Recently, an even greater challenge has presented itself to national lenders who rely upon out-of-state counsel for loan closings, as well as routine special servicing issues such as loan assumptions. Last year, the California Supreme Court addressed the issue of the multi-jurisdictional practice of law which obviously runs rampant in national lending. In Burbrower, Montalbano, Condon & Frank v. Superior Court (17 Cal. 4th 119 2000), the Supreme Court stated the following:

"Although we are aware of the interstate nature of modern law practice and mindful of the reality that large firms often conduct activities and serve clients in several states, we do not believe these facts excuse law firms from complying with California Business and Professions Code Section 6125."

California Business and Professions Code Section 6125 clearly states that no person shall "practice law in California" unless the person is an active member of the State Bar of California.

California case law has broadly defined the term "practice law" to include representation in legal proceedings before a court, as well as the giving of legal advice, the preparation of legal instruments and the preparation of contracts regardless of whether these services were performed in the course of litigation. A non-California lawyer engaging in loan closing activities or other routine matters representing lenders, is undertaking legal duties and obligations which pursuant to the holding Burbrower, which are not permitted. In fact, California Business and Professions Code Section 6126 prevents a person from collecting fees for legal services unless that person was, at the time services were rendered, an active member of the State Bar of California.

Numerous questions arise, for which answers may not be clear, including the following:

1. If a non-California lawyer retains local counsel to "review documents for each transaction, will that create a safe harbor?" In Burbrower requires a quantitative and qualitative analysis relating to the nature of the non-California lawyer's activities, what may be critical is who has handled the majority of the legal work in the transaction.
   
   
2. Does it make a matter that the lender is not operating in California, but headquartered in another state? This does not circumvent the basic premise that both legal duties and obligations regarding a California matter are being undertaken.
   
   
3. Is there any risk to non-California lawyers other than not being entitled to compensation as articulated in Burbrower? Yes, under California Business and Professions Code Section 6126, not only is a person who is not a member of the California State Bar not entitled to collect fees for legal services, but violating that statute is also a misdemeanor.

A case such as Burbrower raises more questions than answers of both law and policy. Muti-jurisdictional practices are critical to delivery of legal services in national lending, yet California and other states may flex their muscle to regulate the practice of law at the expense of a client's freedom of choice.