BULLETIN
#19 Fall 1997
l U.S. SUPREME
COURT TO HEAR APPEAL BY
TAFOL PRESIDENT; TAFOL TO FILE AMICUS
BRIEF
l SUPREME COURT REFUSES TO
RECONSIDER HOPWOOD
l TAFOL WATCHES PROGRESS OF
ALABAMA POWER CASE
l CONTRIBUTIONS TO TAFOL
l CONGER, TAGLIAVIA, McCRORY
JOIN BOARD OF DIRECTORS
l ESSAY CONTEST WINNERS
#19 Fall
1997 Page 1 U.S. SUPREME COURT TO HEAR
APPEAL BY TAFOL PRESIDENT; TAFOL TO FILE AMICUS BRIEF
TAFOL President Michael J. Mazzone, one of the plaintiffs who
successfully challenged Texas' IOLTA program before the U.S.
Court of Appeals for the Fifth Circuit last fall, will appear
before the Supreme Court early in 1998 to defend the Fifth Circuit's
decision, which dealt a potentially fatal setback to programs
that siphon money from lawyers' bank accounts to fund liberal
legal causes.
With the aid of contributions from supporters, TAFOL will continue
to assist Mazzone's efforts to strike down these laws across
the country.
IOLTA stands
for "Interest on Lawyer Trust Accounts." Under
these programs, lawyers place funds they hold for clients and
which are "nominal in amount or are reasonably anticipated
to be held for a short period of time" into interest-bearing
bank accounts. The interest earned on these accounts is then
paid to State organizations, such as the Texas Equal Access to
Justice Foundation ("TEAJF"), which fund legal services
to the poor in civil matters. Such programs exist not only in
Texas but in virtually every other State. In some states they
are voluntary, but in most, such as Texas, California, and Massachusetts,
lawyers are required to participate in IOLTA.
All of these
programs rest on one basic premise, which the Fifth Circuit
ruling smashed to pieces---the premise that
clients have no property rights in the interest payments earned
by their money while it is temporarily held by the lawyer.
In Washington Legal Foundation, et al. v. Texas Equal Access
to Justice Foundation, et al., decided on September 12, 1996,
the Fifth Circuit held that clients do have a property right
in the interest earned by their principal. With one stroke,
the Court cut the legs out from the Texas IOLTA program.
On its face,
the idea that a money holder has no right to the interest on
his money is preposterous. But for many years, the
courts have held just that, placing great weight on the fact
that the amount of interest accruing to any one client is normally
so small as to be negligible. When the interest is pooled together,
however, it totals in the millions. Texas IOLTA revenues have
climbed as high as $9 million in a year, although failing interest
rates have reduced this amount. Nationally, IOLTA programs collect
over $100 million annually.
#19 Fall
1997 Page 2
The Fifth
Circuit case began in 1994 when Mazzone, who is a Texas lawyer,
and one of his clients, along with the Washington
Legal
Foundation, sued the Texas Supreme Court and the TEAJF claiming
that Texas' mandatory IOLTA program violates the First and
Fifth Amendments of the U.S. Constitution. The trial court
upheld the
constitutionality of the Texas IOLTA program, but the Fifth
Circuit reversed that holding. The appellate court also
remanded the
case to the trial court for a determination of whether the
clients' interest income was taken against their will. The Fifth
Circuit rejected the State's argument that IOLTA is "modern
day alchemy," that property can be created from nothing.
The court refused to base property rights on anomalies in banking
regulations and the "fickle" tax code, which the State
relied upon to support its arguments. "This short-sighted
view of property renders it unacceptable," the Court said.
The Fifth
Circuit's decision should end mandatory IOLTA in Texas and
perhaps other
states in the Fifth Circuit (Mississippi and
Louisiana). However, the Court's decision conflicts with decisions
of the First and Eleventh Circuits, both of which have held that
clients have no property rights in the interest earned on their
funds held in IOLTA accounts, that IOLTA interest belongs to
no one, and that, therefore, the State can take the interest.
It was this "conflict among the circuits" that convinced
the Supreme
Court to hear the case.
In his brief to the trial court, after many pages of closely
reasoned legal argument, Mazzone asserted that the only moral
purpose of government is to protect individual rights. He then
included the following quotation from Ayn Rand:
"It was the concept of individual rights that had given
birth to a free society. It [is] with the destruction of individual
rights that the destruction of freedom [has] to begin." A.
Rand, "Man's Rights," The Virtue of Selfishness 95
(1964).
Mazzone has donated many hours of professional effort to the
cause, while TAFOL has funded his expenses at the trial and appellate
levels. TAFOL is preparing an amicus curiae brief in support
of the IOLTA opponents. The Fifth Circuit's opinion can be found
at 94 F.3d 996, on petition for rehearing at 106 F. 3d 640, or
downloaded free of charge from the Internet at: [sorry, link
no longer works]
http://www.ca5.uscourts.gov/Opinions/Pub/95/50000/95-50160-CVO.HTM]
SUPREME COURT REFUSES TO RECONSIDER HOPWOOD
TAFOL was planning to file an amicus brief with the U. S. Supreme
Court in Hopwood v. Texas, 78 F.3d 943 (5th Cir. 1996), but the
Court let stand the Fifth Circuit's decision, which had struck
down the University of Texas Law School's affirmative action
program. The Supreme Court also refused to reconsider the decision
in a similar case from New Jersey, Taxman v. Board of Education,
91 F.3d 1547 (3rd Cir. 1996). This deprived TAFOL of the opportunity
to submit an amicus brief. However, affirmative action in education
is not dead, and the Fifth Circuit's decision applies only to
states within that judicial circuit (Texas, Louisiana, and Mississippi).
So, further court challenges are virtually certain.
TAFOL WATCHES PROGRESS OF ALABAMA POWER CASE
Governments have traditionally forced consumers of certain kinds
of service (electricity, natural gas, telephone. etc.) to patronize
particular companies providing service in a local or regional
area. Over the past decade, deregulation of the telecommunications
and natural gas industries has permitted customers to choose
their service providers freely.
Recently, wholesale purchasers of electricity have also been
allowed to select
#19 Fall
1997 Page 3
their vendors,
and large retail consumers have begun to demand the same prerogative,
with mixed results. The deregulation
of electric services is proceeding slowly, as bureaucrats
and the
business interests they protect show reluctance to give up
their powers and privileges. Alabama's
bureaucrats and the franchised utilities they regulate are
a particularly
egregious example of this reluctance. Last
year, the Alabama legislature enacted a bill to protect current
providers of electricity from new competition. Under this law,
a customer must notify his present electric company of any intention
to change electricity providers. His present provider can then
petition the Public Service Commission or a court for review
of the contract. After a cumbersome legal procedure, the government
agency determines "whether the contract is consistent with
the public interest by determining whether the private contract
for electric service will materially impair the ability of [the
present provider] to provide efficient and reliable service at
a reasonable cost to and for the public which it continues to
serve." If the contract is "consistent with the public
interest," the customer must pay "stranded costs" to
the company it was formerly forced to deal with. "Stranded
costs" means "all verifiable costs or obligations incurred
by a utility in order to provide service to electric customers
in the area served by the utility that cannot actually be recovered
through mitigation upon the transfer of the existing electric
customer to another supplier."
This law was drafted by Alabama Power, the most prominent previously
protected monopoly company. Its claimed justification is to compensate
the protected companies for investments they had been required
to make to serve those customers who now want to buy elsewhere.
A lawsuit, American
Energy Solutions v. Alabama Power Company,
has been filed in a federal court attacking this law as unconstitutional.
It is presently bogged down in procedural disputes. TAFOL is
watching this case to determine whether an amicus curiae brief
would be appropriate.
CONTRIBUTIONS TO TAFOL
In a letter
dated December 20, 1996, President Michael Mazzone informed
each person on our mailing list that
TAFOL could no longer rely on sporadic contributions. If you
wish to continue receiving this Bulletin and to support TAFOL,
and you have not already sent a contribution, please send your
donation of (at least) $25 to the address shown at the bottom
of the first page. All contributions are tax deductible.
The out-of-pocket costs associated with preparation of TAFOL's
amicus brief to the Supreme Court in the IOLTA case are estimated
at $1,000. Your help is needed to cover these expenses; the lawyers
involved are donating their professional time and effort to the
cause.
CONGER, TAGLIAVIA, McCRORY JOIN BOARD OF DIRECTORS
New members of TAFOL's Board of Directors are Michael Conger,
Dee Tagliavia, and James McCrory. Conger, a pension lawyer in
Kansas City, Missouri, has given many years of faithful service
as TAFOL's treasurer. Tagliavia, who was one of TAFOL's founders
and previously served on the Board of Directors, was most recently
Vice President of Regulatory Affairs and Assistant General Counsel
for American Energy Services, Inc. McCrory, who is a member of
the New Mexico bar, is a real estate manager and solo practitioner.
The incumbent Board members, Stephen Plafker and Robert Getman,
welcome all three new members. Michael Mazzone and Thomas Bowden
are leaving the Board, with the expectation of returning to serve
again in the future.
ESSAY CONTEST WINNERS
The winner
of TAFOL's Third Annual Essay Contest is Geoffrey Wilson, who
is starting his third year
#19 Fall
1997 Page 4
at the
University of Southern California Law Center. Mr. Wilson was
introduced to Objectivism through the Campus Club
at the
University of Michigan. He would like to practice real estate
or land use law when he graduates. The winner of the second prize, Jon Andrew Bierman, read Atlas
Shrugged and some of Ayn Rand's essays as an undergraduate but
does not describe himself as an Objectivist. A 26-year-old second
year student at St. Louis University Law School, Mr. Bierman
hopes to practice corporate law with an emphasis on appellate
work.
Nirupa Netram, who is starting her third year at Southern University
College of Law in St. Petersburg, Florida, won third prize in
this year's contest. She became acquainted with Ayn Rand's work
briefly in high school. She plans to practice family law upon
graduation.
The winning essay will be printed in a future edition of this
Bulletin.
__________________________________
Copyright © 1997
The Association for Objective Law. All rights reserved. The
Association for Objective Law is a Missouri
non-profit corporation whose purpose is to advance Objectivism,
the philosophy of Ayn Rand, as the basis of a proper legal system.
|