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IOLTA (Interest on Lawyers' Trust Accounts) funding provides the second greatest source of revenue for the provision of civil legal services in the United States. These funds are generated from deposits in lawyer trust accounts of such small size or short duration that insufficient interest is generated to accrue to the client possessing the funds. The deposits are pooled into IOLTA accounts and the interested generated is dedicated to justice-related activities. IOLTA programs exist in every state. In 1999, over $164 million was provided by these programs to support civil legal aid and other public interest activities. IOLTA funders receive technical assistance and support through the National Association of IOLTA Programs (NAIP). The American Bar Association supports both the ABA's IOLTA Commission and NAIP on IOLTA-related issues (For more information see the ABA Commission on IOLTA.)
Litigation in OppositionOpponents of IOLTA-funded civil legal services have brought several legal challenges attacking the constitutionality of IOLTA. The essential claim of the litigation is that the program violates the Fifth Amendment in that it amounts to a taking of property of the client without just compensation. IOLTA proponents strongly argue that, by definition, interest generated on IOLTA deposits cannot exceed the administrative costs associated with maintaining a separate account in a financial institution. If the interest does exceed these costs, the attorney is duty bound to invest those funds in accounts that accrue to the benefit of the client.The two primary cases involving IOLTA are in Texas and Washington State.
Texas LitigationIn Phillips, et al. v Washington Legal Foundation, et al., 524 US 156, 118 SCt 1925 (1998), (Read the opinion) the Supreme Court found that the client had a property right in interest generated by IOLTA accounts under Texas law and remanded the case to the United States District Court to determine whether a taking of that property without just compensation had occurred in the case. On January 28th, 2000, United States District Court Judge James Nowlin dismissed the case, finding that there was no taking of client property without just compensation. The plaintiff's appeal of that ruling to the Fifth Circuit Court of Appeals was argued on February 6, 2001. No date for a ruling is known at this time.
Washington State LitigationA similar case, Washington Legal Foundation v Legal Foundation of Washington, 236 F.3d 1097 (9th Cir. 2001), has proceeded through the Washington State federal District Court and the Ninth Circuit Court of Appeals.On January 10, 2001, the Ninth Circuit Court of Appeals found that the Washington IOLTA program amounted to a taking of client property, but remanded the case to the U.S. District Court to determine if compensation was due. The court did not find the IOLTA program to be unconstitutional or enjoin it from operating. (Read the opinion). On May 9, 2001 the Ninth Circuit Court of Appeals granted a motion by the Washington IOLTA program to reconsider its previous ruling en banc. The Court in effect vacated the ruling, holding that it could not be used as precedent in any court proceeding in the Ninth Circuit pending a rehearing. Detailed analyses of these opinions appear below. NLADA has participated as amicus curiae in these cases and firmly believes that the validity of the IOLTA program will be upheld upon final determination in the courts. In the meantime, each IOLTA program in the country continues under normal operations. The funding provided by this critical resource is providing legal assistance to thousands of low-income people who otherwise would not have access to the system of justice. NLADA also provides technical assistance, information and advice to programs receiving IOLTA funds. For further information, contact Don Saunders by email, or phone: 202-452-0620, ext. 224.
NLADA Update Coverages of These Cases
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© Copyright, 2001
National Legal Aid & Defender Association,
1625 K Street NW, Suite 800,
Washington, DC 20006-1604
(Phone) 202.452.0620 |
(Fax) 202.872.1031 | info@nlada.org |
