Nonexistent Governing Law Defeats Mutual Assent to FAA Delegation and Arbitration

1. Introduction

This putative class action arose from small-dollar online loans to Illinois consumers at annual interest rates near 500%. Plaintiffs Joshua Harris and Donita Olds borrowed $600 each from W6LS, Inc. (doing business as WithU/WithU Loans), with Caliber Financial Services, Inc. managing underwriting and collections. Both defendants were organized under the laws of the Otoe-Missouria Tribe of Indians, which held an ownership stake.

The central procedural battle concerned arbitration. The loan contracts contained (i) a broad arbitration clause and (ii) a delegation provision assigning “gateway” issues—validity, formation, enforceability, and arbitrability—to the arbitrator. Critically, the contracts directed the arbitrator to resolve those issues under “Applicable Law,” defined as “Tribal Law and applicable federal law.” But the Tribe’s “Tribal Contract Code” was not enacted until May 2, 2024, after the loans were made (2022–2023). Plaintiffs sued under Illinois consumer-protection/rate-cap statutes and federal statutes including RICO and the Electronic Funds Transfer Act. Defendants moved to compel individual arbitration; the district court denied the motion, relying on prospective waiver. The Seventh Circuit affirmed on a different, contract-formation ground: no mutual assent to arbitrate under nonexistent governing law.

2. Summary of the Opinion

The Seventh Circuit affirmed denial of the motion to compel arbitration. It held that, under ordinary contract formation principles, both the delegation provision and the arbitration agreement failed for lack of mutual assent because they required application of (a) “applicable federal law,” which supplies no general body of contract-formation rules, and (b) “tribal law” that did not exist when the plaintiffs signed. The later-enacted Tribal Contract Code (even if declared retroactive) could not supply the missing mutual assent at the time of contracting.

Although the district court invalidated the clauses under the prospective-waiver doctrine (forcing waiver of Illinois statutory rights), the Seventh Circuit did not reach that question. It noted, however, that Viking River Cruises, Inc. v. Moriana suggests prospective waiver is “not … unique [to] federal statutes,” leaving the full scope of state-law prospective waiver for a future case.

3. Analysis

3.1 Precedents Cited (and How They Drive the Result)

A. Arbitration is contract; arbitrability is ordinarily for courts unless clearly delegated

• Rent-A-Center, West, Inc. v. Jackson: The court leaned on two core propositions: (1) “arbitration is a matter of contract,” and (2) a delegation clause is a separate, antecedent arbitration agreement that must itself be valid. This framing mattered because Harris/Olds challenged the delegation and arbitration provisions specifically, not merely the “container” loan contract.
• Coinbase, Inc. v. Suski: Supplied the modern emphasis that arbitration is “strictly a matter of consent,” and reiterated that delegation requires “clear and unmistakable evidence.” It also provided the analytic tool the panel used to treat the delegation clause and the arbitration clause as failing for the same reason when the defect “applies equally” to both.
• Granite Rock Co. v. Int'l Bhd. of Teamsters and K.F.C. v. Snap Inc.: Reinforced the sequencing: before enforcing arbitration, a court must be satisfied the parties formed an agreement to arbitrate.
• AT&T Techs., Inc. v. Commc'ns Workers: Provided the doctrinal source for the “clear and unmistakable evidence” requirement for delegation—important because defendants sought to push even formation/enforceability questions to the arbitrator.
• Rock Hemp Corp. v. Dunn and United Natural Foods, Inc. v. Teamsters Local 414: Supplied the Seventh Circuit’s standard framework for compelling arbitration and the FAA’s interlocutory appeal mechanism, anchoring the panel’s authority to decide the question now.

B. FAA policy favoring arbitration does not relax formation rules

• New Prime Inc. v. Oliveira and GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC: These cases were invoked to show that the FAA’s pro-arbitration policy puts arbitration agreements on the “same footing” as other contracts, rather than immunizing them from ordinary formation and definiteness requirements.

C. Severability doctrine—what must be challenged, and why formation challenges matter

• Buckeye Check Cashing, Inc. v. Cardegna: Provided the core severability principle separating arbitration clauses from the remainder of the contract.
• Rent-A-Center, West, Inc. v. Jackson (again): Extended severability one level deeper: delegation is severable from arbitration; thus, a specific formation attack on delegation is cognizable.
• Sauer-Getriebe KG v. White Hydraulics, Inc.: Seventh Circuit support for treating the arbitration agreement and the underlying commercial agreement as “separate.”
• MZM Constr. Co., Inc. v. N.J. Bldg. Laborers Statewide Benefit Funds: Cited as persuasive authority clarifying “container contract” vs. “nested” arbitration agreement, helping rebut defendants’ argument that plaintiffs’ statutory claims necessarily conceded formation of the arbitration/delegation terms.

D. Contract formation and definiteness—mutual assent is assessed at the time of contracting

• First Options of Chicago, Inc. v. Kaplan: Supplied the baseline rule that courts apply “ordinary state-law principles” of contract formation to determine whether the parties agreed to arbitrate (including arbitrability).
• Faulkenberg v. CB Tax Franchise Sys., LP, Stawski Distrib. Co. v. Browary Zywiec S.A.: These were used mainly as contrasts. Defendants relied on them to argue courts can enforce arbitration even if a choice-of-law clause is unenforceable or bypassed; the panel distinguished them because the problem here was not merely an invalid choice-of-law clause but a failure of assent to an essential feature of the arbitration/delegation bargain.
• Rodgers-Rouzier v. Am. Queen Steamboat Operating Co., LLC and Druco Rests., Inc. v. Steak N Shake Enters.: Provided the point that the FAA does not supply substantive contract-formation law, undermining the contract’s instruction to apply “applicable federal law.”
• Kass v. PayPal Inc. (citing Arbogast v. Chicago Cubs Baseball Club, LLC), Bus. Sys. Eng'g, Inc. v. Int'l Bus. Machs. Corp. (quoting Acad. Chicago Publishers v. Cheever), and In re Broiler Chicken Antitrust Litig. (citing Abbott Laboratories v. Alpha Therapeutic Corp.): These cases furnished the Illinois-law articulation of mutual assent/definiteness and the time-of-contracting lens. The panel’s key move was to treat the governing-law specification as material to the arbitration/delegation promises because it defined the rules under which the alternative forum would decide formation, enforceability, and related gateway disputes.
• Sosa v. Onfido, Inc.: Used to justify bypassing a hard choice-of-law fight (tribal vs. Illinois) because both regimes (as presented) required mutual assent, so no outcome-determinative conflict.

E. Tribal-law arbitration clauses and “illusory” dispute mechanisms

• Jackson v. Payday Financial, LLC: The opinion’s most direct analogue. There, arbitration was to be conducted by a tribal nation that had no procedures—an “illusory forum.” While Jackson ultimately turned on unconscionability, the Seventh Circuit highlighted its observation that mutuality of intent was not apparent where consumers agreed only to arbitration under “carefully controlled circumstances—circumstances that never existed.” Harris extends that logic from missing procedures to missing governing law.

F. The opinion’s caution about non-neutral “arbitration” structures

• Flores v. New York Football Giants, Inc.: Cited to support skepticism that a process remains “arbitration” under the FAA when one side has unilateral control over the arbitral architecture in a way that undermines neutrality—here, the Tribe’s (and thus effectively defendants’) ability to invent controlling contract law after disputes arise.

G. Prospective waiver / effective vindication

• Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, Gilmer v. Interstate/Johnson Lane Corp.: Provided the classic federal-rights framing: arbitration is a forum change, not a substantive-rights forfeiture.
• Preston v. Ferrer: Noted as an example where the Court rejected a prospective-waiver argument even though state-law rights were implicated.
• American Express Co. v. Italian Colors Restaurant (Kagan, J., dissenting), Dr.'s Assocs., LLC v. Tripathi, Ferguson v. Corinthian Colls., Inc.: Reflected defendants’ argument that effective vindication is limited to conflicts between the FAA and other federal statutes.
• Viking River Cruises, Inc. v. Moriana: The Seventh Circuit treated this as a significant recent signal that prospective waiver may not be uniquely federal—an important flag for future litigation over state-law claim-stripping in arbitration clauses, even though the panel declined to decide it.

3.2 Legal Reasoning: Why “Nonexistent Law” Breaks Assent

The court’s reasoning is best understood as a formation/definiteness holding, not a hostility-to-arbitration holding: the FAA enforces arbitration agreements only as contracts. The arbitration clause here did more than choose a forum; it specified that the arbitrator “must apply” a defined set of governing law to decide gateway and arbitration disputes. Yet at contracting:

• “Applicable federal law” could not fill the gap because federal arbitration law does not supply a general common law of contract formation. Thus, even if federal law governed enforceability of the arbitration clause, it could not supply the missing substantive contract rules the parties purported to select.
• “Tribal law” (as to contracts) did not exist because the Tribal Contract Code was enacted in 2024, after the loans and after the lawsuit commenced. A later declaration of retroactivity could not retroactively create the borrowers’ assent at the time they clicked/entered the agreement.
• The missing law was material to the arbitration/delegation bargain because the agreement did not simply say “arbitrate”; it said arbitrate (and decide arbitrability) under a specified body of law. With no such body of law in existence, the court could not ascertain “what the parties have agreed to do.”
• The unilateral “invention” risk intensified the assent problem given the Tribe’s financial/proprietary link to defendants and the potential to draft dispute-controlling contract defenses (the opinion notes the Code’s omission of unconscionability). That structure made it especially implausible that consumers knowingly agreed to a system where the governing legal rules could be written later by an interested sovereign.

The panel also drew a careful distinction between (i) choosing an existing jurisdiction’s law that may evolve over time (a risk parties can knowingly bear), and (ii) choosing a body of law that is nonexistent at the moment of assent and therefore subject to later invention rather than ordinary legal change.

3.3 Impact: What This Opinion Likely Changes

• Drafting constraint on tribal-law-only arbitration clauses: Lenders (and other businesses) cannot safely rely on arbitration/delegation provisions that require application of tribal “contract law” if no such law exists at contracting or if the agreement does not provide an ascertainable, neutral set of decision rules. This is especially salient for online consumer loans where “tribal law” is invoked to avoid state rate caps.
• Formation becomes a front-end gatekeeper even before prospective waiver: Plaintiffs may increasingly challenge arbitration clauses via definiteness/mutual assent (a traditional contract inquiry) rather than unconscionability or effective vindication—potentially a more straightforward path because it keeps the dispute within familiar contract-formation doctrine.
• Delegation clauses are not a safe harbor: The decision underscores that a delegation provision can fail on the same formation defect as the arbitration clause—so defendants cannot reliably “delegate away” judicial scrutiny when the problem is whether any assent to delegate existed.
• Signaling on state-law prospective waiver after Viking River Cruises: Although the panel reserved the issue, its discussion suggests greater receptivity to arguments that arbitration clauses cannot strip state statutory rights by choice-of-law engineering, foreshadowing future Seventh Circuit engagement with the scope of effective vindication in state-law contexts.

4. Complex Concepts Simplified

• Delegation provision: A clause that says the arbitrator—not a judge—decides “gateway” questions such as whether the arbitration agreement is valid or applies. It is treated as its own mini-arbitration agreement and must be independently formed and enforceable.
• Arbitrability: The set of threshold questions about whether a dispute must be arbitrated at all (e.g., “Is the arbitration clause enforceable?” “Does this claim fall within it?”).
• Severability: The doctrine that an arbitration clause (and a delegation clause) is separable from the rest of the contract. Even if the main contract is challenged, the arbitration clause can survive— but only if the arbitration clause itself is validly formed and not specifically challenged on formation/defense grounds.
• Mutual assent / meeting of the minds: The requirement that both sides agree to the same essential terms at the time of contracting. If an essential term is too indefinite—here, the governing law the arbitrator must apply—there may be no contract on that subject.
• Prospective waiver / effective vindication: The principle that arbitration may change the forum but cannot require a party to give up substantive legal rights in advance. The Seventh Circuit did not decide its state-law scope here, but flagged the issue.

5. Conclusion

Harris v. W6LS establishes a practical formation rule for arbitration in consumer contracts: when an arbitration agreement (and its delegation clause) is built around a specified governing law, the parties must have been able to assent to an ascertainable body of law at the moment of contracting. Selecting “tribal contract law” that does not yet exist—and pairing it with “applicable federal law” that supplies no general contract-formation rules—creates an indefiniteness problem that defeats mutual assent. The Seventh Circuit thus affirmed denial of arbitration without needing to decide the broader prospective-waiver question, while signaling that post-Viking River Cruises litigation over state-law right-stripping remains live.