Restrictive Equitable Estoppel for Non-Signatory Enforcement of Arbitration Agreements Under Maryland Law

Introduction

The Fourth Circuit’s unpublished per curiam decision in Shamia Franklin v. Cleo AI Inc., No. 24-1817 (4th Cir. May 30, 2025), addresses whether a non-signatory to an arbitration agreement can compel arbitration under Maryland law by invoking the doctrine of equitable estoppel. Plaintiffs-appellees Shamia Franklin and Devon Chapman sued Cleo AI Inc., a fintech lender, in the U.S. District Court for the District of Maryland, alleging violations of state and federal consumer-finance statutes. Cleo, which processes electronic funds transfers through a third-party loan provider (Synapse Financial Technologies, Inc.), moved to compel arbitration on the ground that the plaintiffs had “clicked through” a terms-and-conditions agreement that incorporated Synapse’s binding arbitration clause. The district court denied the motion, and Cleo appealed.

Summary of the Judgment

On appeal, the Fourth Circuit affirmed. It held that Cleo, as a non-signatory to the Synapse agreement containing a mandatory arbitration clause, could not compel arbitration by equitable estoppel under Maryland contract principles. The court emphasized two established Maryland paths for non-signatory enforcement—(1) where a signatory person relies on the agreement’s terms to assert claims yet disavows its arbitration provision, and (2) where the signatory’s allegations of interdependent, concerted misconduct implicate both signatories and non-signatories. Because plaintiffs’ claims against Cleo neither turned on interpretation of the Synapse terms nor alleged coordinated wrongdoing by Synapse, equitable estoppel did not apply. The Fourth Circuit therefore affirmed the district court’s denial of Cleo’s motion to compel arbitration.

Analysis

Precedents Cited

Arthur Andersen LLP v. Carlisle (556 U.S. 624 (2009)): The Supreme Court held that non-signatories may enforce arbitration agreements if state contract law allows it by estoppel, third-party beneficiary theories, veil-piercing, or other doctrines.
Griggs v. Evans (43 A.3d 1081 (Md. Ct. Spec. App. 2012)): Under Maryland law, equitable estoppel allows a non-signatory to enforce arbitration when (a) the signatory relies on contract terms to claim benefits and disclaims arbitration, or (b) the signatory alleges interdependent, concerted misconduct shared by signatories and non-signatories.
Schuele v. Case Handyman & Remodeling Services, LLC (959 A.2d 833 (Md. Ct. Spec. App. 2008), rev’d on other grounds, 989 A.2d 210 (Md. 2010)): Affirmed the “interdependent misconduct” pathway to estoppel, where the signatory’s claims were intertwined with the contract containing the arbitration clause.
Wachovia Bank, Nat. Ass’n v. Schmidt (445 F.3d 762 (4th Cir. 2006)): Under Maryland law, mere receipt of benefits from a contract is insufficient to estop a party from avoiding arbitration; the signatory must rely substantively on contract terms or allege concerted misconduct.
Minnieland Private Day School, Inc. v. Applied Underwriters Captive Risk Assurance Co. (867 F.3d 449 (4th Cir. 2017)): Confirms de novo review of arbitration denials but applies abuse of discretion when equitable-estoppel principles underlie the district court’s decision.
American Bankers Insurance Group v. Long (453 F.3d 623 (4th Cir. 2006)): Clarified that equitable-estoppel denials are reviewed for abuse of discretion in the Fourth Circuit.

Legal Reasoning

The Fourth Circuit’s reasoning unfolded in three steps:

Choice‐of‐Law and State-Law Primacy: The court first held that Maryland law governs whether a non-signatory can enforce the arbitration clause. Cleo could not invoke the Synapse agreement’s California choice-of-law clause until showing a contractual right to enforce it.
Maryland’s Two-Pronged Equitable Estoppel Test: Under Dickerson v. Longoria and Griggs, Maryland permits non-signatory enforcement only when (a) the signatory relies on the agreement’s written terms to assert claims while disavowing arbitration, or (b) the signatory alleges concerted, interdependent wrongdoing by the non-signatory and signatory.
Application to Cleo’s Motion: Plaintiffs’ claims targeted Cleo’s unlicensed lending practices, disclosure failures, and alleged unfair or deceptive acts—none of which depended on interpretation of the Synapse Terms of Service. Plaintiffs did not benefit from Synapse’s contract provisions while disclaiming its arbitration clause, nor did they allege any coordinated misconduct between Cleo and Synapse. The incidental relationship that plaintiffs obtained advances only because Synapse processed electronic fund transfers was insufficient to trigger estoppel under Griggs.

Impact

This decision underscores the narrow scope of equitable estoppel in Maryland and emphasizes that fintech providers, lenders, and other service platforms cannot simply “piggyback” on third-party arbitration provisions when they themselves are not signatories. Companies seeking to insulate themselves from class‐action or consumer‐protection litigation by incorporating distant, third-party arbitration clauses must ensure their own contract with end users contains a clear, stand-alone arbitration agreement. Otherwise, courts will require a direct contractual nexus or allegations of joint wrongdoing before compelling arbitration.

Complex Concepts Simplified

Equitable Estoppel: A fairness doctrine preventing a party from taking a position opposite to one on which another party reasonably relied. In arbitration contexts, it can bind non-signatories if signatories rely on or are entwined with the contract terms.
Non-Signatory Enforcement: Circumstances under which someone who did not sign an arbitration agreement can nonetheless compel arbitration, based on state contract-law doctrines like estoppel or third-party beneficiary status.
“Arising Out Of or Relating To” Language: Broad arbitration-clause phrasing that covers disputes connected to a contract. Maryland courts still require a meaningful nexus, not mere incidental or procedural links.
Choice-of-Law Clause: A contractual provision designating which state’s laws govern the agreement. Such clauses generally bind only signatories, not outsiders.

Conclusion

The Fourth Circuit’s decision in Shamia Franklin v. Cleo AI Inc. crystallizes Maryland’s strict, two-pronged approach to non-signatory enforcement of arbitration provisions by equitable estoppel. A party outside the arbitration contract must demonstrate that the signatory’s claims either (1) rely squarely on the contract’s terms while disavowing its arbitration clause, or (2) allege concerted misconduct with the contract signatories. Neither path was satisfied here, so Cleo could not compel arbitration of plaintiffs’ claims. Going forward, fintech and other service companies should secure clear, standalone arbitration agreements directly with their end users if they wish to avoid court litigation, rather than relying on indirect incorporation of third-party terms.