Know thy provider.
(Last in a four-part series.)
In Monster Energy Company v. City Beverages, LLC, the U.S. Court of Appeals for the Ninth Circuit recently vacated an arbitration decision where the arbitrator had disclosed his own previous matters with one of the parties, but did not disclose (1) that the arbitrator had an ownership interest in the arbitration provider organization, or (2) that the provider organization had had 97 arbitrations in the past five years with one of the parties.
The decision was straightforward application of §10(a)(2) of the Federal Arbitration Act, which permits vacatur “where there is evident partiality . . . in the arbitrators,” and a 50-year-old decision from the U.S. Supreme Court construing §10(a)(2) to apply when an arbitrator fails to “disclose to the parties any dealings that might create an impression of possible bias.” Among other things, an arbitration award can be vacated when the arbitrator fails to disclose that he or she has a “substantial interest in a firm which has done more than trivial business with a party.”
The lesson: know thy provider. The American Arbitration Association is a non-profit corporation -- none of its arbitrators have an ownership interest in the AAA. As long as your arbitrator makes proper disclosures concerning his or her practice, there are no potential issues. The same is true if the arbitrator is completely unaffiliated.
Prior installments in this California arbitration series:
On the other hand, if the arbitrator is with a private provider, it is important to ensure that the proper disclosures are made. This is so even if the arbitration is taking place outside the auspices of of the provider. An undisclosed provider relationship with a party is possibly relevant under Monster Energy even if the arbitrator is not wearing his or her "provider hat" during the arbitration.
At the very least, a review of the circumstances of an institutional providers used under an employee arbitration program is warranted. Some employers may want to go one step further and modify the program to expressly require that all arbitrators disclose pertinent provider information as well.