REGULARS

OPINION

In 1981, the California legislature created the Legal Services Trust Fund Program to fund free legal services in civil matters for indigent persons. Lawyers are required to deposit nominal or short-term client funds into interest-bearing demand trust accounts ("IOLTA" accounts). Funds placed into IOLTA accounts would not generate net income to clients, after deduction of bank charges, without the IOLTA program.

From a high revenue mark of $22 million in 1990-91, IOLTA revenue fell to $12 million in 1997-98 because of declining interest rates. The bar's board of governors, through its Legal Services Trust Fund Commission ("IOLTA Commission"), is working to increase IOLTA revenues.

IOLTA is important to the California justice system in general and indigent persons in particular, and we plan to recognize those banks that most advance the program. In 1999, the IOLTA Commission will recognize the bank that pays the highest "yield" (interest earnings less service charges) and the "most improved" bank. We will also publish a list of comparative yields in the hope that attorneys will move their IOLTA account to the banks generating the highest yields.

We believe IOLTA accounts should generate higher yields than typical consumer checking accounts because (1) the interest earnings provide an important public benefit (consistent with banks' Community Reinvestment Act obligations), (2) they generally have higher average daily balances, and (3) they are business accounts opened by law firms, who frequently generate additional bank revenue.

The IOLTA Commission has been moderately successful in convincing banks to increase IOLTA yields. Our most successful negotiating tool has been the expression of concern by the banks' attorney customers, and I encourage attorneys to contact their bank about its IOLTA yield. The average interest rate in California is 1.25 percent and the average monthly service charge is $5. We are asking each bank to pay 2 percent interest and charge no more than a $5 service fee. If your bank's IOLTA yield is lower than our goal, I encourage you to write a letter to your account representative (copying the bank president) requesting a rate increase. For more information or a sample letter, please contact the State Bar's Linda Kelly (415/561-8254).

Last year the U.S. Supreme Court decided Phillips v. Washington Legal Foundation, in which the plaintiffs claimed that the Texas IOLTA program violated the First Amendment and the Fifth Amendment "Takings Clause" of the U.S. Constitution. The Supreme Court held (5-4) that interest earned on client funds in IOLTA accounts is a property right recognized by the Fifth Amendment.

However, the Supreme Court's decision does not require dissolution of IOLTA programs. In fact, after the Phillips decision, the U.S. Confer-ence of State Chief Justices reiterated its support for continued operation of IOLTA programs. The Phillips court remanded the case to the District Court for resolution of the second and third prongs of the "takings" claim. The Texas bar is arguing that because no net income would have been generated by moneys in the IOLTA accounts in the absence of the IOLTA program, (1) there is no "taking" because a client suffers no economic loss and (2) the client has not been denied "just compensation" because just compensation is measured by the property owner's economic loss, not the government's gain.

The California IOLTA program continues to function as it did prior to Phillips. Because of low interest rates, we encourage attorneys to take an active role in increasing IOLTA revenue. A single letter could increase access to the civil justice system for indigent Californians.

Chris Lynch is a fourth-year member and current chair of the Legal Services Trust Fund Commission. He is a partner at Jones Hall in San Francisco specializing in public finance.