Alternative for Multinational Firms : Lawyers Form Center to Settle Global Disputes Out of Court

The international enterprise is nearly 2 years old, operates out of a post office box, and has yet to see its first customer.

It has a dull-sounding name and a serious purpose. And its founders predict that the fledgling operation will be an important element of a glittery future for Los Angeles as a world financial and commercial hub.

The enterprise with all the promise and no customers is the Center for International Commercial Arbitration, which offers arbitration, mediation and conciliation services to resolve international disputes among companies or individuals.

Complicated contract disputes can be a legal nightmare for U.S. companies in U.S. courts, but when an American company is trying to collect from a foreign buyer, enforcing the sales contract in a foreign court can be even more frightening. Likewise, foreign companies are so intimidated by U.S. courts that they may restrict business operations here.

Using arbitration in a center like the one in Los Angeles, either the local or the foreign company could find quick solutions when a dispute arises over who owes what to whom.

An international arbitration ruling can be enforced by local courts as fast as it can be registered, while a judgment from a foreign court requires years to process.

Inquiries arrive daily from around the world, and hundreds of companies say they are designating the center in new contracts as the place to resolve any future disputes.

“It is only a matter of time,” said Daniel M. Kolkey, an international lawyer for Gibson, Dunn & Crutcher and chief financial officer. “Our center is doing all the right things.”

The lawyers, judges and law professors who serve on the nonprofit center’s 40-member board and committees say it is civic promotion and service, rather than money, that motivates them.

“We think it is something that will build up Los Angeles in the eyes of the world,” said Martin Perlberger, attorney and managing director of Nilsen Martin Trading Ltd.

Prof. Robert E. Lutz, who teaches international law at Southwestern University School of Law in Los Angeles and is the center’s chairman, said local lawyers conceived the idea for the center while planning a program on international arbitration sponsored by the International Law Section of the Los Angeles County Bar Assn. in 1986.

“We decided we should do more than just introduce the subject,” said Lutz in his comfortably cluttered Mid-Wilshire office.

International arbitration has increased in popularity in recent years because businesses have increased their operations abroad but remain reluctant to submit their disputes to foreign courts.

“Most people in the world are afraid of California courts, for example, because they hear of huge judgments here,” said Los Angeles Superior Court Judge Robert Fainer, who was invited to join the center’s directors because of his background as an international lawyer for Garrett Corp. before he took the bench 21 years ago. “They would go into arbitration or mediation to avoid that.”

The center, which its founders expect to be particularly attractive to Pacific Rim nations, joins a large group of existing arbitration centers in the world, but is unique because it was a grass-roots creation. The others, said Lutz, including the granddaddy, the century-old International Chamber of Commerce Court of Arbitration in Paris, were established by chambers of commerce, local bar associations, or governments.

Joining the ICC and the staid London Court of Arbitration in recent years have been centers in Stockholm, Zurich, Geneva, Vancouver, Tokyo, Beijing, Melbourne, Sydney, Hong Kong, Kuala Lumpur, and in Korea and China.

The American Arbitration Assn., which handles domestic cases from 33 offices nationwide, also has an international service out of its New York headquarters.

The Los Angeles center, differing in a few ways from its predecessors, will arrange arbitration sessions between disputing parties in rented facilities for which the parties pay. An arbitrator from a nation not involved in the dispute would be selected from the center’s list and paid by both parties.

The battling companies can agree to operate under center rules or choose their own rules and law (such as British law for maritime disputes). The new center uses its own modified version of the United Nations Commission on International Trade Law rules, which were negotiated with member nations, including Third World countries.

If an informal approach is preferred, center rules provide conciliation in which a neutral leader helps parties reach their own agreement, segueing if necessary into formal arbitration, in which an arbitrator makes a binding decision.

“I think Asians particularly would be more comfortable here, first of all because it is closer, which makes it cheaper and more accessible,” said Lutz. “For telecommunications you have very few cities that come anywhere close to L.A. That is the sort of thing you want out of an arbitration site, because you want to discuss matters with people back home. We also have excellent transportation, and you can have all the language translators you want. And we have the year-round climate and amenities like Disneyland and golf that people look for.”

A lawyer representing clients in international arbitrations, said Kolkey, also wants speed, a favorable legal climate including neutral rules and enforceability, and outstanding arbitrators.

His rules committee has provided for quick processing of disputes, he said, by adding an “inventive” deadline requiring an arbitrator to issue a ruling within 90 days after a hearing or lose 10% of his pay.

California has an excellent legal climate, the founders said, enhanced by a special bill passed in 1986 enabling California courts to enforce arbitration awards no matter where the parties are headquartered.

The center’s pride is its list of more than 100 arbitrators. Of the first 99 including nine non-lawyers, Perlberger said, 54 are from the U.S.; the others are divided among 19 other nations from Belgium to Egypt to Japan to Uruguay.

“What most impresses me about the L.A. center,” said Barry A. Sanders, center president and Latham & Watkins attorney who has represented such international clients as the U.S. Olympic Organizing Committee, “is the arbitration list. Once the arbitrator is chosen, he runs the show. If King Solomon wants to have hearings on odd Wednesdays in Tahiti, that is the way it is going to be.”

Lutz and his colleagues consider their center more cooperative than competitive with existing ones and believe it will serve companies just awakening to the possibilities for dispute resolution.

“What companies have done without it varies,” said Richard M. Mosk, of Mitchell, Silberberg & Knupp, the center vice chairman who served as one of the judges on the Iran-U.S. Claims Tribunal at the Hague. “Many (U.S. companies) had agreed to use Iranian courts, and that caused a good deal of problems. But companies are becoming more sophisticated, more alert about using dispute resolution clauses specifying an arbitration center.”

As for competing with the American Arbitration Assn., its regional director, Jerrold L. Murase, serves on the new center’s board, a move he says is part of the AAA’s effort to encourage international arbitration no matter who arranges it.

“But you are not talking about that many cases,” said Murase. “I don’t know think there is going to be intense competition.”

Restive about the high costs of doing arbitrations through the ICC in Paris and others, the local lawyers set out to make the center as cheap as possible.

“We can choose to do it cheaply,” said Sanders. “We just will operate on a nonprofit, break-even basis. We don’t intend to make a profit or support other activities.”

So far, the center has spent only $10,458, mostly to print rules and brochures and pay postage. Printed and verbal information has been scattered around the world free by attorneys attending conferences and such high-powered supporters as Mayor Tom Bradley. The funds have come from directors’ own pockets and their supportive law firms.

The fee schedule for arranging arbitrations, typically graduated like other centers’ to discourage inflated claims, begins at $850. The ICC’s fees start at $2,000.

Sanders figures the center can operate efficiently if it attracts 30 to 40 cases a year. He would expand the current facilities--an unoccupied and unfurnished low-rent office in the Los Angeles County Law Library, the post office box and a telephone in Fainer’s home tended by his wife, Carol, as unpaid executive director--to an administrative office and two conference rooms with a paid staff of three, an executive director and two assistants.

Just when those cases will arrive is uncertain. Founders say there is an indefinite “lead time” from the day a business lists the center in an international contract as the forum for resolving any disputes until a dispute arises.

“Unhappily, in this world there are a lot of disputes,” said Judge Fainer. “And we would like to resolve those disputes in Los Angeles. We want to demonstrate to the world that this city is a full-service international financial, economic, commercial center.”