Board of Veterans' Appeals: Rules of PracticeAttorney Fee Matters

DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 20

RIN 2900-AI98

Board of Veterans' Appeals: Rules of Practice--Attorney Fee

Matters

AGENCY: Department of Veterans Affairs.

ACTION: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend the

Rules of Practice of the Board of Veterans' Appeals (Board) to

discontinue VA's paying attorney fees from past-due benefits, establish

safeguards in the case of ``disinterested third-party'' payers, and

simplify certain notice procedures. We believe that discontinuance of

VA's paying attorney fees from past-due benefits is warranted because

the administrative resources that it consumes would be better spent in

activities more directly beneficial to veterans; the establishment of

safeguards regarding ``disinterested third-party'' payers will help

prevent circumvention of the law restricting payments by claimants and

appellants; and simplified notice procedures relating to motions to

review attorney-fee agreements or to challenge expense charges are

adequate for establishing proof of service.

DATES: Comments must be received on or before February 9, 1998.

ADDRESSES: Mail or hand deliver written comments to: Director, Office

of Regulations Management (02D), Department of Veterans Affairs, 810

Vermont Ave., NW., Room 1154, Washington, DC 20420. Comments should

indicate that they are submitted in response to ``RIN 2900-AI98''. All

written comments will be available for public inspection at the above

address in the Office of Regulations Management, Room 1158, between the

hours of 8:00 a.m. and 4:30 p.m., Monday through Friday (except

holidays).

FOR FURTHER INFORMATION CONTACT: Steven L. Keller, Chief Counsel, Board

of Veterans' Appeals, Department of Veterans Affairs, 810 Vermont

Avenue, NW., Washington, DC 20420 (202-565-5978).

[[Page 64791]]

SUPPLEMENTARY INFORMATION: The Board of Veterans' Appeals (Board) is an

administrative body that decides appeals from denials of claims for

veterans' benefits.

This document proposes to amend the Board's Rules of Practice to

(1) exercise the option provided in 38 U.S.C. 5904(d)(3) not to pay

attorney fees directly to an attorney out of past-due benefits; (2)

establish safeguards where a ``disinterested third party'' pays an

attorney's fees or salary on behalf of a claimant or appellant; and (3)

simplify notice procedures in connection with motions to review fee

agreements for reasonableness and to review a representative's

expenses.

Paying Attorney Fees From Past-Due VA Benefits

Beginning during the Civil War, and continuing for more than a

century, attorneys and agents were forbidden from charging more than

$10 for services in connection with a claim for veterans benefits. In

1988, the ``Veterans' Judicial Review Act'' (VJRA), Pub. L. No. 100-

687, Div. A, Sec. 104, 102 Stat. 4105, 4108-09 (1988), removed that

limitation, and provided that, under certain circumstances, an attorney

or agent could charge a ``reasonable'' fee for such services. 38 U.S.C.

5904.

VJRA permitted a veteran to pay an attorney directly or, under

certain conditions, to have the attorney paid by VA directly out of

``past-due benefits'' awarded in connection with a successful claim.

Specifically, section 5904(d) of title 38, United States Code, as added

in 1988 by VJRA and modified in 1992 by Pub. L. 103-446, permits the

Secretary of Veterans Affairs to pay an attorney's fee directly to an

attorney out of past-due VA benefits if (1) an agreement between the

attorney and the client provides for such a payment; (2) the total fee

is contingent on whether or not the matter is resolved in a manner

favorable to the claimant; and (3) the total fee does not exceed 20

percent of past-due benefits. In 1992, VA added Sec. 20.609 to title 38

of the Code of Federal Regulations, by which, among other things, the

Secretary undertook to exercise this discretionary authority.

This document proposes to change the regulations to state that VA

will not pay attorney fees out of past-due benefits. This proposal is

based on a number of reasons.

First, the program puts a strain on the already overburdened

Veterans Benefits Administration (VBA), which operates VA's 58 regional

offices. Paying attorney fees from past-due benefits requires that some

of the money due a claimant be withheld pending a determination--made

by the Board of Veterans' Appeals--that the agreement meets the

statutory and regulatory requirements for payment. Because almost all

awards of benefits are made at individual regional offices, and because

section 5904 permits VA to pay attorney fees only from past-due

benefits, VBA has had to develop strict and complex procedures for

withholding money. This in turn has required the designation of at

least one ``attorney fee coordinator'' at each of the 58 regional

offices, the involvement of at least one employee from the finance

activity and from the agent cashier at those offices, as well as a

significant amount of correspondence between the Board and the various

regional offices on this issue--direct participation by as many as 175

VBA employees.

Second, the anticipated growth in attorney representation before VA

has not materialized. The percentage of appellants represented by

attorneys in completed Board proceedings has varied only slightly

during the period 1993-96: 3.0 percent (786/26,400) (1993); 3.9 percent

(861/22,045) (1994); 3.1 percent (873/28,195) (1995); and 3.4 percent

(1,160/33,944) (1996).

Third, few attorneys ever qualify for payment from past-due

benefits. In every case which results in the payment of past-due

benefits and in which an attorney has filed an agreement with the

claimant to be paid directly from past-due benefits, the Board makes a

determination as to whether the agreement meets the statutory and

regulatory standards for payment. Of the 110,584 decisions the Board

issued during fiscal years 1993 through 1996, only 222 were decisions

on fee agreements in which an attorney was to be paid from past-due

benefits awarded. Those 222 decisions made over four years have

required the special support of as many as 175 VBA employees per year,

most of whom would have been spending their time in activities more

directly benefiting veterans and their families: deciding claims and

coordinating benefit payments.

Finally, a recently-completed study ordered by Congress recommends

that VA get out of the business of paying attorney fees. Thus, the

Veterans' Claims Adjudication Commission, established by Congress to

determine means for increasing the efficiency of the VA system for

claims disposition, found that:

The provision for payment by VA of attorney fees from past-due

benefits is administratively cumbersome and distorts the role of

government. Attorney representatives and veterans should be expected to

transact fee payments between themselves. VA should not be involved in

these transactions. * * * The provision for VA to compensate attorneys

from awards of past-due benefits thrusts VA into a business that is

excessively far from its central purpose. VA is not well suited to

perform this function, and the requirement that it do so represents a

significant opportunity cost. The resources used for this purpose would

be better spent in activities of more direct benefit to veterans.

The Veterans' Claims Adjudication Comm'n, Report to Congress 130

(Dec. 1996). VA concurs in those findings and the conclusion.

While we believe that the right to hire an attorney is an important

one, we do not believe that eliminating payment by the Department will

materially affect the availability of such services. We think that a

veteran is as able as anyone else to transact a fee payment without the

intervention of the Department. These proposed amendments will not

interfere with a claimant's ability to pay attorney fees directly to

his or her attorney out of past-due benefits.

For all these reasons, we propose to amend 38 CFR 20.609(h), which

provides the rules for payment of attorney fees from past-due benefits,

by deleting all the current text and replacing it with the following

statement: ``The Department of Veterans Affairs will not pay fees

directly to an attorney at law from past-due benefits.''

Safeguards Where a ``Disinterested Third Party'' Pays an Attorney's

Fee

In 1988, VA amended part 14 of title 38, Code of Federal

Regulations, to reflect an opinion from the Office of Legal Counsel of

the Department of Justice which concluded that the then-current $10 fee

limitation did not apply to third parties not standing to benefit from

a veteran's claim. 53 FR 52416, 52418 (Dec. 28, 1988) (38 CFR 14.634(a)

(1989)). VA has incorporated the exception for third parties not

standing to benefit from a veteran's claim into the current rules

governing the payment of attorney fees. An organization, governmental

entity, or other disinterested third party may pay attorney fees under

circumstances in which a claimant or appellant may not, for example,

when there has been no final Board decision with respect to an issue.

See 38 CFR 20.609(d)(2).

In dealing with this exception over the years, we have reviewed fee

agreements that list individuals as ``disinterested third parties'' who

appear to be no more than ``straw men,'' i.e., nominal fee payers who

really serve as a mere conduit for a prohibited payment

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by a claimant or appellant. Typically, such ``disinterested third

parties'' will agree to pay a fee equal to some percentage of the

amount of any past-due benefits awarded the claimant, contingent on a

successful outcome. Indeed, some contracts we have reviewed call for

payment of a percentage of the actual past-due benefits by these third

parties, a legally impossible feat because of the nonassignability of

veterans benefits under 38 U.S.C. 5301.

In this context, VA's General Counsel has informally advised that,

if a third party acts as a mere conduit for a prohibited payment by a

claimant, the exception in the regulation would not apply.

Accordingly, we propose three amendments to Rule 609(d)(2) (38 CFR

20.609(d)(2)), relating to payment of fees by disinterested third

parties.

First, we propose to prohibit, in any case involving a third-party

payer, a fee which is contingent, in whole or in part, on whether or

not the matter is resolved in a manner favorable to the claimant or

appellant. The contingent fee functions as a financing device that

enables a client to assert and prosecute an otherwise unaffordable

claim. See, e.g., Lester I. Brickman, Contingent Fees Without

Contingencies: Hamlet Without the Prince of Denmark?, 37 UCLA L. Rev.

29, 43 (1989). If a third party agrees to pay an attorney to represent

a veteran (or other claimant) because the law bars the attorney from

charging the veteran a fee, the issue of ``financing'' the cost of the

litigation through a successful outcome is moot: By definition, a

disinterested third party will receive no benefit from any award to the

veteran, so that the outcome can generate no funds with which to pay

the attorney. Nevertheless, we have seen a number of agreements in

which a ``disinterested third party'' agrees to pay an amount equal to

some percentage of a veteran's past-due benefits, an arrangement that

appears to merely set the stage for a transfer from the veteran to the

third party to the attorney. In our view, making a fee to be paid by a

disinterested third party contingent on the outcome of the claim

encourages the parties to break the law. Accordingly, we propose to bar

contingent fees in such circumstances.

Second, we propose to establish a presumption that a person who is

the spouse, child, or parent of the claimant or appellant, or who

resides with the claimant or appellant, is not a disinterested third

party. In our view, persons in such relationships usually have some

financial or other interest in the success of the claim and are

therefore unlikely to be disinterested.

Finally, we propose to require that the attorney or agent file a

statement certifying that no agreement exists under which the claimant

or appellant will provide anything of value to the third party in

return for payment of the fee or salary. We believe that it is the

responsibility of an attorney, as an officer of the court, and an

agent, as a licensee of VA, to make appropriate inquiries. Cf. Fed. R.

Civ. P. 11(b) (signature of attorney on court papers certifies, among

other things, inquiry by the attorney which is reasonable under the

circumstances). We also propose to amend Rule 609(g) (38 CFR

20.609(g)), relating to fee agreements, to clarify that any agreement

for the payment of fees must include the name and mailing address of

the disinterested third party. This will allow VA to advise such third

parties of legal requirements regarding disinterested third parties.

Simplifying Notice Procedures

Both Rule 609(i) (38 CFR 20.609(i)), relating to motions to review

attorney fee agreements, and Rule 610(d) (38 CFR 20.610(d)), relating

to motions challenging expenses, require service of papers on opposing

parties by certified mail, return receipt requested, and require filing

signed certificates of receipt with the Board. We do not believe that

this level of proof is necessary to ensure that all parties receive

copies of various material. Accordingly, we propose to amend both rules

to provide that proof of service in such cases will be by filing a

statement with the Board certifying that copies have been sent to the

other parties by first-class mail, postage prepaid. This is in line

with general rules of service in the Federal Rules of Civil Procedure.

Fed. R. Civ. P. 5(d) (generally, a certificate of service by a party

(or attorney) is sufficient proof of service).

Other Changes

In addition to the changes noted above, we propose to make

nonsubstantive changes required for purposes of clarity. We also

propose to make changes to correspond to new organization names within

the Board.

Regulatory Flexibility Act

The Secretary hereby certifies that this proposed rule will not

have a significant economic impact on a substantial number of small

entities as they are defined in the Regulatory Flexibility Act, 5

U.S.C. 601-612. This rule will affect only the processing of claims by

VA and will not affect small businesses. Therefore, pursuant to 5

U.S.C. 605(b), this proposed rule is exempt from the initial and final

regulatory flexibility analyses requirements of Secs. 603 and 604.

List of Subjects in 38 CFR Part 20

Administrative practice and procedure, Claims, Veterans.

Approved: December 1, 1997.

Hershel W. Gober,

Acting Secretary of Veterans Affairs.

For the reasons set out in the preamble, 38 CFR part 20 is proposed

to be amended as set forth below:

PART 20--BOARD OF VETERANS' APPEALS: RULES OF PRACTICE

1. The authority citation for part 20 continues to read as follows:

Authority: 38 U.S.C. 501(a).

2. In subpart A, Sec. 20.3, paragraphs (n), (o), and (p) are

redesignated as paragraphs (o), (p), and (q), respectively; and a new

paragraph (n) is added to read as follows:

Sec. 20.3 Rule 3. Definitions.

* * * * *

(n) Past-due benefits means a nonrecurring payment resulting from a

benefit, or benefits, granted on appeal or awarded on the basis of a

claim reopened after a denial by the Board of Veterans' Appeals or the

lump sum payment which represents the total amount of recurring cash

payments which accrued between the effective date of the award, as

determined by applicable laws and regulations, and the date of the

grant of the benefit by the agency of original jurisdiction, the Board

of Veterans' Appeals, or an appellate court.

* * * * *

3. In subpart G, Sec. 20.609, paragraphs (d)(2), (f), (g), (h), and

(i) are revised and paragraph (j) is added to read as follows:

Sec. 20.609 Rule 609. Payment of representative's fees in proceedings

before Department of Veterans Affairs field personnel and before the

Board of Veterans' Appeals.

* * * * *

(d) * * *

(2) Payment of fee by disinterested third party. (i) An attorney-

at-law or agent may receive a fee or salary from an organization,

governmental entity, or other disinterested third party for

representation of a claimant or appellant even though the conditions

set forth in paragraph (c) of this section have not been met. In no

such case may the attorney or agent charge a fee which is contingent,

in whole or in part, on whether the matter is resolved in a

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manner favorable to the claimant or appellant.

(ii) For purposes of this part, a person shall be presumed not to

be disinterested if that person is the spouse, child, or parent of the

claimant or appellant, or if that person resides with the claimant or

appellant. This presumption may be rebutted by clear and convincing

evidence that the person in question has no financial interest in the

success of the claim.

(iii) The provisions of paragraph (g) of this section (relating to

fee agreements) shall apply to all payments or agreements to pay

involving disinterested third parties. In addition, the agreement shall

include or be accompanied by the following statement, signed by the

attorney or agent: ``I certify that no agreement, oral or otherwise,

exists under which the claimant or appellant will provide anything of

value to the third-party payer in this case in return for payment of my

fee or salary, including, but not limited to, reimbursement of any fees

paid.''

* * * * *

(f) Presumption of reasonableness. Fees which total no more than 20

percent of any past-due benefits awarded, as defined in Rule 20.3(n)

(Sec. 20.3(n) of this part), will be presumed to be reasonable.

(g) Fee agreements. All agreements for the payment of fees for

services of attorneys-at-law and agents (including agreements involving

fees or salary paid by an organization, governmental entity or other

disinterested third party) must be in writing and signed by both the

claimant or appellant and the attorney-at-law or agent. The agreement

must include the name of the veteran, the name of the claimant or

appellant if other than the veteran, the name of each disinterested

third-party payer (see paragraph (d)(2)), the applicable Department of

Veterans Affairs file number, and the specific terms under which the

amount to be paid for the services of the attorney-at-law or agent will

be determined. A copy of the agreement must be filed with the Board of

Veterans' Appeals within 30 days of its execution by mailing the copy

to the following address: Office of the Chief Counsel (01C), Board of

Veterans' Appeals, 810 Vermont Avenue NW, Washington, DC 20420.

(h) Payment of fees by Department of Veterans Affairs directly to

an attorney-at-law from past-due benefits. The Department of Veterans

Affairs will not pay fees directly to an attorney at law from past-due

benefits.

(i) Motion for review of fee agreement. The Board of Veterans'

Appeals may review a fee agreement between a claimant or appellant and

an attorney-at-law or agent upon its own motion or upon the motion of

any party to the agreement and may order a reduction in the fee called

for in the agreement if it finds that the fee is excessive or

unreasonable in light of the standards set forth in paragraph (e) of

this section. Such motions must be in writing and must include the name

of the veteran, the name of the claimant or appellant if other than the

veteran, and the applicable Department of Veterans Affairs file number.

Such motions must set forth the reason, or reasons, why the fee called

for in the agreement is excessive or unreasonable; must be accompanied

by all evidence the moving party desires to submit; and must include a

signed statement certifying that a copy of the motion and any evidence

was sent by first-class mail, postage prepaid, to each other party to

the agreement, setting forth the address to which each such copy was

mailed. Such motions (other than motions by the Board) must be filed at

the following address: Office of the Chief Counsel (01C), Board of

Veterans' Appeals, 810 Vermont Avenue, NW, Washington, DC 20420. The

other parties may file a response to the motion, with any accompanying

evidence, with the Board at the same address not later than 30 days

following the date of receipt of the copy of the motion and must

include a signed statement certifying that a copy of the response and

any evidence was sent by first-class mail, postage prepaid, to each

other party to the agreement, setting forth the address to which each

such copy was mailed. Once there has been a ruling on the motion, an

order shall issue which will constitute the final decision of the Board

with respect to the motion. If a reduction in the fee is ordered, the

attorney or agent must credit the account of the claimant or appellant

with the amount of the reduction and refund any excess payment on

account to the claimant or appellant not later than the expiration of

the time within which the ruling may be appealed to the Court of

Veterans Appeals.

(j) In addition to whatever other penalties may be prescribed by

law or regulation, failure to comply with the requirements of this

section may result in proceedings under Sec. 14.633 of this chapter to

terminate the attorney's or agent's right to practice before the

Department of Veterans Affairs and the Board of Veterans'Appeals.

(Authority: 38 U.S.C. 5902, 5904, 5905)

4. In subpart G, Sec. 20.610, paragraph (d) is revised, and

paragraph (e) is added to read as follows:

Sec. 20.610 Rule 610. Payment of representative's expenses in

proceedings before Department of Veterans Affairs field personnel and

before the Board of Veterans' Appeals.

* * * * *

(d) Expense charges permitted; motion for review of expenses.

Reimbursement for the expenses of a representative may be obtained only

if the expenses are reasonable. The Board of Veterans' Appeals may

review expenses charged by a representative upon the motion of the

claimant or appellant and may order a reduction in the expenses charged

if it finds that they are excessive or unreasonable. Such motions must

be in writing and must include the name of the veteran, the name of the

claimant or appellant if other than the veteran, and the applicable

Department of Veterans Affairs file number. Such motions must

specifically identify which expenses charged are unreasonable; must set

forth the reason, or reasons, why such expenses are excessive or

unreasonable; must be accompanied by all evidence the claimant or

appellant desires to submit; and must include a signed statement

certifying that a copy of the motion and any evidence was sent by

first-class mail, postage prepaid, to the representative. Such motions

must be filed at the following address: Office of the Chief Counsel

(01C), Board of Veterans' Appeals, 810 Vermont Avenue NW, Washington,

DC 20420. The representative may file a response to the motion, with

any accompanying evidence, with the Board at the same address not later

than 30 days following the date of receipt of the copy of the motion

and must include a signed statement certifying that a copy of the

response and any evidence was sent by first-class mail, postage

prepaid, to the claimant or appellant, setting forth the address to

which the copy was mailed. Factors considered in determining whether

expenses are excessive or unreasonable include the complexity of the

case, the potential extent of benefits recoverable, whether travel

expenses are in keeping with expenses normally incurred by other

representatives, etc. Once there has been a ruling on the motion, an

order shall issue which will constitute the final decision of the Board

with respect to the motion.

(e) In addition to whatever other penalties may be prescribed by

law or regulation, failure to comply with the requirements of this

section may result in proceedings under Sec. 14.633 of this

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chapter to terminate the attorney's or agent's right to practice before

the Department of Veterans Affairs and the Board of Veterans' Appeals.

[FR Doc. 97-32107 Filed 12-8-97; 8:45 am]

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