Trusting Lawyers' Trusts

Despite Beneficial Professor of Law Charles Fried’s best efforts, the Supreme Court last week upheld an important source of funding for legal services for the poor.

Under the nationwide program Interest on Lawyers’ Trust Accounts (IOLTA), the money that lawyers briefly hold in trust for their clients is pooled, and interest from the pooled money funds legal services for the poor. Lawyers’ participation in the program has been mandatory in Massachusetts since 1989.

In December, Fried argued before the Court that—although lawyers’ clients suffered no loss, because prior to the introduction of IOLTA the funds had been held in non-interest-earning accounts—the program was in violation of the Fifth Amendment’s protection of private property. “It is a taking even if the just compensation is zero,” Fried argued at the time.

But as Justice John P. Stevens pointed out in his opinion last week, although the plaintiffs’ money in Brown v. Legal Foundation of Washington had earned a few dollars’ interest for the fund, they would not have earned any interest had the money been held in individual accounts because the cost of opening and closing such accounts is prohibitively expensive. Stevens wrote that because the plaintiffs lost no money, and because by its design, the IOLTA fund would never cause a loss to its contributors—lawyers are mandated to set up private-interest earning accounts if their clients could possibly profit from it—there was no taking. Thus, the program is constitutional.

The Court’s ruling is especially welcome in today’s economic climate, as budget cuts curtail state funding of legal services programs. The Court upheld IOLTA narrowly, by a 5-4 margin; it is troubling to imagine the fate of legal services programs, and of the poor who rely on them, if the Court had found the program unconstitutional. While Fried’s was doubtless a well-intentioned attempt to defend what he saw as an attack on constitutionally-guaranteed property rights, his case, Brown v. Legal Foundation of Washington, endangered legal services for the poor. In his dissent, Justice Antonin Scalia called the IOLTA program a “Robin Hood taking”—“taking from the rich to give to indigent defendants.” But since the “rich” experience no loss, Scalia’s accusation is baseless. What Fried proposed the court do—take from the poor to protect an overly-narrow definition of property—would be far worse.