James Hayes v. Delbert Services Corporation, 811 F.3d 666

Background

Western Sky, a lender based on the Cheyenne River Sioux Reservation, issued high‑rate payday loans to out‑of‑state consumers; loans included forum, governing‑law, and arbitration clauses purporting to make Cheyenne River Sioux Tribal law exclusively applicable and tribal forum/arbitration exclusive.
Hayes received a Western Sky loan and later sued Delbert Services (a non‑tribal servicer/collector) in federal court alleging FDCPA and TCPA violations arising from collection practices.
The loan agreement’s arbitration clause required disputes to be resolved by a tribal representative under the Tribe’s consumer dispute rules and also included a choice‑of‑law clause disavowing all state and federal law.
A later added clause permitted the borrower to select AAA or JAMS to “administer” arbitration, but did not clearly supplant the tribal appointment/choice‑of‑law provisions.
The district court rejected Delbert’s tribal‑forum and tribal‑exhaustion arguments but compelled arbitration, reasoning the AAA/JAMS option rescued the arbitration clause.
On appeal the Fourth Circuit reversed, holding the arbitration agreement unenforceable because it prospectively waived application of federal law to federal statutory claims and was thus a substantive waiver of federally protected rights.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Enforceability of arbitration agreement that disavows state and federal law	Hayes: agreement invalid because it prospectively forbids application of federal law, effecting an unenforceable substantive waiver	Delbert: arbitration is enforceable; AAA/JAMS administration clause cures tribal‑forum defects and parties agreed to arbitrate	Held: arbitration agreement unenforceable — it categorically renounces federal law and constitutes an impermissible substantive waiver
Validity of tribal arbitration mechanism	Hayes: tribal appointment process and consumer dispute rules are non‑existent or illusory, rendering mechanism a sham	Delbert: later AAA/JAMS clause fixes appointment and procedure problems	Held: Court need not resolve fully because the choice‑of‑law waiver independently invalidates the agreement; but noted serious defects in tribal mechanism
Severability of offending provisions	Hayes: unenforceable provisions go to the essence and should not be severed	Delbert: offending parts can be severed and arbitration enforced via AAA/JAMS	Held: Non‑severable — offending clauses are integral to the scheme and reflect intent to avoid federal law; cannot be excised
Applicability of tribal‑exhaustion and forum‑selection clause to Delbert	Hayes: case should proceed in federal court; forum clause doesn't reach third‑party servicer	Delbert: dispute belongs in tribal court and tribal exhaustion applies	Held: District court correctly rejected Delbert’s tribal forum and exhaustion defenses; Fourth Circuit adopted those reasons on appeal

Key Cases Cited

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) (strong federal policy favoring arbitration)
AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986) (arbitrability is generally for courts to decide)
Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (distinguishing delegation to arbitrator and requiring clear and unmistakable evidence)
Mitsubishi Motors Corp. v. Soler‑Chrysler‑Plymouth, Inc., 473 U.S. 614 (1985) (federal statutory claims generally arbitrable absent contrary congressional command)
American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013) (class‑action waivers enforceable absent substantive waiver of statutory rights)
CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012) (arbitrability of certain federal statutory claims)
Green Tree Financial Corp.‑Ala. v. Randolph, 531 U.S. 79 (2000) (arbitration provisions may be invalid if costs preclude vindication of statutory rights)
Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006) (choice‑of‑law cannot be used to effectuate waiver of federal statutory protections)