Smith v. W. Sky Fin., LLC

168 F.Supp.3d 778

Rodella Smith, Plaintiff,

v.Western Sky Financial, LLC, et al., Defendants.

CIVIL ACTION No. 15–3639

United States District Court, E.D. Pennsylvania.

Signed March 4, 2016

Matthew B. Weisberg, Weisberg Law PC, Morton, PA, for Plaintiff.

Robert E. Slavkin, Akerman LLP, Orlando, FL, for Defendants.

MEMORANDUM

MCHUGH, United States District Court Judge

This case presents an unusual and disconcerting collision between federal consumer protection laws and the sovereignty of Native American tribes and their courts. Defendants here make “payday” loans across the United States through the Internet, and they seek to have their loan agreements governed by tribal law and challenged only in certain tribal courts or arbitral forums. Given the historic injustices visited upon Native Americans, the Supreme Court has understandably admonished that federal courts should tread lightly when it comes to intruding upon their sovereignty. See Iowa Mutual Insurance Co. v. LaPlante, 480 U.S. 9, 107 S.Ct. 971, 94 L.Ed.2d 10 (1987). Defendants here invoke these principles in moving to dismiss Plaintiff's case. For the reasons set forth below, I have concluded that Native American sovereignty is not at stake in this case, and I agree with the Fourth Circuit (among others) that Defendants seek “to avoid federal law and game the system.” Hayes v. Delbert Servs. Corp., 811 F.3d 666, 676 (4th Cir.2016). Defendants' Motion to Dismiss will be denied.

I. Facts of this Case

Plaintiff Rodella Smith alleges that she is the victim of a high-cost payday lender who has cloaked himself in the protections of tribal sovereignty and a series of shell companies to avoid complying with state and federal laws. On March 7, 2012, Plaintiff Rodella Smith took out a loan from Defendant Western Sky Financial, LLC in the amount of $5,000. First Amended Complaint (“FAC”) at ¶ 8; Western Sky Consumer Loan Agreement (“Loan Agreement”), Ex. A to Defs.' Mot. Dismiss, at 1. According to the terms of the Loan Agreement, which she viewed online and signed electronically, the loan was subject to an annual percentage rate of 116.73%, and the repayment term was set for a period of about seven years, resulting in a total payment of $41,172.61. Loan Agreement at 1. Almost immediately, the loan was sold to Defendant CashCall, Inc. on March 10, 2012, and then subsequently sold to Defendant Delbert Services Corp. on September 30, 2013. Defs.' Mot. Dismiss at 7.

Plaintiff alleges that Western Sky is a limited liability company registered and maintaining a principle place of business in South Dakota; Western Sky disagrees, describing itself as “an entity imbued with the rights and privileges of [Cheyenne River Sioux] tribal membership” and stating in the Consumer Loan Agreement that it does not have a presence in any state of the United States. Defs.' Mot. Dismiss at 13; Loan Agreement at 3. The Consumer Loan Agreement also states that “execution of this Agreement is made as if you were physically present within the exterior boundaries of the Cheyenne River Indian Reservation, a sovereign Native American Tribal Nation.” Loan Agreement at 3. Defendants CashCall and Delbert do not profess to have any tribal affiliation.

Plaintiff alleges that she made payments on the loan for the first two years, but by the time she had paid $13,000—more than double what she had originally borrowed— she refused to make further payments. FAC at ¶¶ 9–10. In 2014, one or all of the Defendants allegedly started calling and emailing Plaintiff and her granddaughter demanding payment. FAC at ¶ 11. Plaintiff filed this Amended Complaint on August 27, 2015, alleging that Defendants have violated state usury law, as well as federal statutes including the Fair Debt Collection Practices Act, Fair Credit Extension Uniformity Act, and the Unfair Trade Practices and Consumer Protection Law. She seeks damages and an injunction.

Defendants have moved to dismiss the FAC under the doctrine of forum non conveniens or the doctrine of tribal exhaustion; or, alternatively, to compel arbitration of the dispute. Defs.' Mot. Dismiss at 1. Defendants point to the broad forum selection and choice of law provisions contained in the underlying Consumer Loan Agreement and argue that these require Plaintiff to seek relief from the Cheyenne River Sioux Tribe (CRST). Defs.' Mot. Dismiss at 1–2.¹

II. Broader Factual Background

Defendants support their motion with a selective presentation of cases. They fail to disclose a broader and more troubling picture. This Motion comes before the Court in the context of extensive litigation regarding Defendants' business practices. It is true that Defendants have occasionally prevailed by asserting these same arguments against borrowers in other federal courts. See, e.g., Yoroma v. Cashcall, Inc., No: 15–08–GFVT, 130 F.Supp.3d 1055, 2015 WL 5475258 (E.D.Ky. Sept. 16, 2015), appeal docketed, No. 15–6159 (dismissing to enforce arbitration agreement); Brown v. W. Sky Fin., LLC, 84 F.Supp.3d 467, 481 (M.D.N.C.2015) (dismissing to allow tribal exhaustion); Heldt v. Payday Fin., LLC, 12 F.Supp.3d 1170, 1193 (D.S.D.2014) (staying case to allow tribal exhaustion). Significantly, however, it appears that every Court of Appeals that has considered this loan scheme has refused to dismiss the case or compel arbitration. See Jackson v. Payday Fin., LLC, 764 F.3d 765 (7th Cir.2014), cert. denied sub nom., W. Sky Fin. v. Jackson, ––– U.S. ––––, 135 S.Ct. 1894, 191 L.Ed.2d 763 (2015) ; Inetianbor v. Cashcall, Inc ., 768 F.3d 1346 (11th Cir.2014), cert. denied, ––– U.S. ––––, 135 S.Ct. 1735, 191 L.Ed.2d 701 (2015)² ; Hayes, 811 F.3d at 674.

In addition, The Federal Trade Commission and similar agencies from a number of states have filed complaints against Defendant Western Sky Financial and other affiliated companies, many resulting in consent agreements. See, e.g., FTC v. Payday Fin., LLC, No. 11–03017, Stipulated Order for Injunction and Civil Penalties (D.S.D. April 4, 2014); Commonwealth of Pennsylvania Dep't of Banking and Sec. v. Cashcall, No. 130055 (BNK–CAO), Consent Agreement and Order (July 17, 2014). The FTC Complaint in particular characterizes Western Sky's argument that CRST courts have jurisdiction over these cases as a misrepresentation that constitutes a deceptive trade practice. FTC v. Payday Fin., LLC, No. 11–03017 (D.S.D.2011), Doc. 44 at 21. As described by the Fourth Circuit, “a stream of private and public enforcement actions seem to have led Western Sky to stop issuing new loans in 2013.” Hayes, 811 F.3d at 676.

III. Forum Selection Clause

The Loan Agreement in question provides that it “is subject to the exclusive laws and jurisdiction” of the CRST, and the borrower consents to the subject matter and personal jurisdiction of the CRST by signing the agreement. Loan Agreement at 1. Defendants therefore argue that Plaintiff has thus waived her right to bring suit in this Court for any dispute relating to the loan agreement, and the Court must dismiss the action under the doctrine of forum non conveniens so that Plaintiff may bring her claims in a CRST Court.

I recognize the importance of respecting tribal sovereignty and in no way desire to limit appropriate access to tribal courts. But I also recognize that any legal system may be subject to manipulation, and allowing lenders to evade the enforcement of laws by cloaking themselves in the protection of the tribe ultimately obstructs the success of tribal courts and diminishes the respect they are owed.³

Despite Defendants' best efforts to compel Plaintiff to bring her claims in a tribal court, I find the clause unenforceable. A forum selection does not suffice to create jurisdiction, which depends upon a grant of judicial authority from Congress. While consent may be sufficient to establish personal jurisdiction over a party to a contract, “a tribal court's authority to adjudicate claims involving nonmembers concerns its subject matter jurisdiction, not personal jurisdiction.” Jackson v. Payday Fin., 764 F.3d at 783 (citing Nevada v. Hicks, 533 U.S. 353, 367 n. 8, 121 S.Ct. 2304, 150 L.Ed.2d 398 (2001) ). Unlike the general jurisdiction enjoyed by state courts, the subject matter jurisdiction of tribal courts over persons who are not members of the tribe is limited, and “a tribe's inherent adjudicative jurisdiction over nonmembers is at most only as broad as its legislative jurisdiction.” Nevada v. Hicks, 533 U.S. at 367–68, 121 S.Ct. 2304 ; see also Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316, 327, 128 S.Ct. 2709, 171 L.Ed.2d 457 (2008). “Therefore, a nonmember's consent to tribal authority is not sufficient to establish the jurisdiction of a tribal court.” Jackson v. Payday Fin., 764 F.3d at 783. Consequently, the enforceability of the forum selection clause depends upon whether the CRST courts could exercise subject matter jurisdiction over Plaintiff's claims apart from the parties' agreement.

[T]he inherent sovereign powers of an Indian tribe do not extend to the activities of nonmembers of the tribe.” Montana v. United States, 450 U.S. 544, 565, 101 S.Ct. 1245, 67 L.Ed.2d 493 (1981). Nevertheless, “Indian tribes retain inherent sovereign power to exercise some forms of civil jurisdiction over non-Indians on their reservations, even on non–Indian fee lands.” Id. Recognizing this limited right, the Court in Montana articulated two narrow situations in which a tribe may exercise jurisdiction over nonmembers: (1) “[a] tribe may regulate, through taxation, licensing, or other means, the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements”; and (2) “[a] tribe may also retain inherent power to exercise civil authority over the conduct of non-Indians on fee lands within its reservation when that conduct threatens or has some direct effect on the political integrity, the economic security, or the

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