Thursday, March 27, 2003
U.S. Supreme Court, in 5-4 Ruling, Upholds IOLTA Programs
From Staff and Wire Service Reports
The Supreme Court yesterday upheld state programs that take interest from deposits on client funds held in lawyer’s trust accounts and use the money to pay for legal services for the poor, but left open the possibility of another constitutional challenge.
In a 5-4 decision, the justices affirmed a Ninth U.S. Circuit Court of Appeals ruling that Interest on Lawyers Trust Accounts programs, commonly referred to as IOLTA, do not violate clients’ right to “just compensation” for the taking of their funds as long as the program is limited to small or short-term deposits that would not otherwise be placed in an interest-bearing account.
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.
By a similar majority in 1998, the justices said 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 on IOLTA proponents’ contention that since the clients would not see any of that money in the absence of IOLTA, there was no loss to be compensated for.
Justice Sandra Day O’Connor provided the swing vote, joining the majority in both cases.
The Washington Legal Foundation, a conservative group that brought the earlier case challenging the Texas program, also brought the challenge to Washington state’s IOLTA program. The Sacramento-based Pacific Legal Foundation filed an amicus brief supporting the challenge.
In a 7-4 en banc decision—Judge Kim M. Wardlaw wrote the opinion—the Ninth Circuit upheld the program, saying it serves attorneys’ ethical obligations to segregate client funds from their own accounts and to ensure access to the legal system. The court agreed with the state 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.”
The Fifth Circuit, which heard the Washington Legal Foundation’s earlier case, reached a contrary conclusion.
Justice John Paul Stevens, writing yesterday for the majority, agreed with the Ninth Circuit that the practice was not unconstitutional because the client does not lose anything. He also pointed to “the dramatic success of these programs in serving the compelling interest in providing legal services to literally millions of needy Americans.”
In a dissent, Justice Antonin Scalia said the court seemed to be embracing a new concept. He called it “the Robin Hood Taking, in which the government’s exaction of wealth from those who own it is so cleverly achieved, and the object of the government’s larcenous beneficence is so highly favored by the courts (taking from the rich to give to indigent defendants) that the normal rules of the Constitution protecting private property are suspended.”
Justice Anthony Kennedy joined the Scalia opinion, as did Justice Clarence Thomas and Chief Justice William H. Rehnquist, but also wrote separately that opponents could have a claim that their money was being used for speech they disagree with.
“The First Amendment consequences of the state’s action have not been addressed in this case, but the potential for a serious violation is there,” he wrote. The plaintiffs raised the issue, but the Ninth Circuit did not reach it, saying it should go back to the trial court so that the district judge could consider it in light of a Supreme Court case decided after he ruled.
Walter Dellinger, the attorney who defended the programs, said the court’s ruling is “hugely important for legal services for the poor, preserving more than $200 million a year in funding for everything from tax assistance for the elderly to access to health care to custody disputes.”
The Washington Legal Foundation’s chief attorney, Richard Samp, said justices made clear that large amounts of money could not be put in the accounts. “It is going to be important for bar associations and lawyers to police themselves very carefully,” he said.
American Bar Association President Alfred P. Carlton Jr. hailed the decision, which was also endorsed by the National Legal Aid and Defender Association.
“The real beneficiaries of this ruling are the tens of thousands of poor people who receive legal assistance because of IOLTA,” Carlton said in a statement. “The ruling vindicates all of the state bars and state supreme courts committed to IOLTA programs, as well as the American Bar Association’s unwavering support of this vital program.”
The case is Brown v. Legal Foundation of Washington, 01-1325.
Copyright 2003, Metropolitan News Company