Shamia Franklin v. Cleo AI Inc.

• Court: Court of Appeals for the Fourth Circuit
• Decided: May 30, 2025
• Docket: 24-1817
• Status: Unpublished

Opinion

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UNPUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 24-1817

SHAMIA FRANKLIN; DEVON CHAPMAN, individually and on behalf of all others similarly situated,

Plaintiffs – Appellees,

v.

CLEO AI INC.,

Defendant – Appellant.

Appeal from the United States District Court for the District of Maryland, at Baltimore. J. Mark Coulson, Magistrate Judge. (1:24-cv-00146-JMC)

Submitted: April 2, 2025 Decided: May 30, 2025

Before DIAZ, Chief Judge, and WYNN and THACKER, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ON BRIEF: Bruce P. Merenstein, Abigail T. Burton, WELSH & RECKER, P.C., Philadelphia, Pennsylvania, for Cleo. Kevin Joseph Abramowicz, Kevin William Tucker, EAST END TRIAL GROUP LLC, Pittsburgh, Pennsylvania, for Appellees.

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PER CURIAM:

Cleo AI Inc. (“Cleo”) appeals the district court’s order denying its motion to compel

arbitration. Because we conclude that Cleo cannot compel arbitration as a third party to

the arbitration agreement, we affirm.

I.

Cleo is a technology company in New York that provides loans and cash advances

to Maryland consumers through its mobile app (the “Cleo App”). At the relevant time

herein, Cleo contracted with Synapse Financial Technologies, Inc. (“Synapse”) in order to

effectuate electronic fund transfers (“EFT”) for cash advances and loans. Devon Chapman

(“Appellee”) signed up for Cleo’s lending services using the Cleo App on November 28,

2019. During the signup process, Appellee was “required to click a button stating that he

agreed to [Cleo’s] terms and conditions.” J.A. 98. 1 The phrase “terms and conditions”

was hyperlinked so that, if clicked, it would lead to Cleo’s then current terms and

conditions. Appellee “was not required to [click on] that hyperlink in order to agree to the

terms and conditions, but he was nevertheless unable to proceed with establishing his

account until he clicked the box indicating that he agreed to the terms and conditions.” Id.

at 98–99.

At the time Appellee signed up for the Cleo App, Cleo’s terms and conditions stated:

“Your salary advance payments and repayments are processed by our loan provider

Synapse. By using a salary advance you agree to {https://synapsefi.com/tos-evolve]

1 Citations to the “J.A.” refer to the Joint Appendix filed by the parties in this appeal.

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Synapse’s Terms of Service.” J.A. 66; 99. Synapse’s then current Terms of Service were

also hyperlinked. Those Terms of Service included a binding arbitration provision: “Any

controversy or claim arising out of or relating to these Terms of Service, or the breach

thereof, shall be settled by arbitration administered by the American Arbitration

Association in accordance with its Commercial Arbitration Rules . . . .” Id. at 90.

Synapse’s Terms of Service also provided that they “are governed by the laws of the State

of California.” Id. at 91.

Appellee signed up for the Cleo App and used Cleo’s lending services to obtain

salary advances. On January 16, 2024, Appellee sued Cleo in the District of Maryland,

individually and on behalf of all others similarly situated, alleging violations of the

Maryland Consumer Loan Law, Md. Com. Law §§ 12-301, et seq. (Count I); the Truth in

Lending Act, 15 U.S.C. §§ 1601, et seq. (Count II); the Electronic Funds Transfer Act, 15

U.S.C. §§ 1693, et seq. (Count III); and the Maryland Consumer Protection Act, Md. Com.

Law §§ 13-101, et seq. (Count IV). Count I is based on Appellee’s allegations that Cleo is

not licensed under the Consumer Loan Law in Maryland. Count II is based on Appellee’s

claim that Cleo misleads consumers by not disclosing the total cost of the loans it offers or

the true annual percentage rate. Count III is based on Appellee’s claim that the Electronic

Funds Transfer Act does not allow a lender to “condition[] its extension of credit on

repayment by means of preauthorized transfers,” as Cleo allegedly does. And Count IV is

based on Appellee’s claim that all of the alleged conduct constitutes unfair, abusive, or

deceptive trade practices pursuant to the Maryland Consumer Protection Act.

Appellee did not name Synapse as a defendant. In fact, the complaint does not

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mention Synapse or its part in effectuating the EFTs at all. Nevertheless, Cleo moved the

district court to compel arbitration of Appellee’s claims against it, relying on the binding

arbitration agreement contained in Synapse’s Terms of Service. Cleo argued that Appellee

should be equitably estopped from refusing to abide by the agreement to arbitrate claims

“arising out of or relating to” Synapse’s Terms of Service because Synapse’s services were

a necessary prerequisite to Appellee receiving advances from Cleo. J.A. 90.

The district court denied Cleo’s motion, concluding that equitable estoppel did not

entitle Cleo, as a non-signatory, to enforce Appellee’s arbitration agreement with Synapse. 2

Cleo timely filed this appeal.

II.

Typically, we “review[] de novo a district court’s order denying a motion to compel

arbitration.” Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk

Assurance Co., 867 F.3d 449, 453 (4th Cir. 2017). But, as is the case here, when “the

district court’s decision is based on principles of equitable estoppel, we review the district

court’s decision for abuse of discretion.” Am. Bankers Ins. Grp. v. Long, 453 F.3d 623,

629 (4th Cir. 2006); see also Wachovia Bank, Nat. Ass’n v. Schmidt, 445 F.3d 762, 767

(4th Cir. 2006). “A district court abuses its discretion when it acts arbitrarily or irrationally,

fails to consider judicially recognized factors constraining its exercise of discretion, relies

2 The district court considered both Maryland law, because Maryland was the forum state, and California law, given the forum selection clause in the Synapse agreement, and reached the same conclusion as to both states.

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on [clearly] erroneous factual or legal premises, or commits an error of law.” United States

v. Delfino, 510 F.3d 468, 470 (4th Cir. 2007).

III.

The Federal Arbitration Act provides for “the enforcement of agreements to

arbitrate when they are created by contract, and such contracts must be treated like any

other contract under applicable state law.” Rogers v. Tug Hill Operating, LLC, 76 F.4th

279, 285 (4th Cir. 2023) (emphasis omitted). “Because traditional principles of state law

allow a contract to be enforced by or against nonparties to the contract through assumption,

piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary

theories, waiver[,] and estoppel,” nonparties to a written arbitration agreement may

nonetheless be able to enforce it. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631

(2009) (cleaned up). Here, Cleo argues that it is entitled to enforce Appellee’s arbitration

agreement with Synapse based only on the theory of equitable estoppel.

A.

State law contract principles determine whether a non-signatory can enforce a

contract, and thus an arbitration agreement, through equitable estoppel. See Arthur

Andersen, 556 U.S. at 629–32. While the district court considered equitable estoppel

pursuant to the laws of both Maryland and California, only Maryland law is relevant here.

Choice of law provisions are a contractual right that, like the arbitration agreement itself,

may not generally be invoked by a nonparty to the contract. See id. Therefore, until it has

been established that Cleo has a right to enforce the Synapse contract, we cannot apply the

choice of law provision in the Synapse Terms of Service. And to make that determination,

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we apply the law of the forum state. See Johnson v. Continental Finance Co., LLC, 131

F.4th 169, 178 (4th Cir. 2025) (“We cannot apply any provision of the contract, including

its choice-of-law clause, before deciding if the parties formed an agreement.” (emphasis in

original)). Here, Maryland is the forum state. Therefore, we must apply Maryland law in

order to determine whether Cleo has any right to enforce the contract between Appellee

and Synapse.

B.

Pursuant to Maryland law, the “basis” of equitable estoppel is the “effect of the

conduct of one party on the position of the other party and that the estopped party is

therefore absolutely precluded both at law and in equity, from asserting rights which might

perhaps have otherwise existed against another person, who has in good faith relied upon

such conduct.” Dickerson v. Longoria, 995 A.2d 721, 742 (Md. 2010) (cleaned up). In

simpler terms, “[t]he doctrine of equitable estoppel is rooted in the equitable principle that

it would be unfair for a party to rely on a contract when it works to its advantage, and

repudiate it when it works to its disadvantage.” Griggs v. Evans, 43 A.3d 1081, 1092 (Md.

App. 2012) (cleaned up).

1.

Equitable estoppel permits non-signatories to enforce an arbitration provision in two

instances under Maryland law. The first is “when a signatory must rely on the terms of the

written agreement containing the arbitration clause in asserting its claims and seeks to

claim the benefit of such an agreement while simultaneously attempting to avoid the terms

of an arbitration provision contained therein.” Griggs, 43 A.3d at 1092 (cleaned up)

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(emphasis supplied); see also Schuele v. Case Handyman and Remodeling Srvs., LLC, 989

A.2d 210, 214 n.3 (Md. 2010). And the second is “when the signatory to the contract

containing an arbitration clause raises allegations of substantially interdependent and

concerted misconduct by both the non-signatory and one or more of the signatories to the

contract.” Griggs, 43 A.3d at 1092 (cleaned up). In other words, “when the issues the non-

signatory is seeking to resolve in arbitration are intertwined with the agreement that the

estopped party has signed.” Id. (cleaned up). 3

Here, the district court determined,

Under the above Maryland standards, [Appellee’s] claims do not rely on the language or construction of Synapse’s terms and conditions; [Appellee] does not seek to benefit from certain provisions of Synapse’s terms and conditions while disowning his obligations under others; and [Appellee] raises no allegations that [Cleo] and Synapse engaged in any interdependent and/or concerted misconduct giving rise to [Appellee’s] claims.

J.A. 103. The district court also pointed out that “the Synapse arbitration clause [is] limited

to ‘Any controversy or claim arising out of or relating to these Terms of Service, or the

breach thereof,’ which would not apply to [Appellee’s] claims regarding [Cleo’s] allegedly

improper financial practices.” Id. (emphasis supplied). Therefore, the district court

3 The parties dispute whether, under Maryland law, detrimental reliance is an independent requirement for invoking equitable estoppel. But we need not wade into that question because Cleo does not satisfy either of the above avenues to non-signatory enforcement of the arbitration agreement. That is, Cleo has not established that Appellee’s claims rely on or are inextricably intertwined with the Synapse agreement.

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determined that Cleo was not entitled to enforce the arbitration agreement between

Appellee and Synapse.

Upon review, we conclude that the district court did not “act[] arbitrarily or

irrationally, fail[] to consider judicially recognized factors constraining its exercise of

discretion, rel[y] on [clearly] erroneous factual or legal premises, or commit[] an error of

law.” United States v. Delfino, 510 F.3d 468, 470 (4th Cir. 2007). To the contrary, the

district court considered the relevant law and correctly determined that Appellee’s claims

against Cleo did not rely on the Synapse agreement or allege misconduct intertwined with

the Synapse agreement.

2.

Appellee’s claims have nothing to do with Synapse. In order for Cleo to invoke the

first path to equitable estoppel, Appellee’s claims that Cleo engaged in deceptive and unfair

trade practices and violated various consumer protection and banking/loan laws must rely

“on the terms of the written agreement containing the arbitration clause.” Griggs, 43 A.3d

at 1092 (cleaned up). They do not. Nor does Appellee “seek[] to claim the benefit of such

an agreement while simultaneously attempting to avoid the terms of an arbitration

provision contained therein.” Id. Cleo argues that Appellee did obtain the benefit of the

agreement by obtaining Cleo’s loan services. But “[t]he fact that a signatory receives

benefits from a contract is. . . . insufficient, in and of itself, to estop it from asserting that a

non-signatory is not entitled to invoke the contract’s arbitration clause.” Wachovia, 445

F.3d at 771. Rather, to be estopped from denying the applicability of the arbitration

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agreement, Appellee’s claims would have to be both seeking the benefit of the Synapse

agreement and trying to disclaim the arbitration provision. That is not the case here.

As to the second path to invoke equitable estoppel, Appellee does not “raise[]

allegations of substantially interdependent and concerted misconduct by both the non-

signatory and one or more of the signatories to the contract.” Griggs, 43 A.3d at 1092

(cleaned up). That is, Appellee’s claims do not allege that Cleo and Synapse undertook

the alleged misconduct in an “interdependent and concerted” manner. In fact, Appellee

does not allege Synapse engaged in misconduct at all. Rather, as explained above,

Appellee’s claims are based entirely on his allegations that Cleo’s predatory lending

practices and unlicensed status violate various state and federal consumer protection and

banking laws.

In an effort to avoid these conclusions, Cleo argues that Appellee’s claims

necessarily arise out of and are intertwined with the Synapse agreement because Appellee

could not have obtained Cleo’s services without agreeing to Synapse’s Terms of Service.

But, Maryland law makes clear that this type of relationship is insufficient for Appellee to

invoke equitable estoppel.

In Griggs, for example, the Griggses sued the carrier of their mortgage insurance

policy. That carrier, a non-signatory to the Griggses’ mortgage agreement, sought to

enforce an arbitration clause contained in the mortgage agreement. The Griggses argued

that the arbitration clause did not apply to their claims, while the non-signatory argued the

Griggses should be equitably estopped from denying the arbitration clause. The court held,

“the Griggses’ claims ha[d], at most, an incidental relationship to the Mortgage Agreement,

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as the [mortgage insurance] policy would not have been obtained in the absence of the

Mortgage Agreement.” Griggs, 43 A.3d at 1096. “Such an attenuated relationship is

hardly sufficient to estop the Griggses from denying the applicability of the arbitration

rider.” Id. (citations omitted). Significantly, the court noted that Griggs differed from

Case Handyman, where the plaintiffs’ claims “depended on their asserted rights under the

contract containing the arbitration clause,” such that the non-signatory defendant was

entitled to enforce the arbitration agreement. Id. (citing Case Handyman and Remodeling

Srvs., LLC v. Schuele, 959 A.2d 833, 844 (Md. App. 2008), reversed and remanded on

other grounds in Schuele v. Case Handyman and Remodeling Srvs., LLC, 989 A.2d 210

(Md. 2010)).

The argument Cleo makes here is nearly indistinguishable from the one the

mortgage insurer made in Griggs. According to Cleo, Appellee could not have obtained

Cleo’s services if he did not agree to Synapse’s arbitration agreement. So, in Cleo’s view,

any claim Appellee makes against Cleo necessarily arises from, or is inextricably

intertwined with, the Synapse agreement. As in Griggs, this “incidental” and “attenuated

relationship is hardly sufficient to estop [Appellee] from denying the applicability of the

arbitration [agreement].” 43 A.3d at 1096.

Cleo also argues that the language in the Synapse Terms of Service -- requiring

arbitration of “[a]ny controversy or claim arising out of or relating to these Terms of

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Service, or the breach thereof,” J.A. 90 -- is “broad,” 4 such that it “embraces every dispute

between parties having a significant relationship to the contract regardless of the label

attached to the dispute.” Opening Br. at 18–19 (citation omitted). Cleo is correct that

Maryland employs a “significant relationship” test to “determine whether an arbitration . .

. provision applies to a dispute that does not arise from the governing contract.” Griggs,

43 A.3d at 1088. But, pursuant to that test, “when a significant relationship exists between

the asserted claims and the contract in which the arbitration clause is contained, those

claims must be submitted to arbitration.” Id. (emphasis supplied) (cleaned up). Here, too,

Maryland courts have confirmed that “claims arising under a contract, which is

transactionally related to another contract containing a broadly worded arbitration clause,

are not necessarily ‘significantly related’” to the contract containing that arbitration clause,

and “application of the ‘significant relationship test’ does not always require arbitration of

such claims.” Id. at 1090. Instead, Maryland determines whether the claims themselves

have a significant relationship with the contract containing the arbitration agreement. And

as we have explained, Appellee’s claims have no relationship with Synapse or Synapse’s

Terms of Service.

IV.

The district court did not abuse its discretion, and its order denying Cleo’s motion

to compel arbitration is

4 There is no dispute that the language here requiring arbitration of any claim “arising from or relating to” Synapse’s Terms of Service is “broad” under the relevant law.

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AFFIRMED.