Deborah Jackson v. Payday Financial, LLC
2014 U.S. App. LEXIS 16257
| 7th Cir. | 2014Background
- Plaintiffs (Illinois consumers) took out high‑interest online loans from entities owned/operated by Martin Webb, an enrolled member of the Cheyenne River Sioux Tribe. Loan contracts stated they were governed by the Indian Commerce Clause and Cheyenne River Sioux Tribe law and disclaimed state law.
- Contracts required disputes to be resolved by arbitration "conducted by the Cheyenne River Sioux Tribal Nation" by a Tribal Elder or a three‑member Tribal Council panel; borrowers could participate remotely and the lenders agreed to pay fees.
- Plaintiffs sued in Illinois for violations of Illinois usury and consumer‑protection laws and asked the court to declare the arbitration clauses unenforceable. Defendants removed under CAFA and moved to dismiss for improper venue based on the forum selection/arbitration clause.
- The district court dismissed for improper venue, finding arbitration required. On appeal, the Seventh Circuit remanded limited factual questions about (1) availability/ascertainability of tribal law and (2) whether the tribal arbitration mechanism actually existed.
- On remand the district court found tribal law ascertainable but concluded the tribal arbitration mechanism did not exist and appeared illusory. The Seventh Circuit reviewed de novo and reversed the dismissal, holding the arbitration clause unenforceable and tribal courts lacked subject‑matter jurisdiction over plaintiffs’ off‑reservation claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of forum‑selection / arbitration clause | Clause is unenforceable because it is procedurally and substantively unconscionable and illusory | FAA requires enforcement; clause is valid and governs forum | Arbitration clause unenforceable: it is illusory, procedurally and substantively unconscionable; dismissal for improper venue reversed |
| Availability of tribal arbitration mechanism | No actual tribal arbitration rules or authorized mechanism existed; borrowers could not ascertain terms | Any lapse can be remedied by courts under FAA §5 or FAA preempts state defenses | Court found the described tribal arbitral forum did not exist; FAA §5 cannot save a contract that contemplates supervision by a tribal body that performs no such role |
| FAA preemption of state unconscionability defenses | State unconscionability doctrine applies to forum clauses and is not preempted where clause is illusory | FAA preempts defenses that are arbitration‑specific (per Concepcion) | FAA does not preempt here because clause is sham in its entirety (not just biased arbitrator); state law defenses may invalidate arbitration provisions |
| Tribal court jurisdiction / exhaustion | Not applicable: plaintiffs’ conduct occurred off‑reservation via website; no colorable tribal jurisdiction | Parties consented via contracts to tribal jurisdiction; tribal courts should adjudicate (and exhaustion required) | Tribal courts lack subject‑matter jurisdiction over these off‑reservation claims; defendants did not show a colorable claim of tribal jurisdiction and exhaustion not required |
Key Cases Cited
- Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316 (2008) (tribal authority over nonmembers is limited and centers on tribal land and members)
- M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) (forum‑selection clauses presumptively valid unless unreasonable)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (FAA treats arbitration as a matter of contract)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA preemption principles for state rules that single out arbitration)
- Montana v. United States, 450 U.S. 544 (1981) (limits on tribal civil jurisdiction over nonmembers; two exceptions)
- Green v. U.S. Cash Advance Illinois, LLC, 724 F.3d 787 (7th Cir. 2013) (FAA §5 can supply an arbitrator when underlying arbitral procedures remain usable)