Enforceability of Arbitration Provisions in Agreements with Tribes or Tribal Entities

July 15, 2015
By Deana M. Bennett and Lynn H. Slade

Over the past few years, federal courts have seen an influx of cases involving challenges to “payday” lending agreements referencing tribal law or courts, and involving Western Sky Financial, LLC and/or related entities or persons. Some of these agreements include an arbitration provision selecting Cheyenne River Sioux Tribal law and jurisdiction and requiring the arbitration to be conducted by the Cheyenne River Sioux Tribe. The United States Supreme Court recently denied two petitions for writs of certiorari seeking review of decisions by the Eleventh and Seventh Circuits, both of which refused to compel arbitration under the same arbitration agreement because neither the arbitral forum nor applicable tribal law exist.1 The challenged arbitration agreement has now been modified, and courts have been compelling arbitration pursuant to the modified agreement. For example, in Hayes v. Delbert Services Corp.,2 the United States District Court for the Eastern District of Virginia compelled arbitration because Western Sky’s modified arbitration provision allows selection of arbitrators from the American Arbitration Association (“AAA”) or JAMS. In Kemph v. Reddam,3 the United States District Court for the Northern District of Illinois compelled arbitration under the same arbitration provision. Kemph specifically held that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”), and its policy favoring arbitration applies to arbitration agreements, even when the choice-of-law provision of the contract containing the arbitration provision states that federal law does not apply, and when the specific arbitration provision is silent on the applicability of federal law. Conversely, in Heldt v. Payday Financial, LLC,4 the United States District Court for the District of South Dakota refused to compel arbitration under the modified arbitration provisions allowing the selection of AAA or JAMS, because, although containing “clearer arbitration terms,” the loan agreement was nevertheless ambiguous and the court concluded that its ambiguities should be resolved by the tribal court in the first instance.

In negotiating a contract with a tribes or tribal entities, the tribe or tribal entity may want a tribal arbitrator or tribal law to apply. These cases provide guidance on how to ensure that arbitration provisions contained in contracts with tribes or tribal entities are enforceable. First, if the arbitration provision selects a tribal forum or tribal law, it is important to understand whether a tribal forum or law is available and review the arbitration provision’s terms to ensure that they are not susceptible to ambiguities that could undermine their effectiveness. The cases construing the modified arbitration agreements demonstrate that specifying a recognized arbitration service provider and specifically making applicable the FAA and its policies may avoid or minimize the likelihood that a court will reject as invalid the arbitration agreement.

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  1. 1. See Inetianbor v. CashCall, Inc., 768 F.3d 1346 (11th Cir. 2014), cert. denied, April 6, 2015; Jackson v. Payday Financial, LLC, 764 F.3d 765 (7th Cir. 2014), cert. denied, April 27, 2015.
  2. 2. 2015 U.S. Dist. LEXIS 6715 (E.D. Va. Jan. 21, 2015).
  3. 3. 2015 U.S. Dist. LEXIS 38861 (N.D. Ill. March 27, 2015); see also Williams v. Cashcall, Inc., 2015 U.S. Dist. LEXIS 32620 (E.D. Wisc. March 17, 2015) (refusing to compel arbitration of one plaintiff’s claims brought under the former arbitration provision but compelling arbitration of another plaintiff’s claims brought under the modified arbitration provision based on the FAA and because the provision allowed for the selection of arbitrators and arbitral rules).
  4. 4. 12 F.Supp.3d 1170, 1190-91 (D.S.D. 2014).

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