Velazquez v. Legal Services Corp.

Decision Date02 July 1999
Docket NumberNo. 2020,D,2020
PartiesCarmen VELAZQUEZ, et al, Plaintiffs-Appellants, v. LEGAL SERVICES CORPORATION, Defendant-Appellee, United States of America, Intervenor-Appellee. ocket 98-6006.
CourtU.S. Court of Appeals — Second Circuit

Burt Neuborne, New York, N.Y. (Deborah Goldberg, E. Joshua Rosenkranz and David S. Udell, The Brennan Center for Justice, New York, N.Y.; Peter M. Fishbein and Alan Rothman, Kaye Scholer, Fierman, Hays & Handler, LLP, New York, N.Y., On the Brief), for Plaintiffs-Appellants.

Alan Levine, Kronish, Lieb, Weiner & Hellman, LLP, New York, N.Y. (Stephen A. Wieder, Stephen L. Ascher, of counsel), for Defendant-Appellee.

Stephen W. Preston, Deputy Assistant Attorney General, Washington, D.C. (Frank W. Hunger, Assistant Attorney General, Washington, D.C., Zachary W. Carter, United States Attorney for the Eastern District of New York, Brooklyn, N.Y., Barbara L. Herwig and Matthew M. Collette, Attorneys, Department of Justice, Washington, D.C., on the brief), for Intervenor-Appellee.

Before: JACOBS, LEVAL, and GIBSON, * Circuit Judges.

Judge JACOBS concurs in part and dissents in part in a separate opinion.

LEVAL, Circuit Judge:

This appeal concerns the validity of restrictions imposed by Congress and the Legal Services Corporation ("LSC") on the professional activities of entities that receive funding from LSC ("LSC grantees"). Plaintiffs are lawyers employed by New York City LSC grantees, their indigent clients, private contributors to LSC grantees, and state and local public officials whose governments contribute to LSC grantees. Plaintiffs sought a preliminary injunction against the enforcement of the restrictions, contending they violate various provisions of the U.S. Constitution. The district court denied a preliminary injunction, finding that plaintiffs had failed to establish a probability of success on the merits. We affirm in part and reverse in part.

I. Background

A. The Legal Services Corporation and the Challenged Statute. LSC is a non-profit government-funded corporation, created by the Legal Services Corporation Act of 1974 ("LSCA"), 42 U.S.C. § 2996 et seq., "for the purpose of providing financial support for legal assistance in noncriminal proceedings or matters to persons financially unable to afford legal assistance." 42 U.S.C. § 2996b(a). LSC fulfills this mandate by making and administering grants to hundreds of local organizations that in turn provide free legal assistance to between 1,000,000 and 2,000,000 indigent clients annually. See Texas Rural Legal Aid v. Legal Services Corp., 940 F.2d 685, 688 (D.C.Cir.1991); S. Rep. 104-392 at 2-3 (1996). Many LSC grantees are funded by a combination of LSC funds and other public or private sources. S. Rep. 104-392 at 3; A. 225, A. 297. LSC grantees are governed by local Boards of Directors who set policies and priorities in response to local conditions and client needs. LSC is empowered to implement the LSCA through the traditional administrative rulemaking process. Tex. Rural Legal Aid, 940 F.2d at 692.

From the outset of the LSC program, LSC grantees have been restricted in the use of LSC funds. See 42 U.S.C. § 2996f(b)(1)-(10) (prohibiting use of LSC funds in, inter alia, most criminal proceedings, political activities, and litigation involving nontherapeutic abortion, desegregation, or military desertion). Recipient organizations are also barred from using most nonfederal funds for any activity proscribed by the LSCA. See 42 U.S.C. § 2996i(c).

In 1996, Congress substantially expanded the restrictions on activities of LSC grantees. See Omnibus Consolidated Rescissions and Appropriations Act of 1996, Pub.L. No. 104-134, § 504, 110 Stat. 1321, 1321-53-56 (1996) ("OCRAA," or "the 1996 Act"), reenacted in the Omnibus Consolidated Rescissions and Appropriations Act of 1997, Pub.L. 104-208, § 502, 110 Stat. 3009 (1997). Section 504 of OCRAA, set forth below in pertinent part, 1 bars the use of LSC funds to aid entities that perform various activities including lobbying, participation in class actions, providing legal assistance to aliens in certain categories, supporting advocacy training programs, collecting attorneys' fees under fee shifting laws, litigating on behalf of prisoners, and seeking to reform welfare. 2

Congress left no question of its intention to restrict grantees' use of non-federal and federal funds alike. The Act provides that while program recipients may "us[e] funds received from a source other than the Legal Services Corporation to provide legal assistance, ... such funds may not be expended by recipients for any purpose prohibited by this Act." § 504(d)(2)(B). Moreover, § 504(d)(1) requires recipients to notify all non-federal donors that their contributions "may not be expended for any purpose prohibited by ... this title."

In August 1996, LSC proposed regulations to implement the 1996 Revisions, which, inter alia, (1) prohibited a grantee from "us[ing] non-LSC funds for any purpose prohibited by the LSC Act," 61 Fed.Reg. 41960, 41962 (1996); (2) prohibited any organization controlled by a grantee from pursuing restricted activities (the "interrelated organizations prohibition"), see id.; 50 Fed.Reg. 49276 49279 (1985) (defining "control" as "the ability to determine the direction of [or] influence the management or policies" of another organization); and (3) applied the OCRAA restrictions to any third party to whom a grantee transfers LSC funds, and to any private funds transferred from a grantee to a third party irrespective whether the funds were private or public (the "transfer of funds provision"). 61 Fed.Reg. 63749, 63752 (1996). The combined effect of the regulations was to prohibit LSC grantees from engaging in any restricted activity, even through a legally distinct affiliate organization. These regulations were promulgated in December 1996. See 45 C.F.R. §§ 1610.3, 1610.8 (1996).

B. The Challenges to the Statute and Implementing Regulations. Plaintiffs filed this lawsuit in January 1997, alleging that the restrictions on the use of non-federal monies violate their rights under First, Fifth, and Tenth Amendments to the United States Constitution. They also claimed that the restrictions on the use of federal funds violate the First Amendment, the doctrine of Separation of Powers, and the Tenth Amendment. Plaintiffs sought a preliminary injunction only to enjoin restrictions on the use of non-federal funds.

Soon after this suit was filed, and before the hearing on plaintiffs' application for a preliminary injunction, a federal district court in Hawaii issued an order partially granting a motion by a different set of plaintiffs to preliminarily enjoin enforcement of the OCRAA restrictions. See Legal Aid Society of Hawaii v. Legal Servs. Corp., 961 F.Supp. 1402 (D.Haw.1997) ( "LASH I "). LASH I concluded that under Rust v. Sullivan, 500 U.S. 173, 111 S.Ct. 1759, 114 L.Ed.2d 233 (1991) and other Supreme Court decisions, congressional restrictions on the activities of federally-funded entities were permissible only so long as they "left open adequate channels for [protected] speech." 3 961 F.Supp. at 1414. Applying this standard, the court found that the LSC regulations unduly burdened grantees' protected First Amendment rights to lobby, to associate, and to have meaningful access to courts. Central to the court's analysis was its finding that the interrelated organizations prohibition barred LSC grantees from creating affiliate organizations that could engage in restricted activity. See LASH I, 961 F.Supp. at 1415-16. The court held that as implemented, the 1996 restrictions denied to grantees not only the ability to undertake restricted activity directly, but also all alternative channels for exercise of these constitutionally protected activities. The court therefore determined that plaintiffs' constitutional challenge was likely to prevail on the merits and enjoined enforcement of portions of the OCRAA restrictions. See id. at 1421-22.

In order to cure these constitutional infirmities, LSC issued "interim regulations" in March 1997 modelled after the restrictions upheld by the Supreme Court in Rust. See 62 Fed.Reg. 12101, 12101-04 (1997) (interim regulations "are intended to address constitutional challenges raised by the previous rule"); Legal Aid Society of Hawaii v. Legal Services Corp., 981 F.Supp. 1288, 1290 (D.Haw.1997) ("LASH II "); Velazquez v. Legal Services Corp., 985 F.Supp. 323, 332-333 (E.D.N.Y.1997). The interim regulations modified the earlier rules in two important respects. LSC revised the transfer of funds rules so that, in most cases, non-federal funds transferred by a grantee to a controlled affiliate would cease to be subject to the restrictions. Compare 62 Fed.Reg. 12101, 12103, § 1610.7 (1997) with 45 C.F.R. § 1610.7 (1996)(61 Fed.Reg. 63749, 63752). Equally important, a new section entitled "Program Integrity of Recipient," 62 Fed.Reg. 12101 at 12103-04, § 1610.8, provided that grantees could maintain a relationship with "affiliate" organizations, which could in turn engage in restricted activities so long as the association between the organizations met standards of "program integrity." The nonexclusive list of factors relevant to the determination of program integrity were (1) the existence of separate personnel; (2) the existence of separate accounting and timekeeping records; (3) the existence of separate facilities; and (4) the extent to which signage and identification distinguishes recipient from affiliate. Id. at 12104.

Ten days after the interim rules were promulgated, the court below held a hearing on the plaintiffs' motion for a preliminary injunction. See 985 F.Supp. at 332. The district court found that "although based on the Rust program integrity requirements," the interim regulations differed from those approved in Rust in...

To continue reading

Request your trial
26 cases
  • Velazquez v. Legal Services Corp.
    • United States
    • U.S. District Court — Eastern District of New York
    • December 20, 2004
    ...Legal Services Corp., 985 F.Supp. 323 (E.D.N.Y.1997) ("Velazquez I") , the Second Circuit's decision in Velazquez v. Legal Services Corp., 164 F.3d 757 (2d Cir.1999) ("Velazquez II"), and the Supreme Court's decision in Legal Services Corp. v. Velazquez, 531 U.S. 533, 121 S.Ct. 1043, 149 L.......
  • Oregon v. Legal Services Corp.
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • January 8, 2009
    ...LSC's current regulations have also withstood constitutional challenges. See LASH II, 145 F.3d at 1031; Velazquez v. Legal Servs. Corp. (Velazquez II), 164 F.3d 757, 773 (2d Cir.1999). 3. Neither the district court nor the parties alluded to any possible jurisdictional problem with Oregon's......
  • Initiative and Referendum Institute v. Walker
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • May 17, 2006
    ...works to the advantage of the status quo. Some precedent suggests this may make it viewpoint discriminatory. See Velazquez v. Legal Servs. Corp., 164 F.3d 757, 770 (2d Cir.1999) (finding that a provision "clearly seeks to discourage challenges to the status quo" and therefore "discriminates......
  • Connecticut ex rel. Blumenthal v. Crotty
    • United States
    • U.S. Court of Appeals — Second Circuit
    • September 30, 2003
    ...Immunities Clause. Therefore, we hold the Nonresident Lobster Law is also unconstitutional on its face.16 See Velazquez v. Legal Serv. Corp., 164 F.3d 757, 763 (2d Cir.1999) (to withstand facial challenge to Legal Services Corporation Act of 1974, this Court noted that it must "determine wh......
  • Request a trial to view additional results
3 books & journal articles

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT