## Facts

- Monster Energy Co. and City Beverages, LLC (doing business as Olympic Eagle Distributing) entered a 2006 exclusive distribution agreement for a 20-year term.
- The agreement required arbitration through JAMS before a “neutral arbitrator” and allowed Monster to terminate without cause upon payment of a contractual severance fee.
- After Monster terminated the agreement and offered about $2.5 million in severance, Olympic Eagle claimed the termination violated Washington’s Franchise Investment Protection Act (FIPA), which limits termination absent good cause.
- Monster successfully compelled arbitration in federal court; the parties selected a retired judge as arbitrator from a JAMS list.
- The arbitrator issued standard disclosures stating that JAMS neutrals have a financial interest in JAMS, that other JAMS neutrals may have handled disputes involving the parties, and that he had arbitrated a prior matter involving a party.
- The arbitrator ruled for Monster, concluding Olympic Eagle was not entitled to FIPA protection and the termination was lawful.
- After the award, Olympic Eagle learned the arbitrator was a co-owner of JAMS and that JAMS had administered 97 arbitrations for Monster in the prior five years; Olympic Eagle sought additional information from JAMS and was refused.
- Olympic Eagle moved to vacate the award for evident partiality; Monster moved to confirm and obtained post-award fees in the district court.

## Issues

1. Whether Olympic Eagle waived an evident-partiality challenge by not objecting during arbitration based on the disclosures it received.
2. Whether an arbitrator’s failure to disclose co-ownership in the arbitral provider, combined with the provider’s substantial repeat business with one party, constitutes “evident partiality” under FAA § 10(a)(2).
3. Whether a finding of evident partiality requires vacatur of both the arbitration award and the district court’s related post-award fee order.

## Decision

- The Ninth Circuit reversed the district court’s confirmation of the award.
- The court held Olympic Eagle did not waive its evident-partiality claim because it lacked actual or constructive notice of the arbitrator’s co-ownership interest and the extent of JAMS’s repeat business with Monster.
- The court held the undisclosed co-ownership interest, coupled with JAMS’s nontrivial business dealings with Monster, created a reasonable impression of bias and required vacatur under FAA § 10(a)(2).
- The court vacated the arbitration award and vacated the district court’s post-arbitration attorneys’ fee award to Monster.

## Legal Principles

- FAA § 10(a)(2) permits vacatur where “evident partiality” exists; actual bias need not be proven if undisclosed facts would create a reasonable impression of partiality.
- To ensure informed selection of a neutral arbitrator, arbitrators must disclose any ownership interest in the arbitration organization administering the case.
- Arbitrators must also disclose the organization’s nontrivial business dealings with a party to the arbitration, particularly where a party is a frequent user of the forum.
- General disclosures that arbitrators have a “financial interest” in the provider may be insufficient where a specific ownership stake and significant repeat-provider revenue from one party are not revealed.

## Conclusion

The Ninth Circuit required vacatur of an arbitration award when the arbitrator did not disclose co-ownership in the arbitral provider and the provider’s substantial repeat business with a party, because those undisclosed facts created a reasonable impression of partiality under the FAA.


Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019)