People v. Miami Nation Enterprises

Filed 12/22/16
IN THE SUPREME COURT OF CALIFORNIA
THE PEOPLE ex rel. JAN LYNN OWEN, )
as Commissioner, etc., )
)
)
Plaintiff and Appellant, )
) S216878
v. )
) Ct.App. 2 B242644
MIAMI NATION ENTERPRISES et al., )
) Los Angeles County
Defendants and Respondents. ) Super. Ct. No. BC373536
____________________________________)
The practice of short-term deferred deposit lending — often called
―payday‖ or ―cash advance‖ lending — generally involves small sums that
become due on the borrower‘s next payday. In return for the loan, the borrower
provides the lender with a personal check for the amount of the loan plus fees or
with direct access to his or her checking account. The lender then waits a
specified amount of time to deposit the borrower‘s check or debit his or her
account — hence the deferred deposit. Because of the short-term nature of these
loans and the relatively high fees involved, effective annual percentage rates of
700 percent or higher are not unusual.
In 2003, the Legislature enacted the California Deferred Deposit
Transaction Law (Fin. Code, § 23000 et seq.), which limits the size of each loan
and the fees that lenders may charge. In response to this law and similar
legislation in other states, some deferred deposit lenders sought affiliation with
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federally recognized Indian tribes, which are generally immune from suit on the
basis of tribal sovereign immunity. (See generally Martin & Schwartz, The
Alliance Between Payday Lenders and Tribes: Are Both Tribal Sovereignty and
Consumer Protection at Risk? (2012) 69 Wash. & Lee L.Rev. 751 (hereafter
Martin & Schwartz).)
In this case, a pair of federally recognized tribes created affiliated business
entities. Those entities or their subsidiaries then provided deferred deposit loans
through the internet to borrowers in California under terms that allegedly violated
the Deferred Deposit Transaction Law. The question is whether these tribally
affiliated entities are immune from suit as ―arms of the tribe.‖ Applying a test that
takes into account both formal and functional aspects of the relationship between
the tribes and their affiliated entities, we conclude that the entities are not entitled
to tribal immunity on the record before us.
I.
This case concerns business entities associated with two Indian tribes, the
Miami Tribe of Oklahoma and the Santee Sioux Nation.
The Miami Tribe of Oklahoma is a federally recognized tribe. (79 Fed.
Reg. (Jan. 24, 2014) 4748, 4750.) In 2005, it created Miami Nation Enterprises,
Inc. (hereafter MNE), as a ―subordinate economic enterprise of the Miami Tribe of
Oklahoma.‖ In 2008, MNE created MNE Services, a wholly owned subsidiary of
MNE that is incorporated under tribal law. Shortly thereafter, MNE transferred
Tribal Financial Services (TFS), its ―financial lending‖ subdivision, to MNE
Services. MNE Services holds tribal licenses to engage in the ―cash advance
service business‖ under the names Ameriloan, United Cash Loans, and U.S. Fast
Cash.
The Santee Sioux Nation, located in northeastern Nebraska, is also a
federally recognized tribe. (79 Fed. Reg. (Jan. 24, 2014) 4748, 4751.) In 2005,
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the tribe passed a resolution creating SFS, Inc. (hereafter SFS), ―an economic and
political subdivision of the Santee Sioux Nation.‖ According to its articles of
incorporation, SFS ―is organized . . . to facilitate the achievement of goals relating
to the Tribal economy, self-government, and sovereign status of the Santee Sioux
Nation‖ by ―provid[ing] and/or administer[ing] short-term loans and cash advance
services (‗payday loans‘) and associated services.‖ The tribe has issued licenses to
SFS to ―conduct a cash advance and lending business‖ under the names Preferred
Cash and One Click Cash. These lenders provide ―cash advance services, or short-
term loans, to eligible borrowers . . . and the loan transactions are approved and
consummated on Indian lands and within the jurisdiction of the Santee Sioux
Nation.‖
Although the tribes and their business entities are based in Oklahoma and
Nebraska, they offer deferred deposit loans through the internet to borrowers
nationwide. In August 2006, the Commissioner of the California Department of
Corporations (now Commissioner of Business Oversight) issued a desist and
refrain order to various online deferred deposit lenders, including defendants here,
directing them to cease ―engaging in unlicensed deferred deposit transaction
business.‖ The lenders did not heed the desist and refrain order.
In June 2007, the Commissioner filed a complaint against the lenders in
Los Angeles Superior Court, alleging violations of the Deferred Deposit
Transaction Law and seeking injunctive relief, restitution, and civil penalties.
According to the complaint, defendants made deferred deposit loans without a
license, issued loans in excess of the $300 statutory maximum, charged borrowers
unlawful fees, and violated the Commissioner‘s desist and refrain orders. MNE
and SFS specially appeared and moved to quash service based on lack of
jurisdiction. They asserted that Ameriloan, United Cash Loans, U.S. Fast Cash,
Preferred Cash, and One Click Cash are merely trade names utilized by tribal
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entities immune from suit without their consent. The parties then conducted
discovery regarding the relationship among the tribes, their subsidiary business
entities (i.e., MNE and SFS), and the online deferred deposit lenders to determine
whether the lenders were sufficiently related to the tribes to benefit from the
application of sovereign immunity.
The Commissioner adduced evidence that a company called CLK
Management, LLC, registered the trademarks to Ameriloan, United Cash Loans,
U.S. Fast Cash, One Click Cash, and similar names between 2004 and 2006. In
September 2006, one month after the Commissioner issued her desist and refrain
orders, CLK Management conveyed the One Click Cash trademark to SFS. CLK
Management also conveyed the Ameriloan, United Cash Loans, and U.S. Fast
Cash marks to TFS, which later assigned them to MNE Services. The
Commissioner requests that we take judicial notice of screenshots from the
homepages of Ameriloan, United Cash Loans, U.S. Fast Cash, Preferred Cash
Loans, and One Click Cash, as well as information from the United States Patent
and Trademark Office regarding each of those trade names. We grant this
unopposed request, because the information is publicly available and is ―not
reasonably subject to dispute.‖ (Evid. Code, § 452, subd. (h).)
The parties also produced documents relating to the entities‘ operations.
Those documents show that since its creation in 2005, SFS has hired a series of
management companies to operate its deferred deposit lending businesses.
Initially, SFS contracted with Universal Management Services (UMS), a nontribal
corporation. Since 2008, SFS ―has contracted with AMG Services, Inc. (AMG), a
corporation wholly-owned by the Miami Tribe of Oklahoma, for the purpose of
providing employees to provide loan servicing.‖ MNE likewise contracted with
UMS before the creation of AMG; today, AMG provides employees to service the
loans issued by MNE Services. AMG subsequently acquired CLK Management,
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the company that initially registered many of the lenders‘ trade names. According
to declarations from tribal officials, some loan approval and customer service
operations are run from MNE and SFS offices.
Under their prior service agreements with UMS, which were in effect until
2008, MNE and SFS received 1 percent of gross revenues from the online lending
operations. The record does not reveal what percentage of revenues MNE
Services and SFS currently receive under their agreements with AMG. Affidavits
from Santee Sioux tribal officials state that ―[a]ll profits earned by SFS go to the
Santee Sioux to help fund government operations and social welfare programs.‖
The Miami Tribe likewise asserts that ―[t]he profits from [MNE Services] flow
back to the Miami Tribe and enable it to fund critical governmental services.‖
The Commissioner also introduced evidence regarding two brothers, Scott
and Blaine Tucker, who were linked to the companies SFS and MNE hired to
manage the tribal entities‘ lending activities. Neither Scott nor Blaine is a member
of the Santee Sioux or Miami Tribe. Scott, who had been the president of CLK
Management, later became a signatory on AMG‘s bank accounts along with his
brother Blaine. An investigator from the Federal Trade Commission (FTC)
analyzed AMG‘s business checking account and found ―numerous payments that
appear to be for personal interests,‖ including expenses associated with Scott‘s
personal residence in Aspen, Colorado, and ―sponsorships‖ of his auto racing
team. In addition, Scott and Blaine were authorized to sign checks in the name of
SFS, and during a sample two-month period reviewed by an investigator from the
California Department of Justice, either Scott or Blaine signed every check issued
by MNE Services. A law firm with ties to the Tucker brothers paid the website
domain registration fees for all of the online deferred deposit lenders at issue here.
A federal court has recently ruled that Scott, AMG, and several Tucker-affiliated
companies violated several federal lending laws and imposed a $1.3 billion
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judgment in addition to injunctive relief. (See Federal Trade Com. v. AMG
Services, Inc. (D.Nev. Sept. 30, 2016, No. 2:12-cv-00536) 2016 WL 5791416.)
After discovery, MNE and SFS renewed their motion to quash. On May
10, 2012, the trial court held an evidentiary hearing, granted the motion to quash,
and dismissed the case on the basis of tribal immunity. The Commissioner
appealed.
The Court of Appeal identified the key question as whether the lending
businesses are ―sufficiently related to their respective tribes to be protected by
tribal sovereign immunity.‖ In answering that question, the court found
significant that ―MNE was created directly under the Miami Tribe‘s tribal law as a
subordinate unit of the tribe itself to provide for its economic development.‖
Moreover, tribal leaders appoint MNE‘s board of directors; profits from MNE‘s
commercial activities fund the tribe‘s governmental services; and in the court‘s
view, extension of immunity to MNE would further the federal policy in favor of
tribal autonomy. Likewise, ―the Santee Sioux and SFS are also closely linked by
virtue of SFS‘s method of creation, ownership, structure and control, and
extension of immunity to it substantially promotes tribal autonomy.‖ Thus, the
Court of Appeal concluded, ―[t]here can be little question that MNE and SFS,
considered initially by themselves and without regard to the payday lending
activities at issue in this enforcement action, function as arms of their respective
tribes‖ and are entitled to immunity.
Turning to the online deferred deposit lenders named as defendants in the
Commissioner‘s complaint, the Court of Appeal acknowledged that the analysis is
―slightly more complicated.‖ The court observed that ―day-to-day operations of
these fast-cash businesses . . . have been effectively delegated pursuant to
management agreements.‖ In addition, the tribal business entities ―do not
participate in the net income from the businesses, receiving instead only a modest
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percentage of the gross revenues, characterized by the Commissioner as similar to
a royalty.‖
Ultimately, however, the Court of Appeal found that the online lenders
were entitled to tribal immunity: ―A tribal entity engaged in a commercial
enterprise that is otherwise entitled to be protected by tribal immunity does not
lose that immunity simply by contracting with nontribal members to operate the
business.‖ As for the tribes‘ meager share of the lenders‘ revenues, the court
concluded that ―whether or not the Miami Tribe and the Santee Sioux negotiated
good or poor management agreements for themselves . . . cannot serve as the basis
to determine the tribal entities are not functioning as arms of their respective
tribes.‖
We granted review.
II.
The tribal entities‘ claim to immunity depends on the understanding that the
Miami Tribe of Oklahoma and Santee Sioux Nation are themselves immune from
suit. The high court first addressed the sovereign status of tribes in three opinions
known today as the Marshall Trilogy after their author, Chief Justice John
Marshall. (See Worcester v. Georgia (1832) 31 U.S. 515; Cherokee Nation v.
Georgia (1831) 30 U.S. 1 (Cherokee Nation); Johnson v. M’Intosh (1823) 21 U.S.
543.) Broadly speaking, these cases established that ―states lack jurisdiction in
Indian country, that tribes are ‗domestic dependent nations‘ to whom the United
States owes a fiduciary obligation, and that Indian affairs are the exclusive
province of the federal government.‖ (Wood, It Wasn’t an Accident: The Tribal
Sovereign Immunity Story (2013) 62 Am.U. L.Rev. 1587, 1629, fns. omitted.)
Subsequent cases implied that tribes enjoy sovereign immunity from suit,
but did so in dicta. (Turner v. United States (1919) 248 U.S. 354, 358 (Turner);
Parks v. Ross (1851) 52 U.S. 362, 374.) Then, in United States v. U.S. Fidelity &
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Guaranty Co. (1940) 309 U.S. 506 (U.S. Fidelity), the high court elevated the
concept of tribal immunity ―from dictum to holding.‖ (Agua Caliente Band of
Cahuilla Indians v. Superior Court (2007) 40 Cal. 4th 239, 247 (Agua Caliente).)
Citing Turner, Cherokee Nation, and decisions from the lower federal courts, the
high court held that ―Indian Nations are exempt from suit without Congressional
authorization.‖ (U.S. Fidelity, at p. 512; see id. at p. 512 & fns. 10–11.)
Since U.S. Fidelity, the high court has held that tribal immunity applies in a
variety of contexts. (Michigan v. Bay Mills Indian Community (2014) 572 U.S.
__, __–__ [134 S. Ct. 2024, 2038–2039] (Bay Mills) [immunity bars state‘s suit
against tribe for opening casino outside tribal territory]; Kiowa Tribe of Oklahoma
v. Manufacturing Technologies, Inc. (1998) 523 U.S. 751, 754–758 (Kiowa Tribe)
[tribes are immune from suit for breaches of contract involving off-reservation
commercial conduct]; Oklahoma Tax Commission v. Citizen Band Potawatomi
Indian Tribe (1991) 498 U.S. 505, 510 (Potawatomi) [tribal immunity bars state‘s
suit to enforce collection of sales tax on cigarettes]; Three Affiliated Tribes v.
Wold Engineering, P.C. (1986) 476 U.S. 877, 891 (Three Affiliated Tribes)
[federal law preempts requirement that tribe waive its sovereign immunity in all
civil cases in order to sue in state court]; Santa Clara Pueblo v. Martinez (1978)
436 U.S. 49, 51–52 (Santa Clara Pueblo) [Indian Civil Rights Act of 1968 did not
abrogate tribal immunity, nor did it create an implied private right of action
against tribal officials]; Puyallup Tribe v. Department of Game (1977) 433 U.S.
165, 171–172 (Puyallup) [state courts lack jurisdiction over tribe in suit to enforce
state‘s fishing regulations].)
The rule that Indian tribes are immune from suit is now firmly established
as a matter of federal law ―and is not subject to diminution by the States.‖ (Kiowa
Tribe, supra, 523 U.S. at p. 756.) Tribal immunity applies in both federal and
state court and extends to ―suits arising from a tribe‘s commercial activities, even
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when they take place off Indian lands.‖ (Bay Mills, supra, 572 U.S. at p. __ [134
S.Ct. at p. 2031].) Immunity can be abrogated by Congress, but congressional
intent to abrogate tribal immunity must be ― ‗ ―unequivocally expressed.‖ ‘ ‖
(Santa Clara Pueblo, supra, 436 U.S. at p. 58.) Immunity may also be waived,
but ―a tribe‘s waiver must be ‗clear.‘ ‖ (C&L Enterprises, Inc. v. Citizen Band
Potawatomi Indian Tribe of Oklahoma (2001) 532 U.S. 411, 418.) As discussed
in more detail below, ―tribal immunity applies not just broadly but deeply,
frequently protecting not just tribal governments, but tribal entities and
corporations that are considered subentities of the tribe.‖ (Florey, Indian
Country’s Borders: Territoriality, Immunity, and the Construction of Tribal
Sovereignty (2010) 51 B.C. L.Rev. 595, 627.)
Moreover, the high court has reiterated that tribal immunity ―is a necessary
corollary to Indian sovereignty and self-governance.‖ (Three Affiliated Tribes,
supra, 476 U.S. at p. 890, italics added.) As that statement implies, the doctrine
rests on two distinct rationales. First, tribes are immune from suit by virtue of
their sovereign status. In Bay Mills, for instance, the high court observed that
―[a]mong the core aspects of sovereignty that tribes possess . . . is the ‗common-
law immunity from suit traditionally enjoyed by sovereign powers.‘ ‖ (Bay Mills,
supra, 572 U.S. at p. __ [134 S.Ct. at p. 2027]; see id. at p. __ [id. at p. 2030]
[citing Federalist No. 81 for the proposition that it is ― ‗inherent in the nature of
sovereignty not to be amenable‘ to suit without consent‖].) Similarly, U.S.
Fidelity referred to the immunity of tribes as ―the immunity which was theirs as
sovereigns.‖ (U.S. Fidelity, supra, 309 U.S. at p. 512.)
Second, the high court has recognized policy rationales for tribal immunity
that serve an ultimate interest in promoting tribal self-governance. Permitting
suits against tribes and, in some contexts, their officials would ―impose serious
financial burdens on already ‗financially disadvantaged‘ tribes.‖ (Santa Clara
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Pueblo, supra, 436 U.S. at p. 64.) Conversely, immunity encourages tribal
economic development and self-sufficiency by protecting tribal enterprises.
(Potawatomi, supra, 498 U.S. at p. 510.) More broadly, exposing tribes to suit
without their consent could work ―a potentially severe impairment of the authority
of the tribal government, its courts, and its laws,‖ threatening the tribe‘s ―ability to
govern itself according to its own laws.‖ (Three Affiliated Tribes, supra, 476 U.S.
at p. 891; see Kiowa Tribe, supra, 523 U.S. at p. 758 [suggesting that immunity
should be congruent with ―what is needed to safeguard tribal self-governance‖].)
These rationales recognize that tribal immunity furthers the federal policy of tribal
self-governance, an ideal that encompasses governmental, economic, and cultural
autonomy. (See Cohen, Handbook of Federal Indian Law (2005 ed.) § 1.07,
pp. 97–113 [describing shift in federal Indian policy from termination to self-
governance].)
Finally, although the high court has rejected calls to abolish or curtail tribal
immunity, the doctrine remains controversial as applied to certain tribal activities.
In Kiowa Tribe, the high court acknowledged there are ―reasons to doubt the
wisdom‖ of extending tribal immunity to off-reservation commercial activity
because doing so may go ―beyond what is needed to safeguard tribal self-
governance.‖ (Kiowa Tribe, supra, 523 U.S. at p. 758.) But the high court
ultimately ―decline[d] to revisit [its] case law and ch[ose] to defer to Congress.‖
(Id. at p. 760.) The three dissenting justices would have held that tribal immunity
does not extend to off-reservation commercial activity. (See id. at p. 760 (dis.
opn. of Stevens, J.).) In Bay Mills, four dissenting justices observed that ―[i]n the
16 years since Kiowa, tribal commerce has proliferated and the inequities
engendered by unwarranted tribal immunity have multiplied.‖ (Bay Mills, supra,
572 U.S. at p. __ [134 S.Ct. at p. 2045] (dis. opn. of Thomas, J.); see ibid. (dis.
opn. of Scalia, J.) [stating that although he concurred in Kiowa Tribe, ―I am now
10
convinced that Kiowa was wrongly decided‖].) And the high court in Bay Mills
hinted that it might be willing to consider in a future case ―whether immunity
should apply in the ordinary way if a tort victim, or other plaintiff who has not
chosen to deal with a tribe, has no alternative way to obtain relief for off-
reservation commercial conduct.‖ (Id. at p. __, fn.8 [134 S.Ct. at p. 2036, fn. 8].)
III.
The main legal question in this case is how to determine whether a tribally
affiliated entity shares in a tribe‘s immunity from suit. We conclude that an entity
asserting immunity bears the burden of showing by a preponderance of the
evidence that it is an ―arm of the tribe‖ entitled to tribal immunity. In making that
determination, courts should apply a five-factor test that considers (1) the entity‘s
method of creation, (2) whether the tribe intended the entity to share in its
immunity, (3) the entity‘s purpose, (4) the tribe‘s control over the entity, and
(5) the financial relationship between the tribe and the entity. As explained below,
this test takes into account both formal and functional considerations — in other
words, not only the legal or organizational relationship between the tribe and the
entity, but also the practical operation of the entity in relation to the tribe. Once
the entity demonstrates that it is an arm of the tribe, it is immune from suit unless
the opposing party can show that tribal immunity has been abrogated or waived.
A.
The high court has recognized that tribal sovereign immunity extends to
entities beyond the tribe itself. (Inyo County v. Paiute-Shoshone Indians of the
Bishop Community of the Bishop Colony (2003) 538 U.S. 701, 705, fn. 1 [―The
United States maintains, and the County does not dispute, that the Corporation is
an ‗arm‘ of the Tribe for sovereign immunity purposes.‖].) But it has not
articulated a framework for determining when a particular entity should be
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considered an ― ‗arm‘ of the Tribe.‖ (Ibid.) In the absence of guidance from the
high court, state and federal courts have articulated a variety of arm-of-the-tribe
tests.
Some jurisdictions have focused on a tribe‘s financial relationship to the
disputed entity. Such an approach aims to protect the tribal treasury as a means of
ensuring that the tribe retains its sovereign prerogative to govern itself through
expenditure of funds and to allocate public resources through its own political
processes. New York‘s high court, for instance, considers ―financial relationship
considerations‖ as ―the most important‖ of several factors. (Sue/Perior Concrete
& Paving, Inc. v. Lewiston Golf Course Corp. (N.Y. 2014) 25 N.E.3d 928, 935
(Sue/Perior).) The financial relationship factor includes ―whether the corporate
entity generates its own revenue, whether a suit against the corporation will impact
the tribe‘s fiscal resources, and whether the subentity has the ‗power to bind or
obligate the funds of the [tribe]‘ [citation]. The vulnerability of the tribe‘s coffers
in defending a suit against the subentity indicates that the real party in interest is
the tribe.‖ (Ransom v. St. Regis Mohawk Education and Community Fund, Inc.
(N.Y. 1995) 658 N.E.2d 989, 992–993.) Under New York‘s test, ―[i]f a judgment
against a corporation created by an Indian tribe will not reach the tribe‘s assets,
because the corporation lacks ‗the power to bind or obligate the funds of the tribe‘
[citation], then the corporation is not an ‗arm‘ of the tribe.‖ (Sue/Perior, at p. 935;
see Dixon v. Picopa Construction Co. (Ariz. 1989) 772 P.2d 1104, 1109–1110
[tribally affiliated business was not entitled to immunity in part because its
insurance coverage and limited liability clause shielded tribe from direct
liability].)
Alaska‘s test likewise considers the financial relationship between the tribe
and the entity to be ―of paramount importance.‖ (Runyon ex rel. B.R. v.
Association of Village Council Presidents (Alaska 2004) 84 P.3d 437, 440
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(Runyon).) Indeed, it appears to make tribal liability for the entity‘s acts a
threshold requirement for immunity. Under Runyon, ―if a judgment against [the
entity] will not reach the tribe‘s assets or if [the entity] lacks the ‗power to bind or
obligate the funds of the [tribe],‘ it is unlikely that the tribe is the real party in
interest,‖ and the entity therefore cannot share in the tribe‘s immunity. (Ibid.)
Only if the tribe is ―legally responsible for the entity‘s obligations‖ do additional
factors such as control and purpose come into play. (Id. at p. 441.)
Other states have adopted tests that omit or deemphasize the financial
relationship and instead focus on the legal or organizational relationship between
the tribe and the entity. Compared to the New York and Alaska approaches, these
tests tend to favor immunity. Colorado and Washington apply tests that do not
require a showing that the tribe would be liable for a judgment against the entity.
(Cash Advance and Preferred Cash Loans v. State (Colo. 2010) 242 P.3d 1099,
1110 (Cash Advance) [immunity turns on ―(1) whether the tribes created the
entities pursuant to tribal law; (2) whether the tribes own and operate the entities;
and (3) whether the entities‘ immunity protects the tribes‘ sovereignty‖]; Wright v.
Colville Tribal Enterprise Corp. (Wash. 2006) 147 P.3d 1275, 1279 (Wright)
[suggesting, without extensive discussion, that the only relevant factors are
whether the tribal entity is ―owned and controlled by a tribe, and created under its
own tribal laws‖].)
Minnesota‘s approach focuses on three ―principal factors . . . in determining
whether tribal sovereign immunity extends to a tribal business entity . . . [¶]
1) whether the business entity is organized for a purpose that is governmental in
nature, rather than commercial; [¶] 2) whether the tribe and the business entity are
closely linked in governing structure and other characteristics; and [¶] 3) whether
federal policies intended to promote Indian tribal autonomy are furthered by the
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extension of immunity to the business entity.‖ (Gavle v. Little Six, Inc. (Minn.
1996) 555 N.W.2d 284, 294 (Gavle).)
Among the federal decisions that have addressed this issue, the Tenth
Circuit‘s opinion in Breakthrough Management Group, Inc. v. Chukchansi Gold
Casino and Resort (10th Cir. 2010) 629 F.3d 1173 (Breakthrough) appears most
influential. Breakthrough adopted a six-factor test that includes ―(1) the method
of the [entities‘] creation; (2) their purpose; (3) their structure, ownership, and
management, including the amount of control the Tribe has over the entities;
(4) whether the Tribe intended for them to have tribal sovereign immunity; (5) the
financial relationship between the Tribe and the [entities]; and (6) whether the
purposes of tribal sovereign immunity are served by granting them immunity.‖
(Id. at p. 1191.) Although Breakthrough ―recognize[d] that the financial
relationship between a tribe and its economic entities is a relevant measure of the
closeness of their relationship,‖ it rejected the notion that financial relationship or
any other single factor is ―a dispositive inquiry.‖ (Id. at p. 1187.)
The Ninth Circuit recently adopted the Breakthrough approach (White v.
University of California (9th Cir. 2014) 765 F.3d 1010, 1025 (White)), and
Breakthrough is consistent with previous federal decisions that addressed the issue
without articulating an express multifactor test (see, e.g., Cook v. Avi Casino
Enterprises (9th Cir. 2008) 548 F.3d 718, 726 [tribal entity entitled to immunity
where ―the Tribe created [it] pursuant to a tribal ordinance and intergovernmental
agreement,‖ ―the tribal corporation is wholly owned and managed by the Tribe,‖
―the economic benefits produced by the casino inure to the Tribe‘s benefit,‖ and a
majority of the entity‘s board must be members of the tribe]).
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B.
Like the high court, we have recognized that tribal immunity ― ‗extends to
entities that are arms of the tribes,‘ ‖ but we have not elaborated on the appropriate
test for determining when an entity merits this designation. (Agua Caliente, supra,
40 Cal.4th at p. 247, quoting Cohen, Handbook of Federal Indian Law, supra,
§ 7.05[1][a], p. 636.) In grappling with this issue, the Courts of Appeal have
followed the lead of other jurisdictions.
In Trudgeon v. Fantasy Springs Casino (1999) 71 Cal. App. 4th 632
(Trudgeon), a man injured in a fight at a tribal bingo hall sued the tribal
corporation that operated the venue. The Court of Appeal largely adopted Gavle‘s
analysis, calling it ―an accurate summation of the relevant case law.‖ (Trudgeon,
at p. 639.) Applying Gavle‘s three factors, the Court of Appeal concluded that the
tribal corporation was immune because its underlying purpose of promoting tribal
development ―is governmental in nature notwithstanding its for-profit status,‖ the
tribe ―directly oversees the operations‖ of the corporation, and both Congress and
the high court have recognized that Indian gaming furthers tribal self-
determination. (Trudgeon, at pp. 639–643.)
Redding Rancheria v. Superior Court (2001) 88 Cal. App. 4th 384 (Redding
Rancheria) also involved a tort victim who was injured on the premises of a tribal
gaming facility. The court cited Trudgeon‘s approach with approval and
concluded that tribal immunity barred the plaintiff‘s suit because he ―presented no
evidence in the trial court to challenge the Tribe‘s evidence the casino was an arm
of the Tribe.‖ (Redding Rancheria, at p. 389, italics omitted.)
In American Property Management Corp. v. Superior Court (2012) 206
Cal. App. 4th 491 (American Property Management), a California limited liability
company called U.S. Grant, which was indirectly affiliated with the Sycuan Band
of the Kumeyaay Nation, purchased a hotel. (Id. at p. 495–496.) The tribe created
15
the Sycuan Tribal Development Corporation under tribal law and then established
―several layers of California limited liability companies to stand between it and
[U.S. Grant,] the entity that took ownership of the hotel.‖ (Id. at p. 495.) The
issue was whether U.S. Grant was entitled to tribal immunity in a contract dispute.
The Court of Appeal ―agree[d] that the list of factors set forth by the Tenth Circuit
[in Breakthrough] is helpful and, although the factors overlap somewhat when
applied, they accurately reflect the general focus of the applicable federal and state
case law.‖ (American Property Management, at p. 501.) The court analyzed each
of these factors and, in support of its finding of no immunity, explained that ―the
dispositive fact throughout our analysis is that U.S. Grant, LLC is a California
limited liability company‖ rather than an entity organized under tribal law. (Ibid.)
Justice Aaron agreed that U.S. Grant was not immune as an arm of the tribe but
disagreed with the court‘s ―dispositive‖ emphasis on the company‘s formation
under state law. (Id. at p. 513 (conc. opn. of Aaron, J.).) She would have weighed
the various Breakthrough factors differently in arriving at the same conclusion.
(Id. at pp. 513–514.)
The Court of Appeal in this case initially remanded the matter to the trial
court to analyze MNE‘s and SFS‘s claim of immunity under the factors identified
in Trudgeon and Redding Rancheria. (See Ameriloan v. Superior Court (2008)
169 Cal. App. 4th 81, 98.) In the opinion below, the Court of Appeal applied
―elements of the various tests appearing in the case law,‖ including the entity‘s
ownership, governance, and financial relationship to the tribe, but concluded that
―the tribe‘s method and purpose for creating a subordinate economic entity are the
most significant factors in determining whether it is protected by a tribe‘s
sovereign immunity and should be given predominant, if not necessarily
dispositive, consideration.‖
16
C.
Noting a lack of consensus across jurisdictions regarding the arm-of-the-
tribe test, the Commissioner urges us to seek guidance from the arm-of-the-state
doctrine. She argues that because tribal and state sovereign immunity are
―fundamentally similar,‖ we should ―look to the analogous and better-developed
doctrine governing arm-of-the-state immunity.‖ Although we decline the
Commissioner‘s invitation to look to the arm-of-the-state doctrine for guidance on
the factors of the arm-of-the-tribe test, we agree with her view that a tribally
affiliated entity, just like a state-affiliated entity, bears the burden of proving it is
entitled to immunity.
As the Commissioner acknowledges, tribal sovereignty ―differs from state
sovereignty in important respects.‖ Unlike the states, which have consented to suit
by other states (Alden v. Maine (1999) 527 U.S. 706, 755), tribes have never
agreed to so limit their sovereign immunity. The high court has ―repeatedly held
that Indian tribes enjoy immunity against suits by States, [citation], as it would be
absurd to suggest that the tribes surrendered immunity in a [constitutional]
convention to which they were not even parties.‖ (Blatchford v. Native Village of
Noatak (1991) 501 U.S. 775, 782; see Idaho v. Coeur d’Alene Tribe of Idaho
(1997) 521 U.S. 261, 268–269 [―[T]he plan of the Convention did not surrender
Indian tribes‘ immunity for the benefit of the States.‖].)
At the same time, tribes are ― ‗ ―domestic dependent nations‖ ‘ . . . subject
to plenary control by Congress,‖ which means Congress enjoys free rein to
abrogate tribal immunity so long as its intent is clearly expressed. (Bay Mills,
supra, 572 U.S. at p. __ [134 S.Ct. at p. 2030].) Indeed, the high court has
emphasized deference to Congress‘s broad authority as a reason why courts should
be wary of restricting tribal immunity. (See id. at p. __ [134 S.Ct. at pp. 2038–
2039]; Kiowa Tribe, supra, 523 U.S. at pp. 758–759.) By contrast, Congress may
17
abrogate state sovereign immunity only when its intent is clearly stated and it acts
―pursuant to a constitutional provision granting Congress the power to abrogate.‖
(Seminole Tribe of Florida v. Florida (1996) 517 U.S. 44, 59.) Even when
Congress seeks to authorize suit against the states pursuant to its power to enforce
the Fourteenth Amendment, there ―must be a congruence and proportionality
between the injury to be prevented or remedied and the means adopted to that
end.‖ (City of Boerne v. Flores (1997) 521 U.S. 507, 520.)
Beyond these conceptual differences, it is not clear which version of the
arm-of-the-state test we would adopt even if we were inclined to look to that
doctrine for guidance. ―The jurisprudence over how to apply the arm-of-the-state
doctrine is, at best, confused.‖ (Mancuso v. New York State Thruway Authority
(2d Cir. 1996) 86 F.3d 289, 293.) It has produced ―four Supreme Court sample
case analyses, none of which purport to offer a systematic arm-of-the-state test or
a formalized list of factors; two competing Eleventh Amendment rationales
intended to guide the factor analysis; twelve very different circuit court tests, each
with their own twists, measuring a litany of factors that vary by circuit; and scores
of lower court precedents . . . with outcomes varying not only circuit by circuit but
state by state within a given circuit.‖ (Comment, Keeping the Arms in Touch:
Taking Political Accountability Seriously in the Eleventh Amendment Arm-of-the-
State Doctrine (2015) 64 Emory L.J. 819, 829–830.)
Furthermore, although courts have taken different approaches to fashioning
an arm-of-the-tribe test, we believe the doctrine is sufficiently well developed to
guide our analysis. Numerous courts, including our own Courts of Appeal, have
addressed this issue in the context of typical business activities in which tribally
affiliated entities engage. (See, e.g., Redding Rancheria, supra, 88 Cal. App. 4th
384 [tribal casino]; Cash Advance, supra, 242 P.3d at p. 1103 [same deferred
deposit lending operations at issue in this case].) These opinions, combined with
18
the high court‘s tribal immunity precedent, provide a sufficient basis for
formulating our own version of the test.
Nonetheless, we agree with the Commissioner that the burden of proof on
the issue of immunity properly falls on the entity claiming immunity. Typically,
on a ―motion asserting sovereign immunity as a basis for dismissing an action
. . . the plaintiff bears the burden of proving by a preponderance of evidence that
jurisdiction exists.‖ (Campo Band of Mission Indians v. Superior Court (2006)
137 Cal. App. 4th 175, 183 (Campo Band).) When a tribe asserts sovereign
immunity, the plaintiff must show that the tribe‘s immunity has been abrogated or
waived; if not, the court lacks jurisdiction. (Ibid.) The Commissioner argues this
rule should not apply to a tribally affiliated entity until it proves it is an arm of the
tribe. Only then, she contends, should the burden shift to the plaintiff to prove the
existence of jurisdiction.
In support of this argument, the Commissioner relies on ITSI T.V.
Productions, Inc. v. Agricultural Assns. (9th Cir. 1993) 3 F.3d 1289 (ITSI), which
held that ―Eleventh Amendment immunity, whatever its jurisdictional attributes,
should be treated as an affirmative defense‖ and thus ―must be proved by the party
that asserts it and would benefit from its acceptance.‖ (Id. at p. 1291.)
Accordingly, when a state-affiliated entity seeks immunity on the basis of state
sovereign immunity, it must first show it is an arm of the state. (Id. at p. 1292; see
Woods v. Rondout Valley Central School District Bd. of Education (2d Cir. 2006)
466 F.3d 232, 237 (Woods) [following ITSI and decisions from other federal
circuit courts ―in holding that the governmental entity invoking the Eleventh
Amendment bears the burden of demonstrating that it qualifies as an arm of the
state entitled to share in its immunity‖].) According to the Commissioner, the
same rule should apply to an entity claiming to be an arm of a tribe.
19
Few arm-of-the-tribe cases have closely considered which party bears the
burden of proof. American Property Management placed the burden on the
plaintiff to show that the entity was not an arm of the tribe, as did the opinion
below. Yet these opinions simply assumed, without analysis, that tribally
affiliated entities should be treated the same as tribes themselves. (See American
Property Management, supra, 206 Cal.App.4th at p. 498.) Arm-of-the-tribe cases,
however, require the court to decide an antecedent question: ―whether [the
entities] can claim sovereign immunity in the first instance.‖ (City of New York v.
Golden Feather Smoke Shop, Inc. (E.D.N.Y. Mar. 16, 2009, No. 08–CV–3966
(CBA)) 2009 WL 705815, p. *3 (Golden Feather).)
Among the cases that have analyzed this issue in greater depth, the results
are mixed. In Cash Advance, the Colorado Supreme Court acknowledged that the
jurisdictional nature of tribal immunity is not entirely clear but concluded ―that
tribal sovereign immunity bears a substantial enough likeness to subject matter
jurisdiction to be treated as such for procedural purposes.‖ (Cash Advance, supra,
242 P.3d at p. 1113.) Hence, under Colorado‘s rule, the plaintiff has the ―burden
of proving that the tribal entities are not entitled to immunity by a preponderance
of the evidence.‖ (Ibid.) By contrast, the court in Gristede’s Foods, Inc. v.
Unkechuage Nation (E.D.N.Y. 2009) 660 F. Supp. 2d 442 held that the entity
seeking immunity ―must establish, by a preponderance of evidence, that it is an
arm of the [tribe], and thus entitled to immunity.‖ (Id. at p. 465; see Golden
Feather, supra, 2009 WL 705815, at pp. *3–4 [citing ITSI and Woods in support
of same conclusion]; Cash Advance, supra, 242 P.3d at p. 1120 (dis. opn. of
Coats, J.).)
Having considered ITSI, Woods, and similar cases from other federal
courts, we find their rationales for placing the initial burden of proof on state-
affiliated entities persuasive with regard to tribally affiliated entities. As with state
20
sovereign immunity, the jurisdictional nature of tribal immunity has never been
definitively settled. The high court‘s cases indicate that tribal immunity is
jurisdictional in a general sense, but they have not elaborated further. (See
Puyallup, supra, 433 U.S. at p. 172 [absent abrogation or waiver, ―a state court
may not exercise jurisdiction over a recognized Indian tribe‖]; Bay Mills, supra,
572 U.S. at p. __, fn. 2 [134 S.Ct. at p. 2029, fn. 2] [although tribe was immune
from suit, court had subject matter jurisdiction pursuant to the Indian Gaming
Regulatory Act].) California Court of Appeal cases often describe tribal immunity
as a challenge to subject matter jurisdiction, but this court‘s most recent tribal
immunity case discussed it in terms of personal jurisdiction. (Compare, e.g.,
Campo Band, supra, 137 Cal.App.4th at p. 182, with Agua Caliente, supra, 40
Cal.4th at p. 244; see Great Western Casinos, Inc. v. Morongo Band of Mission
Indians (1999) 74 Cal. App. 4th 1407, 1416 [noting ―inconsistency in the law
regarding whether claims of sovereign immunity affect a court‘s personal as
opposed to subject matter jurisdiction‖].) The federal circuit courts are split on
this question. (Compare Miner Electric, Inc. v. Muscogee (Creek) Nation (10th
Cir. 2007) 505 F.3d 1007, 1009 [―Tribal sovereign immunity is a matter of subject
matter jurisdiction‖] with In re Prairie Island Dakota Sioux (8th Cir. 1994) 21
F.3d 302, 305 [tribal ―sovereign immunity is a jurisdictional consideration
separate from subject matter jurisdiction‖].)
Regardless of how we characterize tribal immunity, it is undisputed that
tribal immunity, like state sovereign immunity, can be affirmatively waived. In
addition, trial courts do not have a sua sponte duty to raise the issue of tribal
immunity. These features indicate that tribal immunity, like Eleventh Amendment
immunity, is not ―a true jurisdictional bar‖ that automatically divests a court of the
ability to hear or decide the case. (ITSI, supra, 3 F.3d at p. 1291; see Wisconsin
Dept. of Corrections v. Schacht (1998) 524 U.S. 381, 389.) Thus, ―whatever its
21
jurisdictional attributes,‖ tribal immunity ―does not implicate a . . . court‘s subject
matter jurisdiction in any ordinary sense.‖ (ITSI, at p. 1291.)
In the arm-of-the-tribe context, as for arms of the state, placing the burden
on the entity asserting immunity ―comports with the traditional principle that a
party in possession of facts tending to support its claim should be required to come
forward with that information.‖ (Woods, supra, 466 F.3d at p. 238; see U.S. v.
New York, New Haven & Hartford Railroad Co. (1957) 355 U.S. 253, 256, fn. 5.)
The arm-of-the-tribe inquiry ―will occasion serious dispute only where a relatively
complex institutional arrangement makes it unclear whether a given entity ought
to be treated as an arm of the [tribe]. In such cases, the ‗true facts‘ as to the
particulars of this arrangement will presumably ‗lie peculiarly within the
knowledge of‘ the party claiming immunity.‖ (ITSI, supra, 3 F.3d at p. 1292.)
Placing the burden of proof on the entity also aligns with our basic notions
of why arms of the tribe are immune from suit. An entity that is formally distinct
from the tribe will be immune from suit only insofar as it benefits from the tribe‘s
own immunity. Once the entity has established that it is an arm of the tribe, we
treat the lawsuit as if it were an action against the tribe itself. As noted, tribal
immunity is a strong tonic; such immunity shields a tribe from liability unless
―Congress has so authorized or . . . the Tribe has waived its immunity by
consenting to suit,‖ and the burden of proving abrogation or waiver falls on the
plaintiff. (Lawrence v. Barona Valley Ranch Resort and Casino (2007) 153
Cal. App. 4th 1364, 1368.) But until the entity has proven it should be treated as an
extension of the tribe, it is no more entitled to a presumption of immunity than any
other party. Accordingly, we conclude that a tribally affiliated entity claiming
immunity bears the burden of proving by a preponderance of the evidence that it is
an arm of the tribe.
22
D.
We now turn to the substance of the arm-of-the-tribe test. Having reviewed
prior California decisions as well as the various approaches in other jurisdictions,
we adopt a modified version of the Tenth Circuit‘s Breakthrough test. That test‘s
factors — method of creation, tribal intent, purpose, control, and financial
relationship — properly account for the understanding that tribal immunity is both
―an inherent part of the concept of sovereignty‖ and ― ‗necessary to promote the
federal policies of tribal self[-]determination, economic development, and cultural
autonomy.‘ ‖ (Breakthrough, supra, 629 F.3d. at p. 1182.)
Since immunity is inherent in the nature of tribal sovereignty (Bay Mills,
supra, 572 U.S. at p. __ [134 S.Ct. at p. 2030]), it is appropriate that the arm-of-
the-tribe test considers the legal relationship and organizational proximity between
the tribe and the entity. The entity‘s method of formation and declared purpose,
whether the tribe intended the entity to share in its immunity, and the financial
linkage and formal control that the tribe possesses in relation to the entity are
factors that illuminate whether the dignity that immunity doctrine accords to the
tribe by virtue of its sovereign status should extend to the entity by virtue of its
status as a tribal affiliate. The more closely linked the entity is to the tribe in these
formal dimensions, the more likely it is to share in the tribe‘s inherent immunity.
At the same time, tribal immunity is intended to promote the federal policy
of tribal self-governance, which includes economic self-sufficiency, cultural
autonomy, and the tribe‘s ―ability to govern itself according to its own laws.‖
(Three Affiliated Tribes, supra, 476 U.S. at p. 891; see Potawatomi, supra, 498
U.S. at p. 510.) The same five factors — method of creation, tribal intent,
purpose, control, and financial relationship — incorporate the understanding that
tribal immunity should extend to arms of the tribe when such immunity would, as
a practical matter, further that federal policy. Most notably, the purpose factor
23
considers the extent to which the entity actually promotes tribal self-governance;
the control factor examines the degree to which the tribe actually, not just
nominally, directs the entity‘s activities; and the financial relationship factor
considers the degree to which the entity‘s liability could impact the tribe‘s
revenue. These functional considerations illuminate the degree to which
imposition of liability on the entity would practically impair tribal self-
governance.
In addition to the five factors just discussed, Breakthrough articulated a
sixth: ―whether the purposes of tribal sovereign immunity are served by granting
[the entity] immunity.‖ (Breakthrough, supra, 629 F.3d at p. 1181.) That factor,
which ―overlaps significantly with [the] other factors‖ (American Property
Management, supra, 206 Cal.App.4th at p. 507), serves to focus the analysis of the
individual factors on the purposes of tribal sovereign immunity; it need not be
considered separately here. Accordingly, in assessing whether an entity is an arm
of the tribe, courts should analyze the following factors:
Method of creation. In considering ―the method of creation of the
economic entit[y]‖ (Breakthrough, supra, 629 F.3d. at p. 1187), courts have
focused on the law under which the entity was formed. Formation under tribal law
weighs in favor of immunity (id. at p. 1191), whereas formation under state law
has been held to weigh against immunity (American Property Management, supra,
206 Cal.App.4th at p. 503) or to constitute a waiver of immunity (Wright, supra,
147 P.3d at p. 1280; Runyon, supra, 84 P.3d at p. 441). The circumstances under
which the entity‘s formation occurred, including whether the tribe initiated or
simply absorbed an operational commercial enterprise, are also relevant.
Tribal intent. In some cases, the tribal ordinance or articles of
incorporation creating the entity will express whether the tribe intended the entity
to share in its immunity. (See Breakthrough, supra, 629 F.3d at p. 1193.)
24
Because the entity bears the burden of proof and is typically positioned to specify
the terms of its creation or incorporation in collaboration with the tribe, this factor
will generally weigh against immunity if the record is silent as to the tribe‘s intent.
In certain cases, it may be possible to infer the tribe‘s intent, even where it is not
express, from the tribe‘s actions or other sources.
Purpose. This factor encompasses both the stated purpose for which the
entity was created and the degree to which the entity actually serves that purpose.
In adopting this factor, we disagree with the Colorado Supreme Court‘s view that
high court precedent ―render[s] the entity‘s purpose and its activities irrelevant to
the determination whether it qualifies for immunity.‖ (Cash Advance, supra, 242
P.3d at p. 1111.) Although the high court has rejected the argument that a tribe’s
immunity turns on whether the activities in question are governmental or
commercial, it has not addressed whether purpose is relevant in analyzing
immunity for tribally affiliated entities. Judicial inquiry into the entity‘s purpose
may elucidate whether its relationship to the tribe is sufficiently close, and its
activities sufficiently germane to tribal self-governance, that it shares in the tribe‘s
immunity.
The inquiry into this factor begins with the entity‘s stated purpose. In order
to weigh in favor of immunity, the stated purpose need not be purely governmental
so long as it relates to broader goals of tribal self-governance. If the entity was
created to develop the tribe‘s economy, fund its governmental services, or promote
cultural autonomy, its purpose pertains to tribal self-governance notwithstanding
the entity‘s commercial activities. (See Breakthrough, supra, 629 F.3d at p. 1192
[tribal gaming authority and casino ―were created for the financial benefit of the
Tribe and to enable it to engage in various governmental functions‖]; Gavle,
supra, 555 N.W.2d at p. 295 [discussing ―the unique role that Indian gaming
serves in the economic life of here-to-fore impoverished Indian communities
25
across this country‖]; American Property Management, supra, 206 Cal.App.4th at
pp. 509–510 (conc. opn. of Aaron, J.) [discussing symbolic importance for tribe of
entity‘s purchase of historic hotel].) By contrast, this factor will weigh against
immunity if the entity was created ― ‗solely for business purposes and without any
declared objective of promoting the [tribe‘s] general tribal or economic
development.‘ ‖ (Trudgeon, supra, 71 Cal.App.4th at p. 640.)
If the entity‘s stated purpose is sufficiently related to tribal self-governance,
the inquiry then examines the extent to which the entity actually serves that
purpose. The fit between stated purpose and practical execution need not be exact,
but the closer the fit, the more it will weigh in favor of immunity. An entity
whose declared purpose is to further the tribe‘s economic development may
bolster its case for immunity by proving, for example, the number of jobs it creates
for tribal members or the amount of revenue it generates for the tribe. By contrast,
evidence that the entity engages in activities unrelated to its stated goals or that the
entity actually operates to enrich primarily persons outside of the tribe or only a
handful of tribal leaders weighs against finding that the entity is an arm of the
tribe. Courts should consider such evidence in order to meaningfully evaluate an
entity‘s stated purpose.
Control. This factor concerns the entity‘s ―structure, ownership, and
management, including the amount of control the Tribe has over the entities.‖
(Breakthrough, supra, 629 F.3d at p. 1191.) Relevant considerations include the
entity‘s formal governance structure, the extent to which it is owned by the tribe,
and the entity‘s day-to-day management. An entity‘s decision to outsource
management to a nontribal third party is not enough, standing alone, to tilt this
factor against immunity. As the Minnesota Supreme Court has observed, ―control
of a corporation need not mean control of business minutiae; the tribe can be
enmeshed in the direction and control of the business without being involved in
26
the actual management.‖ (Gavle, supra, 555 N.W.2d at p. 295; see Trudgeon,
supra, 71 Cal.App.4th at p. 641.) If the tribe retains some ownership and formal
control over the entity but has contracted out its management, this factor may
weigh either for or against immunity depending on the particular facts of the case.
Evidence that the tribe actively directs or oversees the operation of the entity
weighs in favor of immunity; evidence that the tribe is a passive owner, neglects
its governance roles, or otherwise exercises little or no control or oversight weighs
against immunity. (See American Property Management, supra, 206 Cal.App.4th
at p. 505 [indicating that ―indirect ownership and control of the tribal corporation‖
weighs against a finding of immunity].)
Financial relationship. The starting point for analyzing the financial
relationship between the entity and the tribe is whether a judgment against the
entity would reach the tribe‘s assets. (See American Property Management,
supra, 206 Cal.App.4th at p. 506.) But direct tribal liability for the entity‘s actions
is neither a threshold requirement for immunity nor a predominant factor in the
overall analysis, and we disagree with those courts that have held as much. (See
Sue/Perior, supra, 25 N.E.3d at p. 935; Runyon, supra, 84 P.3d at pp. 440–441.)
As the Commissioner acknowledges, ―raising revenues through taxation is harder
for tribes than for states.‖ ―[F]ew tribes have any significant tax base. Tribal
business enterprises may be the only means by which a tribe can raise revenues —
and thus such enterprises may be essential to the fulfillment of the tribe‘s
governmental obligations.‖ (Struve, Tribal Immunity and Tribal Courts (2004) 36
Ariz.St. L.J. 137, 169; see Bay Mills, supra, 572 U.S. at p. __ [134 S.Ct. at
p. 2043] (conc. opn. of Sotomayor, J.) [due to a lack of other revenue sources,
―tribal business operations are critical to the goals of tribal self-sufficiency‖].)
Some tribes rely on such business revenues to an extent that a judgment against
27
the entity could effectively strike a blow against the tribal treasury, regardless of
whether the tribe is directly liable.
Thus, courts consider the extent to which the tribe ―depends . . . on the
[entity] for revenue to fund its governmental functions, its support of tribal
members, and its search for other economic development opportunities.‖
(Breakthrough, supra, 629 F.3d at p. 1195.) If a significant percentage of the
entity‘s revenue flows to the tribe, or if a judgment against the entity would
significantly affect the tribal treasury, this factor will weigh in favor of immunity
even if the entity‘s liability is formally limited. (See ibid.; Wright, supra, 147
P.3d at p. 1284 (conc. opn. of Madsen, J.) [although tribe was not directly liable
for entities‘ obligations, ―[a]ny liability imposed on the corporations could still
affect the tribe‘s finances‖].) Determining whether this factor weighs in favor of
immunity requires a consideration of degree rather than a binary decision. But
because any imposition of liability on a tribally affiliated entity could theoretically
impact tribal finances, the entity must do more than simply assert that it generates
some revenue for the tribe in order to tilt this factor in favor of immunity.
In setting forth the five factors of the arm-of-the-tribe test, we emphasize
that no single factor is universally dispositive. (See, e.g., Breakthrough, supra,
629 F.3d at p. 1187 [financial relationship ―is not a dispositive inquiry‖];
American Property Management, supra, 206 Cal.App.4th at p. 509 (conc. opn. of
Aaron, J.) [method of creation is not dispositive].) Each case will call for fact-
specific inquiry into all the factors followed by an overall assessment of whether
the entity has carried its burden by a preponderance of the evidence.
Although the Court of Appeal in this case examined the factors discussed
above, it ―believe[d] the tribe‘s method and purpose for creating a subordinate
economic entity are the most significant factors in determining whether it is
protected by a tribe‘s sovereign immunity and should be given predominant, if not
28
necessarily dispositive, consideration.‖ The court observed that although the
tribes had delegated day-to-day operations of the online lending businesses to a
nontribal third party, ―under the management agreements MNE and SFS have final
decisionmaking authority to approve or disapprove any loans; advance instructions
or approval parameters are established by them to allow the third-party managers
to function on a quick-turnaround basis. Indeed, the agreements expressly provide
that the tribal entities have ‗the sole proprietary interest in and responsibility for
the conduct of the business‘ and that [the third party‘s] day-to-day management of
the operations is ‗subject to the oversight and control of‘ MNE and SFS,
respectively.‖
In light of these considerations, the court held, it did not matter ―whether or
not the Miami Tribe and the Santee Sioux negotiated good or poor management
agreements for themselves‖ or ―whether they could have insisted on a higher
percentage than they actually received.‖ The court concluded: ―Absent an
extraordinary set of circumstances not present here, a tribal entity functions as an
arm of the tribe if it has been formed by tribal resolution and according to tribal
law, for the stated purpose of tribal economic development and with the clearly
expressed intent by the sovereign tribe to convey its immunity to that entity, and
has a governing structure both appointed by and ultimately overseen by the tribe.
Such a tribal entity is immune from suit absent express waiver or congressional
authorization. Neither third-party management of day-to-day operations nor
retention of only a minimal percentage of the profits from the enterprise (however
that may be defined) justifies judicial negation of that inherent element of tribal
sovereignty.‖
The Court of Appeal thus assigned dispositive weight to formal
considerations: the formation of the entities under tribal law, the tribes‘ intent to
confer immunity, and the governance structure as set forth in the language of the
29
management agreements. In so doing, the Court of Appeal tilted its analysis
toward one of ―the two poles of the arm-of-the-tribe debate as it relates to tribally-
affiliated lenders. Tribes will likely maintain that whether an entity functions as
an arm of the tribe is a foundational inquiry, and not to be inferred from the
functional arrangements, whatever they are. If tribal sovereignty is inherent and
not subject to diminution by the states, so the argument goes, a state court lacks
the power to hold that a tribal entity formed according to tribal law, by tribal
resolution, for the stated purposes of tribal development, with clear intent on the
part of the sovereign tribe to convey its sovereign immunity to the entity, is not an
arm of the tribe, simply because the deal the tribe negotiated does not retain
enough of the profits to satisfy the court. On the other hand, it is common sense
that if an entity provides a miniscule percentage of its revenue to the tribe, and the
tribe is barely involved, the entity cannot be said to stand in the place of the tribe.
Moreover, if a tribe retains only a minimal percentage of the profits from the
enterprise, it would appear that the enterprise may not be truly ‗controlled‘ by the
tribe.‖ (Martin & Schwartz, supra, 69 Wash. & Lee L.Rev. at p. 784.)
While recognizing the relevance of the formal relationship between a tribe
and the disputed entity, we conclude that the Court of Appeal gave inordinate
weight to those formal considerations in the overall balance when it said they
could be outweighed only by ―an extraordinary set of circumstances.‖ As
explained further below, organizational arrangements on paper do not necessarily
illuminate how businesses operate in practice. Here, the language of the
management agreements between the tribes and the online lenders is not, by itself,
sufficient to warrant the Court of Appeal‘s conclusion that ―MNE and SFS are not
merely passive bystanders to the challenged lending activities.‖ Given the
manipulability of formal arrangements, it is important to carefully examine how
such arrangements function as a practical matter, lest we expand the application of
30
tribal immunity beyond its established rationales and indeed beyond ―common
sense.‖ (Martin & Schwartz, supra, 69 Wash. & Lee L.Rev. at p. 784.)
Business entities that claim arm-of-the-tribe immunity ―have no inherent
immunity of their own. Instead, they enjoy immunity only to the extent the
immunity of the tribe, which does have inherent immunity, is extended to them.
In view of that fact, it is possible to imagine situations in which a tribal entity may
engage in activities which are so far removed from tribal interests that it no longer
can legitimately be seen as an extension of the tribe itself.‖ (Trudgeon, supra, 71
Cal.App.4th at p. 639.) In such cases, extending immunity to the entity would not
― ‗promote the federal policies of tribal self[-]determination, economic
development, and cultural autonomy.‘ ‖ (Breakthrough, supra, 629 F.3d. at
p. 1182.) Arm-of the-tribe immunity must not become a doctrine of form over
substance. The ultimate purpose of the inquiry is to determine ―whether the entity
acts as an arm of the tribe so that its activities are properly deemed to be those of
the tribe.‖ (Allen v. Gold Country Casino (9th Cir. 2006) 464 F.3d 1044, 1046,
italics added (Allen); see id. at p. 1047 [extending tribal immunity to casino
because ―there can be little doubt that the Casino functions as an arm of the Tribe‖
(italics added)].)
IV.
Whether tribal immunity bars suit is a question of law that we review de
novo. (See Findleton v. Coyote Valley Band of Pomo Indians (2016) 1
Cal.App.5th 1194, 1197.) Applying the inquiry set forth above, we hold that on
the record before us, the lenders named as defendants in the Commissioner‘s
complaint are not entitled to immunity as arms of the Miami Tribe of Oklahoma
and Santee Sioux Nation, respectively.
At the outset, we note that our analysis focuses on these lenders as part of
SFS and MNE Services rather than as separate entities. Preferred Cash and One
31
Click Cash are simply trade names under which SFS conducts its lending business.
When the Commissioner filed the complaint, Ameriloan, United Cash Loans, and
U.S. Fast Cash were trade names under which MNE (through its TFS subdivision)
conducted lending operations. But by the time the trial court granted the motion to
quash, MNE had transferred ownership of that lending business, including the
trade names, to MNE Services. We thus agree with the Commissioner that for
purposes of determining the immunity of Ameriloan, United Cash Loans, and U.S.
Fast Cash, our focus must be on MNE Services, although evidence regarding
MNE‘s prior operations under those trade names may shed light on the inquiry.
Although the Commissioner, joined by various amici curiae, decries the
impact of short-term deferred deposit lending on vulnerable borrowers, the Court
of Appeal was correct that ―tribal immunity does not depend on our evaluation of
the respectability or ethics of the business in which a tribe or tribal entity elects to
engage.‖ In every instance where some form of immunity bars suit, an alleged
wrong will go without a remedy. (See Puyallup, supra, 433 U.S. at p. 168 [no
remedy for alleged overfishing by tribe]; Potawatomi, supra, 498 U.S. at p. 507
[no remedy for tribe‘s refusal to collect state sales tax]; Santa Clara Pueblo,
supra, 436 U.S. at pp. 51–52 [no remedy for gender discrimination in tribal
membership requirements].) Our immunity analysis does not rest on the merits or
ethics of deferred lending as a means of tribal economic development. Instead,
our inquiry focuses on whether SFS and MNE Services have shown on this record
that they have a sufficiently close relationship with their respective tribes to
warrant the protection of sovereign immunity.
The record reveals a nominally close relationship between SFS and the
Santee Sioux, and between MNE Services and the Miami Tribe. But it contains
scant evidence that either tribe actually controls, oversees, or significantly benefits
from the underlying business operations of the online lenders. On the record
32
before us, which both parties contend is undisputed, we are unable to conclude
that defendants have carried their burden of showing that a denial of immunity
would appreciably impair either tribe‘s economic development, cultural autonomy,
or self-governance.
The evidence here consists primarily of affidavits by tribal officials
(submitted by the business entities) and various affidavits and supporting
documentation assembled as part of an FTC investigation of AMG (submitted by
the Commissioner). SFS Treasurer Robert Campbell, in particular, submitted
affidavits in 2007 and 2012 in support of the motions to quash; we refer to these as
the ―Campbell 2007‖ and ―Campbell 2012‖ affidavits. (Don Brady, MNE‘s chief
executive officer, also submitted affidavits. But in the course of the federal
investigation of AMG, MNE Services and AMG admitted that tribal officials had
submitted affidavits misrepresenting the extent of the Miami Tribe‘s involvement
in the operation of the lending businesses. Defendants have confirmed that these
affidavits include the Brady affidavits; accordingly, we do not rely on them here.)
We begin with the law governing the creation of the entities, tribal intent,
and stated purpose of the entities. As the Court of Appeal observed, the tribes‘
subsidiary entities were all created pursuant to tribal law, and the tribes have
expressed their intent to extend tribal immunity to the entities. According to its
articles of incorporation, SFS was formed ―to facilitate the achievement of goals
relating to the Tribal economy, self-government, and sovereign status of the
Santee Sioux Nation,‖ while MNE‘s goals include ―providing for the economic
development of the Tribe‖ and ―provid[ing] opportunities for tribal members and
other persons residing within the tribal jurisdiction.‖ MNE Services‘ articles of
incorporation list similar purposes.
As to control, the members of the Santee Sioux‘s governing Tribal Council
serve as the SFS board of directors. MNE‘s board of directors is appointed by the
33
chief of the Miami Tribe with the advice and consent of the Tribal Business
Committee; MNE‘s chief executive officer, in turn, appoints the board of MNE
Services. The Miami Tribe wholly owns MNE, which in turn wholly owns MNE
Services; the Santee Sioux Nation wholly owns SFS.
Notwithstanding these formal arrangements, significant evidence suggests
that in fact neither SFS nor MNE Services, much less the Miami Tribe or Santee
Sioux, maintains operational control over the underlying lending businesses.
Both SFS and MNE Services have relied heavily on outsiders to manage
their online deferred deposit lending businesses since those businesses were
founded. The entities currently have contracts with AMG, a tribal corporation
owned by the Miami Tribe. Shortly after its formation in 2008, AMG acquired
CLK Management, the firm previously owned by Scott and Blaine Tucker that
initially registered the trademarks for the online lenders. Both Tucker brothers
were authorized to sign checks on behalf of AMG, and of the 10,000 check images
reviewed by an FTC investigator, ―Scott Tucker or Blaine Tucker signed every
check.‖ ―Most [of these] records spanned three years,‖ beginning in 2008 and
continuing through April 2011, when the FTC obtained them, but ―some went
back nine years or more.‖ Both Scott and Blaine Tucker were also authorized to
sign checks in the name of SFS and MNE Services, and they regularly did so.
Defendants nevertheless maintain that tribal officials oversee the online
deferred deposit lending businesses. According to the Campbell 2012 affidavit,
SFS‘s loans ―are approved daily by an SFS officer or employee at which time the
loans are ‗consummated.‘ . . . SFS‘s office also houses (and SFS employs) SFS‘s
customer service and managerial personnel, who receive and respond to
correspondence and telephonic customer inquiries regarding their loan
applications.‖ Similarly, according to defendants‘ briefing, all applications for
34
loans from MNE Services ―are approved by MNE on federal trust land under the
sovereign jurisdiction of the Tribe.‖
But other evidence casts doubt on whether SFS‘s and MNE Services‘ role
in approving loans indicates a significant degree of control. Documents compiled
as part of the FTC investigation suggest the bulk of AMG‘s operations are
conducted in Kansas, outside the boundaries of the Miami Tribe (in Oklahoma)
and the Santee Sioux Nation (in Nebraska). In 2011, for example, AMG
registered its location in Kansas, where it employed 606 individuals and paid more
than $20 million in wages. Moreover, the Campbell 2012 affidavit acknowledges
that ―[f]rom approximately 2007 to 2011, the Santee Sioux Nation‘s Tribal
Council was involved in an internal governance dispute, which . . . prevented the
SFS Board from attaining a quorum for holding routine meetings.‖ Campbell‘s
affidavit does not suggest that the lack of routine board meetings led to a
suspension of loan operations, and AMG paid more than $100 million in wages
during the period from 2006 to 2011. The absence of oversight during this period
casts doubt on Campbell‘s assertion that the tribally appointed leadership of SFS
exercised significant control over the loan operations. Although the Court of
Appeal was correct that ―[a] tribal entity engaged in a commercial enterprise that
is otherwise entitled to be protected by tribal immunity does not lose that
immunity simply by contracting with nontribal members to operate the business,‖
the balance of evidence suggests that the Tucker brothers exercised a high degree
of practical control over the online lenders here and that the tribes were not
―enmeshed in the direction and control of the business[es].‖ (Gavle, supra, 555
N.W.2d at p. 295.)
As to the financial relationship between the tribes and the entities, neither
the Miami Tribe nor the Santee Sioux is directly liable for any judgment against
the online lenders under applicable tribal laws. We also consider the degree to
35
which a judgment against the business entities, though not reaching either tribe,
would affect tribal revenue. According to the Campbell affidavits, ―profits earned
by SFS go to the Santee Sioux to help fund government operations and social
welfare programs . . . . The Santee Sioux reservation is a severely economically
depressed region, and the profits generated by SFS are essential to maintaining a
functioning government that is able to provide the essential government services
to its members.‖ Defendants‘ briefing likewise claims that profits from deferred
deposit lending ―enable‖ the Miami Tribe ―to fund critical governmental services
to its members, including tribal law enforcement, poverty assistance, housing,
nutrition, preschool, elder care programs, school supplies, and scholarships.‖
Although SFS and MNE Services have asserted that their profits go to
support tribal operations and programs, they conspicuously omit any mention of
how much revenue actually reaches each tribe‘s coffers or how that income was
allocated among the tribal programs mentioned in the various affidavits. The
Campbell 2007 affidavit did specify how many tribal members were employed as
a result of the lending businesses: ―SFS‘s operations on the reservation helps [sic]
provide employment to approximately 20 Tribal members.‖ But these
employment numbers do not appear in the 2012 affidavit, even as Campbell
continues to assert that all loans are ―consummated‖ at their respective offices on
tribal land.
We find it significant that neither SFS nor MNE Services has stated with
clarity the proportion of profits from the lending operations that flow to the tribes
or the proportion of tribal revenue that those profits comprise. Moreover, there is
evidence to suggest that the economic benefit to the tribes of the various lending
businesses is minimal. Neither SFS nor MNE Services has provided this court or
the courts below with a copy of its service agreement with its current management
company, AMG. The record does include the management agreements that SFS
36
and MNE signed with UMS, the company that both entities relied upon to manage
their lending businesses prior to 2008. Under those agreements, SFS and MNE
each received either a minimum payment of $25,000 per month or 1 percent of
revenue from deferred deposit lending operations. Although the entirety of this
―royalty‖ was passed on to the tribes, the vast majority of revenue from the
lending businesses flowed to the management company. By comparison, the
Indian Gaming Regulatory Act (IGRA), the federal law governing Indian gaming,
generally prohibits tribal casinos from paying management fees that ―exceed 30
percent of the [casino‘s] net revenues.‖ (25 U.S.C. § 2711(c)(1).)
The record does not inform us whether SFS and MNE Services agreed to a
different arrangement with AMG. But there is evidence that after 2008 revenues
from the lending businesses were extensively commingled with revenues from
other, unrelated commercial enterprises controlled by the Tuckers, and those
commingled funds could be spent at the Tuckers‘ discretion. Indeed, AMG issued
checks that appear to be related to Scott Tucker‘s personal expenses, including a
private residence in Aspen, Colorado, chartered flights to auto racing events, and
several luxury automobiles.
It is instructive to compare the entities at issue here with entities that other
courts have recognized as arms of their respective tribes. In Breakthrough, for
example, the court found that the ―financial relationship between the Tribe and its
entities[] weigh[ed] in favor of tribal sovereign immunity‖ because ―[o]ne hundred
percent of the Casino‘s revenue goes to the Authority and then to the Tribe,‖ an
amount that ― ‗may be up to $1,000,000 per month.‘ ‖ (Breakthrough, supra, 629
F.3d at pp. 1194–1195, italics omitted.) Unlike the UMS contracts, the financial
arrangement in Breakthrough provided for no minimum payment; any shortfall in
the business operations of the casino would mean reduced income for the Tribe.
(Ibid.) In addition, under the IGRA, revenues from tribal gaming must be ―used
37
only‖ for purposes directly benefitting the tribe or else donated to charitable
organizations. (25 U.S.C. § 2710(b)(2)(B); see Trudgeon, supra, 71 Cal.App.4th
at p. 640 [relying in part on the IGRA to hold that Cabazon Bingo served the
tribe‘s stated purpose of economic development].)
In this case, we do not know what percentage of revenue from the lending
businesses currently flows to the tribes, and the evidence we have (from the UMS
contracts) suggests it is very small. Moreover, there is no regulatory framework
like the IGRA that dictates the stream of revenues from lending businesses to the
tribes. When examined in the context of SFS‘s and MNE Services‘ operations, the
assertions in the tribal declarations are too vague and conclusory to establish that a
judgment against the entities would appreciably impair tribal revenues. The
Commissioner has adduced considerable evidence that SFS and MNE Services
function as intermediaries to commercial enterprises that have only a minimal
financial relationship with the tribes. Neither MNE Services nor SFS has carried
its burden of demonstrating practical control by either tribe or a close financial
relationship between either tribe and the lending businesses. This shortcoming
also suggests that those businesses, in practice, do not meaningfully serve the
purpose of ―provid[ing] for the economic development of the Tribe,‖ ―provid[ing]
opportunities for tribal members and other persons residing within the tribal
jurisdiction,‖ or ―creat[ing] and stimulat[ing] the Tribe‘s economy and . . .
creat[ing] employment opportunities for tribal members.‖
Thus, with respect to three of the five Breakthrough factors — purpose,
control, and financial relationship — the evidence does not suggest that immunity
would serve to meaningfully promote tribal economic development, cultural
autonomy, or self-governance, i.e., ―the purposes of tribal sovereign immunity.‖
(Breakthrough, supra, 629 F.3d at p. 1181.) As to the other two factors — method
of creation and tribal intent — both appear to weigh in favor of immunity. (Ante,
38
at p. 33.) But closer scrutiny of SFS‘s and MNE Services‘ origins casts the
method-of-creation factor in a different and equivocal light. The initial capital for
the various online lending businesses came from UMS, the management company
that operated the businesses until replaced by AMG in 2008. Four of the five
trademarks under which SFS and MNE Services operated their lending businesses
— Ameriloan, United Cash Loans, U.S. Fast Cash, and One Click Cash — were
registered by a nontribal entity, CLK Management. Although CLK Management
attested to having used these marks commercially as early as 2002, it did not
transfer the marks to MNE and SFS until 2006, after CLK Management had
received a desist and refrain order from the Commissioner targeting its deferred
lending operations. In essence, the capital and intellectual property on which
SFS‘s and MNE Services‘ lending businesses were founded did not come from
either tribe. Instead, they came from an outside commercial entity that continued
to play a significant role in the lending operations after SFS and MNE (and then
MNE Services) formally took ownership.
Among the five factors, only tribal intent weighs unequivocally in favor of
extending tribal immunity to SFS and MNE Services. But tribal intent, as
expressed in the entities‘ articles of incorporation, reveals little about ―whether the
entity acts as an arm of the tribe so that its activities are properly deemed to be
those of the tribe.‖ (Allen, supra, 464 F.3d at p. 1046, italics added.) The Tribes‘
―self-interested and unsupported claim‖ that they ―intended their sovereign
immunity to extend to [SFS and MNE Services] cannot, without more,‖ support
immunity (White v. University of California (N.D. Cal., Oct. 9, 2012, No. C 12–
01978) 2012 WL 12335354, at *7, affd. White, supra, 765 F.3d 1010), and such a
formal statement of immunity is not sufficient here to tip the balance in favor of
immunity.
39
Applying the five factors discussed above, we hold that on the record
before us, neither SFS nor MNE Services has shown by a preponderance of the
evidence that it is entitled to tribal immunity as an arm of its affiliated tribe.
V.
Having clarified the legal standard and burden of proof for establishing
arm-of-the-tribe immunity, we express no view on whether the parties have had
the opportunity to fully litigate their claims under that standard. The trial court
may examine that issue on remand. For the reasons above, we reverse the
judgment of the Court of Appeal and remand for further proceedings consistent
with this opinion.
LIU, J.
WE CONCUR:
CANTIL-SAKAUYE, C. J.
WERDEGAR, J.
CHIN, J.
CORRIGAN, J.
CUÉLLAR, J.
KRUGER, J.
40
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion People v. Miami Nation Enterprises
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 223 Cal. App. 4th 21
Rehearing Granted
__________________________________________________________________________________
Opinion No. S216878
Date Filed: December 22, 2016
__________________________________________________________________________________
Court: Superior
County: Los Angeles
Judge: Yvette M. Palazuelos
__________________________________________________________________________________
Counsel:
Kamala D. Harris, Attorney General, Edward C. DuMont, State Solicitor General, Janill L. Richards,
Principal Deputy State Solicitor General, Sara J. Drake, Assistant Attorney General, Jennifer T. Henderson,
Timothy M. Muscat and William P. Torngren, Deputy Attorneys General; Uche L. Enewali and Mary Ann
Smith for Plaintiff and Appellant.
Seth E. Mermin, Thomas Bennigson, Daniel Osborn and Celine Cutter for Center for Responsible Lending,
Community Legal Services in East Palo Alto, Housing and Economic Rights Advocates, Law Foundation
of Silicon Valley, East Bay Community Law Center and Public Good Law Center as Amici Curiae on
behalf of Plaintiff and Appellant.
Fredericks, Peebles & Morgan, John Nyhan, Nicole E. Ducheneaux, Conly J. Schulte; Dorsey & Whitney
and Vernle C. (―Skip‖) Durocher, Jr., for Defendants and Respondents.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Jennifer T. Henderson
Deputy Attorney General
1300 I Street, Suite 125
Sacramento, CA 94244-2550
(916) 324-5366
John Nyhan
Fredericks, Peebles & Morgan
2020 L Street, Suite 250
Sacramento, CA 95811
(916) 441-2700
Vernle C. (―Skip‖) Durocher, Jr.
Dorsey & Whitney
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402-1498
(612) 340-2600