South Dakota “Concerted Misconduct” Equitable Estoppel: Nonsignatories May Compel Arbitration Without Pleading Conspiracy

I. Introduction

Munoz v. Conduent State & Local Solutions (10th Cir. Mar. 13, 2025) arises from New Mexico’s “EPPICard” program, a prepaid debit-card system used to deliver public benefits. 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 most consumer-facing functions, including fraud disputes.

Cardholders Ana Munoz and Michael Tilley alleged unauthorized transfers depleted their accounts and that reimbursement was wrongfully denied. They brought a putative class action asserting statutory claims under the Electronic Fund Transfer Act and the New Mexico Unfair Practices Act.

The key procedural question was whether Conduent—despite not being the “Bank” identified as the arbitration counterparty in the EPPICard “Terms and Conditions”—could nonetheless compel arbitration. The district court compelled arbitration as to Wells Fargo (by agreement of the plaintiffs) but denied Conduent’s motion. On appeal, the Tenth Circuit reversed, holding Conduent could compel arbitration under South Dakota equitable estoppel, and, critically, that South Dakota’s “concerted misconduct” prong is not limited to explicit allegations of conspiracy or “hand-in-hand” coordination.

II. Summary of the Opinion

  • Formation vs. arbitrability: The court reaffirmed that whether an arbitration agreement was formed between particular parties is always for a court to decide, notwithstanding a delegation clause. Applying Fedor v. United Healthcare, Inc. and Granite Rock Co. v. Int’l Bhd. of Teamsters, the district court correctly addressed formation as to Conduent.
  • Equitable estoppel (reversal ground): Assuming (without deciding) that Conduent was not a party to the arbitration agreement, the court held Conduent could enforce arbitration anyway via South Dakota equitable estoppel, because the complaint alleged substantially interdependent and concerted misconduct by Wells Fargo (a signatory) and Conduent (a nonsignatory).
  • New clarification of state-law prediction: The court rejected the narrow approach adopted by Estrada v. The Moore Law Group (itself guided by Donaldson Co., Inc. v. Burroughs Diesel, Inc.) and instead predicted South Dakota would follow the majority approach exemplified by Reeves v. Enterprise Products Partners, LP.

III. Analysis

A. Precedents Cited

1. FAA framework: formation, arbitrability, and delegation

  • 9 U.S.C. § 4 (FAA) anchors the court’s insistence that a court must be “satisfied” that an agreement to arbitrate was made before compelling arbitration.
  • Granite Rock Co. v. Int’l Bhd. of Teamsters supplies the canonical two-step: (1) agreement formation and (2) arbitrability of the dispute.
  • AT&T Techs., Inc. v. Commc’ns Workers, Howsam v. Dean Witter Reynolds, Inc., and First Options of Chi., Inc. v. Kaplan support the rule that courts decide arbitrability unless there is “clear and unmistakable” delegation.
  • Fedor v. United Healthcare, Inc. is the opinion’s central doctrinal tool on delegation: delegation clauses cannot send “formation” issues to arbitrators; they operate only once an agreement exists between the litigants.
  • Rent-A-Center, W., Inc. v. Jackson appears to clarify severability of delegation clauses, but the court stresses (via Fedor) that severability cannot rescue a delegation clause where the asserted agreement between particular parties never existed in the first place.
  • Morgan v. Sundance, Inc. is addressed to reject the argument that it undermined nonsignatory enforcement doctrines. The court reads Morgan as rejecting arbitration-favoring procedural “custom-made rules,” not displacing state contract doctrines applied neutrally.
  • Brayman v. KeyPoint Gov’t Sols., Inc. is used for standard of review (de novo) and delegation “clear and unmistakable” principles.

2. Nonsignatory enforcement: equitable estoppel and the governing-law source

  • Arthur Andersen LLP v. Carlisle and GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC establish that the FAA permits nonsignatories to enforce arbitration agreements through applicable state-law doctrines (including equitable estoppel).
  • Grigson v. Creative Artists Agency, L.L.C. provides the fairness rationale for equitable estoppel and is quoted for “The linchpin for equitable estoppel is equity—fairness.”
  • Rossi Fine Jewelers, Inc. v. Gunderson is the controlling South Dakota precedent defining two independent routes for estoppel:
    1. claims based on “substantially interdependent and concerted misconduct” by signatory and nonsignatory; or
    2. claims “arising out of” the agreement while denying the nonsignatory access to the clause.
  • MS Dealer Serv. Corp. v. Franklin is the out-of-circuit source Rossi Fine Jewelers, Inc. v. Gunderson cited, reinforcing that the two circumstances are independent and that “same facts” and interdependence matter.
  • Lenox MacLaren Surgical Corp. v. Medtronic, Inc. is cited as an analogous application of the doctrine (there, under Colorado law), underscoring that equitable estoppel is a common mechanism in arbitration enforcement.

3. Predicting unclear state law: methodology and appellate posture

  • Wade v. EMCASCO Ins. Co. supplies the predictive methodology: consult analogous decisions, district-court interpretations, and the “general weight and trend of authority.”
  • Salve Regina Coll. v. Russell and Devery Implement Co. v. J.I. Case Co. support de novo review of the district court’s state-law determination.
  • United States v. Singer Mfg. Co., Sara Lee Corp. v. Kayser-Roth Corp., and United States v. Kimball

4. The “concerted misconduct” split: narrow vs. majority approach

  • Estrada v. The Moore Law Group is treated as adopting a narrow test (requiring allegations that defendants “knowingly acted in concert,” “worked hand-in-hand,” or conspired).
  • Donaldson Co., Inc. v. Burroughs Diesel, Inc. is identified as the root of the narrow approach, though it interpreted Mississippi law.
  • Reeves v. Enterprise Products Partners, LP (Tenth Circuit) is the opinion’s principal exemplar of the majority approach: even without explicit conspiracy allegations—or even mention of the signatory—claims can be sufficiently interdependent to justify estoppel.
  • Ferrell v. Cypress Env’t Mgmt.-TIR, LLC is cited as a closely aligned Tenth Circuit application (unpublished) supporting the same fairness/interdependence analysis.
  • Machado v. System4 LLC and LeBlanc v. Texas Brine Co., LLC are used as persuasive examples rejecting the requirement of pleaded conspiracy, focusing instead on whether the claims treat defendants collectively or hinge on shared operative facts and delegated duties.

B. Legal Reasoning

1. The court preserves the formation gatekeeping function

Conduent argued that because the EPPICard Terms referenced Conduent as “program manager” and contained a delegation clause, the arbitrator—not the court—should decide whether Conduent could compel arbitration. The Tenth Circuit rejected that reframing as a “scope” issue. Relying on Fedor v. United Healthcare, Inc. and the FAA’s text, the court held that whether the cardholders agreed to arbitrate with Conduent is a formation question that a court must decide, and a delegation clause cannot bootstrap a nonexistent agreement between the litigants.

Importantly, the court then took a pragmatic appellate path: it assumed without deciding that there was no direct arbitration agreement between Conduent and the cardholders, and proceeded to determine whether equitable estoppel nonetheless compelled arbitration.

2. The core holding: South Dakota’s “concerted misconduct” prong is broad

Because Rossi Fine Jewelers, Inc. v. Gunderson did not define “concerted misconduct” beyond adopting the two-part framework, the court treated the issue as a state-law prediction. It concluded South Dakota would follow the majority approach and would not cabin equitable estoppel to cases pleading explicit conspiracy or coordinated wrongdoing (as Estrada v. The Moore Law Group did).

The court grounded this prediction in (i) the “weight and trend” of authority, (ii) its own majority-style analysis in Reeves v. Enterprise Products Partners, LP, and (iii) the fairness rationale consistently emphasized in equitable estoppel jurisprudence (including Grigson v. Creative Artists Agency, L.L.C.).

3. Applying the majority approach to the pleadings

On the complaint’s face, the cardholders repeatedly referred to Wells Fargo and Conduent collectively as “Defendants” when alleging bad-faith investigations, unreasonable denial of errors, continued consumer liability practices, and statutory violations. The court treated these “lumped” allegations as pleading a unified course of conduct and “same facts” claims—an archetype for interdependence under MS Dealer Serv. Corp. v. Franklin and the majority approach.

The subcontracting relationship (Wells Fargo outsourcing most obligations to Conduent) further reinforced that litigation against Conduent would necessarily involve the same factual nucleus as the arbitrable dispute with Wells Fargo, raising the risk of inefficiency and inconsistent outcomes if arbitrable claims proceeded in arbitration while parallel claims proceeded in court.

4. Morgan’s “anti-favoritism” principle does not bar state-law estoppel

The cardholders argued Morgan v. Sundance, Inc. undermined nonsignatory estoppel. The court disagreed, characterizing Morgan as prohibiting arbitration-favoring judge-made procedural rules—not the application of neutral state-law contract doctrines recognized by Arthur Andersen LLP v. Carlisle and reaffirmed in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC.

C. Impact

  • Expanded nonsignatory access to arbitration in South Dakota-governed contracts (in the Tenth Circuit): Where South Dakota law applies and the complaint alleges overlapping wrongdoing by a signatory and nonsignatory, courts in the Tenth Circuit are likely to apply this “majority approach” and compel arbitration even absent explicit conspiracy allegations.
  • Pleading strategy is less effective to avoid arbitration: Plaintiffs cannot reliably avoid arbitration by (i) suing the nonsignatory operator while (ii) treating the signatory and nonsignatory as collective “Defendants” or (iii) relying on a shared factual core created by delegation/subcontracting.
  • Operational reality matters in benefit-card and fintech-administered programs: Programs commonly involve banks contracting out customer service, investigations, and dispute processing. This decision makes it more likely that vendors performing core functions can invoke arbitration through equitable estoppel when claims are functionally inseparable from the bank’s program obligations.
  • Continued emphasis on “formation” as a judicial gatekeeping step: Even as arbitration is compelled on estoppel grounds, the court’s formation holding preserves an important constraint: delegation clauses do not eliminate the need for a judicial determination that an agreement exists between the litigants.

IV. Complex Concepts Simplified

Arbitration agreement “formation”
Whether the parties actually formed a contract to arbitrate with each other (mutual assent). Courts decide this first; an arbitrator cannot derive authority from a contract that never existed between the litigants.
“Arbitrability”
Whether a particular dispute falls within the scope of an existing arbitration agreement (e.g., statutory claims, tort claims, timing). Courts decide unless validly delegated.
Delegation clause
A contract term assigning the arbitrator—not the court—the power to decide arbitrability questions (like scope or enforceability). But it only operates after a court finds an agreement exists between the parties invoking it.
Nonsignatory
A party that did not sign (or is not clearly included in) the arbitration agreement but seeks to enforce it anyway through doctrines like agency, third-party beneficiary, or equitable estoppel.
Equitable estoppel (in arbitration)
A fairness doctrine preventing a signatory from (a) relying on an agreement or a shared factual relationship involving a signatory while (b) refusing to arbitrate closely connected claims against a nonsignatory. Under Rossi Fine Jewelers, Inc. v. Gunderson, it can apply through “concerted misconduct” or “claims arising out of the agreement.”
“Substantially interdependent and concerted misconduct”
Not necessarily a conspiracy. Under the majority approach adopted here, it can be satisfied when allegations against signatory and nonsignatory are tightly intertwined—e.g., pleaded collectively, based on the same operative facts, and linked by delegated duties—such that separating forums would be unfair or inefficient.

V. Conclusion

Munoz v. Conduent State & Local Solutions delivers a significant clarification at the intersection of arbitration and nonsignatory enforcement. While reaffirming that courts must decide whether an arbitration agreement was formed between the litigants (even in the presence of a delegation clause), the Tenth Circuit reversed on equitable estoppel grounds and predicted that South Dakota’s “concerted misconduct” doctrine aligns with the majority approach: it is not confined to pleaded conspiracy or explicit coordination.

Practically, where a plaintiff’s complaint treats a signatory and nonsignatory as collectively responsible for the same alleged misconduct arising from a single operational relationship, the plaintiff should expect arbitration to be compelled against the nonsignatory—especially when proceeding separately risks duplicative fact-finding and inconsistent outcomes.