IOLTA Litigation - Texas Litigation
Washington Legal Foundation v. Texas Equal Access to Justice Foundation
On October 15, 2001, a three-judge panel of the Fifth Circuit Court of Appeals in New Orleans issued a decision that found the operation of the Texas Equal Access to Justice Foundation (TJEAF), Texas' IOLTA program, violates the Fifth Amendment of the Constitution. Washington Legal Foundation, et al. v. Texas Equal Access to Justice Foundation, et al.; 271 F.3d 835 (5th Cir. 2001) The October 15 ruling is the latest in a series of court decisions - including a ruling from the U.S. Supreme Court - that have occurred over the course of this case, which began in 1994.
Background
On February 7, 1994, the Washington Legal Foundation, along with an individual lawyer and client filed a lawsuit against TEAJF, its chair and the individual justices of the Texas Supreme Court alleging that the TJEAF operated the IOLTA program and made grants in violation of the petitioners' rights under the First and Fifth Amendments.
The U.S. District Court for the Western District of Texas, Austin Division, dismissed the plaintiffs' complaint in 1995. Washington Legal Foundation, et al. v. Texas Equal Access to Justice Foundation, et al., 873 F.Supp. 1 (W.D. Tex. 1995). It ruled that the plaintiffs failed to allege any legally recognized claim under the Fifth Amendment with regard to the interest generated by the funds placed in IOLTA accounts. In addition, the court ruled that because the plaintiffs had not shown a property interest in the interest generated by IOLTA accounts, they could not claim that they were being forced to support financially the organizations that receive funding from IOLTA.
On appeal, the Fifth Circuit Court of Appeals ruled that, under Texas law, clients have a "property interest" in the funds generated from IOLTA accounts. Washington Legal Foundation, et al. v. Texas Equal Access to Justice Foundation, et al., 94 F.3d 996 (CA5 1996). It denied requests for panel rehearing and rehearing en banc, and a petition for certiorari was filed and granted by the U.S. Supreme Court.
Supreme Court decision
On June 15, 1998, the U.S. Supreme Court issued an opinion affirming the earlier Fifth Circuit ruling that clients have a property interest in the interest generated from their attorneys' IOLTA accounts. Phillips, et al. v. Washington Legal Foundation, et al., 524 U.S. 156, 118 SCt 1925 (1998). The high court, however, expressed no view as to whether these funds had been "taken" by the state, and if so, whether any just compensation was due to the plaintiffs. It remanded the case to the Fifth Circuit to make those determinations. The Fifth Circuit subsequently remanded the case to district court for further proceedings under the caption Washington Legal Foundation, et al. v. Texas Equal Access to Justice Foundation, et al.
District court trial and decision
The district court conducted a two-day bench trial in the case in September 1999. Following the trial, District Court Judge James Nowlin issued a decision on January 28, 2000 dismissing with prejudice all constitutional claims raised against the Texas IOLTA program. Washington Legal Foundation, et al. v. Texas Equal Access to Justice Foundation, et al., 86 F.Supp.2d 624 (W.D. Tex. 2000). Judge Nowlin's decision found in favor of the defendants on all significant issues of law and fact related to the First and Fifth Amendment claims.
In analyzing the Fifth Amendment claims brought by the plaintiffs, the district court identified the issue of just compensation as the "crux" of the case. It held that the complaining client did not suffer a compensable loss, noting that client funds are only placed in IOLTA accounts if they cannot earn net interest for the client. The district court also considered whether there had been a taking of property and ruled that "applying the fundamental principles of justice and fairness the district court finds that a taking has not occurred. The IOLTA program is not in any way unfair to plaintiffs."
The district court also held that the IOLTA program itself does not engage in expressive activity. According to the court, even though the IOLTA program's funding of certain litigation could potentially qualify as expressive activity against which the plaintiffs could make a First Amendment claim, their claims failed because supplying legal services to the poor is germane to the "government's vital policy interest" of making legal services accessible to all.
Appeal to the Fifth Circuit
The plaintiffs subsequently appealed the district court decision to the Fifth Circuit Court of Appeals. Briefing was completed in 2000, and included six amicus curiae briefs filed in support of the IOLTA program by several groups, including the American Bar Association. Oral arguments were made in February 2001 and the court issued its decision on October 15, 2001, holding that that the Texas IOLTA program violated the Fifth Amendment. The court found that, as administered in Texas, the IOLTA program amounted to a per se taking of client property and entitled the appellants (Washington Legal Foundation, et. al) to declaratory and injunctive relief. The court remanded the case to the district court for the entry of an order consistent with its decision. (Click here to read a detailed description of the court decision.)
Following the October 15, 2001 decision, the Texas IOLTA program and Texas Supreme Court filed a petition for rehearing en banc. That petition was rejected by the court on May 31, 2002 on a 7-7 vote, with one judge recusing himself. (Under circuit court rules, a request for rehearing is denied unless agreed to by a majority of the court's active udges.)
On June 26, 2002, the Texas IOLTA program and Texas Supreme Court filed a petition for writ of certiorari to the Supreme Court. Briefing on the petition was completed by both parties by August 15, 2002, and the Court is expected to review the decision later in fall 2002. The Texas IOLTA program remains fully operational as it awaits a decision regarding the petition.
ABA support for the Texas IOLTA program
The ABA remains convinced of IOLTA's constitutionality and of the sound public policy that has encouraged the growth of IOLTA programs. It 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 programs, including five on behalf of the Texas IOLTA program in this case.
Resources regarding the Texas case
In addition to links to those court decisions available online, the following list contains links to other information
and analysis regarding the Texas case and IOLTA litigation in general.
Court decisions
2001 Fifth Circuit Court of Appeals decision (Washington Legal Foundation, et al. v. Texas Equal Access to Justice
Foundation, et al.)
1998 Supreme Court decision
(Phillips, et al. v. Washington Legal Foundation, et al.)
ABA Commission on IOLTA resources
Article Regarding October 14, 2001 Fifth Circuit Decision
Texas IOLTA Litigation Timeline
Commission on IOLTA Response to Phillips
Frequently Asked Questions About Phillips v. Washington Legal Foundation
Recent IOLTA Litigation News
Washington State IOLTA Litigation Page
Past Challenges to IOLTA Programs
Other Resources
Web site of the Texas Equal Access to Justice Foundation
Web site of the Fifth Circuit Court of Appeals
