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IOLTA Media Coverage

Escrow Fight: Is It Principle Or Politics?
$200 Million in Legal Aid Funds At Risk in High Court Showdown

Legal Times
Monday, December 2, 2002
Tony Mauro

Why does the Washington Legal Foundation hate lawyers' trust accounts so much?

That is the one question that almost certainly will not be asked when the conservative public interest law firm goes before the U.S. Supreme Court on Dec. 9 -- although it has surfaced in recent weeks as the case has inched toward the high court. The battle will consummate the Washington Legal Foundation's 12-year takings-clause battle against Interest on Lawyers' Trust Accounts, or IOLTA, which are second only to the Legal Services Corp. as a funding source for civil legal aid nationwide.

Here's the issue in a nutshell: For a variety of reasons, lawyers sometimes hold client money in escrow, often for very brief periods of time. Those escrow accounts earn interest -- tiny amounts when taken individually. But in all 50 states and the District of Columbia, state IOLTA programs amass that interest and parcel it out to legal assistance organizations. A lot of money is on the line: IOLTA programs generated more than $200 million last year.

Since 1990, the Washington Legal Foundation has argued that the interest belongs to clients, so that IOLTA violates the Constitution by seizing client property without compensation, even though without IOLTA, bank fees would almost certainly eat up the pocket-change bits of interest that would belong to individual clients.

So, critics ask, while the stakes for legal services are enormous, what's in it for the WLF? Even if the foundation wins, the average client for whom it is fighting might barely notice.

"As a takings issue, it is really hard to see why they get excited about it," says Carter Phillips of Sidley Austin Brown & Wood, author of the main brief defending IOLTA. "It's a crusade, really. I don't see what else would animate them."

The foundation's chief counsel, Richard Samp, who readily agrees that the individual yield of a victory would be small, laughs at Phillips' suggestion. "If the worst that can be said is that we are on a crusade, that's ok with me," Samp says.

But Samp also acknowledges that "a lot of people ask if we have a bug in our behind about IOLTA." He continues, "Is this the largest wrong in the universe? No." Samp adds, "But it is clearly wrong, and we think our job is to right the wrongs that others might not bother to fix."

Others think there is more than righting wrongs behind the campaign that has ended up before the Supreme Court in Washington Legal Foundation v. Legal Foundation of Washington, No. 01-1325.

Critics cite a September fund-raising letter from Samp's group.

"We are finally in a position we've fought more than a decade to reach -- a position where we can deal a death blow to the single most important source of income for radical legal groups all across the country," wrote WLF Chairman Daniel Popeo. Among the foundation's adversaries in the litigation, Popeo continues, are "groups dedicated to the homeless, to minorities, to gay and lesbian causes, and any other group that has drawn money from hard-working Americans like you and me to support its radical cause!"

The defenders of IOLTA are trying to use the letter against the WLF, including part of it as an appendix to a brief filed with the Supreme Court by former Solicitor General Seth Waxman, who represents IOLTA supporters AARP, the Brennan Center for Justice and others.

Waxman, a Washington, D.C., partner at Wilmer, Cutler & Pickering, attacked the letter as a "gross mischaracterization of the nature of IOLTA-funded legal services programs." He also asserted that the letter makes it clear that "this case is not at all about property it believes has been taken."

Popeo declined to comment on the letter. Samp, the Washington Legal Foundation's counsel of record in the IOLTA case, says he did not see it until he read it in Waxman's brief. Samp says he does not know whether the letter was successful in raising money.

"This case exposes the cold, unsympathetic underbelly of the property rights movement," says Douglas Kendall of Community Rights Counsel, which filed a pro-IOLTA brief for the National League of Cities and others. "WLF has little to gain here besides the satisfaction of depriving the indigent of desperately needed legal services."

But Samp insists that throughout the campaign, "we've been scrupulous about not saying anything negative about legal services for the poor." And he stresses that the takings issue is the primary reason for foundation's campaign, which has included legal challenges against IOLTA programs in Massachusetts, Texas and Washington state.

The Washington Legal Foundation began its litigation attack on IOLTA in 1990 and won its first U.S. Supreme Court victory in 1998 in its Texas challenge. In Phillips v. Washington Legal Foundation, the Court found that the interest held in IOLTA accounts was the property of clients. But it deferred judgment on the question of whether, as a result, IOLTA programs violate the takings clause -- and whether there can be any compensation to the clients even if there is a violation. Those are the questions now before the Supreme Court.

But if Samp is right that the takings clause is the main focus of the campaign, then some IOLTA supporters wonder why the Washington Legal Foundation has a backup theory for undoing IOLTAs -- a First Amendment claim still pending in both the Texas and Washington cases. The WLF asserts that government-backed IOLTA programs amount to compelled speech, forcing people to spend their own money to advance points of view they do not support.

The groups usually most interested in takings -- Defenders of Property Rights and the Institute for Justice -- are conspicuously absent from the IOLTA case, although it is cast as a takings case.

Officials of Defenders of Property Rights did not return phone calls.

Chip Mellor, president and general counsel of the Institute for Justice, says the IOLTA issue is important. "However," he adds, "the WLF has been tenaciously pursuing this issue for years and has it well in hand. We don't just file 'me too' briefs."

Samp also says the WLF spent less time seeking amicus curiae support than it did in 1998. "Then we said we were not going to be 'out-amicused,'" says Samp. "This time we decided it was not that important."

One important amicus the foundation did seek support from was the Bush administration. Solicitor General Theodore Olson, who has long ties to the WLF, recused himself from the discussions, but WLF officials met with Deputy Solicitor General Paul Clement. Clement also met with representatives of groups favoring IOLTA.

In the 1998 case, the solicitor general's office weighed in on the pro-IOLTA side, but this time it is sitting out the case -- which Samp views as a victory.

Footnote: In addition to answering the constitutional question in the case, the Supreme Court with any luck will resolve a grammatical dispute as well.

The briefs in the case offer several different interpretations of what the acronym IOLTA stands for. The petitioner, Washington Legal Foundation uses the plural possessive for the L-word, and plural for the A-word, as in "Interest on Lawyers' Trust Accounts." Wrong, replies respondent Legal Foundation of Washington, which uses the singular, nonpossessive form for "lawyer," and only one "account" -- as in "Interest on Lawyer Trust Account."

A brief on behalf of 48 state bar associations and the National Association of IOLTA programs charts a third course: the plural, nonpossessive form of "lawyers," and a singular "account."

AARP's brief goes with a fourth version, pluralizing "account:" "Interest On Lawyers Trust Accounts."

In all, the four former solicitors general whose names are on briefs in the case -- Charles Fried, Drew Days, Seth Waxman and Walter Dellinger III -- each offer different versions of what IOLTA stands for.

Is there one official, correct way to deconstruct the acronym IOLTA? Yes, says Beverly Groudine, counsel to the American Bar Association's IOLTA Commission, whose Web site actually spells it two different ways. Groudine comes down in favor of plural possessive on lawyers and plural on accounts, because "it's grammatically correct. These are accounts that are in the name of the lawyers." But Groudine acknowledges, "I see it every way. People get sloppy."

Including the Supreme Court, apparently. In the 1998 Phillips ruling, the justices opted for "Interest on Lawyers Trust Account," not the ABA version.

Still, the ABA's "Interest on Lawyers' Trust Accounts" has the backing of one much relied-upon arbiter of legal style -- Black's Law Dictionary.

The state of Florida launched the first IOLTA program in 1981, so it ought to provide an answer, right? No such luck. It ducked the question from the outset by not including lawyers in the name at all. In Florida the program is called IOTA, which stands for Interest on Trust Accounts.

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