Sufficiency of arbitrator disclosures in repeat player matters have been given a renewed focus by U.S. courts, international arbitral institutions and trade organizations involved in dispute resolution. There is a growing willingness by courts to vacate arbitration awards based upon insufficient disclosures in "repeat player" cases, often implicating franchise, finance and insurance industries as well as dispute resolution trade organizations. Under the Federal Arbitration Act, courts may vacate an award "if the court finds that the rights of that party were prejudiced by … partiality of an arbitrator appointed as a neutral." See also. CPLR 7511(b)(1)(ii). The foundation to legitimacy in arbitration, particularly with repeat players, regardless of the sophistication of a party, is disclosure.

'Evident Partiality'

Recently, the U.S. Court of Appeals for the Ninth Circuit in Monster Energy Co. v. City Beverages (9th Cir. Oct. 22, 2019) (Monster) vacated an award based on "evident partiality." Monster and City Beverages (CB), entered into a 20-year exclusive distributorship, which allowed Monster to terminate without cause, provided it paid a $ 2.5 million termination fee. CB argued that Washington state law prohibited franchise terminations without good cause. Monster's agreements designated JAMS Orange County as the exclusive forum.

After JAMS provided a list of seven candidates, the parties agreed on an arbitrator who had disclosed two cases he had handled, a decision against Monster with a different distributor and a pending dispute with another. After a two-week hearing, the arbitrator affirmed Monster's termination, awarding over $3 million in attorney fees.

CB moved to vacate based upon "evident impartiality" upon discovering the arbitrator's part-ownership in JAMS. The district court held CB waived its objection. The Ninth Circuit reversed, finding disclosures insufficient where the arbitrator failed to disclose his ownership interest in JAMS which administered many of Monster matters. The court quoted Commonwealth Coatings v. Cont'l Cas. Co., 393 U.S. 145, 149 (1968), holding vacatur appropriate where an arbitrator fails to disclose "any dealings that might create an impression of possible bias."

Addressing the repeat player argument, the majority found that 97 JAMS's arbitrations in the previous five years "is hardly trivial, regardless of the exact profit share that the arbitrator obtained." Id. at 12. The court noted the growing problem of repeat players and that disclosures are particularly important for a "one off party facing repeat players—regardless of a party's sophistication. Id. at, 14. On Dec. 30, 2019, the Ninth Circuit rejected the en banc request of Monster for a rehearing. Monster filed a motion to stay the mandate pending a filing of a petition for writ of certiorari, which was granted.

New Era for Disclosures

States and legislation within the circuit such as California and the Revised Uniform Arbitration Act (RUAA) had already required extensive disclosure requirements. The RUAA established a presumption of evident partiality when the arbitrator does not disclose "a known, direct, and material interest in the outcome of the proceeding or a known existing and substantial relationship with a party."

Commentators foreshadowed a new era for disclosures upon the enactment of the California Judicial Council (CJC) Ethics Standards for Neutral Arbitrators, wondering whether California was going to be a trendsetter or a laboratory for weird ideas. See Patrick, Keisha, New Era of Disclosures: California Judicial Council Enacts Arbitrator Ethics Standards-J. Disp. Res. at 290 (2003). CJC standards were seen as radical, setting out rules that no other state or any ADR organization had required. Ethical disclosure guidelines are not uniform and even vary on the basis of whether arbitrators should or are required to disclose. For example, the AAA states that potential arbitrators should disclose "any direct or indirect financial or personal interest in the outcome of the arbitration" see AAA Code Canon II (A)(1).

By comparison, JAMS Canon II provides that "an arbitrator should disclose any interest likely to affect impartiality or which might create an appearance of partiality" but does not specifically address disclosure of financial and personal interests. CJC requires disclosure in pending, present or past cases, if within the preceding five years an arbitrator had more than five matters involving the same party or lawyers, requiring a summary of the number of cases and the results of who prevailed.

Is Monster a West Coast fluke limited to the JAMS's business model or part of a growing trend for a reconsideration of clearer guidelines for arbitrator disclosures and a re-evaluation of ADR provider rules?

Two years ago, the First Department affirmed vacatur of an award by Major League Baseball's Revenue Sharing Definitions Committee based upon "evident partiality" arising out of counsels' repeated representations and the forum's failure to provide disclosures. See Matter of TCR Sports Broadcasting Holding v. WN Partner, 153 A.D.3d 140 (1st Dept. 2017)). However, despite arguments made in amicus briefs by a noted neutral, Kenneth Feinberg, and a former jurist on the New York Court of Appeals, the court refused to go so far as to order that a second arbitration take place in a different "arguably more neutral forum." As this article goes to print, the second arbitration has gone into extra innings, where the Orioles and Turner Broadcasting are challenging the second award on the basis that MLB refused to conduct the second arbitration free from evident impartiality. The appellants are also asking the First Department to order yet a new rehearing of the arbitration before a different and neutral panel outside of MLB's ambit and control.

Other Organizations

Other private industry dispute resolution organizations are showing signs that the potential for repeat player bias may require additional safeguards and measures to protect not only the award itself but also the legitimacy of the process itself. Recently, ARIAS, an insurance trade organization that handles insurance industry disputes, amended its rules, effective Sept. 16, 2019, to provide for certifications which modify earlier insurance industry experience criteria to include policyholder disputes specialization as well as a protocol to manage umpire challenges. https://www.arias-us.org. Neutral Criteria covers four potential areas of concern—prior service as party-appointed arbitrator, umpire, expert or counsel. For umpires, the "look back" period is five years and if an arbitrator candidate has over 20 percent of appointments from a party or its counsel, the arbitrator fails to meet Neutral Criteria.

The new rules for challenges give teeth to disqualifying arbitrators who fail to meet these neutrality thresholds. Yet, suspicions may lurk if the decision-makers of those challenges are industry insiders The New Insurance Rules are an attempt to overcome policyholders' concern that an insurance trade organization may not be a neutral forum for direct insurance disputes because of repeat player bias.

Other trade organizations placing limits on repeat player appointments have withstood recent restraint of trade challenges. Arthur Aldcroft v. The International Cotton Association (2017) EWHC (Comm) upheld an ethical code limiting repeat party (only three) and concurrent appointments (only eight) an arbitrator should accept. It appears private industry trade associations both domestically and internationally have struggled with the issue of repeat player bias and what safeguards may be necessary. The enforcement of arbitrator disclosure requirements by (i) private industry dispute resolution systems, both by arbitrators and the forum in the TCR matter, (ii) having limits on repeat appointments in trade dispute forums like the cotton industry and (iii) the expansion of criteria for arbitrator rosters in insurance matters (and limitations for umpire repeat players) has taken place concurrently with the establishment of international guidelines.

Guidelines Offered

The IBA Guidelines on Conflicts of Interests in International Arbitration (revised in October 2014) although not legally binding, classify possible conflicts into different types, dividing them between red, orange and green lists. The orange list addresses repeat players, requiring disclosures within the past three years if the arbitrator was previously appointed on two or more occasions by a party or an affiliate with similar variations for service as a counsel.

This past year, the ICC issued a "Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration" providing parties and arbitral tribunals with practical guidance for arbitrations conducted under ICC Rules. Unlike the IBA guidelines, the Note neither sets up traffic light systems nor has time limits or other methods to provide clear guidelines.

The lack of clear governing international guidelines for repeat players often leads to cases questioning the legitimacy of arbitration. Practitioners are anxiously awaiting a decision soon by the English Supreme Court in Halliburton Company v. Chubb Bermuda Insurance Limited Appeal (2018) 1WLR 3361. English courts have been reluctant to police arbitrators for "apparent bias" and set aside arbitrator appointments in London seated insurance arbitrations where there are justifiable concerns about impartiality with repeat players. The court distinguished between" best practices" as evidenced by the IBA Guidelines and grounds for removal under the Arbitration Act. Presumably, a duty to disclose exists but did the breach justify removal? The case raises significant concerns for policyholders whose insurance policies contain arbitration clauses providing for non-institutional London arbitration where the High Court designates a chair in the event of an impasse.

What To do?

Potential for repeat player bias as recognized in the Ninth Circuit's Monster decision, growing interest in disclosures internationally and re-evaluation of rules by some ADR trade organizations are a wake-up call for practitioners and ADR providers. What should arbitrators and ADR organizations do in response to this growing trend? Should ADR organizations re-evaluate what steps are needed to help ADR practitioners make sufficient disclosures, particularly where there is a database of repeat players? What time periods are relevant? Should "look backs" veer towards CJC'S five-year guide or the IBA Guidelines' three-year window? How much disclosure is sufficient? Is a numerical list of repeat player matters enough or is it important to know revenues? Should standards require minimal requirements or aspirational goals?

Rules on umpire challenges are particularly important in repeat player matters. The Monster decision should not be brushed off as a west coast anomaly or limited to the JAMS's business model. ADR organizations might reconsider the CJC progressive standards for repeat players pioneered years ago or canvassing these recent cases and new guidelines and incorporating some measures.

Recent trends require that ADR organizations partner with arbitrators so that they are both asking the right questions and have the requisite data so parties choose their arbitrators with proper disclosures that ensure impartiality. Re-evaluation of disclosures for repeat player matters would mean greater transparency and, most likely, fewer motions to vacate awards.

Linda Gerstel is a neutral practicing at GerstelADR PLLC and an adjunct professor at Fordham Law School. The author acknowledges the guidance and insights of John Feerick, former Dean of Fordham and founder of the Feerick Center for Social Justice.