financing by liaoxiuli5



Financing Legal $ervices

       Christy Brown
       Lucas Figiel
           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
• 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
• 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 Objectives
1974                                    2003
• Continuing the present vital legal    • Dramatically increase the
  services program                        availability of legal services
• Ensuring equal access to our
                                        • Ensure appropriate and
  system of justice for individuals
  who seek a redress of grievances        high quality legal assistance
• Providing high quality legal          • Ensure the legal service
  assistance                              programs comply with all
• Keeping the legal services program      legal requirements
  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
 LSC Budget Requests & Appropriations
200,000,000                                             Requested
150,000,000                                             Appropriated

              2004   2002   2000   1998   1996   1994
           How Federal Funds Get to IL
                               United States Congress


Legal Assistance Foundation     The Land of Lincoln       Prairi State Legal Services
  of Metropolitan Chicago   Legal Assistance Foundation
 Source of Prairie State Funds
                    LSC 41.7%

                    United Way 12.9%

                    Lawyer's Trust
                    Fund 11.5%

                    Special Projects /
                    Grants 16.6%

                    Older American’s
                    Act 7.9%

Total: $6,107,200
                    Other .3%
        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
• Result: more than $2.4 million in additional legal
  aid financial assistance to Illinois residents
   Washington Legal Foundation
  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
 Whether or Not to Place Funds in
• Amount of interest that the funds would earn
  during the period they are expected to be
• The cost of establishing and administering the
• 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
• 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
             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
   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
            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

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