13 F.4th 823
9th Cir.2021Background
- Borrowers took short-term, high‑interest internet payday loans made through tribal entities (Plain Green, Great Plains) whose loan contracts required arbitration and included a delegation clause assigning arbitrability (validity/enforceability) to the arbitrator.
- Loan contracts repeatedly select “Tribal Law” to govern, state that state law does not apply, and limit awards to remedies available under tribal law; one clause allows only certain federal law under the Indian Commerce Clause or voluntarily adopted federal rules.
- Borrowers filed putative class actions alleging RICO and California usury and unjust‑enrichment claims; several investors moved to compel arbitration.
- The district court denied motions to compel, holding the arbitration agreements (including the delegation clauses) were unenforceable as prospective waivers of federal statutory rights because the arbitration process would be limited to tribal law.
- The Ninth Circuit majority reversed: it held the delegation provision is a separable, enforceable antecedent agreement that does not itself foreclose raising a federal prospective‑waiver challenge in arbitration, so an arbitrator must decide enforceability; a dissent argued the choice‑of‑law terms effectively preclude applying federal law and render both the delegation clause and the arbitration agreement invalid.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides arbitrability when contracts contain a delegation clause? | Brice: Court should decide enforceability of the arbitration agreement as a whole (including delegation clause) because tribal choice‑of‑law forecloses federal remedies. | Investors: Court must first decide whether the delegation clause is enforceable; if it is, arbitrator decides arbitrability. | Court: Apply Rent‑A‑Center/Brennan sequence—first test enforceability of the delegation provision itself; if valid, arbitrator decides gateway issues. |
| Is the delegation provision an invalid prospective waiver because contracts select tribal law and limit remedies? | Brice: Yes — choice‑of‑law provisions and remedial limits prevent arbitrator from applying federal prospective‑waiver doctrine, so delegation clause is itself an unenforceable prospective waiver. | Investors: No — the delegation language expressly includes federal claims and issues of enforceability; it does not bar presenting a federal prospective‑waiver challenge to an arbitrator. | Court: Delegation provision is enforceable; its text allows raising federal enforceability challenges before the arbitrator, so it is not facially a prospective waiver. |
| Does selecting tribal law for governance automatically bar arbitrator from applying federal law (including FAA’s effective‑vindication/prospective‑waiver rule)? | Brice: Yes — choice‑of‑law narrows arbitrator’s authority to a narrow set of federal laws and tribal law, effectively waiving vindication of federal and state statutory rights. | Investors: No — the arbitration definition permits federal claims and the arbitrator is instructed to apply "Tribal Law and the terms of this Agreement," so the delegation clause does not preclude federal enforceability arguments. | Court: The choice‑of‑law provisions do not facially foreclose federal enforceability challenges; uncertainty about how arbitrator will rule is not a basis to invalidate the delegation clause. |
| If arbitrator rejects or cannot decide a federal prospective‑waiver challenge, what remedies remain? | Brice: Court review should be available because arbitration would foreclose federal remedies. | Investors: If arbitrator rules, parties can seek vacatur or enforcement in court; back‑end review exists for arbitrator excess of power. | Court: If arbitrator rules against Borrowers, they may seek vacatur or argue arbitrator exceeded authority; compelling arbitration preserves those avenues and conforms with FAA/severability principles. |
Key Cases Cited
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (parties may delegate gateway arbitrability questions to an arbitrator if delegation is clear and unmistakable)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (if delegation clause is valid, courts must refer arbitrability to arbitrator even if arbitration argument seems frivolous)
- American Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013) (describing prospective‑waiver/effective‑vindication exception and emphasizing it invalidates agreements that eliminate statutory remedies)
- Mitsubishi Motors Corp. v. Soler Chrysler‑Plymouth, 473 U.S. 614 (1985) (arbitration enforceable so long as statutory causes of action can be effectively vindicated in arbitral forum)
- Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015) (arbitration provisions are severable; analyze delegation provision as antecedent agreement)
- Gibbs v. Haynes Invs., LLC, 967 F.3d 332 (4th Cir. 2020) (held similar tribal‑law arbitration terms and delegation clauses unenforceable under prospective‑waiver doctrine)
- Williams v. Medley Opportunity Fund II, LP, 965 F.3d 229 (3d Cir. 2020) (held arbitration clause that effectively limits arbitration to tribal law prospectively waived federal remedies)
- Gingras v. Think Finance, Inc., 922 F.3d 112 (2d Cir. 2019) (refused to enforce similar tribal‑loan arbitration agreements as they appeared to foreclose vindication of federal and state rights)