Otoe-Missouria Tribe of Indians v. N.Y. State Dep't of Fin. Servs.
| Decision Date | 01 October 2014 |
| Docket Number | No. 13–3769–CV.,13–3769–CV. |
| Citation | 769 F.3d 105 |
| Parties | The OTOE–MISSOURIA TRIBE OF INDIANS, a federally-recognized Indian Tribe, Great Plains Lending, LLC, a wholly-owned tribal limited liability company, American Web Loan, Inc., a wholly-owned tribal corporation, Otoe–Missouria Consumer Finance Services Regulatory Commission, a tribal regulatory agency, Lac Vieux Desert Band Of Lake Superior Chippewa Indians, a federally-recognized Indian Tribe, Red Rock Tribal Lending, LLC, a wholly-owned tribal limited liability company, Lac Vieux Desert Tribal Financial Services Regulatory Authority, a tribal regulatory agency, Plaintiffs–Appellants, v. NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES, Benjamin M. Lawsky, in his official capacity as Superintendent of the New York State Department of Financial Services, Defendants–Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
OPINION TEXT STARTS HERE
Affirmed. David M. Bernick, Dechert LLP, New York, New York (Michael S. Doluisio, Michael H. Park, Gordon Sung, Dechert LLP, Robert A. Rosette, Sarah Bazzazieh, Rosette, LLP, on the brief), for Plaintiffs–Appellants.
Steven C. Wu, Deputy Solicitor General (Barbara D. Underwood, Solicitor General, Jason Harrow, Assistant Solicitor General, on the brief), for Eric T. Schneiderman, Attorney General of the State of New York, New York, New York, for Defendants–Appellees.
Before: SACK, LYNCH, and LOHIER, Circuit Judges.GERARD E. LYNCH, Circuit Judge:
New York's usury laws prohibit unlicensed lenders from lending money at an interest rate above 16 percent per year, and criminalize loans with interest rates higher than 25 percent per year. N.Y. Gen. Oblig. Law § 5–501(1), N.Y. Banking Law § 14–a(1), N.Y. Penal Law §§ 190.40–42. The plaintiffs are two Native American tribes, tribal regulatory agencies, and companies owned by the tribes that provide short-term loans over the internet, all of which have triple-digit interest rates that far exceed the ceiling set by New York law. When the New York State Department of Financial Services (“DFS”) tried to bar out-of-state lenders, including the plaintiffs, from extending loans to New York residents, plaintiffs sought a preliminary order enjoining DFS from interfering with the tribes' consumer lending business.
Plaintiffs contended that New York had projected its regulations over the internet and onto reservations in violation of Native Americans' tribal sovereignty, which is protected by the Indian Commerce Clause of the Constitution. U.S. CONST. art. 1, § 8, cl. 3. But the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge ) held that plaintiffs had not offered sufficient proof that the loans fell outside New York's regulatory domain. After examining the evidence marshaled by plaintiffs in support of their motion, the District Court concluded that plaintiffs had failed to establish that the challenged loan transactions occurred on Native American soil, a fact necessary to weaken New York State's regulatory authority over them. Because this conclusion was a reasonable one, we AFFIRM the District Court's denial of plaintiffs' motion for a preliminary injunction.
But loans approved on Native American reservations and other out-of-state locations flowed across borders to consumers in New York. New York borrowers never traveled to tribal lands or other jurisdictions; they signed loan contracts remotely by keying in an electronic signature. Borrowers listed their New York addresses on applications, and provided lenders with routing information for their personal bank accounts in New York. Moreover, the lenders did more than simply transfer loan proceeds into New York bank accounts. Under the terms of the loans, the lenders reached into New York to collect payments: the lenders placed a hold on borrowers' accounts that resulted in an automatic debit every two weeks over the course of many months.2 The harm inflicted by these high-interest loans fell upon customers in New York: DFS received complaints from residents faltering under the weight of interest rates as high as 912.49 percent; as one complaint explained, “I am attempting to get out of a hole, not dig a deeper one.”
Thus, both the tribes and New York believed that the high-interest loans fell within their domain, both geographic and regulatory, and acted accordingly. The tribes re-invested profits into their communities, and New York authorities began an investigation into online payday lending. In the summer of 2013, those initiatives clashed.
In August, DFS launched what the tribal lenders describe as a “market-based campaign explicitly designed to destroy Tribal enterprises,” and what New York defends as a “comprehensive effort to determine how best to protect New Yorkers from the harmful effects of usurious online payday loans.” At issue are two related mailings.
First, DFS sent cease-and-desist letters to thirty-five online payday lenders that it had identified as having made loans to New York residents. Its efforts were directed generally at such lenders, including not only tribal lenders, but also foreign lenders and lenders headquartered in states that do not cap interest rates on short-term loans. The letters accused lenders of “using the Internet to offer and originate illegal payday loans to New York consumers,” in violation of “New York's civil and criminal usury laws.” The letters instructed lenders to “confirm in writing” within fourteen days “that [they were] no longer solicit[ing] or mak[ing] usurious loans in New York.”
Second, DFS wrote to the lenders' partners in the financial services industry. The lenders relied on outside banks to hold money and transfer it to customers. Those banks, in turn, depended upon an electronic wire service called the Automated Clearing House (“ACH”) to move money from their coffers into borrowers' accounts, and to extract repayment from those accounts. DFS's letters solicited banks and ACH for their “cooperative effort[s]” to “stamp out these pernicious, illegal payday loans.” In the letters sent to banks, DFS warned that “it [was] in ... [the] bank's long-term interest to take appropriate action to help ensure that it is not serving as a pipeline for illegal conduct.” It urged the banks to “work with” the agency “to create a new set of model safeguards and procedures to choke-off ACH access” to the 35 payday lenders that had lent money to New York customers. “Doing so,” the letter counseled, was “in the best interest of your member banks and their customers.” The letters ended with a request that the companies meet with New York officials to discuss a cooperative “undertaking.”
According to plaintiffs, DFS's outreach had immediate and devastating effects on tribal lenders. Banks and ACH abruptly ended their relationships with the lenders, stymieing their transactions not just with New York borrowers, but with consumers in every other state in the union. Without revenue from lending, the tribes faced large gaps in their budgets. According to the Chairman of the Otoe–Missouria tribe, proceeds from lending account for almost half of the tribe's non-federal income. Profits from lending have fueled expansion of tribal early childhood education programs, employment training, healthcare coverage, and child and family protection services. The Chairman of the Lac Vieux Desert tribe attested to similar fiscal reliance, noting that lending revenue supports tribal housing initiatives, youth programs, health and wellness services, and law enforcement.
Faced with crumbling businesses and collapsing budgets, plaintiffs filed suit, claiming that New York's efforts to curb the lenders' online business violated the Indian Commerce Clause of the Federal Constitution by infringing on tribes' fundamental right to self-government. Plaintiffs moved for a preliminary injunction barring DFS from further interfering with the lenders' transactions with consumers in New York and elsewhere. The District Court denied the motion. The court found that the lenders had “built a wobbly foundation for their contention that the State is regulating activity that occurs on the Tribes' lands,” and concluded that New York's “action [was] directed at activity that [took] place entirely off tribal land, involving New York residents who never leave New York State.” Otoe–Missouria Tribe of Indians v. N.Y. State Dep't of Fin. Servs., 974 F.Supp.2d 353, 360 (S.D.N.Y.2013). Thus, the court held that New York acted within its rights to regulate business activity within the state.
This appeal followed.
A district court's denial of a motion for a preliminary injunction is reviewed for abuse of discretion. WPIX, Inc. v. ivi, Inc., 691 F.3d 275, 278 (2d Cir.2012). In general, district courts may grant a preliminary injunction where a plaintiff demonstrates “irreparable harm” and meets one of two related standards: “either (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits of its claims to make them fair ground for litigation, plus a balance of the hardships tipping decidedly in favor of the moving party.” Lynch v. City of N.Y., 589 F.3d 94, 98 (2d Cir.2009) (internal quotation marks omitted). This two-track rule, however, is subject to an exception: A plaintiff cannot rely on the “fair-ground-for-litigation” alternative to challenge “governmental action taken in the public interest pursuant to a statutory or regulatory scheme.” Plaza Health Labs., Inc. v. Perales, 878 F.2d 577, 580 (2d Cir.1989) (). As we have explained, “[t]his exception reflects the idea that governmental policies implemented through legislation or regulations developed through presumptively reasoned democratic processes...
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