[Federal Register Volume 62, Number 91 (Monday, May 12, 1997)]
[Rules and Regulations]
[Pages 25862-25865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12404]
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LEGAL SERVICES CORPORATION
45 CFR Part 1642
Attorneys' Fees
AGENCY: Legal Services Corporation.
ACTION: Final rule.
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SUMMARY: This final rule implements a restriction in the Legal Services
Corporation's FY 1996 appropriations act that is currently incorporated
by reference in the Corporation's FY 1997 appropriations act that
prohibits LSC recipients from seeking attorneys' fees in cases filed on
or after April 26, 1996. The rule clarifies the meaning of attorneys'
fees and provides guidance on the scope of the restriction.
DATES: This final rule is effective on June 11, 1997.
FOR FURTHER INFORMATION CONTACT: Office of the General Counsel, (202)
336-8817.
SUPPLEMENTARY INFORMATION: On May 19, 1996, the Operations and
Regulations Committee (``Committee'') of the Legal Services Corporation
(``LSC'' or ``the Corporation'') Board of Directors (``Board'')
requested the LSC staff to prepare an interim rule to implement section
504(a)(13) of the Corporation's FY 1996 appropriations act, Public Law
104-134, 110 Stat. 1321 (1996), prohibiting LSC recipients and their
employees from claiming, or collecting and retaining attorneys' fees.
The Committee held hearings on July 10 and 19, and the Board adopted an
interim rule on July 20, which was published on August 29, 1996, in the
Federal Register with a request for comments.
The interim rule was based, in part, on a prior version of 45 CFR
part 1609, which included the Corporation's regulations dealing with
attorneys' fees in relation to fee-generating cases. The Corporation
decided to treat fee-generating cases and attorneys' fees in two
separate rules. Revisions to the Corporation's fee-generating rule
(part 1609) were published in a proposed rule and provisions
implementing the new restriction on attorneys' fees (part 1642) were
published as an interim rule on August 29, 1996. A final version of the
fee-generating rule (part 1609) was published on April 21, 1997 (62 FR
19398).
The Corporation received 37 timely comments on the interim
attorneys' fees rule and the Committee held public hearings on the rule
on December 13, 1996, and March 7, 1997. The Committee made several
revisions to the interim rule before recommending the final rule to the
Board. The Board adopted the Committee's recommended version on March
8, 1997.
The Corporation's FY 1997 appropriations act became effective on
October 1, 1996, see Public Law 104-208, 110 Stat. 3009. It
incorporated by reference the Sec. 504 condition on LSC grants included
in the FY 1996 appropriations act implemented by this rule.
Accordingly, the preamble and text of this rule continue to refer to
the applicable section number of the FY 1996 appropriations act.
A section-by-section discussion of this final rule is provided
below.
Section 1642.1 Purpose
The purpose of this rule is to ensure that LSC recipients and their
employees do not seek or retain attorneys' fees awarded pursuant to
Federal or State law, including common law, permitting or requiring
such fees.
Section 1642.2 Definitions
This section first defines what is and what is not included in the
term ``attorneys' fees.'' The definition of attorneys' fees elicited
much public comment, mostly on the issue of whether Social Security
fees should be included. Strongly divergent views were held by the
commenters and there was no consistent pattern among types of
commenters, which generally included private attorneys, legal services
programs and bar associations. Some argued that the statutory
restriction was not intended to apply to attorneys' fees in Social
Security cases, because such fees are paid pursuant to an agreement by
the client to pay the fees out of the
[[Page 25863]]
client's back benefits and are not awarded by a court or administrative
agency. They also stated that allowing recipients to take such fees
would provide additional funding for financially strapped programs to
provide more representation to the poor. Commenters who opposed
allowing recipients to take Social Security fees stated that legal
services clients should never have to pay any fee for their legal
representation, especially out of their back benefits. Others claimed
that private attorneys would be unwilling or reluctant to be part of a
recipient's Private Attorney Involvement (``PAI'') project for little
or no fee if the program started taking fees from their client's back
benefits.
The Corporation did not include Social Security fees in the interim
rule's definition because it was not clear to the Corporation whether
Congress intended such fees to be included. However, the Corporation
did seek comment on the issue and warned recipients in the preamble to
the interim rule that such fees might be included in the final rule.
After holding public hearings on both the legal and policy implications
of including Social Security fees within the definition, a
reconsideration of the legal arguments convinced the Board that Section
504(a)(13) was intended to include Social Security fees.
The statutory restriction is on ``attorneys' fees pursuant to any
Federal or State law permitting or requiring the awarding of such
fees.'' Payment to an attorney from back Social Security benefits is
expressly permitted by Federal statute. Comments argued that such fees
do not fall within the term, because they are not ``awarded'' to the
attorney; rather, they are paid pursuant to an agreement between the
attorney and client. This is true in part. Such fees are usually the
result of a contingency fee agreement between the client and the
attorney. However, courts often oversee the agreement and sometimes are
involved in determining whether to allow such fees to go to the
attorney in a particular situation. The Social Security Act in section
406(b)(1) provides in part that:
Whenever a court renders a judgment favorable to a claimant under
this subchapter who was represented before the Court by an attorney,
the Court may determine and allow as part of its judgment a
reasonable fee for such representation, not in excess of 25 percent
of the total of the past-due benefits to which the claimant is
entitled by reason of such judgment * * *
42 U.S.C. 406(b)(1). This provision clearly envisions court
involvement. Thus, although the norm is for the client to enter into a
contingency fee agreement with the attorney, there is often oversight
by the courts. For example, in one Social Security case, a court found
that ``the Court is not required to give `blind deference' to a
contractual fee agreement and must ultimately be responsible for fixing
a reasonable fee for the judicial phase of the proceedings.'' Kimball
v. Shalala, 826 F. Supp. 573 (D. Maine 1993). Other courts have
determined that attorneys would not be permitted to receive the full 25
percent contingency fee allowed under the Social Security Act if the
attorney engaged in improper conduct or was ineffective or the attorney
would enjoy an undeserved windfall due to the client's large back pay
award or the attorney's relatively minimal effort. Hayes v. HHS, 916
F.2d 351 (6th Cir. 1990). Regardless of the scope of Court involvement
in any particular agreement between a client and the attorney, the
Corporation is persuaded that it is reasonable to interpret the
statutory language as including social security fees and that is what
Congress intended.
The final definition also continues to include fee-shifting fees,
which are fees paid by the losing party to compensate the attorney of
the prevailing party. Such fees are generally awarded pursuant to a
fee-shifting statute or under common law. The accompanying definition
of ``award'' in this section is intended to underscore this meaning.
The Board also decided to define in a new paragraph (c) what is not
included in the definition of attorneys' fees. Paragraph (c)(1)
includes a provision that was moved from the prohibition section in the
interim rule (Sec. 1642.3(c)(2)), which clarifies that compensation
pursuant to court appointments, as authorized by 42 U.S.C. 2996e(d)(6)
of the LSC Act, does not constitute attorneys' fees.
Paragraph (c)(2) is a new provision which states that a payment by
a governmental agency or other third party to a recipient to represent
clients is not an attorneys' fee. Such payments are generally made
under a grant or contract and do not consist of an award ordered by a
court or administrative party that the unsuccessful party pay
attorneys' fees to the prevailing party. Nor do they constitute fees
from a client's back statutory benefits.
Paragraph (c)(3) has been revised and moved from Sec. 1642.3(c)(3)
of the interim rule. In response to comments, it now provides that
attorneys' fees do not include sanctions imposed by court practices as
well as court rules, and also do not include sanctions authorized by
statute.
Finally, paragraph (c)(4) clarifies that reimbursement of costs and
expenses from an opposing party or from a client as permitted under
Sec. 1642.6 of this part does not constitute attorneys' fees. This
provision was removed from Sec. 1642.3(c)(4) of the interim rule and
revised to cite Sec. 1642.6. Fees are compensation for an attorney's
time, while costs and expenses are compensation for necessary outlays
made in the course of preparation for and/or litigation of a case. Some
common types of costs and expenses are: document copying costs, travel
expenses such as airline tickets, court reporter fees and other costs
of depositions, expert witness fees, filing fees and other court costs
charged litigants by the courts.
Based on experience in implementing the interim rule, Corporation
staff recommended including in the final rule guidance on what it means
to ``claim'' attorneys' fees. The Board agreed and added a definition
to clarify that to ``claim'' attorneys'' fees means to include a
request for attorneys' fees in any pleading.
Section 1642.3 Prohibition
This section states the restriction on attorneys' fees contained in
Section 504(a)(13), which prohibits LSC recipients from claiming, or
collecting and retaining attorneys' fees in any cases. This rule uses
the term ``cases'' and does not refer to ``matters,'' as does the
underlying statute, because attorneys'' fees may only be derived from
cases. The interim rule included additional provisions in this section
which provided exceptions and provisions explaining situations where
the prohibition does not apply. All of those provisions have been moved
to either Sec. 1642.2 or Sec. 1642.4 of this part.
Section 1642.4 Applicability of Restriction on Attorneys' Fees
Paragraph (a) provides that this part's prohibition does not apply
to cases filed prior to April 26, 1996. For such cases, recipients may
file claims for attorneys' fees but are not allowed to accept fees for
work done in connection with any new claims filed in pre-existing cases
after April 26, 1996. This paragraph is authorized by the
appropriations statute, which expressly allows programs to seek and
retain attorneys' fees for cases filed prior to April 26, 1996,
including Social Security cases.
Paragraph (b) provides that unless the case was filed prior to
April 26, 1996, private attorneys who are paid by LSC recipients to
handle cases for eligible clients as part of a recipient's PAI program,
under a contract or judicare
[[Page 25864]]
arrangement, may not seek attorneys' fees in those cases. The
prohibition does not include pro bono attorneys who receive no
compensation from a recipient to handle cases, because they are not
receiving financial assistance from the recipient to provide the
services. Thus, attorneys who are handling cases on behalf of eligible
clients on a pro bono bases may seek and collect attorneys' fees. It is
the Corporation's judgment that the restrictions of this part would be
a substantial impediment to the recruitment of pro bono lawyers.
Section 1642.5 Accounting For and Use of Attorneys' Fees
This section includes an accounting requirement for attorneys' fees
that are permitted under Sec. 1642.4(a) of this part that are received
by a recipient. Recipients are required to allocate such fees that are
received from cases supported in whole or in part with LSC funds to the
LSC fund in the same proportion that the case or matter was funded with
LSC funds. Thus, if a particular case was funded 60 percent by LSC
funds and 40 percent from non-LSC funds, a recipient would be required
to allocate 60 percent of the fees received to the LSC account. There
is no requirement that the program allocate the remaining 40 percent to
any particular account. This is a change from current law that requires
allocation to the same fund to which expenses had been charged. The
change is based on a policy that, if a non-LSC funder does not require
that its fund be reimbursed from attorneys' fees awarded in litigation
supported with its funds, LSC should not dictate how those funds are to
be allocated.
Section 1642.6 Acceptance of Reimbursement Rrom a Client
This section allows recipients to accept reimbursement from clients
for out-of-pocket costs and expenses incurred in connection with cases
where the client recovers damages or statutory benefits, provided that
the client has agreed in writing to reimburse the recipient for such
costs and expenses out of any recovery. This section also authorizes
recipients to require clients who do not qualify for in forma pauperis
to pay court costs.
Section 1642.7 Recipient Policies, Procedures and Recordkeeping
This section requires the recipient to establish written policies
and procedures to guide the recipient's staff to ensure compliance with
this rule. Recipients are also required to maintain sufficient
documentation to demonstrate compliance with this part.
List of Subjects in 45 CFR Part 1642
Attorneys' fees; Grant programs; Legal services.
For reasons set forth in the preamble, 45 CFR part 1642 is revised
to read as follows:
PART 1642--ATTORNEYS' FEES
Sec.
1642.1 Purpose.
1642.2 Definitions.
1642.3 Prohibition.
1642.4 Applicability of restriction on attorneys' fees.
1642.5 Accounting for and use of attorneys' fees.
1642.6 Acceptance of reimbursement from a client.
1642.7 Recipient policies, procedures and recordkeeping.
Authority: 42 U.S.C. 2996e(d)(6); Pub. L. 104-208, 110 Stat.
3009; Pub. L. 104-134, 110 Stat 1321, section 504(a)(13).
Sec. 1642.1 Purpose.
This part is designed to insure that recipients or employees of
recipients do not claim, or collect and retain attorneys' fees
available under any Federal or State law permitting or requiring the
awarding of attorneys' fees.
Sec. 1642.2 Definitions.
(a) Attorneys' fees means an award to compensate an attorney of the
prevailing party made pursuant to common law or Federal or State law
permitting or requiring the awarding of such fees or a payment to an
attorney from a client's retroactive statutory benefits.
(b) Attorneys' fees do not include the following:
(1) Payments made to a recipient or an employee of a recipient for
a case in which a court appoints the recipient employee to provide
representation pursuant to a statute or court rule or practice equally
applicable to all attorneys in the jurisdiction, and in which the
recipient or employee receives compensation under the same terms and
conditions as are applied generally to attorneys practicing in the
court in which the appointment is made;
(2) Payments made to a recipient or an employee of a recipient
pursuant to a grant, contract or other agreement by a governmental
agency or other third party for representation of clients;
(3) Payments received as a result of sanctions imposed by a court
for violations of court rules or practices, or statutes relating to
court practice, including Rule 11 or discovery rules of the Federal
Rules of Civil Procedure, or similar State court rules or practices, or
statutes; and
(4) Reimbursement of costs and expenses from an opposing party or
from a client pursuant to Sec. 1642.6.
(c) An award is an order by a court or an administrative agency
that the unsuccessful party pay the attorneys' fees of the prevailing
party or an order by a court or administrative agency approving a
settlement agreement of the parties which provides for payment of
attorneys' fees by an adversarial party.
(d) To claim attorneys' fees means to include a request for
attorneys' fees in any pleading.
Sec. 1642.3 Prohibition.
Except as permitted by Sec. 1642.4, no recipient or employee of a
recipient may claim, or collect and retain attorneys' fees in any case
undertaken on behalf of a client of the recipient.
Sec. 1642.4 Applicability of restriction on attorneys' fees.
(a) The prohibition contained in Sec. 1642.3 shall not apply to
cases filed prior to April 26, 1996, except that the prohibition shall
apply to any additional related claim for the client made in such a
case on or subsequent to April 26, 1996.
(b) Except as permitted in paragraph (a) of this section, the
prohibition contained in Sec. 1642.3 shall apply to any case undertaken
by a private attorney on behalf of an eligible client when the attorney
receives compensation from a recipient to provide legal assistance to
such client under the recipient's private attorney involvement (PAI)
program, judicare program, contract or other financial arrangement.
Sec. 1642.5 Accounting for and use of attorneys' fees.
(a) Attorneys' fees received by a recipient pursuant to
Sec. 1642.4(a) for representation supported in whole or in part with
funds provided by the Corporation shall be allocated to the fund in
which the recipient's LSC grant is recorded in the same proportion that
the amount of Corporation funds expended bears to the total amount
expended by the recipient to support the representation.
(b) Attorneys' fees received pursuant to Sec. 1642.4(a) shall be
recorded during the accounting period in which the money from the fee
award is actually received by the recipient and may be expended for any
purpose permitted by the LSC Act, regulations and other law applicable
at the time the money is received.
[[Page 25865]]
Sec. 1642.6 Acceptance of reimbursement from a client.
(a) When a case results in a recovery of damages or statutory
benefits, a recipient may accept reimbursement from the client for out-
of-pocket costs and expenses incurred in connection with the case, if
the client has agreed in writing to reimburse the recipient for such
costs and expenses out of any such recovery.
(b) A recipient may require a client to pay court costs when the
client does not qualify to proceed in forma pauperis under the rules of
the jurisdiction.
Sec. 1642.7 Recipient policies, procedures and recordkeeping.
The recipient shall adopt written policies and procedures to guide
its staff in complying with this part and shall maintain records
sufficient to document the recipient's compliance with this part.
Dated: May 7, 1997.
Victor M. Fortuno,
General Counsel.
[FR Doc. 97-12404 Filed 5-9-97; 8:45 am]
BILLING CODE 7050-01-P
