Appellate court rules that arbitrators must disclose conflicts of interest

The Ninth Circuit Court of Appeals ruled this week that arbitrators have an obligation to disclose their financial interests in the cases before them. In a 2-1 decision in Monster Energy v. City Beverages, the court vacated a $3 million JAMS arbitration award, holding the award cannot stand because a purportedly neutral JAMS arbitrator failed to disclose that he has an equity stake in the arbitration service, which, in turn, benefits from repeat business from Monster.

The court explained that “clear disclosures by arbitrators aid parties in making informed decisions.” In this case, the court concluded, "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." The arbitrator had ruled for Monster on the merits and ordered City Beverages to pay Monster's attorney fees. The opinion is here.

Alison Frankel for Reuters notes the majority's observation that "power is frequently not well-balanced between parties in arbitration, especially when companies that make frequent use of private dispute resolution services have imposed arbitration on consumers and employees." Her article is here.

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