Conduct Underlying Malicious Prosecution Triggers Coverage

• Author: Martha L. Kohlstrand
• Pages: 24-25

Published in Litigation News Volume 47, Number 2, Winter 2022. © 20 22 by the American Bar A ssociation. Repro duced with permissio n. All rights reser ved. This informati on or any portion the reof may not be copie d or disseminated in any

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issue will be litigated considerably and

this specif‌ic case will be appealed.”

Meanwhile, fantasy football companies

will be able to operate in a number of

states while those appeals are pending.

Repeat Player

Bias in Arbitration

Questioned

By Andrew K. Rob ertson, Litigation

News Contributing Editor

A neutral’s failure to disclose sub-

stantial f‌inancial interests and busi-

ness relationships before arbitrating

a dispute could lead to vacatur. A

federal court of appeals vacated an

arbitrator’s award based on “evident

partiality” because the neutral did not

disclose his ownership interest in the

arbitral body that conducted the arbi-

tration or the entity’s non-trivial busi-

ness dealings with a party involved in

the arbitration. The court’s decision

ref‌lects a growing concern that parties

who frequently appear before a par-

ticular alternative dipuste resolution

provider may benef‌it from a “repeat

player bias.”

City Beverages, LLC, d/b/a Olympic

Eagle Distributing, contracted with

Monster Energy Co. to distribute

energy drinks for Monster. After

Monster terminated the agreement,

the parties proceeded to arbitration

through JAMS, the arbitration organi-

zation specif‌ied in the contract.

Before arbitration, the arbitrator

disclosed that each JAMS neutral has

“an economic interest in the overall

f‌inancial success of JAMS” and that

the parties should assume that a JAMS

neutral has administered an arbitra-

tion with a party to the arbitration.

However, the arbitrator did not dis-

close that he was a co-owner of JAMS,

nor did he disclose that JAMS had

administered 97 arbitrations involving

Monster within f‌ive years.

Monster prevailed and the district

court awarded Monster $3 million in

attorney fees. City Beverages moved

to vacate the award based on “evident

partiality” under the Federal Arbitration

Act after later discovering the extent of

the arbitrator’s relationship with JAMS.

The district court armed the award,

holding that the arbitrator’s disclosures

were sucient and that City Beverages

waived any claim of evident partial-

ity because it failed to timely object

when it f‌irst learned of “potential repeat

player bias.”

On appeal, the U.S. Court of

Appeals for the Ninth Circuit found

that City Beverages could not have

waived the claim because it did not

have actual or constructive notice of

the arbitrator’s ownership interest in

JAMS. It also found that the arbitra-

tor’s ownership interest and right to

prof‌it from all JAMS arbitrations were

“substantial” and exceeded the gen-

eral economic interest that was dis-

closed, and that JAMS and Monster

had engaged in “more than trivial

business dealings” because Monster

had used JAMS 97 times in f‌ive years.

The court held that these facts cre-

ated a “reasonable impression of bias”

and vacated the arbitration award.

This decision “highlights the neces-

sity for an arbitrator to disclose any-

thing that might possibly be of interest

to the parties when they are consider-

ing whether to select that arbitrator

as a neutral to decide their dispute,”

says Neal M. Eiseman, New York, NY,

chair of the Arbitration Subcommittee

of the ABA Litigation Section’s

Alternative Dispute Resolution

Committee. As co-owner of JAMS,

disclosure of only a general economic

interest was not sucient notice of

the full extent of the neutral’s pecuni-

ary interest, Eiseman explains.

Nevertheless, the impact of the

decision may be limited. “It’s a fairly

narrow ruling,” observes Henry R.

Chalmers, Atlanta, GA, cochair of

the Section’s Alternative Dispute

Resolution Committee. “The majority

of arbitrators do not have a f‌inancial

ownership interest in their admin-

istrative bodies. It is just not going

to apply to that many instances,” he

asserts.

Monster is also instructive as to

“the problem of repeat players in arbi-

tration,” observes Mitchell L. Marinello,

Chicago, IL, cochair of the Litigation

Section’s Alternative Dispute

Resolution Committee. The fact that

JAMS had administered 97 arbitra-

tions for Monster over a f‌ive-year

period may suggest “a disadvantage

when a one-time user of an arbitration

comes up against a party who’s been

in front of that same arbitration service

numerous times,” Marinello poses.

Section leaders are skeptical of

whether such bias aects the outcomes

of alternative dispute resolution. “I don’t

think there is a problem with actual bias

infecting many arbitrations,” Chalmers

notes. Even so, the Ninth Circuit’s dis-

closure requirement may “contribute to

eliminating bias in a minor way,” he says.

Conduct Underlying

Malicious Prosecution

Triggers Coverage

By Martha L . Kohlstrand, Litig ation

News Associa te Editor

Insurance coverage for malicious pros-

ecution claims is triggered by the

underlying wrongful prosecution, not

exoneration, says the Supreme Court of

Illinois. By contrast, the Missouri Court

of Appeals held that coverage is avail-

able for a wrongfully convicted person

even if the policy period pre-dates the

exoneration. ABA Litigation Section

leaders suggest these cases are more

similar than dierent, as both courts

applied clear policy language to ascer-

tain coverage.

In December 1993, Chicago Heights,

Illinois, police ocers arrested Rodell

Sanders for a robbery he did not com-

mit. Following his acquittal in 2014,

Sanders sued the city for malicious

prosecution, among other things, and

obtained a $15 million consent judg-

ment in September 2016.

Sanders sued the city’s insurance

carrier seeking coverage under com-

mercial general liability policies in

force between November 1, 2011, and

November 1, 2014. The policies cov-

ered a “‘[p]ersonal injury’ caused by an

oense arising out of your business ***

but only if the oense was committed

*** during the policy period.” The term

“personal injury” included malicious

prosecution, but the policy did not

def‌ine the term “oense.”

The insurer moved to dismiss, argu-

ing that Sanders’s malicious prosecu-

tion had “occurred” in 1994, before

the eective dates of the policies. The

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