New Law Brightens Forecast for International Arbitration in California

July 24, 2018

California is many things: an entertainment capital, a hotbed of technological innovation and a favorite forum for class-action litigation. Its major cities, however, have never been leading “seats” (i.e., venues) for international arbitrations. Some would doubtless attribute this to the perceived hostility of California courts to arbitration clauses (though decisions in recent years have focused more on consumer and employment arbitration than commercial arbitration). Others chalk it up to the more established reputation and legal infrastructures of the traditional arbitration capitals: London, Paris and New York.

More pragmatically minded observers might also point to California’s somewhat unusual requirement that counsel and arbitrators in arbitrations seated in California either be licensed to practice in California themselves or affiliate with licensed co-counsel. This requirement stemmed from the California rel="noopener noreferrer" Supreme Court’s 1998 decision in Birbrower, Montalbano, Condon & Frank, P.C. v. Superior Court. In that case, attorneys from a New York law firm had traveled to California several times in the course of representing a California-based client in the arbitration and eventual settlement of a contract dispute with another California-based company. The underlying contract contained a choice-of-law clause selecting California law, but none of the firm’s attorneys working on the matter was licensed in California. Explicitly rejecting a proposed exception for representing clients in arbitrations (among other proposed resolutions), the California Supreme Court concluded that the law firm’s activities in California constituted the unlicensed (and unlawful) practice of law in California, and that the firm could not collect compensation for the work it did in California.

Responses to the Birbrower decision were swift. An attempted appeal to the U.S. Supreme Court garnered support from several amici curiae, but the Court declined to hear the case. California’s legislature also rel="noopener noreferrer" sprang into action and, within months, had adopted an amendment allowing counsel licensed in other U.S. states to represent clients in arbitrations, albeit subject to an elaborate notice and approval process – and rel="noopener noreferrer" the engagement of co-counsel licensed in California.

New legislation signed into law by California’s governor just last week, however, does away with these historical rel="noopener noreferrer" requirements and brings the Golden State more in line with leading U.S. arbitral jurisdictions. Senate Bill No. 766 allows not only out-of-state attorneys, but also certain foreign-qualified attorneys, to provide legal services in many international commercial arbitrations and other alternative dispute resolution proceedings. Though still an option, association with licensed local counsel will no longer be a hard-and-fast requirement in a wide variety of scenarios. These changes are an important step in making San Francisco and Los Angeles more accessible – and more attractive – potential seats for international arbitrations in the future.

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