In October 2007, the United States Supreme Court declined to review a case challenging the implementation of a 1996 federal law forbidding nonprofits that receive federal Legal Services Corporation (LSC) funding from conducting certain types of client representation, even if solely through the use of private money. The case,Velazquez v. Legal Services Corporation, now returns to the District Court in New York for reconsideration.
Independent Sector joined more than 100 nonprofit organizations in a July 2005 amicus brief (PDF) in the case stressing the vital importance of allowing nonprofit organizations autonomy and discretion in fulfilling their missions and argues that the law would restrict those freedoms. While the case deals specifically with funding that goes through LSC, it could set an important precedent for public-private partnerships that rely on both government and private funding.
The amicus brief objected to LSC's implementation of the law because it set a precedent that could interfere with the fundamental right of nonprofits to use private funds to advance their goals. In December 2004, the the U.S. District Court for the Eastern District of New York barred the LSC from enforcing a “physical separation” requirement that nonprofits had objected to, and the government subsequently appealed that decision. In September 2006, the U.S. Court of Appeals for the Second Circuit lifted the injunction that the district court had imposed on the physical separation requirement and ordered the district court to apply a different legal standard to assess the burden which this requirement places on LSC grantees. Separately, the plaintiffs filed a petition asking the U.S. Supreme Court to hear the case. The Supreme Court declined to review the case on October 1, 2007. The case now returns to the District Court in New York for reconsideration.
Case History
In December, 2004, a federal judge struck down a provision of a 1996 congressional act that has barred nonprofit organizations receiving federal Legal Services Corporation grants from using private funding to represent low-income people in certain types of cases. The case, Dobbins v. Legal Services Corporation, was brought by the Brennan Center on behalf of legal services programs, low-income individuals and families, and private funders.
The ruling of the judge in the U.S. District Court for the Eastern District of New York barred the Legal Services Corporation (LSC) from enforcing a “physical separation” requirement because it violates the First Amendment to the Constitution. The physical separation provision requires that a legal aid nonprofit must first set up a separate organization, housed in physically separate facilities with separate staff In order to conduct the activities that Congress has restricted. This requirement forces nonprofits to spend scarce resources on duplicative costs and sets a dangerous precedent for all public-private partnerships. The government appealed that decision in a case renamed Velazquez v. Legal Services Corporation.
Brennan Center Resources on Velazquez v. Legal Services Corporation
Case summary and resources
Press release October 2007
Press release September 2006
Foundation News & Commentary related articles (May/June 2002)
Why I’m Suing the Federal Government by Madeline Lee (page 23)
The Dobbins Case: Can Congress Limit What Foundations Fund? by John A. Edie (page 46)
What Is at Issue
The outcome of Velazquez v. Legal Services Corporation will have far-reaching implications that go well beyond the funding of legal services, to the core principles and rights of private giving, private action by charitable nonprofit organizations, and the right to advocate by 501(c)(3) organizations with their private funds, regardless of whether they receive government funding. Given the prevalence of government funding for 501(c)(3) organizations in the arts, human services, education, health care, research, international assistance and virtually every type of nonprofit charitable activity, the implications of outcomes of these cases cannot be understated.
In 1996, the nonprofit and philanthropic community joined forces to defeat attempts by members of Congress, led by Representative Ernest Istook, to place severe limits on the rights of nonprofit organizations to advocate for what they believe in. These cases will have similarly important ramifications for nonprofit advocacy and for the rights of foundations to fund and nonprofits to spend their private funds as they see fit in order to achieve their missions.
Background
The Legal Services Corporation (LSC)was created through the enactment of the Legal Services Corporation Act of 1974. LSC is a government funded, nonprofit corporation that administers grants to hundreds of locally operated Legal Services organizations throughout the country. With these grants, the local organizations provide free legal services to indigent people in need of legal representation in non-criminal matters. Annually, almost 2 million people across the country benefit from the free legal services that are made possible by the funds distributed by LSC.
The local organizations receive their funding not only from the LSC but also other public and private sources. Since the creation of the corporation, Congress has restricted how funds provided by LSC can be used. LSC funds cannot be used for: most criminal proceedings, class action suits (unless special permission is granted by LSC), political activities, and litigation involving nontherapeutic abortion, desegregation of schools, military desertion, or violations of the Selective Service statute.
In 1996, Congress added many new restrictions to the use of LSC funds. Additionally, the Legal Service Corporation Act was amended so that LSC funds could not be used to: engage in lobbying, provide legal services to certain classes of aliens, support advocacy training programs, collect attorney’s fees, or seek to reform the newly restructured welfare system. The new restrictions also precluded recipients of LSC funds from spending funds from private sources on any restricted activities. Congress specifically fashioned the legislation to deny recipients the ability to engage in restricted activities even through a separate affiliate organization that would keep federal funds and private funds distinct.
LSC later promulgated a “program integrity” regulation that would allow an affiliate organization to engage in restricted activities as long as the recipients maintain separate: personnel, accounting and timekeeping records, facilities, and identification from the affiliate. Even before the final rule was issued, advocates have been litigating the constitutionality of restricting the use of the private funds of an organization that also receives government funds. Advocates are also disputing the constitutionality of the program integrity regulation. LSC grant recipients who have considered this alternative have determined that this would create an undue burden for them, creating as much as a 20% loss in their program expenses due to the duplication of rent, accounting and other basic services. In addition, this would create a significant loss in the quality of services they provide by physically separating staff and services that need to work together. Advocates have been seeking injunctive relief so that these regulations will not be applied against the LSC grant recipients until the courts make a final determination of their constitutionality.
Legal Procedure
These cases both began in federal district court in the Eastern District of New York. The U.S. Second Circuit Court of Appeals and the U.S. Supreme Court considered certain issues from the Velazquez case. In an opinion published in 2001, the Supreme Court upheld the Second Circuit’s decision that barring lawyers that receive Legal Services funding from trying to change or challenge the existing welfare law was unconstitutional.
The appeals court left open the issues that are of the greatest concern to the nonprofit community at large: restricting the use of private funds and the program integrity regulation. In its opinion, the Second Circuit Court stated: “Any grantee capable of demonstrating that the 1996 restrictions in fact unduly burden its capacity to engage in protected First Amendment activity remains free to bring an as-applied challenge to the 1996 Act.” The issues were raised in federal district court in the Eastern District of New York.
On June 18, 2002, Independent Sector and over 100 other charitable and philanthropic organizations submitted a brief as amici curiae (PDF) to the United Sates District Court for the Eastern District of New York in support of the plaintiffs. The brief supports and advances the argument that government restrictions on the use of non-federal funds by federally funded legal services entities directly infringe on private funders' and charitable organizations' First Amendment rights by preventing them from engaging in charitable activity as they deem necessary and appropriate.
Last Updated: October 12, 2007
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