Metropolitan News-Enterprise


Friday, December 23, 2016


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S.C. Rejects Immunity Claim in Payday Lending Case




Several payday lending businesses operated by Indian tribes or their affiliates are not immune from a state law that limits the size of such loans and the interest and fees that can be charged, the state Supreme Court ruled yesterday.

The justices unanimously held that the defendant lenders had not shown that they are immune from compliance with the California Deferred Deposit Transaction Law, and overturned lower court rulings in their favor.

The court said the lenders can make a further attempt in the trial court, however.

The Department of Corporations—now the Department of Business Oversight—filed suit in June 2007, charging that Ameriloan, US Fast Cash, United Cash Loans, Preferred Cash and One Click Cash, each affiliated with the Miami Nation of Oklahoma or the Nebraska-based Santee Sioux Nation, had violated the law.

The alleged violations included lending without state licenses and charging excessive fees.

The companies are engaged in a largely Internet-based business of lending money short-term to borrowers who pay back the loans by authorizing repayment from their checking accounts on specific dates, typically on the next payday. The loans carry huge charges, without regard to the number of days for which the money is borrowed, and has been regulated to the point at which it is virtually outlawed in some states.

Special Appearance

In response to service of the complaint on the lenders, the two tribes appeared specially in the action and moved to quash for lack of jurisdiction. The tribes asserted that the five defendants were operated by tribal corporations pursuant to tribal resolutions, that the proceeds of the businesses were used for tribal government and social welfare purposes, and that the lenders were arms of the tribes and shared the tribes’ immunity from being sued in the absence of express congressional authorization or waiver.

Retired Los Angeles Superior Court Judge Joseph R. Kalin, sitting on assignment, denied the motions and granted a preliminary injunction barring the companies from engaging in the allegedly unlawful practices set forth in the complaint. He ruled that the tribes are not immune from liability for off-reservation commercial activities and that the state’s power to enforce its laws under the Tenth Amendment takes precedence over their claims of immunity.

He also ruled that the tribes had waived any immunity, the Miami because the tribal corporation operating the businesses was created by a resolution authorizing it to “sue and be sued,” and both tribes because arbitration clauses were included in their standard loan agreements.

Div. Seven of this district’s Court of Appeal reversed, saying tribal sovereign immunity will apply to off-reservation commercial conduct if the predicates for such immunity are met. But it remanded to the trial court to consider an argument, based on evidence the state claimed to have discovered after the injunction was issued, that the loan companies were actually independent of the tribes but were involved in a “rent-a-tribe” scheme created solely to avoid complying with the statute.

Ruling on Remand

On remand, Judge Yvette Palazuelos held an evidentiary hearing, found that the defendants were immune, and granted their motion to quash. The Court of Appeal ruled that the evidence showed the lenders to be “arms of the tribes” and affirmed.

Justice Goodwin H. Liu, however, writing yesterday for the high court, rejected the Court of Appeal’s analysis.

“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,” he wrote.

Citing federal and sister-state cases, Liu said the burden is on the entity claiming immunity to show that application of the doctrine will further the policy of “tribal self-governance, which includes economic self-sufficiency, cultural autonomy, and the tribe’s ‘ability to govern itself according to its own laws,’” as laid out in U.S. Supreme Court cases.

The record in the current case, Liu concluded, “contains scant evidence that either tribe actually controls, oversees, or significantly benefits from the underlying business operations of the online lenders. “ While the tribes do have a formal role in the businesses, he said, the evidence presented by the state showed that neither the tribes, nor the tribe-created entities that formally control the lenders, actually operate the businesses.

He cited a report by the Federal Trade Commission, which found that the bulk of the lending operations are conducted by AMG Services, Inc., which is formally owned by the Miami tribe and has a contract with the Santee Sioux, from offices in Kansas, outside the tribal boundaries, with little, if any, tribal oversight.

And while the tribal entities “have asserted that their profits go to support tribal operations and programs,” the justice noted,  “they conspicuously omit any mention of how much revenue actually reaches each tribe’s coffers or how that income was allocated among the tribal programs mentioned in the various affidavits. “

The evidence, Liu continued, suggests that the vast majority of revenues from the lending operations flow to nontribal individuals and entities, and have been “extensively commingled” with funds from other businesses controlled by Scott and Blaine Tucker. Liu said the Tuckers were reported by the FTC to have extensive control over the finances of AMG, as well as the companies created by the tribes to ostensibly operate as lenders, and that AMG appears to have paid for Scott Tucker’s home and several of his personal automobiles.

Liu distinguished cases applying tribal immunity to various aspects of Indian gaming, including tort claims by patrons injured at casinos. The justice noted that Indian gaming is heavily regulated by federal law, with requirements that tribes receive a significant share of the revenues and limitations on how that money can be used.

The case is People ex rel. Owen v. Miami Nation Enterprises, Inc., 16 S.O.S. 6542.


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