BILL ANALYSIS Ó
AB 1631
Page 1
Date of Hearing: April 10, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1631 (Monning) - As Introduced: February 9, 2012
PROPOSED CONSENT
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 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. This is comparable
to the authority granted to out-of-state lawyers who appear in
court proceedings, although lawyers appearing in arbitration are
not subject to court supervision and do not have to pay the
appearance fee that litigation counsel must pay to the courts.
This measure appropriately limits its focus and effect to simply
making permanent the out-of-state attorney arbitration counsel
program itself, leaving for potential future Committee
consideration whether there are any aspects of the program that
can be improved or potentially made more balanced.
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
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attorney until January 1, 2013 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
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 "Ýt]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 jointly sponsored by the
Securities Industry and Financial Markets Association and CDRC.
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
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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
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. AB 2482 (Harman, Chapter 357,
Statutes of 2006) required the out-of-state attorney to get the
arbitrator's approval of the 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 Bar's 2009 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 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;
2. the out-of-state attorney represented the brokerage firm
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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 indicates that it received 730 OSAAC applications
in 2011. It is believed that there were approximately 800-900
applications in 2010. Relieved of the statutory reporting
obligation, however, the Bar is apparently no longer keeping
track of how many lawyers make repeat appearances or whether
there is good justification for those repeat appearances.
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 was relatively brief in the life of the statute, it
reflects some improvement over prior experience such that
elimination of the sunset may be appropriate.
This Bill Understandably Does Not Address the Fact that
Arbitration Lawyers Pay Much Lower Fees Than Lawyers Appearing
in Court Due to the Requirements of Prop 25 . Like attorney's
appearing in litigation, OSAAC applicants pay a $50 fee to the
State Bar. According to the State Bar, this fee solely covers
the cost of processing the application. However, these fees do
not cover the full cost of regulating out-of-state state
lawyers. That cost is not known.
It should be noted that many if not most of the OSAAC lawyers
appear in securities arbitrations that are not covered by the
ethical rules that regulate other private arbitrations, such as
disclosures regarding potential conflicts of interest between
the arbitrator and the lawyers in the case. (Jevne v. Superior
Court (JB Oxford Holdings, Inc.) (2005) 35 Cal.4th 935.) Thus,
clients in securities arbitrations lack the protection of
ethical rules that might serve as a check against some potential
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lawyer misconduct. This bill however understandably does not
seek to address that ongoing issue, for it merely seeks to make
permanent the out-of-state attorney arbitration counsel program.
In addition to the State Bar processing fee, non-California
lawyers appearing in court pay a $500 fee for the privilege of
practicing law in California without admission to the bar.
Lawyers in arbitration pay no such fee. When the Committee last
heard a bill to repeal the OSAAC sunset in 2010, it passed the
bill on the condition that out-of-state attorneys appearing in
arbitration pay the same fee for that valuable privilege as
those who appear in court. These funds were to be designated to
support important non-profit ADR programs that have seen no
increase in financial support for many years, despite
legislative efforts to do so. However, the prior author
subsequently abandoned that requirement and the intervening
passage of Proposition 25 makes the same arrangement now very
difficult in light of the two-thirds vote requirement. Thus
this measure appropriately limits its focus and effect to simply
making permanent the out-of-state attorney arbitration counsel
program while leaving for potential future Committee
consideration whether there are any aspects of the program that
can be improved or potentially made more balanced.
REGISTERED SUPPORT / OPPOSITION :
Support
California Dispute Resolution Council (co-sponsor)
Securities Industry and Financial Markets Association
(co-sponsor)
Opposition
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334