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Legal Times
June 3, 2002
Gayle Horwitz
Despite the similar sounding names, the only thing uniting
the Washington Legal Foundation and the Legal Foundation of
Washington is a keen interest in a battle over millions of
dollars routed annually from lawyers' trust accounts to nonprofit
organizations.
The case of Washington Legal Foundation v. Legal Foundation
of Washington, No. 01-1325, is one of many the U.S. Supreme
Court is scheduled to consider at its private conferences
June 6 and June 13 for possible review next term.
The WLF, a conservative litigation group based in Washington,
D.C., opposes Washington state's program for spending the
interest on trust accounts established by lawyers and real
estate professionals on behalf of their clients. The program
is run by the Legal Foundation of Washington, which distributes
the money to public interest law groups.
All 50 states and the District of Columbia operate similar
accounts, known as Interest on Lawyer's Trust Accounts, or
IOLTAs, raising a combined $100 million a year. Washington's
program, like about half of those around the country, is mandatory
for all licensed attorneys in the state.
The WLF first challenged the program in 1997 on behalf of
four real estate professionals whose accounts were subject
to IOLTA. Though a federal district court found that the plaintiffs
lacked a property right to interest on the accounts, a unanimous
panel of the 9th U.S. Circuit Court of Appeals reversed the
decision in January 2001.
"A government appropriation of that interest for a public
purpose is a taking entitling them to just compensation,"
wrote Judge Andrew Kleinfeld. In November the full appeals
court flipped that ruling, 7-4. Though the court found that
property was "taken" from two of the real estate
professionals, it ruled compensation unnecessary.
"The IOLTA program, at worst, maintains the status quo
and, at best, provides clients with interest they otherwise
would not have earned," wrote Judge Kim McLane Wardlaw.
In his brief seeking U.S. Supreme Court review, WLF lawyer
Richard Samp says using the money "without the consent
and usually without the knowledge" of clients must be
stopped, or at least that the professionals feeding the accounts
should be fairly compensated. Samp says his group targeted
the Washington program because the state supreme court, as
opposed to the legislature, initiated it.
"We see this as an end-run around the democratic process,"
Samp says. The Legal Foundation of Washington, established
by the state high court in 1984 to oversee the funds, contends
that a "takings" claim is unfounded.
"The program requires that lawyers be careful not to
put money into the IOLTA account if it could garner interest
for a client," says David Burman, a partner in the Seattle
office of Perkins Coie who represents the program and the
justices of the Washington Supreme Court, who are named in
the suit.
IOLTA funds accumulate from transactions so small or amounts
held for such a short time that they earn only negligible
interest, he explains. Once these tiny amounts are pooled,
however, they yield interest of about $4 million a year in
Washington.
Burman dismisses the contention that the state supreme court
inappropriately wielded its power, noting that the Washington
legislature grants the court "complete authority to regulate
the bar."
This is the WLF's third crack at state IOLTA programs. The
1st Circuit rejected a challenge to Massachusetts' initiative
in 1993. The panel -- including now-Supreme Court Justice
Stephen Breyer -- ruled that clients could not claim the interest
as private property.
Arguments against the Texas IOLTA fared better. The 5th Circuit
ruled that clients could assert a property right over the
interest, though it did not determine whether the IOLTA program
qualified as an unconstitutional taking. In June 1998, the
U.S. Supreme Court upheld the decision, 5-4, in Phillips v.
Washington Legal Foundation and sent the case back down.
On remand, a 5th Circuit panel found that IOLTA constituted
a "taking" that could invalidate the program. A
motion for the court to rehear the case en banc is pending.
Attorneys for both sides agree the issue is a strong contender
for Supreme Court review, though they think the Court may
hold off until the 5th Circuit decides whether to rehear the
Texas challenge.
OTHER CASES UP FOR REVIEW
June 6:
o Krilich v. United States, No. 01-1277. Habeas corpus claim
and violation of Fifth Amendment right against self-incrimination.
o New York City Housing Authority v. Davis, No. 01-1466.
Public housing admissions quotas based on race and income.
o Oregon Arena Corp. v. Lee, No. 01-1488. Free speech in
public forum when forum is privately operated.
o National Electrical Manufacturers Association v. Sorrell,
No. 01-1489. First Amendment rights of commercial speech in
labeling of hazardous substances.
June 13:
o Balderas v. Texas, No. 01-1196. Congressional redistricting
to create majority Latino voting districts.
o Cohen v. United States, No. 01-1234. Conspiracy in offshore
Internet gambling.
o Satellite Broadcasting and Communications Association v.
Federal Communications Commission, No. 01-1332. First Amendment
challenge to satellite cable station-carrying requirements.
o Ohio Environmental Protection Agency v. Nihiser, No. 01-1357.
State agency waiving 11th Amendment immunity by accepting
federal funds.
o Scarborough v. Principi, No. 01-1360. Application for attorney
fees under the Equal Access to Justice Act.
o Detroit v. Lac Vieux Desert Band of Lake Superior Chippewa
Indians, No. 01-1515. First Amendment challenge to casino-license
preference program.
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