Monster Energy Company v. City Beverages LLC

9th U.S. Circuit Court of Appeals

Judge Milan D. Smith Jr.

Arbitrator disclosures

Respondent/appellant's attorneys: Foster Garvey PC, Michael K. Vaska, Rylan L.S. Weythman, Devra R. Cohen; Bryan Cave Leighton Paisner LLP, Jonathan C. Solish, David A. Harford

Petitioner/appellee's attorneys: Solomon Ward Seidenwurm & Smith LLP, Tanya M. Schierling, Norman L. Smith, Daniel E. Gardenswartz; Morrison & Foerster LLP, Dan E. Marmalefsky, Joseph R. Palmore, Samuel B. Goldstein

In a ruling that could change how alternative dispute resolution companies handle cases, a 9th U.S. Circuit Court of Appeals panel vacated an arbitrator's rejection of a beverage distributor's lawsuit against Monster Energy Co. because he failed to disclose his ownership interest.

The panel in October reversed a decision by U.S. District Judge R. Gary Klausner of the Central District of California to confirm retired JAMS neutral and retired San Bernardino County Superior Court Judge John W. Kennedy Jr.'s decision against Olympic Eagle, which operated as City Beverages LLC. Monster Energy Company v. City Beverages LLC, 2019 DJDAR 9934.

Judge Milan D. Smith Jr., writing for the 2-1 majority, focused on the fact the company administered 97 arbitrations for Monster over the previous five years and Kennedy's role as one of the owners of JAMS.

"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," he wrote.

"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," Smith added.

Michael K. Vaska, who argued the appeal for Olympic Eagle, said he and co-counsel Jonathan C. Solish -- a Santa Monica-based partner with Bryan Cave Leighton Paisner LLP -- were surprised by Kennedy's ruling and discovered his status as an owner later.

"We're not saying Judge Kennedy is biased, but if you're not disclosing a stream of income, it creates the appearance you're not impartial," Vaska said.

Jonathan C. Solish

He and Solish credited an article in the UCLA Entertainment Law Review by Ronald J. Nessim, a principal at Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow P.C., with spurring further investigation. Solish ran into Nessim at a charity event the night he saw the article.

Tanya M. Schierling, a partner at San Diego-based Solomon Ward Seidenwurm & Smith LLP, declined to comment on the ruling.

During oral arguments, Schierling warned the panel that disclosure requirements would create a slippery slope. "The problem with requiring specific disclosures is that it's never enough," she said.

JAMS filed what its attorneys described as a first-ever amicus brief seeking an en banc hearing, but the court upheld Smith's ruling.

"We disagree with the outcome in the 9th Circuit, as the very premise and foundation of the JAMS business is neutrality, and we believe that neutrality was upheld in the underlying arbitration," said Senior Vice President and Chief Legal & Operating Officer Kimberly Taylor in a prepared statement.

"JAMS neutrals, including the neutral in this matter, have no information about other arbitrations at JAMS involving any of the parties in the matter before them, unless they were involved in the prior proceeding," Taylor added.

-- Craig Anderson