February 18, 2021 Practice Points

Monster Strikes Again

Much has been written in the literature about conflicts issues for arbitrators. Much less has been written, or even discussed, regarding the ethics responsibilities of arbitral institutions themselves.

By Mark Kantor

The Monster Energy Company (Monster Energy) v. City Beverages d/b/a Olympic Eagle Distributing (Olympic) dispute in the Ninth Circuit is familiar to just about everyone interested in alternative dispute resolution. The court of appeals famously vacated an award in an arbitration administered by JAMS on Federal Arbitration Act “evident partiality” grounds that the arbitrator, an equity holder in JAMS, had failed to disclose his equity interest and that Monster Energy had been involved in a number of prior arbitrations and mediations administered by JAMS. As you may know, JAMS is a for-profit organization, unlike not-for-profit arbitral institutions such as the American Arbitration Association, International Centre for Dispute Resolution, and others.

Following the Ninth Circuit's decision, JAMS filed two amicus briefs in the proceedings. The first sought a rehearing en banc of the Ninth Circuit's decision, and the second supported a petition for certiorari to the U.S. Supreme Court. The Ninth Circuit declined en banc review, and the Supreme Court denied the cert petition.

On remand, Olympic moved to have the renewed arbitration proceeding administered by any arbitral institution other than JAMS on the ground that JAMS, by submitting those amicus briefs, had “created reasonable doubt about its partiality by supporting [Monster Energy’s] efforts to reverse the Ninth Circuit’s ruling.” Olympic’s motion is therefore one of the few proceedings in which an arbitral institution’s impartiality, rather than an individual arbitrator’s impartiality, became an issue.

On February 17, 2021, the U.S. District Court for the Central District of California rejected Olympic’s motion to compel arbitration before another organization in an Order Re: Respondent’s Motion to Compel Arbitration in a Neutral Forum (Case No. 5:17-cv-00295-RGK-KK, February 17, 2021).

Olympic's argument turns on the assertion that JAMS has "created reasonable doubt about its partiality by supporting [Monster's] efforts to reverse the Ninth Circuit's ruling. **** But because the Court disagrees that JAMS's amicus briefs negate its ability to neutrally arbitrate Monster's and Olympic's case, it does not consider whether the arbitration agreement is unconscionable or whether it has authority under the [Federal Arbitration Act] to appoint a new arbitrator.

To reach this conclusion, the court looked at the amicus briefs filed by JAMS. It determined that neither brief “takes issue with Olympic’s and Monster’s underlying dispute. Instead,” wrote the district court, “JAMS opposes the Ninth Circuit’s new understanding of “evident partiality” and the retroactive effect of the new disclosure requirements.” For the court, it would therefore be “highly speculative” to argue that JAMS’ positions in its amicus briefs “would affect an individual JAMS arbitrator’s ability to neutrally consider Olympic’s and Monster’s dispute.”

There is thus no reason for the Court to take the drastic step of disqualifying every single JAMS arbitrator—even those who with no ownership interest in the company—before the parties have even attempted to arbitrate before JAMS. [Footnote omitted]

The judge pointed out in support of this conclusion that the JAMS procedures for selecting arbitrators offer “sufficient safeguards . . . to maintain an impartial forum.”

There are also sufficient safeguards in place to maintain an impartial forum. Especially since JAMS encourages the parties to select their own arbitrators before JAMS gets involved. (See JAMS Rule 15(b), ECF No. 87-6). Olympic is therefore free to try to select an arbitrator with no ownership interest in JAMS if it believes that would cause the arbitrator to be biased against Olympic.

Accordingly, the court compelled arbitration in a proceeding administered by JAMS.

For the foregoing reasons, the Court DENIES Olympic's Motion. The Court therefore orders Olympic and Monster, under their arbitration agreement, to arbitrate their dispute before JAMS.

Much has been written in the literature about conflicts issues for arbitrators. Much less has been written, or even discussed, regarding the ethics responsibilities of arbitral institutions themselves. This ruling is one of the few judicial determinations on the subject. It is noteworthy that the court’s order silently assumed that an arbitral institution’s impartiality may indeed be questioned in judicial proceedings; rather, the court simply and quickly concluded that nothing in the JAMS amicus briefs created a reasonable doubt about JAMS’ ability to neutrally arbitrate the dispute. The order made no effort to consider if, or how, an arbitral institution’s conflicts duties might differ from those of an arbitrator.

Given the active nature of this litigation, it is not unreasonable to expect that this order too will be appealed to the Ninth Circuit Court of Appeals. We may therefore continue to see the Monster Energy case create new arbitration, this time regarding the ethical responsibilities of an arbitral institution.

Mark Kantor is a member of the College of Commercial Arbitrators in Washington, D.C.


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