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2002
LEGAL SERVICES CORPORATION

HEARING

BEFORE THE

SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

FEBRUARY 28, 2002

Serial No. 66

Printed for the use of the Committee on the Judiciary
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Available via the World Wide Web: http://www.house.gov/judiciary

COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, JR., WISCONSIN, Chairman
HENRY J. HYDE, Illinois
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
LINDSEY O. GRAHAM, South Carolina
SPENCER BACHUS, Alabama
JOHN N. HOSTETTLER, Indiana
MARK GREEN, Wisconsin
RIC KELLER, Florida
DARRELL E. ISSA, California
MELISSA A. HART, Pennsylvania
JEFF FLAKE, Arizona
MIKE PENCE, Indiana
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JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California

PHILIP G. KIKO, Chief of Staff-General Counsel
PERRY H. APELBAUM, Minority Chief Counsel

Subcommittee on Commercial and Administrative Law
BOB BARR, Georgia, Chairman
JEFF FLAKE, Arizona, Vice Chair
GEORGE W. GEKAS, Pennsylvania
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MARK GREEN, Wisconsin
DARRELL E. ISSA, California
STEVE CHABOT, Ohio
MELISSA HART, Pennsylvania

MELVIN L. WATT, North Carolina
JERROLD NADLER, New York
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
MAXINE WATERS, California

RAYMOND V. SMIETANKA, Chief Counsel
SUSAN JENSEN-CONKLIN, Counsel
ROBERT NEIRA TRACCI, Counsel
PATRICIA F. DEMARCO, Full Committee Counsel
STEPHANIE MOORE, Minority Counsel

C O N T E N T S

FEBRUARY 28, 2002

OPENING STATEMENT
    The Honorable Bob Barr, a Representative in Congress From the State of Georgia, and Chairman, Subcommittee on Commercial and Administrative Law

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    The Honorable Melvin L. Watt, a Representative in Congress From the State of North Carolina, and Ranking Member, Subcommittee on Commercial and Administrative Law

WITNESSES

The Honorable Edwin Meese III, Chairman, Center for Legal and Judicial Studies, Heritage Foundation
Oral Testimony
Prepared Statement

Mr. John N. Erlenborn, President, Legal Services Corporation
Oral Testimony
Prepared Statement

Mr. Kenneth F. Boehm, Chairman, National Legal and Policy Center
Oral Testimony
Prepared Statement

Mr. L. Jonathan Ross, esq., Chairman, Standing Committee on Legal Aid and Indigent Defendants, and member, American Bar Association
Oral Testimony
Prepared Statement

APPENDIX

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Statements Submitted For The Record

    Statement of the Georgia Farm Growers
    Statement of the American Farm Bureau Federation
    Statement of Charles Walker on behalf of the National Peach Council
    Statement of Sharon M. Hughes on behalf of the National Council of Agricultural Employers
    Statement of Ronald J. Sutherland, Adjunct Professor of Law, School of Law, George Mason University

Material Submitted For The Record

    Post Hearing Questions and Answers from Congressman Bob Barr and Congressman Jeff Flake to the Honorable John M. Erlenborn, President, Legal Services Corporation
    Special Report to Congress from the National Legal and Policy Center entitled ''The LSC Case Over-Counting Scandal of 1999.''
    Letter to Congressman Barr dated April 22, 2002, from Terrence R. O'Connor, Esq., Western Growers Law Group
    Letter to Congressman Barr dated March 6, 2002, from L. Jonathan Ross, Chair, Standing Committee on Legal Aid and Indigent Defendants with an enclosure
    Letter to Congressman Gekas and Congressman Nadler dated September 28, 2000, from L. Jonathan Ross, Chair, Standing Committee on Legal Aid and Indigent Defendants with an enclosure
    Letter to Congressman Rogers and Congressman Serrano dated September 28, 2000, from L. Jonathan Ross, Chair, Standing Committee on Legal Aid and Indigent Defendants with an enclosure
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    Letter to Congressman Harold Rogers dated Septmeber 14, 2000, from E.R. Quatrevaux, Inspector General, Legal Services Corporation with an enclosure, Legal Times article dated January 7, 2002, entitled Divide and Conquer

References:

Submission of Congressman Jeff Flake, a Representative in Congress From the State of Arizona—TaxRebatePledge.org

LEGAL SERVICES CORPORATION

THURSDAY, FEBRUARY 28, 2002

House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.

    The Subcommittee met, pursuant to call, at 10:13 a.m., in Room 2141, Rayburn House Office Building, Hon. Bob Barr [Chairman of the Subcommittee] presiding.

    Mr. BARR. Good morning. The Subcommittee on Commercial and Administrative Law will come to order.

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    This Subcommittee meets today to conduct oversight of the Legal Services Corporation, which was created in 1974 by the Legal Services Corporation Act as an independent, nonprofit, nonpartisan legal services provider.

    The Corporation receives Federal funding of approximately $300 million per year. The original intent of the legislation establishing the agency was to provide necessary legal services to the poor of this country. This Subcommittee remains supportive of this goal.

    However, since its inception, this program has been plagued with problems and controversy and remains so today.

    Today we are going to discuss a number of important issues, among them the following: Has an effective system of competition been implemented by the Corporation, and how is this system working? Are the decisions of the Erlenborn Commission, particularly with respect to the H-2A agricultural guest worker program, impacting the country's agriculture community? And if so, how? Have Legal Services Corporation grantees been maintaining program integrity as required by regulations? Or is the problem we saw in the 1980's, known as mirror corporations, seeing a resurgence? What types of changes have been made by Legal Services Corporation grantees to clean up the case-overcounting problem described at length in the GAO's 1999 report?

    We're going to talk about the Supreme Court's decision last term in the case of Legal Services Corporation vs. Velazquez and discuss the related follow-up case of Dobbins vs. Legal Services Corporation.

    Over two decades, Congress has listened to complaints about Legal Service lawyers who were not serving the needs of the poor but rather were using taxpayer money to fund liberal political and ideological causes. In response to these complaints, in 1996 Congress passed a series of reforms and restrictions regulating the Corporation and the work of its grantees.
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    Now, almost 6 years later, since those reforms were passed, it is time for Congress to consider seriously the question of whether these restrictions have been effectively implemented, whether there has been full and complete compliance by the grantees within the legal restrictions, and, moreover, what role the Board of Directors has played in all of this.

    As we meet today, Congress continues to hear complaints about the true mission of Legal Services lawyers and how the reforms are being violated or circumvented.

    This Subcommittee last met in 1999 to consider the results of an investigation by the LSC Inspector General, who was the first to uncover somewhat astounding discrepancies between the number of cases reported to Congress and the number of cases actually handled. Then, at the request of the Congress, the General Accounting Office issued a report highly critical of the Corporation when a random sampling of the Legal Services Corporation's five largest grantees found an astounding 30 percent of cases reported—that were reported as handled to the Congress were questionable—some cases counted as many as 18 times.

    These case-handling statistics are extremely important to Congress as they are used by both Congress and the LSC in the appropriations process.

    Today the Subcommittee is interested in hearing what the Corporation has done to assure the accountability of its grantees.

    Another area on which the Subcommittee will focus is the question of how the congressional mandate to the Corporation to implement an effective system of competition is proceeding. The critical questions we must ask include whether the system is working to promote competition among potential recipients in an effort to assure the most-worthy grantees are awarded these Federal grants, and, secondly, will the program recipients provide the best service at the best price? Next, Congress will revisit the problem our agricultural communities continue to experience, especially with the H-2A or agricultural guest worker program.
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    We will have with us today Mr. Bremer, from my home State of Georgia. Dan Bremer is an administrator of the agricultural guest worker program and has experienced firsthand the frustration of dealing with the Legal Services lawyers.

    Those of you familiar with the H-2A program, which is, coincidentally, considered the so-called ''clean jeans'' of the agricultural programs within the Department of Labor, is a program continually targeted by numerous lawsuits—lawsuits which threaten the prosperity of our agricultural communities, especially our family farmers.

    For example, Dan Bremer approached Legal Services prior to any litigation, desiring to work with Legal Services to address any problems without costly litigation. For this effort, in just over a month, a Legal Services lawsuit was filed.

    Why are the American agricultural communities targeted in this way? Perhaps because the activist Legal Service lawyers' true agenda is to see the guest worker program eliminated in favor of unionized labor.

    This example is even more problematic when we consider that Mr. Bremer's own secretary, although client eligible, was turned down when she sought representation for recovery of child support payments from with the Georgia Legal Services program. They wrote to her, and I quote: ''Due to limited resources and staff, this office is unable to assist each person who requests representation.'' Yet the Georgia Legal Services program continues to find the time to harass our farmers with costly and frivolous lawsuits.

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    Clearly, this was not the way Congress intended the program to work. And in every way, this practice violates the very spirit of the legislation.

    The Subcommittee will also want to ask questions about whether there is a resurgence of the problem noted in the 1980s, commonly known as mirror corporations. Basically, we have a situation in which grantees refuse to accept government money so they can engage in congressionally restricted activities. However, they then do such things as share office space, equipment, and even personnel with LSC grant recipients.

    More troubling, however, is the fact that the Board of Legal Services has found that these arrangements do not violate the ''physically and financially separate'' requirements set out in the regulations.

    Let me be very clear: We are not here today in any way to intimate that the poor of this country do not need legal services. We are supportive of this goal. There are low-income Americans who need representation in spousal and child abuse cases, low-income Americans who need representation in eviction and foreclosure cases, and low-income Americans who need representation in consumer cases, such as bankruptcy and collection issues.

    These are all very legitimate circumstances in which low-income citizens require legal assistance, and these are precisely the types of work Congress intended to fund and supports. However, the use of Federal taxpayer dollars, particularly in a time of an economic slowdown, to fund political and ideological causes is not justified.

    We will examine the results of the Erlenborn Commission interpreting section 504 of the 1996 restrictions. The Commission essentially changed congressional statutory language regarding the representation of aliens who are outside of the United States from ''is present'' to ''was present.''
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    The integrity of this program depends on full, consistent, and actual compliance with all Federal laws and regulations, not finding lawyer-related activities to find technical ways to circumvent those mandates.

    President Bush has requested level funding of $329 million for fiscal year 2003 for LSC. However, this should not send a green signal to either the Corporation, the Board of Directors, or its grantees, that Congress will turn a blind eye to any continuing violations or circumvention of the mandated restrictions.

    Congress has been informed by the White House that President Bush will be announcing his 11 Board nominees shortly. This hearing should serve as notice to the incoming Board that Congress has significant concerns with the Corporation, and its grantees, and will continue to monitor the LSC very carefully to ensure it fulfills its original mission fully and lawfully.

    At this time, I'd like to recognize the distinguished Ranking Member of the Subcommittee for any opening remarks he might care to make. The gentleman is recognized.

    Mr. WATT. Thank you, Mr. Chairman.

    I'll be brief, because I want to get on to the witnesses. I do want to make two or three points.

    Number one, it is clearly a role of this Subcommittee and the full Judiciary Committee to provide oversight to the Legal Services Corporation, and I applaud the Chairman of the Subcommittee for convening this hearing today to pursue that objective and serve that role that we appropriately play.
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    Number two, while we have a very important role to play in the oversight of the Legal Services Corporation, as we do in a number of other agencies and—of government and of other agencies that are not directly under the government, we should keep in mind that the Legal Services Corporation has its own Board of Directors and that our role is oversight and not micromanagement.

    Number three, I want to make the point that I believe that the combination of the Legal Services Corporation and other nongovernmental legal services type organizations and the legal—and the public defender program on the criminal side play perhaps among the most important roles that any organizations and institutions play in our society, because people who are without funds and cannot afford legal representation, either on the civil side or on the criminal side, deserve to have their day in court, just as people who can afford access to the courts deserve to have their day in court. And to the extent that we undermine or undercut the ability of people to get into our court system and receive the kind of justice that our Nation stands for, people will find ways outside the acceptable process to assert prerogatives that they believe they have.

    And so I think our access to justice, a substantial part of which for poor people is provided through the Legal Services Corporation and for criminal defendants is provided through the public defender service, provides among the most important services that our government can provide, helping dispense justice and helping people perceive that they are dealt with justly in our democratic and capitalist entities in this country.

    Finally, I would say to you that it has not gone unnoticed by me that, despite our best efforts, we are still serving—based on reliable estimates that I was not involved in preparing, but somebody spent some time to prepare—at best, we are providing approximately 20 percent of the need that is out there. We are meeting approximately 20 percent of the need.
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    And that's positive for the 20 percent that are receiving the services but sends a very, very troubling message to the other 80 percent of poor people who would like the same kind of access to justice and are not being able to afford it. That problem exists on the civil side through Legal Services. I think it is dramatically beginning to exist on the criminal side, because of substantial increases in prosecutorial staff vis-a-vis the staffs of the public defender services.

    We are not here today to discuss that, but I want to put on record that I think that we ought to be trying to have some hearings about how we address providing services to the other 80 percent that all of us concede—maybe all of us don't concede we ought to be providing services to—but I believe we should be providing services to, as a Nation, if we are going to live out our creed to provide justice for all.

    I thank the Chairman for convening the hearing, and I look forward to hearing the witnesses, and thank them for being here to help us pursue our oversight responsibilities.

    I yield back.

    Mr. BARR. I thank the gentleman from North Carolina.

    I'd like to, at this time, recognize the distinguished gentleman from Pennsylvania, the former Chairman of this Subcommittee, who has laid the groundwork over the past three congresses for many of the reforms and has done an outstanding job in his capacity as a former Chairman of the Subcommittee to conduct appropriate oversight. The gentleman from Pennsylvania is recognized.
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    Mr. GEKAS. I thank the Chair, and I wish to commend the Chair for assembling such a distinguished group of witnesses, because they carry with them, just by their presence, the historical background of the entire situation surrounding Legal Services Corporation, all its problems, all its assets, all its accomplishments, all the detriments that are attributed to it. All of this is replete in the forthcoming testimony. I'm eager to hear it, and I will participate in the session to ask some questions that follow.

    I yield back the balance of my time.

    Mr. BARR. I thank the distinguished former Chairman.

    Are there other Members that wish to make an opening statement or shall we proceed with the witnesses? Thank you.

    Of course, Members will have an opportunity to submit additional materials, including statements, as will the witnesses. Any materials that the witnesses have that we do not get to today, either because of the press for time or because additional materials become available, will be entered as part of the record.

    Counsel, how many days will the record remain open for additional materials?

    For five business days. So if the witnesses would keep that in mind, we certainly welcome as much material as you would like to make available to us, to ensure that we have as full a record as possible.
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    Mr. WATT. Seven days is——

    Mr. BARR. Seven days? Do I hear seven? [Laughter.]

    Sold. We've got 7 days.

    Mr. WATT. Can I get an eight? [Laughter.]

    Mr. BARR. This morning the Subcommittee is honored to have a very distinguished panel to share their views with us on the Legal Services Corporation. I will first introduce the entire panel of four gentlemen in the order of their testimony. We will then proceed to hear from the entire panel in that order.

    Members will each be given 5 minutes then to ask questions of the witnesses. And depending on the floor schedule and additional questions, we may have an additional round.

    We understand that former Attorney General Ed Meese has to leave early to chair a committee or panel on homeland security.

    Is that correct, Mr. Meese?

    Mr. MEESE. Yes, it is.

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    Mr. BARR. Understanding that that is of more than passing interest to all of us, we certainly understand that, and we appreciate your taking the time, as with the other witnesses as well, to be with us here today. And we will be respectful of your need to leave by about 11 o'clock.

    And if Members could keep that in mind, so if there are any particular questions that they would like posed to Attorney General Meese, we will certainly make accommodations to do those and take those questions before you leave, Mr. Meese.

    As is the Subcommittee's practice, each witness is requested to limit their opening statement to 5 minutes. The entire written statement, as I mentioned, will be made a part of the official record.

    Our first witness is the Honorable Edwin Meese, former Attorney General of the United States. Mr. Meese presently serves as the Ronald Reagan Distinguished Fellow in Public Policy at the Heritage Foundation and as a visiting fellow at the Hoover Institution at Stanford University. Mr. Meese has held numerous legal posts during his distinguished career, in addition to serving as Attorney General and Counselor to former President Reagan. He also served as Chairman of the Domestic Policy Council and the National Drug Policy Board. He has practiced law, been a business executive, educator, lecturer, and prosecutor. He is a graduate of Yale University and received his law degree from the University of California-Berkley. Mr. Meese continues to write and lecture widely on a variety of legal and related issues.

    I would also note that, for many years, General Meese has participated in working very closely with and trying to coordinate and help direct the activities of many public interest law firms across the country. And that, I think, gives him special expertise to provide advice and counsel to the Congress regarding the Legal Services Corporation.
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    We welcome you, Mr. Meese, to this Subcommittee this morning.

    To General Meese's left is another very distinguished former Member of Congress, the Honorable John Erlenborn, the current President of the Legal Services Corporation. Mr. Erlenborn has served on the Board of the Corporation as Vice President, after appointment by Presidents of both parties, first by President George H. W. Bush in 1989 and then on reappointment by President Bill Clinton in 1995. In addition to being a Member of the House of Representatives for some two decades, Mr. Erlenborn was one of the floor managers of the legislation that originally created the Legal Services Corporation in 1974.

    Mr. Erlenborn is currently in private practice here in Washington, D.C., and is an adjunct professor at Georgetown University Law Center. After receiving his law degree from Loyola University in Chicago, he served as an assistant State's Attorney in Illinois, before beginning his lengthy and very distinguished public service career as a State legislator and later a Member of Congress.

    Mr. Erlenborn, there is no person here more appropriate to address the issues regarding Legal Services Corporation than yourself, and we appreciate you're taking time from a very, very busy workload, including serving as President of Legal Services Corporation, to be with us today and share your views and expertise.

    The next witness is Kenneth Boehm, the chairman of the National Legal and Policy Center. In that capacity, he has organized the Legal Services Accountability Project, which has documented hundreds of questionable cases brought by Legal Services lawyers, and he has testified previously before Congress on abuses within the Federal Legal Services program.
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    Mr. Boehm has previously served at the Legal Services Corporation as an assistant to the president and counsel to the Board. He also held a position as Director of the Office of Policy Development and Communications.

    Mr. Boehm received his undergraduate degree from Penn State University and his law degree from Widener University School of Law.

    Mr. Boehm, we appreciate your being with us today and bringing your expertise, both from the inside and the outside, to bear on this matter.

    Our final witness today is yet another distinguished gentleman with a long history and knowledge of and service with Legal Services, L. Jonathan Ross. He is testifying today on behalf of the American Bar Association. He is currently chair of the ABA's Standing Committee on Legal Aid and Indigent Defendants.

    Mr. Ross has been an active member of the ABA for more than three decades and has been involved in Legal Services activities since his days in law school.

    He has more than 35 years' experience in the legal services field and serves as director of Litigation and Family Law in his private practice in Manchester, New Hampshire.

    Mr. Ross is a graduate of Hobart College and received his law degree from Georgetown University and a Master's in Law from Harvard Law School.
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    Mr. Ross, we very much appreciate your being with us today and lending your considerable expertise to the work of this Subcommittee and the entire Congress. Thank you.

    At this time, I'd also before—excuse me, General Meese.

    Before we turn to the witnesses, I'd like also to welcome three representatives from the Georgia Growers Association, Dan Bremer, Danny William and Kent Hamilton.

    Gentlemen, we appreciate very much your being with us today.

    The Georgia Growers—if they could stand, please? Thank you very much, gentlemen.

    The Georgia Growers Association is one of the many organizations across the country representing members that have been forced to spend vast amounts of money and time defending malicious lawsuits that do not fall within the spirit of the Legal Services Corporation congressional mandate. We welcome these gentlemen and will have their statement entered into the record.

    [The prepared statement of the Georgia Growers Association follows in the Appendix]

    Mr. BARR. I would also state that I know these gentlemen, Mr. Erlenborn, are very concerned about retaliatory action against them, and I know that that is of great concern to you and would appreciate your attention, if there are any, for any problems along those lines.
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    With that, General Meese, we're happy and honored to have you with us today, and you would—if you would, please, proceed with your opening statement.

    If all the witnesses could bear in mind that the technology before us is not 21st century; they have to pull the mikes very, very close and make sure that they're on, so that the court reporter is able to pick up every pearl of wisdom.

STATEMENT OF THE HONORABLE EDWIN MEESE, CHAIRMAN, CENTER FOR LEGAL AND JUDICIAL STUDIES, HERITAGE FOUNDATION

    Mr. MEESE. I think it's on now. Mr. Chairman and Members of the Subcommittee, thank you for inviting me to testify at this hearing today on the Legal Services Corporation.

    Let me say that at the Heritage Foundation, which, as the Chairman mentioned, I'm currently located, I'm chairman of the Center for Legal and Judicial Studies at that Foundation. The Heritage Foundation, I might add, in accordance with your rules, is a public policy research and educational organization operating under 501(c)(3) of the Internal Revenue Code. It is privately supported and receives no funds from the Federal Government.

    At the outset, let me say that I have great respect for Mr. Erlenborn sitting here with me and personally know some of the members of the LSC board. But concerns about the program still continue and about the Legal Services Corporation as an institution.
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    My testimony today is directed primarily at the importance of the LSC Board in controlling a taxpayer-funded program that is very susceptible to abuse by ideologically oriented lawyers at the level, often far from Washington, DC, where litigation actually takes place.

    A few examples are instructive, but by no means exhaustive, of this need for firm controls.

    One of the situations that kind of illustrates this and gives a legal background for it was the case in which the Regional Management Corporation filed an administrative complaint with the Legal Services Corporation, accusing lawyers of that organization of improperly lobbying the South Carolina State Legislature in violation of both Federal law and LSC guidelines.

    After the complaint was dismissed by the LSC, the Regional Management Corporation sought judicial review. The trial judge found that LCS had failed to fully investigate the charges and that they did not have a rational basis for determining that the lawyers involved did not violate Federal law. But when the case went up on appeal, the appellate court ruled that the—that, ultimately, because it was a private corporation as set up by Congress, was not subject to judicial review, and, therefore, the oversight was totally by the LSC board, and ultimately congressional oversight, which is taking place today.

    This illustrates, I think, the importance, then, of the Board carrying out its responsibilities.
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    Another case—situation that, I think, is important has to do with the issue of competition. One of the things, if you look at the situation in grants in most communities, there still is but a single applicant for the grants and competition still remains, I think, somewhat far from what Congress had intended.

    Perhaps the most serious recent problem, which involves—which the Chairman referred to in his opening remarks, have to do with issue of representation of aliens. In spite of the congressional prohibition, the LSC and LSC recipients sent letters to a number of farm workers in Mexico in 1998 and traveled there actually to recruit potential clients for lawsuits against American farmers. When this illegal activity was uncovered, and pressure was brought to bear, the LSC cut off funding to the offending group. But the group merely reopened under a different name, which over the past several decades has actually been a regular tactic of the grantees, and that is, when found to be violating Federal laws, they simply open through subterfuges and under different names.

    Following this, the Legal Services Corporation convened a special commission to determine the meaning of the phrase ''is present in the United States,'' and defined it to mean ''is now or once was present.'' As a result, suits are being brought on behalf of aliens living in Mexico more than a year after those foreign nationals left employment in the United States.

    I might point out that this is one of the most serious issues, because most litigation in this country is controlled by economic factors. But when the deep pocket of the Federal Government enters into the litigation, that puts a thumb on the scales of justice, and, therefore, again, it's—the persons who are sued are often at an extreme disadvantage.
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    I see that my time is almost up. There are other examples that I could give, which are contained in my testimony, which, as I understand, Mr. Chairman, will be made a part of the record.

    But let me say that the—it is important, I feel, that the reforms which have been initiated by Congress as recently as 1996 need to be monitored so that the taxpayer-funded Legal Services Corporation is not used to the detriment of other citizens in this country and is used for the proper purpose for which it was intended, and that is to handle the routine legal matters of low-income people in the United States.

    I thank you for the privilege of being with you this morning.

    [The prepared statement of Mr. Meese follows:]

PREPARED STATEMENT OF EDWIN MEESE III

    Good morning Mr. Chairman and Members of the Subcommittee and thank you for inviting me to testify at this oversight hearing on the Legal Services Corporation (LSC). For the record, I served as the United States Attorney General from 1985–1988; I am currently the Chairman of the Center for Legal and Judicial Studies at The Heritage Foundation.

    The Heritage Foundation is a public policy research and educational organization operating under Section 501(c)(3) of the Internal Revenue Code. It is privately supported, and receives no funds from government at any level, nor does it perform any government or other contract work. In 2001, The Heritage Foundation received 93% of its funding from its approximately 200,000 individual supporters. The remaining 7% came from investment income, publication sales, and corporate contributions.
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    At the outset, let me make it clear that I believe in serving the legal needs of the poor, and the responsibility of the legal profession to ensure that no one goes without necessary legal representation because of the inability to pay. I have stood as a firm advocate for this position and have sought to promote public interest law throughout my professional career.

    The issues before the subcommittee this morning, as I understand, relate to safeguarding the taxpayer-provided funding that has been made available to the Legal Services Corporation through congressional appropriations, and to make sure that such funds are properly used for the legitimate purpose of providing legal assistance to low-income individuals in civil matters.

    The Legal Services Corporation, formed by the 1974 Legal Services Corporation Act to provide publicly-funded, non-political legal services to poor Americans, has been a source of controversy since its inception. Over the years, evidence mounted that the Corporation was pursuing a political agenda at the expense of its original mission. In 1996, Congress attempted to refocus and reform LSC by adding specific statutory restrictions on political activities as a condition of further LSC funding.

    More than five years later, it is now clear that the LSC Board of Directors, in spite of repeated assurances to Congress of its commitment to implement and enforce these reforms, has been either grossly negligent in its supervision or has chosen to obstruct them. A few examples are instructive, but by no means exhaustive, of the lack of proper controls.

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    In 1996, one of the primary targets of congressional reform was the use of legal services funds for lobbying instead of representation. That same year, Regional Management Corporation (RMC) filed an administrative complaint with LSC accusing legal services lawyers of improperly lobbying the South Carolina state legislature in violation of federal law and LSC guidelines. After LSC dismissed the complaint, RMC sought judicial review of the decision.

    Judge Henry Herlong ruled that ''LSC failed to fully investigate RMC's charges'' and that ''LSC did not have a rational basis for determining that [the LSC lawyers] did not violate federal law.''(see footnote 1) The judge pointed out that the alleged client had never requested such lobbying, that the legal services lawyer acknowledged that she had never spoken with the client about her lobbying efforts and was not familiar with any of the client's specific legal problems, and finally, that the alleged client was not even a current client of the legal services association when the lobbying occurred.(see footnote 2)

    LSC appealed the decision on the grounds that, as a private corporation, it is not subject to judicial review. The appeals court agreed and ruled that the protection of individuals harmed by illegal, LSC-funded lobbying depends entirely upon oversight by the LSC Board and ''ultimately, congressional oversight.''(see footnote 3) Given the district court's findings, however, it appears that oversight by the current LSC Board amounted to no protection at all in this case.

    The extent of misfeasance and failure to render accurate reports by LSC grantees has been documented by investigations conducted by the General Accounting Office. The credibility and integrity of the legal services program has been jeopardized by this failure of supervision and accountability, which is the direct responsibility of the LSC Board of Directors. The Board has an obligation to follow legislative mandates and to conduct the legal services program in accordance with the requirements that Congress has imposed.
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    In some cases, statutory controls have been effective only after initial attempts by the LSC to evade congressional mandates. For example, the 1996 statute prohibits recipients of LSC funds from charging attorneys' fees. The LSC Board implemented this restriction by drafting an interim regulation that allowed lawyers to charge attorneys' fees in cases involving poor, disabled clients in some SSDI cases. Only when they were chastised by their appropriations committee did the Board change the regulation and prevent legal services attorneys from keeping a portion of their poor clients' SDDI awards.

    The requirements enacted by Congress have not always been so successful. In an attempt to reform the old system of grants that automatically refunded the same network of groups regardless of the quality or quantity of services provided to the poor, Congress required that grants and contracts for all basic field programs be subject to competition. The LSC Board responded to this requirement by setting up a competition administration that virtually guaranteed that there would be little or no competition for grants. A good measure of their success is that, since 1996, when competition was supposedly introduced, the vast majority of ''competitions'' have had only one applicant-the original program.(see footnote 4)

    Another blatant example of the LSC Board evading the clear intention of Congress has been in the representation of aliens who are not physically present in the United States. In spite of Congress's prohibition, an LSC recipient sent letters to a number of farmworkers in Mexico in 1998 and traveled there to recruit potential clients for lawsuits against American farmers who had participated in the U.S. Government's Agricultural Guestworker Program. When this illegal activity was uncovered by a watchdog group and congressional and media pressure were brought to bear, LSC cut off funding to the offending group. But the group merely reopened under a different name and were immediately refunded by the major LSC program in the state.
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    Following this public relations debacle, the LSC convened a special commission to determine the meaning of the phrase ''is present in the United States.'' Incredibly, after a number of meetings behind closed doors, the commission determined that ''is present'' really means ''is now or once was present'' and allowed legal services grantees to continue representing aliens who live in foreign countries. Growers in Georgia, North Carolina, Kentucky, and elsewhere have been sued by aliens living in Mexico a year or more after those foreign nationals left employment in the states. Given the scarce resources that Congress mandated were to be provided for poor Americans, how can the LSC continue to squander taxpayer money on such illegal litigation? By pursuing such improper lawsuits, the LSC victimizes many farmers and other citizens who must incur major expenses in defending against litigation that should never have been initiated.

    Another example of the LSC's Orwellian interpretation of its own restrictions involves Congress's prohibition of any LSC funds going to any individual or group that ''initiates or participates in a class action.'' Despite this clear prohibition against class-action litigation, LSC grantees have filed class action suits in Georgia and California and LSC has taken no action to stop them. In dismissing complaints from Members of Congress and watchdog organizations, LSC maintained that the California action was not a class action but a ''representative action'' and, as such, did not fall under the congressional restrictions. As this Subcommittee knows, ''representative actions'' are the functional equivalent of class actions in several states. Indeed, both Black's Law Dictionary and Ballentine's Law Dictionary agree that ''representative action'' and ''class action'' are interchangeable terms. Apparently, Bill Clinton's artful definitions live on in the LSC Board members he appointed.

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    From these and numerous other examples, it has become clear that Legal Services Corporation remains uncommitted to reform, unaccountable to the courts, and unresponsive to Congress. It seems to me that the only remedy for the current situation, short of ending the entire funding, is for the President to nominate LSC Board members who are committed to the necessary reforms that will return the Legal Services Corporation to its original mission of serving the poor.

    Thank you for your time and attention. I look forward to any questions you may have for me.

    Mr. BARR. Thank you very much, Attorney General.

    I would ask unanimous consent that we could proceed out of order here, in recognition of the fact that Mr. Meese has to leave to Chair a meeting on Homeland Security, and would ask if there are any Members that have specific questions that they would like to direct to Mr. Meese?

    Mr. Watt?

    Mr. WATT. I don't think I have any specific questions. I appreciate Mr. Meese being here. And if he needs to leave, I certainly have no problem with him going, especially if he's going to do Homeland Security. We need that.

    I would just comment on the last ''thumbs of the scales of justice'' reference he made, and suggest to him that I thought that's exactly what we were trying to do, put the Federal Government's thumb on the scale of justice to try to equalize it a little bit. And I understand that sometimes when you get the thumb on the scale of justice, that thumb—that balance is very delicate, and an overstepping can make the scales unbalanced in the other direction.
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    But, certainly, I don't want to leave the impression that it was ever our intent not to have the Government's thumbs on the scale of justice. That's what my interpretation of the Legal Services Corporation is all about. There are people who have money who can have access to the courts, and their thumbs, that money, gives them a thumb on the scale of justice that gives them an unfair advantage. And I thought our intent was to get the scale back into balance by putting the government's thumb on the other side of the scale.

    Now, maybe I'm missing something here, but I just—that's not a question. I mean, I'm not trying to stop you from responding, if you want to respond. But I just wanted to make sure that a perhaps different perspective was expressed on that—what is it? Analogy. I never know what the term is. The ''thumbs on the scale of justice,'' whatever it is that you used—metaphor. Yes, metaphor; that's the word. [Laughter.]

    Thank you. I yield back.

    Mr. MEESE. If I may——

    Mr. WATT. Unless he wants to——

    Mr. MEESE [continuing]. Respond just briefly, Mr. Chairman.

    The whole idea, I think, of the legislation initially, which goes all the way back to the Office of Economic Opportunity in the 1960's through the Legal Services Corporation, is to fairly balance the scales. And the phrase ''thumb on the scale'' has always meant, in traditional commercial practice, that somebody is unfairly tipping the scale in favor of one side or the other. And that's what I was referring to.
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    Mr. WATT. I appreciate you clarifying that. So it sounds like we're all on the same—the same—same thumbs. [Laughter.]

    Yes, thank you. I yield back.

    Mr. BARR. I thank the gentleman.

    General Meese, you did mention the rather Clintonian interpretation of the phrase ''is present in the United States'' with regard to representation of aliens. Are you aware of the fact that the deliberations that gave rise to that interpretation of the law was made in a closed-door session?

    Mr. MEESE. I was not aware of the circumstances. I only know of the result of that decision being made.

    Mr. BARR. Would that be, do you think, appropriate for decisions like that to be made not consistent with the Government in the Sunshine Act, for example?

    Mr. MEESE. Well, since the LSC is a private corporation, there may be a legal question as to whether it's subject to the Sunshine Act. But I think certainly the spirit of the act should apply to the Legal Services Corporation because, obviously, when there is a corporation that has been created by Congress to represent the public interest, and particularly in the matter of legal matters, where there are two sides to most issues, I think it is important that policy decisions be made in full view of the public and particularly those people who may have an interest in the outcome, such as litigants against whom Legal Services attorneys may proceed.
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    Mr. BARR. As you know, General Meese—and already this morning, we've touched a couple cases, the Velazquez case and the Dobbins case.

    A group called the Brennan Center, which operates out of New York University Law School, seems to be the driving force behind these cases. Are you familiar with the Brennan Center?

    Mr. MEESE. I am vaguely familiar with them. I know a little bit about their work and also about their ideological proclivities.

    Mr. BARR. Which would be what, in your experience?

    Mr. MEESE. Extremely liberal in their viewpoint on the kinds of issues we're talking about today.

    Mr. BARR. Thank you.

    Are there—the gentlelady from California was not here earlier, but in light of the fact that former Attorney General Ed Meese has to leave to Chair a committee meeting on Homeland Security, we're taking questions out of order, if any Member has specific questions directed to Mr. Meese. And I would recognize the gentlelady from California for that purpose, if she has any questions.

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    Ms. WATERS. Thank you very much, Mr. Chairman. I appreciate that. And while I did not have the opportunity to hear all of the testimony, I know that Attorney General Meese has been concerned about the Legal Services Corporation, whether or not they were in compliance with the law that limits their ability to lobby and some other areas.

    And I simply would like to say that those of us who represent districts where we have poor people in part of our districts—most of the districts are pretty diverse these days. But many of us have pockets of poor people. We're overwhelmed with requests by poor people for representation as it relates to landlord-tenant problems, as it relates to domestic violence, all of these issues. And we have nowhere to turn but to Legal Services.

    I've always believed that because the Legal Services Corporation is in contact with all of these clients who desperately need services, that they understand a lot about what we do with public policy and how that public policy can help or harm citizens who need representation.

    Do you believe that the Legal Services Corporation had any role to play in helping public policymakers understand how they can be of assistance to poor clients and not consider that the involvement of the Legal Services Corporation in helping us to do that should be considered lobbying? Is there any way, in your estimation, that that can be done?

    Mr. MEESE. In my estimation, it cannot. And I think Congress has answered that question by forbidding lobbying. And the rationale behind that was that one group of citizens, no matter who they are, should not be given taxpayer-funded resources in which to lobby, if you will, or in which to try to influence the making of public policy. Most people in this country do not have any access, other than their own, if they should choose to testify—most people are not part of organizations that lobby Congress or that present information about public policy.
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    And so, in order to provide and to utilize the resources of the legal services that are destined and established specifically for low-income people to be used for the kinds of cases you mentioned, such as domestic violence, landlord-tenant and the like, it was the will of Congress that the resources be utilized specifically for that purpose.

    Ms. WATERS. Well, I've always believed that they could save the taxpayers a lot of money by helping to shape public policy that would, in fact, be helpful to poor people and not, you know, place the government in the position of paying even more money in trying to give assistance to them through the Legal Services Corporation.

    And while you make a case that most people do not have lobbyists or representatives, when I look at agriculture, for example, and I look at all of the associations, and I look at how we subsidize agriculture in such tremendous ways, even though they are not direct payments to a particular organization, the subsidies that we give, whether it's in the ways that we legislate around sugar or any of the other products, I could make a very, very good case that we do indeed subsidize agriculture in so many ways with taxpayer dollars.

    So I thank you for your testimony. And I am hopeful that, one day, we will be able to take the chains off of the Legal Services Corporation so that they can truly be of assistance to their poor clients, and that includes helping to bring information to the Members of Congress about how we can be more effective. And if you want to call that lobbying, then I guess that's what I support.

    Thank you very much.
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    Mr. BARR. Thank you.

    A vote has been called on the floor on appointing conferees on bioterrorism legislation, so we have just a few more minutes before we will be forced to break so Members can vote. If we could, I'd just like inquire of the distinguished gentleman from the Commonwealth of Pennsylvania if he has any particular question for General Meese.

    Mr. GEKAS. Yes. The one area of concern now that seems to be almost insoluble to me in this whole situation is the lack of judicial review. What can we do? Can we pass a statute that would confer jurisdiction upon X appeals establishment to hear cases that now are not subject to judicial review?

    Mr. MEESE. My opinion, kind of off the top of my head, Mr. Gekas, is that it would be possible for Congress in the act that establishes the Legal Services Corporation to provide a standing to sue by a person who is aggrieved in a lawsuit in which a grantee of the Legal Services Corporation has violated the regulations of that Corporation. That would be a way to, in effect, remedy the situation that was set forth by the appeals court in the case that I mentioned.

    Mr. GEKAS. I have no further questions.

    Mr. BARR. Thank you.

    Does the gentleman from Arizona have any questions specifically for General Meese?
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    Mr. FLAKE. No.

    Mr. BARR. Okay, thank you.

    I would like to welcome the distinguished Ranking Member of the full Judiciary Committee, Mr. Conyers, from the great State of Michigan. And, Mr. Conyers, we have to break for a vote here, but did you have any—I'd like to, by unanimous consent, recognize you for any quick statement and if you have any question or comment for General Meese before he has to leave——

    Mr. CONYERS. Thank you.

    Mr. BARR [continuing]. To chair a meeting on homeland security.

    Mr. CONYERS. Thank you, Chairman Barr.

    I just wanted to welcome Congressman Erlenborn, from another period of time, who served with great distinction on the Education Committee. And I'm happy to see him here.

    General Meese, it's always good to see you again. Let's end up on the same side of something once before this thing goes down, okay? [Laughter.]

    Think there's a possibility? Let's try anyway.

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    Mr. WATT. We don't think it'll be lobbying Congress. We already eliminated that. Maxine already eliminated that. [Laughter.]

    Mr. CONYERS. Thank you, Mr. Chairman.

    Mr. BARR. Thank you very much.

    With apologies to all Members—all witnesses here today, we do have to break for a few minutes. We have just one vote, I'm informed, so it shouldn't be more than a few minutes.

    We will stand in recess until the vote.

    And since you'll have to leave us, General Meese, we very much appreciate your honoring us with your presence today, your expertise. I and other Members may have some questions to submit to you, if we could do that. And your responses to those and any other additional information will be made a part of the record, if you care to submit it.

    Mr. MEESE. I'd be happy to do that, Mr. Chairman. And I thank you for your courtesy.

    Mr. BARR. Thank you.

    We stand in recess until Members have had a chance to vote.

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    [Recess.]

    Mr. BARR. I'd like to reconvene our hearing. And, again, I apologize for the delay occasioned by the vote on the floor. We have been informed that that was the last floor vote for the day, so we should not have any further interruptions and can proceed with as much respect as possible for the very busy schedule that our three witnesses and certainly the other Members of the Subcommittee have.

    And at this time, Mr. Erlenborn, again, it's an honor to have you here today. We appreciate your public service in so many areas, including as President and a member of the Legal Services Corporation. And we'll recognize for 5 minutes for your opening statement, sir.

STATEMENT OF JOHN ERLENBORN, PRESIDENT, LEGAL SERVICES CORPORATION

    Mr. ERLENBORN. Thank you very much, Mr. Chairman.

    I appreciate the chance to be here today to update you on the activities of the Legal Services Corporation and to report on our progress—I think it's on.

    Can you hear me? Forward a little? Closer, okay.

    Mr. BARR. These are the same microphones when you first elected to the Congress, you have to remember. [Laughter.]

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    Mr. ERLENBORN. These are the leftovers, I guess.

    As I was saying, I'm happy to be here to report on our progress since our last appearance before this Subcommittee in 1999.

    For 20 years I served the Congress and served also the House Republican Conference. Then and now I have balanced my support for Federally-funded legal services with my belief that Congress ought to have a say in how Federal dollars are spent on civil justice efforts.

    When I assumed the vice chairmanship of the LSC in 1996, I supported the restrictions passed by Congress and have worked diligently to ensure their enforcement. The Corporation has taken strong and unequivocal actions to address issues raised by members of this panel, and we have worked hard to successfully implement the will of the Congress.

    Our national investment in civil legal assistance for the poor has been a source of much debate in Congress. But we reached a critical turning point in 1996 by enacting new restrictions on the activities of LSC grantees. Congress has reached a broad consensus for a strong Federal role in equal justice efforts.

    Today, LSC enjoys the steadfast support of the Bush Administration, which has twice called on Congress to preserve our current funding levels even in the face of wartime budget constraints.

    We at the Corporation appreciate the crucial support of Congress and President Bush. We pledge to continue to enforce and uphold the decisions of this body as we attempt to maximize our Federal investment in civil justice for the poor.
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    At the heart of this commitment lies our continued emphasis on preserving the integrity of the '96 reforms. As you know, LSC-funded programs are no longer allowed to file or litigate class-action lawsuits, engage in many types of lobbying, seek or receive attorneys' fees, litigate on behalf of prisoners or represent most undocumented aliens. The Corporation has not only enforced the restrictions passed by Congress; we have zealously defended them all the way to the U.S. Supreme Court.

    In the Velazquez case, the Supreme Court struck down on a 5–4 vote on first amendment grounds the congressional ban on systemic challenges to the welfare laws. But more importantly, the Court left in place all the other restrictions on grant activity. In Velazquez, the Corporation proved itself to be a responsible regulatory agency committed to enforcing the will of Congress.

    And, Mr. Chairman, today the Corporation stands ready once again to mount a vigorous offense—defense of the '96 reforms in the Dobbins case filed in December in Federal district court.

    Since the Velazquez decision, the Corporation has undertaken great efforts to ensure that congressional restrictions are strictly observed.

    LSC hired an additional seven investigators last year for our compliance and enforcement division. With a $2.2 million budget, this division is charged with investigating our grantees' adherence to all Federal regulations.

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    The compliance staff not only investigates inquiries from Members of Congress, the public, and those forwarded by the Corporation's independent inspector general, it enforces corrective action plans and implements sanctions where necessary.

    The Corporation's management has taken strong action in those instances where grantees have failed to comply with the law or applicable regulations.

    Fiscal sanctions will continue to be imposed where appropriate, including termination of a grant in its entirety.

    The Corporation's strong focus on compliance has been matched by our diligent efforts to make the highest and best use of every Federal dollar.

    Since 1996, the Corporation has used a competitive grant system to promote the most efficient and cost-effective delivery of legal services. Competition ensures the most-qualified applicant oversees the Federal investment to deliver assistance in every U.S. county and territory. Competition has also facilitated the growth of centralized intake systems, increased client self-help materials and more effective pro bono efforts.

    Through our State planning—Mr. Chairman, it looks I ran out of time. But I think I lost a little of my time here with the——

    Mr. BARR. We'll be glad to recognize you for an additional couple of minutes in order to certainly hit the highlights of your testimony. We think it's very important to get as much on the record as we can.
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    Mr. ERLENBORN. Thank you, Mr. Chairman.

    Competition has also facilitated the growth of centralized intake systems, increased client self-help materials and more effective pro bono efforts.

    Through our State planning initiative, the Corporation has radically changed the landscape of the national legal services delivery system. The Corporation now requires all grantees to participate in a local process to develop and implement a strategy to deliver high-quality legal assistance in every State.

    Central to this change is a reconfiguration process that has streamlined the number of LSC grantees from 262 in 1998 to 170 by the end of this year. Many States have completely restructured their delivery systems. Every State, we feel, has improved access to justice for the poor and forged new and deeper bonds among stakeholders.

    I would also like to report a series of steps that the Corporation has taken to address serious questions raised concerning the accuracy of case statistics submitted annually to our grantees. It's very important to note that it was the Corporation through our inspector general that first discovered and addressed this problem.

    In conference with the leaders of the Corporation, the Inspector General and the Corporation began to address this problem of inaccurate figures.

    We have offered additional training to program staffs and made substantial revisions in the case statistics handbook and now require all grantees to perform annual self-inspections of their caseload.
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    These efforts have been extremely successful. In 1999, the error rate was approximately 11 percent. In 2000, this figure dropped dramatically to 5 percent within the accepted statistical range of error.

    In closing, I would like to say that LSC appreciates the ongoing support of this Subcommittee in helping carry out our mission of offering high-quality legal assistance to those who would otherwise be unable to afford it. Since passage of the '96 congressional reforms, the Corporation has instituted many of its own reforms aimed at meeting the twin goals of promoting access to justice and respecting Congress's wishes on the Federal role in civil legal aid.

    We at the corporation have embraced our new vision with resolve and purpose, determined to help more Americans address their critical, basic legal problems.

    Thank you, Mr. Chairman, in particular, for the additional minute or so.

    [The prepared statement of Mr. Erlenborn follows:]

PREPARED STATEMENT OF JOHN ERLENBORN

INTRODUCTION

    Mr. Chairman, and Members of the Subcommittee, Legal Services Corporation (LSC) welcomes this opportunity to report on our activities and discuss our FY 2003 budget request. Although we live in the world's wealthiest nation, there are more than 43 million Americans that are potentially eligible for LSC-funded services. To continue to ensure these vulnerable Americans are not completely shut out of the justice system, a strong federal role in supporting legal services continues to be vital.
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    LSC's FY 2002 budget is $329.3 million. LSC has 117 full-time staff, including 17 budgeted positions in the Office of the Inspector General. During this fiscal year, LSC will distribute $310 million dollars in federal grants to local, independent legal aid programs. Through its annual appropriation from Congress, LSC remains the single largest funding source of civil legal assistance in the country.

    Programs receiving LSC funding help handle more than one million legal cases annually. LSC-funded programs are focused on serving the basic, critical legal needs of low-income clients. Ten percent of LSC clients are elderly; over 50 percent of all clients are women with young children. The most common types of cases are family, housing, income maintenance, and consumer law issues. Almost one-sixth of all cases involve efforts to obtain protection from domestic violence. Other case types frequently handled by LSC grantees include evictions, foreclosures, child custody and support, child abuse and neglect, wage claims, access to health care, and unemployment and disability claims.

    To fulfill LSC's statutory mandate, the Board of Directors in January 2000 approved a set of ''Strategic Directions for 2000–2005,'' a five-year blueprint for improving the delivery of legal services in America. The Board took this action guided by the belief that access to quality legal services is critical to a fair adversarial system of justice. Its twin objectives are to dramatically increase the number of low-income Americans who can access the civil justice system and to ensure that all clients receive quality legal services.

    With a small and efficient staff, LSC management ensures accountability to Congress and the taxpayers through aggressive oversight and enforcement of federal law and other requirements. LSC also uses a competitive grant-making process to promote the highest and best use of federal dollars. Through our State Planning Initiative, LSC staff work with all grantees in every state to ensure our nation's poor receive high quality and appropriate legal assistance.
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A. Grantee Oversight

    In 1996, Congress enacted fundamental change to the national legal services program, reaffirming the federal government's commitment to providing free civil legal assistance to poor Americans. In order to refocus the LSC-funded system on individual clients with particular legal needs, Congress placed a series of new restrictions on LSC grantee programs. These new rules apply to all private and public funding received by an LSC grantee. LSC-funded programs are not allowed to file or litigate class action lawsuits, engage in many types of lobbying, seek or receive attorneys' fees, litigate on behalf of prisoners, or represent most undocumented aliens.

    In recent years, LSC management, working with the independent LSC Inspector General, has developed a system of effective oversight for federally funded legal aid grantees. LSC has taken vigorous action to ensure compliance within applicable Federal law and regulations. Charged with this specific responsibility, LSC's Office of Compliance and Enforcement (OCE) has 12 attorneys on staff, three fiscal professionals, and one management professional. With approximately $2.2 million in budgeted funds for FY 2002, OCE investigates complaints and inquiries from members of Congress and the public, and follows up on referrals from LSC's Office of the Inspector General regarding possible violations discovered through compliance audits of local programs. The office also develops and enforces corrective action plans and recommends and enforces sanctions where necessary.

    Further, as mandated by Congress in FY 2001, LSC hired an additional seven investigators for the Compliance and Enforcement Division to investigate grantee compliance with Federal regulations. To fully satisfy this mandate, LSC worked diligently throughout the beginning months of 2001 to fill all seven attorney/investigator positions. The selection process was completed by April 2001. Once hired, the new employees underwent an intensive phase of training and orientation to be fully prepared to conduct on-site reviews at LSC grantee offices.
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    Under the LSC system a principal mechanism for ensuring compliance is through each local program's financial statement audit, which includes a mandatory audit of compliance with LSC regulations. These audits are conducted by Independent Public Accountants (IPAs) according to guidelines established by LSC's Office of Inspector General (OIG). The OIG reviews the IPAs' audit reports and refers findings of non-compliance to LSC management for follow-up. LSC management determines the appropriate corrective action and enforces compliance, reporting back to the OIG on the steps it has taken. The OIG continues to track the progress of corrective action and enforcement. No case is closed without the OIG's agreement. In addition to the system of IPA audits, the OIG also conducts on-site audits of grantee compliance with particular restrictions and requirements. In addition, the OIG has developed a strategic plan that includes a series of operational projects, both mandatory and discretionary, to ensure grantee compliance. (See Section G).

    LSC has made every effort to ensure that the congressional restrictions placed on grantees are strictly observed. Management has taken strong action in those instances when grantees have failed to comply with the law or LSC regulations. Fiscal sanctions have and will continue to be imposed where necessary and appropriate, up to and including termination of the grant in its entirety. Most recently, for example, LSC was forced to suspend 20 percent of a program's funding after its repeated failure to submit the required yearly audit to LSC's Inspector General. Another program was placed on month-to-month funding after questions surfaced involving accuracy of case counts and proper utilization of resources. We take very seriously the congressionally imposed requirements on our grantees and will continue to vigorously monitor them to ensure compliance.

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B. State Planning Initiative

    Through its State Planning Initiative, LSC has radically changed the landscape of the national legal services delivery process. Beginning in 1998, LSC has required all grantees to participate in a local process to develop and implement a comprehensive, integrated delivery system in every state. The State Planning Initiative requires that all grantees, working together with local stakeholders, develop an assessment of the strengths and weaknesses of every state civil justice system and formulate a plan to ensure that all clients within a state receive high quality legal assistance. The overall goal of this effort is to achieve the highest and best use of the federal investment in every state.

    To date, the State Planning Initiative has resulted in significant and positive change in the delivery of legal services throughout the country. Central to this change is the ongoing retooling of existing systems that began in 1998. Through reconfiguration the number of grantees receiving LSC funding has decreased from 262 in 1998 to 207 in 2001. In 2002, LSC projects that there will be approximately 170 programs. Federally funded legal services programs continue to serve every county, city, and state in the nation.

    In a recent publication entitled Building State Justice Communities, LSC reports on changes in the legal services delivery system, singling out 18 states for their model reform efforts. Many states completely restructured their legal services delivery systems. All improved access to justice for low-income people, strengthened the quality of service offered, and forged new and deeper bonds among stakeholder partners in their civil justice communities. Still other states increased their funding through innovative grant projects and local fundraising efforts.
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    One of the centerpieces of LSC's State Planning Initiative has been the implementation of technology as a way to reach more clients. Congress has supported this goal since 1999 with a three-year, $15.6 million technology investment for legal services. In 2001, LSC spread a record $7 million in hi-tech grants to 55 legal aid programs in 28 states through its Technology Initiative Grant program. Statewide legal services web sites, toll-free phone hotlines, sophisticated computer intake systems, touch screen computer kiosks, ''virtual'' law offices, video conferencing for clients, and online training for advocates were among the projects funded by LSC grants.

C. Competition

    The statutory role of LSC is to manage and oversee federal funds that support the direct provision of legal services across the nation and U.S. territories. Since 1996, LSC has used a competitive grant-making system to promote the economical and effective delivery of legal services, as required by 1007(a)(3) of the Legal Services Corporation Act. LSC encourages local legal services providers and others to compete for available grants by broadly circulating information about the availability of grant funds through an aggressive public information campaign and through technical support provided to parties seeking to apply for LSC grants.

    During the competition process, LSC evaluates applications according to established quality standards and awards grants to the applicants adjudged most capable of providing high-quality legal services in accordance with applicable legal requirements. LSC also uses the competition process to promote increased volunteer private attorney involvement (pro bono) and to expand public-private partnerships through which additional resources can be secured to supplement federal funding. During each grant period, LSC works with successful applicants to improve problematic areas identified in the competition process.
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    In FY 2002, the sixth year of competition for grants, LSC received grant applications from 103 applicants for 122 service areas in 26 states and the District of Columbia. There were multiple applicants for eight service areas. Competition decisions were made in November 2001. In addition, 83 current recipients whose grants were not up for competition this year were also subject to a grant renewal process to ensure their continued compliance with grant conditions.

    Competition has resulted in improved legal assistance to our client community. First, it ensures the most qualified applicant oversees the federal investment to deliver legal assistance to low-income persons in each service area. Second, the competition process identifies strengths and weaknesses of programs. When necessary, programs are visited, short-term funding is established, and improvement efforts are undertaken. This process has led to significant change. In instances in which reform is not forthcoming, it has led to the replacement of providers. Third, LSC is developing the technological capacity to analyze application data in order to identify significant statistics and trends that are valuable in making grant decisions. Finally, competition has helped facilitate the growth of centralized intake systems, increased consumer education and self-representation, and more effective pro bono efforts.

D. Challenges to LSC Regulations

    LSC continues to make every effort to ensure that the congressional restrictions placed on LSC-funded grantees are strictly observed. We have embraced that responsibility all the way to the United States Supreme Court, zealously defending the Constitutionality of each of the restrictions passed by Congress in 1996. In Legal Services Corporation v. Velazquez, by a vote of 5–4, the Supreme Court struck down on First Amendment grounds, the congressional ban on challenges to welfare laws in the context of individual cases and left standing all other 1996 restrictions on grantee activity. In Velazquez, LSC demonstrated it is a responsible regulatory agency committed to enforcing the will of Congress and committed to ensuring that federal funds are utilized in the manner mandated by Congress.
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    In the Velazquez ruling, the Supreme Court stated that LSC-funded attorneys can challenge the welfare reform law but only if it is part of the client's case for individual benefits. It is important to note that the Court did not strike down any other restriction imposed by Congress in 1996, and the Velazquez welfare decision will have no discernible impact on the vast majority of work done by LSC-funded programs.

    Opponents of congressional restrictions on federally funded legal services recently filed another lawsuit against LSC. In Dobbins v. Legal Services Corporation, plaintiffs argue that the activity restrictions passed by Congress and signed by President Clinton are unconstitutional. Among the restrictions that plaintiffs challenge are the bans on class actions, collecting court-awarded attorneys' fees, representation of certain categories of aliens, and organizing and representing clients. Plaintiffs also challenge LSC's program integrity regulations. The Courts of Appeals for the 2nd and 9th Circuits have upheld the constitutionality of the restrictions being challenged by the Dobbins plaintiffs, and notably the Supreme Court declined to review either of those rulings when it denied certiorari in March 2000. Congress has made clear its intent on the 1996 restrictions, and LSC remains committed to enforcing the will of Congress.

E. Case Service Reports

    LSC has acknowledged that serious questions were raised concerning the accuracy and validity of the case service report (CSR) data submitted annually by our grantees, and we have since undertaken comprehensive action to correct those problems. The accuracy problems stem, in part, from a lack of clarity found in past LSC reporting guidelines, and more generally, from insufficient attention by grantees to the existing reporting and documentation requirements.
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    Since we last testified before this body, LSC has answered—and, we hope, put to rest—the issues raised regarding the accuracy and validity of the Case Service Report (CSR) data submitted annually by LSC grantees. LSC has done its part to assure our grantees are provided with full and clear guidance on CSR reporting and that their case management systems comply fully with LSC's operational standards. LSC reissued its CSR instructions to all grantees, calling attention to problem areas known at that time. Recognizing that more action was needed to improve the CSR system, LSC provided additional training and issued further written guidance to LSC-funded programs, including substantial revisions to its CSR Handbook. We also now require all grantees to perform Self-Inspections of their CSR data on an annual basis.

    It should be kept in mind that the issue has always been one primarily of grantee compliance with rules governing how and when to report their activities. In no instance has the Inspector General or the General Accounting Office identified any fraud or intentional misrepresentation by any grantee in the compilation and reporting of this data. LSC did not intentionally deceive or mislead Congress in order to secure increased funding, nor did it attempt at any time to hide from the public or Congress the problems that were emerging in the CSR system and LSC's efforts to correct these deficiencies. Rather, LSC views the issues concerning CSR data akin to those encountered by many government entities as they attempt to meet the goals of the Government Performance and Results Act (GPRA).

    In September 1999, the General Accounting Office critiqued LSC's corrective actions by conducting a telephone survey with some 80 grantees. Based on the survey, the GAO concluded that certain policy areas required more clarification, that more effective communication and training on new CSR policies was required, and that the certification process could be improved by better sampling and more uniformity in the certification process. In its report to Congress, GAO made eight recommendations regarding LSC's CSR reporting system. As outlined in the chart on the following page, LSC has addressed GAO's recommendations in full.
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    LSC's Program Letter 2000–1 issued on January 14, 2000, contains the Self-Inspection instructions for 1999 cases and provides extensive case reporting guidance consistent with the GAO recommendations. Program Letter 2000–3 on April 28, 2000, outlines the amendments to the 1999 CSR Handbook. The 1999 CSR Handbook—Revised issued on May 14, 2000, includes the substantive changes to Case Service Reporting and incorporates other GAO recommendations. These three documents have been sent to all LSC-funded grantees.

    LSC has provided continuous and aggressive guidance by following up with grantees where corrective action was necessary and by increasing its on-site presence to test grantee compliance with the CSR reporting process. These efforts have been extremely successful. In 1999, the CSR error rate was approximately 11 percent. This figure dropped dramatically, to five percent, in 2000. LSC believes that this positive change is attributable to three factors: (1) the ongoing clarification of requirements that occurred throughout 1999 with the issuance of the Revised Handbook; (2) continuous emphasis on the importance of proper documentation of cases reported to LSC; and (3) grantees' increasing familiarity with the new, more rigorous reporting standards.

G. FY 2003 Budget Request

    For FY 2003, LSC is seeking an appropriation of $329,300,000 to provide funding for civil legal assistance to low-income persons in the United States. This amount represents no increase from the FY2002 appropriation. This budget request is structured to allow LSC to continue to focus on three strategic goals: (1) to dramatically increase the availability of legal services to eligible persons, (2) to ensure legal services clients are receiving appropriate and high-quality legal assistance, and (3) to ensure that legal services programs fully comply with all legal requirements.
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    In FY 2003, LSC will allocate $310,000,000 in grants to local legal services programs in every state, county, and congressional district in the United States, as well as in Puerto Rico, the Virgin Islands, Guam, and Micronesia. The work of LSC-funded grantees continues to be a model of efficient dispute resolution. A very small percentage, approximately 10 percent, of LSC-funded cases is resolved by a court decision (and the vast majority of these are family law cases that require a court determination). Rather than litigating cases, legal services lawyers consistently find more efficient ways to solve problems for their clients, such as brief advice, pro bono referrals, and the provision of self-help materials. This cost-effective approach is especially important because the need for legal services remains overwhelming. More than 43 million Americans are potentially eligible for LSC-funded services. Yet because of limited resources, local legal services programs are forced to turn away an estimated 80 percent of low-income individuals with critical legal needs, according to a benchmark 1994 American Bar Association legal needs survey.

    In FY 2003, LSC will allocate $3,400,000 in FY 2003 to its Technology Initiative Grant program. As explained in Section B of this document, the TIG plan was designed to significantly increase access to legal information, self-help resources, and basic legal assistance for low-income Americans. The TIG program awards grants to eligible grantees through a competitive grant process, rewarding the most innovative and technologically proficient programs.

    Only $13,300,000 of LSC's total FY 2003 requested appropriation is for Management and Administration. These funds allow LSC to fulfill its oversight and enforcement role as well as improve the national delivery system by reviewing program configuration and performance in every state—and by promoting program collaboration and/or consolidation to maximize services throughout the country. For FY 2003, LSC is seeking additional M&A funds to strengthen its capacity to ensure compliance with congressional restrictions enacted in 1996, to offset annual compensation increases and rental costs, and to continue to provide technical assistance to LSC programs on a wide range of issues.
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    The Office of the Inspector General is requesting $2,600,000 for FY 2003—an increase of $100,000 above its FY 2002 appropriation. The OIG has an explicit statutory role in the oversight of LSC grantees. LSC's FY 1996 Appropriations Act placed a particularly significant responsibility with the OIG—overseeing the monitoring of grantee compliance with congressional prohibitions and restrictions through IPAs' annual audit of grantees. This approach replaced the prior system of on-site checks by LSC management. This oversight responsibility includes development of guidance for the IPAs conducting the audits, review of their audit reports, referral of findings to LSC management for follow-up, and tracking the status of corrective actions. It also includes the OIG's on-site reviews of grantee compliance

    The OIG has developed a strategic plan outlining a series of operational projects that were formulated based on the OIG's risk assessment of the legal services program. The risk assessment determined that the OIG should allocate a majority of resources to assessing compliance with the prohibitions and restrictions on LSC-grantee activities and to promoting the effectiveness of the legal services delivery system. The risk assessment indicated that the threat of significant monetary losses through fraudulent activities is low. Mandatory projects include the annual audit of LSC financial statements, investigations of crimes and referral of evidence for prosecution, and review of proposed legislation and regulations. The plan also includes activities aimed at the prevention and detection of no-compliance with statutory restrictions. The OIG plans to conduct six on-site audits of grantee compliance with program integrity requirements for separation of grantees from organizations that conduct prohibited or restricted activities. The OIG will review approximately 200 grantee audit reports, refer significant findings to LSC management, and track the progress of corrective actions. The OIG will continue to manage the audit follow-up process and maintain the Audit Guide and Compliance Supplement that provide audit instructions to the IPAs.
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    The OIG also will conduct discretionary activities. Among these are three audits of the private involvement attorney (PAI) program under which grantees devote 12.5 percent of their basic field grants to the involvement of private attorneys in the delivery of legal assistance. The OIG will also perform two technology grant audits and 20 audit service reviews (ASRs) and will continue its ongoing assessment of the application of information technology to the delivery of legal services.

CONCLUSION

    We at LSC are proud of our partnership with Congress and appreciate the continuing support of the Bush Administration. We pledge to continue working with this Committee to improve the civil justice delivery system in America and to ensure federal dollars allocated for legal services are being spent in the most efficient and cost-effective manner possible.

    Since passage of congressional reforms in 1996, LSC has been faithful to the will of Congress and steadfast in its commitment to uphold all new restrictions on our grantees' activities. Our strong focus on compliance has been matched by our diligent efforts to maximize the federal legal aid investment in every state and to help effect major reform where necessary. We have embraced our new vision with resolve and purpose, determined to help more Americans access the civil justice system to address their critical, basic legal problems. Thank you, Mr. Chairman.

    Mr. BARR. Thank you very much, Mr. Erlenborn.

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    At this time, I would like to recognize Mr. Boehm for 5 minutes for your opening statement, sir.

STATEMENT OF KENNETH F. BOEHM, CHAIRMAN, NATIONAL LEGAL AND POLICY CENTER

    Mr. BOEHM. Thank you. Mr. Chairman, Members of the Subcommittee, thank you for this opportunity to testify. I welcome the opportunity to testify because Congress deserves to know—thank you.

    Congress deserves to know why the reforms its passed every year since 1996 have still not been carried out properly. The history of the Legal Services Corporation, as many of you know, has been a history of failed attempts to reform.

    By 1996, Congress had had it. They used LSC's annual appropriations law to enact the most ambitious effort yet to reform legal services. They banned lobbying, class actions, attorneys' fees, drug-related evictions, prisoner representation, and other activities, and they required that LSC set up a competition for LSC grants.

    The reforms had broad bipartisan support and have been passed every year since 1996. Clearly, Congress wanted LSC to reform. But it's just as clear that the LSC lawyers out in the field did not want that to happen. Legal Services lawyers filed a series of lawsuits against reforms, and, as has been noted, they've got one pending now.

    The LSC board selected an outspoken critic of the reforms as LSC president in Mr. McKay. Immediately, the LSC began to weaken the reforms and Congress took note. Hal Rogers, Chairman of the Appropriations Subcommittee on LSC scolded LSC at one of their appropriations hearing, when they took the regulation, a draft regulation supposedly to ban all attorneys' fees as Congress requested, and put a loophole allowing attorneys' fees to be charged to the disabled poor in some SSDI cases.
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    Here's what Mr. Rogers said at the hearing: It's outrageous your interpretation would be that when you—considering all the hot water you're in.

    But many outrageous interpretations were to come. LSC did quickly close that loophole. But they went on to other issues.

    For example, LSC was supposed to ban all class actions with no exceptions. When Legal Services lawyers began filing class actions, complaints rolled in; LSC dismissed all complaints. Congress warned LSC to stop the class actions again, in House Report 106–680, accompanying LSC's 2001 appropriations. They said: ''The Committee reminds the Corporation that its grantees are prohibited from participating in class actions and directs the Corporation to ensure its grantees comply.''

    LSC ignored that second warning and took no actions against the programs participating in class actions.

    Growers in Georgia and California were forced to spend hundreds of thousands of dollars in legal fees, fighting illegal class actions, because LSC refused to enforce the law, even after being warned by Congress in the House report. Some of the Georgia growers are here today.

    Congress has banned representing aliens unless the alien is present in the United States—the exact phrase. LSC selected a special commission to decide what the meaning of ''is present in the United States'' was. The group met in secret in violation of the Government in the Sunshine law, which does apply to the Legal Services Corporation through the LSC Act, and produced an interpretation of ''is present in the United States'' that really meant ''was present in the United States.'' This is Orwellian language at its worst.
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    Soon, LSC began dismissing complaints one after another without even bothering to check the facts. When a Federal judge found LSC had, ''no rational basis for dismissing a complaint on illegal lobbying'', LSC successfully argued on appeal that, as a private corporation, it was subject to judicial review. But LSC never disciplined the program that illegally lobbied.

    Congress mandated no LSC funds could subsidize groups doing restricted activities and LSC groups must be physically and financially separate from groups doing restricted activity.

    Here's how LSC interpreted that restriction. They said activist groups could work out of the same buildings, co-counsel on cases banned to LSC programs, oh, and the attorneys' fees could go to the activist group. That's their interpretation of physical and financial separation.

    Then Congress mandated LSC put all grants up to competition. By any objective yardstick, this has become a farce. They set up competition on every LSC program, but program grantees are all but guaranteed that their grants will be renewed.

    Congress has tried to reform LSC for more than 25 years. LSC does not want to be reformed. They've wanted competition, and it's now non-existent. They wanted lobbying stopped, and yet it's there. They wanted no class actions; warned them once in writing. LSC is still allowing class actions. On and on it goes.

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    Band-Aid approaches will do little to reform a fundamentally flawed program. The best Congress can hope for at this time is President Bush will appoint an LSC board committed to following the reforms, not undermining them. And in the absence of continuous oversight, a major reduction of LSC funding would undeniably cut down on abuses and perhaps convince the activists that thwarting the will of Congress does have a price.

    Thank you.

    [The prepared statement of Mr. Boehm follows:]

PREPARED STATEMENT OF KENNETH F. BOEHM

    Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to testify.

    My name is Ken Boehm, and I'm Chairman of the National Legal and Policy Center (NLPC), a group that promotes open, ethical government through research, education, and legal action. Since 1994, NLPC has sponsored the Legal Services Accountability Project to document abuses within the legal services program. From 1989 to 1994, I served in senior management positions at the Legal Services Corporation. From 1991 to 1994, I was Counsel to the LSC Board of Directors.

    I welcome the opportunity to testify today because Congress deserves to know why the reforms it enacted for the Legal Services Corporation have not been carried out.

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    The history of the Legal Services Corporation (LSC) is a history of failed attempts at reform.

    Much of the debate in the U.S. House of Representatives in 1973 over pending legislation to establish the Legal Services Corporation dealt with restrictions to prevent a repeat of the political and ideological activities associated with the legal services program which existed under the Office of Economic Opportunity.

    The controversies that have plagued the federal legal services program remain the same. The central criticism has been that activist lawyers have used the program to advance a political and ideological agenda.

    The pattern of failed attempts to reform LSC continues to repeat itself. Legal services lawyers get involved in a number of controversial political or ideological activities. Following a public outcry, Congress enacts reforms. Legal services lawyers find ways to evade the reforms. There's a further outcry followed by more reforms. Legal services lawyers have always responded by finding new ways to block, dilute, and frustrate the reforms.

    The core of the debate has always been two starkly different views of the mission of legal services. The activist view is that legal services is meant to push a more ideological agenda: fight welfare reform, support the expansion of welfare programs, and essentially run a politically motivated litigation effort using tax dollars to underwrite the operation. The other view is that legal services should steer clear of using government resources for political or ideological crusades and instead focus on providing traditional legal aid to help the poor with their day-to-day legal needs.
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    Sociologist Dr. Rael Jean Isaac noted this duality in her book examining how ideologues within legal services targeted farmers for harsh litigation tactics, Harvest of Injustice: Legal Services vs. the Farmer. She explained a pattern that exists to this day:

''When they come to Congress for appropriations, they insist that their mission is that of traditional legal aid: to provide the poor with equal access to justice. This has proved a successful tack in preserving the Congressional funding spigot and in disarming critics, but leaves many in Congress feeling betrayed and misled when the program continues to behave like a political movement.''

1996: CONGRESS ENACTS REFORMS AND RESTRICTIONS

    In the House of Representatives FY1996 budget resolution, a 3-year phase out of LSC was proposed. Appropriations of $276 million in FY1996, $141 million in FY1997, and elimination in FY1998 was recommended.

    The report of the House Budget Committee stated:

''Too often, . . . lawyers funded through federal LSC grants have focused on political causes and class action lawsuits rather than helping poor Americans solve their legal problems . . . A phase out of federal funding for LSC will not eliminate free legal aid for the poor. State and local governments, bar associations, and other organizations already provide substantial legal aid to the poor.''

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(H.Rept. 104–120)

    The FY1996 appropriations law for LSC, Public Law 104–134, contained restrictions on activities. These restrictions were incorporated by reference in subsequent appropriations laws. While the LSC Act itself and previous appropriations laws had contained restrictions of various activities, the reforms enacted in 1996 were considered to be the most ambitious attempt in some time to reform the legal services program.

    Under the current appropriations law, LSC grantees may not:

 engage in partisan litigation related to redistricting

 attempt to influence regulatory, legislative or adjudicative action at the federal, state or local level

 attempt to influence oversight proceedings of the LSC

 initiate or participate in any class action suit

 represent certain categories of aliens, except that nonfederal funds may be used to represent aliens who have been victims of domestic violence or child abuse

 conduct advocacy training on a public policy issue or encourage political activities, strikes or demonstrations

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 claim or collect attorneys' fees

 engage in litigation related to abortion

 represent federal, state or local prisoners

 represent clients in eviction proceedings if they have been evicted from public housing because of drug-related activities

 solicit clients

    Appropriations law also included reforms requiring that LSC set up a program of competition for LSC grants as a way to end the practice of presumptive refunding.

THWARTING REFORM

    The reforms were largely opposed by legal services lawyers and supporters.

    John McKay, a private lawyer who would later become LSC President, called the proposed reforms ''so troubling'' because they would ''. . . micro-manage Legal Services to the point of being absurd.'' (The Seattle Times, Oct. 7, 1995, page A11)

    Despite—or perhaps because of—his fervent opposition to the restrictions, the LSC Board selected McKay to succeed Alexander Forger as LSC President. Also, McKay had nominal Republican credentials deemed useful in working with the new Republican Congress. Equally important, McKay was to devote full time to the job of LSC President. Despite an LSC rule that its President not hold outside employment, Forger had drawn criticism for getting the LSC board, in closed session, to allow him to work on the multimillion dollar Jacqueline Onassis estate and the billion dollar Doris Duke estate while supposedly working full time as LSC President.
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    Radical activist lawyers were especially upset at the prospect of losing taxpayer-funded lawyers for their ideological efforts. David Cole, affiliated with the far left Center for Constitutional Rights, the group founded by William Kunstler, wrote a blistering attack on the reforms. (''A Shackling Compromise: How the LSC Sold Out the Poor; LSC Board Should Call Congress' Bluff,'' Legal Times, Jan. 27, 1997, page 27) Cole urged the LSC Board to take on Congress by strongly opposing the restrictions.

    The problem with a frontal assault on Congress at that time was that funding for LSC was very much in jeopardy.

    For the most part, Congressional supporters of LSC embraced the reforms, arguing that LSC should be given a chance to reform. In fact, no Congressman took any legislative action to strike the reforms and each annual debate on LSC funding featured supporters arguing that the reforms should be given time to work.

    The House floor debate of July 23, 1996 on LSC funding showed strong support for the reforms by a bipartisan group of LSC supporters.

    Rep. Alan Mollohan (D-WV) acknowledged past problems with LSC-funded lawyers in his own state, but called the reforms bipartisan.

    Rep. Charles Stenholm (D-TX), an early supporter of the restrictions, called them ''tough, smart.'' He cited the restrictions as essential to LSC serving its original purpose.
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    One critic of LSC, Rep. George Radanovich (R-CA), used the debate to focus on a key aspect of the restrictions:

''Today's proponents of increasing funding for the Legal Services Corporation have spoken about restrictions placed upon the LSC in last year's appropriations bill. They claim that these restrictions have placed new limits upon the LSC and have forced it to act more responsibly. But these proponents have failed to note that the LSC is not a federal agency of the Federal Government, so Congress has no way of enforcing these restrictions. So, in effect, Congress is providing funding for the LSC, but we have no real control over this organization.''

    In light of LSC's numerous subsequent efforts to dilute or ignore the reforms enacted by Congress, Rep. Radanovich's analysis proved prophetic.

THWARTING REFORM: THE ROLE OF THE LSC BOARD

    While LSC is a private corporation and not a federal agency, it conducts itself in ways similar to an agency. When Congress enacted the restrictions and reforms as part of the LSC appropriations legislation, it was up to the LSC Board to promulgate regulations. All eleven of the LSC Board members in office at the time the restrictions took effect were nominated by President Clinton. First Lady Hillary Rodham Clinton had a special interest in LSC, having served as LSC Chairman under President Jimmy Carter.

    Under the LSC Act, the LSC Board has the ultimate authority for the management of the Corporation. The Board selects the LSC President as well as the Inspector General. The LSC President has hiring authority over LSC staff and plays a key role in how enforcement actions are conducted.
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    The record is clear that the LSC Board ought to undermine the Congressionally-mandated reforms by:

 using its regulatory authority to pass regulations weaker than Congress intended or with loopholes allowing activities which Congress sought to ban

 weakening the authority of the LSC Inspector General to have access to information from grantees in order to perform his duties under the IG Act

 using a ''special commission'' to recommend a major reinterpretation of federal law to allow representation of aliens who are not physically in the United States

 taking no action to ensure that LSC management enforced certain restrictions or administered reforms properly

THWARTING REFORM: THE ROLE OF LSC MANAGEMENT

    Under the LSC Act, Congress gave LSC the sole authority ''to insure the compliance of recipients and their employees with the provisions of the [Act] and the rules, regulations, and guidelines promulgated pursuant to [the Act] . . .'' 42 U.S.C. 2996e(b)(1)(A).

    By their terms, the statutory enforcement provisions permit, but do not compel, the Corporation to sanction violations of the Act or the Corporation's regulations. See 42 U.S.C. 2996e(b)(5); see also 45 C.F.R. 1618.5(b) (giving Corporation discretion to suspend or terminate funding after ''attempts at informal resolution have been unsuccessful'').
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    As the Regional Management Corporation vs. LSC federal case, discussed below, shows, a third party which is financially damaged by a violation of federal LSC restrictions by a lawyer or program funded by LSC has no judicial recourse if LSC fails to properly investigate or take proper administrative action. In the case cited, a company reported improper legislative lobbying by a legal services lawyer and complained to LSC. The investigation by LSC was so shoddy that it never even determined whether the legal services lawyer had a client for the lobbying, a clear requirement—one of several—for lobbying to be legal. The federal judge in the case cited the fact that the purported client of legal services had never asked the legal services lawyer to lobby the South Carolina General Assembly, and the lawyer admitted that she never spoke with the client about the lobbying.

    LSC failed to even mention the client in its cursory decision to dismiss the complaint by Regional Management Corporation against the legal services program.

    Even though the federal judge found ''. . . the lobbying of the South Carolina General Assembly transgressed the clear language of federal law and LSC guidelines'' and remanded the matter to LSC with instructions to fashion a proper remedy, LSC refused to sanction those who clearly broke the lobbying restriction.

    Instead, LSC appealed the case, ignored the question as to whether the lobbying restriction was violated and argued that as a private corporation LSC was not subject to judicial review. LSC won on appeal because it is not subject to judicial review. In fact, this is yet another reason why LSC's critics have cited it as among the most unaccountable of federal programs.
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    The illegal lobbying incident is hardly isolated. Many individuals and groups which have complained to LSC about the conduct of legal services have found their complaints to be delayed and then dismissed with little apparent attention to the merits.

    Because only LSC can enforce the LSC Act and regulations and because it is not subject to the judicial review which applies to virtually all federal agencies, LSC's failure to properly investigate or enforce the restrictions enacted by Congress means the restrictions are largely unenforceable.

    But the situation is actually worse than that.

    LSC has an Inspector General with limited powers to conduct fact finding investigations regarding alleged abuses. According to LSC Inspector General Edouard Quatrevauex, in a letter to Rep. Hal Rogers (R-KY), Chairman of the Appropriations Subcommittee with jurisdiction over LSC, on September 14, 2000:

''Grant recipients have repeatedly denied the Office of Inspector General (OIG) access to information. Moreover, the actions of the LSC President and the Board of Directors have undermined the OIG by encouraging grantees to refuse to provide information to the OIG. Waiving its own statutory right of access, LSC management also has accepted denials of access to records when attempting to conduct its own compliance inspections, and acceded to ineffective inspection procedures suggested by the grantees being inspected.''

    Put simply, not only does LSC refuse to properly investigate complaints or enforce restrictions, but it has actively refused to conduct its own proper compliance investigations and took the steps noted in the letter above to frustrate any attempt by the Inspector General to get access to information needed to ensure proper compliance by programs.
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    Shortly after the Inspector General complained to Congress that ''. . . it is no longer possible to conduct oversight activities efficiently and effectively . . .'' in the letter just cited, it was announced that the Inspector General was no longer working for LSC. (Legal Times, Dec. 4, 2000)

    The hasty departure of the LSC Inspector General so soon after he told Congress that the LSC President and Board of Directors had undermined his access to information by encouraging legal services programs to refuse him access to records underscores yet another reason LSC has been so unaccountable: the Inspector General serves at the pleasure of the Board that runs the program he is supposed to oversee.

THWARTING REFORM: THE ROLE OF LSC-FUNDED PROGRAMS

    Many of the lawyers funded by LSC at the time Congress enacted the restrictions made it clear immediately that they were strongly opposed to the reforms.

    A legal challenge to the reforms came in a lawsuit filed in federal court in Hawaii in January 1997 by five legal services programs. (Legal Aid Society of Hawaii, et al. v. LSC, 981 F. Supp. 1288 (1997)) The challenge to the reforms was defeated, appealed and defeated on appeal.

    Opponents to the reforms also filed a broad challenge to the restrictions in federal court in New York. (Velazquez v. Legal Services Corporation, No. 97 00182 (E.D.N.Y. filed Jan. 14, 1997). While the challenge to most of the Congressional reforms failed, the Velazquez case went to the Supreme Court of the United States where the restriction against challenges to welfare reform was struck down in a 5–4 decision.
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    Activist lawyers opposed to the restrictions continue to mount legal challenges. In a case filed in late 2001 (Dobbins v. LSC) in New York, legal services programs and others are challenging the restriction against the use of non-LSC funds for restricted activities. While this same challenge was made in the LASH and Velazquez cases and defeated both times, the Dobbins case shows the determination of legal services activists to defeat reform.

    The case underscores the attitude of legal services lawyers who view providing traditional day-to-day legal services to the poor as a waste of their time. These lawyers see the mission of LSC as funding a political and ideological agenda. Former legal services lawyer Mike Daniel spoke out against the attempts by Congress to redirect LSC back to traditional legal aid:

''I don't know how you justify taking federal money to provide routine legal services. There are other lawyers who will do those services.'' (Dallas Morning News, Aug. 21, 1996, page 25A)

    While critics of legal services have long contended the program has a political agenda, many legal services lawyers have candidly admitted the same thing. War correspondent and former legal services lawyer Geraldo Rivera acknowledged the political mission of legal services lawyers in his autobiography when he recalled that the New York program he worked for undertook ''mountains of ideologically-motivated litigation.'' (Exposing Myself, by Geraldo Rivera, page 55, 1992)

    Opposition to the reforms enacted by Congress by legal services lawyers is not limited to lawsuits. Cases such as the illegal lobbying of the South Carolina General Assembly by legal services lawyers illustrates another form of opposition: simply ignoring the restrictions.
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    Legal services lawyers know that only LSC can sanction them for breaking the rules and LSC has no interest in finding violations let alone punishing them. As previously noted, LSC's President and Board took the side of programs denying access to LSC's Inspector General when he was conducting his own oversight efforts.

    Legal services lawyers also know that the Inspector General is principally a fact finder and that only LSC has the authority to sanction them for violation of the LSC Act and regulations.

    Indeed, several of the major instances in which a program was caught violating the rules came from efforts of individuals in the Inspector General's office. The strategy of those who oppose the reforms is clear: prevent the Inspector General access to information and, if that fails, get a more compliant Inspector General.

LSC REFUSES TO ENFORCE LOBBYING RESTRICTION—

DESPITE RULING OF FEDERAL JUDGE

    The Regional Management Corporation v. LSC case cited earlier demonstrates the brazenness with which LSC has sought to undermine the restrictions imposed by Congress in four important ways.

1.
   Complaints to LSC about programs violating restrictions can be ignored because there is no appeal and no judicial review.
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   As U.S. District Judge Herlong pointed out when he ruled that there was no rational basis for LSC's dismissal of RMC's complaint:

       ''This short history of Polite's case, combined with the stern language in the LSC guidelines, demanded a more thorough investigation of this matter by LSC. Due to this failure to fully develop the factual record, LSC's decision that Berkowitz did not improperly lobby the General Assembly is without rational basis.''

2.
   While LSC is legally correct that it is not subject to judicial review, the fact remains that Judge Herlong was correct that the lobbying of the General Assembly by a legal services lawyer in this case involves ''. . . serious allegations that cut to the heart of the continuing controversy over the public funding of legal services for the poor.''

   Judge Herlong put it bluntly, ''Berkowitz's lobbying of the South Carolina General Assembly transgressed the clear language of federal law and LSC guidelines.''

   The question is: why did LSC not enforce the restriction against lobbying?

3.
   If LSC believes it can ignore a clear violation of the lobbying restriction because it is not subject to judicial review, does this view extend to all other restrictions? This concern validates the view by Rep. Radanovich that LSC is not a federal agency ''so Congress has no way of enforcing these restrictions.''
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4.
   If LSC can ignore the plain meaning of the restriction against lobbying and it can ignore the decision of a federal judge that there was no rational basis for the dismissal of the complaint about the illegal lobbying, what recourse is available for an individual citizen harmed by LSC's refusal to sanction legal services lawyers when they violate the restrictions?

REPRESENTING ALIENS OUTSIDE THE UNITED STATES:

LSC APPOINTS A ''SPECIAL COMMISSION'' TO REWRITE FEDERAL LAW

BEHIND CLOSED DOORS; LSC DETERMINES ''IS'' REALLY MEANS ''WAS''

    Did Congress ever intend for LSC-funded lawyers to represent aliens who are not present in the United States?

    Of all the efforts by LSC and legal services lawyers to subvert reforms enacted by Congress, the effort by LSC to evade the longstanding requirement that no alien be eligible for legal assistance ''unless the alien is present in the United States''—the exact language of the law—and meet certain additional requirements, has to be the most brazen.

    The controversy began in early 1998 when a group of lawyers from Farmworkers Legal Services of North Carolina, an affiliate of Legal Services of North Carolina, took an illegal trip to Mexico to recruit clients to sue North Carolina farmers. A candidly shot video of the lawyers in action in a public square in Mexico lead to criticism of LSC at their February 1998 appropriations hearing, a call for an investigation by Rep. Charles Taylor (R-NC), and critical commentary on the editorial page of the Wall Street Journal.
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    LSC investigated and reported back to Congress that it was fining the farmworkers legal unit $17,000 (the cost of the trip) and defunding it. Superficially, it looked like LSC was taking appropriately strong steps to deal with a group of law-breaking lawyers. It later turned out that all of the lawyers and staffers from the illegal trip simply joined a newly formed farmworker law unit which continued to receive LSC funds. A closer look at LSC's letter to the legal services group, obtained through a Freedom of Information Act request filed by the National Legal and Policy Center, revealed that the focus of the sanctions was for legal services rendered to Mexicans in Mexico who had never been to the United States.

    Shortly thereafter, LSC announced that it would select a ''special commission'' to help the LSC board determine what Congress meant when it mandated that no alien could receive legal assistance ''unless the alien is present in the United States.'' Legal services programs had been violating that provision for years by representing aliens who had come to the United States as agricultural guest workers under the heavily regulated H-2A program. It was well known that legal services lawyers would travel to Mexico to recruit such clients to sue growers who used the H-2A program.

    Despite the fact that the H-2A program was very popular with foreign workers and had provisions for housing, transportation, mandated wages, and was subject to inspection by a number of state and federal agencies, legal services lawyers had long viewed the program with disdain. It was felt that foreign workers who came to the U.S. for harvests, making many times what they would for similar work in their home country, were bad prospects for joining agricultural unions and the unions were longtime allies of the legal services lawyers.

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    The activist lawyers had a simple solution: sue as many farmers using the H-2A program as possible, making the already expensive program cost prohibitive. As it was, farmers had to pay a wage rate set by the government to equal or exceed the wages paid an American citizen for similar work plus the housing, transportation and other benefits. In addition to the inspections and oversight of the program at both the federal and state level, any farmer violating the rules ran the risk of being banned from the program—a financial death sentence for farms with labor intensive crops.

    As might be expected, foreign workers competed to be accepted in the program, sometimes paying recruiters to be accepted. As a result, H-2A guest workers were poor prospects for joining unions or joining trumped up lawsuits. While legal services are quick to cite their overcrowded waiting rooms, there was a real shortage of H-2A clients. So the activist lawyers decided to go to Mexico to recruit past H-2A workers.

    The tactic of undercutting the H-2A program by recruiting clients in Mexico among workers who had previously worked in the H-2A program seemed to work. Until the videotape.

    The ''special commission'' appointed by the LSC Board to struggle with the best way to change the plain meaning of the legislative language was handpicked to exclude anyone representing agriculture or, for that matter, anyone who might dissent from the effort to provide window dressing for the LSC Board's intention of finding a way to justify the representation of aliens outside the United States.

    The group had two public hearings then went into secret session despite the fact that LSC has always been subject to the Government in the Sunshine Act. Predictably, the commission issued a report which argued that Congress could not possibly have meant that there be no legal assistance for any alien ''unless the alien is present in the United States.'' They, in effect, argued that ''is'' really must have meant ''was'' and therefore any alien who was previously in the United States as a guest worker is eligible for legal assistance.
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    Just as predictably, the LSC Board agreed to this absurd construction. Left unsaid is just where in the Constitution did the LSC Board find their authority to change the plain meaning of a federal law.

    The relevant language of the LSC appropriations law, as set forth in Section 504(a)(11) of Public Law 104–134 is quite clear:

''Sec. 504

(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 ''recipient'')—

. . .

(11) that provides legal assistance for or on behalf of any alien, unless the alien is present in the United States and is—

. . .

(E) an alien to whom section 305 of the Immigrant Reform and Control Act of 1986 (8 U.S.C. 1101 note) applies, but only to the extent that the legal assistance provided is the legal assistance described in such section;

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    The physical presence of the alien in the United States is the necessary precondition for any legal assistance.

    The phrase ''is present in the United States'' was meant to condition eligibility for legal assistance to aliens present in the United states when legal assistance is being rendered. ''Canons of statutory construction dictate that if the language of the statute is clear, we need look no further than the language in determining the statute's meaning.'' United States v. Lewis, 67 F.3d 225, 228 (9th Cir. 1995) (citing Sullivan v Stroop, 496 U.S. 478, 482 (1990))

    Nothing presented by the LSC ''special commission'' came even close to providing any evidence that the presence requirement contained within the appropriations law was meant by its authors to allow legal assistance when the alien is not present in the United States.

    First, LSC's own briefing paper contained in the materials presented at the February 2, 1999 meeting of the LSC commission, Restrictions on Legal Assistance to Aliens: Legal Background, stated:

''Under current law, LSC recipients may provide legal assistance to an alien if the alien is present in the United States and falls within one of several designated categories. See Pub. L. 104–134; and 45 C.F.R. Part 1626''

    The same LSC briefing paper goes on to admit that:

''. . . nor is there any indication in relevant legislative history to indicate that the term should not be given it plain meaning which is actually be physically in the United States.''
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    Well stated and totally correct.

    But very inconvenient for those who wanted to provide legal assistance at taxpayers' expense to aliens not physically in the United States.

    Even Texas Rural Legal Aid (TRLA), one of the programs caught providing legal assistance to aliens outside the United States, was hardpressed to find any legislative history supporting the ''is really means was'' school of thought at LSC. The TRLA statement contained in the public record of the commission, before it went into secret session, states:

''There appears to be no instructive legislative history on the meaning of ''is present'' as used in the legislative rider in 1986 nor in any of the other years in which it has appeared in the appropriations acts (1984 to present).''

    Finding nothing whatsoever in the legislative history of the appropriations rider to support the view that Congress meant ''is present in the United States'' to mean ''is or was present in the United States,'' TRLA's statement went on to attempt to argue that the 1986 Immigration Reform and Control Act (IRCA) somehow dictates that the plain meaning of the subsequent appropriations rider should not be followed This view of statutory construction is based on the absurd and insupportable notion that Congressional appropriations riders do not have the legal authority to curtail an interpretation of prior statutory law. In reality, riders to appropriations laws routinely curtail activities which in prior fiscal years may have been permissible. To find examples of this, one need look no further than the restrictions of legal services activities which were first set forth in Public Law 104–134.
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    Despite the novel view, implicit in TRLA's analysis, that appropriations riders passed by Congress may not restrict activities that may have been previously allowed by a program that receives federal funds, no legal analysis whatsoever was provided by TRLA or any other participant to support this view.

    Even if the language in IRCA explicitly allowed legal services lawyers to provide legal assistance to aliens who are not present in the United States at the time of that assistance, and IRCA clearly does not contain such language, nothing would prevent Congress from exercising its appropriations authority under Article I of the Constitution from withholding funding for activities which had previously been allowed.

    For LSC to take the view that Congress does not possess the authority to use appropriations riders to restrict activities by legal services lawyers is tantamount to LSC endorsing the view that it has the authority to pick and choose which of the restrictions imposed by Congress it will enforce.

    The argument that Congress may not amend substantive law in an appropriations statute is flatly contradicted by a 1992 Supreme Court decision which explicitly found that Congress ''. . . may amend substantive law in an appropriations statute . . .'' Roberts v. Seattle Audobon Society, 112 S. Ct. 1407, 1414 (1992).

    The results of LSC's decision to allow representation of aliens outside the United States has been predictable. Programs which have long had reputations for political activism embraced the opportunity instead of addressing traditional day-to-day legal needs.
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    It should come as no surprise that the two programs which have paid the largest fines for violating LSC rules in the recent past, Texas Rural Legal Aid and Legal Services of North Carolina, have both decided to use their scarce resources to represent aliens outside the United States. The result is that the deserving poor within their own service areas are short-changed.

    Anyone who thinks that these more expensive foreign cases are serving the interests of justice should take a closer look at the cases. Despite the fact that many farmers who cannot afford to pay the expense of defending a lawsuit and are forced to settle when legal services file trumped up or bogus claims, farmers in North Carolina, fed up with the shakedown brand of justice practiced by legal services lawyers, decided to go to trial on one of the cases decided since LSC decided it could pretend it was Congress and rewrite federal appropriations law:

Franco-Favela v. Leonard Wester and Wester Farms

    This case was heard in Franklin County District Court on July 30, 2001. This was a contract case brought by one of the LSC-funded lawyers involved in the illegal Mexican recruiting trip. The client was a Mexican citizen currently in Durango, Mexico. The client signed a voluntary resignation form in Spanish and English in August 1996 but the case was not filed until July 1999. The claim that the client was fired for not meeting a production quota in bell peppers was inconsistent with the fact that bell peppers were a minor crop and all employees picking them were paid an hourly wage. The plaintiff admitted the signature on the voluntary resignation form was his but he had forgotten the circumstances under which he had signed it. There was no evidence that Wester farms coerced or intimidated the client into signing the form. The judge hearing the case ruled that ''plaintiff's claims against defendants lack merit.'' The claims were dismissed in their entirety with prejudice and the judge further ruled that plaintiff shall recover nothing from defendants.
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    Ironically, Legal Services of North Carolina, while pursuing meritless claims like the one above on behalf of an alien client living in Mexico five years after the client left North Carolina, recently argued to the North Carolina legislature that it needed more funds to meet the unmet legal needs of poor North Carolinians. Perhaps if the program was recruiting clients in Mexico for meritless cases, it might have been able to meet more legal needs of the deserving poor in North Carolina.

CONGRESS REQUIRES COMPETITION FOR LSC GRANTS BUT LSC SETS UP SYSTEM

TO FRUSTRATE COMPETITION

    One of the most important reforms enacted by Congress through the 1996 LSC appropriations law was the requirement that LSC implement a system of competition for the award of all grants to field programs.

    For years, LSC grantees received their grants through a system of presumptive refunding. The funds were simply awarded to the incumbent program in almost every instance without any regard to whether the program was doing an excellent job or a miserable job.

    Quality did not count. Being the incumbent program was all that mattered.

    Law Professor Douglas Besharov studied the quality and quantity of legal services provided with LSC funding in his 1990 book, Legal Services for the Poor: Time for Reform. He concluded that efficiency among grantees varied widely and LSC's own data suggested ''a substantial decline in productivity.'' (Id. at vx)
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    Dr. Besharov identified one of the sources of the mediocre levels of efficiency as the automatic refunding process:

''Unlike most federal programs, LSC grantees are all but guaranteed refunding. Unfortunately, ensured refunding removes an important incentive for greater efficiency and responsiveness.''

    Congress mandated that LSC set up the program of competitive bidding for grants with the clear understanding that it did not want a sham process that merely mimicked the failed policy of automatically granting money to existing programs.

    To reinforce this view, Section 503(a)(3)(e) of Public Law 104–134 stated:

''No person or entity that was previously awarded a grant or contract by the Legal Services Corporation for the provision of legal assistance may be given any preference in the competitive selection process.''

    Despite this language, the LSC set up a competition program that did just the opposite of what Congress intended.

    The facts speak for themselves.

    Ronald Sutherland, Adjunct Professor of Law at the George Mason University School of Law, has produced an excellent study examining LSC grant competition (The Government Provision of Legal Services for the Poor: Competition or Monopoly). While the study also addresses broader issues regarding the ineffectiveness of delivery of legal services for the poor, his analysis of six years of purported competition at LSC shows beyond all argument a system that thwarts competition.
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    Sutherland's analysis of LSC's competition found that, with few exceptions, grants are awarded in competitions which feature just one bid—the incumbent program.

    The LSC board, management, and field programs were all opposed to competition but there was a political necessity to set up a facade of competitive bidding. LSC set up the program, made the necessary announcements in the federal register, and ran the program for six years in a way that virtually guaranteed that incumbent programs almost always won in the very few cases there was even a competitor.

    Any law firm, legal group, faith-based group or charity which entertained an idea of competing for a LSC grant quickly learned what happens when you challenge an incumbent legal services program.

    The very first successful challenge to legal services programs for a LSC grant was by the Philadelphia area law firm of Dessen, Moses & Sheinoff. This firm successfully competed for grants held by two LSC-funded programs: Montgomery County Legal Aid and Delaware County Legal Assistance. (''Law firm awarded federal legal aid grant,'' The Legal Intelligencer, Feb. 25, 1997, page 1)

    Then the situation turned ugly.

    The new group, which won the competition despite the tremendous bias of the competition process for existing programs, soon found itself picketed by legal services lawyers from the losing programs.
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    One of those lawyers, Roger Ashodian, President of the Delaware County Legal Assistance, called on Dessen, Moses to withdraw its winning bid. This is the same attorney who in 1992 had been sanctioned by a judge for engaging in unethical tactics to increase litigation costs in a lawsuit that had been filed against a non-profit group that had provided affordable housing to the poor. (Cottman v. Flower Manor, Civ. A No. 91–4890, 1992 WL 368457 (E.D. Pa. 1992))

    The losing programs mounted a campaign of political pressure to force the winning firm to withdraw its bid. The losing programs convinced their Congressman to attend a LSC board meeting in January 1997 to try to overturn the award.

    Then the winning firm found that one of its biggest clients, the Philadelphia Federation of Teachers, did not support the action. The legal service program's unionized staff had apparently persuaded the teachers' union to throw its weight against the winning bid.

    The Legal Intelligencer (Mar. 19,1997) summed up the firm's decision in a story entitled ''Concern Over Client Led to Dropping Legal Aid Grant.''

''A desire not to 'embarrass' a major client, combined with a public protest by legal service union members, led the center city-based firm Dessen, Moses & Sheinoff to withdraw from a grant to take over legal aid services in Montgomery and Delaware Counties.''

    The lesson was that any attempt to allow true competition based on quality legal services would be met with political pressure, demonstrations, and economic pressure.
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    Today, there is nothing even remotely resembling the competition that Congress mandated.

LSC VICE PRESIDENT ADMITS ANOTHER OF LSC'S ''DIRTY LITTLE SECRETS''—

POOR QUALITY LEGAL SERVICES

    Congress mandated competition for LSC grants in an attempt to promote incentives for better quality legal assistance. As just noted, six years of pseudo-competition where almost every program, no matter how mediocre, gets its grant renewed has produced exactly what existed before: many low quality programs—the ''deadwood'' described by Dr. Besharov in Legal Services for the Poor: Time for Reform.

    This lack of quality manifests itself everywhere, even in candid assessments by current LSC officials. Randi Youells, LSC Vice President for Programs addressed the quality issue directly in a paper presented to the International Legal Aid Group which convened in Melbourne, Australia, July 13–16, 2001:

''Unfortunately, at the same time we have held ourselves out as the champions of quality, we have also tolerated the existence of legal services programs that we know are functioning below appropriate levels. That reality has been one of our ''dirty little secrets.'' It has also been our ''Achilles'' heel in that it has allowed our adversaries—the people who oppose the very idea of federally funded legal services—to chip away at our financial and political support.'' (International Legal Aid Group paper, page 13)
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CONGRESS STRICTLY FORBIDS CLASS ACTIONS; LSC ALLOWS CLASS ACTIONS

    When Congress banned legal services lawyers from class actions as part of the FY1996 LSC appropriations law, the restriction was short, unambiguous and without exception:

''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 1to in this section as a ''recipient'')—

. . .

(7) that initiates or participates in a class action

(Public law 104–134, section 504(a)(7)

    Congress enacted the ban after years of abuses by legal services lawyers using class actions to advance political and ideological agendas. Not only were such class action lawsuits among the most controversial but they were also costly and diverted resources from the day-to-day legal problems of the poor.

    Prior to the restriction, legal services lawyers used class action lawsuits to:

 challenge Atlanta Housing Authority's policy of denying housing to persons with criminal backgrounds (Bonner v. Atlanta Housing Auth., N.D. Ga., Oct. 1995).
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 sue Pennsylvania when Governor Casey cut off some welfare benefits to able-bodied adults if they had no children and were fit to work (Legal Intelligencer, Aug. 4, 1994).

 participate in an unsuccessful lawsuit against Michigan for failing to provide free lawyers to prisoners for child custody cases (Glover v. Johnson, 75 F.3d 264, 6th Cir. 1996).

    Moreover, many types of class actions which might truly benefit the poor did not require legal services lawyers because private law firms were eager to take such cases because of the attorneys' fees involved.

    Despite the plain language of the restriction against class action lawsuits by LSC-funded lawyers and the lack of any exceptions to that restriction, legal services lawyers have filed class actions against farmers in both Georgia and California.

    In the Georgia case, Georgia Legal Services filed a lawsuit against the Georgia Growers Association, Southern Valley Fruit and Vegetable, Inc., and Hamilton Growers, Inc.

    The clients were five Mexican citizens living in Michoacan, Mexico, who had traveled to Georgia as part of the H-2A temporary agricultural worker program in April 1998, more than a year prior to the filing of the complaint by Georgia Legal Services.

    Georgia Legal Services asked the court to grant judgment not only for the five named clients but for a large unidentified number of ''others similarly situated.'' Throughout the complaint, the legal services lawyers asserted claims for the unidentified large group of ''others similarly situated.''
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    The legal services lawyers also requested that the court let the action proceed with Georgia Legal Services representing the large unidentified group. From the motion it was apparent that they wanted to represent as many as 335 aliens in a class action.

    The lawyers for the growers submitted a memorandum to the court in opposition to the attempt to proceed as a class action. The memorandum addressed the appropriations law restriction against class action as follows:

    ''Congressional Restrictions on this Litigation

As reflected in the proposed notice, plaintiffs are represented by Legal Services attorneys. Congress prohibits Legal Services Corporation (LSC), and those organizations taking their funding from LSC, from undertaking a class action, directly or through others. 42 U.S.C. 2996e. Public Law 104–134 made this a strict prohibition and LSC recognized the ''clear prohibition'' on this activity in the preamble to 45 C.F.R. Part 1617. 45 C.F.R. 1617.3 now prohibits Legal Services from initiating or participating in a class action with no exceptions. While ''class action'' is defined by LSC with reference to Rule 23, it also extends to class actions pursuant to ''rule of civil procedure applicable in the court in which the action is filed.'' While this class action is not brought pursuant to Rule 23, it remains a federal court class action. See, e.g. Grayson, supra (repeatedly referring to such cases as class actions). Thus, as held in Brooks v. Bellsouth Tel. Co., supra, while these ''class actions . . . do not proceed under Fed. R. Civ. P 23 . . . section 16(b) of the Fair Labor Standards Act . . . provides procedures for representative or class actions.'' The bottom line is that LSC attorneys seek to represent 335 persons in a class action, despite a Congressional prohibition.''
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    The class action lawsuit being pursued by Georgia Legal Services had other important violations of the Congressional restrictions.

    Congress had sought to eliminate a longstanding pattern of abuses in which legal services lawyers would fail to identify their clients. The 1996 reforms contained in Public Law 104–134 set forth this requirement as follows:

''Sec. 504

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'')—

. . .

(8) that files a complaint or otherwise initiates or participates in litigation against a defendant, or engages in a precomplaint settlement negotiation with a prospective defendant, unless—

(A) each plaintiff has been specifically identified, by name, in a complaint filed for the purposes of such litigation or prior to the precomplaint negotiation; and (B) a statement or statements of facts written in English and, if necessary, in a language that the plaintiffs understand, that enumerate the particular facts known to the plaintiffs on which the complaint is based, have been signed by the plaintiffs, are kept on file by the recipient, and are made available to any Federal department or agency that is auditing or monitoring the activities of the Corporation or of the recipient, and to any auditor or monitor receiving federal funds to conduct such auditing or monitoring, including any auditor or monitor of the Corporation . . .
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    In the Georgia case, not only were the identities of each plaintiff not provided, it's abundantly clear that Georgia Legal Services didn't even know the identities of those ''similarly situated'' who it was purporting to represent.

    As such, Georgia Legal Services violated this federal appropriations law restriction by both failing to identify all plaintiffs and by failing to have gotten from this large group of unknown plaintiffs a statement of facts. Moreover, the time for such disclosure is at the filing of the complaint or prior to precomplaint negotiation, not halfway through the case.

    The tactics of Georgia Legal Services in this case fit the controversial modus operandi which has all too often accompanied legal service lawsuits against farmers. This approach has been documented in Dr. Rael Jean Isaac's Harvest of Injustice: Legal Services v. the Farmer published by the National Legal and Policy Center as well as in hearings ably led by Representatives George Gekas (R-PA) and Roscoe Bartlett (R-MD) in recent years. The chief tactic is to force farmers to settle flimsy and even non-existent claims by simply running up the legal bill to fight the lawsuit.

    Filing class action lawsuits and failing to identify hundreds of plaintiffs clearly violates Public Law 103–134, but it is a tactic designed to force farmers to settle trumped up claims or face financial ruin through legal bills.

    Among the trumped up claims was the claim that farmers were somehow responsible for reimbursing workers for passports purchased by workers in their own country long before a contract even existed. The claim was totally without merit. In the world of legal services litigation, it doesn't matter that the allegations are nonsense. What matters is that the case is so expensive to litigate that farmers will settle just to avoid the costs of litigation.
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    In the case of Georgia Growers Association, abusive litigation has cost it hundreds of thousands in legal bills.

    On a bipartisan basis Georgia's House delegation and Senators spoke out against the abuses. Rep. Saxby Chambliss (R-GA) and the late Senator Paul Coverdell (R-GA) wrote to LSC to complain about the tactics of Georgia Legal Services. Senator Zell Miller (D-GA) in a statement entitled ''Agriculture: Georgia's Top Industry; My Top Priority,'' specifically identified the Legal Services Corporation as challenging Georgia farmers. He added, ''I have learned that Washington has not always been a great friend to our farmers.''

    Despite an outcry from the growers, a complaint against Georgia Legal Services by the National Legal and Policy Center citing multiple violations of the restrictions enacted by Congress, and protests by Congressmen and Senators, LSC did nothing to rein in the rogue program.

    LSC knew that only LSC had standing to enforce the restrictions and that any administrative decision they made dismissing complaints was not subject to judicial review.

    In short, LSC and its grantees were above the law. For an institution which never tires of instructing Congress that the court house door should not be shut to the lawyers for the poor, they were in a situation where they were routinely shutting the door to justice for anyone who wanted the reforms enforced.

    Class actions by legal services lawyers were not limited to Georgia. In California, farmers faced a series of class actions by legal services lawyers. In a case filed by California Rural Legal Assistance (CRLA) before the Ventura County Superior Court in February 2000 (Lilia Tello, et al. v. Agricultural Innovation and Trade, Inc., et al.), CRLA asserted claims for not just the named plaintiffs, but also a class of unidentified ''members of the general public.'' CRLA subsequently described this class in the complaint as ''each similarly employed member of the general public.'' The size of the class was not given and none of its members were identified by name, despite the explicit requirement of federal appropriations law cited above for naming all plaintiffs in any complaint brought by lawyers funded by LSC.
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    As noted, both the federal law and LSC's own regulation on class actions, 45 C.F.R. 1617 have no exceptions to the restriction against initiating or participating in a class action.

    Nor is there any dilution of the broadness of the restriction in the definition of class action at 45 C.F.R. 1617.2, which covers not only class actions pursuant to Rule 23 of the Federal Rules of Civil Procedure, but also ''comparable State statute or rule of civil procedure applicable in the court in which the action is filed.''

    Legal services lawyers undertaking the California class actions and their defenders at LSC have tried to argue that the California actions were representative actions and not class actions.

    Should there be any doubt as to whether a representative action in which legal services attempts to represent a class of unnamed individuals is a violation of the broad restriction against class actions found in both the law and the regulations, one can turn to Ballentine's Law Dictionary to review what that authoritative law dictionary has to say on the subject. The definition is remarkably unambiguous:

representative action. same as class action.

    That definition does not allow any discernible wiggle room for an attempt to argue that a representative action is not a class action.

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    Similarly, Black's Law Dictionary provides no grounds for claiming a representative action is not a class action:

CLASS or REPRESENTATIVE ACTION. One in which one or more members of a class sue either for themselves or for themselves and other members of the class. Huester v. Gilmour, D.C. Pa, 13 F. Supp. 630, 631; City of Dallas v. Armour & Co., Tex. Civ. App., 216 S.W. 222, 224

    Nothing could be clearer. A representative action is a class action. Congress restricted such actions.

    When the above case brought by CRLA was brought to the attention of LSC through a complaint filed by the National Legal and Policy Center, Underwood Ranches and Tierra Linda Corp., LSC simply dismissed the complaint. They also dismissed a second complaint involving another class action by CRLA. LSC knew from the Regional Management Corporation v. LSC case that it didn't matter if there was no rational basis for LSC's dismissal of a complaint.

    The lesson of Regional Management Corporation v. LSC for LSC has been that complaints about legal services lawyers violating restrictions imposed by Congress can be summarily dismissed by LSC and the complainants have no right to seek judicial review of the dismissal.

    After all, if LSC could ignore a federal judge who found a clear transgression of the federal law against lobbying, it could ignore anyone.

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CONGRESS WARNS LSC TO ENFORCE CLASS ACTION BAN; LSC IGNORES CONGRESS

    In 2000, as reports of legal services lawyers again violating Congressional restrictions—and LSC again failing to take any action—reached Congress, members of the Committee on Appropriations placed the following language in House Report 106–680:

''The Committee also reminds the Corporation that its grantees are prohibited by section 504(a)(7) of P.L. 105–119 from participating in class action suits and directs the Corporation to ensure its grantees comply.''

    LSC totally ignored the reminder from Congress and took no action to stop class action lawsuits.

USING MIRROR CORPORATIONS TO EVADE CONGRESSIONAL RESTRICTIONS—

AN OLD LEGAL SERVICES TRICK WITH A NEW SPIN

    The new restrictions imposed by Congress in 1996 left the political activist element within the legal services community looking for ways to continue the more ideological activities that were so ingrained in the program. The restrictions were not part of the LSC Act, just appropriations riders effective only for the fiscal year involved, so the hope was they were a temporary impediment to activism as usual.

    Using a version of a strategy set up in the 1980's to evade the relatively minor restrictions enacted in the Reagan years, grantees sought to evade the restrictions by setting up closely affiliated but legally distinct entities. In 1985, a General Accounting Office investigation determined that closely affiliated groups engaged in activities prohibited to LSC grantees and that the relationships between the two sets of groups were so close that LSC should consider them one group for purposes of complying with the restrictions. (See: ''The Establishment of Alternative Corporations By Selected Legal Services Corporation Grant Recipients,'' U.S. General Accounting Office, B-202116, Aug. 22, 1985)
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    While the earlier version of setting up closely affiliated alternative corporations, sometimes called ''mirror corporations,'' typically began with a legal services program providing a subgrant to the new group, that option was not available in the 1990's because LSC regulations interpreted subgrantees as having to comply with LSC restrictions imposed by Congress.

    The new, post-1996 methodology was for an existing LSC-funded program with a history of activities of the type newly restricted to renounce its LSC grant while keeping as much of the non-LSC funding as possible. Some attorneys from the LSC program would then set up a new group close by—sometimes in the same building or on the same block.

    The new group received the LSC grant while the old group used the funds from bar support, Interest on Lawyers Trust Accounts, state support, and other sources to continue the cases now forbidden by Congress.

    The iron rule is supposed to be that no LSC resources fund restricted activities or groups conducting restricted activities. The key LSC regulation, known as the program integrity regulation, is set forth at 45 C.F.R. 1610. LSC will find that a recipient of their funds has objective integrity and independence from a group if:

(1) The other organization is a legally separate entity;

(2) The other organization receives no transfer of LSC funds, and LSC funds do not subsidize restricted activities; and
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(3) The recipient is physically and financially separate from the other organization. Mere bookkeeping separation of LSC funds is not sufficient. Whether sufficient physical and financial separation exists will be determined on a case-by-case basis and will be based on the totality of facts. The presence or absence of any one or more factors will not be determinative. Factors relevant to this determination shall include, but not be limited to:

(i) The existence of separate personnel;

(ii) The existence of separate accounting and timekeeping records;

(iii) The degree of separation from facilities in which restricted activities occur, and the extent of such restricted activities; and

(iv) The extent to which signs and other forms of identification which distinguish the recipient from the organization are present.

(45 C.F.R. 1610.8 (a))

    The discretion given LSC to enforce the regulation is a giant loophole: regardless of whether a LSC recipient shares a building, personnel, or financial arrangements, every case is determined on the ''totality of facts'' as interpreted by LSC. This arrangement has been viewed as a green light for programs to work closely with their mirror corporations which are engaged in a wide range of restricted activities.

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    Immediately after the restriction took place, mirror corporations began to spring up from coast to coast. According to an article in the November 21, 1996 Los Angeles Daily Journal, ''About 100 federally [LSC] funded programs set up new legal services agencies in late 1995 or early 1996, either to take cases no longer allowed under federal [LSC] funding or to take the federal [LSC] funding itself.''

    And the closeness of LSC-funded groups and the groups doing restricted activities was immediately apparent.

 The Philadelphia Legal Assistance Center was formed by 12 lawyers from Community Legal Services to assume CLS's non-prohibited cases, setting up shop in the same building as CLS. (Legal Intelligencer, Jan. 30, 1996)

 Legal Services of North Carolina rented out part of their building, purchased with LSC funds, to the North Carolina Justice and Community Development Center—a group which engages in grass roots political projects, lobbying and other restricted activities.

 In New York, the LSC-funded farmworker program and Farmworker Legal Services of New York, a group doing restricted activities, work out of the same address with no separate suite numbers. The LSC group co-counseled on at least 5 cases with the group doing restricted activities. LSC-funded groups are discouraged from using scarce resources to take cases when there is other counsel available.

    Some programs became so careless at the dividing line between groups doing restricted activities and LSC groups that the obvious apparent use of LSC funds for restricted activities surfaced publicly.
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    The Legal Aid Society of Alameda, a program funded by LSC with a long history of using legal services funds to support activism, was removed from LSC funding when an investigation by the LSC Inspector General's office found numerous problems. One published report called the program's case management and timekeeping systems unreliable and stated that it appeared attorneys continued working on restricted cases after the restrictions went into effect. The LSC Inspector General was quoted as saying, ''We could not determine that LASAC divested of class action, prisoner litigation and restricted alien cases by the July 31, 1996 deadline.'' (The Recorder, June 29, 1998)

    The problems persist to this day but are rarely, if ever, discovered by LSC.

    In a very recent case, Lane County Legal Aid Service, Inc. (LCLAS) of Michigan was cited by the LSC Inspector General's office for multiple violations of the LSC Program Integrity regulation.

    In an Audit Report dated October 2001 (available at www.oig.lsc.gov), the Inspector general's office determined:

 LCLAS did not maintain objective integrity and independence from a legal organization that engaged in prohibited activities;

 LCLAS allowed a full-time attorney to work on a class action lawsuit for the other organization while in the LSC grantee's office; and
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 LCLAS certified compliance with LSC regulation without required supporting document.

    The LSC Inspector General's audit report came out in October 2001 but to date there has been no public indication that LSC has done anything whatsoever to sanction the program for its violations of federal law.

    Nor is this the only case in which LSC has learned of mirror corporations working hand-in-glove with LSC programs in ways that make a mockery of the requirement that LSC groups and groups doing restricted activities be physically and financially separate.

    Legal Services of North Carolina (LSNC) and its tenant, the politically active North Carolina Justice and Community Development Center (NCJCDC), have developed close legal and financial ties that parallel their close physical ties. Both work out of 224 S. Dawson Street, Raleigh, NC. No separate suite or room numbers are listed differentiating the groups on a number of public documents. Property records list the building as owned by LSNC and having a market value of $1,184,871.

    In a complaint filed with LSC against Legal Services of North Carolina on May 18, 2000, by National Legal and Policy Center and the North Carolina Growers Association, the complainants pointed out that LSNC and NCJCDC were co-counseling on a case in which attorneys' fees were being sought. The LSC-program asked that any attorneys' fees go to its co-counsel, NCJCDC.

    The complaint pointed out that:
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 The LSC Act and regulations prohibit this type of fee-generating case

 LSC-funded attorneys are banned from taking attorneys' fees and the request to the court that any attorneys' fees in the case go to the mirror corporation certainly looks nothing like the financial separation mandated by federal law and LSC's program integrity regulation.

    LSC took no action on the complaint.

    The meaning is clear: in LSC's view of the physical and financial separation requirement, a program doing numerous restricted activities can operate out of a office paid for with LSC funds while co-counseling on cases in which any attorneys' fees go directly to the group conducting the restricted activities.

TAXPAYER-SUBSIDIZED POLITICAL ACTIVISM

    In December 1996, lawyers from the LSC-funded Texas Rural Legal Aid (TRLA) filed a lawsuit in federal court to overturn the election of two Republicans to county offices. The lawyers challenged the absentee ballots of about 800 active duty military personnel and their families, claiming their votes improperly diluted the vote of their client.

    Despite a clear Congressional restriction against legal services lawyers seeking attorneys' fees, the lawsuit asked for attorneys' fees.

    The legal services lawyers' challenge to the voting rights of active duty military personnel met with an immediate and broadly based, bipartisan opposition:
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 Texas Attorney General Dan Morales, a Democrat, filed a brief challenging the legal service lawyers' interpretation of Texas election law.

 58 U.S. Senators signed a letter to Attorney General Reno asking her to intervene on behalf of the voting rights of the military voters

    LSC wrote to TRLA on January 8, 1997, stating that their request for attorneys' fees was an apparent violation of the law. TRLA pulled out of the lawsuit as counsel but a legal services lawyer stayed in the lawsuit as an expert witness.

    A major problem with LSC's handling of the case was the fact that LSC never challenged TRLA for getting involved in a partisan effort to overturn an election.

    The major beneficiary of the legal action would be the two losing Democrat candidates, not the lone client who TRLA claimed had her vote diluted by allowing military voters to vote by absentee ballot.

    Coincidentally, earlier in the election year, TRLA lawyer Jorge Ramirez became Executive Director of Texas Democratic Party and later served as acting general counsel.

    LSC's January 8, 1997, letter to TRLA did not make an issue of involvement in overturning a partisan election nor did it find anything wrong with the effort to strip voting rights from military personnel, a number of which were on active duty in Bosnia at the time.

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    If there was any doubt that LSC would refuse to discipline TRLA over the political lawsuit, aside from the illegal request for attorneys' fees, it was removed when LSC spokesperson Nikki Mitchell stated:

''In terms of the program's priorities and in terms of the restrictions placed on Legal Services by Congress, the suit was perfectly valid.''

    The Legal Services Act explicitly prohibits legal services from involvement in any political activity. What is more inherently political than challenging an election?

    Section 1007(a)(6) of the LSC Act states that LSC shall:

''(6) insure that all attorneys engaged in legal assistance activities supported in whole or in part by the Corporation refrain, while so engaged, from—

(A) any political activity

    Lest there be any doubt as to the meaning of the prohibition against involvement in ''any political activity,'' this section of the LSC Act was interpreted by U.S. Circuit Judge Abner J. Mikva in Texas Rural Legal Aid v. Legal Services Corporation, the case lost in 1990 before the U.S. Court of Appeals for the District of Columbia Circuit, by TRLA when they challenged the restriction against involvement in Congressional redistricting cases.

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    Judge Mikva, for years a Democratic Congressman from Illinois, hammered home two points in rejecting TRLA's arguments:

''. . . the [LSC] Act charges LSC with a duty to ensure that the legal services program remains free of partisan political influence and involvement.''

''Significantly, subpart (A) of section 1007(a)(6), which prohibits 'any political activity' by attorneys of recipient programs, does not contain an exception for legal advice and representation''

    Despite Judge Mikva's decision in a case involving the very same two parties to the voting case controversy and the interpretation of the very same section of the LSC Act, the Legal Services Corporation decided that TRLA's involvement in challenging the election was ''perfectly valid.''

    Judge Mikva's comment from the 1990 case supports an opposite view. He stated, ''. . . we cannot conclude that LSC has no right to prohibit its grantees from engaging in partisan politics.''

    In short, LSC ignored the law and gave a green light to partisan political activity.

    Legal services lawyers, especially from TRLA, know a green light when they see one and continued:

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 A class action lawsuit conducted by a lawyer on her ''free time'' while working part time for TRLA was the basis for a stridently anti-George W. Bush commercial during the 2000 presidential election campaign.

 An activist web page urging individuals to use their tax rebate to ''Fund the Fight Against Bush and his Agenda'' by pledging their rebate check to ''Organizations Fighting Against Bush's Agenda'' urged contributions to a number of left leaning advocacy groups including TRLA. For good measure, viewers can link directly to the TRLA web page to facilitate donations.

    Despite the reforms, its partisan politics as usual with LSC's funds and its blessing.

CONGRESS FORBIDS ATTORNEY FEES WITH NO EXCEPTIONS—

LSC CRAFTS A LOOPHOLE TO ALLOW ATTORNEY'S FEES FROM THE DISABLED;

CONGRESS SCOLDS LSC AND THE LOOPHOLE IS CLOSED

    One of the reforms enacted by Congress as part of the FY1996 LSC appropriations law was a ban on claiming, collecting or retaining attorneys' fees. (Pub. L. 104–134, 110 Stat. 1321, 504(a)(13).

    Among the reasons for this reform was the fact that legal services lawyers salaries were already paid by the taxpayer so the usual rationale for allowing such fees to compensate an attorney did not exist.
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    Also, Congress did not want legal services lawyers to abuse their discretion in taking cases which allowed attorneys' fees and ignoring the poor whose cases which did not allow such fees.

    Finally, cases allowing attorneys' fees are much more likely to be pursued by private counsel so using tax-funded lawyers in such cases was considered a unnecessary use of public funds.

    Despite the crystal clear intent of Congress that such attorneys' fees be banned, LSC's Board wrote a proposed regulation which allowed attorneys' fees to go to legal services lawyers in certain cases involving arguably the most deserving of its clients—the disabled poor in Social Security disability cases.

    The intent of Congress that no fees be charged by legal services lawyers ended up being ''interpreted'' by the LSC Board to mean that disabled poor clients had to give up part of their recovery in attorneys' fees.

    Fortunately, Congress intervened. At a February 26, 1997 hearing before the House Commerce, Justice, and State, the Judiciary and Related Agencies Subcommittee, Chairman Hal Rogers (R-KY) strongly criticized LSC for its attempt to dilute the attorneys' fee restriction enacted by Congress.

    When LSC Vice Chairman John Erlenborn attempted to defend LSC's proposed regulation allowing attorneys' fees to be claimed in cases involving poor, disabled clients, Chairman Rogers responded with both common sense and bluntness:
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''It's outrageous that your interpretation would be that minute considering all the hot water you're in.''

    (The Recorder, Mar. 5, 1997, page 1)

    When Mr. Erlenborn insisted on defending the controversial regulation, Chairman Rogers pointedly responded:

''You can't seem to help yourself. You do not grasp reality. Some of us are losing patience.''

(New Jersey Lawyer, Mar. 10, 1997, page 3)

    LSC finally got the message. The regulation language was changed so that cases involving the poor and disable could not be used to claim attorneys' fees.

    Nevertheless, the LSC board continued to use its authority to draft regulations to carve loopholes into or water down the restrictions Congress enacted.

WHAT CAN BE DONE?

    Trying to reform the Legal Services Corporation is difficult. Congress has been trying for more than 25 years with mixed results.

    As events since the 1996 reforms has shown, LSC is difficult to reform because it does not want to be reformed.
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    As Rep. Radanovich pointed out, Congress has very little control over LSC.

    As the Regional Management Corporation v. LSC case showed, LSC is not subject to judicial review. It can and does use its discretionary authority to ignore repeated violations of reforms enacted by Congress.

    As the former LSC Inspector General pointed out in his September 2000 letter to Chairman Hal Rogers, LSC waives its own access to information from grantees and encourages grantees to deny the Inspector General access to information.

    As the LSC's record on competition shows, it took a requirement to promote competition and turned it into a system in which competition for grants is all but non-existent.

    As LSC showed with its farcical special commission, it has no problem taking a clear Congressional requirement that no alien receive legal assistance ''unless the alien is present in the United States'' and interpret the word ''is'' to mean ''was.''

    As LSC has demonstrated, its interpretation of the reform mandating that grantees be physically and financially separate from groups doing restricted activities means the two groups can share offices and staffs and co-counsel in lawsuits in which the politically active group is seeking attorneys' fees.

    As LSC showed in the Texas Rural Legal Aid case, LSC interprets the restriction against political activity to allow legal services lawyers to challenge the election of Republicans by challenging the rights of military personnel to vote by absentee ballot.
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    Caught red-handed by Congress, the GAO, and Associated press in passing on wildly inflated case numbers to Congress to justify increased funding, LSC falsely assured Congress the problem was fixed yet a second GAO investigation showed that the problem had not been corrected.

    Claiming its grantees are providing top quality legal services, LSC's own Vice President acknowledges the ''dirty little secret'' that quality is ''below appropriate levels.''

    For the most part, band aid approaches will do little to reform this fundamentally flawed program.

    The best that Congress can hope for is that President Bush will appoint a LSC Board committed to following the reforms, not undermining them.

    LSC also needs an Inspector General whose access to documents is not being frustrated by an LSC Board and President.

    And unfortunately, LSC needs almost continuous oversight because few of the oversight tools available for federal agencies apply to this private corporation with its long history of ignoring the will of Congress.

    In the absence of continuous oversight, a major reduction in LSC funding will undeniably cut down on the abuses and perhaps convince the activists that thwarting the will of Congress has a price.
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    Mr. BARR. Thank you very much, Mr. Boehm.

    Our final witness today, Mr. Jonathan Ross. We're very happy to have you today, and you are recognized for 5 minutes for your opening statement, sir.

STATEMENT OF L. JONATHAN ROSS, ESQ., CHAIRMAN, STANDING COMMITTEE ON LEGAL AID AND INDIGENT DEFENDANTS, AMERICAN BAR ASSOCIATION

    Mr. ROSS. Thank you, Mr. Chairman.

    I appear here on behalf of Robert E. Hirshon of Portland, Maine, president of the American Bar Association. And it's ironic that I do so because my most active role in legal services began in the mid-80's when I formed, with leaders from Texas and Massachusetts, Bar Leaders for the Preservation of Legal Services for the Poor, because we believed that neither LSC nor the ABA were active enough in providing equal justice—equal access to justice in our system in this country.

    Now I appear before you as Chair of the American Bar Association's Standing Committee on Legal Aid and Indigent Defendants. And I'm here to tell you that the ABA is active with LSC in ensuring the Constitution's promise of equal justice for all and that LSC, from my perspective, is a well-managed organization that is responding to the congressional directives contained in the appropriations bills.

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    We are full partners with LSC in working to ensure that low-income Americans can address their basic, everyday legal problems. We're a long way from reaching that goal, but we're active and we're working together.

    Mr. Watt was correct when he pointed out the legal need that exists in this country for this kind of help. According to recent census figures, over 40 million people in the United States are eligible for LSC-funded help. ABA legal needs study in 1994 showed that only about 20 percent of the need was being met. And studies over the past 2 years have verified in Oregon and other places that that still remains the same.

    The Federal umbrella of LSC is the structure that delivers this service to the people who need it, and it needs to continue.

    Now the Legal Services Corporation has come a long way from the past and particularly in the last several years, with respect to compliance. It's refocused its efforts to serve the basic legal needs of the poor, has implemented new rules to ensure that funds are used appropriately, and it's gone beyond what Congress asked, beginning a nationwide State planning program to improve local programs and ensure the utmost efficiency and effectiveness of the limited resources at its disposal.

    Competition has helped in that regard. And you will find in many States existing programs competing with each other for grants for service to clients.

    The CSR question, the reporting question, I think has been adequately responded to. The error rate is down from 11 percent to under 5 percent, and all eight of the mandates from GAO have been met by the LSC.
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    The Velazquez case that challenged the welfare reform restriction of this Congress was defended vigorously, all the way to the United States Supreme Court, by the current board and management of Legal Services Corporation, and they argued regularly and vigorously that those restrictions were appropriate. They lost 5–4. They are now involved in defending the Dobbins case with equal vigor and trying to defend what this Congress has said must apply here.

    We have no doubt about that. And I can tell you from personal experience that when I go to board meetings, when I go to their committee meetings, they talk regularly about how what they're doing meets the mandates of this Congress.

    Time will not permit me to give you examples of what the folks you fund do for the people of this country. But let me tell you that the LSC program in New York has responded significantly to the events of September 11 to provide direct service to victims and their families who would not have help otherwise.

    And when we were last here in '99, we were telling you about how their grantees, along with the ABA and FEMA and other organizations, responded to the devastation of Hurricane Floyd. This is a vital and necessary program.

    Since 1996, LSC's leadership has worked closely with congressional leadership in both the House and Senate to ensure that the Corporation and its local grantees are focused on meeting the basic legal needs of the poor. The Corporation has demonstrated its commitment and ability to carry out the program changes. And management has aggressively enforced restrictions; continues to work diligently and successfully to improve the case service reporting system; and has engaged in comprehensive State planning, which has significantly improved the delivery of legal services.
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    The single greatest deficiency of the Legal Services Corporation is the lack of adequate resources to meet the needs of that 80 percent that go uncared for. And we ask for your support in making sure that we can get there.

    Thank you very much.

    [The prepared statement of Mr. Ross follows:]

PREPARED STATEMENT OF JONATHAN ROSS

    Mr. Chairman and Members of the Subcommittee:

    I am Jonathan Ross a lawyer in private practice with the Manchester, New Hampshire law firm of Wiggin & Nourie. I submit this testimony at the request of the President of the American Bar Association, Robert E. Hirshon of Portland, Maine, to voice the Association's views with respect to the operation of the Legal Services Corporation (''LSC'' or ''Corporation'') and its importance to ensuring equal justice for all.

    The American Bar Association, the world's largest, voluntary professional organization with more than 400,000 members, is the national representative of the legal profession, serving the public and the profession by promoting justice, professional excellence and respect for the law.

    I testify today in my capacity as Chair of the American Bar Association's Standing Committee on Legal Aid and Indigent Defendants. This Standing Committee serves the ABA and the nation by examining issues relating to the delivery of civil legal assistance and criminal defender services to the poor. It maintains close liaison with state and local bar association leaders, providing information and developing policy on civil legal aid and indigent defense. It advocates for and works to ensure the availability of legal aid and defender services for indigent persons through a variety of activities and projects.
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    I also testify today based on my 35 years of direct, personal involvement in the provision of legal services for the poor. I first became interested in this issue while I was still in law school in 1965, when I worked for the Neighborhood Legal Services Office of the Office of Economic Opportunity in Washington, DC. I became actively involved in the national debate in 1985. Ironically, back then I didn't think the ABA was doing enough in this area and I also thought LSC was badly managed. In 1986, I co-founded the Bar Leaders for the Preservation of Legal Services for the Poor during my term as president of New Hampshire Bar. I formed this ad hoc organization, along with the Texas and Massachusetts Bar Presidents, to raise awareness of the problem within the organized bar, and to engage in advocacy before the LSC Board, in Congress and in other appropriate forums. Today, I'm pleased to report that the ABA is extremely active in ensuring the Constitution's promise of ''equal justice for all'' and that the LSC is a well-managed organization. The ABA and the LSC are full partners in working to ensure that low-income Americans can address their basic everyday legal problems. We're a long way from reaching that goal, but we're active and we're working together.

I. THE LEGAL SERVICES CORPORATION PLAYS A VITAL ROLE IN THE JUSTICE SYSTEM

    Your Subcommittee is focusing today on many of the management issues related to LSC: whether LSC-funded programs are counting their cases accurately, whether programs are complying with the LSC regulations and whether programs are representing ineligible clients or taking on restricted cases. While these issues are necessary and important to your Subcommittee's oversight role, before I address some of these matters I think it is vitally important to put a human face on the work LSC-funded programs do.

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    For more than a quarter of a century, the Legal Services Corporation has been a lifeline for Americans in desperate need. For poor Americans, LSC-funded legal services programs have been there at times when they had nowhere else to go. These are just a few examples of the clients served by Georgia Legal Services.

 In Polk County, a woman's step-daughter sought to evict her from the mobile home that she had shared with her husband before he entered a long term care facility because of progressive Alzheimers Disease. The step-daughter obtained a power of attorney (POA) from her father 18 months after he entered the nursing home. Alleging that her father and step-mother were divorced, the step-daughter used the POA to get his Social Security benefits switched to her as representative payee, closed the parties' joint bank account, and then attempted to evict her step-mother from the marital home. Georgia Legal Services successfully represented the step-mother and the step-daughter dismissed the eviction suit.

 Georgia Legal Services represented a young women from Douglas County who was first beaten by her spouse, and was then forced to respond to an overly zealous case worker from the Department of Family and Children Services (DFCS) who removed her children from her custody. DFCS used her status as a victim of domestic violence as a basis for deprivation proceedings. Through a series of hearings and negotiation sessions, the legal aid program helped the client gain protection from her husband and regain custody of her children.

    These are just a few of the millions of people legal aid lawyers help every year. The Corporation, formed in 1974 with bipartisan Congressional support and the endorsement of the Nixon Administration, was created to ensure that all Americans have access to a lawyer and the justice system for civil legal issues regardless of their ability to pay. The 2000 census (released in September 2001) reports 31 million Americans continue to live in poverty, and another 7 million live on the brink of poverty, making more than one in seven Americans eligible for LSC-funded representation.(see footnote 5) In 1994, a Temple University study commissioned by the American Bar Association reported that, despite the combined effort of legal services programs and the private bar, only 20 percent of the civil legal needs of the poor were being met. More recent studies conducted in several states, including Oregon and Vermont, show that nine years later 80 percent of the civil legal needs of the poor are not being addressed.(see footnote 6)
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II. THE LEGAL SERVICES CORPORATION IS CARRYING OUT ITS CONGRESSIONAL MANDATE

    The Legal Services Corporation has come a long way in the past several years. LSC used to be a target for elimination by some Members of Congress and certain organizations. After refocusing its efforts to serve the basic legal needs of the poor and having strengthened its delivery of those services through some initiatives I will discuss, the Corporation today enjoys the support of President George W. Bush, a strong bipartisan majority in Congress, the business community(see footnote 7), and individuals across the nation(see footnote 8). In 2001, for the first time in six years, the LSC budget was fully funded by the House Appropriations Subcommittee on Commerce, Justice, State, the Judiciary and Related Agencies (''CJS Subcommittee''). Just this month, President Bush requested that LSC receive level funding of $329.3 million for FY 2003, showing his strong support for the program. LSC has earned this trust by focusing on serving the basic legal needs of the poor, by engaging in state planning to improve service delivery and by improving its management structure and accountability to Congress.

A. LSC is Focused on its Mission of Serving the Legal Needs of the Poor

    LSC currently funds local legal aid programs serving every state, county and Congressional District in the U.S. and its territories. These programs provide direct services to more than one million constituents who struggle to get by on incomes below or near the poverty line as established by the Department of Health and Human Services. LSC clients include the working poor, veterans, family farmers and people with disabilities. Many beneficiaries of LSC funding were formerly middle-class, who became poor because of disaster, unemployment, illness or the breakup of a family. Historically, more than two-thirds of LSC clients have been women, most of them mothers with young children. Local legal services programs make a real difference in the lives of millions of poor Americans by helping them resolve such family law cases as domestic violence and child custody issues, and such benefit cases as wrongfully denied Social Security and veterans' benefits.
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B. LSC Has Complied With GAO Recommendations to Improve its CSR Data

    In 1999, the General Accounting Office (GAO) examined LSC's Case Service Reporting (CSR) system and made recommendations that included revising the system itself, providing more training to legal services providers who must comply with the CSR system, and changing procedures to ensure the uniform collection of data and reporting of statistics.

    LSC responded to GAO's recommendations for improving its CSR statistics by, among other things, issuing several program letters clarifying procedures for certifying case reporting statistics and provisions in its 1999 CSR manual. LSC also issued other program letters amending the 1999 CSR manual to address specific issues raised by the GAO, including (1) who can provide legal assistance, (2) the timely closing of cases, (3) documentation requirements, and (4) client eligibility (income, assets, citizenship and alien documentation requirements); and including a new section on legal problem categories and codes. LSC also issued a 1999 Revised CSR Manual in May 2000.

    In its report to accompany the FY 2000 spending bill, the House Appropriations CJS Subcommittee directed the Corporation to make improvements in the accuracy of its CSR submissions to Congress a top priority.(see footnote 9) The Subcommittee required LSC to submit two special reports to Congress, in April and July 2000, documenting improvements in the accuracy of its CSR reports.

    LSC submitted these reports in a timely fashion and reported vast improvements in the accuracy of its statistics. Reporting errors declined from an average of 11 percent to five percent. The CJS Appropriations Subcommittee was pleased with LSC's progress and stated so in the FY 2001 CJS Appropriations bill Committee report, H.Rept. 106–680.(see footnote 10)
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    The ABA is satisfied LSC is making adequate progress to improve the reporting of individual grantees and the performance of the system as a whole. We encourage LSC to continue to work to find better ways to gather data to more accurately report all of the services provided.

C. LSC has Enforced and Defended Congressional Restrictions

    The ABA continues to believe that the Corporation is committed to carrying out its mission, as mandated by Congress. In 1996, Congress imposed several restrictions on the type of cases legal services programs could accept and on the clients they could serve. The Corporation has fully implemented those restrictions established by Congress.

    LSC has vigorously defended every lawsuit challenging the restrictions, including Legal Services Corporation vs. Velasquez, 531 U.S. 533 (2001), in which the U.S. Supreme Court ultimately decided that one of the restrictions violated the First Amendment. LSC is again vigorously defending the restrictions in a recently filed lawsuit, Dobbins vs. Legal Services Corporation.

III. LSC STATE PLANNING PROMISES TO IMPROVE THE DELIVERY OF LEGAL SERVICES

    Beginning in 1995, LSC launched an ambitious ''state planning'' initiative, intended to encourage each state to undertake a careful process of system analysis and improvement:

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 Obtain or significantly expand state funding for legal services;

 Establish systems for coordinating advocacy and training among programs;

 Make the court system more responsive and accessible to low-income and pro se litigants;

 Reconfigure programs where necessary to strengthen coordination, access, and services;

 Establish structures to more creatively involve the private bar in the delivery of civil legal assistance;

 Create and execute a statewide technology plan to improve access and enhance delivery;

 Develop a statewide coordinated intake system; and

 Expand the number of stakeholders within a state committed to the concept of equal justice.

    In short, the LSC sought to develop structures and processes for building and maintaining comprehensive, integrated, statewide civil legal assistance delivery systems. While this initiative has required changes that have made some uncomfortable, the ABA believes that on the whole the changes it has stimulated have resulted in a stronger and more effective system.

    The ABA has closely coordinated with the LSC to encourage and support efforts to improve each state's system for delivering legal services to the poor. The ABA created in 1996, in conjunction with the National Legal Aid and Defender Association, the ABA/NLADA ''State Planning Assistance Network'' to provide technical assistance to those in the states engaged in the planning process. We continue to sponsor this program, seeking to promote and support state-based partnerships among the bar, the courts, and legal services providers to expand access to justice. The ABA has also assisted in the development of standards for the state planning process; I served on the LSC task force that developed those standards. While resources for state systems remain inadequate, we believe that these careful planning efforts promise more efficient use of those limited resources, and better overall access and service for clients.
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IV. THE PRIVATE BAR IS AN ACTIVE PARTNER WITH LSC IN SERVING LEGAL NEEDS OF THE POOR

    The ABA actively encourages lawyers to provide pro bono representation to needy clients. The ABA estimates that more than 120,000 lawyers are actively participating in organized pro bono programs throughout the country. The ABA sponsors many programs to foster pro bono participation and increased funding for legal aid programs.

    The ABA Center for Pro Bono assists ABA members and the legal community in developing and supporting effective pro bono legal services in civil matters as part of the profession's effort to ensure access to legal representation and the American system of justice.

    The Project to Expand Resources for Legal Services, sponsored by SCLAID, assists bar associations and their leaders, private lawyers, bar foundations, IOLTA programs, legal services programs and pro bono programs to increase private resources for legal services.

    The ABA Standing Committee on Legal Assistance for Military Personnel (LAMP) helps the military and the Department of Defense improve the effectiveness of legal assistance provided in civil matters to an estimated nine million military personnel and their dependants. America's soldiers and their families are one of the neediest groups in terms of civil legal assistance. In response to the military activations following the September 11 tragedy, this Committee instituted the program ''Enduring LAMP'', which provides legal assistance to service personnel who have been deployed. Many state and local bar associations have also instituted programs to provide free legal assistance to victims of September 11.
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    I am pleased to report that the efforts of the organized bar have increased dramatically since 1985. I expect that we will continue to do more in the future.

V. CONCLUSION

    Since 1996, LSC's leadership has worked closely with Congressional leadership in both the House and the Senate to ensure that the Corporation and its local grantees are focused on meeting the basic legal needs of the poor. The Corporation has demonstrated its commitment and ability to carry out the program changes. LSC management aggressively enforces the restrictions, continues to work diligently and successfully to improve the case service reporting system, and has engaged in comprehensive state planning which has significantly improved the delivery of legal services.

    The single greatest deficiency of the Legal Services Corporation is the lack of adequate resources to meet the needs of the 80% of the poor who currently cannot be served. The Corporation, its grantees and their low-income clients deserve your support.

    Mr. BARR. Thank you very much, Mr. Ross.

    And I'd like to, again, on behalf of all Members of the Subcommittee, thank all four members of our witness team here today.

    We'll now turn to questioning of the witnesses, and each Member will be limited to a 5-minute block of time. And then, time permitting, we'll have additional questions. And we will also be submitting to each of you additional questions from Members of the Subcommittee and counsel.
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    Mr. Erlenborn, we've already discussed, at least in passing on more than one occasion this morning, the language of Public Law 104–134 regarding Legal Services' representation of aliens not present in the country. As you're familiar with, section 504(a)(11) of that public law states the following: ''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 that provides legal assistance for or on behalf of any alien unless the alien is present in the United States.''

    And yet, the Legal Services Corporation, through the Erlenborn Commission Report, and really, what to me is a Clintonesque interpretation of language, basically just boldly concludes that Congress did not understand the presence requirement, severely altered or restricted this representation, and simply concludes that representation should continue and is authorized, despite the plain meaning of the statute, the plain language of the statute, for aliens who simply have been in the country at some point and are no longer in the country.

    Could you enlighten us a little bit further as to how this, to me, clearly erroneous ruling on the part of the Legal Services Corporation came about?

    I mean, when—let me pose a question initially to you: Is not the language of the statute clear?

    Mr. ERLENBORN. No, Mr. Chairman, you have not addressed what was the real issue. I think anybody looking at the language knows what ''present'' means. The question that we were facing is when. When does the alien have to be present?
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    And let's take an example. You have—let's say we have a woman who has been given asylum in the United States and is here as an alien. And let's say that her mother or father dies overseas in Europe someplace, and she would like to go there to attend the funeral. Or maybe it's a wedding in the family. And if she leaves this country to attend to these family obligations, and at the same time has been getting help from the local legal services program in her spousal abuse, the fact that she went over to Europe to attend the wedding or the funeral would mean, if you say at all times, from the beginning until the end, they had to be present in the United States, would mean that this lady would lose her right to have help in trying to avoid in the future the spousal abuse.

    I make the point that most people seem to think about this as a H-2A problem. That certainly was one of the issues. But this affects every alien in the country who seeks help from the Legal Services program. You tell them that they are now going to be bound to stay in the United States, don't go to Canada, don't go to Mexico, or you're going to lose your lawyer and never be able to see him again.

    Mr. BARR. But I'm also looking——

    Mr. ERLENBORN. It didn't seem to make much sense.

    Mr. BARR [continuing]. At the language of the Erlenborn Commission report at page IV. It doesn't contemplate that this is simply—that the LSC would simply be authorized in the case of an alien who is in the country at the initiation of the lawsuit and then just temporarily has to leave. It says very clearly that they can initiate representation of aliens who are not in the country when the lawsuit is initiated, as long as they have some colorable claim to being in the United States. Even if they're not here at the initiation of the lawsuit, that's sufficient for purposes of trying to reach them through Legal Services Corporation representation. I mean, that doesn't fit within your hypothetical.
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    Mr. ERLENBORN. I think if you would look at the report, what we've said that if—number one, the person would have to have been here in the United States and in a legal status under the immigration and naturalization laws.

    And by the way, one of the five lawyers, five law professors, who served on that Commission was Alex Aleinikoff at Georgetown, who is a very well-respected, highly sought-after attorney in the immigration area.

    But what we found was that the person would have to have been in the United States in a legal status under the immigration law and that they would have to be present in the United States sufficient to maintain their legal status under the immigration law. That is the way we interpreted this.

    Now, we looked at the——

    Mr. BARR. Do you interpret it to mean that, at a minimum, they would have to be physically present in the United States at the initiation of the lawsuit?

    Mr. ERLENBORN. Well, I don't know that we said it in those terms.

    Mr. BARR. No, you didn't. That's why I'm asking.

    Mr. ERLENBORN. What happens, for instance, in the H-2A situation, which there was a lot of testimony on——
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    Mr. BARR. So, basically, you're saying that you believe it's appropriate for an alien not present, physically present in the country, to have representation begun on their behalf by Legal Services Corporation monies.

    Mr. ERLENBORN. I would have to go back and read the report. I do believe that they had to be in—had to be legally here and had not lost their legal presence in the United States at the time of the fact——

    Mr. BARR. Legally and physically present?

    Mr. ERLENBORN. Legally present is what the Commission decided.

    Mr. BARR. I know, and I think we're sort of still in this Clinton conundrum here. What I'm simply asking is, do you not believe that in order to obtain representation, it ought to at least be a requirement that the alien be not only legally entitled to be here and legally present but physically present as well in this country? Do you agree that that is a reasonable limitation and consistent with congressional intent?

    Mr. ERLENBORN. The problem you have is, again, the question of when. At the time they——

    Mr. BARR. I understand that. I'm saying, at the time of the initiation of the lawsuit.

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    Mr. ERLENBORN. At the time they go to the Legal Services lawyer?

    Mr. BARR. At the time of the initiation of the lawsuit.

    Mr. ERLENBORN. One of the problems with that is, in H-2A situations, the agricultural producer, utilizing the H-2A, can send them back to Mexico, not paying the wages that they were entitled to. And then, with the H-2A worker in Mexico, you would say that they've lost their right to representation. It puts an awful lot of power in the hands of the agricultural producer who wants to get rid of the workers without paying them, without giving them the compensation that——

    Mr. BARR. Doesn't it also provide for very clear abuse and pressure being put on them? You basically can have absentee plaintiffs, and that effectively takes away the ability of the U.S. citizens, the U.S. companies, the farmers, who are trying to provide a valuable service to the United States of America—they're basically forced to defend against plaintiffs that aren't even in this country.

    Mr. ERLENBORN. Well, I would——

    Mr. BARR. Doesn't that take away, essentially, due process from them?

    Mr. ERLENBORN. I would think, in most cases, the alien would have to be present to testify to make the case.
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    Mr. BARR. But not physically present in order to initiate the case.

    Mr. ERLENBORN. Well, if the case was filed here, I guess they would be physically present to testify in a trial.

    Mr. BARR. But do you think it should be a reasonable requirement and a reasonable interpretation of the statutory language that the alien should be required to be not only legally present but physically present in the country in order to initiate the lawsuit?

    Mr. ERLENBORN. No, I don't think necessarily so. That means the H-2A worker would have to pay to come up here at the time——

    Mr. BARR. Heaven forbid.

    Mr. ERLENBORN [continuing]. The suit was filed. And then go back——

    Mr. BARR. But wouldn't——

    Mr. ERLENBORN [continuing]. To Mexico.

    Mr. BARR. But if they're already here, I mean, the whole point of it is, they're already here.
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    Mr. ERLENBORN. Oh, no, they get sent back by the employer. The agricultural producer says, ''I don't like this fellow. He''——

    Mr. BARR. But at some point——

    Mr. ERLENBORN. ''I'm going to get rid of him. Send him''——

    Mr. BARR. But at some point they're here.

    Mr. ERLENBORN.—''back to Mexico.''

    Mr. BARR. At some point they're here. It isn't as if they never come into this country. Or is there still effort being made to go down to Mexico and recruit plaintiffs?

    Mr. ERLENBORN. Being sent back to Mexico without having been paid ties the hands of the worker. Didn't get paid; cannot get any help in seeing that the pay is ultimately given to him.

    Mr. BARR. Thank you.

    We'll pursue this further, but at this time I would like to recognize for 5 minutes the distinguished Ranking Member, the gentleman from North Carolina.
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    Mr. WATT. Thank you, Mr. Chairman.

    As tempted as I am to get into this debate about what ''is'' is, I think I will just let that go and suffice it to say that I think it's a lot, lot more complicated than just what ''is'' is. And I think the board and the Erlenborn Commission probably spent a substantial amount of time understanding that it is a lot more complicated than just that single kind of political catchphrase that seems simplistic to the public but beyond that has some pretty substantial implications, not the least of which is what is a lawyer's responsibility once they undertake representation if a person is here and then that person is no longer here. I mean, can you get in and out of cases on some arbitrary is-ness question?

    But I'm not going there.

    Let me applaud the Chairman for inviting what I think has been a very, very balanced panel of witnesses, not agreeing with each other, necessarily, about every specific point but pointing up very different perspectives. I think this was highlighted probably by Mr.—how do you——

    Mr. BOEHM. Boehm.

    Mr. WATT [continuing]. Boehm——

    Mr. BOEHM. Rhymes with ''home.''

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    Mr. WATT [continuing]. And Mr. Ross' testimony being kind of back to back, one saying the Legal Services Corporation is out of control and the other one saying the Legal Services Corporation is well-managed.

    And I suspect the—from your—from different perspectives and starting with different—from different places, one could logically conclude either one of those things, depending on where they start from.

    I was interested, Mr. Boehm, to get to the end of your testimony and just kind of wondering, okay, we've got 26 pages here of horror stories or arguments about positions about horror stories, some of which I don't necessarily agree are horror stories, but at least that's your perception. And we get to the end of it, and we really—I was kind of hoping that we would have some suggestions from you about what the solutions were. And I kind of was disappointed to get to the end and have the last paragraph say to me: ''In the absence of continuous oversight,'' which I presume the board does, ''a major reduction in LSC funding will undeniably cut down on the abuses and perhaps convince the activists that thwarting the will of Congress has a price.''

    I suppose if we did that, we'd be punishing the very people—I assume you believe that the Legal Services Corporation provides some benefit.

    Mr. BOEHM. There is some benefit, yes.

    Mr. WATT. Okay.

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    Mr. BOEHM. And I spent most of my career supporting it, although wishing they could reform. And I reluctantly came to the conclusion, as it's presently set up under the act, as a private corporation, no judicial review, none of the normal checks and balances with a Federal agency——

    Mr. WATT. Wait a minute, now. That's what we're here today to do. The Board meets regularly. We're doing our oversight. So isn't it a little bit of an overstatement to say that there is no judicial review and no oversight?

    Mr. BOEHM. No, the judicial review is by a Federal judge. In other words, if LSC——

    Mr. WATT. Judicial review is what you're——

    Mr. BOEHM. Judicial review, right.

    Mr. WATT. Okay.

    Mr. BOEHM. Not—there is legislative oversight, certainly.

    Mr. WATT. Okay, okay. I see what you're saying. You think the courts should be second-guessing some of these decisions that the Legal Services Corporation are making.

    Mr. BOEHM. Well, sir, yes, in the sense that every Federal agency that is under the Administrative Procedures Act, that makes an administrative decision that may be questionable, there's a procedure where they can go to a Federal judge, get judicial review, and the judge decides, ''Is the agency acting with a rational basis or not a rational basis?''
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    Mr. WATT. Isn't that where we're in Velazquez? I mean, we've gone into court, and the court made that determination, and what the court determined was that there were some areas that you could do this. But where you run afoul of the United States Constitution, which all of us have some obligation to act within the confines of—even Congress—that there are some limits to this. Isn't that what Velazquez stands for?

    Mr. BOEHM. Except that it wasn't on an administrative decision of LSC board. They—Congress was, in effect, being examined by the Supreme Court. In that sense, I certainly agree with you.

    But judicial review of LSC's administrative decisions is not there just because of the way it was set up. And the people—growers, some of the folks here and so forth—when they see LSC do something—LSC lawyers do something that's illegal, like the lobbying in South Carolina, they bring it to the attention of the LSC board. Their complaint's dismissed, even though it's clear. The judge said the lobbying was illegal. LSC didn't punish the program.

    Mr. WATT. So let me just run this through for you here, and make sure I understand what you're saying, in this issue—the ''is''-''is'' question. If the board of Legal Services Corporation, as it did, sets up a commission to study it, and they reach a conclusion, you think it's the courts that ought to second-guess that decision rather than the Congress that ought to second-guess decision?

    Mr. BOEHM. Well, both normally do. If LSC were a Federal agency, then it would be subject——
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    Mr. WATT. But LSC is not a Federal agency.

    Mr. BOEHM. Exactly. That would be my point.

    Mr. WATT. All right, so we should——

    Mr. BOEHM. A Federal agency——

    Mr. WATT. You think we should make this a Federal agency?

    Mr. BOEHM. Well, originally, it was a Federal agency, and they had problems and felt a private corporation was the way to go.

    Mr. WATT. So that's not the solution either.

    Mr. BOEHM. So it's—it's—or a totally different type of Federal agency. People have talked about block grants, talked about under—subsidizing, for example, Judicare. All of this is in the context that Legal Services itself delivers less than maybe 5 percent of the civil legal aid to the poor in this country. There's a lot more pro bono. Poor people do have access to contingency lawyers in personal injury cases and things where that's appropriate.

    So LSC doesn't do the bulk of even the civil, let alone they can't do criminal.
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    Mr. WATT. Where are you on this question of how we serve the other 80 percent that aren't getting it either from Legal Services, 5 percent, or other groups, 15 percent?

    Mr. BOEHM. I agree that there's—I don't think—I think the 80 percent is a little flawed because the bar association——

    Mr. WATT. Whatever the figures are.

    Mr. BOEHM. Right. It's—right.

    Mr. WATT. You concede that there are some——

    Mr. BOEHM. No. Here's what I think is the real nub of it. I think poor people many times have problems, individual problems, where the actual dollar amount may be low, but it's very important to them. It's a consumer problem, employment problem, whatever.

    To the extent that the laws say that this must be treated as a legal problem with well-paid lawyers or even not-well-paid lawyers on either side—say it's a dispute over $500; you don't have to go too many hours into that before it's prohibitive.

    I think the solution—and it's already happening in certain respects—is to de-lawyerize—and I'm sure, you know, the bar is not totally in favor of this sort of thing—but to take a lot of these less expensive types of legal problems that poor people have and make it easier through mediation, arbitration, raising the limits in small-claims court where neither party needs a lawyer—that, I think, would be a far more appropriate solution than to just say, okay, every—I know we're a litigious society. I've been a lawyer myself for 25 years. But to say, ''let's put two lawyers on the side of these relatively small legal problems, that's the reason you have so many unmet legal needs.''
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    Poor people would like to have their problems resolved in a just and fair way, and anything we can do societally to promote those—ombudsman is another area, mediation, arbitration, and small-claims courts where counsel isn't needed—those I think are far more—are going to provide far more legal assistance to poor people who really need it than to just say make sure everybody has got lawyers and go in and duke it out.

    That's the larger picture, I realize, but you were asking the larger picture, I think.

    Mr. WATT. I appreciate, Mr. Chairman. I know I'm over my time, and I appreciate——

    Mr. ERLENBORN. Mr. Chairman, could I address the question posed by Mr. Watt and addressed by Mr. Boehm?

    Mr. Boehm seems to assume that whenever a prospective client goes to the Legal Services—local Legal Services program and looks for help from the lawyer that they're going to wind up in court. It's something less than 10 percent, probably more like 5 percent, that actually get to court.

    What do they do? They negotiate, they compromise, and they settle these things.

    So, you know, he has them all in court all day long, I guess, and using up these resources. That just doesn't happen. That's a pipe dream.
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    Mr. BARR. Thank you.

    Mr. WATT. Thank you, Mr. Chairman.

    Mr. BARR. Thank you.

    I'd like to now recognize the distinguished former Chairman of this Subcommittee, the gentleman from Pennsylvania, Mr. Gekas, for 5 minutes.

    Mr. GEKAS. Mr. Ross, you stated as one of your final statements that you feel or felt or do feel that the agency is well-handled, well-managed, did you not?

    Mr. ROSS. I did.

    Mr. GEKAS. Do you think that the absence of judicial review is a reason to question whether or not it's well-managed or don't you believe that judicial review should be part of the process?

    Mr. ROSS. I don't think it's necessary. I would not support it. I would not revisit an issue that was discussed greatly in these halls and elsewhere about whether any taxpayer in this country could have standing in court to challenge a decision by the LSC board, and I'll tell you why. Because the limited resources that this Congress can give to serve poor people should not used in defending lawsuits every time this Board does something. There is oversight here. This is a private corporation. And I think that the solution is the correct one.
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    Mr. GEKAS. By the same token, those same resources to which you refer should not be used to entertain those kinds of suits that we have found to be vexatious and beyond the scope of the statute and so forth, because if we didn't spend them for the class actions and all of that, wouldn't we have more money for the 80 percent that are underserved?

    Mr. ROSS. And I think what I said in my testimony, sir, is that, from my perception, this Board and the management of this Corporation since 1996, since the restrictions went in, has worked very diligently to direct its efforts at basic legal services for the poor and understood what you said.

    Mr. GEKAS. But if it was well-managed, would there have been so many overcount situations in the cases that we found—year after year after year, an overstatement of the cases, thus inducing the Congress to, in effect, appropriate more monies because the caseload was mounting, but what was mounting was overcounting mounting.

    Mr. ROSS. Well, since 1999, when that issue came up, this Board and this management has effectively responded to that and reduced the error rate from 11 to less than 5 percent.

    And I would suggest to you that what they've done represents good management response to a problem identified.

    Mr. GEKAS. So up to 1999 it was less well-managed?

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    Mr. ROSS. I don't agree with that.

    Mr. GEKAS. I take that to be the case.

    John, do you oppose judicial review on a limited, specific basis, not permitting, as Mr. Ross might be indicating, not permitting an individual taxpayer to sue but specifying how judicial review can come about, particularly in some of these cases where it's obvious that bringing in the court would arbitrate the decision?

    Mr. ERLENBORN. Let me say that my concept of the Legal Services Corporation was one that would provide equal access to justice. We're not making equal access to justice available to everyone but a good part of the appropriated funds that we're using are to see that the restrictions that the Congress enacted are enforced. And that means going to court and fighting those who would have the restrictions thrown out as being unconstitutional, either under the first or the fifth amendment.

    Now, we already have successfully, in many cases, but particularly the Velazquez case, used those appropriated funds, and we did protect the will of Congress.

    Now, if we let everyone—every individual who has some sort of a complaint file a suit, we'll have to defend those suits. We won't have the money to take care of the needs of the poor. That's just the answer.

    Mr. GEKAS. Well, what kind of cases would go up? The——
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    Mr. ERLENBORN. I have no idea.

    Mr. GEKAS. Excuse me, John.

    Mr. ERLENBORN. I have no idea.

    Mr. GEKAS. We don't contemplate that going to the appeals court would be a case of domestic abuse or a property claim of some sort, something that's near and dear to the hearts of the poor people who can't get justice otherwise, an overcharge by some auto machinist, et cetera.

    Do you contemplate that those are the ones that would go up to court? Or are they these general ones that seem to abuse the general purposes as Congress outlined them for legal services, don't you see?

    We're not talking about the poor person's claim for recompense at some level. We're talking about the kinds of cases that go up to a higher level that attack the purposes of the Legal Services Corporation.

    Mr. ERLENBORN. Well, my guess would be that if you let these decisions of the Board be challenged in court by any citizen, what you will find is that the professional opponents of the Legal Services Corporation will gin up a hell of a lot of lawsuits to tie our hands so that we couldn't get the job done that we intended to do.

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    Mr. GEKAS. I did caveat that I would want to specify how that judicial review would occur, excluding the right of any citizen, any time, on any basis to sue.

    Mr. ERLENBORN. Well, you have to have some test.

    Mr. GEKAS. That would be—yes, that's what I'm—it would have to have some criteria by which judicial review could honorably be brought.

    I believe that's——

    Mr. ERLENBORN. I think we have a system right now that works quite well.

    Mr. GEKAS. Obviously, you do, yes, John.

    Mr. BARR. I thank the gentleman from Pennsylvania.

    The gentleman from the great State of Arizona is recognized for 5 minutes.

    Mr. FLAKE. Thank you, Mr. Chairman,

    I have to say, I'm kind of interested in LSC's interpretation of ''is present.'' I'd sure like to stay in Arizona during these cold weeks back here and just give my voting card to somebody and tell the Speaker later, ''I was there. I was present, just at another time.'' I mean, it doesn't work. And I just get a big kick out of this whole discussion, but it just doesn't pass the laugh test.
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    Returning to the main culprit here, the Texas—one of the culprits, the one that's been up front here, the Texas Rural Legal Aid group here. In 1996, they sued on behalf of a taxpayer who claimed that her vote, I believe, was diluted, seeking to overturn the election of two Republicans for county office, claiming that the military vote, absentee votes, were improperly cast or counted or whatever else.

    That didn't pass the laugh test either. And LSC—well, LSC came in, actually, and said that the only problem was—is that the lawyers in that case sought attorneys' fees. The statement from the spokesman from LSC afterwards is—was: In terms of the program's priorities and in terms of the restrictions placed on Legal Services by Congress, that suit was perfectly valid.

    Do you agree? Do you agree that it is valid for an LSC-funded organization to sue on behalf of taxpayers seeking to overturn elections?

    Mr. ERLENBORN. As an attorney for 55-plus years, I make it a requirement that I have an opportunity to look at and judge an issue before answering it, so I'm not prepared to answer your question.

    However, I can tell you, as you probably know, that the management of Legal Services Corporation saw to it that the attorneys in the Texas Rural Legal Aid got off of that case and somebody else took over, and we no longer were involved in it.

    Mr. FLAKE. But——
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    Mr. ERLENBORN. Action was taken.

    Mr. FLAKE. Okay. But was that firm—was the Texas Rural Legal Aid ever disciplined or ever——

    Mr. ERLENBORN. Yes.

    Mr. FLAKE [continuing]. Even told that they did the wrong thing?

    As I understand it, and Mr. Boehm can clarify, but they were only told that you erred when you sought attorneys' fees——

    Mr. ERLENBORN. I think——

    Mr. FLAKE [continuing]. Not for anything else. And the spokesman clearly said that the suit was valid.

    Mr. ERLENBORN. My——

    Mr. FLAKE. Is that correct?

    Mr. Boehm, do you want to——

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    Mr. BOEHM. Sure.

    Not only did they not get out of the suit, they stayed in as an expert witness. The only penalty was for seeking attorneys' fees, which was an out-and-out violation of the congressional law.

    And even though the LSC Act itself says no political activities and the Court of Appeals for DC, Judge Abner Mikva, former Congressman, said in a similar case involving the same parties, Texas Rural Legal and Legal Services, about whether they get involved in redistricting political activities, he said LSC has all the authority it needs to prohibit political activities. LSC thought that this case, which is overturning the election of two Republicans to local office by challenging the voting rights of 800 military people—many of them, by the way, were in Bosnia and hadn't got lengthy questionnaires and so forth—LSC said that was perfectly valid.

    Not only is it not perfectly valid, it violates the LSC's own act against political activities.

    Mr. FLAKE. Any response, Mr. Erlenborn?

    Mr. ERLENBORN. All I can say is that the leaders of the Texas Rural Legal Aid were brought to Washington, summoned to Washington, were told that what they were doing was stupid, and that they were not going to be involved in that case any longer, and they got out of it.

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    Mr. FLAKE. Well, they may be on their way back.

    Are you aware that section 1007(a)(6) states that—to ensure all attorneys engage in legal assistance supported in whole or in part by the Corporation refrain while so engaged from any political activity? You're aware of that——

    Mr. ERLENBORN. Yes, I'm aware of that.

    Mr. FLAKE. I'd like this entered into the record.

    Mr. BARR. Without objection, so ordered.

    Mr. FLAKE. Here's—from the Web page here, TaxRebatePledge.org—this is an organization set up, as it says here, to fight—fund to fight against Bush and his agenda.

    If you—it says here, in the text here—it's asking people to send their rebate checks that they got through the Bush tax cut to these organizations who are fighting against the Bush tax agenda. And over here, it says—it lists the organizations fighting against Bush's agenda, if you'll click on this.

    Well, my staff did, and they click on it, and they get a list of organizations that are fighting against the Bush Agenda. And if you look down this list, prominently displayed is the Texas Rural Legal Aid group. And if you click on their Web site—just two degrees of separation here—you will find that they are funded, as we know, by the LSC.
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    Is that not——

    Mr. ERLENBORN. Have you brought that to our attention, by the way?

    Mr. FLAKE. I am right now. I just discovered it.

    Mr. ERLENBORN. Well, now we can start to do something about it.

    Mr. FLAKE. All right. Can we expect that group to be summoned again to Washington?

    Mr. BARR. Will the gentleman yield?

    Mr. FLAKE. Yes.

    Mr. BARR. Even though we're all certainly indebted to Mr. Flake for bringing this to the attention of the LSC, aren't there any guidelines that prohibit this? Is it up to Members of Congress to click on a Web site to discover this? What guidelines are these grantees given? Are they told in advance not to do this?

    Mr. ERLENBORN. Well, they certainly cannot engage in political activities.

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    Mr. BARR. But they are.

    Mr. ERLENBORN. Individual attorneys or other employees of the program can, on their own time——

    Mr. FLAKE. But, sir, this is the group.

    Mr. ERLENBORN [continuing]. Be politically active.

    Mr. FLAKE. This is their Web page, not an individual within the group.

    Mr. ERLENBORN. I would say, from what you've told me, and I would reserve my judgment until I can have all the facts brought forth, but from what you've told me, it sounds to me like they've engaged in something that is prohibited. And it's another stupid thing.

    Mr. FLAKE. If I can ask just a follow-up, you mentioned that you have a staff of seven—well, you added seven to your compliance staff, is it?

    Mr. ERLENBORN. Added seven.

    Mr. FLAKE. And you have a $2.2 million budget. Individuals in your organization seeking to ensure that nobody does this kind of thing, and we, just looking at the testimony of Mr. Boehm and then making a couple of clicks, found this. Are you—you mean to say that that crack staff of seven people and $2.2 million budget failed to see this?
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    Mr. ERLENBORN. I have no idea. I would think they failed to see it, or they would've done something about it.

    It's not the kind of thing that is——

    Mr. WATT. Will the gentleman yield for just a second?

    I'm trying to get a copy of what it is you're looking at, so——

    Mr. FLAKE. Yes, I'll be glad to hand it over.

    Mr. WATT [continuing]. Will be available to all of the Members of the Committee.

    Mr. FLAKE. My time is up, but I appreciate it.

    If I could, a follow up for Mr. Ross: Do you see any problem with this? Do you think it is right to sue to seek to overturn an election? Or would that be an example of funds used that could be better spent serving the poor?

    Mr. ROSS. I'd answer you this way: The priorities of local programs funded by LSC are set by local boards and the communities in which they serve. And so the priorities or use of their resources as determined locally is what governs what they do, aside from the congressional restrictions and the regulations of LSC.
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    If you would look at section 1608.6 of the LSC regulations, there is a specific regulation that deals with political activity. And section 1608.6 deals directly with those that are applicable to attorneys and to staff attorneys.

    This, too, is like the discussion about what the Erlenborn commission did about ''is.'' You have to define what political activity is, and you have to compare it section 1608.7, which deals with the attorney-client relationship and the right of Legal Services lawyers to represent clients properly.

    Mr. FLAKE. Just one, very quickly. Mr. Erlenborn, are groups ever barred after significant activity like this, suing on behalf to overturn elections or clearly engaging in political activity? Has a group ever been barred from receiving LSC funds forever?

    Mr. ERLENBORN. I don't know that there's anything that's on all fours, but there are programs that have been shut down for violations, and those programs were succeeded by others that did comply with the regulations.

    Mr. FLAKE. Mr. Boehm?

    Mr. BOEHM. Yes, if I could answer that. Let's look at the case we're looking at. Let's look at Texas Rural Legal. Not only were they not shut down after playing election politics, which, coincidentally, one of their lawyers went off to be executive director of the Texas Democratic Party right before this case, just a few months before.

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    But not only are they not shut down, but if you look at LSC's own Web page, you see the TRLA now has a bigger service area and gets more money than ever. So the lesson is, engage in politics, try to deprive military people of their vote, and the result is, we'll give you more money.

    Mr. FLAKE. Wouldn't it be prudent, Mr. Erlenborn, to say that lawyers who work for Texas Legal whatever, if they go on that they—any firm that they're representing or engaged with shouldn't be able to receive LSC funds as well?

    Mr. ERLENBORN. We don't look into issues of individuals. They should be taken care of by the program under the—certainly under the regulations that the program has to comply with. And it should be a matter of discipline with the board of the individual program.

    Mr. FLAKE. Thank you. And I thank the Chairman for letting me go on.

    Mr. BARR. Yes, sir. I thank the gentleman.

    The gentlelady from California, Ms. Waters is recognized for 5 minutes.

    Ms. WATERS. Thank you very much, Mr. Chairman. I yield a minute to the gentleman from North Carolina.

    Mr. WATT. I thank the gentlelady for yielding.
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    I just wanted to clear up one thing, and set the members of the Legal Services Corporation Board at ease. I'm looking at these documents now, and my colleague may be, by oversight—but the Web page to which he's referring is the Web page of something called TaxRebatePledge.org. It is that Web page that identifies Texas Rural Legal Aid, Inc. as one of those organizations that is fighting against the Bush Agenda. It is not the Texas Rural Legal Aid's Web site that self-identifies itself in that way.

    So I presume that what he wants you to do is go and discipline the TaxRebatePledge.org for exercising their free speech rights, because they can put up whatever they want on their Web page and identify—I guess they could identify me as somebody who's fighting—they'd be right. [Laughter.]

    They might identify the gentleman from Arizona as somebody who's identifying—who is fighting the Bush agenda. They would probably be wrong, but it's their free speech rights to do that.

    And I want——

    Mr. FLAKE. Will the gentleman yield?

    Mr. WATT. I hope you all won't spend a lot of time——

    Mr. FLAKE. Will the gentleman yield?

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    Mr. WATT [continuing]. Using Legal Services' money to investigate this, because I don't think you're going to find that it is as has been represented.

    It's Ms. Waters' time, so——

    Mr. ERLENBORN. Mr. Watt, if I might say, any complaint that comes from the Congress, in particular, will be investigated. So that if Mr. Flake would like to have us investigate this, I expect we will have a complaint in writing, and I'll guarantee you that we'll look into it.

    Mr. WATT. I yield back to the gentlewoman.

    Mr. ERLENBORN. And I wish you had told us about this earlier, instead of waiting until now.

    Mr. FLAKE. I learned 10 minutes ago, just 10 minutes before the hearing.

    Mr. WATT. We think maybe his staff may have misled him about what these things were, then.

    Mr. FLAKE. Not at all.

    Mr. WATT. I yield back to Ms. Waters.

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    Ms. WATERS. Well, thank you. I don't really have any questions. I think my position about Legal Services Corporation is very clear.

    I don't know how I would be able to service my constituents without them. They have, over the years, just been extremely helpful in providing just basic legal services to people who have no where to go. A lot of the complaints, I think, are unfounded. Congress has made some decisions. Again, if Legal Services are in violation of the law, then you have the ability to not only investigate them but to take away the funding, I suppose.

    I just hope that one day that—well, I hope I'll be here long enough to get back the funding that Legal Services needs to do the job. I don't know that I've heard any answers coming from this panel or from anybody—and I can't say ''from this panel,'' because I really didn't listen that closely—about how to provide services for the poor without having an entity such as legal aid. And I find it very, very difficult to separate providing services from the poor—for the poor from helping to provide input on public policy. It seems to me that the two are inseparable, and I welcome that kind of input.

    So I'll yield back the balance of my time.

    Mr. BARR. I thank the gentlelady.

    I have a few more questions, and then, Mr. Watt, you may have some more also. I'll be glad to recognize you.

    And Mr. Flake apologizes for having to leave for another engagement.
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    We will be, though, submitting additional questions in writing. There are a couple I would like to address briefly, though, before we end the hearing today, regarding, for example, competition for LSC grants.

    Mr. Erlenborn, I know you're familiar with the 1997 Philadelphia case in which a private law firm named Dessen, Moses & Sheinoff placed a competitive bid to set up a new and arguably more efficient agency in the five-county region around Philadelphia. However, the Dessen law firm was forced to withdraw its bid because of tremendous pressure, including picketing against them by Legal Services lawyers, in violation of statute and Federal regulations.

    For example, one of the lawyers that was picketing against their competitive bid, against them being awarded the bid, was Roger Ashodian, president of the Delaware County Legal Assistance Agency. He apparently was the same attorney who had been sanctioned by the court in 1992 for unethical tactics to increase litigation costs in a lawsuit that had been filed against a nonprofit group that provided affordable housing for the poor. That's background from the Cottman vs. Flower Manor case.

    What sanctions—first of all, is this gentleman still in that capacity, Mr. Ashodian?

    Mr. ERLENBORN. I have no idea, nor do I know from what you've told me if he was doing this on company time or on his own. I think he has some first amendment rights, if he was doing it on his own.

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    That doesn't mean I am happy that he did it.

    Mr. BARR. Do you think that this was improper?

    Mr. ERLENBORN. Improper in the——

    Mr. BARR. For Legal Services attorneys to——

    Mr. ERLENBORN [continuing]. Sense of——

    Mr. BARR [continuing]. Be picketing against a private firm that had submitted a bid and was seeking to obtain a contract for the provision of those legal services.

    Mr. ERLENBORN. I would not say that I think it's improper because I don't have all the facts. I would say that if he is not, as I said a minute ago, on company time, working for Legal Services, he has not, because of working for Legal Services, given up his right to—his first amendment rights to expression.

    And that's all I can say without knowing more about the case.

    Mr. BARR. Is this the first you've heard of this case?

    Mr. ERLENBORN. I've heard of the—not of the picketing, necessarily. I don't recall being told about that. But I do recall that our staff ultimately was told by the attorneys—it was a law firm, as you mentioned—that they could not live under the rules and regulations of the Legal Services program, and they decided that they would not take on being the grantee although they had won the competition.
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    Mr. BARR. So the position of the Legal Services Corporation is that this firm did not withdraw because of the picketing or pressure but because they changed their mind after submitting their bid?

    Mr. ERLENBORN. I cannot say that's the position of the Corporation, because, as I said, I'm not really aware of the person walking up and down with the banner or whatever he had. I'm not familiar with those facts.

    Mr. BARR. So, actually, Legal Services Corporation has taken no action against any of those who picketed?

    Mr. ERLENBORN. Again, I don't know much at all about the picketing. I could not answer. I'd be happy to find out and respond to that question.

    Mr. BARR. I'd appreciate that.

    With regard also to competition, have there been any Legal Services grantees who have lost their grants, not through consolidation of programs, but to a new competitor?

    Mr. ERLENBORN. Yes, I—again, I'm not prepared to tell you exactly when, how many, but would be, again, happy to furnish that.

    I do know that there have been some that have lost their status and another grantee came in and took over that service area.
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    I'll be happy to furnish you all the information we have on that.

    Mr. BARR. But you don't have any idea today whether it's been one, two, 100?

    Mr. ERLENBORN. No, Mr. Chairman, I don't. And if I had realized that that was one of the questions you wanted me to answer, I could've done my research and answered your question today.

    Mr. BARR. Well, we did talk about it yesterday, and I specifically asked—forewarned you that we would be going into questions regarding competition and asked for it at that time.

    Mr. ERLENBORN. Yes. I have a lot of information about competition that didn't happen to do with that particular case.

    Mr. BARR. Well, I'm not talking about a particular case.

    Mr. ERLENBORN. Well, I don't recall you asking the information as to has a grantee been decertified and a new grantee taken its place.

    The answer, I understand, is yes. How many and where, I can furnish that to you.

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    Mr. BARR. I'd appreciate that.

    Mr. ERLENBORN. But I did not understand you were asking that.

    Mr. BARR. How many and also when, please.

    You mentioned that there have been Legal Services grantees who have lost their grant funding. Is this for violation of regulations of the LSC Act?

    Mr. ERLENBORN. Again, not having an opportunity to research that, I can't answer your question.

    I did, in answer to just the prior question, hear an affirmative from the staff behind me, so I feel that they do have cases, which they can research and give you the information about.

    Mr. BARR. Okay, if you could get us those details, too, I'd appreciate it.

    At this time, I've got a few more questions, but I recognize the gentleman from North Carolina, if he has any additional questions, for 5 minutes.

    Mr. WATT. Mr. Chairman, I don't have any more questions. I would just tell you, on this issue that you're raising about competition, from my own personal experience, that there was a vigorous, vigorous competition, at least on the front end in North Carolina. I got a lot of calls from people who were—various entities who thought that they wanted to provide these services. And then the inquiries started to taper off, and I started to make inquiries myself. And a number of them who thought that this was a wonderful, wonderful thing started to see how difficult it would be to comply with the Legal Services Corporation requirements, how time-consuming this would be.
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    In a lot of cases, the law firms were approaching this as if it could be a major ''profit center'' in their law firms. And once they got beyond this kind of superficial evaluation of it and found out that it wasn't going to be a ''profit center,'' the glitter went away very quickly.

    So this whole notion that you can put this out to competitive bids and there's going to be people coming out of the woodwork to perform these services for poor people, is more of a theoretical notion, I think, then a practical notion. And most lawyers and law firms I've known who have gone beyond just a superficial evaluation have very quickly determined that.

    So I just weigh in, and you can think about what most law firms are thinking about. You know, they—well, let's set up this kind of subsidiary out here to serve the poor, and let's treat it as a profit center. Most of them who are willing to devote time to this are doing it through the pro bono process. And it is magnificent the work they are doing. But few of them are willing to jump into it full time with all four feet, so to speak.

    I yield back.

    Mr. BARR. I thank the gentleman.

    Does the gentlelady from California have any additional questions? And if so, she's recognized for 5 minutes.

    Ms. WATERS. No, thank you.
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    Mr. BARR. Thank you.

    Just a few in follow-up, then, if I could, please.

    Going back to reference an earlier discussion we had, Mr. Erlenborn, regarding what is the definition of ''is'' is, the—we would all agree, I think, that the Legal Services Corporation is subject to the Government in the Sunshine Act, correct?

    Mr. ERLENBORN. Yes.

    Mr. BARR. Could you explain to us, then, why—how is it that the deliberations on interpreting that particular regulation that we've gone over were made in closed-door session?

    Mr. ERLENBORN. I'm glad——

    Mr. BARR. Session or sessions?

    Mr. ERLENBORN. I'm glad you asked that question. First, let me say that we published in the—the fact that we were going to have hearings on this issue. We invited people to send in papers, expressing their position on this issue.

    Every one of those was accepted, was read by the five members of the Commission, and everyone who asked to be heard publicly was granted the right to testify and did testify before us in the two hearings that we had.
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    Now, to get to—specifically to your question, the Commission had no authority to make any decision, but rather to make a recommendation to the general counsel and to the Board of Directors. And, therefore, there was no Government in the Sunshine issue. There was no authority, merely five law professors getting together and deciding that they could give an opinion to the Corporation.

    Mr. BARR. I'm informed by Counsel that the session which deliberated the final decision was not noticed publicly.

    Mr. ERLENBORN. Actually, it occurred not at a specific point in time but over several weeks or, actually, probably a couple of months of drafting the Commission report and sending it back and forth. And as I say, there was no obligation under the Government in the Sunshine Act to give notice of any of the things we did. We just voluntarily gave notice of the hearings, and they were well-attended.

    Mr. BARR. Do you have a copy of the transcript of those proceedings?

    Mr. ERLENBORN. At this point, I don't recall whether we had a transcript. I think we did, but let me ask—I'm told that we do have the transcript and we can make it available.

    Mr. BARR. And that would be for——

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    Mr. ERLENBORN. And would you like to have us send you a copy of the transcript?

    Mr. BARR. Yes. Yes, we would.

    Mr. WATT. Mr. Chairman, might I just inquire——

    Mr. BARR. Sure.

    Mr. WATT [continuing]. If you would yield.

    Be clear about what we're talking about a transcript of. I presume that Mr. Erlenborn is talking about a transcript of the actual testimony. If you're talking about a transcript of the trading of papers and the phone conversations, which seem—I just don't want there to be any—it sounds like you all may be saying different things.

    Mr. ERLENBORN. I thank you for that clarification.

    Mr. WATT. I don't know that that's the case.

    Mr. ERLENBORN. And you're right. We don't have a transcript of what was sending paper back and forth, sometimes telephone conversations. But, again, we had no obligation to do that.

    Mr. BARR. What I'm talking about are the records that are required to be kept pursuant to section 1622.8 of the CFR, chapter 45 CFR.
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    Mr. ERLENBORN. Required by whom? By the Commission?

    Mr. BARR. Yes.

    Mr. ERLENBORN. I'm advised and was advised at the time that the Commission was working that we're not subject to the Government in the Sunshine Act. We had no authority. All we did was to make a legal interpretation and give that advice to the Corporation.

    Mr. ROSS. Mr. Chairman, may I offer some——

    Mr. BARR. We're not—I hope we're not getting involved in another Clinton exercise here, where you—the Commission itself, the Corporation itself, is subject to the Sunshine in Government Act, but, in an effort to get around that, they set up an outside Commission or a group of people to do the work for them and then claim that that group, even though they're operating for them at their behest and under the control of the Corporation, they're not subject to the Sunshine in Government Act.

    Mr. ERLENBORN. Well, we had—the Commission had absolutely no authority to make any decisions. All we could do is to have a legal opinion concurred in by the five law professors and the Corporation was free to do whatever they wanted to with that. So we were not covered by the Government in the Sunshine Act.

    Mr. BARR. Here, again, the plain meaning is subject to dispute. It says, ''Every meeting of the board, a committee or a council shall be open in its entirety to public observation.''
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    Mr. ERLENBORN. That's correct. And under that wording, I've been advised that we were not subject to the provisions of the act. Had no authority whatsoever.

    Mr. BARR. I'm sorry. I'm missing something.

    The plain meaning, the plain language here—I'll repeat it: ''Every meeting of the board, committee or council shall be open in its entirety to the public.'' Does that not cover the LSC and those entities operating at its behest and under its control, such as the Erlenborn Commission?

    Mr. ERLENBORN. Well, I'll have to check this, but I don't believe that the Board ever took a position on this, but the Corporation, with the aid of the general counsel, gave advice to the programs that this was the interpretation that the Commission recommended and it was being adopted by the Corporation. The act of the Corporation in adopting this, if there was any kind of a hearing—and I don't recall that there was—it was just an interpretation.

    Mr. BARR. The language of the statute doesn't refer to a hearing. It says that every meeting of the board or a committee or a council has to be open in its entirety to the public.

    Are you saying that the Legal Services Corporation or any entity operating within its structure or at its request or under its control is not subject to that open meetings requirement?
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    Mr. ERLENBORN. That's right. We were neither——

    Mr. BARR. Your counsel has advised you that these provisions of the Sunshine in Government Act don't apply?

    Mr. ERLENBORN. That's right. We were not acting as the Board. We were not acting as an arm of the Board. We were merely giving an opinion.

    Mr. BARR. I mean, I'm talking about the Commission here; it's the Erlenborn Commission report. And down at the bottom, it says very clearly it's Legal Services Corporation. I mean, I think here again common sense would tell us that the Commission was operating under the direction of, subject to the control of, within the legal structure of, the Legal Services Corporation.

    Mr. ERLENBORN. Let me volunteer to have the general counsel—if he's here, he probably would be doing it anyhow——

    Mr. BARR. Who paid for——

    Mr. ERLENBORN [continuing]. Give you the——

    Mr. BARR [continuing]. The report?

    Mr. ERLENBORN. The Corporation.
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    Mr. BARR. Well, I mean, it seems to me that——

    Mr. ERLENBORN. I don't think——

    Mr. BARR [continuing]. Both the Corporation and, in this case, the Commission is subject to the Sunshine in Government Act. And all of those meetings were required to be open fully to the public.

    Mr. ERLENBORN. All the public hearings were, and the give and take over the telephone and my letters and e-mail were not open to it and did not have to be——

    Mr. BARR. I'm not talking——

    Mr. ERLENBORN [continuing]. In our opinion.

    Mr. BARR [continuing]. About telephone conversations. I'm talking about all of the meetings of the Commission.

    Mr. ERLENBORN. We had two meetings.

    Mr. BARR. Well, then both Commission—or the meetings, those were both fully open to the public, noticed——

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    Mr. ERLENBORN. Absolutely.

    Mr. BARR [continuing]. Publicly?

    Mr. ERLENBORN. Absolutely.

    Mr. BARR. They were noticed publicly?

    Mr. ERLENBORN. There was one in North Carolina and one in California, and both of them—notice was published. It was open to the public.

    I didn't realize that you were talking about that. I thought that you were talking about the deliberations of the Commission members, and that was not in open sessions.

    Mr. BARR. I think we're still on a Clinton treadmill here.

    Mr. Boehm?

    Mr. BOEHM. Yes, back from '91 to '94 I served as counsel of the Legal Services Corporation Board. There's no question they're governed by Government in the Sunshine. There's no question that that extends to special committees of the board, which is exactly what this was. And even though they did notice in the Federal Register the two public open sessions, the deliberation session, which would not be behind closed doors if it were a regular LSC board meeting or anything else, was where they closed the doors.

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    From a public policy standpoint, I think it was—Attorney General Meese earlier said there's two sides to every issue. They appointed a board of five people. It had vital interest to growers all over the place. There was not a single one of those five representing agricultural interests. Their mission was to try to turn legislative language that says ''is present in the United States'' into meaning ''was.'' That can be embarrassing in a public setting.

    And I think Congressman Flake used the expression ''doesn't pass the laugh test.'' The public was entitled to be in that meeting. That meeting would have been noticed in the Federal Register. It wasn't noticed and the five met behind closed doors and came up with a, frankly, a preposterous twisting of the language, that ''is'' does not mean ''is,'' ''is'' means ''was.''

    And I don't think—even the LSC regs about Government in the Sunshine talk about special committees of the board. So if they have some legal opinion that suddenly turns 25 years of Government in the Sunshine law on its head, you know, I'd like to see what that opinion was. I doubt they have a written legal opinion.

    Mr. BARR. Thank you.

    We would appreciate any additional information that you all can provide on that, because this is the sort of thing that does concern us, and it concerns others as well.

    Just a couple of other questions, Mr. Erlenborn, and then we'll submit some additional ones in writing.
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    I think there was reference—and I forget which one of the witnesses referred to it—a letter by Congressman Hal Rogers back in September of 2000, in which Chairman Rogers says that grant recipients have repeatedly denied the Office of Inspector General access to information.

    Is that practice still continuing? Or is there complete access that the OIG has to all LSC and grantee records?

    Mr. ERLENBORN. I am unable to answer that question. I don't have that information.

    Mr. BARR. Are you familiar with this letter?

    Mr. ERLENBORN. No, I'm not.

    Mr. BARR. September 14, 2000, from Hal Rogers.

    Mr. ERLENBORN. If——

    Mr. BARR. I mean to Hal Rogers from the Inspector General of Legal Services Corporation.

    Mr. ERLENBORN. I do not recall seeing the letter. I may have it, but I don't recall.
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    Mr. BARR. Okay. Apart from that letter, though, the fundamental question is, are all records of the LSC and its grantees available to the Office of the Inspector General at this time?

    Mr. ERLENBORN. I can only give you my opinion. I don't know for certain what the answer to your question is.

    And, again, with 55 years' experience as an attorney, I usually don't like to give opinions without knowing all the facts. I would expect that our records would be open, but that's only my expectation. I don't really know what——

    Mr. BARR. Should they be?

    Mr. ERLENBORN. I would think so. But, again, there could be exceptions. I don't know. I have to have the facts before I decide.

    Mr. BARR. We're talking about a policy matter here.

    Mr. ERLENBORN. I understand.

    Mr. BARR. So you aren't prepared to state that they certainly should be available fully to the Office of Inspector General?

    Mr. ERLENBORN. It depends. If, for instance, these are personnel records that reveal things that are not of interest to the Inspector General, I would think that they probably would not want to, but if—or would we want them to see personnel records like that.
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    Mr. BARR. Are there limitations, then, in your view on what the Inspector General can review?

    Mr. ERLENBORN. I have no idea. I have no way of telling you, because I don't know what the facts are.

    Mr. WATT. Mr. Chairman?

    Mr. BARR. It's not a factual question.

    Mr. ERLENBORN. Well, from——

    Mr. WATT. Mr. Chairman, would you yield?

    Mr. BARR. Certainly.

    Mr. WATT. I would, certainly, if I were a client of the Legal Services Corporation, have severe reservations about the Inspector General being able to have access to my medical records, my case files.

    I think there are a number of exceptions. And it seems to me that Mr. Erlenborn has said, as a general proposition, he believes that the records of the Legal Services Corporation should be open to the Inspector General. But apparently you're not hearing him say that.
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    But every general rule——

    Mr. ERLENBORN. Has exceptions.

    Mr. WATT [continuing]. Generally has exceptions. And I think that's what he's saying. And I can——

    Mr. ERLENBORN. I told, Mr. Watt——

    Mr. WATT [continuing]. Just think of some things in my own mind that I would want to be exceptions. I don't know whether that's what this is all about.

    But I think the general rule is that records should be available, but that there are always exceptions to every general rule.

    Mr. ERLENBORN. I'm told that that is the general rule, and one of the exceptions, maybe the only exception, is attorney-client privilege, which I think we should understand.

    Mr. BARR. Has LSC ever waived their right of access to any outside group?

    Mr. ERLENBORN. Are you talking—there's been a problem of access not to the Corporation but rather the Corporation not being able to have access to records of some of the programs. I don't know which way you're addressing this question.
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    Mr. BARR. It's my understanding that LSC management has accepted denials of access to records when attempting to conduct its own compliance inspections and acceded to ineffective inspection procedures suggested by the grantees under review.

    For example, after the Legal Aid Bureau of Maryland denied the OIG access to information in 1999, LSC management agreed to a protocol for conducting compliance reviews that accepted what were called unique identifiers in lieu of client names.

    In December 1999, LSC management entered into a written agreement with Westchester/Putnam Legal Services—I guess that's up in New York—to accept unique identifiers, again, waiving its statutory authority.

    Is this a process that you're familiar with?

    Mr. ERLENBORN. Now I know——

    Mr. BARR. And is it——

    Mr. ERLENBORN. Now I know the process you're talking about. Yes, some of these things—I think the Maryland case is one. It was an agreement between the Inspector General, who was doing an audit of the program. There was an agreement to get around a claim of attorney-client privilege, so that the Inspector General could get sufficient information to complete his audit without necessarily having the names of people exposed.

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    And so this happens. And a number of times, the Inspector General has done this, work out a problem instead of going to court, getting the information the Inspector General needs.

    Now, they've also—our corporate staff goes into the—tries to get information from the records of the programs, and sometimes they have to negotiate to find a way of doing it that is not violating attorney-client privilege and yet allowing our staff to get the information to do an audit on their behalf.

    Mr. BARR. I would appreciate it, because there are some—I think some pretty complex but fairly important issues involved in this discussion, if you could, please, take a look at the September 14, 2000, letter from the Inspector General to Hal Rogers. And I'd appreciate your thoughts on that and your response to it, please.

    You did testify, Mr. Erlenborn, that the efforts to address the overcounting and so forth, that the error rate, which you identified in 1999 as 11 percent, dropped I guess about 60 percent or so the next year to 5 percent. What was the criteria and who conducted that survey?

    Mr. ERLENBORN. This is based on audits by our staff, and it—it's audits that they did in conjunction with the programs who are doing a self-inspection.

    What had preceded that were letters going to all of the programs, advising them the procedures that they should follow to have the best possible records.
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    And I would reiterate that this all began with the Corporation and the LSC Inspector General having discovered that the records were not accurate and remedial action was taken before this became public and became a cause celebre on the Hill. And we've done all in our power to see that we have accurate figures.

    Now, I would really question the assumption made by my friend George Gekas that we were trying to inflate these figures so that we would get more money from the Congress. We were lucky to get money just to stay alive. There was no attempt on our part to try to flimflam the Congress.

    Mr. BARR. What was the reason—at least that would've provided a logical explanation for the overinflation. What was the reason for the overinflation?

    Mr. ERLENBORN. The inflation was caused by outmoded procedures. A good deal of that problem was on the part of the Corporation not giving the programs sufficient information and guidance, which we have done in abundance since this issue was raised. And that's what brought the count down, the error count down.

    Mr. WATT. Would the Chairman yield on that point?

    Mr. BARR. Certainly.

    Mr. WATT. We did have a hearing or two about this when we were in the heat of this battle. And my recollection of what was going on is that—is what goes on in a lot of other Federal agencies and non-Federal agencies: Instead of counting clients, they were counting client—some of the Legal Services organizations in the field had started counting contacts. So if you got a series of phone calls about a case, that might show up as—even though it was one case, it might show up as more than one client contact.
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    And they understood what they were doing. They were keeping these records for the purpose of trying to allocate personnel to receive those calls, how many personnel they needed. So there were all kinds of different records being kept by different organizations, and there was no standard.

    And what the Legal Services Corporation did was to set some standards, at least for reporting to the Congress, so that there wouldn't be all kinds of different standards in different Legal Services organizations that were grantees.

    And I'm not sure I was ever convinced that there was any sinister motivation. In fact, most of the motivations I heard were rational explanations: ''We needed to know how many phone calls we were getting so that we would know how much personnel we needed.'' ''We needed to know how many pieces of correspondence we were getting in as opposed to cases so that we would know how to budget for responding to those.'' I mean, there were all kinds of rational explanations.

    And I had thought that this issue had been resolved a good while ago. I mean, I think this is old news, Mr. Chairman. I hope it is. And if we think it's not, then maybe we should have an independent audit.

    But I think the Legal Services Corporation did their own independent audit. They found the problem. They identified it. They reported it. And then they corrected it.

    Mr. ERLENBORN. The GAO also looked into it. And all of those things that the GAO recommended the Corporation do to get accurate figures, we have accomplished.
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    And I might also say, you're talking about what someone might be trying to do—what impetus there might be to give figures that were not accurate. The figures are composed out in the field. Out there, they get the same amount of money regardless of what figures they report, because it isn't based on those figures; it's based on the poor in the service area. And so there's no reason for them to give inflated reports.

    When that comes to the Corporation, all we do is to add these numbers together. We do not change the numbers. There is no way that we could get more money by changing the figures. There's no reason why we would do that. And we have never done it.

    Mr. BARR. How long after Inspector General Quatrevaux sent this letter to Chairman Rogers in September of 2000 was he fired by the Board?

    Mr. ERLENBORN. I have no idea.

    Mr. BARR. As I understand it, it was shortly thereafter.

    Do you know, Mr. Boehm?

    Mr. BOEHM. Yes, there was a news article in Legal Times December 5th, right—you know, we're talking about 2 months after it saying he was no longer with the Corporation and wasn't available for comment.

    And I have a copy of the letter here. It's interesting, in the letter itself, the Inspector General says that his efforts to get access to documents were being undermined by the LSC President and the LSC Board and that they were not—they were waiving their own statutory access to records.
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    And I just saw a case in here, this Westchester case that took place in September, that was a complaint that I had filed. The program legal director there, worked there close to 20 years, wrote a letter to the editor—his name was John Hand—saying that in his program, they knowingly falsified the case counts in order to deceive their funders.

    He had subsequently left. I filed the complaint. I said, well, here's a guy that worked there 20 years; he's saying they falsified their numbers; please investigate.

    LSC dismissed my complaint, and now I happen to see in this letter that one of the programs that was not forthcoming with information that the IG wanted was Westchester.

    There is a lot more to this story than that. The person, by the way, who discovered the case overcounting was an individual with 25 years' experience in the Federal IG service, a guy by the name of Fred Gedrich, who was here earlier today.

    He quit after years of experience in the government because he felt that the Board and the President and, in that case, even the IG, was not telling Congress what they should've told them. He left his job in order to tell Congressman Latham, LSC is covering up widely inflated case counts.

    Everything he said was confirmed by GAO in their first investigation. Everything was confirmed in an Associated Press investigation. And then there was a second GAO study that said that what LSC was telling Congress, that they had solved the problem, this was the GAO report that came out in September 1999, that they had not done everything they should've done. Now they're saying they have done it again.
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    But, again, this is based on their own assessments and not some objective third party. There's been a history in this case of covering up, not investigating, people leaving their jobs because they felt the truth wasn't being told to Congress. And so there's a lot more to this story than just a lot of confusion about cases—programs not knowing what is a case and how to count them.

    The record shows every single program that was looked at by GAO had major problems. There were no exceptions.

    Mr. BARR. Thank you.

    We will be following up on a number of these areas, including one that we have not had sufficient time to go into today. And you all have been very patient, and I appreciate that. And I appreciate the patience of the Ranking Member.

    One other area that we will be submitting some additional questions on is—those regarding the spin-off organizations and so-called mirror organizations, to determine if that's a continuing problem.

    But, again, I'd like to thank all four members, including General Meese, who had to leave earlier. This was a very, very informative panel, a very distinguished panel. We appreciate the answers to the questions, and your commitment to provide additional material, both in response to questions that have been posed today as well as the additional questions that will be posed.
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    And particularly in your case, Mr. Erlenborn, we appreciate your public service by continuing to provide guidance.

    I think we all recognize, and I can speak for the entire Subcommittee, we do recognize that changes have been made. There have been improvements. Our concern is simply to make sure that the continuing problems don't fester and continue to be addressed. And that's the motivation for the questions today, and we look forward to working with you and your predecessor——

    Mr. ERLENBORN. Thank you.

    Mr. BARR [continuing]. In this regard.

    Thank you very much. This hearing is adjourned.

    [Whereupon, at 1 p.m., the Subcommittee was adjourned.]

A P P E N D I X

Statements Submitted for the Hearing Record

A.eps

B.eps
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C.eps

D.eps

     

PREPARED STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION

    The American Farm Bureau Federation is the nation's largest general farm organization. Farm Bureau's farm and ranch members grow virtually every agricultural commodity that is produced commercially in the United States. They rely extensively upon the employment and use of farm labor, including migrant and seasonal farmworkers and foreign guest workers under the H-2a program.

    The farm workplace is extensively regulated by laws and regulations that govern recruitment of farmworkers by farmers themselves and farm labor contractors, transportation and housing, field safety and sanitation, safety in shop areas, mixing loading and application of crop protection products, not to mention wage and hour laws. The laws that apply to the agricultural workplace are strictly construed and enforced.

    Since the inception of the Legal Services Corporation (LSC), its grantee lawyers have shown a proclivity to sue farmers for technical and deminimus violations of the extensive laws regulating the agricultural workplace, often treating farmers and ranchers unfairly in the process. Good faith efforts to comply with the myriad of applicable laws are usually meaningless to the LSC-funded ''farmworker advocates'' and the prosecution of technical violations of the law have offered the means for overzealous LSC-funded lawyers to literally bankrupt a farmer and work against the interests of the farmworkers being ''protected.''
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    Farm Bureau believes that the mission of the LSC is to provide legal assistance to those in the United States who need but cannot otherwise afford such services. Experience has shown, however, that mission is too often lost upon the LSC-funded grantees who are more intent on suing farmers, lobbying state and federal legislators and regulators and engaging in other political activities, than attending to the day-to-day legal needs of farmworkers and other needy people.

    Farm Bureau supported and continues to support the administrative provisions enacted in the FY1996 Appropriations Act pertaining to the operations of the LSC. Among these important reform efforts were increased LSC staff resources to enforce grantee restrictions, along with restrictions against grantee participation in class action lawsuits, representation of illegal aliens, participation in fee generating cases, solicitation of clients, participation in lobbying, representation of unions and participation in unionization drives. Overlaying these restrictions was perhaps the most important reform of all, that prohibiting a grantee from doing any prohibited activity, regardless of the source of funding. In this manner, Congress sought to ensure that limited legal aid resources would be focused on activities Congress deemed appropriate.

    Some in the legal community soon took a dim view of Congress' effort to ensure taxpayer's dollars were going for legal representation of those of needed it but couldn't afford it. Legal challenges to the restrictions were immediately mounted with varying degrees of success. Activist lawyers opposed to the restrictions continue to mount challenges today.

    Even when the restrictions do withstand legal challenges, grantees largely ignore them anyway, and their actions go uncensured by the LSC. As a result, and because only LSC can enforce the LSC Act and regulations, and because the LSC is not subject to judicial review, the restrictions enacted by Congress are unenforceable and have thus proven to be ineffective.
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    LSC grantee lawyers continue to lobby. In Michigan, the Michigan Migrant Legal Assistance Program actively lobbied to defeat a package of farmworker housing reform measures. When the matter was brought to the attention of the LSC by Farm Bureau, a substantive response was long in coming and proved unsatisfactory as to any effective sanctions being imposed.

    LSC grantee lawyers have even gone so far as to travel to Mexico to recruit clients to sue North Carolina farmers. While in this instance the grantee organization was fined and defunded, the sanctions imposed were of little consequence as the lawyers and staffers involved simply moved to a new legal aid office funded by the LSC.

    LSC grantee lawyers continue to pursue class action litigation despite the clear prohibition thereof by Congress. Litigation commenced in Georgia and California by LSC grantee lawyers for the benefit of ''others similarly situated'' are clearly proscribed class actions and not representative actions where the identities of each plaintiff must be provided. Regardless of the success of the defendant farmers in defeating these actions, they are nevertheless required to expend substantial sums in legal fees and costs to overcome what are in reality abusive, harassing tactics by LSC grantees.

    These and a host of similar problems and abuses cause us to question whether the restrictions Congress sought to impose to stem LSC criticism will ever have the desired effect. Clearly many LSC grantees and advocates have to be regulated. This is evidenced not only by their lawsuit campaign to invalidate the restrictions, but their blatant disregard for the restrictions in their continued actions in direct contradiction of them. Further evidence is the proliferation of shadow legal aid groups that rely on funds other than LSC grants.
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    Which raises the question, if adequate nonfederal resources exist for these shadow programs, why are federal funds and the LSC necessary? Perhaps the most effective restriction on federal fund use would be, as has been previously suggested, for Congress to stop funding the LSC altogether.

    In any event, the issues and concerns with LSC and their grantees present a serious problem to the continued livelihood of farmers across the country. Something needs to be done toward making the 1996 restrictions not only enforceable, but enforced. We thank the subcommittee for your attention and urge your continued involvement and commitment to improve the operation of legal services.

     

PREPARED STATEMENT OF CHARLES WALKER, MANAGING DIRECTOR, NATIONAL PEACH COUNCIL

    The National Peach Council represents the country's peach growers. Much like growers of many other fruit and vegetable crops, our members know first hand that the litigation abuses practiced against growers for so long by activist legal services lawyers continue despite the attempt by Congress in 1996 to reform the Legal Services Corporation (LSC) and the programs it funds.

    Over more than a decade, Congress has heard about these abuses in hearing after hearing. Rep. Roscoe Bartlett (R-MD-6) chaired hearings before the House Small Business Committee's Subcommittee on Government Programs and Oversight in March 1998 and July 1999, which detailed how clearly abusive legal tactics of lawyers funded through LSC had hurt growers and how LSC had repeatedly failed to curtail activities which Congress had banned in its 1996 LSC reforms. Rep. Bartlett knew first hand how legal services lawyers had literally put the commercial apple orchards out of business in his district by waging a legal war of attrition.
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    Rep. Ed Whitfield (R-KY-1) has seen the tactics of unprincipled legal services lawyers driving a farmer with a tiny 30 acre tract almost to bankruptcy. One of the tactics used against small farmers in west Kentucky was bringing lawsuits against them in Texas on trumped up allegations. The cost of defending a lawsuit in a distant state is powerful leverage for a small farmer to settle no matter how frivolous the charges.

    Rep. Charles Taylor (R-NC-11) also has seen how LSC looks the other way when farmers are the victims of illegal acts by LSC-funded lawyers. And when the public outcry over legal services abuses is too great, LSC goes through the motions of addressing the problem. When a videotape showing legal services lawyers from North Carolina illegally in Mexico recruiting clients, Rep. Taylor called for an investigation. The Wall Street Journal featured the story on its editorial page. LSC - its funding under consideration at the time - told Congress they had fined the migrant lawyer group for the illegal trip and permanently banned it from all future LSC funding. What they neglected to tell Congress was that all of the lawyers involved simply signed up with a newly named migrant lawyers group and continued to get the very same LSC funds.

    That's ''enforcement'' - legal services style.

    Dr. Rael Jean Isaac, a noted sociologist who has written for Readers Digest, Wall Street Journal, Atlantic magazine, and other leading publications, spent more than a year researching how legal services lawyers interact with growers, especially in the labor intensive fruit and vegetable sector. Her book, Harvest of Injustice: Legal Services vs. the Farmer, published by the National Legal and Policy Center, is the best account available of the pattern of abusive practices routinely employed by legal services lawyers against growers.
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    Unfortunately, many of the abuses documented by Dr. Isaac continue.

    In 1996, Congress wrote a series of reforms into the annual LSC appropriations bills seeking to finally curb some of the controversies that have plagued LSC from its inception.

    The reforms were opposed by legal services lawyers, the LSC board and the LSC President.

    The LSC board found ways to water down the restrictions and discover loopholes, which were nowhere in the original legislation. Sometimes Congress could stop the games being played by LSC by forcefully admonishing LSC officials at an appropriations hearing. That was the case in 1997 when LSC Vice Chairman John Erlenborn attempted to defend a proposed regulation in which LSC allowed attorney's fees in cases involving the disabled poor, despite a complete ban on such fees by Congress. Chairman Hal Rogers (R-KY-5) stated bluntly, ''You can't seem to help yourself. You do not grasp reality. Some of us are losing patience.''

    But LSC kept undermining the reforms.

    The special status of LSC as a private corporation and not a government agency allows it wide latitude to selectively enforce or not enforce any restriction. Under the LSC Act, only LSC can enforce the Act and regulations.

    Also, LSC's failure to enforce any restriction is not subject to judicial review of any kind.
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    When a federal judge in South Carolina found that LSC had improperly dismissed a complaint about legal services lawyers who had clearly violated the restriction against lobbying, LSC simply appealed on the grounds that it was not subject to judicial review. LSC won and the legal services lawyers who broke the lobbying ban were never disciplined.

    If LSC can ignore a federal judge, what chance does a farmer have?

    LSC's President referred to this special status, in a letter to a member of the LSC board, as LSC's ''absolute discretion'' on enforcement issues.

    Perhaps the most important Congressional restriction violated by LSC and its taxpayer-funded lawyers is the restriction against representing an alien ''unless the alien is present in the United States.'' Section 504(a)(11) of Public Law 104–134

    In the wake of the illegal Mexican recruiting trip scandal, the question arose as to why legal services lawyers were representing aliens who had left the U.S. one, two, or even three years prior to the legal assistance starting. Because the language of the appropriations law was so plain - yet legal services lawyers wanted to ignore it - LSC stepped in with a ''special commission to determine what ''is present in the United States'' meant. No one representing agriculture was on the commission and its deliberations were in closed-door sessions in violation of the Government in the Sunshine law, which applies to LSC, its board and any special committees of its board.

    The secret sessions of the special commission determined that ''is present in the United States'' really meant ''was present in the United States'' and it allowed legal services lawyers to represent alien clients living in foreign countries. Growers found themselves being sued by alien workers living in Mexico, making the legal defense of the lawsuit that much more expensive. This greatly aided legal services lawyers known for filing nuisance lawsuits because growers would often be forced to settle on flimsy or nonexistent allegations because they could not afford to defend the lawsuit.
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    Growers who knew that this thinly veiled type of extortion was based on bogus facts still had to consider the huge legal bill to expose the racket. Some were so incensed at the injustice of the action, they did just that. In a case heard in Franklin County District Court on July 30, 2001, (Franco-Favela v. Leonard Wester and Wester farms), it turned out that the charge that a guest worker who legal services lawyers claimed was fired in 1996 for not meeting a production quota of bell peppers was wrong on both counts. The worker acknowledged that he had signed a voluntary resignation and the evidence showed that bell peppers were picked at an hourly rate, not on a production quota. The judge held that the ''plaintiff's claims against defendants lack merit.''

    This case illustrates why small fruit and vegetable growers across the country are so outraged - and legitimately so - against LSC. The fact that these cases are funded by their own tax dollars compounds the outrage. As does the fact that Congress plainly stated that no alien may receive legal assistance from a legal services lawyer ''unless the alien is present in the United States.''

    The case also shows that the lame duck LSC board will not only ignore federal judges, they'll ignore Congress as well.

    Growers, especially in Georgia and California, have also found out that the ban enacted by Congress on class actions by legal services lawyers has been ignored. When legal services lawyers filed representative actions against growers seeking to represent a class of hundreds of unidentified legal services clients, LSC ignored all complaints, arguing that a representative action is not a class action. This LSC interpretation was viewed in many legal circles as laughable.
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    First, Congress had passed the ban on class actions with no exceptions.

    Second, every major law dictionary and all legal literature considers a representative action a class action. Ballentine's Law Dictionary defines representative action as ''same as class action.''

    Third, other Congressional reforms require legal services lawyers to name all parties at the onset of a lawsuit - something not done in the illegal class actions.

    Congress received numerous complaints about the class actions which targeted farmers more than any other group. The House Appropriations Committee explicitly warned LSC to enforce the class action ban in House Report 106–680, which covered Fiscal Year 2001, ''The Committee also reminds the Corporation that its grantees are prohibited by section 504(a)(7) of P.L. 105–119 from participating in class action suits and directs the Corporation to ensure its grantees comply.''

    What could be more clear?

    LSC ignored Congress yet again. The class actions continue to this day.

    Frankly, the history of LSC has been the history of federal tax dollars used to unfairly target farmers with unfair lawsuits. There's a saying that every small business is just one lawsuit away from being out of business. Most farmers are small businessmen. All too often the farmers targeted for legal shakedowns are the ones who can least afford it.
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    The fact that these legal services lawyers are now thumbing their noses at federal judges and Congress shows that they have no intention of obeying the reforms.

    At the minimum, Congress should cut their budget and President Bush should appoint 11 honest LSC directors who know what ''is'' means, know what a class action is, and will faithfully enforce the reforms.

     

PREPARED STATEMENT OF SHARON M. HUGHES

    The National Council of Agricultural Employers (NCAE) appreciates the opportunity to submit this statement on the activities of Legal Services Corporation grantees in relation to agricultural employment issues. NCAE's membership includes agricultural employers in all 50 states who hire the vast majority of the national agricultural workforce. Our members include farm cooperatives, growers, packers, processors and agricultural associations. Many of our members utilize the H-2A temporary foreign worker program, which is a focal point for LSC-funded lawsuits.

    Labor is an essential input in farming. Fundamentally, all commercial farms rely to a greater or lesser degree on hiring labor to perform certain essential tasks. The 1997 Census of Agriculture reported that more than 650 thousand farms hire labor directly, and reported 3.4 million hires. More than 225 thousand farms also hired contract labor. Total expenditure for hired and contract labor in 1997 was $17.8 billion. This was nearly 12 percent of total farm production expenses, or $1 of every $8 spent by farmers. Farmers spend more for hired labor than they spend for seed, fertilizer, agricultural chemicals, petroleum products, interest or property taxes. In fact, after purchases of livestock and feed, hired labor accounts for greater farm production expenses than any other category of expenses reported by the Census of Agriculture.
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    The H-2A program in the Immigration and Nationality Act, the program Congress enacted to deal with legal labor shortages in agriculture, is unworkable and in a state of paralysis. The H-2A program is administratively cumbersome and imposes uncompetitive requirements on employers. Unlike other temporary worker programs, the H-2A implementing regulations are over 40 pages long and the Department of Labor internal operating procedures manual interpreting the regulations is over 300 pages. But, the threat of LSC-funded lawsuits against any employer who seeks to utilize the program is one of the main reasons growers shy away from its use. NCAE is working with members of the House Judiciary Committee to reform the administrative side of this program and bring it into the 21st century. These reforms should eliminate some of the ''gotcha's'' that LSC grantees utilize to harass agricultural employers out of the H-2A program.

    Grantees, however, are always searching for new issues upon which to base lawsuits—pushing the envelope on requirements of federal labor laws and the restrictions Congress has placed on their activities. Other representatives of agriculture will present statements on grantees' use of mirror corporations to avoid Congressional restrictions on class actions and alien representation. This statement will address the contortions of the Erlenborn Commission Report of 1999 relating to the alien representation restriction, and the continued filing of Fair Labor Standards Act (FLSA) lawsuits based on issues the courts have held are without merit.

Erlenborn Commission Report

    In 1998, LSC attorneys from North Carolina were caught on videotape recruiting alien clients in Mexico in violation of restrictions in both appropriations law (PL 105–277) and LSC regulations (45 CFR Part 1626). The relevant section of the law states ''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 . . . (11) that provides legal assistance for or on behalf of any alien, unless the alien is present in the United States . . . (emphasis added).'' After an investigation called for by Rep. Charles Taylor, the LSC fined the grantee $17,000 for providing legal assistance to aliens who had never even been in the United States.
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    Afterwards, the LSC Board scrambled to find a way to circumvent the restriction. A ''special commission'' was appointed under the Chairmanship of the Honorable John N. Erlenborn and then filled with pro-LSC members. Against the provisions of the Government in the Sunshine Act, the commission met behind closed doors. In tortuous report language, the commission decided that the law denying legal assistance to any alien really meant ''was present in the United States.'' This action flies in the face of congressional intent and seeks to rewrite federal law to suit the LSC's own purposes. The LSC Board of Directors has no authority to change the plain meaning of the federal law. ''Is'' does not mean ''was.''

    No amount of self-serving interpretation by Legal Services activists can change the meaning of the law. Yet it has become apparent that Legal Services lawyers have routinely violated the law based on their own absurd notion that ''is'' means ''was.''

    The February 17, 1999 article in The Wall Street Journal (''Legal Air Lawyers' Kicks Up New Battle With Farmers in North Carolina,'' by Motoka Rich) illustrates the intrinsic unaccountability of Legal Services lawyers when the law is inconvenient to their agenda:

''The dispute centers on a regulation of the Legal Services Corporation, which distributes federal funding to local legal-aid groups. The rule says lawyers can assist foreign temporary workers only while they are 'present in the United States.' Legal services attorneys took that to mean they could help workers with issues that occurred while they were in the country. And until Ms. Hall's trip, no one questioned the attorneys' interpretation that they could provide migrants who had returned to Mexico with follow-up counseling for such cases as assuring final payment of wages or medical care for injuries that occurred in the U.S.''
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    A simple procedure exists for Legal Services lawyers who have any doubt as to the meaning of a regulation issued by LSC. They can contact the General Counsel of LSC and request a written opinion as to the meaning of the language in question. Apparently, the last thing any Legal Services lawyers wanted was a written opinion telling them that the legal requirement that an ''alien is present in the U.S.'' to receives assistance means that the alien must be present in the United States to receive legal assistance. The very fact that Legal Services lawyers engaged in illegally representing non-citizens not present in the U.S. did not seek such guidance from the LSC General Counsel speaks for itself.

    The LSC, rather than enforce the law as required by the LSC Act, saw fit to appoint the Erlenborn Commission to study the language of an appropriations law it had absolutely no authority to change. The fact that the commission was named in secret, had nothing remotely resembling balance, and met in closed-door sessions to develop its tortuous conclusions for the final report, is all further proof to those of us whose members must deal with this rogue program that we should not expect any fair treatment or good faith actions from the LSC Board.

''Glassboro'' Theory-based Lawsuits

    Legal Services grantees, and/or their mirror corporations, during the past couple of years have filed numerous lawsuits against agricultural and other employers alleging violations of the minimum wage provisions of FLSA based on the ''Glassboro'' theory. The Glassboro theory addresses two closely related issues in connection with expenses incurred by workers. The first issue is whether actual deductions for food, transportation, housing, and other expenses can be counted toward the minimum wage. These deductions are called ''direct deductions'' and are relatively uncontroversial. The second issue is whether costs incurred by the workers themselves in seeking work and coming to the job can or should be counted toward the minimum wage. These so-called deductions are called ''de facto deductions'' and are highly controversial. Glassboro proponents argue that these expenses are for the employer's benefit and therefore cannot be credited against or allowed to reduce the workers' earnings below the minimum wage. They argue that merely arriving at work is a ''benefit'' to the employer, whether or not the employee performs any work. To the extent that these so-called deductions ''reduce'' the workers' wages below the minimum wage during the first pay period, proponents of the Glassboro theory argue that a violation of the minimum wage law occurs.
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    Stripped to its core, the Glassboro theory is nothing more than a policy judgment of its proponents that all employers ought to pay transportation, subsistence, and immigration-related costs for their workers. The applicable statutory materials and regulations do not compel it; in fact, they contradict Glassboro. When, in the early 1990s, the Department of Labor sought actively to enforce Glassboro with agricultural employers, its efforts engendered strong political opposition and ultimate defeat. Because of this defeat, Glassboro proponents have switched to the courts to achieve their political goal through judicial decree, rather than publicly accountable rulemaking.

    Glassboro-based lawsuits have been filed by Florida Rural Legal Services, Michigan Migrant Legal Assistance Project, Farmworker Law Project of the Legal Aid Society of Mid-New York in conjunction with its mirror corporation, Farmworker Legal Services of New York, and by the Florida mirror corporation, the Migrant Farmworker Justice Project. These cases were filed even though the United States Court of Appeals for the Ninth Circuit in Reich v. Japan Enterprises Corp. found DOL's asserted authority in support of Glassboro completely lacking. Although technically not binding on other courts outside the Ninth Circuit, the Japan Enterprises decision is well reasoned and should be followed.

    In fact, the Florida Federal District Court rejected the Migrant Farmworker Justice Project attorney's arguments in Alvarado et al., v. R&W Farms and Florida Pacific Farms that employers of H-2A workers violated FLSA by failing to pay for workers' immigration and transportation costs to the United States based in large part on the Japan Enterprises decision. In a case of first impression, the court found that travel costs and recruiter fees paid by H-2A workers to enable themselves to work in the Untied States are not reimbursable expenses that must be paid by the employer prior to the end of the first pay period. The court rejected the Glassboro theory and granted summary judgment for the defendant strawberry growers.
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    Not to be deterred, the Migrant Farmworker Justice Project has appealed this decision to the U.S. Court of Appeals for the Eleventh Circuit and has filed three additional lawsuits based on the same arguments against other strawberry and citrus growers. NCAE has submitted an amici curia in support of the defendants in the Jorge E. Arriaga, et al., v. Florida Pacific Farms, et al. case.

    NCAE firmly opposes the Glassboro theory and the attempts by Legal Services attorneys and their mirror corporations to expand it. We believe that the Glassboro theory unfairly shifts costs and expenses to employers and does so in a way that is contrary to any reasonable interpretation of the law. Continued filings of lawsuits based on Glassboro in the face of adverse court rulings only serves to harass agricultural employers and subject them to needless litigation expenses.

CONCLUSION

    Based on the LSC's continued reluctance to enforce the restrictions placed on grantees by Congress, and the continued disproportionate litigation filed against H-2A employers to the exclusion of providing legitimate legal counsel to the poor, NCAE asks this Subcommittee to continue its close oversight of LSC and its grantees. The Council also asks the members of this Subcommittee to encourage President Bush to quickly appoint a LSC Board that will enforce Congress' restrictions and implement mandated reforms of the grant process to ensure a system of competition among would be legal services providers.

    Thank you, again for the opportunity to submit this statement to the record.
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THE GOVERNMENT PROVISION OF LEGAL SERVICES FOR THE POOR:

COMPETITION OR MONOPOLY

RONALD J. SUTHERLAND

ADJUNCT PROFESSOR OF LAW

SCHOOL OF LAW

GEORGE MASON UNIVERSITY

DECEMBER 30, 2001

INTRODUCTION

    The Federal Government, through the Legal Services Corporation (LSC), awards grants to legal aid organizations to provide legal services to the poor. In 1996, the U.S. Congress required these grants to be awarded on a competitive basis. However, the LSC regulations that determine the grants process, precludes competition with the result that LSC grantees have monopoly franchises in their service territories. State programs, such as IOLTA (interest on lawyers' trust accounts), also provide legal aid to low-income households. State IOLTA programs award grants on a non-competitive bases and thereby reinforce and perpetuate the monopoly franchises established by the LSC. The American Bar Association and several state bars recommend that each lawyer provide pro bono legal services to poor people. Pro bono efforts provide little assistance to poor people, but provide more assistance to the non-poor. The pro bono policy of the Bar supports monopoly elements in the market for legal services.
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    The 1996 Omnibus Continuing Resolution passed by the U.S. Congress requires the Legal Service Corporation to award grants on a competitive basis.(see footnote 11) The 1996 Resolution also orders the LSC to end ''presumptive refunding'', a process by which LSC renews grants to existing grantees without allowing alternative providers to compete for awards.

    The 1996 Resolution expresses the will of the U.S. Congress that competition would produce an efficient delivery system of legal services to the poor. Congressman Bill McCollum affirms this conviction in commenting on the bill he introduced in 1995 to reauthorize LSC.

Competition generally produces innovation, efficiency and excellence. It is hard to believe that, if competition involving complex weapons systems—long resisted by the defense industry—has produced the F15, the best fighter in its generation and the Advanced Tactical Fighter—then competition will not produce better delivery systems for legal services to the poor.(see footnote 12)

    The intent of Congress, as stated explicitly in the 1996 Bill, and again by Congressman McCollum, is to require the LSC to award grants to legal services providers on a competitive basis. The clear rationale for requiring a competitive grants process is, as stated by Congressman McCollum, that it will produce innovation, efficiency and excellence. Indeed, the LSC has a statutory requirement of providing ''. . . the most economical and effective delivery of legal assistance to persons in both urban and rural areas.''(see footnote 13) A competitive grants process would attract a number of proposals and then award grants to the organizations that promised to provide the most cost-effective legal services to the poor. In this way a competitive process would contribute to economy and efficiency in providing legal services.
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    The efficiencies inherent in competition motivate much of the deregulation of the U.S. economy. The deregulation in the airlines, long distance telecommunications, trucking, railroad and natural gas industries is producing benefits to consumers, such as price declines from 25% to over 50%.(see footnote 14) An increasing reliance on competitive market forces is producing economic benefits worldwide. The U.S. Congress could reasonably expect that competition would improve the quantity and quality of providing legal services to the poor.

    One purpose of this paper is to assess the grants program of the Legal Services Corporation (LSC) to determine whether it reflects a competitive process required by Congress. To the extent that the LSC grants process is not competitive, this study documents impediments to competition and demonstrates that non-competitive elements are producing inefficiencies in the government-supported market for legal aid. The LSC programs interact with state programs and other legal aid programs to determine a market that provides legal services. A second purpose is to assess efficiency and cost-effectiveness of the market that provides legal services to the poor.

    Federal support for legal aid in the United States developed as part of the War on Poverty of the Johnson Administration, from the years 1964 through 1967. Earl Johnson, Jr., who is an important participant in federal programs to support legal aid, documents the history of this development.(see footnote 15) The Office of Economic Opportunity (OEO) began supporting Community Action Agencies, which are the precursors to LSC grantees of today. Johnson describes and quotes the views of Jean and Edgar Cahn, who expressed reservations about the inefficiency and self-serving nature of these monopoly legal aid organizations. Borrowing Johnson's (1978, p. 33) quote from the Cahns:(see footnote 16)
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Monopolies are characterized by a tendency to expand, to perpetuate themselves and to operate at less than optimal efficiency. These tendencies do not disappear when the market monopolized is the market for social services or when the product is social change.

In effect, ''coordination'' and ''comprehensiveness'' become the trademark of a monopoly created by an association of independent agencies. The result is often better public relations with no compelling necessity for a commensurate improvement in services. . .and risk avoidance is . . . likely to play a particularly important role.

    As summarized by Johnson (1978, p. 33), Cahns' portrayal of these legal aid providers is one of ''. . . a monopoly of local services, dedicated primarily to its own survival . . .'' In brief, an initial concern in the development of federal support for legal aid was that providers of legal services, financed by government, would be monopolists that served their own interest, more so than served the poor.

    This initial concern with monopoly and inefficiency suggests a brief overview of the economic principles of competition verses monopoly. A market is competitive under certain conditions, two of which are: a large number of buyers and sellers of the good or service, and easy entry into and easy exit from the market. (Henderson and Quandt, (1980, p. 136). Such a market imparts the greatest economic benefits to consumers. For instance, if a market has many sellers, buyers can shop around and thereby find the lowest cost seller. Competition encourages sellers to minimize cost. Easy entry prohibits sellers from colluding and raising price, because new firms will enter and offer lower prices. Easy entry also encourages firms to innovate, where successful innovators can enter the market and serve consumers. Easy exit is also important because it enables firms that are inefficient and non-competitive to leave the industry. A basic proposition in economics is that a competitive market produces an efficient allocation of resources.(see footnote 17) Efficiency means that all goods and services are produced and distributed at minimum cost. Competition is in contrast to a monopoly, which is a single provider of a good or service. Monopolists restrict output, raise the price of their good or service, and contribute to wasting resources. A single seller has limited incentive to innovate and to reduce costs.
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    Two sources of monopoly may affect the market for legal services, particularly the supply of legal services for the poor. First, the so-called legal-monopoly results from enforcing the restrictions on the unauthorized practice of law (UPL) that limit the practice of law to Bar certified lawyers. Second, the monopoly feared by the Cahn's, which is government supported legal aid providers that are themselves, monopolists. Either or both of these monopolies could restrict the supply of legal services, increase costs, and produce inefficiency. In addition, the two monopolies could cooperate and work synergistically to produce inefficiencies greater than could be produced by either monopolist. This paper considers the importance of the legal monopoly, the monopoly for legal services and the synergistic effects of these two monopolists.

    Section 2, Background, discusses three major findings from the literature. First, poor people have significant legal needs that at present are mostly unmet. Second, the legal needs of moderate-income households are much like those of low-income households. Third, many of these unmet legal needs do not necessarily require the services of a lawyer. Section 3 documents the LSC response to the Congressional mandate to introduce competition in awarding grants. Competition in the grants process did not materialize because the regulations that implement the Congressional mandate preclude competition.

    The LSC budget for 1999 was $307.6 million (LSC, 2000b, p. 9). However, states also provide financial support for legal aid. A major source of state funding is the interest on lawyers trust accounts (IOLTA), which was $144 million in 1998.(see footnote 18) Section 4 describes the allocation of grants by the state IOLTA organizations and determines that many of these grants are awarded to LSC grantees using the same formula as LSC.
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    Pro bono refers to the provision of legal services by lawyers for free or at substantially reduced fee. Section 5 assesses the influence of the Bar on the provision of legal services. The self-interest of the Bar is to protect and defend the legal monopoly, which restricts the use of low cost legal services by poor people. Pro bono services by lawyers provide a small amount of legal services to the poor, but more legal services to the non-poor.

    The LSC, IOLTA organizations and the Bar support a legal monopoly and a monopolistic market for legal aid grants. Section 6 presents a modest proposal to achieve some competition and increased efficiency in the use of legal aid resources. First, a simple unbundling of the services of the staffed offices into services provided by a telephone hotline and existing services should reduce costs substantially. Second, revising the LSC regulations to allow free entry into the bidding process for LSC awards—as Congress required—would further improve efficiency.

2. BACKGROUND: LEGAL NEEDS OF THE POOR AND THE NON-POOR

    Surveys of the legal needs of households conclude consistently that low-income households have serious legal needs, many of which are not currently being met. These surveys also determine that the legal needs of moderate-income people are much like those of low-income people. An examination of the survey data questions whether unmet legal needs should be addressed by lawyers or by lower cost legal assistance. The data indicate that most prevalent legal need currently unmet is for advice, counsel and brief service, rather than for court litigation.

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2.1 Low-Income Households

    Legal aid recipients must establish eligibility to receive legal aid. The LSC defines a maximum income level for eligibility of legal aid to be 125 percent of the current official Federal Poverty Income Guidelines.(see footnote 19) The LSC Regulations define the annual income ceilings by family size and other variables. For instance, the LSC poverty guideline in 1999 for a family of size 5 was $24,000; but it was only $10,300 for a family of size 1. The Regulations require that income figures be adjusted for cost-of-living in the locality, medical expenses, debts, and the amount of liquid and non-liquid assets. These adjustments provide a more accurate measure of ability to pay for services than current annual cash receipts.

    Government income statistics indicate that poverty is temporary for a substantial segment of the poverty population. According to the Statistical Abstract of the United States, during the 1993–94 period, 15.4 percent of the persons in the U.S. were officially poor in an average month. However, only 5.3 percent of the persons were poor in all 24 months of 1993–1994. The average duration of poverty was 4.5 months.(see footnote 20) These data indicate that many people become poor during some period, but remain poor only temporarily. In addition to the transitory poor, there is likely to be a significant share of the population, i.e., 5.3 percent, where poverty is long-lived.

    Annual income, even with the LSC adjustment, is not a reliable measure of economic well-being. Some low-income people are in their early income earning years and have much higher lifetime expected earnings. Other low-income people are senior citizens with a moderate level of wealth acquired over their income earning years. Senior citizens who have left the labor force often have low annual income levels. Some people who become unemployed enter the poverty class, but then leave when they again become employed. The people at each end of their income earning years may be officially poor, but may not be economically desperate. Those who are temporarily unemployed may have higher expected future income. The transitory nature of many low-income persons indicates that many low-income households may have long-term incomes quite similar to moderate-income households.
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2.2. Annual Income and the ABA Survey of Legal Needs

    The American Bar Association sponsored a survey of more than 3,000 low-income and moderate-income households that estimates their legal needs and how these households meet their needs (ABA, 1994, p. 8). The survey indicates that 40 percent of low-income households have some legal need, whereas 46 percent of moderate-income households report having at least one legal need during the year. According to the ABA study (ABA, 1994, p. 9), the mean number of legal needs per household per year is 0.8 for low-income households and 0.9 for moderate-income households. On average, households experience slightly less than one legal issue per year.(see footnote 21)

    The ABA survey presents data on the frequency of legal needs by type of need. Table 1 shows the frequency of needs for both low- and moderate-income households. Overall, there is broad similarity in the type of legal issues that low- and moderate-income households experience. However there are differences. The housing issues of low-income households relate more to landlord-tenant disputes, while moderate-income households have more real estate and property issues. The legal needs of the poor are quite similar to those of moderate-income households, at both the aggregate level and by type of legal issue.

Table1.eps

    LSC (2000b, p.7) data show that the types of cases closed by LSC grantees correspond imperfectly to the specific legal issues that households experience. The largest share of cases closed by LSC grantees (36%) relate to family issues, however only 8% of the households experience family issues. LSC grantees do a large percent of their cases in housing (23%) and personal finance (26%), which LSC considers as consumer and income maintenance. This allocation corresponds reasonably well with the frequency of legal issues that households experience. LSC does not specifically identify cases for wills/estates, community issues and personal/economic injury, which, in sum, are experienced by 17% of the low-income households.
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    In the ABA survey, low-income households are defined as having a household income not exceeding 125 percent of the poverty level. The ABA used this income level, which is consistent with the LSC requirement, to include households eligible for subsidized legal assistance. Moderate-income households have an annual income from the poverty guideline up to $60,000 per year. Income is defined as annual personal income.

    The survey data provides two explanations for observing that low-income and moderate-income households have similar legal needs. First, low-income is in part transitory and these households subsequently achieve moderate-income levels. Second, the low-income households, who most frequently experience legal issues, are at the upper end of official poverty and have income close to the moderate level.

2.3. How the Poor Meet Their Legal Needs

    The ABA survey data indicates how households meet their needs. As seen from Table 2, low-income households use the legal/judicial system to meet their legal needs in only 29 percent of their cases. This result supports the conventional view that the legal needs of the poor are largely unmet. Moderate-income households use the legal/judicial system to meet their legal needs in only 39 percent of their cases.

Table2.eps

    These survey results indicate that low-income households meet a small share of their legal needs with the legal/judicial system. Low-income households frequently ''did nothing at all'' to solve their legal problems. One interpretation is that the legal needs of the poor are largely unmet because the poor are income constrained and they have limited information about legal/judicial options. An alternative explanation of the apparent low use of legal/judicial action is that households do not believe that professional legal services are worth the cost and find better value in solving their own problems.
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    Table 3 presents the percent distribution of the three most common reasons for taking no direct action to resolve a legal need. Looking behind these data, low-income households expect that nothing could be done in 28 percent of the cases; whereas moderate-income households thought that nothing could be done in 17 percent of the cases. Moderate-income households turned to someone else for advice or assistance more often than low-income households (33 percent to 21 percent).

Table3.eps

    The survey question of not taking direct actions was revised to ask why the household did not seek legal/judicial help. For low-income households, the most likely response was ''didn't think it would help'' (20 percent), followed by cost concerns (16 percent). Lack of income and the high cost of lawyers are two reasons why the poor do not retain lawyers, but not the only reasons.

    The ABA data indicate that low-income households seldom use the legal/judicial system. However, when they seek legal assistance, they seek a lawyer in private practice in 3 out of 4 cases and seek a legal services provider in only 1 out of 4 cases. (ABA, 1994 p. 53). This result may appear surprising considering that lawyers charge a fee, whereas legal service organizations often offer free services. Low-income households appear to have much better information about the availability of lawyers, than about the availability of nonprofit legal service providers. Those using private lawyers found them through friends, relatives or other acquaintances, whereas those using legal services tend to locate them through the yellow pages. The ABA study shows that 50 percent of the low income households are aware of free legal services and only 36 percent of these households believe they are eligible for free services. These results raise the question whether government funded legal service providers spend sufficient resources informing their potential clients of the availability of legal services.
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    A household survey of Virginia residents by the Survey Research Laboratory provides evidence on the importance of income in the decision to hire a lawyer to address legal needs. This survey confirms that the legal needs of indigent persons go largely unmet. The survey defines indigent to correspond with the LSC definition, which includes persons with income at or below 125 percent of the poverty level. The survey found that 85 percent of the households with a legal problem lacked a lawyer at least once. Surprisingly though, the respondents lacked a lawyer in only 10 percent of the situations where an effort was made to obtain a lawyer. The survey (Survey Research Laboratory, 1991, p. 6) asked the following question ''Was a lawyer needed but not retained?'' Ninety one percent of the low-income respondents reported ''no'' and 94 percent of the respondents with income above 125% of the poverty level reported ''no''. Although people with low and moderate income report legal problems, and not hiring a lawyer, they also report not looking for a lawyer or needing a lawyer to solve their problems.

    The Virginia study shows that some people with an income below and above 125% of the poverty level hire lawyers to address their legal needs. Those who do not hire a lawyer do not search for a lawyer and report having no need for a lawyer. These results refute the common view that people are unable to hire lawyers because of low income. The results suggest that people hire a lawyer when it makes financial sense and do not hire a lawyer when it does not make financial sense.

    Further, low-income and moderate-income people involve a court or hearing body for 12% and 16% of their legal needs respectively. There are many differences between low and moderate-income households in their legal needs, and how they respond to these needs, other than income. However, if we risk an interpretation based on income, the result is that low income reduces the use of the legal/judicial system by 10% (39%–29%) and reduces the percent of legal needs resolved in a court or hearing body by only 4% (16%–12%). Lack of income by itself does not appear to be a critical variable in the limited use of lawyers by poor people.
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    The ABA survey findings on legal needs are confirmed by numerous other studies and have a broad measure of acceptance. Albert Cantril (1996) of the ABA summarizes the main findings of the 1994 ABA study. Cantril presents five conclusions, three of which are quoted here: (1) The kinds of legal problems reported by low- and moderate-income households are more alike than different, (2) . . . the private bar and publicly-funded legal services programs now serve only a small portion of the legal needs reported by low-income persons, and (3) most people facing situations that have a legal dimension do not turn to the justice system for help.

    Based on these findings, Cantril presents eleven steps for ''An Agenda for Access''. The first two steps he proposes are quoted here:

1. Increase the flexibility of the civil justice system, thereby expanding the options available to people seeking help with a legal problem.

2. Develop better ways for people to obtain information about their options when facing a legal situation.

    Cantril's summary of the ABA survey and the above two proposals in his policy agenda accurately capture a very large literature on providing legal services to the poor.

    The ABA survey indicates first that low- and moderate-income households experience similar legal issues and second that these needs are mostly unmet by the legal system. The data indicate that the most needed legal assistance is in the form of advice, counsel, brief service, rather than litigation in a court. This finding supports Cantril's recommendations for a more flexible civil justice system, and one that provides better ways for people to obtain information about their options.
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3. THE LEGAL SERVICES CORPORATION (LSC)

    The Legal Services Corporation (LSC) is a private, nonprofit corporation, established by the U.S. Congress and funded by the Federal Government. The purpose of the LSC is to provide ''. . . financial support for legal assistance in noncriminal proceedings or matters to persons financially unable to afford legal assistance.''(see footnote 22) The LSC receives annual federal appropriations that it allocates to non-profit legal service providers located throughout the country.

3.1 Congress Requires the LSC to Use Competition to Award Grants

    The Legal Services Corporation Act as Amended 1977 requires the Corporation to (p. 8): ''(3) ensure that grants and contracts are made so as to provide the most economical and effective delivery of legal assistance to persons in both urban and rural areas''. Subsequently, Congress required the LSC to use a competitive process in allocating LSC grants. The 1996 Omnibus Continuing Resolution, states: ''. . . the Legal Service Corporation shall implement a system of competitive awards and contracts for all basic field programs . . .''(p. 30). In the 1996 Resolution, Congress went even further:

(b) Not later than 60 days after the date of enactment of this Act, the Legal Services Corporation shall promulgate regulations to implement a competitive selection process for the recipients of such grants and contracts.

    These separate points bear repeating. Congress first required the LSC to implement a competitive process in allocating grants, and second, Congress required the LSC to promulgate regulations to achieve a competitive selection process.
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    Congress observed that historically the LSC simply renewed the grants of existing grantees, instead of allowing new potential providers of legal services to compete for funding. In its 1996 Resolution, Congress explicitly required an end to this presumptive refunding:

(e) No person or entity that was previously awarded a grant or contract by the Legal Services Corporation for the provision of legal assistance may be given any preference in the competitive selection process.

    This Congressional requirement for ending presumptive refunding further elucidates Congress' intention of requiring competition for LSC grants.

3.2 LSC Responds to Congress' Requirement of Competition

    The LSC responded to the Congressional requirement to promulgate regulations to implement a competitive selection process through its Regulations or the Legal Services Corporation (hereafter LSC Regulations). Part 1634 of the LSC Regulations ''Competitive Bidding For Grants and Contracts'' (pp. 113–117) defines the LSC response to Congress that establishes a competition for grants. In Part 1634, the LSC first states its commitment to ''. . . a competitive system to award grants. . . '' (p. 113). LSC states further that the purpose of competition is to encourage effective delivery of high quality legal services.

    The LSC Regulations define the conditions that determine whether effective competition will develop in the selection of grants. The following regulations define the market for grants:
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(1) The Regulations note that LSC defines the ''service area'' to be served by grantees.

(2) The LSC ''. . . shall award no more than one grant or contract to provide legal assistance to eligible clients . . . within a service area.''

(3) LSC determines that it is necessary to award no more than one grant to ensure that all clients have access to ''a full range of high quality legal services . . .''

    These LSC regulations influence the competitive process, but the selection criteria for awards further defines this process. Paraphrasing the Regulations, these criteria emphasize:

(1) that an applicant have a full understanding of the basic legal needs of the eligible clients in the area to be served, and

(2) The quality, feasibility and cost-effectiveness of an applicant's delivery approach as evidenced by the applicant's experience in the delivery in the type of legal assistance being contemplated.

(3) Evidence of an applicant's capacity to comply may include the applicant's compliance experience with the LSC.

(4) The applicant's ability to assure the availability of a full range of legal assistance.

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    These Regulations preclude the possibility of LSC grants being awarded with effective competition, and instead ensure that the LSC funds monopolists who provide the legal services. As noted above, a competitive market has free entry by a large number of potential service providers. In contrast, the LSC Regulations impose barriers to entry that restrict competition and establish monopolist service providers. These monopolists are government supported franchise monopolists.

    The steps in creating these franchise monopolists are apparent from the LSC regulations. The LSC defines a service area and requires that only one provider will serve an entire area. That provider will have a franchise monopoly within a service area. However, competition could determine the single provider.

    The absence of competition comes from barriers to entry. One barrier is the requirement of serving an entire service area, because many potential bidders serve smaller areas. A second barrier to entry is the requirement of being a full service provider. Many organizations provide legal aid, but provide only specialty services for the disadvantaged. There is likely to be only one grantee in a service area that is a full service provider, and that grantee is the existing LSC grantee. The most critical barrier to entry is the requirement that the legal service provider be selected on the basis of experience in a service area. The only grantee with demonstrated experience in a service area is the existing grantee, which has a franchise monopoly resulting from receiving the previous award.

    The LSC responded to the Congressional order to establish a competitive market for awards by promulgating regulations that provide barriers to entry in a competitive process. These barriers to entry ensure that monopolists continue to provide legal services in a franchise service area. Further, these franchise monopolists are the only feasible bidder for subsequent awards—thus ensuring presumptive refunding.
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    The LSC now has six years experience with a competitive grants process. From 1976 through 1995 LSC grantees simply submitted a refunding application, and continued funding was expected and generally realized. The LSC publishes annually a Request for Proposals that lists the service areas competed in fiscal year. The LSC publishes annually in the Federal Register, the results of the competition by service area, applicant name and anticipated award. These data are a published record of the number of bidders (by name) for each service area, by year of competition.

Table4.eps

    Table 4 shows the total number of service areas competed each year beginning in 1996 and the total number of bidders. With minor exception, each service award is based on exactly one bid. Hence the total number of bids equals, or slightly exceeds, the number of service areas competed. This result confirms the analytical result that LSC Regulations preclude effective competition for grants, and hence for legal services.

    LSC grantees have a self-interest in renewed funding without competition. Fried (1997) describes the case of a the private law firm of Dessen, Mosses & Sheinoff that was awarded a LSC contract in 1996 to serve Montgomery and Delaware counties in Pennsylvania. The losing incumbent legal aid providers obtained congressional support from their local representative. In addition, union legal aid workers from several areas picketed the law firm. The law firm withdrew its bid, and the LSC re-awarded the grants.

4. State Legal Aid for the Poor
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4.1 Description of IOLTA Programs

    State legal aid organizations receive funding from state general revenues, from court filing fees, and from interest on lawyer trust accounts (IOLTA). Only a handful of states provide revenues from the general fund and from court filing fees, but all 50 states support legal aid with IOLTA accounts. This section considers state IOLTA programs and focuses on the competitive nature of the IOLTA grants process.

    IOLTA programs are funded primarily by the interest that is paid by banks on accounts that contain funds held in trust for clients by their lawyers. In the course of representing clients, private attorneys and law firms routinely receive money held in trust for future use. A common example is the money held on deposit pursuant to the sale of real estate. The IOLTA program, itself a nonprofit entity, collects the interest payments as revenues and uses these funds to support legal aid services. The IOLTA accounts generated $144 million in 1998. The total budget for IOLTA programs was $172 million, which includes the IOLTA revenues, investment income filing fees and other income.(see footnote 23)

    The formal objectives of the IOLTA programs are reasonably consistent among the various states, but the language varies. A major objective of the programs is to provide financial support to organizations that provide ''legal services to the poor''. The term ''legal service to the poor'' is typically understood to encompass a full range of civil legal issues affecting poor people. The legal issues include consumer finance, education, employment, family, juvenile, health, housing, income maintenance, and individual rights issues, among others. A full-service provider will provide all of these services. Legal services are restricted to civil cases and exclude criminal cases.
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    IOLTA programs have a second category of funding, sometimes termed ''discretionary'' that supports programs, such as ''disadvantaged'' groups. A specialty service provider that serves a disadvantaged group will typically specialize in providing one type of legal service. The most common special need appears to be family issues, such as battering and abuse and domestic assault. The term ''legal services'' applies to the poor and the disadvantaged; but the term ''legal services to the poor'' is more restrictive and excludes the disadvantaged, unless they are legally poor.

    In most states, the IOLTA annual budget is allocated to legal services to the poor and to ''discretionary'' areas. The discretionary allocation supports legal service providers who meet special needs. The discretionary allocation also meets the other objectives of the IOLTA organization, such as providing law school scholarships. These legal services providers do not receive LSC grants.

    A large share of IOLTA revenues apparently supports the same grantees that the LSC supports. However, estimates of the share of IOLTA revenues supporting LSC grantees are inconsistent. Data obtained from IOLTA directors indicate a median share of IOLTA funding that supports LSC grantees to be in the 60 to 70 percent range. The National Association of IOLTA programs states that historically about 80 percent of IOLTA funds are used to provide legal services to the poor.(see footnote 24) Other data indicates that the large majority of IOLTA funds are earmarked for legal services to the poor, and most of these funds go to LSC grantees.

4.2 Meaningful Competition Does Not Exist
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    Competition is limited to only a few states, and then only to small grants to serve the disadvantaged. The data reflect that an IOLTA grant to provide legal service for the poor of, say $100,000 will have exactly one bidder, while a grant to provide legal services for the disadvantaged of, say $10,000, will have at least a few bidders, often including the grantee who receives the single larger grant. There is no meaningful competition for IOLTA grants to provide legal services for the poor.

    A large share of the IOLTA revenue supports LSC grantees that are full service providers of legal services for the poor over a large service area. Each of these conditions—full service provider and large service area—is an effective barrier to entry, as well as barriers to exit. The current grantees maintain a franchise monopoly within their service area because there are no alternative providers of ''legal services to the poor'' and no legal service providers for the entire service area. There is no incentive to compete on the basis of lower costs, or, on the basis of higher productivity. If there were alternative providers, the barriers to entry would preclude them from competing.

    The economic benefits of competition are obvious to Congress and to economic policy makers around the world. However, many participants in the legal services community reject the competitive model. The directors of IOLTA programs view competition as inappropriate for providing legal services to the poor. The rejection of the competitive model by IOLTA directors is a sufficient barrier to entry that precludes competition for IOLTA grants. IOLTA directors reinforce the monopoly by supporting the continued funding of existing grantees. Presumptive refunding is expected from the IOLTA grantees that provide legal services to the poor.

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    IOLTA directors explicitly oppose competition for awards. However, the LSC, following Congressional mandates, favors a competitive grants process and claims to implement such a process. The LSC and the IOLTA programs award grants to provide ''legal services for the poor'' and allocate these awards on the basis of a poverty population formula. The LSC and the IOLTA programs fund the same grantees with the same allocation procedure, although one organization opposes competition and the other organization claims to use competition.

    The LSC defines the service areas, provides funding for ''legal services for the poor'' ensures that a single provider serves an entire service area and is a full service provider. These conditions establish a monopoly franchise for service providers and preclude competition for future awards. The significance of the IOLTA programs is to reinforce and perpetuate these monopoly franchises and to preclude competition. LSC and IOLTA combine to provide the bulk of the financial resources to provide legal aid. Potential competitors to IOLTA-LSC grantees have limited access to alternative funds and almost no access to IOLTA of LSC funds.

5. The Influence of the Bar on the Provision of Legal Services

    The American Bar Association and the state bars (hereafter the Bar) affect the provision of legal services to the poor, and to the non-poor. This section discusses three efforts by the Bar to affect legal services: the legal monopoly, the Bar policy of pro bono, and the influence of the Bar on IOLTA and on LSC. The legal monopoly, by intention and by effect, reduces the supply of legal services and increases the cost to the poor and to the non-poor. The Bar encourages lawyers to provide pro bono legal services for the poor. These efforts by the Bar encourage a modest amount of legal assistance for the poor; most pro bono assists the non-poor. Bar pro bono policy supports the legal monopoly. The Bar strongly supports LSC and IOLTA programs that fund monopolistic legal service providers. The LSC and IOLTA programs also support the legal monopoly.
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5.1 The Legal Monopoly

    The legal monopoly refers to the monopoly that lawyers have in the practice of law. The legal monopoly is often described in the law review literature as the exclusive access that lawyers have to the courts. Only Bar certified lawyers may represent a client in a court of law. However, the legal monopoly must be construed more broadly to include other areas of the practice of law. The practice of law includes providing legal advice and counsel and completing legal forms with expertise. The American Bar Association and state bars (the Bar) have promoted state legislative efforts to prohibit the unauthorized practice of law (UPL). The UPL restrictions are in force in each state in the U.S., except Arizona, where they have been abolished.

    The UPL restrictions limit the use of non-lawyer legal services by both the poor and the non-poor. The UPL restrictions reduce the use and accessibility of low cost legal information and advice and also restrict access to legal forms and expertise to complete these forms. However, a rapid growth in various self-help tools is challenging the UPL restrictions in many areas.

    An objective of the UPL restrictions is to encourage the use of lawyers instead on non-lawyer legal services. Americans for Legal Reform (known as HALT) estimates the ''excessive'' legal bills resulting from the UPL restrictions are about $3.3 billion per year for wills, divorces, and bankruptcies. The HALT estimation is shown in Table 6 as the sum of the potential savings in legal costs from using non-lawyers to do wills, divorce and bankruptcy. These excessive legal bills are termed ''monopoly profits'' by economists, because they are the profits resulting from barriers to competition.
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Table6.eps

    The restrictions on the UPL discourage clients from obtaining legal services provided by someone other than a licensed lawyer. The UPL restrictions also discourage court clerks from providing useful assistance. As explained by Engler (1999): ''The rules primarily prohibit clerks, mediators and other court players from giving legal advice to unrepresented litigants.'' Clerks cannot advise the client on the merits of the case or on how to proceed. Clerks provide legal forms, but not legal expertise on completing the forms. The pro se litigant, says Engler (1999): ''. . . is forced to make choices at every turn without either understanding the range of options available or the pros and cons of each option.'' The UPL restrictions preclude court employees from providing any advice or council, other than to hire a licensed lawyer. Indeed, UPL restrictions increase the costs of the legal system and encourage persons to take no legal action, or, to hire an attorney.

    Now consider such a person who enters the Superior Court of Arizona, in Maricopa County. This Court has developed a Self-Service Center to help people help themselves. The Center provides general information about cases, court forms and instructions, and provides lists of mediators and lawyers who can provide expert advice. The Self-Service Center also has a 24-hour information telephone system with detailed information on numerous types of issues. The Maricopa court has pioneered the use of kiosks, which are stand-alone computer based systems that produce legal information and legal forms. The forms include no-fault divorce documents, child support petitions, domestic violence petitions and documents for landlord tenant actions. According to Granat (2000) the kiosks are so popular that the number is being increased from 4 to 150 throughout the country. A difference between most courts in the country and the Maricopa court, is that the UPL restrictions are abolished in Arizona.
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    The phrase ''legal monopoly'' is commonly used in the law literature to characterize the practice of law, and especially access to the court system. The legal monopoly refers to the legal profession has whole, not to individual lawyers. Posner considers the legal profession as individual licensed lawyers that form a cartel. Most cartels function by members agreeing to restrict output, restrict entry or increase price. However, the large number of private lawyers precludes successful collusion. As explained by Posner (1995, p. 51–52), when the private cartel cannot be enforced, government assistance is required:

Government on the other hand, through a requirement that providers of a specialized service have a license, can limit entry rather easily. So we should expect to find that durable, effective professional cartels are government supported.

    The government supports the legal monopoly via state statutes that restrict the UPL.

    HALT, a public interest organization dedicated to legal reform presents several examples of the legal profession prosecuting the unauthorized practice of law:

 Texas—Publishers of self-help law books and software were targeted in proceedings by the state supreme court alleging the publishing legal information constitutes the practice of law.

 California—A San Bernardino lawyer filed suit against forty independent paralegals charging them with unauthorized practice of law, false advertising and unfair competition.

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 Delaware—Volunteers providing assistance to parents representing their disabled children in due process hearings regarding special education services were charged with the unauthorized practice of law.

 Florida—The state supreme court ruled that the use of the phrase ''free consultation'' in advertisements constitutes the practice of law. A company that helps legal consumers complete paperwork for simple divorces and bankruptcies was barred from using this phrase.

 Oregon—A paralegal who provided services to over 10,000 low-income customers between 1987 and 1995 without a single complaint from any of them was shut down because the court found that her services constituted unauthorized practice of law.

  Nevada—The state has now adopted a law that will impose criminal penalties on non-lawyers engaged in the unauthorized practice of law.

    These examples are some of many where enforcing the unauthorized practice of law increases costs and reduce the supply of legal services to the poor and to others. The critical aspect of pro se is obtaining some type of self-help legal assistance. The restrictions that limit this self-help may be the most serious impediment to access to cost-effective legal services by both low and moderate-income people.

5.2 The Bar and Pro Bono for the Poor

    The ABA recommends that attorneys provide at least 50 hours of pro bono legal service per year, to poor persons or to organizations serving poor persons (ABA, 1999, p. 477). The ABA Model Rule states further (p. 477): ''Every lawyer . . . has a responsibility to provide legal services to those unable to pay.'' This Rule emphasizes providing legal services to the poor, rather than to public service organizations. Further evidence of the ABA position that pro bono should serve the poor is contained in the goals of the ABA Center for Pro Bono, and listed on their web site. The goals do not include providing pro bono assistance to public service organizations or charities; instead the goals include only ''providing high quality legal services to the poor.''
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    Eldred and Schoenherr (1993/94, p. 367) review studies of pro bono and conclude ''very few lawyers engage in pro bono practice for the poor.'' These authors state that as few as 15 to 20 percent of the practicing attorneys may provide pro bono to the poor, and that the actual number may be no more than 10 percent. According to Rhode (1998) the best evidence from the profession as a whole is that lawyers provide less than one-half hour per week of assistance to the poor. Christensen (1980) states that lawyers ''target their pro bono efforts at friends, relatives, and matters designed to attract or accommodate paying clients.'' Pro bono efforts ''have barely made a dent in the hugely unmet need for legal representation among the poor'' (Barry, 1999, p. 1879). Those clients who receive pro bono services are more likely moderate-income than low-income, are more likely to be friends and family than strangers, and are more likely public service organizations than individuals.

    The pro bono policy of the Bar appears largely unsuccessful in assisting the poor, but is more successful in advancing the self-interest of the Bar. Judge Richard Posner explains why the Bar policy of pro bono benefits lawyers. Posner (1995, p. 61) states: ''The 'ethical' obligation of lawyers to devote a certain amount of time to 'pro bono' (no fee) work . . . limits the supply of legal services to the market while jacking up demand.'' The supply of market-priced legal services is reduced by each billable hour that is reallocated to free service. This reduction in supply increases the price of lawyer services, thus benefiting the income of all lawyers. Also, the demand for legal services provided by the market increases because pro bono hours given to one client often result in paid hours to another attorney. Lardent (2000) notes that when one party to a legal dispute obtains the services of a lawyer pro bono, the other party is well-advised to hire a lawyer because of the technical, adversarial legal process.

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    Bar policy to provide legal services to the poor at reduced or no fee is consistent with its efforts to maintain the monopoly position of the legal profession that levies higher fees. Rhode (1996) notes ''Americans spend about two billion dollars annually on routine legal problems that non-lawyer specialists and self-help technology can often resolve.'' It is in the self-interest of the Bar to help lawyers capture as much of the legal services market as possible. Protecting and preserving the legal monopoly in the practice of law is a key strategy.

    The legal monopoly is widely accepted in the literature, but Bar officials seldom admit that a purpose of the UPL restrictions is to promote the self-interest of lawyers. Ibelle quotes Thomas Curtin, former President of the New Jersey Bar:

I have no difficulty saying my position is protecting the interests of lawyers. Why is the ABA, an organization that is supposed to be working for lawyers, trying to find work for nonlawyers? That is not the business of the ABA. This is the American Bar Association, not the American Paralegal Association. (Ibelle, 1995)

    This statement by a Bar president confirms that restricting the supply of legal services to those provided by licensed lawyers is in the self-interest of the Bar. Further, by encouraging lawyers to provide pro bono legal services, the Bar is ensuring that the law will be practiced by licensed lawyers and not by paralegals or others. Alterowitz (1997) in discussing pro bono for the poor asserts first the responsibility case and then states ''In addition, the failure of attorneys to provide such services is an open invitation to nonlawyers to become involved in unauthorized practice.'' Encouraging pro bono legal services for the poor is clearly in the self-interest of the Bar and the legal profession.

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    The self-interest of the Bar, as stated by Curtin (1995), is to encourage the use of lawyers and to protect their income. By encouraging lawyers to provide pro bono legal services to the poor, the Bar is discouraging the use of low cost substitutes and contributing to preserving the legal monopoly. Efforts to reduce legal costs include the greater use of paralegals, self-help technologies such as the Internet and kiosks, telephone hotlines, pro se workshops, and so forth. To the extent that such efforts are successful in reducing costs and expanding service, they also reduce lawyers' income. The self-interest of the Bar is to restrict competition by ensuring legal services are provided by licensed lawyers and by not encouraging free services to those who are able to pay. The challenge to the Bar is to provide legal services to the poor, while not compromising monopoly priced legal fees.

    The Bar benefits from legal aid policies that segregate recipients from paying clients. This segregation facilitates price discrimination between clients who pay legal fees and those who do not. Segregating recipients is crucial to Bar policy of protecting lawyer income. If low cost legal services spilled over to moderate-income households, lawyers would be unable to charge normal fees to some people, while others obtained comparable service at substantially reduced rates. Bar legal aid policy focuses on the poor, because providing free service to this group does not jeopardizing legal fees to paying clients.

    Even the term ''legal services for the poor'' refers to a defined group of people. LSC, IOLTA and the Bar emphasize providing legal services to the poor. However, those in need of legal services and unable to pay do not correspond to the official definition of 125 percent of the poverty level. As noted above, many of the officially poor with legal needs are near the upper end of the poverty limit, and become officially poor only a few months in a given year. Further, the legal needs of the poor are much like those of moderate-income levels. Certainly many of the disadvantaged (those with special needs), such as those experiencing family abuse, have legal needs and insufficient resources, and yet are not officially poor. The policy of providing ''legal services to the poor'' is not justified by need or lack of ability to pay. Instead, providing legal to this group does compete with providing legal services for fee.
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    The low cost legal services discouraged by the UPL restrictions are those that benefit many people, not just the poor. The cases listed above by Halt include self-help books and the use of paralegals to provide such services as uncontested divorce. These legal services benefit the poor and the non-poor. When the benefits of a legal aid program spill over to the non-poor, the price of the legal service will tend to affect the price of similar legal services provided by lawyers.

5.3 The Bar Interactions with LSC and with IOLTA Organizations

    The cost-effectiveness of legal services to those in need is reduced by two monopolistic markets: one is the legal monopoly supported by the Bar, and the other is the monopoly for legal aid grants supported by the LSC and by the IOLTA organizations. These two monopolies are mutually reinforcing, with the combined effects exceeding the sum of the individual effects.

    As described by Earl Johnson, the Bar was initially hostile or apathetic towards the establishment of legal aid organizations. What eventually sold the Bar on legal aid societies is that assisting the poor is in the self-interest of the legal profession. As summarized by Johnson (1978, p. 9):

A legal aid office will keep undesirable nonpaying clients out of the practitioner's office; a legal aid society will secure back wages for a discharged employee or support funds for a deserted wife, thus keeping people of the relief rolls; a legal aid society will educate people who have not used a lawyer before about the value and necessity of lawyers which will increase the business of private attorneys; a legal aid office offers the opportunity for younger members of the profession to gain valuable experience; and a legal aid society builds the public relations image of the bar with the general public.
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    The Bar has actively supported the LSC since the LSC was founded in 1974. This support includes lobbying Congress for increases in the LSC budget. In turn, the LSC budgets provide income to lawyers. In 1998, 3,590 lawyers were employed by LSC grantees (LSC, 1999). Furthermore, a fixed allocation of 12.5 percent of the LSC grantees' budgets must used for Private Attorney Involvement (PAI), where attorneys in private practice provide legal services.

    Not only do the Bar and legal aid organizations have mutual self-interest, the Bar may exert a strong influence on legal aid programs that support the Bar, more than the interests of the poor. Johnson (1987, p. 10) quotes the findings from a Russell Sage Foundation study:

The effectiveness of Legal Aid is limited by its vulnerability to pressure from local bar and business interests, which are its principal financial supporters. The tendency, therefore, is for Legal Aid to become a captive of its principal financial supporters.

    The ABA (1986) published Standards for Providers of Civil Legal Services to the Poor, which states: ''Indigent persons should receive legal representation of a quality as high as the client of any lawyer.'' The LSC explicitly endorses these ABA standards by publishing the ABA document in its annual Request for Proposals. The LSC further endorses the objective of ''high quality legal services'' in its Regulations (LSC, 2000, p.113). The term ''high quality'' means using licensed lawyers to provide service, rather than paralegals, assisted pro se or numerous low cost technologies that compete with lawyers. The focus on the poor, as discussed above, means assisting those clients who do not compete with paying clients.
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    The Bar also interacts with state IOLTA organizations. More than one-half (28 of 51 states plus DC) IOLTA organizations are bar foundations that were established by the state bar. While the state bar foundations and state bar associations assert independence, these organizations may share the same buildings, office space, and even staff. Further, the state bar associations have significant representation on the Board of Directors of the bar foundations. The policies of the IOLTA organizations include allocating a major share of their budget to the same grantees supported by LSC, to avoid competition for grants, and to support ''legal services for the poor''. These policies are certainly in the self-interest of the Bar, and thereby likely to be influenced by the Bar.

    Although the Bar, the LSC and the IOLTA organizations may each act in their individual self-interest, they also act in their joint self-interest. This joint self-interest supports the legal monopoly and supports the franchise monopolists that provide legal services for the poor.

6. Providing Legal Services: A Modest Proposal

    The model of a monopoly indicates that monopolistic service providers will resolve fewer legal issues at a higher cost than competitive service providers. Empirical evidence confirms that IOLTA and LSC grantees do not compete for grants and are monopoly service providers in their service areas. This evidence raises a question about the ''efficiency and effectiveness'' of the legal services for the poor provided by these grantees.

6.1 LSC Reference Case Data
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    During 1999, LSC grantees reported closing 1,038,662 civil legal cases. The accuracy of LSC case data is subject to serious dispute, and the LSC also provides a more reliable and conservative estimate of 924,000 cases closed during 1999 (LSC, 2000b, p. 7).

    During 1999, LSC provided grants and other support totaling $307,645,774, which accounted for 50.8 percent of the total funding (LSC, 2000b, p. 9). Total funding for all LSC grantees was therefore $605,601,910. Non-LSC funding was provided by state and local grants plus IOLTA, other federal grants and from private grants. Total funding per case closed was $583 and $655 using the higher and lower cases closed data presented by LSC. These figures do not accurately reflect the average cost of closing cases because some non-LSC funds are used for non-LSC cases; hence these numbers overstate the average cost per case.

    The LSC reports that legal aid resources provided to the poor are far short of sufficient to meet their needs. The LSC (2000b p. 13) estimates, based on the 1994 ABA legal needs report, that LSC sponsored programs serve 20% of the eligible clients and 80% of the eligible clients are unable to attain needed legal assistance. LSC states further ''Because of limited resources, local legal services programs are forced to turn away tens of thousands of people with critical legal problems.'' According to LSC, nearly half of all people applying for legal aid are turned away because of lack of resources. The conclusion of the LSC, that about 20% of the legal needs of the poor are currently being met, is widely accepted by the legal aid community.

    Cases closed by LSC grantees typically do not require court action. In 1999, only 9% of the cases were closed with a court decision. In contrast, 50% of the cases were closed with counsel or advice, and 20% of the cases required brief service. As indicated by Table 7, at most 30% of the cases closed by LSC grantees require extended service. The cases that appear to require extended service include those settled by court decision, by agency decision, or settled with or without litigation, which total to 19% of the cases.
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Table7.eps

    These LSC data present, what Zorza (2000) describes as, the governing paradigm for advocating legal services for the poor. This paradigm argues that the current system meets a small share of the legal needs of the poor and then argues for increased funding to meet more of these needs. Zorza asserts that service delivery innovations such as hotlines enable the legal service community to think about meeting 100% of these legal needs.

6.2 Telephone Hotlines

    There is extensive experience and empirical evidence that telephone hotlines can provide brief service, counsel, advice and referrals at low cost. See the website www.equaljustice.org/hotlines for an introduction to this literature.

    A review of the cost of hotline cases provides an insight into the possible costs for closing these cases.

 The Senior Legal Hotlines Annual Report (ARRP 2000) reports and average cost per case of $52.38.

 TELE-LAWYER operates a legal hotline for profit with 45 attorneys at an average cost of $30 per call.(see footnote 25)

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 A Florida hotline for seniors reports and average cost per call of $24.42.(see footnote 26)

    This small sample of hotline cost estimates is indicative of a larger literature that produces costs estimates in the $30 to $40 per call range. Allison and Pearson (2000) report the results of an assessment of 16 LSC grantees that introduced hotlines. As a result of introducing the hotlines, the average number of cases handled increased from 5,458 to 6,763 per grantee (24%), with almost all this increase being in brief service, hotline cases. The main conclusion of Allison and Pearson is that hotlines expand capacity, productivity and accessibility, but success is not guaranteed.

    The Neighborhood Legal Services (NLS), Inc. of Buffalo, New York began using a telephone hotline in 1988, and kept records on case closings through 1994. Jim Morrissey, as executive director of NLS, presents a comparison of the pre- and post-hotline statistics using NLS data.(see footnote 27) Morrissey presents the following results:

 Total cases closed from 1988—1994 increased by a factor of 2.5

 Cases closed by negotiated settlement increased by a factor of 4

 Cases closed by brief service, counsel and advice increase by a factor of about 4.

 Cases closed by most extensive service increased by a factor less than 2

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    By introducing the hotline, overall productivity—as measured by cases closed—increased significantly (factor of 2.5). Cases requiring brief service increased by the largest percent; cases requiring extensive service increase, but by a smaller percent. These productivity estimates exaggerate efficiency because the increase in cases closed also results from an increase in staff and an increase in budget. However, estimating cases closed per dollar still shows a significant increase from 1988 to 1994.

    Legal aid organizations have used telephone hotlines for several years and with favorable results. The American Association of Retired Persons (AARP) uses hotlines in all 50 states. Wayne Moore (2000) of the AARP explains that a new method of telephone intake increases productivity by 250% and cuts costs by almost one-half. The new approach requires that programs divide their programs in to a legal advice unit and a brief service unit.

    As discussed by Moore, the AARP operates two types of legal advice lines. The ''Old Pennsylvania'' hotline provides legal advice, information and referrals, but few brief services. The Washington DC model provides these services plus intake for the AARP full-service legal services program for low-income seniors.

    Table 8 provides a comparison of attorney costs and cases handled in the three hotline models. The number of cases handled per year in the new AARP model is much higher than in either of the conventional hotline models. Further, the attorney cost per case is lower even though contract attorneys are paid at a higher rate than other ARRP attorneys.

Table8.eps

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    The new model uses a contract with Tele-Lawyer, Inc. to operate an advice line that they developed for their fee-for-service hotline. In this model, the lawyer provides no administrative tasks. Eligibility screening, conflict checking, call routing, collection of fees and other administrative tasks are performed by intake workers. Non-attorneys also conduct case development and investigation. This specialization and division of labor contributes to a significant improvement in productivity and cost reduction. The law review literature refers to this approach as the ''unbundling'' of legal services (Mosten, 1994) and sometimes as discrete task services.

6.3 Providing Legal Services: A Modest Proposal

    Alternative approaches are used to reduce monopoly power and encourage competition. One approach is to break up the monopolists; another approach is to unbundle their services. The government applied the first approach to Standard Oil in the early 1900s and to AT&T in the 1980s. Electric utilities and natural gas utilities have a franchise monopoly over their service territory. The approach to improving efficiency in these sectors is to unbundle their services, with the potentially competitive services being competed and the inherently monopolistic services remaining regulated. Applying the unbundling model to legal aid organizations suggests the use of telephone hotlines to provide brief service, counsel and advice, and using staffed offices to provide more extensive legal service.

    Telephone hotlines operated as a separate business appear significantly more efficient than hotlines operated as part of a LSC supported staffed office. Several LSC grantees currently use telephone hotlines. According to the Allison and Pearson (2000), the results are positive but less than spectacular. The improvement in productivity of the LSC grantees (25% with increasing budgets) is much less than the improvement in productivity noted by Moore (factor of 2.5 with declining costs). The hotlines should be separate from existing LSC grantees and operated on a state or regional basis and funded with existing LSC program funds.
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    A competitive award system could be used to select a hotline provider, with bidding open to existing LSC grantees, other hotline providers, such as AARP, and for-profit providers, such as Tele-Lawyer. The winning bidder would operate the hotline for a period such as three years, when the award would be competed. Telephone hotlines could provide appropriate service in about 70% of the cases at a cost of about $30 to $40 if not less.

    The LSC grants process could be subject to effective competition and could thereby reflect the will of Congress. The Regulations defining the terms of competition for LSC grants need major revision. Bidding should not be limited to full service providers over a complete service territory, where the only potential bidder is the existing grantee. Legal service providers that serve the disadvantaged—those with special needs—should be allowed to compete for LSC grants. Even with meaningful competition, these grantees may never receive a large share of the funding. Their contribution is to increase client choice and to impose a market discipline that encourages existing grantees to improve their productivity.

    The unbundling of legal aid grants into telephone hotlines providing brief service and the introduction of effective competition for awards for more extended service would substantially improve the productivity of legal aid funding. Relaxing the enforcement of the UPL restrictions would result in further improvements. User-friendly court systems, modeled after Maricopa County, Arizona, are a positive contribution. The development and adoption of technologies that disseminate information have enormous potential to provide low-cost legal service to a large number of persons. The realization of the benefits of new technologies is improved by the development of a more competitive market for LSC grants and the provision of legal aid.
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REFERENCES

Allison, C. and J. Pearson, (March, 2000). The Hotline outcomes Assessment Study, Final Report—Phase 1, Center for Policy Research, Denver, CO.

American Association of Retired Persons, (2000). Senior Legal Hotlines Annual Report, October 1, 1999—September 30, 2000, AARP Foundation.

American Bar Association, (1986). Standards for Providers of Civil Legal Services to the Poor, Chicago, Illinois.

American Bar Association, (1989). Two Nationwide Surveys: 1989 Pilot Assessments of the Unmet Legal Needs of the Poor and of the Public Generally, Consortium on Legal Services and the Public.

American Bar Association, (1994) Findings of the Comprehensive Legal Needs Study, Chicago, Ill., American Bar Association.

American Bar Association, (1999). Annotated Model Rules of Professional Conduct, Chicago, Ill., American Bar Association.

American Bar Association, (August, 1998). IOLTA Handbook, Commission on Lawyers' Trust Accounts, Chicago, Illinois.

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Advisory Council of the Maryland Legal Services Corporation, (1988). Action Plan for Legal Services to Maryland's Poor, Baltimore: Author.

Alterowitz, M. (November, 1997). ''Pro Bono Publico'', Montana Lawyer, 23, 5–6

Barry, M. M., (April, 1999). ''Accessing Justice: Are Pro Se Clinics a Reasonable Response to the Lack of Pro bono Legal Services and Should Law School Clinics Conduct Them?'' Fordham Law Review, 67, pp. 1879–1926.

Broadway, R. W. & Wildasin, D. E. (1984). Public Sector Economics, Second Edition, Boston: Little, Brown and Company.

Cahn, E. and Jean Cahn, (1964). ''The War on Poverty: A Civilian Perspective'' Yale Law Journal, Vol. 73, pp. 1317.

Cantril, A. (1996). Agenda for Access: The American People and Civil Justice: Final Report, Consortium of legal Services and the Public, American Bar Association, Chicago, Ill.

Christensen, B. F. (1980). The Unauthorized Practice of Law: Do Really Good Fences Really Make Good Neighbors—or Even Good Sense?'' American Bar Foundation Research Journal, Spring, pp. 159–216.

Committee on Legal Aid, (1993). The New York Legal Needs Study, Albany, New York: New York State Bar Association.

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Crandall, Robert and Jerry Ellig, Economic Deregulation and Customer Choice: Lessons for the Electric Industry, Center for Market Processes, Fairfax, VA, 1997.

Curtin, T. quoted in Lawyers Weekly, July 3, 1995 by Kenneth F. Boehm and Peter T. Flaherty, ''Legal Disservices Corp.: There Are Better Ways To Provide Legal Aid To The Poor'' Policy Review, Fall 1995.

Eldred, T. & Schoenherr, T. (1993/94). ''The Lawyer's Duty to Public Service: More than Charity?'' West Virginia Law Review, 96, 367–403, Winter.

Engler, R. (April, 1999). ''And Justice for All—Including the Unrepresented Poor: Revisiting the Role of Judges, Mediators and Clerks,'' Fordham Law Review, 67, pp. 1987–2070.

Fried, D. ''Legal Outcomes'', citipaper.net, March 20–27, 1997.

Granat, R. S. (2000). ''Creating A Network of Community-Based Pro Se (Self-help) Legal Information Centers'' available on the Equal Justice Website.

Hendersen, J. & Quandt, R. (1980). Microeconomic Theory: A Mathematical Approach. New York: McGraw-Hill Book Co.

Ibelle, B. (1995). ''Controversial ABA 'Nonlawyer Practice' Report Due in August'' Lawyer Weekly USA.

''Introduction: The Inspector General Community'' The Journal of Public Inquiry, Spring/Summer 2000, pp. 3–8.
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Johnson, Earl Jr, (1978). Justice and Reform: The Formative years of the American Legal Services Program, New Jersey: Transaction Books.

Lardent, E. (2000). Personal communication.

Legal Service Corporation, (annual editions) Request for Proposals : FY 2001 Grants Competition, Appendices, Washington, DC.

Legal Service Corporation, (January, 2000). Regulations of the Legal Services Corporation, Washington DC. This LSC report is reprinted from the U.S. Code of Federal Regulations, Title 42, Section 2996, Part 1600.

Legal Services Corporation (2000b). Serving the Civil Legal Needs of the Low-Income Americans: A Special Report to Congress. Washington, DC, April 30.

Legal Services Corporation, ''Announcement of Intention to Make 2000 Competitive Grants Awards'' Federal Register, Vol. 64, No. 188, pp. 52551–52556.

Moore, W. (2000). A More Productive, More Versatile Legal hotline Methodology: A New Concept in Delivery—The Brief Services Unit, The Equal Justice Network, website www.equaljustice.org/hotline.

Mosten, F. (Fall, 1994). ''Unbundling of Legal Services and the Family Lawyer'', Family Law Quarterly, 28, pp. 421–449.
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Posner, R. (1995). Overcoming Law, Cambridge Mass.: Harvard University Press.

Rhode,D. L. (1996). l. ''Professionalism in Perspective: Alternative Approaches to Nonlawyer Practice'', New York University Review of Law and Social Change, 22, 701–716.

Rhode, D. L. (January, 1998). The Professionalism Problem, William and Mary Law Review, 39, 283  326.

Rhode, D. L. (1999). ''Cultures of Commitment: Pro Bono for Lawyers and Law Students'' Fordham Law Review, 67, 2415–2447.

Survey Research Laboratory, Virginia Commonwealth University for the Virginia State Bar, (July, 1991). Pro Bono and the Legal Needs of Indigent Virginians.

U.S. Congress, Omnibus Continuing Resolution, H.R.3019: Public L. 104–134, 110 Stat. 1321–50. (4/26/96).

U.S. Congress, The Legal Services Corporation Act as Amended 1977, public law 95–222, Dec. 28, 1977, p. 2.

U.S. Department of Commerce, (1999). Statistical Abstract of the United States: The National Data Book, U.S. Bureau of Census, Washington DC.

Zorza, Richard, (October, 2000). Legal information Needs of Poor and Middle Income People and the Organizations that Advocate For Them, Interim Executive Report: Introduction and Summary, see website, www.zorza.net
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Material Submitted for the Hearing Record

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    [NOTE: Additional material submitted for the Hearing Record is not reprinted here but is on file with the House Judiciary Committee. The material referred to is listed below.

    Congressman Jeff Flake, a Representative in Congress From the State of Arizona referenced a Web page addressed TaxRebatePledge.org
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(Footnote 1 return)
Regional Management Corporation, et al. v. Legal Services Corporation, 10 F. Supp. 2d 565, 571 (D.S.C. 1998).


(Footnote 2 return)
Id. at 571–572.


(Footnote 3 return)
Regional Management Corporation, et al. v. Legal Services Corporation, 186 F. 3d 457 (4th Cir. 1999).


(Footnote 4 return)
Ron Sutherland, ''The Government Provision of Legal Services For the Poor: Competition or Monopoly?'' (unpublished paper).


(Footnote 5 return)
Joseph Dalaker, US Census Bureau, Current Population Reports, Series P60–214, Poverty in the United States: 2000, U.S. Government Printing Office, Washington, D.C. U.S. Census Bureau, ''Historical Poverty Tables—Current Population Survey, (table) 6. People Below 125% of Poverty Level and the Near Poor''; published September 2001.


(Footnote 6 return)
Roy W. Reese & Carolyn A. Elfred, Institute for Survey Research at Temple University for the Consortium on Legal Services and the Public, Report on the Legal Needs of the Low- and Moderate-Income Public, January, 1994; Dale, D. Michael, The State of Access to Justice in Oregon, Part I: Assessment of Legal Needs, Sponsored by the Oregon State Bar, The Oregon Judicial Department, The Office of Governor John Kitzhaber, M.D., March 31, 2000; Honorable Denise R. Johnson and Robert Hemley et al, Committee on Equal Access to Legal Services, Report on Investigation of Need and Assessment of Resources (September 2001, accessed February 25, 2002) http://www.vermontjudiciary.org/Resources/CommitteeReports/ULTREPT.pdf


(Footnote 7 return)
When LSC was threatened with termination in the 1980s, the CEOs of Fortune 500 companies banded together and informed Congress just how important access to the justice system was to their employees. Between 1995 and 2000, when LSC's existence and funding were threatened, a group of Fortune 500 general counsels lobbied Congress to increase funding for LSC after its funding had been cut by the House Appropriations Committee. These general counsels represented leading American corporations, including Proctor & Gamble, Shell Oil, Eastman Kodak, Georgia-Pacific, Colgate-Palmolive, General Motors, Ford Motor Company and Dupont.


(Footnote 8 return)
Americans strongly support spending their federal tax dollars to provide legal assistance to low-income individuals and families. An August 1997 Louis Harris poll reported that 70 percent of those queried believed federal dollars should be used to pay for civil legal aid to the poor in such cases as child custody, adoption and divorce. A June 1999 Harris poll reported that 80 percent of those surveyed believed federal funds should pay for legal assistance to low-income victims of domestic violence.


(Footnote 9 return)
U.S. House, Departments of Commerce, Justice, State, the Judiciary and Related Agencies Appropriations Bill, Fiscal Year 2000 (to accompany H.R. 2670) (H.Rept 106–283). Washington: Government Printing Office, August 2, 1999.


(Footnote 10 return)
''The Committee is pleased with the efforts of the Corporation to improve the case reporting of its grantees. However, the Committee feels the Corporation can continue to work with its grantees to improve case reporting and lower the grantees' reporting rate error.'' U.S. House, Departments of Commerce, Justice, State, the Judiciary and Related Agencies Appropriations Bill, Fiscal Year 2001 (to accompany H.R. 4690) (H.Rept 106–680). Washington: Government Printing Office, June 19, 2000. The LSC reported even more progress at reducing the CSR error rate in the July 30, 2000 Special Report to Congress.


(Footnote 11 return)
U.S. Congress, Omnibus Continuing Resolution, H.R.3019: Public L. 104–134, 110 Stat. 1321–50. (4/26/96).


(Footnote 12 return)
Statement from Congressman Bill McCollum on a bill he introduced in 1995 to reauthorize LSC


(Footnote 13 return)
The Legal Services Corporation Act as Amended 1977, public law 95–222, Dec. 28, 1977, p. 4.


(Footnote 14 return)
Robert Crandall and Jerry Ellig, Economic Deregulation and Customer Choice: Lessons for the Electric Industry, Center for Market Processes, Fairfax, VA, 1997.


(Footnote 15 return)
Earl Johnson, Jr, Justice and Reform: The Formative years of the American Legal Services Program, New Jersey: Transaction Books, 1978.


(Footnote 16 return)
Edgar Cahn and Jean Cahn, ''The War on Poverty: A Civilian Perspective'' Yale Law Journal, Vol. 73, 1964, pp. 1317.


(Footnote 17 return)
The principle of Pareto optimality asserts that perfect competition provides the most efficient allocation of resources. See microeconomics textbooks, or, Robin Broadway and David Wildasin, Public Sector Economics, Second Edition, Boston, Little, Brown and Company, 1984.


(Footnote 18 return)
American Bar Association, IOLTA Handbook, Commission on Lawyers' Trust Accounts, August, 1998, p.93.


(Footnote 19 return)
Legal Service Corporation, Regulations of the Legal Services Corporation, Washington DC, January, 2000, p. 43, Part 1611—Eligibility of the Code of Federal Regulations, Title, 45, Section 1600.


(Footnote 20 return)
U.S. Department of Commerce, Statistical Abstract of the United States: The National Data Book, U.S. Bureau of Census, Washington DC, 1999, p. 486.


(Footnote 21 return)
The ABA survey indicates that low-income households experience 2.1 legal needs, while moderate-income households experience 1.9 legal needs, but these estimates reflect issues that arose in a previous year and are not resolved.


(Footnote 22 return)
The Legal Services Corporation Act as Amended 1977, Public Law, 95–222, Dec. 28, 1977, p. 2.


(Footnote 23 return)
American Bar Association, IOLTA Handbook, Commission of Interest on Lawyers' Trust Accounts, August, 1999, p. 93.


(Footnote 24 return)
See the NAIP brochure, The National Association of IOLTA Programs, Chicago, IL.


(Footnote 25 return)
Shoshanna Erlich, ''Legal Hotlines for Profit'' interview with Michael Cane, founder TELE-LAWYER, The Equal Justice Network. website, www.equaljustice.org/hotline


(Footnote 26 return)
Shoshanna Ehrlich, ''To Charge or Not to Charge'' The Equal Justice Network, website, www.equaljustice.org/hotline


(Footnote 27 return)
Jim Morrissey, ''Pre- and Post-Hotline Statistics and Timeline for NLS Implementations'' Neighboorhood Legal Services, Buffalo, NY, undated memorandum to conference participants.