Judge Friedland Dissents.
Billboard for Chero-Cola, a long-defunct soft-drink brand, in Louisville, a town in northeastern Georgia. Carol M. Highsmith, photographer. Library of Congress.
Monster Energy, FKA Hansen Beverage Company, designates JAMS as an arbitral forum in its agreements with distributors. So when a dispute arose between Monster Energy and its distributor City Beverages, LLC, dba Olymbic Eagle Distributing, Monster and City Beverages arbitrated with JAMS. In compliance with JAMS disclosure rules, the arbitrator duly disclosed that he had mediated with Monster before and ruled against it, that he had "an economic interest in the overall financial success of JAMS", and that the parties should assume that other JAMS neutrals participated in ADR with the parties. However, the arbitrator did not disclose that he had an ownership interest in JAMS, or that JAMS had administered 97 arbitrations with JAMS over the past 5 years. The arbitrator's disclosures were good enough for the district court, but not for a majority of the panel. Monster Energy Company v. City Beverages, LLC, Nos. 17-55813 and 17-56082 (9th Cir. 10/22/19) (Smith, Simon; Friedland, disst.).
The majority concluded, "[G]iven the Arbitrator's failure to disclose his ownership in JAMS, coupled with the fact that JAMS had administered 97 arbitrations for Monster over the past five years, that vacatur of the Award is necessary on the ground of evident partiality." Therefore, the court reversed the district court, vacated the Award, and vacated the district court's award of post-arbitration fees to Monster.
COMMENT: Judge Friedland, dissenting, would have upheld the award in favor of Monster, because she believed that the arbitrator had disclosed enough, i.e., that he had mediated before with Monster, that he had ruled against it once, that he had a general financial interest in JAMS' success, and that the parties could assume Monster was a repeat player. She raises some good points: (1) that the parties had already agreed to arbitrate with JAMS; (2) that 1/3rd of JAMS arbitrators have ownership interests; (3) that it is questionable that an arbitrator without an ownership interest has less interest in making a client like Monster happy than does an arbitrator with an ownership interest.
The real elephant in the room is the perception that JAMS and other ADR organizations favor repeat players -- a problem that will not be remedied by requiring disclosure of an arbitrator's ownership interest. Aside from the arbitrator ownership interest, there is the other issue -- the 97 arbitrations that JAMS has administered for Monster. Will there be satellite litigation in the future as to how many arbitrations constitute "non-trivial business dealings"? If so, perhaps we have entered a gray area without a bright line.
On the other hand, Judge Friedland's concern that this will "require vacating awards in numerous cases decided by JAMS owners" may be overblown. As Judge Friedland notes in her footnote 6, the short statute of limitations for filing a motion to vacate places a limit on how much litigation there will be. In the future, JAMS can disclose whether an arbitrator has a financial ownership interest. And just because a party loses an arbitration doesn't mean the party will seek to undo it, unless by spending more time and money the party believes it can get a better result with another arbitrator who does not have an ownership interest in JAMS. Does JAMS have to disclose that it was involved in 97 arbitrations, if it discloses that a party is a repeat player, and that the arbitrator has an ownership interest? That question is not answered.
The pragmatic question is whether the additional disclosure, by heightening awareness of the financial connections between ADR organizations and repeat players, and the additional financial stake that owners have in ADR organizations, will lead to any different decisions and outcomes.