Monster Energy Company v. City Beverages, LLC
940 F.3d 1130
| 9th Cir. | 2019Background:
- Monster Energy terminated a 20-year exclusive distribution agreement with City Beverages (doing business as Olympic Eagle); Olympic Eagle invoked Washington’s Franchise Investment Protection Act and the dispute went to arbitration under a JAMS clause.
- Parties selected a JAMS arbitrator (Ret. Judge John W. Kennedy Jr.) from a JAMS-provided list; the arbitrator’s disclosure stated a general “economic interest” in JAMS but did not disclose he was a JAMS co-owner.
- After a multiweek arbitration the arbitrator issued an award finding Olympic Eagle not protected by Washington law and awarded fees to Monster.
- Post-award, Olympic Eagle discovered the arbitrator’s ownership interest in JAMS and that JAMS had administered 97 arbitrations for Monster in the prior five years; Olympic Eagle moved to vacate the award for evident partiality.
- The district court confirmed the award and awarded post-arbitration fees to Monster; the Ninth Circuit reversed and vacated the award and the fee award, holding the nondisclosure created a reasonable impression of bias.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Waiver of evident-partiality challenge | Olympic Eagle: did not have constructive notice of ownership nondisclosure, so challenge not waived | Monster: Olympic Eagle knew of "economic interest" disclosure and should be charged with constructive notice | Olympic Eagle did not waive; constructive notice insufficient because ownership was not disclosed and not discoverable pre-arbitration |
| Arbitrator disclosure duties | Olympic Eagle: arbitrators must disclose ownership interests in arbitration firms and firms’ nontrivial dealings with parties | Monster: general economic-interest disclosure was sufficient; ownership detail unnecessary | Arbitrators must disclose ownership interests in the administering organization and that organization’s nontrivial prior business with a party |
| Evident partiality standard and application | Olympic Eagle: ownership + JAMS’s 97 Monster arbitrations reasonably create impression of bias | Monster: prior disclosures (economic interest; past arbitrations involving the arbitrator) sufficed; ownership would not change evaluation | Nondisclosure of co-ownership plus JAMS’s extensive work for Monster created reasonable impression of bias supporting vacatur |
| Remedy and fees | Olympic Eagle: vacatur of award and reversal of fee award | Monster: confirm award and retain fee award | Court vacated arbitration award and vacated district court’s post-arbitration fee award |
Key Cases Cited
- Commonwealth Coatings Corp. v. Cont'l Cas. Co., 393 U.S. 145 (1968) (arbitrator must disclose dealings that create impression of possible bias)
- New Regency Prods., Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101 (9th Cir. 2007) (failure to update disclosures can create a reasonable impression of partiality)
- Fidelity Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306 (9th Cir. 2004) (constructive-notice waiver analysis in evident-partiality claims)
- Schmitz v. Zilveti, 20 F.3d 1043 (9th Cir. 1994) (undisclosed substantial relationships between arbitrator’s firm and a party can require vacatur)
- Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634 (9th Cir. 2010) (attenuated or insubstantial past connections do not support vacatur)
- Caperton v. A.T. Massey Coal Co., 556 U.S. 868 (2009) (recusal standard: whether average judge in position is likely to be neutral)