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Consider this Zen riddle pending before the Supreme Court
in Washington Legal Foundation v. Legal Foundation of Washington:
If government programs "take" interest income, but
cause no economic harm, do they violate the just compensation
clause of the Fifth Amendment?
As a matter of law, the answer is actually straightforward
because the text of the just compensation clause, and a century
of precedent, dictate that the programs should continue. But
a significant jurisprudential conundrum remains: Will the
justices embrace the political outcome desired by conservative
legal activists or the result compelled by an equally conservative
commitment to textualism, federalism, and judicial restraint?
The Washington Legal Foundation (WLF) seeks to deal a devastating
blow to legal aid providers, who rely heavily on the money
generated by IOLTA programs -- the term stands for Interest
on Lawyers' Trust Accounts -- to provide legal services to
our neediest citizens. Although this case challenges only
Washington state's program, hanging in the balance are similar
programs in the other 49 states and the District of Columbia
that generated more than $148 million in legal aid last year.
MONEY FROM NOTHING
IOLTA programs pool small amounts of money held by lawyers
for clients for short periods of time, and use the interest
generated by these pooled accounts to fund legal services
for the poor. Joining the WLF as claimants in the case are
two people whose money was used to generate interest for the
IOLTA program. The critical fact of the case is that funds
are included in IOLTA only if they are so small and held for
so short a time that they cannot generate net interest outside
the program, due to bank fees and other transaction costs.
In other words, if the Washington IOLTA program didn't exist,
the claimants would not have been able to earn a penny of
net interest.
The WLF does not seriously contest this fact. Rather, it
seeks relief based on the government's benefit (less than
$7 from the claimants here) and for the non-economic, ideological
harm the claimants allegedly suffered when the interest was
used for legal services for the poor. They do not seek reimbursement
of the interest, but instead ask the Court to shut down the
program altogether through an injunction.
The text, purpose, and history of the just compensation clause
show why the WLF's arguments must fail. The clause -- "nor
shall private property be taken for public use, without just
compensation" -- does two things. It recognizes the sovereign
power to take property through eminent domain, and then conditions
that power upon the payment of just compensation for any taking.
The recognition of the power of eminent domain is as important
as the condition, for it protects the public from being held
hostage by holdouts. Without the power to condemn property,
owners could extort windfall profits from the taxpayers when
they happen to hold key property necessary to complete a proposed
road, park, or other public project. Or they could stop needed
community initiatives by refusing to sell.
In construing the just compensation clause, the Supreme Court
avoids the holdout problem by measuring compensation for any
taking based on the claimant's loss, not by the public's gain.
For example, when the government requisitioned private ships
for use during World War II, just compensation did not include
any increase in value due to the government's urgent need
of the vessels. Instead, long-standing case law makes clear
that just compensation should simply return the claimant to
the same position monetarily but for the taking. The claimant
is made whole for any direct monetary loss, but is not allowed
to extract an unfair profit by exploiting a pressing public
need for the property. It follows that where the claimant
suffers no economic injury, just compensation for any taking
is zero.
The Court's 1926 ruling in Marion & Rye Valley Railway
Co. v. United States illustrates these principles. There,
the Court addressed a takings claim premised upon a presidential
proclamation authorizing the government to take control of
the claimant's railroad. Despite the proclamation, the government
never interfered with the railroad's operations, and the company
suffered no economic loss. Writing for a unanimous court,
Justice Louis Brandeis concluded that even assuming that the
proclamation effected a taking, no economic harm resulted,
so no compensation or relief was due.
Applying these principles to IOLTA, it becomes clear that
even if a taking has occurred (a hotly contested issue), the
claimants have suffered no economic harm and, thus, just compensation
for any taking is zero. True, the IOLTA program benefits legal
aid providers. But the measure of just compensation is the
claimants' loss, not IOLTA's gain. Indeed, an award of compensation
would result in an unfair windfall to the claimants, who would
not have earned any net interest on their money absent the
IOLTA program.
The WLF's request for injunctive relief makes the case especially
incongruous. As former Acting Solicitor General Walter Dellinger
observed at oral argument in December, if the government takes
property worth $10, it is undisputed that just compensation
for the taking is $10. If the property drops in value from
$10 to zero prior to the taking, the owner gets nothing. The
WLF, however, contends that it is entitled to equitable relief
preventing the taking from occurring altogether. Adopting
the WLF's position would give owners of valueless property
the unique power to prevent eminent domain, a nonsensical
result.
Justice Anthony Kennedy asked counsel for the government
whether "it may take property for free whenever it is
too difficult to calculate just compensation." But it
is not difficult to calculate just compensation here. We know
precisely what just compensation is for the loss suffered
by the claimants: zero. An award of zero dollars would place
the claimants in precisely the same position they would be
in but for the IOLTA program.
Justice Sandra O'Connor steered the dialogue toward the heart
of the case, asking: "If it is shown that no compensation
is due, how is it a taking?" Her inquiry actually raises
two issues: whether the claimants' property had been taken,
and whether (assuming a taking had occurred) they had been
denied just compensation. Under the plain constitutional text,
a taking of property does not alone establish a violation
of the just compensation clause. Because those challenging
IOLTA have not suffered a denial of just compensation, they
deserve no relief.
FOR CONGRESS, NOT THE COURTS
Aside from the law, the case also involves politics. Anti-government
groups such as the WLF have spent the last two decades trying
to establish the just compensation clause as a license for
courts to engage in free-ranging inquiries into the wisdom
of public programs. This reading of the clause would present
profound difficulties to the unelected judiciary. In a recent
fund-raising letter, the WLF portrays IOLTA programs as a
scam that provides funding for "radical legal groups."
On the other hand, every state in the union has adopted IOLTA
programs, uniformly viewing these programs as an essential
source of desperately needed funding for legal services for
the poor. The states emphasize that IOLTA funding helps domestic
violence victims, seniors swindled by con artists, patients
denied life-saving treatment because of bureaucratic snafus,
and many others unable to afford critical legal services.
In making the decision whether to keep IOLTA, we have a pure
policy call that appropriately falls outside the realm of
constitutional adjudication.
As Justice Kennedy wisely opined in 1998 in the face of
a similar attempt to expand the application of the just compensation
clause, the clause is the wrong lens through which to view
constitutional challenges that turn on the wisdom of government
programs. If challenged at all, the reasonableness of IOLTA
should be evaluated under the Constitution's due process clause.
At oral argument, Justice
O'Connor and others on the Court made similar suggestions.
At the end of the day, the case will turn on whether the
Court pays proper respect to the language of the constitutional
text and to the conclusion by state officials across the country
that IOLTA programs comport with our basic charter. As noted
by the Conference of Chief Justices in its amicus brief, there
are few areas in which the states have stronger interests
than in the administration of their own judicial systems.
In the absence of economic harm to the claimants, the plain
text of the just compensation clause provides no warrant for
intruding upon these significant state interests.
Timothy J. Dowling and Douglas T. Kendall are, respectively,
chief counsel and executive director of the Community Rights
Counsel, in Washington, D.C. The Community Rights Counsel
filed an amicus brief in the IOLTA case in support of the
state of Washington on behalf of the National League of Cities
and others.
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