Once controversial, IOLTA is now professional standard in Indiana

Although Indiana was the last state to establish an IOLTA program, its debate over the program helped to devise a method for disbursing the funds that garnered national attention.

Twenty-five years ago, attempts to create an Interest on Lawyer Trust Account program were taking place in the Statehouse and in the courtroom. The Legislature enacted a bill during the 1990 session that instituted the program and twice that same year, the Indiana Supreme Court found the program violated the state constitution.

Typically, IOLTA programs shifted settlement money held by attorneys into interest-bearing accounts. The interest earned was diverted to support pro bono legal services.

Supporters contended the interest amount flowing from the individual accounts was minimal and not of consequence to the clients, but when pooled it provided a vital resource for meeting the legal needs of the poor. Opponents countered that regardless of the amount involved, the interest earned was the clients’ money and attorneys could not siphon it.

Eventually, the opposition softened and an IOLTA program was established in Indiana in late 1999. Pro bono districts were created to use the money for the recruitment of private attorneys to represent low-income clients.

To date, Indiana’s IOLTA program, which is administered by the Indiana Bar Foundation, has given out more than $11 million.

Then-Indiana Chief Justice Randall Shepard advocated for IOLTA and wrote two key dissents to the majority opinions knocking down the program. Despite the turmoil, he was confident that sooner or later Indiana would establish an IOLTA program. But looking back on that time, he conceded “it took longer than I wanted.”

Supreme Court

The debate about IOLTA in Indiana heated up in 1990. Although lawmakers enacted legislation to create the program, the Supreme Court successfully asserted its authority to govern the practice of law.

A pair of opinions issued a quarter of a century ago illustrated the majority was most concerned about the program’s effect on attorney behavior.

In February 1990, the Supreme Court issued the per curiam decision, In the Matter of Indiana State Bar Association’s Petition to Authorize a Program Governing Interest on Lawyers’ Trust Accounts, 550 N.E.2d 311 (Ind. 1990), which denied the petition. The court maintained attorneys have a duty to protect the rights and property of their clients. Under IOLTA, attorneys would be transferring wealth from clients, which would violate the Rules for the Discipline of Attorneys and Rules of Professional Conduct.

Nine months later in November 1990, the Supreme Court struck down in a 3-2 decision House Enrolled Act 1044 for similar reasons in In re the Matter of Public Law No. 154-1990 (H.E.A. 1044), 561 N.E.2d 791 (Ind. 1990).

Justice Brent Dickson, writing for the majority, held that the statute’s provision granting a lawyer immunity from disciplinary action for depositing a client’s money into an interest-bearing account infringed on the judiciary’s responsibility to regulate the practice of law. The Act was found to have overstepped the boundary set by Article 3, Section 1, of the Indiana Constitution.

Justices Alfred Pivarnik and Richard Givan concurred.

Both times Shepard dissented. While he did not disagree with Dickson’s legal analysis, he argued 5.5 million Hoosiers, speaking through the Legislature, and Indiana attorneys all supported IOLTA. Therefore, in this instance, the court should assent to the opinions of others. Justice Roger DeBruler also dissented in a separate opinion.

Three years later the attitude of the Supreme Court toward IOLTA changed. Pivarnik, an opponent of the program, had retired. Representatives from the Indiana State Bar Association proposed a program that was palatable to the justices. Specifically, the attorneys led by Tom Lemon offered that lawyers be given the option to opt out of putting their clients’ funds into an interesting-bearing account.

The Supreme Court approved a statewide IOLTA program in 1993. Givan was the lone dissenter, reasserting his argument that the program would be stealing clients’ money.

Facilitating volunteerism

Other states were funneling their IOLTA funds through the legal aid offices within their borders. However, Indiana took a novel approach by using the money to support the work of private attorneys who volunteered their services to low-income clients.

Philip Burt of Burt Blee Dixon Sutton & Bloom LLP in Fort Wayne was a member of one of the committees the Supreme Court established to craft the Rule of Professional Conduct that allowed for IOLTA. He said the intent behind the pro bono districts was to ensure that if one side in a dispute got a lawyer from legal aid, the other side would have representation as well.

Distributing funds through a pro bono network caught the attention of several other states. Burt was invited to make a handful of presentations on Indiana’s program, including to the Ohio and the Georgia state bar associations.

The details of how the program would work were left to the individual districts. Although the plans in the districts mirrored one another, each district still prepares its own budget, sets its own priorities and determines the best way to use its resources.

Stanton

Judy Stanton was the first plan administrator for the NWI Volunteer Lawyers Inc. program in Hobart. Even though finding attorneys to represent all the clients continues to be a challenge, she still believes the IOLTA program is working.

Echoing Burt, she said serving the unmet needs of the indigent cannot be done by legal aid attorneys alone. The private bar has a responsibility to volunteer and make sure the courts work for all Hoosiers regardless of income.

“If it doesn’t work for everybody, it’s not a justice system,” Stanton said. “If people at the low end of the totem pole can’t have effective representation, then the system stinks.”

Interest rate headache

Tying IOLTA’s revenue to the interest rate has caused financial fluctuations and necessitated bolstering the program, at times, to bring additional dollars.

Shortly after the program began, interest rates slumped and Burt provided the first boost by making a personal contribution of $140,000. A second surge occurred in June 2004 when the IOLTA program switched from an opt-out format to one that required participation.

A few years later, interest rates soared and revenue flowing in the state’s program topped a million dollars. The bar foundation’s decision to hold some of those funds in reserve proved to be very insightful when the economic recession caused interest rates to tumble.

The Supreme Court has since provided another much-needed boost to revenue. The court approved a temporary increase to filing fees with the extra money going directly to the IOLTA program until 2017.

The revenue is the means used to support the core of Indiana’s program – fostering volunteerism. Shepard said many attorneys have the impulse to give back, and the IOLTA program facilitates the donation of their services.

Shortly before the program began, he envisioned IOLTA would greatly change the nature of pro bono legal work in Indiana. Thinking of how the program developed, he believes that has happened.

“I think the decision to try to create a robust pro bono effort has turned out very well,” Shepard said.•