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Carl Rauscher
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Appeals Court Rejects Oregon Complaint

Wednesday, January 14, 2009

January 14, 2009

FOR IMMEDIATE RELEASE

Washington, DC-A complaint challenging a Legal Services Corporation (LSC) regulation implementing 1996 LSC funding restrictions has been rejected by the U.S. Court of Appeals for the Ninth Circuit.

The State of Oregon filed the complaint in September 2005 against LSC's "program integrity" regulation, saying it violated the state's 10th Amendment rights and the Spending Clause of the U. S. Constitution by thwarting state policies governing legal services programs. The U.S. District Court in Oregon dismissed the case on the merits, holding that the State was not entitled to relief under either theory. In a ruling dated January 8, the appeals court concluded that Oregon lacked standing to pursue the case because the LSC regulations do not affect the state itself in any way. The appeals court vacated the District Court's order with instructions that the case instead be dismissed for lack of subject-matter jurisdiction because of the lack of standing to state a claim.

The 1974 LSC Act prohibits LSC-funded programs from using either LSC or private money for certain activities. In 1996, additional restrictions were imposed by Congress that prohibit LSC-funded programs from spending money on certain activities, such as lobbying, filing of class-action lawsuits and seeking or collecting attorneys' fees. Furthermore, LSC-funded programs cannot engage in the 1996 restricted activities at all, regardless of the source of funding. To enforce these restrictions, LSC adopted the program integrity rule that requires LSC grantees to maintain objective integrity and independence from any entity that engages in these restricted activities.

In 2005, the LSC grantee in Oregon, Legal Aid Services of Oregon (LASO), proposed merging with the Oregon Law Center (OLC), a non-LSC program that is free to handle LSC-restricted cases. The State had encouraged this merger. The new combined program would have had two divisions-one subject to LSC rules and one that was not. The divisions would have shared personnel, equipment and office space. LSC reviewed the proposal and concluded that it would not comply with the Corporation's program integrity rule because the two divisions would lack legal and functional separation.

In a separate but related case, LASO, OLC and others also sued LSC to force LSC to approve their merger proposal. The District Court last year granted LSC's motion for summary judgment, rejecting all of the plaintiffs' claims. That case is currently on appeal to the Ninth Circuit.

In addition to these two cases, three others have been launched against LSC regarding the 1996 restrictions Congress placed on LSC grantees. The first, Legal Aid Society of Hawaii v. LSC, was decided entirely in LSC's favor by the Ninth Circuit in 1998. The other two, Velazquez v. LSC and Dobbins v. LSC, have been combined in the Eastern District of New York and are currently on remand to the District Court after the Second Circuit Court of Appeals reversed a partial injunction again LSC. In Velazquez all but one of the 1996 restrictions were upheld by the courts and the remaining claims only address the program integrity rule.