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Arbitrator Disclosures: The Effects of Monster Energy

Arbitrator Disclosures: The Effects of Monster Energy

May 20, 2022
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When the 9th Circuit issued Monster Energy Company v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019), there was immediate concern over how far the decision would extend and how many cases it would spawn. The decision vacated an arbitral award in favor of Monster Energy. The court found there was evident partiality “given the Arbitrator’s failure to disclose his ownership interest in JAMS, coupled with the fact that JAMS has administered 97 arbitrations for Monster over the past five years.” Id. at 1132.

As the dissent pointed out, the decision left open a number of troubling questions. For example, “how many prior arbitrations must a corporation have engaged in with an arbitration firm for there to be nontrivial business dealings…that require disclosure?” Id. at 1141. Or “must prior arbitrations with the lawyers or law firms representing the parties also be disclosed?” Id. The dissent predicted there would be endless litigations to resolve the questions. Id.  

But now, more than 2 years later, there have been only a dozen or so cases citing Monster Energy. And in those cases, the courts appear intent on describing Monster Energy as an extreme and exceptional case, with a holding that is to be limited to its unique facts.

For example, in EHM Productions, Inc. v. Starline Tours of Hollywood, Inc., the 9th Circuit declined to extend Monster Energy. 1 F.4th 1164 (9th Cir. 2021). The defendant argued that the failure to disclose JAMS’s nontrivial business dealings with plaintiff and plaintiff’s counsel constituted evident partiality. The court disagreed for two reasons, noting the defendant sought “a significant and unwarranted extension of Monster Energy.” Id. at 1171. First, Monster Energy requires disclosure only “when an arbitrator holds an ownership interest in JAMS and JAMS engages in nontrivial business dealings with a party”—not solely when JAMS engages in nontrivial business dealings with a party. Id. at 1171. Second, Monster Energy requires disclosure of business dealings with parties, not counsel. Id. at 1172 (“We decline to stretch the Monster Energy opinion to require disclosure of nontrivial business dealings with counsel.”).

In Levi Strauss & Co. v. Aqua Dynamics Sys., Inc., the district court refused to vacate the arbitral award in plaintiff’s favor, where the business dealings amounted to one closed court reference and six mediations with plaintiff in the nine years prior. 473 F. Supp. 3d 1004, 1011 (N.D. Cal. 2020), aff’d, 2021-1871, 2022 WL 61164 (Fed. Cir. Jan. 6, 2022). The court found this number to be trivial and “nowhere near as significant as the dealings in Monster Energy (97 repeat-player arbitrations forced by a form contract).” Id. at 1013. But the court did not stop there—it gave weight to the nature of business dealings, drawing a distinction between the mediations in Levi’s and the arbitrations at issue in Monster Energy:

[M]ediations are significantly different than forced or even agreed-to arbitrations because, as LS&Co. points out, a mediator’s goal is to get agreement between two sides to resolve a matter whereas an arbitration is submitting a dispute for unilateral resolution by the arbitrator or arbitral panel. Arbitrations often take longer than mediations, so the arbitral forum earns more fees from arbitrations than typical mediations. These distinctions mean that repeat arbitrations are more significant and repeat mediations are more trivial when considering potential partiality.

Id. at 1011-1012. In addition, the court observed that in Monster Energy, the party compelling arbitration was the party with the undisclosed significant business dealings, but in the instant case, the plaintiff had opposed arbitration altogether. Id. at 1009-1010. This distinguishing fact – while not dispositive – supported a finding that vacatur was inappropriate. Id. at 1010.

Then in Pacelli v. Vane Line Bunkering, Inc., the district court distinguished Monster Energy because there were only “single-digit numbers” of prior dealings. 549 F. Supp. 3d 306, 316 (S.D.N.Y. 2021). JAMS had administered five arbitrations and one mediation with the party in question, two arbitrations with counsel, and one arbitration and six mediations with the counsel’s law firm. Id. at 316. The court held this to be “nowhere near the 97 arbitrations at issue in Monster Energy.” Id. The court also included a footnote questioning the Monster Energy holding:

It bears mentioning that four Ninth Circuit judges have expressed reservations about whether Monster Energy was correctly decided. [citations] And at least one district court has also noted that Monster Energy “appears to be at odds” with Third Circuit precedent. [citations]


To date, there has not been one case vacating an arbitral award by relying on Monster Energy. And since JAMS now discloses arbitrator ownership interest at the inception of any proceedings, fears over its impact appear to have been unwarranted, and Monster Energy seems destined to gather dust rather than generate new disputes.