
Supreme Court Upholds Funding Source for Low Income Legal Services
by Matt Carter, 4/7/2003
On March 26, in a 5-4 ruling, the Supreme Court upheld the legality of funding legal services for the needy by using “Interest on Lawyer Trust Accounts” (IOLTA), the short-term interest earned on escrow accounts that are used by lawyers to pool clients’ funds for real estate transactions.
In Brown v Legal Foundation of Washington , the conservative public interest law firm Legal Foundation of Washington brought a legal challenge to this practice, saying that it constitutes an illegal “taking” of property for public use without compensation under the Fifth Amendment. In order for a state to engage in a “taking” of private property it must be for a “public use” and the owner must be given “just compensation.”
The narrowly divided Court did not share this view, stating that the clients’ funds would not earn interest if they were not pooled into a larger escrow account, and therefore individual clients are not losing anything and do not need to be compensated. The court also cited the compelling public interest in providing legal services to the poor, as a justification for this “taking.”
Although this case focused on Washington State, it has national implications because every state uses a similar system to raise legal services money. IOLTA funds pay for a large share of legal services, since appropriations for the Legal Services Corporation (LSC) have been significantly reduced over the years.
LSC, a congressionally created nonprofit organization that provides support for legal assistance to needy clients, has been under attack on several fronts over a period of years. In 1996, Congress passed "program integrity" requirements that force legal services programs to create physically separate organizations for advocacy with their private dollars, or deny low-income clients access to this type of advocacy. The restrictions are renewed annually through the appropriations process, and are currently the subject of a lawsuit challenging their constitutionality. See our article on the Dobbins case for more information.
