U.S. Supreme Court decision raises questions about Wisconsin IOLTA
program
June 19, 1998
On June 15, 1998, the U.S. Supreme Court announced a 5 to 4 decision
in Phillips v.
Washington Legal Foundation, a case which may ultimately impact
the Wisconsin Interest on Lawyers Trust Accounts (IOLTA) program and
similar programs nationwide.
In Phillips, the Court ruled that the clients have a
property interest in the money earned on pooled, short-term lawyers'
trust accounts held under the Texas IOLTA program. The Court did not
eliminate the program in Texas and made no judgment about other IOLTA
programs throughout the country. The case has been sent back to the
lower courts to decide whether the State of Texas has "taken" property
in violation of the Fifth Amendment and what, if any, compensation must
be made. It may take several years to resolved this issue by the courts.
The Wisconsin IOLTA program was created by the Wisconsin Supreme Court
in 1986 to permit attorneys to place client trust funds in pooled NOW
accounts that earn tax-free interest. The income derived from these
accounts is used by the Wisconsin Trust Account Foundation (WisTAF),
which manages Wisconsin's IOLTA program, to fund organizations providing
civil legal services to the poor.
The WisTAF Board believes that the property laws of Texas and
Wisconsin are different and that the U.S. Supreme Court has postponed
consideration of the most salient premise of the IOLTA program: that
clients do not sustain any economic loss as a result of IOLTA. No court,
including the U.S. Supreme Court, has found IOLTA programs
unconstitutional. While the WisTAF Board is studying the decision to
determine if it should adjust Wisconsin's program, the program functions
as usual. Pending future court decisions and WisTAF's research into this
issue, lawyers should maintain their IOLTA accounts and banks should
continue transmitting interest to the program. There are numerous
alternatives to explore that should ensure the continuation of the IOLTA
program well into the future. The State Bar, the Wisconsin Supreme
Court, and WisTAF will work together to review the underpinnings of
IOLTA, propose requisite changes, and keep the Bar and state financial
institutions informed. The IOLTA program has become a solid source of
support for the delivery of civil legal services nationwide. These
programs granted approximately $100 million for civil legal services to
poor people in 1997. In 1998, WisTAF granted $1.4 million for the
delivery of legal services to the poor in Wisconsin.
Thomas Heine is executive director of the Wisconsin Trust Account
Foundation, which manages Wisconsin's IOLTA program.
