i've been warned ok congress passed the federal arbitration act to provide not merely for arbitration but for a fair and impartial one dollar and one dollar that appears to be so the arbitration that is the subject of this appeal did not give the appearance of being either impartial or fair the arbitrator failed to disclose before he was selected that was that he was entitled to a stream of income from the prevailing party monster energy and the arbitrator violated a nd he's entitled to a stream of income from jamas not from monster right he is an owner in jams he failed to disclose that he is an owner in jams that he doesn't have any stream of income f monster as you know it or in jams he is entitled to share the profits of jams which includes not only his own revenue which he contributes to the dams but also the revenue of all neutral language of the regency and justice white's concurrence in common with coatings he has a substantial interest in a firm that has more than trivial business with a party monster energy so v app comments that the arbitrator said i have an interest in jams overall profits but i'm sorry but actually disclosed that i have an interest an economic interest in jams overall financial success what's the difference the arbitrator disclosed that he'd like other neutrals has an economic interest in the overall success of jams and then in the next sentence of that disclosure he said arbitrators get their cases from james i'm paraphrasing so he did disclose that he had a economic interest if you will jams i think fairly stating the obvious that jam supplies him and other neutrals with cases he implies at least the way we read it that he is like all other neutrals he has it doesn't say the same interest it implies that he certainly does not disclose that he has another interest and ownership interest and i know it's kind of the vernacular but it does create a stream of income into his pocket from not just monster but from all clients but monster of course is one of the leading clients so that's that's where the stream of sort of had judge kennedy said or betrayed or kennedy then judge previously judge kennedy former judge kennedy said i am one of the owners of gems then would you not have this appeal but at least on this issue well that would be the minimum of what we have learned and you know this is all outlined in our briefs what we have learned is that there are several elements that go into this stream of income it's not enough to know that he's an owner because he's an owner of you know the jambs form for example discloses that there are two dollars fees there's an administrative fee paid to jams and then there's the arbitrators hourly rate ok what it does not disclose and what we did not know until after the award was entered is that there's this th this disclosure by the way i am one of a number of owners of jams would you still have an argument based on the impression of course yes ok yes because i think an order will swoop need to be disc order to understand what that means how that creates the stream of income you have to understand something that is not disclosed that that up to fifty percent of the fees paid or earned b greater than the arbitrator gets or maybe it's not obvious i soon that was obvious to everyone and so therefore the owners share some of the profits it was well it was not disclosed b it was not obvious to me  if it's like a law firm at least a lot of law firms have partners with different levels of compensation they don't all make the same that may be true of james too so there may be people who make it just a little bit of money because they're an owner and then people make a lot of money because they're an owner do you think they need to disclose exactly their it monthly income from g m what do you think needs to be disclosed here you know and we actually we have the answer to that question we attempted to get an answer from jams and did not receive one  but in the depositions from this unrelated case the jambs executives testify that each owner has the same share ok there maybe other i mean so do you need to know how big that chair is i mean maybe some years james is not doing much business and they're not that different in terms of what they make from the people who are not owners does it matter year by year i struggle to answer that question because i think it's up to jams and the arbitrator alternately to tell us what we need to know in order to understand whether he has the parents of impartiality or so so the people who are not owners right do they have an interest in making the owners happy because they want to keep their job and probably they could be fired by the owners why are they not more biased in your view of who might be biased in favor of monster they may or may not be but the point of commonwealth coatings is that the parties receiving all the information everyone knows their papers get paid i don't two understand once you choose to do that how you have this issue especially once you say all the arbitrator that they're not owners they might have an interest and of that if they are if they might that means arbitration you should come here and not to push back but we did not choose jams well you signed a contract that said it would be jammed since it was a contract of adhesion district court but you could have not entered the agreement ok then there would be no relationship but i think the point there i understand commonwealth to be a little different perhaps than my colleagues do i see this is a two part test the st one and the supreme court said was that the arbitrator needs to disclose to the parties any dealings which might create an impression of possible bias so that's one but the important nd one which we've not talked about is whether the arbitrator end quote has a substantial interest in a firm which has done more than trivial business with the party that fact must be disclosed now in this case let's assume as my colleague let's just assume you knew that the judge here was an owner that's not enough but then later on you found out that monster had ninety seven referrals to jamz that's a lot and does that not satisfy the nd prong of what's necessary in this situation yes that kind of coding says that in order to preserve the appearance of partiality even the slightest cuny area slightest between area interest in a party must be disclosed so basically you've got you have to dispose of the burden is on the arbitrator right the board in the case law correct governor has to disclose it what the arbitrator's said here if i understand it correctly he said that he practiced in association with jams each gems neutral including me has an economic interest in the overall financial success of jim much cool but he doesn't say he's an owner and he doesn't say that you had all these referrals from monster or that there isn't a referral to the jambs orange county branch of jams are those elements that must be required is there a burden on the arbitrator to disclose those tell you anything about what that looks like and can you tell me then can you give me a list please of what the arbitrator should have disclosed if we were to adopt the rule that you were urging here for the next time that this arbitrator has an arbitration what should he disclose he should just go disclose that he is an owner ok what else disclose that as an owner he shares in the profits  generated in all of g m s cases up to and you could probably arrange i mean you know there's there's a it is a range as i understand it he should disclose in some order of magnitude the number of cases that are involved this is information that is out there but was not disclosed when you say a number of cases involve you mean number of cases by monster number of all cases  and this is information that at least in california is collected for other purposes so this should be disclosed so it appears to me that in california it's required that arbitrator's disclose this and it's publicly available i found a whole list of monsters cases and all these other companies that have many more cases than monster and james why didn't you just look at that well we did know he's an owner what our understanding based on the disclosures was he would earn only his fees he would receive his fees he's an independent contractor as jams neutral he were he is not permitted to receive anything of value from any party other than his fees the entire pan of play of evidence that was  disclosures made it appear that he was a normal neutral normal neutrals in arbitration earn their fees that's what they are you know back to our list yes should he have disclosed that the dollar volume of the fees that monster pays to jams in addition to the number of cases that required well you get into the question of based on the disclosure is the additional information trivial and so there is a point at which enough information is provided that you can create the you have an understanding of his economic interests new regency deals with this new in new regency there were there was a generalized disclosure that the arbitrator had relationships with new regency in the past but it not the specific disclosure of the relationship in that case and to nascar is another case where the texas supreme court deals with this very specifically i'm just trying to understand what your urges to do and when you say that the arbitrator also should have disclosed that he shares in the profit of jambs should he also be required to disclose his percentage interest in those profits well again the question is you know is there enough information provided to the parties to make an informed choice about whether he's partial we believe that merely disclosing that he's an owner with an interest in this stream of revenue and that there are neutrals that are not owners is significant we believe why why why does it matter that there are other neutrals who are not owners well because they don't receive any additional revenue from the monster cases they don't they you know they may have some in  incentive to curry favor with clients but they're not they don't have a cuny area interest and the commonwealth codings decision focuses on the community area interest for the obvious reason the potential corrupting influence of money but that he had not disclosed in new regency the arbitrator became an executive there is probably some point is trivial right that's pretty fast prevail as a standard trivial yes the burden is on the arbitrator so that the party can make a decision it's going to be on a case by case basis right the court that you can't just have a bright line rule it's got to be a certain percentage or it doesn't count the point is the persons that are arbitrating need to be able to decide whether they think that the arbitrator can be truly neutral i mean we're all just or all because presumably people who have had some experience in life and you know if you've got an arbitrator that has a large amount of money coming in based upon repeat referrals if you look at this to just ticks it's pretty clear that the there is a heavy weighted statistic that they tend to favor the ones going to continue the income that's human nature shouldn't be it is that's the fact so i guess what we're struggling with here is based on common well based upon the the burden of proof as case law makes clear you know on the arbitrator it's really on almost a case by case basis that but they at least have to disclose an ownership interest and if it's more than trivial whatever that happens to be in the case they probably ought to be pretty specific so that the people in the arbitration can make an informed judgment as to whether or not this person is likely to be neutral is that a fair statement it's a fair statement i believe that's a fair statement of current law and that's all we're asking we're not asking for some new rule of incremental disclosure but common up for fifty one years as a standard i think someone once said we're becoming an arbitration nation arbitration is growing in importance and and you have this contract that you say you had no in value negotiate which probably means monster was using it for everyone they were dealing with which said that arbitration had to be a jams why didn't that tell you that monster was an important client of jams you know i think we knew that there was a relationship certainly we knew there was a relationship between jams and monster we knew that there's no question and you knew that the arbitrator had a financial interest or financial interest in this excessive j m something he cannot get economic yes we knew that but is that really the key here because janet got a lot of people and the fact that the contract says you're supposed to go to jam doesn't determine which arbitrator of record so you could go to jamz return to the contract and have someone who had no ownership interest and somebody who had no stream of income coming from that party right correct so that doesn't solve the issue right i have too many was not the case but if i can say the rest i have a burning question i'm sure now that's  here today representing monster energy company your honour's this court should affirm the judgment of the district court granting monsters petition to confirm the arbitration award against olympic eagle and denying olympic eagles cross petition to vacate the award as young as you're probably aware master energy company is an energy drink company located in nearby corona california and olympic eagle is a beverage distribution company that's been in business for over sixty years in western washington as part of the entire bush distribution system both parties are sophisticated commercial entities had a nice outline here that i was going to go through but i did want to address some of the comments from my my colleague in the courts questions vasta made the statement of the judge kennedy disclosed that he was like all other neutrals that is not what he said the disclosure says each jams neutral including me has an economic interest in the overall financial success of jams that is not a false equalization on its face the text doesn't say i'm the same as everyone else but but not if you have the burden of proof though  more than that required i mean everybody that's ever practiced with a neutral understands that they have a stake in the outcome of these of the business because referrals come through that but isn't there a requirement under commonwealth that ownership itself must be specifically dispels at least sufficiently that the party understands that's what you're talking about under this court's controlling precedent none of the answer is no and one of the issues that  had an economic interest in jams and our submission is economic interests is a broader disclosure the problem with requiring specific disclosures is that it's never enough and that call comes into play with one of the other points that this panel has raised it was interesting to me that mr vasco could not answer judge simon's question what's in the nuff once you start making specific disclosures they are to the exclusion of everything you can never disclose is and i'm an owner i'm a park owner we may not know then what more needs to be required but shouldn't that be disclosed because shouldn't a party when they decide which of the jams arbitrators the going to select and here the parties were given a choice among gems arbitrators they were given a choice to none jams but they were given a choice which jim server triggers shouldn't a party be able to say i would like an arbitrator from jams who's not a cologne or and doesn't have a stake in the repeat can then decide do you want an owner or a non owner the arbitrator have disclosed for example he was an owner of the building in which jams operates does it matter how much the other trader depends on his income from jeremy's doing need to know what his marital community out with respect i think you're being facetious about this the reality is that the people who are going to arbitrate need to know whether the person is supposed to be neutral has a stak all of us for example if we have a single share of stock anything we can't be involved in the case we must treat kids ourself single share and i was worth a penny a nickel anything because the  courts and the rules committee has decided that they want to be like caesar's wife beyond reproach i think that's what this frame court was really talking about here they wanted to know and want people to know what the deal is here  rule as you point out i mean there are lots of things you could find out and you could go on the internet like like my colleague points out but the burden is not on the person is going to arbitrate it's on the arbitrator to tell what the arbitrator feels is necessary for a existing potential possible connection between the arbitrator and the party involved so the party the opposing party had no idea in fact the words are not even an intimation of the relationship here there information essential ie non informative because obviously anyone who is put out by jams as a potential gems arbitrator has an interest in the success of jams because they're putting him out that doesn't tell the recipient of their information anything meaningful least not like i'm an owner too that may be true your honor but this court only requires disclosure of the relationship not the details of the relationship and a broader more important point is that it isn't the relationship i'm an owner of that that's the relationship the relationship is i have an economic interest in this is why isn't the relationship i'm a part owner i'm not going to tell you how much i own but now you can make a decision based on number one you know that i'm an owner and number two i'm not going to tell you how much i don't the olympic eagle knew that an economic interest includes an ownership interest it said in its letter to jamz we would like to verify whether or not judge kennedy has an ownership interests such that he would have an economic interest that was also a finding of the district court a disclosure of an open economic interest in compass is and includes an ownership interest but with respect that flips the burden on its way out and in this circuit your honor constructive notice is sufficient but constructive notice has to be of something that constructive notice here is economic interest in the overall financial success of jam that's what he said that yard to forty one dollars right correct he also said that i and other gems neutrals have performed a d r services for parties these parties in the past  we may have we may do so in the future and you are on notice that i may have done substantial business for this well that's not what you did say the latter part he just said that he doesn't need study done some past work with and even cited something where he had ruled against monster and that raises another point in the your honour's that i wish to raise and that is both the facts in this case and the law do not support the conclusion that even an ownership interest in an arbitration service provider which is a business that trades on impartiality creates a reasonable impression of partiality the only two cases in which vacate or was was the result as a result of the failure to disclose talk turkey here if you let's just say that you're an arbitrator and if you if you have an incentive to rule for a particular party they keep coming back again and again and again because they like the way you rule and it goes in your pocket doesn't common sense tell you that human beings will act in that way sometimes at least enough so that the people who are going to use the arbitration service need to have the right and the information to decide whether they want to use them as my colleague pointed out here they have to use jams there are lots of people in jams who have no relationship with monster per se have no repeat business in the flanders and the record here there are ninety seven dollars referrals here you're out of two points on that st of all of the ninety seven cases olympic eagle was aware of over sixty of them so we're talking now about somebody when were they aware that they were aware of that before they were aware of that when they took my olympic eagle from objecting well could have removed him and gotten all their fees back at that point they could have made an objection to jan's and said we want more information or we want to disqualify this arbitrator but isn't again just thinking common sense  if you're going to have an arbitrator either want to be neutral at the beginning or not at all and it seems to me that to say that they discovered through constructive notice somewhere along the process when hundreds of thousands of dollars of fees ha been spent and rulings have begun to be made that you could then objected jams about that person i'm not sure that makes it that it absolutely does your honor very risky to object once the person's been selected as an arbitrator because if when you shoot for when you went in for the king you better kill him and there were cases your honor where the where the party objected to the arbitrator the arbitrator refused to recuse himself the party then saat pake in turn the court and the court  chair so it is incumbent upon the party once it discovers information rather than to sit on that information and sit and wait and to see what the result will be at the other puts the burden is on the arbitrator to disclose before the arbitrator is selected interest within jambs would necessarily cause this arbitrator any arbitrator to be partial to monster and there's no indication that he would be partial to monster as opposed to a limp eagle didn't they say this is a very very important case for monster when he recognized that if the ruling went the other direction monster could be heard very badly monstre could then decide we don't like jams and we're taking our non negotiable business somewhere else did he say that he didn't say all of th a maybe i misunderstood you know if there were an award against monster all of the other hundreds of distributors that were also terminated in this transition process and who are members of the national bure wholesalers association which is a powerful lobbying force and has many members and lots of support would be running to jamz to litigate their disputes and munster might then decide to reallocate its contract to a different arbitration service it doesn't it's a contract it requires bilateral consent but it can change the contract going forward right all of the contracts involved were twenty year contract they're ok well and i point was they've been terminated right it was a question of how you would write deal with the conflicts that arose from the terminations right and in this case judge kennedy had previously served as an arbitrator involving a monster case and he ruled against a monster and was that it just to be clear because i think there's reference to ninety seven cases those weren't judged kennedy's cases right back they were jammed cases but sixty  were arbitrations get involved terminated and eyes of bush distributed that was one of the things that seemed notable to me in looking at these cases was that where there was a financial interest that need to be disclosed it seemed like it was not through the avenue of income from being an arbitrator it was through some other financial relationship with the client that then came to the arbitration is that a correct impression that is a correct impression in that is it critical to impress and that is the reason i've i've submitted that an and this one was one hundred and then there were one hundred and sixty thousand dollars in fees in this case that's more than two billion dollars in revenues ye you're talking about jams only having fifteen million dollars in annual profits and if we assume the fifty percent profit figure so that's one billion dollars in profits get you totally there's fifty million dollars in profits even the numbers for the human nature aspect of it that's that's why we have to be there are no equity interest at all to follow that logic it's human nature also to find in favor of lawyers who appear in front of you frequently in arbitration was actually a challenge to the contract before the district court challenge that the arbitration provision was unconscionable the district court found it is not unconscionable olympic eagle could have said you know what i don't want to do this big deal and i don't want to  law firm out of seattle monster was represented by my thirty five lawyer law firm in san diego so if there is a bias you to prefer those who you do business business with frequently there would be as much if not more of a preference for lawyers who can direct business your way but but with respect counsel you know each of us has been with a big law firm at one point and the reality is and i set up a little firm after that the reality is how much business the f does not how big the firm is so if your firm does a whole bunch of business and the big firm doesn't do very much business with it they're more interested in a small firm but the reality here is not what happened in this case but rather the rule the supr between the arbitrator and he and the other party in the arbitration here olympic eagle knew of the alleged relationship that it's complaining about now and if not he didn't know the facts that the supreme court i think required under commonwealth didn't know about the ownership use a constructive does provided it didn't know the quantity of work done which could influence the decision again if they had known and went forward today that's different and in that case your honor the service is being provided were not neutral services in commonwealth codings the party was an engineering consulting i get that i get the facts are different and in that case at the end there is no change that what the supreme court said they were trying to to give us some direction internet connection with the f a a and those who very well know the f a a kind of rules our lives these days so people need to understand how it works and what the rules are because the arbitrator's are doing more and more and more of the work that the courts used to do and this question is what rules apply to the arbitrators and this court has passed on a couple of cases that raise this very issue in this saturday and nothing case in the northern district of california the district court rejected a petition to vacate that are but that argue that the arbitrator failed to disclose his picayune area interest due to alleged repeat players the district court found no authority no authority for the proposition that arbitration fees from parties or firms that employ arbitration more than once may constitute a peculiar interest requiring disclosure but that's just report on his record and he's talking about someone who didn't disclose an ownership interest necessarily as a jams arbitrator has a b q neary interest in the result that comes from the latin for cows which is a common term for money right and in this case they have a monetary interest in the if there wasn't another case involving the same issue and that was the pokorny case where the district court denied a motion to compel arbitration in part because the arbitration provision required using arbitrators that were trained by one of the repeat players absent the partiality created by that training by the party the court had no problem rejecting the notion that jambs is for profit status would make it inherently biased in favor of the party that is something harm would come if any from a rule that says if an arbitrator has an ownership interest in an arbitration firm the arbitrator must disclose that to the parties and must disclose the number of  to your on of the answer is there's then the question is what's enough it's never enough to disclose that i'm an owner what is what are we really trying to get out what we're trying to get it is what is the level of the arbitrators interest in the outcome does it depend on only how much my interest is in this business what if i'm independently wealthy and i doesn't matter to me what i earn from jams it becomes a subjective slippery slope and doing that ultimately results in the very judicial hostility to arbitration that the f a a was passed in order to eliminate ok you want you want to make one other point that didn't relate to here's what is that and i'm interested in hearing your response to that last point when is enough enough commonwealth codings has been the wall for fifty years it's not a specific rule it's in the rule of law but it's not specific as to what has to be just the answer is there was from a relationship a financial relationship with one of the parties to the arbitration rather than a financial relationship with the arbitration and to be can you point to justice white in common coatings st and then say that the rule that showing a substantial interest in an entity that has more than trivial business with a party is sufficient to meet the commonwealth codings test this court in the regency has adopted that test i believe that is has really ever talked about an interest that comes from the arbitration and to rather than comes from a relationship with an actual party before you know not in the disclosure case and i will say because of a lot of serendipity or maybe luck we actually have for the st time i think this is the st court that actually has a window into how a for profit gyms a for profit arbitration service provider incensed some of its owners so this is in that sense it is an issue worms if we say there's a rule that now says based on coming with coatings if you have an ownership interest in an arbitration firm you must disclose that ownership interest and the number of dollar value of basically repeat play or business between one of the parties and that firm and then counsel for monster says what what more do you have to disclose are we opening a really ugly can here well california in consumer arbitration requires disclosure about the arbitration service already this is not a consumer arbitration so a legislative process has looked at that can of worms and said even if it is a can of worms and i don't think it is com intimate disclosures instead of just about the arbitrator which is what occurred here it requires disclosures about the arbitrator arbitration service provider and at some level his interest in his or her interest in that all of the cases in the last five years the arbitration service only company because jamz is on there because there was one i'm sorry monster is on the jan's list because monster had one consumer arbitration case if it had not had that case those would not be listed and that's in our record we but then they have to list ok maybe maybe that's right but once they have one they list the others to their lots of us a case that's and we and you know we fully laid out everything we could find about the background of jim's once we looked at but that's not what we're talking about here the question is is there enough information given to the arbitrating parties to be confident and comfortable that the arbitrator is not going to be have an aspect of bias into the commonwealth approach it doesn't have to be a bright line test people can make their decision it needs to be disclosed before the arbitration begins without a fair statement yes and commonwealth codings this very concern was raised and on the court said we believe the parties will act reasonably in most cases and the courts will be able to figure out if the what was not disclosed is trivial ok thank you i think you have and i thank you both for your argument we do appreciate it very helpful your case just argued is submitted in the court stands not just in recess but we're joined for the week