IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 12-2617

DEBORAH JACKSON, et al.

Plaintiffs-Appellants,

v.

PAYDAY FINANCIAL LLC, et al.,

Defendants-Appellees.

On Appeal from the United States District Court

for the Northern District of Illinois

No. 1:11-cv-09288

BRIEF FOR THE FEDERAL TRADE COMMISSION

AS AMICUS CURIAE

JONATHAN E. NUECHTERLEIN

General Counsel

JOHN F. DALY

Deputy General Counsel for Litigation

MICHELE ARINGTON

BURKE W. KAPPLER

Attorneys

Office of the General Counsel

Federal Trade Commission

600 Pennsylvania Ave., N.W.

Washington, D.C. 20580

(202) 326-3157
i 

TABLE OF CONTENTS 

 PAGE 

TABLE OF AUTHORITIES .................................................................................... ii 

INTEREST OF AMICUS CURIAE ............................................................ 1 

STATEMENT .............................................................................................. 2 

DISCUSSION ............................................................................................. 7 

I. In Its Separate Litigation, the FTC Maintains that the Defendants 

Falsely Represent to Consumers that the Tribal Court Has Jurisdiction 

to Adjudicate the Defendants’ Collection Actions. ................................... 8 

II. In Its Separate Litigation, the FTC Also Maintains that the Defendants’ 

Conduct in Suing Consumers in a Tribal Court that Lacks Jurisdiction 

Is a Prohibited Unfair Practice. ............................................................... 18

III. The Defendants’ Practice of Requiring Tribal Arbitration of Disputes 

Also May Be Deemed Unfair and Unconscionable. ............................... 24 

CONCLUSION ....................................................................................................... 32 

CERTIFICATE OF COMPLIANCE 

CERTIFICATE OF SERVICE 
ii 

TABLE OF AUTHORITIES 

CASES PAGE

Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957 (D.C. Cir. 1985) ..................................................................... 21, 22 

AT&T Corp. v. Coeur D'Alene Tribe, 45 F.Supp.2d 995 (D. Idaho 1998), rev'd on other grounds, 295 F.3d 899 (9th Cir. 2002) .............................................................................. 16 

AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) ................................................................................. 24, 25 

Atkinson Trading Co. v. Shirley, 532 U.S. 645 (2001) ..................................................................................... 10, 11 

ChampionsWorld LLC v. U.S. Soccer Federation, Inc., 726 F. Supp. 2d 961 (N.D. Ill. 2010).. ................................................................ 27 

Christian Children's Fund, Inc. v. Crow Creek Sioux Tribal Court, 103 F. Supp. 2d 1161 (D. S. D. 2000) ................................................................ 14 

Colorado v. Western Sky Fin., LLC, 845 F. Supp. 2d 1178 (D. Colo. 2011)................................................................ 15 

Colorado v. Western Sky Fin., LLC, 

 No. 11-638, slip op. (Colo. Dist. Ct. Denver Cty. Apr. 17, 2012) ..................... 13 

FTC v. Accusearch, Inc., 570 F.3d 1187 (10th Cir. 2009) ................................................................... 18, 19 

FTC v. J.K. Publ'ns, 99 F. Supp. 2d 1176 (C.D. Cal. 2000) ................................................... 19, 22, 23 

FTC v. Neovi, Inc., 604 F. 3d 1150 (9th Cir. 2010) ........................................................................... 19 

FTC v. Payday Fin., LLC, No. 3:11-cv-03017-RAL, 2013 WL 1309437 

 (D.S.D. March 28, 2013) ............................................................. 5, 13, 16, 17, 22 

Inetianbor v. Cashcall, Inc., __ F. Supp. 2d ___, 2013 WL 4494125 (S.D. Fla. Aug. 19, 2013) ....... 20, 28, 29 

In re Int'l Harvester Co., 104 F.T.C. 949 (1984) ................................................................................. 19, 22 

Missouri ex rel. Nixon v. Coeur D'Alene Tribe, 164 F.3d 1102 (8th Cir.1999) ............................................................................. 16 

Montana v. United States, 450 U.S. 544 (1981) ..................................................................... 5, 10, 11, 12, 15 
iii 

Orkin Exterminating Co., Inc. v. FTC, 849 F.2d 1354 (11th Cir. 1988) ............................................................. 18, 21, 22 

Phoenix Ins. Co. v. Rosen, 242 Ill.2d 48, 949 N.E.2d 639 (2011) .......................................................... 25, 30 

Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316 (2008) ............................................................................... 10, 11, 15 

Smith v. Salish Kootenai College, 434 F.3d 1127 (9th Cir. 2006) ............................................................... 10, 13, 14 

Stock West, Inc. v. Confederated Tribes of the Colville Reservation, 873 F.2d 1221 (9th Cir. 1989) ............................................................................ 12 

Strate v. A-1 Contractors, 520 U.S. 438 (2001) ............................................................................................ 10 

Suthers v. Cash Advance, 205 P.3d 389 (Colo. App. 2008), aff'd, 242 P.3d 1099 (Colo. 2010) ................................................................................ 16 

Williams v. Illinois State Scholarship Comm'n, 139 Ill.2d 24, 563 N.E.2d 465 (1990) .......................................................... 26, 31 

CONSTITUTION 

U.S. Const. art. I, § 8, cl. 3 ....................................................................................... 17 

FEDERAL STATUTES

Electronic Funds Transfer Act, 15 U.S.C. §§ 1693-1693r ........................................ 3 

Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692o ................................. 2 

Federal Arbitration Act, 9 U.S.C. § 2 ...................................................................... 24 

Federal Trade Commission Act 

 15 U.S.C. § 45 ....................................................................................................... 1 

 15 U.S.C § 45(a) ................................................................................................... 1 

 15 U.S.C. § 45(n) ......................................................................................... 18, 19 

Truth in Lending Act, 15 U.S.C. §§ 1601-1666j ....................................................... 1 
iv 

RULES AND REGULATIONS

12 C.F.R. § 205.10 ..................................................................................................... 3 

16 C.F.R. § 444 ......................................................................................................2, 3 

MISCELLANEOUS 

Letter from the FTC to Hon. Wendell Ford and Hon. John Danforth, 

Committee on Commerce, Science and Transportation, United 

States Senate, Commission Statement of Policy on the Scope of 

Consumer Unfairness Jurisdiction (December 17, 1980), reprinted 

in In re Int’l Harvester Co., 104 F.T.C. 949 (1984) ............................................... 19 

RESTATEMENT (SECOND) OF CONTRACTS § 208 cmt. a (1981) .... 26 

UNIFORM COMMERCIAL CODE §2-302 cmt. 1 (2003) ....................... 26 
1

INTEREST OF AMICUS CURIAE

The Federal Trade Commission (“FTC” or “Commission”) submits 

this brief in response to the Court’s invitation of May 10, 2013. In it, we 

seek to assist the Court in understanding the grounds for the FTC’s law 

enforcement action against payday lenders who are also defendants in 

this case, and we suggest ways in which the arguments that the FTC is 

making in that action may inform the Court’s analysis in this case. 

The FTC is the federal agency with principal responsibility for the

protection of consumers from unfair and deceptive trade practices. The 

Commission enforces Section 5 of the Federal Trade Commission Act 

(“FTC Act”), 15 U.S.C. § 45,1 which prohibits unfair or deceptive acts or 

practices as to most entities engaged in commercial activities, including 

nonbank financial companies. The Commission also enforces a variety 

of other statutes and regulations that address specific consumer credit 

practices.2 The Commission has filed numerous law enforcement actions 

 

1 Section 5 of the FTC Act prohibits, inter alia, “unfair or deceptive acts 

or practices in or affecting commerce.” 15 U.S.C § 45(a).

2 See, e.g., the Truth in Lending Act, 15 U.S.C. §§ 1601-1666j (requiring 

disclosures and establishing other requirements in connection with 
2

against payday lenders for practices that violate these laws and harm 

consumers.

STATEMENT

As the Court is aware, the Commission has sued these same 

defendants in parallel litigation under the FTC Act. As discussed below, 

the claims in that pending litigation are relevant to (while distinct 

from) the arbitrability issues presented in this appeal, and we thus

describe them in some detail. We begin by summarizing the procedural 

posture of the FTC’s suit.

In September 2011, the Commission filed a lawsuit in federal 

district court in South Dakota against Payday Financial LLC, its owner 

and operator, Martin A. Webb, and other related businesses to stop 

certain of their lending and collection practices, which target 

financially-distressed consumers seeking short-term, high-interest 

payday loans. As initially filed, the Commission’s complaint focused on 

 

consumer credit transactions); the Fair Debt Collection Practices Act.

15 U.S.C. §§ 1692-1692o (prohibiting abusive, deceptive, and unfair 

debt collection practices by third-party debt collectors); the Credit 

Practices Rule, 16 C.F.R. § 444 (among other things, prohibiting

creditors from using certain contract provisions deemed to be unfair to 

consumers).
3

garnishment and other collection practices. The complaint alleged that 

the defendants engaged in unfair and deceptive practices in violation of 

Section 5 of the FTC Act by (1) misrepresenting to employers that they 

are legally authorized to garnish borrowers’ wages, without first 

obtaining a court order; (2) falsely representing to employers that they 

have notified borrowers about the pending garnishment and have given 

them an opportunity to dispute the debt; and (3) disclosing the existence 

and the amounts of borrowers’ supposed debts to employers and coworkers. The complaint also alleged that the defendants violated the 

FTC’s Credit Practices Rule, 16 C.F.R. § 444, by requiring borrowers to 

consent, as a term of the loan contracts, to have wages taken directly 

out of their paychecks in the event of a default; and violated the 

Electronic Funds Transfer Act, 15 U.S.C. §§ 1693-1693r, and its 

implementing Regulation E, 12 C.F.R. § 205.10, by requiring borrowers 

to authorize electronic payments from their bank accounts as a 

condition of obtaining payday loans. See FTC Complaint (Doc. 1 in Case 

No. 3:11-cv-03017-RAL (D.S.D.)).

In March 2012, the Commission filed an amended complaint, 

which added claims more directly relevant to the issues before this 
4

Court. Following the filing of the initial complaint, the Commission 

learned that the defendants have been invoking forum selection clauses 

in their loan contracts to file collection actions against borrowers in the 

Cheyenne River Sioux Tribal Court (“Tribal Court”) on the Cheyenne 

River Sioux Reservation (“Reservation”) in South Dakota. The amended 

complaint alleges that, in their loan contracts, the defendants have 

violated the FTC Act’s prohibition on deceptive practices by 

misrepresenting that the Tribal Court can legitimately adjudicate such 

suits and issue valid judgments. The amended complaint also alleges 

that the defendants’ practice of suing borrowers in a distant court that 

lacks jurisdiction is an unfair practice prohibited by Section 5 of the 

FTC Act. See FTC Amended Complaint at 20-21(Doc. 44 in Case No. 

3:11-cv-03017-RAL (D.S.D.)).

The defendants moved for partial summary judgment on whether 

the Tribal Court has subject matter jurisdiction over their collection 

actions against borrowers. Significantly, the defendants do not lend 

either to tribe members or to residents of South Dakota, and thus all 

borrowers are non-members of the tribe and reside outside of South 

Dakota. The defendants nonetheless argued that jurisdiction exists 
5

because, under Montana v. United States, 450 U.S. 544, 565 (1981), the 

tribe has the authority to regulate “the activities of nonmembers who 

enter consensual relationships with the tribe or its members, through 

commercial dealing [or] contracts.” The district court denied the 

defendants’ motion because (1) the record did not establish that the 

defendants are “members” of the Cheyenne River Sioux Tribe (“Tribe”); 

and (2) inconsistent language in the loan contracts specifying both 

exclusive tribal court jurisdiction and exclusive alternative dispute 

resolution created ambiguity regarding what borrowers had consented 

to. See FTC v. Payday Fin., LLC, No. 3:11-cv-03017-RAL, 2013 WL 

1309437 (D.S.D. March 28, 2013). The Commission also moved for 

summary judgment, including on the claims relevant here. The district 

court has not yet decided that motion.

This appeal involves a question not presented in the FTC’s case: 

whether, pursuant to an arbitration provision in the loan contract, the 

defendants can require that borrowers’ claims against them be resolved 

by arbitration on the Reservation conducted by representatives of the 

Tribe (hereinafter, “tribal arbitration”). The court below granted the 

defendants’ motion to dismiss this putative class action by Illinois 
6

consumers, ruling that the plaintiffs had not identified any basis for 

invalidating the contract’s forum selection clause specifying tribal 

arbitration of disputes. See Memorandum Opinion of July 9, 2012

(“Mem. Op.”) (Doc. 65 in the case below).

After briefing and oral argument by the parties, this Court invited 

amicus submissions by the Commission and the State of Illinois, 

expressing a particular interest in prospective amicus’s view on the 

validity of the arbitration clause in the defendants’ loan contracts.

Shortly thereafter, the Court remanded to the district court for findings 

of fact on two questions: (1) whether the applicable tribal law is readily 

available to the public and, if so, under what conditions; and (2) 

whether the arbitrator or method of arbitration required under the 

contract is actually available. The Court’s remand order stated that if 

the FTC and Illinois filed amicus briefs, they could later submit a letter 

or memorandum stating their position on the district court’s findings, 

once issued. The FTC and the State of Illinois asked instead to defer the 

filing of an amicus brief until after the district court issued its findings, 

and the Court granted these motions. 
7

On August 29, 2013, the district court transmitted its findings of 

fact to this Court. The district court answered the first question in the 

affirmative, finding that the law of the Tribe “can be acquired by

reasonable means,” although the plaintiffs were able to secure a copy 

only after numerous failed attempts and at a greater cost than the cost 

to the defendants. District Court’s Response to Court of Appeals 

Remand for Findings of Fact at 2 (“Dist. Ct. Findings”) (Doc. 95 in the 

case below). But the district court answered the second question,

regarding the availability of tribal arbitration, with “a resounding no.”

Id. at 6. Based on its review of the sole tribal arbitration of a borrower’s 

claim and recent findings of a New Hampshire Banking Department 

investigation, the court found that there is no “methodized” tribal 

arbitration process, and the defendants’ “promise of a meaningful and 

fairly conducted arbitration is a sham and an illusion.” Id. at 4, 6.

DISCUSSION

Although the FTC’s challenge to defendants’ practices in 

connection with their lawsuits against borrowers in Tribal Court does 

not pose the precise question presented by this case, the issues 

presented in the two cases are related. In particular, the aspects of the 
8

defendants’ conduct that the FTC challenges as unfair and deceptive 

under the FTC Act are relevant to whether the arbitration provision in 

the defendants’ loan contracts is unconscionable and, thus, 

unenforceable. In Sections I and II below, we explain the basis for the 

FTC’s claims of deception and unfairness in the parallel litigation. We 

then turn in Section III to how those claims bear on the 

unconscionability issue presented in this case.

I. In Its Separate Litigation, the FTC Maintains that the

Defendants Falsely Represent to Consumers that the 

Tribal Court Has Jurisdiction to Adjudicate the 

Defendants’ Collection Actions.

In its enforcement action, the FTC contends that the defendants’

representations in their loan contracts―that they can sue consumers in 

Tribal Court and thereby obtain valid orders to garnish consumers’ 

wages―are false. Among other things, the contracts purport to be

“subject solely to the exclusive laws and jurisdiction of the Cheyenne 

River Sioux Tribe”; require borrowers’ “consent to the sole subject 

matter and personal jurisdiction of the Cheyenne River Sioux Tribal 

Court”; and state that “the sole jurisdiction of the Cheyenne River Sioux 

Tribal Court” will apply to “this Agreement and the potential 

garnishment of wages.” See FTC Amended Complaint at 14; Appellants’ 
9

Opening Brief at 9. The defendants’ loan contracts also state that the 

“transaction involve[es] the Indian Commerce Clause of the 

Constitution of the United States of America”; that the loan contract “is 

governed by the Indian Commerce Clause of the United States of 

America and the laws of the Cheyenne River Sioux Tribe”; and that the 

lender is “organized under and authorized by the laws of Cheyenne 

River Sioux Tribe and Indian Commerce Clause.”3 [Cite.] 

Invoking these contract provisions, the defendants have filed at 

least 1,123 collection actions in Tribal Court against borrowers who 

have purportedly defaulted. The defendants have obtained sixty-one 

default judgments; only two consumers have appeared to defend the 

lawsuits.4

In the FTC Act litigation, the Commission maintains that the 

defendants have misled consumers about their legal rights, and have 

 

3 There is some variation in the wording of the defendants’ loan 

contracts, but they all contain similar language invoking the Indian 

Commerce Clause and the authority of the Tribal Court.

4 See Payday Financial’s Responses to Plaintiff’s Second Interrogatories 

at 3-4, attached as Ex. 11-F to Declaration of Victoria M.L. Budich in 

Support of Plaintiff’s Motion for Summary Judgment (Doc. 99-2 in Case 

No. 3:11-cv-03017-RAL (D.S.D.)).
10

thus engaged in deceptive practices, by misrepresenting that the Tribal 

Court has jurisdiction over their collection lawsuits. While tribes have 

authority over their own members, “exercise of tribal power beyond 

what is necessary to protect tribal self-government or to control internal 

relations is inconsistent with the dependent status of the tribes, and so 

cannot survive without express congressional delegation.” Montana, 450 

U.S. at 564 (citations omitted). Generally, therefore, “the inherent 

sovereign powers of an Indian tribe do not extend to the activities of 

nonmembers of the tribe,” id. at 565, and “efforts by a tribe to regulate 

nonmembers . . . are ‘presumptively invalid.’” Plains Commerce Bank v. 

Long Family Land & Cattle Co., 554 U.S. 316, 330 (2008) (quoting

Atkinson Trading Co. v. Shirley, 532 U.S. 645, 659 (2001)). 

This rule applies equally to a tribe’s adjudicatory authority. See

Strate v. A-1 Contractors, 520 U.S. 438, 453 (1997) (“[a]s to 

nonmembers, . . . a tribe’s adjudicative jurisdiction does not exceed its 

legislative jurisdiction”). Indeed, the Supreme Court has demonstrated 

its concern that tribal courts not require “defendants who are not tribal 

members” to “defend [themselves against ordinary claims] in an 

unfamiliar court.” Id. at 441-42, 459; see also Smith v. Salish Kootenai 
11

College, 434 F.3d 1127, 1132 (9th Cir. 2006) (en banc) (“where the 

nonmembers are defendants, the Court has thus far held that the tribes 

lack jurisdiction, irrespective of whether the claims arose on Indian 

lands”) (emphasis in original).

The Supreme Court has recognized two limited exceptions to this

general rule,5 the first of which the defendants argue applies here: “[a] 

tribe may regulate . . . the activities of nonmembers who enter into 

consensual relationships with the tribe or its members, through 

commercial dealings, contracts, leases, or other arrangements.” 

Montana, 450 U.S. at 565.6 As the Supreme Court has explained,

“Montana and its progeny permit tribal regulation of nonmember 

conduct inside the reservation that implicates the tribe’s sovereign 

interests.” Plains Commerce Bank v. Long Family Land & Cattle Co., 

 

5 “These exceptions are ‘limited’ ones, and cannot be construed in a 

manner that would ‘swallow the rule.’” Plains Commerce Bank v. Long 

Family Land & Cattle Co., 554 U.S. 316, 330 (2008) (quoting Atkinson 

Trading, 532 U.S. at 647, 655).

6 The second exception applies to “the conduct of non-Indians on fee 

lands within [the] 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.” Montana, 450 U.S. at 565-66. Defendants 

have made no argument that the second exception applies in either this 

or the FTC’s case.
12

554 U.S. 316, 332 (2008) (emphasis added); see id. (“Montana expressly 

limits its first exception to the ‘activities of nonmembers,’ . . . allowing 

these to be regulated to the extent necessary ‘to protect tribal selfgovernment [and] to control internal relations’”).

In the parallel litigation, the FTC contends that the loan 

transactions at issue here meet none of these conditions for the exercise 

of tribal authority over nonmembers. The defendants cannot overcome 

these deficiencies and create subject matter jurisdiction merely by 

having consumers sign contracts consenting to jurisdiction by the tribal 

court. See Stock West, Inc. v. Confederated Tribes of the Colville 

Reservation, 873 F.2d 1221, 1228-29 (9th Cir. 1989) (“a party cannot 

waive by consent or contract a court’s lack of subject matter

jurisdiction,” and “even if the consent of [the party] was adequate to 

confer personal jurisdiction onto the tribal court, the question of 

whether the tribal court has subject matter jurisdiction over the case 

would still not be resolved”) (emphasis in original).

Under Montana’s consensual commercial relationship exception, 

the relationship must be between the nonmember and “the tribe or its 

members.” Montana, 450 U.S. at 565. But the lending companies here 
13

are not tribal entities: “the Tribe maintains no role or relationship in 

the ownership or operation” of them. Mem. Op. at 2; see FTC v. Payday 

Fin., 2013 WL 1309437 at *12 (“the settled facts establish that each 

lending company is a limited liability company organized under South 

Dakota law and thus apparently not ‘organized under . . . the laws of

the Cheyenne River Sioux Tribe’ as the contracts purport”);7 id. at *8 

(though the lending companies are owned by a tribe member, they are 

“a distinct entity from their owner Webb”); Colorado v. Western Sky 

Fin., LLC, No. 11-638, slip op. at 11 (Colo. Dist. Ct. Denver Cty. Apr. 17, 

2012) (Western Sky II) (Western Sky Financial is “a non-tribal 

corporation”).8

As the Ninth Circuit, sitting en banc, explained in Smith v. Salish 

Kootenai College, “not every enterprise that is owned or staffed by 

 

7 The district court in the FTC’s case questioned the significance of a 

business license conferred by the Tribe on the lending companies. FTC 

v. Payday Fin., 2013 WL 1309437 at *8. But the defendants later 

conceded that these business licenses “do not endow them with tribal 

membership.” Defendants’ Response to the FTC’s Notice of 

Supplemental Authority at 1 (Doc. 122 in Case 3:11-cv-03017-RAL 

(D.S.D.)). 

8 The court’s decision in Western Sky II is attached as Ex. 1 to the FTC’s 

Opposition to Defendants’ Motion for Partial Summary Judgment (Doc. 

58-1 in Case 3:11-cv-03017-RAL (D.S.D.)). 
14

members of a tribe may be considered a tribal entity for purposes of 

jurisdiction.” 434 F.3d at 1133. Instead, the identification of an 

organization as “tribal” (or not) turns on factors such as whether it was 

“created and controlled by” the tribe, whether the tribe selects the 

organization’s management, and whether the organization “act[s] as 

more than a mere business” (e.g., where it is “designed to further the 

economic interests of the tribe” or “to manage [its] energy resources”).

Id. at 1133-34 (citing analogous cases from other circuits). Applying 

these factors, the court in Smith held that a community college on the

reservation was a “tribe member” because, among other things, it was 

created by the tribe, was incorporated under tribal law as a “tribal 

corporation,” and the tribe continued to exercise control over its 

operations, including through the tribal council’s power to appoint and 

remove board members. Id. at 1134. None of these indicia of tribe 

“membership” exists as to the lending companies in this case. See also

Christian Children’s Fund, Inc. v. Crow Creek Sioux Tribal Court, 103 

F. Supp. 2d 1161, 1162, 1166 (D.S.D. 2000) (finding that a reservationbased South Dakota non-profit corporation serving the Indian 
15

community was not a tribal entity where the tribe did not organize or 

incorporate it and did not manage or direct its activities).

Furthermore, Montana requires nonmember conduct “inside the 

reservation.” Plains Commerce Bank, 554 U.S. at 332; see id. at 334 

(“our Montana cases have always concerned nonmember conduct on the 

land”). Here, however, the defendants market payday loans exclusively 

to consumers outside of the Reservation (indeed, outside of South 

Dakota entirely). And borrowers’ activities in applying for, executing, 

and repaying their payday loans take place entirely off the Reservation. 

Other courts have found that this amounts to off-reservation 

commercial activity:

[D]efendants were operating via the Internet. . . .

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. . . . [T]his

is not a case about commercial activity on Indian 

lands.

Colorado v. Western Sky Fin., LLC, 845 F. Supp. 2d 1178 (D. Colo. 2011)

(Western Sky I) (remanding case to state court for lack of a federal 
16

question); Western Sky II, supra, slip op. at 11 (the defendants’ payday 

lending activities “implicate neither tribes nor on-reservation activity”); 

Suthers v. Cash Advance, 205 P.3d 389, 400-01 (Colo. App. 2008) 

(holding that a payday lending business that engaged in transactions 

over the Internet with consumers located off the reservation constituted

off-reservation activity), aff’d, 242 P.3d 1099 (Colo. 2010).9

As noted above, the court in the FTC’s case denied summary 

judgment for the defendants on the issue of tribal court jurisdiction. 

Although the court did not view borrowers’ lack of physical presence on 

the Reservation to be dispositive,10 it found other problems with 

 

9 Cf. Missouri ex rel. Nixon v. Coeur D'Alene Tribe, 164 F.3d 1102, 1109 

n.5 (8th Cir. 1999) (citing AT&T Corp. v. Coeur D'Alene Tribe, 45 

F.Supp.2d 995, 999-1000 (D. Idaho 1998), rev'd on other grounds, 295 

F.3d 899 (9th Cir. 2002)) (“[the] Tribe’s lottery is not on Indian lands 

when the wager is placed by telephone from off the reservation”).

10 The court was concerned that “treating the nonmember’s physical 

presence as determinative ignores the realities of our modern world 

that a defendant, through the internet or phone, can conduct business 

on the reservation and can affect the Tribe and its members without 

physically entering the reservation.” FTC v. Payday Fin., 2013 WL 

1309437 at *11. The court indicated that the jurisdictional analysis 

should take into account borrowers’ conduct “directed toward the 

Reservation,” including receiving funds from a reservation-based 

business; and the place of contract formation (where the last act 

necessary to complete the contract occurs), which it noted “appears to 

be” the Reservation because that is where the lending companies make 
17

defendants’ claim that borrowers had consented to Tribal Court 

jurisdiction by entering into these loan agreements. The court pointed 

to the defendants’ false claims about the applicability of the “Indian 

Commerce Clause,”11 which in actuality “is a grant of Constitutional 

authority to Congress, and not to any private entity or tribe.” FTC v. 

Payday Fin., 2013 WL 1309437, at *12. The court also noted that, 

contrary to what the typical loan contract purports, the lending 

companies are not “organized under . . . the laws of the Cheyenne River 

Sioux Tribe,” but instead are South Dakota companies. Id. at *8, *12.

Additionally, borrowers were likely confused by “inconsistencies in the 

language of the lending agreement . . . specifying both exclusive tribal 

court jurisdiction and exclusive dispute resolution through separate 

arbitration without reconciling those provisions.” Id. at *14.

 

the decision to approve the loan. Id. at *10. Contrary to what the court 

surmised, however, the last act of contract formation is the borrower’s 

execution of the loan agreement―which takes place after the defendants 

notify the borrower that her loan application has been approved, and off

the Reservation.

11 U.S. Const. art. I, § 8, cl. 3 (“The Congress shall have the Power To 

. . . regulate Commerce . . . with the Indian Tribes.”)
18

In short, the FTC maintains, there is no basis for the defendants’ 

claims that the Tribal Court has authority over nonmember borrowers 

of these payday loans. Borrowers have not entered into agreements

with tribal entities, they have not engaged in conduct inside the 

Reservation, and their supposed consent to Tribal Court jurisdiction is 

undermined by defendants’ deceptive and confusing contract language.

II. In Its Separate Litigation, the FTC Also Maintains that the 

Defendants’ Conduct in Suing Consumers in a Tribal Court

that Lacks Jurisdiction Is a Prohibited Unfair Practice.

In the parallel litigation, the FTC also alleges that the defendants’ 

practice of subjecting consumers―through the purported authority of 

the contract provisions discussed above―to lawsuits in a Tribal Court

that lacks jurisdiction is an unfair practice under the FTC Act: it 

“causes or is likely to cause substantial injury to consumers which is not 

reasonably avoidable by consumers themselves and not outweighed by 

countervailing benefits to consumers or to competition.” 15 U.S.C. § 

45(n); see FTC v. Accusearch, Inc., 570 F.3d 1187, 1193 (10th Cir. 2009); 

Orkin Exterminating Co., Inc. v. FTC, 849 F.2d 1354, 1364-65 (11th Cir. 

1988). This standard recognizes that well-informed consumers generally 

are capable of making choices for themselves. However, practices may 
19

be unfair if they unreasonably create or take advantage of an obstacle 

to consumers’ ability to make informed choices, and if they cause, or are 

likely to cause, consumer injury.12 That is the precisely the case here, as 

the FTC has argued in its separate litigation.

The defendants’ practice of filing, or threatening to file, collection 

actions in a Tribal Court that lacks jurisdiction causes substantial 

injury to consumers.13 The Tribal Court is necessarily a distant one for 

these consumers, who (given their precarious financial circumstances) 

 

12 The Commission has long taken this approach to unfairness under 

Section 5. See Letter from the FTC to Hon. Wendell Ford and Hon. John 

Danforth, Committee on Commerce, Science and Transportation, 

United States Senate, Commission Statement of Policy on the

Scope of Consumer Unfairness Jurisdiction (December 17, 1980), 

reprinted in In re Int’l Harvester Co., 104 F.T.C. 949, 1070, 1073 (1984) 

(“Unfairness Policy Statement”). Subsequently, Congress codified this 

standard by adding subsection 5(n), 15 U.S.C. § 45(n).

13 Injury is sufficiently substantial if it causes a small harm to a large 

class of people, FTC v. J.K. Publ’ns, 99 F. Supp. 2d 1176, 1201 (C.D. 

Cal. 2000), or severe harm to a limited number of people. In re Int’l 

Harvester, 104 F.T.C. at 1064. Injury also may include non-monetary or 

indirect monetary harm. FTC v. Neovi, Inc., 604 F.3d 1150 (9th Cir. 

2010) (defendants harmed consumers by creating a software program 

that allowed others to write fraudulent checks); Accusearch, Inc., 570 

F.3d at 1193 (substantial injury element met by subversion of consumer 

privacy).
20

are unlikely to have the means to appear and defend themselves.14 Not 

only is this forum geographically distant, but consumers may also have 

difficulty obtaining the Tribal Court’s substantive or procedural laws.15

Perhaps most importantly, the defendants’ practice of subjecting 

consumers to collection actions in this remote and unfamiliar court 

 

14 The defendants assert that borrowers can appear telephonically. But, 

even assuming that the rules of the Tribal Court allow this (and 

assuming further that such mode of participation would suffice to 

protect borrowers’ interests), there is no mention of telephonic 

participation in the summons served upon borrowers notifying them of 

the defendants’ suit and ordering them to appear at a hearing in Tribal 

Court. 

15 Following plaintiffs’ claims that they had difficulty finding copies of 

the relevant tribal law, this Court remanded for the limited purpose of 

resolving this factual issue and one other. On remand, the court below 

found that tribal law “can be acquired by reasonable means,” because 

both plaintiffs and defendant were ultimately able to obtain copies of 

the Tribal Code. District Court’s Response to Court of Appeals Remand 

for Findings of Fact at 2 (Doc. 95). The court noted, however, that the 

plaintiffs were able to secure a copy of the Tribal Code only after 

numerous failed attempts and at a greater cost than the cost to the 

defendants. These findings do not address whether the Tribal Court’s 

procedural rules, presumably governing the collection lawsuits initiated 

there by the defendants, are readily available to consumers.

Furthermore, the district court’s conclusion about the availability of 

applicable tribal law is not undisputed. Another district court 

examining the sole arbitration occurring under the terms the 

defendants’ loan contracts recently found that the Tribe’s “consumer 

dispute rules” referenced in the defendants’ loan contracts do not exist. 

Inetianbor v. CashCall, Inc., __ F. Supp. 2d ___, 2013 WL 4494125, at 

*5-6 (S.D. Fla. Aug. 19, 2013).
21

likely pressures many consumers into abandoning defenses or 

counterclaims they could have asserted in a more accessible court of 

competent jurisdiction. That may help explain why, of the 1,123 

consumers sued by the defendants in Tribal Court, only two have 

appeared to defend the lawsuit. See Am. Fin. Servs. Ass’n v. FTC, 767 

F.2d 957, 973-75 (D.C. Cir. 1985) (upholding FTC’s determination that 

provisions in consumer credit contracts authorizing deduction of 

debtor’s wages and giving creditor security interest in debtor’s 

household goods are unfair; creditors’ use of such provisions 

substantially harmed consumers, inter alia, by pressuring consumers to 

“forego assertion of valid defenses, set-offs or counterclaims”).

Similarly, even before the defendants file a collection suit, the threat of 

such a lawsuit in the Tribal Court may pressure consumers into settling 

debts that they could otherwise have disputed.

Consumers also cannot reasonably avoid the injuries that arise 

from defendants’ practice of filing, or threatening to file, collection 

actions in Tribal Court.16 The defendants employ boilerplate contract 

 

16 An injury is “reasonably avoidable” only if consumers “have reason to 

anticipate the impending harm and the means to avoid it.” Orkin, 849 
22

provisions that consumers are powerless to modify if they wish to obtain 

a needed loan. Borrowers do not even see the contract’s forum selection 

and choice of law provisions until late in the loan process,17 and, even 

assuming they notice these provisions, are unlikely to understand them, 

a problem exacerbated by the confusing wording of these contracts. See 

FTC v. Payday Fin., LLC, 2013 WL 1309437, at *14 (describing the 

contracts’ inconsistent and confusing language). And if consumers do 

not perceive a harm embedded in obscure contractual language, they 

cannot be said to have a reasonable opportunity to avoid that harm. See 

Am. Fin. Servs. Ass’n, 767 F.2d at 976-77 (injury not reasonably 

 

F.2d at 1365-66. “[W]hether some consequence is ‘reasonably avoidable’ 

depends not just on whether [consumers] know the physical steps to 

take in order to prevent it, but also whether they understand the 

necessity of actually taking those steps.” In re Int’l Harvester Co., 104 

F.T.C. at 1066. “The focus is on ‘whether consumers had a free and 

informed choice that would have enabled them to avoid the unfair 

practice’.” J.K. Publ’ns, 99 F. Supp. 2d at 1201; Orkin, 849 F. 2d at 

1365. 

17 After consumers submit loan applications to the defendants,

containing their social security numbers, bank account numbers, and 

other personal information, the defendants send to approved consumers 

a loan agreement. By this point, consumers will have supplied the 

defendants with highly sensitive personal and financial data and would 

understandably be wary of starting the process anew with another 

lender.
23

avoidable, given consumers’ “lack of understanding of contractual 

terms” and inability to bargain over boilerplate contract provisions, and 

because “default is ordinarily the product of forces beyond a debtor’s 

control”). 

The defendants’ practice of subjecting consumers to collection 

actions in a distant court that lacks jurisdiction also satisfies the last 

element of unfairness: it produces no countervailing benefits for 

consumers or competition. See J.K. Publ’ns, 99 F. Supp. 2d at 1201 

(third prong of unfairness test is met “when a practice produces clear 

adverse consequences for consumers that are not accompanied by an 

increase in services or benefits to consumers or by benefits to 

competition”). In the FTC’s litigation, the defendants have not 

identified any such benefits that might justify this practice 

notwithstanding the adverse consequences for consumers. Indeed, there 

is no legitimate benefit to suing consumers in a court that lacks 

jurisdiction.
24

III. The Defendants’ Practice of Requiring Tribal Arbitration 

of Disputes Also May Be Deemed Unfair and 

Unconscionable.

Under the Federal Arbitration Act (“FAA”), arbitration 

agreements “shall be valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation of any contract.” 9 

U.S.C. § 2. This provision “permits agreements to arbitrate to be 

invalidated by generally applicable contract defenses, such as fraud, 

duress, or unconscionability,” provided those defenses do not “apply 

only to arbitration or . . . derive their meaning from the fact that an 

agreement to arbitrate is at issue.” AT&T Mobility LLC v. Concepcion, 

131 S. Ct. 1740, 1746 (2011) (internal quotation marks omitted).

Whether the defendants can require arbitration of claims initiated 

by consumers is not directly at issue in the FTC’s case. But unfairness 

under the FTC Act resembles the “generally applicable contract 

defense” (id.) of unconscionability. Accordingly, the factors that make it 

unfair for the defendants to induce consumers into tribal court to 

defend collection actions are also relevant to whether the arbitration 
25

clause in the loan contracts requiring tribal arbitration of consumer 

claims is unconscionable.18

Unconscionability may be procedural or substantive: 

Procedural unconscionability consists of some 

impropriety during the process of forming the 

contract depriving a party of meaningful choice. 

* * * Factors to be considered in determining 

whether an agreement is procedurally 

unconscionable include whether each party had 

the opportunity to understand the terms of the 

contract, whether important terms were hidden 

in a maze of fine print, and all of the 

circumstances surrounding the formation of the 

contract. * * * Substantive unconscionability 

concerns the actual terms of the contract and 

examines the relative fairness of the obligations 

assumed, asking whether the terms are so onesided as to oppress or unfairly surprise an 

innocent party. 

Phoenix Ins. Co. v. Rosen, 242 Ill.2d 48, 60, 949 N.E.2d 639, 647 (2011)

(internal quotation marks and citations omitted).19 Here, several factors 

 

18 The key issues at play here, regarding the burdens consumers would 

face in dealing with a distant tribal forum, arguably apply regardless of 

whether the forum is the Tribal Court or tribal arbitration. To the 

extent that plaintiffs’ unconscionability arguments rely on such 

considerations―as opposed to problems with the arbitral forum as 

such―those arguments do not “derive their meaning from the fact that 

an agreement to arbitrate is at issue,” Concepcion, 131 S. Ct. at 1746, 

and therefore are not precluded by the FAA.

19 Illinois law, which these Illinois-based plaintiffs invoke, is consistent 
26

in combination may well support a conclusion that the arbitration 

provisions in the defendants’ loan contracts are both procedurally and 

substantively unconscionable.

As already discussed, several features of these contractual 

relationships impede consumers’ ability to exercise any meaningful 

choice in agreeing to the forum selection and choice-of-law provisions in 

the defendants’ loan contracts―suggesting procedural 

unconscionability. To begin with, financially-distressed consumers of 

these payday loans have no ability to modify the defendants’ boilerplate 

contract provisions and still obtain a needed loan. See Williams v. 

Illinois State Scholarship Comm’n, 139 Ill.2d 24, 72, 563 N.E.2d 465, 

 

with general principles of unconscionability. See UNIFORM COMMERCIAL 

CODE § 2-302 cmt. 1 (2003) (“The basic test is whether, in the light of 

the general commercial background and the commercial needs of the 

particular trade or case, the clauses involved are so one-sided as to be 

unconscionable under the circumstances existing at the time of the 

making of the contract. . . . The principle is one of the prevention of 

oppression and unfair surprise. . . .”); RESTATEMENT (SECOND) OF 

CONTRACTS § 208 cmt. a (1981) (“[r]elevant factors include weaknesses 

in the contracting process like those involved in more specific rules as to 

contractual capacity, fraud, and other invalidating causes”). The 

defendants’ loan contracts specify application of tribal law, but tribal 

law is inappropriately invoked here for the reasons discussed in Section 

I above, and in any event the parties have not articulated what tribal 

law might be on this issue.
27

487 (1990) (“A contractual clause that is part of a ‘boilerplate’ 

agreement . . . has its significance greatly reduced because of the 

inequality in the parties’ bargaining power.”). Consumers do not receive 

the contract language until after they apply for the loans and learn that 

their loans have been approved.20 The inconsistent language in the loan 

contracts, specifying both exclusive Tribal Court jurisdiction and 

exclusive tribal arbitration without reconciling those provisions, also 

makes it difficult for borrowers to understand exactly what form of 

dispute resolution they are agreeing to. See supra p. 17. Moreover, the 

defendants’ incorrect representations in their loan contracts regarding 

the breadth of Tribal Court jurisdiction, combined with their invocation 

of an irrelevant provision of the Constitution (see supra pp. 8-9, 17), 

may induce consumers to believe, mistakenly, that they have no choice 

but to accede to resolution of their disputes on the Reservation. See 

ChampionsWorld LLC v. U.S. Soccer Federation, Inc., 726 F. Supp. 2d 

961, 974 (N.D. Ill. 2010) (holding that contracting party’s alleged 

misrepresentations supported plaintiff’s allegation of procedural 

 

20 See supra note 17.
28

unconscionability). Taken together, these factors undermine borrowers’ 

agreement to tribal arbitration.

Grounds also exist for finding that the loan contracts’ requirement 

that consumers submit disputes to tribal arbitration is substantively 

unfair to consumers. Two district courts have examined the sole

instance of arbitration of a claim under these loan contracts and have 

concluded, for a variety of reasons, that this arbitration provision does 

not provide consumers with a valid mechanism for resolving disputes.

That arbitration proceeding, which is still pending, was initiated

earlier this year after the U.S. District Court for the Southern District 

of Florida dismissed a borrower’s suit and ordered the parties to submit 

the claims to arbitration pursuant to an arbitration clause identical to 

the one at issue here. Last month, however, the court vacated that order

and reinstated the case, concluding on the basis of new evidence that 

the arbitration required by the contract is unavailable. Inetianbor v. 

Cashcall, Inc., __ F. Supp. 2d ___, 2013 WL 4494125, at *6 (S.D. Fla. 

Aug. 19, 2013). The contract required that all disputes arising from the 

loan agreement be arbitrated “by the Cheyenne River Sioux Tribal 

Nation by an authorized representative in accordance with its consumer 
29

dispute rules . . . .” Id. at *1. But the court found that the arbitration 

proceeding conducted on the Reservation did not comply with these 

terms. For one thing, the arbitrator, Robert Chasing Hawk, was not 

conducting the arbitration as an “authorized representative” of the 

Tribe as required by the contract. In fact, there was no evidence that 

the Tribe even conducts arbitration through authorized representatives. 

Indeed, Mr. Chasing Hawk acknowledged during the arbitration that he 

had been selected by the defendants and that the Tribe was uninvolved

in this “private business deal.” Id. at *4. The Inetianbor court also found 

that tribal arbitration was unavailable because the contract required 

the arbitration to be conducted according to the Tribe’s “consumer 

dispute rules” but no such rules existed. Id. at *5-6.21

In responding to this Court’s limited remand, the district court in 

the instant case also concluded that arbitration was unavailable. The 

court found that Mr. Chasing Hawk’s lack of training in law or 

arbitration and his affiliations with the defendants―including the fact 

that Mr. Chasing Hawk was personally selected by defendant Martin 

 

21 The unavailability of governing law and rules may also contribute to 

a finding that the contract is unfair, and therefore unconscionable. See

supra note 15.
30

Webb and his daughter works for one of the lending entities―are 

inconsistent with the role of a disinterested and unbiased arbitrator and 

with arbitration generally. Dist. Ct. Findings at 3-4. 

The district court also pointed to the conclusions of the New 

Hampshire Banking Department, which issued a Cease and Desist 

order after finding that defendant Western Sky Financial, LLC, “was 

nothing more than a front” for Cashcall “to evade licensure by state 

agencies and exploit Indian Tribal Sovereign Immunity to shield its 

deceptive practices . . . .” Id. at 5. As a result, the New Hampshire 

Banking Department concluded that the scheme to employ Western Sky 

in this manner constituted an “unfair or deceptive act or practice . . . .” 

The court below found this determination persuasive and unrebutted by 

any of the parties. The district court therefore concluded that the 

“promise of a meaningful and fairly conducted arbitration is a sham and 

an illusion.” Id. at 6.

These findings strongly suggest that the arbitration agreement at 

issue is substantively unconscionable because the terms of the contract 

are “so one-sided as to oppress or unfairly surprise an innocent party.”

Rosen, 242 Ill.2d at 60, 949 N.E.2d at 647. The contracts here, under 
31

terms supplied by the defendants, dictate an exclusive mechanism for

resolution of consumer disputes that―as the two district courts’ findings 

discussed above demonstrate―is wholly illusory, depriving consumers of 

a fair opportunity to assert claims and defenses against the defendants. 

These concerns are not, as the defendants have suggested, 

remedied by provisions in at least some of their loan contracts allowing 

consumers to opt out of arbitration. The defendants have made their 

position clear that the forum selection provisions in their contract 

require consumers who opt out of arbitration to assert claims in Tribal 

Court, a forum that, as discussed above, lacks subject matter 

jurisdiction over these disputes. Moreover, the remoteness of a tribal

forum imposes additional burdens on consumers seeking to vindicate 

claims that the defendants do not face. For the vast majority of 

consumers, who can little afford the expense, travel to the Reservation 

to participate in either arbitral or court proceedings is simply infeasible.

Cf. Williams, 139 Ill.2d at 72, 563 N.E.2d at 487 (contractual forum 

selection clause “fixing venue in [a distant forum] in . . . collection suits 
32

effectively deprives [borrowers] of their day in court”).22 Thus, both the 

arbitration and forum selection clauses in the defendants’ loan 

contracts operate in the same manner: they pressure financiallydistressed consumers to abandon legal claims or defenses.

CONCLUSION

This case presents unique circumstances that may warrant 

invalidating as unconscionable provisions in the defendants’ loan 

contracts requiring tribal arbitration of borrowers’ claims. Although the 

FTC’s challenge to defendants’ practices inducing consumers into Tribal 

Court presents distinct issues, the FTC’s claims may inform the Court’s 

analysis here, because aspects of the defendants conduct that make it 

 

22 The defendants do not dispute this, but aver that consumers may 

participate in arbitration on the Reservation by telephone. But the 

selection of a forum that makes in-person participation feasible only for 

the lenders, but not the borrowers, combined with the difficulty of 

obtaining the law to be applied during such arbitration, might be 

deemed unfair.
33

unfair and deceptive under the FTC Act are relevant to an 

unconscionability inquiry.

Respectfully submitted,

JONATHAN E. NUECHTERLEIN

General Counsel

JOHN F. DALY

Deputy General Counsel for Litigation

s/ Michele Arington 

MICHELE ARINGTON

BURKE W. KAPPLER

Attorneys

Federal Trade Commission

600 Pennsylvania Avenue, N.W.

Washington, DC 20580

(202) 326-3157

Dated: September 13, 2013
CERTIFICATE OF COMPLIANCE

I certify that this brief complies with the type-volume limitation 

set forth in Fed. R. App. 32 (a)(7)(B), in that it contains 6,709 words, 

excluding the parts of the brief exempted by Fed. R. App. P. 

32(a)(7)(B)(iii), and complies with the typeface requirements of Fed. R.

App. P. 32(a)(5) and the type style requirements of Fed. R. App. P.

32(a)(6), because it has been prepared in a proportionally spaced 

typeface using Microsoft Word 2010 in Century Schoolbook 14-point 

font.

s/ Michele Arington 

MICHELE ARINGTON
CERTIFICATE OF SERVICE

I hereby certify that on September 13, 2013 I filed and served

the foregoing with the Court’s appellate CM-ECF system. I certify that

all participants in the case are registered CM/ECF users and that

service will be accomplished by the CM/ECF system.

s/ Michele Arington 

MICHELE ARINGTON