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Tribe's Arbitration Clause Is Unenforceable

By William Vogeler, Esq. on March 01, 2018 | Last updated on March 21, 2019

If this were the Old West, John MacDonald might've said he got scalped.

But times have changed, and so MacDonald just says he got ripped off in a bad loan. He borrowed $5,000 at 116 percent annual interest, resulting in a $35,994 finance charge over seven years.

Fortunately for MacDonald, the U.S. Third Circuit Court of Appeals let him get out of part of the deal. And as it turns out, a Native American tribe was involved.

Cheyenne River Sioux Tribe

In MacDonald v. CashCall, Inc., MacDonald originally borrowed the money from Western Sky Financial. The loan agreement included an arbitration clause, saying any dispute would be governed by the law of the Cheyenne River Sioux Tribe.

Western Sky Financial sold the loan to WSFunding, with CashCall servicing the loan. MacDonald made payments for about two years, having paid $15,256 in interest and $38 in principal.

Then he sued, along with anybody else who got roped into the deal. The plaintiffs said Western Sky and the defendants had a "long history of deceptive lending practices."

The defendants moved to compel arbitration, but a federal judge denied the motion. On appeal, the Third Circuit affirmed.

No Tribal Forum

The defendants argued that the parties agreed to submit to tribal arbitration. Following conclusions in the Seventh and Eleventh Circuits, the Third Circuit said there is no tribal arbitral forum.

"Furthermore, it would be nonsensical for a court to appoint an arbitrator where a drafter created an agreement to arbitrate in a forum that does not exist," the appeals panel said.

The judges upheld the district court's decision, saying the arbitration agreement was illusory and unenforceable. The Fourth Circuit has refused Western Sky's arbitration agreement on other grounds.

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