In accordance with Governor Lamont's emergency declaration, employees and the public are asked to observe social distancing measures to ensure communal safety and to slow the spread of the novel coronavirus (COVID-19). People are asked to work from home and telecommute wherever possible. Adhering to these instructions, the Department of Banking has closed its offices to the public. However, agency staff will continue to provide services to consumers and industry through telework. When contacting the Department, please use electronic communication whenever possible. Agency staff will continue to check voicemails during this time. Consumers are encouraged to use our online form for complaints. If you are unsure where to send an inquiry, you may send it to Department.Banking@ct.gov and it will be routed appropriately. Thank you for your patience during this time.

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IN THE MATTER OF:

GREAT PLAINS LENDING, LLC
("Great Plains")

JOHN R. SHOTTON
("Shotton")

CLEAR CREEK LENDING
("Clear Creek")

     (Collectively "Respondents")

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RESTATED ORDER AND
RULING ON MOTION TO DISMISS


                     

I.  INTRODUCTION

The Banking Commissioner (“Commissioner”) is charged with the administration of Connecticut laws regulating small loan lenders.1  Pursuant to Section 36a-17 of the Connecticut General Statutes, the Commissioner, through the Consumer Credit Division of the Department of Banking (“Department”), investigated Respondents’ lending activity in Connecticut and issued a Temporary Order to Cease and Desist, Order to Make Restitution (“Order to Make Restitution”), Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty and Notice of Right to Hearing (collectively, “Notice”) against Respondents on October 24, 2014.

The Notice alleged that Respondents violated Connecticut’s small loan lending laws by charging interest on loans in excess of the state statutory maximum without proper licensure. The Notice provided Respondents with the opportunity to appear and request a hearing in accordance with the provisions of Chapter 54 of the Connecticut General Statutes (“UAPA”) to present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner (AR 13-152,3). The Notice also stated that if a hearing was not requested within 14 days of its receipt, the Order to Make Restitution would remain in effect and become permanent, and the Commissioner would issue cease and desist orders and may impose civil penalties against the Respondents (AR 14-15).  The Notice was sent to Respondents on October 24, 2014 and was received by all Respondents by October 28, 2014.

Respondents did not request a hearing prior to the 14-day deadline, as no completed Appearance and Request for Hearing forms were received by the Department.4  After the deadline passed, the Department received a pleading styled as a “Motion to Dismiss” in which Respondents asserted tribal sovereign immunity from the Department’s action based on Respondents’ alleged affiliation with the Otoe-Missouria Tribe of Indians (“Tribe”).5  The Commissioner issued a Ruling on the Motion to Dismiss on January 6, 2015 (“Intermediate Ruling”), concluding that tribal sovereign immunity is not a jurisdictional defense to the Department’s administrative enforcement of Connecticut law.  The Commissioner also issued a final Order to Cease and Desist and Order Imposing Civil Penalty on January 6, 2015 (“Final Order”) based on Respondents’ failure to request a hearing in accordance with the UAPA.

Subsequently, Respondents appealed to the Superior Court for the Judicial District of New Britain pursuant to Section 4-183 of the UAPA, contending that the Department lacked subject matter jurisdiction over Respondents. In its Memorandum of Decision issued on November 23, 2015 (“First Decision”), the Court declined to either sustain the appeal or affirm the decision of the Department, but instead retained jurisdiction and remanded the case to the Commissioner to decide whether Great Plains and Clear Creek are arms of the Tribe and whether Shotton was entitled to sovereign immunity.

On May 6, 2016, the Commissioner issued Proposed Findings of Fact, Proposed Conclusions of Law and Notice of Right to Hearing (“Proposed Findings and Conclusions”) in response to the Court’s remand. The Proposed Findings and Conclusions made the determinations required by the Court, found that neither Great Plains nor Clear Creek were arms of the Tribe and that Shotton does not have immunity, and afforded Respondents the opportunity to request a hearing pursuant to the UAPA on the allegations it set forth. Respondents filed a “Conditional Request for Hearing” with the Department, contemporaneously with a Motion for Immediate Order that they filed with the Court on May 23, 2016. The hearing request was conditioned upon the Court issuing a particular order, while the motion complained about references to “new evidence” in the Proposed Findings and Conclusions  and asked the Court to disregard certain findings.  On August 31, 2016, the Court issued a second ruling (“Second Decision”), vacating part of its First Decision, sustaining the appeal in part and remanding the case to the Department to “determine, based on the record that existed at the time, 1) whether Great Plains and Clear Creek are arms of the Tribe, 2) whether Shotton has tribal sovereign immunity from financial penalties that the commissioner seeks to impose, and 3) whether Shotton has tribal immunity from the commissioner’s request for prospective injunctive relief against future violations of the state’s usury and banking laws.”


II.  RESTATED ORDER

A.  Statutory Authority

Section 36a-50(a) of the Connecticut General Statutes states, in part:

(1) Whenever the commissioner finds as the result of an investigation that any person has violated any provision of the general statutes within the jurisdiction of the commissioner, or any regulation, rule or order adopted or issued thereunder, the commissioner may send a notice to such person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice shall be deemed received by the person on the earlier of the date of actual receipt or seven days after mailing or sending. Any such notice shall include: (A) A statement of the time, place, and nature of the hearing; (B) a statement of the legal authority and jurisdiction under which the hearing is to be held; (C) a reference to the particular sections of the general statutes, regulations, rules or orders alleged to have been violated; (D) a short and plain statement of the matters asserted; (E) the maximum penalty that may be imposed for such violation; and (F) a statement indicating that such person may file a written request for a hearing on the matters asserted not later than fourteen days after receipt of the notice.

(2) If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice unless such person fails to appear at the hearing. After the hearing, if the commissioner finds that the person has violated any such provision, regulation, rule or order, the commissioner may, in the commissioner’s discretion and in addition to any other remedy authorized by law, order that a civil penalty not exceeding one hundred thousand dollars per violation be imposed upon such person. If such person does not request a hearing within the time specified in the notice or fails to appear at the hearing, the commissioner may, as the facts require, order that a civil penalty not exceeding one hundred thousand dollars per violation be imposed upon such person.

(3) Each action undertaken by the commissioner under this subsection shall be in accordance with the provisions of chapter 54.

Section 36a-50(c) of the Connecticut General Statutes states, in part:

Whenever the commissioner finds as the result of an investigation that any person has violated any provision of the general statutes within the jurisdiction of the commissioner, or any regulation, rule or order adopted or issued under such provisions, the commissioner may, in addition to any other remedy authorized by law, order such person to (1) make restitution of any sums shown to have been obtained in violation of any such provision, regulation, rule or order plus interest at the legal rate set forth in section 37-1; (2) provide disgorgement of any sums shown to have been obtained in violation of any such provision, regulation, rule or order; or (3) both make restitution and provide disgorgement in accordance with subdivisions (1) and (2) of this subsection. After the commissioner issues such an order, the person named in the order may, not later than fourteen days after the receipt of such order, file a written request for a hearing. The order shall be deemed received by the person on the earlier of the date of actual receipt or seven days after mailing or sending. Any such hearing shall be held in accordance with the provisions of chapter 54.

Section 36a-52(a) of the Connecticut General Statutes states, in part:

Whenever it appears to the commissioner that any person has violated, is violating or is about to violate any provision of the general statutes within the jurisdiction of the commissioner, or any regulation, rule, or order adopted or issued thereunder, the commissioner may send a notice to such person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice shall be deemed received by the person on the earlier of the date of actual receipt, or seven days after mailing or sending. Any such notice shall include: (1) A statement of the time, place, and nature of the hearing; (2) a statement of the legal authority and jurisdiction under which the hearing is to be held; (3) a reference to the particular sections of the general statutes, regulations, rules or orders alleged to have been violated; (4) a short and plain statement of the matters asserted; and (5) a statement indicating that such person may file a written request for a hearing on the matters asserted within fourteen days of receipt of the notice. If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice, unless the person fails to appear at the hearing. After the hearing, the commissioner shall determine whether an order to cease and desist should be issued against the person named in the notice. If the person does not request a hearing within the time specified in the notice or fails to appear at the hearing, the commissioner shall issue an order to cease and desist against the person. No such order shall be issued except in accordance with the provisions of chapter 54.

Section 36a-1-31(a) of the Regulations of Connecticut State Agencies states, in part:

When a party fails to request a hearing within the time specified in the notice, the allegations against the party may be deemed admitted.  Without further proceedings or notice to the party, the commissioner shall issue a final decision in accordance with section 4-180 of the Connecticut General Statutes and section 36a-1-52 of the Regulations of Connecticut State Agencies.

B. Findings Of Fact And Conclusions Of Law

1. The Commissioner finds that the matters asserted, as set forth in paragraphs 1 through 14, inclusive, of Section II of the Notice, shall constitute findings of fact within the meaning of Section 4-180(c) of the Connecticut General Statutes, and that the conclusions, as set forth in paragraphs 1 through 7, inclusive, of Section III of the Notice shall constitute conclusions of law within the meaning of Section 4-180(c) of the Connecticut General Statutes and Section 36a-1-52 of the Regulations of Connecticut State Agencies.
2. The Commissioner finds that Great Plains has engaged in acts or conduct which, pursuant to Sections 36a-573(c) and 36a-52(a) of the Connecticut General Statutes, forms the basis to issue an order to cease and desist against Great Plains, and, pursuant to Sections 36a-573(c) and 36a-50(a) of the Connecticut General Statutes, forms the basis to impose a civil penalty upon Great Plains.
3. The Commissioner finds that Shotton has engaged in acts or conduct which, pursuant to Sections 36a-573(c) and 36a-52(a) of the Connecticut General Statutes, forms the basis to issue an order to cease and desist against Shotton, and, pursuant to Sections 36a-573(c) and 36a-50(a) of the Connecticut General Statutes, forms the basis to impose a civil penalty upon Shotton.
4. The Commissioner finds that Clear Creek has engaged in acts or conduct which, pursuant to Section 36a-52(a) of the Connecticut General Statutes, forms the basis to issue an order to cease and desist against Clear Creek, and, pursuant to Section 36a-50(a) of the Connecticut General Statutes, forms the basis to impose a civil penalty upon Clear Creek.
5. The Commissioner finds that the Notice was given in compliance with Sections 36a-52(a), 36a-50(a) and 4-177(b) of the Connecticut General Statutes.

C. Restated Order
Having read the record, I HEREBY MAINTAIN AND RESTATE THE FINAL ORDER, pursuant to Sections 36a-573(c), 36a-52(a) and 36a-50(a) of the Connecticut General Statutes, that:

1. Great Plains Lending, LLC CEASE AND DESIST from violating subdivisions (1) and (2) of Section 36a-555 and Section 36a-573(a) of the Connecticut General Statutes, including, but not limited to, enforcing such loans by any means;
2. A CIVIL PENALTY of Seven Hundred Thousand Dollars ($700,000) be imposed upon Great Plains Lending, LLC to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than thirty (30) days from the date this Order is mailed;
3.
John R. Shotton CEASE AND DESIST from participating in the violation of subdivisions (1) and (2) of Section 36a-555 and Section 36a-573(a) of the Connecticut General Statutes;
4. A CIVIL PENALTY of Seven Hundred Thousand Dollars ($700,000) be imposed upon John R. Shotton to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than thirty (30) days from the date this Order is mailed;
5.
Clear Creek Lending CEASE AND DESIST from violating Section 36a-555(2) of the Connecticut General Statutes;
6.
A CIVIL PENALTY of One Hundred Thousand Dollars ($100,000) be imposed upon Clear Creek Lending to be remitted to the Department of Banking by cashier’s check, certified check or money order, made payable to “Treasurer, State of Connecticut”, no later than thirty (30) days from the date this Order is mailed;
7.
This Order became effective January 7, 2015 and remains in effect.
III. RULING ON MOTION TO DISMISS
In its First and Second Decisions, the Court found that the Intermediate Ruling was erroneous and ultimately remanded the matter so that the Commissioner could determine whether Great Plains and Clear Creek are arms of the Tribe and whether Shotton has tribal sovereign immunity from the financial penalties the Commissioner seeks to impose and from prospective injunctive relief.

At the outset, the Final Order that was issued on January 6, 2015 was a default order by virtue of Respondents’ failure to request a hearing in accordance with the UAPA. As mentioned above, the Notice issued on October 24, 2014 invited Respondents to “present evidence, rebuttal evidence and argument on all issues of fact and law.” (AR 14). Respondents, as the Court found6, failed to timely request a hearing and the Final Order was consequently issued. The default Final Order did not address the jurisdictional claims of tribal sovereign immunity that were raised informally on behalf of Respondents through the Motion to Dismiss and, therefore, the Final Order did not rely on the Intermediate Ruling.  Whether the  Intermediate Ruling was flawed is irrelevant to the default Final Order.

Tribal sovereign immunity is a jurisdictional defense that Respondents should have raised at an administrative hearing. Section 4-177c of the Connecticut General Statutes provides that in a contested case, “each party and the agency conducting the proceedings shall be afforded the opportunity . . . at a hearing, to respond, to cross-examine other parties, intervenors, and witnesses, and to present evidence and argument on all issues involved.” Section 36a-1-31(a) of the Regulations of Connecticut State Agencies provides that “[w]hen a party fails to request a hearing within the time specified in the notice, the allegations against the party may be deemed admitted. Without further proceedings or notice to the party, the commissioner shall issue a final decision in accordance with section 4-180 of the Connecticut General Statutes and section 36a-1-52 of the Regulations of Connecticut State Agencies. . .”  Respondents had the opportunity to raise their jurisdictional claim by requesting a hearing with the Department. Strategically choosing to make their arguments informally and in a unilateral manner by merely submitting documents to the Department without the benefit of a hearing is not a substitute for utilizing UAPA procedure and does not absolve Respondents for the failure to exhaust the administrative remedy (i.e. participation in a hearing) available to them. Respondents’ submission of a Motion to Dismiss does not, and cannot, waive the requirement to appear at a UAPA hearing to raise any issues of fact or law, including tribal sovereign immunity.

Despite Respondents’ claim of tribal sovereign immunity being procedurally improper, in order to comply with the Court’s Second Decision, the Commissioner will determine whether, based on the administrative record as it existed when the Final Order was issued on January 6, 2015, Respondent businesses Great Plains and Clear Creek are “arms of the tribe” entitled to tribal sovereign immunity and whether such immunity also protects individual Respondent Shotton. As discussed in greater detail below, the limited and inadequate record before the Department fails to show that either Great Plains or Clear Creek is an arm of the Tribe. In addition, Shotton’s involvement is not based on actions within the scope of his authority and applicable law does not extend tribal sovereign immunity to individuals under these circumstances. Therefore, assuming arguendo that the tribal sovereign immunity jurisdictional defense is properly before the Department, as a matter of policy and judgment, the Commissioner finds that (1) neither Great Plains nor Clear Creek are arms of the Tribe and (2) tribal sovereign immunity does not protect Shotton from the Department’s action.
A.  Findings of Fact
1. The matters asserted, as set forth in paragraphs 1 through 14, inclusive, of Section II of the Notice (AR 4-5), are facts within the meaning of Section 4-180(c) of the Connecticut General Statutes as they were deemed admitted pursuant to Section 36a-1-31(a) of the Regulations of Connecticut State Agencies (AR 163-164, see also II.B.1. supra).
2.
The Otoe-Missouria Tribe of Indians Limited Liability Company Act (“LLC Act”) provides for the organization of “entities to promote economic development and the general welfare of the Otoe-Missouria Tribe of Indians” (AR 63).
3.  A limited liability company may be formed under the LLC Act for any lawful purpose (AR 66).
4.
The LLC Act explicitly states that “[n]othing contained in [the] Act shall be construed as creating any liability . . . of the Tribe in any manner; provided that the assets of the LLC in which the Tribe holds an interest may be subject to liabilities and claims unless otherwise provided herein” (AR 66).
5. Under Part 6, Section 601 of the LLC Act, all property originally transferred to or acquired by a limited liability company is property of the company and not property of the Tribe’s members individually (AR 80).
6.  Under Part 9, Subpart 1, Section 913 of the LLC Act, an LLC may grant limited waivers of its immunity from suit and consent to be sued, but no such waiver or consent can extend to any action against the Tribe (AR 88).
7.  Under Part 9, Subpart 1, Section 913 of the LLC Act, any recovery against the LLC is limited to the assets of the LLC and the Tribe is not liable for the payment or performance of any of the obligations of the LLC (AR 88).
8. The LLC Act explicitly provides that “no recourse shall be had against any assets or revenues of the Tribe in order to satisfy the obligations of the LLC; including assets of the Tribe leased, loaned, or assigned to the LLC for its use, without transfer of title” (AR 88).
9. Under Part 9, Subpart 1, Section 914 of the LLC Act, all LLC interests in a limited liability company wholly owned by the Tribe are held by and for the Tribe. No individual citizen of the Tribe has any personal ownership interest in any LLC organized under the LLC Act, whether by virtue of such person’s status as a citizen of the Tribe, as an officer of the government of the Tribe, or otherwise (AR 88).
10. Under Part 9, Subpart 5, Section 952 of the LLC Act, management of an LLC wholly owned by the Tribe must submit various financial statements, business reports and budget information to the Chairman of the Tribal Council (AR 91).
11. Great Plains’ Operating Agreement indicates that the Tribe desired to form Great Plains as a limited liability company for the purpose of carrying on a for-profit business and to further the economic goals and initiatives of the Tribe, and its business is “[t]o accomplish any lawful purpose which shall at any time appear conducive or expedient for the protection or benefit of the Company and its assets” (AR 119, 120).
12.
According to Great Plains’ Operating Agreement:
a. Great Plains’ management is vested in a board of directors that is appointed and can be removed by the Tribal Council (AR 122).
b.
Great Plains has five initial directors (AR 122).
c.  The Tribe has no liability to creditors of Great Plains (AR 122).
d.
“It is intended that the Company will operate separately from the Tribe and will not require continuing financial support from the Tribe” (AR 122).
e. All profits and losses are allocated to the Tribe, all cash flow is distributed to the Tribe, and upon dissolution of the company, any assets remaining after payment of Great Plains’ debts and obligations will be distributed to the Tribe (AR 122).
f.  “As an entity separate from the Tribe, the Company shall either contract with independent professionals for accounting, legal and other services which the Company may require; or may contract with the Tribe to obtain such services from the Tribe’s internal operating departments on such terms as shall be agreed between the Directors on behalf of the Company and the Tribal Council on behalf of the Tribe” (AR 124).
13. The Secretary of the Tribal Council of the Tribe issued a Certificate of Incorporation to American Web Loan, Inc. on February 10, 2010 (AR 98).
14. The Tribal Council approved a resolution registering “Clear Creek Lending” as a fictitious name of American Web Loan, Inc. on September 4, 2013 (AR 101-102).

B.  Discussion

Arm of the Tribe

The first determination the Court asked the Commissioner to make is whether Great Plains and Clear Creek are arms of the Otoe-Missouria Tribe of Indians (“Tribe”). In a memorandum7 submitted with their Motion to Dismiss, Respondents claim that sovereign immunity extends to the Tribe’s wholly-owned business entities because those entities are “instrumentalities of the Tribe.” (AR 39). The “burden of proof for an entity asserting immunity as an arm of a sovereign tribe is on the entity to establish that it is, in fact, an arm of the tribe.” Gristede’s Foods, Inc. v. Unkechuage Nation, 660 F. Supp. 2d 442, 466 (E.D.N.Y. 2009) (see also People ex rel. Owen v. Miami Nation Enterprises, 386 P.3d 357, 365 (2016)). Merely asserting that one is entitled to sovereign immunity by way of a connection to a tribe is insufficient to shield a respondent from jurisdiction; rather, the respondent must provide evidence to establish that it is, in fact, an arm of a tribe.8 Accordingly, Respondents bear the burden of proving that Great Plains and Clear Creek are arms of the Tribe.

The application and scope of tribal sovereign immunity is a matter of federal law. “The United States Supreme Court has never held that corporations affiliated with an Indian tribe have sovereign immunity,” but federal cases provide some guidance as to when entities claiming affiliation with a sovereign can invoke the sovereign’s immunity from suit.” Sue/Perior Concrete & Paving, Inc. v. Lewiston Golf Course Corp., 24 N.Y.3d 538, 548 (N.Y. 2014) (“Sue/Perior”). “Among the core aspects of sovereignty that tribes possess . . . is the ‘common-law immunity from suit traditionally enjoyed by sovereign powers.” Michigan v. Bay Mills Indian Community, 134 S. Ct. 2024, 2030 (2014) (quoting Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58, 98 (1978) (“Bay Mills”). Immunity from suit, as a “necessary corollary” to sovereignty9, “directly protects the sovereign Tribe’s treasury, which is one of the historic purposes of sovereign immunity in general.” Allen v. Gold Country Casino, 464 F. 3d 1044, 1047 (9th Cir. 2006). Tribal businesses, however, “‘have no inherent immunity of their own,’ and enjoy immunity only to the extent the tribe’s immunity is extended to them.” Seaport Loan Products, LLC v. Lower Brule Community Development Enterprise LLC, 981 N.Y.S.2d 638 (Sup. Ct. 2013) (quoting Am. Prop. Mgmt. Corp. v. Superior Court, 206 Cal. App. 4th 491, 500 (Cal. Ct. App. 2012). “Official tribal enterprises that act as [an] . . . arm of the tribe are immune from suit as an extension of the tribe’s sovereign immunity.” Gristede’s Foods, 660 F. Supp. 2d at 477.

In the absence of United States Supreme Court guidance as to the factors an entity must establish to be entitled to arm of the tribe status, courts have reached a variety of conclusions.10  After carefully analyzing the relevant decisions and the policy implications of each approach, the Commissioner concludes that the New York Court of Appeals’ decision in Sue/Perior provides the most appropriate framework for determining whether a tribally-owned business is an arm of the tribe shielded by tribal sovereign immunity.  That court applied a nine-factor test, reasoning that:

Although no set formula is dispositive, in determining whether a particular tribal organization is an ‘arm’ of the tribe entitled to share the tribe’s immunity from suit, courts generally consider such factors as whether: [1] the entity is organized under the tribe’s laws or constitution rather than Federal law; [2] the organization’s purposes are similar to or serve those of the tribal government; [3] the organization’s governing body is comprised mainly of tribal officials; [4] the tribe has legal title or ownership of property used by the organization; [5] tribal officials exercise control over the administration or accounting activities of the organization; and [6] the tribe’s governing body has power to dismiss members of the organization’s governing body. More importantly, courts will consider whether [7] the corporate entity generates its own revenue, whether [8] a suit against the corporation will impact the tribe’s fiscal resources, and whether [9] the subentity has the power to bind or obligate the funds of the tribe. The vulnerability of the tribe’s coffers in defending a suit against the subentity indicates that the real party in interest is the tribe.

Sue/Perior, 24 N.Y.3d at 546-47 (quotation marks omitted).

As a preliminary matter, Respondent Clear Creek failed, by any reasonable measure, to satisfy its burden of proof and to provide any meaningful or reliable evidence that Clear Creek is an arm of the Tribe. Even if the documents relating to Clear Creek that were submitted by Respondents outside the scope of a hearing are given consideration, there is no evidence that Clear Creek’s relationship with the Tribe warrants the extension of tribal sovereign immunity to the entity Clear Creek. Specifically, Clear Creek did not provide the Tribe’s Corporation Act or Clear Creek’s Operating Agreement, evidence that is essential to the analysis of arm of the tribe status. Because Clear Creek did not provide any evidence that it is an arm of the Tribe, Clear Creek failed to meet its burden to prove that it is an arm of the Tribe. The remaining arm of the tribe discussion will focus on Respondent Great Plains.

The nine Sue/Perior factors deal with two main concepts – (1) the financial relationship between an entity and a tribe (see factors [4], [7], [8] and [9], supra) and (2) the organization, purpose and governance of the entity (see factors [1], [2], [3], [5] and [6], supra). The financial relationship is the most significant concept in determining whether a tribal business is an arm of the tribe entitled to the protections of immunity from suit. “[P]rotection of a tribal treasury against liability in a corporate charter is strong evidence against the retention of sovereign immunity by the corporation.” Id. at 551(emphasis added). If a judgment against the business would reach the tribe’s assets, if a business has the power to bind or obligate the funds of the tribe or if the tribe is legally responsible for the business’ obligations, then the financial relationship between the entity and the tribe may be so connected that the entity should be considered an arm of the tribe.12  On the other hand, the passing of revenue from the tribal business to the tribe is not a relevant factor in evaluating the financial relationship between the business and the tribe.  For instance, in Sue/Perior, the tribal business argued that a lawsuit against it “would have an economic impact on the [tribe] because revenues that would otherwise be distributed to the [tribe] will not be available.” Id. at 550. The Court reasoned that whether the tribe’s “revenues will become part of the [tribe’s] resources . . . is beside the point. The test, with respect to the financial relationship factors . . ., is not the indirect effects of any liability on the tribe’s income, but rather whether the immediate obligations are assumed by the tribe.” Id.

In the present case, both the LLC Act and Great Plains’ Operating Agreement clearly protect the Tribe and its treasury from liability. The LLC Act provides that (1) the Tribe has no liability for a limited liability company; (2) a limited liability company can opt to be sued, but cannot bind the Tribe; (3) the Tribe is not liable for the payment or performance of any LLC obligations; (4) there is no recourse against the Tribe; and (5) the company (not the Tribe) owns the property (AR 66, 80, 88). In addition, the Operating Agreement specifies that the Tribe has no liability to Great Plains’ creditors (AR 122). In other words, a judgment against Great Plains would not reach the Tribe, Great Plains does not have the power to bind or obligate the funds of the Tribe, and the Tribe is not legally responsible for Great Plains’ obligations. The Operating Agreement and the LLC Act respectively provide that profits and cash flow will be distributed to the Tribe and that the Tribe owns LLC interests (AR 88, 122). However, as Sue/Perior noted, that revenues pass to the Tribe is not evidence of whether the immediate obligations of Great Plains are assumed by the Tribe. Therefore, the financial relationship between Great Plains and the Tribe weighs heavily against arm of the tribe status for Great Plains.

While not dispositive in the absence of a financial connection between the business and the tribe13, courts have also considered a second set of factors when analyzing an arm of the tribe question that include the organization, purpose and governance of the tribal business. Generally, a business might be deemed an arm of the tribe if it was created under tribal law for tribal purposes or if the tribe exercises a certain level of control over the business. Even if these factors are afforded weight, however, Great Plains has not provided enough evidence to support a finding under these factors that it should be considered an arm of the Tribe.

First, Great Plains did not meet its burden to prove that the business was created for tribal purposes. Creation of a business under tribal law for purposes similar to or serving those of the tribal government weighs in favor of arm of the tribe status but “a tribe has no legitimate interest in selling an opportunity to evade state law.” Sue/Perior, 24 N.Y.3d at 546, 547; Otoe-Missouria Tribe of Indians v. New York State Dep’t of Financial Services, 769 F.3d 105, 114 (2d Cir. 2014)14.  Here, Great Plains was created under tribal law with the stated desire to further the economic goals and initiatives of the Tribe and also expressly formed for the purpose of carrying on a for-profit business and to accomplish any lawful purpose that appears conducive or expedient for the protection of the company and its assets (AR 94-95, 119-120). However, no evidence was submitted to show that Great Plains is actually transferring any money or resources to the Tribe or that the Tribe has in fact benefitted from Great Plains. Without any evidence, it is impossible to know whether the apparent relationship between Great Plains and the Tribe truly serves tribal interests or instead is merely a pretense in order to claim tribal sovereign immunity and evade state law. Uncorroborated statements in organizational documents without any evidence of contractual or financial arrangements, including any evidence showing the flow of profits to the Tribe, simply do not prove that the organization and purpose of the business predominantly serves the tribal government.

Second, Great Plains did not show that the Tribe exercises control over the business. In fact, the record reflects a lack of significant control. Significant control would be evidenced by the composition of the business’ board of directors, whether the tribe has control over the administration or accounting activities of the business, and the level of separation, if any, between the business and the tribe. Sue/Perior, 24 N.Y.3d at 547. Here, Great Plains is controlled by a five-member board of directors, but Respondents did not provide any evidence showing whether a majority of the directors are tribal officials15 (AR 122). Without any such evidence, it is impossible to determine whether the Tribal Council’s power to appoint or remove directors should be afforded any weight (AR 122). The documentation provided by Respondents shows that the Tribe does not have control over the administration or accounting activities of the business, as § 7.5 of Great Plains’ Operating Agreement explicitly states that Great Plains must contract for accounting, legal and other services (AR 124). The Tribe may provide personnel to assist in the performance of these services by way of a contract between Great Plains and the Tribe, but the Tribe does not and cannot independently control these functions. The LLC Act does require the management of an LLC wholly owned by the Tribe to submit financial statements, business reports and budget information to the Chairman of the Tribal Council, but the Act does not provide the Tribe with any corresponding power to control the company’s actions (AR 91). Finally, the Operating Agreement very strongly affirms that Great Plains is a separate entity from the Tribe. § 4.3 states, “It is intended that the Company will operate separately from the Tribe. . .” (AR 122).  § 7.5 also refers to Great Plains as “an entity separate from the Tribe” (AR 124). Together with the sections showing a financial separation between Great Plains and the Tribe discussed above, it is clear that there is a very distinct separation between the two. Accordingly, the Tribe’s lack of significant control over the governance of Great Plains weighs against arm of the tribe status.

Shotton’s Immunity

The final determinations the Court asked the Commissioner to make are whether Shotton has tribal sovereign immunity from (1) financial penalties that the Commissioner seeks to impose and (2) the Commissioner’s request for prospective injunctive relief against future violations of the state’s usury and banking laws. The Commissioner determines, as a matter of policy and judgment, that Shotton does not have tribal sovereign immunity from either the penalties or injunctive relief.

First, Shotton is not entitled to tribal sovereign immunity because Great Plains is not an arm of the Tribe. Tribal immunity cannot be extended to an individual if the entity to which the individual is connected is not itself entitled to tribal immunity.  See, e.g., Gristede’s Foods, 660 F. Supp. 2d at 478 (holding that tribal Chief was not immune from suit “to the extent that he [wa]s sued for acts in his capacity as the owner of” an entity held not to be an arm of the tribe). Since the Commissioner has determined that Great Plains is not an arm of the tribe, tribal sovereign immunity does not shield Shotton from the claims against him individually.

Second, Shotton would not be entitled to tribal sovereign immunity even if Great Plains was an arm of the Tribe because the Department took action against Shotton in his personal capacity and sought to impose individual liability on him. The United States Supreme Court has “never held that individual agents or officers of a tribe are not liable for damages in actions brought by the State.” Oklahoma Tax Com’n v. Citizen Bank Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505, 514 (1991). Rather, the Court has analogized to the principles applicable to suits against state officials and employees in federal court.  Bay Mills, 134 S. Ct. at 2035. In fact, the Court recently stated that “in the context of lawsuits against state and federal employees or entities, courts should look to whether the sovereign is the real party in interest to determine whether sovereign immunity bars the suit.” Lewis v. Clarke, 581 U.S. ____ at 5 (2017). “[L]awsuits brought against employees in their official capacity . . . may . . . be barred by sovereign immunity.” Id. at 6. However, when officers are sued in their personal capacity, the “real party in interest is the individual, not the sovereign.” Id. The Court applied the same reasoning to tribal sovereign immunity, finding that an employee of an arm of the tribe was not protected by immunity in a negligence action arising from a tort the employee committed. Id. at 7.

Here, the Department took action against Shotton in his personal capacity, and not as an official of the Tribe. The applicable statutes allow for the imposition of civil penalties on “any person” who “has violated any provision of the general statutes within the jurisdiction of the commissioner.”16   See Subdivisions (1) and (2) of Subsection (a) of Section 36a-50 of the Connecticut General Statutes. The record reflects that the Department alleged Shotton violated Connecticut law by virtue of his culpable participation in Great Plains’ clear and flagrant violations of the state’s usury and banking laws (AR 4, 7-8). Shotton did not contest the Department’s allegations concerning his direct participation in these violations and consequently, his involvement is properly deemed to be a fact at the administrative stage. In addition, the remedies sought by the Department vis-à-vis Shotton would not reach the Tribe itself as the remedies were an order requiring Shotton to cease and desist from participating in violating state law and a civil penalty levied against him personally. Accordingly, the Commissioner does not find that tribal sovereign immunity extends to Shotton for either the financial penalties or injunctive relief.

Finally, under no circumstances would Shotton be entitled to tribal sovereign immunity from injunctive relief. The Commissioner ordered all three Respondents to cease and desist their violations of Connecticut law and to provide information, in addition to imposing civil penalties and restitution (AR 11-13, 164-165). The cease and desist order and subpoena to provide information were equivalent to injunctive relief and “[t]ribal immunity does not bar . . . a suit for injunctive relief against individuals, including tribal officers, responsible for unlawful conduct” under state law. Bay Mills, 134 S. Ct. at 2035 (first and third emphases added; second in Bay Mills); see also Alabama v. PCI Gaming Auth., 2015 WL 5157426, at *7 (11th Cir. Sept. 3, 2015) (noting based on Bay Mills that “tribal officials may be subject to suit in federal court for violations of state law under the fiction of Ex parte Young when their conduct occurs outside of Indian lands”); Chayoon v. Chao, 355 F.3d 141, 143 (2d Cir. 2004) (holding that tribal sovereign immunity barred suits against tribal officials for money damages, but indicating that prospective relief would be available). Accordingly, the Commissioner concludes that Shotton does not have tribal sovereign immunity from the Commissioner’s request for prospective injunctive relief against future violations of the state’s usury and banking laws.  Shotton must provide information and stop violating Connecticut law regardless of any arm of the tribe determination. 

C. CONCLUSIONS OF LAW

1. Respondents did not raise tribal sovereign immunity as a jurisdictional defense at the proper administrative stage.
2. Both Clear Creek and Great Plains failed to meet their burden to prove that each is, in fact, an arm of the Tribe entitled to tribal sovereign immunity. Even if the Department considered the unsubstantiated documents Respondents unilaterally submitted, Clear Creek simply did not submit any relevant evidence and Great Plains failed to demonstrate that its relationship with the Tribe is meaningful enough to be considered an arm of the tribe. Therefore, neither Clear Creek nor Great Plains are arms of the Tribe.
3.
Shotton does not have immunity from the financial penalties the Commissioner has imposed or from the Commissioner’s order for prospective injunctive relief against future violations of the state’s usury and banking laws.

Dated at Hartford, Connecticut
this 14th day of June, 2017.                   ________/s/_________
                                                               Jorge L. Perez
                                                               Banking Commissioner

CERTIFICATION

I hereby certify that on this 14th day of June, 2017, the foregoing Restated Order and Ruling on Motion to Dismiss was sent by certified mail, return receipt requested, to Respondents’ attorneys:

Anthony Jannotta, Esq.                Certified Mail No. 7016 2070 0001 0462 2781
Dentons US LLP
1900 K. Street, NW
Washington, DC  20006

Saba Bazzazieh, Esq.                    Certified Mail No. 7016 2070 0001 0462 2798
Rosette LLP
1100 H. Street NW, Suite 400
Washington, DC 20005

Robert A. Rosette, Esq.                 Certified Mail No. 7016 2070 0001 0462 2804
Rosette LLP
565 W. Chandler Blvd.
Suite 212
Chandler, AZ  85225

Jeffrey White, Esq.                       Certified Mail No. 7016 2070 0001 0462 2811
Robinson & Cole LLP
280 Trumbull Street
Hartford, CT  06103

________/s/_________
Laura M. DiMeola
Paralegal Specialist

_________________________________

1See Chapter 668, Part III of the Connecticut General Statutes and the regulations adopted thereunder, Sections 36a-570-1 to 36a-570-17, inclusive, of the Regulations of State Agencies.

2The abbreviation “AR” as used throughout this Order refers to the Administrative Record, submitted to the Court in Great Plains Lending, LLC et al., v. State of Connecticut Department of Banking, et al. (HHB-CV15-6028096-S) by the State of Connecticut Department of Banking on June 23, 2015.

3Specifically, the Notice stated that “[t]he enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address.”

4The record reflects that Attorney Anthony Jannotta submitted a letter dated November 4, 2014 to then Commissioner Pitkin and Prosecuting Attorney Stacey L. Serrano indicating his firm and the law firm Rosette, LLP represent the Otoe-Missouria Tribe of Indians on various matters (AR 18); however, the Tribe was not a party to the Notice and Attorney Jannotta did not complete and return the required Appearance and Request for Hearing Form.

5On November 19, 2014, the Department filed an Objection to Motion to Dismiss and on November 26, 2014, Respondents filed a Reply in Support of Motion to Dismiss Administrative Proceedings.

6In ruling on Respondents’ claim that the Department violated their due process, the Court said: “Here the [Respondents] had clear notice of the deadline to request a hearing and the consequences of failing to do so. The [Respondents] simply failed to comply with these procedures. No one denied them any constitutional rights in that regard. The [Respondents] note that, in a footnote in their November 26, 2014 reply brief in support of their motion to dismiss the administrative proceedings, they expressly reserved their right to contest the proceedings on the merits. (ROR, p. 146, n.1.) Ordinarily, the passing mention of a matter in a reply brief is an inadequate way of raising a claim on the merits . . . In any event, the request was late.” (Memorandum of Decision, J. Carl J. Schuman, November 23, 2015, p. 18.)

7“Memorandum of Points and Authorities in Support of Specially Appearing Respondents’ Motion to Dismiss Temporary Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Issue Order to Cease and Desist, Notice of Intent to Impose Civil Penalty, and Notice of Right to Hearing, for Lack of Personal and Subject Matter Jurisdiction” (AR 28-46).

8If the mere assertion of immunity sufficed, it would be possible for any company to claim a tribal connection, regardless of the facts and how remote or legally irrelevant that connection is, to enjoy the protections of sovereign immunity and violate state law unless the Department expends investigatory resources or has access to the facts to show otherwise. For example, CashCall, Inc. (“CashCall”), a California company that was engaging in small loan lending in Connecticut, claimed tribal sovereign immunity from the Department’s action.  However, materials submitted to support its claim showed that a limited liability company owned by a member of a tribe assigned loans to CashCall. Had the Department been unable to track the relationship between the companies and the individual tribal member or been unaware of actions in other states that ruled against CashCall’s similar claims of immunity, and if CashCall did not have the burden to prove its entitlement to immunity, the Department would have had to accept CashCall’s unsupported claim, leaving Connecticut residents harmed by the company’s improper lending without reasonable recourse. See Connecticut Department of Banking case: In the Matter of CashCall, Inc. (NMLS Number 38512), February 4, 2014.

9Bay Mills, 134 S. Ct. at 2030 (quoting Three Affiliated Tribes of Fort Berthold Reservation v. World Engineering, P.C., 476 U.S. 877, 890 (1986)).

10Respondents cited three cases in their brief to the Court: Allen; Cook v. AVI Casino Enters., Inc., 548 F.3d 718 (9th Cir. 2008); and Breakthrough Mgmt. Grp., Inc. v. Chukchansi Gold Casino & Resort, 629 F .3d 1173, 1187 (10th Cir. 2010). Plaintiffs’ Brief 19 (August 10, 2015). However, these cases pre-date Bay Mills and emphasize factors that assess a tribe’s subjective intent in bestowing arm of the tribe status on an entity, rather than financial factors that assess whether a judgment against the entity would actually impact the tribe. The financial factors discussed below better address Bay Mills’ clear concern for the abuse of tribal sovereign immunity and the preservation of a state’s ability to prevent violations of its laws outside of tribal lands.

11In Bay Mills, a sharply divided U.S. Supreme Court determined, 5-4, that a tribe defendant could assert tribal sovereign immunity.  In reaching its decision as to the tribe defendant, the majority noted that the state had "many alternative remedies," Bay Mills, 134 S. Ct. at 2036 n.8—including actions against the "tribal officers, responsible for unlawful conduct," Id. at 2035—and noted that the Court "need not consider whether the situation would be different if no alternative remedies were available."  Id. at 2036 n.8. Such a situation could "present a 'special justification' for abandoning" tribal sovereign immunity – even as to the tribe defendant. Id.

12“If 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’ (Ransom, 86 N.Y.2d at 559 . . .), then the corporation is not an ‘arm’ of the tribe. However, if a tribe is legally responsible for a corporation’s obligations, the tribe is ‘the real party in interest’ (id. at 560. . .).” Sue/Perior, 24 N.Y.3d at 550 (parallel cites and parenthetical omitted).

13Sue/Perior, quoting Ransom, emphasizes that the financial factors are more important because the “vulnerability of the tribe’s coffers in defending a suit against the subentity indicates that the real party in interest is the tribe.” Sue/Perior , 24 N.Y.3d. at 547 (quoting Matter of Ransom v. St. Regis Mohawk Educ. & Community Fund, 86 N.Y.2d 553, 559, 560). Moreover, in the limited discussion in Allen, a case relied on by Respondents (see footnote 10, supra), the Court expressly noted that “[i]mmunity of the [tribal business] directly protects the sovereign tribe’s treasury, which is one of the historic purposes of sovereign immunity in general.” Allen, 464 F.3d at 1047.

14The United States Supreme Court has noted that tribal sovereign immunity is being abused to protect "payday lenders (companies that lend consumers short-term advances on paychecks at interest rates that can reach upwards of 1,000 percent per annum) [that] often arrange to share fees or profits with tribes so they can use tribal immunity as a shield for conduct of questionable legality." Bay Mills, 134 S. Ct. 2024 at 2052 (Thomas, J., dissenting, joined by Scalia, Ginsburg and Alito, Js. (citing Martin & Schwartz, The Alliance Between Payday Lenders and Tribes: Are Both Tribal Sovereignty and Consumer Protection at Risk?, 69 Wash. & Lee L. Rev. 751, 758-59, 777 (2012)).

15At best, it appears in the Resolution creating Great Plains that two of the five members of Great Plains’ board of directors might be tribal officials (AR 94). However, the Operating Agreement is not as specific and it is not clear which document (Resolution or Operating Agreement) controls, leaving the Commissioner unable to find as a matter of fact that at least three tribal officials are also directors of Great Plains. Moreover, even if it was shown that all directors were also tribal officers, it would still not prove that the Tribe exercised a significant level of control over the business.

16The Department has named corporate officers in their personal capacity in numerous administrative actions. See Connecticut Department of Banking cases: In the Matter of Another Level Capital Venture, Inc (d/b/a Quick Legal Solutions), Michael Taylor, and Quick Mortgage Solutions Division of: Quick Legal Solutions, October 10, 2015; In the Matter of Home Loan Division, Serrano Financial LLC d/b/a Default Servicing, and Kelvin Pickering, March 2, 2015;  In the Matter of UMC, Inc. d/b/a United Mortgage Consulting and Brandon P. Chodosh, December 8, 2014; and In the Matter of Western Sky Financial, L.L.C. and Martin A. Webb, September 23, 2013.


Administrative Orders and Settlements