U.S. Supreme Court says “no” to IOLTA

      In a major victory that could undercut funding for free lawyers for tenants, the U.S. Supreme Court ruled in June that the interest collected by attorneys on escrow accounts (called “IOLTA”) belongs to the attorneys’ clients, not to the government.
      The high court’s decision could eventually end the nationwide IOLTA system that sends millions of dollars to legal services agencies, including $7.8 million last year to Massachusetts legal aid groups alone. Most of these funds are spent to give free lawyers to tenants to sue small property owners, using legal tactics to delay eviction and run up an owner’s costs.
      But the court’s decision, a narrow 5-to-4 ruling, only addressed one legal question: who “owns” the interest generated when attorneys deposit client’s escrow money into these special accounts? The court followed the ancient rule that “interest follows principle” and said that the interest is the “private property” of the clients.
      The court did not rule on the legal question of whether the IOLTA system that gives this interest to free-lawyer agencies constitutes a “taking” under the Fifth Amendment of the U.S. Constitution, which says: “...nor shall private property be taken for public use without just compensation.”
      Similarly, the court did not rule on whether “just compensation” must be paid for “taking” the interest from attorneys’ clients.
      The case is expected to return to lower courts in Texas, where it originated, to litigate these remaining issues. Though it may seem obvious to property owners how the case should resolve, the outcome is by no means clear, and IOLTA could remain intact for a long time.

Massachusetts ignores ruling
      Meanwhile, the Massachusetts Board of Bar Overseers announced immediately that the U.S. Supreme Court ruling would not affect Massachusetts lawyers and affirmed that they would continue to enforce the state’s mandatory rules governing IOLTA...“until there is a change.”
      This response was anticipated as a way to perpetuate the legal aid funding for as long as possible, forcing Massachusetts to have its own court test on IOLTA, to verify that the ruling applies here.
      As usual, litigation is costly, slow and none too helpful, so pressure against these free-lawyer agencies needs to be continued through picketing and educating the public about their abuse of small property owners.

Won’t stop illegal activity
      In 1996, Congress placed restrictions on free-lawyer agencies across the country who receive federal tax dollars, in an effort to curb the lobbying and other political activities of these groups.
      But a report in the Wall Street Journal (8/24/98) suggests that these agencies are thumbing their nose at Congress when they think they can get away with it. The report described a hidden-camera videotape of legal services lawyers who had flown to Mexico and were advising Mexican migrant farm workers on how to sue their U.S. farmer-employers. Congress specifically prohibited “legal assistance” to aliens outside the U.S., as well as lobbying, union-organizing activity, and class-action suits designed to alter social policy through litigation. The Mexico trip had cost the legal aid agency $10,000 plus 400 hours of legal time. It’s being investigated by Congress.       The Wall Street Journal report suggests that these ideologically motivated agencies “may be beyond reform.” Despite legal restrictions, these groups spend considerable time lobbying at state legislatures across the country for anti-property-owner causes like rent control, “just cause” eviction, and lead paint abatement.