California's plan to halt payday loan services owned by Indian tribes was dealt a setback this week after a state appeals court ruled tribal sovereign immunity stands in the way.
A panel for the Second Appellate District ruled Tuesday that, while the U.S. Supreme Court has not yet analyzed the "arm of the tribe" immunity doctrine, the numerous federal and state courts that have made such inquires developed tests to determine proper application of the doctrine.
"There can be little question that that MNE [Miami Nation Enterprises] and SFS Inc. function as arms of their respective tribes," Presiding Judge Dennis Perluss wrote for the District Seven panel. "MNE was created directly under the Miami Tribe's tribal law as a subordinate unit of the tribe itself to provide for its economic development."
MNE and SFS Inc. are the parent companies of five check-into-cash businesses - Ameriloan, United Cash Loans, US Fast Cash, Preferred Cash and One Click Cash - that the state investigated in 2006 for unlicensed and illegal loan activities. The California Department of Corporations issued a cease-and-desist order. After finding the businesses had ignored the order, the state took them to court in 2007. Officials accused the companies of engaging in unlicensed deferred deposit transactions, originating loans over the legal maximum, charging excessive fees and failing to provide customers with legally required notices.
MNE and SFS moved to dismiss the state action, claiming the companies were simply the trade names of the federally recognized Miami Tribe of Oklahoma and the Santee Sioux Nation and therefore afforded sovereign immunity from state enforcement actions. After an evidentiary hearing, the trial court agreed that the payday loan companies were "arms of the tribes" and that federal policies intended to promote tribal autonomy further protected the companies from state action.
"A tribal entity engaged in a commercial enterprise that is otherwise entitled to be protected by tribal immunity does not lose that immunity simply by contracting with non-tribal members to operate the business," Perluss ruled. "Similarly, whether or not the Miami Tribe and the Santee Sioux negotiated good or poor management agreements for themselves - whether a share of net profits would be more beneficial under the circumstances than a percentage of gross revenues and whether they could have insisted on a higher percentage than they actually received - even if not minutiae, cannot serve as the basis to determine the tribal entities are not functioning as arms of their respective tribes."
Tribal immunity has nothing to do with the respectability or ethical nature of a tribe's business dealings, the ruling concludes.
"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," Perluss wrote. "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."