Tribe, Payday Lender Can’t Dodge RICO Claim

A Vermont federal court judge refused to toss a RICO claim filed against the Chippewa Cree payday lender, Plain Green LLC. The court also refused to enforce a loan provision that prevented borrowers from filing lawsuits or making class action claims. The payday lender unsuccessfully argued that it’s loan documents prevented class action claims and required t all disputes be arbitrated under tribal law.

Most Fraud Victims Can’t Afford to Sue Banks

It is well known that most consumers can’t afford to sue a bank or financial services firm. This is especially true when the consumer is borrowing money from a payday lender. According to the RICO lawsuit filed against Plain Green, the company charged interest rates between 159% and 375% per year! That is worse than the interest charged by most loan sharks!

The Vermont RICO Lawsuit

The case was filed by two borrowers, Jessica Gingas and Angela Given, both residents of Vermont. Under Vermont law, the maximum interest rate allowed on consumer loans is 24%.

The two women claim that Plain Green LLC is owned by the Chippewa Cree Tribe of Montana. They say the backers of Plain Green approached the tribe and asked them to sanction their operation. In exchange, the tribe was allowed to keep a portion of the profits.

Why would a lender affiliate with an Indian tribe? Sovereign immunity. Tribal governments are immune from many lawsuits. Because U.S. law and treaties recognize tribes as a separate government, they usually can not be directly sued in U.S. courts. 

In recent years, the states and the CFPB have been cracking down on payday lenders. While I served as counsel to the Maine Senate, legislators there enacted a strict regulatory scheme to keep payday lenders in check. We found that they often exploited military members and people struggling financially. Just over 10 years later and most states have enacted similar protections. 

Rent a Tribe Scheme 

What did the backers of Plain Green do? They convinced elders of the Chippewa nation to sanction their operation. These schemes are often called “Rent-a-Tribe.” In return for a piece of the action, the tribe cloaked the lender with their tribal immunity.

Tribal Lender Plain Green’s Unsuccessful Motion to Dismiss

Immediately after filing their RICO claim, Plain Green and its affiliates demanded the court dismiss the case. They claimed the court had no jurisdiction and that the case had to be arbitrated under tribal law.

While the court did trim some counts, the most powerful claims including the RICO claim survived.

U.S. District Court Judge Geoffrey Crawford first acknowledged the concept of tribal immunity. “Indian tribes are domestic dependent nations that exercise inherent sovereign authority… Tribal immunity also applies ‘for suits arising from a tribe’s commercial activities, even when they take place off Indian lands.’” A tribe’s powers are more limited off the reservation, authority. The latter is important since Plain Green is an Internet lender with no real base on the Chippewa Cree reservation. (The company disagrees and said that the final approval process took place in an office on Chippewa land.)

Plain Green next tried to toss the case because the two women have not suffered any injury. According to their complaint, Jessica Green took out her first payday loan from in 2002. She borrowed $1,200 and was placed on a 30 month repayment plan. Although she did repay her loan, she ultimately paid $2952.

Finding herself short of cash, she again borrowed $500, this time in July 2012. Like many borrowers from payday lenders, she rolled over that loan into a new loan and borrowed a total of $2,400. She made her payments but at an effective interest rate of 371.82%!

Even though she repaid her loans, Judge Crawford said the mere usurious interest rate was enough to establish standing. Although the loans were repaid, the thousands she paid in interest was enough to show an injury.

Even though the tribe and Plain Green may still be immune from a suit for damages, RICO allows the court to impose other relief including forcing the company to abide by Vermont and federal lending laws. That means charging no more than 24% interest on loans and stopping other abusive practices.

Plain Green wasn’t done. Although they lost their subject matter jurisdictional challenge, that didn’t stop the tribal defendants from claiming the court had no personal jurisdiction over them.

The law requires that courts have both jurisdiction over the claims and jurisdiction over the parties. The Due Process Clause of the U.S. Constitution protects defendants from having to defend claims in distant jurisdictions unless they have some ties there. Those ties can include physical presence (an office or employee), a business license or presence through an agent.

RICO Jurisdictional Rules – A Boon to Fraud Victims

Because RICO allows a victim to hold all participants in a conspiracy or enterprise responsible for any harm, the court need only find that just one of the defendants be subject to the court’s jurisdiction.

Finding that the tribal entities didn’t have enough contacts with Vermont to establish jurisdiction, the court next looked at the promoters and their affiliates. The court found that one of those affiliates created a website accessible to any Vermont resident. Although any website can reach almost anyone in the world, here the parties were actively using their website to solicit and make loans to Vermont residents.

These jurisdictional provisions make RICO an important tool for businesses and individuals who find themselves defrauded by multiple parties located in different states. Rather than chasing defendants all over the country – and even the world – RICO can help fraud victims drag the guilty parties back to the “scene of the crime” and force the defendants into the victim’s home turf. All that is needed is to establish personal jurisdiction over just one of the wrongdoers.

Mandatory Arbitration Scheme Tossed

Still not done, Plain Green next argued that the claims had to be arbitrated. Although arbitration can be a useful tool to reduce legal fees, businesses have found a way to pervert the arbitration system and make it nearly impossible for individual victims to seek redress.

By requiring plaintiffs to arbitrate their cases individually instead of as a class, Plain Green essentially guaranteed that no single borrower – financially desperate borrowers – could afford to file a claim.

The arbitration clause in the payday loan agreements say that Chippewa Cree law applies to any arbitration disputes. In this case, Judge Crawford said, “The primary obstacle to the adoption by contract of the Chippewa Cree law of arbitration is that no court has ever been able to determine what that law is or where it can be found... The court cannot adopt by reference an unknown body of law.”

Judge Crawford also noted that because the two borrowers have advanced claims that on their face appear to show that the tribe’s law and its judiciary are subject to improper influence, “then delegating the question of arbitrability to the very system under attack is unlikely to result in a fair evaluation… It is an elementary principle of justice that no one should serve as the judge in their own cause.”

Several years ago the U.S. Supreme Court in a 5 to 4 decision said mandatory arbitration clauses were enforceable. As this case points out, however, those clauses are not absolute. Courts still retain some equitable power to prevent an injustice from occurring.

This case is far from over, but merely by forcing the defendants to defend themselves in a federal court instead of an alleged biased tribal system means the case will probably resolve. The promoters of Plain Green have seen more than their share of problems with past payday lending schemes. The feds had already prosecuted one of its predecessor entities. We think that is why the men decided to affiliate with a tribal government.

Important Lessons for Victims of Fraud

The lessons from this case go well beyond payday lending.

For businesses that find themselves the victim of fraud, there are several important lessons.

First, as noted earlier, the venue provisions of RICO often allow a savvy plaintiff’s lawyer to force all the wrongdoers into the same lawsuit and on the victim’s home turf.

Second, RICO has important remedies that go beyond financial damages. Most of the stories in this blog revolve around the triple damage provisions of RICO. The law allows victims to calculate their out-of-pocket damages and then triple them. Some courts also allow additional punitive damages.

Besides triple damages, RICO allows victims to recover their costs and legal fees. That creates a powerful incentive to force wrongdoers to settle fairly and early.

As this case notes, RICO also allows equitable damages. Although the case law is not entirely settled, many courts have allowed victims to recover non-monetary damages. In this case, the damages sought are an order forcing the defendants to abide by Vermont’s interest limitations. For Plain green, that means “only” receiving interest of 24% instead of 371%!

Finally, RICO requires some type of underlying criminal activity. For civil litigants, that almost always means wire or mail fraud. It is hard to imagine commerce today that does not in some large part rely on cell phone, email, land line calls, U.S. mails or courier service.

To show wire or mail fraud, courts have said that the plaintiff (victim) need only show the existence of a scheme to defraud, each defendant’s knowledge or intentional participation in the scheme and the use of interstate mail or transmission facilities. (This case relied on the traditional wire and mail fraud but also cited as a predicate act the collection of an illegal debt which is a crime under federal law.)

RICO Claims Are Highly Complex

RICO is an incredibly complex statute. If pleaded properly and carefully, it can quickly level the playing field for small businesses and individuals. Judge Crawford’s decision was 73 pages in length. The tribal defendants in this case have very deep pockets and spared no expense on challenging almost every single aspect of RICO and the remainder of the women’s complaint.

As both RICO and lender liability lawyers, we typically use RICO to sue big banks, loan servicers, special servicers and other financial institutions. No matter how big or powerful the defendant, RICO can be the ultimate equalizer.

Need more information about RICO? Looking for a second opinion on an existing case? Contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. You can also contact the author of this post, attorney Brian Mahany, at [hidden email] or directly at (414) 704-6731. (We have plenty more information on our joint firm website too, www.lenderliabilitylawyer.com)

MahanyLaw and Judge, Lang & Katers – America’s RICO Lawyers. “We Sue Banks

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