This article first appeared in the Securities Arbitration Alert (SAA) Blog, here.
A party is challenging JAMS’ neutrality as an administrator because the provider filed an Amicus Brief at the Supreme Court supporting the position taken by its adversary in the same arbitration.
When an Award is vacated, the case typically ends up back at the ADR administrator. If the Award was vacated due to arbitrator misconduct – for example, failure to make a required disclosure – the arbitration typically is reheard before a new arbitrator or panel. Usually, there’s not much controversy surrounding these events. Every rule, however, has its exception, as demonstrated by Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. Oct. 22, 2019), a case on which we reported in SAA 2019-41 (Oct. 30).
The basic facts as described in the Appellant’s Brief: “The Arbitrator in this matter failed to disclose ownership in a firm that has substantial and ongoing business with the prevailing party, Monster Energy. The undisclosed ownership in JAMS — a for-profit company — gave the Arbitrator a direct financial interest in up to half of the fees paid in at least 97 arbitrations directed to JAMS by Monster over the last five years and in future fees from the ongoing relationship.” A divided Monster Panel at the Ninth Circuit vacated the $3 million Award for “evident partiality” under the Federal Arbitration Act (“FAA”), because the Arbitrator failed to disclose an ownership interest in for-profit ADR provider JAMS (even though the arbitration involved a “repeat player”). Then, as reported in SAA 2020-25 (July 8), SCOTUS on May 28 denied Monster’s Petition for Certiorari in case No. 19-1333. With the Award vacated, the case was back at JAMS for a new arbitration before a new panel.
JAMS’ Neutrality Challenged
So far, so good. However, City Beverages has now asked the District Court to disqualify JAMS as the administrator, contending in Monster Energy Co. v. City Beverages LLC, No. 5:17-cv-00295 (C.D. Calif.), that JAMS is not neutral. How so? City contends that JAMS essentially took sides when it filed an Amicus Brief in support of Monster’s position when the Cert. Petition was pending at SCOTUS. In its December 21 “Motion to Compel Arbitration in a Neutral Forum,” City asks the Court to exercise its authority under FAA section 5 to appoint a different administrator such as the AAA:
“JAMS and its neutrals violated the ongoing impartiality requirement and disqualified themselves from serving as a neutral forum when they decided to support Monster Energy. Even if JAMS were to argue that it can be neutral in this matter, which it has not done, Olympic Eagle has the right to disqualify JAMS [under California’s Ethics Standards for Neutral Arbitrators in Contractual Arbitration standards (10(a)(2) and (c)] and its neutrals because they have created, at a minimum, reasonable doubt about their impartiality…. In the unique circumstances of this case, the only case where JAMS has filed adversarial briefs taking sides against one party following a JAMS arbitration, Olympic Eagle respectfully asks the Court compel arbitration in a different, neutral forum.”
(ed: *Hard to say where this will land. We don’t see JAMS as having taken sides – it argued an issue, not on behalf of a party. Other ADR providers have filed Amicus Briefs over the years. **Nice to see our old friend, the California Ethics Standards, making a guest appearance. Recall that the Standards in Jevne v. Superior Court, 111 P.3d 954 (Cal. 2005) and Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 2005), were held preempted by the 1934 Act as to SROs. They are very much applicable to JAMS, however. The cited sections establish a presumption of arbitrator disqualification after a party objects. ***An SAA h/t to Law 360 for reporting on these latest developments. ****Email us at Help@SecArbAlert.com for a copy of the Motion to Compel.)
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