Setting the Standard for “Neutral” Arbitrators: The Risk of Evident Partiality and the Impact of Monster Energy v. City Beverages

Authors

Schmelter, William

Abstract

The use of Alternative Dispute Resolution (ADR), and particularly arbitration, has grown in tandem with the delays and costs of litigating in overburdened state and federal court systems, but that rise in popularity has not come without a cost. Although arbitration may often be a preferable alternative to a full-blown court trial, the inconsistency and insufficiency of existing disclosure requirements for arbitrators in many states limits the ability of parties to make an informed evaluation as to the risk or existence of potential bias. The recent Monster Energy case out of the United States Court of Appeals for the Ninth Circuit has begun to change the landscape for disclosure requirements for arbitrators under the Federal Arbitration Act, but unless state legislatures agree to implement disclosure requirements for arbitrators that allow the parties to accurately evaluate the risk of partiality themselves, ADR will not reach its potential as a more accessible and equally fair alternative to the court system. The Federal Arbitration Act and several state statutes impose disclosure requirements on arbitrators, but the issue of “evident partiality” arising from the potential economic motivations of arbitrators has rarely been examined by the courts. The Ninth Circuit’s ruling has put the spotlight on the need for arbitrators to disclose any potential financial interest or stake they may have in the outcome of an action.

While the issue had not received much attention prior to Monster Energy, there has been growing concern in the legal community over the potential abuse and partiality permitted under the current disclosure requirements for arbitrators, particularly in light of the surge in arbitration clauses, and the disparate economic influence wielded by “repeat players” in the arbitration system. Given the private nature of ADR providers, it is to be expected that the rules applicable to arbitrators differ from Article III judges. However, as discussed in Monster Energy and Justice White’s concurring opinion in Commonwealth Coatings, parties to an arbitration should be made aware of all of the arbitrator’s non-trivial business dealings that may hinder the fairness of the process, including whether there are any financial incentives that might cause a reasonable party concern that an arbitrator could favor one party over another. Arbitration will continue to grow in popularity, highlighting the need to establish strict and unambiguous disclosure requirements to enable all participants in arbitration to evaluate the economic interests of potential arbitrators, and to minimize the risks of bias in such proceedings.

Recommended Citation

Schmelter, William, Case Note, Setting the Standard for “Neutral” Arbitrators: The Risk of Evident Partiality and the Impact of Monster Energy v. City Beverages, 61 Santa Clara L. Rev. 839 (2021).
Available at: https://digitalcommons.law.scu.edu/lawreview/vol61/iss3/4