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Disclosure Obligations And Repeat Players – What’s An Arbitrator To Do?

November 7, 2019

The Ninth Circuit Court of Appeals recently ruled that a JAMS arbitrator had an obligation to disclose his ownership interest in JAMS, a privately-owned mediation and arbitration provider. The Court vacated that arbitrator’s award in Monster Energy Company v. City Beverages, LLC, Nos. 17-55813/17-56082 (9th Cir. Oct. 22, 2019). This ruling illustrates the importance of robust arbitrator disclosure upon appointment to counter the potential for perceived bias in the context of “repeat players” (i.e., parties who frequently arbitrate their disputes, often involving similar issues). It also raises some interesting challenges for arbitrators.

Monster Energy and JAMS

JAMS provides and administers dispute resolution services, and in that regard is similar to the American Arbitration Association and the AHLA Dispute Resolution Service. However, unlike AAA and AHLA, JAMS is a for-profit enterprise, owned by about one-third of the neutrals on its roster, including the arbitrator in Monster Energy. JAMS had administered 97 cases for Monster Energy over the previous five years. The arbitrator disclosed that he had personally arbitrated a case involving Monster Energy, and that the parties should assume his colleagues at JAMS had arbitrated cases involving Monster Energy. He did not specify the number of cases handled by JAMS – a fact apparently available online at the time.  He further disclosed that he had an interest in JAMS’s success generally, but did not disclose his ownership interest.

In vacating the arbitrator’s award for “evident partiality,” the Court focused on the linkage between the arbitrator’s undisclosed ownership status and the economic significance of Monster Energy as a repeat player. Although the “ownership” issue may only arise in cases administered by JAMS and other privately held companies, the concern about disclosure involving “repeat players” has broader implications.

Challenges for Arbitrators

Arbitrators with no financial interest in the operation of the appointing organization (e.g., AAA, AHLA) have no obligation to disclose that organization’s overall business with a repeat player. However, the appointment forms used by the AAA and AHLA require disclosure of any participation by an arbitrator candidate in previous cases involving one of the current parties. This is appropriate, but it raises some challenges.

  • The arbitrator must balance the need for disclosure in the current case against the confidentiality promised to the parties in the previous case(s). My practice in this situation is to disclose that I served as an arbitrator in a previous arbitration (or mediation) involving the current party, without identifying the other party in the previous case or the outcome.  
  • The perceived potential for bias associated with “repeat players” conflicts with the value offered by specialized neutrals having subject matter expertise. Repeat players are typically businesses that have many contract disputes in a specific field that can benefit from industry knowledge and experience.  A knee jerk aversion to selecting an arbitrator used by a repeat player limits the parties’ opportunity to enjoy one of arbitration’s key advantages. Besides, repeat players using the same arbitrator don’t always win, but they generally appreciate the value added by the arbitrator’s specialized knowledge. 
  • There is a tension between the arbitrator’s obligation to maintain the confidentiality of previous parties and the effort to dispel the perception that repeat players will be favored. One approach to this problem comes from AHLA DR Service Senior Director, Geoff Drucker.  Geoff has suggested amending the ethics rules to require arbitrator candidates to disclose more about their prior cases involving current parties, including the nature of the prior dispute and the prevailing party. The repeat player would then have the right to block this disclosure from being released, but would thereby disqualify the arbitrator candidate from that case.  

Conclusion

My view is that arbitrators exist to be neutral. If they cannot be neutral and demonstrate neutrality on a consistent basis, even when tempted by a repeat player’s future business, they should choose a different line of work. The marketplace will identify arbitrators who succumb to the temptation of pleasing repeat players. Subject to confidentiality obligations, an arbitrator should freely display his experience with the subject matter and various “repeat players” in a given field, and let the chips fall where they may.

(Photo by Leonardo Sanches on Unsplash)

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