Decided: February 2, 2016
The Fourth Circuit found that the arbitration agreement in dispute was unenforceable, reversed the district court’s order compelling arbitration, and remanded.
This case stemmed from a complaint that the plaintiffs had against Western Sky, an online lender owned by a member of the Cheyenne River Sioux Tribe, who operated Western Sky from the Cheyenne River Indian Reservation and issued payday loans to consumers. Such payday loans violated several state and federal lending laws, and several suits were brought against them, including this one, forcing them to stop issuing new loans. In this case, Western Sky transferred the loan to another entity, who in turn transferred the loan to another entity, who named Delbert (who is not a tribe member) as the servicing agent. The plaintiffs filed a class action suit against Delbert, claiming that Delbert’s notices and phone calls violated the Fair Debt Collection Practices Act and the Telephone Consumer Protection act, and Hayes also sought “declaratory relief to the effect that the loan agreements forum selection and arbitration provisions were unenforceable.” Specifically, the loan agreement provided that the loan was subject to the “exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe,” and also stated that state and federal laws didn’t apply. Furthermore, the arbitration agreement provided that any dispute would be resolved by binding arbitration, which would be conducted by the Cheyenne River Sioux Tribal Nation, and that the borrower could choose a specific organization to administer the arbitration. Delbert filed a motion to dismiss, and the district court agreed that Delbert could enforce the arbitration agreement, and ordered arbitration. This appeal follows.
The Fourth Circuit began by identifying that even though it reviews an order compelling arbitration de novo, there is a strong federal policy in favor of enforcing arbitration agreements. The Court then looks at the fact that in order for an arbitrator to resolve a dispute, the arbitration agreement itself must be valid, and revoking an arbitration agreement must be on grounds that specifically stem from the arbitration agreement itself, and not just the contract as a whole. The plaintiffs argued that the Tribe has no representatives for arbitration, nor does the Tribe even recognize arbitration, and that furthermore there are no actual “consumer dispute rules” alluded to in the agreement, making it unenforceable. However, Delbert argued that the new provisions provided for arbitration from organizations like AAA and JAMS saved the arbitration agreement. The Court found, however, that the arbitration agreement failed because “it purports to renounces wholesale the application of any federal law to the plaintiffs’ federal claims,” federal law that would apply to Delbert since he’s not a member of the Tribe. Although the Court acknowledges that parties may structure arbitration agreements as they choose, the Court also maintained that such ability does not allow a “substantive waiver of federally protected civil rights,” and the Court found that such a waiver was found in this particular arbitration agreement. For these reasons, the Fourth Circuit reversed and remanded.