Gingras v. Think Fin., Inc.

• Decision Date: 24 April 2019
• Docket Number: 16-2138-cv,August Term, 2016,16-2132-cv,16-2140-cv (Con),Docket Nos. 16-2019-cv (L),16-2135-cv
• Citation: 922 F.3d 112
• Parties: Jessica GINGRAS, on behalf of herself and others similarly situated, Angela C. Given, on behalf of herself and others similarly situated, Plaintiffs-Appellees, v. THINK FINANCE, INC., TC Loan Service, LLC, Kenneth E. Rees, former President and Chief Executive Officer and Chairman of the Board of Think Finance, TC Decision Sciences, LLC, Tailwind Marketing, LLC, Sequoia Capital Operations, LLC, Technology Crossover Ventures, Joel Rosette, official capacity as Chief Executive Officer of Plain Green, Ted Whitford, official capacity as a member of Plain Green’s Board of Directors, Tim McInerney, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

922 F.3d 112

Jessica GINGRAS, on behalf of herself and others similarly situated, Angela C. Given, on behalf of herself and others similarly situated, Plaintiffs-Appellees,

v.THINK FINANCE, INC., TC Loan Service, LLC, Kenneth E. Rees, former President and Chief Executive Officer and Chairman of the Board of Think Finance, TC Decision Sciences, LLC, Tailwind Marketing, LLC, Sequoia Capital Operations, LLC, Technology Crossover Ventures, Joel Rosette, official capacity as Chief Executive Officer of Plain Green, Ted Whitford, official capacity as a member of Plain Green’s Board of Directors, Tim McInerney, Defendants-Appellants.

Docket Nos. 16-2019-cv (L)

16-2132-cv

16-2135-cv

16-2138-cv

16-2140-cv (Con)

August Term, 2016

United States Court of Appeals, Second Circuit.

Argued: May 12, 2017

Decided: April 24, 2019

Colleen Sinzdak, Hogan Lovells US LLP, Washington, DC (Morgan L. Goodspeed, Neal Kumar Katyal, Hogan Lovells US LLP, Washington, DC; Richard J. Zack, Matthew B. Homberger, Pepper Hamilton LLP, Philadelphia, PA, on the brief ), for Defendants-Appellants Joel Rosette, Ted Whitford, and Tim McInerney.

Lewis S. Wiener, Sutherland Asbill & Brennan LLP, Washington, DC (Kymberly Kochis, Sutherland Asbill & Brennan LLP, New York, NY; Ritchie E. Berger, Dinse Knapp McAndrew, Burlington, VT; Stephen D. Hibbard, Jones Day, San Francisco, CA; Todd R. Geremia, Jones Day, New York, NY; Stephen D. Ellis, Ellis Boxer & Blake PLLC, Springfield, VT; Richard L. Scheff, David F. Herman, Montgomery McCracken Walker & Rhoads LLP, Philadelphia, PA; Thomas Hefferon, Sabrina Rose-Smith, Matthew Sheldon, Goodwin Procter LLP, Washington, DC, on the brief ), for Defendants-Appellants Think Finance, Inc., TC Decision Sciences, LLC, Tailwind Marketing, LLC, TC Loan Service, LLC, Technology Crossover Ventures, Kenneth E. Rees, and Sequoia Capital Operations, LLC.

Matthew B. Byrne, Gravel & Shea PC, Burlington, VT (Kathleen M. Donovan-Maher, Steven J. Buttacavoli, Anne F. O’Berry, Steven L. Groopman, Berman DeValerio, Boston, MA, on the brief ), for Plaintiffs-Appellees.

Jeffrey R. White, Julie Braman Kane, American Association for Justice, Washington, DC, as amicus curiae in support of Plaintiffs-Appellees.

Scott L. Nelson, Allison M. Zieve, Public Citizen Litigation Group, Public Citizen, Inc., Washington, DC, as amicus curiae in support of Plaintiffs-Appellees.

Before: Leval, Hall, and Chin, Circuit Judges.

Hall, Circuit Judge:

The federal government and many states have laws designed to protect consumers against predatory lending practices. In this case, we must determine what happens when those laws conflict with the off-reservation commercial activities of Indian tribes. In so doing, we probe the boundaries of tribal sovereign immunity and hold that, notwithstanding tribal sovereign immunity, federal courts may entertain suits against tribal officers in their official capacities seeking prospective, injunctive relief prohibiting off-reservation conduct that violates state and substantive federal law. We also consider the specific lending agreements between these Plaintiffs and these Defendants and hold that the agreements’ arbitration clauses are unenforceable and unconscionable.

I.

Payday loans are ostensibly short-term cash advances for people who face unexpected obligations or emergencies. The loans are typically for small sums that are to be repaid quickly—in anywhere from several weeks to a year. "Typically, online lenders charge fees and interest that, when annualized, result in interest rates far in excess of legal limits or typical borrowing rates, often exceeding 300%, 500%, or even 1,000%." Vermont Attorney General’s Office, Illegal Lending: Facts and Figures , at 1 (Apr. 2014). Many states endeavored to curb such lending practices through usury laws that set caps on interest rates. For example, Vermont laws prescribe a maximum interest rate of 24% per annum. See Vt. Stat. Ann. tit. 9, § 41a.

A.

This suit involves payday loans made by Plain Green, LLC, an online lending operation, which holds itself out as a ‘’tribal lending entity wholly owned by the Chippewa Cree Tribe of the Rocky Boy’s Indian Reservation, Montana." J. App. 150. The borrowers are Plaintiffs-Appellees Jessica Gingras and Angela Given, who are Vermont residents. In July 2011, Gingras borrowed $1,050 at an interest rate of 198.17% per annum. She repaid that loan and borrowed an additional $2,900 a year later, this time with an interest rate of 371.82%. She has not repaid the second loan. Also in July 2011, Given borrowed $1,250 at a rate of 198.45%. Given paid off that loan in July 2012 and, within a few days of repayment, took out another loan for $2,000 at a rate of 159.46%. She also borrowed $250 in May 2013 at a rate of 376.13%, which she repaid quickly, and in July 2013 borrowed $3,000 at a rate of 59.83%. Given has not repaid the most recent loan.

To receive their loans, Gingras and Given were required to sign loan agreements. Those loan agreements provide for arbitration in the event of a dispute between the borrower and Plain Green. One such provision is a delegation clause whereby the parties agree that "any Dispute ... will be resolved by arbitration in accordance with Chippewa Cree tribal law." Id. 114–15. The agreement defines a "Dispute" as "any controversy or claim between" the borrower and the lender, "based on a tribal, federal or state constitution, statute, ordinance, regulation, or common law." Id. 115. "Dispute" includes "any issue concerning the validity, enforceability, or scope" of the loan agreement itself or the arbitration provision specifically. Id. A separate provision of the agreement vests authority to decide the validity of a class action lawsuit waiver and class-wide arbitration waivers in Chippewa Cree tribal court, not in an arbitrator. Id. 265.

The loan agreements also provide that Chippewa Cree tribal law governs the loan agreement and any dispute arising under it. An arbitrator, whom the borrower may select from the American Arbitration Association ("AAA") or JAMS, "shall apply Tribal Law" and any arbitral award must "be supported by substantial evidence and must be consistent with [the loan agreement] and Tribal Law." Id. Chippewa Cree tribal courts are empowered to set aside the arbitrator’s award if it does not comply with tribal law. See id.

The agreements’ command to apply tribal law also includes provisions stating "[n]either this Agreement nor the Lender is subject to the laws of any state of the United States," id. 263, and the agreements are "subject solely to the exclusive laws and jurisdiction of the Chippewa Cree Tribe of the Rocky Boy Indian Reservation" such that "no other state or federal law or regulation shall apply," id. 258. To the extent that AAA or JAMS policies and procedures conflict with tribal law, tribal law prevails.

The loan agreements allow borrowers to opt out of arbitration, but only if they exercise that option within sixty days of receiving the loan. If a borrower opts out, the agreements provide that their only recourse is to sue under tribal law in tribal courts. Neither Gingras nor Given opted out.

B.

Gingras and Given allege that the loan agreements violate Vermont and federal law. The loans originated from Plain Green, LLC. Plain Green’s Chief Executive Officer is Defendant Joel Rosette; two members of Plain Green’s Board of Directors, Ted Whitford and Tim McInerney, are also defendants. Gingras and Given sued all three, whom we refer to as the Tribal Defendants, in their official capacities for prospective declaratory and injunctive relief.

The suit also names as defendants Think Finance, Inc. and its former President, Chief Executive Officer, and Chairman of the Board, Kenneth Rees. Plain Green employs Think Finance and its subsidiaries, Defendants TC Decision Sciences, LLC, Tailwind Marketing, LLC, and TC Loan Service, LLC, to service Plain Green loans. Defendants Sequoia Capital Operations, LLC and Technology Crossover Ventures provide funding for the lending operation.

Plaintiffs allege that Think Finance and the Tribe agreed on various terms for the loans, including charging annual interest rates between 60% and 360% and establishing a maximum loan amount of $2,500. They allege that this arrangement was created to "circumvent" the "stringent laws [that] have been enacted to prescribe how loans can be made and to prevent lenders from preying on indigent people," and to "take advantage of legal doctrines, such as tribal immunity, to avoid liability for their actions" in violating various federal and state lending laws. Id. 29.

C.

Gingras and Given brought this class action in the District of Vermont, seeking, among other relief, an order barring Defendants from continuing their current lending practices. Relevant to this appeal, the Tribal Defendants moved to dismiss, arguing that they are entitled to tribal sovereign immunity. The district court disagreed and denied their motion. It concluded that tribal sovereign immunity does not bar suit against the Tribal Defendants in their official capacities for prospective, injunctive relief under a theory analogous to Ex parte Young , 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). Specifically, the district court read the Supreme Court’s decision in Michigan v. Bay Mills Indian Community , 572 U.S. 782, 134 S.Ct. 2024, 188 L.Ed.2d 1071 (2014), to condone that form of action to vindicate violations of state law. See Gingras v. Rosette , No. 15-cv-101, 2016 WL 2932163, at *4–7 (D. Vt. May 18, 2016).

All Defendants also moved to compel arbitration pursuant to the loan agreements. The district court denied those motions. It concluded that the arbitration agreements are unconscionable and unenforceable because they insulate Defendants from claims that they have violated state and federal laws. See id. at *13–18. In particular, it held that because the agreements apply tribal law exclusively and restrict all arbitral awards review solely by a tribal court,...