Anemic interest
rates responsible for declining revenue in a statewide legal program that
funds pro-bono efforts is driving a push to increase funding by making
participation among lawyers mandatory.
Known as IOLTA , the Interest on Lawyer Trust Account program created
in 1998 by an Indiana Supreme Court rule uses the interest raised from
trust accounts to support free legal services to the indigent. The accounts
hold funds short term from such legal transactions as a settlement or
sale of a business or estate.
But low interest rates have dropped the program's annual revenue from
$803,032 in fiscal year 2001- -IOLTA 's first full year in operation--to
$397,328 in fiscal 2004. During that time, the interest rates of banks
participating in the program have fallen from an average of roughly 1.5
percent in early 2001 to about 0.4 percent.
When a client receives money in a legal matter, one check is made out
to both the client and the lawyer, and is endorsed by both. The money
is deposited in a trust account, from which separate checks are written
to each.
There currently are 2,249 IOLTA accounts and about 15,000 lawyers in the
state. Some of the larger law firms, however, may have just one or two
trust accounts for several lawyers, making it difficult for the bar foundation
to gauge how many lawyers participate. Further, some holding legal degrees--such
as judges, prosecutors and law professors--are exempt from participating.
The foundation estimates about 58 percent of the practicing lawyers practicing
in the state are part of IOLTA .
The Indiana State Bar Association's Board of Governors will discuss making
participation mandatory at its Sept. 11 meeting. If the measure is approved,
it will be forwarded for consideration by the state bar's House of Delegates
at the ISBA's annual meeting Oct. 13-15.
The state Supreme Court has the final decision on a rule change. Chief
Justice Randall Shepard spearheaded the effort to get IOLTA operating
in Indiana, which was the last state in the nation to adopt the measure.
Twenty-eight states have mandatory IOLTA programs.
Those that don't require participation face the same struggles as Indiana,
said Bev Groudine, staff counsel to the American Bar Association's commission
on IOLTA .
"Programs are looking at a number of different methods to enhance their
revenue and converting to mandatory [participation] is an important option,"
Groudine said.
Jim Dimos, a partner at the local Locke Reynolds LLP law firm and a board
of governors member, said he remains undecided whether to support a mandatory
program.
"There are still people who feel uncomfortable with it," Dimos said. "On
the other hand, I am a significant proponent of pro bono. If [mandatory
participation] will help facilitate that, I have to give strong consideration
in its favor."
Opponents think client funds should stay in non-interest-bearing accounts,
or the interest should be given to clients. Supporters of mandatory IOLTA
participation say the states that have converted have seen annual revenue
increases ranging from 23 percent to 232 percent.
Due to the shortfall in Indiana, the IOLTA program is able to support
less than half the cases it once could in the local pro bono districts
around the state. Fourteen pro bono districts were established under IOLTA
to serve as a liaison between the lawyers providing pro bono services
and the individuals who need the services.
IOLTA funds pay for a plan administrator in each district, and expenses
related to such items as depositions and litigation. The majority of the
cases are family law disputes involving divorces, child support, custody
issues and protective orders.
The nation's IOLTA programs withstood a legal challenge in March 2003
when the U.S. Supreme Court ruled the accounts do not violate clients'
rights to "just compensation" as long as the program is limited to short-term
deposits that would not otherwise be placed in an interest-bearing account.
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