THE OTOE-MISSOURIA TRIBE OF INDIANS, a federally-recognized Indian Tribe, GREAT PLAINS LENDING, LLC, a wholly-owned tribal limited liability company, AMERICAN WEB LOAN, INC., a wholly-owned tribal corporation, OTOE-MISSOURIA CONSUMER FINANCE SERVICES REGULATORY COMMISSION, a tribal regulatory agency, LAC VIEUX DESERT BAND OF LAKE SUPERIOR CHIPPEWA INDIANS, a federally-recognized Indian Tribe, RED ROCK TRIBAL LENDING, LLC, a wholly-owned tribal limited liability company, LAC VIEUX DESERT TRIBAL FINANCIAL SERVICES REGULATORY AUTHORITY, a tribal regulatory agency, Plaintiffs-Appellants,
NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES, BENJAMIN M. LAWSKY, in his official capacity as Superintendent of the New York State Department of Financial Services, Defendants-Appellees
Argued December 5, 2013
As Corrected October 1, 2014.
Plaintiffs-appellants (" plaintiffs" ) appeal from the denial of a preliminary injunction by the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge). Plaintiffs are two Native American tribes, tribal regulatory agencies, and companies owned by the tribes that offered high-interest, short-term loans over the internet. The interest rates on the loans exceeded caps imposed by New York State law. When the New York State Department of Financial Services sought to bar out-oxf-state lenders from extending such loans to New York residents, the plaintiffs sued for a preliminary injunction, claiming that New York's ban violated the Indian Commerce Clause . But plaintiffs bore the burden of proving that the challenged transactions fell within their regulatory domain, and the District Court held that they failed to establish a sufficient factual basis to find in their favor. Because this conclusion was a reasonable one, the District Court did not abuse its discretion in denying the injunction.
DAVID M. BERNICK, Dechert LLP, New York, New York (Michael S. Doluisio, Michael H. Park, Gordon Sung, Dechert LLP, Robert A. Rosette, Sarah Bazzazieh, Rosette, LLP, on the brief), for Plaintiffs-Appellants.
STEVEN C. WU, Deputy Solicitor General (Barbara D. Underwood, Solicitor General, Jason Harrow, Assistant Solicitor General, on the brief), for Eric T. Schneiderman, Attorney General of the State of New York, New York, New York, for Defendants-Appellees.
Before: SACK, LYNCH, and LOHIER, Circuit Judges.
Gerard E. Lynch, Circuit Judge:
New York's usury laws prohibit unlicensed lenders from lending money at an interest rate above 16 percent per year, and criminalize loans with interest rates higher than 25 percent per year. N.Y. Gen. Oblig. Law § 5-501(1), N.Y. Banking Law § 14-a(1), N.Y. Penal Law § § 190.40-42. The plaintiffs are two Native American tribes, tribal regulatory agencies, and companies owned by the tribes that provide short-term loans over the internet, all of which have triple-digit interest rates that far exceed the ceiling set by New York law. When the New York State Department of Financial Services (" DFS" ) tried to bar out-of-state lenders, including the plaintiffs, from extending loans to New York residents, plaintiffs sought a preliminary order enjoining DFS from interfering with the tribes' consumer lending business.
Plaintiffs contended that New York had projected its regulations over the internet and onto reservations in violation of Native Americans' tribal sovereignty, which is protected by the Indian Commerce Clause of the Constitution. U.S. CONST. art. 1, § 8, cl. 3. But the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge ) held that plaintiffs had not offered sufficient proof that the loans fell outside New York's regulatory domain. After examining the evidence marshaled by plaintiffs in support of their motion, the District Court concluded that plaintiffs had failed to establish that the challenged loan transactions occurred on Native American soil, a fact necessary to weaken New York State's regulatory authority over them. Because this conclusion was a reasonable one, we AFFIRM the District Court's denial of plaintiffs' motion for a preliminary injunction.
This case arises from a conflict between two sovereigns' attempts to combat poverty within their borders. Native American tribes have long suffered from a dearth of economic opportunities. Plaintiffs in this case, the Otoe-Missouria Tribe of Indians, the Lac Vieux Desert Band of Lake Superior
Chippewa Indians, and wholly owned corporations of those tribes (collectively, " the lenders" ), established internet-based lending companies in the hopes of reaching consumers who had difficulty obtaining credit at favorable rates but who would never venture to a remote reservation. The loans were made at high interest rates, and the loans permitted the lenders to make automatic deductions from the borrowers' bank accounts to recover interest and principle. New York has long outlawed usurious loans. DFS aggressively enforced those laws in order to " protect desperately poor people from the consequences of their own desperation." Schneider v. Phelps, 41 N.Y.2d 238, 243, 359 N.E.2d 1361, 391 N.Y.S.2d 568 (1977). Thus, the tribes' and New York's interests collided.
It is unclear, however, where they collided--in New York or on a Native American reservation. The lenders assert that the challenged transactions occurred on reservations. The " loan application process" took place via " website[s] owned and controlled by the Tribe[s]." Loans were " reviewed and assessed by . . . Tribal loan underwriting system[s]." Loans complied with rules developed, adopted, and administered by tribal regulatory authorities. The loans were funded out of " Tribally owned bank accounts." And each loan application notified borrowers that the contract was " governed only by the laws of [the Tribe] and such federal law as is applicable under the Indian Commerce Clause of the United States Constitution . . . [and] [a]s such, neither we nor this Agreement are subject to any other federal or state law or regulation." In sum, as the Chairman of the Lac Vieux Desert Tribe explained in an affidavit, " [t]hrough technological aids and underwriting software, loans are approved through processes that occur on the Reservation in various forms." 
But loans approved on Native American reservations and other out-of-state locations flowed across borders to consumers in New York. New York borrowers never traveled to tribal lands or other jurisdictions; they signed loan contracts remotely by keying in an electronic signature. Borrowers listed their New York addresses on applications, and provided lenders with routing information for their personal bank accounts in New York. Moreover, the lenders did more than simply transfer loan proceeds into New York bank accounts. Under the terms of the loans, the lenders reached into New York to collect payments: the lenders placed a hold on borrowers' accounts that resulted in an automatic debit every two weeks over the course of many months. The harm inflicted by these high-interest loans fell upon customers in New York: DFS received complaints from residents faltering under the weight of interest rates as high as 912.49 percent; as one complaint explained, " I am attempting to get out of a hole, not dig a deeper one."
Thus, both the tribes and New York believed that the high-interest loans fell within their domain, both geographic and regulatory, and acted accordingly. The tribes re-invested profits into their communities,
and New York authorities began an investigation into online payday lending. In the summer of 2013, those initiatives clashed.
In August, DFS launched what the tribal lenders describe as a " market-based campaign explicitly designed to destroy Tribal enterprises," and what New York defends as a " comprehensive effort to determine how best to protect New Yorkers from the harmful effects of usurious online payday loans." At issue are two related mailings.
First, DFS sent cease-and-desist letters to thirty-five online payday lenders that it had identified as having made loans to New York residents. Its efforts were directed generally at such lenders, including not only tribal lenders, but also foreign lenders and lenders headquartered in states that do not cap interest rates on short-term loans. The letters accused lenders of " using the Internet to offer and originate illegal payday loans to New York consumers," in violation of " New York's civil and criminal usury laws." The letters instructed lenders to " confirm in ...