Court: District Court, E.D. Wisconsin; March 17, 2015; Federal District Court
Western Sky Financial, LLC, a lender located on the Cheyenne River Sioux Tribe Reservation in South Dakota and owned by Tribal member Martin Webb, offers high-interest consumer loans. Plaintiffs Lisa Walker and Eric Williams, residents of Wisconsin, obtained loans from Western Sky in 2011 and 2012, with interest rates of 139.12% and 233.91%, respectively. After the loans were issued, they were sold to WS Funding, LLC and serviced by CashCall, Inc., a California corporation. The plaintiffs filed a class action lawsuit in Wisconsin state court against CashCall, alleging violations of Wisconsin's usury law (Wis. Stat. 138.09) due to excessive interest rates charged without a required license. They claim they are not obligated to repay the loans under Wis. Stat. 425.305. CashCall removed the case to federal court, where all parties consented to the jurisdiction of a magistrate judge.
CashCall has filed a motion to dismiss, which has been converted to a motion for summary judgment, and alternatively seeks to compel arbitration. CashCall's arguments include a forum selection clause from the loan agreements requiring litigation in Tribal courts and invoking the tribal exhaustion doctrine. However, the court will not further address these arguments as they have been previously rejected in Jackson v. Payday Financial, LLC.
Regarding the enforceability of the arbitration clauses, the court must determine applicable law, which typically follows the substantive law of the state where the federal district court sits, including choice of law rules. The loan agreements specify that they are governed by Tribal law, but there appears to be no Tribal law addressing forum selection clause enforceability. The defendants in Jackson suggested that in the absence of Tribal law, Tribal courts may refer to federal law for guidance.
Both CashCall and the plaintiffs agree that federal law governs the enforceability of the arbitration clauses in the loan agreements. CashCall argues that the question of whether Mr. Williams’s arbitration clause is enforceable should be determined by the arbitrator, citing the Supreme Court's ruling in Rent-A-Center, which upheld a 'delegation provision' granting the arbitrator exclusive authority to resolve disputes regarding the arbitration agreement. However, Mr. Williams’s loan agreement lacks a similar delegation provision. Instead, it defines disputes for arbitration to include issues concerning the validity, enforceability, or scope of the loan and arbitration agreement, suggesting the parties intended these issues to be addressed by the arbitrator.
Challenges to arbitration agreements can be categorized as either specific to the arbitration clause or to the entire contract. If the challenge targets only the arbitration clause, the court retains jurisdiction to adjudicate it. Mr. Williams’s opposition to CashCall’s motion focuses solely on the enforceability of the arbitration provision, which implicitly includes a challenge to the allocation of disputes regarding the arbitration agreement itself. Thus, the court will assess Mr. Williams’s challenge.
The Federal Arbitration Act (FAA) supports the enforceability of arbitration agreements, mandating that such agreements be valid and enforceable unless legally revocable. Courts are required to strictly enforce arbitration clauses as per their terms, including chosen arbitration parties and applicable rules.
An arbitration clause's presumptive validity can be challenged if the resisting party demonstrates it is "unreasonable under the circumstances." The U.S. Supreme Court outlines three conditions that may render a forum selection clause unreasonable: (1) if its incorporation was due to fraud, undue influence, or significant bargaining power imbalance; (2) if the chosen forum is so inconvenient that the complaining party is effectively deprived of their day in court; and (3) if enforcing the clause contradicts strong public policy of the forum where the suit is filed.
Ms. Walker’s arbitration provision in her loan agreement mirrors that found in Jackson, which was deemed unreasonable and unenforceable because the specified forum does not exist; the Tribe neither authorizes arbitration nor maintains consumer dispute rules. CashCall concedes that the arbitration forum detailed in Ms. Walker’s agreement is unavailable and acknowledges that, based on Jackson’s precedent, the court cannot enforce this clause.
Mr. Williams’s arbitration provision is also similar to Ms. Walker's but includes a crucial distinction: it allows the selection of arbitration organizations like the American Arbitration Association or JAMS. However, without evidence that any Tribe representative is recognized as an arbitrator within these organizations, there is inconsistency regarding the arbitration process, leading one court to describe the situation as a "conundrum."
Another court interpreted two paragraphs as offering parties the choice between (a) an authorized representative of the Tribe following its consumer dispute rules or (b) an arbitrator from the AAA, JAMS, or another acceptable organization using that organization’s rules. In *Hayes v. Delbert Servs. Corp.*, the court determined that recent changes in the 'Choice of Arbitrator' paragraph allowed parties to seek arbitration through recognized organizations rather than relying solely on the Tribe’s representatives and rules, which were deemed illusory. The court concluded that the new language implied a right to arbitration conducted by an arbitrator from organizations like AAA or JAMS, even if not a Tribal representative, although this interpretation is not explicitly stated in the contract.
Further clarification revealed that while organizations like AAA or JAMS administer arbitration, they do not conduct it; the arbitrators perform that role. The court noted that the arbitration clause could be interpreted as requiring an authorized Tribal representative to resolve disputes while the arbitration organization provided administrative support and rules. However, the Tribe has previously indicated it does not authorize arbitration or hire arbitrators, making Tribal oversight unfeasible. CashCall acknowledged the absence of a Tribal arbitration forum. Despite potential ambiguities in drafting, it may be inferred that the parties intended to allow the selection of an arbitrator from AAA or JAMS as an alternative to a Tribal representative, which is significant under the Federal Arbitration Act (FAA).
The excerpt addresses the enforceability of an arbitration provision in a loan agreement. It highlights that the Federal Arbitration Act (FAA) allows a court to appoint an arbitrator if there is a lapse in naming one, emphasizing Congress's intent to resolve such issues. In comparing this situation to a previous case (Jackson), the court noted that the arbitration provision was void due to a lack of authorized representation and procedural rules by the Tribe. However, the current agreement proposed by Mr. Williams remedies these concerns by allowing arbitration through established organizations like AAA or JAMS, thus removing bias issues related to Tribal arbitrators. Mr. Williams's sole argument against enforceability is that Tribal law does not exist, which is refuted by references to existing Tribal laws and codes. The court finds that unlike another plaintiff (Ms. Walker), Mr. Williams must arbitrate his claims, leading to the dismissal of his complaint.
Additionally, CashCall's motion to dismiss was converted to a motion for summary judgment after it submitted materials beyond the pleadings. The court determined that these materials, including affidavits from plaintiffs, would be considered in its decision. Summary judgment is granted if there are no genuine disputes over material facts, defined as those that could affect the case's outcome.
In a motion for summary judgment, the court must interpret all evidence and reasonable inferences in favor of the non-moving party, refraining from making credibility determinations or weighing evidence, as these tasks are reserved for a factfinder. To avoid summary judgment, the non-movant must present adequate admissible evidence that, when viewed favorably, could lead a jury to rule in their favor. CashCall contends that the Dormant Commerce Clause prohibits Wisconsin law from applying to Ms. Walker's loan agreement, asserting that Congress has the authority to regulate interstate commerce, which implicitly limits states from imposing regulations on out-of-state commerce. The Dormant Commerce Clause invalidates state regulations that excessively extend into interstate commerce, particularly when such commerce occurs entirely outside the state's borders. CashCall claims that Ms. Walker's loan agreement was established on a Tribal Reservation, citing the agreement's language indicating it was executed within the Reservation's boundaries and an affidavit from a Western Sky employee stating that final loan acceptance and funding occurred on the Reservation. Therefore, CashCall argues that applying Wisconsin’s usury statute to the agreement would violate the Dormant Commerce Clause. In support of this position, CashCall references the case of Midwest Title Loans v. Mills, where an Indiana law required local licensure for creditors, but the court found that the loan agreements were formed in Illinois, thus beyond Indiana's regulatory reach. However, unlike the Midwest Title case, it remains unclear whether Ms. Walker's loan agreement was conclusively finalized on the Tribe’s Reservation.
In W. Sky Fin. v. Maryland Com’r of Fin. Regulation, the court ruled that the location of the loan agreement's consummation was not an undisputed fact, as Ms. Walker did not travel to the Tribe's reservation to enter into the agreement. Instead, she was in Wisconsin when the loan offer was made and accepted, with the funds wired to her there, and she made payments from Wisconsin. The loan agreement's effectiveness relied on her electronic acknowledgment of its terms, which indicated she understood that her electronic execution had the same legal force as a paper contract. As a result, the court found that genuine issues of material fact remained, denying CashCall’s motion for summary judgment regarding Ms. Walker's complaint.
CashCall also requested a stay of Ms. Walker's lawsuit pending the outcome of Mr. Williams's arbitration, arguing that their claims were identical, and that a stay would prevent waste of resources and could influence the case's outcome. Ms. Walker opposed this, asserting that the arbitrator’s decision would not bind the court. The court has broad discretion in granting stays and considers factors such as the stage of litigation, simplification of issues, and potential prejudice to the nonmoving party. The court denied the stay request, noting that Ms. Walker's lawsuit had already been pending for nearly nine months, and there was no indication that a stay would simplify the issues or expedite the process.
Ultimately, the court ordered that CashCall’s motions to compel arbitration against both Williams and Walker were denied, the motion for summary judgment was denied, and the motion to stay Walker's proceedings was also denied. The arbitration clause related to Ms. Walker was not pressed by CashCall, possibly due to the ruling in Jackson, and the motion to dismiss Williams’s claim would need to be addressed by the arbitrator.
