Jackson v. Payday Fin., LLC

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Citation764 F.3d 765
Docket NumberNo. 12–2617.,12–2617.
PartiesDeborah JACKSON, et al., Plaintiffs–Appellants, v. PAYDAY FINANCIAL, LLC, et al., Defendants–Appellees.
Decision Date22 August 2014

764 F.3d 765

Deborah JACKSON, et al., Plaintiffs–Appellants,
PAYDAY FINANCIAL, LLC, et al., Defendants–Appellees.

No. 12–2617.

United States Court of Appeals,
Seventh Circuit.

Argued Jan. 22, 2013.
Decided Aug. 22, 2014.

[764 F.3d 767]

Cathleen M. Combs, Daniel A. Edelman, James O. Latturner, Thomas E. Soule, Edelman Combs Latturner & Goodwin, Chicago, IL, for Plaintiffs–Appellants.

Barry Levenstam, Jenner & Block LLP, Chicago, IL, for Defendants–Appellees.

[764 F.3d 768]

Before RIPPLE and ROVNER, Circuit Judges, and BARKER, District Judge.

RIPPLE, Circuit Judge.

Deborah Jackson, Linda Gonnella, and James Binkowski (collectively “the Plaintiffs”) initially brought this action in Illinois state court against Payday Financial, LLC, and other defendant entities owned by, or doing business with, Martin A. Webb, an enrolled member of the Cheyenne River Sioux Tribe and also a named defendant (collectively “the Loan Entities” or “the Defendants”). The Plaintiffs alleged violations of Illinois civil and criminal statutes related to loans that they had received from the Loan Entities. After the Loan Entities removed the case to the district court, that court granted the Loan Entities' motion to dismiss for improper venue under Federal Rule of Civil Procedure 12(b)(3). It held that the loan agreements required that all disputes be resolved through arbitration conducted by the Cheyenne River Sioux Tribe on the Cheyenne River Sioux Tribe Reservation, located within the geographic boundaries of South Dakota. The Plaintiffs timely appealed.

Following oral argument, we ordered a limited remand to the district court for further factual findings concerning (1) whether tribal law was readily available to the litigants and (2) whether arbitration under the auspices of the Cheyenne River Sioux Tribe, as set forth in the loan documents, was available to the parties. The district court concluded that, although the tribal law could be ascertained, the arbitral mechanism detailed in the agreement did not exist.

Based on these findings, we now conclude that the Plaintiffs' action should not have been dismissed because the arbitral mechanism specified in the agreement is illusory. We also cannot accept the Loan Entities' alternative argument for upholding the district court's dismissal: that the loan documents require that any litigation be conducted by a tribal court on the Cheyenne River Sioux Tribe Reservation. As the Supreme Court has explained, most recently in Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316, 128 S.Ct. 2709, 171 L.Ed.2d 457 (2008), tribal courts have a unique, limited jurisdiction that does not extend generally to the regulation of nontribal members whose actions do not implicate the sovereignty of the tribe or the regulation of tribal lands. The Loan Entities have not established a colorable claim of tribal jurisdiction, and, therefore, exhaustion in tribal courts is not required. Accordingly, we cannot uphold the district court's dismissal on this alternative basis.



The Loan Entities maintain several websites that offer small, high-interest loans to customers. The entire loan transaction is completed online; a potential customer applies for, and agrees to, the loan terms from his computer. Some loan agreements are assigned to CashCall, Inc. (“CashCall”), a California corporation, after they are executed and funds are advanced.

Each plaintiff applied for and received a $2,525 loan through one of the websites belonging to Mr. Webb's entities. Their

[764 F.3d 769]

loan agreements are nearly identical. Each agreement indicates that the plaintiff will pay approximately 139% in interest each year and that a $2,525 loan will cost approximately $8,392. The loan agreements recite that they are “governed by the Indian Commerce Clause of the Constitution of the United States of America and the laws of the Cheyenne River Sioux Tribe” and are not subject “to the laws of any state.” 1 Under the terms of the agreement, unless the plaintiff opts out within sixty days, any disputes arising from the agreement “will be resolved by Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement.” 2 Arbitration will be conducted by either “(i) a Tribal Elder, or (ii) a panel of three (3) members of the Tribal Council.” 3 The loan agreements further provide that the Loan Entities will pay the filing fee and any fees charged by the arbitrator; the loan consumer does not have to travel to the reservation for arbitration; and the loan consumer may participate in arbitration by phone or videoconference. The agreements with Ms. Jackson and Mr. Binkowski also provide that the contract “is subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation.” 4 Ms. Gonnella's agreement does not contain similar language.

The Plaintiffs executed their loan agreements in 2010 and 2011, received loan funds and made payments on the loans. The record does not indicate whether any of the Plaintiffs have defaulted on the loans.


The Plaintiffs initially brought this action in Illinois state court and alleged violations of Illinois civil and criminal usury statutes as well as the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. They sought, among other relief, restitution, statutory damages, litigation costs, an injunction precluding the Loan Entities from further lending to Illinois residents, and a declaration that the arbitration clauses contained in the loan agreements are not enforceable. The Loan Entities removed the action to federal court; they then moved to dismiss for improper venue under Federal Rule of Civil Procedure 12(b)(3) on the ground that the agreements required arbitration on the reservation. In reply, the Plaintiffs submitted that the agreements were void and thus the arbitration clauses were unenforceable. They additionally had argued that they executed the loan agreements under duress and that Illinois public policy precluded enforcement of the arbitration clause.

The district court dismissed the case for improper venue. It determined that (1) “the alleged illegality of the Loan Agreements has no bearing on the validity of the forum selection clause”; (2) the Plaintiffs' agreement to arbitrate was not made under duress; and (3) the Plaintiffs failed to

[764 F.3d 770]

show “that Illinois' strong public policy in favor of enforcing its usury and consumer protection laws precludes enforcement of the forum selection provision.” 5

The Plaintiffs timely appealed. After oral argument, we determined that several factual matters critical to our resolution of the issues on appeal should be addressed in the first instance by the district court:

1. Whether the Cheyenne River Sioux Tribe has applicable tribal law readily available to the public and, if so, under what conditions; and

2. Whether the Cheyenne River Sioux Tribe has an authorized arbitration mechanism available to the parties and whether the arbitrator and method of arbitration required under the contract is actually available.6

In the subsequent proceedings before the district court, the parties submitted arguments and documentary evidence in support of their respective positions. After considering this evidence, the district court found that the first inquiry could be answered in the affirmative. The court observed that “[e]ach party was able to secure a copy of the Tribal Law” and therefore concluded that “the law c[ould] be acquired by reasonable means.” 7 Addressing our second inquiry, the district court concluded that “[i]t is abundantly clear that, on the present record, the answer to the second question is a resounding no.” 8 The court noted that, other than its disagreement with the Plaintiffs as to the availability of tribal law, the Plaintiffs' submission had “fairly describe[d] what the facts show”; 9 included within that submission was the statement that “[t]ribal leadership ... have virtually no experience in handling claims made against defendants through private arbitration.” 10 According to the court, “[t]he intrusion of the Cheyenne River Sioux Tribal Nation into the contractual arbitration provision appear[ed] to be merely an attempt to escape otherwise applicable limits on interest charges. As such, the promise of a meaningful and fairly conducted arbitration [wa]s a sham and an illusion.” 11

In reaching its conclusion, the district court examined the manner in which an arbitrator had been selected in a similar dispute being litigated in the United States District Court for the Southern District of Florida. See Inetianbor v. CashCall, Inc., 962 F.Supp.2d 1303 (S.D.Fla.2013). The district court observed:

The arbitrator selected in the Inetianbor case was Robert Chasing Hawk, a Tribal Elder. He was personally selected by Martin Webb, the man who owns and operates the Webb entities which are run as a common enterprise. Mr. Webb is himself a member of the Tribe. Although denying any preexisting relationship

[764 F.3d 771]

with either party in the case, Robert Chasing Hawk is the father of Shannon Chasing Hawk. Robert Chasing Hawk has acknowledged that his daughter worked for one of the companies run by Martin Webb.

Mr. Chasing Hawk is not an attorney and has not been admitted to the practice of law either in South Dakota or the court of the Cheyenne River Sioux Tribal Nation. He has not had any training as an arbitrator and the sole basis of his selection was because he was a Tribal Elder.

Black's Law Dictionary, DeLuxe Fourth Edition, defines “arbitrator” as “a private, disinterested person, chosen by the parties to a disputed question, for the purpose of hearing their contention, and giving judgment between them; to whose decision (award) the litigants submit themselves either voluntarily, or, in some...

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