24 September 2008
Mayer Brown LLP, a leading global law firm, secured a big win for client Chevy Chase Bank in the Seventh Circuit, which held that rescission of a mortgage – one of the remedies available under the Truth in Lending Act – may not be awarded to an entire class of borrowers. In Andrews v. Chevy Chase Bank
, No. 07-1326 (7th Cir. Sept. 24, 2008), the court vacated the district court's certification of such a class, holding “as a matter of law that a class action for the rescission remedy under TILA may not be maintained.”
“This is a significant win for all lenders and assignees of loans,” said Mayer Brown Supreme Court & Appellate practice partner Jeffrey Sarles, who argued the case. “Allowing thousands of class members to rescind their mortgages at one fell swoop for technical violations of TILA without any showing that the borrower was misled would threaten mortgage lenders and assignees with intolerable liability. The mere risk of such an outcome would inevitably drive up the cost of credit and likely reduce the availability of mortgage loans, an outcome that would harm borrowers as well, particularly at a time when the mortgage markets are already experiencing unprecedented levels of stress.”
The court's ruling rested on the “individual” character of the rescission remedy, which makes it “procedurally and substantively unsuited to deployment in a class action.” In particular, the court explained, “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.” The court found support for that conclusion in the text and history of the TILA statute, which limits the damages available in a class action, a limitation that would be inconsistent with the enormous costs that class-wide rescission would impose on lenders.
The court also ruled that the class certified by the district court would be incompatible with the requirements for a class action set forth in the Federal Rules of Civil Procedure. In particular, such a disparate class would not satisfy the requirements that common questions predominate over individual questions and that a class action be the superior method of resolving the borrowers' claims.
Other key members of the Mayer Brown appellate team in addition to Sarles were litigation partners Michele Odorizzi and Lucia Nale along. Mayer Brown banking partners Scott Anenberg and Jeffrey Taft advised the team as well.
for the opinion written by Judge Diana S. Sykes.