The state contracted with the bank to assist with a state benefits program by delivering state benefits to qualifying recipients through prepaid debit cards. The bank subcontracted with a third-party company (the “program manager”) to administer the program and delegated nearly all of its obligations that the bank had to the state program manager. The program manager oversaw consumer-focused functions, including complaints of fraud or unauthorized use. The program manager also provided the materials to new recipients of the benefits, which included the physical debit card and the debit card terms and the conditions of the program (the “program terms”). The program terms provided that they were governed by South Dakota state law. After discovering large, unauthorized transactions that depleted the funds on their debit cards, two cardholders (the “cardholders”) reported the transactions to the program manager and sought reimbursement. The program manager denied the requests. The cardholders then filed a putative class action against the bank and the program manager for alleged violations of the Electronic Fund Transfer Act (“EFTA”) and the New Mexico Unfair Practices Act (“UPA”). Both the bank and program manager moved to compel arbitration based on the arbitration provision contained in the program terms, which had “commit[ed] the [c]ardholders’ disputes with [the bank] to arbitration.” The district court granted the bank’s motion but denied the program manager’s motion to compel arbitration. The program manager appealed the district court decision, arguing it had erred by “denying that equitable estoppel should compel arbitration of the claims.”
In Munoz v. Wells Fargo Bank, N.A., No. 24-2044, 2025 WL 799482, 2025 U.S. App. LEXIS 5852 (10th Cir. Mar. 13, 2025) (unpublished opinion), the court reversed the district court’s denial of the program manager’s motion to compel arbitration, finding that equitable estoppel should compel arbitration. Applying South Dakota law, the court explained that a nonsignatory may compel arbitration when “‘all the claims [brought by the signatory] against the nonsignatory defendants are based on alleged substantially interdependent and concerted misconduct by both the nonsignatories.” Rossi Fine Jewelers, Inc. v. Gunderson, 648 N.W. 2d 812, 815 (S.D. 2002). Rejecting the district court’s narrow interpretation of the law, the court predicted that the South Dakota Supreme Court would adopt a broad approach, allowing implicit or collective allegations of misconduct rather than requiring explicit claims of coordinated behavior or conspiracy. The court found the cardholders had alleged interdependent and concerted misconduct of both the bank and the program manager because the cardholders’ amended complaint had referred to the bank and the program manager collectively as “the defendants,” and the claims were based on identical facts. Therefore, the court held that equity favored compelling arbitration because the claims against the bank and the program manager were so interdependent, and compelling arbitration would avoid inconsistent outcomes between arbitration and litigation.
By Deanna Dulske [email protected]
Edited By Kristin Meurer [email protected]
Edited By Callighan Ard [email protected]
Edited By Hayden Mariott [email protected]