I have to confess something: I just returned from sunny California where I attended an excellent arbitrator training course put on by the American Arbitration Association and run by Dana Welch and Michael Powell! If you have an opportunity to take a course from either of them, I highly recommend it.
And, as it so happens, you can! Check out my prior announcement of the ABA’s Arbitration Institute this March in Phoenix. Dana Welch will be there along with a number of other exceptional instructors. I’ll give you a more formal reminder soon, but it’s well worth your time to think about attending if you can. (The Early Bird registration ends on February 1, so think about it soon.)
Anyway, speaking of confessions and Arbitration 101 . . . in catching up on my arbitration cases on the plane ride home, I read a recent and cautionary tale by Ninth Circuit about disclosures.
In Monster Energy Co. v. City Beverages LLC, 940 F.3d 1130 (9th Cir. 2019), the court vacated an arbitration award because the arbitrator, a retired California state judge, failed to disclose both his ownership interest in JAMS and the fact that JAMS had administered 97 arbitrations for Monster during the previous five years.
The underlying dispute doesn’t matter much, but, in brief, Monster terminated a distribution agreement with its franchisee. The franchisee protested under Washington law, and Monster initiated arbitration administered by JAMS.
The important stuff starts with the arbitrator’s disclosure: “Each JAMS neutral, including me, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future.”
Getting no objections from the parties about partiality after this disclosure, the arbitrator went on to consider the merits and ruled against the franchisee. Monster sought to confirm the award, but the franchisee cross-petitioned for vacatur. The franchisee had learned that the arbitrator was a co-owner of JAMS. (According to the Ninth Circuit, only about 1/3 of all JAMS Neutrals have such an ownership interest.) It also found out about the much more robust relationship between JAMS and Monster than the arbitrator had revealed. The district court confirmed the award, but the Ninth Circuit reversed and vacated.
Particularly significant to the outcome was the fact that JAMS had repeat business with Monster. The court noted that “[c]lear disclosures by arbitrators aid parties in making informed decisions among potential neutrals. These disclosures are particularly important for one-off parties facing ‘repeat players.’” The decision then cited to a study by Professor Lisa Bingham showing that employees disproportionately failed to recover damages against repeat-player employers compared to non-repeat-player employers. See Lisa B. Bingham, Employment Arbitration: The Repeat Player Effect, 1 Emp. Rts. & Emp. Pol’y J. 189, 209–17 (1997). The dissenting Judge goes even further in recognizing the importance of the repeat player effect to the outcome of the case: “arbitrators have incentives to make decisions that are viewed favorably by parties who frequently engage in arbitrations. This feature of private arbitration, even if distressing, is an inevitable result of the structure of the industry.”
The moral of the story: Arbitrators should disclose. Disclose everything. If you, as an arbitrator, think of something and wonder if you should disclose it, disclose it. If it crosses your mind, disclose it. That might seem extreme, but as the court points out, “[i]t is simplicity itself, and no real burden, for an arbitrator to disclose his or her ownership interest in an arbitration company for which he or she works, as well as the organization’s prior dealings with the parties to the arbitration.”
That reminder about the importance of disclosure aside, I want to close by taking a moment to think more about the so-called repeat player effect, especially based on studies in the employment context. While evident partiality is, in large measure, about the reasonable impression of bias, and it seems pretty clear that repeat player concerns can create such an impression, the existence and magnitude of any repeat player effect in arbitration has not been decisively established.
In fact, there’s been a lot of debate among academics about this effect. While the notion has some intuitive appeal, the empirical jury is still out (pardon the metaphor in an arbitration blog). See, e.g., Estreicher, Samuel and Heise, Michael and Sherwyn, David, Evaluating Employment Arbitration: A Call for Better Empirical Research, 70 Rutgers U. L. Rev. 375, 386-87 (2018). For instance, the repeat-player studies usually make no attempt to control for the size and claims experience of repeat-player employers. Larger employers have more resources and experience. Employees are likely to fare worse against these employers as compared to smaller employers with fewer resources and less claims experience regardless of whether the claim is brought in court or before an arbitrator. More importantly, strong cases on the merits are likely to settle and never reach a hearing. So, win rates for employers with repeated cases that go to award should be high.