IOLTA

Mandatory IOLTA requires you to place your clients' money in a fund, the interest on which is paid to the Equal Access to Justice Foundation. Neither you nor your clients have any voice in the agenda of this Foundation. The sanction to enforce this requirement is a threat to your law license. There have been two challenges to this arrangement to arise in Texas. The second case (in time) involves South Texas College of Law Professor James Paulsen who sued the State Bar concerning the ethical dilemma the rule places a lawyer in. Predictably the state District Court upheld the Bar. On appeal the 3rd Court of Appeals upheld the District Court and added that the client funds are "unquestionably client property and a lawyer must follow the client's directives on what to do with the money." This homage to the property rights of clients was edited out of a subsequent revision of that opinion, but the remark had drawn the attention of the 5th Circuit. The very interesting -- and very important -- question presented by the Paulsen case is now probably lost and irrelevant to the courts because of what happened to the first case. The first is Phillips v.Washington Legal Foundation. This case commenced in 1994 in the United States District Court in Austin. That court at first held that the interest earned on your clients' funds was not property. The Court of Appeals for the Fifth Circuit (94 F.3d at 1000) and the United States Supreme Court (524 U.S. 156) struck that down. The District Court then ruled that while the interest may be property, the client has no claim to it. The Court of Appeals had struck that down. Meanwhile, an almost parallel case was contemporaneously developing out of Washington state -- Brown v. Legal Foundation of Washington. Both Brown and Phillips were granted certiorari. Now the Supreme Court has ruled in Brown that, even though interest is property and even though it is a taking, and the taking is without compensation -- the taking is nevertheless approved. The decision can be found here. After the decision in Brown, the predictable ax has fallen on the Phillips case. As of March 31, 2003, the Court vacated the Fifth Circuit's decision and sent it back for consideration in light of Brown. There may be hope for you client's money, but it is dimmed. Beyond that, there is a great deal which can and should be said about this decision. Here are four comments: First is the fact that the First Amendment argument against IOLTA has not yet been addressed by the 5th Circuit or the Supreme Court. Your clients' right not to be forced to finance speech they might find objectionable has been significantly compromised by omission. Second is the fact that your State Bar Board of Directors took a position in defense -- not of your license nor of your clients' right to the earnings on their money -- but in defense of the taking of your client's money. Third, we believe you can expect that the Texas Access to Justice Foundation and Commission will be emboldened by this decision. Additional demands on your time such as this are one alternative. A requirement that all lawyers put their IOLTA funds into a single account controlled by the TEAJF (so as to shop the interest return) is another that has been discussed at the State Bar Board of Directors. Finally, there is this characterization of the decision by Justice Scalia: Perhaps we are witnessing today the emergence of a whole new concept in Compensation Clause jurisprudence: the Robin Hood Taking, in which the government's extraction of wealth from those who own it is so cleverly achieved, and the object of the government's larcenous beneficence is so highly favored by the courts (taking from the rich to give to indigent defendants) that the normal rules of the Constitution protecting private property are suspended. Someone understands the issue in terms of principle.