Ameriloan v. Superior Court

• Decision Date: 15 December 2008
• Docket Number: No. B203548.,B203548.
• Citation: 86 Cal. Rptr. 3d 572,169 Cal.App.4th 81
• Court: California Court of Appeals Court of Appeals
• Parties: AMERILOAN et al., Petitioners, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; THE PEOPLE ex rel. PRESTON DUFAUCHARD, as Commissioner, etc., Real Party in Interest.

169 Cal.App.4th 81

86 Cal. Rptr. 3d 572

AMERILOAN et al., Petitioners, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent THE PEOPLE ex rel. PRESTON DUFAUCHARD, as Commissioner, etc., Real Party in Interest.

No. B203548.

Court of Appeals of California, Second District, Division Seven.

December 15, 2008.

Fredericks Peebles & Morgan, John M. Peebles and John Nyhan for Petitioners.

No appearance for Respondent.

Preston Dufauchard, Wayne Strumpfer, Alan S. Weinger and Uche L. Enenwali for Real Party in Interest.

OPINION

PERLUSS, P. J.

As a matter of federal law, absent congressional authorization or an Indian tribe's consent to suit, a federally recognized Indian tribe enjoys immunity from any suit in state court, even if the activity that is the subject of the lawsuit is purely commercial in nature or occurs on nontribal lands. (Kiowa Tribe of Okla. v. Manufacturing Technologies, Inc. (1998) 523 U.S. 751, 754-755 [140 L.Ed.2d 981, 118 S.Ct. 1700] (Kiowa).) That immunity extends to a tribe's for-profit business entities when the entity is operating on behalf of the tribe. (See Agua Caliente Band of Cahuilla Indians v. Superior Court (2006) 40 Cal.4th 239, 247-248 [52 Cal.Rptr.3d 659, 148 P.3d 1126] (Agua Caliente); Redding Rancheria v. Superior Court (2001) 88 Cal.App.4th 384, 388-389 (Rancheria).)

Five companies providing short-term loans to California residents over the Internet seek a writ of mandate compelling the trial court to vacate its order denying their collective motion to quash service of summons in this action by California's Department of Corporations (Department) to enforce various provisions of the California Deferred Deposit Transaction Law (DDTL) (Fin. Code, § 23000 et seq.). The companies assert they are business entities wholly owned by federally recognized Indian tribes and thus protected from this state enforcement action under the doctrine of tribal sovereign immunity.

Respondent superior court erroneously concluded that tribal sovereign immunity does not apply to off-reservation commercial activity, that application of the tribal sovereign immunity doctrine in this enforcement action would intrude on California's exercise of state sovereignty protected by the Tenth Amendment to the United States Constitution and that each of the tribes affiliated with the loan companies had affirmatively waived its immunity and consented to be sued in state court. Accordingly, we grant the petition in part, issue the writ and direct the trial court to vacate its order denying the motion to quash and granting the Department's application for a preliminary injunction. However, because the trial court did not address whether the companies, which are not themselves Indian tribes, operate as "arms of the tribe" for purposes of the tribal sovereign immunity doctrine (see, e.g., Rancheria, supra, 88 Cal.App.4th at p. 389; Trudgeon v. Fantasy Springs Casino (1999) 71 Cal.App.4th 632, 636-637 (Trudgeon)), we direct the trial court to conduct further proceedings to determine whether the doctrine deprives the court of subject matter jurisdiction in this case.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Initiation of the State Enforcement Action

Ameriloan, United Cash Loans, US Fast Cash, Preferred Cash and One Click Cash (collectively payday loan companies) provide Internet-based, deferred deposit transactions to California residents, transactions commonly referred to as "payday loans."¹ In June 2007, after its cease and desist orders were ignored, the Department filed suit against the payday loan companies in Los Angeles County Superior Court seeking to enjoin them from doing business with California residents on the ground they were operating in violation of various provisions of the DDTL. In addition to preliminary and permanent injunctions, the Department sought civil penalties under the DDTL.

On July 30, 2007 the trial court granted the Department's ex parte request for a temporary restraining order against each of the payday loan companies and set a hearing date of August 10, 2007 for the payday loan companies to show cause why the request for a preliminary injunction should not be granted.

2. The Payday Loan Companies' Motion to Quash and Opposition to the Department's Application for a Preliminary Injunction

After obtaining a continuance of the hearing on the order to show cause, on August 27, 2007 the Miami Nation Enterprise (MNE), "an economic subdivision" of the Miami Tribe of Oklahoma, a federally recognized Indian tribe organized pursuant to the Oklahoma Welfare Act (25 U.S.C. § 501 et seq.), specially appeared in the action and filed a motion to quash challenging the court's subject matter jurisdiction. MNE claimed Ameriloan, US Fast Cash and United Cash Loans were trade names utilized in its cash advance business and were immune from this state enforcement action under the doctrine of tribal sovereign immunity.

In support of its motion MNE included a copy of the Constitution of the Miami Tribe of Oklahoma, as well as the declaration of Don Brady, the chief executive officer of MNE. According to Brady, MNE was established by the business committee of the Miami Tribe of Oklahoma in May 2005 through resolution No. 05-14 (a copy of which was attached to Brady's declaration) for the purpose of supplying a self-sustaining and diversified stream of revenues for the tribe. Brady declared all profits generated from MNE's cash-advance business are "reinvested in economic and governmental purposes of the Miami tribe to fund critical governmental services to [the tribe's] members, such as tribal law enforcement, poverty assistance, housing, nutrition, preschool, elder care programs, school supplies and scholarships." Brady also testified the cash-advance business is a "critical component" of the Miami tribe's economy and governmental operations and generated "full-time employment" for approximately 43 of its 3,400 members.

SFS, Inc. (SFS), also specially appeared in the action and filed a joinder in MNE's motion to quash and opposition to the application for a preliminary injunction. According to the declarations accompanying SFS's joinder, One Click Cash and Preferred Cash are trade names utilized by SFS, a corporation wholly owned by the Santee Sioux Nation (Santee Sioux), a federally recognized Indian tribe organized under the Indian Reorganization Act (25 U.S.C. § 476). Along with its joinder, SFS provided the declaration of Robert Campbell, a member of the Santee Sioux's tribal counsel and treasurer of SFS. Campbell explained SFS was created by the Santee Sioux in March 2005 for the purpose of establishing a business entity to provide short-term loans and cash-advance services and, through the profits achieved in that effort, "facilitat[e] the achievement of goals relating to the Tribal economy, self-government, and sovereign status of the Santee Sioux nation." According to Campbell, "[a]ll profits earned by SFS go to the Santee Sioux to help fund its government operations and social welfare programs."

In opposition to the Department's request for a preliminary injunction, both MNE and SFS contended their businesses, utilizing automated clearing house transactions,² were not subject to the provisions of the DDTL, which, by its terms, applies to transactions involving "personal checks."

The Department opposed the motion to quash, arguing the doctrine of tribal sovereign immunity did not apply to the transactions at issue, that is, off-reservation commercial activities. Alternatively, it asserted a finding of tribal sovereign immunity would intrude upon California's exercise of its reserved power under the Tenth Amendment to enforce its consumer protection laws. Finally, the Department insisted MNE and SFS had waived their tribal sovereign immunity by virtue of a "sue and be sued" clause in the resolution creating MNE³ and by an arbitration clause contained in each of the payday loan companies' customer contracts.⁴ The Department also urged at the hearing on the motion that, at the very least, it should be entitled to conduct discovery to challenge the jurisdictional facts articulated in the declarations accompanying the motions to quash.

3. The Trial Court's Ruling

The trial court denied the motion to quash on the ground sovereign immunity did not apply as a matter of law, citing each of the reasons articulated in the Department's opposition to the motion. In the same order the court granted the request for a preliminary injunction.⁵

4. The Petition for Writ of Mandate

On November 13, 2007 the payday loan companies filed a petition for writ of mandate urging this court to vacate the trial court's October 19, 2007 order denying their motion to quash and granting the Department's request for a preliminary injunction. After reviewing and considering the petition, the preliminary opposition filed by the Department and the payday companies' informal reply, we summarily denied the petition on January 24, 2008. On February 4, 2008 the payday loan companies filed a petition for review with the Supreme Court. On March 26, 2008 the Supreme Court granted the petition and transferred the matter to this court with directions to vacate our order denying mandate and to issue an alternative writ to be heard "when the proceeding is ordered on calendar."

Pursuant to the Supreme Court's March 26, 2008 order, on April 17, 2008 we issued an alternative writ of mandate directing the trial court either to vacate its October 19, 2007 order denying the motion to quash and granting the preliminary injunction and make a new and different order granting the motion to quash and denying the motion for a preliminary injunction or to show cause why a peremptory writ of mandate should not issue. The Department filed its return to the alternative writ of mandate on May 23, 2008, and the payday loan companies filed a reply on June 20, 2008.

CONTENTIONS

The payday loan companies contend the trial court erred...