538 U.S. 216, 235 (2003)
In 1984, the Supreme Court of Washington adopted rules requiring lawyers to deposit client funds nominal in amount or expected to be held for a short period of time into IOLTA accounts.1 The interest earned is paid to the Legal Foundation of Washington for use in providing legal services to the indigent.2
Petitioner Allen Brown is a lawyer who maintains an IOLTA account, and petitioner Greg Hayes is one of his clients.3 In 1990, Hayes recovered a judgment in an action for nonpayment of overtime wages entitling him to a payment of $4,000 in attorney's fees that could not be paid immediately, so the funds were placed in an IOLTA account.4
In August 1996, Hayes made an earnest money deposit of $2,000 and a further payment of $12,793.32 in connection with a real estate purchase closed on August 30, 1996, with the money going into an IOLTA account.5 In May 1997, Brown made a payment of $90,521.29 that remained in escrow for two days, generating an estimated $4.96 in interest ultimately paid to the Foundation.6
In 1994, Brown and Hayes filed this action in the United States District Court for the Western District of Washington seeking a declaration that the IOLTA program violated the Fifth Amendment and an injunction against its continued operation.7 The District Court granted summary judgment to respondents after finding that petitioners could not make any net return on the interest accrued in the accounts.8 The Court of Appeals for the Ninth Circuit affirmed, and the Supreme Court granted certiorari.9
Whether the interest earned on client funds in IOLTA accounts is the private property of the client for Takings Clause purposes?10
Yes. The Supreme Court of Washington requires lawyers to deposit client funds that are nominal in amount or expected to be held for a short period into IOLTA accounts with interest paid to the Legal Foundation of Washington.13 Petitioner Brown maintains an IOLTA account.14 Petitioner Hayes had his $4,000 judgment funds placed in such an account.15
Later his real estate deposits of $2,000 and $12,793.32 were also placed in IOLTA accounts.16 Under the established rule the interest generated belongs to the owner of the principal.17
The interest earned on client funds in IOLTA accounts is the private property of the client for Takings Clause purposes.18
Related opinions on this issue
Joined by The Chief Justice And Justice Thomas
Justice Scalia agrees that the interest earned on the clients' funds is the clients' property.19 He maintains that the State has taken that property and given it to a private foundation to be used for purposes chosen by the State.20 This constitutes a classic taking of private property for a public use without just compensation.21
He argues that the Court's conclusion that there has been no taking because the client has suffered no loss is wrong.22 The client has lost the interest that was earned on his money.23 The fact that the amount of interest may be small does not change the fact that it is the client's property.24
He would reverse the judgment of the Court of Appeals.25
Whether the transfer of that interest to the Legal Foundation constitutes a taking under the Fifth Amendment?26
No. Although the interest is private property transferred to a public use through the Legal Foundation, the owners of the funds in IOLTA accounts suffered no cognizable loss.29 The Washington rules place funds in IOLTA accounts only when they cannot earn net interest for the client.30 The District Court found that petitioners Brown and Hayes have not suffered any loss from the transfer of the $4.96 estimated interest or other amounts.31
The transfer of interest earned on client funds in IOLTA accounts to the Legal Foundation does not constitute a taking under the Fifth Amendment.32
Whether the clients suffered any compensable loss measured by the owner's net loss rather than the taker's gain?33
Just compensation is measured by the owner's loss rather than the taker's gain. When the owner's net loss is zero there is no constitutional violation.34
No. Petitioners Brown and Hayes could not have earned net interest on their funds under the IOLTA rules so their net loss is zero.35 The $90,521.29 deposit by Brown for two days and Hayes's real estate funds generated interest only because of the IOLTA pooling but produced no net return that the clients would have received otherwise.36 Because compensation is measured by the owner's loss the amount due is zero.37
The clients suffered no compensable loss because their net loss was zero.38
Related opinions on this issue
Joined by The Chief Justice And Justice Thomas
Justice Scalia dissents from the majority's conclusion that there has been no taking because the client suffered no loss.39 He argues that the client has lost the interest that was earned on his money. The fact that the amount of interest may be small does not change the fact that it is the client's property.
He rejects the novel exception to the rule that just compensation is the fair market value of the property taken.40 He would reverse the judgment of the Court of Appeals because the Court's reasoning contravenes Phillips and eighty years of precedent on determining just compensation.41
Justice Kennedy joins the principal dissent in full.42 He adds that by mandating that the interest from these accounts serve causes the justices of the Washington Supreme Court prefer, the State not only takes property in violation of the Fifth and Fourteenth Amendments.43 The State also grants to itself a monopoly which might then be used for the forced support of particular viewpoints.44 The true owner cannot even opt out of the State's monopoly.45
Today's holding is doubly unfortunate because one constitutional violation likely will lead to another in the form of compelled speech.46