MEMORANDUM 99-56

December 30, 1999

The Executive Committee, upon the recommendation of the AALS Committee on Clinical Legal Education, adopted for distribution the enclosed statement supporting the continuation of IOLTA funds while legal issues concerning the validity of such programs are pending.

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Almost twenty years ago, several state bar associations were able to use modern technology to provide funds for legal aid, legal services, and other programs, such as law school clinics, that provide access to justice. This program has now expanded to 48 states and the District of Columbia. These programs - termed IOLTA - for "Interest on Legal Trust Accounts" generate revenue where none existed before.

Many law firms had trust accounts so small that each individually could not generate interest. Record-keeping and other expenses would be more costly than any revenue that could be given by a financial institution. With a state wide IOLTA program, law firms put these funds into a pooled account, which would then be large enough so that banks and other financial institutions would pay interest which would then be available for distribution to appropriate entities providing legal services.

On June 15, 1998, the United States Supreme Court in Phillips v. Washington Legal Foundation ruled that interest on client funds held in a Texas IOLTA account was the private property of the owner. The Court expressed no view as to the continuing validity of whether Texas by putting trust funds into a pooled account had "taken" client property, nor did it express an opinion as to what, if any, "just compensation" was due. Chief Justice Rehnquist for the majority, summed up the holding as follows:

In sum, we hold that the interest income generated by funds held in IOLTA accounts is the 'private property' of the owner of the principal. We express no view as to whether these funds have been 'taken' by the State; nor do we express an opinion as to the amount of 'just compensation,' if any, due respondents.

The Court then remanded these issues to the lower court for consideration. The Court did not find the Texas IOLTA program or any other IOLTA program unconstitutional.

Recently, the Conference of Chief Justices [of all the state Supreme Courts] issued a resolution in support of IOLTA programs and the need to maintain these programs while the various legal issues wind their way through the courts. The Association of American Law Schools strongly concurs in that recommendation.

Likewise, we agree with the President of the American Bar Association who stated that "[w]e must continue to work to preserve...[IOLTA programs], which provide tens of thousands of the most needy members of our society access to our civil justice system to enforce their rights and resolve their grievances."

As an association of law schools, we believe that continued distribution of IOLTA funds is an essential component of the national effort to ensure that legal services are more widely available. Without those services, we believe that our nation's commitment to equal justice cannot be attained.

Adopted by the Executive Committee, November 19, 1999

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