Otoe-Missouria Tribe of Indians v. N.Y. State Dep't of Fin. Servs.

Decision Date30 September 2013
Docket NumberNo. 13 Civ. 5930(RJS).,13 Civ. 5930(RJS).
Citation974 F.Supp.2d 353
CourtU.S. District Court — Southern District of New York


David M. Bernick, Gordon Sung, Dechert, LLP, New York, NY, Karrie Wichtman, Rosette, LLP, Mattawan, MI, Michael S. Doluisio, Dechert LLP, Philadelphia, PA, Robert A. Rosette, Saba Bazzazieh, Rosette, LLP, Chandler, AZ, for Plaintiffs.

Garrett Joseph Coyle, Linda Fang, State of New York Office of The Attorney General, New York, NY, for Defendants.


RICHARD J. SULLIVAN, District Judge:

Plaintiffs—federally recognized Indian Tribes in Oklahoma and Michigan (the Tribes), limited liability companies owned by the Tribes, and the Tribes' internal regulatory bodies—bring this action to establish their right to market and sell short-term, high-interest loans to New York residents over the Internet, and to permanently enjoin the New York State Department of Financial Services and its Superintendant (together, the State) from interfering with Plaintiffs' lending activities. Now before the Court is Plaintiffs' motion for a preliminary injunction to temporarily prohibit the State from “pursuing or threatening to pursue any activities, including enforcement actions, that directly or indirectly interfere with [Plaintiffs'] consumer lending activities ... or their lending business relationships.” (Doc. No. 2 at 2.) For the reasons set forth below, Plaintiffs' motion for a preliminary injunction is denied.

I. Background
A. Facts 1

Plaintiffs provide online lending services through which clients in New York and other states may acquire short-term loans, often referred to as “payday” loans. (Mem. at 2–3; Opp. at 4.) The annual interest rate on these loans exceeds 100 percent and, in some cases, may top 1000 percent of the borrowed principal. (Decl. of Max J. Dubin, dated Sept. 3, 2013, Doc. No. 20 (“Dubin Decl.”), ¶¶ 68, 14.)

For Plaintiffs, payday lending has been lucrative. Revenue from online lending generates almost half of the Plaintiff Otoe–Missouria Indian Tribe's (the Otoe–Missouria's) non-federal revenue, and it has created dozens of new jobs for their members.(Decl. of John Shotton, dated Aug. 22, 2013, Doc. No. 10 (“Shotton Decl.”), ¶¶ 23, 28.) Likewise, online lending revenue makes up forty-six percent of the operating budget of the Plaintiff Lac Vieux Desert Band of Lake Superior Chippewa Indians (the “Lac Vieux”) and constitutes an essential resource for their government payroll and services. (Decl. of James Williams, Jr., dated Aug. 22, 2013, Doc. No. 11 (“Williams Decl.”), ¶¶ 2226.) In short, these lending operations have become an “increasingly vital component” of the Tribes' operating budgets. (Decl. of Barry Brandon, dated Aug. 22, 2013, Doc. No. 12 (“Brandon Decl.”), ¶ 38; see Shotton Decl. ¶ 43.)

For the State of New York, however, payday loans pose a problem. As New York's high court has explained, “from time immemorial, [governments have sought to] protect desperately poor people from the consequences of their own desperation. Law-making authorities in almost all civilizations have recognized that the crush of financial burdens causes people to agree to almost any conditions of the lender and to consent to even the most improvident loans.” Schneider v. Phelps, 41 N.Y.2d 238, 391 N.Y.S.2d 568, 572, 359 N.E.2d 1361 (1977); see also Universal Credit Co. v. Lowell, 166 Misc. 15, 2 N.Y.S.2d 743, 746 (N.Y.City Ct.1938) (“The ostensible object of [New York's usury statutes] is to protect the weak, the needy, and the unwary from the rapacity of the avaricious.”) Thus, to protect vulnerable borrowers, New York has outlawed high-interest loans through both civil and criminal anti-usury statutes. SeeN.Y. Gen. Oblig. Law § 5–501 (prohibiting annual interest above 16% on loans over $250,000); N.Y. Banking Law § 14–a (same); N.Y. Penal Law §§ 190.40–42 (criminalizing annual interest above 25%).

In February 2013, New York responded to consumer complaints about online usury by initiating an investigation into the online lending industry, and on August 5, 2013, the State moved to enforce New York's lending laws against online lending operations by sending cease-and-desist letters to Plaintiffs and thirty-two other online lenders, threatening “appropriate action to protect New York consumers.” (Decl. of Debra Brookes, dated Sept. 3, 2013, Doc. No. 19 (“Brookes Decl.”), ¶¶ 5, 810; Mem. at 6; Opp. at 6.) Specifically, the State accused Plaintiffs 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.” (Brookes Decl. Exs. 1–3.) The letters directed Plaintiffs to “confirm in writing” within fourteen days “that [Plaintiffs were] no longer solicit[ing] or mak[ing] usurious loans in New York.” ( Id.)

On the same day that the State sent cease-and-desist letters to Plaintiffs, it also sought assistance from the National Automated Clearing House Association (“NACHA”) and 117 third-party banks that credit and debit payday loan payments, asking NACHA and the banks to help “stop illegal payday loans from entering into New York through the [Automated Clearing House (“ACH”) ] network.” 2 (Opp. at 7; see Mem. at 6; Brookes Decl. Exs. 45.) The letters identified thirty-five payday lenders, including Plaintiffs, that the State believed were operating in New York, and stated that [u]surious payday loans are illegal in New York, and such loans are void and unenforceable.” (Brookes Decl. Ex. 4–5.) The letter also advised that the State would “aggressively pursue appropriate enforcement against payday lenders that refuse [d] to cease and desist from their illegal activity in New York” and that it would be in the banks' “long-term interest to take appropriate action to help ensure that [they are] not serving as a pipeline for illegal conduct.” ( Id.)

In response to the State's letter, on August 9, NACHA sent letters to its member banks that utilize the ACH network, notifying them that the State's allegations of illegal activity by Plaintiffs and other lenders placed the banks in jeopardy of violating state law, as well as NACHA's internal rules. (Brookes Decl. Ex. 6.) Since then, many of Plaintiffs' business partners have cut back or cut off entirely their financial dealings with the Tribes. (Brandon Decl. ¶¶ 45–46; Shotton Decl. ¶¶ 3639; Williams Decl. ¶ 32.) For example, on August 9, 2013, InterceptEFT, a financial institution that had processed loan payments for the Tribes, notified Plaintiffs that it would terminate its relationship with them effective August 30. (Brandon Decl. Ex. D.) On August 16, 2013, citing regulatory enforcement from various government bodies, Missouri Bank, which processes payments for the Otoe–Missouria's lending operation, warned that the bank would cease providing “short-term, pay-day, and Internet lending” services to them in sixty days. (Shotton Decl. Ex. F.) Given the Tribes' heavy fiscal reliance on lending operations, these developments pose a potentially ruinous threat to the Tribes' financial viability. (Mem. at 1112; Shotton Decl. ¶ 43; Williams Decl. ¶ 33; Decl. of David Bernick, dated Aug. 22, 2013, Doc. No. 9, ¶ 5; see also Decl. of Sherry Treppa, dated Aug. 22, 2013, Doc. No. 14, ¶¶ 30–31 (describing the “ruinous” effect of the State's actions on a California tribe).)

B. Procedural History

On August 21, 2013, Plaintiffs commenced this action by filing the Complaint, alleging that the State's effort to regulate Tribal lending is an affront to Plaintiffs' inherent sovereignty and violates the Indian Commerce Clause of the United States Constitution. (Doc. No. 1.) Two days later, Plaintiffs moved this Court to preliminarily enjoin the State from enforcing New York's anti-usury statutes against Plaintiffs. (Doc. No. 2.) Plaintiffs filed their brief in support of preliminary injunction on August 29, 2013 (Doc. No. 8), and the State filed its brief in opposition on September 3 (Doc. No. 18). The motion for a preliminary injunction was fully briefed as of September 6, 2013 (Doc. No. 24), and the Court heard oral argument on September 11 (Doc. No. 35).

II. Discussion

The State opposes Plaintiffs' preliminary injunction motion on two grounds. First, the State contends that Plaintiffs lack standing to sue in federal court. Next, the State argues that Plaintiffs have not satisfied the Second Circuit's standard for a preliminary injunction. The Court addresses each of these issues in turn.

A. Standing

Article III, Section 2, of the United States Constitution delimits the federal judiciary's jurisdiction to include only certain cases and controversies. This “case or controversy” provision has been interpreted to require a party suing in federal court to demonstrate that (1) the party has suffered an injury that is (2) traceable to the complained-of conduct and that may be (3) redressed by the action sought from the court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). When the party suing is a Native American tribe, “actual infringements on [the] tribe's sovereignty constitute a concrete injury sufficient to confer standing ... [based on] the substantive interest which Congress has sought to protect in tribal self-government. This rule exists because tribes, like states, are afforded ‘special solicitude in [a court's] standing analysis.’ Mashantucket Pequot Tribe v. Town of Ledyard, 722 F.3d 457, 463 (2d Cir.2013) (quoting Massachusetts v. EPA, 549 U.S. 497, 520, 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007)) (other citations, quotations, and alterations omitted). With respect to traceability and redressability, a plaintiff needs to show that its injury is “fairly traceable to the challenged action of the defendant[—]not the result of the independent action of some third party—and that stopping the defendant's...

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