A federal appeals court upheld a key source of
funding for legal services programs last month when it rejected claims
that the programs are unconstitutional.
By a 7-4 vote, the U.S. 9th Circuit Court of
Appeals ruled in favor of Interest on Lawyer Trust Account (IOLTA)
programs, which collect interest earned on money held temporarily by
lawyers for their clients and give it to programs which provide legal
assistance to poor people. The court reversed a three-judge panel of
the 9th circuit, which ruled earlier this year that the interest
belongs to clients and cannot be given to someone else without
"This is a crucial victory for poor people,
particularly at a time when their circumstances have been made worse
by the current economic situation," said Judy Garlow, director of
the State Bar of California's trust fund program. "It's nice for
legal services programs to get some good news for a change."
California's IOLTA program awards $12 million a
year to 102 programs, Garlow said. That's about 10 percent of the
state's legal aid budget and the second-largest source of funding.
Every state legislature has created such a program, and nationwide
they generate $149 million for legal aid to the poor.
The Washington state program was the source of
the challenge, brought by a conservative public interest law group.
Writing for the majority, Judge Kim M. Wardlaw
said the government action of taking interest arises from a public
program "adjusting the benefits and burdens of economic life to
promote the common good.
"In creating the IOLTA program, Washington
concluded that the health, safety, morals or general welfare [of the
state] would be promoted," she wrote.
Wardlaw also said interest-bearing trust accounts
are required by law to protect a client's finances from attorney
fraud. The loss of the right to earn interest on that money "has no
economic value," and therefore there is no unconstitutional taking
of private property, she added.
Judge Alex Kozinski disagreed and accused the
majority of diminishing one of the protections offered by the Bill of
Rights - "the right not to have the government take away private
property without just compensation."
Legal experts said the case is likely headed to
the Supreme Court. The U.S. 5th Circuit Court of Appeals in New
Orleans differed from the 9th Circuit in a Texas case last year.