Washington Legal Found. v. Mass. Bar Found., Civ. A. No. 91-11135-T.

• Decision Date: 28 May 1992
• Docket Number: Civ. A. No. 91-11135-T.
• Citation: 795 F. Supp. 50
• Parties: WASHINGTON LEGAL FOUNDATION, et al., Plaintiffs, v. MASSACHUSETTS BAR FOUNDATION, et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

795 F. Supp. 50

WASHINGTON LEGAL FOUNDATION, et al., Plaintiffs, v. MASSACHUSETTS BAR FOUNDATION, et al., Defendants.

Civ. A. No. 91-11135-T.

United States District Court, D. Massachusetts.

May 28, 1992.

Francis C. Newton, Jr., Boston, Mass., John C. Scully, Daniel J. Popeo, Paul D. Kamenar, Richard A. Samp, Washington Legal Foundation, Washington, D.C., for plaintiffs.

Donald K. Stern, Hale & Dorr, Allan van Gestel, Goodwin, Proctor & Hoar, Joseph L. Kociubes, Bingham, Dana & Gould, William W. Porter, Dept. of the Atty. Gen., Boston, Mass., for defendants.

MEMORANDUM

TAURO, Chief Judge.

By a Rule promulgated in 1990, the Massachusetts Supreme Judicial Court ("SJC") requires lawyers to deposit certain noninterest bearing client funds into an Interest on Lawyers' Trust Account ("IOLTA").¹ The interest earned on these funds is to be paid to a non-profit organization approved by the SJC "for use in (1) improving the administration of justice or (2) delivering civil legal services to those who cannot afford them." DR 9102(C)(2)(a). The SJC has designated three organizations as beneficiaries of the program: the Massachusetts Bar Foundation, the Boston Bar Foundation and the Massachusetts Legal Assistance Corporation.² They are the defendants here.

Plaintiffs, the Washington Legal Foundation, two Massachusetts lawyers and two Massachusetts citizens who use legal services, seek a declaration that the IOLTA program violates their constitutional rights. First, plaintiffs assert that the IOLTA program constitutes a taking of their property without just compensation in violation of the Fifth and Fourteenth Amendments. Second, they argue that the SJC Rule compels them to associate with and support views with which they do not agree, in violation of the First and Fourteenth Amendments.

Defendants' Motion to Dismiss is before

the court.³

I.

The Fifth Amendment provides that private property shall not be taken for public use, without just compensation.⁴ For there to be a taking, the government must interfere "with interests that are sufficiently bound up with the reasonable expectations" of the plaintiff asserting the deprivation. Penn Central Transp. Co. v. New York City, 438 U.S. 104, 125, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631 (1978). See also Webb's Fabulous Pharmacies, 449 U.S. at 161, 101 S.Ct. at 450 ("A mere unilateral expectation or an abstract need is not a property interest entitled to protection."); Cone v. State Bar of Fla., 819 F.2d 1002, 1005 (11th Cir.), cert. denied, 484 U.S. 917, 108 S.Ct. 268, 98 L.Ed.2d 225 (1987) (purpose of takings clause is to "protect the claimant's reasonable, often investmentbacked expectations, rather than inchoate unilateral expectations") (quoting Penn Central, 438 U.S. at 124-25, 98 S.Ct. at 2659-60). In other words, there must be a cognizable property interest. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001, 104 S.Ct. 2862, 2871, 81 L.Ed.2d 815 (1984); Penn Central, 438 U.S. at 125, 98 S.Ct. at 2659. Whether such an interest exists is a question of state law. See, e.g., Webb's Fabulous Pharmacies, 449 U.S. at 161, 101 S.Ct. at 450 ("property interests ... are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law....") (quoting Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972)).

A. IOLTA-Generated Interest

Under Massachusetts law, the "interest on nominal or short-term trust deposits is not property for constitutional purposes." Petition by the Mass. Bar Ass'n, 395 Mass. 1, 478 N.E.2d 715, 718 (1985). The court there reasoned that, without IOLTA, "the earnings of funds held in trust accounts can benefit neither the attorney nor the client, but simply redound to the benefit of the depository institution." Id. (citation omitted). In such circumstances, "there simply is no `property' now in existence that would be taken." Id. (citation omitted).

This conclusion is consistent with federal banking law, prohibiting a partnership (such as a law firm) from pooling client funds in an interest bearing checking account. See 12 U.S.C. § 1832(a). A lawyer, therefore, normally places nominal or short-term client funds into a non-interest bearing account.

Federal law, on the other hand, exempts non-profit organizations from the prohibition against pooling funds. See id. The IOLTA program, therefore, utilizes this exemption to generate funds for approved beneficiaries. See generally Cone, 819 F.2d at 1005-06 (explaining the relationship between federal banking laws and the emergence of IOLTAs). Under the SJC Rule, a client's funds are placed into an IOLTA if no economic benefit would accrue to the client by maintaining them otherwise.⁵

Numerous courts have held, along with the SJC, that IOLTA programs do not amount to a taking, because they create interest income "which was not within the reasonable expectations of the owner of any one of the principal amounts." Cone, 819 F.2d at 1007. See, e.g., Carroll v. State Bar of Cal., 166 Cal.App.3d 1193, 213 Cal.Rptr. 305, cert. denied, 474 U.S. 848, 106 S.Ct. 142, 88 L.Ed.2d 118 (1985); In re Interest on Lawyers' Trust, 283 Ark. 252, 675 S.W.2d 355 (1984); Matter of Interest on Lawyers' Trust Accounts, 672 P.2d 406 (Utah 1983); Petition of N.H. Bar Ass'n, 122 N.H. 971, 453 A.2d 1258 (1982); In re Interest on Trust Accounts, 402 So.2d 389 (Fla.1981).

This court concludes, therefore, that plaintiffs have no property rights in the interest generated by the IOLTA program.

B. Beneficial Use of IOLTA Funds

Plaintiffs rely next on state trust law to argue that the IOLTA program unconstitutionally deprives them of the beneficial use of their property.⁶ Pls.' Mem. in Opp. to Mot. to Dismiss at 4 ("it is the seizure of the beneficial use of the principal that is at the heart of the unconstitutional taking challenged by the Plaintiffs"). The IOLTA program, according to plaintiffs, deprives them of their "rights to use or not use their property as they desire." Id. at 6 n. 2.

Under Massachusetts law, however, the extent of a putative beneficiary's property interest is limited by the so-called "prudent man doctrine" which provides that,

all that can be required of a trustee to invest, is, that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.

Chase v. Pevear, 383 Mass. 350, 419 N.E.2d 1358, 1365 (1981) (quoting Harvard College v. Amory, 26 Mass. 446, 461 (1831)).

Given the circumstances presented here, a trustee would not be required to invest the kinds of nominal or short-term funds at issue. Petition by Mass. Bar Ass'n, 478 N.E.2d at 718 ("Individually, the amounts which would be pooled under IOLTA are either so small or held for such a short period of time, that it is not feasible to place them at interest, given the transaction costs and unavailability of practical sub-accounting procedures.").

This court concludes, therefore, that plaintiffs have no property interest in the funds subject to the SJC Rule. Their Fifth and Fourteenth Amendment claims, therefore, are without merit.⁷

II.

Plaintiffs also contend that their First Amendment rights of association and speech are violated, because the Rule generates funds for designee organizations whose activities offend plaintiffs' political and ideological beliefs.

The First Amendment protects against "compelled speech" and "forced association." For example, "the right of freedom of thought protected by the First Amendment against state action includes both the right to speak freely and the right to refrain from speaking at all." Wooley v. Maynard, 430 U.S. 705, 714, 97 S.Ct. 1428, 1435, 51 L.Ed.2d 752 (1977) (citing West Virginia State Bd. of Educ. v. Barnette, 319 U.S. 624, 645, 63 S.Ct. 1178, 1188, 87 L.Ed. 1628 (1943) (Murphy, J., concurring)). Similarly, "`to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves, is sinful and tyrannical.'" Abood v. Detroit Bd. of Educ., 431 U.S. 209, 234-35 n. 31, 97 S.Ct. 1782, 1799-1800 n. 31, 52 L.Ed.2d 261 (1977) (quoting Thomas Jefferson, in I. Brant, James Madison: The Nationalist 354 (1948)).

In order to assess whether plaintiffs state a claim under the doctrines embodied in these and other cases, it is necessary to determine, first, whether plaintiffs allege any compulsion by the mandate of the IOLTA program and second, whether they allege that the IOLTA program associates them with any "speech."

A. Compulsion

The Supreme Court has had occasion to consider, primarily in the context of unions, the First Amendment claims of those who object to compelled membership and dues in an organization. In Railway Employes' Dep't v. Hanson, 351 U.S. 225, 236-38, 76 S.Ct. 714, 720-22, 100 L.Ed. 1112 (1956), when faced with the contention that unions forced unwanted ideological and political associations on its members, the Court held that all employees in a bargaining unit could, as a condition of employment, be required to become members of a union. The justification for such compulsion was that the union shop (one in which union membership was mandatory) was necessary to eliminate "free riders," employees who would benefit from the union without contributing financially to support its activities. See International Ass'n of Machinists v. Street, 367 U.S. 740, 761, 81 S.Ct. 1784, 1796, 6 L.Ed.2d 1141 (1961) (reviewing legislative history of Railway Labor Act). Although compelled financial support

might well be thought ... to interfere in some way with an employee's freedom to associate for the advancement of ideas, or to refrain from doing so, ...

...