98-31251. Termination and Debarment Procedures; Recompetition; Denial of Refunding  

  • [Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
    [Rules and Regulations]
    [Pages 64636-64646]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 98-31251]
    
    
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    LEGAL SERVICES CORPORATION
    
    45 CFR Parts 1606 and 1625
    
    
    Termination and Debarment Procedures; Recompetition; Denial of 
    Refunding
    
    AGENCY: Legal Services Corporation.
    
    ACTION: Final rule.
    
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    SUMMARY: This final rule rescinds the Corporation's rule on denial of 
    refunding and removes it from the Code of Federal Regulations. It also 
    substantially revises the Corporation's rule governing the termination 
    of financial assistance. These revisions are intended to implement 
    major changes in the law governing certain actions used by the 
    Corporation to deal with post-award grant disputes. The termination 
    rule now includes new provisions authorizing the Corporation to 
    recompete service areas and to debar recipients for good cause from 
    receiving additional awards of financial assistance.
    
    DATES: This rule is effective on December 23, 1998.
    
    FOR FURTHER INFORMATION CONTACT: Suzanne B. Glasow, 202-336-8817.
    
    SUPPLEMENTARY INFORMATION: The Operations and Regulations Committee 
    (Committee) of the Legal Services Corporation's (LSC or Corporation) 
    Board of Directors (Board) met on April 5, 1998, in Phoenix, Arizona, 
    to consider proposed revisions to the Corporation's rules governing 
    procedures for the termination of funding, 45 CFR Part 1606, and denial 
    of refunding, 45 CFR Part 1625. The Committee made several changes to 
    the draft rule and adopted a proposed rule that was published in the 
    Federal Register for public comment at 63 FR 30440 (June 4, 1998). On 
    September 11, 1998, during public hearings in Chicago, Illinois, the 
    Committee considered public comments on the proposed rule. After making 
    additional revisions to the rule, the Committee recommended that the 
    Board adopt the rule as final, which the Board did on September 12, 
    1998.
        This final rule is intended to implement major changes in the law 
    governing certain actions used by the Corporation to deal with post-
    award grant disputes. Prior to 1996, LSC recipients could not be denied 
    refunding, nor could their funding be suspended or their grants 
    terminated, unless the Corporation complied with Sections 1007(a)(9) 
    and 1011 of the LSC Act, 42 U.S.C. 2996 et seq., as amended. For 
    terminations and denials of refunding, the Corporation was required to 
    provide the opportunity for a ``timely, full and fair hearing'' before 
    an independent hearing examiner.
        In 1996, the Corporation implemented a system of competition for 
    grants that ended a recipient's right to yearly refunding. Under the 
    competition system, grants are now awarded for specific terms, and, at 
    the end of a grant term, a recipient has no right to refunding and must 
    reapply as a competitive applicant for a new grant.1 
    Accordingly, this rule rescinds 45 CFR part 1625, the Corporation's 
    regulation on the denial of refunding, and removes it from the Code of 
    Federal Regulations as no longer consistent with applicable law.
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        \1\ It is well established that absent express statutory 
    language to the contrary or a showing that the applicant's statutory 
    or constitutional rights have been violated, pre-award applicants 
    for discretionary grants have no protected property interests in 
    receiving a grant and thus have no standing to appeal the funding 
    decision by the grantor. See Cappalli, Federal Grants and 
    Cooperative Agreements, Sec. 3.28; Stein, J., Administrative Law, 
    Sec. 53.02[3][a] (1998); and Legal Services Corporation of Prince 
    Georges County v. Ehrlich, 457 F. Supp. 1058, 1062-64 (D. Md. 1978).
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        Comments expressed concern about the effect of the removal of this 
    rule in the new competitive environment. The concern was that, rather 
    than providing a new grant to an applicant, the Corporation might use 
    month-to-month or short term grants within the competitive process to 
    avoid providing hearing rights to recipients. One comment urged the 
    Corporation to refrain from using repeated short term grants to 
    troubled programs about which it has questions about future funding as 
    a means to obviate the need for a due process hearing. According to the 
    comment, short term funding should be used only in those situations 
    where the Corporation fully intends to make a grant for the remainder 
    of the grant term once a specific identified issue is resolved.
        The Board requested that the preamble clarify that short term 
    funding is not intended by the Corporation as a means to avoid hearing 
    rights. It is a means to ensure continued legal representation in a 
    service area when the Corporation determines no applicants in a 
    competitive process warrant a long term grant. This could occur for a 
    variety of reasons. For example, in a particular competition, one 
    applicant may not be viable and the other, a current recipient, may be 
    under investigation by the Corporation. Short term funding until the 
    investigation is final is warranted in such a situation. The 
    Corporation would not want to foreclose giving a long term grant to the 
    program if the investigation reveals no substantive noncompliance 
    issues. On the other hand, if the investigation reveals substantive 
    noncompliance by the recipient, the Corporation would have been 
    derelict in its duty if it had made a long term grant to a recipient it 
    had reason to believe could not provide quality legal assistance or 
    comply with grant terms and conditions.
        Congress clearly intended the competition process to be a means for 
    the Corporation to ensure that the most qualified programs receive LSC 
    grants. Accordingly, the Corporation's competition rule provides 
    discretion to the Corporation to take all practical steps to ensure 
    continued legal assistance in a service area when the Corporation 
    determines no applicants are qualified for a long term grant. See 
    Sec. 1634.8(c). Short term grants provide one means to that end. 
    Nevertheless, it is not the intent of the Corporation that short term 
    grants be used to avoid applicable hearing rights. They should only be 
    used when they are warranted and appropriate, as discussed above.
        The FY 1998 appropriations act made additional changes to the law 
    affecting LSC recipients' rights to continued funding. See Pub. L. 105-
    119, 111 Stat. 2440 (1997). Section 504 provides authority for the 
    Corporation to debar a recipient from receiving future grant awards 
    upon a showing of good cause. Section 501(c) authorizes the Corporation 
    to recompete a service area when a recipient's financial assistance has 
    been terminated. Finally, Section 501(b) of the appropriations act 
    provides that the hearing rights prescribed by Sections 1007(a)(9) and 
    1011 are no longer applicable to the provision, denial, suspension, or 
    termination of financial assistance to recipients. This rule implements 
    Section 501(b) as it applies to terminations and denials of refunding. 
    Also in this publication of the Federal Register is a related final 
    rule, 45 CFR Part 1623, which implements Sec. 501(b) as it applies to 
    the suspension of financial assistance to recipients.
        The change in the law on hearing rights does not mean that grant 
    recipients have no rights to a hearing before the Corporation may 
    terminate funding or debar a recipient. Sections 501(b) and 501(c) of 
    the FY 1998
    
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    appropriations act require the Corporation to provide a recipient with 
    ``notice and an opportunity for the recipient to be heard'' before it 
    can terminate a grant or debar a recipient from future grants. In 
    addition, constitutional due process generally requires that a 
    discretionary grant recipient is entitled to ``some type of notice'' 
    and ``some type of hearing'' before its grant funding can be suspended 
    or terminated during the term of the grant period. Stein, 
    Administrative Law at Sec. 53.05[4]. However, the new law in the 
    appropriations act emphasizes a congressional intent to strengthen the 
    ability of the Corporation to ensure that recipients are in full 
    compliance with the LSC Act and regulations and other applicable law. 
    See H. Rep. No. 207, 105th. Cong., 1st Sess. 140 (1997). Accordingly, 
    under this rule, the hearing procedures in part 1606 have been 
    streamlined. The changes are intended to emphasize the seriousness with 
    which the Corporation takes its obligation to ensure that recipients 
    comply with the terms of their grants and provide quality legal 
    assistance. At the same time, the Corporation intends that recipients 
    be provided notice and a fair opportunity to be heard before any 
    termination or debarment action is taken.
        The Corporation received three comments on the proposed rule. The 
    commenters generally agreed that the proposed rule represented an 
    appropriate implementation of statutory requirements. However, they 
    also raised several due process concerns and made suggestions for 
    clarification of the terms of certain provisions in the rule. An 
    analysis of the comments and the Corporation's response is set out in 
    the section-by-section analysis below.
    
    Section-by-Section Analysis of Part 1606
    
    Section 1606.1  Purpose
    
        One purpose of this rule is to ensure that the Corporation is able 
    to terminate grants or debar recipients from receipt of future grants 
    in a timely and efficient manner when necessary to meet its obligation 
    to ensure compliance by recipients with the terms of their LSC grants 
    or contracts. Another purpose of the rule is to ensure that scarce LSC 
    funds are provided to recipients who can provide the most effective and 
    economical legal assistance to the poor. Finally, the rule is also 
    intended to ensure that a recipient is provided notice and an 
    opportunity to be heard before it may be debarred or before its grant 
    may be terminated by the Corporation.
    
    Section 1606.2  Definitions
    
        Paragraph (a) of this section defines ``debarment'' as an action to 
    prohibit a recipient from receiving another grant award from the 
    Corporation or from entering into a future agreement with another 
    recipient for LSC funds. Thus, for the period of time stated in the 
    debarment decision, a recipient would not be permitted to participate 
    in future competitions for LSC grants or contracts. Nor could the 
    debarred recipient enter into any future subgrant, subcontract or 
    similar agreement for LSC funds with another recipient for the time set 
    out in the debarment decision. The definition is similar to those used 
    in various Federal agency debarment regulations.
        A definition of knowing and willful has been added to clarify one 
    of the criteria included to determine whether there has been a 
    substantial violation for the purposes of Sec. 1606.3(b)(5). See 
    discussion of Sec. 1606.3(b)(5) for the Corporation's interpretation 
    and the effect of using the term.
        Paragraph (c) defines ``recipient'' as any grantee or contractor 
    receiving funds from the Corporation under Section 1006(a)(1)(A) of the 
    LSC Act, which generally refers to recipients who provide direct legal 
    assistance to eligible clients.
        Termination. Paragraph (d) defines ``termination.'' The proposed 
    rule defined a termination as a permanent reduction of funding to 
    distinguish it from a temporary withholding of funds under a 
    suspension. The definitions of termination and suspension were intended 
    to clarify that when funds are suspended, they are returned to the 
    recipient at the end of the suspension period, either because the issue 
    has been or is in the process of being cured, or the Corporation 
    initiates a termination process; whereas, in a termination, it was 
    intended that the funds taken or withheld by the Corporation would not 
    be returned to the recipient at a later date.
        One comment pointed out that the use of ``permanently'' in the 
    definition caused confusion in that the term, as applied to a partial 
    termination, could be interpreted as meaning that the termination 
    should be applied to every year of a multi-year grant period. The 
    proposed rule attempted to preclude such an erroneous interpretation by 
    including in the definition a statement that a partial termination will 
    affect only the recipient's current year's funding unless provided 
    otherwise in the termination decision. However, the commenter suggested 
    that the word ``permanently'' be deleted from the definition and 
    instead, a direct statement be added to the definition that clarifies 
    that funds withheld in a termination will not be restored to the 
    recipient. The Board agreed to include language on this point but 
    placed it in Sec. 1606.13(b) rather than the definition of 
    ``termination.'' In addition, the Board deleted the word 
    ``permanently'' from the definition of ``termination.''
        A termination may be ``in whole or in part.'' A termination ``in 
    whole'' means that the recipient's grant with the Corporation is 
    completely terminated and the recipient no longer receives LSC funds 
    under the grant. A partial termination or a termination ``in part'' 
    means that only a percentage of the recipient's grant with the 
    Corporation is terminated. The recipient is still a grantee of the 
    Corporation but receives less funding under the grant. The definition 
    of termination also includes language that clarifies that partial 
    terminations will reduce only the amount of the recipient's current 
    year's funding, unless the Corporation provides otherwise in the final 
    termination decision.
        Reprogramming. A partial termination does not affect the amount of 
    funding required by statute to be allocated in competition to the 
    affected recipient's service area. The Corporation's appropriations act 
    currently requires that such funding be provided to service areas based 
    on the census count in the area.
        This statutory requirement, however, does not mean that the 
    Corporation cannot recover funds awarded under a grant when it 
    sanctions a recipient for cause. The legislative history of the funding 
    provision makes it clear that the Corporation may withhold or recover 
    grant funds for good cause. According to relevant law and Corporation 
    policy, when funds are recovered, they may be reprogrammed and used for 
    similar purposes. The preamble to the proposed rule requested comments 
    on the use of funds recovered by the Corporation. Two comments stated 
    the view that recovered funds should generally stay in the same service 
    area following a recovery. One comment stated that the Corporation 
    should be required to seek another grantee or provide interim contracts 
    in the same service area with the recovered funds.
        Applicable law allows the Corporation to reprogram appropriated 
    funds under certain circumstances. See Pub. L. 105-119; See Principles 
    of Federal Appropriations Law, United States General Accounting Office 
    (GAO Redbook) at 2-25. According to the
    
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    GAO, the authority to reprogram is implicit in an agency's fiscal 
    responsibilities and exists even absent express statutory authority. 
    Section 605 of the Corporation's FY 1998 appropriations act, permits 
    reprogramming but requires notice to the Corporation's congressional 
    oversight committees for certain types of reprogrammings.
        Reprogramming is the utilization of funds within an appropriation 
    for purposes other than those contemplated at the time of the 
    appropriation; it is the shifting of funds from one object to another 
    within an appropriation. GAO Redbook at 6-26. However, reprogrammed 
    funds must be used for activities or uses within the general purposes 
    of the appropriation and may not be used for any purposes in violation 
    of any other specific limitation or prohibition. Id. at 2-25; 31 U.S.C. 
    Sec. 1301(a). Basic field funds are appropriated under strict 
    limitations and are thus generally not available for reprogramming 
    before they are used for grant awards. They must be used for basic 
    field grants, allotted to service areas according to a statutory 
    formula and must be awarded pursuant to the Corporation's competition 
    regulations. Once such grants are made, however, it is clear in the 
    legislative history of the Corporation's appropriations acts that the 
    Corporation may recover basic field funds for good cause, see, e.g., 
    129 Cong. Rec. S14448 (Oct. 21, 1983), and reprogram the recovered 
    funds.
        Because it is not feasible or practical to use the recovered funds 
    in exact accordance with all of the strict limitations governing their 
    original allocation, the Corporation may reprogram such funds for other 
    uses as long as the funds are used within the general purposes of the 
    original appropriation. For example, a recovery of basic field funds 
    from a recipient pursuant to a termination certainly cannot be returned 
    to the same grantee and there may not be another grantee in the same 
    service area.
        The Board determined that the Corporation should have discretion to 
    determine the best use of recovered funds and not be required to use 
    them for activities it determines are fiscally or programmatically 
    unsound, as long as the Corporation's actions are consistent with the 
    law on reprogramming. The Corporation's current policies provide for 
    reprogramming discretion and are consistent with applicable law as 
    discussed above. The LSC Board's Consolidated Operating Budget 
    Guidelines provide authority variously to the Board and the LSC 
    President to reprogram or reallocate recovered funds for basic field 
    purposes, such as when, pursuant to the competition process, a new 
    recipient replaces another recipient as the recipient of the LSC grant 
    for a particular service area, or when there is a need for emergency 
    relief to particular grantees due to flood or fire damage. To implement 
    this policy, the Board added a provision in Sec. 1606.13 stating that 
    funds recovered by the Corporation pursuant to a termination shall be 
    used in the same service area from which they were recovered or will be 
    reprogrammed by the Corporation for basic field purposes.
        Actions that do not constitute a ``termination.'' Paragraph 
    (d)(2)(i) through (d)(2)(v) clarify what is not intended to be included 
    within the definition of termination. Paragraph (d)(2)(i) provides that 
    a reduction or rescission of a recipient's funding required by law is 
    not a termination for the purposes of this part. For example, in 1995, 
    the Corporation was required to reduce its recipients' funding pursuant 
    to Congressional legislation that rescinded the amount of 
    appropriations for Corporation grants and required the termination of a 
    category of recipients.
        Paragraphs (d)(2)(ii) and (d)(2)(iii) provide that a recovery of 
    funds pursuant to Sec. 1628.3(c) of the Corporation's rule on fund 
    balances or Sec. 1630.9(b) of the Corporations's regulations on costs 
    standards and procedures do not constitute a termination. The Board 
    added another provision to the list that was not included in the 
    proposed rule to clarify that a withholding of funds pursuant to the 
    Corporation's Private Attorney Involvement rule at 45 CFR Part 1614 is 
    not a termination. See Sec. 1606.2(d)(2)(iv).
        Lesser Sanctions. Finally, paragraph (d)(2)(v) provides that a 
    reduction of funding of less than 5 percent of a recipient's current 
    annual level of financial assistance does not constitute a termination. 
    The preamble to the proposed rule explained that administrative 
    hearings are costly and time-consuming for all parties involved and, 
    for certain compliance issues, the Corporation may wish to utilize 
    sanctions less drastic than suspensions or termination, such as less 
    than 5% funding reductions, hereinafter referred to as ``lesser 
    sanctions.'' A policy to utilize lesser sanctions has been implicit in 
    the Corporation's regulations since the early days of the Corporation 
    as indicated in 45 CFR Parts 1618 (in addition to defunding actions, 
    the Corporation may take other actions) and Part 1625 (a denial of 
    refunding does not include a reduction of less than 10% of annualized 
    funding).
        The preamble to the proposed rule stated the policy preferred by 
    the Committee that the Corporation should promulgate regulations 
    setting out standards and procedures for applying lesser sanctions 
    before such actions could be taken by the Corporation. One comment 
    expressed agreement with this policy. No change has been made to the 
    policy in the final rule; however, the Board decided to state the 
    policy in the text of the rule by including a provision that states 
    that no lesser sanction shall be imposed except in accordance with 
    regulations promulgated by the Corporation. See Sec. 1606.2(c)(2)(v).
        One comment also recommended including a statement in the rule that 
    a lesser reduction of funding should be treated as a dissallowed cost 
    under Part 1630. The Board did not agree. Part 1630 is already 
    available to the Corporation when an action falls within its terms but 
    a questioned cost action is limited to recovering costs identified as 
    specific disallowed expenditures and does not provide authority to 
    impose a fine, for example.
        The preamble to the proposed rule asked for comments on whether 5% 
    was the appropriate cutoff to distinguish between a termination and a 
    lesser sanction or whether a dollar amount was appropriate. Two 
    comments stated that a 5% reduction for a large grantee would 
    constitute a substantial reduction of funding and urged the Corporation 
    to adopt a cutoff of 5% or $25,000, whichever is less. Part of the 
    concern of the commenters was that large amounts of funds would be 
    taken from grantees without any due process hearings.
        The Board did not agree that 5% is too high a cutoff for large 
    grantees or that the rule should include a dollar amount as a cutoff. 
    It is difficult to state a dollar amount that would be equitable to all 
    recipients, because of the varying sizes of the services areas and the 
    grant amounts provided to recipients. In addition, the 5% was 
    determined to be a level that would not cripple a program but would be 
    sufficient to get the program's attention.
    
    Section 1606.3  Grounds for a Termination
    
        This section sets out the grounds for a termination. Paragraph 
    (a)(1) permits termination for a substantial violation by a recipient 
    of applicable law or the terms or conditions of its grant with the 
    Corporation.
        Criteria for substantial violation. Paragraph (b) of this section 
    includes the criteria the Corporation will consider to determine 
    whether there has been a substantial violation under paragraph (a)(2). 
    The prior rules on
    
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    termination and denial of refunding included two different undefined 
    standards. Terminations were undertaken for substantial violations and 
    a denial of refunding for significant violations. There has been some 
    confusion over the years about the scope of the meaning of the two 
    standards.
        The proposed rule set forth five criteria. One comment criticized 
    certain of the criteria as too vague to be consistent with the 
    fundamental precepts of due process and another comment indicated that 
    the rule attempted to define unclear terms with other unclear terms. 
    One criterion in the proposed rule was ``the importance and number of 
    restrictions or requirements violated.'' One comment suggested deleting 
    this criterion.
        In response to the comment the Board revised the criterion in part. 
    Reference to the ``importance'' of the restriction or requirement was 
    taken out as too vague to be useful but the reference to the number of 
    restrictions or requirements violated was retained. How many violations 
    occurred is important to determine the scope of noncompliance and the 
    scope of noncompliance would help determine whether a partial or full 
    termination would be appropriate.
        Although not always the case, the number of violations may be 
    distinguished from a pattern of noncompliance in Sec. 1606.3(b)(3), in 
    that a pattern of noncompliance refers to a habit of noncompliance over 
    a period of time while a number of violations may occur as the result 
    of an action taken in one particular case or during a short period of 
    time.
        Another criterion in the proposed rule was ``the seriousness of the 
    violation.'' Two comments challenged this standard as too vague. The 
    Board agreed and replaced it with a consideration of ``whether the 
    violation represents an instance of noncompliance with a substantive 
    statutory or regulatory restriction or requirement, rather than an 
    instance of noncompliance with a non-substantive technical or 
    procedural requirement.'' Recipients should refer to the list of 
    statutory restrictions and requirements listed in Sec. 1610.2(a) and 
    (b) which generally constitute substantive restrictions and 
    requirements while a failure to meet a deadline to submit a report 
    would be a non-substantive requirement.
        Another criterion addressed by the comments was ``whether the 
    violation was intentional.'' The proposed rule specifically asked for 
    comments on whether this was the appropriate standard and, based on 
    comments, the Board changed the standard to ``knowing and willful'' and 
    included a definition of the term in the rule. It was felt that a 
    definition was necessary because research indicated that there are many 
    variances to the definitions of ``willful and knowing.'' Knowing and 
    willful is defined in the rule to mean that the recipient had actual 
    knowledge of the fact that its action or failure to take a required 
    action would constitute a violation and, despite such knowledge, 
    undertook or failed to undertake the action. An example of an 
    application of this standard would be the following. If a recipient has 
    been provided a copy of the Corporation's eligibility regulation which 
    requires that the recipient execute a retainer agreement with each 
    client who receives legal assistance from the recipient and the 
    recipient consistently fails to execute retainer agreements for its 
    clients, then the failure to comply would be knowing and willful. A 
    recipient cannot claim lack of knowledge because its management failed 
    to read the LSC grant requirements and restrictions or properly train 
    recipient staff. Recipients are presumed to have read and agreed to the 
    requirements and restrictions when they sign the terms of the grant 
    awards. On the other hand, if the recipient takes an action where there 
    is arguably insufficient guidance in a rule and the recipient took 
    action based on a good faith interpretation of the rule, and the 
    Corporation subsequently determines the recipient's action to be a 
    violation, it would be reasonable to find that the action was not 
    knowing and willful. When in doubt whether an action may be a 
    violation, recipients should seek guidance from the Corporation prior 
    to taking such an action.
        The Corporation will also consider whether the instance of 
    noncompliance is part of a pattern of practice by the recipient and 
    whether the recipient took appropriate action to correct the problem 
    when it became aware of the violation.
        Finally, the application of the criteria in this final rule to a 
    particular set of circumstances would permit the Corporation to take 
    action for a single violation or a number of violations.
        Retroactive application. The prior rule expressly stated that 
    action would be taken against a recipient only for a substantial 
    violation that occurred at a time when the law violated by the 
    recipient was in effect. This final rule deletes such language as 
    unnecessary. Retroactive application of law is strongly disfavored in 
    the law, and the Corporation may not sanction recipients for violations 
    of a law that was not in effect at the time of the violation.
        Violations by staff. Finally, one comment urged that language 
    should be added distinguishing between a violation committed by a 
    member of the recipient's management or board and a violation by a 
    staff member without the knowledge of the board or management. The 
    Board did not agree. The distinction is already implicated in both the 
    fourth and fifth criteria which consider the knowledge of the recipient 
    of the action and the extent to which the recipient took action to cure 
    a problem upon its discovery. However, the recipient has a 
    responsibility to ensure that its staff are fully informed of and act 
    in accordance with the LSC grant requirements and restrictions.
        Criteria for a Substantial Failure. Paragraph (a)(2) includes as a 
    ground for termination the substantial failure of the recipient to 
    provide high quality, economical, and effective legal assistance. This 
    provision was in the prior rule. Although the Corporation's competition 
    process provides another method for making quality judgments about and 
    eliminating recipients that perform poorly, this provision has been 
    retained so that the Corporation may act when necessary during the term 
    of a grant or contract to terminate a recipient that has substantially 
    failed to provide high quality, economical, and effective legal 
    assistance.
        The preamble to the proposed rule asked for comments on what 
    criteria should be considered for determining ``a substantial 
    failure.'' One comment suggested that, at a minimum, the Corporation 
    should clarify the meaning of ``generally accepted professional 
    standards'' by including references to specific standards, such as the 
    ABA Standards for Providers of Civil Legal Assistance (ABA 
    Standards''), LSC's Performance Measures or other appropriate 
    indicators of quality legal services. Another comment, on the other 
    hand, not only opposed using ``generally accepted professional 
    standards,'' because the term is too vague, it also stated that it 
    would be inappropriate to rely on the ABA Standards because they are 
    somewhat outdated and are aspirational and not intended to state the 
    minimum expectations of a quality program. Thus, it would be 
    inappropriate to rely on the standards as a basis to deny funding to a 
    provider.
        After extensive discussion, the Board revised Sec. 1606.3(a)(2) to 
    include reference to Sec. 1634(a)(2) which lists a criterion used by 
    the Corporation to select a grantee under its competition process. This 
    criterion includes consideration of the quality, feasibility and cost-
    effectiveness of a recipient's
    
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    legal services delivery and delivery approach in relation to the 
    Corporation's Performance Criteria and the American Bar Association's 
    Standards for Providers of Civil Legal Services to the Poor. This 
    ground for terminating funding complements the competition process by 
    providing another method for acting on judgments regarding recipients 
    that perform badly. Unlike its use in the competition process where the 
    Corporation would choose the best among competitors, its use in this 
    rule requires a showing that the recipient has substantially failed to 
    meet the standards. The Board did not agree that the reference to 
    ``generally accepted professional standards'' is too vague to meet due 
    process requirements. The term has a well understood meaning that can 
    be determined by reference to the various audit, accounting or other 
    performance guidelines to which LSC recipients are subject.
        Opportunity to cure. The prior rule required that a recipient be 
    given notice of a violation by the Corporation and an opportunity to 
    take effective corrective action before the Corporation initiated a 
    termination action. The proposed rule eliminated a recipient's right to 
    take corrective action, but left it within the discretion of the 
    Corporation to permit the recipient an opportunity to cure the problem. 
    The comments urged the Corporation to provide some opportunity or a 
    recipient to take corrective action before terminating a grant. One 
    comment urged that, absent unusual circumstances, a decision to 
    terminate a grant should only be made after a recipient has been made 
    aware of problems through such actions as investigations or questioned 
    cost proceedings, has been given ample time to correct the problem and 
    has failed to take the necessary corrective action.
        The Board decided to retain the language of the proposed rule which 
    leaves it within the discretion of the Corporation whether to give a 
    recipient an opportunity to cure. The legislative intent underlying 
    Sections 501(b) and (c) of the Corporation's FY 1998 appropriations act 
    was to enable the Corporation to streamline its due process procedures 
    in order to ensure that recipients are in full compliance with LSC 
    grant requirements and restrictions. To provide an opportunity to cure 
    in all instances would slow down the process and tie the Corporation's 
    hands when there is a need to act more quickly. A recipient that has 
    substantially violated the terms of its grant is not entitled to a 
    second chance as a matter of right. Nevertheless, nothing in this rule 
    prohibits the Corporation from giving a recipient an opportunity to 
    cure before acting to terminate. If the Corporation identifies a 
    problem where there is potential for easy correction pursuant to a 
    corrective action plan, the Corporation has discretion to work with the 
    recipient to resolve the matter. In addition, one of the factors 
    considered by the Corporation when determining whether there is a 
    substantial violation is whether the recipient, upon learning of the 
    violation, took prompt corrective action.
    
    Section 1606.4  Grounds for Debarment
    
        Section 504 of the Corporation's FY 1998 appropriations act 
    provides authority for the Corporation to debar a recipient from 
    receiving future grant awards upon a showing of good cause. Debarments 
    are common in the Federal government for both procurement contracts and 
    assistance grants. Causes for debarment range from fraud, embezzlement, 
    and false claims, to a Federal grantee's longstanding unsatisfactory 
    performance or the failure to pay a substantial debt owed to the 
    Federal government. Principles of Federal Appropriations Law at 10-28, 
    United States Government Accounting Office (GAO); Grants Management 
    Advisory Service at Sec. 558 (1995).
        This section implements Section 501(c) of the Corporation's 
    appropriations act and sets out the grounds for debarment in paragraph 
    (b). The grounds include a prior termination of a recipient for 
    violations of Federal law related to the use of Federal funds, such as 
    Federal law on fraud, bribery, or false claims against the government; 
    or substantial violations by a recipient of the terms of its grant with 
    the Corporation. Also, similar to Federal practice, recipients may also 
    be debarred for knowingly entering into any subgrant or similar 
    agreement with an entity debarred by the Corporation. Clarifying 
    revisions were made to this provision.
        Section 1606.4(a)(5), which implements Section 504(c)(5) of the 
    Corporation's appropriations act, permits the Corporation to debar a 
    recipient if the recipient seeks judicial review of an agency action 
    taken under any Federally-funded program for which the recipient 
    receives Federal funds, regardless of the source of funding used by the 
    recipient for the litigation. This provision applies when the recipient 
    files a lawsuit on behalf of the recipient and the lawsuit is related 
    to a program for which the recipient receives Federal funds. It does 
    not apply when the recipient files a lawsuit on behalf of a client of 
    the recipient which seeks judicial review of an agency action that 
    affected the client.
        Comments on this ground for debarment expressed serious concerns 
    about the constitutionality of the rule's interpretation of the 
    provision. In response to comments and the legal analysis set out 
    below, the Board revised this ground for debarment to be consistent 
    with constitutional and other applicable law.
        It is well-settled in law that Congress has authority to immunize 
    agency decision-making from judicial review, as long as the intent is 
    clear in the law. Where judicial review is precluded, a court has no 
    jurisdiction to hear a dispute over an agency action. Nevertheless, 
    courts are not thereby precluded from conducting a limited review to 
    consider whether the agency acted ultra vires, that is, outside of its 
    statutory limits, or violated the Constitution. Schneider v. United 
    States, 27 F. 3d 1327, 1332 (8th Cir. 1994); Carlin v. McKean, 823 F.2d 
    620, 622 (DC Cir. 1987); Morazsan v. United States, 852 F. 2d 1469, 
    1477 (7th Cir. 1988). See also Magana-Pizano v. INS, 1998 WL 550111, 
    152 F.3d 1213 (9th Cir. 1998).
        This law is reflected in the final rule which now provides that 
    recipients will be subject to debarment for seeking judicial review of 
    any agency action under any of their Federally-funded programs, except 
    for limited constitutional or ultra vires claims.
        Comments also suggested that the language setting out this ground 
    for a debarment be revised for clarity. The Board agreed and the 
    language has been revised.
    
    Section 1606.5  Termination and Debarment Procedures
    
        This section states the due process requirement that, before a 
    recipient's grant or contract may be terminated or a recipient may be 
    debarred, the recipient will be provided notice and an opportunity to 
    be heard according to the procedures in this part.
    
    Section 1606.6  Preliminary Determination
    
        This section sets out the requirements for providing notice to the 
    recipient of the Corporation's preliminary determination to terminate a 
    recipient's funding or to debar a recipient. Under this section the 
    Corporation may simultaneously take action to terminate and debar a 
    recipient in the same proceeding.
        The term proposed decision used in this section in the proposed 
    rule has been changed to preliminary
    
    [[Page 64641]]
    
    determination to be consistent with changes made to the burden of proof 
    provisions, as discussed below.
        Paragraph (a) of this section requires that the notice of the 
    preliminary determination be in writing and that it provide the grounds 
    for termination or debarment in a manner sufficiently detailed to 
    inform the recipient of the charges against it, the legal and factual 
    bases of the charges, and the proposed sanctions. Paragraph (b) 
    requires that the recipient be told of its right to request an informal 
    conference and a hearing. Paragraph (c) sets out the circumstances in 
    which a preliminary determination becomes final.
    
    Section 1606.7  Informal Conference
    
        This section is generally the same as Sec. 1606.5 in the prior 
    rule, but has been renumbered and restructured for clarity. It allows 
    the Corporation and recipient to have an informal conference either to 
    resolve the matter at issue through compromise or settlement or to 
    narrow the issues and share information so that any subsequent hearing 
    might be rendered shorter or less complicated.
        Language in the proposed rule dropped language from the prior rule 
    stating that the preliminary conference may be adjourned for 
    deliberation or consultation. One comment urged the Corporation to 
    return the adjournment language to the rule stating that adjournments 
    can be of great importance to a recipient that has learned of 
    allegations during the conference that require further investigation 
    before a response can be formulated.
        The deletion of the adjournment language was not intended to 
    preclude an adjournment if one is deemed appropriate by the 
    Corporation. It was deleted as unnecessary. Nothing in this section 
    requires that the conference must be completed under any particular 
    time frame and, indeed, the language in this section emphasizes the 
    informality of the conference, thus providing the Corporation a large 
    measure of discretion in determining how the conference will be 
    conducted. Accordingly, the Board did not revise the proposed rule to 
    include adjournment as a matter of right.
        This proposed rule has also eliminated the provisions providing a 
    right for the recipient or the Corporation to request a pre-hearing 
    conference. The intent is to simplify and shorten the hearing 
    procedures available for terminations. The informal conference section 
    already provides an opportunity for the parties in the dispute to 
    narrow and define issues and to determine whether compromise or 
    settlement is possible.
    
    Section 1606.8  Hearing
    
        This section delineates the procedures for the due process hearing 
    that will be provided to a recipient before it may be debarred or 
    before its grant may be terminated. The prior process has been 
    simplified by deleting provisions permitting third party participation 
    in the hearing and other unnecessary provisions. The deletion is not 
    intended to mean that third parties may never participate in a hearing. 
    However, the proposed rule would no longer provide a recipient with the 
    right to demand such participation.
        Impartial hearing officer. Paragraph (c) provides for an impartial 
    hearing officer who will be appointed by the President or designee. 
    Reference to a designee is included because, occasionally, the 
    President may be disqualified from choosing a hearing officer. 
    Delegation would be appropriate, for example, if the President has had 
    prior involvement in the matter under consideration.
        Under the prior rule, which was promulgated to implement Section 
    1011 of the LSC Act, an independent hearing examiner was required to 
    preside over the hearing. The independent hearing examiner was required 
    to be someone who was not employed by the Corporation or who did not 
    perform duties within the Corporation. Because Section 1011 no longer 
    applies to hearing procedures under this part, recipients no longer 
    have a right to an independent hearing examiner. 2
    ---------------------------------------------------------------------------
    
        \2\  Section 501(b) of the Corporation's FY 1998 appropriations 
    act provides that Section 1011 of the LSC Act is no longer 
    applicable to the provision, denial, suspension, or termination of 
    financial assistance to recipients. Section 1011 has provided 
    recipients with a right to an independent hearing examiner since 
    1977.
    ---------------------------------------------------------------------------
    
        Constitutional due process, however, requires that, before funding 
    for a recipient of Federal grants may be terminated during the grant 
    term, the recipient must be provided a hearing before an impartial 
    decision maker. Stein, Administrative Law at Sec. 53.05[4]. An 
    impartial decision maker may be an employee of the Corporation as long 
    as that employee has not prejudged the adjudicative facts and has no 
    pecuniary interest or personal bias in the decision. Id.; Spokane 
    County Legal Services v. Legal Services Corporation, 614 F. 2d 662, 
    667-668 (9th Cir. 1980). In order to ensure against such prejudgment, 
    this rule requires that a hearing officer be a person who has not been 
    involved in the pending action.
        Comments expressed concern about the elimination of the recipient's 
    right to have an independent hearing examiner, who was required to be a 
    person not employed by the Corporation. Noting that LSC staff is 
    substantially smaller than it has been in previous years, comments 
    stated that there may often be no staff available that would qualify as 
    an impartial hearing officer. One comment suggested that the rule 
    should explicitly state that, in such a case, a person outside of the 
    Corporation could be appointed to preside over the hearing. Two 
    comments urged the Corporation to go beyond what is required by law to 
    provide recipients with a right to an independent hearing examiner.
        The Board did not agree that the Corporation should provide a right 
    to an independent hearing examiner in the rule. The rule already 
    permits the Corporation to use an outside hearing officer because it 
    states that the hearing officer ``may'' be an employee of the 
    Corporation. There is also nothing in the rule that requires that the 
    President must first determine if any employee of the Corporation is 
    available before designating an outside person. To require an outside 
    hearing examiner would suggest that the Corporation has ignored the 
    statutory changes adopted by Congress. It is the view of the 
    Corporation that the hearing procedures in the final rule comply with 
    the requirements of due process, in part because it permits the 
    Corporation to appoint a person not employed by the Corporation when 
    necessary to ensure that the hearing officer is impartial.
        Open hearings. Comments on paragraph (f) of this section urged that 
    the hearing proceedings should not be closed to the public except for 
    extraordinary circumstances. The standard for closing a meeting in the 
    prior and proposed rules was ``for good cause and the interests of 
    justice.'' In addition, the proposed rule provided that a decision to 
    close a hearing would be made by an impartial hearing officer. One 
    comment viewed this standard as too broad and subject to abuse, but 
    provided no practical or factual reasons why the standard should be 
    higher. The Board made no revisions to this paragraph since experience 
    has not indicated any problems with the current standard.
        Burden of proof. The Corporation had the burden of proof under the 
    prior rule. Section 1606.8(l) of the proposed rule placed the entire 
    burden of proof on the recipient. Comments urged the Corporation to 
    place the burden on the Corporation. Comments also pointed out that 
    various statements on the burden in
    
    [[Page 64642]]
    
    the preamble and the text appeared to be inconsistent with other 
    provisions of the text of the proposed rule. While Sec. 1606.8(l) put 
    the burden on the recipient, the grounds for debarment required the 
    Corporation to show ``good cause'' before it could debar a recipient, 
    suggesting that the Corporation at least has the initial burden of 
    proof.
        The Board decided to revise the rule to place the initial burden on 
    the Corporation to show it has grounds for initiating a termination or 
    debarment action in order to ensure that an action by the Corporation 
    would be based on sufficient evidence to establish grounds for the 
    action. The burden would then shift and the recipient would have to 
    show by a preponderance of evidence on the record that its funds should 
    not be terminated or that it should not be debarred based on the 
    alleged grounds. Shifting the burden in this manner is consistent with 
    the emphasis in current law on strengthening the Corporation's ability 
    to sanction recipients and recompete service areas, see H. Rep. No. 
    207, 105th Cong., 1st Sess. 140 (1997) and the statutory language that 
    authorizes the Corporation to debar a recipient upon a showing of 
    ``good cause.''
        The Board made other revisions to the rule to be consistent with 
    the change to the burden of proof. As noted above, the term ``proposed 
    decision'' was changed to ``preliminary determination.'' The change in 
    this term means that, based on the evidence before it, the Corporation 
    has made an initial determination that it has grounds to take action 
    against the recipient. It does not mean that the recipient could not 
    have a fair hearing because the Corporation has already made up its 
    mind. It simply means that the Corporation employee designated to bring 
    such actions has made a preliminary decision that grounds exist for 
    taking the action. The recipient will have the opportunity to rebut the 
    evidence before an impartial hearing officer who was not involved in 
    making the preliminary decision and to present any legal, factual or 
    equitable arguments it wishes to state its case. The recipient could 
    also appeal the hearing officer's decision to the President of the 
    Corporation.
    
    Section 1606.9  Recommended Decision
    
        Only minor changes have been made to this section, which sets out 
    the requirements for the recommended decision issued by the hearing 
    officer. A reference to the informal conference in paragraph (b) was 
    deleted when an objection was raised to including discussions or 
    documents of the informal conference in the hearing record. Including 
    such discussions and documents would mean that offers of settlement, 
    conditional admissions and other information could then be included in 
    the findings of fact. This is not consistent with standard procedures 
    for settlement conferences and would risk undercutting the ability of 
    parties to negotiate and discuss matters informally in order to avoid a 
    full hearing.
    
    Section 1606.10  Final Decision
    
        Mostly technical revisions are made to this section, which 
    delineates the process by which a party to the termination proceeding 
    may request a review of the recommended decision by the President. 
    Language has been added, however, requiring that the President's review 
    be based solely on the record of the hearing below and any additional 
    submissions requested by the President. A decision by the President is 
    a final decision.
        Additional submissions and administrative record. The rule requires 
    that the recommended decision contain findings of significant and 
    relevant facts and state the reasons for the decision. It also requires 
    that all findings of fact be based solely on the record of the hearing 
    or on matters of which official notice was taken. When the recommended 
    decision is appealed to the President, or in a separate debarment 
    proceeding, the rule permits additional submissions to supplement the 
    record.
        Comments pointed out that recipients should be able to respond to 
    any additional submissions, especially if such submissions become part 
    of the administrative record. The Board agreed and added additional 
    language to do so in Paragraph (c) in this section. A similar revision 
    was also made to Paragraph (c)(2) in Sec. 1606.11 which includes 
    qualifications to the hearing procedures.
    
    Section 1606.11  Qualifications on Hearing Procedures
    
        The primary intent of this section is to clarify that, if a 
    recipient has already been provided a termination hearing on the 
    underlying grounds for the debarment, the recipient is not due a second 
    full termination hearing under this part. Rather, the recipient will be 
    given a brief review process set out in paragraph (c) of this section. 
    In many cases, the Corporation may utilize the procedure delineated in 
    paragraph (b) of this section, which permits the Corporation to take 
    action simultaneously to terminate and debar a recipient within the 
    same hearing procedure.
        One comment noted that provision was not made in this section for 
    circumstances where a debarment action is not based on a prior 
    termination and suggests that the Corporation clarify in the rule that, 
    where debarment is not based on a prior termination hearing, the 
    recipient will receive the full hearing procedures provided for 
    termination actions. Because this was the intent of the proposed rule, 
    the Board revised the rule by adding a new paragraph (a) which provides 
    that the full hearing rights set out in this rule apply to any 
    debarment or termination actions unless the action is based on a prior 
    termination. Thus, in any debarment action where the recipient has not 
    already been provided a termination hearing, the recipient will be 
    provided the same hearing procedures set out in this rule for 
    terminations.
        Paragraph (d) permits the Corporation to reverse a debarment 
    decision if there has been a reversal of the conviction or civil 
    judgment upon which the debarment was based, new material evidence has 
    been discovered, there has been a bona fide change in the ownership or 
    management of the recipient, the causes for the debarment have been 
    eliminated, or for other reasons the Corporation finds appropriate. 
    This paragraph is patterned after Federal debarment regulations. See, 
    e.g., 29 CFR Sec. 1471.320.
        One comment suggested that a similar reversal provision should also 
    be included in the rule for terminations. The Board did not agree. If a 
    debarment decision is reversed, it permits the recipient to take part 
    in the next competition. However, if a termination is reversed, the 
    funds may no longer be available to return to the recipient. Either the 
    funds may have been reprogrammed or a new recipient may have been 
    awarded the grant for the applicable service area. The Corporation 
    should not bind itself by regulation to a commitment it might not have 
    the means to keep.
    
    Section 1606.12  Time and Waiver
    
        With two exceptions, paragraph (a) is essentially the same as in 
    the prior rule. Paragraph (b) in the prior rule has been deleted in 
    this rule because it implemented a time limit to the proceedings 
    required under law that no longer has effect. Also, paragraph (c) in 
    the prior rule is not included because it provides for the waiver or 
    modification of any provision in this part. Such a sweeping waiver 
    provision has the potential to undo the due process rights of 
    recipients that are required under the
    
    [[Page 64643]]
    
    Constitution. The rule already provides sufficient discretion and 
    flexibility.
        The only change made to this section from the proposed rule is the 
    addition of paragraph (b) which is moved from Sec. 1606.13 in the 
    proposed rule. Paragraph (b) provides that a failure of the Corporation 
    to meet a time requirement does not preclude the Corporation from 
    terminating funding or debarring a recipient from receiving additional 
    funding. See Brock v. Pierce County, 476 U.S. 253 (1986).
    
    Section 1606.13  Interim and Termination Funding; Preprogramming
    
        Paragraph (a) of this section requires the Corporation to continue 
    funding the recipient at its current level until the termination 
    proceeding set out in this part is completed. This is consistent with 
    the prior rule and the due process requirement that funding not be 
    terminated until a fair hearing has been provided. It also assures the 
    continuance of service to clients in the affected service area.
        Paragraph (b) clarifies that when a recipient's funds are 
    terminated, the recipient loses all rights to the terminated funds. See 
    discussion on definition of termination.
        Paragraph (c) was not in the proposed rule and has been added in 
    response to a comment that recommended that the rule explicitly provide 
    for termination funding when the Corporation terminates financial 
    assistance to a recipient in whole. Termination funding is contemplated 
    for some circumstances in Sec. 1606.14 which provides that after a 
    termination, until a new recipient is awarded a grant, the Corporation 
    shall take all practical steps to ensure the continued provision of 
    legal assistance in the service area. This could include termination 
    funding so that the outgoing recipient could finish or transfer pending 
    cases. Transitional funding is also contemplated in the competition 
    rule in Sec. 1634.10 and in the rule on cost standards and procedures 
    in Sec. 1630.5(b)(1).
        Paragraph (d) is also new and has been added in response to 
    comments. It provides that funds recovered pursuant to a termination 
    will be used in the same service area from which they are recovered or 
    will be reprogrammed by the Corporation for basic field purposes. See 
    discussion of reprogramming in discussion of Sec. 1606.2.
    
    Section 1606.14  Recompetition
    
        Section 501(c) of Public Law 105-119 authorizes the Corporation to 
    recompete a service area when a recipient's financial assistance has 
    been terminated after notice and an opportunity to be heard. 
    Accordingly, this section authorizes the Corporation to recompete any 
    service area where a final decision has been made under this part to 
    terminate in whole a recipient's grant for any service area. It also 
    provides that until a new recipient has been awarded a grant for the 
    service area pursuant to the competition process, the Corporation shall 
    take all practical steps to ensure the continued provision of legal 
    assistance in the service area pursuant to Sec. 1634.11 of the 
    Corporation's rule on competition procedures.
    
    List of Subjects in 45 CFR Parts 1606 and 1625
    
        Administrative practice and procedures, Legal services.
    
        For reasons set out in the preamble, LSC revises 45 CFR part 1606 
    to read as follows:
    
    PART 1606--TERMINATION AND DEBARMENT PROCEDURES; RECOMPETITION
    
    Sec.
    1606.1  Purpose.
    1606.2  Definitions.
    1606.3  Grounds for a termination.
    1606.4  Grounds for debarment.
    1606.5  Termination and debarment procedures.
    1606.6  Preliminary determination.
    1606.7  Informal conference.
    1606.8  Hearing.
    1606.9  Recommended decision.
    1606.10  Final decision.
    1606.11  Qualifications on hearing procedures.
    1606.12  Time and waiver.
    1606.13  Interim and termination funding; reprogramming.
    1606.14  Recompetition.
    
        Authority: 42 U.S.C. 2996e (b)(1) and 2996f(a)(3); Pub. L. 105-
    119, 111 Stat. 2440, Secs. 501(b) and (c) and 504; Pub. L. 104-134, 
    110 Stat. 1321.
    
    Sec. 1606.1  Purpose.
    
        The purpose of this rule is to:
        (a) Ensure that the Corporation is able to take timely action to 
    deal with incidents of substantial noncompliance by recipients with a 
    provision of the LSC Act, the Corporation's appropriations act or other 
    law applicable to LSC funds, a Corporation rule, regulation, guideline 
    or instruction, or the terms and conditions of the recipient's grant or 
    contract with the Corporation;
        (b) Provide timely and fair due process procedures when the 
    Corporation has made a preliminary decision to terminate a recipient's 
    LSC grant or contract, or to debar a recipient from receiving future 
    LSC awards of financial assistance; and
        (c) Ensure that scarce funds are provided to recipients who can 
    provide the most effective and economical legal assistance to eligible 
    clients.
    
    
    Sec. 1606.2  Definitions.
    
        For the purposes of this part:
        (a) Debarment means an action taken by the Corporation to exclude a 
    recipient from receiving an additional award of financial assistance 
    from the Corporation or from receiving additional LSC funds from 
    another recipient of the Corporation pursuant to a subgrant, 
    subcontract or similar agreement, for the period of time stated in the 
    final debarment decision.
        (b) Knowing and willful means that the recipient had actual 
    knowledge of the fact that its action or lack thereof constituted a 
    violation and despite such knowledge, undertook or failed to undertake 
    the action.
        (c) Recipient means any grantee or contractor receiving financial 
    assistance from the Corporation under section 1006(a)(1)(A) of the LSC 
    Act.
        (d)(1) Termination means that a recipient's level of financial 
    assistance under its grant or contract with the Corporation will be 
    reduced in whole or in part prior to the expiration of the term of a 
    recipient's current grant or contract. A partial termination will 
    affect only the recipient's current year's funding, unless the 
    Corporation provides otherwise in the final termination decision.
        (2) A termination does not include:
        (i) A reduction of funding required by law, including a reduction 
    in or rescission of the Corporation's appropriation that is apportioned 
    among all recipients of the same class in proportion to their current 
    level of funding;
        (ii) A reduction or deduction of LSC support for a recipient under 
    the Corporation's fund balance regulation at 45 CFR part 1628;
        (iii) A recovery of disallowed costs under the Corporation's 
    regulation on costs standards and procedures at 45 CFR part 1630;
        (iv) A withholding of funds pursuant to the Corporation's Private 
    Attorney Involvement rule at 45 CFR Part 1614; or
        (v) A reduction of funding of less than 5 percent of a recipient's 
    current annual level of financial assistance imposed by the Corporation 
    in accordance with regulations promulgated by the Corporation. No such 
    reduction shall be imposed except in accordance with regulations 
    promulgated by the Corporation.
    
    [[Page 64644]]
    
    Sec. 1606.3  Grounds for a termination.
    
        (a) A grant or contract may be terminated when:
        (1) There has been a substantial violation by the recipient of a 
    provision of the LSC Act, the Corporation's appropriations act or other 
    law applicable to LSC funds, or Corporation rule, regulation, guideline 
    or instruction, or a term or condition of the recipient's grant or 
    contract, and the violation occurred less than 5 years prior to the 
    date the recipient receives notice of the violation pursuant to 
    Sec. 1606.6(a); or
        (2) There has been a substantial failure by the recipient to 
    provide high quality, economical, and effective legal assistance, as 
    measured by generally accepted professional standards, the provisions 
    of the LSC Act, or a rule, regulation, including 45 CFR 1634.9(a)(2), 
    or guidance issued by the Corporation.
        (b) A determination of whether there has been a substantial 
    violation for the purposes of paragraph (a)(1) of this section will be 
    based on consideration of the following criteria:
        (1) The number of restrictions or requirements violated;
        (2) Whether the violation represents an instance of noncompliance 
    with a substantive statutory or regulatory restriction or requirement, 
    rather than an instance of noncompliance with a non-substantive 
    technical or procedural requirement;
        (3) The extent to which the violation is part of a pattern of 
    noncompliance with LSC requirements or restrictions;
        (4) The extent to which the recipient failed to take action to cure 
    the violation when it became aware of the violation; and
        (5) Whether the violation was knowing and willful.
    
    
    Sec. 1606.4  Grounds for debarment.
    
        (a) The Corporation may debar a recipient, on a showing of good 
    cause, from receiving an additional award of financial assistance from 
    the Corporation.
        (b) As used in paragraph (a) of this section, ``good cause'' means:
        (1) A termination of financial assistance to the recipient pursuant 
    to part 1640 of this chapter;
        (2) A termination of financial assistance in whole of the most 
    recent grant of financial assistance;
        (3) The substantial violation by the recipient of the restrictions 
    delineated in Sec. 1610.2 (a) and (b) of this chapter, provided that 
    the violation occurred within 5 years prior to the receipt of the 
    debarment notice by the recipient;
        (4) Knowing entry by the recipient into:
        (i) A subgrant, subcontract, or other similar agreement with an 
    entity debarred by the Corporation during the period of debarment if so 
    precluded by the terms of the debarment; or
        (ii) An agreement for professional services with an IPA debarred by 
    the Corporation during the period of debarment if so precluded by the 
    terms of the debarment; or
        (5) The filing of a lawsuit by a recipient, provided that the 
    lawsuit:
        (i) Was filed on behalf of the recipient as plaintiff, rather than 
    on behalf of a client of the recipient;
        (ii) Named the Corporation, or any agency or employee of a Federal, 
    State, or local government as a defendant;
        (iii) Seeks judicial review of an action by the Corporation or such 
    government agency that affects the recipient's status as a recipient of 
    Federal funding, except for a lawsuit that seeks review of whether the 
    Corporation or agency acted outside of its statutory authority or 
    violated the recipient's constitutional rights; and
        (iv) Was initiated after the effective date of this rule.
    
    
    Sec. 1606.5  Termination and debarment procedures.
    
        Before a recipient's grant or contract may be terminated or a 
    recipient may be debarred, the recipient will be provided notice and an 
    opportunity to be heard as set out in this part.
    
    
    Sec. 1606.6  Preliminary determination.
    
        (a) When the Corporation has made a preliminary determination that 
    a recipient's grant or contract should be terminated and/or that a 
    recipient should be debarred, the Corporation employee who has been 
    designated by the President as the person to bring such actions 
    (hereinafter referred to as the ``designated employee'') shall issue a 
    written notice to the recipient and the Chairperson of the recipient's 
    governing body. The notice shall:
        (1) State the grounds for the proposed action;
        (2) Identify, with reasonable specificity, any facts or documents 
    relied upon as justification for the proposed action;
        (3) Inform the recipient of the proposed sanctions;
        (4) Advise the recipient of its right to request:
        (i) An informal conference under Sec. 1606.7; and
        (ii) a hearing under Sec. 1606.8; and
        (5) Inform the recipient of its right to receive interim funding 
    pursuant to Sec. 1606.13.
        (b) If the recipient does not request an informal conference or a 
    hearing within the time prescribed in Sec. 1606.7(a) or Sec. 1606.8(a), 
    the preliminary determination shall become final.
    
    
    Sec. 1606.7  Informal conference.
    
        (a) A recipient may submit a request for an informal conference 
    within 30 days of its receipt of the proposed decision.
        (b) Within 5 days of receipt of the request, the designated 
    employee shall notify the recipient of the time and place the 
    conference will be held.
        (c) The designated employee shall conduct the informal conference.
        (d) At the informal conference, the designated employee and the 
    recipient shall both have an opportunity to state their case, seek to 
    narrow the issues, and explore the possibilities of settlement or 
    compromise.
        (e) The designated employee may modify, withdraw, or affirm the 
    preliminary determination in writing, a copy of which shall be provided 
    to the recipient within 10 days of the conclusion of the informal 
    conference.
    
    
    Sec. 1606.8  Hearing.
    
        (a) The recipient may make written request for a hearing within 30 
    days of its receipt of the preliminary determination or within 15 days 
    of receipt of the written determination issued by the designated 
    employee after the conclusion of the informal conference.
        (b) Within 10 days after receipt of a request for a hearing, the 
    Corporation shall notify the recipient in writing of the date, time and 
    place of the hearing and the names of the hearing officer and of the 
    attorney who will represent the Corporation. The time, date and 
    location of the hearing may be changed upon agreement of the 
    Corporation and the recipient.
        (c) A hearing officer shall be appointed by the President or 
    designee and may be an employee of the Corporation. The hearing officer 
    shall not have been involved in the current termination or debarment 
    action and the President or designee shall determine that the person is 
    qualified to preside over the hearing as an impartial decision maker. 
    An impartial decision maker is a person who has not formed a 
    prejudgment on the case and does not have a pecuniary interest or 
    personal bias in the outcome of the proceeding.
        (d) The hearing shall be scheduled to commence at the earliest 
    appropriate date, ordinarily not later than 30 days after the notice 
    required by paragraph (b) of this section.
        (e) The hearing officer shall preside over and conduct a full and 
    fair hearing, avoid delay, maintain order, and insure
    
    [[Page 64645]]
    
    that a record sufficient for full disclosure of the facts and issues is 
    maintained.
        (f) The hearing shall be open to the public unless, for good cause 
    and the interests of justice, the hearing officer determines otherwise.
        (g) The Corporation and the recipient shall be entitled to be 
    represented by counsel or by another person.
        (h) At the hearing, the Corporation and the recipient each may 
    present its case by oral or documentary evidence, conduct examination 
    and cross-examination of witnesses, examine any documents submitted, 
    and submit rebuttal evidence.
        (i) The hearing officer shall not be bound by the technical rules 
    of evidence and may make any procedural or evidentiary ruling that may 
    help to insure full disclosure of the facts, to maintain order, or to 
    avoid delay. Irrelevant, immaterial, repetitious or unduly prejudicial 
    matter may be excluded.
        (j) Official notice may be taken of published policies, rules, 
    regulations, guidelines, and instructions of the Corporation, of any 
    matter of which judicial notice may be taken in a Federal court, or of 
    any other matter whose existence, authenticity, or accuracy is not open 
    to serious question.
        (k) A stenographic or electronic record shall be made in a manner 
    determined by the hearing officer, and a copy shall be made available 
    to the recipient at no cost.
        (l) The Corporation shall have the initial burden to show grounds 
    for a termination or debarment. The burden of persuasion shall then 
    shift to the recipient to show by a preponderance of evidence on the 
    record that its funds should not be terminated or that it should not be 
    disbarred.
    
    
    Sec. 1606.9  Recommended decision.
    
        (a) Within 20 calendar days after the conclusion of the hearing, 
    the hearing officer shall issue a written recommended decision which 
    may:
        (1) Terminate financial assistance to the recipient as of a 
    specific date; or
        (2) Continue the recipient's current grant or contract, subject to 
    any modification or condition that may be deemed necessary on the basis 
    of information adduced at the hearing; and/or
        (3) Debar the recipient from receiving an additional award of 
    financial assistance from the Corporation.
        (b) The recommended decision shall contain findings of the 
    significant and relevant facts and shall state the reasons for the 
    decision. Findings of fact shall be based solely on the record of, and 
    the evidence adduced at the hearing or on matters of which official 
    notice was taken.
    
    
    Sec. 1606.10  Final decision.
    
        (a) If neither the Corporation nor the recipient requests review by 
    the President, a recommended decision shall become final 10 calendar 
    days after receipt by the recipient.
        (b) The recipient or the Corporation may seek review by the 
    President of a recommended decision. A request shall be made in writing 
    within 10 days after receipt of the recommended decision by the party 
    seeking review and shall state in detail the reasons for seeking 
    review.
        (c) The President's review shall be based solely on the information 
    in the administrative record of the termination or debarment 
    proceedings and any additional submissions, either oral or in writing, 
    that the President may request. A recipient shall be given a copy of 
    and an opportunity to respond to any additional submissions made to the 
    President. All submissions and responses made to the President shall 
    become part of the administrative record.
        (d) As soon as practicable after receipt of the request for review 
    of a recommended decision, but not later than 30 days after the request 
    for review, the President may adopt, modify, or reverse the recommended 
    decision, or direct further consideration of the matter. In the event 
    of modification or reversal, the President's decision shall conform to 
    the requirements of Sec. 1606.9(b).
        (e) The President's decision shall become final upon receipt by the 
    recipient.
    
    
    Sec. 1606.11  Qualifications on hearing procedures.
    
        (a) Except as modified by paragraph (c) of this section, the 
    hearing rights set out in Secs. 1606.6 through 1606.10 shall apply to 
    any action to debar a recipient or to terminate a recipient's funding.
        (b) The Corporation may simultaneously take action to debar and 
    terminate a recipient within the same hearing procedure that is set out 
    in Secs. 1606.6 through 1606.10 of this part. In such a case, the same 
    hearing officer shall oversee both the termination and debarment 
    actions.
        (c) If the Corporation does not simultaneously take action to debar 
    and terminate a recipient under paragraph (b) of this section and 
    initiates a debarment action based on a prior termination under 
    Sec. 1606.4(b)(1) or (2), the hearing procedures set out in Sec. 1606.6 
    through 1606.10 shall not apply. Instead:
        (1) The President shall appoint a hearing officer, as described in 
    Sec. 1606.8(c), to review the matter and make a written recommended 
    decision on debarment.
        (2) The hearing officer's recommendation shall be based solely on 
    the information in the administrative record of the termination 
    proceedings providing grounds for the debarment and any additional 
    submissions, either oral or in writing, that the hearing officer may 
    request. The recipient shall be given a copy of and an opportunity to 
    respond to any additional submissions made to the hearing officer. All 
    submissions and responses made to the hearing officer shall become part 
    of the administrative record.
        (3) If neither party appeals the hearing officer's recommendation 
    within 10 days of receipt of the recommended decision, the decision 
    shall become final.
        (4) Either party may appeal the recommended decision to the 
    President who shall review the matter and issue a final written 
    decision pursuant to Sec. 1606.9(b).
        (d) All final debarment decisions shall state the effective date of 
    the debarment and the period of debarment, which shall be commensurate 
    with the seriousness of the cause for debarment but shall not be for 
    longer than 6 years.
        (e) The Corporation may reverse a debarment decision upon request 
    for the following reasons:
        (1) Newly discovered material evidence;
        (2) Reversal of the conviction or civil judgment upon which the 
    debarment was based;
        (3) Bona fide change in ownership or management of a recipient;
        (4) Elimination of other causes for which the debarment was 
    imposed; or
        (5) Other reasons the Corporation deems appropriate.
    
    
    Sec. 1606.12  Time and waiver.
    
        (a) Except for the 6-year time limit for debarments in 
    Sec. 1606.11(c), any period of time provided in these rules may, upon 
    good cause shown and determined, be extended:
        (1) By the designated employee who issued the preliminary decision 
    until a hearing officer has been appointed;
        (2) By the hearing officer, until the recommended decision has been 
    issued;
        (3) By the President at any time.
        (b) Failure by the Corporation to meet a time requirement of this 
    part does not preclude the Corporation from terminating a recipient's 
    grant or contract with the Corporation.
    
    [[Page 64646]]
    
    Sec. 1606.13  Interim and termination funding; reprogramming.
    
        (a) Pending the completion of termination proceedings under this 
    part, the Corporation shall provide the recipient with the level of 
    financial assistance provided for under its current grant or contract 
    with the Corporation.
        (b) After a final decision has been made to terminate a recipient's 
    grant or contract, the recipient loses all rights to the terminated 
    funds.
        (c) After a final decision has been made to terminate a recipient's 
    grant or contract, the Corporation may authorize termination funding if 
    necessary to enable the recipient to close or transfer current matters 
    in a manner consistent with the recipient's professional 
    responsibilities to its present clients.
        (d) Funds recovered by the Corporation pursuant to a termination 
    shall be used in the same service area from which they were recovered 
    or will be reallocated by the Corporation for basic field purposes.
    
    
    Sec. 1606.14  Recompetition.
    
        After a final decision has been issued by the Corporation 
    terminating financial assistance to a recipient in whole for any 
    service area, the Corporation shall implement a new competitive bidding 
    process for the affected service area. Until a new recipient has been 
    awarded a grant pursuant to such process, the Corporation shall take 
    all practical steps to ensure the continued provision of legal 
    assistance in the service area pursuant to Sec. 1634.11.
    
    PART 1625--[REMOVED AND RESERVED]
    
        For the reasons set out in the preamble, and under the authority of 
    42 U.S.C. 2996g(e), 45 CFR part 1625 is removed and reserved.
    
        Dated: November 18, 1998.
    Victor M. Fortuno,
    General Counsel.
    [FR Doc. 98-31251 Filed 11-20-98; 8:45 am]
    BILLING CODE 7050-01-P
    
    
    

Document Information

Effective Date:
12/23/1998
Published:
11/23/1998
Department:
Legal Services Corporation
Entry Type:
Rule
Action:
Final rule.
Document Number:
98-31251
Dates:
This rule is effective on December 23, 1998.
Pages:
64636-64646 (11 pages)
PDF File:
98-31251.pdf
CFR: (18)
45 CFR 1606.6(a)
45 CFR 1606.4(b)(1)
45 CFR 1606.8(c)
45 CFR 1606.11(c)
45 CFR 1606.1
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