Phillips v. Washington Legal Foundation case brief

Phillips v. Washington Legal Foundation (1998)

Facts: Texas adopted an Interest on Lawyers Trust Account program, where certain client funds held by an attorney in connection with his practice are deposited in bank accounts, and the interest generated is paid to foundations financing legal services for low-income individuals.

Issue: Whether interest earned on client funds held in IOLTA accounts is “private property” either of the client or the attorney for purposes of the Takings Clause. (Majority’s manner of framing the argument). Focuses on premise that interest arises from principal.

Holding: It is the client’s property.

Dissent: Critical of majority’s framing the response in an abstract way, as opposed to specifically looking at the jurisprudence around takings.

Dissent would frame the question “whether Texas, by requiring the placing of the funds in special IOLTA accounts and depriving the funds’ owners of the subsequently earned interest has temporarily ‘taken’ what is undoubtedly ‘private property,’ namely, the clients’ funds…” Not taking b/c government created the benefit—the legal services. Dissent would say that the question the majority is asking is outside of the facts. If the question is simply dealing w/the fact pattern (majority), the case would come out in a different way.

• Some would say this case is in line w/Lucas, federalizing property rights.
• Constitutional source of the theory behind takings—5^th Amendment.
• These cases raise issues of federalism, natural rights, and substantive due process, and their interrelationship.
• How a case about IOLTA funds has implications for how the court may view in the future substantive due process, and will it view them differently w/respect to economic rights, as in Lochner.

Applying Penn Central’s Three Principles to Phillips

1. economic impact—was the property the principal or the interest? The majority said that interest followed the principal. Under IOLTA facts, state of Texas req’t to put funds in an account does nothing to the diminution of the property—the funds weren’t going to earn the interest anyway. Not large impact on client’s principal, if principal is the property.
2. character of the government’s action—maybe the client thought the funds would be in an interest bearing account and they’d gain interest, but this isn’t how it often works when funds were in escrow. This wasn’t seen as an investment. Souter—temporary use of private property, not even permanent.
3. Extent to which the regulation interfered—there weren’t investment-backed expectations.