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

Supreme Court, us.

FILED

MAY 2 8 2009

OFFICE OF THE CLERK

No. 08-1206

Jn the Supreme Court of the Gnited States

BRYAN ANDREWS AND SUSAN ANDREWS,

Petitioners,

v.

CHEVY CHASE BANK, F.S.B.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF FOR RESPONDENT IN OPPOSITION

JEFFREY W.SARLES

Counsel of Record

NATHAN T’. KIPP

Mayer Brown LLP

71 South Wacker Drive

Chicago, Illinois 60606

(312) 782-0600

Counsel for Respondent

Bean eS NR IRE STN SOUTER PNM SEE ER ENS SIS RRR SEITEN SE TER RE PIE ADIN TRIE OR DD

1

QUESTION PRESENTED

Whether the Seventh Circuit correctly held, as

have the only two other courts of appeals to address

the issue, that courts may not order rescission of

mortgages on a class-wide basis in actions brought

under the Truth in Lending Act.

il

RULE 29.6 STATEMENT

Respondent Chevy Chase Bank, F.S.B., is a

wholly owned subsidiary of Capital One Financial

Corporation, a public company.

lll

TABLE OF CONTENTS

QUESTION PRESENTED

RULE 29.6 STATEMENT

ti THERE IS NO CIRCUIT CONFLICT

FOR THIS COURT TO RESOLVE

II. THE DECISION BELOW DOES NOT

CONFLICT WITH CALIFANO vy.

THE COURT BELOW CORRECTLY

RULED THAT TILA RESCISSION

MAY NOT BE AWARDED ON A

CLASS-WIDE BASIS ..................0.0+ asap dank 9

A. The TILA’s Text And History

Show That Congress Did Not

Intend To Permit Class-wide

Rescissions

The Rescission Process Set Forth

In The TILA Is Incompatible

With Class Resolution ........................ 12

Class Actions Are Unnecessary

To Vindicate A TILA Right To

Rescind

AO ENE sich ch taionécecsitancs aon 17

lV

TABLE OF AUTHORITIES

Page(s)

Cases

Am. Mortgage Network v. Shelton, 2006

WL 909415 (W.D.N.C. Apr. 6, 2006),

affd, 486 F.3d 815 (4th Cir. 2007) ...................0008 13

Beach v. Ocwen Fed. Bank, 523 U.S. 410 (1998)........ 2

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

Community Bank, In re, 418 F.3d 277

luli das ae adeuebwunciue’ 6

Datuley v. Leshin, 792 So. 2d 527 (Fla. App. 2001)....13

Demarest v. Quick Loan Funding, Inc.,

2009 WL 940377 (C.D. Cal. Apr. 6, 2009)............. 16

Foster v. Smith, 2009 WL 703702 (D. Minn.

ec ceccalahichntsbacisiaas deannansa Mica enihaaseaintees 16

Gen. Home Capital Corp. v. Campbell, 800 N.Y.S.

2d 917 (Dist. Ct. Nassau County 2005) ...........0.... 14

Gibbons v. Interbank Funding Group, 208 F.R.D.

Bee I es I heen ik nhc tines hcesdcinhte nwt 14

Grimes v. New Century Mortgage Corp., 340

tee RAE CEPR Gl PI ic vinneeccs nnadcncssncccccseesensenss 6, 7

Harris v. Tower Loan, 609 F.2d 120

es IN aia inh crdeslata lobes on ncedkbacvicntunkbucdiocnenceadwecaus 15

Hefferman v. Bitton, 882 F.2d 379 (9th Cir. 1989) ..13

James v. Home Construction Co., 621 F.2d 727

FE ead D

Kovaltk v. Delta Inv. Corp., 611 P.2d 955

i eae aadaanh 13

Vv

TABLE OF AUTHORITIES—continued

Page(s)

LaLiberte v. Pacific Mercantile Bank, 53 Cal.

Rptr. 3d 745 (App.), cert. denied,

128 S. Ct. 393 (2007)

Large v. Conseco Fin. Serv. Corp., 292 F.3d 49

(1st Cir. 2002)

McKenna v. First Horizon Home Loan Corp.,

475 F.3d 418 (1st Cir. 2007)

Mortgage Source, Inc. v. Strong, 75 P.3d 304

(Mont. 2003)

Regency Sav. Bank v. Chavis, 776 N.E.2d 876

(ll. App. 2002)

Rodash v. AIB Mortgage Co., 16 F.3d 1142

(11th Cir. 1994)

Rogers v. Countrywide Home Loans, Inc..,

2009 WL 1118898 (S.D. Ala. Apr. 24, 2009)

Ruiz v. R&G Fin. Corp., 383 F. Supp. 2d 318

(D.P.R. 2005)

Sartain v. Aurora Loan Servs., LLC, 2009 WL

$50946 (C.D. Cal. Apr. 6, 2009)

Semar v. Platte Valley Fed. Sav. & Loan Ass'n,

791 F.2d 699 (9th Cir. 1986)

Sherlock v. Herdelin, 2008 WL 732146 (E.D. Pa.

Mar. 17, 2008)

Tower v. Moss, 625 F.2d 1161 (5th Cir. 1980)

Westbank v. Maurer, 658 N.E.2d 1381

A a a oa eae 15

vl

TABLE OF AUTHORITIES—continued

Page(s)

Williams v. Homestake Mortgage Co., 968 F.2d

1137 (11th Cir. 1992)

Yamamoto v. Bank of N.Y., 329 F.3d 1167

(9th Cir. 2003)

Statutes and Regulations

15 U.S.C.

15 U.S.C.

15 U.S.C.

15 U.S.C.

Bn scisscsicccevevsesesucsosevesvenseseseceocs

15 U.S.C. § 1640(a)

15 U.S.C. § 1640(a)(1)

15 U.S.C. § 1640(a)(2)(A) (ii)

15 U.S.C. § 1640(a)(2)(B) ....cccccecccceccescscecesceeeececeeeee. 2,9

15 U.S.C. § 1640(a)(3)

42 U.S.C. § 405(g)

Consumer Leasing Act of 1976, Pub. L. No. 94-240,

90 Stat. 257

Truth in Lending Act Amendments, Pub. L.

No. 93-495, tit. [V, § 407, 88 Stat. 1500 (1974) ...... 9

Truth in Lending Act Amendments of 1995,

Pub. L. No. 104-29, 109 Stat. 271

Truth in Lending Class Action Relief Act of 1995,

Pub. L. No. 104-12, 109 Stat. 161

Vill

TABLE OF AU'THORITIES—continued

Page(s)

Truth in Lending Simplification and Reform Act,

Pub. L. No. 96-221, tit. VI, § 615(a)(1), 94 Stat.

132 (1980)

12 C.F.R. § 226.23¢)

12 C.F.R. Pt. 226, Supp. 1, {| 226.23(d)(2)-2

Other Authorities

S. Rep. No. 93-278 (1973)

S. Rep. No. 94-590 (1976)

BRIEF FOR RESPONDENT IN OPPOSITION

STATEMENT

This case is not certworthy. The Seventh Circuit

held that a court may not order a rescission of mort-

gages on a class-wide basis in a Truth in Lending Act

(“TILA”) case. The only other Circuits to address that

issue—the Fifth and the First—reached the same

conclusion. That conclusion comports with the text,

history, and purpose of the relevant TILA provisions,

which make clear that rescission under the TILA is a

highly individualized mechanism unsuited for class

treatment. Petitioners’ positing of a conflict with this

Court’s opinion in Califano v. Yamasaki, 442 U.S.

682 (1979), is fanciful. Yamasaki addressed the right

to bring class actions under a jurisdictional statute

governing the right to judicial review of agency deci-

sions. Even if Yamasaki were applicable here, the

decision below does not bar all TILA class actions. It

leaves TILA claimants free to file class actions and

seek both statutory and actual damages on a class-

wide basis.

The court below also ruled that, in any event, pe-

titioners had not satisfied the threshold require-

ments for a class action under Rule 23(b). Pet. App.

14a-17a. Hence, even if the Court were to grant the

petition and reverse on the question presented, the

Seventh Circuit’s judgment would not be affected,

making this a poor vehicle for review of the question

presented.

Statutory Framework. Under the TILA, lend-

ers that violate certain disclosure requirements may

be ordered to pay statutory damages. 15 U.S.C.

§ 1640(a). In an individual action involving a mort-

gage loan, a court may award statutory damages of

2

at least $400 and no more than $4,000. IZd.

§ 1640(a)(2)(A)(iii).! In a class action or series of class

actions arising out of the same disclosure violation,

the aggregate maximum award is the lesser of

$500,000 or one percent of the creditor’s net worth.

Id. at § 1640(a)(2)(B). The TILA also authorizes the

recovery of all actual damages. Id. § 1640(a)(1).

In addition, the TILA provides borrowers with a

right of rescission in the case of certain types of

mortgage loans. 15 U.S.C. § 1635(a), (e). The bor-

rower may rescind the transaction until midnight of

the third business day following closing of the loan,

assuming the lender has delivered the required no-

tice of the right to rescind and all material disclo-

sures. Id. § 1635(a). To provide the lender with an

incentive to provide those materials promptly, the

right to rescind can be extended until the lender pro-

vides them, but not beyond three years after closing

of the loan. Id. § 1635(f); see Beach v. Ocwen Fed.

Bank, 523 U.S. 410, 411-412 (1998).

If the borrower exercises a right to rescind by

providing notice to the creditor, the creditor has 20

days in which to return all the interest, charges, and

fees collected from the borrower. 15 U.S.C. § 1635(b).

Once the creditor has done so, the borrower must re-

turn any property in kind or, if that would be “im-

practicable or inequitable,” the loan principal to the

creditor. [bid. By providing that these procedures

“shall apply except when otherwise ordered by a

court” (ibid.), § 1635 makes clear that courts may tai-

lor the terms of a rescission to the particular factual

context. Unlke the § 1640 damages provisions,

' These limits were $200 and $2000, respectively, prior to

amendments enacted in 2008.

3

§ 1635 does not cap a rescinding borrower's recovery

and does not reference class actions.

Proceedings Below. Petitioners refinanced

their home mortgage with respondent in 2004. Pet.

App. 2a. One year later, they filed a putative class

action lawsuit, alleging that respondent failed to

comply with TILA disclosure requirements and re-

questing statutory damages and rescission. Id. at 4a.

Petitioners did not request actual damages. /d. at

38a.

The district court granted petitioners’ motion for

summary judgment, holding that respondent’s dis-

closure statements did not fully comply with certain

TILA requirements. Pet. App. 26a-38a. The court

found that those violations did not entitle petitioners

to statutory damages but did entitle them to rescind

their mortgage. Id. at 39a-40a. The court then certi-

fied a class of thousands of borrowers who had re-

ceived similar disclosure statements from respondent

and ruled that all class members were entitled to re-

scind their mortgages. Jd. at 43a-49a.

On a Rule 23(f) appeal, the Seventh Circuit re-

versed and vacated the class certification. Pet. App.

17a. The court found that the TILA’s text, history,

and purpose demonstrate that Congress did not in-

tend to allow courts to order class-wide rescission. Id.

at 6a-13a. The court noted that, in contrast to the

TILA’s damages provisions, the TILA’s rescission

provisions lack any references to class actions and

that the massive liability posed by rescission class

actions would be incompatible with Congress’s efforts

to cap potential lender liability in TILA actions. Jd.

at 10a-12a. The court further ruled that TILA rescis-

sion, as described in the statute, is “a purely indt-

vidual remedy that may not be pursued on behalf of

4

a class.” Id. at 12a. Moreover, “a host of individual

proceedings would almost certainly follow in the

wake of the certification of a class whose loan trans-

actions are referable to rescission.” Id. at 9a. Hence,

the court concluded, “the rescission remedy pre-

scribed by TILA is procedurally and substantively

incompatible with the class-action device.” /bid.

The court of appeals alternatively held that

plaintiffs’ rescission claim does not satisfy the

threshold requirements for class certification under

Rule 23. Pet. App. 14a-16a. The court found unsatis-

fied (i) the “final relief’ requirement of Rule 23(b)(2)

because “a declaration of a ‘rescission class’ would

only initiate a process of individual rescission ac-

tions”; (ii) the predominance requirement of Rule

23(b)(3) because class-wide rescission would “give

rise to hundreds or thousands of individual proceed-

ings”; and (ii) the superiority requirement of Rule

23(b)(3) because class-wide resolution of “a multitude

of individual, varied rescission claims is neither ‘eco-

nomical’ nor ‘efficient” and because individual ac-

tions for rescission are a “realistic” alternative to

class actions. Pet. App. 15a-16a.

REASONS FOR DENYING THE PETITION

This case presents no circuit conflict, no conflict

with this Court’s precedents, and no reason to over-

turn the well-reasoned decision below. The district

court decision, if not vacated by the Seventh Circuit,

would have resulted in a host of individual rescission

proceedings in courts all over the country, a far cry

from the efficient resolution contemplated by Rule

23. The petition therefore should be denied.

5

I. THERE IS NO CIRCUIT CONFLICT FOR

THIS COURT TO RESOLVE.

All three federal courts of appeals that have ad-

dressed the question presented have reached the

same conclusion. The Fifth and First Circuits have

previously held that TILA rescission may not be

awarded on a class-wide basis, just as the Seventh

Circuit did below.

In James v. Home Construction Co., 621 F.2d

727, 730-731 (5th Cir. 1980), the Fifth Circuit held

that rescission is “a purely personal remedy” that

may not be awarded on a class-wide basis. The court

explained:

The language of Section 1635(b), it seems

clear, gives the creditor ten days in each case

in which to go through the steps of rescission

before the matter can be brought to court.

This is a right which the creditor has with

each individual obligor. Thus the notion of a

class action in this sort of context would con-

tradict what would seem to be the Congres-

sional intent about the nature of this action.

Ibid.

Petitioners note that James has been infre-

quently cited in subsequent cases in the Fifth Circuit

(Pet. 36), but that sparse citation is not surprising

because James conclusively resolved the class-action

rescission issue for all courts in that circuit. Petition-

ers also contend that the Fifth Circuit retreated from

James in Tower v. Moss, 625 F.2d 1161 (5th Cir.

1980). Pet. 36 n.10. But Yower does not mention

James or even address whether a court may award

TILA rescission on a class-wide basis.

6

More recently, the First Circuit held in McKenna

v. First Horizon Home Loan Corp., 475 F.3d 418, 423

(lst Cir. 2007), that “class certification is not avail-

able for rescission claims, direct or declaratory, un-

der the TILA.” That holding rests on the court’s con-

clusion, based on an extensive analysis of the TILA’s

text and history, that “Congress did not intend re-

scission suits to receive class-action treatment.” Ibid.

In addition to noting that the TILA’s rescission pro-

visions do not reference class actions whereas the

TILA’s damages provisions do (ibid.), Judge Selya’s

opinion for the court found it “plain that unrestricted

class action availability for rescission claims would

open the door for vast recoveries,” which would be

“considerably in excess of the cap [that] Congress

painstakingly established for damages class actions.”

Id. at 424. The court also found that “[t]he highly in-

dividualized character of this process and the range

of variations that may occur render rescission largely

incompa..ble with a sensible deployment of the class-

action mechanism.” Jd. at 424-25. Accord LaLtberte

v. Pacific Mercantile Bank, 53 Cal. Rptr. 3d 745, 751

(App. 2007), cert. denied, 128 S. Ct. 393 (2007).

No other federal court of appeals has addressed

this issue. Petitioners point to two cases, In re Com-

munity Bank, 418 F.3d 277 (38d Cir. 2005), and

Grimes v. New Century Mortgage Corp., 340 F.3d

1007 (9th Cir. 2003), in an attempt to manufacture a

circuit conflict. But neither case addresses whether

TILA rescissions may be awarded on a class-wide ba-

sis. In Community Bank, the Third Circuit remanded

to determine whether the representatives of a pro-

posed settlement class met the Rule 23 adequacy re-

quirement. 418 F.3d at 303-307. And in Grimes, the

Ninth Circuit addressed only the propriety of sum-

mary judgment, not any class issues. 340 F.3d at

7

1010-1011. Hence, petitioners have no basis for their

assertion that “the circuits are not aligned” on the

availability of class-wide TILA rescissions. Pet. 37.

There is simply no conflict for this Court to resolve.

Il. THE DECISION BELOW DOES NOT CON-

FLICT WITH CALIFANO v. YAMASAKI.

Petitioners contend that the Seventh Circuit’s

decision conflicts with this Court’s ruling in Yama-

saki. Pet. 11-19. Both the First and Seventh Circuits

properly rejected that meritless argument.

Yamasaki involved a challenge to a federal

agency’s attempt to recoup alleged overpayments of

certain benefit funds. After the plaintiffs’ adminis-

trative claims were rejected, they sued in federal dis-

trict court under § 205(g) of the Social Security Act,

which provides that “[a]ny individual” may seek re-

view of a final administrative decision “by a civil ac-

tion.” 442 U.S. at 698 n.12. The district court certi-

fied a class, a ruling challenged by the agency.

This Court articulated the issue as “whether ju-

risdiction under § 205(g) of the Act, 42 U.S.C.

§ 405(g), permits a federal district court to certify a

nationwide class.” Yamasaki, 442 U.S. at 684 (em-

phasis added). The agency argued that § 205(g) does

not grant such authority because its “[a]ny individ-

ual” language shows that Congress contemplated

only “a case-by-case adjudication of claims * * * that

is incompatible with class relief.” Id. at 698-699. This

Court rejected the agency’s argument, pointing to

“other jurisdictional statutes” that reference individ-

ual plaintiffs and allow class relief. 7d. at 700. In

that context, the Court stated: “In the absence of a

direct expression by Congress of its intent to depart

from the usual course of trying ‘all suits of a civil na-

8

ture’ under the Rules established for that purpose,

class relief is appropriate in civil actions brought in

federal court.” Ibid.

As the Seventh Circuit explained below, the

“TILA is entirely different from the jurisdictional

statute at issue in Yamasaki.” Pet. App. 10a. Here,

the issue is not, as in Yamasaki, whether there is a

jurisdictional bar to class-wide judicial review of an

administrative decision. Instead, the issue is

whether Congress intended the inherently individu-

alized TILA rescission remedy to be awardable to an

entire class. That issue was not addressed by this

Court in Yamasaki and thus there can be no conflict.

See McKenna, 475 F.3d at 425-426.2

Moreover, the decision below does not bar class

certification of TILA claims. Courts may continue to

certify TILA classes and award statutory and/or ac-

tual damages on a class-wide basis. Thus, even if the

Yamasaki statement that “class relief is appropriate

in civil actions brought in federal court” (442 U.S. at

700, emphasis added) applied outside the Yamasaki

jurisdictional context, the decision below is consis-

tent with it because class relief remains available in

TILA actions. The Seventh Circuit simply held that

one untraditional remedy under the TILA—a right to

rescind within three days of receiving specified dis-

closures that involves highly individualized inquir-

ies—is unsuitable for class treatment. That holding

2 Petitioners inaccurately contend that “the Seventh Cir-

cuit does ultimately acknowledge that its ruling conflicts

with Yamasaki.” Pet. 16. The opinion below contains no

such acknowledgment, instead firmly rejecting petition-

ers’ Yamasaki argument. Pet. App. 9a-10a.

9

does not conflict with even the unduly broad reading

of Yamasaki posited by petitioners.

Il. THE COURT BELOW CORRECTLY RULED

THAT TILA RESCISSION MAY NOT BE

AWARDED ON A CLASS-WIDE BASIS.

A. The TILA’s Text And History Show That

Congress Did Not Intend To Permit

Class-wide Rescissions.

Whereas the TILA’s damages provisions ex-

pressly reference class actions, the TILA’s rescission

provisions do not. Compare 15 U.S.C. § 1640(a)(2)(B)

with rd. § 1635. As the Seventh Circuit noted, “[t]his

direct contrast between the text of TILA’s damages

and rescission provisions cannot be ignored.” Pet.

App. lla; accord McKenna, 475 F.3d at 424. More-

over, class actions are addressed in § 1640(a) with

respect to a damages cap that limits liability for vio-

lations of the TILA’s complex disclosure require-

ments. The omission of any such cap in § 1635 indi-

cates that Congress did not contemplate ciass-wide

rescissions and thus saw no need to cap rescission li-

ability. See Pet. App. 10a-1lla.

Permitting TILA rescission classes would defeat

Congress's intent to limit lenders’ liability, expressed

in succeeding amendments over several decades. Be-

fore 1974, the TILA did not mention class actions.

Congress amended § 1640 in 1974 to adopt caps on

statutory damages, including an aggregate cap of

$100,000 in class actions, without making any

change to § 1635. Truth in Lending Act Amend-

ments, Pub. L. No. 93-495, tit. IV, § 407, 88 Stat.

1500 (1974). This was the first (and remains the

only) reference to class actions in the TILA. Congress

adopted the 1974 amendments “to place an aggregate

10

limitation on a creditor’s class action liability for vio-

lations not involving actual damages.” S. Rep. No.

93-278, at 14-15 (1973). Congress adopted no similar

limitation on rescission liability, indicating that it

did not contemplate class action rescissions, given

the devastating impact that wholesale rescissions

would have on the mortgage lending industry.

Congress raised the statutory damages cap to

$500,000 in 1976, explaining that it viewed that cap

as both appropriate to protect against devastating Li-

ability and sufficient to “act as a significant deter-

rent to even the largest creditor.” S. Rep. No. 94-590,

at 8 (1976), reprinted in 1976 U.S.C.C.A.N. 431, 438;

see Consumer Leasing Act of 1976, Pub. L. No. 94-

240, 90 Stat. 257. Again, in executing such a balanc-

ing act, Congress would not have completely disre-

garded rescission if it thought that remedy available

in class actions. “The notion that Congress would

limit lability to $500,000 with respect to one remedy

while allowing the sky to be the limit with respect to

another remedy for the same violation strains credu-

lity.” McKenna, 475 F.3d at 424. Congress again

amended § 1640(a) in 1980 to bar aggregate recover-

ies from exceeding the cap in a “series of class ac-

tions arising out of the same failure to comply by the

same creditor.” Truth in Lending Simplification and

Reform Act, Pub. L. No. 96-221, tit. VI, § 615(a)(1),

94 Stat. 132 (1980).

In 1995, Congress further limited the potential

for expansive TILA liability, first by temporarily

suspending a broad range of TILA class actions and

then by increasing the tolerance levels for minor de-

viations from disclosure obligations. See Truth in

Lending Class Action Relief Act of 1995, Pub. L. No.

104-12, 109 Stat. 161; Truth in Lending Act Amend-

11

ments of 1995, Pub. L. No. 104-29, 109 Stat. 271.

Congress adopted those amendments in response to

concerns about potentially devastating lender labil-

ity following a flurry of class act:on lawsuits filed in

the wake of Rodash v. AIB Mortgage Co., 16 F.3d

1142, 1147 (11th Cir. 1994), in which the Eleventh

Circuit held (in a non-class-action case) that minor

TILA violations triggered a mortgagor's right to re-

scind. Congress acted to prevent the ensuing class

actions from imposing devastating losses on the

mortgage industry.

Petitioners state that nothing in the 1995

amendments “eliminated class rescission lability.”

Pet. 32. That is true because rescission had never

been awardable to an entire class under the TILA.

Indeed, not a single participant in the post-Rodash

floor debate ever suggested that the TILA made re-

scission available to an entire class of consumers,

and none of the numerous bills introduced to amend

the TILA during the moratorium proposed barring

rescission class actions. These facts refute petition-

ers’ suggestion that Congress “directly rejected” a

ban on rescission class actions. Pet. 31; see McKenna,

475 F.3d at 424-425.

By repeatedly enacting provisions to protect

lenders from undue liability, Congress recognized

that complying with the complex TILA disclosure

provisions is not easy and that a failure to do so

should not be disproportionately punished. Class-

wide rescission would impose enormous liability at

one fell swoop. In the court of appeals, petitioners

posited that respondent's liability in this case alone

would be some $210 million. C.A. Br. 39 n.13. The

First Circuit estimated roughly the same amount in

McKenna, 475 F.3d at 424. The threat of such devas-

12

tating lability from just one rescission class action

would inevitably make credit more costly and diffi-

cult to obtain, an outcome squarely at odds with

Congress’s efforts to protect both borrowers and the

credit industry, as reflected in the TILA’s text and

history.

B. The Rescission Process Set Forth In The

TILA Is Incompatible With Class Resolu-

tion.

The TILA’s description of the rescission process

confirms that Congress did not contemplate rescis-

sion class actions. It gives borrowers who received

the required disclosures a three-day cooling-off pe-

riod after closing on their loans to change their

minds. 15 U.S.C. § 1635(a). Borrowers do not change

their minds as a class. Thus, borrowers wishing to

rescind must provide notice of that intent to the

creditor, a requirement that is inherently individual.

Ibid. Moreover, the actions prescribed for both the

creditor and borrower during the rescission process

depend on what is “appropriate,” “impracticable,”

and “inequitable.” Jbid. The application of these

terms is inherently specific to the context of each

creditor-borrower relationship and thus inconsistent

with class-action treatment. See Pet. App. 7a-8a;

McKenna, 475 F.3d at 427 n.6.

Indeed, § 1635(b) expressly authorizes case-by-

case treatment by providing that “[t]he procedures

prescribed by this subsection shall apply except

when otherwise ordered by a court.” That provision

confers equitable authority on courts to tailor the re-

scission process to fit the specific context of each

creditor-borrower relationship. That case-by-case tai-

loring cannot be reconciled with class-wide rescission

13

and shows that Congress viewed rescission as a per-

sonal, rather than a class, remedy.

The judicial intervention authorized by § 1635(b)

occurs frequently. E.g., Rutz v. R&G Fin. Corp., 383

F. Supp. 2d 318 (D.P.R. 2005); Am. Mortgage Net-

work v. Shelton, 2006 WL 909415 (W.D.N.C. Apr. 6,

2006), affd, 486 F.3d 815 (4th Cir. 2007). For exam-

ple, borrowers and lenders often disagree over the

precise amount to be reimbursed to the borrower.

E.g., Semar v. Platte Valley Fed. Sav. & Loan Ass'n,

791 F.2d 699, 705 (9th Cir. 1986).

Disputes also frequently arise over eligibility for

rescission. For example, since rescission applies only

to a principal residence, courts often must resolve

disputes over whether the property securing the loan

is in fact the borrower's principal residence as op-

posed to a vacation home or investment property.

E.g., Kovalik v. Delta Inv. Corp., 611 P.2d 955, 957-

58 (Ariz. App. 1980). Similarly, disputes arise over

whether the loan was for business purposes, in which

case the loan would not be subject to rescission or

even to the TILA at all. See Sherlock v. Herdelin,

2008 WL 732146, at *3 (E.D. Pa. Mar. 17, 2008). Ora

dispute may arise over whether the mortgaged prop-

erty had been sold, such as where a contract for sale

has been executed but the sale has not occurred,

which too would make the loan ineligible for rescis-

sion. See 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23¢e));

Hefferman v. Bitton, 882 F.2d 379, 383-84 (9th Cir.

1989); Dailey v. Leshin, 792 So. 2d 527, 531-32 (Fla.

App. 2001). Although petitioners say such “eligibility

issues” would be “few and easy to evaluate” (Pet. 16),

these cases and many more like them make clear

that such disputes can be resolved only by delving

into the particular circumstances of each case.

14

Yet another example involves whether the bor-

rower will be able to return the principal once the

creditor voids the security interest. In practice, most

borrowers do not have sufficient funds on hand to

tender back the principal and therefore arrange for

alternative financing. Accordingly, lenders fre-

quently seek judicial intervention so that they are

not left completely unprotected before the borrower

tenders back the principal. E.g., Yamamoto v. Bank

of N.Y., 329 F.3d 1167, 1171 (9th Cir. 2003); Large v.

Conseco Fin. Serv. Corp., 292 F.3d 49, 55 (1st Cir.

2002). In these circumstances, courts often use their

modification authority to require the borrower to re-

pay the principal before the lien is released.

Individualized issues also arise regarding pay-

ments to third parties. While a creditor generally

must refund fees that the rescinding borrower paid

to a third party, such as for a title search or ap-

praisal, the creditor need not return amounts paid to

a third party “outside of the credit transaction,” such

as costs incurred for a building permit or zoning

variation. 12 C.F.R. Pt. 226, Supp. 1, {J 226.23(d)(2)-

2. Disputes thus may arise over whether a particular

payment to a third party must be refunded. E.g.,

Gen. Home Capital Corp. v. Campbell, 863 N.Y.S.2d

917, 918-19 (Dist. Ct. Nassau County 2005); Mort-

gage Source, Inc. v. Strong, 75 P.3d 304, 307 (Mont.

2003).

Parties also dispute the timeliness of rescission.

Because those disputes depend on “the date of con-

summation of the transaction” (§ 1635(f)), the out-

come necessarily depends on facts specific to each

loan transaction. E.g., Gibbons v. Interbank Funding

Group, 208 F.R.D. 278, 284 n.8 (N.D. Cal. 2002);

Westbank v. Maurer, 658 N.E.2d 1381, 1389 (Ill. App.

15

1995). Other disputes may concern whether the

creditor may set off the amount to be rescinded from

the principal it provided to the borrower (see Harris

v. Tower Loan, 609 F.2d 120, 123 (5th Cir. 1980)), or

whether the borrower may condition its tender of the

money or property received from the lender (see Re-

gency Sav. Bank v. Chavis, 776 N.E.2d 876, 868 (I.

App. 2002)).

As these many examples make clear, the rescis-

sion process involves individual circumstances,

choices, and time frames that inevitably give rise to

disputes that can be resolved only through individu-

alized judicial resolution. These are not “ministerial”

tasks, as petitioners assert. Pet. 15. By its very na-

ture, this process cannot take place in a single class

action. The course of the entire rescission process

“lies within the court’s equitable discretion, taking

into consideration all the circumstances,” and “must

be determined on a case-by-case basis.” Yamamoto,

329 F.3d at 1173 (emphasis added); accord Williams

v. Homestake Mortgage Co., 968 F.2d 1137, 1140-

1141 (11th Cir. 1992). No wonder courts have con-

cluded that TILA rescission is “a personal remedy

not suitable for class treatment.” LaLiberte, 53 Cal.

Rptr. 3d at 751.

These difficulties are not overcome by a mere

“declaration” of a right to rescind. See Pet. App. 41a.

Such a declaration would not produce the efficient

resolution of claims by similarly situated plaintiffs in

a single proceeding that Rule 23 contemplates. It

would inevitably open up a new wave of individual

proceedings in many different courts by borrowers

residing throughout the country. This is a recipe for

chaos, not efficiency, as the courts of appeals that

have addressed this issue have concluded. See Pet.

16

App. 8a; McKenna, 475 F.3d at 426-427. The petition

raises no reason why this Court should conclude oth-

erwise.

C. Class Actions Are Unnecessary To Vin-

dicate A TILA Right To Rescind.

Petitioners incorrectly contend that seeking re-

scission in an individual action would be “a virtually

impossible task.” Pet. 11. In fact, the TILA facilitates

individual rescission claims by authorizing borrowers

to obtain up to three years’ worth of free interest, fi-

nance charges, points, and other fees. 15 U.S.C.

§ 1635(b). For example, on a typical mortgage of

$300,000, originated for one point and $500 of addi-

tional loan charges at a 6% interest rate, rescission

after three years would provide the consumer with at

least $57,500—$3,000 in points, $500 in additional

loan costs, and $54,000 in interest. In many cases,

plaintiffs could seek actual and statutory damages as

well. See Pet. App. 16a.

In addition, the TILA provides for the recovery of

attorneys’ fees (15 U.S.C. § 1640(a)(3)), effectively

removing another common obstacle to individual

suits. The availability of a substantial recovery,

“when combined with the attorneys’ fees normally

awarded to successful plaintiffs in TILA rescission

cases, afford a powerful incentive to debtors to sue

individually.” McKenna, 475 F.3d at 426; see Pet.

App. 16a-17a. Accordingly, TILA plaintiffs frequently

seek rescission on an individual basis. E.g., Rogers v.

Countrywide Home Loans, Inc., 2009 WL 1118898

(S.D. Ala. Apr. 24, 2009); Demarest v. Quick Loan

Funding, Inc., 2009 WL 940377 (C.D. Cal. Apr. 6,

2009); Sartain v. Aurora Loan Servs., LLC, 2009 WL

950946 (C.D. Cal. Apr. 6, 2009); Foster v. Smith,

2009 WL 703702 (D. Minn. Mar. 16, 2009).

17

* ” * — *

As described supra p. 4, the Seventh Circuit al-

ternatively ruled that petitioners had not satisfied

the threshold requirements for a class action under

Rule 23(b). Pet. App. 14a-17a. Because that ruling

would stand even if the Court were to grant the peti-

tion and reverse on the question presented, this case

is a poor vehicle for review of the question presented

and may be denied on that basis as well.

CONCLUSION

The petition for a writ of certiorari should be de-

nied.

Respectfully submitted.

JEFFREY W.SARLES

Counsel of Record

NATHAN T. KIPP

Mayer Brown LLP

71 South Wacker Drive

Chicago, Illinois 60606

(312) 782-0600

Counsel for Respondent

MAY 2009