Lead Opinion
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.,
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. This “cashflow payment op
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 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 district court granted summary judgment for the Andrews, authorizing rescission and 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,
In its decision on class certification, the district court relied heavily on the Massachusetts district court decision in McKen-na. McKenna v. First Horizon Home Loan Corp.,
II. 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.,
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 debtor’s return of all funds or property rеceived 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.,
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 prinсiple in exchange for the release of the lien and any interest or other payments. Individual controversies would erupt and likely continue because “the equitable nature of rescission generally entitles the affected creditor to judicial consideration of the individual circumstances of the particular transaction.” McKenna,
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 “[i]n 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,
Yamasaki concerned a statute setting forth the procedure by which judiсial review of an administrative decision could be obtained.
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 Chevy Chase’s liability 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,
It is of course possible (as our dissenting colleague suggests) that this difference in TILA’s remedial provisions could be understood to mean that TILA’s rescission remedy may be pursued on a class basis, without any liability limit. But we agree with the First Circuit that “[t]he notion that Congress would limit liability 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.” Id. 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 § 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
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 “[i]n 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 (i.e., liability for damages) “or in any аction 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 or a 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.
Finally, we note that creating a circuit split generally requires quite solid justification; we do not lightly conclude that our sister cirсuits 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,
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 оf Civil Procedure 23(b).
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. See, e.g., In re Mex. Money Transfer Litig.,
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 fact bring rescission claims. Simply put, TILA rescission is not the sort of remedy that would not otherwise be
For the foregoing reasons, we hоld 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.
Notes
. The Andrews did not seek actual damages under § 1640(a)(1).
. 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 а rescission class could satisfy the requirements of Rule 23. To the contrary, under Rule 23(f), 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.,
Dissenting Opinion
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 paymеnt 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 сlass 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 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,
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. Truе, 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 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.