On Monday, March 18 2013, the Colorado (state) District Court granted summary judgment to the Attorney General in a payday-lending case against Western Sky Financial and its control person, Martin A. (“Butch”) Webb. State ex rel. Suthers v. Western Sky Financial, LLC, No. 11 CV 638 (Apr. 15, 2013). Although this decision may initially seem a victory for opponents of tribal lending, on closer examination the decision provides little new insight. More importantly, the decision does not address the most prevalent tribal lending model where – unlike in Western Sky – the lending is actually done by tribal entities. Accordingly, cheering consumerists should put away their anti-tribal Terrible Towels and resume their seats.
Webb, an enrolled member of the Cheyenne River Sioux Tribe, owns and operates an Internet lender, Western Sky, which is an ordinary state- (in this case, South Dakota) chartered business entity. Webb is no stranger to the judicial system and has his own cross-country litigation trail of tears.
What distinguishes Western Sky is that it is not owned or operated by a tribe and therefore cannot be said to be an “arm” of the tribe entitled to tribal sovereign immunity. See, e.g., Breakthrough Mgmt. Group, Inc. v. Chukchansi Gold Casino & Resort, 629 F.3d 1173, 1185 (10th Cir. 2010). As an individual Indian, Webb is not entitled to immunity. Puyallup Tribe, Inc. v. Department of Game, 433 U.S. 165, 171 (1977).
No other tribal lender uses Webb’s model.
The Colorado court probably gets the right result as applied to Western Sky’s particular business model, although it arrives there somewhat inelegantly. The court relies on its prior decision for the non-immunity of defendants and reiterates much of its prior reasoning on this point (from an April 17, 2012 order denying defendants’ motion to dismiss). It engages in a prolix discussion of long-arm jurisdictional issues; this discussion continues to confound some basic issues about where the loans are consummated and about the defendants’ purported contacts with Colorado, but ultimately it comes to a reasoned, if arguably further appealable, conclusion on the issue. A large portion of the decision relates to a finding of Webb’s personal liability for the wrongs of Western Sky, which is essentially a joint-tortfeasor finding that does not depend on veil-piercing; I address some of these issues in a recent paper. (Senior Assistant A.G. Paul Chessin, a first-class litigator, deserves kudos for his argument on this point, which the court adopted nearly wholesale.) In a final insult to defendants, the court finds their immunity arguments to have been frivolous and awards attorneys’ fees to plaintiff.
None of these holdings is particularly earth-shattering or novel.
This case must be seen as limited to its particular – and unique – facts. In any “serious” current tribal lending model, the tribe has organized a tribally owned lending entity for its tribal economic-development purposes. The loans are thus deemed to be made by the tribe, not by an ordinary business entity owned by an individual Indian. As these models have evolved, more emphasis has been placed on true tribal governance; and the tribes have taken an active role in supervision and enforcement as, they argue, is their intended role under the Dodd-Frank Act. Moreover, the entities’ lending practices have been brought into substantially full compliance with federal law, leaving little – other than garden-variety usury – for state regulators to complain about.
Thus, Western Sky teaches little of importance for those who oppose the tribal model. It leaves unanswered most of the $64 questions in this field, such as the authority of the CFPB to examine and supervise tribal lending enterprises and the ability of tribes to cloak their non-tribal agents with immunity for lending actions taken in furtherance of tribal economic development. For these answers, we will need to await a federal court determination at some later date.