UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
WASHINGTON LEGAL FOUNDATION;
ALLEN D. BROWN; DENNIS H.
DAUGS; GREG HAYES; L. DIAN
MAXWELL,
Plaintiffs-Appellants,
v.
No. 98-35154
LEGAL FOUNDATION OF
WASHINGTON; KEVIN F. KELLY;
D.C. No.
BARBARA DURHAM, Chief Justice;
CV-97-00146-JCC
GERRY L. ALEXANDER, Justice;
OPINION
JAMES M. DOLLIVER, Justice;
RICHARD P. GUY, Justice; CHARLES
WAYNE JOHNSON, Justice; BARBARA
A. MADSEN, Justice; CHARLES Z.
SMITH, Justice; PHILIP A.
TALMADGE, Justice,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Washington
John C. Coughenour, District Judge, Presiding
Argued and Submitted
February 9, 2000--Seattle, Washington
Filed January 10, 2001
Before: Stephen S. Trott, Andrew J. Kleinfeld, and
Barry G. Silverman, Circuit Judges.
Opinion by Judge Kleinfeld
_________________________________________________________________
297
COUNSEL
Richard A. Samp and Daniel J. Popeo, Washington Legal
Foundation, Washington, D.C., James J. Purcell, Seattle,
Washington, for the appellants.
David J. Burman, Perkins Coie, LLP, Seattle, Washington, for
appellees Legal Foundation of Washington and Bradley C.
Diggs.
Maureen Hart, Senior Assistant Attorney General, Olympia,
Washington, for appellee Justices of the Washington Supreme
Court.
Thomas P. Brown, Heller Ehrman White & McAuliffe, San
Francisco, California, for amici curiae Alaska Bar Founda-
tion, Arizona Bar Foundation, Hawaii Justice Foundation,
Montana Law Foundation, Nevada Law Foundation, and Ore-
gon Law Foundation.
Peter M. Siegel, Florida Justice Institute, Inc., Miami, Florida,
for amici curiae National Association of IOLTA Programs
and 64 State IOLTA Programs, State Bar Associations and
other organizations concerned with the availability of legal
aid to the poor.
302
Ronald T. Schaps, Bogle & Gates P. L.L.C., Seattle, Wash-
ington, for amicus curiae Washington State Bar Association.
Philip S. Anderson, President, American Bar Association,
Chicago, Illinois, for amicus curiae American Bar Associa-
tion.
_________________________________________________________________
OPINION
KLEINFELD, Circuit Judge:
This case raises constitutional questions about Washing-
ton's program for applying interest on lawyers' (and others')
trust accounts to various good works.
I. FACTS
Lawyers' ethical requirements have long required that
"[m]oney of the client or collected for the client . . . should
be reported and accounted for promptly, and should not under
any circumstances be commingled with his own or be used by
him."1 The contemporary formulation is that a "lawyer shall
hold property of clients or third persons that is in a lawyer's
possession in connection with a representation separate from
the lawyer's own property. Funds shall be kept in a separate
account maintained in the state where the lawyer's office is
situated, or elsewhere with the consent of the client or third
person."2
In order to keep clients' money separated, a lawyer tradi-
tionally maintains a trust account separate from the law firm
account, and keeps clients' money in the trust account. Clients
advance money to lawyers for many reasons, such as for the
_________________________________________________________________
1 Canons of Professional Ethics Canon 11(1908) (amended 1933).
2 Model Rules of Professional Conduct Rule 1.15(a) (1999).
303
closing of a business or real estate transaction, satisfaction of
a claim, bail, and fees to be earned by the lawyer in the future
but to be secured by the trust account deposit. Lawyers also
receive money to be paid partly or entirely to their clients,
perhaps after deduction of fees. Often insurance companies
send settlement checks to plaintiffs' lawyers payable to the
client "and" the lawyer. The lawyer has the client endorse the
check for deposit in the trust account by the lawyer and subse-
quent disbursement after the check clears, to third parties with
claims, to the lawyer for his fees, and to the client. Tradition-
ally, a law firm maintained one trust account in a non-interest
bearing checking account for all its clients. Occasionally a
separate interest bearing trust account or other device was
used for a single client's money when the amount is large
enough or the duration long enough to be worth maintaining
a separate account.
Earlier in the century, lawyers often used to keep clients'
money in separate envelopes in office safes.3 After World
War II (perhaps partly because banks had become safer), law-
yers started placing funds in bank accounts separate from
their law firm accounts.4 Neither device generated any interest
for the client or the lawyer, and the lawyer had to pay fees to
the bank to maintain the trust account. Though the lawyer
held the client's money as a fiduciary,5 failure to obtain inter-
est for the client was generally not a breach of fiduciary duty
because none was obtainable as a practical matter. Interest
was not paid on money in checking accounts, but except
where the size and duration of the deposit were both large, no
one concerned themselves about it. For a client to obtain
interest on an amount held in trust, the expected interest had
to exceed the value of the lawyer's time needed to establish
a separate account, or else seeking interest made no economic
_________________________________________________________________
3 See Clark v. State Bar, 246 P.2d 1, 4 (Cal. 1952).
4 See id. Some lawyers became troubled about amounts in trust exceed-
ing FDIC insurance limits during the 80's when many banks failed.
5 Model Rules of Professional Conduct Rule 1.15 cmt. 1 (1999).
304
sense. For the occasional circumstance where it was worth the
time, lawyers would establish a separate interest bearing trust
account so that the client could get the interest. 6
Two things precipitated a change from the tradition that no
interest was obtained from lawyers' trust accounts. First, in
the 1970's, interest rates reached unprecedented high levels.
Suppose $30,000 from a routine personal injury settlement
were left in a non-interest bearing trust account for two
weeks, while the insurer's check cleared and court reporters'
and other expenses were paid. When rates were only 3%, only
$35 in interest was lost, an amount less than the lawyers' fees
and bank charges that would be required to maintain a sepa-
rate account to obtain the interest. But when money market
funds were paying 19%, a client stood to lose $219 on the
same deposit. The interest was just too much to ignore.
Previously, banks were receiving the benefit of the use of
the money in lawyers' non-interest bearing trust accounts,
effectively as free loans from lawyers' clients, because before
1980, federal law prohibited federally insured banks and sav-
ings and loans from paying interest on checking accounts.7
The competitive pressure on banks from money market funds
and others led to the second change, a new federal statute
allowing payment of interest on some demand accounts.
The combination of statutory and regulatory changes allow-
ing payment of interest on some demand bank accounts and
high interest rates led to programs in all the states8 where law-
yers' trust accounts generated interest applied by nonprofit
_________________________________________________________________
6 See In re Massachusetts Bar Ass'n, 478 N.E.2d 715, 716 (Mass. 1985)
(reviewing history of IOLTA movement).
7 See 12 U.S.C. S 371a.
8 See Phillips v. Washington Legal Foundation, 524 U.S. 156, 159 n.1
(1998). Since Phillips was decided, the last adopting state, Indiana, has
instituted an IOLTA program. See Indiana Professional Conduct Rule
1.15(d) (2000).
305
foundations under bar or court supervision to charities, such
as provision of free legal services for poor people. This case
involves Washington's IOLTA ("interest on lawyers' trust
accounts") program.
The Washington Supreme Court created an IOLTA pro-
gram in 1984 and codified it in the Washington Rules of Pro-
fessional Conduct.9 Lawyers are required, on pain of
professional discipline, to hold small and short term moneys
in interest bearing trust accounts, with the interest going to the
Legal Foundation of Washington.10 The Legal Foundation is
a charitable organization established by the Supreme Court of
Washington. Clients' funds in lawyers' trust accounts gener-
ate interest that the banks pay to the Legal Foundation of
Washington. Clients' knowledge or consent is not required.
Clients are only entitled to the interest on their money, under
the Washington IOLTA rules, if the interest earned would be
greater than the bank fees and fees for lawyers' and accoun-
tants' time to establish a separate interest bearing account for
the client or maintain sub-accounts in a pooled trust fund. The
money held in trust for a length of time too short or in
amounts too small to generate interest exceeding these fees
and bank charges generates interest for the Washington Legal
Foundation.11
_________________________________________________________________
9 Washington Rules of Professional Conduct Rule 1.14 (2000).
10 See id. The rules provide:
A lawyer who receives client funds shall maintain a pooled
interest-bearing trust account for deposit of client funds that are
nominal in amount or expected to be held for a short period of
time. The interest accruing on this account, net of reasonable
check and deposit processing charges which shall only include
items deposited charge, monthly maintenance fee, per item check
charge, and per deposit charge, shall be paid to The Legal Foun-
dation of Washington, as established by the Supreme Court of
Washington. All other fees and transaction costs shall be paid by
the lawyer. A lawyer may, but shall not be required to, notify the
client of the intended use of such funds.
11 Washington Rules of Professional Conduct Rule 1.14(2) (2000).
306
This case has the unusual twist (factually unusual, but it
makes no difference analytically) that the IOLTA rules apply
to some people who are not lawyers, and the non-lawyers are
the plaintiffs. Some duties traditionally performed by lawyers
are also performed in some localities by non-lawyers, fre-
quently raising questions among the state bars and supreme
courts about whether those services constitute the unautho-
rized practice of law. The issue of non-lawyers preparing doc-
uments for real estate transactions has been resolved by the
Washington Supreme Court. In its rules for the bar, the Court
has provided for "limited practice of law" by "closing offi-
cers," who are not lawyers but may nonetheless prepare these
documents.12 Closing officers, like lawyers, take money into
trust, typically as escrow agents taking into trust the seller's
signed documents and the buyer's money and exchanging
them. The Washington Supreme Court bar rules require that
where a limited practice closing officer prepares the papers,
the money must be placed into the same IOLTA accounts as
lawyers' trust funds.13
The title and escrow companies that employ closing offi-
cers do not have the same historical traditions as the bar. Tra-
ditionally, lawyers never received anything of value from the
banks they used for trust accounts, and had to pay the bank
fees for the trust accounts out of their law firm accounts, that
is, the lawyers' own money. The escrow companies in Wash-
ington, like the lawyers, have in the past deposited money
held in trust for customers in non-interest bearing trust
accounts. Unlike the lawyers, the escrow companies have in
the past received something of value in return from the banks.
The banks did not pay them cash, but rather gave them credits
applicable against bank fees. The credits were applied to such
items as bank charges for money transfers, account reconcilia-
tions, and returned checks. Some escrow companies now
charge their customers what they call "IOLTA fees " on the
_________________________________________________________________
12 Washington Admission to Practice Rules Rule 12 (2000).
13 Washington Admission to Practice Rules Rule 12(b)-(c) (2000).
307
theory that IOLTA costs them money because they have lost
these bank credits.
The small amounts of interest from each transaction in law-
yers' and escrow companies' trust accounts add up to a lot of
money, even though interest rates are not nearly as high as
they were twenty years ago. In 1990 the program yielded $3.9
million for the Legal Foundation of Washington, in 1995,
$2.7 million.
Appellants have varying concrete interests in the IOLTA
program. Mr. Brown regularly buys and sells real estate in the
course of his business, has engaged in at least one transaction
where he knows interest on his $90,521.29 advance went to
the Legal Foundation of Washington through the IOLTA pro-
gram, and declares "I object to anyone other than me taking
the interest earned on my funds." Mr. Hayes declares like-
wise, and also objects "to some of the activities engaged in"
by the Legal Foundation and those to whom it distributes
IOLTA money. Mr. Daugs owns an escrow company and is
a limited practice officer. According to his declaration, he has
been violating the IOLTA rule so that his customers can have
the benefit of earnings credits offsetting bank charges and
because he objects to some activities of the Legal Foundation
and its grantees. Ms. Maxwell is a former licensed limited
practice officer employed by a title company that provides
escrow services. Her company decided to fire all the limited
practice officers to avoid the IOLTA rule and keep the bank
credits, so she had to surrender her license and quit using
some of her valuable skills in order to keep her job.
As an example of the activities some plaintiffs object to,
they submitted a letter from the Legal Foundation to a legal
services program saying "[h]ave I got a deal for you . . . . This
means you can do work without regard to [Legal Services
Corporation] restrictions for the first three quarters." The
Legal Services Corporation, a federally funded national legal
services program, provides funding for programs in the states,
308
but legal restrictions prevent legal services staff attorneys
from engaging in certain activities. The IOLTA money from
Washington Legal Foundation is not encumbered by these
restrictions. Thus the named plaintiffs object not only to los-
ing the interest that IOLTA receives, and losing the free bank
services they formerly received, but also to how the Legal
Foundation uses the interest it obtains on their trust funds.
The named appellants and Washington Legal Foundation,
a public interest advocacy group, sued the Legal Foundation
of Washington and the Washington Supreme Court. They
sought a declaratory judgment that the rules requiring limited
practice officers to place clients' funds into IOLTA trust
accounts, Washington Admission to Practice Rules 12(h) and
12.1, violated their First and Fifth Amendment rights. They
also sought an injunction against disciplinary action for vio-
lating the rules and a refund of whatever interest IOLTA
received from their deposits. On cross motions for summary
judgment, the defendants prevailed in district court.
II. ANALYSIS
Plaintiffs argue that the interest on their trust accounts
belongs to the clients, and that the IOLTA program violates
their Fifth Amendment right to the interest by taking it with-
out just compensation. Plaintiffs further argue that the pro-
gram violates their First Amendment right by forcing them to
finance speech to which they object. We do not reach the First
Amendment questions, because we conclude that plaintiffs are
entitled to relief on their Fifth Amendment claim.
A. Ripeness.
[1] Defendants argue that the Fifth Amendment claim is not
ripe under Williamson County Reg'l Planning Comm'n v.
Hamilton Bank.14 In Williamson, a landowner sued in federal
_________________________________________________________________
14 Williamson County Reg'l Planning Comm'n v. Hamilton Bank, 473
U.S. 172 (1985).
309
court for just compensation, claiming that county land use
regulations were so onerous as to amount to a taking.15 The
Court held that the claim was not ripe for federal adjudication,
because the landowner had not yet obtained a final decision
from the county nor had it used the available state procedure
for obtaining just compensation.16 Under Williamson, ripeness
of a claim for compensation for a taking requires that (1) "the
government entity charged with implementing the regulations
has reached a final decision regarding the application of the
regulations to the property at issue," and (2) the claimant has
sought "compensation through the procedures the State has
provided for doing so."17 Defendants' theory is that plaintiffs
have not met these requirements, and must sue for inverse
condemnation in state court under Washington law before
their Fifth Amendment claim can be ripe for federal adjudica-
tion. Defendants did not dispute ripeness in district court, but
we consider it lest we overstep our jurisdiction. 18
[2] Unlike Williamson, there is no ongoing regulatory pro-
ceeding, so there is no occasion, as there was in Williamson,
to await a final decision. There, the county zoning process
was not yet complete. Here, what is at issue are general rules,
Washington Rules of Professional Conduct Rule 1.14 and
Washington Admission to Practice Rule 12, not an individual-
ized regulatory proceeding. The process of promulgating the
final rule has long since been concluded. Thus the "finality"
requirement of Williamson does not preclude ripeness.
_________________________________________________________________
15 See id. at 175.
16 See id. at 186.
17 Id. at 186, 194.
18 See Sinaloa Lake Owner's Ass'n v. City of Simi Valley, 882 F.2d 1398,
1404 (9th Cir. 1989). We need not decide whether takings clause ripeness
doctrine is, as plaintiffs contend and as applied to this case, merely pru-
dential and not jurisdictional, see Suitam v. Tahoe Reg'l Planning Agency,
520 U.S. 725, 733 (1997), because we reject defendants' ripeness argu-
ment.
310
Most of what is at issue in this case is declaratory and
injunctive relief, not the takings claim for $20 or so of lost
interest. That $20 tail cannot wag the dog of this constitu-
tional challenge to the IOLTA program into state court. Wil-
liamson generally keeps claims for just compensation in state
court, but it does not exclude from federal court a claim for
declaratory and injunctive relief to establish that a state law,
on its face, violates the Fifth Amendment.19
[3] Also, Williamson does not apply where "the inverse
condemnation procedure is unavailable or inadequate."20
Where resort to state remedies would be futile, 21 as when the
state has no "adequate provision for obtaining compensation
at the time of the taking,"22 the second Williamson require-
ment does not apply. Futility is plain here. There cannot be a
remedy under state law, because it is state law, and not merely
an action by particular officials, that is being challenged.
Were there any doubt about how the Supreme Court of Wash-
ington would respond were a challenge to be brought, the
doubt is eliminated because the Court has already spoken in
this case. The justices of that court are among the defendants,
and they have filed a brief as appellees. The justices of the
Supreme Court of Washington do not argue that the case is
unripe, nor do they argue on any ground that they ought to
have the opportunity to rule on this case before the federal
courts do, nor do they suggest that any state remedy might be
available. The justices argue that the IOLTA rule does not
violate the Fifth Amendment. The IOLTA rule at issue, and
_________________________________________________________________
19 See Suitam v. Tahoe Reg'l Planning Agency, 520 U.S. 725 n.10
(1997); Yee v. City of Escondido, 503 U.S. 519, 533-34 (1992).
20 Williamson County Reg'l Planning Comm'n v. Hamilton Bank, 473
U.S. 172, 197.
21 See City of Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S.
687, 710 (1999).
22 San Remo Hotel v. City and Council of San Francisco, 145 F.3d 1095,
1101-02 (9th Cir. 1998).
311
the brief, filed in the justices' capacity as such, leave no doubt
that "the state has explicitly rejected its theory of the case."23
B. Property right.
Defendants argue that the clients whose money is deposited
into an IOLTA account do not own a property right in the
interest that money earns, so the Fifth Amendment protection
of property does not pertain. The Fifth Amendment protects
property rights but does not create them.24 Under Washington
law, they argue, the common law rule, "interest follows prin-
cipal," does not necessarily apply, so the owner of principal
in a trust account does not necessarily own the interest it gen-
erates. The Washington Supreme Court expressly considered
and rejected objections to its IOLTA program on Fifth
Amendment grounds, and stated in response to the objections
that "interest on short-term or nominal client funds . . . does
not constitute `property' as defined by the United States or
Washington Constitutions."25
One of the amicus briefs argues that "clients lose nothing
because of IOLTA," because were it not for the pooling, the
clients could get no interest, because the costs of administer-
ing the accounts to produce it would exceed the amounts pro-
duced. Indeed, the IOLTA rule is written so that if the interest
would exceed the administrative costs of obtaining and credit-
ing it, then the money should not be deposited into the IOLTA
trust account.
[4] This is more a practical than a legal argument insofar
as it addresses who owns the interest. The claim is not that the
trust accounts do not produce interest, but only that the
administrative expense of sharing it among the clients would
exceed the amount earned. The money deposited into the trust
_________________________________________________________________
23 Levald, Inc. v. City of Palm Desert, 998 F.2d 680, 689 (9th Cir. 1993).
24 See Board of Regents v. Roth , 408 U.S. 564, 577 (1972).
25 IOLTA Adoption Order, 102 Wash. 2d 1101, 1109 (1984).
312
account is the clients' money. If the clients own the interest,
it might be worth it to them to pay the expense and collect it
even if the lawyers or escrow companies did not think it
worth the bother. One of the affidavits in this case establishes
that a client might well say (and the affiant more or less does),
"it is not so much that I want the $20, though I do, as that I
don't want the Legal Foundation's donees to get it, because
I don't like what they do with it." If lawyers and escrow com-
panies had to pay trust account interest to clients, then soft-
ware programs might be developed to make it easy to do it.
If pooling works to generate interest for IOLTA, then it could
presumably be made to work to generate interest for clients.
Also, as the affidavits in this case demonstrate, the clients can
and do suffer a detriment if the interest is given to the Legal
Foundation, because the escrow companies impose charges on
the clients to compensate themselves for the bank credits they
formerly obtained. The property question is whether the cli-
ents own the interest, not whether the amounts are so small it
is not worth the clients' while to collect it.
The circuits had been split on this question,26 and were
when the district court ruled. Subsequent to that ruling, the
Supreme Court definitively answered the question, in Phillips
v. Washington Legal Foundation:27 the clients own the inter-
est.
[5] Phillips was a Fifth Amendment challenge to the Texas
IOLTA program. It is materially similar to the Washington
IOLTA program at issue here. Similar language was used in
Texas to limit the pooled IOLTA trust funds to short term and
nominal amounts that would not generate interest for clients
exceeding the administrative costs of paying it to the clients.
The question the Court considered was "whether interest
_________________________________________________________________
26 Compare Cone v. State Bar of Florida, 819 F.2d 1002 (11th Cir.
1987) with Washington Legal Found. v. Texas Equal Access to Justice
Found., 94 F.3d 996 (5th Cir. 1996).
27 Phillips v. Washington Legal Foundation, 524 U.S. 156 (1998).
313
earned on client funds held in IOLTA accounts is`private
property' of either the client or the attorney for purposes of
the Takings Clause of the Fifth Amendment."28 The Court
answered by saying, "[we] hold that it is the property of the
client."29
Defendants argue that Phillips should be distinguished
because it depends on Texas law, and Washington law differs.
The distinction is unpersuasive, for several reasons. Basically,
Phillips is not based on some odd quirk of Texas law, but on
a fundamental and pervasive common law principle accepted
by both states. The central question in this case was open and
subject to serious arguments on both sides before Phillips, but
not after.
Phillips begins with the proposition that the principal in the
trust accounts belongs to the client. Though one the defen-
dants' briefs argues otherwise, on the ground that a bank is
merely a debtor of the depositor whose duties depend on con-
tract, that proposition is irrelevant. The relationship at issue is
not between the bank and the lawyer or escrow company, but
between either of them and the client. The Washington
IOLTA rules, like the Texas rules, refer to the money at issue
as "client funds," and "funds of clients " and "his or her
funds," as distinguished from "funds belonging to the lawyer."30
The only reason that the moneys at issue go into trust
accounts instead of the firm accounts of the lawyers and
escrow companies is that the money belongs to the clients, not
the lawyers or escrow companies.31
Next, Phillips takes note of the well established rule that
"interest follows principal" "as the shadow the body."32
_________________________________________________________________
28 Id. at 160.
29 Id.
30 Washington Rules of Professional Conduct Rule 1.14 (2000).
31 Model Rules of Professional Conduct Rule 1.15 (1999).
32 Phillips v. Washington Legal Foundation, 524 U.S.156, 165 (1998).
314
The rule that "interest follows principal" has been
established under English common law since at least
the mid-1700's. Beckford v. Tobin, 1 Ves.Sen. 308,
310, 27 Eng.Rep. 1049, 1051 (Ch. 1749) ("[I]nterest
shall follow the principal, as the shadow the body").
Not surprisingly, this rule has become firmly embed-
ded in the common law of the various States.33
[6] Phillips also responds to the practical argument dis-
cussed above, that the IOLTA program takes interest only
from clients who would receive none, because the amounts
are too small or deposited for too short a time to generate
interest in excess of administrative expense to distribute it.
The Court held that the interest is property protected under the
Fifth Amendment even if "it lacks a positive economic or
market value."34 "While the interest income . . . may have no
economically realizable value to its owner, possession, con-
trol, and disposition are nonetheless valuable rights that
inhere in the property."35 This holding vindicates the plain-
tiffs' claim in the case at bar that they do not want interest on
their money going to the application to which the Legal Foun-
dation of Washington has elected to contribute it.
[7] Phillips goes on to establish a striking proposition:
states are not free to take away the client's property right to
the interest by statutes depriving them of property rights in it.36
This holding in Phillips speaks conclusively to defendants'
argument that the clients in Washington do not own the inter-
est because the Washington IOLTA rule so established as a
matter of state law, and the Washington Supreme Court so
stated in the dialogue about whether to adopt the IOLTA rule.
The Supreme Court in Phillips noted that in a previous deci-
_________________________________________________________________
33 Id.
34 Id. at 169.
35 Id. at 170.
36 See id. at 171.
315
sion, Webb's Fabulous Pharmacies, Inc. v. Beckwith,37 it held
that a Florida statute governing interpleaders violated the tak-
ings clause. The statute at issue in Webb's provided that
where a party deposits a sum with the clerk of the court the
interest on that principal "shall be deemed income of" the
clerk's office or the court. Were a state able, by court rule or
statute, to establish ownership of interest in one other than the
owner of the principal, this statute would have vitiated the
Fifth Amendment. But Webb's held that the statute, analogous
to Washington's IOLTA rule, violated the Takings Clause.38
" `[A] state by ipse dixit, may not transform private
property into public property without compensation'
simply by legislatively abrogating the traditional rule
that `earnings of a fund are incidents of ownership of
the fund itself and are property just as the fund itself
is property.' In other words, at least as to confisca-
tory regulations as opposed to those regulating the
use of property, a State may not sidestep the Takings
Clause by disavowing traditional property interests
long recognized under state law."39
We applied Phillips in, Schneider v. California Department
of Corrections.40 There, prison inmates in California main-
tained small amounts of money in trust accounts, to purchase
such personal convenience items as toothpaste at the prison
canteens. A California statute provided that interest earned on
inmates' money in the trust account would go to a state "in-
mate welfare fund" rather than to the individual inmate. Even
though the state statute purported to eliminate any property
interest the inmates might own to interest on their money, we
_________________________________________________________________
37 See Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155
(1980).
38 See id. at 164-65.
39 Phillips v. Washington Legal Foundation, 524 U.S. 156, 167 (1998).
40 Schneider v. California Dep't of Corrections, 151 F.3d 1194 (9th Cir.
1998).
316
held that under Phillips, "constitutionally protected property
rights can--and often do--exist despite statutes . . . that
appear to deny their existence."41
[8] We noted in Schneider that in Phillips and Webb's, the
Supreme Court had held that "a State may not sidestep the
Takings Clause by disavowing traditional property interests
long recognized under state law,"42 and both cases relied on
the common law rule that "interest follows principal" "in the
face of a contrary state statute."43 To explain how this could
be, we explained in Schneider that "Roth stands not for a the-
ory of plenary state control over the definition and recognition
of compensable property interests,"44 but rather that "there is,
we think, a `core' notion of constitutionally protected proper-
ty," and a state's power to alter it by legislation "operates as
a one-way ratchet of sorts," allowing the states to create new
property rights but not to encroach on traditional property
rights.45 We recognized in Schneider, as the Supreme Court
did in Webb's and Phillips, that"[w]ere the rule otherwise,
States could unilaterally dictate the content of--indeed alto-
gether opt out of--both the Takings Clause and the Due Pro-
cess Clause simply by statutorily recharacterizing traditional
property-law concepts."46 Thus, for example, a state could
obtain vast moneys for good works until everyone with large
sums of money moved it out of state, by passing a law stating
that all amounts in excess of $100,000 on deposit in any
financial institutions are the property of the state.
_________________________________________________________________
41 Id. at 1194.
42 Phillips v. Washington Legal Foundation, 524 U.S. 156, 167 (1998).
43 See id.; Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155,
162 (1980).
44 Schneider v. California Dep't of Corrections, 151 F.3d 1194, 1200
(9th Cir. 1998).
45 Id.
46 Schneider v. California Dep't of Corrections, 151 F.3d 1194, 1201
(9th Cir. 1998).
317
Schneider holds that the "common law pedigree " since 1749
of the rule that interest follows principal, and its "near-
universal endorsement by American courts," establishes that
"interest income of the sort at issue here is sufficiently funda-
mental that States may not appropriate it without implicating
the Takings Clause."47
Phillips' and Schneider's rejection of positive state law as
a means of avoiding the Takings Clause, disposes of the prop-
osition that there is no taking because Washington, in its
IOLTA program, has established as a matter of positive law
that interest does not follow principal with respect to small
and short term deposits in client's trust accounts. Texas, after
all, had also established its IOLTA program as law, so if
property rights in interest could be destroyed by state law in
that manner, Phillips had to come out the other way. A state
cannot avoid the Fifth Amendment limitation on takings of
property by legislating away the property right.
[9] All that is left as a possible distinction of this case from
Phillips is that Washington, unlike most common law juris-
dictions, has not accepted the common law rule that interest
follows principal. Exceptions to the rule will not establish a
contrary view, because there were exceptions in Texas.
Despite those exceptions, Phillips held that the client's own-
ership of the principal in the trust account still gave the client
a property right in the interest. Defendants have to establish
that Washington is an anomaly among common law jurisdic-
tions, not merely by having some exceptions, but by not hav-
ing accepted the virtually universal rule.
[10] Not surprisingly, the case for Washington's anomalous
status cannot be made. Most American jurisdictions adopted
the common law in what are called "reception" statutes.
Washington has a quite ordinary reception statute:"The com-
mon law, so far as it is not inconsistent with the Constitution
_________________________________________________________________
47 Id.
318
and laws of the United States, or of the state of Washington
nor incompatible with the institutions and condition of society
in this state, shall be the rule of decision in all the courts of
this state."48 This ordinary reception of the common law was
codified by the Territory of Washington in 1862, well before
statehood, so no property owner in Washington has had to
fear that by entering the state he or she was leaving behind the
protection of the common law, including the rule that interest
follows principal. In 1895, the Washington Supreme Court in
Tacoma School District v. Hedges49 applied the rule in hold-
ing that interest on delinquent taxes should go to the school
districts entitled to the principal amount of the taxes, not to
the general funds of the counties collecting the taxes. A cen-
tury later, the court applied the rule similarly in City of Seattle
v. King County50 based on the "common law principle that
interest on public funds follows ownership of those funds."51
Defendants note some Washington statutory exceptions to the
common law rule,52 but they are of no more significance than
the Texas exceptions that the Court in Phillips deemed insuf-
ficient to overcome the Fifth Amendment significance of the
common law rule. Statutes in derogation of the common law
_________________________________________________________________
48 Wash. Rev. Code S 4.04.010 (2000).
49 Tacoma School District v. Hedges, 42 P. 522 (Wash. 1895).
50 City of Seattle v. King County , 762 P.2d 1152, 1153 (Wash. Ct. App.
1988).
51 Id. at 1155.
52 See Wash. Rev. Code S 18.85.310(5) (real estate brokers must deposit
nominal deposits in trust accounts, the interest to be used for low income
housing and continuing education for real estate professionals); Wash.
Rev. Code S 36.48.090 (interest on bail goes to county expenses, not those
posting the bail); Wash. Rev. Code S 59.18.270 (landlords receive the
interest on tenants' security deposits). These three statutes were adopted,
respectively, in 1995, 1963, and 1973, long after the reception of the com-
mon law rule that interest follows principal. We have no occasion, of
course, to consider the constitutionality of these provisions.
319
in a few limited and specialized circumstances do not work a
general abrogation of the common law outside their scope.53
C. Taking.
Phillips did not express a view on whether the Texas
IOLTA law was a taking, nor on the amount of compensation
due if it was,54 because the circuit from which certiorari had
been taken only addressed whether the interest was the cli-
ent's property, and the petition for certiorari addressed only
that question.55 Defendants argue that even if interest on client
trust funds is the property of the clients, the IOLTA rule
works no taking. The district court did not reach the question
of whether there was a taking for which compensation was
due because Phillips had not yet been decided by the Supreme
Court when it ruled. The district judge relied on the one cir-
cuit court case then on the books,56 which has since been
superseded by Phillips.
[11] Plaintiffs presented evidence that for at least one of
them, a measurable amount of money, about $20 in interest,
was diverted to the Legal Foundation. Phillips holds that even
where the client's interest on trust accounts "may have no
economically realizable value to its owner, possession, con-
trol and disposition are nonetheless valuable rights that inhere
_________________________________________________________________
53 Sutherland Stat. Const. S 61.01-61.06 (5th Ed.). The old maxim that
statutes in derogation of the common law are strictly construed may be
incorrect as prescription or description of how such statutes are actually
construed. But as a description of how legislatures promulgate laws, it is
correct to say that by legislating on one matter, they do not abrogate all
common law inconsistent with the new statute on other matters that were
not even before them at the time.
54 See Phillips v. Washington Legal Foundation, 524 U.S. 156, 172
(1998).
55 See id. at n.4.
56 See Washington Legal Foundation v. Massachusetts Bar Foundation,
993 F.2d 962 (1st Cir. 1993).
320
in the property."57 To apply that concretely, a real estate pur-
chaser might want interest on his money to go to his or her
preferred charity, perhaps a church, a school, Mothers Against
Drunk Driving, or the local Rescue Mission, rather than the
Legal Foundation's preferred charity, legal services for indi-
gents, even if that interest could not be realized by the real
estate purchaser. Plaintiffs submitted evidence that at least
some of them do in fact object to their interest going to the
Legal Foundation's grantees.
Defendants argue that there has been no taking because
there has been no physical invasion of tangible property. They
rely on the Supreme Court's statement in Penn Central Trans-
portation Co. v. New York City58 that "[a] taking may more
readily be found when the interference with property can be
characterized as a physical invasion by the government."59
But their argument uses the statement out of its context,
which was regulation of real estate to preserve a historically
and architecturally important building. The statement cannot
be applied in the distinguishable context of money deposited
in banks or invested in securities or money market funds. This
would imply the nonsensical proposition that a taking would
less readily be found if a state entirely confiscated people's
money from their bank accounts or IRA's than if it installed
a sign on their land.
Defendants seem to be arguing that the government can
confiscate people's money without it being a taking compen-
sable under the Fifth Amendment, based on cases where the
government provided a service and charged a reasonable user
fee for the service.60 Taken out of the context of users' fees,
the proposition is absurd. Unlike medieval England, most
_________________________________________________________________
57 Phillips v. Washington Legal Foundation, 524 U.S. 156, 170 (1998).
58 Penn Central Transportation Co. v. City of New York, 438 U.S. 104
(1978).
59 Id. at 124.
60 See e.g., United States v. Sperry Corp., 493 U.S. 52 (1989).
321
assets are now held in the form of fungible intangibles such
as bank accounts, money market accounts, and securities. The
Fifth Amendment protection of property would be eviscerated
were we to construe confiscation of fungible intangibles as
not amounting to a taking, as defendants urge. The Supreme
Court drew precisely this distinction, between reasonable
users' fees and the interest on IOLTA accounts, in Phillips,
noting that it "would be a different case" if the state were "im-
posing reasonable fees it incurs in generating and allocating
interest income."61 Phillips holds that United States v. Sperry
Corp.,62 the user fee case, has no application to complete
"confiscation of respondents' interest income " by an IOLTA
program where the funds are managed by banks and private
individuals.63
Defendants make another, more appealing, argument from
Penn Central that the "economic impact of the regulation on
the claimant and, particularly, the extent to which the regula-
tion has interfered with distinct investment-backed expecta-
tions are, of course, relevant considerations." 64 The argument
is that, because the plaintiffs could not have realized any
money from the IOLTA funds, the economic impact is nonex-
istent, and because the IOLTA rule was in effect when they
acted, the IOLTA rule could not have interfered with their
expectations.
This argument fails on several independent grounds. First,
the "economic impact" test is articulated in Penn Central in
the context of regulation of the use of real estate, not depriva-
tion in its entirety of any property. The point of the economic
impact test in Penn Central is to distinguish government regu-
_________________________________________________________________
61 Phillips v. Washington Legal Foundation, 524 U.S. 156, 171 (1998).
62 See also our user's fee decision in Commercial Builders of Northern
California v. City of Sacramento, 941 F.2d 872 (9th Cir. 1991).
63 Phillips v. Washington Legal Foundation, 524 U.S. 156, 171 (1998).
64 Penn Central Transportation Co. v. City of New York, 438 U.S. 104,
124 (1978).
322
lations of the owner's use of property permissible under its
police power from those that go too far, requiring the govern-
ment to compensate the owner for taking his property. That
distinction is not necessary or appropriate where the govern-
ment entirely appropriates a sum of money belonging to a pri-
vate individual. The economic impact test would have
relevance if the IOLTA rule merely regulated how the client
used his interest, or where the interest was kept, or for how
long. But that is not the case. The IOLTA rule entirely appro-
priates the interest on the client's principal in a trust account,
so the distinction between regulation under the police power
and a taking subject to Fifth Amendment protection is not
affected by the economic impact.
[12] This analysis is compelled by Loretto v. Teleprompter
Manhattan CATV Corp.65 There, a city required landlords to
allow cable television companies to put cables on their roofs.
The Court held that this permanent physical occupation of a
portion of roof space was a "taking" "without regard to the
public interests that it may serve,"66 and without regard to the
"minimal economic impact on the owner."67 The Court held
that the multi-factor test in Penn Central does not apply to a
permanent physical occupation, as was the case for those parts
of the roof on which the cables were mounted.68 Phillips
applied Loretto, in the context of IOLTA interest rather than
physical invasion of real property.69 And Phillips interpreted
Loretto to mean that property was "taken""even when
infringement of that right arguably increased the market value
of the property at issue."70 Thus, says Phillips, drawing an
_________________________________________________________________
65 Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419
(1982).
66 Id. at 426.
67 Id. at 435.
68 See id. at 432.
69 Phillips v. Washington Legal Foundation, 524 U.S. 156, 169-70
(1998) (emphasis in original).
70 Id. at 170.
323
analogy to IOLTA interest, "the government may not seize
rents received by the owner of a building simply because it
can prove that the costs incurred in collecting the rents exceed
the amount collected."71 The Court in Phillips also expressly
rejected the argument that because federal tax and banking
regulations are what enables IOLTA to generate interest, there
is no property right, on the ground that "the State does noth-
ing to create value; the value is created by respondent's funds."72
When the government permanently appropriates all of the
interest on IOLTA trust funds, that is a per se taking, as when
it permanently appropriates by physical invasion of real proper-
ty.73
Second, it is not quite correct to say that IOLTA as struc-
tured does not deprive clients of any money. The rule says
that in determining whether to deposit money held in trust
into the IOLTA account or an account where the client will
receive the interest, a lawyer must consider "only whether the
funds to be invested could be utilized to provide a positive net
return to the client," based on the interest to be earned while
the funds "are expected to be" deposited, and the various
expenses including lawyers' fees for administering interest
payable to the client.74 This leaves two ways in which, as a
practical matter, the client may lose an economically signifi-
cant amount of interest. One, probably quite common, is
where the funds "are expected to be" deposited for a much
shorter period than they actually are. For example, disburse-
ment to a client may be delayed because a physician who
treated him in exchange for a pro tanto assignment of settle-
_________________________________________________________________
71 Id. at 170.
72 Id. at 171.
73 Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015
(1992).
74 Washington Rules of Professional Conduct Rule 1.14(3). The rule for
closing officers, Washington Admission to Practice Rules Rule 12.1(b)(3),
is analogous, except that "cost of closing officer's services" is substituted
for "cost of lawyer's services."
324
ment proceeds calls to say that another bill is coming. A clos-
ing on a house may be delayed because the engineer whose
report the bank needs catches the flu and finishes the report
a couple of weeks late. All sorts of reasons intervene so that
expected one day deposits, originally thought to produce
interest less than the anticipated expense of paying it to the
client, turn into deposits for a few weeks.
The second way a client may lose interest is that the costs
of lawyers' and closing officers' services are overestimated.
As a practical matter, the lawyers and closing officers have a
substantial incentive not to be bothered with crediting clients
with their interest. It is therefore in their interest to say of
almost all routine trust deposits that no significant interest
will accrue and to place the money into the IOLTA account.
But a client, whether out of desire that he or she get every
penny coming to them, a feeling of getting "nickeled and
dimed," or an objection to contributing money to lawyers' and
judges' favorite charity, may think it is worth having a lawyer
spend $19.95 worth of time to get the client $20 in interest.
Also, the amount of time and trouble involved in collecting,
allocating, and distributing interest to clients depends on how
often it is done. If done once, it is probably a costly nuisance.
If done frequently, it may become delegable to non-
professional staff using off the shelf software.
D. Remedies.
[13] Defendants argue that even if the interest is the client's
property, and even if the IOLTA rule effects a taking, the
Fifth Amendment nevertheless affords no remedy because the
"just compensation" is zero. On this point, which the district
court did not reach, a remand is necessary. The Fifth Amend-
ment does not prohibit the taking of private property for pub-
lic use; it allows it.75 What it prohibits is the taking of private
property for public use "without just compensation."76
_________________________________________________________________
75 First English Evangelical Lutheran Church v. County of Los Angeles,
482 U.S. 304 (1987); Macri v. King County, 126 F.3d 1125 (9th Cir.
1997).
76 U.S. Const. amend. V.
325
[14] Defendants argue that no equitable relief is available
to enjoin a taking of private property for public use, citing
Ruckelshaus v Monsanto.77Monsanto does not preclude all
equitable relief related to a taking, but it does prevent a court
in most circumstances from enjoining the taking itself. Even
though the Washington IOLTA rule is a taking of private
property for public use from clients of lawyers and closing
officers, that does not necessarily entitle or require a district
court to enjoin operation of the rule. The clients are entitled
to just compensation, not to prevention of the taking, just as
they would be if the state were taking their real estate to build
a highway. Plaintiffs' prayer for relief seeks "reimbursement"
of the interest taken from them. "Reimbursement " is not a
correct form of relief, because plaintiffs never had possession
of the interest that was taken from them, and, as explained
below, reimbursement may be an incorrect measure of "just
compensation."
[15] Monsanto does not address all the equitable relief
demanded, only the taking itself. Though they cannot enjoin
the government from taking their interest for public use,
plaintiffs are entitled to a declaratory judgment that taking
their interest for public use without paying them just compen-
sation, under the IOLTA rule, violates the Fifth Amendment.
Plaintiffs also seek an injunction prohibiting the Washington
Supreme Court from taking disciplinary action against limited
practice officers (the closing officers escrow companies
employ) for refusing to deposit clients' money into the
IOLTA account, or from conditioning their licenses on com-
plying with IOLTA rules. We do not decide whether such an
injunction would be appropriate, because the district court has
not yet considered the issue, but if it would otherwise be
appropriate, Monsanto would not bar an injunction. Monsanto
prevents courts from enjoining takings. This equitable relief
would not enjoin takings, but would instead be addressed to
saving the jobs of title and escrow company employees
_________________________________________________________________
77 Ruckelshaus v. Monsato Co., 467 U.S. 986 (1984).
326
caught between the IOLTA rules and employers who do not
want to employ anyone who will comply with the IOLTA
rules.
Defendants correctly argue that the measure of just com-
pensation is not the value that the government gains, but
rather the value that the person whose property was taken loses.78
Ordinarily if money is taken, it comes to the same thing, but
not necessarily in this case. The evidence before us allows for
differing conclusions, so there is a genuine issue of fact on
this record. It is possible that the interest gained by the defen-
dants exceeds the amount of the loss by the clients.
Plaintiffs' submissions include what the escrow companies
call "IOLTA fees" charged to customers whose money is put
into the IOLTA account. These fees and the affidavits
explaining them support an inference that the clients are
harmed financially by the IOLTA program, but the "IOLTA
fees" do not measure the loss. The IOLTA fees are not
charged by IOLTA, but by the title and escrow companies.
Before IOLTA the banks previously received the benefit of
the "float," that is, the interest-free loans lawyers gave them
of their clients' money, and escrow companies of their cus-
tomers' money, when it was held in trust accounts. A bank
account is a loan of money by the depositor to the bank.79
Before IOLTA, the banks "kicked back" part of this benefit
of this interest-free loan to the title and escrow companies.
The customers who put the funds in escrow, and had equitable
title to them, received nothing. Now that IOLTA receives the
benefit of the "float" instead of the banks, the banks no longer
share it with the title and escrow companies, in the form of
_________________________________________________________________
78 See Williamson County Reg'l Planning Comm'n v. Hamilton Bank,
473 U.S. 172 (1985); United States v. 564.54 Acres of Land, 441 U.S. 506
(1979); Boston Chamber of Commerce v. City of Boston, 217 U.S. 189
(1910).
79 See IT Corp. v. General Am. Life Ins. Co., 107 F.3d 1415, 1422 (9th
Cir. 1997).
327
credits against bank charges. So the title and escrow compa-
nies charge customers an amount they refer to as "IOLTA
fees," not based on any fees charged by IOLTA, but rather on
their loss of benefits they previously shared with the banks
from interest-free deposits of their customers' money.
Because the interest is property taken from the customers, not
the title and escrow companies, just compensation is due to
the customers, not the title and escrow companies, and is mea-
sured by the loss to the customers, not the title and escrow
companies. The significance of the mislabeled "IOLTA fees"
and loss of bank credits is that it shows some compensable
value was there, even though the value was being retained by
the title and escrow companies rather than the customers
whose money they took in trust.
The Court in Phillips drew a distinction that implies the
proper resolution of the just compensation measure (and with
it, the constitutionally permissible form of an IOLTA pro-
gram). Phillips says that the taking of interest on trust
accounts "would be a different case" if the state were "impos-
ing reasonable fees it incurs in generating and allocating inter-
est income."80 Phillips cites Sperry81 in reference to this
"different case" IOLTA plan. In Sperry, the government
caused a fund to be generated for victims of Iranian revolu-
tionary confiscations and charged a fee of 2% for expenses
incurred in connection with the arbitration of claims and the
maintenance of the fund.82 By analogy with the Iranian confis-
cation fund, it may be the case that but for the efforts of the
Washington Bar and Supreme Court, the banks and escrow
companies would still get the benefit of the clients' and cus-
tomers' money deposited into their trust accounts. For their
service in "generating and allocating interest income," the
Legal Foundation may be justified in "imposing reasonable
fees" analogous to the fees the government charged on the
_________________________________________________________________
80 Phillips v. Washington Legal Foundation, 524 U.S. 156, 171 (1998).
81 United States v. Sperry Corp. , 493 U.S. 52 (1989).
82 See id. at 57.
328
Iranian confiscation fund. There have to be some expenses,
for the clerical and administrative efforts in managing the
flow and accounting for IOLTA funds. The IOLTA program
managers have to pool the clients' moneys deposited into trust
and make the arrangements with the banks, or there is no
interest.
Just as a client is not entitled to the full amount that a law-
yer collects for him, but only that amount less the lawyer's
reasonable expenses and fees,83 so just compensation for inter-
est taken by IOLTA after IOLTA causes the interest fund to
exist is something less than the amount of the interest. This
analogy to the restitution theory applicable to lawyers' fees
for producing a common fund is only partial. The principal,
not the lawyers' efforts, produces the interest. 84 But there is
some analogy to common fund cases, and to the Iranian con-
fiscations fund in Sperry, because there would be no interest
that could flow to the individual clients but for substantial
administrative and clerical efforts to administer the IOLTA
program, both to assure that lawyers' and escrow companies'
trust funds went into the pooled accounts, and to distribute
interest to clients out of pooled accounts.85
Even though when funds are deposited into IOLTA
accounts, the lawyers expect them to earn less than it would
cost to distribute the interest, that expectation can turn out to
be incorrect, as discussed above. Several hypothetical cases
illustrate the complexities of the remedies, which need further
factual development on remand. Suppose $2,000 is deposited
_________________________________________________________________
83 See Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 271 (9th
Cir. 1989).
84 See Phillips v. Washington Legal Foundation, 524 U.S. 156, 168
(1998).
85 An additional detail not clear from the record as it stands is whether
the interest could flow to clients, or only to charities selected by clients,
under the restrictions applicable to financial institutions in which trust
funds could prudently be pooled.
329
into a lawyer's trust account paying 5% and stays there for
two days. It earns about $.55, probably well under the cost of
a stamp and envelope, along with clerical expenses, needed to
send the $.55 to the client. In that case, the client's financial
loss from the taking, if a reasonable charge is made for the
administrative expense, is nothing. The fair market value of
a right to receive $.55 by spending perhaps $5.00 to receive
it would be nothing. On the other hand, suppose, hypotheti-
cally, that the amount deposited into the trust account is
$30,000, and it stays there for 6 days. The client's loss here
would be about $29.59 if he does not get the interest, which
may well exceed the reasonable administrative expense of
paying it to him out of a common fund. It is hard to see how
just compensation could be zero in this hypothetical taking,
even though it would be in the $2,000 for 2 days hypothetical
taking. It may be that the difference between what a pooled
fund earns, and what the individual clients and escrow compa-
nies lose, adds up to enough to sustain a valuable IOLTA pro-
gram while not depriving any of the clients and customers of
just compensation for the takings. This is a practical question
entirely undeveloped on this record. We leave it for the par-
ties to consider during the remedial phase of this litigation.
E. First Amendment Claim
[16] Plaintiffs claim that the IOLTA program violates the
First Amendment because it forces clients of lawyers and cus-
tomers of escrow companies to contribute their interest money
to groups such as legal services programs asserting public
positions with which they disagree. Because plaintiffs prevail
on their Fifth Amendment claim, and because the district
court did not reach the First Amendment claim, we do not
reach the First Amendment claim.
III CONCLUSION
IOLTA programs spread rapidly because they were an
exceedingly intelligent idea. Money that lawyers deposited in
330
bank trust accounts always produced earnings, but before
IOLTA, the clients who owned the money did not receive any
of the earnings that their money produced. IOLTA extracted
the earnings from the banks and gave it to charities, largely
to fund legal services for the poor. That is a very worthy pur-
pose. But as Phillips reminds us, the interest belongs to the
clients. It does not belong to the banks, or the lawyers, or the
escrow companies, or the state of Washington. If the clients'
money is to be taken by the State of Washington for the wor-
thy public purpose of funding legal services for indigents or
anything else, then the state of Washington has to pay just
compensation for the taking. That serves the purpose of
imposing the costs on society as a whole for worthwhile
social programs, rather than on the individuals who have the
misfortune to be standing where the cost first falls.86
In sum, we hold that the interest generated by IOLTA
pooled trust accounts is property of the clients and customers
whose money is deposited into trust, and that a government
appropriation of that interest for public purposes is a taking
entitling them to just compensation under the Fifth Amend-
ment. But just compensation for the takings may be less than
the amount of the interest taken, or nothing, depending on the
circumstances, so determining the remedy requires a remand.
REVERSED and REMANDED.
_________________________________________________________________
86 See Armstrong v. United States , 364 U.S. 40, 49 (1960).
331