In Monster Energy Co v. City Beverages (9th Cir. Oct. 22, 2019) (click here for a copy of the decision), the Ninth Circuit, in a 2-1 decision, held that an arbitrator’s award should be vacated for lack of proper disclosure of the arbitrator’s ownership interest in the arbitral organization.

According to footnote 2 of the opinion, about one-third of JAMS arbitrators serve as owners or shareholders of JAMS.  Suppose that a major company, Company X, has hundreds or thousands of form contracts listing JAMS as the arbitration provider. A JAMS arbitrator who hears a case involving Company X would receive fees for handling that particular case. However, if this arbitrator is also a co-owner of JAMS, the Ninth Circuit opinion points out that the arbitrator in effect double dips and can financially profit from all of JAMS arbitrations, including all the other arbitrations involving Company X. In other words, the arbitrator-owner has a financial interest in all of Company X’s arbitrations with JAMS, and there would appear to be a financial incentive to keep Company X pleased with JAMS so that Company X would continue to utilize JAMS as an arbitration provider.

In the case at hand, the arbitrator disclosed to the parties that “Each JAMS neutral, including me, has an economic interest in the overall financial success of JAMS.” This disclosure does not distinguish between owner-arbitrators and non-owner-arbitrators.  This disclosure failed to reveal the owner-arbitrator’s financial interest in all of JAMS cases and the fact that one of the parties in the case had a substantial business relationship with JAMS (sending almost one hundred cases to JAMS over the past 5 years.)

Ultimately, the Ninth Circuit held that the arbitrator’s award had to be vacated because of a reasonable impression of bias – the arbitrator failed to disclose his ownership interest in JAMS and JAMS had a non-trivial business relationship with one of the parties by hearing almost 100 cases over the last 10 years.

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