BROWN et al v. WESTERN SKY FINANCIAL, LLC et al

Filing 116

MEMORANDUM OPINION AND ORDER. Signed by CHIEF JUDGE WILLIAM L. OSTEEN JR. on 1/30/2015, that the Motion to Dismiss for Lack of Personal Jurisdiction filed by Defendants Payday Financial, LLC, and John Paul Reddam (Doc. 91 ) is DENIED WITHOUT PRE JUDICE pending the determination of tribal court jurisdiction. Upon conclusion of any action in the tribal court, the motion may be refiled in a subsequent action in this court to the extent ripe and relevant. FURTHER, that all Defendants' O mnibus Motion to Dismiss (Doc. 93 ) is GRANTED IN PART in that this court DISMISSES WITHOUT PREJUDICE the present proceedings pending tribal court exhaustion and DENIED IN PART in that arbitration is not compelled by this court at this time. FURTHER, that Plaintiffs' Motion Requesting Discovery on Preliminary Issues (Doc. 98 ) and Defendants' Cross-Motion to Stay Discovery (Doc. 104 ) are DENIED. (Daniel, J)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
THOMAS BROWN, MONICA JOHNSON,
MELINDA LONG, RENEE HOLMES,
KEVIN HAYES, LESLIE JAN LYDON,
and ELIZABETH JACKSON, on
behalf of themselves and a
class of persons similarly
situated,
Plaintiffs,
v.
WESTERN SKY FINANCIAL, LLC,
PAYDAY FINANCIAL, LLC,
CASHCALL, INC., JOHN PAUL
REDDAM, WS FUNDING, LLC, and
DELBERT SERVICES CORPORATION,
Defendants.

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1:13CV255

MEMORANDUM OPINION AND ORDER
OSTEEN, JR., District Judge
Plaintiffs Thomas Brown and Monica Johnson initially filed
this lawsuit on March 28, 2013, against Defendants Western Sky
Financial, LLC; 24 Seven Solution, LLC; 24-7 Cash Direct, LLC;
Advance Wireless, LLC; Dekake Ranch, LLC; Financial Solutions,
LLC; Great Plains Lending, LLC; Great Sky Finance, LLC; Green
Billow, LLC; High Country Ventures, LLC; Horizons Consulting,
LLC; Interim Holding Company; Management Systems, LLC; Native
Imagination, LLC; New Holding Company; Payday Financial, LLC;
Red River Ventures, LLC; Red Stone Financial, LLC; Webb Ranch,

LLC; Western Capital, LLC; Western Sky Dakota Holding Company;
Martin A. Webb; and CashCall, Inc. (Complaint (Doc. 1).)
On August 13, 2013, Plaintiffs Brown and Johnson filed
their First Amended Complaint, removing Defendant Western Sky
Dakota Holding Company as a Defendant and adding Defendants John
Paul Reddam, WS Funding, LLC, and Delbert Services Corporation.
(First. Am. Complaint (Doc. 47).)1
Pursuant to a stipulated order (Doc. 88), Plaintiffs Brown
and Johnson, joined by Plaintiffs Melinda Long, Renee Holmes,
Kevin Hayes, Leslie Jan Lydon, and Elizabeth Jackson,
(collectively “Plaintiffs”) filed their Second Amended Complaint
on January 23, 2014, against Defendants Western Sky Financial,
LLC (“Western Sky”); Payday Financial, LLC (“Payday”); CashCall,
Inc. (“CashCall”); John Paul Reddam (“Reddam”); WS Funding, LLC
(“WS Funding”); and Delbert Services Corporation (“Delbert”).2
(Doc. 89.) On February 10, 2014, Defendants Payday and Reddam
On November 15, 2013, Plaintiffs filed a notice
dismissing their claims against Defendants 24 Seven Solution,
LLC; 24-7 Cash Direct, LLC; Advance Wireless, LLC; Dekake Ranch,
LLC; Financial Solutions, LLC; Great Plains Lending, LLC; Great
Sky Finance, LLC; Green Billow, LLC; High Country Ventures, LLC;
Horizons Consulting, LLC; Interim Holding Company; Management
Systems, LLC; Native Imagination, LLC; New Holding Company; Red
River Ventures, LLC; Red Stone Financial, LLC; Webb Ranch, LLC;
Western Capital, LLC; and Martin A. Webb. (Doc. 71.)
1

2

Unless otherwise specified, all references to Plaintiffs’
“Complaint” will refer to Plaintiffs’ Second Amended Complaint
(Doc. 89).
- 2 -

filed their Motion to Dismiss for Lack of Personal Jurisdiction
(Doc. 91) and all Defendants filed their Omnibus Motion to
Dismiss (Doc. 93).
Presently, there are four pending motions before the court:
(1) Motion to Dismiss for Lack of Jurisdiction by Defendants
Payday and Reddam (Doc. 91); (2) all Defendants’ Omnibus Motion
to Dismiss (“Omnibus Motion”) (Doc. 93); Plaintiffs’ Motion
Requesting Discovery on Preliminary Issues (Doc. 98); and (4)
Defendants’ Cross-Motion to Stay Discovery (Doc. 104).
In order to rule on the pending motions, this court must
first address the forum selection clauses included in all of
Plaintiffs’ loan agreements. This is a threshold issue, because
it determines proper venue for the current action. Variations of
the forum selection clauses, granting almost exclusive
jurisdiction to the Cheyenne River Sioux Tribe (“CRST”), have
been the subject of litigation throughout the United States.
Analysis of this litigation suggests that courts have addressed
the forum selection clause in three ways: (1) the forum
selection clause has been found unenforceable;3 (2) the forum

3

See, e.g., Inetianbor v. CashCall, Inc., 768 F.3d 1346
(11th Cir. 2014), petition for cert. filed, 83 U.S.L.W. 492
(U.S. Dec. 14, 2014) (No. 14-775); and Jackson v. Payday Fin.,
LLC, 764 F.3d 765 (7th Cir. 2014).
- 3 -

selection clause has been enforced;4 or (3) the CRST has been
provided an initial opportunity to determine the enforceability
of the forum selection clause using the tribal exhaustion
doctrine.5
For the reasons described in detail in this Memorandum
Opinion and in order to ensure that this matter is before the
proper tribunal, this court finds most persuasive the cases
holding tribal court exhaustion appropriate on the threshold
issue of tribal court jurisdiction. Therefore, Defendants'
Motion to Dismiss for Lack of Personal Jurisdiction (Doc. 91)
will be denied without prejudice pending the determination of
tribal court jurisdiction. Defendants’ Omnibus Motion (Doc. 93)
will be granted in part in light of this court dismissing
current proceedings without prejudice pending tribal court
exhaustion and denied in part in that this court will not compel
arbitration at this time. Finally, Plaintiffs' Motion for
Discovery on Preliminary Issues (Doc. 98) and Defendants’ CrossMotion to Stay Discovery (Doc. 104) will be denied without
prejudice.
4

See, e.g. Spuller v. Cashcall, Inc., No. 5:13-CV-806-D
(E.D.N.C. Mar. 5, 2014); Milam v. Cashcall, Inc., No. 5:13-CV768-D (E.D.N.C. Mar. 4, 2014; and Chitoff v. Cashcall, Inc.,
No. 0:14-CV-60292 (S.D. Fla. Nov. 17, 2014).
5

Heldt v. Payday Fin., LLC, 12 F. Supp. 3d 1170 (D.S.D.
Mar. 31, 2014).
- 4 -

I.

FACTS
Plaintiffs filed the present action, a class action

lawsuit, on behalf of North Carolina residents who have borrowed
money from Defendants using “payday loans.” Plaintiffs allege
these loans are unlawful under North Carolina law forbidding
“payday loan” arrangements, i.e., loans of relatively small
amounts with high interest rates. Plaintiffs also allege
putative class action claims on behalf of consumers in other
states whose rights were allegedly violated by these loans.
(Second Am. Complaint (“Compl.”) (Doc. 89) at 1.)6
Each named Plaintiff is a citizen and resident of North
Carolina and each named Plaintiff entered into a loan agreement
with Defendant Western Sky and related entities. (Id. at 4-5.)
Western Sky advertised primarily on television and any resulting
loans were procured through internet and telephone transactions.
(Id. at 5.) No loans were made in person. (Id. at 15.) Western
Sky no longer offers such loans. (Id. at 19 n.7.) Plaintiffs
filed the present action to recover monies collected by

6

All citations in this Memorandum Opinion and Order to
documents filed with the court refer to the page numbers located
at the bottom right-hand corner of the documents as they appear
on CM/ECF.
- 5 -

Defendants that Plaintiffs claim was in violation of both North
Carolina and federal law.7
At issue in the present action is whether or not this court
has jurisdiction over these proceedings or, in the alternative,
whether the contracts between the parties conferred jurisdiction
on the CRST, and which court should make the initial
determination.

Western Sky is a limited liability company

chartered under the law of South Dakota.8 (Id. at 5.) Its

7

Plaintiffs allege the loans violate the North Carolina
Consumer Finance Act, N. C. Gen. Stat. § 53-164 et seq.; the
usury statutes, N.C. Gen. Stat. § 24-2 et seq.; the North
Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen.
Stat. § 75-1.1 et seq.; and North Carolina common law; Truth In
Lending Act, 15 U.S.C. § 1601 et seq.; the Electronic Fund
Transfer Act, 15 U.S.C. § 1693 et seq.; and the Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et
seq. (Compl. (Doc. 89) at 3.)
8

According to Defendants, Western Sky is licensed by the
CRST and Western Sky’s offices are located on the CRST
reservation, making Western Sky a CRST entity. (Defs.’ Mem. of
Law in Supp. of Omnibus Mot. to Dismiss or Stay (“Defs.’ Omnibus
Mem.”) (Doc. 94) at 18.) Plaintiffs disagree with the assertion
that Western Sky is a tribal entity, because it is organized
under state, not tribal, law. (Compl. (Doc. 89) at 14.)
Defendants explain that Western Sky’s LLC organizational
structure stems from the fact that the CRST has not established
model business formation legislation allowing entities owned by
tribal members to incorporate under tribal law, therefore,
Western Sky is organized as a South Dakota LLC. (Defs.’ Omnibus
Mem. (Doc. 94) at 18.) In addition, Plaintiffs’ allege that
“[d]efendants cannot avoid liability . . . by mandating
borrowers’ assent to a fiction that the loans were made outside
North Carolina.” (Compl. (Doc. 89) at 31-32.) This court finds
the uncertainty about whether or not any Defendant is a tribal
entity is best first addressed by the tribal court.
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principal place of business is in South Dakota. (Id.) Non-party
Martin Webb (“Webb”) is the owner and president of Western Sky
and a resident of South Dakota. (Id. at 5.) Western Sky holds
that it is owned by a member of the CRST. (Id. Ex. 3 at 2.)
The other Defendants are entities or individuals allegedly
related to Western Sky’s lending practice. Payday is a limited
liability company chartered under the law of South Dakota with
its principal place of business there. (Id. at 5.)

Payday was

the sole member of Western Sky during the time the Plaintiffs’
loans were made and maintained. (Id.) CashCall is a California
corporation with its principal place of business in California.
CashCall was assigned many of Western Sky’s loans. (Id. at 6.)
Reddam is the President and CEO of CashCall and is CashCall’s
sole stock owner. (Id.) WS Funding, LLC is a wholly-owned
subsidiary of CashCall. (Id.) WS Funding is a Delaware LLC and
has a registered agent in Delaware. Reddam is the president of
WS Funding. (Id.) Delbert is a Nevada corporation and Reddam is
the sole director and owner. (Id. at 7.)
Plaintiffs allege that each Defendant had a specific role
in the issuance and servicing of Plaintiffs’ payday loans.
Generally, to obtain a loan, a potential borrower would contact
Western Sky via the internet or over the telephone. Plaintiffs
applied for and received loans from Western Sky. When the loan
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was approved, funds were directly transferred from Western Sky
to the borrower’s bank account. (Id. at 17.) Following the
execution of the loan agreement, loans were immediately
transferred from Western Sky to CashCall.

All Plaintiffs’

payments were made to CashCall. If any Plaintiff defaulted on a
loan, CashCall and Delbert made collection efforts. (Id. at 1415.)
The loans ranged in amounts from $300 to $3,000 and were
payable in monthly installments. The terms ranged from 12 to 84
months. (Id. at 16.) According to the Complaint, the annual
percentage rates ranged from 90 percent to over 300 percent.
(Id.) For example, Plaintiff Thomas Brown (“Brown”) obtained a
loan for $2,600 from Western Sky. Western Sky retained $75, so
Brown received $2,525 in the form of a loan. In exchange, Brown
agreed to make 40 monthly payments at a nominal APR of 139
percent/effective APR of 273 percent, resulting in total
payments of $14,102.87 to Western Sky. (Id. at 22.)
Defendants’ pending motions to dismiss argue that
Plaintiffs’ loan agreements all contain enforceable forum
selection and arbitration clauses rendering jurisdiction in this
court inappropriate. Illustrative of the forum selection clauses
and arbitration agreements, Plaintiff Monica Johnson’s

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(“Johnson”) August 17, 2011 loan agreement contained the
following provision:
Agreement to Arbitrate. You agree that any Dispute,
except as provided below, will be resolved by
Arbitration, which shall be conducted by the Cheyenne
River Sioux Tribal Nation by an authorized
representative in accordance with its consumer dispute
rules and the terms of this Agreement.
(Compl., Ex. 2, Monica Johnson Loan Agreement & Declaration
(Doc. 89-2) at 4.) In addition, Johnson’s loan agreement
contains a choice of arbitrator:
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.
(Id. at 5.) Except for Brown’s loan agreement, all of the
loan agreements for the named Plaintiffs are similar to
Johnson’s in regard to the forum selection and arbitration
agreements.
Brown’s loan agreement (Id., Ex. 1, Thomas Brown Loan
Agreement & Affidavit (Doc. 89-1)) is the most recent and
contained different language. In Brown’s agreement, dated
July 5, 2012, the paragraph entitled, “Agreement to Arbitrate,”
states that, “You agree that any Dispute, except as provided
below, will be resolved by Arbitration, which shall be conducted
by the Cheyenne River Sioux Tribal Nation by an authorized

- 9 -

representative in accordance with its consumer dispute rules and
the terms of this Agreement.” (Id. at 4.) Another paragraph in
Brown’s arbitration agreement, entitled “Choice of Arbitrator”
states that, “you shall have the right to select any of the
following arbitration organizations to administer the
arbitration” and lists the American Arbitration Association
(AAA), the Judicial Arbitration and Mediation Services (JAMS),
or an arbitration organization agreed to by the parties. (Id.)
Defendants posit three theories to compel this court to
grant their Omnibus Motion. First, Defendants suggest that the
loan agreements include a valid and enforceable forum selection
clause which mandates that the laws of the CRST govern this
dispute, and thus the doctrine of forum non conveniens requires
dismissal. (Omnibus Motion (Doc. 93) at 3.) Next, Defendants
argue that Plaintiffs’ claims implicate tribal court
jurisdiction, requiring dismissal under the tribal exhaustion
doctrine. (Id.) Finally, Defendants claim that the loan
agreements contain an arbitration provision requiring all
disputes arising from the loan agreements to be arbitrated, and
as required by the Federal Arbitration Act (“FAA”), this court
should either stay or dismiss this action. (Id. at 4.)

- 10 -

Because this court finds the forum selection clause and
tribal exhaustion issues controlling at this stage of the
proceedings, this order addresses only those two issues.
II.

FORUM SELECTION CLAUSE
All Plaintiffs’ loan agreements contain language

stipulating that disputes and arbitration shall be conducted in
accordance with the rules and law of the CRST, and that the CRST
has jurisdiction over such matters.9 This pre-selection of
governing law and jurisdiction is a forum selection clause. The
enforceability of the forum selection clause is the threshold
question for this court.
A.

Legal Standard

Generally, the Supreme Court requires that forum selection
clauses be enforced.
When parties have contracted in advance to
litigate disputes in a particular forum, courts should
not unnecessarily disrupt the parties’ settled
expectations. A forum-selection clause, after all, may
have figured centrally in the parties’ negotiations
and may have affected how they set monetary and other
contractual terms; it may, in fact, have been a
critical factor in their agreement to do business
together in the first place. In all but the most
unusual cases, therefore, “the interest of justice” is
served by holding parties to their bargain.

9

Named Plaintiffs’ loan agreements contain such language.
(See Docs. 89-1, 89-2, 89-7, and 89-9.)
- 11 -

Atl. Marine Const. Co. v. U.S. Dist. Court for the W. Dist. of
Texas, 571 U.S. ____, ____, 134 S. Ct. 568, 583 (2013). In
Atlantic Marine, the Supreme Court clarified that the forum non
conveniens doctrine is the proper mechanism for enforcing a
forum selection clause when the selected forum is not another
federal court, but a foreign jurisdiction like the CRST. Id. at
580; see also Fidelity Bank PLC v. N. Fox Shipping N.V., 242
Fed. Appx. 84, 90 (4th Cir. 2007) (holding that the doctrine of
forum non conveniens has “continuing application in federal
courts only in cases where the alternative forum is abroad”).
If the forum selection clause is contractually valid,10
[A] court evaluating . . . a forum-selection clause
should not consider arguments about the parties’
private interests. When parties agree to a forumselection clause, they waive the right to challenge
the preselected forum as inconvenient or less
convenient for themselves or their witnesses, or for
their pursuit of the litigation. A court accordingly
must deem the private-interest factors to weigh
entirely in favor of the preselected forum.
Atlantic Marine, 134 S. Ct. at 582. However, courts do not
always enforce a forum selection clause.
[T]he presumption of enforceability that forum
selection and choice of law provisions enjoy is not
absolute and, therefore, may be overcome by a clear
showing that they are “‘unreasonable’ under the
circumstances.” Choice of forum and law provisions may
10

It is important to note that “analysis presupposes a
contractually valid forum-selection clause.” Atlantic Marine,
134 S. Ct. at 581 n.5.
- 12 -

be found unreasonable if (1) their formation was
induced by fraud or overreaching; (2) the complaining
party “will for all practical purposes be deprived of
his day in court” because of the grave inconvenience
or unfairness of the selected forum; (3) the
fundamental unfairness of the chosen law may deprive
the plaintiff of a remedy; or (4) their enforcement
would contravene a strong public policy of the forum
state.
Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir.
1996) (citations omitted).
B.

Analysis

Plaintiffs and Defendants do agree that the loan agreements
all contain forum selection clauses that state that the
agreements are governed by the “laws of the Cheyenne River Sioux
Tribe.” (See, e.g., Compl. (Doc. 89); Omnibus Motion (Doc. 93).)
However, the parties’ agreement seems to end there. Defendants
argue the forum selection clause is valid and enforceable
requiring this court to dismiss the present action. (Defs.’
Omnibus Mem. (Doc. 94) at 17.) Plaintiffs disagree, stating that
the forum selection clause fails because the CRST lacks

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jurisdiction11 and that this court is the proper venue for the
current action. (Pls.’ Br. in Opp’n to Defs.’ Omnibus Motion to
Dismiss (“Pls.’ Br.”) (Doc. 100).)
The forum selection and arbitration clauses at issue in the
present action are identical or at least substantially similar
to forum selection and arbitration clauses addressed in a number
of different cases in different federal courts within the past
year. Six of those cases illustrate the diversity in analysis of
the issue presented. Two decisions are circuit court decisions
and four are from district courts. The circuit court decisions
are not from the Fourth Circuit, making them persuasive, but not
binding authority. The district court decisions are also not
binding on this court, but they are informative. Analysis of the
litigation suggests that courts have addressed the forum
selection clause in three ways: (1) the forum selection clause
has been found unenforceable; (2) the forum selection clause has

11

Plaintiffs also argue that the forum selection clause
would be unreasonable to enforce, but this argument is based
again on the lack of tribal court jurisdiction. (Pls.’ Br. (Doc.
100) at 6.) Therefore, this does not warrant a separate
analysis. In addition, Plaintiffs assert that the forum
selection clause violates important state public policy. In
Spuller v. Cashcall, No. 5:13-CV-806-D (E.D.N.C. Mar. 5, 2014),
the Eastern District of North Carolina did not find that North
Carolina public policy invalidated the forum selection clause
based on similar arguments, so this court will focus its
analysis on the tribal court jurisdiction issue, which was not
presented to the Eastern District.
- 14 -

been enforced; or (3) the CRST has been provided an initial
opportunity to determine the enforceability of the forum
selection clause using the tribal exhaustion doctrine. This
court provides a brief discussion of each approach.
1.

Forum Selection Clause Found Unenforceable

In two separate actions involving the CRST as the selected
forum, the Seventh and Eleventh Circuits found the forum
selection clauses unenforceable. In Jackson v. Payday
Financial,12 plaintiffs asserted that “the forum selection clause
is not valid because: (1) it furthers an illegal contract; (2)
Plaintiffs’ financial straits left them susceptible to
Defendants’ overreaching; and (3) it is contrary to Illinois’
strong public policy.” Jackson v. Payday Fin., LLC, No. 11 C
9288, 2012 WL 2722024, at *2 (N.D. Ill. July 9, 2012), rev'd and
remanded, 764 F.3d 765 (7th Cir. 2014). In Jackson, the district
court initially granted the defendants’ motion to dismiss
stating that the plaintiffs had not successfully invalidated the
forum selection clause where “[t]he Loan Agreement states that
any dispute arising under the Loan Agreement ‘will be resolved
by Arbitration, which shall be conducted by the Cheyenne River
12

On August 25, 2014, Plaintiffs filed a Notice of
Supplemental Authority pursuant to Local Rule 7.3(i) to notify
this court of Jackson v. Payday Fin., LLC, 764 F.3d 765, 768-69
(7th Cir. 2014). (Doc. 110.)
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Sioux Tribal Nation by an authorized representative . . . .’”
Id. The Jackson plaintiffs appealed. After oral argument, but
before issuing a final ruling,
[The Seventh Circuit] ordered a limited remand to the
district court for further factual findings concerning
(1) whether tribal law was readily available to the
litigants and (2) whether arbitration under the
auspices of the Cheyenne River Sioux Tribe, as set
forth in the loan documents, was available to the
parties. The district court concluded that, although
the tribal law could be ascertained, the arbitral
mechanism detailed in the agreement did not exist.
Jackson v. Payday Fin., 764 F.3d at 768. Following the limited
remand, the Seventh Circuit’s final opinion held that:
[E]nforcement of the forum selection clause contained
in the loan agreements is unreasonable. The loan
agreements specify that disputes arising from the
agreement “will be resolved by Arbitration, which
shall be conducted by the Cheyenne River Sioux Tribal
Nation by an authorized representative in accordance
with its consumer dispute rules and the terms of this
Agreement.” Arbitration will be conducted by “either
(i) a Tribal Elder, or (ii) a panel of three (3)
members of the Tribal Council.” The record clearly
establishes, however, that such a forum does not
exist: The Cheyenne River Sioux Tribe “does not
authorize Arbitration,” it “does not involve itself in
the hiring of . . . arbitrator[s],” and it does not
have consumer dispute rules. We have no hesitation
concluding that an illusory forum is unreasonable.
Id. at 776.

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The Eleventh Circuit also declined to enforce the forum
selection clause granting jurisdiction to the CRST.13 Before
refusing to enforce the clause, the court first found that the
clause was an integral part of the arbitration agreement.
It is clear that the parties here intended the
forum selection clause to be a central part of the
agreement to arbitrate, rather than an ancillary
logistical provision. The arbitration clause expressly
provides “that any Dispute . . . will be resolved by
Arbitration, which shall be conducted by the Cheyenne
River Sioux Tribal Nation by an authorized
representative in accordance with its consumer dispute
rules and the terms of this Agreement. . . .” In
total, the contract references the Tribe in five of
its nine paragraphs regarding arbitration. That the
designation of the particular forum pervades the
arbitration agreement is strong evidence that at least
Western Sky, which drafted the contract, and whose
majority shareholder is a member of the Tribe,
considered arbitration conducted by the Tribe to be an
integral aspect of the arbitration agreement.
Inetianbor, 768 F.3d at 1350-51 (citations omitted). After
finding the forum an integral part of the arbitration agreement,
the Eleventh Circuit went on to agree with the district court
that the forum was unavailable making the arbitration clause
unenforceable.
Mr. Inetianbor presented the District Court with a
letter from the Tribe explaining that “the Cheyenne
13

On October 2, 2014, Plaintiffs filed a Notice of
Supplemental Authority pursuant to Local Rule 7.3(i) to notify
this court of Inetianbor v. CashCall, Inc., 768 F.3d 1346, 1349
(11th Cir. 2014), petition for cert. filed, 83 U.S.L.W. 492
(U.S. Dec. 14, 2014)(No. 14-775). (Doc. 111.)
- 17 -

River Sioux Tribe, the governing authority[,] does not
authorize Arbitration.” The Tribal Elder CashCall
initially chose to arbitrate the dispute expressed a
similar sentiment in response to Mr. Inetianbor’s
question about whether the Tribe was aware of the
arbitrator selection process, explaining that because
“this is a private business deal[, t]he Tribe has
nothing to do with any of this business.” Finally, the
fact that the arbitration clause calls for the
arbitration to be conducted according to consumer
dispute resolution rules that do not exist supports
the conclusion that the Tribe is not involved in
private arbitrations.
Id. at 1354.
2.

Forum Selection Clause Enforced

In the Eastern District of North Carolina, the same judge
in two different cases granted defendants’ motion to dismiss
“[i]n light of the contract’s forum selection clause.” See,
e.g., Spuller v. Cashcall, Inc., No. 5:13-CV-806-D (E.D.N.C.
Mar. 5, 2014); Milam v. Cashcall, Inc., No. 5:13-CV-768-D
(E.D.N.C. Mar. 4, 2014).

In Milam, plaintiff Selena Milam did

not respond to defendant Cashcall’s motion to dismiss or in the
alternative to stay and compel arbitration. The court there
simply granted the motion to dismiss, because the loan agreement
contained a forum selection clause which granted jurisdiction to
the CRST. (Milam v. Cashcall, Inc., 5:13-CV-768-D, Order (Doc.
15).) In the absence of a responsive pleading from the
plaintiff, Milam is not directly on point. However, in Spuller,
plaintiff Daniel Spuller did respond to defendant Cashcall’s
- 18 -

motion to dismiss or to stay proceeding and compel arbitration.
Plaintiff Spuller argued that the loan agreement’s forum
selection clause was obtained through fraud and overreaching and
its enforcement would be contrary to established public policy
of North Carolina. (Spuller v. Cashcall, Inc., 5:13CV806-D,
Pl.’s Resp. (Doc. 14).) In Spuller, the court found that the
plaintiff had not “plausibly alleged that either defendant
obtained the forum selection clause by fraud or overreaching,”
nor was the forum selection clause invalidated by North Carolina
public policy. (Id., Order (Doc. 16).) While persuasive on the
issues addressed, neither plaintiff in Spuller nor Milam argued
that the selected forum did not have jurisdiction as Plaintiffs
do in the present action. Nevertheless, each of those cases
persuades this court that on those or similar facts, dismissal
is an appropriate course.
In an order issued by the Southern District of Florida in
Chitoff v. Cashcall, Inc., No. 0:14-CV-60292 (S.D. Fla. Nov. 17,
2014), after the Eleventh Circuit found the same forum to be
unavailable in Inetianbor, the district court found for

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defendants and compelled arbitration in the CRST.14 Although the
present analysis is limited to the forum selection clause, when
analyzing the decision to compel arbitration, the Chitoff court
addressed CRST jurisdiction.
[M]ost importantly, Plaintiff has provided no evidence
that the Cheyenne River Sioux Tribe is unavailable as
an arbitration forum. . . .
Plaintiff’s failure to provide any evidence of
the unavailability of the tribe as a forum is
dispositive. Plaintiff has attempted to rely upon
citations to other cases where the forum has been
found unavailable in lieu of providing his own
evidence. The Court therefore finds that Plaintiff has
failed to meet his evidentiary burden to prove that
the arbitration forum is unavailable or otherwise
invalid.
Chitoff, Order at 2-3. Based on information provided by
Plaintiffs, it appears likely that the forum selection and
arbitration clauses at issue in Chitoff were similar to Brown’s
in the present action, which included the “‘right to select any
of the following arbitration organizations to administer
arbitration’ and then lists AAA, JAMS, or an arbitration
organization agreed to by the parties.” (Pls.’ Br. (Doc. 100) at

14

On November 11, 2014, Defendants filed a Notice of
Subsequently Decided Authority. (Doc. 112.) Defendants’ notice
brought to the attention of this court an “Order Granting
Defendants’ Motion to Compel Arbitration” in the matter of
Chitoff v. Cashcall, Inc., No. 0:14-CV-60292 (S.D. Fla.,
Nov. 17, 2014). In the order, the Southern District of Florida
compels arbitration stemming from a loan agreement similar to
the loan agreements at issue in the present action.
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16.) It is notable that the district court in Florida found that
plaintiff Chitoff had not shown the forum to be unavailable
despite the controlling circuit court finding the same forum
unavailable earlier the same year in Inetianbor.
III. TRIBAL COURT EXHAUSTION
In addition to arguing that the forum selection clause
should be enforced, Defendants argue that, because Plaintiffs’
claims implicate tribal court jurisdiction, this court should
dismiss or stay under the tribal exhaustion doctrine. (Defs.’
Omnibus Mem. (Doc. 94) at 33.) The concept of federal court
abstention in cases involving Indian tribes, known as the
“tribal exhaustion rule,” generally “requires that federal
courts abstain from hearing certain claims relating to Indian
tribes until the plaintiff has first exhausted those claims in a
tribal court.” Jackson 764 F. 3d at 784 (quoting Garcia v.
Akwesasne Hous. Auth., 268 F.3d 76, 79 (2d Cir. 2001)).
A.

Legal Standard

The tribal exhaustion doctrine directs that a federal court
should “give the tribal court precedence and afford it a full
and fair opportunity to determine the extent of its own
jurisdiction over a particular claim or set of claims” when a
“colorable claim of tribal court jurisdiction has been

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asserted.” Ninigret Dev. Corp. v. Narragansett Indian Wetuomuck
Hous. Auth., 207 F.3d 21, 31 (1st Cir. 2000).
Federal courts have not provided a definitive answer to the
question of what constitutes a colorable claim of jurisdiction.
Neither the Supreme Court nor the Fourth Circuit have addressed
this issue. In discussing what merits a colorable claim, the
Ninth Circuit noted the lack of clarity on the topic.
One court has held that claims were reviewable because
they were “not without some merit.” Jensen v.
Schweiker, 709 F.2d 1227, 1230 n.2 (8th Cir. 1983).
Another court has indicated that a putative
constitutional claim should be dismissed if it
“‘clearly appears to be immaterial and made solely for
the purpose of obtaining jurisdiction or . . . is
wholly insubstantial or frivolous.’” Holloway v.
Schweiker, 724 F.2d 1102 (4th Cir.)(quoting Bell v.
Hood, 327 U.S. 678, 682–83, 66 S. Ct. 773, 76, 90
L.Ed. 939 (1946)), cert. denied, ____ U.S. ____, 104
S. Ct. 2664, 81 L.Ed.2d 369 (1984).
Boettcher v. Sec'y of Health & Human Servs., 759 F.2d 719, 722
(9th Cir. 1985). More recently, in the situation of a
constitutional claim, the Eleventh Circuit found that for a
claim to be colorable, “the alleged violation need not be
substantial, but the claim must have some possible validity.”
Arias v. U.S. Attorney Gen., 482 F.3d 1281, 1284 n.2 (11th Cir.
2007) (internal citation omitted)
When there is a “colorable question” as to
whether a tribal court has subject matter jurisdiction
over a civil action, a federal court should stay or
dismiss the action so as to “permit a tribal court to
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determine in the first instance whether it has the
power to exercise subject matter jurisdiction.”
Madewell v. Harrah's Cherokee Smokey Mountains Casino, 730 F.
Supp. 2d 485, 488-89 (W.D.N.C. 2010) (internal citations
omitted).
The tribal exhaustion doctrine is not
jurisdictional in nature, but, rather, is a product of
comity and related considerations. Where applicable,
this prudential doctrine has force whether or not an
action actually is pending in a tribal court.
Moreover, the doctrine applies even though the
contested claims are to be defined substantively by
state or federal law.
Ninigret Dev. Corp., 207 F.3d at 31 (internal citations
omitted). The courts have created parameters to the tribal
court exhaustion doctrine.
[T]here are four recognized exceptions to the
requirement for exhaustion of tribal court remedies
where: (1) an assertion of tribal jurisdiction is
motivated by a desire to harass or is conducted in bad
faith; (2) the action is patently violative of express
jurisdictional prohibitions; (3) exhaustion would be
futile because of the lack of adequate opportunity to
challenge the court's jurisdiction; or (4) it is plain
that no federal grant provides for tribal governance

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of nonmembers' conduct on land covered by Montana's
main rule.15
Grand Canyon Skywalk Dev., LLC v. 'Sa' Nyu Wa Inc., 715 F.3d
1196, 1200 (9th Cir.), cert. denied, ____ U.S. ____, 134 S. Ct.
825 (2013) (internal citations omitted).
B.

Analysis

Plaintiffs argue that the forum selection clause fails,
because it confers subject matter jurisdiction on a court that
does not have subject matter jurisdiction. (Pls.’ Br. (Doc. 100)
at 2.) Plaintiffs’ argument is that the CRST court is a tribal
court of limited jurisdiction and, therefore, cannot assert
jurisdiction over the present action. (Id.) This is a different
argument than the arguments to invalidate the forum selection
clauses that were presented to the Eastern District of North

15

The Supreme Court, in Montana v. United States, created
two exceptions to the general rule that “the inherent sovereign
powers of an Indian tribe do not extend to the activities of
nonmembers of the tribe.” Montana, 450 U.S. 544, 565, (1981)
“A tribe may regulate, through taxation, licensing, or other
means, the activities of nonmembers who enter consensual
relationships with the tribe or its members, through commercial
dealing, contracts, leases, or other arrangements.” Id. In
addition, “[a] tribe may also retain inherent power to exercise
civil authority over the conduct of non-Indians on fee lands
within its reservation when that conduct threatens or has some
direct effect on the political integrity, the economic security,
or the health or welfare of the tribe.” Id. at 565-66.
(citations omitted). These two exceptions are referred to as the
Montana exception or rule.
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Carolina in Spuller16 and Milam. This is also a different focus
than the Seventh Circuit and Eleventh Circuit took in Jackson17
and Inetianbor18 when those courts invalidated the forum
selection clauses. The assertion that the CRST court does not
have jurisdiction creates not only a question of jurisdiction,
but also which court should determine whether or not the CRST
court has jurisdiction, this court or the CRST court.
A district court in South Dakota took a different
approach to evaluating the forum selection clause which
this court finds persuasive. The court found that,
The only legitimate argument here for refusal to
honor the forum-selection provision would be if the
forum selected — the Cheyenne River Sioux Tribal Court
16

Plaintiffs address the Spuller order in their Reply Brief
in Support of Motion Requesting Discovery on Preliminary Issues.
(Doc. 108.) Plaintiffs speculate that the Eastern District was
not aware of “relevant developments” in the Inetianbor case,
where the plaintiff tried to arbitrate per the loan agreement
and was unable to, when the Eastern District issued its “terse
March 5th order.” (Id. at 2.)
17

In evaluating whether tribal exhaustion should be
required, the Jackson court found that none of the Montana
exceptions were present to allow tribal court jurisdiction. “The
present dispute does not arise from the actions of nonmembers on
reservation land and does not otherwise raise issues of tribal
integrity, sovereignty, self-government, or allocation of
resources. There simply is no colorable claim that the courts of
the Cheyenne River Sioux Tribe can exercise jurisdiction over
the Plaintiffs. Tribal exhaustion, therefore, is not required.”
Jackson, 764 F.3d at 786.
18

The Eleventh Circuit did not address tribal court
exhaustion in the Inetianbor opinion.
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— lacked jurisdiction, because it would be contrary to
public interest to enforce a venue selection provision
that selects a venue lacking jurisdiction. “[T]he
determination of the existence and extent of tribal
court jurisdiction must be made with reference to
federal law, not with reference to forum-selection
provisions that may be contained within the four
corners of an underlying contract.” Thus, the effect
of the forum-selection clause turns on whether tribal
court jurisdiction exists under federal law.
Heldt, 12 F. Supp. 3d at 1170 (D.S.D. Mar. 31, 2014)
(quoting Ninigret Dev. Corp. v. Narragansett Indian
Wetuomuck Hous., Auth., 207 F.3d 21, 33 (1st Cir. 2000))
(citations omitted).
“Indian tribes . . . generally lack legal authority over
people who are not tribal members.” Id. at 1181. The Supreme
Court has recognized two specific exceptions to this general
rule. These are referred to as the Montana exceptions. See supra
note 15.
The Supreme Court “begin[s] by noting that whether a
tribal court has adjudicative authority over nonmembers is a
federal question.” Plains Commerce Bank v. Long Family Land &
Cattle Co., 554 U.S. 316, 324 (2008).
In National Farmers Union, the Supreme Court stated:
We believe that examination should be conducted
in the first instance in the Tribal Court itself. Our
cases have often recognized that Congress is committed
to a policy of supporting tribal self-government and
self-determination. That policy favors a rule that
will provide the forum whose jurisdiction is being
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challenged the first opportunity to evaluate the
factual and legal bases for the challenge.
Nat'l Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S.
845, 856 (1985).
However, the Supreme Court went on to say,
We do not suggest that exhaustion would be required
where an assertion of tribal jurisdiction “is
motivated by a desire to harass or is conducted in bad
faith,” or where the action is patently violative of
express jurisdictional prohibitions, or where
exhaustion would be futile because of the lack of an
adequate opportunity to challenge the court’s
jurisdiction.
Id. at 856 n.21. (quoting Juidice v. Vail, 430 U.S. 327, 338
(1977).
Unlike the Seventh Circuit in Jackson, the district court
in Heldt found that there was a colorable claim of CRST
jurisdiction from the loan agreements. “The borrower certainly
does not enter onto a reservation, but in today's modern world
of business transactions through internet or telephone,
requiring physical entry on the reservation particularly in a
case of a business transaction with a consent to jurisdiction
clause, seems to be requiring too much.” Heldt, 12 F. Supp. 3d
at 1186. Plaintiffs in the current action base a portion of
their argument asserting that North Carolina is implicated
because Defendants’ payday loans were offered in North Carolina.
Using the Heldt analysis, however, Plaintiffs’ logic can be used
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to assert a colorable claim of tribal jurisdiction, because some
of Defendants’ actions involved alleged tribal entities and/or
tribal members.19
Plaintiffs specifically address Heldt in their Reply Brief
and dispute that case’s persuasive authority. (Pls.’ Reply Br.
(Doc. 108) at 3-4.) After determining that there was a colorable
claim of CRST jurisdiction, the Heldt court ordered that,
Defendants, as the parties asserting that there is
tribal court jurisdiction and that there ought to be
tribal court exhaustion, must file within thirty (30)
days of the date of this Order a declaratory judgment
action in the Cheyenne River Sioux Tribal Court naming
the Plaintiffs herein to address to that court the
issue of tribal court jurisdiction and if that court
concludes it has jurisdiction, and the availability of
an arbitration forum as specified in the loan
agreements in this case. In such a tribal court
action, Plaintiffs of course may contest tribal court
jurisdiction and assert their arguments as the
unavailability of an arbitration forum as specified in
the agreements without waiving their assertion that
there is no tribal court jurisdiction.
Heldt, 12 F. Supp. 3d at 1193. In their Reply Brief, Plaintiffs
further stated that they:
[R]espectfully disagree with [the tribal court
exhaustion] aspect of the Heldt Court’s ruling and
submit that this Court should properly find that the
Tribal Court lacks subject matter jurisdiction for the
reasons provided in Plaintiffs’ prior briefs. However
the Plaintiffs also submit that should this Court
Plaintiffs’ contracts state that the governing authority
in the event of dispute was the CRST. Named Plaintiffs’ loan
agreements contain this language. (See Docs. 89-1, 89-2, 89-7,
and 89-9.)
19

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conclude there are any open issues in that regard,
rather than exercising its discretion to order
exhaustion of Tribal remedies, it would be more
efficient and appropriate for this Court to simply
allow discovery on the issues concerning whether the
Tribal Court has any jurisdiction.
(Pls.’ Reply Br. (Doc. 108) at 3.)
When deciding not to enforce the forum selection clause in
Inetianbor, the Eleventh Circuit had the benefit of a record of
the plaintiff’s actual attempt to arbitrate within the
directives of his loan agreement. In coming to its decision in
Jackson, the Seventh Circuit relied on the course of events in
Inetianbor and a record20 of additional findings after limited
remand. Jackson, 764 F.3d at 769-71. In contrast, Plaintiffs in
the present action have researched CRST law and relied upon case
authority albeit with different fact records. However, like the
plaintiff in Chitoff, Plaintiffs in the present action have not
attempted to actually arbitrate or file any action in a CRST
court. (Compl. (Doc. 89) at 34-35.)
Plaintiffs in the current action located several sources of
relevant tribal law: (1) Cheyenne River Sioux Tribe Commercial
Code (February 5, 1997), (2) South Dakota Tribal Court Handbook
(Revised March 2006), and (3) Law and Order Code, Cheyenne River

20

In Jackson, the Seventh Circuit explicitly stated that,
“[t]he record clearly establishes . . . that such a forum does
not exist.” Jackson, 764 F.3d at 776.
- 29 -

Sioux Tribe (1978 Revision). (Id.) In addition, Plaintiffs were
“provided a more complete set of the Tribal laws in other
litigation21 and learned that in fact the Tribal Code itself
includes a usury statute.” (Id. at 35.) Plaintiffs further state
that “the loans violate this [usury] statute.” (Id.) Then,
Plaintiffs conclude this portion of their argument with:
The purported arbitration facility of the
Cheyenne River Sioux Tribal Nation was not a real
arbitration organization but a sham. The Cheyenne
River Sioux Tribal Nation has no “consumer dispute
rules” governing arbitration.
The Cheyenne River Sioux Tribal Nation is a
biased and improper arbitral forum. Defendants have
contended that the tribe and the reservation benefit
financially from Defendants’ payday lending
operations, making it a biased arbitrator.
(Id. at 35.) Plaintiffs make a leap in their logic suggesting
that the written documents stating the law of the CRST lead to
the conclusion that the CRST arbitration forum is a “sham”
without any action trying to actually arbitrate there.
Instead of presenting the question of whether or not the
CRST is the correct court to litigate the validity of the forum
selection and arbitration clause, Plaintiffs declare the CRST a
“biased and improper” forum.

It is true that tribal courts

“generally lack legal authority over people who are not tribal
21

The “other litigation” referenced in the Complaint is
most likely Inetianbor, where Plaintiffs’ attorneys were the
same as in the present action.
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members.” Heldt, 12 F. Supp. 3d at 1181. However, it is also
true that “[t]he tribal exhaustion doctrine holds that when a
colorable claim of tribal court jurisdiction has been asserted,
a federal court may (and ordinarily should) give the tribal
court precedence and afford it a full and fair opportunity to
determine the extent of its own jurisdiction over a particular
claim or set of claims.” Ninigret Dev. Corp., 207 F.3d at 31.
The Eleventh Circuit found a claim colorable when the claim has
“some possible validity.” Arias, 482 F.3d at 1284 n.2. Only a
colorable claim is needed for this court to allow tribal court
exhaustion to determine the next step in the present action.
Within our own circuit, in both Spuller and Milam, the
Eastern District dismissed similar actions based on the forum
selection clause without addressing the jurisdiction of the CRST
forum, suggesting at least possible validity to the clauses.
More recently in Chitoff, the Southern District of Florida
compelled arbitration in the CRST forum when the plaintiff
relied on other lawsuits and provided no evidence that the CRST
was an unavailable forum.
There is nothing in the current record suggesting any
actions taken by Plaintiffs themselves to warrant a finding by
this court that the CRST is a fraudulent forum and not the
proper jurisdiction for the action, when Plaintiffs entered into
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contracts which clearly stated that it is. On the present
record, it would be inappropriate for this court to assume that
another court is unable to decide whether or not it is the
proper jurisdiction without allowing that court the first
attempt to answer the question.
IV.

CONCLUSION
Instead of attempting to litigate in the CRST court,

Plaintiffs in the present action request this court grant
further discovery to determine whether or not the CRST has
jurisdiction over the present matter and whether the CRST can
arbitrate at all. (Doc. 98.) Because this court finds that
Defendants have asserted at least a colorable claim of CRST
jurisdiction, this court is persuaded by the Heldt court
approach and with requiring tribal court exhaustion.
This court is aware of the facts that underlie the
decisions of the Seventh and Eleventh Circuits finding the CRST
forum unavailable. Because plaintiffs in those actions were able
to persuade those courts that the CRST was not the proper
arbitration forum, there is at least a possibility the CRST
will not have jurisdiction over the present action and/or the
CRST forum for arbitration will not be available. Because of the
uncertainty that remains with the availability and jurisdiction
of the CRST, this court will dismiss the present action without
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prejudice.22 Plaintiffs may file a subsequent action in this
court if tribal court exhaustion finds that this court is the
proper jurisdiction for the action or proves futile.23
For the reasons explained above, IT IS HEREBY ORDERED that
the Motion to Dismiss for Lack of Personal Jurisdiction filed by
22

In addition to the Omnibus Motion (Doc. 93), Defendants
Payday and Reddam filed their own Motion to Dismiss (Doc. 91)
pursuant to Fed. R. Civ. P. 12(b)(2) for lack of personal
jurisdiction. Thus far, Defendants Payday and Reddam do not
argue that the CRST lacks jurisdiction over them with regard to
the pending matter. Therefore, this court deems it proper to
defer ruling on any challenges to personal jurisdiction at this
time pending tribal court exhaustion in accordance with this
present Memorandum Opinion and Order.
23

This court anticipates either Plaintiffs or Defendants
shall file an action in the CRST in response to this order, and
this order is entered without prejudice to Plaintiffs' right to
re-file in the appropriate forum. This court is also aware of
Plaintiff's concerns with respect to the limitations on access
to the CRST as found and explained by some of the cases
described herein. See, e.g., Inetianbor v. CashCall, Inc., 768
F.3d 1346 (11th Cir. 2014), petition for cert. filed, 83
U.S.L.W. 492 (U.S. Dec. 14, 2014)(No. 14-775); Jackson v. Payday
Fin., LLC, 764 F.3d 765 (7th Cir. 2014). This ruling is not
intended to deprive Plaintiffs of a forum or a remedy.
Therefore, in the event a final resolution of the issues before
the CRST does not occur before an otherwise applicable statute
of limitations or similar bar would arise in this court,
Plaintiffs may refile their action in this court and request a
stay pending final resolution in the CRST. In light of the fact
that Defendants have argued that jurisdiction is proper in the
CRST [and, if applicable, that the CRST is an available forum],
this court does not see any reason that Defendants would
challenge jurisdiction in the CRST. In the event Plaintiffs
determine that re-filing is necessary in this court, Plaintiffs
may, as part of that filing, advise this court to the extent
Defendants take any positions inconsistent with their
representations in this court as to CRST jurisdiction and the
CRST as an appropriate forum.
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Defendants Payday Financial, LLC, and John Paul Reddam (Doc. 91)
is DENIED WITHOUT PREJUDICE pending the determination of tribal
court jurisdiction.

Upon conclusion of any action in the tribal

court, the motion may be refiled in a subsequent action in this
court to the extent ripe and relevant.
IT IS FURTHER ORDERED that all Defendants’ Omnibus Motion
to Dismiss (Doc. 93) is GRANTED IN PART in that this court
DISMISSES WITHOUT PREJUDICE the present proceedings pending
tribal court exhaustion and DENIED IN PART in that arbitration
is not compelled by this court at this time.
IT IS FURTHER ORDERED that Plaintiffs' Motion Requesting
Discovery on Preliminary Issues (Doc. 98) and Defendants’ CrossMotion to Stay Discovery (Doc. 104) are DENIED.
This the 30th day of January, 2015.

_______________________________________
United States District Judge

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