OSTEEN, JR., District Judge.
Plaintiffs Thomas Brown and Monica Johnson initially filed this lawsuit on March 28, 2013, against Defendants Western Sky Financial, LLC; 24 Seven Solution, LLC; 24-7 Cash Direct, LLC; Advance Wireless, LLC; Dekake Ranch, LLC; Financial Solutions, LLC; Great Plains Lending, LLC; Great Sky Finance, LLC; Green Billow, LLC; High Country Ventures, LLC; Horizons Consulting, LLC; Interim Holding Company; Management Systems, LLC; Native Imagination, LLC; New Holding Company; Payday Financial, LLC; Red River Ventures, LLC; Red Stone Financial, LLC; Webb Ranch, LLC; Western Capital, LLC; Western Sky Dakota Holding Company; Martin A. Webb; and CashCall, Inc. (Complaint (Doc. 1).)
Pursuant to a stipulated order (Doc. 88), Plaintiffs Brown and Johnson, joined by Plaintiffs Melinda Long, Renee Holmes, Kevin Hayes, Leslie Jan Lydon, and Elizabeth Jackson, (collectively "Plaintiffs") filed their Second Amended Complaint on January 23, 2014, against Defendants Western Sky Financial, LLC ("Western Sky"); Payday Financial, LLC ("Payday"); CashCall, Inc. ("CashCall"); John Paul Reddam ("Reddam"); WS Funding, LLC ("WS Funding"); and Delbert Services Corporation ("Delbert").
Presently, there are four pending motions before the court: (1) Motion to Dismiss for Lack of Jurisdiction by Defendants Payday and Reddam (Doc. 91); (2) all Defendants' Omnibus Motion to Dismiss ("Omnibus Motion") (Doc. 93); Plaintiffs' Motion Requesting Discovery on Preliminary Issues (Doc. 98); and (4) Defendants' Cross-Motion to Stay Discovery (Doc. 104).
In order to rule on the pending motions, this court must first address the forum selection clauses included in all of Plaintiffs' loan agreements. This is a threshold issue, because it determines proper venue for the current action. Variations of the forum selection clauses, granting almost exclusive jurisdiction to the Cheyenne River Sioux Tribe ("CRST"), have been the subject of litigation throughout the United States. Analysis of this litigation suggests that courts have addressed the forum selection clause in three ways: (1) the forum selection clause has been found unenforceable;
For the reasons described in detail in this Memorandum Opinion and in order to ensure that this matter is before the proper tribunal, this court finds most persuasive the cases holding tribal court exhaustion appropriate on the threshold issue of
Plaintiffs filed the present action, a class action lawsuit, on behalf of North Carolina residents who have borrowed money from Defendants using "payday loans." Plaintiffs allege these loans are unlawful under North Carolina law forbidding "payday loan" arrangements, i.e., loans of relatively small amounts with high interest rates. Plaintiffs also allege putative class action claims on behalf of consumers in other states whose rights were allegedly violated by these loans. (Second Am. Complaint ("Compl.") (Doc. 89) at 1.)
Each named Plaintiff is a citizen and resident of North Carolina and each named Plaintiff entered into a loan agreement with Defendant Western Sky and related entities. (Id. at 4-5.) Western Sky advertised primarily on television and any resulting loans were procured through internet and telephone transactions. (Id. at 5.) No loans were made in person. (Id. at 15.) Western Sky no longer offers such loans. (Id. at 19 n. 7.) Plaintiffs filed the present action to recover monies collected by Defendants that Plaintiffs claim was in violation of both North Carolina and federal law.
At issue in the present action is whether or not this court has jurisdiction over these proceedings or, in the alternative, whether the contracts between the parties conferred jurisdiction on the CRST, and which court should make the initial determination. Western Sky is a limited liability company chartered under the law of South Dakota.
The other Defendants are entities or individuals allegedly related to Western Sky's lending practice. Payday is a limited liability company chartered under the law of South Dakota with its principal place of business there. (Id. at 5.) Payday was the sole member of Western Sky during the time the Plaintiffs' loans were made and maintained. (Id.) CashCall is a California corporation with its principal place of business in California. CashCall was assigned many of Western Sky's loans. (Id. at 6.) Reddam is the President and CEO of CashCall and is CashCall's sole stock owner. (Id.) WS Funding, LLC is a wholly-owned subsidiary of CashCall. (Id.) WS Funding is a Delaware LLC and has a registered agent in Delaware. Reddam is the president of WS Funding. (Id.) Delbert is a Nevada corporation and Reddam is the sole director and owner. (Id. at 7.)
Plaintiffs allege that each Defendant had a specific role in the issuance and servicing of Plaintiffs' payday loans. Generally, to obtain a loan, a potential borrower would contact Western Sky via the internet or over the telephone. Plaintiffs applied for and received loans from Western Sky. When the loan was approved, funds were directly transferred from Western Sky to the borrower's bank account. (Id. at 17.) Following the execution of the loan agreement, loans were immediately transferred from Western Sky to CashCall. All Plaintiffs' payments were made to CashCall. If any Plaintiff defaulted on a loan, CashCall and Delbert made collection efforts. (Id. at 14-15.)
The loans ranged in amounts from $300 to $3,000 and were payable in monthly installments. The terms ranged from 12 to 84 months. (Id. at 16.) According to the Complaint, the annual percentage rates ranged from 90 percent to over 300 percent. (Id.) For example, Plaintiff Thomas Brown ("Brown") obtained a loan for $2,600 from Western Sky. Western Sky retained $75, so Brown received $2,525 in the form of a loan. In exchange, Brown agreed to make 40 monthly payments at a nominal APR of 139 percent/effective APR of 273 percent, resulting in total payments of $14,102.87 to Western Sky. (Id. at 22.)
Defendants' pending motions to dismiss argue that Plaintiffs' loan agreements all contain enforceable forum selection and arbitration clauses rendering jurisdiction in this court inappropriate. Illustrative of the forum selection clauses and arbitration agreements, Plaintiff Monica Johnson's ("Johnson") August 17, 2011 loan agreement contained the following provision:
(Compl., Ex. 2, Monica Johnson Loan Agreement & Declaration (Doc. 89-2) at 4.) In addition, Johnson's loan agreement contains a choice of arbitrator:
(Id. at 5.) Except for Brown's loan agreement, all of the loan agreements for the named Plaintiffs are similar to Johnson's in regard to the forum selection and arbitration agreements.
Brown's loan agreement (Id., Ex. 1, Thomas Brown Loan Agreement & Affidavit
Defendants posit three theories to compel this court to grant their Omnibus Motion. First, Defendants suggest that the loan agreements include a valid and enforceable forum selection clause which mandates that the laws of the CRST govern this dispute, and thus the doctrine of forum non conveniens requires dismissal. (Omnibus Motion (Doc. 93) at 3.) Next, Defendants argue that Plaintiffs' claims implicate tribal court jurisdiction, requiring dismissal under the tribal exhaustion doctrine. (Id.) Finally, Defendants claim that the loan agreements contain an arbitration provision requiring all disputes arising from the loan agreements to be arbitrated, and as required by the Federal Arbitration Act ("FAA"), this court should either stay or dismiss this action. (Id. at 4.)
Because this court finds the forum selection clause and tribal exhaustion issues controlling at this stage of the proceedings, this order addresses only those two issues.
All Plaintiffs' loan agreements contain language stipulating that disputes and arbitration shall be conducted in accordance with the rules and law of the CRST, and that the CRST has jurisdiction over such matters.
Generally, the Supreme Court requires that forum selection clauses be enforced.
Atl. Marine Const. Co. v. U.S. Dist. Court for the W. Dist. of Texas, 571 U.S. ___, ___, 134 S.Ct. 568, 583, 187 L.Ed.2d 487 (2013). In Atlantic Marine, the Supreme Court clarified that the forum non conveniens doctrine is the proper mechanism for enforcing a forum selection clause when the selected forum is not another federal court, but a foreign jurisdiction like the CRST. Id. at 580; see also Fidelity
If the forum selection clause is contractually valid,
Atlantic Marine, 134 S.Ct. at 582. However, courts do not always enforce a forum selection clause.
Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir.1996) (citations omitted).
Plaintiffs and Defendants do agree that the loan agreements all contain forum selection clauses that state that the agreements are governed by the "laws of the Cheyenne River Sioux Tribe." (See, e.g., Compl. (Doc. 89); Omnibus Motion (Doc. 93).) However, the parties' agreement seems to end there. Defendants argue the forum selection clause is valid and enforceable requiring this court to dismiss the present action. (Defs.' Omnibus Mem. (Doc. 94) at 17.) Plaintiffs disagree, stating that the forum selection clause fails because the CRST lacks jurisdiction
The forum selection and arbitration clauses at issue in the present action are identical or at least substantially similar to forum selection and arbitration clauses addressed in a number of different cases in different federal courts within the past year. Six of those cases illustrate the diversity in analysis of the issue presented. Two decisions are circuit court decisions and four are from district courts. The circuit court decisions are not from the Fourth Circuit, making them persuasive,
In two separate actions involving the CRST as the selected forum, the Seventh and Eleventh Circuits found the forum selection clauses unenforceable. In Jackson v. Payday Financial,
Jackson v. Payday Fin., 764 F.3d at 768. Following the limited remand, the Seventh Circuit's final opinion held that:
Id. at 776.
The Eleventh Circuit also declined to enforce the forum selection clause granting jurisdiction to the CRST.
Inetianbor, 768 F.3d at 1350-51 (citations omitted). After finding the forum an integral part of the arbitration agreement, the Eleventh Circuit went on to agree with the district court that the forum was unavailable making the arbitration clause unenforceable.
Id. at 1354.
In the Eastern District of North Carolina, the same judge in two different cases granted defendants' motion to dismiss "[i]n light of the contract's forum selection clause." See, e.g., Spuller v. Cashcall, Inc., No. 5:13-CV-806-D, 2014 WL 3923513 (E.D.N.C. Mar. 5, 2014); Milam v. Cashcall, Inc., No. 5:13-CV-768-D (E.D.N.C. Mar. 4, 2014). In Milam, plaintiff Selena Milam did not respond to defendant Cashcall's motion to dismiss or in the alternative to stay and compel arbitration. The court there simply granted the motion to dismiss, because the loan agreement contained a forum selection clause which granted jurisdiction to the CRST. (Milam v. Cashcall, Inc., 5:13-CV-768-D, Order (Doc. 15).) In the absence of a responsive pleading from the plaintiff, Milam is not directly on point. However, in Spuller, plaintiff Daniel Spuller did respond to defendant Cashcall's motion to dismiss or to stay proceeding and compel arbitration. Plaintiff Spuller argued that the loan agreement's forum selection clause was obtained through fraud and overreaching and its enforcement would be contrary to established public policy of North Carolina. (Spuller v. Cashcall, Inc., 5:13CV806-D, Pl.'s Resp. (Doc. 14).) In Spuller, the court found that the plaintiff had not "plausibly alleged that either defendant obtained the forum selection clause by fraud or overreaching," nor was the forum selection clause invalidated by North Carolina public policy. (Id., Order (Doc. 16).) While persuasive on the issues addressed, neither plaintiff in Spuller nor Milam argued that the selected forum did not have jurisdiction as Plaintiffs do in the present
In an order issued by the Southern District of Florida in Chitoff v. Cashcall, Inc., No. 0:14-CV-60292 (S.D.Fla. Nov. 17, 2014), after the Eleventh Circuit found the same forum to be unavailable in Inetianbor, the district court found for defendants and compelled arbitration in the CRST.
Chitoff, Order at 2-3. Based on information provided by Plaintiffs, it appears likely that the forum selection and arbitration clauses at issue in Chitoff were similar to Brown's in the present action, which included the "`right to select any of the following arbitration organizations to administer arbitration' and then lists AAA, JAMS, or an arbitration organization agreed to by the parties." (Pls.' Br. (Doc. 100) at 16.) It is notable that the district court in Florida found that plaintiff Chitoff had not shown the forum to be unavailable despite the controlling circuit court finding the same forum unavailable earlier the same year in Inetianbor.
In addition to arguing that the forum selection clause should be enforced, Defendants argue that, because Plaintiffs' claims implicate tribal court jurisdiction, this court should dismiss or stay under the tribal exhaustion doctrine. (Defs.' Omnibus Mem. (Doc. 94) at 33.) The concept of federal court abstention in cases involving Indian tribes, known as the "tribal exhaustion rule," generally "requires that federal courts abstain from hearing certain claims relating to Indian tribes until the plaintiff has first exhausted those claims in a tribal court." Jackson 764 F.3d at 784 (quoting Garcia v. Akwesasne Hous. Auth., 268 F.3d 76, 79 (2d Cir.2001)).
The tribal exhaustion doctrine directs that a federal court should "give the tribal court precedence and afford it a full and fair opportunity to determine the extent of its own jurisdiction over a particular claim or set of claims" when a "colorable claim of tribal court jurisdiction has been asserted." Ninigret Dev. Corp. v. Narragansett Indian Wetuomuck Hous. Auth., 207 F.3d 21, 31 (1st Cir.2000).
Federal courts have not provided a definitive answer to the question of what constitutes a colorable claim of jurisdiction. Neither the Supreme Court nor the Fourth Circuit have addressed this issue.
Boettcher v. Sec'y of Health & Human Servs., 759 F.2d 719, 722 (9th Cir.1985). More recently, in the situation of a constitutional claim, the Eleventh Circuit found that for a claim to be colorable, "the alleged violation need not be substantial, but the claim must have some possible validity." Arias v. U.S. Attorney Gen., 482 F.3d 1281, 1284 n. 2 (11th Cir.2007) (internal citation omitted)
Madewell v. Harrah's Cherokee Smokey Mountains Casino, 730 F.Supp.2d 485, 488-89 (W.D.N.C.2010) (internal citations omitted).
Ninigret Dev. Corp., 207 F.3d at 31 (internal citations omitted). The courts have created parameters to the tribal court exhaustion doctrine.
Grand Canyon Skywalk Dev., LLC v. `Sa' Nyu Wa Inc., 715 F.3d 1196, 1200 (9th Cir.), cert. denied, ___ U.S. ___, 134 S.Ct. 825,
Plaintiffs argue that the forum selection clause fails, because it confers subject matter jurisdiction on a court that does not have subject matter jurisdiction. (Pls.' Br. (Doc. 100) at 2.) Plaintiffs' argument is that the CRST court is a tribal court of limited jurisdiction and, therefore, cannot assert jurisdiction over the present action. (Id.) This is a different argument than the arguments to invalidate the forum selection clauses that were presented to the Eastern District of North Carolina in Spuller
A district court in South Dakota took a different approach to evaluating the forum selection clause which this court finds persuasive. The court found that,
Heldt v. Payday Financial, LLC, 12 F.Supp.3d 1170 (D.S.D.2014) (quoting Ninigret Dev. Corp. v. Narragansett Indian Wetuomuck Hous., Auth., 207 F.3d 21, 33 (1st Cir.2000)) (citations omitted).
"Indian tribes . . . generally lack legal authority over people who are not tribal members." Id. at 1181. The Supreme Court has recognized two specific exceptions to this general rule. These are referred to as the Montana exceptions. See supra note 15.
The Supreme Court "begin[s] by noting that whether a tribal court has adjudicative authority over nonmembers is a federal question." Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316, 324, 128 S.Ct. 2709, 171 L.Ed.2d 457 (2008).
In National Farmers Union, the Supreme Court stated:
Nat'l Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845, 856, 105 S.Ct. 2447, 85 L.Ed.2d 818 (1985).
However, the Supreme Court went on to say,
Id. at 856 n. 21, 105 S.Ct. 2447. (quoting Juidice v. Vail, 430 U.S. 327, 338, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977)).
Unlike the Seventh Circuit in Jackson, the district court in Heldt found that there was a colorable claim of CRST jurisdiction from the loan agreements. "The borrower certainly does not enter onto a reservation, but in today's modern world of business transactions through internet or telephone, requiring physical entry on the reservation particularly in a case of a business transaction with a consent to jurisdiction clause, seems to be requiring too much." Heldt, 12 F.Supp.3d at 1186. Plaintiffs in the current action base a portion of their argument asserting that North Carolina is implicated because Defendants' payday loans were offered in North Carolina. Using the Heldt analysis, however, Plaintiffs' logic can be used to assert a colorable claim of tribal jurisdiction, because some of Defendants' actions involved alleged tribal entities and/or tribal members.
Plaintiffs specifically address Heldt in their Reply Brief and dispute that case's persuasive authority. (Pls.' Reply Br. (Doc. 108) at 3-4.) After determining that there was a colorable claim of CRST jurisdiction, the Heldt court ordered that,
Heldt, 12 F.Supp.3d at 1193. In their Reply Brief, Plaintiffs further stated that they:
(Pls.' Reply Br. (Doc. 108) at 3.)
When deciding not to enforce the forum selection clause in Inetianbor, the Eleventh Circuit had the benefit of a record of the plaintiff's actual attempt to arbitrate within the directives of his loan agreement. In coming to its decision in Jackson, the Seventh Circuit relied on the course of events in Inetianbor and a record
Plaintiffs in the current action located several sources of relevant tribal law: (1) Cheyenne River Sioux Tribe Commercial Code (February 5, 1997), (2) South Dakota Tribal Court Handbook (Revised March 2006), and (3) Law and Order Code, Cheyenne River Sioux Tribe (1978 Revision). (Id.) In addition, Plaintiffs were "provided a more complete set of the Tribal laws in other litigation
(Id. at 35.) Plaintiffs make a leap in their logic suggesting that the written documents stating the law of the CRST lead to the conclusion that the CRST arbitration forum is a "sham" without any action trying to actually arbitrate there.
Instead of presenting the question of whether or not the CRST is the correct court to litigate the validity of the forum selection and arbitration clause, Plaintiffs declare the CRST a "biased and improper" forum. It is true that tribal courts "generally lack legal authority over people who are not tribal members." Heldt, 12 F.Supp.3d at 1181. However, it is also true that "[t]he tribal exhaustion doctrine holds that when a colorable claim of tribal court jurisdiction has been asserted, a federal court may (and ordinarily should) give the tribal court precedence and afford it a full and fair opportunity to determine the extent of its own jurisdiction over a particular claim or set of claims." Ninigret Dev. Corp., 207 F.3d at 31. The Eleventh Circuit found a claim colorable when the claim has "some possible validity." Arias, 482 F.3d at 1284 n. 2. Only a colorable claim is needed for this court to allow tribal court exhaustion to determine the next step in the present action.
Within our own circuit, in both Spuller and Milam, the Eastern District dismissed
There is nothing in the current record suggesting any actions taken by Plaintiffs themselves to warrant a finding by this court that the CRST is a fraudulent forum and not the proper jurisdiction for the action, when Plaintiffs entered into contracts which clearly stated that it is. On the present record, it would be inappropriate for this court to assume that another court is unable to decide whether or not it is the proper jurisdiction without allowing that court the first attempt to answer the question.
Instead of attempting to litigate in the CRST court, Plaintiffs in the present action request this court grant further discovery to determine whether or not the CRST has jurisdiction over the present matter and whether the CRST can arbitrate at all. (Doc. 98.) Because this court finds that Defendants have asserted at least a colorable claim of CRST jurisdiction, this court is persuaded by the Heldt court approach and with requiring tribal court exhaustion.
This court is aware of the facts that underlie the decisions of the Seventh and Eleventh Circuits finding the CRST forum unavailable. Because plaintiffs in those actions were able to persuade those courts that the CRST was not the proper arbitration forum, there is at least a possibility the CRST will not have jurisdiction over the present action and/or the CRST forum for arbitration will not be available. Because of the uncertainty that remains with the availability and jurisdiction of the CRST, this court will dismiss the present action without prejudice.
