People ex rel. Owen v. Miami Nation Enters.

Decision Date22 December 2016
Docket NumberS216878
Citation386 P.3d 357,211 Cal.Rptr.3d 837,2 Cal.5th 222
CourtCalifornia Supreme Court
Parties The PEOPLE EX REL. Jan Lynn OWEN, as Commissioner, etc., Plaintiff and Appellant, v. MIAMI NATION ENTERPRISES et al., Defendants and Respondents.

Kamala D. Harris, Attorney General, Edward C. DuMont, State Solicitor General, Janill L. Richards, Principal Deputy State Solicitor General, Sara J. Drake, Assistant Attorney General, Jennifer T. Henderson, Timothy M. Muscat and William P. Torngren, Deputy Attorneys General; Uche L. Enewali and Mary Ann Smith for Plaintiff and Appellant.

Seth E. Mermin, Thomas Bennigson, Daniel Osborn and Celine Cutter for Center for Responsible Lending, Community Legal Services in East Palo Alto, Housing and Economic Rights Advocates, Law Foundation of Silicon Valley, East Bay Community Law Center and Public Good Law Center as Amici Curiae on behalf of Plaintiff and Appellant.

Fredericks, Peebles & Morgan, John Nyhan, Sacramento, Nicole E. Ducheneaux, Conly J. Schulte ; Dorsey & Whitney and Vernle C. ("Skip") Durocher, Jr., for Defendants and Respondents.

Liu, J.

The practice of short-term deferred deposit lending—often called "payday" or "cash advance" lending—generally involves small sums that become due on the borrower's next payday. In return for the loan, the borrower provides the lender with a personal check for the amount of the loan plus fees or with direct access to his or her checking account. The lender then waits a specified amount of time to deposit the borrower's check or debit his or her account—hence the deferred deposit. Because of the short-term nature of these loans and the relatively high fees involved, effective annual percentage rates of 700 percent or higher are not unusual.

In 2003, the Legislature enacted the California Deferred Deposit Transaction Law (Fin. Code, § 23000 et seq. ), which limits the size of each loan and the fees that lenders may charge. In response to this law and similar legislation in other states, some deferred deposit lenders sought affiliation with federally recognized Indian tribes, which are generally immune from suit on the basis of tribal sovereign immunity. (See generally Martin & Schwartz, The Alliance Between Payday Lenders and Tribes: Are Both Tribal Sovereignty and Consumer Protection at Risk? (2012) 69 Wash. & Lee L.Rev. 751 (hereafter Martin & Schwartz).)

In this case, a pair of federally recognized tribes created affiliated business entities. Those entities or their subsidiaries then provided deferred deposit loans through the internet to borrowers in California under terms that allegedly violated the Deferred Deposit Transaction Law. The question is whether these tribally affiliated entities are immune from suit as "arms of the tribe." Applying a test that takes into account both formal and functional aspects of the relationship between the tribes and their affiliated entities, we conclude that the entities are not entitled to tribal immunity on the record before us.


This case concerns business entities associated with two Indian tribes, the Miami Tribe of Oklahoma and the Santee Sioux Nation.

The Miami Tribe of Oklahoma is a federally recognized tribe. (79 Fed. Reg. (Jan. 24, 2014) 4748, 4750.) In 2005, it created Miami Nation Enterprises, Inc. (hereafter MNE), as a "subordinate economic enterprise of the Miami Tribe of Oklahoma." In 2008, MNE created MNE Services, a wholly owned subsidiary of MNE that is incorporated under tribal law. Shortly thereafter, MNE transferred Tribal Financial Services (TFS), its "financial lending" subdivision, to MNE Services. MNE Services holds tribal licenses to engage in the "cash advance service business" under the names Ameriloan, United Cash Loans, and U.S. Fast Cash.

The Santee Sioux Nation, located in northeastern Nebraska, is also a federally recognized tribe. (79 Fed. Reg. (Jan. 24, 2014) 4748, 4751.) In 2005, the tribe passed a resolution creating SFS, Inc. (hereafter SFS), "an economic and political subdivision of the Santee Sioux Nation." According to its articles of incorporation, SFS "is organized ... to facilitate the achievement of goals relating to the Tribal economy, self-government, and sovereign status of the Santee Sioux Nation" by "provid[ing] and/or administer[ing] short-term loans and cash advance services (‘payday loans') and associated services." The tribe has issued licenses to SFS to "conduct a cash advance and lending business" under the names Preferred Cash and One Click Cash. These lenders provide "cash advance services, or short-term loans, to eligible borrowers ... and the loan transactions are approved and consummated on Indian lands and within the jurisdiction of the Santee Sioux Nation."

Although the tribes and their business entities are based in Oklahoma and Nebraska, they offer deferred deposit loans through the internet to borrowers nationwide. In August 2006, the Commissioner of the California Department of Corporations (now Commissioner of Business Oversight) issued a desist and refrain order to various online deferred deposit lenders, including defendants here, directing them to cease "engaging in unlicensed deferred deposit transaction business." The lenders did not heed the desist and refrain order.

In June 2007, the Commissioner filed a complaint against the lenders in Los Angeles Superior Court, alleging violations of the Deferred Deposit Transaction Law and seeking injunctive relief, restitution, and civil penalties. According to the complaint, defendants made deferred deposit loans without a license, issued loans in excess of the $300 statutory maximum, charged borrowers unlawful fees, and violated the Commissioner's desist and refrain orders. MNE and SFS specially appeared and moved to quash service based on lack of jurisdiction. They asserted that Ameriloan, United Cash Loans, U.S. Fast Cash, Preferred Cash, and One Click Cash are merely trade names utilized by tribal entities immune from suit without their consent. The parties then conducted discovery regarding the relationship among the tribes, their subsidiary business entities (i.e., MNE and SFS), and the online deferred deposit lenders to determine whether the lenders were sufficiently related to the tribes to benefit from the application of sovereign immunity.

The Commissioner adduced evidence that a company called CLK Management, LLC, registered the trademarks to Ameriloan, United Cash Loans, U.S. Fast Cash, One Click Cash, and similar names between 2004 and 2006. In September 2006, one month after the Commissioner issued her desist and refrain orders, CLK Management conveyed the One Click Cash trademark to SFS. CLK Management also conveyed the Ameriloan, United Cash Loans, and U.S. Fast Cash marks to TFS, which later assigned them to MNE Services. The Commissioner requests that we take judicial notice of screenshots from the homepages of Ameriloan, United Cash Loans, U.S. Fast Cash, Preferred Cash Loans, and One Click Cash, as well as information from the United States Patent and Trademark Office regarding each of those trade names. We grant this unopposed request, because the information is publicly available and is "not reasonably subject to dispute." (Evid. Code, § 452, subd. (h).)

The parties also produced documents relating to the entities' operations. Those documents show that since its creation in 2005, SFS has hired a series of management companies to operate its deferred deposit lending businesses. Initially, SFS contracted with Universal Management Services (UMS), a nontribal corporation. Since 2008, SFS "has contracted with AMG Services, Inc. (AMG), a corporation wholly-owned by the Miami Tribe of Oklahoma, for the purpose of providing employees to provide loan servicing." MNE likewise contracted with UMS before the creation of AMG; today, AMG provides employees to service the loans issued by MNE Services. AMG subsequently acquired CLK Management, the company that initially registered many of the lenders' trade names. According to declarations from tribal officials, some loan approval and customer service operations are run from MNE and SFS offices.

Under their prior service agreements with UMS, which were in effect until 2008, MNE and SFS received 1 percent of gross revenues from the online lending operations. The record does not reveal what percentage of revenues MNE Services and SFS currently receive under their agreements with AMG. Affidavits from Santee Sioux tribal officials state that "[a]ll profits earned by SFS go to the Santee Sioux to help fund government operations and social welfare programs." The Miami Tribe likewise asserts that "[t]he profits from [MNE Services] flow back to the Miami Tribe and enable it to fund critical governmental services."

The Commissioner also introduced evidence regarding two brothers, Scott and Blaine Tucker, who were linked to the companies SFS and MNE hired to manage the tribal entities' lending activities. Neither Scott nor Blaine is a member of the Santee Sioux or Miami Tribe. Scott, who had been the president of CLK Management, later became a signatory on AMG's bank accounts along with his brother Blaine. An investigator from the Federal Trade Commission (FTC) analyzed AMG's business checking account and found "numerous payments that appear to be for personal interests," including expenses associated with Scott's personal residence in Aspen, Colorado, and "sponsorships" of his auto racing team. In addition, Scott and Blaine were authorized to sign checks in the name of SFS, and during a sample two-month period reviewed by an investigator from the California Department of Justice, either Scott or Blaine signed every check issued by MNE Services. A law firm with ties to the Tucker brothers paid the website domain registration fees for all of the online deferred deposit lenders at issue here. A federal court has recently ruled that Scott, AMG, and several Tucker-affiliated companies violated several federal lending laws and imposed a $1.3...

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