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Tribal Arbitration Found “Unconscionable” by Seventh Circuit Court

Saturday, September, 6, 2014


Plaintiffs in a lawsuit against the Cheyenne River Sioux Tribal Nation have won a victory in their efforts to bring a lawsuit against the Indian Nation when a judge agreed that the arbitration clause imposed by the tribe is unreasonable and thus unenforceable.


The clause was part of a lending agreement between the tribe and a group of borrowers who borrowed money via a website managed by the tribe.  The website offered loans at extremely high interest rates – as high as 139% annually – and specified that disputes would be handled via arbitration conducted by the tribe itself, with the arbitrator specified as a “Tribal Elder or members of the Tribal Council.”  The borrowing agreement also specified that the loan was governed by the laws of the Cheyenne River Sioux.


The plaintiffs sued under usury laws in the State of Illinois.  The tribe moved to dismiss on the grounds of “improper venue”’ arguing that the claims had to be pursued under arbitration as specified in the agreement.  A district court agreed with the tribe’s motion, but an appeal was filed with the Seventh District Court, which ordered the district court to engage in fact finding regarding the Tribe’s arbitration procedures.


This fact finding was devastating to the tribe’s case, as it found that the tribe was completely inexperienced in handling claims through arbitration and found that the arbitration had been set up simply to escape any limits on interest rates on loans made in the State of Illinois.


Based on these findings, the Seventh Circuit court reversed the district court’s initial ruling.