Rulemaking Agenda for 2017–2018
The Operations and Regulations Committee of the LSC Board of Directors adopted this Rulemaking Agenda on April 23, 2017
The proposals included in this Rulemaking Agenda are prioritized in three tiers. Tier 1 consists of two ongoing rulemakings and two rulemakings that the Committee has previously authorized for initiation in 2016. The next level of priority, Tier 2, consists of rulemaking actions Management believes are desirable, but should be initiated after the items in Tier 1 are completed or largely completed. Tier 3 consists of rules Management has identified as appropriate (assuming adequate resources) for preliminary investigation to determine whether or how to initiate rulemaking.
In preparing this proposed Agenda, Management reviewed the regulations, considered its own experience in administering them over the past several years, and received input from the Committee’s Chair, Charles Keckler, and the Office of Inspector General.
TIER 1: CURRENT AND PREVIOUSLY AUTHORIZED RULEMAKING PROCEEDINGS
A. Update on 45 C.F.R. Parts 1630 and 1631 (PAMM) [Final Rule effective December 31, 2017]
On July 18, 2015, the LSC Board of Directors authorized rulemaking to revise LSC’s Cost Standards and Procedures rule, 45 C.F.R. Part 1630, and LSC’s Property Acquisition and Management Manual (PAMM). The Board also approved the preparation and publication of an Advance Notice of Proposed Rulemaking (ANPRM) to seek public comment on LSC’s proposals for revising Part 1630 and the PAMM. The Committee subsequently authorized LSC to engage in a series of rulemaking workshops to allow LSC funding recipients to more effectively share their views on LSC's proposed changes to Part 1630 and the PAMM.
LSC held three workshops at its headquarters in Washington, DC. The first workshop on April 20, 2016 focused on how LSC’s proposed changes to its cost standards and procedures and property acquisition and disposition requirements interact with the requirements imposed by recipients’ other funders. The second workshop, held on May 18, 2016, focused on eliciting feedback regarding LSC’s proposals to regulate services contracts and require recipients to seek prior approval of aggregate purchases of personal property and disposal of real or personal property purchased or leased using LSC funds. The third and final workshop was held on June 15, 2016, and concentrated on LSC’s proposal to establish standards based on the Office of Management and Budget’s Uniform Guidance.
Upon completion of the workshops, LSC staff reviewed the comments received in response to the ANPRM and feedback provided during the workshops. Staff developed a Notice of Proposed Rulemaking (NPRM), which was presented to the Committee for consideration at its October 17, 2016 meeting. The Committee voted to recommend that the Board authorize publication of the NPRM for a 60-day comment period. The Board authorized publication on October 19, 2016. LSC published the NPRM in the Federal Register on October 28, 2016. On December 21, 2016, LSC extended the comment period for an additional 30 days, until January 26, 2017.
LSC received comments from Indiana Legal Services, Legal Action of Wisconsin, Colorado Legal Services, Michigan Advocacy Program, Northwest Justice Project, and the National Legal Aid and Defender Association. LSC staff is in the process of reviewing the comments and determining whether it needs to make changes to the proposed rules.
B. Update on 45 C.F.R. Part 1609—Fee-Generating Cases [Final Rule effective June 1, 2017]
This item is a carryover from the 2015-2016 Rulemaking Agenda approved by the Committee. LSC proposed to revise Part 1609, which provides that recipients may not use LSC funds to represent eligible clients in fee-generating cases when private attorneys are available to provide effective representation. See 45 C.F.R. § 1609.3. The regulation defines “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, from public funds or from the opposing party.” 45 C.F.R. § 1609.2(a).
LSC staff provided a Justification Memorandum to the Committee on July 17, 2016 requesting authorization to open rulemaking on Part 1609. LSC proposed to revise two provisions through this rulemaking: the definition of “fee-generating case” in § 1609.2(a) and the accounting provision § 1609.4. The Committee voted to recommend that the Board authorize rulemaking on Part 1609, and on July 19, 2016, the Board voted to authorize rulemaking. LSC staff presented an NPRM to the Committee on January 26, 2017, requesting that the Committee recommend that the Board authorize publication of the NPRM for a 30-day comment period. The Committee voted to recommend that the Board authorize publication, and on January 28, 2017, the Board authorized publication of the NPRM in the Federal Register. The Federal Register published the notice on February 13, 2017, and the comment period closed on March 15, 2017.
C. Revise 45 C.F.R. Part 1629 – Bonding of Recipients [Final Rule effective Sept. 8, 2017 with compliance required by December 31, 2017]
This item is also a carryover from the 2015-2016 Rulemaking Agenda approved by the Committee. LSC initially proposed to revise two aspects of Part 1629: (1) expanding the coverage of Part 1629 to require programs receiving LSC funds to carry fidelity bonding coverage for all employees; and (2) raising the minimum bond coverage, which is currently set at $50,000.
Currently, Part 1629 requires that a program bond every director, officer, employee, and agent who handles funds or property of the program. 45 C.F.R. § 1629.2(a) (emphasis added). The OIG has found, however, that most grantees they have reviewed exceed the minimum requirements under Part 1629 by obtaining fidelity bond coverage on all their employees. In 2015, the OIG proposed that LSC undertake rulemaking to require that recipients obtain fidelity bonds covering all employees, because doing so would provide greater protection for grantees against losses that accompany employee dishonesty or fraud and the increased cost of coverage would not appear to be significant. LSC’s Office of Compliance and Enforcement (OCE) agreed that rulemaking would be the best way to address this issue. OCE also recommended raising the minimum bond coverage, which is currently set at $50,000.
Based on internal discussions and feedback from OCE, Management now believes more extensive revisions to Part 1629 are necessary. For example, Part 1629 was modeled on fidelity bonding requirements found in the Employment Retirement Income System Act (ERISA). See 29 C.F.R. § 2550.412-1. The regulatory history of Part 1629 does not explain why LSC chose to model Part 1629 on this statute, which sets complex rules and standards of conduct for individuals who invest and manage assets of private sector employee benefit plans. Management believes that some of the ERISA requirements implemented in Part 1629 are outdated and create confusion for LSC its grantees. Therefore, Management recommends that LSC consider more substantial revisions to Part 1629. Specifically, Management recommends: (1) eliminating the requirement that grantees obtain fidelity bonds and instead allow greater flexibility regarding the form of insurance coverage permitted by Part 1629; (2) clarify and simplify language regarding the extent of coverage required under the rule; (3) specify how LSC funds must be protected from misappropriation by independent contractors or agents of the grantee; and (4) define the term “annualized funding.”
OLA presented a Justification Memorandum requesting authorization to initiate rulemaking to the Committee on October 17, 2016. The Committee voted to recommend that the Board authorize rulemaking, and on October 19, 2016, the Board voted to authorize rulemaking on Part 1629. LSC staff has prepared a Notice of Proposed Rulemaking to be presented to the Committee and Board for consideration at the April Board meeting.
D. Rescind 45 C.F.R. Part 1603
The OIG also recommended rulemaking action on 45 C.F.R. Part 1603 in 2014. The LSC Act required that “within six months after the first meeting of the Board, the Board [would] request the Governor of each State to appoint a nine-member advisory council for each state.” LSC implemented this statutory requirement at 45 C.F.R. Part 1603 in 1975 but has not acted to maintain such councils. There are currently no state advisory councils in place, and the rule has been dormant for many years. The OIG recommended that LSC either ensure that the state advisory councils are established and operative or rescind part 1603.
OLA has concluded that LSC has met the requirements of § 1004(f) of the LSC Act by requesting state governors to appoint State Advisory Councils within the period established by the Act and Part 1603. LSC may choose not to exercise its option to appoint state councils, consistent with Part 1603 and § 1004(f) of the LSC Act.
At its January 2015 meeting, this Committee recommended repealing Part 1603, but placed a low priority on initiating rulemaking. On January 30, 2017, the President signed Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs.” Through this Executive Order, the President directed the heads of executive departments and agencies to identify at least two prior regulations to be repealed for each new regulation issued. By operation of the LSC Act, LSC is not an executive department or agency subject to the Executive Order. Consistent with the intent of the Executive Order to reduce unnecessary regulations, however, LSC proposes to prioritize the repeal of Part 1603 over all other items in Tiers 2 and 3.
Prior to initiating rulemaking, Dean Minow recommended analyzing whether oversight mechanisms that have developed since the LSC Act was passed in 1974 are sufficient to occupy the role the state councils were intended to play. Management recommends that OLA conduct this analysis and report its findings to the Committee before initiating rulemaking to repeal Part 1603.
TIER 2: RULEMAKING ACTIONS THAT SHOULD NEXT BE CONSIDERED FOR INITIATION
A. Revise client eligibility provisions at 45 C.F.R. Part 1607
Through Board and Management outreach, LSC has received comments from current client-eligible recipient board members regarding 45 C.F.R. Part 1607 – Governing Bodies. The comments specifically focus on two provisions: 45 C.F.R. § 1607.2(c) (requiring that recipient’s “client-eligible” board members be eligible each time they are appointed to a board term) and 45 C.F.R § 1607.3(c) (requiring that client-eligible board members be appointed by “groups”).
Section 1007(c) allows recipients to satisfy the one-third eligible-client membership requirement by including “eligible clients who may also be representatives of associations or organizations of eligible clients.” 42 U.S.C. § 2996f(c) (emphasis added). LSC implemented this provision at 45 C.F.R. § 1607.3(c) by requiring that “members who are eligible clients shall be appointed by a variety of appropriate groups designated by the recipient that may include, but are not limited to, client and neighborhood associations and community-based organizations which advocate for or deliver services or resources to the client community served by the recipient….” 45 C.F.R. § 1607.3(c). Some current client-eligible recipient board members have expressed concern that the groups charged with appointing client-eligible members may consist of organizations led by individuals who are not themselves client eligible. Additionally, there is concern that the regulation excludes potential client-eligible members who may not be part of a group and therefore would not have the opportunity to seek appointment to a recipient board.
Section 1007(c) of the LSC Act, 42 U.S.C. § 2996f(c), established certain requirements for the composition of the governing body of each organization receiving funds from LSC. For example, one-third of the governing body must be “persons who are, when selected, eligible clients….” 42 U.S.C. § 2996f(c). (emphasis added). LSC implemented the statutory requirement at 45 C.F.R § 1607.3(d) (“at least one-third of the members of a recipient's governing body shall be eligible clients when appointed”). The regulation defines “eligible client member” as someone “who is financially eligible to receive legal assistance under the Act and part 1611 of this chapter at the time of appointment to each term of office to the recipient's governing body…” 45 C.F.R. §1607.2(c) (emphasis added). Thus, LSC has interpreted the statutory requirement that a Board member be client-eligible “when selected” to mean that an eligible client member must be financially eligible for legal assistance each time the member is appointed to serve on the recipient’s Board. Some current client-eligible board members have commented that this interpretation prevents recipients from reappointing client-eligible members who bring valuable experience to a recipient’s governing body, but who have improved their financial status since their initial appointment.
Considering the concerns expressed by current client-eligible board members and the fact that the legal services and client advocacy fields have changed since 1994 (when part 1607 was last revised), Management believes LSC should initiate preliminary rulemaking action by gathering additional information about exactly what issues the current regulation poses and how LSC can best address these issues. Management believes this item is particularly timely considering other pending LSC initiatives, including the Office of Program Performance’s project to revise Performance Area 4 - Effectiveness of governance, leadership and administration. In light of the significant resources Management anticipates for this process, Management proposes initiating this information gathering once the Tier 1 rulemaking proceedings have been completed or largely completed.
B. Update Definitions at 45 C.F.R. Part 1600
i. Revise the definition of “staff attorney” at 45 C.F.R. § 1600.1
The LSC Act defines “staff attorney” as “an attorney who receives more than one-half of his annual professional income from a recipient organized solely for the provision of legal assistance to eligible clients under this title.” 42 U.S.C. § 2996a(7) (emphasis added). LSC implemented this definition by regulation at 45 C.F.R. § 1600.1. The regulatory definition provides that a staff attorney is an “attorney more than one-half of whose annual professional income is derived from  the proceeds of a grant from the Legal Services Corporation or  is received from a recipient, subrecipient, grantee, or contractor that limits its activities to providing legal assistance to clients under the Act.” Whether an attorney falls within the second part of this definition depends on whether the source of the attorney’s income is an organization described in the LSC Act as a “recipient organized solely for the provision of legal assistance to eligible clients under [the LSC Act].” See External Opinion 2003-1004, Inquiry About Prohibited Political Activity Under 45 C.F.R. Part 1608 (Mar. 7, 2003).
Prior to 2003, LSC’s Office of Legal Affairs (OLA) interpreted the phrase “recipients organized solely for the purpose of the provision of legal assistance to eligible clients under [the LSC Act]” to mean programs that exclusively served LSC eligible clients with LSC funds. See, e.g., External Opinion 1996-08-13 (Aug. 13, 1996) (explaining that a sub-recipient of LSC funds was not a “recipient organized solely for the provision of legal assistance to eligible clients under the LSC Act” because the sub-recipient served clients who were not LSC-eligible). In 2003, OLA issued External Opinion 2003-1004, which provided a different interpretation of this phrase. Based on a review of legislative history and the phrase’s use in other parts of the LSC Act and LSC regulations, OLA found that Congress knew that basic field programs were already receiving and using non-LSC funds to serve ineligible clients and that limiting the meaning of the phrase in such a narrow manner would lead to the unreasonable result that only a small number of programs would be subject to the LSC Act’s requirements. See External Opinion 2003-1004 at 4. Therefore, OLA concluded that recipients of basic field grants are considered “recipients organized solely for the purpose of the provision of legal assistance to eligible clients under the [LSC Act],” regardless of whether the programs use non-LSC funds to provide services to clients ineligible under the LSC Act. Id at 6. Thus, “any attorney employed by [a] program who receives more than one-half of his income from the program’s funds – whether they are LSC funds or non-LSC funds – is considered to be a ‘staff attorney’ for purposes of the LSC Act….” Id.
Even with this guidance, OLA continues to receive questions about the interpretation of “staff attorney.” Therefore, Management recommends revising the definition of “staff attorney” to reflect the longstanding guidance outlined in External Opinion 2003-1004. Management believes that revising the definition of “staff attorney” would definitively settle this issue in a clear and transparent manner.
ii. Add a definition of “LSC funds” at 45 C.F.R. Part 1600.1 [Final Rule effective December 31, 2017]
LSC uses the term “LSC funds” throughout its regulations. See, e.g., 45 C.F.R. § 1635.1(a) (“assuring that allocations of expenditures of LSC funds pursuant to 45 CFR Part 1630 are supported by accurate and contemporaneous records…”); 45 C.F.R. § 1614.3(j) (“Screen for eligibility means to screen individuals for eligibility using the same criteria recipients use to determine an individual's eligibility for cases accepted by the recipient and whether LSC funds or non-LSC funds can be used to provide legal assistance…”); 45 C.F.R. § 1610.2(g) (“Transfer means a payment of LSC funds by a recipient to a person or entity for the purpose of conducting programmatic activities that are normally conducted by the recipient, such as the representation of eligible clients, or that provide direct support to the recipient's legal assistance activities”) (emphasis added in all). The term, however, is not defined anywhere in LSC’s regulations.
Management believes that not defining the term “LSC funds” is problematic because LSC receives funds both from Congress and from private donors. Management believes private funds do not constitute “LSC funds” as that term is used in LSC’s regulations. To clarify this point, Management recommends rulemaking to add a definition of “LSC funds” to LSC’s regulations at Part 1600- Definitions. LSC has incorporated this proposal into the ongoing rulemaking to revise Part 1630 and add Part 1631.
iii. Revise the definition of “legal assistance” at 45 C.F.R. Part 1614 and in LSC’s guidance documents
Section 1002(5) of the LSC Act defines “legal assistance” as “the provision of any legal services consistent with the purposes and provisions of this title.” 42 U.S.C. § 2996a(5). LSC implemented this definition by regulation at 45 C.F.R. § 1600.1 (“legal assistance means the provisions of any legal services consistent with the purposes of the Act or other applicable law”).
In other parts of LSC’s policies and regulations, however, the term “legal assistance” is defined more narrowly than in the Act and at Part 1600. For example, “legal assistance” is defined in 45 C.F.R. Part 1614 as “service on behalf of a client or clients that is specific to the client's or clients' unique circumstances, involves a legal analysis that is tailored to the client's or clients' factual situation, and involves applying legal judgment in interpreting the particular facts and in applying relevant law to the facts presented.” 45 C.F.R. § 1614.3(e). Section 2.2 of LSC’s Case Service Reporting Handbook provides definitions of “legal information” and “legal assistance,” which implies that legal information is not encompassed within legal assistance.
LSC’s decision to define the term “legal assistance” as only services specific to an eligible client’s unique circumstances clients may raise questions about recipients’ authority to use LSC funds to provide general legal information because doing so falls outside the scope of “legal assistance” as defined in Part 1600. Therefore, Management recommends reconsidering LSC’s definition of the term “legal assistance” and possibly replacing it with a term that more accurately describes the work LSC recipients are doing.
C. Develop Touhy regulations
In both 2014 and 2015, the OIG recommended that LSC establish procedures by which litigants in civil cases not involving the Corporation may request documents or testimony from LSC and by which LSC will consider and respond to such requests. See 2014 OIG Memorandum to the Board, 5-7; Management’s Proposed 2015-2016 Rulemaking Agenda, 4-5. Most, if not all, Federal agencies have such regulations, called “Touhy regulations” after the case that prompted agencies to develop procedures for serving and responding to subpoenas. See Touhy v. Ragen, 340 U.S. 462 (1951). In 2015, OLA also identified adoption of Touhy regulations as an area of interest, but because the Corporation so rarely receives subpoenas, did not consider the issue a priority when compared to the other proposed rulemakings addressed in the rulemaking agenda.
LSC has received no subpoenas since 2014. Consequently, Management believes that adopting Touhy regulations remains a lower priority than the other rulemaking actions identified in Tier 1 and above in Tier 2.
TIER 3: OTHER POTENTIAL RULEMAKING PROCEEDINGS
A. Revise 45 C.F.R. Part 1635 to require additional data on timekeeping and require electronic accessibility of data
In addition to proposing that LSC revise Part 1609, Committee Chairman Keckler proposed revising LSC’s timekeeping rule at 45 C.F.R. Part 1635 to place additional data collection requirements on grantees and additional requirements on how they maintain that data. This proposal would require recipients to maintain electronic timekeeping systems that can produce information, including unique client identifiers but not any personally identifiable information of clients, in a searchable electronic format. Implicit in this proposal is the additional requirement that recipients provide LSC with a copy of time records. See Memorandum for Rulemaking Agenda at 4, April 2016, Attachment B (“Protection of this client information for the “LSC Copy” of the time records as a matter of policy is a way to immediately address legitimate concerns of grantees”).
LSC last revised Part 1635 in 1997. The rule has several provisions that are confusing and difficult to implement. For example, Part 1635 requires both attorneys and paralegals to keep time, but does not define “paralegal.” See 45 C.F.R. § 1635.3(b). Management believes that Part 1635 is appropriate for comprehensive rulemaking not limited to revising the data collection and maintenance requirements. The OIG also views revisions to Part 1635 as a priority. Rulemaking on Part 1635 would likely require significant resources not only from OLA, but also from OCE, the Office of Program Performance, and the Office of Data Governance and Analysis, as well as substantial input from LSC funding recipients and other stakeholders, such as other funders.
B. Revise Part 1638
Section 504(a)(18) of LSC’s FY 1996 appropriations act, incorporated by reference in LSC’s annual appropriations thereafter, prohibits LSC funding recipients from accepting “employment resulting from in-person unsolicited advice to a nonattorney that such nonattorney should obtain counsel or take legal action . . . .” Pub. L. 104-134, § 504(a)(18), Title V, 110 Stat. 1321, 1321-51 (1996) (emphasis added). LSC implemented this statutory restriction in LSC’s regulations at 45 C.F.R. Part 1638. Section 1638.3 reiterates the statutory prohibition that “recipients and their employees are prohibited from representing a client as a result of in-person unsolicited advice”. 45 C.F.R. § 1638.3(a) (emphasis added). The regulation then defines “in-person” broadly to include both a “face-to-face encounter” and “a personal encounter via other means of communication such as a personal letter or telephone call.” 45 C.F.R. § 1638.2(a) (emphasis added).
Management is concerned that the broad definition of “in-person” may restrict more conduct than Congress intended when it enacted the prohibition on client solicitation. Section 504(a)(18) applies only to “in-person advice.” It does not mention “personal encounters via other means of communication,” which Part 1638 does. 45 C.F.R. § 1638.2(a). Congress appears to have based Section 504(a)(8) on ABA Model Rule 7.3, which generally prohibits “in-person, live telephone, or real-time electronic communications.” Model Rule 7.3 also prohibits solicitation through “written, recorded or electronic communications,” but only when such communications are abusive. Thus, Part 1638’s inclusion of “a personal letter” in the definition of “in-person” goes beyond the statutory language of Section 504(a)(18) and the use of the same term by ABA Model Rule 7.3. The ABA has updated Rule 7.3, and the subsequent changes reinforce the distinction between in-person contacts and written contacts (an electronic contact is in the same category as an “in-person” contact only when it is a “real-time electronic contact.”) (emphasis added).
Given its concerns about the scope of Part 1638, Management would like to consider whether the rule should be modified. Because LSC recently issued an advisory opinion on this topic, Advisory Opinion AO-2016-001, this item is listed as a lower priority on this agenda.
C. Proposal to amend Part 1609 to allow grantees to charge modest fees for certain represented cases
In 2016, Committee Chairman Keckler proposed revising C.F.R. Part 1609 – Fee-Generating Cases to allow LSC recipients to charge clients modest fees for certain represented cases. Chairman Keckler posited that “a relatively small fee, especially for clients above the Federal Poverty Level and for full representation cases, could provide some benefits to grantees both in case screening and financial supplementation, while not overburdening client resources.” Chairman Keckler’s proposal could expand LSC recipients’ ability to provide legal assistance to eligible clients by authorizing recipients to provide “low bono” assistance to clients who can afford to pay a small fee.
When the Board revised Part 1609 in 1997, it considered whether “any fees should be allowed to be charged to LSC clients, but the issue was never resolved.” See External Opinion 1998-4-17. While the language of the LSC Act does not prohibit recipients from charging clients fees for legal services, OLA previously has opined that charging eligible clients more than a “nominal” fee would contravene the purpose of the Act. See, e.g.,External Opinion 1998-4-17 (“The issue of whether or not LSC recipients may charge fees for its LSC-funded legal assistance is not expressly stated in any LSC regulation or guidance. However, it has been the policy of the Corporation that recipients may not charge fees for LSC-funded legal assistance.”); External Opinion 1994-10-07 (“An eligible client is defined by the LSC Act and regulations as ‘any person financially unable to afford legal assistance,’ 42 U.S.C. §2996a(3) and 45 C.F.R. Part 1600, but these provisions do not explicitly require that the services provided be free.”); External Opinion 1989-03-30 (recipients may not charge a reduced fee as part of a PAI program). Based on these opinions, LSC’s longstanding policy is that recipients are prohibited from charging eligible clients more than “nominal” fees for legal services. Because the LSC Act is silent on the matter of charging fees, however, we believe that the prior opinions do not represent the only permissible reading of the statute, and that LSC may reconsider its position on the matter.
Chairman Keckler’s proposal could expand LSC recipients’ ability to provide legal assistance to eligible clients by authorizing recipients to provide “low bono” assistance to clients who can afford to pay a small fee. Management believes internal investigation and possibly rulemaking tools, such as requests for information or workshops, would help LSC to determine whether current policy should be changed. Management proposes that it conduct preliminary information gathering internally, and prepare for the Committee a memorandum stating its views on whether further regulatory action in the form of workshops or requests for information should be considered. Additionally, the Office of Compliance and Enforcement will be conducting a site visit to Kansas Legal Services, which operates a reduced-fee program using non-LSC funds, later this spring. Information gathered during that visit will advance this discussion by informing LSC about the actual costs and benefits associated with one type of program that charges some level of fees to clients.