State of Colorado et al v. Western Sky Financial, L.L.C. et al
Filing
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ORDER granting 20 Motion to Remand to State Court. The case is remanded to the District Court for the City and County of Denver. Plaintiffs are awarded costs including attorney's fees, by Judge R. Brooke Jackson on 12/27/11.(lsw, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Honorable R. Brooke Jackson
Civil Action No. 11-cv-00887
State of Colorado, et al.,
Plaintiff(s),
v.
Western Sky Financial, L.L.C. et al.,
Defendant(s).
ORDER
Plaintiff moves to remand this case to state court for lack of federal question jurisdiction.
For the reasons discussed below, the Court grants the motion. Therefore, the Court does not
consider defendant’s pending motion to dismiss.
Facts
Plaintiffs filed this case in the Denver District Court on April 5, 2011. They allege that
Western Sky Financial, LLC, a South Dakota limited liability company, has offered, through the
Internet, to make loans to Colorado consumers in amounts ranging from $400 to $2,600 with
annual percentage interest rates of approximately 140 to 300%. Martin A. Webb is alleged to be
Western Sky’s sole manager and executive officer and, directly or indirectly, its sole member
and owner. In 2010 Western Sky made more than 200 such loans. Following an investigation,
plaintiffs determined that Western Sky was making “unlicensed supervised loans” and imposing
excessive finance charges. After Western Sky failed to comply with a demand that it cease and
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desist from making further loans, plaintiffs filed suit against Western Sky and Mr. Webb seeking
injunctive relief and damages for alleged violations of the Colorado Uniform Consumer Credit
Code, C.R.S. §§ 5-1-101 et seq. and the Colorado Consumer Protection Act, C.R.S. §§ 6-1-101
et seq.
Certain other allegations in the complaint must also be noted in view of the nature of the
removal dispute. When individuals apply for loans with Western Sky, they sign a document
called “Western Sky Consumer Loan Agreement.” This agreement states that it is “governed by
the Indian Commerce Clause of the Constitution of the United States of America and the laws of
the Cheyenne River Sioux Tribe.” Western Sky’s website states that all loans “will be subject
solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River
Indian Reservation,” and that borrowers “must consent to be bound to the jurisdiction of the
Cheyenne River Sioux Tribal Court, and further agree that no other state or federal law or
regulation shall apply to this Loan Agreement, its enforcement or interpretation.” The website
also indicates that it “is a Native American owned business operating within the boundaries of
the Cheyenne River Sioux Reservation, a sovereign nation located within the United States of
America.” Complaint ¶¶15-16.
On April 5, 2011 defendants filed a notice of removal of the case to federal court. They
asserted that “because this case involves a federal question,” federal jurisdiction is appropriate
under 28 U.S.C. § 1331. They note plaintiffs’ allegations quoted above concerning the loan
agreement that states that it is governed by the Indian Commerce Clause and the laws of the
Cheyenne River Sioux Tribe, that borrowers must consent to be bound to the jurisdiction of the
Tribal Court, and that no other state or federal law or regulation shall apply to the agreement.
They add that Mr. Webb is an enrolled member of the Cheyenne River Sioux Tribe (although his
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company is neither owned nor operated by the Tribe). They argue from those facts that
“Colorado’s purported state-law claims in this case are completely preempted by federal law.”
Notice of Removal ¶11. In support of that position they cite a number of cases for the
proposition that “Colorado may not regulate commercial activity on Indian lands in South
Dakota” and other cases for the proposition that the complaint “necessarily raises a dispositive,
substantial, and disputed question of federal law.” Id. ¶¶11-12.
Conclusions
Under the “well-pleaded complaint” rule, “federal jurisdiction exists only when a federal
question is presented on the face of the plaintiff’s properly pleaded complaint.” Caterpillar Inc.
v. Williams, 482 U.S. 386, 392(1987). Only state court actions that originally could have been
filed in federal court may be removed. Id. at 392, 398-99. A plaintiff, as the “master of the
claim,” can avoid federal jurisdiction by relying solely on state law. Ibid. Plaintiffs here have
pled nothing more than that the financial charges that are exacted by defendants from Colorado
borrowers violate Colorado consumer protection laws. The complaint recites representations that
defendants have made in their website or inserted in their loan agreements purported to bind
borrowers to tribal laws and jurisdiction only in the course of describing defendants’ loan
program.
Defendants’ arguments arising from Mr. Webb’s status as a member of the Cheyenne
River Sioux Tribe and his apparent claim of tribal immunity are, at most, defenses to plaintiffs’
claims. The assertion of a federal law defense to a state law claim, even federal preemption,
does not enable defendants to remove a claim stated under state law to federal court. Ibid. See
also Schmeling v. NORDAM, 97 F.3d 1336, 1339 (10th Cir. 1996). That is specifically true with
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respect to a tribal immunity defense. See Oklahoma Tax Commission v. Graham, 489 U.S. 838,
841 (1989).
A limited exception has been recognized in the case of “complete preemption” of a state
law claim. Caterpillar, 482 U.S. at 393. Complete pre-emption exists where the “pre-emptive
force of a statute is so extraordinary that it ‘converts an ordinary state common-law complaint
into one stating a federal claim for purposes of the well-pleaded complaint rule.’” Ibid. See,
e.g., Metropolitan Life Ins. v. Taylor, 481 U.S. 58, 65-67 (1987)(federal defense of ERISA
preemption made case removable despite the “well-pleaded complaint rule” because of
Congress’ manifest intent to preempt state law and to make causes of action within the scope of
the statute’s civil enforcement provisions removable). Defendants identify no statute or other
law indicating a “clear Congressional intent,” Schmeling, 97 F.3d at 1342, that a case such as this
be removable.
Defendants argue that Congress has completely preempted the regulation of Indian affairs
on a reservation. However, even if that were so, it begs the question of whether the conduct of
which plaintiffs complain involved regulation of Indian affairs on a reservation. I find and
conclude that it did not. Plaintiffs allege, and defendants do not dispute, that defendants were
operating via the Internet. Complaint ¶¶9-13. The borrowers do not go to the reservation in
South Dakota to apply for, negotiate or enter into loans. They apply for loans in Colorado by
accessing defendants’ website. They repay the loans and pay the financing charges from
Colorado; Western Sky is authorized to withdraw the funds electronically from their bank
accounts. The impact of the allegedly excessive charges was felt in Colorado. Defendants have
not denied that they were doing business in Colorado for jurisdictional purposes, nor does it
appear that they could. See State ex rel. Suthers v. Cash Advance, 205 P.3d 389, 400 (Colo. App.
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2008), aff’d, 242 P.3d 1099 (Colo. 2010). “Business conducted over the Internet that would
confer jurisdiction on a state court also demonstrates that the business activity constitutes offreservation activity.” Ibid.
A somewhat related exception has been recognized when a federal question is an
essential element of the plaintiff’s claim despite plaintiff’s failure to plead it. See Schmeling, 97
F.3d at 1339. For example, in Muhammad v. Comanche Nation Casino, 742 F. Supp. 2d 1268
(W.D. Okla. 2010), cited by defendants, the plaintiff alleged that she had sustained injuries from
a slip and fall accident on Indian lands. The court found that a necessary element of the statelaw claim was the legal right of the State of Oklahoma to exercise authority over the conduct of
an enterprise by an Indian Nation on Indian lands. Id. at 1275-76. The court also considered the
nature of the federal interest, in that case a balance struck by Congress among the interests of
tribal governments, the states and the federal government in the Indian Gaming Regulatory Act
concerning gaming activities on Indian lands. Id. at 1276-77. Collectively, those factors
convinced the court that removal was appropriate. Id. at 1277.
Unlike that case, however, this is not a case about commercial activity on Indian lands.
The facts that Mr. Webb is a member of an Indian tribe and that he owns a company that
operates within the boundaries of the reservation (but is neither owned nor operated by the Tribe)
are incidental to plaintiffs’ claims. There is no federal question inherent in or essential to the
prosecution of the claims. As indicated above, issues relating to tribal immunity are potential
defenses, see generally Suthers, 205 P.3d 389, not bases for removal.
The question I address is whether, despite the “well-pleaded complaint rule,” this case
was removable under the complete preemption doctrine or because a substantial federal question
is a significant element of plaintiffs’ claims. I conclude that it was not. I further find that there
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was no “objectively reasonable basis” for removal of this case to federal court. See Martin v.
Franklin Capital Corp., 546 U.S. 132, 141 (2005). There was no reasonable basis for
defendants’ repeated argument that the case involves regulation of Indian affairs on an Indian
reservation. Defendants advanced no reasonable argument that either the Indian Commerce
Clause or the Congress had completely preempted what plainly is a state law claim. Nor did they
advance a reasonable argument that a federal question is an essential element of plaintiffs’ claim.
It is settled law that, while tribal immunity might be a defense to a state law claim, it does not
provide a basis for removal. Moreover, defendants declined plaintiffs’ request that they
voluntarily stipulate to a remand. For all these reasons, I exercise my discretion under 28 U.S.C.
§ 1447(c) to award attorney’s fees and costs to the plaintiffs. See Excell, Inc. v. Sterling Boiler
& Mechanical, Inc., 106 F.3d 318, 322 (10th Cir. 1997). This may not include fees or costs
incurred in responding to defendants’ motion to dismiss or fees beyond those which were both
necessarily and reasonably incurred as a result of defendants’ improper removal.
Order
Plaintiff’s motion to remand [docket #20] is GRANTED. The case is remanded to the
District Court for the City and County of Denver. Plaintiffs are awarded costs including
attorney’s fees.
DATED this 27th day of December, 2011.
BY THE COURT:
___________________________________
R. Brooke Jackson
United States District Judge
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