## Facts

- Washington required client funds held by lawyers to be placed in interest-bearing trust accounts.
- Funds that could not earn net interest for the client (because of size, duration, and banking costs) had to be deposited into IOLTA accounts.
- Banks paid net interest from IOLTA accounts to the Legal Foundation of Washington, which used the proceeds for specified charitable and educational legal purposes.
- The program was extended to Limited Practice Officers, nonlawyers licensed to handle escrow functions in real-estate closings.
- Petitioners’ real-estate transaction funds were placed into IOLTA accounts, generating interest paid to the Legal Foundation rather than to petitioners.
- The record showed the funds would not have produced net interest for petitioners absent the IOLTA rules.

## Issues

1. Whether compelled transfer of interest generated on client funds in IOLTA accounts constitutes a taking of private property under the Fifth Amendment.
2. If a taking occurs, whether the Just Compensation Clause is violated when the owner’s net pecuniary loss from the taking is zero.

## Decision

- The Supreme Court affirmed judgment for respondents in a 5–4 decision authored by Justice Stevens.
- The Court treated the appropriation of IOLTA interest as a per se taking because the interest is the property of the owner of the principal.
- The Court held there was no Fifth Amendment violation because just compensation is measured by the owner’s loss, and petitioners’ net loss was zero when the program rules were properly applied.
- The dissent argued that once a discrete property interest is taken, compensation should reflect the value of the property taken rather than a net-loss measure.

## Legal Principles

- Interest generated on funds held in trust belongs to the owner of the principal and is private property for Takings Clause purposes.
- A government appropriation of that interest is a taking, but the Takings Clause is violated only if the taking is without just compensation.
- Just compensation is generally measured by the property owner’s pecuniary loss, not by the government’s gain or the public benefit produced.
- When an IOLTA program applies only to funds that could not generate net interest for the owner, the owner’s compensable loss is zero and the constitutionally required compensation is zero.

## Conclusion

Washington’s IOLTA program effected a taking of clients’ interest income, but it did not violate the Just Compensation Clause because affected clients, by definition of the program’s application, suffered no net pecuniary loss and therefore were owed no monetary compensation.


Brown v. Legal Found. of Wash., 538 U.S. 216 (2003)