MONSTER ENERGY COMPANY FKA, Hansen Beverage Company v CITY BEVERAGES, LLC, DBA, Olympic Eagle Distributing, United States Court of Appeals for the Ninth Circuit - Case Nos 17-55813, 17-56082 DC No 5-17-cv-00295-RGK-KK - Opinion - 22 October 2019
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 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.
This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader.