Financing Legal $ervices

Christy BrownLucas Figiel

2.19.03

Overwhelming Unmet Need

The need for legal services is overwhelming, and the vast majority of the 43 million legal-aid-eligible Americans go with-out legal assistance partially due to:

•limited financial resources•uneven funding distribution•lack of widespread public support•restricted attorney representation

Limited Financial Resources

• 2000 census affects Federal distribution to States via LSC

• Federal Budget appropriations to LSC fail to take inflation into account

• Low interest rates and market downturn affects growth of funds– IOLTA programs rely upon interest rates to

generate funds for legal service programs

2000 Census Causes Federal Funding Cuts in IL

• Good news: 35,000 fewer poor people in Illinois than there were in 1990

• Bad news: Illinois will lose more than $920,000 in federal funding next year

Consequences of Funding Cuts

• The LSC, the entity that disburses federal money for legal aid, must readjust its allocations every 10 years based on each state's poverty population

• Land of Lincoln will lose about $525,000 while operating on a $5 million budget before the reduction

• The Legal Assistance Foundation of Metropolitan Chicago will lose about $350,000 while operating from an $11 million annual budget

Not taking Inflation Into Account Avoids Fiscal Reality

• When adjusted for inflation, federal funding declined approximately 40% between 1980 and 1992

• In 1996 Congress reduced funding by another 30%

Inflation and Cuts Limit LSC Funds

Legal Services Corporation

• LSC is a private, non-profit corporation established by Congress in 1974

• The LSC receives 100% of its budget from Congress and supports a strong federal role in funding legal services for the poor

• LSC funds serve every County and

Congressional District in the Nation

LSC Funds Local Programs

• Rather than providing legal services directly, LSC distributes grants to independent local programs

• LSC funds 216 legal aid programs around the nation to help poor Americans gain equal access to the judicial system

• Joe Bartylak, director of LSC-funded Land of Lincoln Legal Assistance Foundation, accepts the half-million grant on behalf of the entire Illinois legal services community

LSC’s Fundamental Objectives1974• Continuing the present vital legal

services program• Ensuring equal access to our system

of justice for individuals who seek a redress of grievances

• Providing high quality legal assistance• Keeping the legal services program

free from the influence of or use by it of political pressures

• Assuring that attorneys providing legal assistance… have full freedom to protect the best interests of their clients in keeping with the ethics code …and high standards of the legal profession

2003• Dramatically increase the

availability of legal services

• Ensure appropriate and high quality legal assistance

• Ensure the legal service programs comply with all legal requirements

LSC Budget Requests & Appropriations

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000

2004 2002 2000 1998 1996 1994

RequestedAppropriated

How Federal Funds Get to IL

Legal Assistance Foundationof M etropolitan Chicago

The Land of LincolnLegal Assistance Foundation

Prairi State Legal Services

LSC

U nited S ta tes C ongress

Source of Prairie State FundsLSC 41.7%

United Way 12.9%

Lawyer's TrustFund 11.5%

Special Projects /Grants 16.6%

Older American’sAct 7.9%

Contributions9.1%

Other .3%Total: $6,107,200

LSC-provided Funds to IL

• 2002 State Total Funding: $11,737,172• 2001 State Total Funding: $11,711,351• 2000 State Total Funding: $10,949,804• 1999 State Total Funding: $10,974,715

• 1998 State Total Funding: $10,420,282

Inadequate IL State Funding

• Currently the State provides less than 2% of the total funding for legal aid programs in Illinois.  Of the ten most populous states in the U.S., Illinois ranks last in state appropriations for legal aid -- $500,000 vs. an average of $5.4 million

Effects of Inadequate State Funding

• Since less than 2% of the estimated $30 million spent on legal aid in Illinois comes from the state budget, the not-for-profit organizations must provide these services and compete for private charitable contributions in order to survive

Lawyers Trust Fund Woes

• Funds available through the Lawyers Trust Fund, a major source for legal aid program funding in Illinois, are sensitive to market conditions such as low interest rates and high bank surcharges

• Private funding sources, such as the United Way, are already providing significant support in an effort to address the unmet need

Legal Resource Funding Efforts

• IL increases State-provided funds• State Bar dues increase• Maintain IOLTA fund generation

IL Increases State Funding

• The budget for FY 2003 approved in June by the General Assembly and Governor George Ryan will include $490,000 for the Illinois Equal Justice Foundation as part of the appropriation for the Illinois Department of Human Services

Bar Dues Increase

• The Illinois Supreme Court increased bar membership fees to allot $42 per bar member to go to the Lawyers Trust Fund of Illinois’ legal aid fund

• Result: more than $2.4 million in additional legal aid financial assistance to Illinois residents

Washington Legal Foundationv.

Legal Foundation of Washington

• Five Plaintiffs challenge the legality of Washington’s IOLTA program on 1st & 5th amendment grounds

• But only Hayes and Brown have standing

• With some exceptions, Washington requires escrow or title companies with LSOs on staff to deposit real estate transaction money into IOLTA accounts

Whether or Not to Place Funds in IOLTA

• Amount of interest that the funds would earn during the period they are expected to be deposited

• The cost of establishing and administering the account

• The capability of financial institutions to calculate and pay interest to individual clients

What Plaintiff’s Want:

• Full refund of interest, plus interest• Declaratory Judgment that Admission to

Practice Rules 12(h) and 12.1 are unconstitutional

• Injunction preventing disciplinary action against non-complying LPO’s

• Attorney fees and costs

Procedural History

• District Court granted summary judgment to defendant after finding that there is no property right to the interest generated in IOLTA accounts

• Plaintiff’s appealed to the 9th Circuit and while pending, the Supreme Court decided Phillips and (only) found that there is a property right to the interest

• Now hearing en banc to determine the matter in light of Phillips

Court’s Analysis

• Phillips is binding authority• Rule - interest follows principal• This is a common law principle that has been

codified in almost every State’s “reception statute”

Why Use Ad Hoc

• Court deems ad hoc approach appropriate given: 1) the monetary nature of the property in question; 2) the public nature of the IOTA program; and 3) the highly regulated nature of the banking industry

Penn Central Takings Analysis

• A Taking under the ad hoc analysis occurs only if a particular regulation goes so far that it forces some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole

• Three factors: 1) economic impact of the regulation on the claimant; 2) extent to which the regulation has interfered (significantly) with distinct investment-backed expectations; and 3) the character of governmental action

Factor 1

• There is no economic impact because no interest would be earned by client funds if not deposited into IOLTA account

• Further, IOLTA regulations provide that only those funds that would not earn a net interest, either solo or when pooled with sub-accounting, are to be deposited into IOLTA accounts

Factor 2

• There is no significant interference with distinct investment-backed expectations because plaintiffs never expected their principal to earn a net interest given the structure of IOLTA and the general practices of escrow & title companies (who never place client funds into NOW accts)

Factor 3

• IOLTA regulates the use of the principal’s property with regard to the banking industry which the government regulations heavily; thus IOLTA regulations are not out of character for either commercial industry (banking) or the profession they affect (attorneys & LPOs)

Therefore… No Taking

• Court determines that there is no Taking after applying the ad hoc analysis and because plaintiffs are not being singled out to bear a burden that should be borne by the public as a whole

Just Compensation?• Determining what constitutes “just

compensation” requires putting the owner of condemned property in as good a pecuniary position as if the property had not been taken… must consider what has been lost and not what the government has gained

• Fifth amendment only protects against a Taking that is without just compensation; and because of IOLTA’s nature, the compensation due for any Taking of interest is zero

• Incidental losses are not compensable

Supreme Court Judgment

• The Court affirms the District Court’s grant of summary judgment in favor of defendants with respect to the 5th Amendment claim and vacates / remands the 1st amendment claim for reconsideration

Issues On Certiorari:• Whether the regulatory scheme for funding state legal

services by systematically seizing this property violates the Takings Clause of the Fifth Amendment to the Constitution so that the property owners are entitled to relief.

• Whether injunctive relief is available to enjoin a State from committing such a violation of the Takings Clause, where the legislative scheme in issue clearly contemplates that no compensation would be paid to the owners of the interest taken, and where the small amount due in any individual case often renders recovery through litigation impractical.

Where this case stands:

• Oral Arguments took place on December 9, 2002

• Supreme Court accepted cert on June 10, 2002