California Bar Journal
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Until about a quarter-century ago, checking accounts did not pay interest. Once federal regulations were changed to allow such accounts, it was discovered that many client trust accounts were too small or the funds were there for too short a time to generate interest.

California was a pioneer, and other states soon followed, in having these accounts pooled and using the resulting interest to fund legal services. All 50 states have such programs, and they provide almost $100 million a year for legal services in the United States.

The entire budget for the federal Legal Services Corp. is only $270 million, making IOLTA programs crucial in funding legal representation for the poor.

In a 5-4 decision, the Supreme Court held that the interest in such accounts is private property. Chief Justice Rehnquist, writing for the court, simply concluded that interest follows the principal and thus is private property within the meaning of the takings clause of the Fifth Amendment.

However, the court did not decide whether such laws constitute a taking or what just compensation will require. It is possible, for example, that the programs are not a “taking” because it is the government law that creates the property or that the court will conclude that no compensation is required because the interest would not exist without the state laws.

Contrary to reports in the media, Phillips does not necessarily mean the end of IOLTA programs.

Decency in arts

Another important constitutional ruling was in National Endowment of the Arts v. Finley. A federal statute instructs the National Endowment of the Arts to consider “decency and respect for the diverse beliefs and values of the American public,” along with artistic merit, in deciding which artists to fund. The United States Court of Appeals for the Ninth Circuit held this provision of the law unconstitutional because it was vague and because it impermissibly discriminated against speech based on its content.

In an 8-1 decision, with only Justice Souter dissenting, the Supreme Court upheld the federal law. Justice O'Connor, writing for the court, emphasized that the federal law allowed the NEA to consider “decency and respect for values,” but it did not require the use of these criteria or the denial of funds to any artists.

Moreover, Justice O'Connor explained that the government must fund some artists and not others, and that inevitably requires that the agency look to the content of the artwork. The court's ruling gives the government great license to make choices restricting speech when it is the funding source.

Unconstitutional forfeiture

Yet, not all the constitutional cases had conservative results. In United States v. Bajakajian, the Supreme Court found that a government seizure of property under a forfeiture law was so large as to violate the Constitution.

An individual took his life savings of $357,000, all earned legally, back to his native country. However, he violated the federal law that requires disclosure when an individual takes more than $10,000 in cash out of the country. For not complying with this law, the government seized the entire $357,000.

In a 5-4 decision, with the majority opinion written by Justice Thomas and joined by Justices Stevens, Souter, Ginsburg and Breyer, the court held that the forfeiture was grossly excessive and thus violated the excessive fines clause of the Eighth Amend-ment. The court noted that the criminal penalties under the law were a maximum of six months in prison and a fine of $5,000. The court stressed that since the money was earned legally, the government could not seize it as ill-gotten gains.

What is most surprising about the case is that four justices had no problem with what was clearly a terribly unfair government action. The case is quite significant because it is the first time that the Supreme Court ever has declared a forfeiture unconstitutional as grossly excessive.

Sexual harassment

In the area of civil rights statutes, in most of the major cases, the moderate coalition controlled and Justices Scalia and Thomas dissented, often by themselves.

For example, in two significant decisions--Faragher v. City of Boca Raton and Burlington Industries v. Ellerth--the court held that employers may be held liable for sexual harassment committed by supervisors.

Combating sexual harassment in the workplace requires that employers be held liable; realistically, to recover, employees must be able to collect from the deeper pocket of employers and only in this way will employers have an incentive to prevent and remedy sexual harassment.

The court ruled that an employer is vicariously liable for sexual harassment by supervisors. However, if the victim cannot prove a tangible harm, such as loss of a job or reduction of pay, the employer can defend the suit by proving that it acted reasonably to prevent sexual harassment and that the employee unreasonably failed to use available remedial mechanisms.


In Bragdon v. Abbott, the Supreme Court considered the questions of what is a “disability” under the Americans with Disabilities Act. Specifically, the question before the court was whether HIV-positive status is a disability. The case involved an HIV-positive woman who was denied treatment in a dental office.

In a 5-4 decision, with Justice Kennedy writing a majority opinion joined by Justices Stevens, Souter, Breyer and Ginsburg, the court held that a disability is a condition that interferes with a major life activity. HIV-positive status, even when a person is asymptomatic, is a disability because it interferes with a person's reproductive decisions. Most importantly, the court stressed the need for a broad definition of “disability.”

One national newspaper covering the legal system said that the October 1997 term was like the Seinfeld show: it was about nothing. I disagree with this assessment and believe that ultimately the term will be remembered most for its decisions concerning major civil rights statutes such as Title VII and the Americans with Disabilities Act.

Erwin Chemerinsky is the Sydney M. Irmas professor of law and political science at the University of Southern California Law School.