Termination, Limited Reductions in Funding, and Debarment Procedures; Recompetition; Enforcement; Suspension Procedures, 46995-47003 [2012-19073]

Agencies

• LEGAL SERVICES CORPORATION

[Federal Register Volume 77, Number 152 (Tuesday, August 7, 2012)]
[Proposed Rules]
[Pages 46995-47003]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19073]


=======================================================================
-----------------------------------------------------------------------

LEGAL SERVICES CORPORATION

45 CFR Parts 1606, 1618, and 1623


Termination, Limited Reductions in Funding, and Debarment 
Procedures; Recompetition; Enforcement; Suspension Procedures

AGENCY: Legal Services Corporation.

ACTION: Further Notice of Proposed Rulemaking.

-----------------------------------------------------------------------

SUMMARY: This Further Notice of Proposed Rulemaking (FNPRM) proposes 
modifications to the January 31, 2012, NPRM regarding amendments to the 
Legal Services Corporation's regulations on termination procedures, 
enforcement, and suspension procedures. LSC seeks comments limited to 
the substantively new materials as indicated by the questions in the 
SUPPLEMENTARY INFORMATION.

DATES: Comments on the FNPRM are due September 6, 2012.

ADDRESSES: Written comments may be submitted by mail, fax, or email to 
Mark

[[Page 46996]]

Freedman, Senior Assistant General Counsel, Legal Services Corporation, 
3333 K Street NW., Washington, DC 20007; 202-295-1623 (phone); 202-337-
6519 (fax); mfreedman@lsc.gov.

FOR FURTHER INFORMATION CONTACT: Mark Freedman, Senior Assistant 
General Counsel, Office of Legal Affairs, Legal Services Corporation, 
3333 K Street NW., Washington, DC 20007; 202-295-1623 (phone); 202-337-
6519 (fax); mfreedman@lsc.gov.

SUPPLEMENTARY INFORMATION:

Introduction

    The Legal Services Corporation (LSC) Act (the Act) provides general 
authority to the Corporation ``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].'' \1\ On 
January 31, 2012, LSC published in the Federal Register at 77 FR 4749 a 
NPRM proposing changes to LSC's enforcement mechanisms to add a lesser 
reduction in funding option and extend the time for suspensions from 30 
to 90 days. The NPRM provided history and background that is not 
repeated herein.
---------------------------------------------------------------------------

    \1\ LSC Act, section 1006(b)(1)(A); 42 U.S.C. 2996e(b)(1)(A).
---------------------------------------------------------------------------

    Nineteen comments were submitted. The comments are available in the 
open rulemaking section of LSC's Web site at www.lsc.gov.
    https://www.lsc.gov/about/regulations-rules/open-rulemaking.
    On June 18, 2012, the Operations and Regulations Committee 
(Committee) of the LSC Board of Directors (Board) met to discuss the 
comments. Only the comment of the Office of Inspector General (OIG) 
supported the proposal as written, although the OIG recommends a rule 
providing for suspensions to remain in place until corrective actions 
are taken, and the OIG questioned whether the proposed language 
regarding imposing immediate special grant conditions was unduly 
restricted. Seventeen of the other comments opposed the proposed 
changes. Those comments include ones from LSC recipients, coalitions of 
legal aid programs, the National Legal Aid and Defender Association 
(NLADA), and the New York State Bar Association Committee on Legal Aid. 
The American Bar Association Standing Committee on Legal Aid and 
Indigent Defendants (SCLAID) did not oppose the rulemaking, but joined 
with the other seventeen comments in recommended changes to the 
proposed language if LSC proceeds with rulemaking. These comments had a 
number of common themes. Fifteen of the comments were two or three 
pages. The ABA, NLADA, and Colorado Legal Services provided more 
extensive comments (five to seven pages). The OIG's comments in support 
of the rule were sixteen pages in length. This further notice of 
proposed rulemaking (FNPRM) provides revisions to the proposed language 
for further comment. The final rule will include a discussion of all of 
the comments received on both the NPRM and the FNPRM.
    On July 27, 2012, the Committee met again to discuss the comments 
and LSC Management's recommendations. The Committee voted to recommend 
to the Board publication of these further revisions to the proposal 
based on consideration of the comments and recommendations of 
Management. On July 27, 2012, the Board voted to publish this FNPRM for 
public comment on the specific items identified below. In addition to 
this FNPRM, LSC is publishing on its Web site redlined versions of the 
regulations showing each change. Those documents are available in the 
Open Rulemaking section of www.lsc.gov.
    https://www.lsc.gov/about/regulations-rules/open-rulemaking.
    LSC's principal regulation discussing general enforcement authority 
and procedures is the Enforcement Procedures regulation at 45 CFR part 
1618. In accordance with the requirements of Part 1618, LSC uses a 
variety of enforcement tools, formal and informal, to ensure 
compliance. Among these are informal consultations and compliance 
training, on-site Case Service Report/Case Management System reviews, 
the imposition of Required Corrective Actions (RCAs), and the 
imposition of Special Grant Conditions (SGCs) at the beginning or 
renewal of a grant. Several additional enforcement tools are provided 
for in LSC-adopted regulations and are available to the Corporation to 
address significant non-compliance by a recipient. In particular, LSC 
has adopted suspension procedures (45 CFR part 1623) and questioned-
cost procedures (45 CFR part 1630). LSC has also adopted grant 
termination procedures (45 CFR part 1606) that provide for the 
termination of funding in whole or in part in cases of a recipient's 
substantial noncompliance with LSC statutory or regulatory requirements 
and other policies, instructions, or grant terms and conditions. Under 
the grant-termination provisions, a reduction of five percent or more 
of a recipient's funding is considered a termination and can be 
implemented only in compliance with the termination procedures.\2\ 
Reductions of funding of less than five percent are not considered 
terminations. In order to reduce a recipient's funding by less than 
five percent without using the 1606 termination procedures, additional 
procedures have to be established by rulemaking.\3\ LSC has not yet 
adopted regulations establishing such standards and procedures. LSC 
also has the authority under Part 1606 to debar recipients from 
eligibility to receive future grants.
---------------------------------------------------------------------------

    \2\ 45 CFR 1606.2(d).
    \3\ 45 CFR 1606.2(d)(2)(v).
---------------------------------------------------------------------------

    The majority of LSC recipients are in substantial compliance with 
LSC requirements most of the time. When non-compliance occurs, 
recipients almost always work diligently and cooperatively with LSC 
staff to come promptly into compliance, but there have been exceptions. 
LSC is now considering adding enforcement tools to increase LSC's 
flexibility in addressing compliance issues.
    In light of its experience with the existing enforcement 
mechanisms, discussed more fully in the NPRM, LSC is proposing to amend 
its regulations at 45 CFR parts 1606, 1618, and 1623 to adopt standards 
and procedures for limited reductions in funding, to allow for the 
imposition of SGCs during a grant year, and to amend the maximum 
suspension period from 30 to 90 days. LSC is not modifying the proposed 
changes to Part 1623 as set out in the NPRM; no further comments on 
Part 1623 are requested. The proposed changes and the modifications to 
those changes in this FNPRM are discussed in greater detail below.

Amending Part 1606 To Include Standards and Procedures for Limited 
Reductions in Funding

    LSC proposed adding to Part 1606 a new definition for lesser 
reductions in funding and a new Sec.  1606.15 to provide procedures for 
imposing them. The proposed procedures were based on the suspension 
procedures in Part 1623, which provide a significant opportunity for 
recipient input and due process without being unduly complex. Those 
proposed procedures would have permitted the recipient to request an 
informal conference regarding the proposed reduction in funding. There 
were no further avenues of appeal.
    Many comments raised the concern that the proposed procedures were 
inadequate for lesser reductions in funding because they lacked an 
appeal of the informal conference and did not include review by an 
impartial person. Suspensions withhold funds from a

[[Page 46997]]

recipient with the expectation that the funds will be provided when the 
suspension ends. In contrast, terminations, disallowed costs, and 
lesser reductions in funding all involve a nonrecoverable loss of 
funding for the recipient. For terminations of five percent or greater, 
the recipient has a right to appeal a determination to an impartial 
hearing officer appointed by the LSC President. The hearing officer's 
decision is then reviewed by the LSC President, who makes the final 
decision.\4\ For disallowed costs under Part 1630, the recipient has a 
right to appeal a disallowed cost decision to the LSC President. The 
President may act on the appeal only if he or she has not ``had prior 
involvement in the consideration of the disallowed cost * * *.'' \5\ 
Otherwise, ``the President shall designate another senior Corporation 
employee who has not had prior involvement to review the recipient's 
appeal.'' \6\
---------------------------------------------------------------------------

    \4\ 45 CFR 1606.8-.10.
    \5\ 45 CFR 1630.7(f).
    \6\ Id.
---------------------------------------------------------------------------

    LSC agrees that some appeal is appropriate for lesser reductions. 
That appeal should also provide for review by someone who was not 
involved in the prior LSC decisions regarding the preliminary and final 
determinations. The proposed language below would add an appeal to the 
LSC President, who would decide the matter unless he or she was 
involved in those prior decisions. Alternately, the LSC President can 
appoint another LSC senior employee who was not involved in those prior 
decisions.
    The comments also raised a number of questions regarding the 
proposed definitions and procedures. In reviewing the comments, LSC 
determined that a separate set of procedures for lesser reductions 
creates unnecessary confusion in the rule. This revision uses the 
existing Part 1606 procedures for preliminary determinations and 
informal hearings. Appeals of terminations and debarments would then 
continue to have the existing process and rights. Appeals of lesser 
reductions would go directly to the LSC President.
    In the proposed Sec.  1606.15(c), the NPRM cross-referenced the 
Sec.  1606.3(b) criteria for substantial violations and used those 
criteria for lesser reductions. The proposed language below eliminates 
the new Sec.  1606.15 and moves the Sec.  1606.3(b) criteria to a new 
definition of ``substantial violations'' for use throughout Part 1606. 
This approach is designed to improve the structure of the rule. No 
changes are made to the language, and no substantive changes are 
intended by this restructuring.
    Some deadlines have been adjusted for uniformity in the rule.

Questions on Which Comments Are Sought

    Q1: Comments are sought on the question whether the lesser 
reduction procedures are better handled as proposed in the NPRM or as 
proposed herein.
    Q2: Comments are sought on the changes to the procedures affecting 
lesser reductions. No further comments are sought regarding the 
underlying question of the decision to adopt a lesser reductions option 
or the use of the existing Sec.  1606.3(b) criteria for lesser 
reductions, which is unchanged from the NPRM. Those comments on the 
NPRM are already in the rulemaking record. LSC will respond fully to 
all comments, including those regarding the rationale for the 
rulemaking, in the preamble to any Final Rule, should one be published.
    Q3: There are no substantive changes to the rules for terminations 
or debarments. Comments are sought on the question whether any of these 
proposed changes to the structure of the rule would result in 
substantive changes affecting terminations or debarment. No other 
comments regarding the existing rules for terminations or debarments 
are sought.
    Q4: There are new definitions added for clarity. Comments are 
sought on the new definitions but not on definitions that are moved 
without change from other sections of the existing regulation or from 
the NPRM proposed language.
    Q5: Comments are sought on the proposed final appeal process.

Section-by-Section Analysis of Part 1606

Section 1606.1 Purpose

    The NPRM did not amend this section. The proposed language below 
amends paragraph (b) to add to the purpose of the rule lesser 
reductions in funding. It also states that the procedures provided are 
proportional to the proposed action rather than uniform for all 
actions. This takes the place of Sec.  1606.15(1) in the NPRM.

Section 1606.2 Definitions

    The NPRM added a definition of limited reduction in funding as a 
new paragraph (c). The proposed language below renumbers the following 
paragraphs. It also adds language from paragraph (d)(1) for 
terminations regarding whether a lesser reduction will affect funding 
beyond the current grant year. That addition makes clear that the two 
options function the same in this regard. No substantive changes are 
made to the definition.
    New paragraphs (f), (g), and (h) are added to relocate definitions 
of violations, substantial violations, and substantial noncompliance. 
No substantive changes are made to these terms. They are moved from 
Sec.  Sec.  1606.3(a)(1), (b), and (c) into the definitions section so 
that they can be easily referenced for all of the available actions in 
the rule. This eliminates the cross-reference to these terms in Sec.  
1606.15(b) of the NPRM. It also responds to some of the comments by 
making clear that the threshold for a substantial violation is the same 
for terminations and for lesser reductions.
    New paragraph (i) adds a definition of the ``Corporation'' for 
purposes of taking actions under the rule, which permits elimination of 
the ``designated employee'' under Sec.  1606.6(a). For purposes of 
making decisions regarding terminations, debarments, or lesser 
reductions, the Corporation must act through someone at the level of a 
deputy director or higher. This change addresses concerns expressed by 
comments about low-level employees making decisions to reduce funding. 
It also adds internal consistency to the rule instead of referring to 
the Corporation in some places and to the designated employee in 
others. This definition is a change to the NPRM and to the existing 
rule, although in practice LSC does not make decisions of this 
magnitude through anyone below the level of a deputy director.
    New paragraph (j) defines when materials are considered received 
for purposes of this part. This is added for clarity. It is intended to 
make clear that physical delivery with confirmation from the delivery 
service is always sufficient. Alternate modes of delivery, such as 
email or fax, are acceptable, but they require confirmation in writing 
by a person at the recipient. Automated ``confirmations'' from fax 
machines or email systems do not guarantee that the document was in 
fact seen by a person at the receiving end.
    New paragraph (k) defines days through reference to the rules for 
computing time in the Federal Rules for Civil Procedure, with an 
exception for excluding weekends and legal holidays for computing 
business days. This is added for clarity. In 2009, the Federal rules 
eliminated the use of a business days rule for periods of ten days or 
fewer and lengthened some of the shorter deadlines accordingly. LSC is 
keeping this distinction here because,

[[Page 46998]]

unlike the Federal rules, so many of the deadlines are 10 days or 
fewer. The revised sections of the rule specify time in calendar days 
or business days. References to days in other sections of the rule 
should be treated as calendar days, unless specified otherwise.

Section 1606.3 Grounds for a Termination or a Lesser Reduction in 
Funding

    The proposed grounds for lesser reductions in the NPRM at 
Sec. Sec.  1606.15(a) and (b) have been moved into this section, which 
is renamed accordingly. The definition of a substantial violation has 
been moved from this section into the new definitions in Sec.  1606.2. 
As discussed above, no substantive changes are intended, and this 
restructuring should add clarity to the rule.

Section 1606.4 Grounds for Debarment

    There are no changes to this section and it is not reprinted in 
this notice. LSC considered moving the definition of ``good cause'' 
from this section to the definitions for structural consistency. LSC 
did not do so because the definition applies only to debarments; moving 
it would not add clarity and might add confusion to the rule.

Section 1606.5 Procedures

    This section is renamed to make it applicable to all actions under 
the rule, not only to terminations and debarments. The existing 
language is renumbered as paragraph (a). Paragraph (b) is added for 
situations involving lesser reductions in funding. It requires that LSC 
designate a senior LSC employee who will be able to meet the Sec.  
1606.10(d) requirements for handling a final review of a lesser 
reduction in funding.

Section 1606.6 Preliminary Determination

    In the NPRM, Sec.  1606.15(d) provided requirements for notices of 
preliminary and final determinations for lesser reductions that were 
worded slightly differently than this section, but they appeared to be 
substantively identical. The NPRM language is eliminated and merged in 
paragraph (a) with the existing language for preliminary determinations 
in this section to provide a process applicable to terminations, 
debarments, and lesser reductions. Specific references to procedural 
rights in other sections are replaced with a general reference to 
procedural rights. No substantive changes are intended by these changes 
to paragraph (a).
    The references to a ``designated employee'' are eliminated in favor 
of a definition of the Corporation for decision-making purposes in 
Sec.  1606.2(i), as discussed above.
    Language is added to paragraph (b) to affirmatively require LSC to 
provide the recipient with the final determination if there is no 
further review. This ensures that there is no confusion in situations 
in which the recipient does not respond to the preliminary 
determination. Paragraph (b) is also modified to state that LSC has the 
discretion to make the preliminary determination final when there is no 
request for a review. This change is intended to ensure that LSC 
retains the discretion to consider factors that come to light after 
issuing the preliminary determination. For example, a recipient might 
be in such turmoil that it fails to request review, but the local bar 
association requests that LSC forestall issuing a final determination. 
Under the existing rule and the NPRM, LSC might not have that 
discretion.

Section 1606.7 Informal Conference and Review of Written Materials

    The NPRM provided in Sec.  1606.15(e), (f), and (g) procedures for 
an informal conference to review a proposed lesser reduction in 
funding. The NPRM used the language of Part 1623 as the basis for the 
informal conference review of a proposed lesser reduction in funding. 
The proposed language was substantively similar to the Sec.  1606.7 
informal conference for terminations and debarments. To simplify the 
rule, the proposed parallel provisions in Sec.  1606.15 are eliminated 
in favor of using the existing Sec.  1606.7 procedures.
    No substantive changes are made to this section with the exception 
of the addition of an option of a paper review for terminations and 
debarments and the increase of some time limits from the existing rule 
and the NPRM. The current rule for terminations and debarments provides 
for an informal conference. Part 1623 also provides for an informal 
conference for review of proposed suspensions, but it adds an option of 
submission of written materials without a conference. The NPRM used the 
same language for lesser-reductions conferences. The revised language 
adds the option of a review of written materials for terminations and 
debarments as well as for lesser reductions. The NPRM provided that the 
informal conference would take place within five days of the 
recipient's request. This revision provides that LSC will notify the 
recipient within five business days of the time and place of the 
conference. This provides more scheduling flexibility.
    Paragraph (b) provides the recipient with the right to request an 
in-person conference, but otherwise allows the conference to be held 
through alternative methods such as a teleconference. For an in-person 
meeting, some of the participants may attend through alternative 
methods. This is added to ensure that the recipient has the right to a 
face-to-face meeting, but it also makes clear that the recipient and 
LSC can reduce the cost and burden of the conference through 
alternative methods.
    Paragraph (e) provides that the final determination must provide 
the same type of details as the preliminary determination. This is 
similar to the requirements of Sec.  1606.9(b), which apply to 
recommended decisions by hearing officers.

Section 1606.8 Hearings for Terminations or Debarments

    No substantive changes are made to this section. The title and 
paragraph (a) are updated to state that this section applies only to 
terminations and debarments. These hearings are not available for 
lesser reductions in funding. As discussed in the NPRM, the purpose of 
lesser reductions is to provide LSC with a means of taking financial 
action against a recipient in an amount of less than five percent, 
without the full hearing procedures required for terminations of five 
percent or greater.

Section 1606.9 Recommended Decisions for Terminations or Debarments

    No substantive changes are made to this section. The title and 
paragraph (a) are updated to state that this section applies only to 
terminations and debarments. This section involves decisions after 
hearings under Sec.  1606.8, which are not available for lesser 
reductions in funding.

Section 1606.10 Final Decision

    This section is updated to add direct review by the LSC President 
of final determinations of lesser reductions in funding. Currently this 
section provides only for review by the LSC President of recommended 
decisions of impartial hearing officers under Sec.  1606.9, which are 
not available for lesser reductions. The time limits of ten calendar 
days are expanded to ten business days to ensure there is sufficient 
time for the recipient to draft and deliver the request for review by 
the President, which ``shall state in detail the reasons for seeking 
review.'' \7\ At the end of the year, the

[[Page 46999]]

holidays of December 25 and January 1 can reduce ten calendar days to 
only six business days.
---------------------------------------------------------------------------

    \7\ 45 CFR 1606.10(b).
---------------------------------------------------------------------------

    Paragraph (c) adds a requirement that the recipient be able to 
obtain a copy of the written record on which the President based his or 
her decision. This requirement is based on a similar provision in Sec.  
1630.7(g) regarding disallowed costs reviews.
    A new paragraph (d) is added providing for appeals of final 
determinations for lesser reductions in funding. The LSC President, or 
other senior LSC employee, will conduct the review and make a final 
decision regarding the proposed lesser reduction in funding. As 
discussed above, prior to the section-by-section analysis, the final 
review should be handled by someone who did not actively participate in 
making the decisions regarding the preliminary determination or the 
final determination. This requirement ensures that there is at least 
one level of review involving a fresh look at the situation, similar to 
the Sec.  1606.8 requirements for terminations and the Sec.  1630.7 
requirements for disallowed costs.
    Normally, this final review and decision would be handled by the 
President. LSC expects that the Vice President for Grants Management or 
the Director of the Office of Compliance and Enforcement will usually 
handle preliminary determinations, informal conferences, and final 
determinations for lesser reductions in funding. Nonetheless, these are 
significant actions that the President is likely to be kept informed 
about throughout the process. The President is not disqualified under 
paragraph (d) merely because he or she is briefed about the situation 
and options, asks questions, and did not object to the prior lesser 
reduction decisions and proceedings. Nor is he or she disqualified if 
the recipient or other parties contact him or her directly prior to a 
final appeal.
    Paragraph (e) (renumbered) adds a requirement that a final decision 
reviewing a determination of a lesser reduction shall meet the 
specificity requirements of Sec.  1606.6(a). This provides a parallel 
requirement to the existing requirement that final decisions reviewing 
a hearing officer's recommendation shall meet the specificity 
requirements of Sec.  1606.9(b).

Section 1606.13 Interim and Termination Funding; Reprogramming

    There are no changes to this section from the NPRM. They are 
repeated here in order to provide all of the revisions of Part 1606 
proposed by both the NPRM and this FNPRM. No comments are sought on 
this section.

Section 1606.15 Limited Reductions of Funding

    The NPRM proposed adding a new section. As discussed above, all of 
the proposed provisions are now incorporated into the existing 
provisions of this part. There is no proposed Sec.  1606.15 in this 
FNPRM.

Amending Part 1618 To Permit the Imposition of Immediate Special Grant 
Conditions

    The NPRM proposed amending Part 1618 to provide clear authority to 
impose special grant conditions in the middle of a grant, rather than 
only at renewal or competition. The OIG expressed concern that the Part 
1618 threshold might unduly restrict the use of these immediate special 
grant conditions. The proposal has been revised to specify that 
immediate special grant conditions are available for corrective actions 
after LSC has determined that a violation exists. This enables LSC to 
convert corrective actions required by the Office of Compliance and 
Enforcement into special grant conditions immediately rather than 
waiting for the next grant renewal or award. This addition does not 
affect LSC's existing authority to impose special grant conditions 
during renewal, competition, or otherwise.
    Additionally, during review of Part 1618 it became apparent that 
the language of Part 1618 is outdated. It has not been amended since 
1976. Both Part 1606--Terminations and Part 1623--Suspensions refer to 
compliance with ``a provision of the LSC Act, the Corporation's 
appropriations act or other law applicable to LSC funds, a Corporation 
rule, regulation, guideline or instruction, or the terms and conditions 
of the recipient's grant or contract with the Corporation.'' \8\ These 
rules were extensively updated in 1998. Part 1618 refers only to 
violations of ``the Legal Services Corporation Act or the rules and 
regulations issued by the Corporation.'' \9\ LSC proposes amending Part 
1618 to conform to the language used in the other, later adopted, 
regulations to conform to existing practice.
---------------------------------------------------------------------------

    \8\ 45 CFR 1606.1(a) and 1623.1(a).
    \9\ 45 CFR 1618.2.
---------------------------------------------------------------------------

    Proposed Sec.  1618.5(b) permits LSC to impose a lesser reduction 
in funding after ``attempts at informal resolution have been 
unsuccessful.'' Informal resolution includes remedial actions, 
preventive actions, and sanctions. So, for example, if a recipient has 
persistently and intentionally used LSC funds for grassroots lobbying, 
then LSC could ultimately proceed to termination or debarment. Section 
1618.5(b) requires LSC to attempt to resolve the situations informally 
before beginning an enforcement action. LSC could demand that the 
recipient cease such activities, put in place measures to ensure that 
such activities do not recur, and accept a lesser reduction in funding 
as a sanction. If the recipient did not agree to all three actions 
during attempts at informal resolution, then LSC could proceed with 
suspension, termination, and/or a lesser reduction in funding. 
Furthermore, if attempts at informal resolution are unsuccessful, then 
LSC may proceed with actions that are more consequential than those 
pursued during those unsuccessful attempts. Thus, in this example, LSC 
could proceed with a termination of five percent or greater, even if it 
offered the recipient the option of resolving the matter through 
acceptance of a reduction in funding of less than five percent. There 
are no changes to the rule required for this application.

Question on Which Comments Are Sought

    Q6: Comments are sought on the new proposed language for Part 1618.

Section-by-Section Analysis of Part 1618

Section 1618.1 Purpose

    Reference to the requirements of the LSC Act are updated to refer 
to the provisions of the LSC Act, the Corporation's appropriations act 
or other law applicable to LSC funds, a Corporation rule, regulation, 
guideline, or instruction, or the terms and conditions of the 
recipient's grant or contract with the Corporation. This conforms Part 
1618 to Part 1606 and Part 1623.

Section 1618.2 Definitions

    The existing definition of the term ``Act'' as referring to the LSC 
Act, rules, and regulations is removed because it was confusing and 
inconsistent with LSC's current governing laws, many of which appear in 
appropriations statutes and not the LSC Act, and with Part 1606 and 
Part 1623. A new paragraph (a) is added defining the term ``LSC 
requirements'' using the language from Part 1606 and Part 1623. A new 
paragraph (b) is added to make clear that a violation refers to a 
violation of the LSC requirements.

[[Page 47000]]

Section 1618.3 Complaints

    The reference to a violation of ``the LSC Act'' is replaced with 
reference to the new definition of a ``violation.''

Section 1618.4 Duties of Recipients

    References to a violation of the LSC Act are replaced with 
references to the new definition of a violation. Paragraphs (a) and (b) 
are renumbered as (1) and (2) of a new paragraph (a). The former 
paragraph (b) is split into (a)(2) and (a)(3). These changes add 
clarity without substantive alterations to the rule. The new (a)(2) is 
amended to clarify that the recipient has the discretion to determine 
whether a violation by a recipient's employee merits a sanction imposed 
by the recipient on the employee under the circumstances. Some 
violations can be fully addressed by the recipient without any 
sanction. This is not meant to change the substantive requirements of 
this paragraph. Paragraph (c) is renumbered as paragraph (b). A new 
paragraph (c) is added to clarify that these requirements do not, by 
themselves, create substantive rights for recipient employees. A 
failure to consult with LSC under this section does not nullify a 
recipient's employment action. Rather, it is a matter between LSC and 
the recipient.

Section 1618.5 Duties of the Corporation

    References to a violation of the LSC Act are replaced with 
references to the new definition of a violation. Paragraph (a) is 
amended to make clear that the Corporation's investigation may be 
limited to determining that the recipient is taking sufficient action. 
This is not a substantive change. Paragraph (c) is added regarding 
immediate special grant conditions. As discussed above, these would be 
available for any violation for which LSC has determined that 
corrective action is necessary. Currently LSC makes those 
determinations through normal procedures by the Office of Compliance 
and Enforcement. The thresholds in paragraph (b) for further actions 
such as suspensions or terminations would not apply to immediate 
special grant conditions.

List of Subjects

45 CFR Part 1606

    Administrative practice and procedure, Grant program--law, Legal 
services.

45 CFR Parts 1618 and 1620

    Grant programs--law, Legal services.

    For reasons set forth above, and under the authority of 42 U.S.C. 
Sec.  2996g(e), LSC proposes to amend 45 CFR chapter XVI as follows:

PART 1606--TERMINATION, LIMITED REDUCTION IN FUNDING, AND DEBARMENT 
PROCEDURES; RECOMPETITION

    1. The authority citation for Part 1606 continues to read as 
follows:

    Authority:  42 U.S.C. 2996e(b)(1) and 2996f(a)3; Pub. L. 105-
199, 111 Stat. 2440, Secs. 501(b) and (c) and 504; Pub. L. 104-134, 
110 Stat. 1321.

    2. The heading for part 1606 is revised to read as set forth above.
    3. Amend Sec.  1606.1 by revising paragraph (b) to read as follows:


Sec.  1606.1  Purpose

* * * * *
    (b) Provide timely and fair due process procedures, proportional to 
the proposed action, when the Corporation has made a preliminary 
decision to terminate a recipient's LSC grant or contract, to debar a 
recipient from receiving future LSC awards of financial assistance, or 
to impose a lesser reduction in funding; and
    4. Amend Sec.  1606.2 by redesignating paragraphs (c) and (d) as 
(d) and (e), revising new paragraph (e), and adding paragraphs (c) and 
(f) through (k) to read as follows:


Sec.  1606.2  Definitions.

* * * * *
    (c) Limited reduction in funding means a reduction in funding of 
less than five percent of a recipient's current annual level of 
financial assistance imposed by the Corporation in accordance with the 
procedures and requirements of this part. A limited reduction in 
funding will affect only the recipient's current year's funding, unless 
the Corporation provides otherwise in the final termination decision.
    (d) Recipient means any grantee or contractor receiving financial 
assistance from the Corporation under section 1006(a)(1)(A) of the LSC 
Act.
    (e)(1) Termination means that a recipient's level of financial 
assistance under its grant or contract with the Corporation will be 
reduced in whole or in part prior to the expiration of the term of a 
recipient's current grant or contract. A partial termination will 
affect only the recipient's current year's funding, unless the 
Corporation provides otherwise in the final termination decision.
    (2) A termination does not include:
    (i) A reduction of funding required by law, including a reduction 
in or rescission of the Corporation's appropriation that is apportioned 
among all recipients of the same class in proportion to their current 
level of funding;
    (ii) A reduction or deduction of LSC support for a recipient under 
the Corporation's fund balance regulation at 45 CFR part 1628;
    (iii) A recovery of disallowed costs under the Corporation's 
regulation on costs standards and procedures at 45 CFR part 1630;
    (iv) A withholding of funds pursuant to the Corporation's Private 
Attorney Involvement rule at 45 CFR part 1614; or
    (v) A limited reduction of funding as defined in this section.
    (f) Substantial noncompliance means either a substantial violation, 
as defined in this section, or a substantial failure, as defined in 
this part at Sec.  1606.3(a).
    (g) Violation means a violation by the recipient of a provision of 
the LSC Act, the Corporation's appropriations act or other law 
applicable to LSC funds, or a Corporation rule, regulation, guideline 
or instruction, or a term or condition of the recipient's grant or 
contract.
    (h) Substantial violation means a violation that merits action 
under this part based on consideration of the following criteria by the 
Corporation:
    (1) The number of restrictions or requirements violated;
    (2) Whether the violation represents an instance of noncompliance 
with a substantive statutory or regulatory restriction or requirement, 
rather than an instance of noncompliance with a non-substantive 
technical or procedural requirement;
    (3) The extent to which the violation is part of a pattern of 
noncompliance with LSC requirements or restrictions;
    (4) The extent to which the recipient failed to take action to cure 
the violation when it became aware of the violation; and
    (5) Whether the violation was knowing and willful.
    (i) Corporation, when used to refer to decisions by the Legal 
Services Corporation, means that those decisions are made by an 
individual at the level of an office director, deputy director, or 
higher.
    (j) Receipt of materials shall mean that the materials were sent to 
the normal address for physical mail, email, or fax transmission, and 
there is reliable secondary confirmation of delivery. For physical 
delivery, confirmation may be provided through tracking information 
from the delivery service. For other forms of delivery, confirmation 
may be provided through a document such as a confirmation email or a 
fax sent from an

[[Page 47001]]

authorized person at the recipient. Receipt of materials by the LSC 
recipient is sufficient for the running of applicable time periods. 
Proof of receipt by the Board Chair is not necessary unless delivery to 
the recipient itself cannot be reasonably accomplished.
    (k) Days shall mean the number of actual days as determined by the 
rules for computing time in the Federal Rules of Civil Procedure, Rule 
6, except that computation of business days shall exclude Saturdays, 
Sundays, and legal holidays (as defined in those rules).
    5. Amend Sec.  1606.3 by revising the heading of that section, 
revising paragraph (a)(1), redesignating paragraph (b) as (c), and 
revising newly redesignated paragraph (c) and adding new paragraph (b) 
to read as follows:


Sec.  1606.3  Grounds for a termination or a lesser reduction in 
funding.

    (a) A grant or contract may be terminated when:
    (1) There has been a substantial violation by the recipient, and 
the violation occurred less than 5 years prior to the date the 
recipient receives notice of the violation pursuant to Sec.  1606.6(a); 
or
    (2) There has been a substantial failure by the recipient to 
provide high quality, economical, and effective legal assistance, as 
measured by generally accepted professional standards, the provisions 
of the LSC Act, or a rule, regulation, including 45 CFR 1634.9(a)(2), 
or guidance issued by the Corporation.
    (b) The Corporation may impose a limited reduction of funding when 
the Corporation determines that there has been a substantial violation 
by the recipient but that termination of the recipient's grant, in 
whole or in part, is not warranted.
    (c) A determination of whether there has been a substantial 
violation for the purposes of this section, and the magnitude of any 
termination, in whole or in part, or any lesser reduction in funding, 
will be based on consideration of the criteria set forth in the 
definition of ``substantial violation'' in this part.
    6. Amend Sec.  1606.5 to revise the heading of that section, revise 
the language and redesignate it as paragraph (a), and add a new 
paragraph (b) to read as follows:


Sec.  1606.5  Procedures.

    (a) Before a final action is taken under this part, the recipient 
will be provided notice and an opportunity to be heard as set out in 
this part.
    (b) Prior to a preliminary determination involving a lesser 
reduction in funding, the Corporation shall designate either the 
President or another senior Corporation employee to conduct any final 
review that is requested pursuant to Sec.  1606.10 of this part. The 
Corporation shall ensure that the person so designated has had no prior 
involvement in the preliminary and/or final determinations so as to 
meet the criterion set out in Sec.  1606.10(d).
    7. Amend Sec.  1606.6 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  1606.6  Preliminary determination.

    (a) When the Corporation has made a preliminary determination that 
a recipient's grant or contract should be terminated, that a lesser 
reduction in funding shall be imposed, and/or that a recipient should 
be debarred, the Corporation shall issue a written notice to the 
recipient and the Chair of the recipient's governing body. The notice 
shall:
    (1) State the grounds for the proposed action;
    (2) Identify, with reasonable specificity, any facts or documents 
relied upon as justification for the proposed action;
    (3) Inform the recipient of the proposed amount and effective date 
for the proposed action;
    (4) Advise the recipient of its procedural rights for review of the 
proposed action under this part;
    (5) Inform the recipient of its right to receive interim funding 
pursuant to Sec.  1606.13; and
    (6) Specify what, if any, corrective action the recipient can take 
to avoid the proposed action.
    (b) If the recipient does not request review, as provided for in 
this part, then the preliminary determination shall become final, at 
LSC's discretion, after the relevant time limits have expired. The 
Corporation shall provide the recipient with the final decision, and no 
further appeal or review will be available under this part.
    8. Amend Sec.  1606.7 by revising the heading and paragraphs (a) 
through (e) and adding paragraph (f) to read as follows:


Sec.  1606.7  Informal conference, review of written materials, and 
final determination.

    (a) A recipient may submit written materials in opposition to the 
preliminary determination and/or request an informal conference as 
follows:
    (i) for terminations or debarments, within 30 calendar days of 
receipt of the preliminary determination; or
    (ii) for lesser reductions in funding, within 10 business days of 
receipt of the preliminary determination.
    (b) Within 5 business days of receipt of a request for a 
conference, the Corporation shall notify the recipient of the time and 
place the conference will be held, which shall be at the Corporation's 
discretion. Some or all of the participants in the conference may 
attend via telephone, unless the recipient requests an in-person 
meeting between the Corporation and at least one representative of the 
recipient. If the recipient requests an in-person meeting, then other 
participants may attend via telephone. Alternative means of 
participation other than the telephone are permissible at the sole 
discretion of LSC.
    (c) The informal conference shall be conducted by the Corporation 
employee who issued the preliminary determination.
    (d) At the informal conference, the Corporation and the recipient 
shall both have an opportunity to state their case, seek to narrow the 
issues, explore the possibilities of settlement or compromise, and 
submit written materials.
    (e) If an informal meeting is conducted and/or written materials 
are submitted by the recipient, the Corporation shall consider any 
written materials submitted by the recipient in opposition to the 
limited reduction in funding and any oral presentation or written 
materials submitted by the recipient at an informal meeting. Based on 
the written materials and/or the informal conference, the Corporation 
may modify, withdraw, or affirm the preliminary determination through a 
final determination in writing, which shall be provided to the 
recipient within 15 calendar days of the conclusion of the informal 
conference. The final determination shall conform to the requirements 
of Sec.  1606.6(a).
    (f) If the recipient does not request further process, as provided 
for in this part, then, after the relevant time limits have expired, 
LSC shall notify the recipient that no further appeal or review will be 
available under this part and may proceed to implement the final 
determination as a final decision.
    9. Amend Sec.  1606.8 by revising the heading and paragraph (a) to 
read as follows:


Sec.  1606.8  Hearing for a termination or debarment.

    (a) For terminations or debarments only, the recipient may make a 
written request for a hearing within 30 days of its receipt of the 
preliminary determination or within 15 days of receipt of the written 
determination issued by the designated employee after

[[Page 47002]]

the conclusion of the informal conference.
* * * * *
    10. Amend Sec.  1606.9 by revising the heading and paragraph (a) to 
read as follows:


Sec.  1606.9  Recommended decision for a terminations or debarment.

    (a) For termination or debarment hearings under Sec.  1606.8, 
within 20 calendar days after the conclusion of the hearing, the 
hearing officer shall issue a written recommended decision which may:
* * * * *
    11. Amend Sec.  1606.10 by revising the heading and paragraphs (a), 
(b), and (c), redesignating paragraphs (d) and (e) to (e) and (f), 
respectively, adding new paragraph (d) and revising newly designated 
paragraphs (e) and (f) to read as follows:


Sec.  1606.10  Final decision for a termination, debarment, or lesser 
reduction.

    (a) If neither the Corporation nor the recipient requests review by 
the President, a final determination or a recommended decision shall 
become a final decision 10 business days after receipt by the 
recipient.
    (b) The recipient or the Corporation may seek review by the 
President of a final determination or a recommended decision. A request 
shall be made in writing within 10 business days after receipt of the 
recommended decision by the party seeking review and shall state in 
detail the reasons for seeking review.
    (c) The President's review shall be based solely on the information 
in the administrative record of the proceedings, including the appeal 
to the President, and any additional submissions, either oral or in 
writing, that the President may request. A recipient shall be given a 
copy of, and an opportunity to respond to, any additional submissions 
made to the President. All submissions and responses made to the 
President shall become part of the administrative record. Upon request, 
the Corporation shall provide a copy of the written record to the 
recipient.
    (d) For a direct appeal of a final determination pursuant to Sec.  
1606.7, in which there is no hearing under Sec.  1606.8, the President 
may not review the appeal if the President has had prior involvement in 
the preliminary and/or final determinations. If the President cannot 
review the appeal, or the President chooses not to do so, then the 
President shall designate another senior Corporation employee who has 
not had prior involvement in the preliminary and/or final 
determinations.
    (e) As soon as practicable after receipt of the request for review 
of a recommended decision, but not later than 30 days after the request 
for review, the President or designee may adopt, modify, or reverse the 
recommended decision or final determination, or direct further 
consideration of the matter. In the event of modification or reversal 
of a recommended decision pursuant to Sec.  1606.9, this decision shall 
conform to the requirements of Sec.  1606.9(b). In the event of 
modification or reversal of a final determination pursuant to Sec.  
1606.7, the decision shall conform to the substantive requirements of 
Sec.  1606.6(a).
    (f) The decision of the President or designee under this section 
shall become final upon receipt by the recipient.
    12. Amend Sec.  1606.13 by revising paragraphs (a), (b), and (d) to 
read as follows:
    (a) Pending the completion of termination or limited reduction in 
funding proceedings under this part, the Corporation shall provide the 
recipient with the level of financial assistance provided for under its 
current grant or contract with the Corporation.
    (b) After a final decision has been made to terminate a recipient's 
grant or contract or to impose a limited reduction in funding, the 
recipient loses all rights to the terminated or reduced funds.
* * * * *
    (d) Funds recovered by the Corporation pursuant to a termination or 
limited reduction in funding shall be used in the same service area 
from which they were recovered or will be reallocated by the 
Corporation for basic field purposes at its sole discretion.

PART 1618--ENFORCEMENT PROCEDURES

    13. The authority citation for Part 1618 continues to read as 
follows:

    Authority:  Secs. 1007(a)(8); 1006(b)(6); 1006(b)(4) (42 U.S.C. 
2996f(a)(8); 2996e(b)(6); 29963(b)(4)).

    14. Revise Sec.  1618.1 to read as follows:


Sec.  1618.1  Purpose.

    In order to ensure uniform and consistent interpretation and 
application of the provisions of the LSC Act, the Corporation's 
appropriations act or other law applicable to LSC funds, a Corporation 
rule, regulation, guideline or instruction, or the terms and conditions 
of the recipient's grant or contract with the Corporation, and to 
prevent a question of whether these requirements have been violated 
from becoming an ancillary issue in any case undertaken by a recipient, 
this part establishes a systematic procedure for enforcing compliance 
with them.
    15. Amend Sec.  1618.2 by revising the heading and adding 
paragraphs (a) and (b) to read as follows:


Sec.  1618.2  Definitions.

    (a) LSC requirements means the provisions of the LSC Act, the 
Corporation's appropriations act or other law applicable to LSC funds, 
a Corporation rule, regulation, guideline or instruction, or the terms 
or conditions of the recipient's grant or contract with the 
Corporation.
    (b) Violation means a violation by the recipient of the LSC 
requirements.
    16. Revise Sec.  1618.3 to read as follows:


Sec.  1618.3  Complaints.

    A complaint of a violation by a recipient or an employee of a 
recipient may be made to the recipient, the State Advisory Council, or 
the Corporation.
    17. Amend Sec.  1618.4 by revising paragraphs (a) and (b), 
redesignating paragraph (c) to (b), revising new paragraph (b), and 
adding a new paragraph (c) to read as follows:


Sec.  1618.4  Duties of Recipients.

    (a) A recipient shall:
    (1) Advise its employees of their responsibilities under the LSC 
requirements;
    (2) Establish procedures, consistent with the notice and hearing 
requirements of section 1011 of the LSC Act, for determining whether an 
employee has committed a violation and whether the violation merits a 
sanction based on consideration of the totality of the circumstances; 
and
    (3) Establish a policy for determining the appropriate sanction to 
be imposed for a violation, including:
    (i) Administrative reprimand if a violation is found to be minor 
and unintentional, or otherwise affected by mitigating circumstances;
    (ii) Suspension and termination of employment; and
    (iii) Other sanctions appropriate for enforcement of the LSC 
requirements.
    (b) Before suspending or terminating the employment of any person 
for a violation, a recipient shall consult the Corporation to ensure 
that its interpretation of these requirements is consistent with 
Corporation policy.
    (c) This section provides procedural requirements between the 
Corporation and recipients. It does not create rights for recipient 
employees.
    18. Amend Sec.  1618.5 by revising paragraphs (a) and (b) and 
adding paragraph (c) to read as follows:

[[Page 47003]]

Sec.  1618.5  Duties of the Corporation.

    (a) Whenever the Corporation learns that there is reason to believe 
that a recipient or a recipient's employee may have committed a 
violation, the Corporation shall investigate the matter promptly and 
attempt to resolve it through informal consultation with the recipient. 
Such actions may be limited to determining if the recipient is 
sufficiently investigating and resolving the matter itself.
    (b) Whenever there is substantial reason to believe that a 
recipient has persistently or intentionally violated the LSC 
requirements, or, after notice, has failed to take appropriate remedial 
or disciplinary action to ensure compliance by its employees with the 
LSC requirements, and attempts at informal resolution have been 
unsuccessful, the Corporation may proceed to suspend or terminate 
financial support of the recipient, or impose a lesser reduction in 
funding, pursuant to the procedures set forth in parts 1623 and 1606, 
or may take other action to enforce compliance with the LSC 
requirements.
    (c) Whenever the Corporation determines that a recipient has 
committed a violation, that corrective actions by the recipient are 
required to remedy the violation and/or prevent recurrence of the 
violation, and that imposition of special grant conditions are needed 
prior to the next grant renewal or competition for the service area, 
the Corporation may immediately impose Special Grant Conditions on the 
recipient to require completion of those corrective actions.

Victor M. Fortuno,
Vice President & General Counsel.
[FR Doc. 2012-19073 Filed 8-6-12; 8:45 am]
BILLING CODE 7050-01-P