IOLTA and the Washington Legal Foundation Case

Lucas FigielAdapted by RWS

IOLTA?

• Scheme that takes advantage of bank regulations to generate significant revenue for legal service programs

• Purpose: – to provide services for the indigent – to improve the administration and

access to justice

Consumer Checking Account Equity Act in

1980• Federal banking restrictions

relaxed

• Banks authorized to offer Negotiable Order of Withdrawal (“NOW”) accounts

• Operate like checking accounts

NOW Requirements:

• All interest must go to charitable purpose

• none of the funds in the account may belong to a for-profit corporation unless the designated charitable organization has the exclusive right to the interest

Before IOLTA

• If net interest invested for client

• If no net interest non-interest bearing account– Banks benefit

After IOLTA

• If net interest invested for client

• If no net interest into IOLTA– Public benefits when client cannot

IOLTA mandatory in IL

• SC Rule 1.15(d) - all IL attorneys must participate

• Mandatory jurisdictions generate more revenue

What goes into IOLTA?

• Client funds that cannot earn net interest – Either individually or pooled

• Targeted money:– Nominal client funds – funds expected to be held for a short

duration

Earnings

• IOLTA generates over $140 million yearly nationwide

• Lawyers Trust Fund of IL – 2001 net IOLTA Income: $3,971,932

• Service Charges: $488,762• Handling Fees: $ 49,958

Comparison to LSC

• IOLTA funds come second to those distributed by the LSC

• LSC 2003 budget $329,300,000• Disbursed to Illinois

– 2003 - $11,737,172– 2002 - $11,737,172– 2001 - $11,711,351

Why client can’t realize net interest

• Administrative and banking expenses consume the interest that is earned

• Opponents contend that what couldn’t be earned before IOLTA is being earned now

Fund Usage

• wrongful eviction• disabled children• domestic violence• educate the public about legal

issues• scholarships• clinical instruction to law students

Also used for…

• controversial issues – gay rights – legal aid to poor immigrants trying to

come to the US

• 1st Amendment implications

Brown v. LFoW

Supreme Court of Washington

LPOs- what are they?

Standing issue- bank services withdrawn?

Brown and Hayes are in the real estate business

Allen Brown $14,793.32 for 16 days interest estimated is $2.00

Greg Hayes $90,521.29 for 2 days and estimated interest is $4.96

5th Amendment Takings

1) Private Property2) Taken3) For public purpose4) Without just compensation

Purpose of Takings Clause

• Prevent the government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole

Interest is client’s property?

• Circuit split settled by Phillips• Interest that accrues belongs to

the owner of the principal • Interest is created by client funds

and not the government

Property Taken?

• Takings jurisprudence comes in two flavors: – outright takings – permanent, physical

occupation of property or where the claimant is deprived of property’s economic or productive use

– regulatory takings - regulate how the property can be used

• Different tests applied

Test used to establish a taking

• Per Se – for outright appropriations and practical equivalent

• Ad Hoc – regulatory taking requires careful balancing1) degree of interference with complainant's investment-backed expectations;

none2) the severity of the economic impact on the complainant; and

minor3) the nature of the government's action

fair regulations in highly regulated industry

Proper Test?

• Settled by Brown• Per se test - transfer of interest-

income to charitable beneficiary appropriates the principal’s beneficial interest in her property

For Public Purpose?

• Easily satisfied

• compelling interest in providing legal services to millions of needy Americans

Without Just Compensation?

• Only uncompensated takings prohibited

• Put owner in same pecuniary position had property not been taken

• The loss must be pecuniary

Measurement

• Measured by owner’s loss not government’s gain

• If loss is zero then compensation due is zero

Held

• (1) that just compensation is measured by the net value of the interest that was actually earned by petitioners

• (2) by operation of the Washington IOLTA Rules, no net interest can be earned by the money that is placed in IOLTA accounts in Washington

IOLTA wins, but…

• Whether IOLTA violates First Amendment remains unanswered