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Whether they’re in the majority remains to be seen, but several judges on an en banc 9th U.S. Circuit Court of Appeals panel appeared poised Thursday to protect legal programs for the needy financed through the interest on lawyers’ trust accounts. The court heard arguments involving a challenge to the constitutionality of a method of funding the programs, used in every state, which skims the interest gained when banks hold clients’ money for lawyers. In California, $13.5 million is being doled out to such programs this year, while $100 million is generated nationwide. But supporters of the programs have cause for concern. The 11-judge panel included the three judges from an earlier panel which held that appropriating the interest was a taking in violation of the Fifth Amendment, and all three were active in framing issues during the lively hour-long argument. “Why isn’t this just like the government reaching into your back pocket and taking out $5?” said Judge Alex Kozinski, who was not on the earlier panel but sounded ready to join it. The case, brought by the Washington Legal Foundation, challenges a Washington state program that skims interest from monies held in escrow by legal practitioners and uses it to subsidize legal programs, often for the poor. Last month, the 9th Circuit vacated an earlier decision by Judges Andrew Kleinfeld, Stephen Trott and Barry Silverman that made the court the first in the nation to hold that appropriating so-called IOLTA funds is a per se taking. Several judges on Thursday were just as vocal — though perhaps not as blunt — as Kozinski in questioning that appeared to favor the programs. Since the trust monies are pooled to maximize the interest returned, a key issue is whether the individual plaintiffs actually stand to benefit from a victory. If the funds aren’t pooled, the interest gained during the brief intervals in which banks hold the money could be negligible once processing fees and such are factored in. With at least four judges evidently against them, the team of lawyers from Seattle’s Perkins Coie arguing the case pro bono on behalf of the Legal Foundation of Washington (not related to the Washington Legal Foundation) must find six votes among the seven remaining judges to win. Judge A. Wallace Tashima was clearly interested in the question of whether returning the interest was practical, asking whether the minimal gains wouldn’t be offset by costs, such as postage. Other judges, such as Marsha Berzon and Kim McLane Wardlaw, engaged in a similar line of questioning. “What if there is no economic value? Then it cannot be a taking,” Berzon said at one point. However, the silence of two judges likely holds the key to the decision. Between Chief Judge Mary Schroeder and Judge Johnnie Rawlinson, the newest member of the court, only one question was asked. Arguing against IOLTA for the Washington Legal Foundation, Richard Samp relied on a case his client won before the U.S. Supreme Court in 1998, Phillips v. Washington Legal Foundation, 524 U.S. 156. In a similar challenge originating in Texas, the high court found that the interest of IOLTA accounts was the property of the owner of the principal. However, the court did not take the next step and rule it a taking. Samp urged the 9th Circuit to do so. “The determining factor is whether or not we have a right to stop the government from taking money that belongs to us,” Samp said. At one point, Wardlaw kept repeating a question to Samp, who was trying to move on. Exasperated, Wardlaw finally punctuated the question by exclaiming: “Hello!” Perkins Coie’s David Berman charged out of the gates in the first minutes of his argument only to be tripped up by Judge Kleinfeld — the author of the three-judge panel decision — who said Berman was misrepresenting the record. Berman recovered nicely before turning the podium over to Maureen Hart, an assistant attorney general from Washington, who urged the court to look not only at whether just compensation could be made, but the public benefit of the program as well. “It is artificial to look at ‘Is it a taking’ without looking at the program holistically,” Hart said. After the hearing, lawyers from both sides said they were left with no impression of how the case would be resolved.

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