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TILA Class Action Defense Cases-Andrews v. Chevy Chase: Wisconsin Court Grants Defense Request For Stay Of Class Action Pending Appellate Review Of Order Certifying Federal Truth-In-Lending Act (TILA) Lawsuit As A Class Action

Uncertainty as to Whether Seventh Circuit will Hold that Class Action Under TILA (Truth-in-Lending Act) may seek Rescission Warrants Stay of Proceedings Pending Appeal Wisconsin Federal Court Holds

Plaintiff filed a class action against Chevy Chase Bank alleging various violations of the federal Truth-in-Lending Act (TILA). Ultimately, the district court extended by three years the borrowers’ rescission period based on its finding that the bank materially violated TILA, and certified the litigation as a class action “leaving the decision as to whether to actually seek rescission to each individual class member.” Andrews v. Chevy Chase Bank, FSB, 474 F.Supp.2d 1006, 1007 (E.D. Wis. 2007). Defense attorneys sought appellate review of the class action certification order under FRCP Rule 23(f), and the Circuit Court permitted the appeal, id. The defense thereafter sought a stay of the trial court proceedings pending appeal; the district court granted the request.

The district court applied the standard balancing test applicable to stay requests in the Seventh Circuit: “(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.” Andrews, at 1007 (citation omitted). The bulk of the court’s order is devoted to an analysis of the First Circuit’s opinion in McKenna v. First Horizon Home Loan Corp., 475 F.3d 418 (1st Cir. 2007), which held that class actions seeking rescission are inappropriate under TILA. Id., at 1007-10. Not surprisingly, the district court found it unlikely that the defense would prevail on appeal with respect to the class certification order, id., at 1110.

However, the federal court recognized that the Seventh Circuit may well accept the reasoning of its sister circuit in McKenna, and recognized further the likelihood that it “defined the class too broadly” in that the district court failed to “take into account that TILA prohibits certain borrowers from rescinding.” Andrews, at 1110. The court decided to grant the defense stay request because, even though it considered the irreparable injury/public interest factors to be “close,” in that both the plaintiffs and defense presented cogent arguments concerning prejudice, the court concluded that clarification as to whether a TILA class action can seek rescission tipped the scale in favor of the stay. Id.

Download PDF file of Andrews v. Chevy Chase Bank