19 F.4th 324
4th Cir.2021Background
- The Habematolel Pomo of Upper Lake (the Tribe) operated online, short-term, high‑interest lending through affiliated entities; loans to Virginia residents were marketed and funded online while borrowers lived in Virginia.
- Plaintiffs (Virginia consumers) took loans with triple‑digit APRs (544%–920%) and electronically signed loan agreements containing an arbitration clause that (1) delegates arbitrability to an arbitrator and (2) requires application of Tribal law and forbids application of any other law in arbitration.
- Plaintiffs sued the Tribal Executive Council (officials in their official capacities) and non‑member operators, alleging Virginia usury violations and RICO claims (treble damages against nonmembers; injunctive relief against Tribal Officials).
- Defendants moved to compel arbitration and alternatively to dismiss, arguing Tribal law governs, sovereign immunity shields Tribal Officials, and RICO does not apply.
- The district court denied arbitration (finding a prospective‑waiver of federal rights), rejected sovereign immunity as to injunctive claims against Tribal Officials, refused to enforce the Tribal choice‑of‑law clause under Virginia public‑policy principles, but dismissed RICO injunctive claims against Tribal Officials; those four rulings are appealed and affirmed by the Fourth Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of delegation clause/arbitration provision (prospective‑waiver) | Hengle: the delegation clause and arbitration provision prospectively waive federal statutory rights (e.g., RICO) by requiring exclusive application of Tribal law, so arbitration is unenforceable. | Defendants: FAA governs; references to the FAA and arbitration of federal claims mean arbitrator can and should apply federal law; severability clause salvages remainder. | The arbitration delegation clause and the arbitration provision are unenforceable because the choice‑of‑law terms require exclusive Tribal law, effecting a prospective waiver of federal rights; offending clauses are inseverable. |
| Tribal sovereign immunity against off‑reservation injunctive suits | Hengle: Tribal Officials may be sued for prospective injunctive relief to enjoin off‑reservation violations of state law. | Tribal Officials: sovereign immunity bars suits seeking to enjoin the Tribe’s activity; immunity should extend to officials in official capacity. | Sovereign immunity does not bar suits against tribal officers for prospective injunctive relief for off‑reservation conduct; Bay Mills permits Ex parte Young–style suits against officials to enforce state law. |
| Enforceability of governing‑law clause selecting Tribal law (choice‑of‑law/public policy) | Hengle: Virginia law applies; enforcing Tribal choice‑of‑law would permit unregulated usurious lending and violate Virginia’s compelling public policy (usury cap, anti‑waiver statute). | Defendants: parties contracted to apply Tribal law; Settlement Funding and choice‑of‑law principles require enforcement absent unusual circumstances. | Under Virginia choice‑of‑law rules, enforcing the Tribal governing‑law clause would contravene Virginia’s compelling public policy against unregulated usurious lending; Virginia law governs. |
| Availability of injunctive relief under RICO for private plaintiffs | Hengle: private plaintiffs may seek equitable relief under RICO’s remedial provisions. | Defendants: RICO’s remedial scheme authorizes injunctive relief only to the government; Section 1964(c) confers only treble‑damages and costs to private plaintiffs. | Private RICO plaintiffs may not seek prospective injunctive relief; §1964(a) authorizes equitable remedies but §1964(b) grants the Attorney General authority to invoke them; §1964(c) provides private plaintiffs only damages and costs. |
Key Cases Cited
- Rent‑A‑Center, W., Inc. v. Jackson, 561 U.S. 63 (2010) (arbitration is a matter of contract; courts must enforce delegation clauses unless challenged).
- Mitsubishi Motors Corp. v. Soler Chrysler‑Plymouth, Inc., 473 U.S. 614 (1985) (arbitration agreements cannot prospectively waive substantive statutory remedies).
- Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (parties may waive certain rights in arbitration but cannot renounce federal statutes’ remedial functions).
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (parties may delegate gateway arbitrability questions to arbitrators).
- Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016) (arbitration provisions requiring exclusive Tribal law enforceability held to be prospective waivers; delegation clause unenforceable).
- Dillon v. BMO Harris Bank, N.A., 856 F.3d 330 (4th Cir. 2017) (similar ruling invalidating arbitration clause that displaces federal law).
- Gibbs v. Haynes Investments, LLC, 967 F.3d 332 (4th Cir. 2020) (arbitration agreement requiring Tribal law preemption of federal remedies is unenforceable).
- Gibbs v. Sequoia Capital Operations, LLC, 966 F.3d 286 (4th Cir. 2020) (same).
- Michigan v. Bay Mills Indian Cmty., 572 U.S. 782 (2014) (tribal sovereign immunity generally bars suits against tribes but permits suits against tribal officials to enjoin off‑reservation violations of state law).