Health plan contracts typically include binding arbitration clauses, and the health plan typically specifies which arbitration association it prefers to use. If the arbitration association makes millions of dollars resolving disputes for a particular health plan, and if the arbitrator has an ownership interest in the association as is often the case with JAMS arbitrators, will his or her view be biased in favor of the health plan?
Unlike judges in state and federal courts, decision makers in arbitration proceedings are independent contractors (e.g., AAA) or private employees or in some cases such as JAMS, owners, of the private company conducting the arbitration. A recent Ninth Circuit decision, Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019) (“Monster Energy”), vacated an arbitration award due to the JAMS arbitrator’s undisclosed ownership interest in the arbitration company and the arbitration company’s substantial business relationship with one of the parties. Although this case would not apply to arbitration organizations such as AAA where the arbitrators cannot have ownership interests in the organization, the case raises questions for parties resolving disputes in a JAMS arbitration, particularly repeat players engaging in serial arbitrations. As explained below, the decision creates uncertainty regarding the risk of vacatur (annulment) of many arbitration awards and provides new concerns for healthcare providers and payers to consider when negotiating arbitration clauses.
Monster Energy
In Monster Energy, the arbitrator awarded Monster Energy damages in a contract dispute with a beverage distributor, and the beverage distributor challenged the award based on the arbitrator’s evident partiality. The distributor contended the arbitrator failed to disclose his ownership interest in JAMS and, because of the substantial relationship between JAMS and Monster Energy, the arbitrator was partial toward Monster Energy.
The court applied a two-part test to determine whether vacatur of the award was appropriate: “(1) whether the arbitrator’s ownership interest in JAMS was sufficiently substantial, and (2) whether JAMS and Monster Energy were engaged in nontrivial business dealings.” The court first concluded the arbitrator’s undisclosed ownership interest was substantial because an owner’s interest “greatly exceeds” the more general economic interest of all JAMS neutrals. The court next analyzed the relationship between JAMS and Monster Energy and concluded 97 arbitrations over a five-year period was “hardly trivial, regardless of the exact profit-share that the arbitrator obtained.”
Accordingly, the court held the arbitrator’s “failure to disclose his ownership interest in JAMS—given its nontrivial business relations with Monster—creates a reasonable impression of bias and supports vacatur of the arbitration award.”
Issues for Parties to Consider Following Monster Energy
The Monster Energy decision has implications for past arbitrations, ongoing arbitrations, and future arbitrations as well as how providers and payers negotiate arbitration clauses in their agreements. Below is a list of these considerations:
1. Past Arbitrations
Equitable tolling of the statute of limitations to challenge past arbitrations. The court in Monster Energy noted in dicta that federal law provides only three months for parties to challenge arbitration awards. However, equitable tolling may apply to override a statute of limitations where the party does not discover its right to relief until after the statute of limitations expires. As a result, although Monster Energy suggests courts would not be receptive to equitable tolling arguments, providers should be aware of the holding in Monster Energy even for long-concluded arbitrations.
2. On-Going Arbitrations (with arbitrator appointed prior to October 2019)
Disclosure of the ownership interest in an ongoing case. For ongoing arbitrations at JAMS with an arbitrator appointed prior to the Monster Energy decision in October 2019, providers should consider requesting that the arbitrator disclose any ownership interest in the arbitration company before the case concludes. This way, if there is an undisclosed ownership interest, both parties can waive any challenge and avoid any potential uncertainty, or challenge the arbitrator’s appointment.
3. Future Arbitrations
Adequacy of JAMS’ new ownership interest question on its disclosure statement. Following the decision in Monster Energy, JAMS added a question to its arbitrator disclosure statement that asks the arbitrator to check a box yes/no if he or she has an ownership interest in JAMS. However, this quick fix only raises more questions: Should the arbitrator disclose how large the ownership interest is? Should the arbitration company disclose its total profits? Should the disclosure be included as part of the strike list instead of after the arbitrator is selected? Parties considering disqualifying an arbitrator due to his or her ownership interest should consider whether this additional information is necessary to make an informed decision.
Determining the opposing parties’ overall business dealings with JAMS. Current JAMS disclosures only provide the selected arbitrator’s cases with each party. They do not offer insight into each party’s overall relationship with JAMS. JAMS provides data related to consumer arbitrations online that includes how many arbitrations a party has participated in all-time, but not all parties are on the list. With so little information available, particularly in highly-confidential disputes between healthcare providers and payers involving protected health information, providers should consider requesting the information from the opposing party early on to avoid disputes down the road.
4. Contracting Considerations
Revising Contracts to Protect Against Vacatur. Providers should consider these issues raised by Monster Energy when they are negotiating new contracts with payors. Many contracts require that JAMS arbitrate any disputes; providers may want to modify these agreements to expressly address the use of arbitrators with an ownership interest in the arbitration firm or the process for reviewing awards. For example, providers may include clauses that specifically state both parties waive any right to challenge an arbitration award based on an arbitrator's interest in JAMS. Additionally, providers may even evaluate the use of AAA where the arbitrators do not have an ownership interest in the company.
