State v. Cashcall, Inc.
| Decision Date | 18 August 2014 |
| Docket Number | A14-0028,A13-2086 |
| Parties | State of Minnesota, by its Attorney General, Lori Swanson and its Commissioner of Commerce, Michael Rothman, Respondent, v. CashCall, Inc., a California corporation, et al., Appellants. |
| Court | Minnesota Court of Appeals |
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2012).
Affirmed
*
Hennepin County District Court
Lori Swanson, Attorney General, Nathan Brennaman, Deputy Attorney General, Kevin Rodlund, Michael Tostengard, Assistant Attorneys General, St. Paul, Minnesota (for respondent)
Mark J. Briol, Scott A. Benson, Briol & Associates, PLLC, Minneapolis, Minnesota; and
Barry Levenstam (pro hac vice), Jenner & Block LLP, New York, New York, (for appellants)
Considered and decided by Bjorkman, Presiding Judge; Rodenberg, Judge; and Toussaint, Judge.
UNPUBLISHED OPINION
Respondent State of Minnesota brought a consumer-enforcement action against appellants CashCall, Inc., and WS Funding, LLC, in July 2013, alleging that appellants are using a third company, Western Sky Financial, LLC, as a front to make usurious loans to Minnesota consumers. The state moved for a temporary injunction, and appellants moved to dismiss the state's complaint pursuant to Minnesota Rule of Civil Procedure 12.02(e). The district court granted the temporary injunction and denied the dismissal motion. Appellants challenged both rulings in these consolidated appeals. Because the district court did not err by denying the dismissal motion and did not abuse its discretion by granting the temporary injunction, we affirm.
Appellants CashCall and WS Funding argue that the district court erred by denying their motion to dismiss the state's complaint. We review de novo a district court's denial of a motion to dismiss under Rule 12.02(e) for failure to state a claim upon which relief can be granted. Krueger v. Zeman Constr. Co., 781 N.W.2d 858, 861 (Minn. 2010). In doing so, we must "accept the facts alleged in the complaint as true and give the nonmoving party the benefit of all favorable inferences." Id. We are not bound by legal conclusions in a complaint. Bahr v. Capella Univ., 788 N.W.2d 76, 80 (Minn. 2010). A complaint should be dismissed "only if it appears to a certainty that no facts,which could be introduced consistent with the pleading, exist which would support granting the relief demanded." Id. (quotation omitted).
According to the complaint, WS Funding, a subsidiary of CashCall, entered into an agreement with Western Sky on December 28, 2009, that established the following system: CashCall maintains a deposit account in Western Sky's name that Western Sky uses to fund loans. Western Sky originates loans through its website and over the phone with Minnesota customers. If CashCall receives a loan application, it processes the application but funds the loan through Western Sky. Western Sky then sells the loans to WS Funding before the borrower makes a payment, and WS Funding assumes all rights of Western Sky to collect on the loans. CashCall and WS Funding bear the risk of nonpayment and indemnify Western Sky for all potential legal costs and fees.
The complaint alleges that CashCall and WS Funding "run virtually every . . . aspect of Western Sky's operations"; that they conduct the underwriting review of loan applications, provide customer service and technical service, host websites, supply fax and phone numbers, and service the loans, and that they also have the rights to use Western Sky's brand and image in advertisements. Based on the extent of CashCall and WS Funding's involvement, the state alleges that they are the "de facto" lenders of Western Sky's loans to Minnesota borrowers.
Appellants first argue that the state's complaint should be dismissed based on tribal sovereign immunity. Indian tribes are "domestic dependent nations that exercise inherent sovereign authority over their members and territories" and therefore areimmune to suits against them unless they clearly waive their immunity or Congress abrogates it. Okla. Tax. Comm'n v. Citizen Band Potawatomi Indian Tribe of Okla., 498 U.S. 505, 509, 111 S. Ct. 905, 909 (1991). This immunity extends to entities that operate as "arms of the tribe." Michigan v. Bay Mills Indian Cmty., 134 S. Ct. 2024, 2051 n.4 (2014) (Thomas, J., dissenting); Hagen v. Sisseton-Wahpeton Cmty. Coll., 205 F.3d 1040, 1043 (8th Cir. 2000). It does not apply, however, to individual tribe members. Puyallup Tribe, Inc. v. Dep't of Game of State of Wash., 433 U.S. 165, 172, 97 S. Ct. 2616, 2621 (1977).
Appellants argue that Western Sky is shielded by tribal sovereign immunity because it is owned by a tribal member, is located on a reservation, and finalizes its loans on a reservation. They further contend that because their contractual agreement with Western Sky allows them to "stand in the shoes" of Western Sky, they too have tribal sovereign immunity. But appellants cite no authority to support their position that tribal sovereign immunity is assignable. And even assuming that such an assignment is viable, appellants' claim fails because tribal sovereign immunity does not apply to Western Sky.
According to the state's complaint, Western Sky "is not owned or operated by an Indian tribe, is not a tribal entity, and does not exist for the benefit of a tribe." Rather, the state alleges that Western Sky is a South Dakota limited-liability company whose sole member holds himself out to be a member of the Cheyenne River Sioux Tribe (the CRST). The CRST did not approve Western Sky's creation, and Western Sky's profits do not benefit the tribe. Because we must accept these allegations as true, there is no reason to conclude that tribal sovereign immunity precludes the state's action.
Appellants argue otherwise by focusing on the location of Western Sky's operations and insisting that tribal sovereignty "displaces state sovereignty over affairs within a reservation" and that "Tribal members acting within the Reservation are subject to Tribal sovereignty in place of state sovereignty." This argument is flawed both factually and legally. The state has pleaded facts that would prove that Western Sky is not a tribal entity and conducts significant activity with Minnesota's borders. Appellants' arguments ignore these facts and focus instead solely on the location of Western Sky's operations. Such an approach is inappropriate when considering whether the state has presented a claim on which relief can be granted.
Moreover, taking the allegations in the complaint as true, there are no cases that support appellants' claim of immunity. Appellants rely heavily on a few Supreme Court cases. The first case is Williams v. Lee, 358 U.S. 217, 79 S. Ct. 269 (1959). In Williams, a non-Indian operated a general store on a reservation in Arizona. Id. at 217, 79 S. Ct. 269. He brought an action in an Arizona state court to collect for goods he sold on credit to an Indian couple who lived on the reservation. Id. at 217-18, 79 S. Ct. at 269. The question was whether the Arizona court had jurisdiction to hear the case. Id. at 218, 79 S. Ct. 269. The Supreme Court held that it did not, concluding that "to allow the exercise of state jurisdiction here would undermine the authority of the tribal courts over Reservation affairs and hence would infringe on the right of the Indians to govern themselves." Id. at 223, 79 S. Ct. at 272.
Appellants argue that Williams precludes the state from bringing its action against them because Western Sky consummated its loans on the reservation. Their argument isnot persuasive. After making its decision, the Williams Court stated, Id. That scenario is distinguishable from the one at issue here. Even if Western Sky accepted its loan agreements on the reservation—a fact the state does not allege—the transactions did not entirely take place there, as the transaction did in Williams.
The same distinction applies to McClanahan v. State Tax Comm'n of Arizona, 411 U.S. 164, 93 S. Ct. 1257 (1973), another case on which appellants rely. McClanahan, as the Supreme Court stated, "involve[d] the narrow question whether the State [of Arizona] may tax a reservation Indian for income earned exclusively on the reservation." Id. at 168, 93 S. Ct. at 1260. The Court held that "by imposing the tax in question on [a reservation Indian], the State has interfered with matters which the relevant treaty and statutes leave to the exclusive province of the Federal Government and the Indians themselves." Id. at 165, 93 S. Ct. at 1259. It stated, "[t]he tax is therefore unlawful as applied to reservation Indians with income derived wholly from reservation sources." Id. Again, this is distinguishable from the case at hand. The Supreme Court itself noted that McClanahan is not "a case where the State seeks to reach activity undertaken by reservation Indians on nonreservation lands." Id. at 168, 93 S. Ct. at 1260. This one is.
Appellants also highlight Montana v. United States, 450 U.S. 544, 101 S. Ct. 1245 (1981). In Montana, the Supreme Court considered whether a tribe has the power to regulate hunting and fishing on land within its reservation but owned by non-Indians. Id. at 547, 101 S. Ct. at 1249. The Court stated, as appellants quote, that "[a] tribe mayregulate, through taxation, licensing, or other means, the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements." Id. at 565, 101 S. Ct. at 1258. The Court held, however, that this principle did not apply because the non-Indian hunters and fishers "do not enter any agreements or dealings with the [tribe] so as to subject themselves to tribal civil...
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