Friday, January 9, 2009
Court Dismisses Challenge to Legal Services Funding Rules
By STEVEN M. ELLIS, Staff Writer
The State of Oregon lacks standing to sue the Legal Services Corporation over restrictions on the use of LSC grants, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
Concluding that the state had not alleged sufficient injury because it could neither show that it was directly affected by prohibitions on the use of LSC funds for lobbying, class action lawsuits or redistricting, nor an interest apart from that of groups receiving funds, the court dismissed a challenge that the restrictions effectively thwarted the state’s ability to regulate the practice of law and provide legal services to its citizens.
The LSC is a non-profit organization established by Congress to fund legal assistance for the poor
The state brought suit after the corporation rejected an attempt in 2005 by the State Bar of Oregon to integrate the operations and staff of two groups providing services to the same geographic area—Legal Aid Services of Oregon, which receives LSC funds, and the Oregon Law Center, which does not—into a single, non-profit corporation.
The LSC provides funds to local legal assistance programs throughout the country, but by regulation requires legal, physical and financial separation from groups that engage in the prohibited activities in order to ensure the program’s “objective integrity.”
The regulation provides that “mere bookkeeping separation of LSC funds from other funds is not sufficient,” and the LSC contended that the State Bar’s plan to segregate the newly constituted corporation into two divisions—only one of which would be subject to the LSC restrictions—would not comply insofar as they would share personnel and equipment, and operate in the same physical premises.
On the same day the two groups filed a challenge in the U.S. District Court for the District of Oregon alleging the restrictions violated their First Amendment rights, the state filed its own complaint alleging violations of the Tenth Amendment and the Spending Clause, and sought to enjoin enforcement of the regulation.
The former provides that powers not granted to the federal government nor prohibited to the states are reserved to the states and to the people, while the latter refers to the implied power to spend revenues raised by taxation in order to meet the objectives and goals of the government.
Oregon claimed that the restrictions fell outside of Congress’ spending authority in that the LSC used them to coerce the LASO into complying with federal regulations over state regulations because it could not survive without federal funding. The state further contended that the LSC’s restrictions violated the Tenth Amendment by limiting Oregon’s ability to regulate the LASO and other legal services providers.
The two suits were consolidated, but a magistrate judge recommended the district court grant the LSC’s motion to dismiss the LASO’s claims except an as-applied challenge to the program integrity rule. The magistrate judge also recommended granting the LSC’s motion to dismiss Oregon’s complaint because the state itself was not regulated by the LSC, and because Oregon’s claims of coercion did not meet the high standard required under Ninth Circuit precedents.
U.S. District Judge Robert E. Jones adopted the magistrate judge’s recommendations and re-severed the lawsuits, but on appeal the Ninth Circuit vacated the dismissal on the merits and remanded with instructions to dismiss for lack of subject matter jurisdiction.
Recognizing that states are not normal litigants, Judge Milan D. Smith Jr. wrote that the U.S. Supreme Court has characterized a state’s unique prerogatives as a parens patriae action stemming from “a ‘quasi-sovereign’ interest” in the well-being of its populace, and in not being discriminatorily denied its rightful status within the federal system.
However, he noted that a quasi-sovereign interest must be sufficiently concrete to create an actual controversy between the state and the defendant, and that a state would lack standing if it was only nominally a party without a real interest of its own.
Turning to Oregon’s allegations, Smith wrote that the state failed to sufficiently allege a specific injury independent from that suffered by the two groups.
“Oregon is not directly affected by the allegedly unconstitutional LSC regulations, and is free to avoid any or all indirect effects of those regulations by simply increasing its own taxes to fund its desired policies,” he wrote.
“Oregon has also failed to show a sufficient basis for bringing suit on behalf of its citizens. Oregon has not shown a cognizable interest apart from the interests of LSC recipients who are also citizens of Oregon, and is, therefore, without standing to pursue its claims in this action.”
Senior Judge A. Wallace Tashima and U.S. District Judge George Wu of the Central District of California, sitting by designation, joined Smith in his opinion.
The case is State of Oregon v. Legal Services Corporation, 06-36012.
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