Monster Energy Company v. City Beverages, LLC

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MONSTER ENERGY COMPANY, FKA Nos. 17-55813

Hansen Beverage Company, 17-56082

Petitioner-Appellee,

D.C. No.

v. 5:17-cv-00295-

RGK-KK

CITY BEVERAGES, LLC, DBA

Olympic Eagle Distributing, OPINION

Respondent-Appellant.

Appeal from the United States District Court

for the Central District of California

R. Gary Klausner, District Judge, Presiding

Argued and Submitted July 12, 2019

Pasadena, California

Filed October 22, 2019

Before: MILAN D. SMITH, JR. and MICHELLE T.

FRIEDLAND, Circuit Judges, and MICHAEL H. SIMON, *

District Judge.

Opinion by Judge Milan D. Smith, Jr.;

Dissent by Judge Friedland

*

The Honorable Michael H. Simon, United States District Judge for

the District of Oregon, sitting by designation.

2 MONSTER ENERGY V. CITY BEVERAGES

SUMMARY **

Arbitration

The panel reversed the district court, vacated a final

arbitration award between Monster Energy Co. and City

Beverages LLC, doing business as Olympic Eagle

Distributing, and vacated the district court’s award of post-

arbitration fees to Monster Energy Co. for its petition to

confirm the award.

After Monster exercised its contractual right to terminate

a distribution agreement, the parties proceeded to arbitration

to determine whether Olympic Eagle was entitled to

protection under Washington law, and thus whether Monster

had improperly terminated the agreement without good

cause. The parties chose an arbitrator from a list of several

neutrals provided by JAMS, the arbitration organization

specified in the agreement. At the outset of arbitration, the

arbitrator provided a series of disclosure statements and in

the final arbitration award, determined that Olympic Eagle

did not qualify for protection under Washington law.

Olympic Eagle sought to vacate the award based on later-

discovered information that the arbitrator was a co-owner of

JAMS—a fact that he did not disclose prior to arbitration.

The panel first rejected the claim that Olympic Eagle

waived its evident partiality claim because it failed to timely

object when it first learned of potential bias on the part of the

arbitrator. The panel held that because Olympic Eagle did

**

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

MONSTER ENERGY V. CITY BEVERAGES 3

not have constructive notice of the arbitrator’s potential non-

neutrality, it did not waive its evident partiality claim.

The panel held that before an arbitrator is officially

engaged to perform an arbitration, to ensure that the parties’

acceptance of the arbitrator is informed, arbitrators must

disclose their ownership interests, if any, in the arbitration

organizations with whom they are affiliated in connection

with the proposed arbitration, and those organizations’

nontrivial business dealings with the parties to the

arbitration. In this case, the arbitrator’s failure to disclose

his ownership interest in JAMS, coupled with the fact that

JAMS has administered 97 arbitrations for Monster over the

past five years, created a reasonable impression of bias and

supported vacatur of the arbitration award. Because the

panel vacated the arbitration award, the panel also vacated

the district court’s award of post-arbitration fees to Monster.

Dissenting, Judge Friedland disagreed that, in an

evaluation of whether the arbitrator might favor Monster, the

additional information the majority believed should have

been disclosed would have made any material difference.

She would therefore reject Olympic Eagle’s effort to vacate

the arbitration award in Monster’s favor.

COUNSEL

Michael K. Vaska (argued), Rylan L.S. Weythman, and

Devra R. Cohen, Foster Pepper PLLC, Seattle, Washington;

Jonathan Solish and David A. Harford, Bryan Cave LLP,

Irvine, California; for Respondent-Appellant.

4 MONSTER ENERGY V. CITY BEVERAGES

Tanya M. Schierling (argued), Norman L. Smith, and Daniel

E. Gardenswartz, Solomon Ward Seidenwurm & Smith

LLP, San Diego, California, for Petitioner-Appellee.

Michael D. Madigan and Brandt F. Erwin, Madigan Dahl &

Harlan P.A., Minneapolis, Minnesota, for Amicus Curiae

National Beer Wholesalers Association.

OPINION

M. SMITH, Circuit Judge:

City Beverages, LLC, doing business as Olympic Eagle

Distributing (Olympic Eagle), and Monster Energy Co.

(Monster) signed an agreement providing exclusive

distribution rights for Monster’s products to Olympic Eagle

for a fixed term in a specified territory. After Monster

exercised its contractual right to terminate the agreement, the

parties proceeded to arbitration to determine whether

Olympic Eagle was entitled to protection under Washington

law, and thus whether Monster had improperly terminated

the agreement without good cause. From a list of several

neutrals provided by JAMS, the arbitration organization

specified in the agreement, the parties chose the Honorable

John W. Kennedy, Jr. (Ret.) (the Arbitrator). At the outset

of arbitration, the Arbitrator provided a series of disclosure

statements. In the final arbitration award (the Award), the

Arbitrator determined that Olympic Eagle did not qualify for

protection under Washington law.

The parties filed cross-petitions in the district court, with

Monster seeking to confirm the Award and Olympic Eagle

moving to vacate it. The district court ultimately confirmed

the Award.

MONSTER ENERGY V. CITY BEVERAGES 5

We conclude, given the Arbitrator’s failure to disclose

his ownership interest in JAMS, coupled with the fact that

JAMS has administered 97 arbitrations for Monster over the

past five years, that vacatur of the Award is necessary on the

ground of evident partiality. We therefore reverse the

district court and vacate the Award. We also vacate the

district court’s award of post-arbitration fees to Monster for

its petition to confirm the Award.

FACTUAL AND PROCEDURAL BACKGROUND

I. Factual Background

In 2006, Olympic Eagle, an Anheuser-Busch (AB)

distributor, agreed to promote and sell Monster energy

drinks for twenty years in an exclusive territory. The

contract permitted Monster to terminate the agreement

without cause upon payment of a severance fee. Eight years

later, Monster exercised its termination right and offered to

pay Olympic Eagle the contractual severance of

$2.5 million.

In response, Olympic Eagle invoked Washington’s

Franchise Investment Protection Act (FIPA), which

prohibits termination of a franchise contract absent good

cause. See Wash. Rev. Code § 19.100.180(2)(j). Monster

served an arbitration demand on Olympic Eagle and filed an

action in the district court seeking to compel arbitration. The

district court ruled in favor of Monster and compelled

arbitration before JAMS Orange County, as specified by

Monster in its form agreement with the AB distributors.

JAMS provided a list of seven neutrals to conduct the

arbitration, and the parties chose the Arbitrator. The

Arbitrator’s multi-page disclosure statement, provided to the

6 MONSTER ENERGY V. CITY BEVERAGES

parties at the commencement of arbitration, contained the

following provision:

I practice in association with JAMS. Each

JAMS neutral, including me, has an

economic interest in the overall financial

success of JAMS. In addition, because of the

nature and size of JAMS, the parties should

assume that one or more of the other neutrals

who practice with JAMS has participated in

an arbitration, mediation or other dispute

resolution proceeding with the parties,

counsel or insurers in this case and may do so

in the future.

II. Procedural Background

Following two weeks of hearings, the Arbitrator issued

an interim award, finding that Olympic Eagle was not

entitled to protection under FIPA. Two months later, the

Arbitrator awarded Monster attorneys’ fees (together with

the interim award, the Award).

Thereafter, Monster filed a petition in the district court

to confirm the Award, and Olympic Eagle cross-petitioned

for its vacatur. Olympic Eagle sought to vacate the Award

based on later-discovered information that the Arbitrator

was a co-owner of JAMS—a fact that he did not disclose

prior to arbitration. Olympic Eagle also requested

information from JAMS regarding the Arbitrator’s financial

interest in JAMS, and Monster’s relationship with JAMS.

When JAMS refused to divulge this information, Olympic

Eagle served JAMS with a subpoena. In the face of further

resistance, Olympic Eagle later moved to compel JAMS’s

response to the subpoena.

MONSTER ENERGY V. CITY BEVERAGES 7

Ultimately, the district court confirmed the Award,

denying Olympic Eagle’s cross-petition and finding its

motion to compel moot. The district court then awarded

Monster attorneys’ fees from both the arbitration and the

post-arbitration proceedings. Judgment was entered, and

Olympic Eagle timely appealed.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over this appeal pursuant to

9 U.S.C. § 16 and 28 U.S.C. § 1291, and we review de novo

the district court’s confirmation of an arbitration award.

New Regency Prods., Inc. v. Nippon Herald Films, Inc.,

501 F.3d 1101, 1105 (9th Cir. 2007).

ANALYSIS

The Federal Arbitration Act permits a court to vacate an

arbitration award “where there was evident partiality . . . in

the arbitrators.” 9 U.S.C. § 10(a)(2). 1 Olympic Eagle seeks

vacatur of the Award based on the Arbitrator’s failure to

fully disclose his ownership interest in JAMS. Monster

contends that the district court correctly found Olympic

Eagle’s argument waived, and, alternatively, that the

Arbitrator’s disclosures were sufficient. We first consider

1

Our dissenting colleague makes much of the fact that persons who

litigate their claims in arbitration have voluntarily given up the extensive

protections afforded to parties by the conflict of interest statutes and rules

governing federal judges. However, she fails to similarly credit the fact

that federal law also provides some comparable protections to parties in

arbitration by also permitting courts to vacate arbitration awards when

there is “evident partiality . . . in the arbitrators.” 9 U.S.C. § 10(a)(2);

see infra Section II.

8 MONSTER ENERGY V. CITY BEVERAGES

whether Olympic Eagle waived its evident partiality claim,

and, finding that it did not, then turn to the merits.

I. Waiver

The district court held, and Monster continues to argue,

that Olympic Eagle waived its evident partiality claim

because it failed to timely object when it first learned of

potential “repeat player” bias and the Arbitrator disclosed his

economic interest in JAMS.

In Fidelity Federal Bank, FSB v. Durga Ma Corp.

(Fidelity), we joined several of our sister circuits that utilize

a constructive knowledge standard when considering

whether a party has waived an evident partiality claim.

386 F.3d 1306, 1313 (9th Cir. 2004). There, we held that the

disgruntled party was on notice that the challenged arbitrator

may have been non-neutral given the process the parties

employed to pick their arbitration panel: each party picked

one arbitrator and the arbitrators picked the third. Id.

Moreover, the party had failed to request disclosures from

the arbitrator or object to the lack of disclosures. Id. Given

these facts, we concluded that the party had waived its

partiality objection. Id.

Our post-Fidelity waiver cases involved less

complicated factual scenarios than the case before us. See

Johnson v. Gruma Corp., 614 F.3d 1062, 1069 (9th Cir.

2010) (finding waiver where the party knew for at least “a

year or two” of the prior professional relationship between

the arbitrator and opposing counsel’s spouse before the

arbitrator ruled); Metalmark Nw., LLC v. Stewart, No. 06-

35321, 2008 WL 11442024, at *1 (9th Cir. May 6, 2008)

(finding no waiver because the arbitrator failed to disclose

conflicts and neither party had selected the arbitrator).

Unlike these prior cases, the situation here is more akin to a

MONSTER ENERGY V. CITY BEVERAGES 9

partial disclosure—the Arbitrator disclosed his “economic

interest” in JAMS prior to arbitration, but Olympic Eagle did

not know it was an ownership interest. Although the district

court correctly noted that an ownership interest is “merely a

type of economic interest,” the key issue is whether Olympic

Eagle had constructive notice of the Arbitrator’s potential

non-neutrality.

We find that Olympic Eagle lacked the requisite

constructive notice for waiver. To be sure, it knew that the

Arbitrator had some sort of “economic interest” in JAMS.

But the Arbitrator expressly likened his interest in JAMS to

that of “each JAMS neutral,” who has an interest in the

“overall financial success of JAMS.” The Arbitrator also

disclosed his previous arbitration activities that directly

involved Monster, in which he ruled against the company.

In context, these disclosures implied only that the Arbitrator,

like any other JAMS arbitrator or employee, had a general

interest in JAMS’s reputation and economic wellbeing, and

that his sole financial interest was in the arbitrations that he

himself conducted. Thus, even if the number of disputes that

Monster sent to JAMS was publicly available, that

information alone would not have revealed that this specific

Arbitrator was potentially non-neutral based on the totality

of JAMS’s Monster-related business.

The crucial fact—the Arbitrator’s ownership interest—

was not unearthed through public sources, and it is not

evident that Olympic Eagle could have discovered this

information prior to arbitration. In fact, JAMS repeatedly

stymied Olympic Eagle’s efforts to obtain details about

JAMS’ ownership structure and the Arbitrator’s interest

post-arbitration. Accordingly, Olympic Eagle did not have

constructive notice of the Arbitrator’s ownership interest in

JAMS—the key fact that triggered the specter of partiality.

10 MONSTER ENERGY V. CITY BEVERAGES

Furthermore, we have repeatedly emphasized an

arbitrator’s duty to investigate and disclose potential

conflicts. See, e.g., New Regency, 501 F.3d at 1110–11

(holding that the arbitrator’s new employment triggered duty

to investigate possible conflicts). The Arbitrator

undoubtedly knew of his ownership interest in JAMS prior

to arbitration yet failed to disclose it. To find waiver in this

circumstance would “‘put a premium on concealment’ in a

context where the Supreme Court has long required full

disclosure.” Tenaska Energy, Inc. v. Ponderosa Pina

Energy, LLC, 437 S.W. 3d 518, 528 (Tex. 2014) (quoting

Middlesex Mut. Ins. Co. v. Levine, 675 F.2d 1197, 1204

(11th Cir. 1982)). Thus, we hold that Olympic Eagle did not

have constructive notice of the Arbitrator’s potential non-

neutrality, and therefore did not waive its evident partiality

claim.

II. Evident Partiality

The Supreme Court has held that vacatur of an

arbitration award is supported where the arbitrator fails to

“disclose to the parties any dealings that might create an

impression of possible bias.” Commonwealth Coatings

Corp. v. Cont’l Cas. Co., 393 U.S. 145, 149 (1968). In a

concurrence, Justice White noted that when an arbitrator has

a “substantial interest in a firm which has done more than

trivial business with a party, that fact must be disclosed,” id.

at 151–52 (White, J., concurring)—a formulation of the rule

that we have adopted. See, e.g., New Regency, 501 F.3d at

1107. By contrast, we have observed that “long past,

attenuated, or insubstantial connections between a party and

an arbitrator” do not support vacatur based on evident

partiality. Id. at 1110; see also Lagstein v. Certain

Underwriters at Lloyd’s, London, 607 F.3d 634, 646 (9th

Cir. 2010) (finding no evident partiality where the

MONSTER ENERGY V. CITY BEVERAGES 11

arbitrator’s alleged ethical misconduct “occurred more than

a decade before th[e] arbitration and concerned neither of the

parties to the case”).

In New Regency, we considered an arbitrator’s failure to

disclose his new employment as an executive at a film group

that was negotiating with one of the party’s executives for

the development of a movie. 501 F.3d at 1107, 1111. Prior

to the arbitration, the arbitrator disclosed only that he had

“negotiated deals” with that same party’s leadership, but

failed to update his disclosures once the new employment

began. Id. at 1106. Because the film deal was “real and

nontrivial,” we found a “reasonable impression of partiality

[] sufficient to support vacatur.” Id. at 1110–11. Similarly,

in Schmitz v. Zilveti, we vacated an arbitration award for

evident partiality where the arbitrator’s law firm had

represented the parent company of one party in “at least

nineteen cases during a period of 35 years.” 20 F.3d 1043,

1044 (9th Cir. 1994). Thus, under our case law, to support

vacatur of an arbitration award, the arbitrator’s undisclosed

interest in an entity must be substantial, and that entity’s

business dealings with a party to the arbitration must be

nontrivial.

Here, the Arbitrator submitted a disclosure statement in

accordance with JAMS’s rules. He disclosed that within the

past five years he had served as a neutral arbitrator for one

of the parties, firms, or lawyers in the present arbitration; that

within the past two years he or JAMS had been contacted by

a party or an attorney regarding prospective employment;

and that he “practice[s] in association with JAMS. Each

JAMS neutral, including me, has an economic interest in the

overall financial success of JAMS.” The Arbitrator also

disclosed that he arbitrated a separate dispute between

Monster and a distributor, resulting in an award against

12 MONSTER ENERGY V. CITY BEVERAGES

Monster of almost $400,000. He did not, however, disclose

his ownership interest in JAMS and JAMS’s substantial

business relationship with Monster.

Our inquiry is thus two-fold: we must determine

(1) whether the Arbitrator’s ownership interest in JAMS was

sufficiently substantial, and (2) whether JAMS and Monster

were engaged in nontrivial business dealings. If the answer

to both questions is affirmative, then the relationship

required disclosure, and supports vacatur.

First, as a co-owner of JAMS, the Arbitrator has a right

to a portion of profits from all of its arbitrations, not just

those that he personally conducts. This ownership interest—

which greatly exceeds the general economic interest that all

JAMS neutrals 2 naturally have in the organization—is

therefore substantial. Second, Monster’s form contracts

contain an arbitration provision that designates JAMS

Orange County as its arbitrator. As a result, over the past

five years, JAMS has administered 97 arbitrations for

Monster: an average rate of more than one arbitration per

month. Such a rate of business dealing is hardly trivial,

regardless of the exact profit-share that the Arbitrator

obtained. 3 In sum, these facts demonstrate that the

2

Indeed, only about one-third of JAMS neutrals are owner-

shareholders.

3

Although the record does not reveal the Arbitrator’s specific

monetary interest in Monster-related arbitrations, we do not require such

empirical evidence to conduct the triviality inquiry. See New Regency,

501 F.3d at 1111 (finding that a “high-profile” project was not

unimportant, even though “the record [did] not allow us to place a dollar

value” on it); Schmitz, 20 F.3d at 1044, 1048 (finding generally that an

arbitrator’s firm’s representation on nineteen cases in 35 years resulted

in impression of impartiality).

MONSTER ENERGY V. CITY BEVERAGES 13

Arbitrator had a “substantial interest in [JAMS,] which has

done more than trivial business with [Monster]”—facts that

create an impression of bias, should have been disclosed, and

therefore support vacatur. Commonwealth Coatings,

393 U.S. at 151–52 (White, J., concurring).

We acknowledge that previous cases did not address an

arbitrator’s interest in his own arbitration service.

Nonetheless, the Court did not distinguish between an

arbitrator’s organization and other entities, nor do we see any

reason to insulate arbitration services from the principles that

the Court articulated Commonwealth Coatings.

Some states within our circuit have already legislated

extensive requirements for neutral arbitrators to ensure full

disclosure. In California, for example, arbitrators are

required to disclose “all matters that could cause a person

aware of the facts to reasonably entertain a doubt that the

proposed neutral arbitrator would be impartial,” including

the “existence of any ground specified in [Cal. Civ. Proc.

Code § 170.1] for disqualification of a judge.” Cal. Civ.

Proc. Code § 1281.9(a). Similarly, Montana requires

arbitrators to disclose “all matters that could cause a person

aware of the facts underlying a potential conflict of interest

to have a reasonable doubt that the person would be able to

act as a neutral or impartial arbitrator,” including any ground

for the disqualification of a judge. Mont. Code Ann. §§ 27-

5-116(3)–(4).

In addition, under the Revised Uniform Arbitration Act

(the RUAA), which has been adopted by several states in our

circuit, an arbitrator must disclose “any known facts that a

reasonable person would consider likely to affect the

impartiality of the arbitrator,” including a financial interest

in the outcome of the proceeding. See, e.g., Or. Rev. Stat.

Ann. § 36.650(1)(1). The RUAA also establishes a

14 MONSTER ENERGY V. CITY BEVERAGES

presumption of evident partiality when the arbitrator does

not disclose a “known, direct and material interest in the

outcome of the arbitration proceeding or a known, existing

and substantial relationship with a party . . . .” See, e.g.,

Ariz. Rev. Stat. Ann. § 12-3012(E).

In the states that have enacted the referenced measures,

arbitrators currently operate under disclosure rules akin to,

or more burdensome than, the easily satisfied obligations we

set forth here. Fundamentally, these disclosure requirements

safeguard the parties’ right to be aware of the relevant

information to assess the arbitrator’s neutrality.

We note that although judges are bound by somewhat

different rules than arbitrators, judges are clearly not

immune from recusal requirements when our neutrality

might be reasonably questioned. See, e.g., Caperton v. A.T.

Massey Coal Co., 556 U.S. 868, 881 (2009) (“The Court

asks not whether the judge is actually, subjectively biased,

but whether the average judge in his position is ‘likely’ to be

neutral, or whether there is an unconstitutional ‘potential for

bias.’”); Tumey v. Ohio, 273 U.S. 510, 523 (1927) (holding

that the Due Process Clause requires recusal when a judge

has a “direct, personal, substantial pecuniary interest” in a

case). Unlike the standards governing judges, however, our

ruling in this case does not require automatic disqualification

or recusal—only disclosure prior to conducting an

arbitration concerning (1) the arbitrator’s ownership interest,

if any, in the entity under whose auspices the arbitration is

conducted, and (2) whether the entity under whose auspices

the arbitration is conducted and one or more of the parties

were previously engaged in nontrivial business dealings.

Once armed with that information, and the answers to any

other inquiries the parties may wish to pose as a result of

knowing that information, the parties can make their own

MONSTER ENERGY V. CITY BEVERAGES 15

informed decisions about whether a particular arbitrator is

likely to be neutral. It is simplicity itself, and no real burden,

for an arbitrator to disclose his or her ownership interest in

an arbitration company for which he or she works, as well as

the organization’s prior dealings with the parties to the

arbitration.

Although this litigation involved two sophisticated

companies, the proliferation of arbitration clauses in

everyday life—including in employment-related disputes,

consumer transactions, housing issues, and beyond—means

that arbitration will often take place between unequal parties.

See Katherine Van Wezel Stone, Rustic Justice: Community

and Coercion Under the Federal Arbitration Act, 77 N.C. L.

Rev. 931, 934 (1999); see also Aspic Eng’g & Constr. Co. v.

ECC Centcom Constructors, LLC, 913 F.3d 1162, 1169 (9th

Cir. 2019) (noting, “We have become an arbitration

nation.”). Clear disclosures by arbitrators aid parties in

making informed decisions among potential neutrals. These

disclosures are particularly important for one-off parties

facing “repeat players.” See Lisa B. Bingham, Employment

Arbitration: The Repeat Player Effect, 1 Emp. Rts. & Emp.

Pol’y J. 189, 209–17 (1997) (finding that employees

disproportionately failed to recover damages against repeat-

player employers compared to non-repeat-player

employers).

Ultimately, we agree with Justice White:

The arbitration process functions best when

an amicable and trusting atmosphere is

preserved and there is voluntary compliance

with the decree, without need for judicial

enforcement. This end is best served by

establishing an atmosphere of frankness at

the outset, through disclosure by the

16 MONSTER ENERGY V. CITY BEVERAGES

arbitrator of any financial transactions which

he has had or is negotiating with either of the

parties. . . . The judiciary should minimize

its role in arbitration as judge of the

arbitrator’s impartiality. That role is best

consigned to the parties, who are the

architects of their own arbitration process,

and are far better informed of the prevailing

ethical standards and reputations within their

business.

Commonwealth Coatings, 393 U.S. at 151 (White, J.,

concurring).

In accordance with the interest of finality, judicial review

of arbitration awards is often unexacting. However, the

Supreme Court has nonetheless clearly endorsed the judicial

enforcement of an arbitrators’ duty to disclose. Placing the

onus on arbitrators to disclose their ownership interests in

their arbitration organizations, and their organizations’

nontrivial business dealings with the parties to the

arbitration, is consistent with both the principles of

Commonwealth Coatings and our court’s precedents.

Although our dissenting colleague raises concerns about

the finality of recent arbitral judgments in light of our ruling

in this case, she correctly notes that the applicable statute of

limitations to vacate an arbitration award, which is only three

months, will limit the impact of our ruling on recently

decided arbitrations. 9 U.S.C. § 12; Stevens v. Jiffy Lube

Int’l, Inc., 911 F.3d 1249, 1251–52 (9th Cir. 2018).

Prospectively, arbitration organizations like JAMS, which

are already well-accustomed to extensive conflicts checks

and disclosures, will have no difficulty fulfilling, and even

exceeding, the requirements described here.

MONSTER ENERGY V. CITY BEVERAGES 17

CONCLUSION

As the Commonwealth Coatings Court stated, “We can

perceive no way in which the effectiveness of the arbitration

process will be hampered by the simple requirement that

arbitrators disclose to the parties any dealings that might

create an impression of possible bias.” 393 U.S. at 149. We

thus hold that before an arbitrator is officially engaged to

perform an arbitration, to ensure that the parties’ acceptance

of the arbitrator is informed, arbitrators must disclose their

ownership interests, if any, in the arbitration organizations

with whom they are affiliated in connection with the

proposed arbitration, and those organizations’ nontrivial

business dealings with the parties to the arbitration.

Here, the Arbitrator’s failure to disclose his ownership

interest in JAMS—given its nontrivial business relations

with Monster—creates a reasonable impression of bias and

supports vacatur of the arbitration award. Because we vacate

the arbitration award, we also vacate the district court’s

award of post-arbitration fees to Monster. 4

REVERSED and VACATED.

4

We further deny Olympic Eagle’s request to take judicial notice

and grant Monster’s request to take judicial notice. We deny the amicus

motions filed by the Legal Academics and Eric Kripke. We find moot

the amicus motion filed by Warner Bros. We grant the amicus motion

filed by the National Beer Wholesalers Association, finding it relevant

and useful. See Fed. R. App. P. 29(a)(3)(B).

18 MONSTER ENERGY V. CITY BEVERAGES

FRIEDLAND, Circuit Judge, dissenting:

The majority vacates the arbitration award for “evident

partiality” because the Arbitrator failed to disclose that he

had an ownership interest in JAMS. In the majority’s view,

this undisclosed fact was necessary for the parties’ informed

selection of this Arbitrator because it creates an impression

that differs meaningfully from that created by the facts the

Arbitrator did disclose: (1) that he had a financial interest in

JAMS’s success generally, and (2) that Monster was a repeat

customer of JAMS. I disagree that, in an evaluation of

whether the Arbitrator might favor Monster, the additional

information the majority believes should have been

disclosed would have made any material difference. I would

therefore reject Olympic Eagle’s effort to vacate the

arbitration award in Monster’s favor.

I.

The Framers of our Constitution built protections against

judicial partiality into Article III. Federal judges have life

tenure and may not have their salaries diminished while in

office. U.S. Const. art. III, § 1. As federal employees,

federal judges receive their salaries from the government,

not from the parties who appear before them. These

structural protections are designed to help ensure that federal

judges will decide cases based on the law and the facts, not

out of concern about remaining popular enough to be

selected to decide the next case or to receive the next

paycheck. See The Federalist No. 78, at 465 (Alexander

Hamilton) (Clinton Rossiter ed., 1961) (explaining that

Article III’s provision of life tenure is meant “to secure a

steady, upright, and impartial administration of the laws”).

When parties like those here, who could have their

disputes resolved in federal court, instead have entered into

MONSTER ENERGY V. CITY BEVERAGES 19

a contract that requires resolving any disputes in private

arbitration (whether the arbitration term was desired by both

parties or not), they have given up those Article III

protections. See Merit Ins. Co. v. Leatherby Ins. Co.,

714 F.2d 673, 679 (7th Cir. 1983) (explaining that parties to

a commercial arbitration have “cho[sen] their method of

dispute resolution, and can ask no more impartiality than

inheres in the method they have chosen”). By nature of the

fact that arbitrators are hired and paid by the parties for

whom they conduct private arbitrations, arbitrators have an

economic stake in cultivating repeat customers for their

services. In addition, arbitrators affiliated with an arbitration

firm have an interest in not causing the firm to lose its top

clients. At least to some extent, this means arbitrators have

incentives to make decisions that are viewed favorably by

parties who frequently engage in arbitrations. 1 This feature

of private arbitration, even if distressing, is an inevitable

result of the structure of the industry.

In this case, the Arbitrator disclosed that he had a

financial interest in JAMS’s success. He further disclosed

that he had personally conducted one arbitration in which

Monster was a party and had been selected to decide another

case involving Monster and a different distributor. And he

made clear that “the parties should assume that one or more

of the other neutrals who practice with JAMS has

participated in [a] . . . dispute resolution proceeding with the

parties . . . in this case and may do so in the future.” Olympic

Eagle also knew that Monster used a form contract with its

hundreds of distributors requiring that disputes be resolved

1

Individual arbitrators may be able to put these incentives out of

their minds and make impartial decisions, but the incentives exist

nonetheless.

20 MONSTER ENERGY V. CITY BEVERAGES

through arbitration before JAMS—and therefore had even

more reason to know that Monster had likely hired other

JAMS arbitrators or at least had the potential to do so in the

future. 2 Indeed, the parties had litigated about the form

contract, and the district court had held that Olympic Eagle

had validly agreed to its terms, a ruling Olympic Eagle has

not appealed. And before the arbitration began, Olympic

Eagle could easily have accessed an online record showing

that JAMS had conducted dozens of arbitrations between

Monster and its consumers. 3 See Consumer Case

Information, JAMS, https://www.jamsadr.com/consumerca

ses/ (last visited Oct. 11, 2019); see also Cal. Code Civ. Proc.

§ 1281.96 (requiring arbitration companies to disclose

information about their consumer arbitrations).

This was more than enough information to allow

Olympic Eagle to consider whether the Arbitrator might

2

It is unclear the extent to which a JAMS arbitrator would have had

a similarly strong incentive to please Olympic Eagle, itself a large

beverage distribution company. There appears to be nothing in the

record that indicates whether Olympic Eagle was a repeat customer of

JAMS or how frequently it engages in arbitrations. But it is possible that

a JAMS arbitrator would have had an incentive to please the lawyers

representing Olympic Eagle, given that lawyers often help their clients

choose arbitrators. According to a court filing submitted by Monster, an

international law firm that helped represent Olympic Eagle in this

dispute with Monster had represented parties in at least twenty-three

other cases involving arbitration with JAMS.

3

As of August 27, 2015—when JAMS sent Monster and Olympic

Eagle a list of potential arbitrators—JAMS had disclosed on its website

at least eighty-one arbitrations involving Monster. Consumer Case

Information, JAMS, https://web.archive.org/web/20150506072558/

http://www.jamsadr.com/files/Uploads/Documents/JAMS-Consumer-

Case-Information.xlsx (May 6, 2015) (accessed by searching for

“http://www.jamsadr.com/files/Uploads/Documents/JAMS-Consumer-

Case-Information.xlsx” in the Internet Archive Wayback Machine).

MONSTER ENERGY V. CITY BEVERAGES 21

have had an incentive to try to please Monster and thereby

keep its repeat arbitration business. The majority reasons,

however, that the Arbitrator’s interest as a JAMS owner

should have been specifically disclosed because it “greatly

exceeds the general economic interest that all JAMS neutrals

naturally have in the organization.” Maj. Op. at 12. I do not

see how this information would have made a material

difference in Olympic Eagle’s evaluation of the Arbitrator.

Owners of JAMS have an interest in maximizing JAMS’s

amount of business, because they share in JAMS’s profits.

Likewise, non-owner arbitrators have an interest in

advancing their professional careers and maintaining their

status with JAMS, which creates similar incentives to decide

cases in a way that is acceptable to repeat player

customers—otherwise, JAMS might terminate the non-

owner’s JAMS affiliation.

Notably, by the time the Arbitrator was being selected,

Olympic Eagle had committed to resolving any dispute with

Monster through arbitration at JAMS. This necessarily

meant that Olympic Eagle agreed the arbitration would be

conducted by a JAMS arbitrator, whether that arbitrator was

an owner of JAMS or a non-owner of JAMS. Because both

types of arbitrators would have at least some incentive to

keep repeat customers of JAMS such as Monster happy, it is

unclear why knowing the details of the financial relationship

between any specific potential arbitrator and JAMS would

make a material difference to whether that arbitrator was

accepted by Olympic Eagle. 4 That an arbitrator has an

4

The majority also highlights that the Arbitrator failed to disclose

more concrete information about Monster’s past use of JAMS. Maj. Op.

at 12. To the extent the majority believes this nondisclosure further

supports vacating the arbitration award, compare Maj. Op. at 12 (noting

the Arbitrator did not disclose “JAMS’s substantial business relationship

22 MONSTER ENERGY V. CITY BEVERAGES

ownership interest in the arbitration firm, not just a financial

interest in that firm more generally, is hardly the sort of

“real” and “not trivial” undisclosed conflict that our court

has held requires vacatur. See New Regency Prods., Inc. v.

Nippon Herald Films, Inc., 501 F.3d 1101, 1110 (9th Cir.

2007) (quotation marks omitted).

The majority also leaves unclear how detailed an

arbitrator’s disclosures must be. Is it enough to reveal the

fact that the arbitrator is an owner, or must the arbitrator

disclose information such as how large the ownership

interest is? Is it necessary to disclose the arbitration firm’s

total profits from the prior year—or maybe each year in the

prior decade—so parties may assess, for example, whether

the business of the party in question is significant overall?

And how many prior arbitrations must a corporation have

engaged in with an arbitration firm for there to be “nontrivial

business dealings,” Maj. Op. at 14, that require disclosure? 5

with Monster”), with Maj. Op. at 17 (emphasizing “the Arbitrator’s

failure to disclose his ownership interest in JAMS,” and the existence of

JAMS’s “nontrivial business relations with Monster,” but not

mentioning the Arbitrator’s nondisclosure of those “business relations”),

I disagree. Given that owners and non-owners have similar incentives to

favor repeat players, the extent of a repeat player’s relationship with the

firm as a whole—which would not vary from arbitrator to arbitrator—

would be of little help in deciding whether to choose any particular

arbitrator. And even if the Arbitrator did not disclose precise details, he

did disclose that Monster was a repeat customer.

5

The majority indicates that generally, if an arbitrator has an

ownership interest in his firm, and his firm has significant prior dealings

with a party, both pieces of information must be disclosed. It is unclear,

however, whether the majority’s approach requires an arbitrator to

disclose significant prior dealings even if he has no ownership interest,

and vice-versa. Compare Maj. Op. at 17 (stating that “arbitrators must

disclose their ownership interests, if any” and their firm’s “nontrivial

MONSTER ENERGY V. CITY BEVERAGES 23

Does the fee paid for each of these prior arbitrations need to

exceed any threshold to trigger disclosure? And, because

lawyers often choose or help choose arbitrators, giving

arbitrators an incentive to please lawyers who bring clients

to arbitrations, must prior arbitrations with the lawyers or

law firms representing the parties also be disclosed?

As these lingering questions demonstrate, ruling for

Olympic Eagle is likely to generate endless litigation over

arbitrations that were intended to finally resolve disputes

outside the court system. Nothing in existing caselaw forces

this error. Olympic Eagle has not pointed us to a single

reported federal decision holding that an undisclosed

potential source of bias stemming from the structure of the

private arbitration industry itself warrants vacating an

arbitration award. The majority acknowledges as much by

conceding that there are no prior cases directly on point.

Rather, the precedent binding us that vacated arbitration

awards because of a failure to disclose information involved

an arbitrator who had a relationship with one of the

arbitrating parties that was totally unrelated to prior

arbitrations. See Commonwealth Coatings Corp. v. Cont’l

Cas. Co., 393 U.S. 145, 146, 149–50 (1968) (arbitrator failed

to disclose that he had occasionally served as an engineering

consultant for one of the parties over several years); New

Regency Prods., 501 F.3d at 1107–11 (arbitrator failed to

disclose his employment with a company negotiating a film

deal with one of the parties to the arbitration); Schmitz v.

Zilveti, 20 F.3d 1043, 1044, 1048–50 (9th Cir. 1994)

(arbitrator failed to disclose that his law firm represented in

at least nineteen matters a parent company of one of the

business dealings with the parties to the arbitration” (emphasis added)),

with Maj. Op. at 12 (suggesting that disclosure is only required if there

is both an ownership interest and substantial business dealings).

24 MONSTER ENERGY V. CITY BEVERAGES

parties to the arbitration). There is no reason the parties

would know about the potential partiality arising from such

a relationship unless the arbitrator disclosed the relationship.

By contrast, the potential partiality that stems from the very

structure of private arbitration is obvious to anyone who

understands arbitrators’ general economic interest in repeat

business for themselves or their firm.

In the short run, adopting Olympic Eagle’s position will

require vacating awards in numerous cases decided by

JAMS owners (who make up about a third of JAMS

arbitrators) who did not disclose their ownership interest. 6 If

there are other firms where arbitrators similarly hold

ownership interests, the majority’s approach will likewise

require vacatur in those arbitrators’ cases with repeat players

unless there was a disclosure of the ownership interest.

In the long run, adopting Olympic Eagle’s position could

spur years of quibbling over the extent of disclosures

required by arbitrators. And this slippery slope may have no

bottom. If the losing party to an arbitration is less of a repeat

player than its opponent, it will likely be able to think up

after the fact some argument that an arbitrator’s disclosure

did not fully convey the arbitrator’s financial interest in the

potential future arbitration business of the winning party or

its lawyers. The result will be to prolong disputes that both

parties have already spent tremendous amounts of time and

money to resolve. Olympic Eagle, for example, only

6

Of course, the statute of limitations for filing a motion to vacate an

arbitration award may place a limit on how much litigation there will be.

See 9 U.S.C. § 12; Stevens v. Jiffy Lube Int’l, Inc., 911 F.3d 1249, 1251–

52 (9th Cir. 2018) (discussing statute of limitations for petitions to vacate

arbitration awards).

MONSTER ENERGY V. CITY BEVERAGES 25

objected to the Arbitrator’s lack of disclosure after it lost the

arbitration. By that point, more than a year had passed since

the district court compelled arbitration, and the agreed-upon

Arbitrator had conducted a hearing lasting nine days. The

arbitration fee alone was $160,000, and Monster was

awarded $3 million in attorney’s fees and costs. 7 To avoid

the uncertainty created by the majority’s opinion, which

would inevitably exist even after further disclosures are

attempted, parties may shift to using arbitrators who are

unaffiliated with any arbitration firm. These arbitrators may

be less likely to have expertise—but be at least equally likely

to want to retain the business of potential repeat customers.

Cf. ANR Coal Co., Inc. v. Cogentrix of N.C., Inc., 173 F.3d

493, 498–99 (4th Cir. 1999) (“[S]ubjecting arbitrators to

extremely rigorous disclosure obligations would diminish

one of the key benefits of arbitration: an arbitrator’s

familiarity with the parties’ business.” (citing

Commonwealth Coatings, 393 U.S. at 150 (White, J.,

concurring))).

Although I would affirm the Arbitrator’s award in favor

of Monster, I note that lack of disclosure about a party’s prior

arbitrations might require vacatur in some instances. For

7

Ruling for Olympic Eagle could also lay the groundwork for

further disputes over whether arbitrators with ownership interests have a

conflict that disqualifies them under state law from arbitrating cases

involving a repeat player. See Cal. Code Civ. Proc. § 1281.91(d)

(allowing for disqualification under certain circumstances, including

those described in Cal. Code Civ. Proc. § 170.1(a)(6)(A)(iii)—when “[a]

person aware of the facts might reasonably entertain a doubt that the

[decision-maker] would be able to be impartial”); see also Alaska Stat.

§ 09.43.380(b) (“An individual who has a known, direct, and material

interest in the outcome of the arbitration proceeding . . . may not serve

as an arbitrator required by an agreement to be neutral.”); Ariz. Rev. Stat.

Ann. § 12-3011(B) (same); Haw. Rev. Stat. § 658A-11(b) (same); Nev.

Rev. Stat. § 38.226(2) (same).

26 MONSTER ENERGY V. CITY BEVERAGES

example, if one of the parties had used the exact same

arbitrator to resolve numerous disputes, and the arbitrator

always ruled in its favor, vacatur might be appropriate based

on the arbitrator’s failure to disclose that arbitration history.

But the facts of this case are nowhere near so extreme. The

Arbitrator had previously decided one dispute between

Monster and a distributor, and that proceeding resulted in an

award of almost $400,000 against Monster. The Arbitrator

had also been selected to decide a dispute between Monster

and another distributor, which was still pending at the time

of the arbitration involving Monster and Olympic Eagle.

The disclosure the Arbitrator made to the parties provided

accurate information about both arbitrations.

II.

To the extent that the private arbitration system favors

repeat players, I think it is unfortunate that so many parties

forgo the protections of Article III and turn to arbitration

instead. It is especially unfortunate when arbitrations

involve a non-repeat player party that had no choice but to

agree to arbitration in order to acquire employment,

purchase a product, or obtain a necessary service. The

majority laudably seeks to mitigate disparities between

repeat players and one-shot players in the arbitration system.

But I disagree that requiring disclosures about the elephant

that everyone knows is in the room will address those

disparities. It will only cause many arbitrations to be re-

done, and endless litigation over how many repeated

arbitrations there will be.

I therefore respectfully dissent.