BigLaw Slams Hochul Plan To Divert Client Trust Interest Cash

By Hailey Konnath | February 12, 2024, 10:06 PM EST ·

A long list of BigLaw attorneys, firm leaders and legal groups have urged New York Gov. Kathy Hochul to reconsider her plan to divert $100 million in interest earned on lawyer trust accounts that typically goes toward legal aid for low-income New Yorkers, calling the move "misguided" and cautioning that it could create "an existential threat" to civil legal services.

The managing partners, CEOs and chairs of Arnold & Porter Kaye Scholer LLP, Blank Rome LLP, Cooley LLP, Mayer Brown LLP and Paul Weiss Rifkind Wharton & Garrison LLP are among the hundreds of lawyers and groups that signed onto letters opposing the plan, in which money from the New York Interest on Lawyer Account Fund, or IOLA, will be diverted to the state's general fund in fiscal year 2025.

"We are deeply concerned that this unprecedented diversion of funds would impose lasting harm on low-income New Yorkers by taking money from legal aid organizations, would severely undermine the stability of a critical source of financial support for legal services and would violate the statute that created IOLA," firm leaders wrote in one of the letters, sent Monday.

The state's IOLA program requires attorneys to maintain special interest-bearing trust accounts for "qualified funds," or funds that the attorney determines to be too small or held for too short a time to generate net interest, according to the IOLA website. Those funds are kept together in an IOLA account, and the interest from the account goes to legal aid as well as improvements in the "administration of justice" in the state, according to the program's description.

Nonprofit legal services organizations that received IOLA grants in the last year closed cases benefiting hundreds of thousands of New Yorkers, according to the the New York City Bar Association, which also signed onto a letter opposing Hochul's plan.

"Food security, shelter, jobs, health care and other life necessities would be at risk if these non-taxpayer, IOLA funds were to be diverted," the bar said.

The firm leaders said in their letter that the pro bono work done by attorneys "relies on the identification and screening of clients and the expertise provided by public interest lawyers at IOLA grantees."

"Any loss of IOLA funding by the grantees would result not only in reduced services by the legal services providers, but also in a significant decrease in the amount of pro bono work that our lawyers will be able to provide," they said.

In another letter, more than 250 practicing lawyers said the potential "unethical uncertainty that diversion of IOLA funds may occasion could lead members of our profession to question whether they should use IOLA accounts at all." That creates "an existential threat to a primary funding stream for civil legal services in New York," they said.

A slew of social service agencies, veterans groups, healthcare providers, concerned citizens and legal organizations — including Access to Justice Brooklyn, Community Service Society of New York and the City Bar Justice Center — also signed onto a separate letter criticizing the plan.

"Ethics opinions approving attorney use of IOLA accounts were expressly predicated on the IOLA Fund enhancing civil legal services to low-income New Yorkers," they said. "Therefore, diversion of any IOLA interest to the General Fund could jeopardize the legal profession's ethical basis for participating in the IOLA Fund."

And the plan is opposed by the IOLA Board of Trustees itself, which penned a letter late last month. The board noted that the New York Legislature created the IOLA fund in 1983, making clear that the purpose was "to provide funding for the providers of civil legal services" to ensure access to justice across the state.

IOLA is now poised to substantially increase funding for its grantees and launch a multiyear justice infrastructure project, the board said in a statement. IOLA is also working to ensure that legal services will still be provided when interest rates "inevitably fall," it said.

"In the 40 years of IOLA's existence, New York state has faced many crises including housing, education, financial and a global pandemic," the board said. "Despite these challenges, IOLA's funds cannot and should not be diverted to the general fund."

New York City Bar Association President Susan J. Kohlmann said in Monday's statement that lawyers across the state "recognize, trust and expect that their use of IOLA escrow accounts will result in contributions to legal services for those in need, at a time when an additional $1 billion is required to close the justice gap in the state."

--Editing by Linda Voorhis. 

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