Appendix — Andrews v. Chevy Chase Bank (No. 08-1206)

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Appendix A

APPENDIX A — OPINION OF THE UNITED

STATES COURT OF APPEALS FOR THE

SEVENTH CIRCUIT, DECIDED SEPTEMBER 24,

2008

In the

United States Court of Appeals

For the Seventh Circuit

No. 07-1326

BRYAN ANDREWS and SUSAN ANDREWS,

Plaintiffs-Appellees,

V.

CHEVY CHASE BANK,

Defendant-Appellant.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 05 C 454—Lynn Adelman, Judge.

ARGUED SEPTEMBER 26, 2007 -

DECIDED SEPTEMBER 24, 2008

Before MANION, EVANS, and SYKES,

Circuit Judges.

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SYKES, Circuit Judge. In this interlocutory

appeal, we are called on to answer one question: May

a class action be certified for claims seeking the

remedy of rescission under the Truth in Lending Act

(“TILA”), 15 U.S.C. § 1635? The only two federal

appellate courts to have addressed this question

have answered “no,” see McKenna v. First Horizon

Home Loan Corp., 475 F.3d 418 (1st Cir. 2007);

James v. Home Constr. Co. of Mobile, Inc., 621 F.2d

727 (5th Cir. 1980), and we agree. TILA’s statutory-

damages remedy, § 1640(a)(2), specifically references

class actions (by providing a damages cap), but

TILA’s rescission remedy, 1635, omits any

reference to class actions. is Omission, and the

fundamental incompatibility/between the statutory-

rescission remedy set forth’in § 1635 and the class

form of action, persuade us as a matter of law that

TILA rescission class actions may not be maintained.

I. Background

In June 2004 plaintiffs Susan and Bryan

Andrews obtained a loan from defendant Chevy

Chase Bank, F.S.B., a federally chartered bank, to

refinance their home in Cedarburg, Wisconsin.

Bryan Andrews runs his own home-remodeling

business, and the Andrews are experienced

mortgagors, having previously taken out many

original and refinancing mortgage loans for various

residential and investment properties. This time,

they opted for a unique type of loan product offered

by Chevy Chase that allowed them to vary their

payment, depending on their monthly cash flow.

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This “cashflow payment option,” as Chevy Chase

called it, was more flexible than a traditional fixed-

or adjustable-rate mortgage because it allowed the

debtor to choose between multiple payment options.

It was also more complex, with a potential trap for

the unwary. The debtor could pay a monthly

minimum payment at a low interest rate for an

initial term; under this option, while the interest

rate would adjust monthly, the minimum payments

would remain fixed at the low rate until the initial

term expired or the outstanding balance exceeded

110 percent of the original loan (through “negative

amortization”), whichever event occurred first. The

debtor could aiso decide to make payments larger

than the minimum monthly payment, pay interest

only based on the fully indexed rate, pay an amount

sufficient to amortize the loan over 15 years, or pay

an amount sufficient to amortize the loan over 30

years.

Chevy Chase provided preliminary

disclosures about the loan and, at closing, an

adjustable-rate note, a truth-in-lending disclosure

statement (“TILDS”), and an adjustable-rate rider.

When the Andrews obtained the loan, they thought

that the monthly payment and the interest rate were

fixed for the initial term of five years and became

variable thereafter. They were correct about the

minimum monthly payment but not about the

interest rate. The loan’s discounted (or “teaser”)

interest rate of 1.95 percent applied only to the first

monthly payment. After that, the interest rate

adjusted every month, even though the minimum

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monthly payment remained fixed according to the

initial rate. So as the interest rate climbed, an ever-

increasing portion of the minimum monthly payment

of $701.21 was required to cover the interest. Soon,

the minimum monthly payment itself became

insufficient to cover the accrued interest, and the

“negative amortization” feature (adding the unpaid

interest to the principal) kicked in.

In April 2005 the Andrews filed this purported

class-action lawsuit against Chevy Chase claiming

violations of TILA and seeking statutory damages

under § 1640(a)(2), rescission under § 1635, and

attorneys’ fees under § 1640(a)(3).! The complaint

alleged that certain of Chevy Chase’s disclosures

were misleading or unclear, particularly as _ to

whether the initial interest rate was fixed and

whether the payment periods were properly stated.

More specifically, they alleged that Chevy Chase’s

payment schedule was not sufficiently detailed

because it listed only the first and last payment

dates; they also claimed that a computer-generated

stamp on the top of one of Chevy Chase’s disclosure

forms made the disclosures misleading. This stamp,

they asserted—which referred to the note as a “WS

Cashflow 5-Year Fixed Note Interest Rate:

1.950%”—could be understood to identify the note as

a fixed-rate note.

The district court granted summary judgment

for the Andrews, authorizing rescission and

|! The Andrews did not seek actual damages under § 1640(a)(1)

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awarding attorneys’ fees, though it denied their

claim for statutory damages because Chevy Chase’s

TILA violations were not those enumerated in §

1640(a), for which statutory damages are available.

See Andrews v. Chevy Chase Bank, FSB, 240 F.R.D.

612 (E.D. Wis. 2007). In the same order, the district

court granted the Andrews’ motion for class

certification under Rule 23(b)(2) of the Federal Rules

of Civil Procedure, declaring that all class members

would have the right to rescind their mortgages. The

certified class includes anyone who obtained an

adjustable-rate mortgage from Chevy Chase on a

primary residence between April 20, 2004, and

January 16, 2007, and who received a TILDS from

Chevy Chase containing any of the language the

court had found deficient under TILA.

In its decision on class certification, the

district court relied heavily on the Massachusetts

district court decision in McKenna. McKenna v. First

Horizon Home Loan Corp., 429 F. Supp. 2d 291, 296

(D. Mass. 2006). But that decision was reversed by

the Court of Appeals for the First Circuit less than

two weeks after the court granted class certification.

McKenna, 475 F.3d at 420. After we granted Chevy

Chase’s petition for leave to appeal pursuant to Rule

23(f), the district court agreed to stay its

proceedings. The court then issued a memorandum

explaining why its class-certification order should

stand, despite the reversal of the district court’s

decision in McKenna. Andrews v. Chevy Chase

Bank, FSB, 474 F. Supp. 2d 1006 (E.D. Wis. 2007).

Also, recognizing that it had failed to consider TILA

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provisions that prohibit certain debtors from

rescinding, see § 1635(e), the court stated that it

would likely narrow the definition of the class, if its

class-certification decision survived the appeal.

i. Discussion

We generally review a_ grant of class

certification for an abuse of discretion, but “purely

legal” determinations made in support of that

decision are reviewed de novo. Mace v. Van Ru

Credit Corp., 109 F.3d 338, 340 (7th Cir. 1997).

Whether TILA allows claims for rescission to be

maintained in a class-action format is an issue of

first impression in our circuit, but the First and

Fifth Circuits, in addition to California’s court of

appeals, have held as a matter of law that rescission

class actions are unavailable under TILA. See

McKenna, 475 F.3d at 427; James, 621 F.2d at 731;

see also LaLiberte v. Pac. Mercantile Bank, 53 Cal.

Rptr. 3d 745 (Cal. Ct. App. 2007), cert. denied, 128 S.

Ct. 393 (2007).

TILA was designed “to assure a meaningful

disclosure of credit terms” to the consumer. §

1601(a). Creditors who violate the disclosure

requirements may be ordered to pay actual damages

or statutory damages, depending upon the nature of

the violation. See § 1640(a)(1) & (a)(2). In certain

loan transactions, TILA also provides debtors with a

right of rescission—a process in which the creditor

terminates its security interest and returns any

payments made by the debtor in exchange for the

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debtor’s return of all funds or property received from

the creditor (usually, the loan proceeds). See § 1635.

Debtors may rescind under TILA by midnight of the

third business day after the transaction for any

reason whatsoever. See § 1635(a). The three-day

postclosing “cooling off’ period is extended if the

creditor does not deliver the required notice of the

right to rescind and all material disclosures; in that

instance, the right to rescind continues until the

creditor provides the required notice and disclosures,

or up to three years after consummation of the loan,

whichever occurs first. See § 1635(f).

Rescinding a loan transaction under TILA

“requires unwinding the transaction in its entirety

and thus requires returning the borrowers to the

position they occupied prior to the loan agreement.”

Handy v. Anchor Mortgage Corp., 464 F.3d 760, 765

(7th Cir. 2006) (quoting Barrett v. JP Morgan Chase

Bank, N.A., 445 F.3d 874, 877 (6th Cir. 2006)). TILA

rescission is therefore considered a purely personal

remedy. See, e.g., McKenna, 475 F.3d at 424-25;

James, 621 F.2d at 731; Laliberte, 53 Cal. Rptr. 3d

at 750-51. It is intended to operate privately, at least

initially, “with the creditor and debtor working out

the logistics of a given rescission.” McKenna, 475

F.3d at 421; see also Belint v. Wash. Mut. Bank, FA,

412 F.3d 17, 25 (Ist Cir. 2005). Section 1635 sets

forth certain deadlines and duties that apply to the

creditor upon receipt of a notice of rescission from

the debtor (e.g., return of earnest money, down

payment, or other payments, and initiating the

termination of the security interest); the statute, in

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turn, specifies the duties that apply to the debtor

(e.g., tendering return of the property or its

reasonable value). See § 1635(b). These procedures

apply “except when otherwise ordered by a court,”

id., making it clear that when disagreements over

the particulars of a given rescission arise, the court

may tailor the remedy to the circumstances.

We note initially that the rescission remedy

described in § 1635 appears to contemplate only

individual proceedings; the personal character of the

remedy makes it procedurally and substantively

unsuited to deployment in a class action. See also

RICHARD A. LORD, 28 WILLISTON ON

CONTRACTS § 70:235 (4th ed. 2003) (noting that

many consumer-credit statutes require’ the

individual borrower to make the demand for

rescission). Rescission is a highly individualized

remedy as a general matter, and rescission under

TILA is no exception. The variations in the

transactional “unwinding” process that may arise

from one rescission to the next make it an extremely

poor fit for the class-action mechanism.

A court’s certification of a class of persons

entitled to seek rescission would be just the

beginning. Each class member individually would

have the option of exercising his or her right to

rescind, and not all class members will want to do so

because it requires returning the loan principle in

exchange for the release of the hen and any interest

or other payments. Individual controversies would

erupt and likely continue because “the equitable

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nature of rescission generally entitles the affected

creditor to judicial consideration of the individual

circumstances of the particular transaction.”

McKenna, 475 F.3d at 427 n.6. Accordingly, a host

of individual proceedings would almost certainly

follow in the wake of the certification of a class

whose loan transactions are referable to rescission.

As we have noted, § 1635(b) provides that “{t]he

procedures prescribed by this subsection shall apply

except when otherwise ordered by a _ court,”

suggesting that the remedy must proceed on a case-

by-case basis. In short, the rescission remedy

prescribed by TILA is_ procedurally and

substantively incompatible with the class-action

aevice.

It is true, as the Andrews point out, that TILA

does not explicitly prohibit the use of a class action

for rescission. The Supreme Court has said that

“liln the absence of a direct expression by Congress

of its intent to depart from the usual course of trying

‘all suits of a civil nature’ under the Rules

established for that purpose, class relief is

appropriate in civil actions brought in federal court.”

Califano v. Yamasaki, 442 U.S. 682, 700 (1979)

(quoting FED. R. CIV. P. 1). Some district courts

have ended their inquiry there and certified

rescission classes under TILA. See, eg, In re

Ameriquest Mortgage Co. Mortgage Lending

Practices Litig., No. 05-CV-7097, 2007 WL 1202544

(N.D. Ill. Apr. 23, 2007); Latham v. Residential Loan

Ctrs. of Am., Inc., No. 03 C 7094, 2004 WL 1093315

(N.D. Ill. May 6, 2004); Hickey v. Great W. Mortgage

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Corp., 158 F.R.D. 603 (N.D. Ill. 1994); see also

McKenna, 475 F.3d at 423 (listing cases). But TILA

is entirely different from the jurisdictional statute at

issue in Yamasaki.

Yamasaki concerned a statute setting forth

the procedure by which judicial review of an

administrative decision could be obtained. 442 U.S.

at 698. The Court rejected the argument that the

statute's language authorizing a suit for judicial

review by “any individual” meant that individual

suits only—not class actions—could be brought. Jd.

at 698-99. The Court held that this “any individual”

language, without more, did not preclude the use of

class actions in this category of suit. Jd. at 700.

While an express exception might be expected in the

context of a jurisdictional statute specifying the

rules by which judicial review may be sought, we

think § 1635 is quite different. TILA’s rescission

remedy “is written with the gcal of making the

rescission process a private one, worked out between

creditor and debtor without the intervention of the

courts.” Belini, 412 F.3d at 25. The lack of an explicit

prohibition against class actions in § 1635 is not

dispositive. See McKenna, 475 F.3d at 425-26.

Class actions are specifically mentioned in the

TILA provision addressing claims for damages. See

§ 1640(a)(2)(B). There, Congress established a cap of

the lesser of $500,000 or 1 percent of the creditor's

net worth on the total recovery of damages in class

actions. Because vast recoveries are also possible for

rescission claims (here, the Andrews estimate that

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Chevy Chase’s lability could amount to “perhaps

$210 million”), the absence of a similar cap in § 1635

strongly suggests that class actions are not available

for rescission. See Bates v. United States, 522 U.S.

23, 29-30 (1997) (“Where Congress includes

particular language in one section of a statute but

omits it in another section of the same Act, it is

generally presumed that Congress acts intentionally

and purposely in the disparate inclusion or

exclusion.”) (internal quotation marks omitted); see

also Duncan v. Walker, 533 U.S. 167, 173 (2001)

(where Congress distinguished between “state” and

“federal” review in_ related’ subsections, that

statutory context suggests that Congress would have

explicitly mentioned “federal” review if it intended to

include it). This direct contrast between the text of

TILA’s damages and rescission provisions cannot be

ignored. See McKenna, 475 F.3d at 424.

It is of course possible (as our dissenting

colleague suggests) that this difference in TILA’s

remedial provisions cou/d be understood to mean

that TILA’s rescission remedy may be pursued on a

class basis, without any liability himit. But we agree

with the First Circuit that “[t]he notion that

Congress would limit hability to $500,000 with

respect to one remedy while allowing the sky to be

the limit with respect to another for the same

violation strains credulity.” /d. We think the

presence of a cap on class-action recovery in TILA’s

damages provision, the absence of any reference at

all to class recovery in its rescission provision, and

the mechanics of the rescission process spelled out in

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§ 1635, all point more plausibly to the opposite

interpretation: that TILA’s rescission remedy—by its

terms an individualized, restorative rather than

compensatory remedy—is just that, a purely

individual remedy that may not be pursued on

behalf of a class.

The 1995 amendments to TILA confirm this

interpretation, as the First Circuit’s well-reasoned

opinion in McKenna noted. In that year, Congress

limited the potential for expansive TILA liability by

temporarily suspending class actions for relatively

minor violations (including some involving rescission

rights) and then by increasing the tolerance levels

for honest, minor mistakes in carrying out disclosure

obligations. See Truth in Lending Class Actions

Relief Act of 1995, Pub. L. No. 104-12, § 2, 109 Stat.

161, 161-62; Truth in Lending Act Amendments of

1995, Pub. L. No. 104-29, § 3, 109 Stat. 271, 272-73.

These actions were taken in response to the

Eleventh Circuit’s decision in FRodash v. AIB

Mortgage Co., 16 F.3d 1142 (11th Cir. 1994), which

had held that a creditor’s minor TILA violations

triggered a debtor's right to rescind. See RALPH J.

ROHNER & FRED H. MILLER, TRUTH IN

LENDING 496.01[2] (Robert A. Cook et al. eds.,

2000). “In taking this step, Congress made manifest

that although it had designed the TILA to protect

consumers, it had not intended that lenders would

be made to face overwhelming liability for relatively

minor violations.” McKenna, 475 F.3d at 424.

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The Andrews also make an argument flowing

from the language of the “additional relief’

subsection of § 1635, and the attorney’s fees

subsection of TILA’s damages provision, § 1640.

Section 1635(g) provides that “liln any action in

which it is determined that a creditor has violated

this section, in addition to rescission the court may

award relief under section 1640,” that is, damages. §

1635(g). Section 1640(a)(3), in turn, provides that

attorney’s fees are recoverable in a successful action

to enforce § 1640 liability G.e., liability for damages)

“or in any action in which a person is determined to

have a right of rescission under section 1635.” §

1640(a)(3). The Andrews contend that this parallel

use of the phrase “in any action” in § 1635(g) and §

1640(a)(3) means that rescission is available “in any

action,” including class actions.

There is no support for this novel argument,

which rests on a faulty reading of § 1635(g) and §

1640(a)(3), treating § 1635(g) as the center of all

remedial relief available under TILA. Section

1635(g) is a simple remedial cross-reference; it

provides that rescission plaintiffs may also seek

damages under § 1640. It does no more. Section

1640(a)(3) simply provides that attorney’s fees are

recoverable in a successful action for damages ora

successful action for rescission. It does no more. The

use of the phrase “in any action” in these provisions

carries no meaning for the question of whether TILA

permits rescission class actions.

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Finally, we note that creating a circuit split

generally requires quite solid justification; we do not

lightly conclude that our sister circuits are wrong.

Here, the Andrews have not persuaded us that the

First and Fifth Circuits have misinterpreted the

operative provisions of TILA. We now join those

circuits in concluding that TILA’s rescission remedy,

§ 1635, may not be pursued on a class basis.

McKenna, 475 F.3d at 427; James, 621 F.3d at 731.

We note for completeness that the

fundamental incompatibility between the rescission

remedy under TILA and the class-action device

raises serious questions as to whether a TILA

rescission class could ever be properly certified

under Federal Rule of Civil Procedure 23(b).2 A Rule

2 The Andrews suggest that our review is limited to the

question of whether TILA permits the certification of a class of

rescission plaintiffs, arguing that we may not consider on this

interlocutory appeal whether a rescission class could satisfy the

requirements of Rule 23. To the contrary, under Rule 23<?),

appellate courts may grant a discretionary interlocutory appeal

and may consider those issues related to a district court’s

certification decision. See CHARLES ALAN WRIGHT &

ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE

§ 1802.2 (3d ed. 2005); see also In re Lorazepam & Clorazepate

Antitrust Litig., 289 F.3d 98, 106 (D.C. Cir. 2002) (holding that

“review is limited to issues that relate to class certification”).

Accordingly, the issue of whether a rescission class meets the

requirements of Rule 23 is precisely within our purview. /n re

Lorazepam, 289 F.3d at 106-07. The same is not truc, however,

of the Andrews’ request that we review the district court's

failure to certify a class for statutory damages. The district

court denied statutory damages and therefore never reached

the issue of class certification for statutory damages.

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23(b)(2) class may be maintained when “fina/

injunctive relief or corresponding declaratory relief

is appropriate respecting the class as a whole.” FED.

R. CIV. P. 23(b)(2) (emphasis added); see Jefferson v.

Ingersoll Int’, Inc., 195 F.3d 894, 897-98 (7th Cir.

1999) (noting Rule 23(b)(2)’s requirement of “final

relief’). As we have explained, a declaration of a

“rescission class” would only initiate a process of

individual rescission actions. Significant individual

aspects of the remedy, varying with each consumer’s

loan transaction, would remain to be worked out

before each of the transactions could be unwound.

Rather than settling the legal relations at issue, a

judicial declaration in this situation would be

essentially advisory. See Gibbons v. Interbank

Funding Group, 208 F.R.D. 278, 285 (N.D. Cal. 2002)

(“Without any rescission requests, nor subsequent

denials by defendants, it is not at all clear that a

justiciable controversy exists between the class and

defendants.”). The rescission remedy is so inherently

personal that a court cannot venture further while

addressing the plaintiffs as a class; it can do no more

than simply declare that a certain group of plaintiffs

have the right to znitiate rescission, and that is not a

form of “final” declaratory relief under Rule 23(b)(2).

Likewise, to certify a class under Rule

23(b)(3), common questions of law and fact must

predominate over questions affecting individual

members, and the class-action device must be

superior to other methods of adjudicating the

controversy. The Andrews strain to meet the

predomination and superiority requirements here.

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See, e.g., In re Mex. Money Transfer Litig., 267 F.3d

743, 746 (7th Cir. 2001). If the class certification

only serves to give rise to hundreds or thousands of

individual proceedings requiring individually

tailored remedies, it is hard to see how common

issues predominate or how a class action would be

the superior means to adjudicate the claims. The

Andrews acknowledge that the district court will be

called upon, if the class certification is upheld, to

establish individual rescission procedures that will

both meet the needs of each class member and assist

Chevy Chase in recovering the loan principal on each

transaction without risking the immediate loss of its

security interest. Under these circumstances,

proceeding as a class to “unwind” hundreds or

thousands of individual credit transactions would

not promote the primary purposes of the class-action

mechanism: judicial economy and efficiency. See

McKenna, 475 F.3d at 427; see also 1 ALBA CONTE

& HERBERT B. NEWBERG, NEWBERG ON

CLASS ACTIONS § 1:1, at 3 (4th ed. 2002) (“A class

action is a procedural device . .. that can accomplish

significant judicial economies.”). Using a class action

to resolve a multitude of individual, varied rescission

claims is neither “economical” nor “efficient” in any

sense of those terms.

The Andrews argue that a class action is

superior because it is the only realistic means for

recovery. But they do not dispute that under TILA a

prevailing debtor with a typical loan can expect to

receive over $50,000, plus attorney’s fees and costs,

in a rescission action and that many debtors do in

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fact bring rescission claims. Simply put, TILA

rescission is not the sort of remedy that would not

otherwise be sought unless the _ class-action

mechanism were available.

For the foregoing reasons, we hold as a matter

of law that a class action for the rescission remedy

under TILA may not be maintained. The judgment

of the district court is therefore REVERSED, and the

case is REMANDED with instructions to vacate the

class-certification order.

EVANS, Circuit Judge, dissenting. The

majority acknowledges that the Andrews/Chevy

Chase mortgage loan agreement was “complex, with

a potential trap for the unwary.” With that

statement, I certainly agree. The loan’s seductive

Siren call of a 1.95 percent interest rate with a five-

year fixed monthly payment of $701.21—the real

implications of which were not fully explained as

required by the Truth in Lending Act (TILA)—was a

booby trap waiting to explode. And explode it did. So

the Andrews filed this suit on behalf of themselves

and others who answered the Siren call. The district

court certified the case as a class action seeking

rescission, but its order was stayed pending the

outcome of this interlocutory appeal. Today, the

majority holds that the case may not continue

against the mortgagee bank as a class action for

rescission. With that conclusion, I cannot agree.

At this point in time, our case presents two

questions: (1) What did Congress intend?; and (2) if

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its intent cannot be ascertained with certainty, who

should pay the price of an ambiguous statute? As I

see it, the answers to both questions favor affirming

the district court’s decision.

Assuming it can be fairly identified,

congressional intent is the touchstone. As _ the

majority recognizes, we must first start with the

statutory language itself. If the statute is

unambiguous, it controls, and a court has no

business substituting its view of good policy for that

of Congress. Indeed, unambiguous language must

be given effect unless it produces results that are

“absurd.” See Evans ex rel. Evans v. Lederle

Laboratories, 167 F.3d 1106, 1111 (7th Cir. 1999);

United States v. Thomas, 77 F.3d 989, 992 (7th Cir.

1996). The majority found the language of 15 U.S.C.

§ 1635 ambiguous, and so it looked to evidence

beyond the statutory text to determine congressional

intent. That is not necessary. TILA does distinguish

between claims for damages and claims for

rescission, but the distinction does not support the

majority's conclusion. The fact that there is a cap on

damages in class actions may, in the abstract,

suggest Congress sought to shield lenders from

massive liability. But we don’t address the matter in

the abstract. Congress wrote a statute, and if it

sought to further such a policy in the rescission

context, we should assume it would have said so.

The majority shrugs off too hghtly the Supreme

Court's command—‘“filn the absence of a direct

expression by Congress of its intent to depart from

the usual course of trying ‘all suits of a civil nature’

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under the Rules established for that purpose, class

relief is appropriate in civil actions brought in

federal court.” Califano v. Yamasaki, 442 U.S. 682,

700 (1979) (quoting Fed. R. Civ. P. 1). And this

result can be squared with the idea that TILA

rescission is a personal remedy. Affirming the

district court would not mean automatic rescission of

each class member’s loan. The district court only

held that “each class member may rescind if he or

she wishes to do so.” Andrews v. Chevy Chase Bank,

FSB, 240 F.R.D. 612, 622 (E.D. Wis. 2007). What

rescission would look like for each individual class

member—the “unwinding” process the majority

describes—may well prove too complicated to satisfy

the Rule 23 dictates in a given case. But that does

not mean a TILA rescission class action may not be

maintained as a matter of law.

If we suppose that the statute is ambiguous—

it may or may not authorize class actions for

rescission—the majority's conclusion is still in doubt.

Although the majority thinks it clear that rescission

class actions are not authorized, that construction

takes more than a little massaging. If the statute is

unclear, the question becomes: Who should pay the

price of Congress’s sloppy drafting? The majority’s

decision places the burden on the victims of a TILA

violation, not on the perpetrator of the violation.

True, withholding the class action mechanism is not

the same as precluding relief altogether, but it still

stands as a procedural obstacle. If Congress intended

to preclude rescission class actions, it should amend

the statute and correct the error itself. When a court

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cleans up Congress’s mess, it only encourages poor

drafting. And if the court gets it wrong—a hazard of

judicial guesswork—then all suffer. Rather than

forcing a statute to further a policy vision that may

or may not be shared by Congress, it is better to

acknowledge ambiguity and construe the statute in

the way most supported by the statute’s language

and in a fashion that protects the innocent, not the

guilty.

For these reasons, I dissent from the majority

opinion.

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Appendix B

APPENDIX B — DECISION AND ORDER OF THE

UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF WISCONSIN, DATED

JANUARY 16, 2007

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF WISCONSIN

SUSAN and BRYAN ANDREWS,

Plaintiffs,

Vv. Case No. 05C0454

CHEVY CHASE BANK, FSB,

Defendant.

DECISION AND ORDER

Plaintiffs Susan and Bryan Andrews bring

this putative class action against defendant Chevy

Chase Bank, FSB alleging that defendant violated

the Truth in Lending Act (“TILA”), 15 U.S.C. 1601 et

seq., in a number of respects. Before me now are the

parties’ cross-motions for summary judgment and

plaintiffs’ motion for class certification.

I. FACTS

In June 2004, plaintiffs obtained a loan from

defendant, a federally chartered bank, to refinance

their home in Cedarburg, Wisconsin. In April 2004,

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Appendix B

defendant provided plaintiffs with preliminary

disclosures about the loan, including a consumer

handbook on adjustable rate mortgages, an

adjustable rate mortgage (“ARM”) disclosure and a

preliminary Truth in Lending Disclosure Statement.

At the closing, defendant provided plaintiffs with

additional disclosures, including an Adjustable Rate

Note (“ARN”), a Truth in Lending Disclosure

Statement (“TILDS”) and an Adjustable Rate Rider

(“ARR”).

Plaintiffs state that when they obtained the

loan, they believed that the payments and the

interest rate were fixed for five years and became

variable thereafter. However, although the

minimum monthly payment was fixed for five years,!

the interest rate was not. The loan carried a

discounted or “teaser” interest rate of 1.950 percent,

but that rate applied only to the first monthly

payment, after which the interest rate increased

every month according to a formula. As the interest

rate increased, an ever increasing portion of the

minimum monthly payment of $701.21 was needed

to cover interest, and the minimum payment itself

soon became insufficient to cover accrued interest.

I will discuss additional facts in the course of

the decision. In addition, to facilitate reader

understanding, I include defendant's TILDS as

Exhibit A at the end of this decision.

1 Plaintiffs had the option of paying more than the fixed

minimum monthly payment.

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Appendix B

II. SUMMARY JUDGMENT MOTIONS

I will address the parties’ summary judgment

motions first and then proceed to plaintiffs’ motion

for class certification. See Cowen v. Bank United of

Tex. FSB, 70 F.3d 937, 941 (7th Cir. 1995).

A. Apphcable Law

1. Summary Judgment Standard

Summary judgment is required “if the

pleadings, depositions, answers to interrogatories,

and admissions on file, together with the affidavits,

if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(c).

The mere existence of some factual dispute does not

defeat a summary judgment motion, “the

requirement is that there be no genuine issue of

material fact.” Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 248 (1986). For a dispute to be genuine, the

evidence must be such that a “reasonable jury could

return a verdict for the nonmoving party.” Id. For

the fact to be material, it r ust relate to a disputed

matter that “might affect the outcome of the suit.”

Id.

In evaluating a motion for summary

judgment, I must draw all inferences in a light most

favorable to the nonmoving party. Matsushita Elec.

Indus. Co. v. Zemith Radio Corp., 475 U.S. 574, 587

(1986). However, I am “not required to draw every

24a

Appendix B

conceivable inference from the record-only those

inferences that are reasonable.” Bank Leumi Le-

Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991).

Where, as here, both parties move for summary

judgment, both are required to show that no genuine

issues of fact exist, taking the facts in the light most

favorable to the party opposing each motion. If

issues of fact exist, neither party is entitled to

summary judgment. Lac Courte Oreilles Band of

Lake Superior Chippewa Indians vy. Voigt, 700 F.2d

841, 349 (7th Cir.1983).

2. TILA

Congress enacted TILA to assure meaningful

disclosure of credit terms to enable consumers to

become informed about the cost of loans and to

compare the credit options available to them. 15

U.S.C. § 1601(a). Congress delegated broad

authority to the Federal Reserve Board (“Board”) to

implement TILA, and the Board has exercised such

authority by promulgating Regulation Z, see

Regulation Z, 12 C.F.R. § 226 et seq., and through its

interpretations and official staff commentary. The

Board’s pronouncements are entitled great weight.

Ford Motor Credit Co. v. Miholin, 444 U.S. 555, 565-

70 (1980).

TILA requires lenders to disclose certain

information about the terms of the loan to

prospective borrowers. 15 U.S.C. § 1638; 12 C.F.R. §

226.17. If a loan contains a variable rate feature,

lenders must’ provide’ certain’ preliminary

25a

Appendix B

disclosures, 12 C.F.R. § 226.19, and also disclose the

existence of the feature at closing. 12. C.F.R. §

226.18. Lenders must group information required to

be disclosed by § 226.18 and segregate it from other

information. 12 C.F.R. § 226.17(a). Lenders often

place such information on a separate sheet known as

a Truth in Lending Disclosure Statement or TILDS.

All required disclosures must be clear and

conspicuous. 15 U.S.C. § 1632(a); 12 C.F.R. § 226.17.

A disclosure is clear if it is reasonably

understandable. “If a disclosure is capable of more

than one plausible interpretation, it is not clear.”

Elizabeth Renuart & Kathleen Keest, Truth In

Lending § 4.2.4 (5th ed 2003); see also Handy v.

Anchor Mortgage Corp., 464 F.3d 760, 764 (7th Cir.

2006). A disclosure is conspicuous if it “draws the

consumer’s attention.” Renuart & Keest, supra, §

4.2.4. Thus, a lender may not disclose information

so as to “obscure the relationship of the terms to

each other.” Commentary 226.17(a)(1).

The “sufficiency of TILA-mandated disclosures

is to be viewed from the standpoint of an ordinary

consumer, not the perspective of a Federal Reserve

Board member, federal judge, or English professor.”

Smith v. Cash Store Mgmt., 195 F.3d 325, 328 (7th

Cir.1999). The standard for determining whether a

disclosure is sufficient is an objective one. Smith v.

Check-N-Go of Ill., Inc., 200 F.3d 511 (7th Cir. 1999).

Further, “whether a particular disclosure is clear for

purposes of TILA is a question of law that depends

26a

Appendix B

on the ‘contents of the form, not on how it affects any

particular reader.” Handy, 464 F.3d at 764 (quoting

Check-N-Go of IIl., Inc., 200 F.3d at 515). Similarly,

whether a disclosure is conspicuous is a question of

law. Check-N-Go of IlL., Inc., 200 F.3d at 515.

TILA is a remedial statute, thus, consistent

with its plain language, it must be construed

liberally in favor of consumers. Rossman v. Fleet

Bank, 280 F.3d 384, 390 (3d Cir. 2002). A lender

must comply with the letter as well as the spirit of

TILA. Handy, 464 F.3d at 764. “[A] misleading

disclosure is as much a violation of TILA as a failure

to disclose at all.” Barnes v. Fleet Nat'l Bank, 370

F.3d 164, 174 (Ist Cir. 2004) (quoting Smith v.

Chapman, 614 F.2d 968, 977 (5th Cir.1980)).

I will discuss certain requirements of TILA in

greater detail in the course of the decision.

B. Alleged TILA Violations

1. Disclosure of Payment Schedule

Plaintiffs first allege that defendant failed to

disclose information concerning the loan’s payment

schedule as required by TILA. Title 15 U.S.C. §

1638(a)(6) requires lenders to disclose “the number,

amount and due dates or period of payments

scheduled to repay the total of payments.” The

disclosure must “reflect the terms of the legal

obligations of the parties.” 12 C.F.R. § 226.17(c)(1).

Where, as here, a loan involves both a variable

27a

Appendix B

interest rate and scheduled variations in payment

amounts, the schedule of payments should “disclose

the amount of any scheduled initial payments

followed by an adjusted level of payments based on

the initial interest rate.” Commentary §

226.17(c)(1)-12. Lenders specifying the period of

payments scheduled to repay a loan “as a general

rule . . . must disclose the payment intervals or

frequency, such as ‘monthly’ or ‘bi-weekly,’ and the

calendar date that the beginning payment is due.”

Commentary § 226.18(g).

Information concerning the number, amount

and periods of payments must be disclosed clearly

and conspicuously. § 1632(a); 12 C.F.R. § 227.17.

Further, lenders must group such information, see

Commentary § 226.18(g) and model forms (App. H

No. 12, 13), and conspicuously segregate it “from all

other terms, data, or information provided in

connection with a transaction.” § 1638(b)(1).

Lenders may group and segregate the information by

enclosing it in a box, using bold print, dividing lines

or setting it off in some other way. Commentary §

226.17(a)(1)-2; see also 12 C.F.R. § 226.17.

In the present case, as to the number and

amount of payments, defendant properly disclosed

that plaintiffs had to make sixty payments of

$701.21, followed by three hundred payments at an

adjusted level of $983.49. Defendant also properly

based the adjusted level of payments on the initial

interest rate. See Commentary § 226.17(c)(1)-12.

28a

Appendix B

With respect to payment periods, however,

defendant disclosed the due dates of the first and

last payments in a column in a box (known as the

“federal box”) on its TILDS but did not disclose the

payment periods, i1.e., that payments were due

monthly, in either the column or the box. Thus, it

would appear that defendant failed to disclose the

period of payments as required by TILA. Defendant

argues that its disclosures satisfy TILA because it

included a sentence on its TILDS stating that “[tlhis

loan program allows you to select the type of

payment you may make each month, in accordance

with disclosures provided to you earlier,” and

because it provided plaintiffs with other documents

indicating that they had to make monthly payments.

I agree with plaintiffs.

First, the sentence on which defendant relies

does not focus on payment periods but on a

borrower's right to select a type of payment. The

words “each month” modify the borrower's right to

select. Thus, an ordinary consumer would not

conclude that the sentence established an obligation

to make monthly payments. Further, to the extent

that the sentence relates to payment periods, it is

ambiguous. An ordinary consumer would interpret

the sentence’s authorization to “select the type of

payment you make each month” as permission to

decide for herself whether to make a payment each

month and in what amount. Thus, the sentence does

not clearly require a borrower to pay monthly.

29a

Appendix B

The sentence does not satisfy the clear and

conspicuous requirement for other reasons as well.

Defendant printed it in very small print and

sandwiched it between the bottom of the federal box

and information regarding the loan’s lack of a

demand feature, which defendant printed in larger

print. Thus, the sentence would not draw the

attention of an ordinary consumer. For this reason

also, it is not conspicuous. See Van Jackson v.

Check ‘N Go of IIl., Inc., 193 F.R.D. 544, 548-49 (N.D.

Ill. 2000) (finding TILA violation where disclosure

was outside the federal box); see also Leathers v.

Peoria Toyota-Volvo, 824 F. Supp. 155, 158 (C.D. IL.

1993) (same).

In addition, because defendant located the

sentence in a different place than the information

concerning the number and amounts of payments, it

did not group and segregate the disclosure as TILA

requires, and it “obscureld] the relationship of the

terms to each other.” Commentary § 226.17(a)(1).

Similarly, defendant’s statements in other

documents, the ARN and the ARR, that plaintiffs

had to make monthly payments do not satisfy the

segregation requirement. This is so because the

statements would not draw the ordinary consumer's

attention and because defendant did not group them

with information regarding the number and

amounts of payments, did not segregate the

information concerning the payment schedule from

the other terms of the loan and obscured the

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Appendix B

relationship of the terms regarding payment to each

other.?

For the foregoing reasons, defendant’s

disclosure of the period of payments portion of the

payment schedule does not comply with TILA.

, a Disclosures of Cost of Loan as Annual

Percentage Rate and Variable Interest

Rate Feature

Plaintiffs also argue that defendant’s

disclosures of the cost of the loan as an annual

percentage rate (“APR”) and the loan’s variable

interest rate feature are not clear as required by

TILA. I will consider both of plaintiffs’ arguments in

this section because the challenged disclosures are

related and because the analyses of their clarity are

largely similar.

2 In Hamm v. Ameriquest Mortgage Co., No 05C0227,

2005 WL 2405804 (N.D. IL. Sept. 27, 2005), the court held that

a defendant's failure to include the period of payments in its

TILDS did not violate TILA because the defendant provided the

information in other documents and because there was no

evidence that the plaintiff was confused by the omission.

However, disclosures concerning the payment schedule must be

“grouped together .. . segregated from everything else.” 12

C.F.R. § 226.17. Further, whether or not the borrower is

confused is irrelevant. Handy, 464 F.3d at 764. Thus, Hamm

appears to have been wrongly decided. See Washington y,

Ameriquest Mortgage Co., No 05C 1007, 2006 WL

1980201(N.D. IL. July 11, 2006) (rejecting Hamm).

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Appendix B

Disclosure of Cost of Loan as

Annual Percentage Rate

Section 1638(a)(4) requires disclosure of the

cost of a loan to the borrower “as an ‘annual

percentage rate’ using that term.” Further, where,

as here, a loan’s initial interest rate is subsequently

adjusted, the APR must “reflect a composite annual

percentage rate based on the initial rate for as long

as it is charged and, for the remainder of the term.

the rate that would have been applied using the

index or formula at the time of consummation.”

Commentary § 226.(17)(C)-6. In addition, §

1638(a)(8) requires lenders to provide a_ brief

“descriptive explanationl ]” of the APR. See also §

226.18(e). TILA’s clear and conspicuous requirement

applies to the disclosure and explanation of the cost

of the loan as an annual percentage rate.

Commentary § 226.17(a)(1)- ..

On its TILDS, defendant stated that the APR

was 4.047 percent and explained that this figure

reflected the cost of the loan “as a yearly rate.”

Plaintiffs contend that defendant provided other

information in its TILDS and other disclosures that

strongly implied that the cost of the loan expressed

as a yearly rate was 1.950 percent and that therefore

defendant's APR disclosure is unclear. | agree. An

ordinary consumer reading defendant's disclosures

would be confused about the cost of the loan,

expressed as an annual percentage rate.

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Appendix B

1 note first that “a misleading disclosure is as

much a violation of TILA as a failure to disclose at

all.” Barnes, 370 F.3d at 174. Further, in

determining whether a disclosure is clear as

required by TILA, I may consider all of the

information in a defendant’s disclosures. Renuart &

Keest, supra, § 4.2.4 (stating that TILA’s clear and

conspicuous standard requires that disclosures be

understandable and that a lender which provides

conflicting information about a transaction violates

such standard); see also Handy, 464 F.3d at 764

(holding that where a lender provided a borrower

with a correct disclosure but also provided the

borrower with an incorrect form, the disclosure was

unclear); Roberts v. Fleet Bank (R.I.), 342 F.3d 260,

267-68 (3d Cir. 2003) (stating that in determining

whether a required disclosure is clear, a court may

consider the other information that the lender

provided to the borrower); Ralls v. Bank of N.Y., 230

B.R. 508, 516 (Bankr. E.D. Pa. 1999) (stating that

where there was a contradiction between TILA

disclosures and other information provided by the

lender, the disclosures were unclear); Affatato v.

Beneficial Corp., No. 96 CV 5376(NG),1998 WL

472494 (E.D.N.Y. Aug. 7, 1998) (denying motion to

dismiss where the borrower alleged that the lender

provided additional information which conflicted

with the disclosures).

Defendant made several statements that

conflicted with its disclosure that the cost of the loan

as an annual percentage rate was 4.047 percent.

Defendant stated on its TILDS and in other

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Appendix B

disclosures, including its preliminary disclosures

(the ARM and the preliminary TILDS) and

documents that it provided at the closing (the ARN

and the ARR), that the loan carried an interest rate

of 1.950 percent. In no disclosure did defendant

mention any other interest rate. Further, in its

ARN, defendant stated that the 1.950 percent rate

was a “yearly rate,” the identical phrase that it used

to define the APR. Thus, in addition to stating that

the cost of the loan as a yearly rate was 4.047

percent, defendant suggested that the cost of the

loan as a yearly rate was 1.950 percent. As

previously indicated, however, the 1.950 percent rate

was, in fact, a discounted or teaser rate, which

applied only to the first monthly payment. However,

defendant also muddied up this fact by failing to

disclose, as it was required to do under § 226.19, that

the rate was discounted, stating instead in its ARM

only that the rate “may” have been discounted.

Defendant’s repeated references in its disclosures to

the 1.950 percent rate, its characterization of such

rate as a yearly rate and its lack of forthrightness

about the discounted nature of the rate would both

confuse and mislead an ordinary consumer about the

cost of the loan as an annual percentage rate.

3 Where the interest rate and the APR are merely

different ways of calculating the cost of a loan as a yearly rate,

disclosure of the interest rate might not confuse an ordinary

consumer. See, e.g., Smith v. Anderson, 801 F.2d 661, 663-64

(4th Cir. 1986); In re Lewis, 290 B.R. 541, 549 (E.D. Pa. 2003);

Robinson v. First Franklin Fin. Corp,., No. 05-6652, 2006 WI.

2540777, at *4 (E.D. Pa. Aug. 31, 2006). As discussed, however,

in the present case, the 1.950 percent figure was a teaser rate

and not the interest rate on the loan

34a

Appendix B

“inally, on the back of its TILDS, defendant

made another misleading statement, which in the

context of its repeated references to the 1.950

percent rate could only add to an _ ordinary

consumer’s confusion as to the cost of the loan as an

annual percentage rate. Defendant stated “if

interest was the only Finance Charge, then the

interest rate and the Annual Percentage Rate would

be the same.” In fact, even if interest were the only

finance charge, the annual percentage rate would

not be 1.950 percent. Rather, the annual percentage

rate was based on a composite of the discounted

interest rate (1.950 percent) for as long as it was

applied (one month) and the interest rate without

the discount feature, which was much higher.

For the foregoing reasons, defendant’s

disclosure of the cost of the loan as an annual

percentage rate was unclear.

b. Dieclosure of Variable Interest

Rate Feature

Plaintiffs also allege that defendant did not

clearly disclose that the loan had a variable interest

rate feature. If a loan has such a feature, the lender

must make certain preliminary disclosures and also

disclose the existence of the feature on its TILDS. 12

C.F.R. § 226.18(f). Plaintiffs allege that although

defendant stated on its TILDS that the loan had a

variable interest rate feature, it aiso included

information on the TILDS which misleadingly

35a

Appendix B

implied that the feature did not take effect until

after the first five years of the loan. I agree.

I again note that a lender may cause a

disclosure to become unclear by including conflicting

information in its disclosures. See Handy, 464 F.3d

at 764; Barnes, 370 F.3d at 174; Roberts, 342 F.3d at

267-68; In re Ralls, 230 B.R. at 516; Affatato, 1998

WL 472494, at *3. In the present case, defendant

included information on its TILDS from which an

ordinary consumer could easily infer that the

interest rate on the loan was fixed for five years and

became variable thereafter. Specifically, defendant

stated on its TILDS that plaintiffs’ loan was a “5-

year fixed” loan. This statement was confusing

because although it is true that the payments on the

loan were fixed for five years, the interest rate was

not. Defendant could easily have indicated this by

including the word “payments” after the word “fixed”

on its TILDS, but it did not do so. Rather than

narrowing the application of “fixed,” defendant used

. the word to describe the general nature of the loan.

Further, defendant placed the “5-year fixed”

language immediately above its statement that the

interest rate was 1.950 percent and thus —

strengthened the implication that the five-year fixed

language applied to the interest rate. An ordinary

consumer reading defendant's TILDS could easily

conclude that the interest rate was fixed for five

years and variable in the last twenty-five. Further,

defendant misleadingly stated in its ARN and ARR

that in August 2004 the interest rate “may” change

not that, as defendant wel) knew, it would change.

36a

Appendix B

Defendant responds that it stated in other

disclosures as well as the TILDS that the loan had a

variable rate feature. However, to be unclear, TILA

requires only that a disclosure be capable of being

plausibly interpreted in more than one way. An

ordinary consumer reading defendant’s TILDS could

plausibly conclude that the loan had a variable

interest rate feature which took effect after the first

five years of the loan. Therefore, defendant’s

disclosure violated TILA.

3. Information Added to TILDS

TILA bars a lender from adding information

to its TILDS that is not “directly related” to required

information. 12 C.F.R. 226.17(a). Plaintiffs argue

that defendant’s statement on its TILDS that the

loan’s interest rate was 1.950 percent violated this

prohibition. In determining whether information is

directly related to required information, I ask

whether the added information is meaningfully

connected to the required information and whether it

is likely to be useful to an ordinary borrower. See,

e.g., Goldberg v. Del. Olds, Inc., 670 F. Supp. 125,

129 (D. Del. 1987), affd, 845 F.2d 1011 (3d Cir.

1988). TILA does not require a lender to disclose a

loan’s interest rate. Further, in the present case,

defendant was most assuredly not required to

disclose the 1.950 percent rate, which applied only to

the first monthly payment. However, as discussed,

defendant included the 1.950 percent rate on its

TILDS. Yet the 1.950 percent figure had virtually no

relation to any information required to be disclosed

37a

Appendix B

on the TILDS, much less a direct relation. The 1.950

percent rate had no significant connection to the cost

of the loan. Moreover, a reference to the 1.950

percent rate would not be useful to an ordinary

borrower because it would cause the loan to appear

more attractive than it actually was and serve no

useful purpose. Thus, by adding information to its

TILDS that was not directly related to that required,

defendant violated TILA.

4. Disclosure of Possibility of Negative

Amortization

Finally, plaintiffs allege that defendant did

not sufficiently disclose the consequences of negative

amortization. The Commentary to 226.19(b)(2)(v)

explains that “la] creditor must disclose, where

applicable, the possibility of negative amortization.”

Where, as here, a loan permits a borrower to make

payments at a fixed level, "the creditor must fully

disclose the rules relating to the option, including

the effects of exercising the option (such as negative

amortization will occur and the principal balance

will increase)." Commentary § 226.19(2).

38a

Appendix B

In its ARM disclosure, defendant stated that:

Interest Rate changes and your ability to

make less than a Fully Amortizing

Payment each month, or a combination of the

two, may result in the accumulation of

accrued but unpaid interest (Deferred

Interest Balance’).

Each month that the payment option you

choose is less than the entire interest

portion, we will add the Deferred Interest

Balance to your unpaid principal. We will also

add interest on the Deferred Interest Balance

to your unpaid principal each month. The

interest rate on the Deferred Interest Balance

will be the Fully Indexed Rate.

Although defendant did not use the language

suggested by the commentary, it did inform

borrowers as to what would occur if they made only

the minimum monthly payments. Thus, defendant’s

disclosure satisfied TILA.

C. Available Remedies

As remedies for defendant’s TILA violations,

plaintiffs seek (1) statutory damages; (2) a

declaration that they may rescind the loan; and (3)

attorneys fees. Plaintiffs do not seek actual damages.

Defendant argues that the remedies that plaintiffs

seek are unavailable.

39a

Appendix B

R Statutory Damages

A TILA plaintiff may recover statutory

damages “only” if the defex dant fails “to comply with

the requirements of sectiou 1635... or of paragraph

(2) (insofar as it requires a disclosure of the ‘amount

financed’), (3), (4), (5), (6), or (9) of section 1638(a).”

15 U.S.C. § 1640(a). In Brown v. Payday Check

Advance, Inc., 202 F.3d 987, 991 (7th Cir. 2000), the

Seventh Circuit held that § 1640(a)’s use of the word

“only ... confines statutory damages to a closed

list” of violations of § 1638. See also Baker v. Sunny

Chevrolet, Inc., 349 F.3d 862, 869 (6th Cir. 2003)

(stating that § 1640(a) “creates two types of

violations: (a) complete non-disclosure of enumerated

items in § 1638(a), which is punishable by statutory

damages; and (b) disclosure of the enumerated items

in § 1638(a) but NOT in the manner required by the

Regulation and § 1638(b)(1), which is not subject to

statutory damages”).

As previously discussed, defendant violated §§

1632 and 1638(b) by failing to clearly and

conspicuously disclose and segregate information

relating to the payment schedule, by failing to

clearly disclose the APR and the existence of a

variable interest rate feature, and by adding to its

TILDS information not directly related to required

information. Neither violations of § 1632 or §

1638(b) are among the TILA violations enumerated

in § 1640(a) for which statutory damages are

available. Therefore, plaintiffs are not entitled to

statutory damages.

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Appendix B

3. Rescission

Under some circumstances, a TILA plaintiff

may rescind a loan. 15 U.S.C. § 1635; 12 C.F.R. §

226.23. Generally, a borrower has three days to

rescind after the closing or receipt of notice of the

right to rescind along with all material! disclosures.

If a lender fails to provide a borrower with notice of

the right to rescind or if the lender fails to make a

material disclosure, the period in which a plaintiff

may exercise the right to rescind is extended.

“Material disclosures” are “the required disclosures

of the annual percentage rate, the finance charge,

the amount financed, the total payments, [and] the

payment schedule.” 12 C.F.R. § 225.23(2). “Failure

to provide information regarding the annual

percentage rate also includes failure to inform the

consumer of the existence of a variable rate feature.”

Commentary § 23(2)(3)-2. Defendant’s failures to

clearly and conspicuously disclose the payment

period, the annual percentage rate and the variable

interest rate feature all involve material disclosures

for purposes of the right of rescission.4 12 C.F.R. §

226.23. Thus, plaintiffs may avail themselves of the

remedy of rescission.

3. Attorneys’ Fees

A TILA plaintiff may obtain attorneys’ fees

and costs if she is “determined to have a right of

4 Defendant's addition of information cn its TILDS not

directly related to required information does not involve a

material disclosure. 12 C.F.R. § 226.23(a)(3)(n. 48).

4la

Appendix B

rescission under section 1635.” 15 U.S.C. § 1640(3).

Because I have determined that plaintiffs have a

right of rescission, they are entitled to attorneys’

fees.

III. MOTION FOR CLASS CERTIFICATION

A. Availability of Class Certification

In the present case, on behalf of themselves

and putative class members, plaintiffs seek a

declaratory judgment that they may rescind the

loan. Defendant argues that a TILA plaintiff

seeking a declaratory judgment that she is entitled

to rescission may not utilize the class action

mechiinism. Although courts have analyzed the

class action issue differently insofar as it relates to

the right to rescind, compare James _v. Home

Construction of Mobile, Inc., 621 F.2d 727, 730 (5th

Cir. 1980), with McKenna v. First Horizon Home

Loan Corp., 429 F. Supp. 2d 291, 296 (D. Mass 2006);

and Latham v. Residential Loan Ctrs. of Am., Inc.,

No. 0307094, 2004 WL 1093315, at *5 (N.D. Ill. May

6, 2004), I conclude that a TILA plaintiff seeking a

declaration that she may rescind a loan may

represent a class.

First, “there is nothing in the language of

TILA which precludes the use of the class action

mechanisms provided by Rule 23 to obtain a judicial

declaration whether an infirmity in the documents,

common to all members of the class, entitles each

member of the class individually to seek rescission.”

42a

Appendix B

Rodrigues v. Members Mortgage Co., Inc., 226 F.R.D.

147, 153 (D. Mass. 2005) (quoting Williams _v.

Empire Funding Corp., 183 F.R.D. 428, 436 (E.D. Pa.

1998)). I do not find it significant that Congress

referred to class actions when in 1974 it amended §

1640 to set a damages cap but made no comparable

reference when it subsequently amended § 1635,

which governs rescission claims. It is just as likely

that Congress did not intend to limit rescission

claims in any way. McKenna, 429 F. Supp. 2d at

291.

Second, assuming a TILA plaintiff can satisfy |

the requirements of Fed. R. Civ. P. 23, public policy

strongly favors allowing class actions in cases like

the present one. Class actions serve the purpose of

providing compensation in cases involving public

wrongs and widespread injuries. There is no reason

why a plaintiff who alleges that a defendant has

violated TILA and caused widespread injuries

should not be able to bring a class action. Denial of

class action status would reward defendants who

may have committed wrongs and leave victims who

may have been wronged uncompensated. Note, Class

L.J. 1416, 1435 (1974).

B. Requirements for Class Certification

In order to obtain class certification, plaintiffs

must satisfy several requirements. First, they must

have standing to sue. Rozema v. Marshfield Clinic,

174 F.R.D. 425, 432 (W.D. Wis. 1997). The facts

43a

Appendix B

previously discussed indicate that plaintiffs have

standing. In addition, plaintiffs must satisfy the

criteria in Fed. R. Civ. P. 23. Rule 23(a) requires

plaintiffs to establish (1) numerosity:; (2)

commonality; (3) typicality; and (4) adequacy of

representation. If they satisfy these requirements,

they must also meet one of the requirements of Rule

23(b). In addition, it is implicit in Rule 23 that

plaintiffs establish the existence of a definable class.

Rosario v. Livaditis, 963 F.2d 1013, 1017 (7th Cir.

1992).

Fed. R. Civ. P. 23(a)

a. Numerosity

Rule 23(a)(1) requires that potential class

members be “so numerous that joinder of all

members is impracticable.” To _ satisfy this

requirement, a plaintiff need only show that joinder

would be difficult or inconvenient. Robidoux v.

Celani, 987 F.2d 931, 935 (2nd Cir. 1993). A plaintiff

will generally meet the requirement by showing that

the putative class consists of forty or more. Clarke v.

Ford Motor Co., 220 F.R.D. 568, 578 (E.D. Wis.

2004). In the present case, plaintiffs present

evidence that defendant extended about 7,000 loans

in which the TILA disclosure contained some or all of

the deficiencies discussed above. Thus, plaintiffs

satisfy the numerosity requirement.

44a

Appendix B

b. Commonality

Rule 23(a)(2) requires the existence of

“questions of law or fact common to the class.”

Generally, the presence of a single common legal or

factual question is sufficient. Clarke, 220 F.R.D. at

579 (stating that the commonality requirement is

not demanding because it may be satisfied by a

single common issue). Rule 23(a)(2) generally looks

to whether the defendant's conduct is common to

class members, rather than to whether the result of

the conduct is uniform among class members.

Rosario, 963 F.2d at 1018. In the present case,

whether defendant's disclosures of the payment

schedule, the cost of the loan as an annual

percentage rate and the variable interest rate

feature of the loan violated TILA is a question

common to the class.

Defendant argues that plaintiffs fail to

establish commonality because rescission is a

personal and equitable remedy, which is only

available based on the particular facts of a case.

However, plaintiffs do not seek rescission of an

entire class of transactions but only a declaration

that each class member may rescind if he or she

wishes to do so. See, e.g., Williams, 183 F.R.D. at

435; see also McIntosh v. Irwin Union Bank & Tr.

Co., 215 F.R.D. 26, 33 (D. Mass 2003). As the

Williams court explained:

plaintiffs only seek a declaration that

. each member of the class 1s entitled

45a

Appendix B

to seek rescission. Should the Court

declare that, indeed, plaintiffs are

entitled to seek rescission because of

certain infirmities in the TILA

disclosure documents, then each class

member, individually, and not as a

member of the class, would have the

option to exercise his or her right to

seek rescission.

183 F.R.D. at 435-36. Further, as to any member of

the class who sought to exercise his or her statutory

right to rescind, defendant would be entitled to

exercise any right it had under the statute.

Thus, plaintiffs satisfy the commonality

requirement.

c. Typicality

Rule 23(a)(3) requires that the claims of the

class representative be “typical of the claims... of

the class.” Typicality does not require a complete

identity of claims. Clarke, 220 F.R.D. at 579 (stating

that typicality does not require that the named

plaintiff be in the same position as every member of

the class). Rather, the critical inquiry is whether the

class representative's claims have the same essential

characteristics as those of the putative class. Id. If

the claims arise from a similar course of conduct and

share the same legal theory, factual differences will

not defeat typicality. Since the claims only need to

share the same essential characteristics and necd

46a

Appendix B

not be identical, the typicality requirement is not

highly demanding. Id. In the present case,

plaintiffs’ claims and those of members of the

putative class arise out of the same documents and

are based on the same legal theory. Therefore,

plaintiffs meet their burden of establishing

typicality.

d. Adequacy of Representation

Rule 23(a)(4) requires that the representative

parties “fairly and adequately protect the interests of

the class.” In determining the adequacy of

representation, courts consider the adequacy of the

class representative and of class counsel. Retired

Chi. Police Ass’n v. City of Chi., 7 F.3d 584, 596 (7th

Cir. 1993). The interest of the representative must

not conflict with those of the class and class counsel

must be qualified. In the present case, both

plaintiffs and class counsel present evidence

supporting their adequacy. Plaintiffs submit

affidavits attesting to their commitment to the class,

and counsel submits evidence of prior relevant

experience. Thus, plaintiffs satisfy the requirement

of Rule 23(a)(4).

2. Rule 23(b)

In order to obtain class certification, a

plaintiff must also satisfy the requirements of one of

the subsections of Rule 23(b). In the present case,

plaintiffs seeks certification under Rule 23(b)(2) or,

alternatively, under Rule 23(b)(3).

47a

Appendix B

There are significant distinctions between

class actions certified under Rule 23(b)(2) and those

certified under subdivision (b)(3). Rule 23(b)(3) is so

general that it encompasses all class actions,

whereas actions certified under subdivision (b)(2)

represent specialized categories of class actions.

Unlike actions certified under Rule 23(b)(3), in Rule

23(b)(2) actions, it is not mandatory to give notice of

the pendency of the action to class members, class

members do not have the right to opt out of the

action prior to judgment on the merits, and

certification is less burdensome on the parties and

the court. Alba Conte & Herbert B. Newberg,

Newberg on Class Actions § 4:19 (4th ed. 2002).

Thus, actions that qualify for class

certification under subdivision (b)(2) should not

generally be certified under subdivision (b)(3). Id.;

VanGemert v. Boeing Co., 259 F. Supp. 125, 130-31

(S.D.N.Y. 1966) (articulating principle that actions

under subdivisions (b)(1) and (b)(2) are preferred

over suits under (b)(3)); see also Specialty Cabinets

& Fixtures, Inc. v. Am. Equitable Life Ins. Co., 140

F.R.D. 474, 477 (S.D. Ga. 1991) (stating that it is

desirable to certify class actions under subdivisions

(b)(1) or (2) because its members do not have right to

exclude themselves from binding effect of class

action judgment). Thus, I ask first whether the

present action is certifiable under subdivision (b)(2).

Rule 23(b)(2) provides that an action may be

maintained as a class action if “the party opposing

48a

Appendix B

the class has acted or refused to act on grounds

generally applicable to the class, thereby making

appropriate final injunctive relief or corresponding

declaratory relief with respect to the class as a

whole.” Thus, in the present case, certification is

proper under the rule if defendant’s inaction with

respect to plaintiffs affected the entire class and if

declaratory relief would be appropriate for the entire

class. Plaintiffs allege that defendant has contested

their TILA claims and that defendant’s arguments

would be largely the same with respect to each class

member. Thus, defendant has “refused to act on

grounds generally applicable to the class,” id., and

the first requirement of Rule 23(b) is satisfied.

I now ask whether declaratory relief is

appropriate with respect to the entire class. The

principal criteria for determining whether

declaratory relief is appropriate are whether the

judgment will serve a useful purpose in clarifying

and settling the legal relations in issue, and whether

it will terminate the uncertainty giving rise to the

proceeding. Gammon v. GC Servs. Ltd. P’ship, 162

F.R.D. 313, 320 (N.D. Ill. 1995). In the present case,

a declaratory judgment would settle the issue of

whether defendant violated TILA and, if so, whether

such violation gives rise to the right to rescind.

Therefore, declaratory relief is appropriate with

respect to the entire class.

Thus, I conclude that plaintiffs are entitled to

class certification under Rule 23(b)(2).

49a

Appendix B

C. Definition of Class

The definition of a class must be precise

enough to enable the court to determine whether at

any given time a particular individual is or is not a

member of the class. See Alliance to End Repression

v. Rochford, 565 F.2d 975, 977 (7th Cir. 1977). A

court must be able to resolve the question of an

individual's membership by reference to objective

criteria. Elliott v. ITT Corp., 150 F.R.D. 569, 574

(N.D. Ill. 1992). However, when a plaintiff attempts

to certify a class under Rule 23(b)(2) for the purpose

of seeking injunctive or declaratory relief, a precise

class definition is less critical. See Battle v.

Commonw. of Pa., 629 F.2d 269, 271 n.1 (8rd Cir.

1980). The fact that a class includes persons who

will become members in the future does not render it

impermissibly indefinite. Probe v. State Teacher’s

Ret. Sys., 780 F.2d 776, 780 (9th Cir. 1986).

In the present case, I conclude that it is

appropriate to include in the class those persons (1)

who obtained an adjustable rate mortgage from

defendant on their primary residence, (2) between

April 20, 2004 and the date of class certification, and

(3) who received a TILDS that contained language

identical to that of any one of the three material

disclosures® that I have found deficient.

5 Defendant argues that some borrowers received a

TILDS which included “pa” or “pay” next to the “5-year fixed”

language, and that I should not include such borrowers in the

class because the additional language might change both the

clarity and the typicality analyses. Although neither party has

50a

Appendix B

D. Notice to Class Members

Although it is not mandatory to notify

members of a class certified under Rule 23(b) of the

pendency of the action, it is necessary to provide

such notice in the present case so that class

members will learn of their right to rescind.

Moreover, I am authorized to make an appropriate

order regarding notice under Rule 23(d)(2)a.

However, before entering such an order, I wish to

hear from the parties concerning what sort of notice

is appropriate. Therefore, plaintiffs should file a

proposal regarding notice by February 2, 2007.

Defendant may file a response by February 16, 2007,

and plaintiffs may reply by March 2, 2007.

IV. CONCLUSION

Therefore, for the reasons stated,

IT IS ORDERED that plaintiffs’ and

defendant’s motions for summary judgment are

GRANTED IN PART AND DENIED IN PART as

stated above.

IT IS FURTHER ORDERED that plaintiffs’

motion for class certification is GRANTED as stated

apove.

provided me with a copy of a TILDS contaiing such language

or discussed the matter in depth, I tend to agree with

defendant. Therefore, I decline to include persons who received

disclosures of this type in the class.

Sla

Appendix B

FINALLY, IT IS ORDERED that the parties

advise the court concerning notification of class

members as stated above.

Dated at Milwaukee, Wisconsin this 16 day of

January, 2007.

Is

LYNN ADELMAN

District Judge

EXBIPIT A

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53a

Appendix C

APPENDIX C —- MEMORANDUM OPINION OF

THE UNITED STATES DISTRICT COURT FOR

THE EASTERN DISTRICT OF WISCONSIN,

DATED FEBRUARY 14, 2007

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF WISCONSIN

SUSAN and BRYAN ANDREWS,

Plaintiffs,

vi. Case No. 05C0454

CHEVY CHASE BANK, FSB,

Defendant.

MEMORANDUM

On January 16, 2007, I concluded that

defendant violated the Truth in Lending Act

(“TILA”), 15 U.S.C. § 1601 et seq., in several

respects. I also concluded that a number of the

violations were material as defined in § 1638(f) and

12 C.F.R. § 226.23 and, as a result, extended by

three years the time that borrowers aggrieved by

such violations had to exercise their mght of

rescission pursuant to § 1635. Pursuant to Fed. R.

Civ. P. 23(b)(2), I certified a class of such borrowers,

leaving the decision as to whether to actually seek

rescission to each individual class member.

54a

Appendix C

Defendant appealed my decision certifying a class,

and pursuant to Fed. R. Civ. P. 23(f), the court of

appeals permitted the appeal. Subsequently, also

pursuant to Rule 23(f), defendant asked me to stay

proceedings in this court pending appeal. On

February 3, 2007, I granted the stay, and in the

present memorandum [| explain my reasons for doing

so.

In determining whether to grant defendant’s

request for a stay, I applied the balancing test

applicable to injunctions and other stays pending

appeal. See In re Lorazepam & Clorazepate

Antitrust Litig., 208 F.R.D. 1, 3 (D.D.C. 2002). The

balancing test requires consideration of:

(1) whether the stay applicant has

made a strong showing that he is likely

to succeed on the merits; (2) whether

the applicant will be irreparably injured

absent a stay; (3) whether issuance of

the stay will substantially injure the

other parties interested in_ the

proceeding; and (4) where the public

interest lies.

In re Application of Proctor & Gamble Co., 334 F.

Supp. 2d 1112, 1117 (E.D. Wis. 2004) (quoting Hilton

v. Braunskill, 481 U.S. 770, 776 (1987)).

55a

Appendix C

A. Likelihood of Success on Appeal

I first discuss the likelihood that defendant

will succeed on appeal. Defendant argued that it is

likely to succeed on appeal because (1) TILA bars

certification of a class of borrowers who have the

right to seek rescission, and (2) even if TILA does not

bar certification of such a class, I defined the class

too broadly. Notwithstanding McKenna v. First

Horizon Home Loan Corp., No. 06-808, 2007 WL

210850 (ist Cir. Jan. 29, 2007), I found defendant’s

first argument unpersuasive. With all due respect to

the First Circuit, nothing in the text of TILA

supports the proposition that TILA bars courts from

certifying classes whose members may _ seek

rescission. Moreover, in concluding that TILA bars

certification of such classes, the McKenna court used

legislative intent and legislative history in a way

that the Seventh Circuit has condemned.

Congress enacted TILA in 1968. Initially

fearful that sizeable damage awards could harm the

credit industry, some district courts found that TILA

did not permit class actions, and others found

various reasons for denying class certification. See,

e.g., Ratner v. Chem. Bank, N.Y. Trust Co., 329 F.

Supp. 270, 274 (S.D.N.Y. 1974). However, in Wilcox

v. Commerce Bank of Kansas City, 474 F.2d 336, 344

(10th Cir. 1973), the Tenth Circuit rejected the

notion that TILA prohibited class actions, concluding

that “there is nothing in the Act itself, the Rule

[Rule 23] or the notes of the Advisory Committee on

Rules of Civil Procedure with respect to it which

56a

Appendix C

expressly or impliedly precludes class actions of this

type of case.” Id. Noting the relative absence of

recorded legislative intent, the court concluded that

“[tlo find any congressional intent to preclude at all

events treatment of such cases under Rule 23 would

be a work of clairvoyance and not of construction or

interpretation.” Id. Thus, the court concluded that

under TILA district courts should certify classes if

the requirements of Rule 23 were satisfied.

The Seventh Circuit reached the same

conclusion. In Haynes v. Logan Furniture Mart,

Inc., 503 F.2d 1161, 1163 (7th Cir. 1974), the court

stated that “the trial court's decision to deny class

action status in this case was posited on the legal

theory that the procedural device of class actions is

incompatible with the substantive ends to which the

Truth in Lending Act is addressed. We cannot

agree.” The Haynes court based its decision on three

factors: (1) that plaintiffs had long used class

actions extensively in antitrust and _ securities

litigation without special legislative authorization,

and although cognizant of such activity, Congress in

enacting TILA said nothing suggesting that it

intended a different result under TILA; (2) that

TILA had a dual purpose of providing incentives to

private litigants and inducing creditor compliance,

thus “creditors disregarding their responsibilities

under the Act and causing damages to members of a

class however limited or extensive should have no

assurance that their accumulated responsibility

cannot be enforced through this means”; and (3) that

S7a

Appendix C

although it was important not to harm the credit

industry, “it is at least equally important to prevent

violators of the Act from lhmiting recovery to a few

individuals where actual, wide-spread

noncompliance is found to exist.” Id. at 1163-64.

In 1974, Congress amended TILA, limiting the

potential lability of lenders by capping statutory

damages in class actions. However, Congress did not

bar TILA class actions either in damage cases or

where the violation gives rise to a right of rescission.

Subsequently, the Seventh Circuit reiterated its

position that TILA does not bar class actions and

that in determining whether to certify classes in

TILA cases, district courts should only consider

whether the requirements of Rule 23 are met.

Goldman v. First Nat’] Bank of Chi., 532 F.2d 10, 14-

15 (7th Cir. 1976). Other circuits agree. See, e.g.,

Johnson v. West Suburban Bank, 225 F.3d 366, 371

(3d Cir. 2000) (stating that “although the statute

clearly contemplates class actions, there are no

provisions within the law that create a right to bring

them. .. . The ‘right’ to proceed as a class action,

insofar as the TILA is concerned, is a procedural one

that arises from the Federal Rules of Civil

Procedure.”). Nevertheless, from the fact that the

1974 amendment imposed a cap on _ statutory

damages in class actions seeking damages (but made

no mention of class actions involving the right of

rescission), the McKenna court inferred that

Congress intended to bar class actions in TILA cases

where rescission is the only available remedy.

However, nothing in the text of the amendment

58a

Appendix C

justifies this inference. It is just as likely that

Congress remained silent about class actions

involving the right of rescission because it did not

regard such actions as posing the same economic

threat to the credit industry as class actions

involving damages or because it never considered the

issue.

Congress also amended TILA in 1995 in

response to Rodash v. AIB Mortgage Co., 16 F.3d

1142 (11th Cir. 1994), in which the Eleventh Circuit

authorized a borrower to rescind based on a minor

TILA violation. Specifically, Congress initially

enacted a six month moratorium on class actions

involving minor TILA violations and subsequently

limited the grounds on which a borrower could

rescind as well as making several other changes in

the law. Again, however, Congress did not bar class

actions involving the _ right of rescission.

Nevertheless, the McKenna court relied on the 1995

amendment to bolster its conclusion that Congress

intended to preclude TILA class actions involving

the right to rescind. However, like the 1974

amendment, the 1995 amendment does not bear the

weight the McKenna court placed on it.

The McKenna court inferred a congressional

intent to bar district courts from certifying classes

whose members may seek rescission based on what

‘it gleaned from the legislative history” of the 1974

and 1995 amendments. McKenna, 2007 WL 210850,

at *6. However, in seeking to ascertain legislative

intent, the court misunderstood that “the search is

59a

Appendix C

not for the contents of the authors’ heads,” Matter of

Sinclair, 870 F.2d 1340, 1342 (7th Cir. 1989), but for

“what Congress meant by what it said.” Id. at 1343

(emphasis added). Where the language of a statute

is plain and does not lead to an absurd result, the

language itself “is the sole evidence of the ultimate

legislative intent.” Id. at 1344 (quoting Caminetti v.

United States, 242 U.S. 470, 490 (1917)). The

language of TILA is plain. It does not bar courts

from certifying classes whose members have a right

to rescind. Nor is the absence of such a bar absurd.

In sum, the McKenna court should have asked “what

the statute means” rather than “what the legislature

meant.” Id. at 1343 (quoting Oliver Wendell Holmes,

The Theory of Legal Interpretation, 12 Harv. L. Rev.

417, 417-19 (1899), reprinted in Collected Legal

Papers, 204, 207 (1920)).

The McKenna court also used legislative

history improperly. Legislative history may

illuminate the meaning of a text, but it cannot be

used to create a rule not found in the text. See id. at

1344 (stating that legislative history “is not a source

of legal rules competing with those found in the

United States Code”). Both the 1974 and 1995

amendments to TILA demonstrate that Congress

chose to accomplish the goal of limiting lender

liability by means other than prohibiting courts from

certifying classes whose members may _ seek

rescission. As the Seventh Circuit recently

indicated, the fact that a statute subjects a party to

severe liability does not give courts a license not to

enforce it. See Murray v. GMAC Mortgage Corp.,

60a

Appendix C

434 F.3d 948, 953-54 (7th Cir. 2006) (stating that if

Congress wishes to amend a statute to limit liability,

if of course may do so, but that “while a statute

remains on the books, however, it must be enforced

rather than subverted.”). By relying on legislative

history to reach the contrary conclusion, the

McKenna court engaged in “clairvoyance ... not...

construction or interpretation.” Wilcox, 474 F.2d at

344.

Toward the end of its decision, the McKenna

court made an observation that illustrates the

problematic nature of its use of legislative intent and

legislative history. The court stated: “Last — but not

least — we note that the TILA already includes

significant incentives for creditor compliance with its

strictures, thus casting serious doubt on the need for

a class-action mechanism with respect to rescission.”

(footnote omitted.) McKenna, 2007 WL 210850, at

*7. Once again, with all due respect, the question of

what mechanisms are needed to obtain creditor

compliance with federal banking requirements 1s for

Congress, not the courts to determine. !

1 The McKenna court also likely exaggerated the

potential harm to lenders from courts certifying classes whose

members may rescind. As the court itself noted, not all

borrowers will choose to rescind loans. In addition, in some

cases, it is likely that the strict three year period for rescission

will have run. See Beach v. Ocwen Fed. Bank, 523 U.S. 410,

419 (1998) (stating that TILA does not permit rescission “after

the 3-year period of § 1635(f) has run”). Further, rescission is

an equitable remedy, and in determining whether to grant

rescission and on what terms, courts may consider the

individual circumstances of the case before them.

6la

Appendix C

With respect to the propriety of certification

under Rule 23, the McKenna court also stated that it

saw no meaningful distinction “between a suit for a

declaratory judgment that rescission is possible and

a suit for rescission simpliciter,” id., and thus

declined to distinguish James v. Home Construction

Company of Mobile, Inc., 621 F.2d 727, 731 (5th Cir.

1980), which involved the latter. In refusing to

distinguish declaratory actions from _ rescission

actions, the McKenna court relied on the need to

shield lenders from liability and the personal nature

of the rescission remedy. McKenna, 2007 WL

210850, at *6. However, as we have seen, it is not

the business of courts to shield lenders from liability

in ways that Congress has not. Further, the

personal aspects of rescission do not come into play

in a declaratory action but only after a borrower

actually attempts to rescind. There is nothing

personal about declaring that a class of borrowers

who received the same misleading disclosure

incurred a TILA violation and that as a result the

statutory right to rescind is extended from three

days to three years. In fact, the creation of such a

declaratory class promotes the goals of TILA and

Rule 23 because it provides a mechanism for

notifying borrowers of the violation. Further, as in

the present case, TILA plaintiffs often seek both

statutory damages and a declaration that a lender’s

alleged violations are material for purposes of

rescission. In such cases, it makes little sense to

preclude a court already deciding whether borrowers

secking statutory damages constitute a class from

62a

Appendix C

determining whether a common violation is material

for purposes of extending the rescission period.

For the reasons stated, I concluded that

defendant should not prevail on appeal based on

McKenna. However, I recognized that the Seventh

Circuit may disagree with me and agree with a sister

circuit. Further, I agreed with defendant that I likely

defined the class too broadly, and that if the class

action survives, the class definition will have to be

narrowed. I did not take into account that TILA

prohibits certain borrowers from rescinding, 1.e., if

their loan is for the purpose of construction or

purchase, § 1635(e)(1), or involves a refinancing by

the lender who made the initial loan and is secured

by the same collateral. § 1635(e)(2). Thus, the class

should include only borrowers who refinanced a loan

with a different lender or refinanced a loan with the

same lender but secured it with different collateral.

B. Irreparable Injury/Public Interest

I discuss the irreparable injury and public

interest factors together as they are _ related.

Defendant argued that it would be irreparably

injured absent a stay because it would have to send

notices, provide discovery and respond to claims

even though the class action might not proceed.

Plaintiffs argued that they would be irreparably

harmed by a stay because the three year limitation

period, which begins to run in April 2007, would run

out on some class members before they were made

aware of their right to rescind. Although I considered

63a

Appendix C

it a close question, I ultimately concluded that the

need to clarify whether a court could certify a class

whose members have a right to rescind tipped the

balance slightly in favor of defendant.

C. Conclusion

For the reasons stated, I concluded that I

should grant defendant’s request for a stay pending

appeal.

Dated at Milwaukee, Wisconsin this 14 day of

February, 2007.

Is

LYNN ADELMAN

District Judge

64a

Appendix D

APPENDIX D — ORDER OF THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH

CIRCUIT GRANTING LEAVE TO APPEAL,

DATED JANUARY 31, 2007

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

January 31, 2007

Before

Hon. KENNETH F. RIPPLE, Circuit Judge

Hon. DANIEL A. MANION, Circuit Judge

Hon. MICHAEL S. KANNH, Circuit Judge

IN RE:

CHEVY CHASE BANK ,

Petitioner.

Petition for

Permission to

Appeal Pursuant

to F.R.C.P. 23(6

Eastern District of

Wisconsin.

No. 07-8001

05 C 454

Lynn Adelman,

Judge.

ee ee eS ee

Upon consideration of the DEFENDANT-

PETITIONER CHEVY CHASE BANK'S PETITION

65a

Appendix D

FOR LEAVE TO APPEAL PURSUANT TO RULE

23(f), filed on January 25, 2007, by counsel for the

petitioner,

IT IS ORDERED that the petition is

GRANTED. Petitioner shall pay the required

appellate fees to the clerk of the district court within

ten days from the entry of this order pursuant to

Federal Rule of Appellate Procedure 5(d)(1). Once

the district court notifies this court that the fees

have been paid, the appeal will be entered on this

court's general docket.

66a

Appendix E

APPENDIX E — ORDER OF THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH

CIRCUIT DENYING REHEARING AND

REHEARING EN BANC, DATED OCTOBER 31,

2008

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

October 31, 2008

Before

DANIEL A. MANION, Circuit Judge

TERENCE T. EVANS, Circuit Judge

DIANE S. SYKES, Circuit Judge

No. 07-1326

BRYAN ANDREWS and Appeal from the

SUSAN ANDREWS, United States

Plaintiffs-Appellees, District Court for

the Eastern District

of Wisconsin.

Vv. No. 05 C 454

CHEVY CHASE BANK, Lynn Adelman,

Defendant-Appellant. Judge.

67a

Appendix E

ORDER

On consideration of the petition for rehearing

and for rehearing en banc, no judge in active service

has requested a vote on the petition for rehearing en

banc.” Circuit Judges Daniel A. Manion and Diane

S. Sykes have voted to deny rehearing; Circuit Judge

Terence T. Evans voted to grant rehearing.

It is therefore ordered that the petition for

rehearing and for rehearing en banc is DENIED.

* Circuit Judge Joel M. Flaum did not participate in the

consideration of the petition for rehearing en banc.

68a

Appendix F

APPENDIX F —- STATUTES INVOLVED

15 U.S.C. § 1605

Sec. 1605. Determination of finance charge

(f) Tolerances for accuracy

In connection with credit transactions not

under an open end credit plan that are secured by

real property or a dwelling, the disclosure of the

finance charge and other disclosures affected by any

finance

charge—

(1) shall be treated as being accurate for

purposes of this subchapter if the amount

disclosed as the finance charge—

(A) does not vary from the actual

finance charge by more than $100; or

(B) is greater than the amount required

to be disclosed under this subchapter;

and

(2) shall be treated as being accurate for

purposes of section 1635 of this title if—

(A) except as provided in subparagraph

(B), the amount disclosed as the finance

69a

Appendix F

charge does not vary from the actual

finance charge by more than an amount

equal to one-half of one percent of the

total amount of credit extended: or

(B) in the case of a transaction, other

than a mortgage referred to in section

1602(aa) of this title, which—

(i) is a refinancing of the

principal balance then due and

any accrued and unpaid finance

charges of a residential mortgage

transaction as defined in section

1602(w) of this title, or is any

subsequent refinancing of such a

transaction; and

(ii) does not provide any new

consolidation or new advance;

if the amount disclosed as the finance

charge does not vary from the actual

finance charge by more than an amount

equal to one percent of the total amount

of credit extended.

15 U.S.C. § 1635

Sec. 1635. Right of rescission as to certain

transactions

(a) Disclosure of obligor's right to rescind

70a

Appendix F

Except as otherwise provided in this section,

in the case of any consumer credit transaction

(including opening or increasing the credit limit for

an open end credit plan) in which a security interest,

including any such interest arising by operation of

law, is or will be retained or acquired in any

property which is used as the principal dwelling of

the person to whom credit is extended, the obligor

shall have the right to rescind the transaction until

midnight of the third business day following the

consummation of the transaction or the delivery of

the information and rescission forms required under

this section together with a statement containing the

material disclosures required under this subchapter,

whichever is later, by notifying the creditor, in

accordance with regulations of the Board, of his

intention to do so. The creditor shall clearly and

conspicuously disclose, in accordance’ with

regulations of the Board, to any obligor in a

transaction subject to this section the rights of the

obligor under this section. The creditor shall also

provide, in accordance with regulations of the Board,

appropriate forms for the obligor to exercise his right

to rescind any transaction subject to this section.

(b) Return of money or property following rescission

When an obligor exercises his right to rescind

under subsection (a) of this section, he is not liable

for any finance or other charge, and any security

interest given by the obligor, including any such

interest arising by operation of law, becomes void

Tla

Appendix F

upon such a rescission. Within 20 days after receipt

of a notice of rescission, the creditor shall return to

the obligor any money or property given as earnest

money, downpayment, or otherwise, and shall take

any action necessary or appropriate to reflect the

termination of any security interest created under

the transaction. If the creditor has delivered any

property to the obligor, the obligor may retain

possession of it. Upon the performance of the

creditor's obligations under thts section, the obligor

shall tender the property to the creditor, except that

if return of the property in kind would be

impracticable or inequitable, the obligor shall tender

its reasonable value. Tender shall be made at the

location of the property or at the residence of the

obligor, at the option of the obligor. If the creditor

does not take possession of the property within 20

days after tender by the obligor, ownership of the

property vests in the obligor without obligation on

his part to pay for it. The procedures prescribed by

this subsection shall apply except when otherwise

ordered by a court.

(c) Rebuttable presumption of delivery of required

disclosures

Notwithstanding any rule of evidence, written

acknowledgment of receipt of any _ disclosures

required under this subchapter by a person to whom

information, forms, and a statement is required to be

given pursuant to this section does no more than

create a rebuttable presumption of delivery thereof.

72a

Appendix F

(d) Modification and waiver of rights

The Board may, if it finds that such action is

necessary in order to permit homeowners to meet

bona fide personal financial emergencies, prescribe

regulations authorizing the modification or waiver of

any rights created under this section to the extent

and under the circumstances set forth in those

regulations.

(e) Exempted transactions; reapplication of

provisions

This section does not apply to—

(1) a residential mortgage transaction as

defined in section 1602(w) of this title:

_ (2) a. transaction which constitutes a

refinancing or consolidation (with no new

advances) of the principal balance then due

and any accrued and unpaid finance charges

of an existing extension of credit by the same

creditor secured by an interest in the same

property;

(3) a transaction in which an agency of a State

is the creditor; or

(4) advances under a preexisting open end

credit plan if a security interest has already

been retained or acquired and such advances

73a

Appendix F

are in accordance with a_ previously

established credit limit for such plan.

(f) Time limit for exercise of right

An obligor's right of rescission shall expire

three years after the date of consummation of the

transaction or upon the sale of the property,

whichever occurs first, notwithstanding the fact that

the information and forms required under this

section or any other disclosures required under this

part have not been delivered to the obligor, except

that if (1) any agency empowered to enforce the

provisions of this subchapter institutes a proceeding

to enforce the provisions of this section within three

years after the date of consummation of the

transaction, (2) such agency finds a violation of this

section, and (3) the obligor's right to rescind is based

in whole or in part on any matter involved in such

proceeding, then the obligor's right of rescission shall

expire three years after the date of consummation of

the transaction or upon the earlier sale of the

property, or upon the expiration of one year

following the conclusion of the proceeding, or any

judicial review or period for judicial review thereof,

whichever is later.

(g) Additional relief

In any action in which it is determined that a

creditor has violated this section, in addition to

rescission the court may award relief under section

74a

Appendix F

1640 of this title for violations of this subchapter not

relating to the right to rescind

(h) Limitation on rescission

An obligor shall have no rescission rights

arising solely from the form of written notice used by

the creditor to inform the obligor of the rights of the

obligor under this section, if the creditor provided

the obligor the appropriate form of written notice

published and adopted by the Board, or a

comparable written notice of the rights of the

obligor, that was properly completed by the creditor,

and otherwise complied with all other requirements

of this section regarding notice.

(i) Rescission rights in foreclosure

(1) In general

Notwithstanding section 1649 of this

title, and subject to the time period provided

in subsection (f) of this section, in addition to

any other right of rescission available under

this section for a transaction, after the

initiation of any judicial or nonjudicial

foreclosure process on the primary dwelling of

an obligor securing an extension of credit, the

obligor shall have a right to rescind the

transaction equivalent to other rescission

rights provided by this section, if—

.

7Sa

Appendix F

(A) a mortgage broker fee is not

included in the finance charge in

accordance with the laws’ and

regulations in effect at the time the

consumer credit transaction was

consummated; or

(B) the form of notice of rescission for

the transaction is not the appropriate

form of written notice published and

adopted by the Board or a comparable

written notice, and otherwise complied

with all the requirements of this section

regarding notice.

(2) Tolerance for disclosures

Notwithstanding section 1605(f) of this

title, and subject to the time period provided

in subsection (f of this section, for the

purposes of exercising any rescission rights

after the initiation of any judicial or

nonjudicial foreclosure process on_ the

principal dwelling of the obligor securing an

extension of credit, the disclosure of the

finance charge and other disclosures affected

by any finance charge shall be treated as

being accurate for purposes of this section if

the amount disclosed as the finance charge

does not vary from the actual finance charge

by more than $35 or is greater than the

amount required to be disclosed under this

subchapter.

76a

Appendix F

(3) Right of recoupment under State law

Nothing in this subsection affects a

consumer's right of rescission in recoupment

under State law.

(4) Applicability

This subsection shall apply to all

consumer credit transactions in existence or

consummated on or after September 30, 1995.

15 U.S.C. § 1640

Sec. 1640. Civil hability

(a) Individual or class action for damages; amount of

award; factors determining amount of award

Except as otherwise provided in this section,

any creditor who fails to comply with any

requirement imposed under this part, including any

requirement under section 1635 of this title, or part

D or E of this subchapter with respect to any person

is liable to such person in an amount equal to the

sum of—

(1) any actual damage sustained by such

person as a result of the failure;

(2)(A)@) in the case of an individual! action

twice the amount of any finance charge in

T7a

Appenalx F

connection with the transaction, (i) in the

case of an individual action relating to a

consumer lease under part E of this

subchapter, 25 per centum of the total amount

of monthly payments under the lease, except

that the liability under this subparagraph

shall not be less than $100 nor greater than

$1,000, or (iii) in the case of an individual

action relating to a credit transaction not

under an open end credit plan that is secured

by real property or a dwelling, not less than

$400 or greater than $4,000; or

(B) in the case of a class action, such amount

as the court may allow, except that as to each

member of the class no minimum recovery

shall be applicable, and the total recovery

under this subparagraph in any class action or

series of class actions arising out of the same

failure to comply by the same creditor shall

not be more than the lesser of $500,000 or 1

per centum of the net worth of the creditor;

(3) in the case of any successful action to

enforce the foregoing liability or in any action

in which a person is determined to have a

right of rescission under section 1635 of this

title, the costs of the action, together with a

reasonable attorney's fee as determined by the

court; and

(4) in the case of a failure to comply with any

requirement under section 1639 of this title,

78a

Appendix F

an amount equal to the sum of all finance

charges and fees paid by the consumer, unless

the creditor demonstrates that the failure to

comply is not material.

In determining the amount of award in any class

action, the court shall consider, among other

relevant factors, the amount of any actual damages

awarded, the frequency and persistence of failures of

compliance by the creditor, the resources of the

creditor, the number of persons adversely affected,

and the extent to which the creditor's failure of

complhance was initentional. In connection with the

disclosures referred to in subsections (a) and (b) of

section 1637 of this title, a creditor shall have a

liability determined under paragraph (2) only for

failing to comply with the requirements of section

1635 of this title, section 1637(a) of this title, or of

paragraph (4), (5), (6), (7), (8), (9), or (10) of section

1637(b) of this title or for failing to comply with

disclosure requirements under State law for any

term or item which the Board has determined to be

substantially the same in meaning under section

1610(a)(2) of this title as any of the terms or items

referred to in section 1637(a) of this title or any of

those paragraphs of section 1637(b) of this title. In

connection with the disclosures referred to in

subsection (c) or (d) of section 1637 of this title, a

card issuer shall have a hability under this section

only to a cardholder who pays a fee described in

section 1637(c)(1(A)GD(D or section 1637(c)(4)(A)@

of this title or who uses the credit card or charge

card. In connection with the disclosures referred to

79a

Appendix F

in section 1638 of this title, a creditor shall have a

liability determined under paragraph (2) only for

failing to comply with the requirements of section

1635 of this title or of paragraph (2) (insofar as it

requires a disclosure of the "amount financed"), (3),

(4), (5), (6), or (9) of section 1638(a) of this title, or

section 1638(b)(2)(C)(ii) of this title, or for failing to

comply with disclosure requirements under State

law for any term which the Board has determined to

be substantially the same in meaning under section

1610(a)(2) of this title as any of the terms referred to

in any of those paragraphs of section 1638(a) of this

title or section 1638(b)(2)(C)(Gi) of this title. With

respect to any failure to make disclosures required

under this part or part D or E of this subchapter,

liability shall be imposed only upon the creditor

required to make disclosure, except as provided in

section 1641 of this title.

(i) Class action moratorium

(1) In general

During the period beginning on May 18,

1995, and ending on October 1, 1995, no court

may enter any order certifying any class in

any action under this subchapter—

(A) which is brought in connection with

any credit transaction not under an

open end credit plan which is secured

80a

Appendix F

by a first lien on real property or a

dwelling and constitutes a refinancing

or consolidation of an existing extension

of credit; and

(B) which is based on the alleged failure

of a creditor—

Gi) to 1clude a charge actually

incurred (in connection with the

transaction) in the finance

charge disclosed pursuant to

section 1638 of this title;

(ii) to properly make any other

disclosure required under section

1638 of this title as a result of

the failure described in clause (i);

or

(iii) to provide proper notice of

rescission rights under section

1635(a) of this title due to the

selection by the creditor of the

incorrect form from among the

model forms prescribed by the

Board or from among forms

based on such mode! forms.

(2) Exceptions for certain alleged violations

Paragraph (1) shall not apply with

respect to any action—

8la

Appendix F

(A) described in clause (i) or (i) of

paregraph (1)(B), if the amount

disclosed as the finance charge results

in an annual percentage rate that

exceeds the tolerance provided in

section 1606(c) of this title; or

(B) described in paragraph (1)(B)(iii),

if—

(i) no notice relating to

rescission rights under

section 1635(a) of this title

was provided in any form;

or

(ii) proper notice was not

provided for any reason

other than the _ reason

described in such

paragraph.

15 U.S.C. § 1649

Sec. 1649. Certain litaitations on hability

(a) Limitations on liability

For any closed end consumer credit

transaction that is secured by real property or a

dwelling, that is subject to this subchapter, and that

is consummated before September 30, 1995, a

creditor or any assignee of a creditor shall have no

82a

Appendix F

civil, administrative, or criminal hability under this

subchapter for, and a consumer shall have no

extended rescission rights under section 1635(f) of

this title with respect to—

(1) the creditor's treatment, for

disclosure purposes, of—

(A) taxes described in section

1605(d)(3) of this title:

(B) fees described in section

1605(e)(2) and (5) of this title:

(C) fees and amounts referred to

in the 3rd sentence of section

1605(a) of this title; or

(D) borrower-paid mortgage

broker fees referred to in

section 1605(a)(6) of this title;

(2) the form of written notice used by

the creditor to inform the obligor of the

rights of the obligor under section 1635

of this title if the creditor provided the

obligor with a properly dated form of

written notice published and adopted by

the Board or a comparable written

notice, and otherwise complied with all

the requirements of this. section

regarding notice; or

83a

Appendix F

(3) any disclosure relating to the

finance charge imposed with respect to

the transaction if the amount or

percentage actually disclosed—

(A) may be treated as accurate

for purposes of this subchapter

if the amount disclosed as the

finance charge does not vary

from the actual finance charge by

more than $200;

(B) may, under section 1605(f)(2)

of this title, be treated as

accurate for purposes of section

1635 of this title; or

(C) is greater than the amount or

percentage required to be

disclosed under this subchapter.

(b) Exceptions

Subsection (a) of this section shall not apply

to—

(1) any _ individual action or

counterclaim brought under this

subchapter which was filed before June

1, 1995,

(2) any class action brought under this

subchapter for which a final order

84a

Appendix F

certifying a class was entered before

January 1, 1995:

(3) the named individual plaintiffs in

any class action brought under this

subchapter which was filed before June

1, 1995; or

(4) any consumer credit transaction

with respect to which a timely notice of

rescission was sent to the creditor

before June 1, 1995.