Friday, October 12, 2007
Governor Signs Interest on Lawyer Trust Accounts Bill
By KENNETH OFGANG, Staff Writer
Gov. Arnold Schwarzenegger has signed a State Bar-backed bill designed to increase the amount of money provided for legal aid programs under the Interest on Lawyer Trust Accounts program.
AB 1723, which the governor signed Wednesday, establishes specific requirements for attorneys establishing accounts under the Interest on Lawyers Trust Accounts program and for banks offering such accounts.
In a signing statement, the governor said the bill would “modernize” IOLTA by authorizing the deposit of IOLTA funds in investment-type accounts bearing higher rates of interest than at present. About a dozen other states have adopted similar changes by legislation or court rule.
“This bill also provides increased funding opportunities for legal aid programs,” the governor wrote.
“Expanding the reach of legal services for the poor will not only benefit those who are able to obtain legal assistance, but will also benefit the courts by alleviating some of the burdens imposed by litigants who are currently forced to represent themselves.”
In addition to the State Bar, the bill was supported by Attorney General Jerry Brown and by a host of legal services organizations, local bar groups, and law firms.
The bill passed the Assembly by a final vote of 59-14 and the Senate by a vote of 24-15. While there was no organized opposition to the bill, some Republican legislators argued against it based on objections to the IOLTA concept generally.
Under IOLTA, an attorney who receives a deposit of client funds that is large enough, and is likely to be banked long enough, to earn a significant amount of interest is expected to account to the client for the interest on those funds. But if the amount is too small to earn a significant amount of interest for the client, the funds must be deposited in a general account, the interest on which is used to fund legal aid.
The viability of IOLTA programs was placed in doubt by a 1998 U.S. Supreme Court decision in which the justices ruled, 5-4, that the interest earnings from accounts are the private property of clients and that the state was “taking” the money in the Fifth Amendment sense.
But the court did not rule at the time on IOLTA proponents’ contention that since the clients would not see any of that money in the absence of IOLTA, there was no loss for which “just compensation” had to be made.
In 2003, however, the justices affirmed, 5-4, a Ninth U.S. Circuit Court of Appeals ruling that IOLTA programs do not violate clients’ right to compensation as long as the program is limited to small or short-term deposits that would not otherwise be placed in an interest-bearing account.
The court agreed with IOLTA proponents 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.”
IOLTA, which in the past 20 years or so has been expanded to every state by statute or court rule, raises at least $140 million a year for indigent legal services and additional sums, in some states, for other charitable and educational pursuits. Justice Sandra Day O’Connor, since-retired, provided the swing vote, joining the majority in both cases.
Schwarzenegger Wednesday signed several other bills of interest to the legal community, including:
•AB 403, by Assemblyman Van Tran, R-Costa Mesa, requiring the California Law Revision Commission to study whether, and when, the attorney-client privilege should survive the death of the holder and report by 2009;
•AB 475, by Assemblyman Bill Emmerson, R-Rancho Cucamonga, giving the arresting agency the right to notice and to present evidence at the hearing on a motion to destroy an arrest record;
•AB 569 by Assemblyman Anthony Portantino, D-La Cañada Flintridge, extending the sunset date on existing wiretap legislation to Jan. 1, 2012; and
•AB 1705, by Assemblyman Roger Niello, R-Fair Oaks, extending various “great taking” sentence enhancements for another 10 years and raising the monetary thresholds. A one-year enhancement will now apply to thefts of more than $65,000, instead of $50,000; a two-year enhancement will be imposed for a taking of more than $200,000, instead of $150,000; a three-year term will be added to the sentence if the amount is more than $1.3 million, instead of $1 million; and the threshold for a four-year enhancement rises from $2.5 million to $3.2 million.
A savings clause makes clear that the higher thresholds do not apply to crimes committed before the new law takes effect on Jan. 1.
Copyright 2007, Metropolitan News Company