Tuesday, June 11, 2002
U.S. Supreme Court to Rule on Constitutionality of IOLTA
By KENNETH OFGANG, Staff Writer/Appellate Courts
The U.S. Supreme Court said yesterday it will decide whether a state program that uses interest on funds held short-term in lawyers’ trust accounts to fund legal assistance for the poor violates the Fifth Amendment ban on taking property without “just compensation.”
In a brief order, the court granted review of a 7-4 en banc decision by the Ninth U.S. Circuit Court of Appeals upholding Washington state’s Interest on Lawyers Trust Account program, which is similar to those operating in California and other states.
The Ninth Circuit ruled last November that the program serves attorneys’ ethical obligations to segregate client funds from their own accounts and to ensure access to the legal system.
A three-judge panel had ruled the previous January that IOLTA violated the Takings Clause. But the en banc majority, in an opinion by Judge Kim M. Wardlaw, reasoned that because the money that goes to funding legal services wouldn’t go to the client if IOLTA didn’t exist, but would go to the bank, the state owes the clients nothing in “compensation.”
Wardlaw was joined by Chief Judge Mary M. Schroeder and Judges Harry Pregerson, A. Wallace Tashima, Raymond C. Fisher, Marsha S. Berzon and Johnnie B. Rawlinson. Judge Alex Kozinski was joined in dissent by Judges Stephen S. Trott, Andrew J. Kleinfeld and Barry G. Silverman.
Harold Johnson, a Sacramento attorney who filed an amicus brief on behalf of Pacific Legal Foundation, said the high court was right to take the case.
“There may be ambiguity and disagreement about various points of property- rights law, but one constitutional principle is crystal clear: Government cannot seize private property without reimbursing the owner,” Johnson said in a statement. “The interest generated by a client’s money in a lawyer’s trust account is the client’s property. Through IOLTA programs, government lays hands on that property while ignoring the Constitutional mandate to make the property owner whole.”
If legal aid programs are a good idea, Johnson suggested, they should be funded by “taxpayers as a whole, not merely from people single out because they have dealings with a lawyer.”
State Bar of California officials, who praised the Ninth Circuit ruling when it was issued, could not be reached yesterday for comment.
IOLTA programs raise about $140 million for legal services nationwide.
The Ninth Circuit disagreed with the earlier decision of the Fifth Circuit, which said that IOLTA violates the Fifth Amendment. The foundation that oversees IOLTA spending in Texas had asked for rehearing in that case, but the full Fifth Circuit denied it last week.
Wardlaw said the Washington IOLTA program doesn’t violate the Supreme Court’s decision in Phillips v. Washington Legal Foundation, 524 U.S. 156 (1998). A 5-4 majority in that case held that Texas had taken clients’ money, but remanded for reconsideration of what “just compensation” would be.
The answer to that question, Wardlaw said, is nothing.
In the absence of IOLTA, the judge explained, the plaintiff clients “at most would have had the right to keep their principal from earning interest.” That right cannot be enforced under the Takings Clause, Wardlaw said, because it “has no economic value.”
Kozinski, dissenting, said the decision “will doubtless be greeted with a rousing cheer by government officials who will eagerly look to bank accounts and other places where money is kept, with an eye to snatching a few dollars here and there.” Clients whose money is taken for IOLTA, the dissenters said, might want those funds used for some other charitable purpose.
Copyright 2002, Metropolitan News Company