The death of IOLTA?

Issue February 2003 By Joseph P.J. Vrabel

The future of IOLTA is in danger.

In December 2002, oral argument took place before the United States Supreme Court in the case of The Washington Legal Foundation v. The Legal Foundation of Washington. In this case, the Washington Legal Foundation is once again challenging the constitutionality of IOLTA accounts, claiming that they effect an unconstitutional taking of interest on client funds without just compensation, in violation of the Takings Clause of the United States Constitution.

On the surface, the Washington Legal Foundation's challenge, or "crusade" as some have called it, claims that any interest generated by client funds deposited with an attorney, is the property of the client who deposited those funds. This, of course, ignores the fact that these same individual accounts would generate little or no interest on their own - certainly not enough to offset bank processing costs and fees. A central tenet of the IOLTA program is that if client funds are sizable enough to generate interest, they cannot be deposited into an IOLTA account.

In 2001, the Massachusetts Bar Foundation, the Boston Bar Foundation and the Massachusetts Legal Assistance Corporation made IOLTA grants of more than $12 million. For calendar year 2002, grant amounts will be higher still. Without IOLTA funding, which constitutes more than 40 percent of all financial support for legal aid programs in the commonwealth, legal aid organizations will be left to depend almost exclusively on private donations and support from federal and state government. We all know that government funding will be harder and harder to obtain as budget deficits grow larger and cuts in essential governmental services grow ever deeper.

Recently, the Massachusetts Bar Association signed on to an amicus brief arguing in favor of the constitutionality of IOLTA accounts, together with 49 state bar associations, the National Association of IOLTA Programs, the Massachusetts IOLTA Committee and other legal aid organizations, all of who are arguing against the position of the Washington Legal Foundation.

But good-faith constitutional arguments aside, what is the real agenda of the Washington Legal Foundation in its continuing IOLTA challenge?

A recent article by Tony Mauro of American Lawyer Media mentions a September fund-raising letter of the Washington Legal Foundation, and quotes the following paragraph from that letter authored by Daniel Popeo, its chairman:

"We are finally in a position we've fought more than a decade to reach - a position where we can deal a death blow to the single most important source of income for radical legal groups all across the Country," writes WLF Chairman Daniel Popeo. Among the foundation's adversaries in the litigation, he continues, are "groups dedicated to the homeless, to minorities, to gay and lesbian causes, and any other group that has drawn money from hard-working Americans like you and me to support its radical cause!"

Is this really the not-so-subtle agenda of the Washington Legal Foundation? Is their constitutional argument nothing more than a smoke screen for an attack on legal aid services for the poor? Is this really what their "crusade" is all about against IOLTA and the funding of legal aid services across the country?

Here in Massachusetts, in an action brought by Citizens for the Preservation of Constitutional Rights and the Small Property Owners Association of Cambridge against the Massachusetts IOLTA Committee and the Supreme Judicial Court, these same issues are now being litigated. The fact that an action has been commenced in our own backyard should serve as a wake-up call to all of us. We need to join the fight to preserve the existence of IOLTA accounts and continued funding of legal aid programs across the commonwealth, and we need to do it now.

Although in 1998, in another Washington Legal Foundation challenge, the Solicitor General's Office filed an amicus brief in favor of the constitutionality of IOLTA, it has not done so in this case, perhaps because of Solicitor General Theodore Osben's close ties to the Washington Legal Foundation. For whatever reason, the current administration has decided that it will not argue in favor of the constitutionality of IOLTA accounts in this case. For our federal government to sit on the sidelines during the current IOLTA case before the Supreme Court, when it has advocated IOLTA constitutionality in the past, is a sad but telling commentary.

It is disappointing that the plight of IOLTA accounts has not received more attention, both nationally and here in Massachusetts. It also is surprising that more organizations and more attorneys have not been heard on this issue. If the Washington Legal Foundation wins its case, there will be a crisis in the funding of legal aid services across the country.

Attorneys need to mobilize and amicus briefs need to be ready to be filed in support of the continuation of IOLTA accounts here in Massachusetts. These issues need to be discussed openly.

This is a position we must support, one that deserves our time and attention, and Massachusetts attorneys need to be heard on this issue. Let's not let IOLTA die in Massachusetts.