BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE JUDICIARY COMMITTEE
                             Senator Noreen Evans, Chair
                              2011-2012 Regular Session


          AB 1631 (Monning)
          As Introduced
          Hearing Date: June 12, 2012
          Fiscal: No
          Urgency: No
          RD
                    

                                        SUBJECT
                                           
                          Arbitration: Legal Representation

                                      DESCRIPTION  

          Existing law, until January 1, 2013, allows an out-of-state 
          attorney to represent a party in an arbitration proceeding in 
          this state or to render legal services in this state in 
          connection with an out-of-state arbitration proceeding (referred 
          to as the Out of State Attorney Arbitration Counsel Program 
          (OSAAC)), provided that the attorney, among other things:
           serves a certificate, with specified information, upon the 
            arbitrator(s) or arbitral forum, the State Bar, and all other 
            parties and counsel in the arbitration; 
           obtains written approval on the certificate from the 
            arbitrator(s) or arbitral forum and files the certificate as 
            specified; and 
           submits to the disciplinary jurisdiction of the California 
            State Bar.

          This bill would remove the sunset date, thereby extending this 
          program indefinitely. 

                                      BACKGROUND  

          California courts allow out-of-state attorneys to appear pro hac 
          vice upon submitting an application to the court and serving 
          notice of the hearing on the application with the State Bar.  
          (California Rules of Court, rule 9.40.)  At the same time, many 
          companies use in-house counsel to handle many of their legal 
          needs, including representing the company during arbitration 
          proceedings.  
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          However, in Birbrower v. Superior Court (1998) 17 Cal.4th 119 
          (hereinafter "Birbrower"), the California Supreme Court ruled 
          that a New York law firm which was advising a California client 
          with respect to a pending arbitration in California, and which 
          had represented the client in pre-arbitration negotiations, was 
          engaging in the unlawful practice of law in the state in 
          violation of Business and Professions Code Section 6125.  That 
          section prohibits the practice of law in California except by 
          attorneys licensed by the State Bar.  Under Birbrower, the 
          practice of law includes representation of a client in an 
          arbitration proceeding and in proceedings leading to the 
          arbitration.  In reaching its conclusion, the court declined to 
          adopt an arbitration exception to Section 6125, stating, "an 
          exception for arbitration is best left to the Legislature, which 
          has the authority to determine qualifications for admission to 
          the State Bar and to decide what constitutes the practice of 
          law." (Id., at 134.)

          That same year, in direct response to Birbrower, AB 2086 
          (Keeley, Ch. 915, Stats. 1998) was enacted, amending Section 
          1282.4 of the Code of Civil Procedure to allow out-of-state 
          attorneys to represent parties in arbitration proceedings in 
          California, provided they followed the procedure specified under 
          that section. The California Supreme Court also adopted a rule 
          of court, currently Rule 9.43 (originally, Rule 983.4) effective 
          July 1, 1999, which required the State Bar establish and 
          administer a program to implement the process by which 
          out-of-state attorneys may comply with the statute (Out-of-State 
          Attorney Arbitration Counsel Program).  (See California Rules of 
          Court, rule 9.43(b).)  As such, out-of-state attorneys can 
          represent parties in California arbitrations once they have 
          satisfied, among other things, the following requirements: (1) 
          serve a certificate, with specified information, upon the 
          arbitrator(s) or arbitral forum, the State Bar, and all other 
          parties and counsel in the arbitration; (2) obtain written 
          approval on the certificate from the arbitrator(s) or arbitral 
          forum and file that certificate, as specified; and (3) submit to 
          the disciplinary jurisdiction of the California State Bar.  
          (Code Civ. Proc. Sec. 1282.4; California Rules of Court, rule 
          9.43.) 

          AB 2086 contained a two-year sunset provision stating the 
          authorization under Section 1282.4 would expire on January 1, 
          2001.  In the years since, the sunset on that section has been 
          extended on numerous occasions, most recently through January 1, 
                                                                      



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          2013.  Notably, in 2006, in addition to extending the sunset 
          until January 1, 2009, AB 2452 (Harman, Ch. 357, Stats. 2006) 
          established the current filing procedure of the arbitration 
          certificate and required the State Bar to issue a report and 
          recommendations, as specified, regarding the appearance of 
          out-of-state attorneys in arbitration hearings or proceedings in 
          this state to the Legislature by December 31, 2009.  

          This bill, co- sponsored by the California Dispute Resolution 
          Council and the Securities Industry and Financial Markets 
          Association, would repeal the sunset date and extend the section 
          indefinitely. 

                                CHANGES TO EXISTING LAW
           
           Existing law  provides that no person shall practice law in 
          California unless an active member of the State Bar.  (Bus. & 
          Prof. Code Sec. 6125.) 

           Existing law  provides that a party to an arbitration has the 
          right to be represented by an attorney at any arbitration 
          proceeding or hearing.  (Code Civ. Proc. 1282.4(a).) 

           Existing law  authorizes an out-of-state attorney to appear on 
          behalf of a client in arbitration as long as the out-of-state 
          attorney files a certificate, as specified, and once the 
          certificate is approved by the arbitrator, the certificate must 
          be filed with the State Bar of California and served on all 
          parties to the arbitration. (Code Civ. Proc. Sec. 
          1282.4(b)-(e).)

           Existing law  provides that the out-of-state attorney 
          participating in an arbitration is subject to the disciplinary 
          jurisdiction of the State Bar of California. (Code Civ. Proc. 
          Sec. 1282.4(f).)

           Existing law  provides that the above-described provisions sunset 
          on January 1, 2013. (Code Civ. Proc. Sec. 1282.4(k).)

           This bill  would delete that sunset provision. 
          
                                        COMMENT
           
          1.    Stated need for the bill  

          According to the author, "Ýt]he out-of-state arbitration program 
                                                                      



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          is an effective, useful program that should be a permanent 
          fixture of California state law.  Accordingly, this bill seeks 
          to implement the suggestion of the State Bar that 'consideration 
          should be given to whether the sunset provisions of CCP Sect. 
          1282.4 should be removed, which would make the requirements for 
          out-of-state attorneys to appear in California arbitration 
          proceedings permanent.'"  

          2.    Purpose and operation of OSAAC program since 1998 and the 
            State Bar recommendation  

          This bill would remove the sunset on Section 1282.4 of the Code 
          of Civil Procedure, thereby extending that provision 
          indefinitely to allow out-of-state attorneys to represent their 
          clients in California arbitration proceedings upon following 
          specified procedures. (See also California Rules of Court, rule 
          9.43.)     

          As discussed in the Background and further explained by the 
          co-sponsor of this bill, the Securities Industry and Financial 
          Markets Association (SIFMA), the need for this provision dates 
          back the 1998 decision of Birbrower v. Superior Court.  (17 
          Cal.4th 119.)  SIFMA writes: 

            ÝThat] decision effectively prevented many corporations 
            headquartered elsewhere from utilizing their in-house counsel 
            or their longstanding outside counsel when arbitration issues 
            arose.  Instead, the companies had to incur substantial time 
            and expense to find, retain, and bring up to speed new and 
            often-times costly counsel in the state.  In addition, there 
            was a very real fear that the decision would trigger 
            retaliatory action against California citizens and businesses 
            by other states.  Finally, the court ruling seemed 
            particularly ironic given that these same out-of-state 
            attorneys were permitted to try their cases in the California 
            court system by merely filling out an application and asking 
            the judge to admit them pro hac vice.  For these and other 
            reasons, the California Legislature quickly corrected the 
            Birbrower decision by enacting AB 2086 later that same year.

          Similarly, according to the Senate Judiciary Committee Analysis 
          of AB 2086, the sponsor of AB 2086, the Security Industry 
          Association (SIA), argued that prior to Birbrower, "it was 
          common practice out-of-state corporate counsel to represent an 
          in-state affiliate or subsidiary in an arbitration in 
          California.  This practice made sense, asserts the SIA, given 
                                                                      



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          the multi-state nature of corporate law practice.  Corporate 
          counsel usually has the best expertise and most familiarity with 
          the corporation's business and the legal issues being litigated. 
           Thus, it makes legal as well as economic sense to use corporate 
          counsel in litigation and arbitration, as opposed to hiring 
          local counsel on an ad-hoc basis." (See Sen. Judiciary Com., 
          analysis of AB 2086 (1997-1998 Reg. Session) Aug. 27, 1998, p. 
          4.)  

          Since the enactment of Section 1282.4 and the adoption of Rule 
          9.43 in 1999, out-of-state attorneys can also represent parties 
          in arbitrations in California, following specified procedure, 
          until January 1, 2013.  The current procedures require the 
          attorney, among other things, to: (1) serve a certificate, with 
          specified information, upon the arbitrator(s) or arbitral forum, 
          the State Bar, and all other parties and counsel in the 
          arbitration; (2) obtain written approval on the certificate from 
          the arbitrator(s) or arbitral forum and file that certificate, 
          as specified; and (3) submit to the disciplinary jurisdiction of 
          the California State Bar.  This bill would allow for the 
          indefinite continuation of those provisions. 

          3.    2009 State Bar Report supports removal  

          In 2006, while extending the then-sunset for the OSAAC statute 
          to January 1, 2009, the Legislature also required that the State 
          Bar collect, record the information reported to the State Bar on 
          certificates filed under the OSAAC program, including, among 
          other things, the volume, nature, and status of any complaints, 
          inquiries, or referrals made alleging a violation of that 
          section.  (AB 2482 (Harman, Ch. 357, Stats. 2006).)  The 
          findings of 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) demonstrated that the OSAAC program is sufficiently 
          protecting California litigants.  During the two-year period 
          covered in the Report, only 1,192 out-of-state attorneys filed a 
          certificate of arbitration appearance (this total includes 
          multiple applications by the same applicants during that two 
          year period).  The number of out-of-state attorneys requesting 
          to appear in arbitrations in 2007 and 2008 was lower than 
          out-of-state attorneys requesting to appear pro hac vice 
          (approximately 2,600 per year).  The State Bar compiled a table 
          showing the number of out-of-state applicants and the 
          corresponding number of times they appeared in arbitrations 
                                                                      



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          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, though the vast majority of applicants appear to 
          make only a single appearance. The State Bar reported the 
          following special circumstances for which arbitrators accepted 
          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 
               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 Report noted that the State Bar did not receive any written 
          complaints about the OSAAC program during the reporting period 
          and that it is not aware of any complaints or alleged violations 
          of Code of Civil Procedure Section 1282.4.  While a report has 
          not been conducted since 2009 because it was a one-time 
          requirement under AB 2482 (Harman, Ch. 357, Stats. 2006), the 
          report is still arguably pertinent and the Committee has not 
          received information noting complaints about the program in the 
          time since.  Additionally, the State Bar has confirmed with the 
          Committee that they do not have records of any complaints since 
          the 2009 report.  As noted by co-sponsor California Dispute 
          Resolution Council (CDRC), "Ýt]he statute has been in effect for 
                                                                      



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          Ýthirteen] years and there is no evidence that there has been 
          any abuse of the procedures by out of state attorneys as 
          reported by the State Bar."  


           Support  :  None Known 

           Opposition  :  None Known



                                        HISTORY
           
           Source  :  California Dispute Resolution Council; Securities 
          Industry and Financial Markets Association 

           Related Pending Legislation  :  None Known 

           Prior Legislation :

          SB 877 (Harman, Ch. 277, Stats. 2009) extended the sunset to 
          January 1, 2013.

          AB 2482 (Harman, Ch. 357, Stats. 2006) See Background and 
          Comment 3.

          AB 415 (Harman, Ch. 607, Stats. 2005) extended the sunset to 
          January 1, 2007.

          SB 2153 (Schiff, Ch. 1011, Stats. 2000) extended the sunset to 
          December 31, 2005.

          AB 2086 (Keeley, Ch. 915, Stats. 1998) See Background.

           Prior Vote  :

          Assembly Floor (Ayes 77, Noes 0)
          Assembly Judiciary Committee (Ayes 10, Noes 0)

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