BILL ANALYSIS SB 877 Page 1 Date of Hearing: June 29, 2010 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair SB 877 (Harman) - As Amended: March 8, 2010 PROPOSED CONSENT (As Proposed To Be Amended) SENATE VOTE : 31-0 SUBJECT : ARBITRATION: LEGAL REPRESENTATION KEY ISSUE : SHOULD THE SUNSET BE ELIMINATED ON THE AUTHORITY OF NON-CALIFORNIA LAWYERS TO APPEAR AND REPRESENT CLIENTS IN ARBITRATION PROCEEDINGS? FISCAL EFFECT : As currently in print this bill is currently keyed non-fiscal. SYNOPSIS This non-controversial bill would remove the sunset provision from the out-of-state attorney arbitration counsel program, making the program permanent. Under this authority, attorneys admitted to practice in other states are permitted to practice law in California for the purpose of arbitration proceedings, despite lacking a license to practice in California, similarly to lawyers appearing in court proceedings. It would also provide parity between non-admitted attorneys appearing in arbitration proceedings and those appearing in court proceedings with respect to the fee charged for this valuable privilege. SUMMARY : Permits out-of-state lawyers to practice in California arbitration proceedings. Specifically, this bill would remove the current sunset provision and make permanent the authorization for out-of-state lawyers to practice law in arbitration proceedings despite lacking a license to practice law in California. EXISTING LAW provides that a party to an arbitration agreement has the right to be represented by an attorney at any arbitration proceeding or hearing and authorizes an out-of-state attorney until January 1, 2011 to appear on behalf of a client in arbitration as long as the out-of-state attorney files and serves a certificate, as specified, and is subject to the SB 877 Page 2 disciplinary jurisdiction of the State Bar of California. (Code Civ. Proc. Sec. 1282.4.) COMMENTS : In support of the bill the author states that the out-of-state arbitration program is an effective and useful program that should be a permanent fixture of California state law. Further, the California Dispute Resolution Council (CDRC), a supporter of the bill, notes that "[t]his statute has worked to ensure that arbitrations can proceed smoothly in our state, especially in those cases where out of state counsel are the lawyers for the parties involved in the arbitration. This is not an attempt by these lawyers to avoid becoming members of the state bar but merely to perform their duties for their clients when the arbitration occurs in the State of California." Creation and Operation of the Current Program For Out-of State Arbitration Counsel. This bill is sponsored by the Securities Industry and Financial Markets Association. In Birbrower v. Superior Court (1998) 17 Cal.4th 117, the court ruled that out-of-state attorneys were precluded from representing their clients in California arbitrations because it constituted the unauthorized practice of law. In response, the Legislature enacted a statute creating the Out of State Attorney Arbitration Counsel Program (OSAAC) under Code of Civil Procedure Section 1282.4 and Rule of Court 9.43. California courts allow out-of-state attorneys to appear pro hac vice upon submitting an application and fee to the court and serving notice of the hearing and the application with the State Bar of California. (Rules of Court Rule 9.40.) Similarly, under OSAAC, out-of-state attorneys can represent parties in California arbitrations once they have satisfied, among other things, the following requirements: (1) obtaining the approval of the arbitrator; (2) serving notice and a certificate on the arbitrator and State Bar of California; and (3) submitting to the disciplinary jurisdiction of the California State Bar. (Code Civ. Proc. Sec. 12824; Rule of Court 9.43.) When it was enacted in 1999, the bill contained a sunset date of two years. A subsequent report prepared in 2000 by the State Bar noted that some certificates contained no attorney of record on file, and many were never filed. Accordingly, there was little record of adequate compliance by both attorneys in filing SB 877 Page 3 the certificates and by arbitrators in ensuring that the rules adopted by the Supreme Court for the out-of-state attorney in arbitration appearances were followed. Various measures extended the sunset temporarily. Most recently AB 2482 (Harman, Chapter 357, Statutes of 2006) required the out-of-state attorney to get the arbitrator's approval of certificate of intent to appear in arbitration before the out-of-state attorney filed it with the State Bar. AB 2482 also contained a reporting requirement by the State Bar. The "2009 Report of the State Bar of California to the California Legislature in Accordance with AB 2482 (Harman) (2006, Ch. 357) Relating to Arbitration Proceedings Conducted Under California Code of Civil Procedure Section 1282.4" (the Report) shows that during the two-year period covered in the Report, 1,192 out-of-state attorneys filed a certificate of arbitration appearance. The State Bar compiled a table showing the number of out-of-state applicants and the corresponding number of times they appeared in arbitrations during the two years covered by the report as follows: ------------------------------------------------------------------------------------------------------------- |# of | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |Appearanc| | | | | | | | | | | |es | | | | | | | | | | | |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------+---------| |# of | 676 | 104 | 33 | 10 | 10 | 2 | 2 | 2 | 6 |2 | |Applicant| | | | | | | | | | | |s | | | | | | | | | | | ------------------------------------------------------------------------------------------------------------- As the table demonstrates, there are a number of out-of-state attorneys making multiple appearances in California arbitrations. While most applicants have only one or two appearances, a few are engaging in a relatively high number of matters. By most accounts, a lawyer appearing in 10 trials in a two-year period would be considered a busy lawyer, and certainly one doing substantial professional work in the state. The State Bar reports the following special circumstances given by arbitrators for allowing repeated appearances by these out-of-state attorneys: 1. the arbitration is a collection case on behalf of a major brokerage firm against registered representative employees; SB 877 Page 4 2. the out-of-state attorney represented the brokerage firm nationwide; 3. the proceeding is in California because the claimant resides in California and prefers to use an out-of-state attorney because of his or her familiarity with the subject; or 4. the applicant is in-house counsel or associated with outside law firms who handle similar matters nationwide. The State Bar reports that it did not receive any written complaints about the OSAAC program during the reporting period and it is not aware of any complaints or alleged violations of Code of Civil Procedure Section 1282.4. At this time it appears that the dual step requirement of arbitrator's approval and subsequent filing with the State Bar is helping to provide greater compliance among out-of-state attorneys. Although the study period has been relatively brief in the life of the statute, it reflects some improvement on prior experience such that elimination of the sunset may be appropriate in light of the proposed amendments which, it is hoped, offer arbitrators some added incentive to overcome their apparent prior resistance and embrace their obligation to assure the voluntary compliance upon which the program depends, particularly given that there will be no further reports to the Legislature if this bill is enacted. Author's Amendment. In order to ensure equality between out of state attorneys appearing in arbitration and those appearing in litigation, the author and sponsor agree that out of state attorneys appearing in arbitration shall pay the same fee for that valuable privilege as those who appear in court. Consistently with the nature of arbitration, these funds are to be designated for support of ADR programs under the Dispute Resolution Programs Act. Procedurally, this bill will be amended to make it contingent upon passage of another bill that will so provide. REGISTERED SUPPORT / OPPOSITION : Support Securities Industry and Financial Markets Association (sponsor) SB 877 Page 5 California Dispute Resolution Council Opposition None on file Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334