When U.S. District Judge Richard Sullivan denied a temporary injunction that would have halted New York State's crackdown against online lenders, the ruling was reported in the news media as though the native tribes that brought the suit asserting their sovereignty had lost the war, not just the first skirmish.

The fight is far from over as the case goes forward, and if history bears any indication of where this will wind up, New York's top bank regulator, Benjamin Lawsky, could be headed for a long, slow, expensive defeat.

Lawsky issued a cease-and-desist order in August to 36 online lenders operating in N.Y., nearly half of them tribally owned, which triggered two of the tribes to file suit seeking a temporary injunction. But in reports on Sullivan's recent denial of the injunction, several valid points were lost in the rush to file deadline news reports on this temporary injunction ruling.

First, online lenders serve as a last resort for some 20 million American households that, according to a recent Federal Deposit Insurance Corp. report, have little or no access to traditional bank credit. Many of these individuals who previously used home equity to cover financial emergencies lost that option in the recent housing financial meltdown.

Second, as recently as last year, the state of Colorado lost a long, expensive suit against online lending operations owned by two sovereign tribes. The parallels between the New York and Colorado cases are clear. Both involve tribal businesses that use the Internet to do business beyond state lines. Both hinge on their states' assertions that they can regulate tribally owned and operated online lenders to residents of their states the same way they regulate and control non-Native American Indian companies.

And third, the doctrine of tribal sovereignty, established by this nation's founders, exists precisely to protect tribes from incursions by the states against the tribes' ability to conduct commerce, including across state lines and off the reservation. That commerce, in the form of casinos, tobacco sales, online lending, convenience stores, gasoline sales and the like, provides an opportunity for economic self-determination that is critical for funding roads, healthcare and elder care in Native American Indian country, particularly in the wake of sequestration cuts that have cut tribal Head Start programs, the Indian Health Service, elderly meals and day care.

In the landmark Colorado case over tribal online lending, just last year, Denver District Judge Morris B. Hoffman ruled in favor of the tribal lenders, ending a seven-year case.

In his final order, Hoffman summarized this issue succinctly:

“Indian tribes were of course governing themselves in the New World long before the territorial claims of European colonial powers. Their sovereignty was recognized, if inconsistently and seldom with any fidelity, not just by those European powers but also by the nascent United States. The United States Supreme Court held as early as 1831 that congressionally-recognized Indian nations retained their sovereignty even as those nations' ancestral lands became absorbed into the United States. Congressionally-recognized Indian nations are immune from suit, meaning that they can be sued in courts of the United States or in any state courts only if Congress expressly permits such a suit or the Indian nation waives immunity and consents to the suit."

In New York, Judge Sullivan suggested on Oct. 1 that the state has the right to protect its citizens from certain lending practices. But the crucial point that was overlooked in deadline news coverage of Sullivan's ruling is this: Even if New York has the right to enforce its own laws, tribal sovereignty may deny the state the means by which the state can bring its action as it affects tribally owned and operated lenders. So, as was ruled in Colorado, the state may not have the ability to force a tribe, via subpoena of records and testimony, into its regulatory domain.

As this important case unfolds, we may once again see a state's case pivot and fall on that very point. Without records and testimony from the tribal businesses, will New York be able to make a case against the lenders?

This raises a related, strategic question and points to one significant difference between the New York case and its predecessor in Colorado. There, the tribes did not sue the state as they have in New York. Instead, they waited for the state to come after the tribes, seeking records and testimony. Only then did the tribes launch a counterattack against the state with a winning argument that Colorado had no right to subpoena their records.

This may explain why only two of the 15 tribes targeted by New York joined as plaintiffs in this lawsuit. The remaining tribes may be pursuing a strategy that more closely mirrors the path that led to upholding sovereign immunity in Colorado. 

Inevitably, these points will be raised and born out as the New York case moves through the courts. It will be unfortunate for all tribes if the strategic decision of two tribal lenders to go on the offensive ultimately leads to a ruling that erodes the strength of the doctrine of sovereign immunity that has been a foundation of tribal law since this nation was founded.

Jane Daugherty, former Associate Professor of Mass Communication at Florida International University, is a doctoral candidate at the University of Miami School of Communication in Coral Gables, FL.