Amicus Curiae Brief — Brown v. Legal Foundation of Wash.
Supreme Court brief2003
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12 a
j va Th. Eduede I
No. 01-1325
In The pF Y
Supreme Court of the Gnited States
+
WASHINGTON LEGAL FOUNDATION, et al.,
| Petitioners,
vs.
LEGAL FOUNDATION OF WASHINGTON, et al.,
Respondents.
¢
On Writ Of Certiorari To The
United States Court Of Appeals
For The Ninth Circuit
¢
BRIEF OF THE CONFERENCE OF
CHIEF JUSTICES AS AMICUS CURIAE
IN SUPPORT OF RESPONDENTS
+
Drew S. Days, III *BRIAN J. SERR
BETH S. BRINKMANN 1114S. University
SETH M. GALANTER Parks Drive
MORRISON & FOERSTER LLP Waco, Texas 76706
2000 Pennsylvania Avenue, N.W. (254) 710-3611
Washington, D.C. 20006-1888 Attorneys for
(202) 887-1500 _— ,
Amicus Curiae
*Counsel of Record
COCKLE LAW BRIEF PRINTING CO. (800) 225-6964
OR CALL COLLECT (402) 342-2831
TBEST AVAILABLE COPY
TABLE OF CONTENTS
Page
TABLE OF CONTENTS ...........cccccsccescesseesessesseeeeeeens i
TABLE OF AUTHORITIES ............ccccsccesceeseeseeseeeeees iii
INTEREST OF AMICUS CURIAE ...........0::.00000000000: 1
SUMMARY OF ARGUMENT.............cccccccesseeseeseeeeees 2
alia 6
STATE IOLTA PROGRAMS DO NOT EFFECT A
FIFTH AMENDMENT TAKING OF PROPERTY.... 6
A. Application Of The Penn Central Factors
Demonstrates That IOLTA Programs Do Not
Rin ceindiccntinbineieiptegnensenes 9
1. IOLTA Programs Impose No Economic
Burden On Those Individuals Whose Law-
yer Trust Account Deposits Are Subject to
TI ss cnciesidieeinnthnensecesansenemneceieones 9
2. Individuals Whose Trust Account Deposits
Are Eligible for Pooling in an IOLTA Ac-
count Have No Reasonable Investment-
Backed Expectations of Enjoying the In-
terest Produced by the Pooled Account....... 14
3. The Character of IOLTA is That of a Public
Program That Promotes the Common
Good Without Burdening Any Individual... 20
B. IOLTA Programs Are Wholly Unlike Those
Governmental Regulations That This Court
Has Found So Inherently Destructive Of
Real- Property Values As To Constitute Tak-
SPITE Tt ciniuiichicunindeniehiseiianieimineniennceieneeeesees 22
ii
TABLE OF CONTENTS - Continued
Page
C. Petitioners’ Expansive View Of The Takings
Clause Substantially Intrudes On The
States’ Ability To Pursue Efficient Strategies
For Funding State Programs ......................... 28
QOBFURATIIIUN cccccccsccrscccssceesenenennessnennnnnennsennstiensieliain 30
TABLE OF AUTHORITIES
Page
CASES
Andrus v. Allard, 444 U.S. 51 (1979) ........ccccccceeeeeeeeeeees 6, 25
Bryan County v. Brown, 520 U.S. 397 (1997)...............004. 13
Gentile v. State Bar of Nevada, 501 U.S. 1030
ESL 28
Gregory v. Ashcroft, 501 U.S. 452°(1991)..............ccccccceeeeee 28
Kaiser Aetna v. United States, 444 U.S. 164 (1979) ......... 23
Loretto v. Teleprompter Manhattan CATV Corp.,
Ee passim
Lucas v. South Carolina Coastal Council, 505 U.S.
EES ESL passim
M.L.B. v. S.L.J., 519 U.S. 102 (1996) 200.0000... .ceceeeeeeeeeeeeeeees 29
Palazzolo v. Rhode Island, 533 U.S. 606 (2001) ..7, 17, 18, 19
Penn Central Transportation Co. v. New York City,
ee passim
Pennsylvania Coal Co. v. Mahon, 260 U.S. 393
tien rrererstersnsnsennnesesoooeonesecese 8
Phillips v. Washington Legal Foundation, 524 U.S.
I cr ennenSNONSOSS 27
Pumpelly v. Green Bay Co., 13 Wall. 166 (1872)............... 23
St. Louis v. Western Union Telegraph Co., 148 U.S.
i. cesasnsennnonenees 23
Tahoe-Sierra Preservation Counsel v. Tahoe Re-
gional Planning Agency, 122 S.Ct. 1465 (2002) ............. 7
United States ». Causby, 328 U.S. 256 (1946)................... 23
United States v. Central Eureka Mining Co., 357
i acrrsmenmnanoncnonecnes 25
iv
TABLE OF AUTHORITIES -— Continued
Page
United States v. Pewee Coal Co., 341 U.S. 114
SUIIUUTD scisestatitanestenceiinetatithiaarieieatintasiiataaaasbiait ceili ah taeda 23
Webb’s Fabulous Pharmacies v. Beckwith, 449 U.S.
Fae eee nnstsiitecnnsenntemninnagntneianiatidiniaiiaciiantbasiall passim
Western Union Telegraph Co. v. Pennsylvania R.
Cig Sane Ce I ccreiisentesicttetceeidadeienadimenihittinteatts! 23
OTHER SOURCES
Washington Rules of Professional Conduct, Rule
isi eateiieeertetrcnntiiasntaidenieienteampanasitinialibiiiieidaeieianaininaah ial 3; 4, 9, 12, 16
1
INTEREST OF AMICUS CURIAE’
The Conference of Chief Justices consists of the
highest justice or judge in each of the fifty States, the
District of Columbia, Puerto Rico, the Virgin Islands,
American Samoa, Guam, and the Northern Mariana
Islands. The purpose of the Conference of Chief Justices is
to provide an opportunity for consultation among the
highest judicial officers of the several States, common-
wealths, and territories, concerning matters of importance
in the operation of state courts and judicial systems. The
goal of the Conference is to improve the administration of
justice.
The case of Washington Legal Foundation v. Legal
Foundation of Washington involves a direct challenge to
an initiative by the States to improve the quality and
equality of justice in state courts. All fifty States, the
District of Columbia, and the Virgin Islands have adopted
an Interest On Lawyer Trust Account (IOLTA) program,
the ultimate purpose of which is to generate funding for
improved delivery of legal services to the poor. While there
are minor variations in IOLTA programs from State to
State, the essential premise is the same — nominal or
short-term client deposits in lawyer trust accounts, which
by themselves are incapable of generating interest in
excess of the banking costs of account management, can be
pooled into fewer accounts thereby reducing banking costs
and earning interest in excess of costs. The interest is
earmarked for the nonprofit IOLTA foundations, which
fund legal services for the poor.
‘ This brief has been exclusively authored by counsel for amicus
curiae as indicated on the cover of the brief, none of whom is an
attorney for any of the parties to this litigation. There was no monetary
contribution to the preparation or submission of this brief made by any
person or entity other than the amicus curiae.
2
IOLTA programs, for the most part, were initiated by
the highest court of each State. Even in the five States
where IOLTA was a product of legislative rather than
judicial action, the Conference of Chief Justices has a
strong interest in the continuance of the program because
of IOLTA’s contributions to the administration of justice.
The Conference voted unanimously to authorize the filing
of this amicus curiae brief at its meeting on July 30, 2002.
This amicus curiae brief is being filed with the written
consent of all parties.
SUMMARY OF ARGUMENT
In Penn Central Transportation Co. v. New York City,
438 U.S. 104, 124 (1978), the Court explained that a Fifth
Amendment Takings Clause analysis ordinarily involves
an ad hoc inquiry that focuses particularly on the follow-
ing factors: 1) the economic impact of the challenged
regulation on the claimant; 2) the extent to which the
regulation interferes with distinct investment-backed
expectations; and 3) the character of the governmental
action, including whether the challenged public program is
merely adjusting the benefits and burdens of economic life
in order to promote the common good. In the present case,
all of the Penn Central factors heavily support respon-
dents’ argument that the State of Washington’s IOLTA
program does not constitute a taking.
First, the State of Washington’s IOLTA program
imposes no economic burden on those individuals whose
lawyer trust account deposits’ are pooled in an IOLTA
account. The only trust account deposits that are eligible
for pooling in an IOLTA account are those which are too
* All of the arguments in this brief apply equally to trust account
deposits or escrow deposits. For ease of reference, we use the term
“trust account” to include all such deposits.
3
nominal or too short-term to earn interest for the client.
See, e.g., Washington Rule of Professional Conduct 1.14(c).
Thus, the interest generated by IOLTA accounts, and
earmarked for state efforts to afford equal justice, is
interest that the various owners of the pooled monies
could not, and would not, generate on their own. The net
economic impact of IOLTA programs on such individuals,
therefore, is zero. The present case stands in sharp con-
trast to Webb’s Fabulous Pharmacies v. Beckwith, 449 U.S.
155, 156-58 (1980), where the Takings Clause claimant
deposited $1.8 million into an interpleader fund for nearly
a year, a deposit that was neither nominal nor short-term,
and which therefore was independently capable of gener-
ating interest for the depositor.
Second, Washington’s IOLTA program does not inter-
fere with reasonable investment-backed expectations. To
be worthy of constitutional protection, an individual’s
expectations must be “based on objective rules and cus-
toms that can be understood as reasonable by all parties
involved.” Lucas v. South Carolina Coastal Council, 505
U.S. 1003, 1035 (1992) (Kennedy, J., concurring). More-
over, “reasonable expectations must be understood in light
of the whole of our legal tradition.” Jd. The sources of a
client’s reasonable investment-backed expectations regard-
ing monies deposited into a pooled IOLTA account consist
of banking laws, banking practices, economic realities, a
lawyer’s ethical obligations regarding trust accounts, state
law IOLTA rules, and IOLTA account deposit contracts.
Consideration of these “objective rules,” “customs,” and
“legal traditions,” mixed in with a healthy dose of eco-
nomic reality, demonstrates the fallacy of claiming that
the owner of monies subject to IOLTA pooling has a rea-
sonable investment-backed expectation of receiving a pro
rata share of any interest borne by the pooled account.
Individuals who make nominal or short-term deposits into
lawyer trust accounts have never had a reasonable
4
investment-backed expectation of receiving interest, in
either the pre-IOLTA or post-IOLTA world.
Before certain changes in federal banking law in 1980,
there was no opportunity for any client to earn interest on
client funds held by his lawyer in trust, regardless of the
size of the principal. Even after banking law changes
permitted interest-bearing demand accounts (NOW
accounts), such accounts offered no hope of earning inter-
est for those clients whose deposits were nominal or short-
term in nature. The post-IOLTA world is no friendlier to
client expectations of receiving interest on lawyer trust
account deposits that, on their own, are either too nominal
or too temporary to generate any earnings for the client.
Although IOLTA programs permit (and in some States,
like Washington, require) lawyers to pool such accounts in
order to create a single account with interest-bearing
capacity, the terms of a lawyer’s deposit contract with the
bank clearly establish that whatever interest is generated
will be used to fund the nonprofit IOLTA foundation. See,
e.g., Washington Rule of Professional Conduct 1.14(c).
Thus, in regard to a client’s expectations of earning inter-
est on short-term or nominal deposits in a lawyer trust
account, IOLTA programs have changed nothing. With or
without IOLTA, no trust account depositor has ever
possessed a reasonable investment-backed expectation of
receiving interest from the types of deposits that are
subject to IOLTA pooling.
| Third, IOLTA programs promote the common good
without imposing an economic burden on any individual or
group of individuals. As the Court explained in Penn
Central, “[a] ‘taking’ may more readily be found when the
interference with property can be characterized as a
physical invasion by the government, than when interfer-
ence arises from some public program adjusting the
benefits and burdens of economic life to promote the
common good.” 438 U.S. at 124. IOLTA programs unques-
tionably promote the common good by providing millions
5
of dollars for legal services for the poor, thereby making a
valuable contribution to the States’ obligation to provide
their citizens equal access to state courts. Thus, the
present case again sharply contrasts with Webb’s, where
the government offered no justification to support its
retention of $100,000 interest earned on interpleaded
funds that were independently capable of earning that
interest separate and apart from the government-
administered account. See 449 U.S. at 163.
In rare situations, a governmental regulation works
such a destructive impact on real property interests that
Penn Central's third factor — the character of the govern-
mental action — becomes controlling, making it unneces-
sary to weigh other factors. See Loretto v. Teleprompter
Manhattan CATV Corp., 458 U.S. 419, 426, 432, 434-35
(1982). The Court, however, has applied this “per se
taking” analysis only to governmental regulations of real
property that act like a governmental exercise of eminent
domain, the classic example of a traditional taking. See id.
at 432-36; Lucas, 505 U.S. at 1018-19 (1992). Thus, the
Court has found a per se taking in only two narrowly
defined and distinctive situations: 1) when the governmen-
tal action compels the property owner to suffer a perma-
nent physical invasion of his real property, Loretto, 458
U.S. at 432-36; and 2) when governmental land use regu-
lation denies an owner “all economically beneficial or
productive use of land.” Lucas, 505 U.S. at 1015-18.
Because the States’ IOLTA programs do not even
interfere with real property, they are hardly comparable to
an exercise of eminent domain. Therefore, this is not a
case where the character of the governmental action is so
destructive of recognized property values that it should be
regarded as a per se taking. The Court has never found a
per se taking in cases involving an alleged governmental
taking of money, did not do so in Webb’s (see 449 U.S. at
160-65), and should not venture down that path today.
Indeed, the Court has acknowledged that alleged takings
6
of money will rarely constitute a taking under any analy-
sis, much less a taking per se. See, e.g., Andrus v. Allard,
444 U.S. 51, 65-66 (1979) (emphasizing that the “loss of
future profits ... provides a slender reed upon which to
rest a takings claim.”).
This case is ultimately about whether the Takings
Clause of the Fifth Amendment can be interpreted to
authorize a substantial intrusion into an area that funda-
mentally is a matter of state concern. There are few
arenas in which the States have stronger interests than in
the administration of their own judicial systems. More-
over, the States frequently have a constitutional obligation
to provide equal access to the state judicial system, an
obligation that the States are pursuing in part through
IOLTA programs. In light of such significant state inter-
ests and obligations, the Court should require a much
stronger demonstration of a “taking” of property than can
be shown in this case before reading the Takings Clause to
interfere with all fifty States’ efforts to improve the ad-
ministration of justice in their courts.
ARGUMENT
STATE IOLTA PROGRAMS DO NOT EFFEC? A
FIFTH AMENDMENT TAKING OF PROPERTY.
Nearly a quarter century ago, this Court in Penn
Central Transportation Co. v. New York City, 438 U.S. 104,
123-25 (1978), reviewed the factors that had shaped its
Fifth Amendment Takings Clause jurisprudence. The Penn
Central Court explained that determining whether gov-
ernmental action constitutes a taking ordinarily involves
an ad hoc inquiry in which the following factors enjoy
particular significance: 1) the economic impact of the
regulation on the claimant; 2) the extent to which the
regulation interferes with distinct investment-backed
expectations; and 3) the character of the governmental
action, including whether the challenged public program is
7
merely adjusting the benefits and burdens of economic life
in order to promote the common good. Id. at 124. The Penn
Central analysis generally continues to govern this Court's
contemporary application of the Takings Clause to gov-
ernmental programs that have an alleged impact on
property rights. See, e.g., Palazzolo v. Rhode Island, 533
U.S. 606, 617-18 (2001); Tahoe-Sierra Preservation Coun-
sel v. Tahoe Regional Planning Agency, 122 S.Ct. 1465,
1481-84 (2002).
In only two narrowly defined situations involving
governmental interference with real property, the Court
has decided that a “per se taking” approach is preferable
to a full Penn Central analysis: first, when the governmen-
tal action compels the property owner to suffer a perma-
nent physical invasion of his real property, Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419, 432-
36 (1982); and second, when governmental land use
regulation denies an owner “all economically beneficial or
productive use of land.” Lucas v. South Carolina Coastal
Council, 505 U.S. 1003, 1015-18 (1992). Yet, even in these
rare situations, the Court has not ignored the Penn Cen-
tral analysis, but has simply recognized that the third
Penn Central factor - the character of the governmental
action — will weigh so heavily in favor of the property
owner that it necessarily will be the controlling factor in
such cases. See, e.g., Loretto, 458 U.S. at 426, 432, 434-35.
In other words, in Loretto and Lucas, the character of the
governmental action was 80 destructive of real property
values that the government could not avoid the conclusion
that it had “taken” the owner’s property. See Loretto, 458
U.S. at 435 (permanent physical occupation of real prop-
erty “is perhaps the most serious form of invasion of an
~ owner’s property interest”); Lucas, 505 U.S. at 1017
(governmental regulation that totally deprives a land-
owner of all productive or ecoromically beneficial use of
land is an “extraordinary circumstance”). Consequently,
there was no need to consider additional factors that could
8
not, in any analysis, have changed the outcome. See
Loretto, 458 U.S. at 432, 434-35; Lucas, 505 U.S. at 1015.°
In all cases not falling under Lucas and Loretto’s per
se taking approach, a full consideration of all the Penn
Central factors is warranted, including, of course, inquiry
into whether a legitimate public interest is advanced in
support of the governmental restraint on property. See
Penn Central, 438 U.S. at 124-25; Lucas, 505 U.S. at 1015-
16; Loretto, 458 U.S. at 434-35. In the typical case, the
Court's “usual assumption” is that the state program at
issue is simply “adjusting the benefits and burdens of
economic life to promote the common good.” Penn Central,
438 U.S. at 124; Lucas, 505 U.S. at 1017. The Court’s
deference to governmental programs that affect property —
deference accorded in all but the “relatively rare situa-
tions” involved in Lucas and Loretto — is founded on this
Court’s assertion 80 years ago in Pennsylvania Coal Co. v.
Mahon, 260 U.S. 393, 413 (1922), that “Government could
hardly go on if to some extent values incident to property
could not be diminished without paying for every such
change in the general law.” See Lucas, 505 U.S. at 1018.
son ie Saaeute Genii ant eum ~ ont antite ene ~ endl
arrive a same t even upon a painstaking application of the
traditional ad hoc methodology, the per se taking approach employed in
Loretto and Lucas is hardly a rejection of the Penn Central analysis, but
rather a confirmation of it. Petitioners themselves acknowledge, at
pages 16-17 of their brief: “[TJhe per se test truncates the fuller Penn
Central analysis of all surrounding factors only where those factors
cannot possibly alter the conclusion that a taking has occurred([.]”
Petitioners’ attempt to downplay this reality in an effort to avoid a Penn
Central analysis is undermined not only by Penn Central's description
of the ad hoc analysis as the general approach to Takings Clause cases,
but also by Loretto and Lucas themselves, which 1) are an application —
though a short-circuited application — of Penn Central; and 2) inevitably
ee ee eae ee ees ees on See oe ee
pplica nn analysis, thereby rendering such a
methodology unnecessary. .
9
Because IOLTA programs promote the common good
without burdening any individual, they are deserving of
this Court’s usual Takings Clause deference.
A straightforward application of the Penn Central
analysis to this case demonstrates that the States’ IOLTA
programs work no taking that would require compensation
to the individuals whose use of the legal system occasions
making the type of lawyer trust account deposit subject to
IOLTA pooling.‘ Each of the three Penn Central factors
weighs heavily in favor of upholding the State of Washing-
ton’s IOLTA program. Moreover, this is not one of those
“relatively rare situations” where the character of the
governmental action so conclusively demonstrates a per se
taking that consideration of other relevant factors becomes
unnecessary.
A. Application Of The Penn Central Factors
Demonstrates That IOLTA Programs Do
Not Constitute A Taking.
1. IOLTA Programs Impose No Economic
Burden On Those Individuals Whose
Lawyer Trust Account Deposits Are
Subject to IOLTA Pooling.
IOLTA programs prohibit the use of IOLTA accounts
to pool client monies that are independently capable of
producing interest for the client. See, eg., Washington
Rule of Professional Conduct 1.14(c). The only trust
account deposits that are eligible for pooling in an IOLTA
account are those which are either too nominal or too
‘ The arguments that weigh heavily in support of a holding that
IOLTA works no taking also support an argument that, even if there
somehow is a taking, just compensation in these unique circumstances
would be nil, as respondents demonstrate.
10
temporary to earn net interest for the client. Jd. In other
words, the only interest generated by IOLTA’s pooled
accounts is interest that the individual owners of the
pooled monies could not, and would not, generate on their
own. Unless the Court accepts petitioners’ strained view of
IOLTA, whereby an individual can see the interest gener-
ated in part by his deposit in the pooled account, while
remaining blind to the fact that it was IOLTA pooling that
enabled his deposit to enjoy interest-bearing potential in
the first place, the net economic impact of IOLTA must be
regarded as zero.
The absence of economic impact in the present case
stands in sharp contrast to Webb’s Fabulous Pharmacies v.
Beckwith, 449 U.S. 155 (1980). In that case, Eckerd’s
Pharmacies agreed to purchase Webb’s Fabulous Pharma-
cies for $1.8 million but, at closing, Webb’s debts appeared
to be greater than the purchase price. Jd. at 156. In order
to protect itself, Eckerd’s filed a complaint of interpleader
and tendered the purchase price to the court. Jd. at 156-
57. Almost a year later, the court appointed a receiver for
Webb’s and a dispute arose when the clerk refused to turn
over the interest that was earned on the interpleader fund
while it was held by the court, interest which eventually
amounted to over $100,000. Jd. at 157-58. This Court held
that the county’s refusal to turn over the interest on the
interpleader fund was an unconstitutional taking without .
just compensation. Jd. at 164-65.
The primary distinction between Webb’s and the
present case is that, unlike the deposits subject to IOLTA
pooling, the year-long $1.8 million deposit in Webb’s was
independently capable of generating interest for the
benefit of the principal’s owner. The Webb’s deposit was
neither nominal nor short-term. Additionally, because the
clerk in Webb’s had already deducted an administrative
fee, it was apparent that the year-long $1.8 million deposit
was independently capable of earning interest in excess of
administrative costs. 449 U.S. at 162. Therefore, unlike
11
IOLTA interest, which cannot be realized in the absence of
the pooled IOLTA account, the interest in Webb's could
have been earned separate and apart from the inter-
pleader fund. Consequently, also unlike the present case,
there was no possible way that the clerk in Webb's could
take credit for creating the deposit’s interest-bearing
potential. In short, the governmental action in Webb's
caused an obvious — and severe — economic injury to the
owner of the interpleader fund’s principal, with no gov-
ernmental justification whatsoever. Jd. at 163. The Court
in Webb’s emphasized that the Takings Clause stands as a
shield against just such arbitrary uses of governmental
power. Id. at 164. In contrast, the States’ IOLTA programs
place no economic burden on trust account depositors, and
the legal services afforded by IOLTA programs to those
who could not otherwise afford them undercuts any charge
of governmental arbitrariness.
A second fundamental distinction between Webb’s and
the present case is that the interpleader fund in Webb's
was not designed to benefit the county, but rather was
maintained specifically for the ultimate benefit of Webb's
creditors. Id. at 161. Indeed, that was the very point of
Eckerd’s decision to file the interpleader action and de-
posit the purchase price for Webb’s assets into the fund.
Id. at 156-57. But the States’ purpose in requiring that
nominal or short-teim deposits be placed into IOLTA
accounts is to generate funding for the States’ IOLTA
foundations and their public interest programs. IOLTA-
pooling is not done in order to achieve the impossible — 1.e.,
to produce interest for the various owners of the nominal
or short-term deposits, interest that inevitably would be
swallowed up by the banking and accounting costs of
attempting to subdivide it among all the depositors.
It follows from the preceding distinction of Webb’s that
Penn Central’s economic impact analysis should focus on
the economic burden imposed by the IOLTA program
taken as a whole. Petitioners ignore this reality and
12
attempt to demonstrate an adverse economic impact by
divorcing IOLTA’s productive pooling mechanism from
IOLTA’s very purpose. Although petitioners argue that
economic impact should be assessed in light of “the world
as it is,” in “the real world where IOLTA exists,” see Pet.
Br. 32-33, it is evident that what petitioners really want is
only part of the “real world” of IOLTA — the pooling part
that bestows interest-bearing potential on petitioners’
otherwise unproductive monies. What petitioners do not
want is the part that allegedly “burdens” them — the part
that provides the incentive for the pooling, the part that
assigns the interest to the IOLTA foundation. It is hardly a
“real world” form of accounting that records debits but not
credits; but it is only by taking IOLTA pooling for granted
that petitioners can pretend to have suffered a burden-
some economic impact from a program that bestows
interest-bearing potential on their otherwise unproductive
monies. The Court’s Takings Clause jurisprudence has
never ignored economic reality; and economic reality in the
present case requires an assessment of economic burden in
light of the IOLTA program viewed in its entirety.’ Peti-
tioners, therefore, cannot establish economic impact by
artificially dissecting IOLTA in an attempt to isolate and
attack those parts of IOLTA that they do not like, while
simultaneously claiming the benefits of those parts that
they do.
* Viewing IOLTA in its entirety also requires consideration of other
parts of the program that petitioners have not challenged, and that
work to the benefit of trust account depositors generally, including the
IOLTA program’s requirement that all deposits independently capable
of earning interest — because they are sufficiently large or long-term -
be placed in an interest-bearing account with the interest paid to the
depositor. See Washington Rule of Professional Conduct 1.14(c). This
requirement did not exist prior to IOLTA.
13
Petitioners additionally argue that they have suffered
economic harm as a result of various banks’ decisions to
terminate “earnings credit” programs. See Pet. Br. 6. But
petitioners never explain how a governmental program
can be held constitutionally accountable for the financial
fallout caused by private institutions’ voluntary responses
to that program. This line of causation is so tenuous —
IOLTA caused private banks to reduce their “earnings
credit” programs, which caused private escrow and title
companies to lose some of their “perks” for doing business
with those banks, which caused those private companies to
pass along to their customers (e.g., petitioners) some of the
cost of those lost perks — that whatever “earnings credit
losses” have been sustained are not even fairly attribut-
able to state action much less to a state taking. In other
constitutional contexts, this Court has been careful to hold
governmental entities responsible only when there is a far
more direct line of causation between governmental action
and individual harm than that demonstrated by petition-
ers’ “earnings credit” argument. See, e.g., Bryan County v.
Brown, 520 U.S. 397, 412-15 (1997).
Finally, petitioners argue that they have been “singled
out” and therefore uniquely suffer IOLTA’s economic
impact. See Pet. Br. 22-31. Even assuming arguendo that
IOLTA programs somehow cause a harmful economic
impact, petitioners’ claim that they have been singled out
does not withstand scrutiny. Given that IOLTA programs
produce millions of dollars annually by pooling nominal or
short-term deposits incapable of generating interest on
their own, and given the common use of lawyer trust
accounts and escrow, whatever “bur’en” is imposed by
IOLTA, if any, is easily being spread across hundreds of
thousands, if not millions, of citizens. Petitioners certainly
have produced no evidence to the contrary — i.e., that just
a few individuals have been singled out. Moreover, even
assuming that relatively few users of the justice system
have been subjected to this utterly nonexistent “burden,”
14
the States have a legitimate reason for so “singling them
out.” The monies of individuals like petitioners are singled
out for IOLTA pooling precisely because of the absence of
economic impact on those whose trust account deposits are
too nominal or too short-term to generate income on their
own. Collecting a fee from all users of the justice system,
or all users of lawyer trust accounts, might also be a
constitutional means of funding legal services for the poor;
but, unlike IOLTA programs, such alternatives would
impose an economic impact on users of the justice system.
In sum, IOLTA “singles out” only those who will suffer no
economic disadvantage as a consequence of IOLTA. It is
difficult to think of a governmental program that is either
more well-aimed or less economically burdensome.
2. Individuals Whose Trust Account De-
posits Are Eligible for Pooling in an
IOLTA Account Have No Reasonable
Investment-Backed Expectations of
Enjoying the Interest Produced by the
Pooled Account.
No client has ever possessed a reasonable investment-
backed expectation of receiving interest from the types of
trust account deposits that are subject to IOLTA pooling.
To be worthy of constitutional protection, an individual’s
expectations must be “based on objective rules and cus-
toms that can be understood as reasonable by all parties
involved.” Lucas, 505 U.S. at 1035 (Kennedy, J., concur-
ring). Moreover, “reasonable expectations must be under-
stood in light of the whole of our legal tradition,” and
“courts must consider all reasonable expectations what-
ever their source.” Jd. In the present case, the sources of a
client’s reasonable investment-backed expectations regard-
ing monies deposited into a pooled IOLTA account consist
of banking laws, banking practices, economic realities, a
lawyer’s ethical obligations regarding trust accounts, state
15
law IOLTA rules, and IOLTA account deposit contracts.
Consideration of these “objective rules,” “customs,” and
“legal traditions,” mixed in with a healthy dose of eco-
nomic reality, demonstrates the fallacy of claiming that
the owner of monies subject to IOLTA pooling has a rea-
sonable investment-backed expectation of receiving a pro
rata share of the interest borne by the pooled account.
Individuals, like petitioners, who make nominal or
short-term deposits into lawyer trust accounts, have never
had a reasonable investment-backed expectation of receiv-
ing interest in either the pre-IOLTA or post-IOLTA world.
Before certain changes in federal banking law in 1980,
there was no opportunity for the client to earn interest on
client funds held by the lawyer in trust, regardless of the
size of the principal.’ Even after banking law changes
permitted interest-bearing demand accounts (NOW ac-
counts), such accounts offered no hope of earning interest
for those clients, like petitioners, whose deposits were
nominal or short-term in nature.’
* Ethical rules have always required that lawyer trust account
monies be available on a client’s demand. Before 1980, banking laws did
not permit interest-bearing demand accounts. Therefore, prior to 1980,
the only banking option available to attorneys for holding a client's
funds in trust was a non-interest-bearing demand deposit account.
” The bank’s service charges would exceed the interest earned by a
separate account composed only of one depositor’s nominal or short-
term funds. Even when lawyers, prior to IOLTA, chose to pool the
nominal or short-term trust account deposits of multiple clients, only
the banks enjoyed the interest. Ethical rules prohibited (and still do)
lawyers from profiting off of their clients’ trust funds; and banking fees
and administrative expenses would have exceeded the interest earned
from such pooled accounts if banks had been asked to divvy up the
interest among all the depositors. That lawyers have no economic
advantages over banks may explain why petitioners have produced no
evidence of any law firm practices, prior to (or after) the advent of
IOLTA programs, whereby law firms donated trust account manage-
ment and subaccounting services to their clients in order to generate
(Continued on following page)
16
The post-IOLTA world is no friendlier to client expec-
tations of receiving interest on lawyer trust account
deposits that, on their own, are either too nominal or too
temporary to generate any earnings for the client. Al-
though IOLTA programs permit (and in some States, like
Washington, require) lawyers to pool such accounts in
order to create a single account with interest-bearing
capability, the terms of a lawyer’s depusit contract with
the bank clearly establish that whatever interest is gener-
ated will be used to fund the nonprofit IOLTA foundation.
See, e.g., Washington Rule of Professional Conduct 1.14(c).
Thus, in regard to a client’s expectations of earning inter-
est on short-term or nominal deposits in a lawyer trust
acc_unt, IOLTA programs have changed nothing. Clients
had no expectation of enjoying interest before IOLTA and
have no expectation after.
Holding that an individual has no reasonable invest-
ment-backed expectation of receiving any portion of the
interest generated by a pooled IOLTA account is perfectly
consistent with the purpose of the Takings Clause, which
“protects private expectations to ensure private invest-
ments.” Lucas, 505 U.S. at 1035 (Kennedy, J., concurring).
Attempting to divide the IOLTA interest among the
owners of the pooled deposits not only would be economi-
cally futile, but also would make no meaningful contribu-
tion to “ensuring private investment.” Because the private
incentive in making a deposit into a lawyer trust account
(or into escrow) is not to earn interest, but rather to ensure
insignificant amounts of interest for those clients with nominal or
client.
‘uta cote © aay cu eames wads Waly
17
the timely receipt of legal services, or to facilitate a legal
transaction (such as a real estate transaction), the States’
retention of IOLTA interest can hardly be expected to chill
private “investment” in legal or real estate services. Even
assuming that an owner of nominal or short-term deposits
subject to IOLTA pooling subjectively expects to earn
interest, that is not a reasonable investment-backed
expectation. Indeed, in light of banking laws, banking
practices, economic realities, a lawyer's ethical obligations,
state law IOLTA rules, and IOLTA account deposit con-
tracts — which surely qualify as those “objective rules and
customs” that define reasonable investment-backed
expectations — it is untenable to claim that the nominal or
short-term deposits subject to IOLTA pooling are “invest-
ments” motivated by growth potential. (One might as well
“invest” by putting money in a shoe box under the bed.)
Petitioners point to nothing that would support an
individual’s expectation of earning interest on the nominal
or short-term deposits subject to IOLTA’s pooling require-
ment; and positive law (in the form of the IOLTA program)
affirmatively precludes such an expectation. This Court
has consistently recognized that such pre-existing laws
generally should be taken into account in weighing the
property owner’s reasonable investment-backed expecta-
tions. Although the Court in Palazzolo v. Rhode Island,
533 U.S. 606, 626-30 (2001), rejected the proposition that
laws already in effect at the time the property owner
acquires title always foreclose expectations that are
inconsistent with those laws, the Court’s opinion in Palaz-
zolo in no way denies that such pre-existing laws are a
common and important source of reasonable expectations.
See id. at 626, 629-30; see also id. at 632-36 (O’Connor, J.,
concurring) (emphasizing that acquiring title to property
after the challenged regulation has gone into effect is a
factor that normally militates against a finding that the
state program has worked a “taking”; it is just not a
conclusive factor.)
18
Indeed, positive state law plays an even stronger role
here than in cases, like Lucas and Palazzolo, that involve
real property.’ It is true that members of this Court have
expressed varying views regarding the interaction be-
tween reasonable expectations and positive law when real
property is at stake. See, e.g., Palazzolo, 533 U.S. at 635-
636 (O’Connor, J., concurring) (“Courts properly consider
the effect of existing regulations under the rubric of
investment-backed expectations in determining whether a
compensable taking has occurred.”); id. at 637 (Scalia, J.,
concurring) (“In my view, the fact that a restriction existed
at the time the purchaser took title (other than a restric-
tion forming part of the ‘background principles of the
State’s law of property and nuisance’) should have no
bearing upon the determination of whether the restriction
is so substantial as to constitute a taking.”) (internal
citations omitted); Lucas, 505 U.S. at 1034 (Kennedy, J.,
concurring) (“In my view, reasonable expectations must be
understood in light of the whole of our legal tradition. The
common law of nuisance is too narrow a confine for the
exercise of regulatory power in a complex and interde-
pendent society. The State should not be prevented from
enacting new regulatory initiatives in response to chang-
ing conditions, and courts must consider all reasonable
expectations whatever their source.”). But the Court has
recognized that “in the case of personal property, by reason
of the State’s traditionally high degree of control over
commercial dealings, he [the owner) ought to be aware of
the possibility that new regulation might even render his
property economically worthless.” Lucas, 505 U.S. at 1027-
28.
* The concern underlying the Court's holding in Palazzolo dealt
uniquely with land use regulation. See id. at 627-28. Because it often
(Continued on following page)
19
That the IOLTA rules themselves can legitimately
define the reasonable expectations of property owners is
especially true in a case like this, where the State’s IOLTA
rules were in force long before the client’s “investment” of
nominal or short-term monetary deposits into a lawyer
trust account. Individuals simply do not invest with the
reasonable expectation that years of litigation might be
able to overturn plainly applicable rules. Thus, with
respect to the present case, it is entirely appropriate for
the State to defend its IOLTA program against a Takings
Clause attack by arguing that IOLTA rules, as well as the
IOLTA deposit contracts, expressly foreclose any client
expectations of receiving interest on the nominal or short-
term deposits subject to IOLTA pooling.
Petitioners do not deny that the IOLTA rules may
legitimately influence an IOLTA depositor’s expectations
regarding IOLTA-generated interest. But, once again,
petitioners carefully pick and choose which parts of
the IOLTA program they deem relevant to reasonable
investment-backed expectations. This leads to the
odd argument that, on the one hand, IOLTA’s pooling
mechanism supports petitioners’ expectations of earning
interest, but, on the other hand, IOLTA’s clear assignment
of the interest to the nonprofit IOLTA foundation should
not be considered to undermine those expectations.
Petitioners’ “half-a-loaf” expectations are so inherently
takes years for a land owner's regulatory takings claim to ripen, the
Palazzolo Court found that it would give the government too much
power to reduce the amount of private property rights remaining to
citizens if courts automatically refused to permit Takings Clause
challenges to be brought by land owners who acquired title after the
governmental regulation at issue went into effect. Jd. The decision in
Lucas likewise concerned state laws that deprive a landowner of all
productive or economically beneficial use of land. 505 U.S. at 1027-29.
Such land-based concerns have nothing to do with the present case.
20
unrealistic — expecting to receive the benefits of a program
whose very purposes they are attempting to thwart — that
those expectations can hardly “be understood as reason-
able by all parties involved.” See Lucas, 505 U.S. at 1035
(Kennedy, J., concurring). In any event, it seems disin-
genuous for the petitioners to argue that the reasonable-
ness of their expectations is supported by the very
program that is the target of their Takings Clause attack.
8. The Character of IOLTA is That of a
Public Program That Promotes the
Common Good Without Burdening Any
Individual.
The third Penn Central factor concerns the character
of the governmental action alleged to constitute a taking.
438 U.S. at 124. The Penn Central Court explained that
“[a] ‘taking’ may more readily be found when the interfer-
ence with property can be characterized as a physical
invasion by government, than when interference arises
from some public program adjusting the benefits and
burdens of economic life to promote the common good.” Jd.
The Court acknowledged in Lucas that it ordinarily
indulges an assumption that the latter is true. 505 U.S. at
1017-18. The present case involves a Takings Clause
challenge to a state program, operated in similar respects
by all fifty States, that seeks only to apply an unused
economic resource toward the State’s obligation under the
federal constitution to afford its citizens equal justice
under the law. By enacting IOLTA programs with the goal
of facilitating equal justice under the law, the fifty States
are promoting the common good. Not only is there sub-
stantial public good produced by the States’ IOLTA contri-
butions to equal justice, but also, as demonstrated earlier,
the attendant economic burden on those whose deposits
are subject to IOLTA pooling is zero.
° 21
The “common good” done by IOLTA programs goes to
the heart of the role played by the justice system in Ameri-
can society. At bottom, the justice system is designed to be
a peaceful dispute resolution mechanism. Societal peace
and stability are fostered when citizens take their disputes
to court rather than settling them in the street. For the
justice system to achieve these broad social goals effec-
tively, it must operate in a way that inspires public confi-
dence. When access to the courts is financially beyond the
reach of large numbers of citizens, public confidence in
society's primary dispute resolution mechanism is under-
mined, which can quickly lead to a breakdown of peace,
order, and stability. Given these self-evident fundamen-
tals, IOLTA programs serve not just the poor, and the
typical causes of the poor, but provide benefits to everyone.
Thus, as in Penn Central, 438 U.S. at 134-35, where “the
preservation of landmarks benefit[ted] all New York
citizens and all structures, both economically and by
improving the quality of life in the city as a whole,” so too
does IOLTA benefit society as a whole by improving the
quality of justice and therefore the quality of life.
The present case therefore is readily distinguishable
from Webb’s, where the government offered no justification
whatsoever — no police power justification, no government
service, no program, nothing — in support of its retention
of $100,000 interest earned on interpleaded funds that
were independently capable of earning that interest
separate and apart from the government-administered
account. 449 U.S. at 163. It was the sheer arbitrariness of
the governmental action in Webb’s that was fatal to the
government's case. Id. at 163-64. Similarly, petitioners’
hypotheticals involving blatant governmental arbitrari-
ness — e.g., confiscating an individual’s bank account or car
utterly without reason (see Pet. Br. 27) — are plainly
inapposite. Such illustrations are more analogous to the
arbitrary and unjustifiable governmental action in Webb’s
than they are to public programs, such as IOLTA, that
22
promote the common good without depriving any individ-
ual of economically realistic investment-backed expecta-
tions.
B. IOLTA Programs Are Wholly Unlike Those
Governmental Regulations That This Court
Has Found So Inherently Destructive Of
Real Property Values As To Constitute Tak-
ings Per Se.
The Court has applied a categorical “per se taking”
approach only in those rare circumstances where the
character of the governmental action is so dramatically
destructive of recognized property values that considera-
tion of the government’s justification (as well as other
Penn Central factors) could not possibly permit the gov-
ernment to avoid the conclusion that it has taken property.
See Lucas, 505 U.S. at 1015. As noted above (see pages 7-
8), the Court has recognized only “two discrete categories
of regulatory action” as constituting takings per se. Jd.
First, governmental regulations necessarily constitute a
taking if they compel the property owner to suffer a
physical invasion of real property. See, e.g., Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426
(1982). Second, a per se taking occurs “where regulation
denies all economically beneficial or productive use of
land.” Lucas, 505 U.S. at 1015. Washington State’s IOLTA
program plainly does not fit this Court’s description of
either type of per se taking. Indeed, the state regulation in
the instant case is entirely unlike those considered in
Loretto and Lucas.
In Loretto, a New York statute required landlords to
permit a cable television company to install its facilities on
the landlord’s property. 458 U.S. at 423-24. The Court held
that a taking necessarily occurs when the government
compels a property owner to suffer a physical intrusion
that “reaches the extreme form of a permanent physical
occupation.” Id. at 426. The Loretto Court explained that it
23
has invariably found a taking when faced with “a constitu-
tional challenge to a permanent physical occupation of real
property.” Id. at 427. The Loretto Court’s reference to
invasions of “real property” is not an accident. Each of the
precedents that the Loretto Court cited in support of its
per se taking conclusion, dating back to 1872, involved
permanent physical occupation of real property. See, e.g.,
Pumpelly v. Green Bay Co., 13 Wall. 166 (1872) (dam that
permanently flooded plaintiff’s land); St. Louis v. Western
Union Telegraph Co., 148 U.S. 92 (1893) (permanent
placement of telegraph poles on plaintiff’s land); Western
Union Telegraph Co. v. Pennsylvania R. Co., 195 U.S. 540
(1940) (permanent placement of telegraph lines over
plaintiff’s right of way); United States v. Causby, 328 U.S.
256 (1946) (frequent flights immediately above plaintiff’s
land); United States v. Pewee Coal Co., 341 U.S. 114 (1951)
(take-over of plaintiff’s coal mine); Kaiser Aetna v. United
States, 444 U.S. 164 (1979) (deprivation of plaintiff’s right
to exclude others from his private marina). Throughout
the Loretto opinion, the Court repeatedly describes its
precedent as recognizing a per se taking in the event of a
permanent physical invasion of real property. See, e.g., 458
U.S. at 427 (“permanent physical occupation of real
property”), 427 n.5 (“physical [trespassory] takeover”), 428
(“physical invasion of the real estate of the private
owner”), 430 (“permanent occupations of land”), 430 n.7
(“physical occupation of real property”), and 435 (perma-
nent occupation of “physical property”).
Similarly, the Court in Lucas was every bit as em-
phatic in limiting its per se taking approach to certain
types of governmental interference with real property.
Lucas involved state land use regulations that barred the
landowner from erecting any permanent habitable struc-
tures on his beachfront property, thereby rendering his
parcels valueless. 505 U.S. at 1006-07. After acknowledg-
ing its categorical treatment of Loretto-like cases, the
Lucas Court explained that “[tJhe second situation in
which we have found categorical treatment appropriate is
where regulation denies all economically beneficial or
24
productive use of land.” 505 U.S. at 1015. The Court
repeatedly referred to the use of “land” and “real property”
throughout the opinion. See, e.g., id. at 1016, 1017, 1018,
1019. The Lucas Court suggested that governmental
deprivation of all beneficial uses of a property owner’s land
is akin to the physical appropriation of real property
identified as a per se taking in Loretto. 505 U.S. at 1017.
This Court’s application of the per se approach to
certain types of governmental interference with real
property helps to harmonize the Court’s traditional view of
takings with the relatively more recent “regulatory tak-
ings” cases. The classic illustration of a traditional taking
is the government’s exercise of its eminent domain power —
literally “taking” land to build a road, a dam, etc. Although
the typical regulatory taking case involves governmental
interference of a different character, there are some
alleged regulatory takings that are highly analagous to an
exercise of eminent domain. See Lucas, 505 U.S. at 1018-
19. The per se takings cases do no more than announce
‘that if the governmental regulation acts like a traditional
eminent domain taking, the Court will find that a taking
occurred. For example, Lucas involved a coastal land-
owner's allegation of a regulatory taking but, because the
State’s land use regulation deprived the property owner of
all economically beneficial or productive use of his land,
the regulation acted like an exercise of eminent domain.
See id. That explains the significant legal distinction
between governmental regulation that deprives the
landowner of 100% of the land’s value (which is subject to
a per se analysis) and regulation that deprives the owner
of 95% of the land’s value (which is subject to Penn Cen-
tral’s ad hoc inquiry). See id. at 1019-20 n.8. Only the
former triggers a per se analysis because only the former
acts like an exercise of eminent domain.
Loretto is also instructive because it provides several
examples of governmental interference with property that
do not constitute takings under any analysis, whether ad
25
hoc or per se. Temporary flooding of land, even though it
may cause the permanent loss of sums of money (either in
the form of lost profits or the cost of repairs), is not a
taking. 458 U.S. at 428 (citing several cases). Ordering
certain gold mines to cease operations during war time in
order to conserve manpower and equipment for use in
other mines that are more essential to the war effort,
despite causing the permanent loss of those profits that
otherwise could have been earned during the time opera-
tions were prohibited, is not a taking. 458 U.S. at 431
(citing United States v. Central Eureka Mining Co., 357
U.S. 155 (1958)). Prohibiting the sale of eagle feathers,
although it causes traders of bird artifacts to suffer a
permanent loss of those future profits that would other-
wise have been earned, is not a taking. 458 U.S. at 433-34
n.10 (citing Andrus v. Allard, 444 U.S. 51 (1979)). Indeed,
in Andrus, the Court emphasized that the “loss of future
profits — unaccompanied by any physical property restric-
tion — provides a slender reed upon which to rest a takings
claim.” 444 U.S. at 65-66.
The Court’s discussion of Takings Clause precedent in
Loretto reveals a clear distinction between the permanent
physical occupation of real property, which constitutes a
per se taking, and the permanent loss of certain amounts
of money — whether in the form of lost future profits, or
losses due to the cost of repairs — which normally do not
constitute takings, much less takings per se. The alleged
lost interest income in this case should be treated no
differently. Even the New York landmark preservation law
at issue in Penn Central, which caused the owners of
Grand Central Terminal to suffer substantial losses of
monetary value, was ruled not to effect a taking. 438 U.S.
at 138. Therefore, even if it is possible to view IOLTA as
somehow causing petitioners to suffer a “loss” of interest
that could not have been earned outside of an IOLTA
account, there is no case in all of the Court’s Takings
26
Clause jurisprudence that treats governmental interfer-
ence with money as a per se taking.
Webb’s is the only case cited by petitioners where the
Court found that governmental interference with money
constituted a taking. Yet, even despite the relatively
obvious taking in that case, the Court did not employ the
per se approach. See 449 U.S. at 161-64. Rather, the Court
in Webb’s considered the purpose of the governmental
action (there was no apparent program; the government’s
action looked totally arbitrary), the economic burden on
the claimant ($100,000 of interest that could have been
earned separate and apart from the interpleader account),
and the property owner’s expectations (the interpleader
fund was specifically held for the ultimate benefit of
Webb’s creditors, not for the government). See id. Thus,
even though Webb’s presented a relatively easy takings
issue, and even though the governmental action readily
appeared to constitute a taking, the Court plainly did not
apply a per se taking approach. Moreover, when the Court
decided Loretto just two years later, and methodically
marshaled precedent in support of its categorical treat-
ment of “physical invasions,” there was not even a mention
of Webb’s. See Loretto, 458 U.S. at 426-35. Later, in Lucas,
the Court expressly drew a distinction between those types
of governmental interference with land that constitute per
se takings, and governmental interference with personal
property, which normally does not constitute a taking
under any analysis. 505 U.S. at 1027-28.
Extending the per se analysis to cases involving an
alleged taking of money would prove unworkable. Even in
the case of land, this Court has noted the difficulty of
identifying the “denominator” — e.g., whether a deprivation
of all beneficial uses of two acres of a landowner’s ten
acres of land holdings is a 100% loss of value of two acres
or merely a partial loss of value of ten acres. See Lucas,
505 at 1016-17 n.7. Extending the per se taking approach
27
to cases involving an alleged taking of money would pose
an even more intractable “denominator” problem. Unless
individuals are permitted to argue that the challenged
regulation caused them to lose 100% of the value of the
monetary amount that was allegedly lost (which would
make every deprivation of money a per se taking), Penn
Central’s warning about artificial segmentation of prop-
erty (until the point of total destruction of some portion is
reached) must be heeded. See 438 U.S. at 130 (““Taking’
jurisprudence does not divide a single parcel into discrete
segments and attempt to determine whether rights in a
particular segment have been entirely abrogated.”).”
Moreover, an extension of the per se analysis to cases
involving the alleged taking of money, without careful
identification of the correct denominator, could have far-
reaching detrimental consequences for the States’ ability
to fund state governmental programs, and would likely
invite Takings Clause attacks on state income taxes,
property taxes, and sales taxes. Petitioners acknowledge
* Although the discussion in Penn Central is limited to real
property, it is petitioners who are asking the Court to extend to alleged
monetary losses the per se approach heretofore limited to certain
regulations of real property. But petitioners cannot have it both ways.
Consistent with their logic, all of the rules governing per se takings of
real property should apply to this case, including Penn Central's rule
foreclosing the use of an artificial denominator. Thus, unless petitioners
can argue “interest follows principal” in order to establish a property
right in the interest, see Phillips v. Washington Legal Foundation, 524
U.S. 156 (1998), but then argue that the interest should be considered
separate and apart from the principal when attempting to establish a
per se taking of 100% of their interest, the deposited principal amounts
must be considered part of the “denominator” when assessing the
nature of IOLTA’s impact on petitioners. And the petitioners were in no
way completely deprived of the economically viable use of their
principal; quite to the contrary, the principal deposit was working for
them, whether facilitating the timely delivery of legal services, or the
successful completion of a real estate transaction.
28
that taxes and user fees are not takings (Pet. Br. 27-28),
but fail to explain how their proposed per se rule would
permit States to continue using such revenue-gathering
strategies without having to defend numerous lawsuits.
Per se is per se. Presumably the States would have to
justify these programs by showing that any particular
plaintiff is receiving just compensation, even though many
of the benefits of state governmental programs are enjoyed
only by others, or by groups to which the plaintiff does not
belong.
Finally, extending the per se analysis to cases itvolv-
ing an alleged taking of money would carry an increased
potential — as indicated by the current case — of identifying
as a per se taking that which a full Penn Central analysis
would reveal to be a non-taking. Such an overuse of the
categorical approach would inject an unnecessary element
of arbitrariness into this Court’s Takings Clause jurispru-
dence. Therefore, the earlier demonstration that a full
Penn Central analysis indicates that IOLTA does not work
a taking also shows the impropriety of extending the per
se takings approach to the present case.
C. Petitioners’ Expansive View Of The Tak-
ings Clause Substantially Intrudes On
The States’ Ability To Pursue Efficient
Strategies For Funding State Programs.
A decision that IOLTA programs constitute an uncon-
stitutional taking will have widespread negative implica-
tions for States’ efforts to efficiently fund an essential
state initiative — ensuring the equality of justice in state
courts. This Court has often recognized the magnitude of a
State’s interest in the administration of its own justice
system. Gregory v. Ashcroft, 501 U.S. 452, 472 (1991);
Gentile v. State Bar of Nevada, 501 U.S. 1030, 1075 (1991).
Indeed, this Court has determined that the Constitution
itself requires the States to ensure equal justice for the
29
poor by providing counsel and other litigation services to
the indigent. M.L.B. v. S.L.J., 519 U.S. 102, 110-16, 119-24
(1996) (collecting and reaffirming cases). In light of such
significant state interests and obligations, the Court
should require a much stronger showing of a taking than
exists in the present case before reading the Constitution
to interfere with all fifty States’ efforts to improve the
administration of justice in their courts.
This Court has been especially sensitive to state
interests in its Takings Clause jurisprudence. See, e.g.,
Lucas, 505 U.S. at 1017-18 (“our usual assumption [is]
that the [State] is simply adjusting the benefits and
burdens of economic life in a manner that secures an
average reciprocity of advantage to everyone concerned.”)
(citations omitted), 1027 (“the property owner necessarily
expects the uses of his property to be restricted, from time ©
to time, by various measures newly enacted by the State
in legitimate exercise of its police power.”), and 1027-28
(“And in the case of personal property, by reason of the
State’s traditionally high degree of control over commer-
cial dealings, he ought to be aware of the possibility that
new regulation might render his property economically
useless.”).
At a time when governmental institutions across the
land — both state and federal — are routinely criticized for
economic waste and bureaucratic inefficiency, it is ironic
that the States would be attacked for devising an efficient
approach to reducing the wasteful costs and fees associ-
ated with the maintenance of lawyer trust accounts, a cost
savings that is directed toward improving the quality of
justice available to state citizens in state courts. Indeed,
the posture of this case indicates that petitioners may be
motivated more by the desire to undo IOLTA programs
nationwide than by the desire to recover the “few dollars
and some-odd cents” of interest attributable to their
portion of the pooled account, interest that inevitably
30
would be exceeded by the accounting costs of attempting to
divide it among all the nominal or short-term depositors.
Of course, if petitioners prevail, those clients whose
deposits currently are placed in IOLTA accounts will still
earn zero on their “investment.”
At bottom, this lawsuit is less about whether indi-
viduals are losing small amounts of interest than how that
interest is collectively spent. And fundamental principles
of federalism counsel against using the Constitution to
thwart how a State chooses to spend money that it has
generated through its own regulation of lawyer trust
accounts. Whether IOLTA interest is spent to provide
equal access to the courts for the poor, or used to help state
governmental entities defend suits sounding in constitu-
tional tort, should not matter. And, under the Constitu-
tion, it does not matter. The Court, therefore, should deny
petitioners’ attempt — and deter future litigants’ attempts
— to distort the Takings Clause in a way that facilitates
substantial intrusions into legitimate state efforts to
administer and fund essential state programs.
CONCLUSION
For the reasons set forth above and in respondents’
briefs, the judgment of the court of appeals should be
affirmed.
Respectfully submitted,
Drew S. Days, III *BRIAN J. SERR
BETH S. BRINKMANN 1114S. University
SETH M. GALANTER Parks Drive
MORRISON & FOERSTER LLP Waco, Texas 76706
2000 Pennsylvania Avenue, N.W. (254) 710-3611
Washington, D.C. 20006-1888
(202) 887-1500 ay os
*Counsel of Record
OCTOBER 2002
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.