U.S. Supreme Court Ruling Protects Civil Legal Aid for the Poor

SEATTLE (March 26, 2003) – In a victory for low-income people across Washington state and the nation, the U.S. Supreme Court today ruled to protect one of the largest sources of funding for civil legal aid for the poor.

"The Interest on Lawyers Trust Accounts program, IOLTA, is Washington state's most stable and important funding source for helping people who cannot afford legal representation. The Supreme Court's ruling in Brown v. Legal Foundation of Washington saves these funds," said Kay Frank, president of the Legal Foundation of Washington (LFW).

"For 18 years, the IOLTA program has provided four to six million dollars a year—one third of our statewide civil legal justice system budget—to help our most vulnerable citizens deal with issues of basic survival," Frank continued. "We are deeply grateful to Dave Burman and the other volunteer attorneys from Perkins Coie who have been working on our case pro bono for more than six years. We are also grateful for the state Attorney General's representation of our co-defendants and to the scores of other law firms that provided briefs supporting our arguments."

Nationwide, IOLTA programs generate about $150 million annually. If Washington state had lost this case, IOLTA programs in many other states would have faced similar court challenges.

Twenty-eight nonprofit organizations in the statewide Access to Justice Network use IOLTA funds to provide legal help to low-income people. In 2002, the network helped more than 30,000 individuals with fundamental life issues such as domestic violence, child custody and support, wrongful eviction, access to health care and predatory lending.

The Washington State Supreme Court in 1984 ruled that lawyers must put clients' money in a pooled interest-bearing trust account if the individual client's amount is too small or will be held for too short a time to earn interest for the client. The rule was expanded in 1995 by the state Supreme Court to include "limited practice officers" such as real estate closing officials.

Together, these pooled accounts at Washington state banks generate millions of dollars in interest each year. Once the banks deduct fees for administering these accounts, the banks send the interest income to LFW, which was created by the state Supreme Court to distribute IOLTA funds to Access to Justice Network organizations.

In 1997, two clients of limited practice officers sued LFW and the justices of the state Supreme Court, saying IOLTA violates the Fifth Amendment of the U.S. Constitution because it takes property (earned interest) without paying just compensation. LFW won in the U.S. District Court in Seattle and at the U.S. Court of Appeals for the 9th Circuit. The plaintiffs subsequently appealed their loss to the U.S. Supreme Court.

"This suit has never made much sense," said Dick Manning, president of the Washington State Bar Association. "If short-term client funds were put in individual trust accounts, all of the interest earned would be eaten by bank charges. The IOLTA fund is a unique and powerful way to generate substantial interest income to support civil legal services for the poor. The interest income wouldn’t even exist without IOLTA. Fortunately, the U.S. Supreme Court understands this."

"Put simply, if there is no value lost, then there is no denial of just compensation, and no violation of the Fifth Amendment," said Burman of Perkins Coie.

"Limited practice officers brought this case because they were concerned about whether they should be participants in the IOLTA program," said LFW's Frank. "We are pleased that this issue has been clarified. Their trust account interest contributions are very important to the Access to Justice Network."

The case will now return to U.S. District Court for consideration of the plaintiffs' First Amendment claim, if the plaintiffs decide to pursue that claim. The claim was not considered by the U.S. Supreme Court. The First Amendment claim alleges that IOLTA funds are used for programs to which the plaintiffs are ideologically opposed. LFW is confident that this claim also will be rejected by the courts.