May 19, 2000
In the Matter of:
Legal Services of North Carolina, Inc.Complainants:
224 South Dawson Street
Raleigh, NC 27611-6087
National Legal and Policy Center
1309 Vincent Place, Suite 1000
McLean, VA 22101North Carolina Growers Association, Inc.
P. O. Box 417
Vass, NC 28394
This complaint alleges that Legal Services of North Carolina (LSNC), a program funded by federal tax dollars through the Legal Services Corporation (LSC), apparently undertook activities which violated the Legal Services Corporation Act and regulations regarding fee-generating cases.
This complaint further alleges that LSNC’s actions appear to have violated federal appropriations law and LSC regulations regarding program integrity and attorney’s fees.
In a case filed in the General Court of Justice, Superior Court Division (Wake County, North Carolina), LSNC set forth a complaint on behalf of an ineligible alien client. That case (Luciano Pineda-Lopez v. North Carolina Growers Association, Inc., Phillip Morgan and Horace Morgan, 98 CVS 07933) is the subject of a pending complaint filed by National Legal and Policy Center on September 30, 1998 before LSC.
The substance of the earlier complaint is that the plaintiff, an alien residing in Hidalgo, Mexico, was not present in the United States when legal assistance was being rendered by a program funded by LSC. Additionally, the complaint pointed out that Ms. Alice Tejada had been in Hidalgo, Mexico earlier that year on the illegal trip which resulted in LSC fining the program $17,000 and barring it from future LSC funds. The three lawyers who participated in the illegal Mexican trip were subsequently all hired by the parent program, LSNC, and continued their representation of aliens not present in the United States.
The present complaint alleges further violations of the LSC Act, LSC regulations and federal appropriations law by Ms. Tejada and bases those allegations on a Motion to Compel Discovery Pursuant to Rule 37(a) filed by Ms. Tejada, identifying herself as being with Legal Services of North Carolina Farmworker Unit, and Elizabeth McLaughlin, identifying herself as being with North Carolina Justice and Community Development Center. (See Exhibit A)
The activities of LSNC in this case represent an apparent violation of both the LSC Act and regulations regarding fee-generating cases.
The LSC Act addresses the restriction against the involvement of LSC-funded
programs in fee-generating cases as follows:
No funds made available by the Corporation under this subchapter, either by grant or contract, may be used-The prohibition against fee-generating cases by programs funded by LSC is further described in LSC’s regulations at 45 CFR. §1609.
(1) to provide legal assistance (except in accordance with guidelines promulgated by the Corporation) with respect to any fee-generating case (which guidelines shall not preclude the provision of legal assistance in cases in which a client seeks only statutory benefits and appropriate private representation is not available);42 U.S.C. 2996f(b)(1)
The purpose of the regulation is to “ensure that recipients do not use scarce legal services resources when private attorneys are available to provide effective representation.” 45 CFR §1609.1
The definition of a fee-generating case is remarkably straightforward:
“Fee-generating case” means 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.
It is beyond dispute that the case being brought by LSNC against North Carolina Growers Association, Inc. and Philip and Horace Morgan is a fee-generating case. On the final page of the complaint filed in this case, LSNC asks for attorney’s fees for their co-counsel, North Carolina Justice and Community Development Center. (See Exhibit B)45 CFR §1609.2
The relevant section of the complaint asks the court to do the following:
On its face, it is clear that not only is the case a fee-generating case, but that a private legal group not funded by LSC has already been involved in the case and continues to be involved more than 18 months after the complaint was filed.3. Grant plaintiff his costs in bringing this action, including his reasonable attorney’s fees for the services rendered by North Carolina Justice and Community Development Center co-counsel, pursuant to N.C. Gen. Stat § 95-243;
The complaint listed Jena L. Matzen of the North Carolina Justice and Community Development Center as co-counsel while the Motion to Compel Discovery filed in February 2000 lists Elizabeth McLaughlin of the same group as co-counsel.
Coincidentally, both LSNC and the North Carolina Justice and Community Development Center share the same address: 224 S. Dawson Street, Raleigh, NC 27611-6087.
Any argument that this is a fee-generating case which could be taken by a LSC
grantee because it was rejected by two local attorneys, as allowed for in 45 CFR
§1609.3, is baseless since it was accepted by counsel not funded by LSC and that
counsel is still involved in the case and is still seeking attorney’s fees.
The litigation initiated by LSNC in this case represents an apparent violation of both federal appropriations law and LSC regulations regarding attorney’s fees and program integrity.
Congress addressed years of abuses in the legal services program when it
initiated a series of reforms as riders to the Fiscal Year 1996 appropriations
legislation for LSC. The relevant section of P.L. 104-134 is as follows:
Sec. 504In the case at hand, LSNC is seeking attorney’s fees, not for itself or its client, but rather for the North Carolina Justice and Community Development Center, a program which is not a grantee of LSC and which is involved in a multitude of activities restricted for LSC grantees.(a) None of the funds appropriated in this Act to the Legal Services Corporation may be used to provide financial assistance to any person or entity (which may be referred to in this section as a “recipient”)-
. . .(13) that claims (or whose employee claims), or collects and retains, attorneys’ fees pursuant to any Federal or State law permitting or requiring the awarding of such fees;
The factual circumstances of the case raise a number of issues, not the least of which is why LSC funds should be spent to recover attorney’s fees for a private program undertaking activities for which it is illegal for LSC-funded programs to be involved.
If LSNC’s position is that there is no illegal subsidy of LSC funds to North Carolina Justice and Development Center because that group is doing a substantial portion of the legal work in the case, presumably with an expectation of the legal fees being sought, then LSNC is manifestly violating the restriction against involvement in fee-generating cases.
On the other hand, if North Carolina Justice and Development Center is doing little or no legal work (or less than it expects to recoup in attorney’s fees) then it is an improper beneficiary of the federal funds that support LSNC from LSC.
Moreover, there is no doubt that North Carolina Justice and Community Development Center conducts numerous activities which LSC-funded programs may not undertake as they would violate both federal appropriations law and LSC regulations.
The web page of North Carolina Justice and Community Development Center
(http://www.ncjustice.org) explicitly states that one of its purposes is to do
cases restricted to LSC grantees. (See Exhibit C) The program’s
North Carolina Poverty Law Litigation Unit states explicitly:
A review of the North Carolina Justice and Community Development Center’s web page and published materials as well as news accounts mentioning its activities provides ample evidence that it is engaged in grass roots political projects, challenges to welfare reform, lobbying and a host of other activities forbidden to LSC-funded programs.The North Carolina Poverty Law Litigation Unit works to ensure that disadvantaged individuals have access to high quality legal assistance in civil matters that cannot be handled by Federally funded Legal Services Programs due to new Congressional restrictions on those organizations through (sic) a variety of activities.
Federal law as well as LSC regulations (45 CFR §1610 - Program Integrity
Regulation)
reflect the strong view of Congress that no LSC funds subsidize
restricted activities. The policy debate over this provision further reflects
the view that all too often in the past, legal services programs played games
with funds in order to continue activities which Congress had long sought to
restrict.
The facts in the present case represent exactly what Congress was trying to
prohibit when they enacted the restrictions:
1. LSNC (funded by LSC) and North Carolina Justice and Economic Development Center (not funded by LSC and engaging in restricted activities) coexist at the same address.
Not only do both groups work out of the same address (224 S. Dawson Street, Raleigh, NC 27611) but neither group lists a suite or room number differentiating their addresses in any public document.LSC regulations (45 CFR §1610.8) state the requirement that “The recipient
is physically and financially separate from the other organization. Mere bookkeeping separation of LSC funds from the other funds is not sufficient.”
2. LSNC is North Carolina Justice and Economic Development Center’s Landlord.
Underscoring the lack of both physical and financial separation between the LSC- funded LSNC and the group engaged in numerous restricted activities is the fact that the building which houses both groups is owned by LSNC. Property records for Wake County indicate that the building was listed in 1999 as owned by LSNC and having a market value of $1,184,871. (see Exhibit D)It goes without saying that use of resources from LSC to subsidize a group engaging in restricted activities represents a clear violation of federal appropriations law.
3. LSNC and North Carolina Justice and Community Development Center are co-counseling the case that is the subject of this complaint. This situation raises serious questions as to whether the sharing of resources inherent in such an arrangement violates the requirement that recipients be “financially separate” from non-recipients engaged in restricted activities.
Allowing a program funded with LSC funds to co-counsel with a program engaging in restricted activities presents a situation where LSC funds can easily be used to benefit the non-LSC-funded group engaged in restricted activities.Moreover, the fact situation in this case is especially egregious because the attorney’s fees being sought by the LSC-funded group would go directly to a group which publicly advertises itself as litigating “civil matters that cannot be handled by Federally funded Legal Services Programs due to new Congressional restrictions.”
To allow this type of scheme to continue would virtually gut the federal law requiring the physical and financial separation of LSC-funded groups and those engaged in restricted activities.
LSC regulations at 45 CFR §1610.8(3) require “the existence of separate personnel” yet a situation in which the personnel of both entities are collaborating regularly on the same case represents the same type of blurring of lines which the regulation and the federal law sought to restrict.
Put another way, to allow LSC-funded programs to co-counsel in fee-generating cases with groups engaged in restricted activities would set a precedent which would allow co-counseling of LSC-funded programs with groups litigating prisoner lawsuits, abortion cases, drug-related evictions and all the other abuses which Congress sought to restrict. Such an outcome would violate both the letter and the spirit of the law and, once again, demonstrate that neither the legal services programs nor LSC has any intention of reforming.
The actions of LSNC in this case represent flagrant apparent violations of the LSC Act, federal law and LSC regulations.
LSC-funded programs are prohibited from taking fee-generating cases when other counsel is available, yet that is exactly what LSNC has done.
LSC-funded programs are prohibited from seeking attorney’s fees and yet that is exactly what LSNC has done.
LSC-funded programs are supposed to be “physically and financially separate” from groups undertaking restricted activities. In this case, neither standard appears to be met. The group which openly declares its purpose to take cases restricted to LSC programs is operated out of a building owned by a grantee of LSC and hopes to receive attorney’s fees from a case it is co-counseling with the LSC-funded group.
LSC is legally bound by the LSC Act to ensure that its grantees obey the LSC Act, regulations and federal appropriations law. While LSC officials have repeatedly claimed to Congress that all restrictions are being vigorously enforced, the actions of some programs combined with the inaction of LSC belies the claims. This case represents yet another opportunity for LSC to do its duty or to turn a blind eye to abuses which have become the hallmark of the legal services program.
EXHIBIT A:
Motion to Compel Discovery
Pineda-Lopez v. North
Carolina Growers, Inc., et al.
EXHIBIT B:
Prayer for Relief Seeking Attorney’s Fees
Pineda-Lopez
v. North Carolina Growers, Inc., et al.
EXHIBIT C:
North Carolina Justice and Community Development Center
Web Page: http://www.ncjustice.org/povertylaw/
EXHIBIT D:
Wake County, North Carolina Property Records for
224 S.
Dawson Street, Raleigh, NC 27611-6087
Legal Services Accountability Project Page