first_imgPhillips also takes note of the well established rule that “interest follows principal as the shadow the body,” Judge Kleinfeld said. The Legal Foundation of Washington argued that even if the interest is the client’s property, and even if the IOLTA rule effects a taking, the Fifth Amendment nevertheless affords no remedy because the “just compensation” is zero. “On this point, which the district court did not reach, a remand is necessary,” the court said. “The Fifth Amend ment does not prohibit the taking of private property for public use; it allows it. What it prohibits is the taking of private property for public use `without just compensation.’” The court said even though the Washington IOLTA rule is a taking of private property for public use from clients of lawyers and closing officers, that does not necessarily entitle or require a district court to enjoin operation of the rule. “The clients are entitled to just compensation, not to prevention of the taking, just as they would be if the state were taking their real estate to build a highway,” the Ninth Circuit said. “Plaintiffs’ prayer for relief seeks `reimbursement’ of the interest taken from them. `Reimbursement’ is not a correct form of relief, because plaintiffs never had possession of the interest that was taken from them.. . . ” The WLF case before the Fifth Circuit, which will be argued this month, is on appeal from the January 28, 2000, decision by United States District Court Judge James R. Nowlin. In that decision, Judge Nowlin dismissed with prejudice all claims against the Texas Equal Access to Justice Foundation and its chairperson in the remanded case of Washington Legal Foundation, et al. v Texas Equal Access to Justice Foundation, et al. 86F.Supp.2d (W.D.Tex.2000). In his 40-page opinion, Judge Nowlin held that there was neither a taking of property nor any just compensation due to plaintiffs and, therefore, no violation of the Fifth Amendment. February 1, 2001 Managing Editor Regular News U.S. Ninth Circuit strikes blow against IOTA programcenter_img U.S. Ninth Circuit strikes blow against IOTA program Mark D. Killian Managing Editor The interest generated by IOTA accounts is the property of clients whose money is deposited into trust, and a government appropriation of that interest is a taking entitling them to just compensation under the Fifth Amendment, according to the U.S. Ninth Circuit Court of Appeals. The three judge panel, however, stopped short of declaring Washington State’s IOTA program unconstitutional, and said just compensation for the takings “may be less than the amount of the interest taken, or nothing, depending on the circumstances.” The court remanded the case back to the trial court to determine if any compensation is due. The January 10 ruling by the San Francisco-based court reversed a decision of the U.S. District Court for the Western District of Washington in Washington Legal Foundation v. Legal Foundation of Washington, case no. 98-35154. “We are, of course, disappointed in the decision,” said A. Hamilton Cooke, president of The Florida Bar Foundation, which administers this state’s IOTA program. But, Cooke said, the remand to determine if clients are due any compensation under the Fifth Amendment has always been the core issue for IOTA programs. “We remain confident that the courts ultimately will rule that no compensation is due and that IOTA programs are constitutional,” Cooke said. “In the meantime, as in Washington State, Florida’s IOTA program will continue to operate.” The ruling is another IOTA victory for the Washington Legal Foundation, a District of Columbia-based organization advocating free-enterprise principles, limited government, and property rights. The ruling goes a step further than the U.S. Supreme Court’s 1998 opinion, which found that interest generated by Texas lawyers’ trust accounts is the property of clients, but left it to the lower courts to determine whether using the pooled interest for legal aid amounted to a taking. Phillips v. Washington Legal Foundation, case no. 96-1578. The U.S. Fifth Circuit Court of Appeals in New Orleans will hear oral arguments February 6 in the ongoing litigation against Texas’ IOTA program. The WLF filed suit against the Washington State Interest on Lawyers Trust Account program in 1997. WLF’s lawsuit claimed the IOLTA program violates the plaintiffs’ Fifth Amendment rights by taking their property without just compensation. The Ninth Circuit agreed, holding, “When the government permanently appropriates all of the interest on IOLTA trust funds, that is a per se taking, as when it permanently appropriates by physical invasion of real property.” Writing for the panel in the Washington case, Judge Andrew J. Kleinfeld noted Phillips held that the interest belongs to the clients. “It does not belong to the banks, or the lawyers, or the escrow companies, or the State of Washington,” Kleinfeld said. “If the clients’ money is to be taken by the State of Washington for the worthy public purpose of funding legal services for indigents or anything else, then the state of Washington has to pay just compensation for the taking.” Judge Kleinfeld said that serves the purpose of imposing the costs on society as a whole for worthwhile social programs, rather than on the individuals who have the misfortune to be standing where the cost first falls. “Most of what is at issue in this case is declaratory and injunctive relief, not the takings claim for $20 or so of lost interest,” the court said. “That $20 tail cannot wag the dog of this constitutional challenge to the IOLTA program into state court.” Judge Kleinfeld said the property question is whether the clients own the interest, not whether the amounts are so small it is not worth the clients’ while to collect it. Judge Kleinfeld said the Texas Phillips case is materially similar to the Washington IOLTA program at issue here. Similar language was used in Texas to limit the pooled IOTA trust funds to short-term and nominal amounts that would not generate interest for clients exceeding the administrative costs of paying it to the clients. Judge Kleinfeld said the question the U.S. Supreme Court considered was “whether interest earned on client funds held in IOLTA accounts is `private property’ of either the client or the attorney for purposes of the takings clause of the Fifth Amendment. The Supreme Court answered by saying, `[we] hold that it is the property of the client.’” The Legal Foundation of Washington argues that Phillips should be distinguished because it depended on Texas law, and Washington law differs. Judge Kleinfeld, however, said the distinction is unpersuasive. “Basically, Phillips is not based on some odd quirk of Texas law, but on a fundamental and pervasive common law principle accepted by both states,” Judge Kleinfeld said. “The central question in this case was open and subject to serious arguments on both sides before Phillips, but not after.” last_img

Published by admin

Leave a Reply

Your email address will not be published. Required fields are marked *