Interest on Lawyers’ Trust Accounts (IOLTA) programs collect the interest on deposits held by lawyers on behalf of clients, and use that money – up to $200 million per year – to fund legal services for the indigent. These programs are a vital and irreplaceable source of funding for legal services for the most needy and deserving of our citizens. And this program harms no one. Only funds that, by themselves, would not generate any interest income, are pooled to create the IOLTA money (sums that are great enough, or held long enough, to generate interest for a client are held in separate, interest-bearing accounts, and the client receives the interest). Yet Washington Legal Foundation (WLF) (which represented Brown and objects to some of the work of the groups that receive IOLTA money), waged a decade-long legal battle challenging these programs as uncompensated, unconstitutional takings of property. WLF actually won the first round in this litigation, with a 5-4 Supreme Court ruling in Phillips v. Washington Legal Foundation (1998), which held that the interest in these accounts was “property” protected by the Takings Clause.
In the second round of litigation before the Supreme Court, the question we helped frame for the Court was whether there can be a constitutional violation when just compensation is zero because a regulatory action results in no actual monetary loss.
Former acting Solicitor General Walter Dellinger, one of the nation’s most respected Supreme Court advocates, argued Brown before the Supreme Court. He told us before oral argument, “If I could tell the Supreme Court only one thing, I would tell them to read CRC’s brief.”
In a 5-4 ruling the Court saved IOLTA programs and the resources they provide for legal services for the indigent. Dramatically, Justice O’Connor, who had provided the fifth vote for Washington Legal Foundation in Phillips, switched sides and voted to uphold IOLTA in Brown. The Court’s opinion like CRC’s brief, started from the premise that a taking had occurred, and examined the conditions the Constitution places upon takings. “The Fifth Amendment does not proscribe the taking of property; it proscribes taking without just compensation.” 538 U.S. at 236, citation omitted. The majority concludes, “Because compensation is measured by the owner's pecuniary loss--which is zero [in the instant case]--there has been no violation of the Just Compensation Clause of the Fifth Amendment in this case.” Id. at 241.
WLF v. LFW Supreme Court Briefs
Oral Argument Transcript (PDF)
CRC Press Release
CRC Legal Times op-ed on IOLTA