Why one paragraph in a complaint wasn't enough to send a homeowner's case into arbitration
A California appeals court has reminded mortgage-adjacent companies of a simple point with real procedural bite: boilerplate "alter ego" language in a complaint will not, on its own, get a nonsignatory into arbitration.
On May 26, 2026, the California Court of Appeal, Second Appellate District, Division Eight, affirmed a Los Angeles County Superior Court ruling denying Professional Business Management Corporation's motion to compel arbitration in a foreclosure-rescue lawsuit brought by homeowner Gina Watson. The opinion is certified for publication, which means it is now citable authority in California.
The underlying story will sound familiar to anyone who lived through pandemic-era servicing. Watson bought her Reseda home in 2019. By 2020, she could not keep up with her mortgage payments, and her lender filed a Notice of Default. She says NACA Law - presenting itself as a nonprofit law clinic - reached out repeatedly, offering free help to stop the foreclosure and refinance her into something better. She accepted.
Things went the other way, according to her filing. The lawsuit alleges NACA Law was "a front for a highly sophisticated criminal joint enterprise and conspiracy" that funneled her into "two unconscionable and illegal predatory loans designed to steal her home equity." Court papers describe the two loans as one-year bridge loans secured by deeds of trust on her home, with balloon payments due at the conclusion of the one-year terms. Watson says she defaulted because of the high monthly payments and fees, was charged what the filing calls "illegal processing and late fees," and was forced to sell the home under threat of foreclosure. Her claim brings five causes of action, including fraud, breach of fiduciary duty, conversion, and unfair business practices under California Business & Professions Code section 17200.
PBMC is the appellant here. The filing says PBMC, a South Dakota corporation doing business in California, paid the salaries of NACA Law's employees and that those employees received commissions on every "for-profit service they 'refer'" to other defendants. Watson named PBMC as "DOE 8" and described it as a "successor, agent and/or alter ego" of NACA Law.
That label is the entire fight on appeal. NACA Law got its own motion to compel arbitration granted on June 20, 2024, on the strength of a Services Agreement Watson signed that sent "any controversy" to the American Arbitration Association. PBMC tried to follow it in, even though PBMC never signed the agreement.
The trial court denied PBMC's motion on November 14, 2024. PBMC's sworn declaration said it "has never provided services to Plaintiff, has never entered into a contract with Plaintiff, and has not had any prior dealings with Plaintiff." It offered no evidence connecting itself to NACA Law as agent, alter ego or successor.
On appeal, PBMC argued the agency language in Watson's complaint was a "judicial admission" - in plain terms, a concession that locked her in. The Court of Appeal, relying on Barsegian v. Kessler & Kessler, said no. The panel pointed out that PBMC had already denied those same agency allegations in its answer and planned to keep denying them. The opinion describes PBMC's position as wanting "to hold Watson to the agency allegations only for the purposes of the motion to compel arbitration" while reserving the right to disprove them later.
The court flagged a contrasting line of authority - Thomas v. Westlake - where similar agency allegations did let nonsignatory defendants compel arbitration. The difference, the panel said, was that the Thomas defendants did not intend to deny the agency allegations. PBMC has done the opposite.
The order is affirmed. PBMC pays costs on appeal.
The allegations against PBMC and the other defendants are unproven, the case continues in the Los Angeles County Superior Court, and PBMC denies the agency claims. No court has ruled on the merits of the underlying fraud, fiduciary duty or unfair business practices claims.
