Apex Holdings LLC v. FairBridge Hotels International Incorporated et al

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WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Apex Holdings LLC,
Plaintiff,
v.
FairBridge 	Hotels 	International
Incorporated, et al.,
Defendants.
No. CV-24-03035-PHX-MTL
ORDER
Before 	the 	Court 	is 	Defendants’ 	Motion 	to 	Compel 	Arbitration 	of
Counterdefendants Alex Xu and Greentree Hospitality Group (Doc. 27). The question
presented is whether Defendants can compel nonsignatories who are not parties to the loan
documents containing the arbitration clause to arbitrate related claims. The Court has
considered the briefs (Docs. 27, 30, 34) and will deny the Motion.
I. 	BACKGROUND
Alex Xu is the Chairman and CEO of GreenTree Hospitality Group. His daughter,
Ashley Xu, is GreenTree’s Managing Director of U.S. operations. Plaintiff Apex Holdings,
LLC is a “family holding company owned and managed by Alex Xu and his wife.”
(Doc. 30 at 3.) Apex claims that “[t]he Xu Family makes private investments and loans
through Apex, separate and apart from work Mr. Xu does in his capacity as Chairman and
CEO of GreenTree.” (Id. at 2.)
Defendants—FairBridge Hotels International Inc., FairBridge Hospitality Systems
Inc., MediSavant Inc., Sumeet Kals, Deepinder Singh, and Sumi Kohli—provide software
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and website services to hotels. (Docs. 1 at 1; 27 at 4.) In 2019, Defendants connected with
Mr. Xu through GreenTree because both were involved in the hospitality industry. (Doc. 27
at 4.) On May 8, 2020, Apex and Defendants executed a Convertible Promissory Note (the
“Note”) and Convertible Note Agreement (the “CNA”), under which Apex agreed to loan
Defendants up to $1,500,000 in $80,000 monthly installments (the “Loan”). (Docs. 27-10
at 20-27; 27-19.) Mr. Xu signed the Note and CNA in his capacity as a Member of Apex.
(Doc. 27-19 at 74.) The CNA contains an arbitration clause providing that “all the Parties
hereto irrevocably submit to the arbitration board of the State of Arizona as regards any
claim, dispute or matter arising out of or relating to this Agreement.” (Id. at 73.) Between
May 2020 and May 2021, Apex disbursed $1,010,000 to Defendants. (Doc. 1 ¶ 14.)
Separately, 	between 	May 	and 	November 	2020, 	Defendant 	MediSavant 	and
GreenTree executed four contracts (the “GreenTree Contracts”) for software licensing and
website development services. (Docs. 27-25 through 27-28.) Two of the GreenTree
Contracts designate Alameda County, California state court as the exclusive venue for
disputes. (Doc. 30 at 4.) The GreenTree Contracts do not reference the Note or CNA, and
Apex is not a party to them. (See Docs. 27-25 through 27-28.)
Apex sued Defendants in this Court in November 2024 for breach of the Note.
(Doc. 1.) In April 2025, the Court granted Defendants’ motion to compel arbitration.
(Doc. 22.) On July 18, 2025, Defendants filed their Answer and Counterclaims in
arbitration. (Doc. 27-4.) Counterclaim 1 alleges breach of the Note and is asserted against
Apex and Mr. Xu. (Doc. 27-4 ¶¶ 39-43.) Counterclaim 2 alleges breach of the implied
covenant of good faith and fair dealing under the Note and is asserted against Apex only.
(Id. ¶¶ 44-48.) Counterclaims 3 through 14 arise from the four GreenTree Contracts.
Counterclaims 3 through 11, which arise from the May 20, 2020, May 29, 2020, and
September 3, 2020 contracts, are asserted against both Mr. Xu and GreenTree. (Id.
¶¶ 49-99.) Counterclaims 12 through 14, which arise from the November 9, 2020 contract,
are asserted against GreenTree (with Ashley Xu identified in the pleadings as an agent of
Mr. Xu and Apex). (Id. ¶¶ 100-116.)
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In October 2025, Apex moved before the arbitrator to dismiss the counterclaims
against Mr. Xu and GreenTree as nonsignatories. (Doc. 27-12 at 2-12.) On November 2,
2025, the arbitrator denied the motion, holding that the arbitrability of nonsignatory claims
must be resolved by this Court. (Doc. 27-14.) On November 5, 2025, the arbitrator granted
summary judgment in favor of Apex on its breach-of-contract claim against Defendants.
(Doc. 30-9.) Defendants then filed the present Motion. (Doc. 27.)
II. 	LEGAL STANDARD
The Federal Arbitration Act provides that arbitration agreements “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2. A federal court sitting in diversity applies state
substantive law, Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1995), and
Arizona law governs whether nonsignatories may be bound to the arbitration agreement
here. See Olson v. FCA US, LLC, No. 24-6527, 2026 WL 934267, at *5 (9th Cir. Apr. 7,
2026) (applying California law to determine whether a common law exception applied to
compel a party to arbitrate).
“[A]rbitration is a matter of contract and a party cannot be required to submit to
arbitration any dispute which he ha[s] not agreed so to submit.” AT&T Techs., Inc. v.
Commc’ns Workers of Am., 475 U.S. 643, 648 (1986) (quoting United Steelworkers of Am.
v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)). Arizona recognizes six exceptions
under which a nonsignatory may nonetheless be bound: “incorporation by reference,
assumption, 	agency, 	veil-piercing 	or 	alter 	ego, 	equitable 	estoppel, 	and 	third-party
beneficiary.” Duenas v. Life Care Ctrs. of Am., Inc., 236 Ariz. 130, 139 (App. 2014). The
general presumption favoring arbitration does not apply when a signatory seeks to bind a
nonsignatory; courts instead apply heightened scrutiny. See Sun Valley Ranch 308 Ltd.
P’ship ex rel. Englewood Props., Inc. v. Robson, 231 Ariz. 287, 296 (App. 2012).
III. 	DISCUSSION
Defendants seek to compel two nonsignatories to arbitration: Mr. Xu, under either
an alter ego or equitable estoppel theory; and GreenTree, under either an equitable estoppel
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theory or the related-contracts doctrine. (Docs. 27 at 10; 34 at 9-11.) Because Defendants
are signatories seeking to bind nonsignatories, they bear the burden of establishing that an
exception to the general rule applies. See Sun Valley Ranch, 231 Ariz. at 296. For the
reasons that follow, the Court finds that Defendants have not carried that burden as to either
Mr. Xu or GreenTree.
A. 	Alex Xu
Defendants seek to compel Mr. Xu to arbitrate the counterclaims asserted against
him under either an alter ego or estoppel theory. (Doc. 27 at 10.) It is undisputed that Mr.
Xu signed the Note and CNA solely in his capacity as a Member of Apex, and that he is
not personally a party to either agreement. (Id. at 2.) He is therefore not bound by the
arbitration provision in the CNA unless one of the recognized exceptions applies. See
Duenas, 236 Ariz. at 139 (“Theories for binding a non-signatory to an arbitration
agreement include incorporation by reference, assumption, agency, veil-piercing or alter
ego, equitable estoppel, and third-party beneficiary.”). Defendants invoke two exceptions:
alter ego and equitable estoppel.
1. 	Alter Ego
“Arizona law is clear that the ‘corporate status will not be lightly disregarded.’” JTF
Aviation Holdings Inc. v. CliftonLarsonAllen LLP, 249 Ariz. 510, 514 (2020) (quoting
Chapman v. Field, 124 Ariz. 100, 102 (1979)); see also Henderson v. Moskowitz, 579 P.3d
869, 872 (Ariz. 2025) (reaffirming the principle). To pierce the corporate veil, a plaintiff
must establish two elements: “(1) the corporation is the alter ego or business conduit of a
person, and (2) disregarding the corporation’s separate legal status is necessary to prevent
injustice or fraud.” JTF Aviation, 249 Ariz. at 514 (citation modified). Both elements are
required. See Specialty Cos. Group, LLC v. Meritage Homes of Ariz., Inc., 251 Ariz. 365,
367 (2021).
The Court need not decide whether Apex is the alter ego of Mr. Xu because
Defendants cannot satisfy the second element. The “injustice or fraud” prong typically
requires evidence that the corporation was formed to perpetrate fraud, Butler v. Am. Asphalt
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& Contracting Co., 25 Ariz. App. 26, 30 (1975); that the corporation was undercapitalized,
Norris Chem. Co. v. Ingram, 139 Ariz. 544, 547 (App. 1984); or that “observance of the
corporate form would confuse the opposing parties and frustrate their efforts to protect
their rights,” Keg Restaurants Ariz., Inc. v. Jones, 240 Ariz. 64, 75 (App. 2016). Defendants
offer no evidence of any of these.
Instead, Defendants argue that observing Apex’s corporate form would work an
injustice because Apex has obtained a $1,010,000 summary judgment against them in
arbitration, and unless Mr. Xu is compelled to arbitrate, Defendants will be unable to
litigate their counterclaims against him in the same proceeding. (Doc. 34 at 4-6.)
Defendants rely on Gatecliff v. Great Republic Life Insurance Co., where the Arizona
Supreme Court held that observance of the corporate form could promote injustice because
it “could deny plaintiffs recovery from the party responsible for cancelling their insurance
policy” and “could permit the two corporations to confuse plaintiffs and frustrate their
efforts to protect their rights before suit, while allowing the party responsible for the
cancellation to evade liability after suit.” 170 Ariz. 34, 38 (1991). According to Defendants,
observance of Apex’s corporate form will allow Mr. Xu, the party allegedly responsible
for interfering with their ability to repay the Loan, to “evade liability.” (Doc. 34 at 6.)
But Gatecliff concerned whether a parent corporation could be held substantively
liable on the merits for the conduct of its subsidiary, where the parent argued it could not
be held liable because it was not a party to the contract. See 170 Ariz. at 36, 38. The
question presented here is different. Denying this Motion does not determine whether Mr.
Xu can be held liable for the conduct Defendants allege. It determines only the forum in
which that question may be litigated. Defendants remain free to pursue their claims against
Mr. Xu in court. See Henderson, 579 P.3d at 873 (rejecting equitable arguments based on
the inefficiency of litigating “the same matter in multiple courts at the same time”). The
injustice contemplated by Arizona law is the denial of a remedy against the responsible
party, not the denial of a preferred forum in which to seek that remedy.
Nor does the existence of the arbitration award itself constitute injustice. Defendants
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signed the Note and CNA, agreed to arbitration, and lost on summary judgment. (Doc. 30
at 6.) That outcome is the ordinary consequence of contract enforcement, not a basis for
disregarding Apex’s corporate form to bind a nonsignatory who happens to be Apex’s
owner.
2. 	Estoppel
Under Arizona law, a nonsignatory may be compelled to arbitrate under the direct
benefits estoppel theory “only when the nonsignatory (1) knowingly exploits the benefits
of an agreement containing an arbitration clause, or (2) seeks to enforce terms of that
agreement or asserts claims that must be determined by reference to the agreement.” Austin
v. Austin, 237 Ariz. 201, 210 (App. 2015); see also Comer v. Micor, Inc., 436 F.3d 1098,
1101 (9th Cir. 2006).
Mr. Xu has not sought to enforce the Note or CNA or asserted any claims that must
be determined by reference to either. Apex, the signatory, asserted the breach-of-contract
claim. (Doc. 1.) The question, then, is whether Mr. Xu has knowingly exploited the benefits
of the Note and CNA. Defendants offer two theories here.
a. 	Distributions from Apex
Defendants first argue that Mr. Xu, as a Member of Apex, is entitled to receive
distributions from interest payments owed under the Note and CNA and that this expected
stream of distributions constitutes a direct benefit. (Doc. 34 at 7.) The Court disagrees.
Receiving distributions in the ordinary course of corporate operations is an incident of
membership in a limited liability company, not exploitation of any particular contract the
company has entered into. To accept Defendants’ argument would mean that any individual
entitled to receive distributions from a corporate entity could be bound to every arbitration
provision in every contract the entity executes. See Goergen v. Black Rock Coffee Bar,
LLC, No. 3:22-CV-1258-SI, 2023 WL 1777980, at *12 (D. Or. Feb. 6, 2023) (rejecting
equitable estoppel argument that nonsignatory owner of a corporate franchisee was bound
to franchise agreement’s arbitration clause, reasoning that “[t]o hold otherwise would mean
that every owner of a corporate entity could be bound under equitable estoppel to the
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contracts of the corporate entity, which defeats the corporate structure”). Arizona law does
not support such a result. See Henderson, 579 P.3d at 872 (“Arizona has not previously
adopted the closely related party doctrine, and indeed this Court has admonished that the
corporate status will not be lightly disregarded.”) (citation modified). Defendants identify
no authority holding that a member’s right to corporate distributions, standing alone,
constitutes knowing exploitation of a contract under Austin.
b. 	Services Performed for GreenTree
Defendants next argue that Mr. Xu received direct benefits because Defendants
performed substantial uncompensated services for GreenTree at his request during the
Loan term, and that they did so to maintain a positive relationship with their investor.
(Docs. 27 at 13-15; 34 at 6-7.) This argument fails for two independent reasons.
First, the alleged benefits did not flow from the Note or CNA. The Note and CNA
required Apex to disburse loan proceeds and Defendants to repay the Loan with interest.
(Docs. 27-10 at 1-27; 27-19.) Nothing in the Note or CNA required Defendants to perform
services for Mr. Xu, GreenTree, or anyone else. The services Defendants performed flowed
from a separate course of dealing between Defendants and Mr. Xu, not from any term of
the Note or CNA. And the benefits supporting estoppel must flow “directly from the
agreement” containing the arbitration clause. See Legacy Wireless Servs., Inc. v. Hum.
Cap., L.L.C., 314 F. Supp. 2d 1045, 1056 (D. Or. 2004) (quoting MAG Portfolio Consult,
GMBH v. Merlin Biomed Grp. LLC, 268 F.3d 58, 61 (2d Cir. 2001)); Austin, 237 Ariz.
at 210. They do not here.
Defendants’ subjective belief that they had to perform services to keep their loan
draws coming does not change this analysis. Apex had no contractual right to withhold
draws based on Defendants’ refusal to perform unrelated work. (See Doc. 30 at 17-18.) If
Apex had improperly withheld a disbursement, the remedy would have been a breach claim
against Apex, not the performance of unrequested services for the benefit of a separate
corporation.
. . . .
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Second, by Defendants’ own framing, the services they performed benefited
GreenTree, not Mr. Xu personally. (Doc. 34 at 6 (arguing Mr. Xu received benefits “for
his entity, GreenTree”).) The Motion catalogs services such as developing GreenTree’s
website, 	preparing 	GreenTree’s 	press 	releases, 	recruiting 	GreenTree’s 	staff, 	and
maintaining GreenTree’s online operations. (Doc. 27 at 8-9.) Each of these services
benefited GreenTree as an entity, not Mr. Xu in his personal capacity. A benefit conferred
on a corporation in which Mr. Xu holds an executive position is not, without more, a
personal benefit to Mr. Xu sufficient to estop him from contesting the application of an
arbitration provision he never signed. See Goergen, 2023 WL 1777980, at *12. To hold
otherwise would again require disregarding the corporate form. See JTF Aviation, 249 Ariz.
at 514; Henderson, 579 P.3d at 872.
Because Defendants have not shown that Mr. Xu knowingly exploited the benefits
of the Note and CNA, the equitable estoppel doctrine does not provide a basis to compel
him to arbitrate.
B. 	GreenTree
Defendants seek to compel GreenTree to arbitrate the counterclaims asserted against
it even though GreenTree did not sign the Note or the CNA.* (See Doc. 34 at 9.) Defendants
therefore advance two theories for binding GreenTree to the arbitration clause: equitable
estoppel and the related-contracts doctrine articulated in Sun Valley Ranch, 231 Ariz.
at 292-93.
1. 	Estoppel
For the same reasons explained above, GreenTree did not knowingly exploit the
benefits of the Note or CNA under Austin. GreenTree is not a party to the Note or CNA. It
received no loan proceeds and owed no repayment obligation. (See Docs. 27-10 at 1-27;
* The Court further notes that two of the GreenTree Contracts, the May 20, 2020 Software
End User License Agreement and the May 29, 2020 Software End User License
Agreement, contain forum selection clauses designating Alameda County, California state
court as the exclusive venue for disputes arising under those contracts. (Docs. 27-25 at 5;
27-26 at 4.) Although neither party developed an argument based on these clauses, their
existence further underscores that the parties to those contracts did not contemplate
arbitration as the forum for resolving disputes arising under them.
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27-19.) Defendants’ argument that GreenTree directly benefited from the Note or CNA
because Defendants performed uncompensated services for GreenTree during the Loan
term (Docs. 27 at 15-16; 34 at 7-8) fails for the same reason that argument failed as to Mr.
Xu: the alleged benefits did not flow from the agreement containing the arbitration clause.
See Legacy Wireless, 314 F. Supp. 2d at 1056. To the extent GreenTree received
uncompensated services that should have been compensated, the proper remedy lies under
the GreenTree Contracts themselves, not by extending the arbitration clause to a stranger
to that agreement.
2. 	Related-Contracts Doctrine
Defendants alternatively argue that the Note and CNA are sufficiently related to the
GreenTree Contracts such that the arbitration clause encompasses disputes arising under
the GreenTree Contracts. (Doc. 34 at 9-11.) They invoke the framework articulated in Sun
Valley Ranch, which addresses whether claims arising under one agreement can be
compelled to arbitration based on an arbitration clause in a separate, related agreement.
231 Ariz. at 292. After determining that the arbitration clause is broadly worded, a court
considers four factors: “(1) whether the agreements incorporate or reference each other;
(2) whether the agreements are dependent on each other or relate to the same subject
matter; (3) whether the arbitration clause specifically excludes certain claims; [and]
(4) whether the agreements are executed closely in time and by the same parties.” Id. at 292
(quoting Consol. Brokers Ins. Servs., Inc. v. Pan-Am. Assurance Co., Inc., 427 F.Supp.2d
1074, 1082 (D. Kan. 2006)).
The factors do not support extending the arbitration clause to the GreenTree
Contracts. Defendants concede that the agreements neither incorporate nor reference each
other. (Doc. 34 at 9.) The agreements do not concern the same subject matter. The Note
and CNA are loan agreements requiring disbursement and repayment with interest, while
the GreenTree Contracts are services agreements requiring software licensing and website
development in exchange for payment. (Compare Docs. 27-10 at 1-27 and 27-19 with
Docs. 27-25 through 27-28.) Defendants’ framing of the subject matter as “software and
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website services for hotels” (Doc. 34 at 10) is too broad; the Note and CNA have nothing
to do with services. See Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1047 (9th Cir.
2009) (holding that contracts were not intertwined where resolution of claims under one
did not require examination of provisions of the other). Further, the agreements here are
between different parties as Apex and Defendants signed the Note and CNA, while
GreenTree and MediSavant signed the GreenTree Contracts. The only factor that arguably
weighs in Defendants’ favor is the absence of specific exclusions in the arbitration clause,
but that consideration is outweighed by the others. (See Doc. 34 at 10.) The Sun Valley
Ranch framework does not bind GreenTree to the arbitration clause.
For 	the 	foregoing 	reasons, 	neither 	alter 	ego, 	equitable 	estoppel, 	nor 	the
related-contracts doctrine provides a basis to compel Mr. Xu or GreenTree to arbitrate as
nonsignatories to the Note and CNA.
IT IS THEREFORE ORDERED that Defendants’ Motion to Compel Arbitration
as to Counterdefendants Alex Xu and GreenTree Hospitality Group (Doc. 27) is DENIED.
IT IS FURTHER ORDERED that the oral argument on Defendants’ Motion to
Compel Arbitration is VACATED, but the status conference set for May 5, 2026, at 8:30
AM (Doc. 37) remains AFFIRMED.
Dated this 1st day of May, 2026.
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