March 17, 2026|Franchise Frontlines
March 17, 2026 | U.S. District Court, Central District of California | Unpublished Decision
Executive Summary
In an unpublished decision, Judge Fred W. Slaughter of the Central District of California denied a petition to compel arbitration against a non-signatory franchisor in a dispute arising from franchise agreements. Petitioners—franchise-related entities and individuals—argued that Xponential Fitness, LLC should be required to arbitrate under agreements executed with affiliated franchisors. They advanced multiple theories, including contract interpretation, agency, and third-party beneficiary status. Xponential countered that it was not a signatory to the agreements and could not be compelled to arbitrate absent a recognized legal basis. The court agreed with Xponential, holding that Petitioners failed to establish that the franchisor was bound by the arbitration provisions under any of the asserted theories.
Relevant Background
The dispute arose from franchise agreements between Petitioners and affiliated franchisor entities, including Row House Franchise SPV, LLC and PB Franchising, LLC. Those agreements contained broad arbitration provisions requiring that disputes be resolved through binding arbitration under the Federal Arbitration Act. Petitioners initiated arbitration proceedings and sought to include Xponential Fitness, LLC—an affiliated but non-signatory entity—in the arbitration.
Xponential objected to its inclusion, asserting that it was not a party to the franchise agreements and therefore not bound by their arbitration provisions. Petitioners subsequently filed a petition in federal court to compel arbitration against Xponential, arguing that the franchisor should be treated as bound based on its relationship with the signatory entities. The parties submitted briefing on multiple theories of liability, including whether the agreements’ language encompassed Xponential, whether an agency relationship existed, and whether Xponential qualified as a third-party beneficiary.
Decision
The court began with the threshold requirement under the Federal Arbitration Act that a valid agreement to arbitrate must exist between the parties. Applying California contract law, the court focused on whether the arbitration provisions in the franchise agreements could be enforced against a non-signatory franchisor.
On contract interpretation, the court rejected the argument that provisions addressing affiliate liability operated to preclude arbitration. The court concluded that those provisions addressed substantive liability rather than arbitrability, and therefore did not resolve whether Xponential could be compelled to arbitrate. However, this analysis did not advance Petitioners’ position, as the court still required a separate legal basis to bind a non-signatory.
Turning to agency, the court applied California law requiring a showing that the signatory entities acted as agents or instrumentalities of the non-signatory, with control exceeding ordinary parent-subsidiary oversight. The court found that Petitioners failed to meet this standard. Evidence that Xponential identified affiliated brands on its website, shared counsel with subsidiaries, or was referenced in consent orders was insufficient to demonstrate the level of control necessary to disregard corporate separateness. The court emphasized that ownership or affiliation alone does not establish an agency relationship capable of binding a non-signatory to an arbitration agreement.
The court also rejected Petitioners’ third-party beneficiary theory. Although the franchise agreements included provisions extending certain benefits to officers, directors, shareholders, and agents, the court found no evidence that Xponential fell within those categories or that the contracting parties intended to confer arbitration rights on it. The court further noted that even where a contract may benefit a third party, that benefit alone does not render the party bound to arbitrate absent a clear expression of intent.
Having found that Petitioners failed to establish any basis for binding Xponential to the arbitration agreements, the court denied the petition to compel arbitration.
Looking Forward
This decision reinforces a principle that is particularly relevant in franchise systems with layered corporate structures: courts will closely examine whether a non-signatory entity can be bound to contractual dispute resolution provisions, and will not lightly disregard corporate separateness. The opinion reflects a disciplined application of agency and contract doctrines, confirming that affiliation, shared branding, or common ownership—standing alone—may not be sufficient to extend arbitration obligations to parent or related entities.
For franchisors, the case highlights the importance of clarity in structuring relationships among affiliated entities and in drafting franchise agreements. Where franchisors intend to include or exclude affiliates from dispute resolution provisions, that intent should be expressly stated and consistently reflected across contractual documents. Ambiguity in this area may invite attempts to expand or limit arbitration in ways that do not align with the system’s intended structure.
The decision also illustrates that courts may distinguish between provisions addressing substantive liability and those governing arbitrability, and will require a clear doctrinal basis before compelling a non-signatory to arbitrate. From a practical perspective, franchisors may benefit from periodically reviewing how their agreements define parties, affiliates, and third-party beneficiaries, particularly in systems where multiple entities play a role in franchise operations.
At the same time, the ruling reflects a broader judicial reluctance to collapse corporate distinctions absent compelling evidence of control or intent. For franchise systems that maintain disciplined separation among entities, this framework may provide a measure of predictability in disputes involving arbitration and affiliate relationships.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
