Brown v. Legal Foundation of Washington

Rule of Law:

When the government takes private property, the Fifth Amendment's Just Compensation Clause requires payment measured by the owner's net pecuniary loss, not the government's gain. If the owner's net loss is zero because the property value would not have existed for the owner but for the government's program, the just compensation due is zero.

Facts:

• The Washington Supreme Court established a mandatory Interest on Lawyers’ Trust Accounts (IOLTA) program.
• The program requires lawyers and Limited Practice Officers (LPOs) to deposit client funds that are too small in amount or held for too short a time to generate net interest for the client into a single, pooled, interest-bearing IOLTA account.
• The program's rules mandate that if funds are capable of generating net interest for a client, they must be deposited in a separate, interest-bearing account for that client's benefit.
• The net interest generated by the pooled IOLTA accounts is paid directly to the Legal Foundation of Washington (Foundation) to fund charitable legal services for the needy.
• Petitioner Allen Brown deposited over $90,000 with an LPO for a real estate closing; it remained in an IOLTA account for two days, generating approximately $4.96 in interest that was paid to the Foundation.
• Petitioner Greg Hayes deposited funds for a real estate transaction that were held in an IOLTA account for a short period before closing, with the interest also being paid to the Foundation.
• Without the IOLTA program's pooling mechanism, neither Brown's nor Hayes's funds would have produced any net interest for them because administrative costs and bank fees would have exceeded any interest earned.

Procedural Posture:

• Allen Brown and Greg Hayes filed suit against the justices of the Washington Supreme Court and the Legal Foundation of Washington in the U.S. District Court for the Western District of Washington.
• The plaintiffs alleged the state's IOLTA rules violated their First and Fifth Amendment rights.
• The District Court granted summary judgment for the defendants.
• The plaintiffs, as appellants, appealed to the U.S. Court of Appeals for the Ninth Circuit.
• A three-judge panel of the Ninth Circuit reversed the District Court, finding a taking had occurred and remanding for a determination of just compensation.
• The Ninth Circuit then reheard the case en banc and affirmed the District Court’s original judgment in favor of the defendants (appellees).
• The U.S. Supreme Court granted certiorari to the plaintiffs, Brown and Hayes.