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NATIONAL ASSN. OF REGIONAL MED. PROGRAMS

May 19, 1975

NATIONAL ASSOCIATION OF REGIONAL MEDICAL PROGRAMS, INC., et al., Plaintiffs,
v.
HONORABLE CASPAR W. WEINBERGER, et al., Defendants



The opinion of the court was delivered by: FLANNERY

 Flannery, United States District Judge.

 This case is now before the court on application by plaintiffs' counsel, Jerome S. Wagshal, for the award of an appropriate attorney fee from the benefiting plaintiff class. The case originally involved defendants' impoundment of funds appropriated for the Regional Medical Programs' [RMP] authority under Title IX of the Public Health Service Act, as amended, 42 U.S.C. § 299 et seq., and other restrictions placed by defendants on the operations of RMPs. The court, in a ruling entered February 7, 1974, as amended by Order entered July 22, 1974, declared the impoundment and other restrictions unlawful and ordered defendants to obligate essentially all of the impounded funds. The amounts released pursuant to the court's order exceeded one hundred million dollars.

 This case proceeded to final judgment as a class action certified pursuant to rules 23(b)(1) and 23(b)(2) of the Federal Rules of Civil Procedure. Formal notice of the pendency of the class action was not given but it is undisputed from the record that all members of the class knew of the action. On several occasions Mr. Wagshal communicated with all members of the class regarding the case. When a final negotiated settlement of the action was reached in 1974, the court ordered that all members of the class be given actual notice of the court's rulings and of the proposed settlement. Class members were given the opportunity to comment upon the proposed settlement and to object to any of its provisions. No objections were noted and the final amended judgment was entered July 22, 1974. Thereafter, on October 7, 1974, plaintiffs' attorney filed the present application asking the court to award an appropriate attorney fee from the benefiting plaintiff class. Actual notice of this fee application was given to all members of the plaintiff class and all were invited to submit comments and/or to participate in the March 13, 1975 hearing on the petition.

 Petitioner seeks a court order directing a fee to be paid him from the benefiting class. He asks particularly that the benefiting class be able to use grant funds in payment of the fee. Further, to the extent possible, petitioner suggests that his fee be paid out of those grant funds which remain unexpended. A large amount of these unexpended grant funds presently are held by defendants. Defendants oppose any fee which would be paid using grant funds, arguing that such a fee is barred by 28 U.S.C. § 2412 (1970) and that such a fee would violate the Public Health Service Act itself. Petitioner of course disagrees but argues that if defendants prevail on their argument, then the court can and should order plaintiff class to pay petitioner a reasonable fee using non-grant funds. Defendants do not oppose payment of a fee using non-grant funds so long as RMP operating efficiency is not significantly impaired. See, e.g., Post-Hearing Supplement to Defendants' Opposition to Application by Plaintiffs' Counsel for the Award of an Appropriate Fee from the Benefiting Plaintiff Class at 1, filed April 7, 1975.

 The court first will address the issue of the power of the court to award a fee from grant funds and also, in the alternative, will consider whether the court can order a fee in personam against plaintiff class members from non-grant funds. Since the court concludes in the affirmative on both of these issues, the court then will explain why this is a proper case for the court to exercise its equity powers and award a fee, and the amount of such a fee. Finally, the court will consider the mechanics of payment.

 I. Power of the Court to Award a Fee from Grant Funds.

 During the course of this litigation the court has had control over a huge fund of money which was the subject of the case on the merits. By its decision on the merits the court ordered defendants to obligate all of the impounded monies to RMPs except for $5,000,000 which could be obligated for different purposes. The court has never completely lost jurisdiction over this fund and indeed by Order of January 29, 1975, ordered up to $200,000 of unexpended grant and unexpended direct operation funds to be deposited to the registry of the court. Pursuant to that order $180,000 of unexpended direct operation funds have been obligated in the name and to the credit of the court. See Report to the Court, filed Feb. 28, 1975.

 There is clear precedent that the court may order an attorney fee paid from funds which the court has ordered obligated to grantees. In National Council of Community Mental Health Centers, Inc. v. Weinberger, 387 F. Supp. 991 (D.D.C. 1974), appeal pending, [hereinafter sometimes referred to as NCCMHC case] the court ordered a fee paid from grant funds, thereby rejecting the government's argument that such payment constitutes an attorney fee against the United States in violation of 28 U.S.C. § 2412. The court finds that precedent, persuasive and notes with particular approval certain of the cases cited by that court. See Lafferty v. Humphrey, 101 U.S. App. D.C. 222, 248 F.2d 82 (Cir. 1957), cert. denied, 355 U.S. 869, 78 S. Ct. 118, 2 L. Ed. 2d 75 (1957); Emmet v. Whittier, 164 F. Supp. 563 (D.D.C. 1958), rev'd, 108 U.S. App. D.C. 191, 281 F.2d 24 (1960), cert. denied, 364 U.S. 935, 5 L. Ed. 2d 367, 81 S. Ct. 380 (1961). The court also believes that the cases of Freeman v. Ryan, 133 U.S. App. D.C. 1, 408 F.2d 1204 (1968) Honda v. Mitchell, 136 U.S. App. D.C. 22, 419 F.2d 324 (1969), and Larionoff v. United States, 365 F. Supp. 140 (D.D.C. 1973) support petitioner's position that funds held by the federal government may be used to pay an attorney fee. The court finds unpersuasive defendants' attempt to distinguish this line of cases by arguing that the monies in this case originally were appropriated by Congress and that the federal government has a substantial and continuing interest in these monies. First, there is no evidence that the above-cited cases rest on any such narrow distinction as whether the monies originally were appropriated by Congress. In Lafferty the monies finally were to be paid pursuant to a statute and certainly the government had a continuing interest in making certain that the statute's purposes were carried out. Nevertheless, the court allowed payment of substantial attorney's fees out of the funds held by the government. And in Emmet it is apparent that certain of the monies designated to pay the attorney's fee originally constituted appropriated monies. See Whittier v. Emmet, 108 U.S. App. D.C. 191, 281 F.2d 24, 27 n. 5 (1960). *fn1"

 The gist of petitioner's position is that when this court ordered defendants to obligate the RMP funds, these funds ceased to be funds of the United States such that an order to pay attorney fees out of the funds would be assessing fees against the United States. The Comptroller General in a series of rulings has held that funds which are awarded to a grantee lose their character as funds of the United States.

 
It consistently has been held with reference to Federal grant funds that, when such funds are granted to and accepted by the grantee, the expenditure of such funds by the grantee for the purposes and objects for which made are not subject to the various restrictions and limitations imposed by Federal statute or our decisions with respect to the expenditure, by Federal departments and establishments, of appropriated moneys in the absence of a condition of the grant specifically providing to the contrary.

 43 Comp. Gen. 697, 699 (1964). See also 36 Comp. Gen. 221 (1956). And in another situation, where grants were issued by the federal government to the states, the question was raised regarding whether the states, on using the money to purchase items, could pay the state sales tax. It was argued that payment of state sales tax would be illegal because it would be a state tax on the United States. The Comptroller General stated as follows:

 
The States, therefore, in disbursing grant funds for purposes within the scope of the grant, may not be considered as "agents" of the United States; and, except for conditions specified by Congress in the grants, they are subject only to the restrictions imposed by State laws and regulations on the disbursement of other State funds.

 37 Comp. Gen. 85, 87 (1957). When this court ruled that defendants' impoundment was illegal and that all impounded funds had to be obligated to grantees, the funds in question ceased to be funds of the United States such that an attorney fee might be construed as a fee against the United States. At that time they constituted grant funds and unless the Public Health Service Act bars use of the funds to pay an attorney fee, the court can order ...


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