A screen shot of a television ad for the defunct Western Sky Financial. Image from Daily Finance

The 7th Circuit Court of Appeals has revived a class action lawsuit against a defunct Indian payday lender after finding a lack of tribal court jurisdiction in the case.

Martin A. Webb, a member of the Cheyennne River Sioux Tribe of South Dakota, ran Western Sky Financial until he was forced out of business due to scrutiny from state and federal authorities. Some of his non-Indian customers in Illinois sued him based on provisions in their loan agreements that required them to file disputes in tribal court.

After hearing the case in January 2013, the 7th Circuit asked for further proceedings to determine whether the tribe's court system would be able to handle such disputes. If so, it could have asked the non-Indian customers to exhaust their tribal remedies, as required by the U.S. Supreme Court decision in National Farmers Union Insurance Cos. v. Crow Tribe.

But the 7th Circuit said making that determination wasn't necessary. The court said there was no tribal jurisdiction because it arose between non-Indians and a private company that wasn't owned by the tribe.

"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," the decision stated. "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."

Professor Matthew Fletcher of Turtle Talk said the decision sends a warning to tribes that own payday loan operations.

"Particularly troublesome is the holding and (hopefully) dicta from the opinion that suggests tribal courts have no jurisdiction involving off-reservation lending operations, even though the operation is based in Indian country and even though the lending instrument includes a forum selection clause naming a tribal forum," Fletcher said on Turtle Talk.

Get the Story:
Seventh Circuit revives class action over payday loans, calls arbitration clause ‘unconscionable’ and process ‘a sham’ (Legal Newsline 8/25)

7th Circuit Decision:
Deborah Jackson v. Payday Financial, LLC (August 22, 2014)

Oral Arguments in Deborah Jackson v. Payday Financial: