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IOLTA and the Washington Legal Foundation Case

IOLTA and the Washington Legal Foundation Case . Lucas Figiel Adapted by RWS. IOLTA?. Scheme that takes advantage of bank regulations to generate significant revenue for legal service programs Purpose: to provide services for the indigent

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IOLTA and the Washington Legal Foundation Case

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  1. IOLTA and the Washington Legal Foundation Case Lucas Figiel Adapted by RWS

  2. IOLTA? • Scheme that takes advantage of bank regulations to generate significant revenue for legal service programs • Purpose: • to provide services for the indigent • to improve the administration and access to justice

  3. Consumer Checking Account Equity Act in 1980 • Federal banking restrictions relaxed • Banks authorized to offer Negotiable Order of Withdrawal (“NOW”) accounts • Operate like checking accounts

  4. NOW Requirements: • All interest must go to charitable purpose • none of the funds in the account may belong to a for-profit corporation unless the designated charitable organization has the exclusive right to the interest

  5. Before IOLTA • If net interest  invested for client • If no net interest  non-interest bearing account • Banks benefit

  6. After IOLTA • If net interest  invested for client • If no net interest  into IOLTA • Public benefits when client cannot

  7. IOLTA mandatory in IL • SC Rule 1.15(d) - all IL attorneys must participate • Mandatory jurisdictions generate more revenue

  8. What goes into IOLTA? • Client funds that cannot earn net interest • Either individually or pooled • Targeted money: • Nominal client funds • funds expected to be held for a short duration

  9. Earnings • IOLTA generates over $140 million yearly nationwide • Lawyers Trust Fund of IL • 2001 net IOLTA Income: $3,971,932 • Service Charges: $488,762 • Handling Fees: $ 49,958

  10. Comparison to LSC • IOLTA funds come second to those distributed by the LSC • LSC 2003 budget $329,300,000 • Disbursed to Illinois • 2003 - $11,737,172 • 2002 - $11,737,172 • 2001 - $11,711,351

  11. Why client can’t realize net interest • Administrative and banking expenses consume the interest that is earned • Opponents contend that what couldn’t be earned before IOLTA is being earned now

  12. Fund Usage • wrongful eviction • disabled children • domestic violence • educate the public about legal issues • scholarships • clinical instruction to law students

  13. Also used for… • controversial issues • gay rights • legal aid to poor immigrants trying to come to the US • 1st Amendment implications

  14. Brown v. LFoW Supreme Court of Washington LPOs- what are they? Standing issue- bank services withdrawn? Brown and Hayes are in the real estate business

  15. Allen Brown $14,793.32 for 16 days interest estimated is $2.00 Greg Hayes $90,521.29 for 2 days and estimated interest is $4.96

  16. 5th Amendment Takings • Private Property • Taken • For public purpose • Without just compensation

  17. Purpose of Takings Clause • Prevent the government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole

  18. Interest is client’s property? • Circuit split settled by Phillips • Interest that accrues belongs to the owner of the principal • Interest is created by client funds and not the government

  19. Property Taken? • Takings jurisprudence comes in two flavors: • outright takings – permanent, physical occupation of property or where the claimant is deprived of property’s economic or productive use • regulatory takings - regulate how the property can be used • Different tests applied

  20. Test used to establish a taking • Per Se – for outright appropriations and practical equivalent • Ad Hoc – regulatory taking requires careful balancing 1) degree of interference with complainant's investment-backed expectations; none 2) the severity of the economic impact on the complainant; and minor 3) the nature of the government's action fair regulations in highly regulated industry

  21. Proper Test? • Settled by Brown • Per se test - transfer of interest-income to charitable beneficiary appropriates the principal’s beneficial interest in her property

  22. For Public Purpose? • Easily satisfied • compelling interest in providing legal services to millions of needy Americans

  23. Without Just Compensation? • Only uncompensated takings prohibited • Put owner in same pecuniary position had property not been taken • The loss must be pecuniary

  24. Measurement • Measured by owner’s loss not government’s gain • If loss is zero then compensation due is zero

  25. Held • (1) that just compensation is measured by the net value of the interest that was actually earned by petitioners • (2) by operation of the Washington IOLTA Rules, no net interest can be earned by the money that is placed in IOLTA accounts in Washington

  26. IOLTA wins, but… • Whether IOLTA violates First Amendment remains unanswered

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