Indianz.Com on YouTube: John Shotton, Chairman of Otoe-Missouria Tribe, #WiringTheRez

'Under Attack': Fate of tribal lending industry in hands of appeals court

Tribes are paying close attention to a court case that they say will have a major impact on efforts to improve economic conditions in their communities.

A federal appeals court on Tuesday will hear arguments in Williams v. Big Picture Loans. The outcome will determine whether online lending companies owned by tribes enjoy sovereign immunity.

Or, in more simple terms, can these entities, as arms of the tribe, be sued without their consent?

The short answer to that question would appear to be no. Just five years ago, the U.S. Supreme Court affirmed a long-standing principle: tribes and their entities cannot be sued unless they waive their immunity, or when Congress does so in a clear and unambiguous fashion.

But with hundreds of millions of dollars at stake in the tribal lending industry, one which relies on developing partnerships with outside entities and dealing with non-Indian consumers, many fear that a bedrock foundation of Indian law and policy is at risk of being eroded. The federal judge's decision in the case hasn't exactly inspired confidence.

"Here, the tribe's intent no doubt was, in part, to help the tribe, but to do so by providing its immunity to shelter outsiders from the consequences of their otherwise illegal actions,' Judge Robert E. Payne wrote last July, describing one of the factors he considered to determine that immunity doesn't extend to tribal lending entities.

The ruling is now being challenged. But the fact that the case is before the 4th Circuit Court of Appeals in Virginia -- where up until a few years ago, no federally recognized tribes were located -- isn't encouraging optimism, either.

“Tribal sovereignty itself is under attack," Brendan Johnson, a former U.S. Attorney from South Dakota whose law firm helped draft an amicus brief in the case, said at the Wiring the Rez conference earlier this year.

"This is the area," Johnson continued, "that will really test Indian Country."

Native American Financial Services Association on YouTube: Prosperity on the Plains

John Shotton, the chairman of the Otoe-Missouria Tribe, agreed with that assessment. He said the Indian Country's small but close-knit lending industry has become a target for a simple reason: because, like tribal gaming, it has become a financially successful exercise of sovereignty.

"For us in the Otoe-Missouria Tribe, it has been a game changer," Shotton said in a keynote at the conference on February 1 in which he discussed how his people got into online lending as a way to generate revenues for critical programs and services on their homelands in Oklahoma.

After nearly a decade in the business, the tribe's lending arm now boasts complete ownership of a financial services technology company that is valued at more than $300 million, he said.

"It was an active use of our tribal sovereignty. We didn't just go out there and start a website," Shotton said at the conference, which took place on the homelands of the Gila River Indian Community in Arizona. "We spent a good year developing our laws and codes."

Though his tribe's lending entities are not involved in the case being heard on Tuesday, they have been targeted elsewhere in old and new litigation. The attacks follow a similar pattern, he said, by highlighting the fact that tribes have worked with non-Indian partners as they get started in the industry.

"We’re no different than where we were in gaming 30 years ago," Shotton said.

"They attack our partners, they attack our funding sources, they attack these premises that tribes are unable to do this" on their own, he said.

The doubts have persisted even as Otoe-Missouria and other tribes, including the Lac Vieux Desert Band of the Lake Superior Chippewa Indians, whose entities are being sued by consumers in Virginia in Big Picture, have taken on larger roles in the industry. In briefs in the case, the mere involvement of one non-Indian person in a lending business is enough for opponents to declare it a "front" for a tribe. Worse, non-Indian firms are accused of "renting" a tribe's sovereignty.

"When you hear things like 'rent-a-tribe,' when you hear things like 'It's a fraud, it's fake,' Shotton said, "I take it very personal."

Indianz.Com on YouTube: Lance Morgan, President and CEO of Ho-Chunk Inc., #WiringTheRez

As president and chief executive officer for Ho-Chunk Inc., one of the leading economic development firms in Indian Country, Lance Morgan is all too familiar with attempts to undermine tribal sovereignty. Whether it's gaming, tobacco, government contracting or any other industry, a different standard always arises when it comes to the first Americans, he said, all in an attempt to "punish" tribes for being successful.

"In every other business, you go and hire the expertise you need," Morgan, who is a citizen of the Winnebago Tribe, the owner of Ho-Chunk Inc., said at the conference on February 1.

Of the tribe's firm, which is not involved in online lending but has diversified its portfolio into a wide range of businesses that go well beyond reservation borders, Morgan observed: "Nobody says, 'Well, you are no longer an tribal company because you have too many White people working for you.'"

"It's just the weirdest racial [thing] -- how does this even happen? How you do even have these kinds of conversations?" Morgan continued. "I've noticed that when race is used as a factor by the courts, that it's a rationale to hurt us."

The rationale of the Big Picture case, along with the tribal lending industry itself, were the focus of significant discussion a day prior at the conference. Tribal advocates, Indian law practitioners and other experts brought up the controversy during three separate panels at the event, an indication of the attention being paid to the case.

“We are in, I think, a renaissance" in terms of economic development, observed Gary Davis, a citizen of the Cherokee Nation who serves as executive director of the Native American Financial Services Association, a group that advocates for the tribal lending industry.

"For so long, we had been dependent and lived our lives in such a state of dependence," Davis said, speaking of reliance on federal grants and other programs provided by the U.S. government.

"As we are beginning to move into these more self-sustaining, self-sufficient forms of economic development where we are bringing revenues in, it becomes threatening to folks," Davis said on January 31. "Because they look at what we are doing and we are standing up."

A scene from An Unlikely Solution, a film about the online lending industry in Indian Country. Still image: An Unlikely Solution

Virginia has been a hotbed for litigation against the tribal lending industry, with plaintiffs and law firms hoping to gain certification of class action lawsuits against tribally-owned companies. At least three other lawsuits are pending in the federal court system there, with businesses owned by the Otoe-Missouria Tribe, the Chippewa Cree Tribe and the Habematolel Pomo of Upper Lake named as defendants.

"I guarantee you that these cases will end up at the Supreme Court," predicted 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.

The lawsuits typically focus on interest rates that are higher than those allowed under state law. In a class action complaint filed in Virginia last October, attorneys accused the Otoe-Missouria Tribe and the Chippewa Cree Tribe of preying on consumers with double - and even triple-digit interest rates. Another one filed last month accuses Upper Lake of doing the same.

"Not everyone is going to welcome you with open arms," David Tomas, a financial services regulator at Upper Lake, whose homelands are in California, said during one of the panel discussions.

The tribe's goal is to offer a service that is attractive to customers, he said. That involves creating a legal and regulatory system that might differ from a state's but is no less stringent, he asserted.

"This is long term business that we are after," Tomas said.

Big Picture will be heard by a panel of three judges on the 4th Circuit but the court, pursuant to its own rule, does not release the names of the participants until the morning of the argument. Audio will be posted by the next business day.

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