States have implemented Interest on Lawyers' Trust Account programs ('IOLTAs")' to generate revenue for legal aid. IOLTAs raise money through the creation of an economy of scale by directing attorneys to place clients' trust funds that could not profitably draw interest in individual checking accounts into an unsegregated interest- bearing bank account ("IOLTA account"). By significantly reducing the expense that results from opening and maintaining separate accounts for individual clients, the IOLTA account profitably draws interest when individual client accounts could not. The interest generated from the IOLTA account is used to fund legal aid programs according to the specifications in the rules of the particular state's IOLTA, while the clients' principal is returned on demand to the attorney. Following the implementation of the original program in Florida in 1981, forty-nine states and the District of Columbia have adopted IOLTAs. These programs currently raise $100 million annually in funding for legal aid.
This Note examines whether a state's expropriation of the interest generated from clients' principal in IOLTA accounts results in an unconstitutional taking of clients' property.6 Part II provides the historical and legal background of IOLTAs and discusses the often cursory judicial dismissal of the takings issue at the state level and the rejection of takings claims by both the First and Elevenths circuits. It then analyzes the Fifth Circuit's unprecedented holding in Washington Legal Foundation v. Texas Equal Access to Justice Foundation, the first case at any level to hold that clients possess a property interest in IOLTA funds. Part III examines whether clients have a constitutionally-recognizable property interest in IOLTA revenue. Particular attention is given to the claim that the inability of clients to benefit economically from IOLTA-generated interest precludes the finding of a property right in IOLTA funds. Part IV discusses whether, given the fact that clients do possess a property interest in IOLTA revenue, the government'so expropriation of IOLTA proceeds amounts to an unconstitutional taking of clients' property. Part V analyzes the constitutional rationale for invalidating IOLTAs in the face of claims that the abrogation of these programs would have dire consequences for the provision of adequate legal services to the indigent. Part VI summarizes why IOLTAs result in an unconstitutional taking of clients' property.
Kevin H. Douglas,
IOLTAs Unmasked: Legal Aid Programs' Funding Results in Taking of Clients' Property,
50 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol50/iss5/4