On December 30, 2019, the Ninth Circuit Court of Appeals denied petitions for panel rehearing and rehearing en banc in Monster Energy Co. v. City Beverages, LLC, No. 17-55813 (9th Cir. Dec. 30, 2019), confirming its October 22, 2019 decision to vacate an arbitration award issued by a JAMS arbitrator for failure to disclose that: (1) the arbitrator was a co-owner of JAMS; and (2) the winning party had several prior cases with JAMS. The Ninth Circuit determined that the failure to disclose these points justified vacatur of the resulting arbitration award for “evident partiality” under Section 10(a)(2) of the Federal Arbitration Act (“FAA”).
As discussed in our prior post (https://business.musickpeeler.com/), the Ninth Circuit reversed and vacated the arbitration award for “evident partiality” resulting from the arbitrator’s failure to disclose his ownership interest in JAMS, even though he had stated to the parties that he “has an economic interest in the overall financial success of JAMS.” Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130, 1133 (9th Cir. 2019) (“Monster Energy”). The majority reasoned that the arbitrator’s disclosure of an economic interest in JAMS was insufficient because it did not cover: (i) the exact nature of the arbitrator’s actual ownership interest in JAMS; and (ii) the number of disputes that Monster Energy sent to JAMS, finding it was not clear that “this specific Arbitrator was potentially non-neutral based on the totality of JAMS’s Monster-related business.” Id. at 1135.
The test for “evident partiality” under Section 10(a)(2) of the FAA, as discussed by the Supreme Court in Commonwealth Coatings Corp. v. Cont’l. Cas. Co., 393 U.S. 145 (1968), requires that “arbitrators disclose to the parties any dealings that might create an impression of possible bias” [Id. at 149] and “where the arbitrator has a substantial interest in a firm which has done more than trivial business with a party, that fact must be disclosed” [Id. at 151-52]. In Monster Energy, the Ninth Circuit adopted the analysis that “the arbitrator’s undisclosed interest in an entity must be substantial, and that entity’s business dealings with a party to the arbitration must be nontrivial.” Id. at 1136. Here, Monster Energy had previously lodged 97 arbitrations with JAMS, a fact which by itself satisfied the Ninth Circuit of the substantial nature of the JAMS-Monster relationship. The principle holding of the Court is best captured in the following quote: “arbitrators must disclose their ownership interests, if any, in the arbitration organizations with whom they are affiliated in connection with the proposed arbitration, and those organizations’ nontrivial business dealings with the parties to the arbitration.” Id. at 1138.
The Ninth Circuit’s denial of Monster Energy’s petitions for panel rehearing and rehearing en banc renders the October 22, 2019 decision final and establishes the applicable law in this Circuit relating to the FAA’s “evident partiality” standard for vacatur. Unless Monster Energy seeks and the Supreme Court grants certiorari, which is purely discretionary, the Ninth Circuit’s decision will become final and will have serious implications for the future of for-profit arbitration service providers, requiring additional disclosures and additional steps to ensure an enforceable award.
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