More than $2 million in interest earned on attorneys' trust funds has flowed through the Utah Bar Foundation to assist legal aid organizations during the past 15 years.
But a recent U.S. Supreme Court ruling could threaten that funding source, put legal aid in a financial bind and force some lawyers to return the donated interest to their clients.At issue are Interest on Lawyers' Trust Accounts programs.
Starting with Florida in 1979, such IOLTA programs now have been established by either supreme court or legislative rulings in all 50 states and the District of Columbia. Utah's IOLTA program started in 1983.
Zoe Brown, executive director of the Utah Bar Foundation, said the program uses interest earned on attorneys' retainers or settlements won for clients. If either is a large amount of money, or the attorney will be holding it for a long time, he can put it in a separate trust fund, with interest going to the client, Brown said.
However, many of the amounts are small or held for only a few days. In such cases, she said, any interest earned would not cover the bank charges or administrative fees for a separate account.
IOLTA programs let banks and attorneys cooperate and donate interest earned on pooled funds to a non-profit organization like the foundation, Brown said.
"Attorneys cannot take any interest from a trust account, because that is unethical," she said. "But the bank makes the (IOLTA) interest-bearing, takes the interest off the top and sends it to the Utah Bar Foundation. We take that and give it back to the community."
The Legal Aid Society, Utah Legal Services and similar organizations have received past foundation grants, Brown said.
"It's been a historic and very reliable source of income, unlike other sources of funding that we have, because that money is specifically dedicated to the type of work we do," said Stewart P. Ralphs, executive director of the Legal Aid Society of Salt Lake.
Ralphs said the foundation gave the society $99,000 in 1997, funding about 10 percent of its budget.
"It would be a great blow to our mission to provide legal representation to the poor if that funding were taken out from under us," he said.
The Supreme Court's June 15 ruling in the case of Phillips v. Washington Legal Foundation determined that the interest earned in the pooled accounts is the property of clients. The ruling also calls for a lower court to determine whether interest used in IOLTA programs over the years has been "taken" by the state and what compensation, if any, is due clients.
One Salt Lake attorney, who did not want to be identified, said the IOLTA program is optional in Utah, and his firm has not participated in it.
"Client money is sacred," he said. "It appeared to us all along that (IOLTA) was unethical. . . . I think the bar and legal aid need to give the money back."
According to the American Bar Association's World Wide Web site, its ethics committee said in a 1982 opinion that lawyers can ethically participate in IOLTA programs, which generated $110 million nationwide in 1996.
Ralphs said he agrees with that assessment.
"No one is making any profit from this enterprise," he said. "No one's getting rich off these IOLTA funds."
Jerry Brown, director of finance and administration for VanCott Bagley Cornwall & McCarthy in Salt Lake, said it has contributed to the IOLTA program in the past.
"This is one of those things that we'll just have to wait and see how the whole thing shakes down," he said. "There is no question that I think the funds have been put to good use. There's certainly been no harm by it."
Brown said she is not yet sure how the court ruling will affect the local program, although the foundation's board of trustees was scheduled to discuss the matter today.
"We're just going to sit back and watch it play out and see what happens," she said.