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Washington IOLTA program found constitutional


first_imgWashington IOLTA program found constitutional Washington IOLTA program found constitutional Mark D. Killian Managing Editor The U.S. Ninth Circuit Court of Appeals ruled November 14 that the state of Washington’s interest on lawyers’ trust accounts program does not violate the Fifth Amendment of the U.S. Constitution. The 7-4 en banc decision of the San Francisco-based court reversed an earlier three-judge panel ruling that using the interest from IOLTA accounts was an illegal taking of private property without just compensation. Writing for the majority, Judge Kim M. Wardlaw said while the plaintiffs “have the right to control the accrued interest generated in theory, as a practical matter, that right will never come to fruition on its own because without IOLTA there is no interest. “We therefore hold that even if the IOLTA program constituted a taking of [the plaintiffs’] private property, there would be no Fifth Amendment violation because the value of the just compensation is nil,” Judge Wardlaw said, adding that the plaintiffs sought compensation not for the value of what they lost, but for the value of what the Legal Foundation of Washington created. Washington Legal Foundation v. Legal Foundation of Washington, case no. 98-35154. The court, however, remanded the case back to the district court for reconsideration of the plaintiffs’ First Amendment claim that the use of the plaintiffs’ funds violates their rights by forcing them to finance ideological causes with which they disagree. The decision is at odds with a similar case decided in October by a three-judge panel of the New Orleans-based U.S. Fifth Circuit Court of Appeals that found the Texas IOLTA program’s use of pooled interest from lawyers’ trust accounts amounts to an unconstitutional taking without just compensation, in violation of the Fifth Amendment. Washington Legal Foundation v. Texas Equal Access to Justice Foundation, case no. 00-50139. Writing for the Fifth Circuit panel, Judge Rhesa Hawkins Barksdale said: “In reality, the linchpin for this case has already been inserted by the Supreme Court: Interest income generated by funds held in IOLTA accounts is the ‘private property’ of the owner of the principal. And, because the state has permanently appropriated [the appellant’s] interest income against his will, instead of merely regulating its use, there is a per se taking.” The Texas IOLTA program and Texas Supreme Court filed a petition for en banc rehearing of that decision, which has yet to be ruled on. “Obviously, it’s great news and provides some encouragement that when the Fifth Circuit considers this issue en banc, that perhaps they will reach the same conclusion,” said Darryl Bloodworth, president of The Florida Bar Foundation. “This is good news at a time when we need good news,” said Miami’s Randall C. Berg, Jr., who represents more than 60 IOTA programs and bar associations across the country and participated in the Washington case. “So there is now a split in the circuits, and this decision, hopefully, will encourage the Fifth Circuit to rehear the panel decision en banc — if not have the panel vacate their own decision and reconsider it in light of this better-reasoned Ninth Circuit en banc decision,” Berg said. If both the Fifth Circuit and Ninth Circuit decisions stand, he said he expects the U.S. Supreme Court would grant cert in one of the cases. Paul Kamenar, senior executive counsel of the Washington Legal Foundation, the Washington, D.C.-based organization which challenged the Washington state and Texas IOLTA programs, told the Sacramento Bee he was disappointed and the WLF plans to seek review of the decision by the U.S. Supreme Court. “If the Supreme Court said that interest is the property of the client, and if the client doesn’t have the property, somebody took it,” Kamenar said. “We think that somebody is the bar authorities of the state.” Tampa’s L. David Shear, chair of the ABA Commission on IOLTA, said the organization is “elated with the ruling” and believes that IOLTA programs will ultimately be vindicated through the court system. “I think this is a very heartening decision from a national perspective,” Shear said, adding that IOLTA programs generate approximately $150 million for the delivery of legal services to the poor. “I know this will certainly be a shot in the arm and give a boost of encouragement to all of the programs around the country that rely upon IOLTA funding.” “We hope this will be the beginning of maybe a finalization of these issues so everyone can go about the business of trying to create more funding for delivering legal services to those in need,” said Shear, who served as president of The Florida Bar in 1979. Don Saunders, director of Civil Legal Services for the National Legal Aid and Defender Association, called the decision a well-reasoned analysis of the Fifth Amendment “takings” test in the context of the IOLTA decision and “a significant victory for providers of legal services to the poor across the United States.” Saunders said Judge Wardlaw’s decision turned on her finding that the “ad hoc” analysis central to the decision in Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978), was controlling in this case rather than the “per se” test set out in Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982), that was applied by the three-judge panel and the Fifth Circuit. “The ad hoc analysis requires a court to perform an essentially factual inquiry into the individual property acquired to determine whether the acquisition amounts to a taking,” Saunders said. “The per se analysis, on the other hand, assumes that for certain types of property interests, governmental acquisition amounts to a categorical taking under any circumstance. The critical distinction reached in this opinion is based, among other factors relating to the state’s regulatory functions, upon the fact that prior per se cases involved real property, rather than money as in the case of the IOLTA program.” In 1998, the U.S. Supreme Court, in Philips v. WLF, case no. 96-1578, found that clients have a protected property interest in funds created by pooled IOLTA accounts. The Supreme Court, however, took no view as to whether the funds had been “taken” by the state or if any “just compensation” was due the respondent. It left those issues for the lower courts to decide. Judge Wardlaw said the government’s ad hoc taking of the interest arises from a public program “adjusting the benefits and burdens of economic life to promote the common good.” “In creating the IOLTA program, Washington concluded that the health, safety, morals, or general welfare [of the state] would be promoted.. . by using the interest generated on IOLTA funds to help fund legal services for the poor.” Wardlaw said the taking clause was never intended to replace the role of the people in determining which social programs are appropriate, and “has not been understood to be a substantive or absolute limit on the government’s power to act.” The constitutional provision on the taking of private property also “does not prevent the government from being able to regulate how people use their property but limits that ability to what is ‘just and fair,’” Wardlaw wrote. Although the government may impose regulations to adjust rights and economic interests among people for the public good, Wardlaw said, it may not force “some people alone to bear the public burdens which, in all fairness and justice, should be borne by the public as a whole.” However, Judge Wardlaw said, the plaintiffs had not been singled out, but “as participants in our legal system are required to place their funds in IOLTA trust accounts that generate funds at no cost to them and that expand access to the legal system from which they benefit.” Because the right to earn interest on money held in IOLTA accounts “has no economic value,” there is no unconstitutional taking of private property, Wardlaw said. In dissent, Judge Alex Kozinski said the majority “deprecates one of the cherished protections of the Bill of Rights,” not to have the government take away private property without just compensation. “While the interest income at issue here may have no economically realizable value to its owner, possession, control and disposition are nonetheless valuable rights that inhere in the property,” Kozinski said. December 1, 2001 Managing Editor Regular Newslast_img read more




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