United States: Federal Court Agrees With Magistrate That Whether A Tribal Lender Is A For-Profit Corporation Is A Triable Issue Of Fact

Last Updated: March 12 2014
Article by Richard P. Eckman and Andrew R. Mavraganis

On March 7, 2014, the United States District Court for the District of Nevada in Federal Trade Commission (the FTC) v. AMG Services, Inc., et al. granted a partial victory to Indian tribal payday lenders in their ongoing fight against regulation by United States federal and state authorities when it issued an order to accept and adopt a magistrate judge's Report and Recommendation (the Report) to grant in part and deny in part the FTC's motion for partial summary judgment against the defendants. The District Court adopted the Report's recommendation to deny the FTC's motion for summary judgment as to the claim that the tribal defendants are "corporations" covered by the FTC Act and subject to the FTC's regulatory authority, opening the door to the possibility that at trial the court could rule that the defendants are not for-profit corporations subject to the FTC Act and are, therefore, beyond the jurisdiction of the FTC.

The FTC filed its complaint against AMG Services, Inc. and related Indian tribal defendants on April 2, 2012, alleging that the defendants violated portions of the FTC Act, the Truth in Lending Act (TILA) and the Electronic Funds Transfer Act (EFTA), all in connection with the defendants' activities in offering and extending online "payday loans."

The parties agreed to bifurcate the trial such that in Phase I of the proceedings, the court would adjudicate both the merits of the FTC's claims and the legal question of whether, and to what extent, the FTC has authority over Indian tribes for violations of the FTC Act. The defendants' initial responses to the FTC's complaint were that the FTC does not have jurisdiction over any of the defendants because: (i) the FTC does not have authority to regulate Indian tribes so it may not regulate the lending activities of arms of Indian tribes and employees of arms of Indian tribes and (ii) the tribal-chartered defendants are not "corporations" for purposes of the FTC Act and, therefore, the FTC does not have jurisdiction to regulate the lending activities of the tribal-chartered defendants or their employees.

The magistrate's Report, issued on July 16, 2013, recommended denying certain of the defendants' summary judgment claims based upon the magistrate's conclusion that the FTC Act is a statute of general applicability even if it is otherwise silent on its applicability to Indian tribes, citing to Ninth Circuit precedent and the test in the Tuscarora Indian Nation decision, 362 U.S. 99 (1960). Because the FTC Act is a statute of general applicability that is silent as to its applicability to Indian tribes, it gives the FTC the power to regulate the arms of Indian tribes and their employees. Additionally, the FTC has the authority to enforce TILA and EFTA claims against the arms of Indian tribes and their employees.

However, the Report denied the FTC's motion for summary judgment in response to the tribe's second claim, and ruled that a genuine issue of material fact existed as to whether the tribal defendants are "corporations" as defined in the FTC Act. "Corporation" is defined in the FTC Act to include certain "entities organized to carry on business for their own profit or that of their members" [emphasis added]. As evidence that the tribal defendants are for-profit corporations covered by the FTC Act, the FTC presented the tribal defendants' articles of incorporation and bank account opening form stating that the purpose of the entities is to generate profits. The tribal defendants countered that their entities are governmental instrumentalities or economic and political subdivisions of a sovereign nation, wholly unlike private corporations covered by the FTC Act. The Report concluded that a genuine issue of material fact exists as to whether the tribal defendants were for-profit corporations as defined in the FTC Act. The District Court's order from March 7, 2014 adopted the Report's recommendations and denied the FTC's motion for summary judgment in agreeing that a genuine issue of material fact exists as to whether tribal defendants are corporations covered by the FTC Act that the FTC has the authority to regulate. However, the determination of this issue is irrelevant to the FTC's TILA and EFTA claims, on which claims the court granted summary judgment.

Pepper Points

  • If this matter proceeds to trial, a finding that the tribal defendants are not for-profit corporations would be a strong victory in this case and for other state and federal cases as tribal defendants assert their sovereignty and their right to be free from regulation by state and federal regulatory authorities.
  • Several tribal lenders have raised the issue that the CFPB does not have jurisdiction over them based upon tribal sovereignty and the language of Title X of the Dodd-Frank Act. The CFPB ruled against the tribal lenders in a motion to quash Civil Investigative Demands (CIDs) that had been issued against them but the CFPB has not pursued enforcing the CIDs in federal court, raising the question of whether the CFPB is concerned it may lose on that issue if it did pursue enforcement.

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