Hayes v. Delbert Servs. Corp., No. 15-1170, 2016 WL 386016 (4th Cir. Feb. 2, 2016)
In Hayes v. Delbert Servs., Corp.,the U.S. Court of Appeals for the Fourth Circuit held that an arbitration agreement between the lender, loan servicer and borrower was unenforceable. The borrower received an online payday loan from a lender owned by a member of the Cheyenne River Sioux Tribe. The loan agreements provided that disputes between the borrower and payday lender, or any assignee, would be resolved by binding arbitration. Specifically, the arbitration would be "conducted by the Cheyenne River Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement." Each agreement further provided that "[THE AGREEMENT] IS MADE PURSUANT TO A TRANSACTION INVOLVING THE INDIAN COMMERCE CLAUSE OF THE CONSTITUTION OF THE UNITED STATES OF AMERICA, AND SHALL BE GOVERNED BY THE LAW OF THE CHEYENNE RIVER SIOUX TRIBE. The arbitrator will apply the laws of the Cheyenne River Sioux Tribal Nation and the terms of this Agreement." Another provision in each agreement stated that the arbitrator would not apply "any law other than the law of the Cheyenne River Sioux Tribe of Indians to this Agreement."
Relying upon U.S. Supreme Court precedent, the Fourth Circuit reversed the U.S. District Court for the Eastern District of Virginia's order compelling arbitration. The court held that the agreement purported to "renounce wholesale the application of any federal law to the plaintiffs' federal claims." The court reasoned that the agreement surreptitiously waived federal rights through the guise of a choice of law clause.
The court also refused to sever the arbitration clause from the agreement, reasoning that the offending provisions went to the core of the arbitration agreement. The court stated that it was "clear that one of the animating purposes of the arbitration agreement was to ensure that Western Sky and its allies could engage in lending and collection practices free from the strictures of any federal law."
