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The Washington Post
Tuesday, December 10, 2002
Charles Lane
A sharply divided Supreme Court yesterday heard
a former solicitor general of the United States describe a
mechanism that all 50 states and the District rely on to fund
legal aid for the poor as a massive, unconstitutional seizure
of private property.
Harvard Law School professor Charles Fried, who served as
solicitor general during the Reagan administration, said that
so-called Interest on Lawyers' Trust Accounts (IOLTA) programs,
which gather up the interest earned on certain client funds
that lawyers deposit in banks, amount to an uncompensated
government "taking" of the clients' money.
"If the government wants our money, it should get it
the old-fashioned way -- it should tax," Fried said.
Before a court that was once again sitting for oral arguments
without Chief Justice William H. Rehnquist, who is still recovering
from knee surgery, Fried seemed to elicit the most sympathy
from conservative justices Antonin Scalia and Anthony M. Kennedy.
But he ran into skeptical questioning from the court's four
most liberal members and from swing voter Justice Sandra Day
O'Connor.
Fried was asking the court to shut down Washington state's
IOLTA program, which is typical of what state regulators across
the country view as a creative solution to a chronic problem:
insufficient government financial support for lawyers who
help poor people handle evictions, wrangle with health insurance
or manage domestic violence.
Basically, Washington's IOLTA plan makes the Legal Foundation
of Washington, a tax-exempt entity that funds legal aid, the
beneficiary of economies of scale.
As a routine matter, lawyers deposit clients' escrow, jury
awards and the like for what are often relatively brief periods
before passing them on to the client after the necessary paperwork
is done. In the past, lawyers put those funds in individual
non-interest-bearing accounts, because bank fees would have
eaten up client interest anyway.
Under IOLTA, however, all lawyers are directed to put "nominal"
amounts held for short periods in a state-supervised interest-bearing
account. Thus pooled, the funds generate substantial net interest
-- a harvest of cash for legal aid.
Any larger amounts that would earn net interest for an individual
client need not be placed in the IOLTA program. States also
say that IOLTA programs help avoid the ethical conflicts that
might result if lawyers were free to steer client cash to
particular banks.
Last year, IOLTA programs produced a total of $147 million
in legal aid grants, second only to the federal Legal Services
Corp., which supplied $310 million. "IOLTA programs are
critical to the states in ensuring equal access to the courts,"
36 states and Puerto Rico told the justices in a friend-of-the-court
brief supporting the Washington program.
Two of the clients Fried represents would have been entitled
to $5 and $2 worth of interest, respectively -- before any
corresponding bank fees.
"If it is shown that no compensation is due, then how
is it a taking?" O'Connor asked Fried.
Fried argued, in effect, that it's not the money, it's the
principle of the thing. Even if the actual compensation owed
any one person might be tiny or difficult to calculate, the
taking of private property is real and the court should order
an injunction halting the program.
"It may be that at the end of the day they have no money,
but that's not any of the government's business," he
said later.
Justice Kennedy seemed to agree, remarking, "I know of
no precedent for the proposition that if you can't calculate
just compensation, then the government can take it for himself."
But David J. Burman, a lawyer representing the state of Washington's
IOLTA program, said Fried's arguments were "radical"
and "startling."
Justice Ruth Bader Ginsburg sounded a similar theme, noting
that Fried's request for an injunction was "not a position
that any [lower-court] judge has held so far." She said
only the banks would be "the big gainer" if IOLTA
plans were stopped, because lawyers would go back to using
non-interest-bearing accounts.
Burman said the case against Washington state's program was
driven by the "subjective ideological" agenda of
the Washington Legal Foundation, a conservative public interest
organization that has spearheaded the drive against IOLTA
plans nationwide.
WLF believes that IOLTA singles out a group of property owners
and makes them pay for a legal aid program they may or may
not agree with.
Though WLF's brief to the Supreme Court said it objected to
IOLTA, not to legal services as such, the organization mailed
out a fundraising letter three months ago urging supporters
to donate as much as $500 to support its fight to "deal
a death blow to the single most important source of income
for radical legal groups all across the country."
WLF portrayed its opponents in the case as including not only
legal aid organizations, but also "groups dedicated to
the homeless, to minorities, to gay and lesbian causes and
any other group that has drawn money from hard-working Americans
like you and me to support its radical cause!"
However, WLF has already won a key preliminary round in this
fight. In 1998, the Supreme Court ruled that the interest
generated in IOLTA plans is indeed the property of the clients.
It left open the question that defenders of the program were
trying to get the court to answer in the negative yesterday
-- whether the use of that property to fund legal services
violated the Fifth Amendment to the Constitution, which says
that "private property [may not] be taken for public
use without just compensation."
The case is Washington Legal Foundation v. Legal Foundation
of Washington, No. 01-1325. A decision is expected by
July.
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