168 F. Supp. 3d 778
E.D. Pa.2016Background
- Smith borrowed $5,000 via an online Western Sky loan agreement that disclosed a 116.73% APR and multi‑year repayment; the loan was later transferred to CashCall and Delbert.
- The Loan Agreement stated it was governed by Cheyenne River Sioux Tribe (CRST) law, required CRST jurisdiction and arbitration under tribal rules (or an alternate administrator only to the extent it did not conflict with CRST law).
- Smith paid roughly $13,000 over two years, stopped paying, and then sued in federal court alleging state usury and multiple federal consumer‑protection and debt‑collection claims.
- Defendants moved to dismiss or compel arbitration based on the forum‑selection/choice‑of‑law clause, tribal‑exhaustion doctrine, and an arbitration/delegation clause.
- The court reviewed circuit precedent and enforcement history showing a pattern of similar lenders using tribal‑law clauses to avoid state and federal law; several courts of appeals refused to enforce those schemes.
- The court concluded tribal sovereignty and tribal court jurisdiction were not implicated here, and that the forum‑selection and arbitration provisions were unenforceable as a vehicle to evade federal and state law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of forum‑selection / choice‑of‑law clause | Smith contends the CRST clause cannot divest federal court of claims and is a legal fiction for remote internet loans | Defendants say Smith consented to CRST jurisdiction and waived access to federal/state courts | Court: Clause unenforceable because tribal subject‑matter jurisdiction over nonmembers is limited and the facts lack a colorable basis for CRST jurisdiction |
| Tribal‑exhaustion doctrine | Smith argues exhaustion is unnecessary because tribal courts lack a colorable jurisdictional claim and exhaustion would be futile/bad faith | Defendants contend federal court must defer/stay until tribal courts decide jurisdiction | Court: Exhaustion not required — no colorable claim that tribal courts can adjudicate these off‑reservation, internet transactions |
| Arbitration clause (including delegation) | Smith argues arbitration scheme is illusory and cannot be used to avoid federal rights; arbitration would bar application of governing federal/state law | Defendants assert arbitration (and arbitrator‑decides arbitrability) should govern the dispute; alternative administrators may apply rules | Court: Arbitration clause unenforceable — it purports to renounce federal law and creates an illusory forum; delegation/administration provisions cannot cure the substantive waiver |
| Use of tribal status to evade consumer‑protection laws | Smith contends the tribal affiliation and shell‑company structure are used to avoid enforcement of laws | Defendants claim tribal membership/affiliation shields them and validates chosen forum | Court: Views scheme as litigation gaming; tribal sovereignty not implicated and may not be used to evade federal/state law; motion to dismiss denied |
Key Cases Cited
- Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9 (1987) (federal courts should be cautious about intruding on tribal sovereignty)
- Montana v. United States, 450 U.S. 544 (1981) (limits on tribal civil jurisdiction over nonmembers)
- Nevada v. Hicks, 533 U.S. 353 (2001) (tribal court subject‑matter jurisdiction over nonmembers is constrained)
- Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316 (2008) (tribal authority over nonmembers tied to legislative jurisdiction)
- Nat'l Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845 (1985) (tribal‑exhaustion doctrine and its exceptions)
- Jackson v. Payday Fin., LLC, 764 F.3d 765 (7th Cir. 2014) (refused to enforce CRST forum/arbitration clauses; forum was a legal fiction)
- Inetianbor v. CashCall, Inc., 768 F.3d 1346 (11th Cir. 2014) (CRST arbitration scheme characterized as illusory; arbitration unenforceable)
- Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016) (court rejected attempt to avoid federal law via tribal choice‑of‑law; scheme viewed as gaming the system)
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (principles on delegation of arbitrability)
- Parnell v. CashCall, Inc., 804 F.3d 1142 (11th Cir. 2015) (procedural holding on attacking delegation clauses; did not change substantive defects in sham arbitration schemes)