Only Factual Allegations Admitted By The Opposing Party Count As Judicial Admissions
Section II of our next case is certified for publication. It addresses the issue of when an allegation in a complaint that defendants are agents of one another is binding on plaintiff. The issue is relevant to arbitration, because an argument often made in moving to compel arbitration is that there are no “third parties” whose involvement will create the possibility of inconsistent rulings resulting from litigation with those third parties.
Plaintiff sued her former boyfriend, law firm, ex-boyfriend'’s brother-in-law and his LLC, as a result of a 1031 tax exchange that did not have a happy ending, alleging that her law firm secretly represented her former boyfriend’s brother-in law and his LLC in the exchange. She also alleged that the defendants were agents of one another. Based on an arbitration provision, the law firm moved to compel. Plaintiff successfully defeated the motion, arguing that third parties created the possibility of inconsistent rulings, a basis for denying a request to arbitrate under Cal. Code Civ. Proc. section 1281.2. The defendant law firm appealed, arguing that plaintiff was bound by her pleading that all defendants were agents of one another, and thus there were no “third parties”. Barsegian v. Kessler & Kessler, Case No. B237044 (2nd Dist. Div. 1 April 15, 2013) (Rothschild, J., author 3:0) (partially certified for publication).
The Court points out: “Prominent treatises, while recognizing that the Supreme Court has described such allegations as ‘egregious examples of generic boilerplate’ . . . . still advise that ‘such allegations may be necessary,’ especially ‘at the outset of a lawsuit, before discovery.’” A “judicial admission is ordinarily a factual allegation by one party that is admitted by the opposing party.” (italics in the opinion). However, here, at oral argument, the defendant seeking to compel arbitration based on plaintiff’s allegation of agency, also made it clear they were reserving their right to argue they were not bound by the allegation of agency. Absent the agreement of the opposing party, plaintiff’s allegation of agency was not a judicial admission.
Thus, the Court of Appeal affirmed the trial court’s order denying defendants’ motion to compel arbitration.
Tip: Whether you want to arbitrate or whether you want to oppose arbitration, consider the legal implications of alleging agency in a complaint, whenever an arbitration agreement may be an issue.