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In a ruling that will protect more than $200 million a year
in legal aid for the poor, a divided Supreme Court sharply
limited yesterday the right of legal clients to collect interest
earned on money they leave in escrow with their lawyers.
The 5-4 decision upheld laws now in effect in all 50 states
that take money deposited with lawyers to pay for fees or
other legal costs and pool those funds in a bank account that
earns interest. The earnings are then used to finance legal
aid for individuals who cannot afford their own counsel.
The accrued interest, which exceeds $200 million a year nationwide,
has grown in importance, because conservative lawmakers in
Congress have succeeded in repeated attacks on direct government
funding of legal aid.
A conservative legal advocacy group, the Washington Legal
Foundation, has been campaigning for years to force states
to pay to legal clients the interest earned on their pooled
funds left with lawyers.
The court ruled five years ago that the interest was clients'
private property, but it did not settle whether the state
had to pay compensation to offset the transfer of that interest
to legal aid organizations. The new decision said that compensation
is not required.
The court did rule that if a lawyer knows that an individual
client's money is a sufficient sum to earn interest if invested
alone, that money may not be pooled with others and must be
invested, with the interest going back to the client.
In the more typical situation, however, money left by a client
with a lawyer will not on its own earn interest, so lawyers
pool it for investment purposes with other clients' money,
placing the pooled amount in an interest-bearing bank account
to raise money for legal aid.
In such a sitution, the court said, the individual client's
share of interest is less than the cost of distributing the
interest would be, so the net effect is that the individual
client has lost nothing and therefore is not entitled to compensation
from the state.
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