to the program integrity regulation under the First Amendment that was contemplated by Velazquez II; (2) a facial challenge to the regulation and the 1996 Act on a ground not raised in Velazquez II —that they violate fundamental principles of federalism under the Tenth Amendment; and (3) a facial challenge under the First Amendment to the 1996 Act's restrictions on class action litigation, attorneys' fees, and soliciting clients. The defendant LSC, joined by the United States, moved to dismiss all the claims as legally groundless. In addition, they moved to dismiss the as-applied challenge to the regulation for lack of standing because the plaintiffs asserting the challenge had never attempted to comply with the regulation. 18 To address the standing issue, plaintiffs submitted to LSC a proposal that attempted to comply with the regulation. This so-called clarified proposal described the level of separation that the plaintiffs believed LSC could impose consistent with the First Amendment. The clarified proposal would permit the plaintiffs and their affiliate organizations to operate in the same physical premises, utilizing accounting measures to allocate the costs between the LSC-funded plaintiff and its unrestricted affiliate organization. On June 24, 2003 LSC rejected the proposal, stating that the proposed 100% sharing of physical space, equipment and staffs demonstrates that the clarified proposal as a whole fails to provide physical and financial separation as required by the regulation. 19 Following LSC's rejection of the clarified proposal, the district court ruled in favor of LSC on all of the plaintiffs' claims—except with regard to the as-applied challenge to the program integrity regulation on First Amendment grounds. As to that challenge, the court granted plaintiffs' preliminary injunction application, insofar as it requested that LSC be prevented from withholding federal funds if the plaintiffs substantially complied with the clarified proposal. The trial court believed the clarified proposal fully satisfied most of LSC's legitimate interests in ensuring that federal funds were not diverted by recipients toward activities banned by Congress. Moreover, the court reasoned, requiring a separation greater than that contemplated by the clarified proposal would impose, in contravention of Velazquez II, an undue burden on plaintiffs' ability to use non-federal funds for protected activities, since the financial and administrative costs on plaintiffs of maintaining physically separate offices and personnel would be substantial, while the government's interests in imposing them were not. 20 All parties appealed the district court's ruling.