Legal Aid Soc. of Hawaii v. Legal Services Corp.

Decision Date18 May 1998
Docket NumberNo. 97-16567,97-16567
Citation145 F.3d 1017
Parties98 Cal. Daily Op. Serv. 3742, 98 Daily Journal D.A.R. 5174 LEGAL AID SOCIETY of HAWAII, Legal Services of Northern California, Inc., San Fernando Valley Neighborhood Legal Services, Legal Aid Society of Orange County, Alaska Legal Services Corporation, California State Client Council, The Hawaii Justice Foundation, The Impact Fund, and Gary F. Smith, Plaintiffs-Appellants, v. LEGAL SERVICES CORPORATION, Defendant-Appellee, UNITED STATES of America, Intervenor-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Page 1017

145 F.3d 1017
98 Cal. Daily Op. Serv. 3742, 98 Daily Journal
D.A.R. 5174
LEGAL AID SOCIETY of HAWAII, Legal Services of Northern
California, Inc., San Fernando Valley Neighborhood Legal
Services, Legal Aid Society of Orange County, Alaska Legal
Services Corporation, California State Client Council, The
Hawaii Justice Foundation, The Impact Fund, and Gary F.
Smith, Plaintiffs-Appellants,
v.
LEGAL SERVICES CORPORATION, Defendant-Appellee,
UNITED STATES of America, Intervenor-Appellee.
No. 97-16567.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted March 13, 1998.
Decided May 18, 1998.

Page 1020

Stephen V. Bomse, Charles N. Freiberg, Adam M. Cole, Hope L. Hudson, Rakesh K. Anand, Heller Ehrman White & McAuliffe, San Francisco, CA, Paul Alston, Bradford L. Tannen, Alston Hunt Floyd & Ing, Honolulu, HI, Stanley E. Levin, Davis Levin Livingston Grande, Honolulu, HI, Steven R. Shapiro, Robin L. Dahlberg, New York City, and Margaret C. Crosby, San Francisco, CA, for plaintiffs-appellants.

Thomas S. Williamson, Jr., Robert A. Long, Jr., Georgia Kazakis, Ernest A. Young, Erika F. King, Covington & Burling, Washington, DC, for defendant-appellee.

Matthew M. Collette, Frank W. Hunger, Steven S. Alm, Stephen W. Preston, Barbara L. Herwig, Dept. of Justice, Washington, DC, for intervenor-appellee.

David M. Young, Daniel J. Popeo, Washington, DC, for Washington Legal Foundation, Allied Educational Foundation, and U.S. Representative Bill McCollum as amici curiae in support of appellees.

Appeal from the United States District Court for the District of Hawaii Alan C. Kay, Chief District Judge, Presiding. D.C. No. 97-00032 ACK.

Before: WHITE, * Associate Justice, (Ret.), NOONAN and THOMAS, Circuit Judges.

WHITE, Associate Justice, (Ret.).

The issue presented in this appeal is whether government restrictions on the activities of organizations who accept funds distributed by the Legal Services Corporation (LSC) are facially unconstitutional. Appellants, a group of organizations and an individual involved in the provision of legal services to indigent persons, contend that the restrictions impose unconstitutional conditions on the exercise of their First Amendment rights and violate equal protection and due process rights protected by the United States Constitution. We affirm the judgment of the district court that the restrictions do not violate the First Amendment.

Page 1021

We vacate and remand the judgment of the district court that the restrictions do not violate the constitutional rights of indigent persons because appellants fail to establish their standing to raise the rights of their clients.

I. BACKGROUND

In 1974, Congress enacted the Legal Services Corporation Act, 42 U.S.C. §§ 2996 et seq. The Act established the LSC as a private nonprofit corporation "for the purpose of providing financial support for legal assistance in noncriminal proceedings ... to persons financially unable to afford legal assistance." § 2996b. The LSC receives funds annually from Congress and makes grants directly to local organizations that provide civil legal assistance to indigent persons. See LSC, 1994 Annual Report 1, 5. To obtain LSC funding, local organizations must submit applications describing the legal services they intend to provide with LSC funding. See 45 C.F.R. § 1634.3. In the initial Act creating the LSC, Congress placed restrictions on local organizations who received grants from the LSC. For example, LSC funds could not be used by recipients to provide legal assistance in proceedings concerning abortion, desegregation, or military desertion. § 2996f(b)(8)-(10). With certain exceptions for funds received from tribal, "interest on lawyers trust account," and other non-federal sources, these restrictions applied even if the organization's activities were funded with non-LSC funds. See § 2996i(c); 45 C.F.R. pt. 1610 (1976); 41 Fed.Reg. 25,899, 25,901-02 (1976).

This case arises from recent enactments by Congress that place additional limitations on legal service organizations that accept LSC funds. In 1996, as a result of controversy over the activities pursued by some organizations receiving LSC funds, Congress expanded the number of limitations governing recipients of LSC funds. See Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub.L. No. 104-134, §§ 504, 508, 110 Stat. 1321, 1321-53 to -57, 1321-57 to -58 (1996 Budget Act). The 1996 Budget Act prohibited recipients of LSC funds from, among other things: 1) advocating or opposing the alteration of an elective district, § 504(a)(1); 2) influencing the issuance of any regulation by any Federal, State, or local agency, § 504(a)(2); 3) influencing any part of any agency adjudicatory proceeding if the proceeding concerns the formulation or modification of any policy of general applicability, § 504(a)(3); 4) influencing the passage or defeat of any legislation, § 504(a)(4); 5) participating in a class action suit, § 504(a)(7); 6) representing certain aliens, § 504(a)(11); 7) claiming or collecting attorneys' fees pursuant to laws requiring the award of such fees, § 504(a)(13); 8) participating in abortion litigation, § 504(a)(14); 9) participating in litigation on behalf of a prisoner, § 504(a)(15); 10) participating in efforts to reform a welfare system, § 504(a)(16); and 11) defending a person in eviction proceedings if the person is involved in illegal drug activity, § 504(a)(17). 1 Congress reenacted

Page 1022

these restrictions in the Omnibus Consolidated Appropriations Act, 1997, Pub.L. No. 104-208, § 502(a), 110 Stat. 3009, 3009-59 to -60 (1996). 2

Enactment of these restrictions prompted the LSC to promulgate new regulations to ensure that recipients of LSC funding did not use funds received from the LSC to support prohibited activities. Under LSC regulations existing prior to the enactment of the 1996 Budget Act, funds held by organizations under the "control" of an organization receiving LSC funds were "subject to the same restrictions as if the funds were held by the recipient." Audit and Accounting Guide for Recipients and Auditors, 50 Fed.Reg. 49,276, 49,280 (1985). The LSC defined "control" as the ability to "[d]etermine the direction of management and policies" or "influence the management or policies" of another organization "to the extent that an arm's length transaction may not be achieved." Id. at 49,279. Under the LSC's initial implementation of the 1996 Budget Act, the restrictions enacted by Congress applied to any organization "interrelated," as determined by application of the "control" test, with a recipient of LSC funds. See Legal Aid Soc'y of Hawaii v. Legal Servs. Corp., 961 F.Supp. 1402, 1415 (D.Haw.1997).

On January 9, 1997, appellants filed suit against the LSC in the United States District Court for the District of Hawaii challenging the facial constitutionality of the restrictions and implementing regulations. The plaintiffs consisted of five legal service organizations that receive a portion of their funds from the LSC, 3 a group representing legal services clients, 4 two organizations that fund work by legal services organizations, 5 and two lawyers employed by legal services organizations. 6 They asserted that the restrictions imposed an unconstitutional condition on their First

Page 1023

Amendment rights, and violated the equal protection and due process rights of their clients. Appellants requested a preliminary injunction to prevent the LSC from enforcing the restrictions.

On February 14, 1997, the district court granted in part and denied in part appellants' request for a preliminary injunction. The court concluded that the LSC's "interrelated organization" regulation did not provide a recipient of LSC funds with the ability to form an affiliate organization to pursue prohibited activities with non-LSC funds. See id. at 1416-17. The district court held that it was substantially likely that the restrictions placed an unconstitutional condition on appellants' First Amendment rights by conditioning the availability of LSC funds on the relinquishment of those rights. See id. at 1421. The district court enjoined numerous restrictions contained in the Acts. See id. at 1422.

In response to the district court's ruling, the LSC revised the regulations governing the ability of organizations who receive funds from the LSC, known as "recipients," to maintain relationships with organizations pursuing prohibited activities, organizations we will refer to as "unrestricted organizations." The final rule issued by the LSC "nullified" its prior policy on "interrelated organizations" and adopted "program integrity" regulations modeled on the regulations upheld in Rust v. Sullivan, 500 U.S. 173, 111 S.Ct. 1759, 114 L.Ed.2d 233 (1991). 62 Fed.Reg. 27,695, 27,695, 27,697-700 (1997). The new regulations mandate that a recipient of LSC funds maintain physical and financial separation from unrestricted organizations. See 45 C.F.R. § 1610.8. To determine if the organizations are separate, the LSC will examine certain factors, such as the existence of separate personnel and facilities. In addition, the unrestricted organization must be a legally separate entity. § 1610.8(a)(1).

After the issuance of the new regulations, the United States intervened in the district court to defend their constitutionality. In ruling on cross-motions for summary judgment filed by the parties, the district court concluded that Rust was dispositive on the constitutionality of the LSC requirement that a recipient have separate personnel and facilities from an unrestricted organization. See Legal Aid Soc'y of Hawaii v. Legal Servs. Corp., 981 F.Supp. 1288, 1294 (D.Haw.1997). The court upheld the requirement that the unrestricted organization be a "legally separate entity," 45 C.F.R. § 1610.8(a)(1), which was not a part of the regulations challenged in Rust, because the requirement did not prevent appellants from...

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