[Federal Register Volume 62, Number 236 (Tuesday, December 9, 1997)]
[Proposed Rules]
[Pages 64790-64794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32107]
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DEPARTMENT OF VETERANS AFFAIRS
38 CFR Part 20
RIN 2900-AI98
Board of Veterans' Appeals: Rules of Practice--Attorney Fee
Matters
AGENCY: Department of Veterans Affairs.
ACTION: Proposed rule.
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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend the
Rules of Practice of the Board of Veterans' Appeals (Board) to
discontinue VA's paying attorney fees from past-due benefits, establish
safeguards in the case of ``disinterested third-party'' payers, and
simplify certain notice procedures. We believe that discontinuance of
VA's paying attorney fees from past-due benefits is warranted because
the administrative resources that it consumes would be better spent in
activities more directly beneficial to veterans; the establishment of
safeguards regarding ``disinterested third-party'' payers will help
prevent circumvention of the law restricting payments by claimants and
appellants; and simplified notice procedures relating to motions to
review attorney-fee agreements or to challenge expense charges are
adequate for establishing proof of service.
DATES: Comments must be received on or before February 9, 1998.
ADDRESSES: Mail or hand deliver written comments to: Director, Office
of Regulations Management (02D), Department of Veterans Affairs, 810
Vermont Ave., NW., Room 1154, Washington, DC 20420. Comments should
indicate that they are submitted in response to ``RIN 2900-AI98''. All
written comments will be available for public inspection at the above
address in the Office of Regulations Management, Room 1158, between the
hours of 8:00 a.m. and 4:30 p.m., Monday through Friday (except
holidays).
FOR FURTHER INFORMATION CONTACT: Steven L. Keller, Chief Counsel, Board
of Veterans' Appeals, Department of Veterans Affairs, 810 Vermont
Avenue, NW., Washington, DC 20420 (202-565-5978).
[[Page 64791]]
SUPPLEMENTARY INFORMATION: The Board of Veterans' Appeals (Board) is an
administrative body that decides appeals from denials of claims for
veterans' benefits.
This document proposes to amend the Board's Rules of Practice to
(1) exercise the option provided in 38 U.S.C. 5904(d)(3) not to pay
attorney fees directly to an attorney out of past-due benefits; (2)
establish safeguards where a ``disinterested third party'' pays an
attorney's fees or salary on behalf of a claimant or appellant; and (3)
simplify notice procedures in connection with motions to review fee
agreements for reasonableness and to review a representative's
expenses.
Paying Attorney Fees From Past-Due VA Benefits
Beginning during the Civil War, and continuing for more than a
century, attorneys and agents were forbidden from charging more than
$10 for services in connection with a claim for veterans benefits. In
1988, the ``Veterans' Judicial Review Act'' (VJRA), Pub. L. No. 100-
687, Div. A, Sec. 104, 102 Stat. 4105, 4108-09 (1988), removed that
limitation, and provided that, under certain circumstances, an attorney
or agent could charge a ``reasonable'' fee for such services. 38 U.S.C.
5904.
VJRA permitted a veteran to pay an attorney directly or, under
certain conditions, to have the attorney paid by VA directly out of
``past-due benefits'' awarded in connection with a successful claim.
Specifically, section 5904(d) of title 38, United States Code, as added
in 1988 by VJRA and modified in 1992 by Pub. L. 103-446, permits the
Secretary of Veterans Affairs to pay an attorney's fee directly to an
attorney out of past-due VA benefits if (1) an agreement between the
attorney and the client provides for such a payment; (2) the total fee
is contingent on whether or not the matter is resolved in a manner
favorable to the claimant; and (3) the total fee does not exceed 20
percent of past-due benefits. In 1992, VA added Sec. 20.609 to title 38
of the Code of Federal Regulations, by which, among other things, the
Secretary undertook to exercise this discretionary authority.
This document proposes to change the regulations to state that VA
will not pay attorney fees out of past-due benefits. This proposal is
based on a number of reasons.
First, the program puts a strain on the already overburdened
Veterans Benefits Administration (VBA), which operates VA's 58 regional
offices. Paying attorney fees from past-due benefits requires that some
of the money due a claimant be withheld pending a determination--made
by the Board of Veterans' Appeals--that the agreement meets the
statutory and regulatory requirements for payment. Because almost all
awards of benefits are made at individual regional offices, and because
section 5904 permits VA to pay attorney fees only from past-due
benefits, VBA has had to develop strict and complex procedures for
withholding money. This in turn has required the designation of at
least one ``attorney fee coordinator'' at each of the 58 regional
offices, the involvement of at least one employee from the finance
activity and from the agent cashier at those offices, as well as a
significant amount of correspondence between the Board and the various
regional offices on this issue--direct participation by as many as 175
VBA employees.
Second, the anticipated growth in attorney representation before VA
has not materialized. The percentage of appellants represented by
attorneys in completed Board proceedings has varied only slightly
during the period 1993-96: 3.0 percent (786/26,400) (1993); 3.9 percent
(861/22,045) (1994); 3.1 percent (873/28,195) (1995); and 3.4 percent
(1,160/33,944) (1996).
Third, few attorneys ever qualify for payment from past-due
benefits. In every case which results in the payment of past-due
benefits and in which an attorney has filed an agreement with the
claimant to be paid directly from past-due benefits, the Board makes a
determination as to whether the agreement meets the statutory and
regulatory standards for payment. Of the 110,584 decisions the Board
issued during fiscal years 1993 through 1996, only 222 were decisions
on fee agreements in which an attorney was to be paid from past-due
benefits awarded. Those 222 decisions made over four years have
required the special support of as many as 175 VBA employees per year,
most of whom would have been spending their time in activities more
directly benefiting veterans and their families: deciding claims and
coordinating benefit payments.
Finally, a recently-completed study ordered by Congress recommends
that VA get out of the business of paying attorney fees. Thus, the
Veterans' Claims Adjudication Commission, established by Congress to
determine means for increasing the efficiency of the VA system for
claims disposition, found that:
The provision for payment by VA of attorney fees from past-due
benefits is administratively cumbersome and distorts the role of
government. Attorney representatives and veterans should be expected to
transact fee payments between themselves. VA should not be involved in
these transactions. * * * The provision for VA to compensate attorneys
from awards of past-due benefits thrusts VA into a business that is
excessively far from its central purpose. VA is not well suited to
perform this function, and the requirement that it do so represents a
significant opportunity cost. The resources used for this purpose would
be better spent in activities of more direct benefit to veterans.
The Veterans' Claims Adjudication Comm'n, Report to Congress 130
(Dec. 1996). VA concurs in those findings and the conclusion.
While we believe that the right to hire an attorney is an important
one, we do not believe that eliminating payment by the Department will
materially affect the availability of such services. We think that a
veteran is as able as anyone else to transact a fee payment without the
intervention of the Department. These proposed amendments will not
interfere with a claimant's ability to pay attorney fees directly to
his or her attorney out of past-due benefits.
For all these reasons, we propose to amend 38 CFR 20.609(h), which
provides the rules for payment of attorney fees from past-due benefits,
by deleting all the current text and replacing it with the following
statement: ``The Department of Veterans Affairs will not pay fees
directly to an attorney at law from past-due benefits.''
Safeguards Where a ``Disinterested Third Party'' Pays an Attorney's
Fee
In 1988, VA amended part 14 of title 38, Code of Federal
Regulations, to reflect an opinion from the Office of Legal Counsel of
the Department of Justice which concluded that the then-current $10 fee
limitation did not apply to third parties not standing to benefit from
a veteran's claim. 53 FR 52416, 52418 (Dec. 28, 1988) (38 CFR 14.634(a)
(1989)). VA has incorporated the exception for third parties not
standing to benefit from a veteran's claim into the current rules
governing the payment of attorney fees. An organization, governmental
entity, or other disinterested third party may pay attorney fees under
circumstances in which a claimant or appellant may not, for example,
when there has been no final Board decision with respect to an issue.
See 38 CFR 20.609(d)(2).
In dealing with this exception over the years, we have reviewed fee
agreements that list individuals as ``disinterested third parties'' who
appear to be no more than ``straw men,'' i.e., nominal fee payers who
really serve as a mere conduit for a prohibited payment
[[Page 64792]]
by a claimant or appellant. Typically, such ``disinterested third
parties'' will agree to pay a fee equal to some percentage of the
amount of any past-due benefits awarded the claimant, contingent on a
successful outcome. Indeed, some contracts we have reviewed call for
payment of a percentage of the actual past-due benefits by these third
parties, a legally impossible feat because of the nonassignability of
veterans benefits under 38 U.S.C. 5301.
In this context, VA's General Counsel has informally advised that,
if a third party acts as a mere conduit for a prohibited payment by a
claimant, the exception in the regulation would not apply.
Accordingly, we propose three amendments to Rule 609(d)(2) (38 CFR
20.609(d)(2)), relating to payment of fees by disinterested third
parties.
First, we propose to prohibit, in any case involving a third-party
payer, a fee which is contingent, in whole or in part, on whether or
not the matter is resolved in a manner favorable to the claimant or
appellant. The contingent fee functions as a financing device that
enables a client to assert and prosecute an otherwise unaffordable
claim. See, e.g., Lester I. Brickman, Contingent Fees Without
Contingencies: Hamlet Without the Prince of Denmark?, 37 UCLA L. Rev.
29, 43 (1989). If a third party agrees to pay an attorney to represent
a veteran (or other claimant) because the law bars the attorney from
charging the veteran a fee, the issue of ``financing'' the cost of the
litigation through a successful outcome is moot: By definition, a
disinterested third party will receive no benefit from any award to the
veteran, so that the outcome can generate no funds with which to pay
the attorney. Nevertheless, we have seen a number of agreements in
which a ``disinterested third party'' agrees to pay an amount equal to
some percentage of a veteran's past-due benefits, an arrangement that
appears to merely set the stage for a transfer from the veteran to the
third party to the attorney. In our view, making a fee to be paid by a
disinterested third party contingent on the outcome of the claim
encourages the parties to break the law. Accordingly, we propose to bar
contingent fees in such circumstances.
Second, we propose to establish a presumption that a person who is
the spouse, child, or parent of the claimant or appellant, or who
resides with the claimant or appellant, is not a disinterested third
party. In our view, persons in such relationships usually have some
financial or other interest in the success of the claim and are
therefore unlikely to be disinterested.
Finally, we propose to require that the attorney or agent file a
statement certifying that no agreement exists under which the claimant
or appellant will provide anything of value to the third party in
return for payment of the fee or salary. We believe that it is the
responsibility of an attorney, as an officer of the court, and an
agent, as a licensee of VA, to make appropriate inquiries. Cf. Fed. R.
Civ. P. 11(b) (signature of attorney on court papers certifies, among
other things, inquiry by the attorney which is reasonable under the
circumstances). We also propose to amend Rule 609(g) (38 CFR
20.609(g)), relating to fee agreements, to clarify that any agreement
for the payment of fees must include the name and mailing address of
the disinterested third party. This will allow VA to advise such third
parties of legal requirements regarding disinterested third parties.
Simplifying Notice Procedures
Both Rule 609(i) (38 CFR 20.609(i)), relating to motions to review
attorney fee agreements, and Rule 610(d) (38 CFR 20.610(d)), relating
to motions challenging expenses, require service of papers on opposing
parties by certified mail, return receipt requested, and require filing
signed certificates of receipt with the Board. We do not believe that
this level of proof is necessary to ensure that all parties receive
copies of various material. Accordingly, we propose to amend both rules
to provide that proof of service in such cases will be by filing a
statement with the Board certifying that copies have been sent to the
other parties by first-class mail, postage prepaid. This is in line
with general rules of service in the Federal Rules of Civil Procedure.
Fed. R. Civ. P. 5(d) (generally, a certificate of service by a party
(or attorney) is sufficient proof of service).
Other Changes
In addition to the changes noted above, we propose to make
nonsubstantive changes required for purposes of clarity. We also
propose to make changes to correspond to new organization names within
the Board.
Regulatory Flexibility Act
The Secretary hereby certifies that this proposed rule will not
have a significant economic impact on a substantial number of small
entities as they are defined in the Regulatory Flexibility Act, 5
U.S.C. 601-612. This rule will affect only the processing of claims by
VA and will not affect small businesses. Therefore, pursuant to 5
U.S.C. 605(b), this proposed rule is exempt from the initial and final
regulatory flexibility analyses requirements of Secs. 603 and 604.
List of Subjects in 38 CFR Part 20
Administrative practice and procedure, Claims, Veterans.
Approved: December 1, 1997.
Hershel W. Gober,
Acting Secretary of Veterans Affairs.
For the reasons set out in the preamble, 38 CFR part 20 is proposed
to be amended as set forth below:
PART 20--BOARD OF VETERANS' APPEALS: RULES OF PRACTICE
1. The authority citation for part 20 continues to read as follows:
Authority: 38 U.S.C. 501(a).
2. In subpart A, Sec. 20.3, paragraphs (n), (o), and (p) are
redesignated as paragraphs (o), (p), and (q), respectively; and a new
paragraph (n) is added to read as follows:
Sec. 20.3 Rule 3. Definitions.
* * * * *
(n) Past-due benefits means a nonrecurring payment resulting from a
benefit, or benefits, granted on appeal or awarded on the basis of a
claim reopened after a denial by the Board of Veterans' Appeals or the
lump sum payment which represents the total amount of recurring cash
payments which accrued between the effective date of the award, as
determined by applicable laws and regulations, and the date of the
grant of the benefit by the agency of original jurisdiction, the Board
of Veterans' Appeals, or an appellate court.
* * * * *
3. In subpart G, Sec. 20.609, paragraphs (d)(2), (f), (g), (h), and
(i) are revised and paragraph (j) is added to read as follows:
Sec. 20.609 Rule 609. Payment of representative's fees in proceedings
before Department of Veterans Affairs field personnel and before the
Board of Veterans' Appeals.
* * * * *
(d) * * *
(2) Payment of fee by disinterested third party. (i) An attorney-
at-law or agent may receive a fee or salary from an organization,
governmental entity, or other disinterested third party for
representation of a claimant or appellant even though the conditions
set forth in paragraph (c) of this section have not been met. In no
such case may the attorney or agent charge a fee which is contingent,
in whole or in part, on whether the matter is resolved in a
[[Page 64793]]
manner favorable to the claimant or appellant.
(ii) For purposes of this part, a person shall be presumed not to
be disinterested if that person is the spouse, child, or parent of the
claimant or appellant, or if that person resides with the claimant or
appellant. This presumption may be rebutted by clear and convincing
evidence that the person in question has no financial interest in the
success of the claim.
(iii) The provisions of paragraph (g) of this section (relating to
fee agreements) shall apply to all payments or agreements to pay
involving disinterested third parties. In addition, the agreement shall
include or be accompanied by the following statement, signed by the
attorney or agent: ``I certify that no agreement, oral or otherwise,
exists under which the claimant or appellant will provide anything of
value to the third-party payer in this case in return for payment of my
fee or salary, including, but not limited to, reimbursement of any fees
paid.''
* * * * *
(f) Presumption of reasonableness. Fees which total no more than 20
percent of any past-due benefits awarded, as defined in Rule 20.3(n)
(Sec. 20.3(n) of this part), will be presumed to be reasonable.
(g) Fee agreements. All agreements for the payment of fees for
services of attorneys-at-law and agents (including agreements involving
fees or salary paid by an organization, governmental entity or other
disinterested third party) must be in writing and signed by both the
claimant or appellant and the attorney-at-law or agent. The agreement
must include the name of the veteran, the name of the claimant or
appellant if other than the veteran, the name of each disinterested
third-party payer (see paragraph (d)(2)), the applicable Department of
Veterans Affairs file number, and the specific terms under which the
amount to be paid for the services of the attorney-at-law or agent will
be determined. A copy of the agreement must be filed with the Board of
Veterans' Appeals within 30 days of its execution by mailing the copy
to the following address: Office of the Chief Counsel (01C), Board of
Veterans' Appeals, 810 Vermont Avenue NW, Washington, DC 20420.
(h) Payment of fees by Department of Veterans Affairs directly to
an attorney-at-law from past-due benefits. The Department of Veterans
Affairs will not pay fees directly to an attorney at law from past-due
benefits.
(i) Motion for review of fee agreement. The Board of Veterans'
Appeals may review a fee agreement between a claimant or appellant and
an attorney-at-law or agent upon its own motion or upon the motion of
any party to the agreement and may order a reduction in the fee called
for in the agreement if it finds that the fee is excessive or
unreasonable in light of the standards set forth in paragraph (e) of
this section. Such motions must be in writing and must include the name
of the veteran, the name of the claimant or appellant if other than the
veteran, and the applicable Department of Veterans Affairs file number.
Such motions must set forth the reason, or reasons, why the fee called
for in the agreement is excessive or unreasonable; must be accompanied
by all evidence the moving party desires to submit; and must include a
signed statement certifying that a copy of the motion and any evidence
was sent by first-class mail, postage prepaid, to each other party to
the agreement, setting forth the address to which each such copy was
mailed. Such motions (other than motions by the Board) must be filed at
the following address: Office of the Chief Counsel (01C), Board of
Veterans' Appeals, 810 Vermont Avenue, NW, Washington, DC 20420. The
other parties may file a response to the motion, with any accompanying
evidence, with the Board at the same address not later than 30 days
following the date of receipt of the copy of the motion and must
include a signed statement certifying that a copy of the response and
any evidence was sent by first-class mail, postage prepaid, to each
other party to the agreement, setting forth the address to which each
such copy was mailed. Once there has been a ruling on the motion, an
order shall issue which will constitute the final decision of the Board
with respect to the motion. If a reduction in the fee is ordered, the
attorney or agent must credit the account of the claimant or appellant
with the amount of the reduction and refund any excess payment on
account to the claimant or appellant not later than the expiration of
the time within which the ruling may be appealed to the Court of
Veterans Appeals.
(j) In addition to whatever other penalties may be prescribed by
law or regulation, failure to comply with the requirements of this
section may result in proceedings under Sec. 14.633 of this chapter to
terminate the attorney's or agent's right to practice before the
Department of Veterans Affairs and the Board of Veterans'Appeals.
(Authority: 38 U.S.C. 5902, 5904, 5905)
4. In subpart G, Sec. 20.610, paragraph (d) is revised, and
paragraph (e) is added to read as follows:
Sec. 20.610 Rule 610. Payment of representative's expenses in
proceedings before Department of Veterans Affairs field personnel and
before the Board of Veterans' Appeals.
* * * * *
(d) Expense charges permitted; motion for review of expenses.
Reimbursement for the expenses of a representative may be obtained only
if the expenses are reasonable. The Board of Veterans' Appeals may
review expenses charged by a representative upon the motion of the
claimant or appellant and may order a reduction in the expenses charged
if it finds that they are excessive or unreasonable. Such motions must
be in writing and must include the name of the veteran, the name of the
claimant or appellant if other than the veteran, and the applicable
Department of Veterans Affairs file number. Such motions must
specifically identify which expenses charged are unreasonable; must set
forth the reason, or reasons, why such expenses are excessive or
unreasonable; must be accompanied by all evidence the claimant or
appellant desires to submit; and must include a signed statement
certifying that a copy of the motion and any evidence was sent by
first-class mail, postage prepaid, to the representative. Such motions
must be filed at the following address: Office of the Chief Counsel
(01C), Board of Veterans' Appeals, 810 Vermont Avenue NW, Washington,
DC 20420. The representative may file a response to the motion, with
any accompanying evidence, with the Board at the same address not later
than 30 days following the date of receipt of the copy of the motion
and must include a signed statement certifying that a copy of the
response and any evidence was sent by first-class mail, postage
prepaid, to the claimant or appellant, setting forth the address to
which the copy was mailed. Factors considered in determining whether
expenses are excessive or unreasonable include the complexity of the
case, the potential extent of benefits recoverable, whether travel
expenses are in keeping with expenses normally incurred by other
representatives, etc. Once there has been a ruling on the motion, an
order shall issue which will constitute the final decision of the Board
with respect to the motion.
(e) In addition to whatever other penalties may be prescribed by
law or regulation, failure to comply with the requirements of this
section may result in proceedings under Sec. 14.633 of this
[[Page 64794]]
chapter to terminate the attorney's or agent's right to practice before
the Department of Veterans Affairs and the Board of Veterans' Appeals.
[FR Doc. 97-32107 Filed 12-8-97; 8:45 am]
BILLING CODE 8320-01-P
