The fable is told - Aesop told it - of a dog who was boss of a manger. Whenever the ox tried to get at his hay, the dog would snarl and bristle and drive him off. The dog couldn't eat the hay, of course, but he didn't want anyone else to have it either.
A dog in the manger, wearing the collar of the Washington Legal Foundation, showed his teeth at the Supreme Court on June 15. Ordinarily I am on the foundation's side. Its conservative directors and attorneys have done much to curb the excesses of federal power. They have fought the good fight for individual liberty. This time my applause is greatly muted.The regrettable story sounds as dull as the dust on a law book, but it has a human angle. In the course of their everyday practice, lawyers handle money that typically is held in escrow. If the sums are large, and are likely to be held for some time, the funds are deposited in interest-bearing accounts.
Many times the sums are merely nominal and will be held only briefly. Twenty or 30 years ago, Australia came up with a good idea: Pool the sums, bank the money, and put the collective interest to work in legal aid to the poor. Canada took up the plan. In 1981, Florida joined the pioneers. Today all 50 states have state-mandated programs that rely upon Interest on Lawyers Trust Accounts.
The accounts, known as IOLTAs, have been immensely useful. Every year an estimated 1.7 million poor persons benefit from legal aid made possible by IOLTAs. The state-administered programs, which cost the taxpayers nothing, provide a vital supplement for the tax-financed Legal Services Corp.
In their brief before the high court, 84 bar associations and foundations offer this example of a property sale:
"An attorney, representing the seller of a small piece of property, receives $500 to be held in escrow. At closing, some 30 to 60 days later, the deposit is applied to the sale price. If closing does not take place, depending on the sales contract and other factors, either the buyer or seller may be entitled to the deposit. The interest on the deposit, $2.19 per month at current NOW account rates, would not justify the time and expense required to set up a separate NOW account."
In Texas, the interest earned on pooled deposits goes to the Texas Equal Access to Justice Foundation, a nonprofit corporation established by the state's Supreme Court. The program was running along smoothly until Michael Mazzone and William Summers came along in 1994. Mazzone is an attorney who maintains an IOLTA account into which he regularly deposits client funds. Summers is a businessman who frequently retains counsel.
Supported by the Washington Legal Foundation, Mazzone and Summers complained that the program violates the takings clause of the Fifth Amendment. The clause says that government may not take private property for public use without payment of just compensation.
On June 15, in an opinion by Chief Justice William Rehnquist, the Supreme Court upheld the complainants. Everyone agrees, he said, that the PRINCIPAL held in an IOLTA is the private property of the client. It is a revered principle of English property law, dating from the mid-1700s, that "interest follows principal."
Because I believe that property rights are at the very core of civil rights, I have to support Rehnquist's opinion in principle, but I am far from certain that the principle applies in this case. The hypothetical $2.19 a month interest may be private property, but I doubt that it is compensable private property. Why not put these nickels and dimes to constructive use?
Under the Supreme Court's order, the case goes back to the 5th Circuit on remand. Rehnquist studiously avoided two issues - whether the funds had been "taken" by the state, and whether the state owed just compensation. I hope the lower court will combine law and equity and find some way to restore a sound program that benefits the poor without costing anyone else a penny.