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9th Circuit Court of Appeals Rules ADR Providers Must Disclose Ownership Stakes


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The U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court ruling confirming final award from arbitration service JAMS and post-arbitration fees between energy drink company Monster Energy Co. and City Beverages LLC, which does business as Olympic Eagle Distributing.

To determine if the arbitrator needed to disclose his ownership role in JAMS, the court first evaluated whether his interest in JAMS was “sufficiently substantial,” and if JAMS and Monster were connected in “nontrivial business dealings” (JAMS had administered 97 arbitrations for Monster over the past five years), according to the opinion.

Since the arbitrator, retired Judge John Kennedy Jr., reaps a percentage of the profits from all JAMS arbitrations, he was uniquely situated compared to nonowner neutrals. “This ownership interest — which greatly exceeds the general economic interest that all JAMS neutrals naturally have in the organization — is therefore substantial,” the court ruled.

The majority decision, however, notes the 90-day statute of limitations to vacate an arbitration award.

Michael Madigan, of Brandt F. Erwin, Madigan Dahl & Harlan P.A. in Minneapolis, who wrote an amicus brief on behalf of the National Beer Wholesalers Association, said the integrity in the arbitration process requires the disclosure of pertinent relationships, especially with JAMS, a for-profit ADR provider where about one-third of neutrals are owners.

Madigan said it’s theoretically possible that other JAMS awards could be challenged if there was similarly not a disclosure of ownership interest, as long as they fall within that three-month window to vacate arbitration.

reuters | law.com - The Recorder

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