The Lewis F. Powell Jr. Courthouse & Annex, home to the 4th Circuit Court of Appeals, is seen from the Bank Street side of Richmond, Virginia. Photo by Indianz.Com (CC BY-NC-SA 4.0)

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Appeals court appears skeptical of attack on tribal lending operation

Wednesday, May 8, 2019

By Acee Agoyo

RICHMOND, Virginia -- The federal appeals court in this southern capital city doesn't hear from Indian Country often but it was hard to tell as a closely-watched tribal case came up for consideration on Tuesday.

Over 40 minutes of arguments in a packed hearing room, judges on the 4th Circuit Court of Appeals repeatedly brought up precedents and principles which have confirmed that tribes and their entities can't be sued without their consent, or unless Congress does it for them in a clear and unambiguous fashion. That suggested they were well versed on the main issue in Williams v. Big Picture Loans -- whether a tribally-owned lending operation enjoys sovereign immunity as an "arm" of the tribe.

And while they posed tough questions to both sides in the dispute, they appeared to be far more skeptical of the non-Indian side. They wondered why consumers in Virginia seem to be second-guessing the internal affairs of the Lac Vieux Desert Band of the Lake Superior Chippewa Indians, whose leaders came all the way from a remote corner of Michigan to attend the proceeding.

"A tribe is a sovereign entity," asserted Judge G. Steven Agee, who was nominated to the bench by a Republican president. "That question was resolved a couple hundred years ago."

"It seems like the bottom line is, 'We don't like payday lending,'" Agee told the attorney for the non-Indian plaintiffs. "Ergo, if the tribe is in payday lending, there is no tribal immunity."

Indianz.Com on SoundCloud: 4th Circuit Court of Appeals - Williams v. Big Picture Loans - May 7, 2019

Judge Albert Diaz, another member of the panel that heard the case, also expressed concerns about the attack. He said the plaintiffs, who otherwise willingly did business with Big Picture Loans, the online lending operation, are trying to punish the tribe and undermine its sovereignty by questioning the involvement of non-Indians and the presence of off-reservation partners.

"One of the sad consequences of tribal history is the fact that many reservations and its inhabitants have been deprived of educational opportunities, of economic opportunities," said Diaz, who was a nominee of a Democratic president. "As a result, I don't think it at all unusual that the tribe would rely -- at least initially -- on outsiders to run this business."

"You seem to be suggesting that the tribe could never hire outsiders, or even have a majority of outsiders, run its business," added Diaz.

Amid the push-back, attorney Matthew Wessler, the attorney for the plaintiffs, stood firm in his argument that several factors -- not just one in particular -- erode the tribe's right to assert immunity on behalf of the online lending operation. As one example, he pointed to a "financial arrangement" in which the tribe receives a seemingly small portion of the loan revenues.

"As we have it today, the tribe gets 3 percent of the gross revenue," Wessler said. "The rest of the money is going out from the tribe."

But Agee and Diaz knew that figure wasn't exactly right. Wessler conceded that it wasn't either.

"They have 3 percent that goes to the tribe and 2 percent that gets reinvested back into the business," Wessler said after being prodded with the correct figure.

"Which they own," Agee shot back.

"Mantle: Virginia Indian Tribute," a monument that commemorates the life, achievements and legacy of American Indians in Virginia, sits at Capitol Square in Richmond, just steps from the building that houses the 4th Circuit Court of Appeals. The monument was dedicated in April 2018. Photo by Indianz.Com (CC BY-NC-SA 4.0)

Agee and Diaz also argued that focusing solely on the percentage points in the financial arrangement doesn't tell the whole story. The "rest of the money" that the tribe supposedly isn't getting is being used to pay off debt, cover certain operational expenses and address other considerations, both judges pointed out at various times throughout the hearing.

In other words, the tribe is doing what most other businesses do, except as a tribe. Of the arrangement under scrutiny by the plaintiffs, Agee said it looks like the tribe merely executed a "fairly savvy business transaction" to get started in the lending industry.

Along those same lines, the two judges pointed out that the tribe will acquire greater control of the entire enterprise in a manner of years. Wessler conceded that was true but did not agree that it destroys his case, again pointing to the overall manner in which the business in run. Of the six factors considered by the federal judge assigned to the lawsuit, five weigh against immunity for the lending operation, he argued.

But William Hurd, a locally-based attorney who represents the Lac Vieux Desert Band, said that judge got it all wrong. He urged the appeals court to adopt a different standard -- one of deference to the tribe -- and determine that the lending entities enjoy sovereign immunity.

Quoting Chairman James Williams Jr., who was among the tribal leaders and officials who traveled more than 1,100 miles for the hearing, he said: "The business is the focus of our future."

"It's everything we've been looking for to take care of our tribe for years to come," the chairman said of Big Picture Loans. "And it's something that is very successful."

According to Hurd, the tribe currently receives $5 million a year from the gross revenues of the lending operation. In January 2023, the tribe will meet its obligations a key partner, he said, resulting in another $10 million a year going to programs and services in the tribe's homeland in the Upper Peninsula of Michigan.

"This is not a 'rent-a-tribe' scheme," Hurd said, which he called a "pejorative label" employed by the non-Indian plaintiffs in their complaint.

"They seek to besmirch our clients with that 'rent-a-tribe' label, which is a slur," Hurd told the court.

"Just as there are also legitimate bank lenders, there are legitimate tribal lenders," he continued. "For plaintiffs to suggest otherwise, because an Indian tribe is involved, is wrong."

Tribes with online lending operations are closely watching Big Picture because Virginia has emerged as a hotbed for litigation against their industry. In a slew of complaints, non-Indian plaintiffs are hoping to gain certification of class action lawsuits that could severely hinder or outright shut down such operations.

Businesses owned by the Chippewa Cree Tribe, the Habematolel Pomo of Upper Lake and the Otoe-Missouria Tribe have been named as defendants in the lawsuits, one of which was just filed last month.

But even those that aren't in the lending business are concerned about the implications. The factors being used to determine whether a tribally-owned entity is an "arm" of the tribe and thus entitled to sovereign immunity seem to be arbitrary, advocates have observed.

Just how arbitrary? “Some judge made it up one day," Charlie Galbraith, a citizen of the Navajo Nation who worked at the White House during the Obama administration and now practices law in the nation's capital, said at the Wiring the Rez conference, where the case and the lending industry was discussed at length earlier this year.

In holding that Big Picture Loans was not entitled to immunity, Judge Robert E. Payne relied on the six factors laid out in a case from a California state court known as People v. Miami Nation Enterprises. The largest inter-tribal organizations in the U.S. argue that such an approach should not be adopted by the 4th Circuit, which is part of the federal court system.

"The result is a very fact-intensive, fact specific inquiry — one that disregards tribal law, tribal intent, and tribal sovereignty — and that will effectively allow courts to second guess the 'operational' and 'financial' aspects of how tribes structure, finance, manage and operate wholly owned tribal enterprises," the National Congress of American Indians, the National Indian Gaming Association and the National Center for American Indian Enterprise Development wrote in their brief to the appeals court. ""This expansive and intrusive factual inquiry is paternalistic overreach not supported by federal law."

The three appeals court judges who heard the case on Tuesday did not indicate when they would issue a decision. Unlike his counterparts, Judge Roger Gregory, who was installed on the bench by a Democratic president before being nominated by a Republican one, did not voice many questions during the hearing.

After the conclusion of the arguments, all three judges stepped down from their seats to shake the hands of the attorneys for both sides, a long-practiced tradition of the 4th Circuit and one not seen in many other federal circuit courtrooms.