Jane Roes v. Sfbsc Management, LLC
656 F. App'x 828 (2016)
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Rule of Law:
A non-signatory to a contract containing an arbitration clause cannot compel arbitration unless it meets its burden of proving it has standing to enforce the clause, for example by establishing a principal-agent or alter ego relationship with a signatory party.
Facts:
- SFBSC Management, LLC ('BSC') provided consulting and administrative services, including marketing, human resources, and contract administration, to various independently owned and operated nightclubs.
- The nightclubs employed exotic dancers (Plaintiffs) under performer contracts.
- These performer contracts contained clauses requiring disputes to be resolved through arbitration.
- BSC was not a named party or signatory to the performer contracts between the dancers and the nightclubs.
- BSC provided its services to the nightclubs pursuant to separate written agreements between BSC and the clubs.
- In court declarations, BSC's former president described the relationship with the nightclubs as an arm's-length one where BSC provided services to independently operating 'clients'.
- BSC's former president also stated that BSC did not own the nightclubs and denied that it exerted control over their operations.
Procedural Posture:
- Exotic dancers (Plaintiffs) filed a complaint against SFBSC Management, LLC ('BSC') in a U.S. District Court (trial court).
- BSC filed a motion in the district court to compel arbitration, based on arbitration clauses in contracts between the dancers and the nightclubs.
- The district court denied BSC’s motion to compel arbitration.
- BSC (appellant) appealed the district court’s denial to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does a non-signatory to a contract have standing to compel arbitration when it denies the very allegations in the plaintiffs' complaint (such as agency) that might grant it such standing, and fails to produce sufficient evidence to independently establish an agency or alter ego relationship with the signatory parties?
Opinions:
Majority - Per Curiam (Memorandum)
No. A non-signatory lacks standing to compel arbitration when it fails to meet its burden of proving an agency or alter ego relationship with a signatory, particularly when it contradicts the plaintiffs' agency allegations and its own evidence shows an arm's-length business relationship. The court reasoned that as the party seeking to compel arbitration, BSC had the burden under the Federal Arbitration Act (FAA) to prove the existence of an enforceable agreement. The court declined to treat the plaintiffs' complaint allegations of agency as 'judicial admissions' that would grant BSC standing, because BSC itself denied those same allegations in its Answer and submitted contradictory evidence. BSC's own evidence, including declarations from its former president, failed to establish the essential element of control necessary for a principal-agent relationship, instead portraying an 'arm’s-length contractual relationship.' Finally, BSC could not be an 'alter ego' of the nightclubs because ownership is a prerequisite for alter ego liability, and BSC expressly denied owning the clubs.
Analysis:
This case clarifies the evidentiary burden on a non-signatory seeking to compel arbitration under the Federal Arbitration Act. The decision establishes that a party cannot strategically rely on an opponent's allegations to gain standing for arbitration while simultaneously denying those same allegations in its pleadings. It reinforces the principle that standing theories like agency or alter ego are not mere labels to be adopted from a complaint but must be affirmatively proven with evidence by the party asserting them. This holding prevents non-signatories from 'having it both ways' and ensures that the right to compel arbitration is limited to those who can demonstrate a concrete legal basis for enforcing the contract.
