Repeat Player Bias in Arbitration Questioned

A neutral’s failure to disclose substantial financial interests and business relationships before arbitrating a dispute could lead to vacatur in court. A federal court of appeals vacated an arbitrator’s award based on “evident partiality” because the neutral did not disclose his ownership interest in the arbitral body that conducted the arbitration or the entity’s non-trivial business dealings with a party involved in the arbitration. The court’s decision reflects a growing concern that parties who frequently appear before a particular ADR provider may benefit from a “repeat player bias.” The issue is getting national attention as the U.S. Supreme Court considers a petition for writ of certiorari seeking guidance on the “evident partiality standard.”

Monster v. City Beverages

City Beverages, LLC, d/b/a Olympic Eagle Distributing (City Beverages) contracted with Monster Energy Co. (Monster) to distribute energy drinks for Monster. After Monster terminated the agreement, the parties proceeded to arbitration through JAMS, the arbitration organization specified in the contract. City Beverages sought a determination that it was entitled to protection under Washington state law, which would render the termination improper.

Before arbitration, the arbitrator disclosed that each JAMS neutral has “an economic interest in the overall financial success of JAMS” and that the parties should assume that a JAMS neutral has administered an arbitration with a party to the arbitration. However, the arbitrator did not disclose that he was a co-owner of JAMS, nor did he disclose that JAMS had administered 97 arbitrations involving Monster within five years.