Brown v. Legal Found.

538 U.S. 216, 123 S. Ct. 1406 (2003)

 

RULE:

The Fifth Amendment does not proscribe the taking of property; it proscribes taking without just compensation. The "just compensation" required by the Fifth Amendment is measured by the property owner's loss rather than the government's gain. 

FACTS:

Plaintiff limited practice officers (LPOs) sued defendants, the Legal Foundation of Washington and others, challenging the constitutionality of a state rule requiring LPOs to deposit trust funds into interest on lawyers' trust accounts (IOLTA). The LPOs alleged that Washington's IOLTA program violated the Just Compensation Clause of the Fifth Amendment. Under Washington's IOLTA rules, IOLTA funds were only those funds that could not, under any circumstances, earn net interest (after deducting transaction and administrative costs and bank fees) for the client. Without the IOLTA program, the funds would not have produced any net interest for the LPOs. The United States Court of Appeals for the Ninth Circuit, en banc, affirmed the grant of summary judgment for defendants. The LPOs petitioned for certiorari, which was granted.

 



ISSUE:

Did the IOLTA program violate the Just Compensation Clause of the Fifth Amendment?

ANSWER:

No.

CONCLUSION:

The Court determined that the program was not a regulatory taking, but it could be a per se taking requiring the payment of just compensation. However, the Court found that just compensation was measured by the net value of the interest that was actually earned by the LPOs and that, by operation of the Washington IOLTA rules, no net interest could have been earned by the money that was placed in the IOLTA accounts. The LPOs' net loss was zero. Therefore, there was no violation of the Just Compensation Clause, and the LPOs were not entitled to any compensation for the nonpecuniary consequences of the taking of the interest on the deposited funds.

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