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Best Practice

Vol. 10, No. 3

On Delivery of Legal Assistance to Older Persons

March 2000

Constitutional Claims Against Texas IOLTA Program Dismissed

In the December 1998 issue of Best Practice Notes, TCSG reported on the constitutional challenge faced by state-sponsored Interest On Lawyer Trust Accounts (IOLTA), particularly the case of Phillips et al. v. Washington Legal Foundation, which challenged the Texas IOLTA program. We are happy to provide a positive follow-up to that earlier piece.

In an opinion dated January 28, 2000, Judge James R. Nowlin of the U.S. District Court for the Western District of Texas dismissed all of the plaintiff's claims against the Texas Equal Access to Justice Foundation.

The constitutional challenges were brought under the Fifth Amendment, which, made applicable to the states through the Due Process clause of the Fourteenth Amendment, states "...nor shall private property be taken for public use, without just compensation." To show that this clause, commonly referred to as the "Takings Clause," has been breached, it must be shown that: (1) there is property involved, (2) the government has taken that property, and (3) just compensation has not been provided for the property by the government.

In 1998, the U.S. Supreme Court heard arguments on the first part of that test and in June 1998 ruled that clients do have a property interest in the funds generated by their attorneys' IOLTA accounts. The Supreme Court then sent the case back to the lower court to determine if a "taking" occurred, and if so, what fair compensation should then be paid to clients.

In his ruling, Judge Nowlin found there was no "taking" and also held that the Texas program does not violate the plaintiff's First Amendment rights.

Washington Legal Foundation filed its notice of appeal on February 18, as was expected. A deadline for filing appeals has yet to be set.

In another IOLTA challenge, this one in Washington state, the Ninth Circuit Court of Appeals heard oral arguments on February 9 in a second case brought by the Washington Legal Foundation. The case, Washington Legal Foundation v. the Legal Foundation of Washington, contains many of the same Fifth and First Amendment claims as were brought against the Texas program. The Washington case was filed before the Supreme Court's Phillips decision, and it is not yet known what the Ninth Circuit will do based on that ruling. What is known is that the Ninth Circuit, like many of the federal courts, has a significant case backlog, which will likely delay a decision.

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