IOLTA Litigation - Washington State Litigation

Washington Legal Foundation v. Legal Foundation of Washington

On November 14, 2001, a panel of the Ninth Circuit Court of Appeals ruled in favor of Washington State's IOLTA program and rejected claims that it violates the Fifth Amendment. Washington Legal Foundation, et al. v. Legal Foundation of Washington, et al., 271 F.3d 835 (9th Cir. 2001) This decision was rendered after an en banc rehearing of a decision by a three-judge panel of the Ninth Circuit earlier in 2001.

Background

On January 28, 1997, a group of plaintiffs including the Washington Legal Foundation filed a lawsuit in federal court containing First and Fifth Amendment challenges to the application of Washington State's IOLTA rules to limited practice officers (LPOs). LPOs are non-lawyer legal professionals licensed to complete documents associated with real estate closings in Washington State.

In 1998 the district court dismissed the lawsuit based on its finding that the interest was not client property. Washington Legal Foundation, et al. v. Legal Foundation of Washington, et al., No. C97-0146C (W.D. Wash. January 30,1998). The district court rendered its decision several months prior to the United States Supreme Court's ruling in Phillips v. Washington Legal Foundation, 524 U.S. 156 (1998), which held that the interest generated on IOLTA accounts is the property of the owner of the principal. (Click here to read more about the Phillips case.)

Appeal to the Ninth Circuit

The Washington Legal Foundation appealed the district court decision to the Ninth Circuit Court of Appeals. Briefing was completed in 1998, and oral arguments were heard on February 9, 2000. On January 10, 2001, a three-judge panel of the Ninth Circuit Court of Appeals issued a decision that reversed the district court. Washington Legal Foundation v. Legal Foundation of Washington, 236 F.3d 1097 (9th Cir. 2001). The Ninth Circuit panel held that the interest generated from IOLTA accounts is client property, and that a per se taking of that property by the IOLTA program had occurred. The court did not rule on the issue of just compensation, and therefore did not find a Fifth Amendment violation. Rather, it remanded the case to the district court to determine the amount of just compensation, if any, due the plaintiffs. The court did not rule on the plaintiffs' First Amendment claims.

The Washington State IOLTA program filed a petition for en banc rehearing of the January 10 decision. In May 2001, the Ninth Circuit granted the petition for rehearing en banc, and an 11-judge panel of the court heard arguments in June 2001. The en banc panel issued a decision on November 14, 2001. That decision reversed the January 10, 2001 decision, and held that there was neither a taking of client property nor any just compensation due the plaintiffs, and therefore there was no violation of the Fifth Amendment. The court remanded the case to the district court for consideration of the First Amendment claims. (For the article analyzing the decision in detail, click here.)

Supreme Court

On March 7, 2002, the Washington Legal Foundation filed a petition for writ of certiorari with the U.S. Supreme Court. The Court granted certiorari on June 10, 2002, and is to hear oral arguments in the case on December 9, 2002.

ABA support for the Washington State 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. In this case, the ABA filed an amicus brief in support of the Washington State program in the appeal to the Ninth Circuit. Several other groups - including the National Association of IOLTA Programs, the Washington State Bar Association, and several IOLTA programs from states within the Ninth Circuit - also filed amicus curiae briefs in support of the Washington State IOLTA program.

Resources regarding the Washington State 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
November 14, 2001 Ninth Circuit Court of Appeals en banc decision
January 10, 2001 Ninth Circuit Court of Appeals panel decision

ABA Commission on IOLTA resources
Article Regarding November 14, 2001 Ninth Circuit Decision
Washington State IOLTA Litigation Timeline
Recent IOLTA Litigation News
Texas IOLTA Litigation
Past Challenges to IOLTA Programs