United States District Court, D. South Dakota, Central Division
CHAD MARTIN HELDT, CHRISTI W. JONES, SONJA CURTIS, and CHERYL A. MARTIN, Individually and on behalf of all similarly situated individuals, Plaintiffs,
PAYDAY FINANCIAL, LLC, d/b/a Lakota Cash and Big Sky Cash; WESTERN SKY FINANCIAL, LLC, d/b/a Western Sky Funding and Western Sky and Westernsky.com; MARTIN A. WEBB, a/k/a " Butch," and CASHCALL, INC., Defendants
[Copyrighted Material Omitted]
For Chad Martin Heldt, individually and on behalf of all similarly situated individuals, Christi W. Jones, individually and on behalf of all similarly situated individuals, Sonja Curtis, individually and on behalf of all similarly situated individuals, Cheryl A. Martin, individually and on behalf of all similarly situated individuals, Plaintiffs: Patrick R. Burns, LEAD ATTORNEY, Lockridge, Grindal, Nauen P.L.L.P., Minneapolis, MN; Christopher D. Jozwiak, Shawn J. Wanta, PRO HAC VICE, Baillon Thome Jozwiak & Wanta LLP, Minneapolis, Mn.
For Payday Financial, LLC, doing business as Lakota Cash doing business as Big Sky Cash, Western Sky Financial, LLC, doing business as Western Sky Funding doing business as Western Sky doing business as Westernsky.com, Martin A. Webb, also known as " Butch", Cashcall, Inc., a California Corporation, Defendants: Brian J. Fischer, Katya Jestin, Neil M. Barofsky, LEAD ATTORNEYS, PRO HAC VICE, Jenner & Block LLP, New York, NY; Cheryl F. Laurenz-Bogue, LEAD ATTORNEY, Bogue & Bogue, LLP, Faith, SD; Claudia Callaway, LEAD ATTORNEY, PRO HAC VICE, Katten Muchin Rosenman LLP, Washington, DC.
For WS Funding, LLC, a wholly owned subsidiary of CashCall, Inc., Defendant: Brian J. Fischer, Katya Jestin, Neil M. Barofsky, LEAD ATTORNEYS, PRO HAC VICE, Jenner & Block LLP, New York, NY; Cheryl F. Laurenz-Bogue, LEAD ATTORNEY, Bogue & Bogue, LLP, Faith, SD.
OPINION AND ORDER ON PENDING MOTIONS
ROBERTO A. LANGE, UNITED STATES DISTRICT JUDGE.
There are three pending motions in this case--Defendants' Motion to Stay Proceedings and Compel Arbitration, Doc. 23; Plaintiffs' Motion to Stay Defendants' Motion to Compel Arbitration and to Take Discovery on Arbitration Issues, Doc. 26; and Defendants' Motion to Dismiss Amended Complaint, Doc. 34. Those three pending motions present issues of tribal court exhaustion, tribal court jurisdiction over non-Indians, enforceability of an arbitration clause when the arbitration forum allegedly fails to exist, and personal jurisdiction. This Court has written extensively and recently on many of these topics.
See, e.g., FTC v. PayDay Fin. LLC (" PayDay I" ), 935 F.Supp.2d 926 (D.S.D. 2013) (addressing tribal court jurisdiction over non-Indians and commenting on arbitration clause similar to ones at issue here); Plains Commerce Bank v. Long Family Land & Cattle, 910 F.Supp.2d 1188 (D.S.D. 2012) (addressing tribal court exhaustion and jurisdiction over non-Indians in tribal court); Dakota Foundry, Inc. v. Tromley Indust. Holdings, Inc., 891 F.Supp.2d 1088 (D.S.D. 2012) (addressing factual issue regarding enforceability of arbitration clause); Colombe v. Rosebud Sioux Tribe, 835 F.Supp.2d 736 (D.S.D. 2011) (discussing tribal court exhaustion); Jones v. GGNSC Pierre LLC, 684 F.Supp.2d 1161 (D.S.D. 2010) (discussing situation where arbitration forum designated no longer exists). Moreover, the parties raise these issues in the context of a subprime lending business with which this Court is familiar based on another case resulting in two lengthy opinions on related issues.
FTC v. PayDay Fin. LLC (" PayDay II" ), No. CIV 11-3017-RAL, 989 F.Supp.2d 799, 2013 WL 5442387 (D.S.D. Sept. 30, 2013);
PayDay I, 935 F.Supp.2d 926. This Court's rulings on the pending motions are designed to allow tribal court exhaustion to occur within the boundaries and under the principles discussed herein.
I. Facts Relevant to Pending Motions
Defendants initially filed a Motion to Dismiss Amended Complaint, Doc. 34, under Rule 12(b)(3) of the Federal Rules of Civil Procedure. As explained more fully herein, Defendants have since asked this Court to construe their motion to dismiss as one under the doctrine of forum non conveniens. Doc. 56 at 4-5. Defendants have also filed a motion to compel arbitration. Doc. 23. The Court thus takes the facts from the well-pleaded allegations of the Amended Complaint, as well as from materials attached thereto or referenced therein. Where appropriate, this Court draws additional facts from affidavits, items accompanying those motions, and facts that appear to be not subject to dispute. See Martinez v. Bloomberg LP, 740 F.3d 211, 216-17 (2nd Cir. 2014) (explaining that a district court considering a motion to dismiss for forum non conveniens or a motion to dismiss based on a forum selection clause generally relies on the pleadings and affidavits); Ireland v. Lear Capital, Civil No. 12-2467 (RHK/TNL), 2012 WL 6021551, at * 1 n.3 (D.Minn. Dec. 4, 2012) (" Motions to stay pending arbitration, like motions to compel arbitration, are treated as motions to dismiss for lack of subject-matter jurisdiction,
and hence the Court may consider matters beyond the pleadings in resolving such motions." ) (citation omitted).
Plaintiffs Chad Martin Heldt, Christi W. Jones, Sonja Curtis, and Cheryl A. Martin (collectively Plaintiffs) have brought an amended class action complaint invoking jurisdiction under 28 U.S.C. § 1332(d), asserting that the vast majority of class members are citizens of states different than the home state of the Defendants, and alleging that the amount in controversy exceeds $5 million. Doc. 30 at ¶ 41. Plaintiff Heldt is a resident of Minnesota, Plaintiffs Jones and Curtis are residents of Texas, and Plaintiff Martin is a resident of Virginia. Doc. 30 at ¶ ¶ 7-10. Plaintiffs seek to have a national class certified with three subclasses consisting of a Minnesota subclass, a Texas subclass, and a Virginia subclass. Doc. 30 at ¶ 44.
Each of the four named Plaintiffs obtained high-interest loans, with annual interest rates ranging from 89.68 percent to 233.91 percent from Defendant Western Sky Financial LLC. Doc. 30 at ¶ ¶ 7-10. Western Sky Financial LLC is a South Dakota limited liability corporation with its principal place of business in Timber Lake, South Dakota, within the exterior boundaries of the Cheyenne River Sioux Tribe Reservation. Doc. 30 at ¶ 12;
PayDay I, 935 F.Supp.2d at 929-30. Western Sky Financial LLC has a license from the Cheyenne River Sioux Tribe to do business.
PayDay I, 935 F.Supp.2d at 929. Western Sky Financial LLC uses various trade names to advertise and offer loans by television and through the internet to consumers outside of South Dakota. Doc. 30 at ¶ 12;
PayDay II, 2013 WL 5442387, at *3.
Defendant PayDay Financial LLC likewise is a South Dakota limited liability corporation with its principal place of business in Timber Lake, South Dakota. Doc. 30 at ¶ 11;
PayDay I, 935 F.Supp.2d at 929-30. PayDay Financial LLC was the entity that incorporated Western Sky Financial LLC. Doc. 30 at ¶ 11;
PayDay II, 2013 WL 5442387, at *3. PayDay Financial LLC has a license to do business from the Cheyenne River Sioux Tribe.
PayDay I, 935 F.Supp.2d at 929. Defendant Martin A. " Butch" Webb (Webb) is a South Dakota resident, is the registered agent for PayDay Financial LLC and Western Sky Financial LLC, and is the owner and president of PayDay Financial LLC. Doc. 30 at ¶ 13;
PayDay II, 2013 WL 5442387, at *5. Webb is an enrolled member of the Cheyenne River Sioux Tribe.
PayDay II, 2013 WL 5442387, at *2.
Defendant CashCall, Inc., is a California corporation with its principal place of business in Anaheim, California. Doc. 30 at ¶ 14. According to the Complaint, CashCall, Inc. has arranged with Western Sky Financial LLC and PayDay Financial LLC (or affiliates of those entities) to process the loans from their inception, to purchase the loans shortly after they are made, and/or to receive the loans for collecting and servicing. Doc. 30 at ¶ 14. CashCall, Inc. allegedly is aware of the terms of the loan agreements, approved those terms, and owns and operates the web servers used by Western Sky Financial LLC and PayDay Financial LLC to operate their lending business. Doc. 30 at ¶ 14.
Defendant WS Funding LLC is a wholly-owned subsidiary of CashCall, Inc. Doc. 30 at ¶ 15. According to the Complaint, CashCall, Inc. uses WS Funding LLC as the entity to provide money to PayDay Financial LLC and Western Sky Financial LLC that in turn is used for the consumer loans. Doc. 30 at ¶ 14. An agreement exists between Western Sky Financial LLC and WS Funding LLC, under which
CashCall, Inc. allegedly provides website hosting and support services for Western Sky Financial LLC, reimburses Western Sky Financial LLC for all costs associated with the server, reimburses Western Sky Financial LLC for operating expenses, provides an array of marketing services to Western Sky Financial LLC and reviews applications for Western Sky Financial LLC loans applying underwriting requirements. Doc. 30 at ¶ ¶ 19-23. If a loan is approved, Western Sky Financial LLC executes a promissory note and debits a " reserve account" to fund the loan. Doc. 30 at ¶ 24. The reserve account allegedly was set up, funded and maintained by CashCall, Inc. Doc. 30 at ¶ 26. CashCall, Inc. then purchases the promissory note from Western Sky Financial LLC, such that CashCall, Inc.--and not Western Sky Financial LLC--accepts payment from consumers. Doc. 30 at ¶ ¶ 28, 31. According to the Complaint, CashCall, Inc. pays Western Sky Financial LLC 5.145 percent of the face value of each approved and executed loan or renewal of loan. Doc. 30 at ¶ 33. CashCall, Inc. allegedly has agreed to indemnify Western Sky Financial LLC for all costs arising or resulting from any and all civil, criminal, or administrative claims or actions. Doc. 30 at ¶ 35. The Complaint further alleges that the Defendants have taken substantial steps to conceal this business scheme from consumers and regulators. Doc. 30 at ¶ 37.
The Agreement for Assignment and Purchase of Promissory Notes between Western Sky Financial LLC and WS Financial LLC, a subsidiary of CashCall, Inc., was filed in the record. Doc. 51-1. That agreement has a " Law Governing" provision stating:
This Agreement shall be construed in accordance with and governed solely by the laws and jurisdiction of the Cheyenne River Sioux Tribe, and by executing this Agreement, all parties consent to the sole jurisdiction of the courts of the Cheyenne River Sioux Tribe exclusively.
Doc. 51-1 at 6.
As concerns the Defendants' motion to dismiss for lack of personal jurisdiction over CashCall, Inc. and WS Funding LLC (collectively " the California Defendants" ), those Defendants aver that neither entity has a physical presence in the state of South Dakota, neither has ever offered consumer installment loans in the state of South Dakota, and neither has serviced consumer installment loans made to consumers who reside in South Dakota. The California Defendants maintain that no communications from the Plaintiffs to the California Defendants emanate from the state of South Dakota or were sent into the state of South Dakota. Doc. 34-5. Plaintiffs do not contest these matters, but claim in essence that the California Defendants use the South Dakota Defendants as their surrogates and agents as part of a civil conspiracy to avert usury laws, among other things.
The loan agreements entered into between the named Plaintiffs and Western Sky Financial LLC contain the following provision:
This Loan Contract is subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation. By executing this Loan Agreement, you, the borrower, hereby acknowledge and consent to be bound to the terms of this Loan Agreement, consent to the sole subject matter and personal jurisdiction of the Cheyenne River Sioux Tribal Court, and that no other state or federal law or regulation shall apply to this Loan Agreement, its enforcement or its interpretation.
Doc. 30 at ¶ 59; Doc. 23-1; Doc. 23-2; Doc. 23-3; Doc. 23-4. The loan agreements between the Plaintiffs and Western Sky Financial LLC also contain an arbitration clause and a " Governing Law" section, each specifying that the law of the Cheyenne River Sioux Tribe governs the agreement.
All of the Plaintiffs' loan agreements have an " Agreement to Arbitrate" specifying arbitration " conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules[.]" Doc. 23-1 at 5; Doc. 23-2 at 5; Doc. 23-3 at 5; Doc. 23-4 at 5. According to the Complaint, there is no such thing as arbitration in the Cheyenne River Sioux Tribe judicial system, and there are no Cheyenne River Sioux Tribe consumer dispute rules. Doc. 30 at ¶ 61.
Plaintiff Heldt's loan agreement differs from the other Plaintiffs' loan agreements in the section concerning " Choice of Arbitrator." The other three Plaintiffs' loan agreements, entered into in 2011, state:
Arbitration shall be conducted in the Cheyenne River Sioux Tribal Nation by a panel of three Tribal Elders and shall be conducted in accordance with the Cheyenne River Sioux Tribal Nation's consumer rules and the terms of this Agreement.
Doc. 23-2 at 5; Doc. 23-3 at 5; Doc. 23-4 at 5. Plaintiff Heldt's loan agreement entered into in 2013, states:
Regardless of who demands arbitration, you shall have the right to select any of the following arbitration organizations to administer the arbitration: the American Arbitration Association . . . JAMS . . . or an arbitration organization agreed upon by you and the other parties to the Dispute . . . . Any arbitration under this Agreement may be conducted either on tribal land or within thirty miles of your residence, at your choice, provided that this accommodation for you shall not be construed in any way (a) as a relinquishment or waiver of the Cheyenne River Sioux Tribe's sovereign status or immunity, or (b) to allow for the application of any law other than the law of the Cheyenne River Sioux Tribe of Indians to this Agreement.
Doc. 23-1 at 5.
The Plaintiffs make claims in the Amended Complaint against all Defendants for civil conspiracy and usury in violation of state laws. Doc. 30 at ¶ ¶ 63-82. Plaintiffs' Amended Complaint anticipates that the law of each borrower's state should be applicable and thus alleges in the remaining counts of the Amended Complaint violations of Minnesota, Texas, and Virginia law. Doc. 30 at ¶ ¶ 83-109.
Defendants' Motion to Dismiss Amended Complaint, Doc. 34, raises the following arguments for dismissal: 1) the Amended Complaint was filed in the improper venue as there is a forum selection clause specifying Cheyenne River Sioux Tribal Court; 2) the tribal exhaustion doctrine requires the tribal court to first determine its own jurisdiction; 3) the exercise of personal jurisdiction over the California Defendants violates due process; 4) the state law claims fail because tribal law only governs under the language of the agreements; and 5) several of the causes of action allegedly fail to state claims upon which relief may be granted. Defendants' Motion to Stay Proceedings and Compel Arbitration, Doc. 23, and the competing Plaintiffs' Motion to Stay Defendants' Motion to Compel Arbitration and Take Discovery on Arbitration Issues, Doc. 26, frame issues regarding the enforceability of the arbitration language in the loan agreements. This Court first will address questions of venue, tribal court exhaustion, and tribal jurisdiction. The Court then will address
the enforceability of the arbitration clauses, before turning briefly to the challenge to personal jurisdiction over the California Defendants.
A. Effect of Venue Selection Clause
Defendants initially argue that Rule 12(b)(3) warrants dismissal of the Amended Complaint because the Plaintiffs have filed this case in an improper venue. Defendants base this argument on the forum-selection clause in the loan agreements between the Plaintiffs and Western Sky Financial LLC. Doc. 34 at 4. The loan agreements entered into between the Plaintiffs and Western Sky Financial LLC contained clauses by which the borrowers consented " to the sole subject matter and personal jurisdiction of the Cheyenne River Sioux Tribal Court[.]" Doc. 30 at ¶ 59; Doc. 23-1 at 2; Doc. 23-2 at 2; Doc. 23-3 at 2; Doc. 23-4 at 2.
After Defendants filed their Motion to Dismiss Amended Complaint but before the Defendants filed their reply brief, the Supreme Court of the United States issued an opinion concerning forum-selection clause enforceability in Atlantic Marine Construction Co., Inc. v. United States District Court for the Western District of Texas, 134 S.Ct. 568, 187 L.Ed.2d 487 (2013). In their reply brief, Defendants cite Atlantic Marine and recast their argument as one based on the doctrine of forum non-conveniens. Doc. 56 at 4-5. The Plaintiffs' counter argument is that federal courts have the authority to determine whether a tribal court has jurisdiction over a non-Indian, there is no tribal court jurisdiction under the circumstances and thus the venue selection clauses have no force and should be ignored. Doc. 51 at 8-16.
Rule 12(b)(3), the grounds upon which Defendants initially based this part of their motion to dismiss, allows a party to move to dismiss a case for " improper venue." Fed.R.Civ.P. 12(b)(3). The Supreme Court in Atlantic Marine made clear that Rule 12(b)(3) is an appropriate ground for dismissal only when venue is " wrong" or " improper" in the forum in which the case was brought. A. Marine, 134 S.Ct. at 577. Thus, the first question is whether venue is wrong or improper in the District of South Dakota based on 28 U.S.C. § 1391. Section 1391(b) provides that a civil action in federal district court:
may be brought in--(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located; (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or (3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court's personal jurisdiction with respect to such action.
The Supreme Court in Atlantic Marine made clear that " [w]hether the parties entered into a contract containing a forum-selection clause has no bearing on whether a case falls into one of the categories of cases listed in § 1391(b)."
A. Marine, 134 S.Ct. at 577. Here, Defendants PayDay Financial LLC, Western Sky Financial LLC, and Webb are all residents of South Dakota where this Court is located. Moreover, a substantial part of the events giving rise to the Plaintiffs' claims occurred in ...