Court Opinion

ID: 2720287
Source: CourtListenerOpinion
Date Created: 2014-08-22 19:00:41.529261+00
Date Added: 2024-06-11T10:02:36.840695
License: Public Domain

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.

          Appeal from the United States District Court for the
            Northern District of Illinois, Eastern Division.
           No. 1:11-cv-09288 — Charles P. Kocoras, Judge.

    ARGUED JANUARY 22, 2013 — DECIDED AUGUST 22, 2014

   Before RIPPLE and ROVNER, Circuit Judges, and BARKER,
District Judge.*

    RIPPLE, Circuit Judge. Deborah Jackson, Linda Gonnella, and
James Binkowski (collectively “the Plaintiffs”) initially brought
this action in Illinois state court against Payday Financial, LLC,

*
  The Honorable Sarah Evans Barker, of the United States District Court for
the Southern District of Indiana, sitting by designation.
2                                                    No. 12-2617

and other defendant entities owned by, or doing business with,
Martin A. Webb, an enrolled member of the Cheyenne River
Sioux Tribe and also a named defendant (collectively “the Loan
Entities” or “the Defendants”). The Plaintiffs alleged violations
of Illinois civil and criminal statutes related to loans that they
had received from the Loan Entities. After the Loan Entities
removed the case to the district court, that court granted the
Loan Entities’ motion to dismiss for improper venue under
Federal Rule of Civil Procedure 12(b)(3). It held that the loan
agreements required that all disputes be resolved through
arbitration conducted by the Cheyenne River Sioux Tribe on
the Cheyenne River Sioux Tribe Reservation, located within the
geographic boundaries of South Dakota. The Plaintiffs timely
appealed.
    Following oral argument, we 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 docu-
ments, was available to the parties. The district court con-
cluded that, although the tribal law could be ascertained, the
arbitral mechanism detailed in the agreement did not exist.
     Based on these findings, we now conclude that the Plain-
tiffs’ action should not have been dismissed because the
arbitral mechanism specified in the agreement is illusory. We
also cannot accept the Loan Entities’ alternative argument for
upholding the district court’s dismissal: that the loan docu-
ments require that any litigation be conducted by a tribal court
on the Cheyenne River Sioux Tribe Reservation. As the
Supreme Court has explained, most recently in Plains Com-
No. 12-2617                                                    3

merce Bank v. Long Family Land & Cattle Co., 554 U.S. 316 (2008),
tribal courts have a unique, limited jurisdiction that does not
extend generally to the regulation of nontribal members whose
actions do not implicate the sovereignty of the tribe or the
regulation of tribal lands. The Loan Entities have not estab-
lished a colorable claim of tribal jurisdiction, and, therefore,
exhaustion in tribal courts is not required. Accordingly, we
cannot uphold the district court’s dismissal on this alternative
basis.

                               I
                      BACKGROUND
                               A.
    The Loan Entities maintain several websites that offer
small, high-interest loans to customers. The entire loan
transaction is completed online; a potential customer applies
for, and agrees to, the loan terms from his computer. Some
loan agreements are assigned to CashCall, Inc. (“CashCall”), a
California corporation, after they are executed and funds are
advanced.
    Each plaintiff applied for and received a $2,525 loan
through one of the websites belonging to Mr. Webb’s entities.
Their loan agreements are nearly identical. Each agreement
indicates that the plaintiff will pay approximately 139% in
interest each year and that a $2,525 loan will cost approxi-
mately $8,392. The loan agreements recite that they are
“governed by the Indian Commerce Clause of the Constitution
of the United States of America and the laws of the
4                                                             No. 12-2617

Cheyenne River Sioux Tribe” and are not subject “to the laws
of any state.”1 Under the terms of the agreement, unless the
plaintiff opts out within sixty days, any 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.”2 Arbitration
will be conducted by either “(i) a Tribal Elder, or (ii) a panel of
three (3) members of the Tribal Council.”3 The loan agreements
further provide that the Loan Entities will pay the filing fee
and any fees charged by the arbitrator; the loan consumer does
not have to travel to the reservation for arbitration; and the
loan consumer may participate in arbitration by phone or
videoconference. The agreements with Ms. Jackson and
Mr. Binkowski also provide that the contract “is subject solely
to the exclusive laws and jurisdiction of the Cheyenne River
Sioux Tribe, Cheyenne River Indian Reservation.”4
Ms. Gonnella’s agreement does not contain similar language.

1
   R.14-1 at 2; see also id. at 2 (“By executing this Loan Agreement, you, the
borrower, hereby acknowledge and consent to be bound to the terms of this
Loan Agreement, consent to the sole subject matter and personal jurisdic-
tion of the Cheyenne River Sioux Tribal Court, and further agree that no
other state or federal law or regulation shall apply to this Loan Agreement,
its enforcement or interpretation.”).

2
    Id. at 5.

3
    Id.

4
  Id. at 2 (emphasis added) (bolding in original omitted); see also R.14-8 at
23.
No. 12-2617                                                      5

   The Plaintiffs executed their loan agreements in 2010 and
2011, received loan funds and made payments on the loans.
The record does not indicate whether any of the Plaintiffs have
defaulted on the loans.

                                B.
    The Plaintiffs initially brought this action in Illinois state
court and alleged violations of Illinois civil and criminal usury
statutes as well as the Illinois Consumer Fraud and Deceptive
Business Practices Act, 815 ILCS 505/1 et seq. They sought,
among other relief, restitution, statutory damages, litigation
costs, an injunction precluding the Loan Entities from further
lending to Illinois residents, and a declaration that the arbitra-
tion clauses contained in the loan agreements are not enforce-
able. The Loan Entities removed the action to federal court;
they then moved to dismiss for improper venue under Federal
Rule of Civil Procedure 12(b)(3) on the ground that the
agreements required arbitration on the reservation. In reply,
the Plaintiffs submitted that the agreements were void and
thus the arbitration clauses were unenforceable. They addition-
ally had argued that they executed the loan agreements under
duress and that Illinois public policy precluded enforcement of
the arbitration clause.
    The district court dismissed the case for improper venue. It
determined that (1) “the alleged illegality of the Loan Agree-
ments has no bearing on the validity of the forum selection
clause”; (2) the Plaintiffs’ agreement to arbitrate was not made
under duress; and (3) the Plaintiffs failed to show “that Illinois’
strong public policy in favor of enforcing its usury and
6                                                    No. 12-2617

consumer protection laws precludes enforcement of the forum
selection provision.”5
    The Plaintiffs timely appealed. After oral argument, we
determined that several factual matters critical to our resolu-
tion of the issues on appeal should be addressed in the first
instance by the district court:
            1. Whether the Cheyenne River Sioux Tribe has
            applicable tribal law readily available to the
            public and, if so, under what conditions; and
            2. Whether the Cheyenne River Sioux Tribe has
            an authorized arbitration mechanism available
            to the parties and whether the arbitrator and
            method of arbitration required under the con-
            tract is actually available.[6]
   In the subsequent proceedings before the district court, the
parties submitted arguments and documentary evidence in
support of their respective positions. After considering this
evidence, the district court found that the first inquiry could be
answered in the affirmative. The court observed that “[e]ach
party was able to secure a copy of the Tribal Law” and there-
fore concluded that “the law c[ould] be acquired by reasonable
means.”7 Addressing our second inquiry, the district court
concluded that “[i]t is abundantly clear that, on the present

5
    R.65 at 6, 7.

6
    R.95 at 1.

7
    Id. at 2.
No. 12-2617                                                                 7

record, the answer to the second question is a resounding no.”8
The court noted that, other than its disagreement with the
Plaintiffs as to the availability of tribal law, the Plaintiffs’
submission had “fairly describe[d] what the facts show”;9
included within that submission was the statement that
“[t]ribal leadership … have virtually no experience in handling
claims made against defendants through private arbitration.”10
According to the court, “[t]he intrusion of the Cheyenne River
Sioux Tribal Nation into the contractual arbitration provision
appear[ed] to be merely an attempt to escape otherwise
applicable limits on interest charges. As such, the promise of
a meaningful and fairly conducted arbitration [wa]s a sham
and an illusion.”11
  In reaching its conclusion, the district court examined the
manner in which an arbitrator had been selected in a similar

8
     Id. at 5–6.

9
     Id. at 6.

10
    R.82 at 8. Although appearing in the Plaintiffs’ statement of relevant
facts, the documentation supporting this statement actually was supplied
by the Loan Entities. The Loan Entities submitted a letter from a Media-
tor/Magistrate of the Cheyenne River Sioux Tribe stating that “the
governing authority does not authorize Arbitration,” R.83-5 at 2 (Statement
of Magistrate Mona R. Demery, Cheyenne River Sioux Tribal Court), and
a later, clarifying statement from the same individual stating that
“[a]rbitration, as in a contractual agreement, is permissible. However, the
Court does not involve itself in the hiring of the arbitrator or setting dates
or times for the parties.” R.83-7 at 2.

11
      R.95 at 6.
8                                                     No. 12-2617

dispute being litigated in the United States District Court for
the Southern District of Florida. See Inetianbor v. CashCall, Inc.,
962 F. Supp. 2d 1303 (S.D. Fla. 2013). The district court ob-
served:
       The arbitrator selected in the Inetianbor case was
     Robert Chasing Hawk, a Tribal Elder. He was
     personally selected by Martin Webb, the man who
     owns and operates the Webb entities which are run
     as a common enterprise. Mr. Webb is himself a
     member of the Tribe. Although denying any preex-
     isting relationship with either party in the case,
     Robert Chasing Hawk is the father of
     Shannon Chasing Hawk. Robert Chasing Hawk has
     acknowledged that his daughter worked for one of
     the companies run by Martin Webb.
       Mr. Chasing Hawk is not an attorney and has not
     been admitted to the practice of law either in
     South Dakota or the court of the Cheyenne River
     Sioux Tribal Nation. He has not had any training as
     an arbitrator and the sole basis of his selection was
     because he was a Tribal Elder.
       Black’s Law Dictionary, DeLuxe Fourth Edition,
     defines “arbitrator” as “a private, disinterested
     person, chosen by the parties to a disputed question,
     for the purpose of hearing their contention, and
     giving judgment between them; to whose decision
     (award) the litigants submit themselves either
     voluntarily, or, in some cases, compulsorily by order
     of a court.” Freedom from bias and prejudice is a
No. 12-2617                                                   9

    stated criteria of the American Arbitration Associa-
    tion’s Criteria to serve as an arbitrator. Similar is
    JAM’s Arbitrators Ethics Guidelines which require[]
    freedom from any appearance of a conflict of inter-
    est. Illinois Supreme Court Rule 62 states, in part,
    that “a judge should respect and comply with the
    law and should conduct himself or herself at all
    time[s] in a manner that promotes public confidence
    in the integrity and impartiality of the judiciary. A
    judge should not allow the judge’s family, social or
    other relationships to influence the judge’s judicial
    conduct or judgment.” It should be no less for an
    arbitrator.
       The selection of Robert Chasing Hawk as the
    arbitrator in the only comparable case is instructive.
    No arbitration award could ever stand in the instant
    case if an arbitrator was similarly selected, nor could
    it satisfy the concept of a “method of arbitration”
    available to both parties. The selection of
    Chasing Hawk in the Inetianbor case was a purely
    subjective selection by only one of the parties to the
    arbitration. The process was not “methodized” in
    any reasonable sense of the word. Webb and Chas-
    ing Hawk are members of the same tribe. The
    Plaintiffs are not. The employment by Webb of the
    arbitrator’s daughter cannot be ignored. The con-
    duct permitted by the arbitration provisions in this
10                                                             No. 12-2617

        case could never satisfy the straightforward defini-
        tion in Black’s Law Dictionary.[12]
   The parties submitted supplemental briefs in response to
the district court’s findings.13

                                      II
                             DISCUSSION
                                      A.
   We now turn to the merits of the Plaintiffs’ appeal and
begin by examining our jurisdiction and the applicable
standard of review.

                                      1.
   The jurisdiction of the district court was premised on the
Class Action Fairness Act. See 28 U.S.C. § 1332(d). Under the
terms of that statute,
          The district courts shall have original jurisdiction
        of any civil action in which the matter in controversy

12
     R.95 at 3–4.

13
     At our invitation, the Federal Trade Commission and the Attorney
General of Illinois submitted briefs as amici curiae. See Brief for the Federal
Trade Commission as Amicus Curiae [hereinafter FTC Br.]; Brief for the
Illinois Attorney General as Amicus Curiae Supporting Appellants
[hereinafter Illinois Att’y Gen. Br.]. The court deeply appreciates their
assistance in this matter.
No. 12-2617                                                           11

      exceeds the sum or value of $5,000,000, exclusive of
      interest and costs, and is a class action in which—
           (A) any member of a class of plaintiffs is a
        citizen of a State different from any defendant;
           (B) any member of a class of plaintiffs is a
        foreign state or a citizen or subject of a foreign
        state and any defendant is a citizen of a State; or
           (C) any member of a class of plaintiffs is a
        citizen of a State and any defendant is a foreign
        state or a citizen or subject of a foreign state.
Id. § 1332(d)(2). Another provision of the Act forbids a district
court from exercising jurisdiction if the plaintiff class numbers
less than one hundred. See id. § 1332(d)(5).
     In this putative class action, the Plaintiffs are all citizens of
Illinois who have borrowed money at usurious rates from the
Loan Entities. According to the Loan Entities’ removal papers,
they have made loans to over one hundred individuals in
Illinois.
    Turning to the requirements for the Defendants, Mr. Webb
is an enrolled member of the Cheyenne River Sioux Tribe and
resides on its reservation. Mr. Webb is the sole member of the
majority of the named entities.14 Mr. Webb’s entities are all

14
   The named defendants that belong to Mr. Webb are: Payday Financial,
LLC; Western Sky Financial, LLC; Great Sky Finance, LLC; Red Stone
Financial, LLC; Management Systems, LLC; 24-7 Cash Direct, LLC; Red
River Ventures, LLC; High Country Ventures, LLC; and Financial Solutions,
LLC.
12                                                            No. 12-2617

limited liability companies organized under the laws of
South Dakota15 and have the same business address in
Timber Lake, South Dakota, which is within the reservation.
Defendant CashCall is a California corporation that purchases
loans from Mr. Webb’s companies, but is otherwise uncon-
nected to Mr. Webb.
    The threshold amount in controversy also is met. In an
affidavit submitted with the Loan Entities’ removal papers,
Mr. Webb states that he “ha[s] knowledge of and ready access
to the business records of the [Loan Entities]” and that he
examined the data from those records.16 According to
Mr. Webb’s review of those records, there were “substantially
more than 100 individuals” making up the putative class and
“the total of all amounts collected from putative class members

15
   The loan agreements state that Western Sky Financial is “authorized by
the laws of the Cheyenne River Sioux Tribal Nation.” R.14-1 at 2. In their
removal papers, however, the Defendants state that the Loan Entities “were
all formed under the laws of South Dakota.” R.1 at 4, ¶10. Similarly, the
Plaintiffs’ jurisdictional statement asserts that the lenders controlled by
Mr. Webb “are chartered under South Dakota law as limited liability
companies” and “are South Dakota Citizens,” Appellants’ Br. 1–2; for their
part, the Defendants agreed that the Plaintiffs’ jurisdictional statement was
“complete and correct,” Appellees’ Br. 1.

16
   R.1-1 at 2, ¶5. Our case law requires that the removing defendant, as the
proponent of jurisdiction, show “by a preponderance of the evidence facts
that suggest the amount-in-controversy requirement is met.” Oshana v.
Coca-Cola Co., 472 F.3d 506, 511 (7th Cir. 2006). Here, Mr. Webb’s statement
is based both on personal knowledge and also on his review of the
applicable records. This evidence is not contested by the Plaintiffs.
No. 12-2617                                                          13

and cancellation of all outstanding balances for these same
individuals significantly exceeds $5,000,000.”17
   Our appellate jurisdiction is premised upon 28 U.S.C.
§ 1291, which gives us jurisdiction over the final decisions of
the district courts. It is clear that the decision of the district
court granting the Defendants’ motion to dismiss for improper
venue was a final decision of that court. Brady v. Sullivan, 893
F.2d 872, 876 n.8 (7th Cir. 1989) (“[W]hen the dismissal is for
want of jurisdiction, either of the person or subject matter, or
because of improper venue, the judgment is final and may be
appealed.” (internal quotation marks omitted)).

                                   2.
    The loan agreements’ forum selection clause was the basis
for the district court’s dismissal for improper venue.18 An
agreement to arbitrate is a type of forum selection clause. See
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 630–31 (1985) (treating an arbitration clause in an interna-
tional agreement as it would other “freely negotiated contrac-
tual choice-of-forum provisions”); Sherwood v. Marquette
Transp. Co., 587 F.3d 841, 844 (7th Cir. 2009) (“An arbitration
agreement is a specialized forum-selection clause.”).

17
     R.1–1 at 2, ¶7.

18
   The loan agreements require that all “[d]ispute[s] … 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.” R.14-1 at 5.
14                                                              No. 12-2617

    The parties agree that our review of the enforceability of a
forum selection clause is de novo. See Cont’l Ins. Co. v. M/V
Orsula, 354 F.3d 603, 607 (7th Cir. 2003). They disagree,
however, as to whether the Plaintiffs are entitled to inferences
in their favor. In Faulkenberg v. CB Tax Franchise Systems, LP,
637 F.3d 801, 806 (7th Cir. 2011), we stated that in reviewing a
district court’s grant of a Rule 12(b)(3) motion, reasonable
inferences from the facts should be construed in the plaintiffs’
favor. This approach is consistent with that of other courts of
appeals and commentators.19

19
   See Petersen v. Boeing Co., 715 F.3d 276, 279 (9th Cir. 2013) (per curiam)
(stating that, in reviewing a Rule 12(b)(3) motion, a court “must draw all
reasonable inferences in favor of the non-moving party and resolve all
factual conflicts in favor of the nonmoving party” (internal quotation marks
omitted)); TradeComet.com LLC v. Google, Inc., 647 F.3d 472, 475 (2d Cir. 2011)
(“We review de novo a district court’s dismissal of a complaint pursuant to
Rules 12(b)(1) and 12(b)(3), viewing all facts in the light most favorable to
the non-moving party.”); Ambraco, Inc. v. Bossclip B.V., 570 F.3d 233, 237 (5th
Cir. 2009) (“Our de novo review under either Rule 12(b)(1) or Rule 12(b)(3)
requires us to view all the facts in a light most favorable to the plaintiff.”
(internal quotation marks omitted)); 5B Charles Alan Wright, et al., Federal
Practice & Procedure § 1352, at 324 (3d ed. 2004).
   The Loan Entities argue that Faulkenberg v. CB Tax Franchise Systems, LP,
637 F.3d 801 (7th Cir. 2011), is “an outlier” and note that “Faulkenberg itself
cites Kochert v. Adagen Med. Int’l, Inc. for the standard of review, but Kochert
makes no mention of drawing facts or inferences in any party’s favor. 491
F.3d 674, 677 (7th Cir. 2007).” Appellees’ Br. 8. We are not persuaded.
Faulkenberg cites Kochert for the proposition that a district court’s dismissal
under Rule 12(b)(3) is subject to de novo review; the fact that Kochert does
not mention inferences in the non-moving party’s favor does not render
Faulkenberg’s statement an outlier, as demonstrated by the number of cases
from our sister circuits that clearly state this proposition.
No. 12-2617                                                                  15

                                      B.
    As the Supreme Court noted in Rent-A-Center, West, Inc. v.
Jackson, 561 U.S. 63, 67 (2010), the Federal Arbitration Act
(“FAA”) reflects the overarching principle that arbitration is a
matter of contract. As a general rule, courts must “‘rigorously
enforce’” arbitration agreements according to their terms. Am.
Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304, 2309
(2013) (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213,
221 (1985)). Having determined that our jurisdiction is secure
and having examined the standard of review question, we now
turn to an examination of the validity of the forum selection
clause, the contractual provision at issue in this case.

                                      1.
    In addressing this question, we first must identify the law
that governs the validity of the arbitration clause, which, as we
have noted, is a specialized forum selection clause. Here, the
district court’s jurisdiction over the Plaintiffs’ claims is based
on the parties’ diversity of citizenship.20 As a general rule, “[i]n
diversity cases, we look to the substantive law of the state in
which the district court sits, Erie R. Co. v. Tompkins, 304 U.S. 64,

20
   The Class Action Fairness Act requires “minimal diversity,” see, e.g., 28
U.S.C. § 1332(d)(2)(A) (permitting district courts to exercise jurisdiction over
class actions in which “any member of a class of plaintiffs is a citizen of a
State different from any defendant”); it therefore does not run afoul of the
constitutional diversity requirement, see State Farm Fire & Casualty Co. v.
Tashire, 386 U.S. 523, 531 (1967) (“Article III poses no obstacle to the
legislative extension of federal jurisdiction, founded on diversity, so long
as any two adverse parties are not co-citizens.”).
16                                                              No. 12-2617

78 (1938), including choice of law rules, Klaxon Co. v. Stentor
Elec. Mfg., 313 U.S. 487, 496–97 (1941).” Wachovia Sec., LLC v.
Banco Panamericano, Inc., 674 F.3d 743, 751 (7th Cir. 2012)
(parallel citations omitted).
    When applied to the circumstances here, however, we are
without clear guidance from the Supreme Court: It has not yet
decided “the Erie issue of which law governs when,” as here,
“a federal court, sitting in diversity, evaluates a forum selection
clause in the absence of a controlling federal statute.” Wong v.
PartyGaming Ltd., 589 F.3d 821, 826 (6th Cir. 2009). At present,
the majority of federal circuits hold “that the enforceability of
a forum selection clause implicates federal procedure and
should therefore be governed by federal law.” Id. at 827 & n.5
(collecting cases);21 see also 14D Charles Alan Wright, et al.,
Federal Practice & Procedure § 3803.1, at 107–12 (4th ed. 2014).
We have taken a different approach. In Abbott Laboratories v.
Takeda Pharmaceutical Co., 476 F.3d 421 (7th Cir. 2007), we
stated:

21
   See, e.g., Doe 1 v. AOL LLC, 552 F.3d 1077, 1081 (9th Cir. 2009) (“We apply
federal law to the interpretation of the forum selection clause.”); Phillips v.
Audio Active Ltd., 494 F.3d 378, 384 (2d Cir. 2007) (“[T]he rule set out in M/S
Bremen [v. Zapata Off-Shore Co., 407 U.S. 1 (1972),] applies to the question of
enforceability of an apparently governing forum selection clause, irrespec-
tive of whether a claim arises under federal or state law.”); P & S Bus.
Machs. v. Canon USA, Inc., 331 F.3d 804, 807 (11th Cir. 2003) (“Consideration
of whether to enforce a forum selection clause in diversity suit is governed
by federal law … .”). Most of these cases rest, at bottom, on the premise that
“[q]uestions of venue and the enforcement of forum selection clauses are
essentially procedural, rather than substantive, in nature.” Jones v. Weibrecht,
901 F.2d 17, 19 (2d Cir. 1990).
No. 12-2617                                                                  17

           Simplicity argues for determining the validity and
         meaning of a forum selection clause, in a case in
         which interests other than those of the parties will
         not be significantly affected by the choice of which
         law is to control, by reference to the law of the
         jurisdiction whose law governs the rest of the
         contract in which the clause appears, rather than
         making the court apply two different bodies of law
         in the same case.
Id. at 423 (citations omitted). In contracts containing a choice of
law clause, therefore, the law designated in the choice of law
clause would be used to determine the validity of the forum
selection clause. See id.; IFC Credit Corp. v. United Bus. & Indus.
Fed. Credit Union, 512 F.3d 989, 991 (7th Cir. 2008) (“Abbott
Laboratories … held that the validity of a forum-selection clause
depends on the law of the jurisdiction whose rules will govern
the rest of the dispute.”).
    Applying the rule in Abbott Laboratories, we look to the
choice of law clause in the loan agreements, which provides
that the agreements are “governed by the Indian Commerce
Clause of the Constitution of the United States of America and
the laws of the Cheyenne River Sioux Tribe.”22 Assuming the
validity of this choice of law provision,23 the Defendants have

22
     R.14-1 at 4; see also id. at 2.

23
   Both the Plaintiffs and the Attorney General of Illinois maintain that the
choice of law provision and the forum selection clause work in tandem to
create an unconscionable result. See Appellants’ Br. 13, 25; Illinois Att’y Gen.
                                                                  (continued...)
18                                                                No. 12-2617

23
    (...continued)
Br. 22. We agree that a more-than-colorable argument can be made that the
loan agreements’ choice of law clause should not be enforced and that
Illinois law ought to govern the parties’ dispute.
    The courts of Illinois will respect a choice of law clause if the contract is
valid and if the law chosen is not contrary to Illinois public policy. Thomas
v. Guardsmark, 381 F.3d 701, 705 (7th Cir. 2004). Here, the Plaintiffs and
amici maintain that several provisions of the loan agreements violate Illinois
public policy. First, the Attorney General argues that “Illinois has a strong
public policy against enforcing provisions requiring plaintiffs to adjudicate
claims in a distant, inconvenient forum where, as in this case, the clause is
embedded in contracts ‘involving unsophisticated consumers in small
transactions in the marketplace without any real opportunity to consider
[whether to accept the clause].’” Illinois Att’y Gen. Br. 12 (alteration in
original) (quoting IFC Credit Corp. v. Rieker Shoe Corp., 881 N.E.2d 382, 394
(Ill. App. Ct. 2007)); see also infra pp. 22–26. The Plaintiffs maintain that the
contracts violate Illinois public policy against usury because they exceed the
allowable interest rate under state law. See 815 ILCS 205/4(1) (stating that
“in all written contracts it shall be lawful for the parties to stipulate or agree
[to] 9% per annum, or any less sum of interest”). Small consumer loans,
however, are exempted from this requirement, to the extent that they
comply with the State’s Consumer Installment Loan Act. See id. (“It is lawful
to receive or to contract to receive and collect interest and charges as
authorized by this Act and as authorized by the Consumer Installment Loan
Act … .”).
   The Defendants seize on this exception and note that, when the Plaintiffs
entered into the loan agreements, “Illinois law imposed no cap on the
interest rate allowed for small consumer loans,” and, when the General
Assembly amended the law, it imposed a maximum rate of ninety-nine
percent. Reply Brief of Defendants-Appellees to Briefs of Amici Curiae
[hereinafter Defendants’ Reply Br.] 21. Defendants cannot invoke this
exception, however, because they are not licensed providers as required by
205 ILCS 670/1; moreover, they do not maintain that they otherwise have
complied with the consumer-protection provisions of the Consumer
                                                                    (continued...)
No. 12-2617                                                              19

informed us in their supplemental briefing that they “have
been unable to locate tribal precedent addressing forum
selection clauses.”24 In such circumstances, they note, tribal
courts borrow from “federal law to stand in or amplify tribal
law where necessary.”25 We therefore turn to the federal
guidelines for determining the validity of a forum selection
clause.
    We have held that “[t]he presumptive validity of a forum
selection clause can be overcome if the resisting party can
show it is ‘unreasonable under the circumstances.’” Bonny v.
Soc’y of Lloyd’s, 3 F.3d 156, 160 (7th Cir. 1993) (quoting M/S
Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972)). Relying on
the Court’s decisions in M/S Bremen and Carnival Cruise Lines,
Inc. v. Shute, 499 U.S. 585 (1991), we have identified three sets
of circumstances that will render a forum selection clause
“unreasonable”:

23
   (...continued)
Installment Loan Act, see, e.g., 205 ILCS 670/14 (prohibiting a lender from
“pledg[ing], hypothecat[ing] or sell[ing] a note entered into under the
provisions of this Act by an obligor except to another licensee under this
Act”). The Loan Entities tacitly admit that the licensure requirements may
call the contract into question, but maintain that “[w]hether the licensure
requirements cited by Plaintiffs apply here must still be decided[ ]in the
forum the Parties agreed to.” Appellees’ Br. 19. n.12. We need not decide
the question of what law governs the validity and interpretation of the loan
agreements, however, because whether federal, tribal, or Illinois law
applies, the same result obtains. See infra pp. 19–26.

24
     Defendants’ Reply Br. 22.

25
     Id. (internal quotation marks omitted).
20                                                       No. 12-2617

           (1) if their incorporation into the contract was the
           result of fraud, undue influence or overweening
           bargaining power; (2) if the selected forum is so
           “gravely difficult and inconvenient that [the com-
           plaining party] will for all practical purposes be
           deprived of its day in court[]”; or (3) if enforcement
           of the clauses would contravene a strong public
           policy of the forum in which the suit is brought,
           declared by statute or judicial decision.
Bonny, 3 F.3d at 160 (first alteration in original) (citations
omitted) (quoting M/S Bremen, 407 U.S. at 18).
     Applying this standard, we believe enforcement 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.”26
Arbitration will be conducted by “either (i) a Tribal Elder, or
(ii) a panel of three (3) members of the Tribal Council.”27 The
record clearly establishes, however, that such a forum does not
exist: The Cheyenne River Sioux Tribe “does not authorize
Arbitration,”28 it “does not involve itself in the hiring of …

26
     R.14-1 at 5.

27
     Id.

28
     R.83-5 at 2.
No. 12-2617                                                                21

arbitrator[s],”29 and it does not have consumer dispute rules.30
We have no hesitation concluding that an illusory forum is
unreasonable under M/S Bremen.31

29
     R.83-7 at 2.

30
  Defendants’ Reply Br. 4 (“Nor does it matter that the CRST does not have
any ‘consumer dispute rules,’ which the Agreements presuppose.”).

31
     Cf. BP Marine Ams. v. Geostar Shipping Co. N.V., No. 94–2118, 1995 WL
131056, at *4 (E.D. La. Mar. 22, 1995) (applying M/S Bremen and refusing to
enforce a forum selection clause on the ground that the designated forum,
“High Court in New York,” did not exist).
    In their supplemental submission, the Defendants try to characterize the
Illinois Attorney General’s amicus brief as stating that “under federal law
(and thus tribal) law, the forum selection clause is valid.” Defendants’ Reply
Br. 23. The Defendants misread the Attorney General’s submission. In her
brief to this court, the Attorney General reviewed our decision in IFC Credit
Corp. v. Aliano Brothers General Contractors, 437 F.3d 606 (7th Cir. 2006),
which noted that

          “Illinois law on validity is more lenient toward the [party
          challenging the forum selection clause] than the federal
          law when there is significant inequality of size or commer-
          cial sophistication between the parties, especially if the
          transaction is so small that the unsophisticated party might
          not be expected to be careful about reading boilerplate
          provisions that would come into play only in the event of
          a lawsuit, normally a remote possibility.”

Illinois Att’y Gen. Br. 13 (alteration in original) (quoting IFC Credit Corp.,
437 F.3d at 611). The Attorney General then proceeds to argue that, under
Illinois law, the choice of forum provision is invalid. The Attorney General
does not analyze the choice of forum provision under federal law, nor does
                                                                (continued...)
22                                                        No. 12-2617

   If, however, the choice of law provision is invalid,32 Illinois
law would govern the question of the validity of the choice of
forum provision. Illinois, like many states, has used M/S
Bremen and its touchstone concept of reasonableness to
evaluate the enforceability of a forum selection clause. See
Calanca v. D & S Mfg. Co., 510 N.E.2d 21, 23 (Ill. App. Ct. 1987).
    Under Illinois law, “[a] forum selection clause in a contract
is prima facie valid and should be enforced unless the opposing
party shows that enforcement would be unreasonable under
the circumstances.” IFC Credit Corp. v. Rieker Shoe Corp., 881
N.E.2d 382, 389 (Ill. App. Ct. 2007). This is true, however, only
of “agreement[s] reached through arm’s-length negotiation
between experienced and sophisticated business people”; “a
forum selection clause contained in boilerplate language
indicates unequal bargaining power, and the significance of the
provision is greatly reduced.” Id.
   In an effort to make more concrete the standard of reason-
ableness articulated in M/S Bremen, Illinois courts typically
have looked to six factors:
        (1) the law that governs the formation and construc-
        tion of the contract; (2) the residency of the parties;
        (3) the place of execution and/or performance of the
        contract; (4) the location of the parties and their
        witnesses; (5) the inconvenience to the parties of any

31
   (...continued)
she make any predictions about what the outcome of such an analysis might
be.

32
     See supra note 23.
No. 12-2617                                                     23

     particular location; and (6) whether the clause was
     equally bargained for.
Id. at 389–90 (citing Dace Int’l, Inc. v. Apple Computer, Inc., 655
N.E.2d 974, 977 (Ill. App. Ct. 1995)). Even assuming that tribal
law governs the formation and construction of the contract,
another key element weighs against enforcement of the clause,
namely that the clause was not the product of equal bargain-
ing: It imposes on unsophisticated consumers a nonexistent
forum for resolution of disputes in a location that is remote and
inconvenient.
     Although helpful in evaluating the mine-run of forum
selection clauses that a court may encounter, these criteria are
ill-suited for evaluating the forum designated in these particu-
lar loan agreements. The factors set forth in IFC Credit Corp.
presuppose that the designated forum exists and is available to
resolve the underlying dispute. Such is not the case here.
    We do find helpful, however, the closely allied yet distinct
concept of unconscionability. See Phoenix Ins. Co. v. Rosen, 949
N.E.2d 639, 647 (Ill. 2011). Under Illinois law, a contractual
provision may be unconscionable on either procedural or
substantive grounds. Razor v. Hyundai Motor Am., 854 N.E.2d
607, 622 (Ill. 2006). “Procedural unconscionability refers to a
situation where a term is so difficult to find, read, or under-
stand that the plaintiff cannot fairly be said to have been aware
he was agreeing to it, and also takes into account a lack of
bargaining power.” Id. “Factors to be considered in determin-
ing whether an agreement is procedurally unconscionable
include whether each party had the opportunity to understand
the terms of the contract, whether important terms were
24                                                            No. 12-2617

hidden in a maze of fine print, and all of the circumstances
surrounding the formation of the contract.” Phoenix Ins. Co.,
949 N.E.2d at 647 (internal quotation marks omitted). Substan-
tive unconscionability, by contrast,
      concerns the actual terms of the contract and exam-
      ines the relative fairness of the obligations assumed.
      … Indicative of substantive unconscionability are
      contract terms so one-sided as to oppress or unfairly
      surprise an innocent party, an overall imbalance in
      the obligations and rights imposed by the bargain,
      and significant cost-price disparity.
Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250, 267 (Ill. 2006)
(internal quotation marks omitted). Like other contractual
provisions, forum selection clauses—even those designating
arbitral fora—are not immune from the general principle that
unconscionable contractual provisions are invalid.33

33
    Potiyevskiy v. TM Transp., Inc., No. 1-13-1864, 2013 WL 6199949, at *7–10
(Ill. App. Ct. Nov. 25, 2013) (holding that arbitration agreement in
employment contract was substantively unconscionable because it required
a plaintiff to challenge individually each biweekly pay period during which
an allegedly improper deduction occurred, it required arbitration of
disputes in Illinois despite an employee’s state of residence, and the
arbitration fees made claims cost-prohibitive); Timmerman v. Grain Exch.,
LLC, 915 N.E.2d 113, 120 (Ill. App. Ct. 2009) (holding that arbitration
provision was procedurally unconscionable where “[t]he contracts
themselves made no direct mention of arbitration,” and the rules that
incorporated the arbitration provision “were not set forth in the contracts,
nor had they been provided to or made available to the plaintiffs prior to
their entering into the contracts”).
No. 12-2617                                                    25

     The choice of forum provision at issue here is both proce-
durally and substantively unconscionable. Turning first to
procedural unconscionability, although the district court held
on remand that the substantive commercial law of the Chey-
enne River Sioux Tribe was reasonably ascertainable, it did not
reach this conclusion with respect to tribal rules for conducting
arbitrations. Indeed, the record establishes that such proce-
dures do not exist. The Tribe has neither a set of procedures for
the selection of arbitrators nor one for the conduct of arbitral
proceedings. Consequently, it was not possible for the Plain-
tiffs to ascertain the dispute resolution processes and rules to
which they were agreeing. Moreover, even if the described
arbitral forum were functional and its rules ascertainable, we
agree with the Federal Trade Commission that “[t]he inconsis-
tent language in the loan contracts, specifying both exclusive
Tribal Court jurisdiction and exclusive tribal arbitration
without reconciling those provisions, also ma[de] it difficult for
borrowers to understand exactly what form of dispute resolu-
tion they [we]re agreeing to.”34 Finally, the Loan Entities’
claims concerning the scope of tribal jurisdiction, as well as
their invocation of an irrelevant constitutional provision, “may
[have] induce[d] [the Plaintiffs] to believe, mistakenly, that
they ha[d] no choice but to accede to resolution of their
disputes on the Reservation.”35
   With respect to substantive unconscionability, the dispute-
resolut io n me chanism set forth in the loan

34
     FTC Br. 27.

35
     Id.
26                                                                No. 12-2617

agreements—“conducted by the Cheyenne River Sioux Tribal
Nation by an authorized representative in accordance with its
consumer dispute rules”36—did not exist. As the district court
“resounding[ly]” concluded, there simply was no prospect “of
a meaningful and fairly conducted arbitration”; instead, this
aspect of the loan agreements “[wa]s a sham and an illusion.”37

36
     R.14-1 at 5.

37
    R.95 at 6. Our conclusion would not change if we were to apply tribal
law as opposed to Illinois law, as urged by the Defendants. According to the
Defendants, the courts of the Cheyenne River Sioux Tribe would employ
“‘traditional contractual principles,’ including the Restatement,” to
determine if the forum selection provision were unconscionable. Defen-
dants’ Reply Br. 9. They explain that the Restatement, unlike Illinois law,
requires a showing of both procedural and substantive unconscionability.
However, as we already have demonstrated, the forum selection clause here
is both substantively and procedurally unconscionable.
   We note that other courts have refused to honor agreements to arbitrate,
where the rules are inherently biased or are not formulated in good faith.
See, e.g., Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 940 (4th Cir. 1999) (“By
creating a sham system unworthy even of the name of arbitration, Hooters
completely failed in performing its contractual duty.”). Indeed, we have
refused to enforce an arbitration agreement where the obligation was so
one-sided as to make any genuine obligation illusory. Cf. Penn v. Ryan’s
Family Steak Houses, Inc., 269 F.3d 753, 756, 758–61 (7th Cir. 2001) (observing
that the agreement to arbitrate is “hopelessly vague and uncertain as to the
obligation EDS has undertaken” and concluding that, “[f]or all practical
purposes, EDS’s promise under this contract makes performance entirely optional
with the promisor” (emphasis added) (internal quotation marks omitted)).
No. 12-2617                                                   27

                                2.
    The Loan Entities nevertheless maintain that these state-
law-based shortcomings are irrelevant because Section 2 of the
Federal Arbitration Act “preempts arbitrator bias defenses
because such defenses are not applicable to all contracts.”38
They point out that section 2 of the FAA provides that arbitra-
tion clauses are “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 (emphasis added). They then submit
that, because arbitrator bias is a “defense[] that appl[ies] only
to arbitration or that derive[s] [its] meaning from the fact that
an agreement to arbitrate is at issue,” AT&T Mobility LLC v.
Concepcion, 131 S. Ct. 1740, 1746 (2011) (emphasis added), it is
not applicable to “any contract” and is therefore preempted.
    We cannot accept this argument. The arbitration clause here
is void not simply because of a strong possibility of arbitrator
bias, but because it provides that a decision is to be made
under a process that is a sham from stem to stern. Although
the contract language contemplates a process conducted under
the watchful eye of a legitimate governing tribal body, a
proceeding subject to such oversight simply is not a possibility.
The arbitrator is chosen in a manner to ensure partiality, but,
beyond this infirmity, the Tribe has no rules for the conduct of
the procedure. It hardly frustrates FAA provisions to void an
arbitration clause on the ground that it contemplates a pro-
ceeding for which the entity responsible for conducting the
proceeding has no rules, guidelines, or guarantees of fairness.

38
     Defendants’ Reply Br. 5.
28                                                            No. 12-2617

See Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 940 (4th Cir.
1999) (“By creating a sham system unworthy even of the name
of arbitration, Hooters completely failed in performing its
contractual duty.”); cf. Penn v. Ryan’s Family Steak Houses, Inc.,
269 F.3d 753, 756, 758–61 (7th Cir. 2001) (refusing to enforce an
arbitration clause that is “hopelessly vague and uncertain as to
the obligation EDS has undertaken” because it, “[f]or all
practical purposes, … makes performance entirely optional
with the promisor” (internal quotation marks omitted)).39

39
    The Loan Entities also make the claim that, “[b]ecause Illinois enforces
adhesion contracts despite unconscionability claims, it may not use [the]
unconscionability doctrine to void arbitration provisions in those con-
tracts.” Defendants Reply Br. 6 (citing Koveleskie v. SBC Capital Mkts., Inc.,
167 F.3d 361, 366–67 (7th Cir. 1999)). Koveleskie does not support such a
sweeping conclusion. In Koveleskie, we commented that Illinois courts do
not consider disparity of bargaining power, standing alone, as a reason to
invalidate contracts. Consequently, “the disparity in the size of the parties
entering into the agreement … without some wrongful use of that power,
is not enough to render an arbitration agreement unenforceable.” 167 F.3d
at 367 (alteration in original) (internal quotation marks omitted). Here, as
we have discussed, the Loan Entities used the disparity in bargaining power
to impose on the Plaintiffs a dispute-resolution mechanism that does not
exist.
     We also cannot accept the Loan Entities’ suggestion that the FAA
preempts Illinois’s rules on unconscionability with respect to the forum
selection clause because they have a “‘disproportionate impact on
arbitration agreements.’” Defendants’ Reply Br. 16 (quoting AT&T Mobility
LLC v. Concepcion, 131 S. Ct. 1740, 1747 (2011)). According to the Loan
Entities, subjecting arbitration agreements to unconscionability rules for
forum selection clauses “would give States free rein to gut the FAA by
labeling their policy applicable to ‘forum selection clauses’ rather than
arbitration provisions.” Id. at 17. However, because the Supreme Court has
                                                               (continued...)
No. 12-2617                                                              29

   The Loan Entities also contend that section 5 of the FAA
prevents our voiding the arbitration clause. That section
provides, in relevant part, that, “if for any other reason there
shall be a lapse in the naming of an arbitrator or arbitrators[,]
… the court shall designate and appoint an arbitrator or
arbitrators … who shall act under the said agreement with the
same force and effect as if he or they had been specifically
named therein.” 9 U.S.C. § 5.
    Like the Loan Entities’ earlier argument, this submission
assumes that the arbitration provision’s only infirmity is the
disability of a particular arbitrator or class of arbitrators. Here,
however, the likelihood of a biased arbitrator is but the tip of
the iceberg. Although the arbitration provision contemplates
the involvement and supervision of the Cheyenne River Sioux
Tribe, the record establishes that the Tribe does not undertake
such activity. Furthermore, there are no rules in place for such
an arbitration. Under these circumstances, the court cannot
save the arbitral process simply by substituting an arbitrator.
   This case is therefore distinctly different from the situation
that we faced in Green v. U.S. Cash Advance Illinois, LLC, 724
F.3d 787 (7th Cir. 2013). In Green, a lender moved to dismiss a

39
   (...continued)
treated arbitration provisions as forum selection provisions, see Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 630–31 (1985)
(treating an arbitration clause in an international agreement as it would
other “freely negotiated contractual choice-of-forum provisions”), we
perceive no impediments in allowing states to apply their generally
applicable unconscionability rules to arbitration provisions in the same
manner they would apply those rules to clauses designating non-arbitral
fora.
30                                                    No. 12-2617

plaintiff’s claims under the Truth in Lending Act on the
ground that the lending contract required submission of
disputes to “arbitration by one arbitrator by and under the
Code of Procedure of the National Arbitration Forum.” Id. at
788 (internal quotation marks omitted). The National Arbitra-
tion Forum, however, had stopped taking consumer cases for
arbitrations. The district court, therefore, denied the motion to
dismiss on the ground that “the identity of the Forum as the
arbitrator [wa]s ‘an integral part of the agreement’” and that
the arbitration provision was therefore void. Id. at 789. We
reversed. We noted that the language of the agreement called
for the arbitration to be conducted in accordance with the
National Arbitration Forum’s procedures, not necessarily
under its direct auspices. The district court, therefore, could
invoke section 5 of the FAA to appoint an arbitrator, who then
could “resolve this dispute using the procedures in the
National Arbitration Forum’s Code of Procedure.” Id. at 793.
    In Green, we noted that, if the particular arbitration clause
before us had been shorn of all detail as to the number of
arbitrators, the identity of the arbitrators or the rules that the
arbitrators were to employ, the mere existence of the arbitra-
tion clause would have made it clear that the parties still
would have preferred to submit their dispute to arbitration. Id.
at 792–93.
    Although such mutuality of intent might have been
apparent in the contractual relationship in Green, it is not at all
apparent in the situation before us today. The contract at issue
here contains a very atypical and carefully crafted arbitration
clause designed to lull the loan consumer into believing that,
although any dispute would be subject to an arbitration
No. 12-2617                                                  31

proceeding in a distant forum, that proceeding nevertheless
would be under the aegis of a public body and conducted
under procedural rules approved by that body. The parties
might have chosen arbitration even if they could not have had
the arbitrator whom they had specified or even if the rules to
which they had stipulated were not available. But even if these
circumstances had been tolerable, a far more basic infirmity
would have remained: One party, namely the loan consumer,
would have been left without a basic protection and essential
part of his bargain—the auspices of a public entity of tribal
governance. The loan consumers did not agree to arbitration
under any and all circumstances, but only to arbitration under
carefully controlled circumstances—circumstances that never
existed and for which a substitute cannot be constructed.
    In sum, the arbitration clause is both procedurally and
substantively unconscionable under Illinois law. It is procedur-
ally unconscionable because the Plaintiffs could not have
ascertained or understood the arbitration procedure to which
they were agreeing because it did not exist. It is substantively
unconscionable because it allowed the Loan Entities to manip-
ulate what purported to be a fair arbitration process by
selecting an arbitrator and proceeding according to nonexistent
rules. It is clearly “unreasonable” under the standard articu-
lated in M/S Bremen. Under such circumstances, the FAA does
not preempt state law, nor does it operate to permit the
creation, from scratch, of an alternate arbitral mechanism.
32                                                          No. 12-2617

                                   C.
   Having concluded that the arbitration clause contained in
the loan agreements is unenforceable, we now turn to the
Loan Entities’ alternative argument for affirmance—that the
agreements’ forum selection clause requires any litigation to be
conducted in the courts of the Cheyenne River Sioux Tribe.

                                    1.
    “[T]he inherent sovereign powers of an Indian[40] tribe do
not extend to the activities of nonmembers of the tribe.”
Montana v. United States, 450 U.S. 544, 565 (1981). Nevertheless,
“Indian tribes retain inherent sovereign power to exercise some
forms of civil jurisdiction over non-Indians on their reserva-
tions, even on non-Indian fee lands.” Id. Recognizing this
limited right, the Court in Montana articulated two narrow
situations in which a tribe may exercise jurisdiction over
nonmembers: (1) “[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”; and (2) “[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

40
   Throughout this opinion, we use the term “Indian” rather than “Native
American,” reflecting the fact that both tradition, governing statutes, and
cases follow that practice.
No. 12-2617                                                                  33

565, 566. The Loan Entities maintain that the tribal courts have
jurisdiction over the present dispute under the first exception.
    The Loan Entities have not met their burden of establishing
tribal court jurisdiction over the Plaintiffs’ claims.41 We begin
with the Supreme Court’s initial observation in Montana that
tribal court jurisdiction over non-Indians is limited: “Indian
tribes retain inherent sovereign power to exercise some forms
of civil jurisdiction over non-Indians on their reservations, even on
non-Indian fee lands.” Id. at 565 (emphasis added). “[A] tribe’s
adjudicative jurisdiction does not exceed its legislative jurisdic-
tion”; therefore, if a tribe does not have the authority to
regulate an activity, the tribal court similarly lacks jurisdiction
to hear a claim based on that activity. Plains Commerce Bank v.
Long Family Land & Cattle Co., 554 U.S. 316, 330 (2008) (internal
quotation marks omitted).
    In Plains Commerce Bank, the Court explicitly noted that the
nature of tribal court authority over non-Indians is circum-
scribed: “We have frequently noted, however, that the sover-
eignty that the Indian tribes retain is of a unique and limited
character. It centers on the land held by the tribe and on the tribal
members within the reservation.” Id. at 327 (emphasis added)
(citation omitted) (internal quotation marks omitted). In short,
“Montana and its progeny permit tribal regulation of nonmem-

41
   Cf. Attorney’s Process & Investigation Servs., Inc. v. Sac & Fox Tribe of the
Miss. in Iowa, 609 F.3d 927, 936 (8th Cir. 2010) (“Because ‘efforts by a tribe
to regulate nonmembers … are presumptively invalid,’ the Tribe bears the
burden of showing that its assertion of jurisdiction falls within one of the
Montana exceptions.” (alteration in original) (quoting Plains Commerce Bank
v. Long Family Land & Cattle Co., 554 U.S. 316, 330 (2008))).
34                                                             No. 12-2617

ber conduct inside the reservation that implicates the tribe’s
sovereign interests.” Id. at 332 (additional emphasis added).
    Here, the Plaintiffs have not engaged in any activities inside
the reservation. They did not enter the reservation to apply for
the loans, negotiate the loans, or execute loan documents. They
applied for loans in Illinois by accessing a website. They made
payments on the loans and paid the financing charges from
Illinois. Because the Plaintiffs’ activities do not implicate the
sovereignty of the tribe over its land and its concomitant
authority to regulate the activity of nonmembers on that land,
the tribal courts do not have jurisdiction over the Plaintiffs’
claims.42

                                      2.
    We also are unpersuaded by the Defendants’ argument that
the Plaintiffs “consented to tribal jurisdiction.” Appellees’ Br.
37. As the Court has noted on more than one occasion, tribal

42
    Because we rest our determination of tribal court jurisdiction on this
basis, we need not consider whether any of the Loan Entities would be
considered a member of the tribe for purposes of the first Montana
exception. See Appellees’ Br. 31.
   We also note that, at several places in their submissions, the Loan Entities
suggest that the dispute concerns “on reservation” activities because that
is where Western Sky executed the contracts. See, e.g., Appellees’ Br. 36;
Defendants’ Reply Br. 24. The question of a tribal court’s subject matter
jurisdiction over a nonmember, however, is tethered to the nonmember’s
actions, specifically the nonmember’s actions on the tribal land. There simply
is no allegation here that the dispute involves activities of the Plaintiffs on
the reservation.
No. 12-2617                                                               35

courts are not courts of general jurisdiction. See Nevada v. Hicks,
533 U.S. 353, 367 (2001). Moreover, a tribal court’s authority to
adjudicate claims involving nonmembers concerns its subject
matter jurisdiction, not personal jurisdiction. See id. n.8.
Therefore, a nonmember’s consent to tribal authority is not
sufficient to establish the jurisdiction of a tribal court. As the
Court explained in Plains Commerce Bank:
      Tribal sovereignty, it should be remembered, is a
      sovereignty outside the basic structure of the Consti-
      tution. The Bill of Rights does not apply to Indian
      tribes. Indian courts differ from traditional Ameri-
      can courts in a number of significant respects. And
      n o nmembe r s ha ve n o p a r t in t r ib a l
      government—they have no say in the laws and
      regulations that govern tribal territory. Conse-
      quently, those laws and regulations may be fairly
      imposed on nonmembers only if the nonmember
      has consented, either expressly or by his actions.
      Even then, the regulation must stem from the tribe’s
      inherent sovereign authority to set conditions on entry,
      preserve tribal self-government, or control internal
      relations.
554 U.S. at 337 (emphasis added) (citations omitted) (internal
quotation marks omitted). The Loan Entities, however, have
made no showing that the present dispute implicates any
aspect of “the tribe’s inherent sovereign authority.”43

43
   Dolgencorp, Inc. v. Mississippi Band of Choctaw Indians, 746 F.3d 167 (5th
Cir. 2014), is not to the contrary. Dolgencorp concerned the tribal court’s
                                                               (continued...)
36                                                              No. 12-2617

                                      3.
    The Loan Entities maintain, however, that the doctrine of
tribal exhaustion requires that the issue of jurisdiction be
decided, in the first instance, by a tribal court. The concept of

43
   (...continued)
authority over tort claims brought by a thirteen-year-old tribal member
against the corporate owner of a Dollar General store located on reservation
land. The tribal member was participating in a tribe-operated job training
program at the store when he was sexually molested by the store manager.
The tribal member sued Dolgencorp in tribal court and alleged that the
corporation was vicariously liable for the manager’s actions and that it
negligently had hired, trained, or supervised the manager. Dolgencorp
unsuccessfully sought an injunction against the tribal action in federal
district court. In holding that the tribal court had jurisdiction over these
claims, the Fifth Circuit rejected Dolgencorp’s argument “that Plains
Commerce narrowed the Montana consensual relationship exception,
allowing tribes to regulate consensual relationships with nonmembers only
upon a showing that the specific relationships ‘implicate tribal governance
and internal relations.’” Id. at 174 (emphasis added) (quoting Plains
Commerce Bank, 554 U.S. at 334–35). It stated:

        It is hard to imagine how a single employment relationship
        between a tribe member and a business could ever have
        such an impact. On the other hand, at a higher level of
        generality, the ability to regulate the working conditions
        (particularly as pertains to health and safety) of tribe
        members employed on reservation land is plainly central
        to the tribe’s power of self-government. Nothing in Plains
        Commerce requires a focus on the highly specific rather
        than the general.

Id. at 175. In the present situation, there is no equivalent tribal concern that
satisfied the requirement of Plains Commerce Bank.
No. 12-2617                                                                 37

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.” Garcia v. Akwesasne Hous. Auth., 268 F.3d 76, 79
(2d Cir. 2001). It is not at all clear, however, that the doctrine of
tribal exhaustion requires a federal court to abstain from
exercising jurisdiction when that exercise will not interfere
with a pending tribal court action. See Altheimer & Gray v. Sioux
Mfg. Corp., 983 F.2d 803, 814 (7th Cir. 1993) (“It is unclear as to
how broadly Iowa Mutual [Insurance Co. v. LaPlante, 480 U.S. 9
(1987),] and National Farmers [Union Insurance Cos. v. Crow Tribe
of Indians, 471 U.S. 845 (1985),] should be read. … [T]he two
Supreme Court cases dealt only with the situation where a
tribal court’s jurisdiction over a dispute has been challenged by
a later-filed action in federal court.”).44 Even assuming that the

44
    The courts of appeals that have addressed the issue have reached
opposite conclusions. In Garcia v. Akwesasne Housing Authority, 268 F.3d 76,
80 (2d Cir. 2001), the Court of Appeals for the Second Circuit held that tribal
exhaustion was not required absent an ongoing tribal proceeding. It
explained its rationale accordingly:

             This Court and the Supreme Court have required
        abstention under the tribal exhaustion rule on just three
        occasions: [Iowa Mutual Insurance Co. v.] LaPlante, 480 U.S.
        [9,] 14–20[ (1987)]; National Farmers [Union Insurance
        Companies v. Crow Tribe of Indians], 471 U.S. [845, ]853–56
        [(1985)]; and Basil Cook Enters. v. St. Regis Mohawk Tribe, 117
        F.3d 61 (2d Cir. 1997). In each instance, the plaintiff was
        litigating a previously-filed, ongoing tribal court action,
        and was asking the federal court to interfere with those
                                                                 (continued...)
38                                                                  No. 12-2617

tribal exhaustion doctrine applies where there are no pending
tribal court proceedings,45 we do not believe that exhaustion is
required in this case.
    The Loan Entities argue that, “[t]o trigger the tribal exhaus-
tion rule, only a ‘colorable’ claim of tribal subject matter
jurisdiction need be asserted.”46 Even a cursory look at the
cases on which the Loan Entities rely, however, reveals that the
assertion of tribal jurisdiction here is not “colorable.”

44
     (...continued)
            tribal proceedings. These cases are procedurally distin-
            guishable from Garcia’s case because Garcia’s claims have
            not been in tribal court. We conclude that the reasoning of
            these cases and the policy considerations that underlie
            them militate in favor of the opposite result in this case: the
            comity and deference owed to a tribal court that is adjudi-
            cating an intra-tribal dispute under tribal law does not
            compel abstention by a federal court where a non-member
            asserts state and federal claims and nothing is pending in
            the tribal court.

Id. (parallel citations omitted). But see, e.g., United States v. Plainbull, 957 F.2d
724, 728 (9th Cir. 1992) (rejecting the Government’s argument that “the
district court abused its discretion by abstaining from the merits of this case
because there was no concurrent action pending in the tribal courts”
because “[w]hether a tribal action is pending, however, does not determine
whether abstention is appropriate”).

45
  Neither party addressed the issue whether the tribal exhaustion doctrine
applies in the absence of a pending tribal proceeding.

46
   Appellees’ Br. 28 (citing Ninigret Dev. Corp. v. Narragansett Indian
Wetuomuck Hous. Auth., 207 F.3d 21, 33 (1st Cir. 2000), and Elliott v. White
Mountain Apache Tribal Court, 566 F.3d 842 (9th Cir. 2009)).
No. 12-2617                                                     39

    In Ninigret Development Corp. v. Narragansett Indian
Wetuomuck Housing Authority, 207 F.3d 21, 33 (1st Cir. 2000), a
case decided before Plains Commerce Bank, a dispute had arisen
between a tribal entity, the Narragansett Indian Wetuomuck
Housing Authority, and the Ninigret Development Corpora-
tion (a Rhode Island corporation in which a member of the
Tribe was a principal) concerning the construction of a
low-income, off-reservation housing development for tribal
members. On appeal from the district court’s dismissal of the
development company’s action, the court addressed whether
the doctrine of tribal exhaustion applied. After reviewing the
policy considerations underlying this “prudential doctrine,”
the court observed that “the tribal exhaustion doctrine d[id]
not apply mechanistically to every claim brought by or against
an Indian tribe” and that “scope-related” objections to exhaus-
tion could be raised. Id. at 31–32. The court explained that,
although “activities of non-Indians on reservation lands almost
always require exhaustion if they involve the tribe,” where the
“dispute arises out of activities conducted elsewhere[,] … an
inquiring court must make a particularized examination of the
facts and circumstances attendant to the dispute in order to
determine whether comity suggests a need for exhaustion of
tribal remedies as a precursor to federal court adjudication.” Id.
at 32 (emphasis added). “‘[O]ff-the-reservation’” conduct, the
court observed, “must at a bare minimum impact directly upon
tribal affairs” in order to trigger the exhaustion requirement. Id.
(emphasis added). In Ninigret, the court determined that this
requirement had been met because “Ninigret’s dealings with
the Authority bore directly on the use and disposition of tribal
resources (land and money).” Id. Here, the Loan Entities do not
40                                                          No. 12-2617

posit any way in which the present dispute “impact[s] directly
upon tribal affairs.” Id.47 There has been no showing that the
present dispute involves questions of tribal self-governance or
use of tribal resources in the manner present in Ninigret.
    Elliott v. White Mountain Apache Tribal Court, 566 F.3d 842
(9th Cir. 2009), is equally unhelpful to the Loan Entities in
establishing a “colorable” claim of tribal court authority. Elliott
concerned an action brought by the White Mountain
Apache Tribe against a non-Indian, who had gotten lost on
reservation lands. In an effort to attract attention, Elliott had set
a signal fire, which grew into a substantial forest fire, burned
over 400,000 acres, and caused millions of dollars in damage.
The tribe brought suit in tribal court for damages, “alleging
violations of tribal executive orders, the tribal game and fish
code, the tribal natural resource code, and common law
negligence and trespass.” Id. at 845. The Ninth Circuit agreed
with the tribe that this scenario raised a colorable claim of
tribal jurisdiction:
        The tribe seeks to enforce its regulations that
      prohibit, among other things, trespassing onto tribal
      lands, setting a fire without a permit on tribal lands,
      and destroying natural resources on tribal lands.
      The Supreme Court has strongly suggested that a
      tribe may regulate nonmembers’ conduct on tribal

47
   The Loan Entities do argue that “the Tribe has an interest in claims
against a local, member-owned business for its on-Reservation conduct.”
Appellees’ Br. 30. It goes without saying that a dispute in which the tribe
takes an “interest,” id., is markedly different from a dispute which
“impact[s] directly upon tribal affairs,” Ninigret, 207 F.3d at 32.
No. 12-2617                                                                  41

      lands to the extent that the tribe can “‘assert a land-
      owner’s right to occupy and exclude.’” The tribal
      regulations at issue stem from the tribe’s “land-
      owner’s right to occupy and exclude.”
Id. at 849–50 (emphasis added) (citations omitted) (quoting
Hicks, 533 U.S. at 359). Again, the Loan Entities have asserted
nothing akin to the Tribe’s right, as a landowner, “to occupy
and exclude.”48
    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.

                                Conclusion
    The arbitration provision contained in the loan agreements
is unreasonable and substantively and procedurally unconscio-
nable under federal, state, and tribal law. The district court,

48
   Indeed, the other cases relied upon by the Loan Entities for the proposi-
tion that tribal exhaustion is required concern regulation of, or actions on,
tribal land. See, e.g., Iowa Mut. Ins. Co., 480 U.S. at 11 (concerning insurance
company’s liability to a tribe-owned business and its tribe-member
employee for injuries sustained on the reservation); Duncan Energy Co. v.
Three Affiliated Tribes of Ft. Berthold, 27 F.3d 1294, 1295 (8th Cir. 1994)
(concerning tribal court’s authority over a dispute involving tribal taxation
of commercial property on reservation land and tribal regulation of
employment on reservation land).
42                                                   No. 12-2617

therefore, erred in granting the Defendants’ motion to dismiss
for improper venue based on that provision. Additionally, the
courts of the Cheyenne River Sioux Tribe do not have subject
matter jurisdiction over the Plaintiffs’ claims. Nor have the
Defendants raised a colorable claim of tribal jurisdiction
necessary to invoke the rule of tribal exhaustion. The district
court’s dismissal, therefore, cannot be upheld on the alterna-
tive basis that this dispute belongs in tribal court. We therefore
reverse the judgment of the district court granting the Defen-
dants’ motion to dismiss and remand for further proceedings
consistent with this opinion. The Plaintiffs may recover their
costs in this court.
                                 REVERSED and REMANDED