Legal Services Corporation--Lease with Friends of Legal Services Corporation

At its inception, Friends' Board of Directors consisted solely of officers of LSC. Fortuno Letter, at 3–4. LSC officers continued to occupy half of the seats of Friends' Board of Directors until 2004 when LSC and Friends made a concerted effort to ensure Friends' independence from LSC.[4] Fortuno Letter, at 3. LSC and Friends share a common business address. See Articles, at 3; Bylaws of Friends of Legal Services Corporation, Aug. 27, 2002, at 2 (Bylaws). Until May 2005, LSC employees satisfied some of Friends' staffing needs on a volunteer basis. Fortuno Letter, at 3-–4. Friends' Articles of Incorporation state that if Friends ceases to exist, Friends' remaining assets, after Friends' liabilities are extinguished, would be contributed to LSC. Articles, article 7, at 2.

DISCUSSION

Congress established LSC as a private, nonprofit corporation in the District of Columbia, authorizing LSC to exercise the powers conferred upon corporations by the District of Columbia Nonprofit Corporation Act,[5] to the extent consistent with its authorizing statute. 42 U.S.C. sections 2996b(a), 2996e(a). Although a private corporation, LSC is similar to a federal agency in some respects. It is funded through annual appropriations;[6] its Board of Directors is appointed by the President and confirmed by the Senate;[7] its employees are eligible to receive some federal employee benefits;[8] and it is subject to provisions of title 5 of the United States Code regarding freedom of information and open meetings.[9] LSC is a designated federal entity for purposes of the Inspector General Act and has had an Inspector General since 1988. 5 U.S.C. app. sect. 8G(a)(2). These attributes of a federal agency notwithstanding, Congress in the Legal Services Corporation Act, as amended, clearly specified that, unless otherwise provided, –the Corporation shall not be considered a department, agency, or instrumentality of the Federal Government.— 42 U.S.C. sect. 2996d(e)(1).

GAO has previously had occasion to consider LSC's relationship to the United States government. In the past, we have determined that LSC is not an agency or establishment of the government subject to GAO accounts settlement authority, B-204886, Oct. 21, 1981, and that LSC, as an independent, nonprofit corporation outside the executive branch, is not subject to Office of Management and Budget circulars, B-241591, Mar. 1, 1991. We have also found that even though it is a private, nonprofit corporation, by the terms of its authorizing statute, LSC may not expend appropriated funds to lobby in support or defeat of legislation. 60 Comp. Gen. 423 (1981); B-163762, Nov. 24, 1980. With this legal landscape, we turn to the questions presented.

Authority to Create Friends and Enter into a Lease with Friends

As part of the annual appropriations process, Congress appropriates amounts for an annual –payment to the Legal Services Corporation to carry out the purposes of the Legal Services Corporation Act of 1974.—[10] E.g., Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006, Pub. L. No. 109-108, title V, 119 Stat. 2290, 2330 (Nov. 22, 2005). Since Congress has limited this payment to the purposes of the Legal Services Corporation Act, our analysis of LSC's authority to use its federal funds must focus on the authorities Congress granted LSC in the Act.

Section 2996e of title 42 of the United States Code defines the powers, duties, and limitations of LSC under the Legal Services Corporation Act. The powers relevant to the issues we address in this opinion are those Congress conferred on LSC by reference to the D.C. Nonprofit Corporation Act. Section 2996e states, –To the extent consistent with the provisions of this [Act], the Corporation shall exercise the powers conferred upon a nonprofit corporation by the District of Columbia Nonprofit Corporation Act.— 42 U.S.C. sect. 2996e(a). Section 29-301.05 of the District of Columbia Code defines the general powers of each nonprofit corporation under the D.C. Nonprofit Corporation Act. Exercising these powers, LSC can purchase, take, receive, and lease real property, D.C. Code sect. 29-301.05(4), and –subscribe for, or otherwise acquire . . . use and deal in and with, shares or other interests in . . . domestic or foreign corporations, whether for profit or not for profit.— D.C. Code sect. 29-301.05(7). Additionally, the D.C. Nonprofit Corporation Act authorizes LSC –to have and exercise all powers necessary or convenient to effect any or all of the purposes for which the corporation is organized.— D.C. Code sect. 29-301.05(16). In our opinion, LSC, exercising powers authorized by the D.C. Nonprofit Corporation Act, may create a corporation.

Congress provided, however, that LSC may exercise such powers only –to the extent consistent with— the Legal Services Corporation Act. 42 U.S.C. sect. 2996e(a). In circumstances similar to this case, B-219801, Oct. 10, 1986, we examined whether the National Consumer Cooperative Bank (Bank) was authorized to incorporate three subsidiaries to engage in corporate activities related to the Bank's statutory mandate. Congress created the Bank to encourage development of cooperative banks, authorizing the Bank to provide specialized credit and technical assistance to cooperatives. Although federally chartered, the Bank was owned and controlled by cooperative stockholders. Pub. L. No. 97-35, sections 396(b), (h), 95 Stat. 357, 439–40 (Aug. 13, 1981). The purposes of the subsidiaries were to provide debt and equity financing and leasing services for cooperatives, and to develop sources of funding for the Bank's lending activities. While the Bank had no specific statutory authority to create the subsidiaries, the creation of subsidiaries was consistent with the Bank's broad authority to exercise –all such incidental powers as shall be necessary to carry on the business of banking.—

In this case, we see no inconsistency between LSC's creating Friends and the purposes Congress set out in the Legal Services Corporation Act. Congress established LSC to provide –financial support for legal assistance in noncriminal proceedings or matters to persons financially unable to afford legal assistance.— 42 U.S.C. sect. 2996b(a). LSC, in turn, established Friends to obtain financial support to further LSC's purposes. In incorporating Friends, LSC set out as the objects and purposes of Friends, –[r]aising funds to provide funds to support all aspects of [LSC's] mission—; educating the public –as to the wisdom and need (a) to provide equal access to the system of justice in our nation . . . ; (b) to provide high quality legal assistance to those who would otherwise be unable to afford adequate legal counsel; and (c) to provide legal counsel to those who face an economic barrier to adequate legal counsel—; and –acquiring, holding and managing assets for use by LSC where doing so may result in lower costs or greater efficiencies for LSC.— Articles, article 4, at 1–2.

We do not view Friends' purposes as materially different from those of the National Consumer Cooperative Bank's subsidiaries that we considered in our 1986 opinion. The purposes outlined in Friends' Articles of Incorporation serve in various ways to advance LSC's mission of affordable legal assistance. Indeed, all of the activities permitted in the Articles of Incorporation are activities that LSC itself may perform. Cf. B-219801 (noting that the Bank's subsidiaries could not perform any activities that the Bank could not perform directly). We conclude therefore that LSC acted within its powers when it created Friends.

For the same reasons, we have no objection to LSC's lease of office space from Friends. As explained above, LSC's authorities permitted it to create Friends to assist LSC in performing activities that LSC itself may perform. Clearly, LSC has the authority to acquire office space by either purchase or lease. D.C. Code sect. 29'301.05(4), as incorporated by reference into the Legal Services Corporation Act. 42 U.S.C. sect. 2996e(a). Among the purposes set out in Friends' Articles of Incorporation is –[a]cquiring, holding and managing assets for use by LSC.— Articles, at 1. In this regard, Friends acquired the Georgetown property for LSC's use, and the lease is the vehicle that helped finance Friends' acquisition of the property.

Long-Term Lease and Assumption of Assets

Whenever a federal agency, operating with fiscal year appropriations, enters into a 10-year lease, as LSC did, questions arise whether the lease violated the Antideficiency Act.[11] At issue here is whether the Antideficiency Act applies to LSC.

The Antideficiency Act provides, in relevant part, the following:

–An officer or employee of the United States Government or of the District of Columbia government may not—

–(A) make or authorize an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation;

–(B) involve either government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law.—

31 U.S.C. sect. 1341(a)(1) (emphasis added). Clearly, one of the touchstones for application of the Antideficiency Act is an action or actions of –an officer or employee of the United States Government.— Id.

As noted above, LSC, by law, is not a federal agency. Section 2996d(e)(1) of title 42 of the United States Code states that –[e]xcept as otherwise specifically provided . . . the Corporation shall not be considered a department, agency, or instrumentality of the Federal Government.— Its officers and employees, except for limited purposes not relevant here, are not officers or employees of the United States government. Id. (–Except as otherwise specifically provided . . . officers and employees of the Corporation shall not be considered officers or employees . . . of the Federal Government.—). As violations of section 1341 are predicated upon an obligation of federal funds by an officer or employee of the United States government, LSC's transactions are not subject to the Antideficiency Act.[12] Indeed, by creating LSC as a private, nonprofit entity, Congress provided LSC with certain freedoms and independence to act in a manner similar to other private, nonprofit corporations.[13] See B-241591, Mar. 1, 1991 (holding that LSC was not subject to requirements in Office of Management and Budget circulars). See also B-131935, July 16, 1975 (stating that the Corporation for Public Broadcasting, as a private, nonprofit corporation, is generally not subject to the same restrictions and controls on its expenditures as are federal agencies and establishments); B'307317, Sept. 13, 2006 (State Justice Institute, as a private, nonprofit corporation, is not subject to the miscellaneous receipts statute and thus could retain fees for use of advertising space in its newsletter).

Because LSC's transactions are not subject to the Antideficiency Act, LSC's authority to enter into a 10-year lease is not governed by federal fiscal law.[14] LSC's authority to assume Friends' assets, as provided in Friends' Articles of Incorporation if Friends were to dissolve, is governed by the Legal Services Corporation Act. The Act authorizes LSC to accept money and property –in furtherance of the purposes of— the Act, 42 U.S.C. sect. 2996e(a)(2), i.e., to provide –financial support for legal assistance in noncriminal proceedings or matters to persons financially unable to afford legal assistance.— 42 U.S.C. sect. 2996b(a).

CONCLUSION

This opinion does not address the appropriateness of LSC's actions but only whether LSC acted within the confines of its legal authority. Congress created LSC as a private corporation conferring broad powers upon its Board of Directors to make business decisions. See 42 U.S.C. sections 2996a, 2996b; D.C. Code sect. 29-301.05. Although it receives payments in annual appropriations, LSC, as a private, nonprofit corporation, is not subject to many of the fiscal restrictions imposed on federal agencies. LSC's broad discretion is constrained only by the limitations Congress imposes in the Legal Services Corporation Act and its annual appropriations acts.

The Legal Services Corporation Act and the D.C. Nonprofit Corporation Act confer broad investment authority and discretion, allowing LSC to establish Friends and to enter into a lease with Friends for office space. While Congress has imposed some limitations in the Legal Services Corporation Act and in annual appropriations acts, it has not made the Antideficiency Act applicable to LSC's transactions. Accordingly, LSC's transactions at issue here do not violate the Antideficiency Act.

Sincerely yours,

Gary L. Kepplinger
General Counsel