Legal Aid Groups Sue Lawmakers Over Funding Shut-off

Three North Carolina legal aid nonprofits are suing top Republican lawmakers, claiming a recent budget maneuver that cut off millions in funding is a “flagrant” constitutional violation.

Pisgah Legal Services, Legal Aid of North Carolina, and the Charlotte Center for Legal Advocacy filed the lawsuit on October 9. The suit names House Speaker Destin Hall, Senate leader Phil Berger, the state, and the board of the Interest on Lawyers Trust Account (NC IOLTA)—the 40-year-old program lawmakers overhauled earlier this year.

When the General Assembly adopted the state budget for this fiscal year in July, lawmakers restructured IOLTA and redirected nearly all of its earnings away from civil legal aid to a fund within the state Office of Indigent Defense Services that pays for criminal defense for low-income people.

At the time, state Rep. Marcia Morey, a Durham Democrat and former judge, described the action as a “legislative takeover” of the trust, which comes from the interest accrued when lawyers hold client money in escrow.

Lawmakers opposed to the changes and past recipients of IOLTA grants questioned whether the General Assembly had the power to redirect those dollars—which don’t come from taxpayer funds—to a state program.

The legal aid organizations contend in their lawsuit that lawmakers don’t and that provisions of the legislation “amount to flagrant constitutional violations.”

The State Bar established IOLTA as a voluntary program that proved to be “enormously effective in meeting low-income North Carolinians’ unmet need for civil legal services,” according to the suit. In 2007, the state Supreme Court issued a unanimous order making it compulsory for every lawyer with a client trust account to turn over the interest earned to IOLTA to “provide civil services for indigents.” They directed the State Bar to implement and supervise the program.

Since its founding, IOLTA has awarded more than $134 million to organizations across the state that represent low-income people experiencing domestic violence, evictions, labor concerns, or issues with health care access.

‘Awarding Grants to Leftist Groups’

In the summer of 2025, the Republican-led General Assembly put a year-long freeze on the funds and later said it was because the program supported liberal causes. Rep. Harry Warren, a Salisbury Republican, accused IOLTA of “awarding grants to leftist groups with leftist ideologies.”

Amid the freeze, legal aid organizations that had long relied on those grants closed offices, reduced staff, and consolidated programs in rural areas. The funding shift has compounded those hardships.

“[T]he Supreme Court’s order clearly sought to meet the legal needs of North Carolinians beyond the State’s existing obligations—critical legal needs that would otherwise not be met,” the lawsuit contends. The change also effectively strips the Supreme Court and the State Bar of their roles in supervising and directing the use of these funds, according to the suit.

The budget designated several million dollars the program earned before the July 1, 2025 freeze for legal aid organizations, but prohibited the funds from going to “any entity that provides immigration legal services, representation or advocacy for individuals seeking gender-affirming health care, and policy or grassroots organizing.”

The legal aid organizations contend that restriction violates free-speech rights under the federal and state constitutions. They also contend the budget provision violates the state constitution’s separation of powers clause “by encroaching on the inherent power of the judiciary.”

New IOLTA Board Members

The lawmakers also took away IOLTA board appointment power from the 61-member Council of the State Bar. Instead of appointing all nine members of the board that decide who gets the grants, the council now only appoints three. 

The Senate leader and speaker of the House each appoint two members, and the state Supreme Court chief justice–currently Republican Paul Newby–appoints two members, including the chair.

Hall has appointed Larry Shaheen and Woody White, two Republican attorneys who led a committee the legislature established that recommended a controversial overhaul of the Bar’s disciplinary process. Berger had not submitted his appointments as of Wednesday morning.

Newby’s two appointments are Alex Dale of Pender County, a registered Republican, according to the State Board of Elections voter lookup, who will serve as board chair, and State Bar Vice President David Allen, a registered Democrat, according to state elections board records, from Mecklenburg County. 

The State Bar Council tapped lawyers Ted Edwards of Durham County, Amy Funderburk of Carteret County, and Ralph Meekins of Cleveland County. According to state election board records Edwards is a registered Democrat, Meekins is a registered Republican, and Funderburk is registered as unaffiliated.

The bar is obligated by statute to adopt the legislature’s revised rules for IOLTA by November 1. It’s unclear what impact, if any, the lawsuit will have on that timeline.

State Bar Executive Director Peter Bolac told The Assembly that the agency is reviewing the complaint and has no additional comment at this time.