GM 14-011

California Appellate Court Rules Tribal Payday Loan Businesses Entitled to Sovereign Immunity

On January 21, 2014, the California Court of Appeals held in People v. Miami Nation Enterprises that California’s Department of Business Oversight could not sue Miami Nation Enterprises (MNE) or SFS, Inc. for offering payday loans to state residents in violation of the California Deferred Deposit Transaction Law. MNE is an enterprise of the Miami Nation of Oklahoma and SFS is an enterprise of the Santee Sioux Tribe of Nebraska. The court ruled that both MNE and SFS were arms of their respective tribes and thus entitled to sovereign immunity.

We have previously reported on related payday lending issues in General Memoranda 12-037 of March 9, 2012 (“Colorado Supreme Court Holds that Two Tribal Payday Loan Businesses Have Tribal Immunity”) and 13-068 of August 1, 2013 (“Federal Trade Commission Settles Online Payday Lending Suit Extending Its Jurisdiction in Indian Country”).

In 2007, the California Department of Corporations brought an action in state court to end the payday lending practices of five business (Ameriloan, United Cash Loans, US Fast Cash, Preferred Cash and One Click Cash) charging them with illegal deferred deposits, loan cap violations, excessive fees, and customer notice violations. The five companies were owned by parent companies MNE and SFS. At trial both MNE and SFS moved to dismiss the complaint on the grounds that the companies were business arms of the two tribes and thus entitled to sovereign immunity from state action.

The lower court held an evidentiary hearing in 2012 and determined that the businesses were arms of the tribe despite the arguments of the State that the Tribes had not exercised sufficient control of the businesses or allowed the businesses to pay too much money to third parties. The lower court said that these issues were for the Tribe to consider but could not form the basis to determine the entities are not part of the Tribe.

The Appellate Court found that the management agreements between MNE and SFS and the five businesses gave MNE and SFS final decision making authority over loan approvals and vital business operations and thus not “merely passive bystanders to the challenged lending activities.” The Court concluded:

In the end, tribal immunity does not depend on our evaluation of the respectability or ethics of the business in which a tribe or tribal entity elects to engage. Absent an extraordinary set of circumstances not present here, a tribal entity functions as an arm of the tribe if it has been formed by tribal resolution and according to tribal law, for the stated purpose of tribal economic development and with the clearly expressed intent by the sovereign tribe to convey its immunity to that entity, and has a governing structure both appointed by and ultimately overseen by the tribe. Such a tribal entity is immune from suit absent express waiver or congressional authorization. Neither third-party management of day-to-day operations nor retention of only a minimal percentage of the profits from the enterprise (however that may be defined) justifies judicial negation of that inherent element of tribal sovereignty.

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