In a 5 to 4 ruling, the Supreme Court yesterday upheld a method used by all 50 states and the District of Columbia to provide financial support to programs that offer free legal services to the poor.

The court turned back a challenge to a system set up in Washington state in 1984 that is similar to systems used in the other states and the District. Under it, some funds held in trust by lawyers for their clients are deposited in a pooled, interest-bearing account, with the proceeds used to support the legal services programs.

The ruling was hailed by supporters of legal services programs as preserving one of their key financial bulwarks.

"It's an historic decision," said Don Saunders, director of civil legal services for the National Legal Aid and Defender Association, a national trade association of legal services organizations. "It's critical to the entire justice system in the country. It would have been devastating had it gone the other way."

Saunders said that interest earned in the lawyers' trust accounts, known as IOLTAs, produced about $160 million for legal services programs last year, more than 20 percent of the total spent on such services. The federal Legal Services Corporation is the largest financial supporter of the programs, he said.

Under the Washington state system, the only money that must be deposited in the pooled account is money that would not otherwise generate interest for a client because the potential interest would be less than the cost of setting up the client's account. In 1995, the Washington Supreme Court extended this system to include Limited Practice Officers (LPOs), who are non-lawyers licensed to hold funds in escrow accounts in real estate transactions.

Allan Brown and Greg Hayes, who are in the real estate business in Washington, challenged the system. They alleged that LPOs with which they did business were forced to deposit their funds in an IOLTA, which amounted to an illegal "taking" of their property for which they were entitled to "just compensation" under the Fifth Amendment.

Writing for the court majority, Justice John Paul Stevens rejected those claims and affirmed an earlier ruling by the Ninth U.S. Circuit Court of Appeals. Stevens said that under the Fifth Amendment, "just compensation" is measured by a property owner's loss, not the government's gain. Under the Washington system, Stevens said, there is no loss to the property owner because the funds deposited in the IOLTA would not have generated a net gain to him anyway. He said he agreed with the appeals court that "the compensation due to Brown and Hayes for any taking of their property would be nil (and) there was therefore no constitutional violation when they were not compensated."

Justice Antonin Scalia, joined by Chief Justice William H. Rehnquist and Justices Anthony M. Kennedy and Clarence Thomas, issued a stinging dissent. He accused the court majority of ignoring its own precedents to concoct a new "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."

Kennedy wrote a separate dissent suggesting that in the future the court should consider whether the Washington system and others violate the First Amendment by compelling financial support for certain viewpoints. The case is Allen Brown and Greg Hayes v. Legal Foundation of Washington, No. 01-1325.

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