DIVIDED SUPREME COURT RULES TRUST FIND INTEREST PROPERTY OF CLIENTS
By KATHLEEN O. BEITIKS
legal aid in the state, after $28 million from the federal Legal Services Corporation.
Steve Nissen, executive director of the State Bar, said the Supreme Court decision is clearly a disappointment.
However, Nissen said he is convinced that IOLTA is legal and constitutional. The case is far from over, he said, and we are still confident the IOLTA program will ultimately prevail in the courts.
Nissen added that IOLTA helps fill a need for legal services for the poor in California. Without such funding, many thousands of impoverished children, senior citizens and victims of escalating domestic violence, among others, would lose their only means of legal help, he said.
The funds at issue come from interest earned on money held in trust by lawyers for their clients. For instance, the money might involve a clients settlement check which a lawyer temporarily deposits into his IOLTA account until it can be disbursed to the client.
Individually, the accounts generate very little interest, but pooled together they provide millions of dollars which are then channeled to legal services programs.
The Supreme Court said that although the interest income on individual IOLTA accounts is insignificant, the money still belongs to clients.
While interest income at issue here may have no economically realizable value to its owner, wrote Chief Justice William Rehnquist, possession, control and disposition are nonetheless valuable rights that inhere in the property.
In addition, Rehnquist cited an old maxim of English law. Interest follows principal, he said, and thus the accumulated interest in trust accounts belongs to the client for whom the principal is being held.
The ruling did not address the issue of abolishing the nations IOLTA programs, which exist in all 50 states. It also left for the lower courts the issues of whether the government had taken clients property and what compensation, if any, would be due to them.
Arguing on behalf of IOLTA, attorneys pointed out that the accounts on their own would not generate enough interest to benefit clients.
Nissen pointed out that before the IOLTA program was established in 1981, client trust funds were in non-interest-producing accounts.
Changes in banking laws, however, allowed for the creation of interest-bearing checking accounts and the state began to authorize the diversion of the pooled interest into funds for legal aid programs.