Vol. 76, No. 4, April
2003
IOLTA Funding for Legal Aid
By a narrow margin, IOLTA funding for legal aid
to the poor survives a constitutional challenge.
by Pat
Ballman
On Dec. 10, 2002, the U.S. Supreme Court heard arguments in
Brown v. Legal Foundation of Washington on whether the state of
Washington's IOLTA (Interest on Lawyer Trust Accounts) program
constituted an unconstitutional taking of property under the 5th
Amendment, which says: "private property [shall not] be taken for public
use without just compensation." Under IOLTA programs, which exist in all
50 states, lawyers are directed to invest client funds into pooled
accounts when, due to the amount of the funds, the time the funds are
expected to be invested, and the interest rate, the funds would not
generate enough interest to pay the costs of establishing and
administering a separate account. Interest from the pooled accounts is
channeled to groups that administer legal aid programs for the poor.
Last year IOLTA accounts generated about $1.5 million in Wisconsin, or
about 24 percent of the money spent in the state on civil legal services
for the poor.
An earlier challenge to IOLTA programs had been before the Supreme
Court in 1998, when the Court ruled in a case challenging the Texas
IOLTA program, that the interest generated was the "property" of the
clients. But in that case, the Court stopped short of ruling whether
directing the funds into IOLTA accounts was an unconstitutional "taking"
requiring "just compensation" to the clients.
On March 26, 2003, the U.S. Supreme Court, in a 5 - 4 decision, held
in the Washington case that because "just compensation" is measured by
the owner's pecuniary loss, which is zero whenever the IOLTA law is
obeyed, there was no violation of the Just Compensation Clause. The
decision and dissents can be found at http://supct.law.cornell.edu
In Wisconsin, SCR 20:1.15(c) requires lawyers to deposit client funds
into IOLTA accounts if the amount is so nominal or it is expected to be
held for such a short period that the lawyer, using sound judgment,
determines that no interest could be earned for the client after the
costs of opening and administering the account. If the client disagrees,
SCR 13.03(4) allows a review procedure and a refund to the client if the
funds could have earned interest. SCR 13.04(4) also provides that
failure to participate in the IOLTA program constitutes professional
misconduct.
Everyone who cares about providing civil legal services for the
indigent is extremely pleased that the Supreme Court upheld these IOLTA
programs. If it had not, in Wisconsin we would have faced the huge task
of replacing the lost $1.5 million in funding for legal services for the
indigent. And every state around the nation would have faced a similar
challenge.
It was a narrow victory, with well reasoned dissents. But a
victory.
Wisconsin
Lawyer