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By a disappointingly narrow margin, the U.S. Supreme Court
has upheld an ingenious method for providing legal services
for the poor against an argument that it amounts to an unconstitutional
"taking" of private property. The 5 4 ruling means
all 50 states can continue to generate income for legal aid
by pooling the interest on short term deposits lawyers hold
for their clients.
As we observed in a previous editorial, the program known
as IOLTA which stands for Interest on Lawyers' Trust Accounts
is a rare example in law and finance being more than the sum
of the parts.
IOLTA works this way: When lawyers deposit funds for their
clients in short term escrow accounts, the interest is pooled
with interest from other lawyers' accounts and the proceeds
go to organizations that provide legal aid to the indigent.
The genius of the system is that the aggregation of interest
results in a bigger amount than the product of the cumulative
interest earned by individual accounts, because tax and transaction
costs are saved by pooling.
A conservative legal foundation had argued that the pooling
arrangement violated the Fifth Amendment, which holds that
private property cannot be "taken for public use without
just compensation." In his majority opinion Justice John
Paul Stevens rejected this argument in light of the fact that,
if one does the math, the "property" taken from
any individual client is minuscule if not nonexistent.
The "just compensation" required by the Fifth
Amendment, Justice Stevens said, "is measured by the
property owner's loss rather than the government's gain."
With IOLTA, it isn't only the government that gains, it's
the cause of adequate representation for the poor.
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