Concern grows over rules for foreign GCs

Daily Journal Staff Writer

California may be the eighth largest global economy, but if businesses want their in-house legal teams from around the world to fully and openly work together, it can't happen here.

California is one of many states that lacks a rule on the practice of foreign in-house counsel. Foreign lawyers who work for companies that have headquarters in California can't practice in the state. It's an obstacle that could stunt business growth, whereas Texas and Arizona have welcomed foreign in-house counsel to satisfy stateside business.

"There have been concerns raised by a number of companies about the fact California is certainly one of the largest economic presences in Asia and other Pacific Rim countries that doesn't allow their out-of-state foreign lawyers to practice here," said Mark L. Tuft, partner at Cooper, White & Cooper LLP in San Francisco. He's served on American Bar Association and California State Bar committees that have dealt with the issue.

Whether it's mergers and acquisitions or intellectual property projects, it's natural for in-house counsel to collaborate, experts say. And borders may not deter that.

Positions may be "restyled," according to Amar D. Sarwal, vice president and chief legal strategist at the Association of Corporate Counsel. He said he believes foreign in-house counsel are, in fact, assisting their California counterparts here through some type of loophole that doesn't require State Bar registration.

"Non-U.S. attorneys practicing in California are project managers and consultants," he said. "They're being welcomed in the California legal community as valuable members because they help California bar members."

In California, attorneys from international jurisdictions can register as foreign legal consultants, which means they can only practice their home country's law in the state. The problem: foreign in-house counsel usually come to California to master some tenet of business law impacting their company worldwide.

"There's no question in my mind that foreign attorneys fly here and out and coordinate in-house counsel and outside counsel," Tuft said. "Who is practicing law in our jurisdiction, or coordinating with lawyers authorized to practice law? There's no question, foreign lawyers have reason to communicate with and work with California lawyers on a regular basis."

For a number of multinational companies, especially those pushing to expand across continents, Tuft said it's a problem for them to not have their foreign attorneys work in-house in California when necessary.

Almost two decades ago, the California Supreme Court ruled that a New York firm had engaged in unauthorized practice of law when representing a California client and invalidated the firm's legal fees for work done in the state. Birbrower, Montalbano, Condon & Frank PC v. Santa Clara County Super. Ct. (17 Cal. 4th 119, Jan. 5, 1998)

The Birbrower case, still heavily cited, sparked the discussion about out-of-state attorneys, including in-house counsel. And that motivated the ABA to create Rule 5.5 on multijurisdictional practice.

Then in 2012, the ABA Commission on Ethics 20/20 added foreign in-house counsel to the rule because of the way globalization was changing the practice of law.

The rule states foreign in-house counsel have limited practice authority. They are not able to appear in court or advise on U.S. law without a U.S.-licensed attorney present. But they still must pay bar dues and are subject to application requirements and minimum continuing legal education. In some states, the foreign in-house counsel status is temporary.

When the ABA rule was implemented, Arizona, Connecticut, Delaware, Georgia, Virginia, Washington state and Wisconsin already allowed foreign in-house counsel to practice, with little oversight.

Colorado, North Carolina and Oregon are a few of the states that have since adopted the ABA's model rule. Illinois is looking at adopting a rule that would cover foreign in-house counsel who otherwise may have been kicked out of their bar associations due to the lack of attorney-client privilege.

Last July, the ACC wrote to the Illinois Supreme Court Rules Committee in support of the foreign in-house counsel rule. It had been signed by Sarwal and other executives along with 22 chief legal officers of Illinois-based companies from McDonald's Corp. to Caterpillar Inc.

Of those with California legal teams, Allstate Insurance Co. and James Hardie Industries PLC also signed the letter. Allstate declined to comment.

Joseph C. Blasko, the general counsel at James Hardie, a fiber cement product manufacturer based in Dublin with its U.S. base in Chicago, said the ACC approached him about the issue. After seeing how it can impact the nine-attorney global legal team, including an attorney in the Mission Viejo office, he said he decided to support it.

"If I have a Dutch attorney who brought something to the table from a subject matter perspective, like we're launching a product in Europe, I don't see why that person should be prohibited from providing legal advice because he's here in Chicago," he said. "To me, it's a practical thing."

Because the company's lawyer will not present in court, Blasko added, he felt in-house counsel should cross jurisdictions when collaboration is vital to a business project.

The ABA model rule requires foreign in-house counsel to have good standing in their respective bar associations. But a growing number of countries, such as France, China and South Africa, don't view in-house counsel as regular lawyers. So they are not required to register with their local bar, and they may be booted out.

Robert E. Lutz, a Paul E. Treusch professor of law at Southwestern Law School in Los Angeles, said the issue that may drive conversations about amending the ABA rule possibly in 2016 is how to determine whether a foreign in-house counsel qualifies to practice in the U.S. The idea of reciprocity, which was rejected by California on a state-by-state basis, is not the goal.

"In-house counsel are considered lawyers," he said. "When they're foreign-sourced, they come with different types of certifications, not qualifications. For us to treat them like lawyers, we need to ensure certain qualifications are met."

Utah rejected the ABA model rule. A few states including Maryland and South Carolina are joining Illinois in studying the rule. But most states, like California and U.S. territories, have taken no action.

Lutz said he has written letters to the state Supreme Court asking them "to develop rules in respect to foreign in-house counsel."

"They have nicely decided not to do that on a regular basis because they have so much other stuff to do," he said.

He said he also spoke directly to Chief Justice Tani G. Cantil-Sakauye in her first year and she seemed interested in considering the issue, but there seems to be no pressure to adopt a rule.

A state Supreme Court spokesman confirmed there is no current effort on the court or state bar level to develop a rule allowing foreign in-house counsel to practice here at their companies. The bar would make the recommendations to the court.

"We're not arguing for foreign outside lawyers, but foreign in-house counsel familiar with the company," said Sarwal, of the ACC. "It's a more sophisticated, generalized exception. ... These rules have not been updated in a long time."

kibkabe_araya@dailyjournal.com