IOLTA, a method of raising money for charitable purposes, primarily the provision of civil legal services to indigent persons, flourished in jurisdictions across the United States without any significant opposition during the 1980s. That changed in the 1990s with a series of cases which challenged IOLTA on constitutional grounds. The most persistent claim, that IOLTA violated the Just Compensation Clause of the Fifth Amendment to the Constitution, resulting in two cases, one involving the Texas IOLTA program and the other Washington State program.
Both cases were eventually heard by the U.S. Supreme Court The Court issued decisions in 1998 (Phillips, et al. v. Washington Legal Foundation, et al., 524 U.S. 156, 118 SCt 1925) and 2003 (Brown v. Legal Foundation of Washington, 538 U.S. 216). In the Brown decision, the Court upheld the constitutionality of IOLTA under the Just Compensation Clause and brought an end to the decade-long 5th Amendment challenge to IOLTA. The ABA aided in the vigorous defense of IOLTA throughout the litigation, and filed seven amicus briefs on behalf of the IOLTA programs during the course of these two major cases.
Washington State Litigation
On March 26, 2003, the U.S. Supreme Court issued its decision in Brown v. Legal Foundation of Washington (PDF), 538 U.S. 216, (2003), upholding the constitutionality of IOLTA under the Just Compensation Clause of the Fifth Amendment. Justice Stevens authored the 5-4 majority decision, which Justices O'Connor, Souter, Ginsburg and Breyer joined. In its ruling, the Court held that even assuming that a law requiring that the interest generated on IOLTA accounts be transferred to a different owner amounted to a per se taking, such a taking was for a valid public use and the amount of just compensation due was zero. As a result, the Court found that the operation of the IOLTA program in Washington does not violate the Fifth Amendment.
The Brown v. Legal Foundation of Washington decision came as a remarkable victory in efforts to obtain equal access to justice for low-income people. As then American Bar Association President Alfred P. Carlton, Jr. stated: "The real beneficiaries of this ruling are the tens of thousands of poor people who receive legal assistance because of IOLTA." In addition to the ABA, more than a dozen organizations—with the help of countless individual and advocates—filed amicus curiae briefs with the Court or provided other assistance over the course of the Brown litigation.
Texas IOLTA Case is Dismissed with Prejudice by Fifth Circuit
On March 31, 2003, the U.S. Supreme Court granted the Texas IOLTA program's petition for writ of certiorari, filed on June 26, 2002. The Court also vacated the decision of the Fifth Circuit Court of Appeals, which had found that the Texas program violated the Fifth Amendment, and remanded the case to the Fifth Circuit for further consideration in light of the Court's decision in Brown v. Legal Foundation of Washington. On October 30, 2003, the Fifth Circuit granted the joint stipulation filed by thte parties to dismiss the case with prejudice.
The Texas Equal Access to Justice Foundation had filed its petition in June 2002, seeking review of the October 15, 2001 decision by a panel of the Court of Appeals for the Fifth Circuit in the case of Washington Legal Foundation vs. Texas Equal Access to Justice Foundation , 271 F.3d 835 (5th Cir. 2001). In 2000, a district court ruling had dismissed both the First and Fifth Amendment Claims filed in the case. The 2001 decision by the Fifth Circuit did not address First Amendment issues.
The Texas case was originally filed in 1994, and led to a trip to the Supreme Court in 1997, when the Court issued its decision in Phillips, et al. v. Washington Legal Foundation, et al. , 524 U.S. 156, 118 SCt 1925 (1998), which found that clients have a property interest in the interest generated on lawyer's trust accounts. The Court remanded further consideration of Fifth Amendment issues to the lower courts, resulting in the district court and Fifth Circuit rulings in 2000 and 2001.
There have been several legal challenges against the operation of IOLTA programs, most notably those in Texas and Washington State. The American Bar Association remains firmly convinced that IOLTA programs are both constitutional and sound public policy. The ABA has passed three resolutions in support of IOLTA and, at the request of the ABA Commission on IOLTA, it has filed seven amicus curiae briefs in support of IOLTA in these legal challenges.