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Beneficial Professor of Law Charles Fried argued before a sharply divided Supreme Court earlier this week that the mechanism used to fund legal aid and improvements in the administration of justice for low-income individuals throughout the United States is unconstitutional.
Interest on Lawyers’ Trust Accounts (IOLTA) programs collect the interest earned on certain client funds that eligible lawyers in each state must deposit in banks to fund the legal aid and improvements.
In Massachusetts, the Supreme Judicial Court made lawyers’ participation in the IOLTA program compulsory in 1989.
The IOLTA program is the second largest provider of legal aid in the United States after Congress and helps to defray the cost of legal representation for those who could otherwise not afford it—such as the elderly and domestic abuse victims—according to Jayne Tyrrell, executive director of the Massachusetts IOLTA Committee.
Underneath the legal jargon, though, is a high-stakes ideologically charged debate about the way in which legal services for low-income Americans are financed. IOLTA generated about $150 million in legal aid grants last year for civil litigants.
“The problem is it’s other people’s money,” said Fried, who served as solicitor general during the Reagan administration. “It’s a forced contribution.”
The Fifth Amendment mandates that private property cannot be “taken for public use without just compensation.”
But defenders of the IOLTA programs strongly disagree with Fried. Instead, they argue the program is constitutional because the interest generated would not have been returned to the clients anyway.
“Before IOLTA was implemented, the money was held in non-interest serving accounts,” Tyrrell said.
Fried, however, contends that even though the funds would be absorbed by transaction costs and taxes if they were deposited into individual accounts, private property should be protected even if it does not hold significant economic value.
During the proceedings, Fried conceded that the interest had no calculable value, but said, “It is a taking even if the just compensation is zero.”
Fried is arguing the case for a conservative policy group, Washington Legal Foundation, which represents two clients who said they would have earned $5 and $2, respectively, if the money had been deposited into individual accounts.
Legal aid activists, including Harvard Law School Lecturer Jeanne Charn, who is also the director of Hale and Dorr’s Legal Services Center in Jamaica Plain, have said they are also concerned about the implications the Supreme Court’s ruling may have on those who benefit from IOLTA funds.
“It is a major source of funding for legal services in the U.S.,” Charn said. “Without that money there will just be more people not being served, and we already have a very difficult situation.”
Fried, though, said he disagrees with Charn’s assessment.
“There’s a way to [fund these programs],” he said. “It’s called taxation.”
Tyrrell said there are other options that would sustain the viability of the program even if it were declared unconstitutional when the court rules.
One such method would simply involve the lawyers obtaining clients’ permission before funds are channeled to IOLTA.
“We’re not even thinking about those options, though, because we don’t think there’s an issue,” Tyrrell said.
—Samuel A. Winter contributed to the reporting of this story.
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