The Franchise Memorandum

A federal court in California rejected City Beverages’ request to disqualify JAMS from arbitrating its contractual dispute with Monster Energy. Monster Energy Co. v. City Beverages, LLC, 2021 WL 650275 (C.D. Cal. Feb. 17, 2021). In arbitration conducted by JAMS, City Beverages (d/b/a Olympic Eagle Distributing) challenged the validity of Monster’s termination of a distribution agreement under Washington’s franchise law. The arbitrator found the franchise law inapplicable, found the termination was valid, and awarded Monster $3 million in attorneys’ fees. The Ninth Circuit Court of Appeals vacated the award based on the arbitrator’s failure to disclose his ownership interest in JAMS given JAMS had administered 97 arbitrations for Monster over the past five years. On remand, Olympic then sought to disqualify JAMS from conducting the arbitration altogether.

In its motion to compel arbitration before an alternative arbitration organization, Olympic contended the submission by JAMS of amicus briefs before the Ninth Circuit in support of Monster “created reasonable doubt about its partiality” and argued, therefore, that the contractual provision requiring arbitration be administered by JAMS was unconscionable. The district court rejected this conclusion as the briefs submitted by JAMS did not address the underlying dispute between Olympic and Monster; rather, they addressed the Ninth Circuit’s understanding of arbitration disclosure requirements. The court found no reason to take the “drastic step of disqualifying every single JAMS arbitrator,” and concluded JAMS has sufficient safeguards in place to maintain an impartial forum.