Fed. Trade Comm'n v. Payday Fin., LLC

• Decision Date: 28 March 2013
• Docket Number: No. CIV 11–3017–RAL.,CIV 11–3017–RAL.
• Citation: 935 F.Supp.2d 926
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. PAYDAY FINANCIAL, LLC, et al., Defendants.
• Court: U.S. District Court — District of South Dakota

935 F.Supp.2d 926

FEDERAL TRADE COMMISSION, Plaintiff,

v.PAYDAY FINANCIAL, LLC, et al., Defendants.

No. CIV 11–3017–RAL.

United States District Court,

D. South Dakota,

Central Division.

March 28, 2013.

Cheryl Schrempp Dupris U.S. Attorney's Office, Pierre, SD, Evan R. Zullow, K. Michelle Grajales, Lashawn M. Johnson, Nikhil Singhvi, Federal Trade Commission, Washington, DC, for Plaintiff.

Cheryl F. Laurenz, Bogue & Bogue, LLP Faith, SD, Claudia Callaway, John W. Black, Katten Muchin Rosenman LLP, Washington, DC, for Defendants.

OPINION AND ORDER DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

ROBERTO A. LANGE, District Judge.

The pending motion for partial summary judgment presents the issue of tribal court jurisdiction over non-Indians who contract with a company doing business from an Indian reservation. The “pathmarking” case on tribal authority over nonmembers is Montana v. United States, 450 U.S. 544, 101 S.Ct. 1245, 67 L.Ed.2d 493 (1981). See Strate v. A–1 Contractors, 520 U.S. 438, 445, 117 S.Ct. 1404, 137 L.Ed.2d 661 (1997) (describing Montana as “pathmarking” and applying Montana to evaluate tribal court jurisdiction authority over non-Indians.) In Montana, the Supreme Court recognized two areas in which Indian tribes have sovereign power to exercise authority over nonmembers on their reservation. The first such “Montana exception” recognizes tribal authority over “the activities of nonmembers who enter consensual relationships with a tribe or its members, through commercial dealing, contracts, leases, or other arrangements.” Montana, 450 U.S. at 565, 101 S.Ct. 1245. The precise question presented in this case is one of first impression: When a company conducting business from an Indian reservation enters into a commercial contract with a non-Indian, is it an unfair and deceptive practice for the company to include forum selection and consent to tribal jurisdiction provisions in the contract and to then expect to litigate any alleged breach of contract claim against the non-Indian in tribal court? This Court determines that, under the circumstances of this case and on the sole issue currently before this Court, such contract provisions are not unfair and deceptive when the non-Indian has entered into “consensual relationships [with tribal] members” with a sufficient connection to on-reservation activities to make the consent to jurisdiction and forum selection provisions enforceable under the first Montana exception. See Montana, 450 U.S. at 565, 101 S.Ct. 1245. However, in this case, two open issues prompt this Court to deny Defendants' Motion for Partial Summary Judgment: (1) This Court's record lacks information establishing that the Defendants are in fact “members” of the tribe for purposes of the first Montana exception; and (2) an ambiguity in the contract exists as to under what circumstances the non-Indian is consenting to tribal court jurisdiction in addition to binding arbitration.

I. FACTSA. Procedural Facts

Plaintiff Federal Trade Commission (“FTC”) filed this action claiming that the above-named Defendants violated provisions of the Federal Trade Commission Act, the Electronic Fund Transfer Act, and rules that the FTC has promulgated. The FTC invoked this Court's jurisdiction under 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355, as well as under provisions of the Federal Trade Commission Act, 15 U.S.C. §§ 45(m)(1)(A), 45(a), 53(b), 56(a), and 57(b). The FTC filed an Amended Complaint stating seven counts of various alleged unfair and deceptive trade practices and other alleged malfeasances by Defendants in their short-term “pay day” loan offerings and operations. Doc. 44.

Defendants filed a Motion for Partial Summary Judgment, Doc. 52, seeking summary judgment only as to Count VI of the Amended Complaint. The FTC alleged in Count VI that the Defendants “have sued consumers in a distant court that lacks jurisdiction,” and that by doing so Defendants have engaged in an unfair act or practice in violation of Section 5 of the Federal Trade Commission Act. Doc. 44 at 20. The FTC and Defendants submit that there is no genuine issue as to any material fact concerning Count VI and have filed a Joint Stipulation of Material Facts as to which there is no genuine issue to be tried. Doc. 53. The FTC has filed a Statement of Supplemental Material Facts, which Defendants do not contest. Doc. 59.

B. Undisputed Material Facts

Defendant Martin A. Webb (“Webb”) is an enrolled member of the Cheyenne River Sioux Tribe (the “Tribe”) and is an “Indian” ¹ within the meaning of federal Indian law. Doc. 53 at ¶ 1. Webb is not an official of the Tribe, and Webb does not represent or act on behalf of the Tribe. Doc. 53 at ¶ 1.

Defendants Payday Financial, LLC, Great Sky Finance, LLC, Western Sky Financial, LLC, Red Stone Financial, LLC, Management Systems, LLC, 24–7 Cash Direct, LLC, Red River Ventures, LLC, High Country Ventures, LLC, and Financial Solutions, LLC (collectively the “Companies”) are all limited liability companies organized under the laws of the state of South Dakota. Doc. 53 at ¶ 2. Each of the Companies is licensed by the Cheyenne River Sioux Tribe to do business, but none of the Companies act as an agent of the Tribe. Doc. 53 at ¶ 2. All of the Companies are wholly owned by Webb. Doc. 53 at ¶ 2. Webb resides, and the Companies are located, within the external boundaries of the Cheyenne River Indian Reservation (the “Reservation”). Doc. 53 at ¶ 3.

The Cheyenne River Indian Reservation is part of what remains of the Great Sioux Reservation, a single reservation created by the 1868 Treaty of Fort Laramie and covering parts of six states. After gold was discovered in the Black Hills of South Dakota and as the cattle market made ranching a feasible way to earn a living from the grasslands of Western South Dakota and contiguous areas, more people of European ancestry moved westward. The Sioux Indians saw their lands shrink and carved into separate reservations leaving them on some of the least desirable lands. In South Dakota, five separate reservations remain of the Great Sioux Reservation—the Pine Ridge Indian Reservation, the Rosebud Sioux Indian Reservation, the Lower Brule Indian Reservation, the Standing Rock Indian Reservation, and the Cheyenne River Indian Reservation. The Dawes Act of 1887, also known as the General Allotment Act, resulted in much of the reservation land becoming privately owned land, thereby creating a “checkerboard” of trust land and private land on the Cheyenne River Indian Reservation and elsewhere. According to the United States Census Bureau, of the poorest eleven counties in the United States based on per capita income, five of them are in South Dakota and correspond with Indian Reservations. Of those, the two counties that comprise the Cheyenne River Indian Reservation—Ziebach County and Dewey County—are the fourth and seventh poorest counties in the United States on a per capita income basis.

Defendants High Country Ventures, LLC, Great Sky Finance, LLC, Payday Financial, LLC, Red River Ventures, LLC, Redstone Financial, LLC, and Western Sky Financial, LLC (collectively the “Lending Companies”) made or make short-term loans to borrowers (“Borrower” or “Borrowers”). Loans that are involved in this action are made by the Lending Companies. Doc. 53 at ¶ 4. The Lending Companies market loans over the internet and through television advertising designed to reach potential Borrowers who reside off the Reservation and outside of South Dakota. Doc. 53 at ¶ 5. Borrowers are not members of the Tribe. All Borrowers reside off the Reservation and outside of South Dakota. Doc. 53 at ¶ 6. During the entirety of a loan transaction and the entirety of the relationships between Borrowers and the Lending Companies, the Lending Companies and their employees are located within the exterior boundaries of the Reservation, and Borrowers are located off the Reservation and outside of South Dakota. Doc. 53 at ¶ 7.

All communication between the Lending Companies and Borrowers occur via mail, over the telephone, or through the internet. Doc. 53 at ¶ 7. In a typical loan transaction, a potential Borrower contacts a Lending Company over the telephone or the internet to apply for a loan. Doc. 53 at ¶ 7. A potential Borrower sends his or her application and background information to a Lending Company, which then considers the application to determine whether to approve the application. Doc. 53 at ¶ 7. Lending decisions by the Lending Companies are made within the exterior boundaries of the Reservation. Doc. 53 at ¶ 7. Borrowers' decisions are made off the Reservation. The Lending Companies communicate their approval or denial of a loan application to a potential Borrower by telephone or internet. Doc. 53 at ¶ 7. Consumers sign their loan agreements with the Lending Companies electronically. Doc. 59 at ¶ 1.

If a potential Borrower's application is approved and the Borrower accepts the loan, the loan is funded from a bank located within the exterior boundaries of the Reservation, and funds are transferred to the Borrower's bank located off the Reservation. Doc. 53 at ¶ 7. To the extent the Lending Companies make withdrawals from Borrowers' bank accounts for repayment of loans, those withdrawals are initiated from the Lending Companies' bank located within the exterior boundaries of the Reservation, taken from the Borrowers' accounts at banks located off the Reservation, and transferred to the Lending Companies' bank accounts at the Lending Companies' bank located within the exterior boundaries of the Reservation. Doc. 53 at 17.

If Borrowers miss payments or fail to repay their loans, the Lending Companies, in some instances, initiate collection procedures. Decisions to initiate collection efforts are made by the Lending Companies within the exterior boundaries of the Reservation. Doc. 53 at 17. As part of their collection efforts, the Lending Companies sometimes file collection...