People Ex Rel. Owen v. Miami Nation Enters.
211 Cal. Rptr. 3d 837, 2 Cal. 5th 222, 386 P.3d 357 (2016)
Rule of Law:
A tribally affiliated entity seeking to assert tribal sovereign immunity must prove by a preponderance of the evidence that it is an "arm of the tribe" by satisfying a five-factor test that emphasizes a substantive, functional analysis over mere formal organizational structures to ensure immunity serves genuine tribal self-governance goals.
Facts:
- The Miami Tribe of Oklahoma created Miami Nation Enterprises, Inc. (MNE) in 2005 as a subordinate economic enterprise, which later created MNE Services, a wholly-owned subsidiary.
- The Santee Sioux Nation created SFS, Inc. (SFS) in 2005 as an economic and political subdivision to facilitate tribal economy and self-government.
- MNE Services and SFS, or their affiliates, provided short-term deferred deposit ("payday") loans through the internet to borrowers nationwide, including in California, under various trade names like Ameriloan, United Cash Loans, and One Click Cash.
- In August 2006, the Commissioner of the California Department of Corporations issued a desist and refrain order to these online lenders for engaging in unlicensed deferred deposit transactions.
- CLK Management, a non-tribal company initially owned by Scott and Blaine Tucker, registered the trademarks for the online lenders and transferred them to the tribal entities after receiving a desist and refrain order from the Commissioner.
- SFS and MNE Services contracted with management companies, initially Universal Management Services (UMS) and later AMG Services, Inc. (AMG), to operate their lending businesses.
- Under the initial UMS agreements, SFS and MNE received either a minimum payment or only 1 percent of gross revenues from the lending operations, with the vast majority of revenue flowing to the management company.
- Scott and Blaine Tucker, who were not tribal members, had check-signing authority for SFS, MNE Services, and AMG, and an FTC investigation revealed numerous payments from AMG's business account for Scott Tucker's personal expenses, including a private residence and auto racing.
Procedural Posture:
- In August 2006, the Commissioner of the California Department of Corporations issued a desist and refrain order to various online deferred deposit lenders, including the defendants, directing them to cease unlicensed business.
- In June 2007, the Commissioner filed a complaint against the lenders in Los Angeles Superior Court (trial court/court of first instance), alleging violations of the Deferred Deposit Transaction Law and seeking injunctive relief, restitution, and civil penalties.
- Miami Nation Enterprises (MNE) and SFS, Inc. (SFS) specially appeared and moved to quash service, asserting lack of jurisdiction based on tribal sovereign immunity.
- After discovery regarding the relationship between the tribes and their entities, 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 trial court's decision to the California Court of Appeal (intermediate appellate court).
- The Court of Appeal affirmed the trial court's decision, concluding that MNE and SFS functioned as arms of their respective tribes and were entitled to immunity, even if they contracted with non-tribal members and received a modest percentage of revenues.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a tribally affiliated entity, engaged in short-term deferred deposit lending to California residents, qualify for tribal sovereign immunity as an "arm of the tribe" when its formal ties to the tribe are strong but evidence suggests minimal tribal control, limited financial benefit to the tribe, and significant management by non-tribal third parties?
Opinions:
Majority - Liu, J.
No, the tribally affiliated online lending entities are not entitled to tribal immunity as "arms of the tribe" on the record presented because, despite formal arrangements, they failed to demonstrate practical tribal control, a significant financial relationship with the tribes, or that immunity would genuinely further tribal self-governance. The court adopted a modified five-factor "arm-of-the-tribe" test, emphasizing that no single factor is dispositive and the inquiry must prioritize substance over form. While the entities were created under tribal law and the tribes expressed intent to confer immunity, the court found scant evidence that the tribes actually controlled or significantly benefited from the underlying business operations. Evidence showed heavy reliance on non-tribal outsiders (the Tucker brothers and AMG) for day-to-day management, with operations often conducted off-reservation. The financial benefit to the tribes appeared minimal (e.g., 1% of gross revenues under prior agreements), and profits were extensively commingled with non-tribal enterprises and used for personal expenses by the Tuckers. The court explicitly rejected the Court of Appeal's emphasis on formal arrangements, stating that arm-of-the-tribe immunity must not become a doctrine of form over substance but must genuinely reflect whether the entity acts as an extension of the tribe to promote self-governance.
Analysis:
This case significantly clarifies the "arm-of-the-tribe" doctrine in California, establishing a comprehensive five-factor test that emphasizes a substantive, functional analysis over mere formal organizational structures. By shifting the burden of proof to the entity claiming immunity and scrutinizing the practical realities of tribal control and financial benefit, the decision makes it harder for non-tribal businesses to shield themselves from state regulation by nominal affiliation with a tribe. This ruling is likely to impact how tribal entities structure their commercial ventures, particularly in areas like online lending, requiring genuine tribal engagement and economic benefit to qualify for sovereign immunity. It also provides a clear framework for courts to evaluate such claims, reducing inconsistencies across jurisdictions.
