Legislature allows international arbitration in state

SACRAMENTO -- The Legislature passed a bill allowing foreign and out-of-state attorneys to represent clients in international arbitration cases in California.

Gov. Jerry Brown is expected to sign SB 766, which cleared the Assembly on Thursday. The bill did not receive a single no vote on its way through the Legislature.

The move is expected to make the state a more attractive destination for these kinds of business-to-business cases, taking advantage of California's proximity to the Pacific Rim economic powers. But such a change could take time, some warned.

In related news, JAMS is expected to announce today that it would open international arbitration centers in Los Angeles and New York, with several more planned. The JAMS Los Angeles International Arbitration Center will be located downtown. A press release announcing the new centers specifically mentioned the passage of SB 766.

"I think SB 766 opens up opportunities that hadn't fully existed before for all participants in international arbitration and will be especially helpful to California businesses," said Howard B. Miller, a JAMS neutral and a past president of the State Bar. "California businesses will now be able to have a real case for siting international arbitrations in California, which was very difficult to do before SB 766."

JAMS will hardly be the only company competing for the potentially lucrative opportunities.

"This opens up a new avenue for business that was unavailable in the past, and we would welcome the opportunity to explore it," said Dario Higuchi, managing member with Benchmark Resolution Group in Los Angeles.

SB 766 came in response to recommendations made last year in a 133-page report by the California Supreme Court's International Commercial Arbitration Working Group. The body was tasked by Chief Justice Tani Cantil-Sakauye with developing a workaround for a decision the state's high court made two decades ago.

The court found in Birbrower, Montalbano, Condon & Frank PC v. Superior Court, 17 Cal. 4th 119 (1998) that a law firm from New York could not enforce a $1 million fee from an international arbitration in California. According to California law, the court found, the firm was illegally practicing law in the state.

The 11-member working group recommended rules based on the American Bar Association's Model Rule for Temporary Practice by Foreign Lawyers. These would allow foreign attorneys to advocate for clients without paying a fee or making a pro hac vice application.

"A stringent regime for authorizing foreign attorneys to represent parties in international commercial arbitrations will simply result in the selection of a non-California forum," the report argued.

"The fact is, in our experience the participants to international arbitrations place a very high value on their ability to select counsel of their own choosing that may be from a venue that is different from the venue of arbitration," said Eric P. Tuchmann, general counsel and corporate secretary of the American Arbitration Association, a key bill supporter.

The association's International Centre for Dispute Resolution facilitated 1,026 international arbitrations in 2017. Just 95 of these were in California, spread among Los Angeles, San Francisco and San Diego.

According to figures from the association cited in the working group report, Florida hosted approximately twice as many international arbitrations as California between 2012 and 2015 while New York was the venue for about twice as many as Florida. Both states have liberalized their laws for foreign and out-of-state counsel in recent years.

"I don't think it's going to be a huge immediate boost because there is a pipeline," said Neil A.F. Popovic, a partner with Sheppard, Mullin, Richter & Hampton LLP in San Francisco who chairs the firm's international arbitration team.

Besides the long lead times involved in multi-million-dollar litigation, he said, there is the fact that many arbitration agreements currently in effect have been written to avoid California. Parties could waive these provisions but in practice rarely do once they are already headed into litigation, Popovic said.

But over time, he said, California's wealth of "highly qualified practitioners" will make it an inviting venue.

"Most of the people I know who do international arbitration in California see this as a long overdue and exciting development," Popovic said.