Tribal Immunity at the Supreme Court: Impact on Payday Lenders?

by Manatt, Phelps & Phillips, LLP

Could a recent Supreme Court decision on tribal sovereignty as it applied to an Indian casino have an impact on payday lenders?

The case itself, Michigan v. Bay Mills Indian Community, involved a casino built by the Bay Mills Tribe, a federally recognized Indian Tribe, off the reservation but on land purchased using monies generated through a congressionally established land trust set up to compensate the Tribe for the takings of its ancestral lands. Bay Mills argued that the property qualified as Indian land and the tribe therefore had the authority to operate a casino there.

The state of Michigan disagreed and sued the tribe under the Indian Gaming Regulatory Act (IGRA) which grants states the power to enjoin “gaming activity on Indian lands and conducted in violation of any Tribal-State compact.” The compact between Bay Mills and Michigan was limited to gaming activity on Indian lands.

In a split decision, a 5 to 4 majority of the Court held that Michigan’s suit was barred by tribal sovereign immunity. Writing for the majority, Justice Elena Kagan revisited the centuries-old doctrine of sovereign immunity as applied by the courts to Indian tribes in the country. The Court has applied such immunity, which the Court held is a necessary corollary to Indian sovereignty and self-governance, whether a suit is brought by a state—like Michigan—or arises from a tribe’s commercial activities off Indian lands, she explained.

Justice Kagan highlighted a 1998 case, Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc., where the Court declined to make an exception for suits arising from a tribe’s commercial activities even when they take place off-reservation. Congress has yet to act on the holding in the intervening 16 years, she wrote, lending support to the idea that the legislature supported the justices’ decision.

While Michigan lost the case, the majority suggested a few options for a state to enforce its laws as to off-reservation commercial activities by tribes—notably, focusing on the individuals involved.

For example, Michigan could deny a license for an off-reservation casino, the Court noted, and then bring suit against tribal officials or employees rather than the tribe itself seeking an injunction for gambling without a license. In addition, Michigan could turn to criminal law to prosecute an individual who maintains or frequents an unlawful gambling establishment. “[T]ribal immunity does not bar such a suit for injunctive relief against individuals, including tribal officers responsible for unlawful conduct,” Justice Kagan wrote.

The Court found Michigan’s argument to revisit Kiowa unpersuasive just because tribes are increasingly participating in off-reservation commercial activity.

Importantly for those reading between the lines for application of the decision outside the context of gaming, the justices staked out their relative positions on tribal sovereign immunity in five different opinions. Justice Kagan’s majority opinion emphasized the importance of stare decisis and that the Kiowa decision reaffirmed a long line of precedent concluding that the doctrine of sovereign immunity—without any exceptions for commercial or off-reservation conduct—is settled law. Justice Sonia Sotomayor filed a concurring opinion to speak out against a “commercial activity” exception to tribal sovereign immunity.

But in a dissent authored by Justice Clarence Thomas and joined by Justices Antonin Scalia, Ruth Bader Ginsburg, and Samuel Alito, the minority argued that Kiowa should be overturned by the Court to allow states to take action against tribes engaged in off-reservation commercial activity. One of the examples cited by Justice Thomas of tribes abusing their sovereign immunity: payday lending.

“In the wake of Kiowa, tribal immunity has also been exploited in new areas that are often heavily regulated by states,” Justice Thomas wrote. “For instance, payday lenders (companies that lend consumers short-term advances on paychecks at interest rates that can reach upwards of 1,000 percent per annum) often arrange to share fees or profits with tribes so they can use tribal immunity as a shield for conduct of questionable legality.”

The dissent warned that “[a]s long as tribal immunity remains out of sync with this reality, it will continue to invite problems” and argued that the Court should not wait on Congress to take action on the issue.

To read the Court’s decision in Michigan v. Bay Mills Indian Community, click here.

Why it matters: Courts have struggled with the issue of tribal immunity and off-reservation commercial activity with differing results, and those on both sides of the issue will closely analyze the opinions for support. While the majority upholds the Kiowa decision, four justices made clear their willingness to abrogate tribal sovereign immunity, particularly as it relates to commercial activity off the reservation—with Justice Thomas using payday lending as the primary example of the need to do so. Justice Kagan also set forth several possibilities for regulators other than simply suing a tribe, including filing suit against the individual tribal entities engaging in the activity. Given this “panoply” of possibilities, this dispute could continue in a different forum if the parties are unable to resolve it.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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