IOLTA History
1997 – 2003
The filing of a lawsuit in federal district court in Seattle by the Washington Legal Foundation (WlF), Plaintiff, on Wednesday, January 29, 1997, took an important step in the continuing goal to repeal and rescind APR 12(h) and APR 12.1. The suit seeks to strike down the Limited Practice Officer IOLTA (”Interest on Lawyers’ Trust Accounts”) program on the grounds the program violates the constitutional rights of Washington State citizens.
The lawsuit claimed that the LPO IOLTA program violates the Fifth Amendment rights of Washington State citizens by taking their property without just compensation. The lawsuit also asserted that the program violates the plaintiffs First Amendment rights by forcing them to associate with political causes with which they disagree. Three Washington State citizens, who regularly engage in real estate transactions and object to the use of funds held in trust, are also named as Plaintiffs.
The law suit names as defendants: The Legal Foundation of Washington and its president in his official capacity, as well as the Washington State Supreme Court Justices each in their official capacity.
January 30, 1998, Judge John Coughenour, U. S. Federal District Court in Seattle, ruled against the motion of the Washington Legal Foundation, et al.
February 4th, 1998, the case was appealed to the 9th Circuit Court in San Francisco. The court has directed Washington Legal Foundation to file their appeal brief on July 29, 1998. The other side’s brief is due on August 28, with one final reply on September 11 by WLF.
January 10, 2001, the 9th circuit court handed down its decision. The court reversed the US Federal District Court decision, which upheld the IOLTA program. The 9th Circuit did not set any remedies to the plaintiffs and remanded the case back to the Federal District Court for this purpose.
The court’s concluding summary, after 22 pages of details, is: “In sum, we hold that the interest generated by IOLTA pooled trust accounts is property of the clients and customers whose money is deposited into trust, and that a government appropriation of that interest for public purposes is a taking entitling them to just compensation under the 5th Amendment.” The amount of just compensation, if any, depends on the circumstances, so determining the remedy requires a remand.
May 9, 2001, a majority of the 9th circuit court voted to rehear the IOLTA case. This vacates the decision made on 1/01/01.
June 21, 2001, the case was reheard in San Francisco. November 14, 2001, results announced a 7 to 4 decision whereby the court upheld the decision of the U.S. Federal District Court in Seattle.
March 26, 2003, the U.S. Supreme Court released its Decision on the IOLTA case, ruling for the defendants (them) and against the plaintiffs (us) by a 5 to 4 margin.
First of all, the court decided that the Washington Legal Foundation, Dennis Daugs and Dian Maxwell did not have standing to be plaintiffs in the case so they changed the name of the case fromWashington Legal Foundation v. Legal Foundation of Washington to Brown v. Legal Foundation of Washington. Brown and Hayes were the two individuals who were consumers of escrow services and were also plaintiffs in the case.
Secondly the court majority decided that Brown and Hayes, even though it was their property deposited into escrow, they did not suffer any loss by the government taking the interest on their funds for the IOLTA program, because they would not have earned any interest absent the IOLTA program. Therefore there was no violation of the 5th amendment.
The Court did not take up the 1st amendment issues because they were not taken up by the trial court and the 9th Circuit Court, but it is still possible to go back through the whole process starting at the Federal District Court. The entire case is available at http://www.supremecourtus.gov/opinions/02pdf/01-1325.pdf case number 01-1325, Brown v. Legal Foundation of Washington.
