AO-2017-009

Fees and Fee Sharing in Part 1609-Permissible Fee-Generating Cases

Questions Presented

  1. May an LSC grantee collect a fee from funds obtained for a client?
  2. Do the requirements of 45 C.F.R. Part 1609 apply to cases in which a grantee appears as co-counsel?
  3. May an LSC grantee collect a share of fees from funds obtained for a client pursuant to a co-counselling agreement?

Brief Answers

  1. Yes—an LSC grantee may collect a fee from funds obtained for a client. LSC does not prohibit collection of a fee from funds obtained for a client.  Part 1609 sets requirements for when an LSC grantee can accept a fee-generating case.  Once those requirements are met, the grantee can collect an otherwise-permissible fee from the money recovered for the client.
  2. Yes—the Part 1609 requirements apply to cases in which a grantee appears as co-counsel. A grantee must meet the Part 1609 requirements for any full or partial representation in an LSC-funded, fee-generating case.
  3. Yes—an LSC grantee may collect a share of fees from funds obtained for a client pursuant to a permissible co-counselling agreement. LSC does not have rules or requirements for otherwise-permissible fee sharing.

Background

These questions arose when the Florida Bar Foundation (Foundation) and the National Association of Consumer Advocates considered similar questions involving co-counselling arrangements between private attorneys and LSC grantees in fee-generating consumer law cases.  Some LSC grantees expressed uncertainty about these questions and have been hesitant to explore these types of relationships with private attorneys as co-counsel.

The Foundation provides IOLTA-funded legal aid grants to LSC grantees and other legal aid programs.  On June 22, 2017, it adopted a policy permitting its grantees to “collect contingency fees and costs as a percentage of client recoveries” subject to the grantee’s policies and procedures. Policy on Fee Generating Cases at 3–4.  Similar to LSC’s Part 1609 requirements, the Foundation requires that those procedures be “reasonably effective in ensuring that grantees do not utilize Foundation funds for representation in cases that might compete with private counsel for representation.” Id.  The fee policy superseded the Foundation’s prior informal policy prohibiting grantees from collecting those types of fees in Foundation-funded cases.  Id. at 1.

The Foundation adopted the policy in response to a request for clarification from the Project Directors Association, which represents the major legal aid programs in Florida.  In adopting the policy, the Foundation stated that it considered the needs of low-income people for legal services and the roles of legal aid programs and private attorneys providing those services.  It also reviewed “information submitted by the Project Directors Association, information and comments from individual grantees, information from IOTA funding organizations in other states, [and] related policies of the Legal Services Corporation . . . .” Id. at 2.

Applicable Law

A.     Fee-Generating Cases

Congress created LSC to fund legal services for “persons financially unable to afford legal assistance.”  LSC Act § 1003(a), 42 U.S.C. § 2996b(a).  Reflecting congressional intent that LSC grantees serve only clients who could not otherwise arrange representation by private attorneys, the LSC Act states that LSC grantees shall not use LSC funds for “any fee-generating case . . . except in accordance with guidelines promulgated by the Corporation . . . .”  Id. § 1007(b)(1), § 2996f(b)(1).  The LSC Act also applies this restriction to a grantee’s private funds and sometimes to its public or tribal funds.  Id. § 1010(c), § 2996i; see 45 C.F.R. Part 1610—Use of Non-LSC Funds.

LSC adopted 45 C.F.R. Part 1609 to provide guidelines for accepting fee-generating cases as part of its first set of regulations.  Fee-Generating Cases, 41 Fed. Reg. 38,505 (Sept. 10, 1976).  LSC has made numerous revisions to Part 1609, but the central requirements and original purpose have not changed.  Part 1609 defines a “fee-generating case” as “any case or matter which, if undertaken on behalf of an eligible client by an attorney in private practice, reasonably may be expected to result in a fee for legal services from an award to a client.”  45 C.F.R. § 1609.2(a).  Because this definition is based on pre-engagement expectations, some cases may not be “fee-generating” cases under Part 1609, even if they eventually result in a fee. 

Section 1609.3 prohibits grantees from using LSC funds “to provide legal assistance in a fee-generating case unless” the case meets one of the specific exceptions, which include:

  • Rejection by “the local lawyer referral services, or by two private attorneys”;
  • Refusal of the referral service or two private attorneys to “consider the case without payment of a consultation fee”;
  • A determination by the grantee “after consultation with appropriate representatives of the private bar, [that] the type of case is one that private attorneys in the area served by the recipient ordinarily do not accept, or do not accept without prepayment of a fee”;
  • A determination “that referral of the case to the private bar is not possible because . . . [d]ocumented attempts to refer similar cases in the past generally have been futile”;
  • “Emergency circumstances [that] compel immediate action before referral can be made”; or
  • A determination that referral is not possible because “[r]ecovery of damages is not the [client’s] principal object . . . and substantial statutory attorneys' fees are not likely to be available.”

Id. § 1609.3.  LSC designed these requirements to provide “appropriate safeguards to prevent legal services lawyers from competing with the private bar when private representation is in fact available” while making sure that “eligible clients will be able to obtain legal assistance” when “no private attorney is willing to represent an individual . . . .”  41 Fed. Reg. at 38,505 (preamble to the original Part 1609).  After meeting the Part 1609 requirements, grantees can provide LSC-funded representation in fee-generating cases.

B.      Fees and Co-Counselling

Part 1609 does not currently discuss co-counselling, but it did address co-counselling from 1976 through 1997.  Until 1997, Part 1609 provided that “[n]othing in this part shall prevent” a grantee from “[a]cting as co-counsel with a private attorney when the case meets the standards set forth in § 1609.5 [regarding availability and interest of private attorneys], and accepting part of any fee that may result from a shared case.”  Fee Generating Cases, 46 Fed. Reg. 19,656–57 (May 9, 1984) (formerly codified at 45 C.F.R. § 1609.8) (“clarifying that the standard governing fee-generating cases is applicable to fee-sharing as well.”).

In the original 1976 rule, LSC added the co-counselling provision to “encourage desirable cooperation between recipients and the private Bar.” 

A private lawyer may be reluctant to undertake a low-fee case in a possibly novel area of the law without the assurance of assistance from a recipient.  By permitting a recipient to share its expertise with the private Bar, the Corporation can, without expending its own resources, increase the number of lawyers available to serve the poor.  In such cases it seems appropriate to allow the recipient to share in any award of attorneys' fees that may be made.

Fee-Generating Cases, 41 Fed. Reg. at 38,505 (Sept. 10, 1976).

In 1996, Congress prohibited LSC grantees from claiming or collecting statutory attorneys’ fees, but not other types of fees.  Pub. L. 104-134, tit. V, § 504(a)(13), 122 Stat. 1321-50, 1321-53 (1996) (FY 1996 LSC appropriation rider incorporated by reference thereafter until 2010) (LSC grantees may not collect attorneys’ fees under “any Federal or State law permitting or requiring the awarding of [attorneys’] fees . . . .”).  To implement that restriction, LSC adopted 45 C.F.R. Part 1642.  Through that rulemaking, LSC relocated the accounting and client-reimbursement sections of Part 1609 to superseding provisions in Part 1642, but deleted the co-counseling subsection entirely without discussion.  Fee-Generating Cases, 61 Fed. Reg. 45,765; 45,766 (Aug. 29, 1996) (proposed rule amending Part 1609) and 62 Fed. Reg. 19,398 (Apr. 21, 1997) (Part 1609 final rule); Attorneys’ Fees, 61 Fed. Reg. 45,762; 45763 (Aug. 29, 1996) (§ 1642.4 of the interim Part 1642) and 62 Fed. Reg. 25,862 (Part 1642 final rule).

In 2010, Congress lifted the restriction on collecting statutory attorneys’ fees to “level the playing field between legal aid attorneys and their counterparts in the private sector and provide a potentially crucial source of additional revenue to legal aid providers in a year in which State and private funding sources are decreasing.”  H. R. Rep. No. 111-366, at 769 (1996).  LSC subsequently repealed Part 1642 in its entirety, transferring the provisions governing accounting for and use of attorneys’ fees and client reimbursement procedures back into Part 1609.  75 Fed. Reg. 21506, 21508 (Apr. 26, 2010).  LSC did not, however, add back to Part 1609 the co-counselling provision or discuss it.  There is nothing in the regulatory history to indicate that LSC intended to change its policy regarding co-counselling arrangements in fee-generating cases.

Analysis

  1. An LSC grantee may collect a fee from funds obtained for a client in a case that meets the Part 1609 requirements.

Part 1609 sets requirements for when an LSC grantee can accept a fee-generating case.  Once those requirements are met, the grantee can collect any otherwise permissible fee.

2. The Part 1609 requirements apply to cases in which a grantee appears as co-counsel.

Part 1609 applies to any representation of a client in an LSC-funded case.  It does not provide an exception for partial representation.  Thus, before appearing as co-counsel in a fee-generating case, a grantee must document that the case meets the Part 1609 requirements.  Doing so will encourage co-counselling in situations in which private attorneys are interested in handling some, but not all, of a case.  For example, a grantee can co-counsel if the grantee’s executive director determines under § 1609.3(a)(3)(iii) that “[r]ecovery of damages is not the [client’s] principal object . . . and substantial statutory attorneys' fees are not likely to be available.” Similarly, a grantee can co-counsel pursuant to § 1609.3(a) when one attorney rejected the case and a second attorney said she would accept the case only if the grantee co-counselled with her.

3. An LSC grantee may collect a share of fees from funds obtained for a client pursuant to a permissible co-counselling agreement.

LSC prohibits neither fees from funds obtained for a client nor co-counselling subject to the Part 1609 requirements.  Thus, a grantee can collect and share fees under a co-counselling agreement if it complies with all other requirements (such as the local rules of professional responsibility).

RONALD S. FLAGG
Vice President for Legal Affairs & General Counsel

MARK FREEDMAN
Senior Associate General Counsel