Carroll v. State Bar
| Citation | 213 Cal.Rptr. 305,166 Cal.App.3d 1193 |
| Court | California Court of Appeals Court of Appeals |
| Decision Date | 04 April 1985 |
| Parties | Elizabeth CARROLL, Plaintiff and Respondent, v. STATE BAR OF CALIFORNIA, Defendant and Appellant. Karl SEUTHE, et al. Plaintiffs and Respondents, v. STATE BAR OF CALIFORNIA, Defendant and Appellant. Appeal of CALIFORNIA LEGISLATIVE COUNCIL of OLDER AMERICANS, et al., Intervenors and Appellants. D001363. Civ. 31635. |
Sidley & Austin, Charles S. Vogel, Margaret R. Dollbaum, Robert I. McMurry, Los Angeles, Herbert M. Rosenthal and Lawrence C. Yee, San Francisco, for defendant and appellant.
Morrison & Foerster, Robert D. Raven, Jack W. Londen, San Francisco, Peter M. Siegel, Randall C. Berg, Jr., and Arthur J. England, Jr., Miami, Fla., amici curiae on behalf of defendant and appellant.
Charles C. Renshaw, Escondido, Barbara E. Roberts and David L. Chapman, Arcadia, for plaintiffs and respondents.
Ralph Santiago Abascal, San Francisco, Peter H. Reid, Redwood City, Robert J. Cohen and Gregory Knoll, San Diego, for intervenors and appellants.
The State Bar of California appeals a judgment declaring The Funds for the Provision of Legal Services to the Indigent Act 1 establishes a voluntary, rather than mandatory, program for depositing nominal and/or short-term client trust funds in an aggregated account from which the interest shall be used to fund approved indigent legal services. We find the relevant statute, BUSINESS AND PROFESSIONS CODE SECTION 62112, subdivision (a), is plain, clear and unambiguous, prescribing a mandatory disposition of client trust funds which, because they are minimal in amount or are to be held for only a short time, cannot be deposited or invested to earn net income for the client. We then resolve and reject the several constitutional issues raised, but not addressed by the trial court. We reverse.
Programs, such as that authorized by section 6211, subdivision (a) authorizing pooling nominal, short-term client deposits to generate interest income for indigent service funding are generally referred to by the acronym "IOLTA" (Interest on Lawyer Trust Account Program). In concept, IOLTAs are designed to allow client trust funds which cannot be placed at interest to generate net income for the client, to be pooled in an aggregated interest-bearing account, the total income of which is unconditionally designated for a specified charity.
Thirty-two states have adopted IOLTA programs. California, Connecticut, Maryland and New York enacted their programs through legislation. The other states established programs through Supreme Court approval of state bar resolutions, most without formal opinion.
Every IOLTA established to date facially denies the client whose nominal trust fund is involved, from exercising any control over where, how or if the money is to be deposited after delivery to the lawyer, and does not allow the client any discretion as to how the interest earned is to be used. All but four states permit only the lawyer the option not to participate in these programs. The Arizona, Minnesota and Washington IOLTA mandate the lawyers' participation. Whether the Act requires, or only permits, California clients and their lawyers to deposit nominal, short-term trust funds in IOLTA accounts, is the first question we must address. Our inquiry requires a brief explanation of previous restrictions on use of client trust funds.
Historically, interest on bank deposits could be generated only on accounts having time restrictions on the right to withdraw (time accounts). "Demand accounts," those permitting withdrawals on demand, were regulated to prohibit the bearing of interest. The Consumer Checking Equity Act of 1980, title III of the Depository Institutions Deregulation and Monetary Control Act of 1980, Public Law 96-221, section 303, 94 Statutes 146 (1980), codified at 12 U.S.C. section 1832(a) (1982), permitted negotiable order of withdrawal (NOW) accounts allowing demand withdrawal and interest. However, NOW accounts are limited to funds in which the entire beneficial interest is held by persons or organizations operated primarily for religious, philanthropic, charitable, educational or other similar purposes and not for profit, or of funds belonging to public entities. Thus, two barriers prevented a client's nominal or short-term trust funds from being productive for the client; economics and the long history of restrictions on the ability of bank customers to earn interest on demand deposits and the current NOW banking restrictions. By providing that income produced by an IOLTA NOW account be paid to a nonprofit charitable corporation or public entity, section 6211, subdivision (a) overcomes the banking law barrier. The economic barrier is also removed because the pool can produce aggregate income net of expenses. Thus, with or without IOLTA, the client realizes no income.
The trial court interpreted section 6211, subdivision (b) 3 as permitting lawyers to deposit nominal, short-term trust funds in interest-bearing accounts other than the IOLTA authorized by section 6211, subdivision (a) at the request of the client. We hold subdivision (b) plainly applies only to monies not nominal in amount or deposited for short term, i.e., to funds which may be segregated to earn net income for the benefit of a client. Section 6211, subdivision (a) is all inclusive. It states: "An attorney or law firm, which in the course of the practice of law receives or disburses trust funds, shall establish and maintain an interest-bearing demand trust account and shall deposit therein all client deposits that are nominal in amount or are on deposit for a short period of time." (Italics added.)
It is fundamental "the court should ascertain the intent of the Legislature so as to effectuate the purpose of the law." (Select Base Materials v. Board of Equal., 51 Cal.2d 640, 645, 335 P.2d 672; California Teachers Assn. v. San Diego Community College Dist., 28 Cal.3d 692, 698, 170 Cal.Rptr. 817, 621 P.2d 856; Moyer v. Workmen's Comp. Appeals Bd., 10 Cal.3d 222, 230, 110 Cal.Rptr. 144, 514 P.2d 1224.) We first look to the language of the statute, give effect to its usual import, and avoid making any language mere surplusage and attempt to harmonize a particular clause of a section in the context of the statutory framework as a whole. (Ibid.)
Because we find subdivision (a)'s language is clear and unambiguous, there is no need for statutory construction. (See Tiernan v. Trustees of Cal. State University & Colleges, 33 Cal.3d 211, 218, 188 Cal.Rptr. 115, 655 P.2d 317.) It requires nominal or short-term deposits of client trust funds be placed in an interest-bearing trust account and any interest earned be used to fund designated, specified legal services. Every nominal or short-term account is included within the disposition mandated by section 6211, subdivision (a) and that section permits no discretion to use the interest earned on those deposits for any purpose other than to fund the designated legal services. It follows that any alternative disposition authorized under section 6211, subdivision (b) applies only to client deposits which are not nominal or short term.
The trial court's construction would allow clients to control the disposition of interest earned on their short-term or nominal trust deposits. It reasoned that section 6211, subdivision (b) allows a client the right to receive interest earned on trust funds not deposited in accordance with subdivision (a), and a client whose deposits are placed in interest-bearing accounts other than those referred to in subdivision (a) may elect to receive interest from those accounts personally or give it to a designated charity. It then interpreted Article Fourteen and the State Bar Guidelines (see infra ) as giving a client the right to choose whether to deposit all monies, including nominal or short-term deposits in an account pursuant to section 6211, subdivision (b) and, should the client fail to choose a section 6211, subdivision (b) deposit, the funds shall be placed in a section 6211, subdivision (a) account. However, under that interpretation, a client's silence is, in effect, a choice to put the funds in a section 6211, subdivision (a) account and impliedly designates the legal services programs to receive the interest earned. Such a passive role would be deemed an election to assign income.
The court should not rewrite legislation to avoid constitutional questions if doing so subverts the legislative intent. (See Marina Village v. California Coastal Zone Conservation Com., 61 Cal.App.3d 388, 393, 132 Cal.Rptr. 120.) Here, the Legislature specifically designed the statute to be mandatory to avoid tax consequences arising from a voluntary assignment of income. Revenue ruling 81-209, 981-2C.B.16 strongly suggests the Internal Revenue Service (IRS) will consider interest earned on short-term and nominal client trust funds to be income to the tax-exempt foundation, not to the client so long as the clients have no say as to the use of their money to earn interest for that purpose. With any degree of client control, it is probable IRS will treat the interest as taxable "assigned income" even when the legal services actually receive the interest. For this reason Florida changed its program from a client-voluntary to an attorney-voluntary program. (See Matter of Interest on Trust Accounts (Fla.1981) 402 So.2d 389, 390-391; see also In the Matter of the Adoption of Amendments to CPR DR 9-102 IOLTA, (1984) 102 Wash.2d 1101, 1115.
That section 6211, subdivision (a) was intended to be mandatory and to encompass all nominal/short-term deposits is...
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