Access to Justice and TechnologyRonald W. Staudt

Class 8: Alternatives to Current Justice Processes

March 26, 2003

TodayFirst Drafts are due next week – April 2

No reading for next week but explore the three Illinois web sites: www.illinoislegalaid.org www.illinoisprobono.org www.illinoislawhelp.org

April 9- schedule a meeting with me to review your first draft and plan the revisions to get it homeApril 16- Student presentions start

Washington Legal Foundation v. Legal Foundation of Washington

With some exceptions, Washington requires escrow or title companies with LSOs on staff to deposit real estate transaction money into IOLTA accounts

Whether or Not to Place Funds in IOLTA

Amount of interest that the funds would earn during the period they are expected to be depositedThe cost of establishing and administering the accountThe capability of financial institutions to calculate and pay interest to individual clients

What Plaintiff’s Want:

Full refund of interest, plus interestDeclaratory Judgment that Admission to Practice Rules 12(h) and 12.1 are unconstitutionalInjunction preventing disciplinary action against non-complying LPO’sAttorney fees and costs

Procedural History

District Court granted summary judgment to defendant after finding that there is no property right to the interest generated in IOLTA accountsPlaintiff’s appealed to the 9th Circuit and while pending, the Supreme Court decided Phillips and (only) found that there is a property right to the interestNow hearing en banc to determine the matter in light of Phillips

Court’s Analysis

Phillips is binding authorityRule - interest follows principalThis is a common law principle that has been codified in almost every State’s “reception statute”

Why Use Ad Hoc

Court deems ad hoc approach appropriate given:

1) the monetary nature of the property in question; 2) the public nature of the IOTA program; and 3) the highly regulated nature of the banking

industry

Penn Central Takings Analysis

A Taking under the ad hoc analysis occurs only if a particular regulation goes so far that it forces some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a wholeThree factors: 1) economic impact of the regulation on the claimant; 2) extent to which the regulation has interfered (significantly) with distinct investment-backed expectations; and 3) the character of governmental action

Factor 1

There is no economic impact because no interest would be earned by client funds if not deposited into IOLTA account

Further, IOLTA regulations provide that only those funds that would not earn a net interest, either solo or when pooled with sub-accounting, are to be deposited into IOLTA accounts

Factor 2

There is no significant interference with distinct investment-backed expectations because plaintiffs never expected their principal to earn a net interest given the structure of IOLTA and the general practices of escrow & title companies (who never place client funds into NOW accts)

Factor 3

IOLTA regulates the use of the principal’s property with regard to the banking industry which the government regulations heavily; thus IOLTA regulations are not out of character for either commercial industry (banking) or the profession they affect (attorneys & LPOs)

Therefore… No Taking

Court determines that there is no Taking after applying the ad hoc analysis and because plaintiffs are not being singled out to bear a burden that should be borne by the public as a whole

Just Compensation?Determining what constitutes “just compensation” requires putting the owner of condemned property in as good a pecuniary position as if the property had not been taken… must consider what has been lost and not what the government has gainedFifth amendment only protects against a Taking that is without just compensation; and because of IOLTA’s nature, the compensation due for any Taking of interest is zero Incidental losses are not compensable

Issues On Certiorari:Whether the regulatory scheme for funding state legal services by systematically seizing this property violates the Takings Clause of the Fifth Amendment to the Constitution so that the property owners are entitled to relief.Whether injunctive relief is available to enjoin a State from committing such a violation of the Takings Clause, where the legislative scheme in issue clearly contemplates that no compensation would be paid to the owners of the interest taken, and where the small amount due in any individual case often renders recovery through litigation impractical.

Where this case stands:Oral Arguments took place on December 9, 2002Supreme Court accepted cert on June 10, 2002

March 26th, today, the Supreme Court affirmed the 9th Circuit.

It is neither unethical nor illegal for lawyers to deposit their clients' funds in a single bank account. A state law that requires client funds that could not otherwise generate net earnings for the client to be deposited in an IOLTA account is not a "regulatory taking." A law that requires that the interest on those funds be transferred to a different owner for a legitimate public use, however, could be a per se taking requiring the payment of "just compensation" to the client. Because that compensation is measured by the owner's pecuniary loss -- which is zero whenever the Washington law is obeyed -- there has been no violation of the Just Compensation Clause of the Fifth Amendment in this case. It is therefore unnecessary to discuss the remedial question presented in the certiorari petition.

Accordingly, the judgment of the Court of Appeals is affirmed.