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Supreme Court modifies, approves IOTA rule changes

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'This Court is committed to improving access to justice throughout the state, and the amendments we adopt today are a step in that direction. . .'

Florida Supreme CourtWith several changes, the Florida Supreme Court has imposed overhead limits and disbursement time deadlines for IOTA funds received and distributed by The Florida Bar Foundation and said the funds should be used primarily for providing or enhancing direct legal services to low-income residents.

The approved changes to Bar Rule 5-1.1(g), which governs the IOTA program, were less restrictive than proposed by the court’s Task Force on the Distribution of IOTA Funds, including increasing the overhead limit for legal aid agencies from 10% to 15% and expanding the proposed time for the Foundation to award IOTA receipts. But Justice Jorge Labarga, who partially concurred and partially dissented from the majority opinion, agreed with several organizations that filed comments critical of the Task Force’s proposals that the changes could wind up limiting legal aid services to the poor.

The court issued its ruling on June 18 in In re: Amendments to Rule Regulating The Florida Bar 5-1.1(g), Case No. SC20-1543.

The court created the Task Force in October 2019 to review the IOTA program and to “give priority consideration to the need for funding direct legal services for low-income litigants.” It was also directed to look at alternatives to distributing IOTA funds; whether priorities, requirements, and limitations should be set for IOTA expenditures; and whether reporting requirements should be set for IOTA spending.

The task force reported last September, and the court treated its report as a petition to amend Bar Rule 5-1.1(g), accepted comments, and held oral arguments May 5.

“Throughout these proceedings, many have urged us to maintain the status quo with respect to the use and distribution of IOTA funds,” the court majority said in the opinion’s conclusion. “But the status quo… is becoming increasingly untenable, as a significant number of Floridians continue to go without access to civil justice. This Court is committed to improving access to justice throughout the state, and the amendments we adopt today are a step in that direction, as the bulk of IOTA funds collected will now be used to facilitate or provide direct legal services to low-income Floridians.”

The opinion cited statistics from the Task Force report showing that, “Of Florida’s approximately 7.5 million households, over 1 million live in poverty, and over 4.2 million Floridians have an income that is below 125% of the Federal Poverty Level, making them eligible for services from one of Florida’s civil legal aid organizations.… Further, an estimated 5.87 million low-and-moderate income Floridians are likely to experience a civil legal issue each year, while roughly only 80,399 low-income Floridians are assisted annually by civil legal aid organizations.”

Labarga, in the dissenting part of his opinion, said the Foundation has successfully operated the IOTA program and other operations to help the needy with legal needs since its inception. “[T]he Task Force has not identified any problems or flaws with the arrangement for the deployment of IOTA funds, nor has it presented any evidence or developed any analysis on what impact its proposal will have on legal aid organizations. Thus, the drastic changes proposed by the Task Force, and substantially adopted by the majority, raise the question: if something is working well, why not just leave it alone.”

The changes approved by the court include:

• The Foundation “no later than six months after the fiscal year, must distribute to one or more qualified grantee organizations all IOTA funds collected in that fiscal year….” The Task Force had recommended that IOTA funds be disbursed within six months of receipt. The change will end a recent Foundation practice of averaging IOTA receipts from a three-year period, looking at projected IOTA income, and adjusting reserves in such a way that it never runs out of money.

• The Foundation and its legal aid grantees may expend no more than 15% of the IOTA funds received on overhead, which includes reserves. The Task Force had recommended 15% overhead for the Foundation and 10% for legal aid offices. The court acknowledged the future impact on Foundation reserves the rule will have, but noted it does not impact the Foundation’s existing reserves. “Further, if the Foundation’s reserves become insufficient for any reason to ensure the stable distribution of IOTA funds — e.g., after providing vital support to legal organizations in the wake of a natural disaster or other unforeseen event — the Foundation can always seek approval from the Court to retain additional funds for reserves” under the new rule, the opinion said.

• A change to the Task Force’s overhead rule for legal aid offices to clarify that “training, legal research, and technology necessary to the provision of qualified legal services” do not count as part of the 15% overhead limit. But the court also said any legal aid grantee must provide the Foundation with written justification if it exceeds the 15% overhead stricture.

• The Task Force’s definition of qualifying civil legal services was expanded to specifically include “post-conviction representation, programs that assist low-income clients in navigating legal processes, and the publication of legal forms or other legal resources for use by pro se litigants.” That will allow the Foundation to continue providing funding for the Innocence Project of Florida. Questions had been raised about whether the Task Force’s proposed restriction on IOTA funds to civil cases would affect the Innocence Project, which represents inmates contesting their guilt in post-conviction proceedings. Task Force Chair and former Bar President Mayanne Downs said during oral arguments the Task Force would not oppose such a clarification.

• A change to the task force’s proposed language to address the Loan Repayment Assistance Program administered by the Foundation to help repay student loans for legal aid attorneys. That alteration includes that “direct expenses required to administered IOTA funds” includes “direct costs to administer the Loan Repayment Assistance Program and to distributed funds in connection with the program (but not the program funds themselves).” The actual funds distributed, the court added, are not direct administrative expenses. Downs also said at oral argument the Task Force would not object to allowing the LRAP expenditures.

• The Foundation is required to separate IOTA funds from all other funds it collects and disburses, and the new rules set out detailed specifications on annual reports that must be submitted to the court by the Foundation and legal aid grantees, basically adopting the recommendations from the Task Force.

Labarga, in his separate opinion, noted the Task Force’s proposed rules were substantially softened by the majority opinion’s changes and otherwise “would have inflicted a grappling hold on the ability of grantees to deliver legal services to the needy.”

But he still said the changes went too far. Labarga said the court, while limiting overhead to 15% for both the Foundation and legal aid grantees, has imposed substantial new administrative duties in the form of increased reporting and compliance requirements. He also said with the existing and new oversight of IOTA funding, the overhead limit is unnecessary for both the Foundation and grantees.

The requirement to distribute all funds collected in one fiscal year within six months from the end of that fiscal year, Labarga said, will make it impossible for recipient agencies to conduct annual budgeting. It will also eliminate the Foundation’s current reserve policy, which will leave it unable to adjust to changes such as interest rate decreases that cut IOTA income and to quickly respond to natural disasters like hurricanes.

“Without such reserves, the Foundation will be unable to help vulnerable communities recover from these disasters by providing necessary education and outreach,” Labarga said.

Chief Justice Charles Canady and Justices Ricky Polston, Alan Lawson, Carlos Muñiz, John Couriel, and Jamie Grosshans concurred in the per curiam majority opinion.

The amendments are effective July 1, and the court also accepted a Task Force recommendation that a review of the rule amendments’ impact automatically be conducted beginning July 1, 2023.

“[W]e thank the members of the Task Force for their hard work and express our appreciation to all of those who either filed comments or aided the Task Force in the development of its proposal,” the court majority said, in comments echoed by Labarga.

Although the task force unanimously voted for its proposed amendments, its ideas drew a wide range of opposition in comments filed with the court. Critics included a group of 26 former Foundation presidents, another group of 34 past Florida Bar presidents, the Florida Civil Legal Aid Association, several Bar sections, and others.

The task force argued changes are needed to focus IOTA funds on providing or enhancing direct legal services, especially in times of tight budgets and when low interest rates have continued to limit the Foundation’s IOTA income. Critics said the Foundation has done a good job, working with legal aid organizations, of adjusting to lower IOTA revenues and has effectively used grants to leverage increased services. They said the result of the Task Force’s recommendations might be to reduce the overall level of services.

Early drafts of amendments by the Task Force left open the possibility that organizations other than the Foundation could become conduits of IOTA funds to legal aid organizations. But its final version, left unchanged by the court, continues to designate the Foundation as the sole recipient and dispenser of IOTA funds.

The Task Force also recommended that IOTA funds be concentrated on providing civil legal services, noting earlier court IOTA opinions and the Foundation’s charter also allow grants to “improve the administration of justice.” Other commenters said the Foundation already spends the vast majority of IOTA funds on direct legal aid.

The docket page for the case is here.

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