California is expected to pass a new law, SB 766, clarifying that lawyers who are not members of the California bar may appear in international arbitrations seated in California without local counsel. The law, which has been passed by the California Assembly and is awaiting the signature of Governor Jerry Brown, is part of the state’s effort to increase its visibility as a center for international arbitration.
Currently, foreign lawyers are required to engage local co-counsel to appear in international arbitrations seated in the state because of uncertainty created by a 1998 California Supreme Court decision. In Birbrower v. Superior Court of Santa Clara County, 949 P.2d 1 (Cal. 1998), the court ruled that a New York law firm had engaged in the unauthorized practice of law through various activities in the state, including arbitration-related activities. The court specifically declined to create an exception for arbitrations. The requirement for local co-counsel even in international arbitrations has prevented California’s major cities from becoming US international arbitration hubs along the lines of New York City, Miami and Houston, which are all in states that place no restrictions on out-of-state lawyers engaged in international arbitrations.
Under the new law, foreign qualified counsel in good standing may “provide legal services in an international commercial arbitration or related conciliation, mediation, or alternative dispute resolution proceeding” if one of the following conditions is satisfied:
- The services are undertaken in association with a lawyer who is admitted to practice in California and who actively participates in the matter;
- The services arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice;
- The services are performed for a client who resides in or has an office in the jurisdiction in which the lawyer is admitted or otherwise authorized to practice;
- The services arise out of or are reasonably related to a matter that has a substantial connection to a jurisdiction in which the lawyer is admitted or otherwise authorized to practice; or
- The services arise out of a dispute governed primarily by international law or the law of a foreign or out-of-state jurisdiction.
This law, which flew through the state’s legislature, would close a significant gap in California state law, which is otherwise generally arbitration-friendly. With the local co-counsel requirement and the associated added cost removed, California would be a more viable option for those who, given all other relevant factors, would consider California as an arbitral seat. Although California’s new law still would maintain some restrictions on the participation of out-of-state and foreign counsel, it would be a big step forward, bringing the state closer to other pro-arbitration states that do not place restrictions on out-of-state lawyers. As a result, over time, we would expect San Francisco and Los Angeles to see an increase in international arbitrations—particularly given their ideal locations with respect to the Pacific Rim and Latin America.