South Dakota Arbitration Estoppel: No Conspiracy Pleading Required to Compel Arbitration by Nonsignatories for “Interdependent and Concerted Misconduct”

1. Introduction

Munoz v. Conduent State & Local Solutions (10th Cir. Mar. 13, 2025) arises from New Mexico’s “EPPICard” benefits program, under which recipients accessed state benefits through prepaid debit cards. The State contracted with Wells Fargo Bank, N.A. to run the program, and Wells Fargo subcontracted with Conduent State & Local Solutions, Inc. and Conduent Business Services, LLC (collectively, “Conduent”) to administer customer-facing operations, including fraud disputes.

Cardholders Ana Munoz and Michael Tilley filed a putative class action alleging that Wells Fargo and Conduent unlawfully denied reimbursement for unauthorized transactions, asserting claims under the Electronic Fund Transfer Act (“EFTA”) and the New Mexico Unfair Practices Act (“UPA”). The EPPICard Terms and Conditions contained an arbitration agreement expressly framed as disputes between the cardholder and “Bank” (defined as Wells Fargo), plus a delegation clause for “any disagreement about the meaning, application or enforceability” of the arbitration agreement.

The district court compelled arbitration as to Wells Fargo but denied Conduent’s motion to compel. On appeal, the Tenth Circuit agreed that the court (not an arbitrator) must decide whether Conduent and the cardholders formed an arbitration agreement, but reversed because Conduent could compel arbitration under South Dakota equitable estoppel—and, critically, the court predicted South Dakota would apply the majority “concerted misconduct” approach, not a narrow conspiracy/coordination-pleading requirement.

Note: The disposition is an “Order and Judgment” stated to be nonbinding precedent except for law-of-the-case/res judicata/collateral estoppel, though it may be cited for persuasive value.

2. Summary of the Opinion

  • Formation vs. arbitrability: The Tenth Circuit held it was proper for the district court to decide whether Conduent and the cardholders agreed to arbitrate. Formation is always for courts under the FAA and Tenth Circuit law (not delegable by a delegation clause).
  • Equitable estoppel: Even assuming no arbitration agreement was formed between cardholders and Conduent, Conduent could still compel arbitration as a nonsignatory under South Dakota equitable estoppel because the complaint alleged “substantially interdependent and concerted misconduct” by Wells Fargo (a signatory) and Conduent (a nonsignatory).
  • Key doctrinal move: The court rejected the district court’s reliance on Estrada v. The Moore Law Group, which had required allegations akin to coordinated behavior/conspiracy, and instead predicted South Dakota would follow the broader majority approach exemplified by Reeves v. Enterprise Products Partners, LP.
  • Result: The denial of Conduent’s motion to compel arbitration was reversed.

3. Analysis

3.1. Precedents Cited

A. FAA framework: formation, arbitrability, delegation

  • 9 U.S.C. § 4 (and 9 U.S.C. § 2): The opinion anchors the “court must be satisfied” requirement for compelling arbitration, supporting the proposition that courts must resolve whether an agreement to arbitrate was made.
  • Granite Rock Co. v. Int'l Bhd. of Teamsters: Used to distinguish (i) contract formation (judicial) from (ii) arbitrability/scope of a particular dispute (judicial unless clearly delegated). The opinion relies on Granite Rock’s emphasis that courts must decide whether the parties agreed to arbitrate.
  • Howsam v. Dean Witter Reynolds, Inc. and AT&T Techs., Inc. v. Commc'ns Workers: Cited for the principle that courts decide arbitrability unless the parties “clearly and unmistakably” delegate it to arbitrators, and that arbitrators’ authority derives from consent.
  • First Options of Chi., Inc. v. Kaplan: Supplies the “clear and unmistakable evidence” standard for delegation of arbitrability questions, and supports use of ordinary contract principles.
  • Rent-A-Center, W., Inc. v. Jackson: Cited (through discussion) for severability of delegation clauses, with the important caveat emphasized by the panel: severability does not help where the challenge is that no agreement was formed.
  • Fedor v. United Healthcare, Inc. and Brayman v. KeyPoint Gov't Sols., Inc.: Central Tenth Circuit authority that formation “must always” be decided by a court, and formation challenges cannot be delegated—even if a delegation clause exists.
  • Morgan v. Sundance, Inc.: Addressed to rebut the cardholders’ contention that Morgan undermined nonsignatory enforcement principles. The panel reads Morgan narrowly as rejecting arbitration-favoring procedural “custom-made rules,” not displacing ordinary state contract doctrines.

B. Nonsignatory enforcement: equitable estoppel and state law

  • Arthur Andersen LLP v. Carlisle and GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC: The opinion relies on these cases for the proposition that the FAA permits nonsignatories to invoke arbitration agreements via state-law doctrines like equitable estoppel.
  • Rossi Fine Jewelers, Inc. v. Gunderson: The key South Dakota Supreme Court decision providing the two circumstances under which equitable estoppel may allow nonsignatories to compel arbitration: (1) “substantially interdependent and concerted misconduct” by nonsignatory and signatory, or (2) claims “arising out of” the agreement while denying nonsignatory access to its arbitration clause. Rossi supplies the doctrinal test but not a detailed definition of “concerted misconduct,” creating the interpretive gap this opinion fills by prediction.
  • MS Dealer Serv. Corp. v. Franklin and Grigson v. Creative Artists Agency, L.L.C.: Used as foundational federal equitable estoppel arbitration authorities (including the “linchpin” fairness rationale), and as citations Rossi itself relied upon.

C. Choosing the concerted-misconduct standard: narrow vs. majority approach

  • Estrada v. The Moore Law Group: The district court followed Estrada’s reading that plaintiffs must “specifically allege” defendants “knowingly acted in concert,” “improperly cooperated,” or “worked hand-in-hand,” or allege conspiracy. The Tenth Circuit characterizes this as a minority approach.
  • Donaldson Co., Inc. v. Burroughs Diesel, Inc.: Identified as the source of Estrada’s narrow framing (though Donaldson interpreted Mississippi law). The panel uses Donaldson to illustrate the narrower approach it rejects as a prediction for South Dakota.
  • Reeves v. Enterprise Products Partners, LP and Ferrell v. Cypress Env't Mgmt.-TIR, LLC: Reeves (published) is the panel’s model for the “majority approach”: even without explicit conspiracy allegations (and even where the complaint omits the signatory actor), equitable estoppel can apply where claims are inherently inseparable/integrally related and will “surely involve” the signatory’s role. Ferrell (unpublished) is cited as a similar application and as support for proceeding to equitable estoppel analysis even when formation is assumed undecided.
  • Machado v. System4 LLC and LeBlanc v. Texas Brine Co., LLC: Cited as additional examples of broader approaches that focus on whether allegations “lump” defendants together or are nearly identical, not on whether the plaintiff pleads conspiracy-like coordination.
  • Wade v. EMCASCO Ins. Co. and Salve Regina Coll. v. Russell: These provide the Erie-style framework for predicting state law and confirm de novo appellate review of a district court’s state-law determination.
  • United States v. Singer Mfg. Co. (and supporting citations): Used for the proposition that when a court applies an improper legal standard to facts, correction is warranted as a matter of law, supporting de novo reapplication without deference.

3.2. Legal Reasoning

A. The court’s formation holding (and why delegation did not control)

The panel reaffirmed the bright line: formation is for courts. Conduent argued that because the cardholders accepted the Terms (including the delegation clause), whether Conduent could invoke arbitration was merely a “scope” question for the arbitrator. The court rejected that framing: agreement with Wells Fargo does not answer whether the cardholders consented to arbitrate with Conduent, and a delegation clause cannot operate unless an agreement exists between the parties invoking it. The opinion thus treats the Conduent issue as a formation/assent question, not merely arbitrability.

B. The decisive holding: South Dakota equitable estoppel uses the majority approach

The heart of the opinion is the state-law prediction: because Rossi Fine Jewelers, Inc. v. Gunderson did not define “concerted misconduct” in detail, the federal court had to predict how the South Dakota Supreme Court would apply the doctrine. The panel surveyed competing approaches and concluded South Dakota would align with the “general weight and trend of authority,” rejecting a rule that limits estoppel to cases pleading conspiracy or explicit coordination.

In effect, the panel transforms the test from a pleading-form requirement (“say conspiracy/hand-in-hand”) into a substance and fairness inquiry: are the claims against signatory and nonsignatory so intertwined that it would be inequitable to allow a signatory plaintiff to arbitrate with one party while litigating the same core dispute against the other?

C. Applying the majority approach to the pleadings

Applying the broader standard de novo, the panel held the complaint alleged substantially interdependent and concerted misconduct because it repeatedly referred to Wells Fargo and Conduent collectively as “Defendants,” asserted the same EFTA and UPA violations against both, and grounded the theory of responsibility in the program structure—Wells Fargo as prime contractor and Conduent as subcontracted program manager handling disputes and customer service.

Two additional fairness considerations reinforced the outcome:

  • Same operative facts: The claims against each defendant were based on the same alleged mishandling of unauthorized transfers and reimbursement disputes.
  • Efficiency and consistency: Compelling arbitration avoids parallel proceedings and inconsistent outcomes where the same factual questions would be resolved in both arbitration (against Wells Fargo) and court (against Conduent).

3.3. Impact

  • Expanded nonsignatory access under South Dakota law (as predicted): For contracts governed by South Dakota law (here selected by the EPPICard Terms), the decision signals that nonsignatory vendors/subcontractors may compel arbitration without needing plaintiffs to plead explicit conspiracy or “hand-in-hand” coordination. Allegations that functionally treat signatory and nonsignatory as jointly responsible for the same wrongful conduct may suffice.
  • Pleading strategy consequences: Plaintiffs who draft complaints that “lump” defendants together—especially in consumer-finance/program-administration settings—risk triggering equitable estoppel even if the arbitration clause names only the signatory. Conversely, plaintiffs may attempt to plead more differentiated theories, though the opinion suggests courts may look past artful pleading when claims are “inherently inseparable.”
  • Arbitration program design for government benefits platforms: Entities structuring benefits delivery through layered contractor/subcontractor models may rely on this decision (persuasively) to argue that arbitration provisions with the prime contractor can extend to subcontracted administrators when claims are intertwined.
  • Reinforcement of formation limits on delegation clauses: The opinion strengthens the practical rule that delegation clauses cannot be used to force an arbitrator to decide whether a nonsignatory can invoke arbitration absent a formed arbitration agreement with that nonsignatory—though the panel resolves the case through equitable estoppel rather than expanding delegation doctrine.
  • Nonprecedential but influential: Even as a nonbinding “Order and Judgment,” the reasoning may be persuasive within the Tenth Circuit, especially in cases applying South Dakota law or confronting district-court reliance on narrow Donaldson/Estrada-type pleading requirements.

4. Complex Concepts Simplified

Formation vs. arbitrability
“Formation” asks whether the parties ever agreed to arbitrate at all (contract assent). “Arbitrability” asks whether a particular dispute falls within an existing arbitration agreement (scope/validity/enforceability issues).
Delegation clause
A contract term sending gateway questions (like scope or enforceability) to the arbitrator. But it only works after a court determines an arbitration agreement was formed between the relevant parties.
Nonsignatory
A person or entity that did not sign the arbitration agreement but seeks to enforce it (or be bound by it) using doctrines like equitable estoppel.
Equitable estoppel (in arbitration)
A fairness-based doctrine preventing a party from embracing a contract’s benefits or intertwined allegations while avoiding the contract’s arbitration clause—sometimes allowing nonsignatories to compel arbitration against signatories.
“Substantially interdependent and concerted misconduct”
A category of equitable estoppel that applies when the plaintiff’s claims against the signatory and nonsignatory are tightly linked—often based on the same operative facts—such that separating arbitration and litigation would be unfair or inefficient. This opinion predicts South Dakota would not require explicit conspiracy/coordination pleading to satisfy this concept.

5. Conclusion

The central significance of Munoz v. Conduent State & Local Solutions is its prediction that, under South Dakota equitable estoppel, a nonsignatory can compel arbitration based on “substantially interdependent and concerted misconduct” without requiring the complaint to plead conspiracy or explicit coordinated behavior. By rejecting the narrower Estrada/Donaldson style of analysis and embracing the broader, fairness-centered approach reflected in Reeves, the opinion strengthens nonsignatory arbitration enforcement where claims against signatory and nonsignatory defendants are pleaded as functionally inseparable.