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. (more) AB 1631 (Monning) Page 2 of ? 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, AB 1631 (Monning) Page 3 of ? 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 AB 1631 (Monning) Page 4 of ? 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 AB 1631 (Monning) Page 5 of ? 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 AB 1631 (Monning) Page 6 of ? 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 AB 1631 (Monning) Page 7 of ? 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) ************** AB 1631 (Monning) Page 8 of ?