The Supreme Court on March 26 rescued IOLTA
programs from a vigorous constitutional attack, ruling 5-4
that states may pool clients' escrow funds in bank accounts
and give the interest to legal aid programs.
The ruling was a major victory for legal aid organizations
in all 50 states, which depend heavily on Interest on Lawyers'
Trust Accounts. Last year, IOLTA programs, usually administered
by state courts, generated more than $200 million for such
programs, making them second only to the Legal Services Corp.
as a funding source.
"We're pleased that this critical funding source will
remain intact, said Texas Supreme Court Justice Harriet O'Neill
in a statement. "IOLTA funding allows the poorest Texans
access to basic legal services, services that are desperately
needed to protect women and children from domestic violence
and to provide legal assistance to the elderly who have nowhere
else to turn."
For more than a dozen years, the Washington Legal Foundation
has challenged the programs as a violation of the Fifth Amendment,
arguing that the interest earned in the accounts belongs to
the clients and cannot be taken by the state without just
In 1998, the conservative D.C. public interest group won
an initial victory, when the Supreme Court ruled in a Texas
case that the interest was, constitutionally speaking, the
property of the clients. But it left unresolved whether IOLTA
programs amounted to a taking and whether clients were owed
The Court answered those questions Wednesday in a Washington
state case also brought by the Washington Legal Foundation.
Writing for the majority in Brown v. Legal Foundation of
Washington, No. 01-1325, Justice John Paul Stevens said
the Court assumed the IOLTA programs amount to a taking, albeit
a minimal one -- and for a valid public purpose.
"The overall dramatic success of these programs in serving
the compelling interest in providing legal services to literally
millions of needy Americans certainly qualifies the ... distribution
of these funds as a 'public use' within the meaning of the
Fifth Amendment," Stevens wrote.
But Stevens went on to state that "just compensation"
for clients whose interest is taken in a properly run IOLTA
program is zero. "If petitioners' net loss is zero, the
compensation that is due is also zero."
Justice Antonin Scalia angrily dissented, arguing that the
majority had ignored precedent and adopted an untenable interpretation
of the Fifth Amendment.
"Perhaps we are witnessing today the emergence of a
whole new concept in Compensation Clause jurisprudence: the
Robin Hood Taking, in which the government's extraction 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," wrote Scalia.
"One must hope that that is the case. For to extend to
the entire run of Compensation Clause cases the rationale
supporting today's judgment -- what the government hath given,
the government may freely take away --would be disastrous."
Scalia was joined by Chief Justice William Rehnquist and Justices
Anthony Kennedy and Clarence Thomas.
Kennedy wrote a separate dissent asserting that the majority
ruling may violate the First as well as the Fifth Amendment,
by permitting the "forced support of certain viewpoints."
The programs do not allow property owners to opt out if they
object to the use of the money, Kennedy noted.
Indeed, the Washington Legal Foundation has a compelled-speech
First Amendment claim pending against IOLTA programs in both
the Texas and Washington cases.
But Richard Samp, the Washington Legal Foundation's chief
counsel, said it was not clear if that line of attack will
be pursued after Wednesday's ruling. Samp say he was disappointed
by the ruling.
Timothy Dowling, chief counsel of the Community Rights Counsel,
which wrote a brief in the case opposing the takings claims,
applauded the Court for taking a narrow view of the just compensation
clause: "The Court has seen through the empty legal reasoning
of property rights extremists."
The announcement of the ruling March 26 was unusual because
it gave a new name to the case that neither party had requested.
It was originally -- and confusingly -- titled Washington
Legal Foundation v. Legal Foundation of Washington. But
the Court renamed it Allen Brown and Greg Hayes v. Legal
Foundation of Washington, apparently accepting the determination
of the 9th U.S. Circuit Court of Appeals that the Washington
Legal Foundation and two others named had no standing to bring
the case because they had not suffered any loss.
The Legal Foundation of Washington receives and distributes
the IOLTA funds in Washington state. Brown and Hayes were
real estate purchasers who claimed they lost small amounts
of interest because of the IOLTA program. In Brown's case,
the amount of interest at issue was $4.96.