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A Wound to Legal Aid

The U.S. Supreme Court’s term ended last month with rulings on sexual harassment that drew praise for their clarity and sensibility. But the court’s earlier decision on legal services for the poor was dismaying if unsurprising. The justices cast a long shadow over a major source of legal aid funding by ruling that interest earned on the money that clients often must deposit with their lawyers for short periods belongs to the clients.

Were that decision made in a vacuum, it would seem sensible. But since the early 1980s these funds, earned by pooling many small client accounts, have served a greater purpose, generating $100 million a year nationwide to help agencies like the Public Law Center of Orange County or Bet Tzedek Legal Services in Los Angeles. For their tens of thousands of poor clients, these agencies provide a lawyer to help write a will, enforce a child-support order or resolve a landlord-tenant dispute.

The system works like this: Attorneys often must hold sums--such as settlement funds or retainer fees--in trust for their clients, sometimes for just a few days. Deposited individually these small accounts might earn negligible interest, maybe just a dollar or two. But when a number of clients’ accounts are pooled, the interest mounts.

Beginning in the 1980s, nearly every state including California created programs to pool these small client funds to support legal services. Nationally, the lawyers’ trust accounts are now the second-largest source of funding for legal services, next to the federal government. Significantly larger client accounts are held separately, and the interest is paid to clients.

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Citing the old English legal maxim, “interest follows principal,” a 5-to-4 majority held that the interest in these trust accounts belongs to the client for whom the principal is held, not to anyone else. The case now goes back to a lower court, which must decide the disposition of these accounts. But the high court ruling reduces the likelihood of keeping the pooled interest. In the meantime, agencies like the Legal Aid Foundation of Los Angeles, Public Counsel Law Center and many others worry that they will have to slash their staffs and turn away clients. The Legal Aid Foundation serves an area with 1 million low-income residents and receives $750,000 a year from the lawyers’ trust fund accounts. Absent increased charitable donations, the potential loss of interest funds will only amplify the pain of deep congressional cuts in direct federal funding for legal help for the poor.

Legal aid is a favorite target of conservatives. Some view legal aid lawyers primarily as political agitators. But the reality is that the old and poor need the same help everyone else does in dealing with divorces and consumer rip-offs. The court’s decision could close the doors of justice to tens of thousands. That’s not a result that would serve the nation.


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