Williams v. Chartwell Financial

• Decision Date: 08 February 2000
• Docket Number: Nos. 99-2258,s. 99-2258
• Citation: 204 F.3d 748
• Parties: (7th Cir. 2000) Theresa L. Cannon WILLIAMS, on behalf of herself and all others similarly situated, and Lois Reed, Plaintiffs-Appellants, v. CHARTWELL FINANCIAL SERVICES, Ltd., Defendant-Appellee. & 99-2287
• Court: U.S. Court of Appeals — Seventh Circuit

Page 748

204 F.3d 748 (7th Cir. 2000)

Theresa L. Cannon WILLIAMS, on behalf of herself and all others similarly situated, and Lois Reed, Plaintiffs-Appellants, v. CHARTWELL FINANCIAL SERVICES, Ltd., Defendant-Appellee.

Nos. 99-2258 & 99-2287

In the United States Court of Appeals For the Seventh Circuit

Argued November 2, 1999

Decided February 8, 2000

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 98 C 6966 & 98 C 6965--Suzanne B. Conlon, Judge. [Copyrighted Material Omitted]

Before Coffey, Flaum, and Kanne, Circuit Judges.

Flaum, Circuit Judge.

The plaintiffs, Theresa L. Cannon Williams and Lois Reed, appeal the district court's grant of summary judgment to defendant Chartwell Financial Services, Ltd. ("Chartwell"). The plaintiffs first argue that the district court erred in determining that Chartwell's practices of demanding cash security for a loan and issuing an alternative payment schedule did not violate the Truth in Lending Act ("TILA"), 15 U.S.C. sec. 1601 et seq., as interpreted by the Federal Reserve Board in implementing Regulation Z ("Regulation Z"), 12 C.F.R. sec. 226. In addition, the plaintiffs challenge the district court's entrance of a protective order limiting the plaintiffs' use of confidential documents and preventing the plaintiffs from contacting Chartwell's customers until class certification was granted. Lastly, Williams appeals the district court's refusal to certify a class in her matter. For the reasons stated below, we reverse the decision of the district court in regard to the cash collateral issue, reverse and remand the district court's decision as to the alternative payment schedule, vacate the protective order entered by the court and remand that issue for further consideration, and remand the district court's decision as to the class certification issue.

I. Background

A.

The defendant, Chartwell Financial Services, is a small consumer lending agency. Chartwell began making loans in March of 1998, and during its short time in operation made just over 100 loans. Two of those loans, one to Theresa L. Cannon Williams and one to Lois Reed, are at the center of the dispute in these cases.

Williams and Reed both entered into loan agreements with Chartwell. Williams signed her loan agreement on May 16, 1998. Under the terms of that agreement, Williams received $750. At the same time Williams received the $750, she was required to give Chartwell $250 in cash as collateral for the loan. Reed entered into her loan agreement with Chartwell on May 26, 1998. Reed's agreement provided for a loan in the amount of $700, with a required security deposit of $200. The security deposits, or cash collateral, were placed in Chartwell's operating account and used by the company for business expenses. If Williams and Reed paid off their loan obligations, the money put up as collateral was to be returned with 9% interest.

When Williams and Reed signed their loan agreements with Chartwell, both were provided with federally-mandated disclosure statements as required by TILA, a federal statute that regulates the content and presentation of such disclosures. Congress enacted TILA to ensure that consumers receive accurate information from creditors in a precise and uniform manner that allows them to compare the cost of credit. 15 U.S.C. sec. 1601; Anderson Bros. Ford v. Valencia, 452 U.S. 205, 220 (1981). Implementing Regulation Z mandates that "[t]he creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related to the [required] disclosures . . . ." 12 C.F.R. sec. 226.17(a)(1). The mandatory disclosures, which must be grouped in the federal disclosure section of a written loan agreement, include the finance charge, the annual percentage rate, any security interests taken, and the number and schedule of payments. 12 C.F.R. sec. 226.18.

The federal disclosure section of the loan agreement signed by Williams listed a finance charge of $900, and an annual percentage interest rate ("APR") of 345.98%. The total amount to be repaid over the course of the loan agreement was $1650. The federally-mandated TILA disclosure section of Williams's loan agreement stated that this amount was to be paid in five monthly installments of $350. In the case of Reed's loan, the finance charge disclosed was $950, and the APR was 427%. The total amount of Reed's obligation was also $1650, again to be paid in monthly installments of $350.

At the same time Williams and Reed signed their loan agreements with Chartwell containing the required TILA disclosures, they were each provided with an alternative payment schedule. This document outlined a payment schedule by which Williams and Reed would pay off their loans in ten bi-weekly installments, rather than the five monthly installments disclosed in their loan agreements. Because the loans were simple interest loans, and would not be fully amortized if the bi-weekly schedule was adhered to, the alternative payment schedule also provided for an additional interest payment. The additional interest payment amounted to $117 in the case of Williams, and $261 in the case of Reed. Both Williams and Reed were asked to initial this alternative payment schedule.

Neither Williams nor Reed repaid her loan in accordance with either the monthly or bi-weekly schedules provided by Chartwell. Williams made only one payment to Chartwell, totaling $100. Reed has made payments on her loan agreement totaling $550. Chartwell's efforts to collect the outstanding debts owed it by Williams and Reed were suspended when both debtors filed suit in federal district court.

B.

On October 30, 1998, Williams filed a five- count complaint against Chartwell in federal district court that she styled a "class action." The complaint alleged various violations of TILA, as well as several claims under Illinois law. On the same day that Williams filed her complaint, Reed also filed a one-count complaint against Chartwell. That complaint alleged the same TILA violations as those alleged by Williams. Williams's complaint was eventually reassigned as related to Reed's complaint, and the two cases have been treated as consolidated by both the parties and the district court.

On February 12, 1999, Williams filed a motion for class certification, as well as a memorandum in support of that motion. This motion for class certification was based on the allegations that all of Chartwell's customers were subject to the cash collateral requirement and were provided an alternative payment schedule that differed from the one disclosed pursuant to TILA. Consequently, Williams proposed that classes be certified as to both issues. Chartwell opposed class certification. On March 10, 1999, the district court denied class certification on the ground that Williams had failed to show numerosity. Specifically, the court noted that Williams had not demonstrated that Chartwell required cash collateral and excessive interest from all its customers.

The district court granted Williams's motion to reconsider its decision regarding class certification. Williams then presented additional evidence that the cash collateral requirement and alternative payment schedule were common to all of Chartwell's customers. On March 22, 1999, the district court issued an opinion finding that Williams satisfied all the prerequisites for class certification. Nevertheless, the district court stated that it was not convinced that a class action would be superior to other methods of adjudication. The court then denied Williams's request for class certification, arguing that certification of the classes proposed by Williams would be unmanageable. This finding was based on the district court's doubts about the feasibility of sending out two sets of class notices, as well as its concern over possible confusion as to opt- out rights.

At about the same time the district court denied Williams's motion for class certification, it also entered a protective order requested by Chartwell. The protective order prohibited the plaintiffs from using any documents marked as confidential until class certification was granted for any purpose other than prosecuting the suit. In addition, the protective order prevented the plaintiffs from contacting other members of the putative class. After this protective order was in place, and Chartwell was assured that the plaintiffs would not be able to contact any of its present or former customers, Chartwell turned copies of its loan files over to the plaintiffs.

On May 13, 1999, the district court granted summary judgment to Chartwell with respect to Williams's and Reed's TILA claims, and dismissed their motions for summary judgment as moot. The district court also dismissed the plaintiffs' remaining state law claims without prejudice. Williams and Reed now appeal the district court's grant of summary judgment to Chartwell, alleging various errors in regard to the TILA issues, the entrance of the protective order, and the denial of class certification.

II. Analysis

We review the district court's grant of summary judgment to Chartwell de novo. See Johnson v. Zema Sys. Corp., 170 F.3d 734, 742 (7th Cir. 1999). In order to overcome summary judgment, the plaintiffs must show specific facts sufficient to raise a genuine issue for trial. Fed.R. Civ.P. 56(c); see Shermer v. Illinois Dep't of Transp., 171 F.3d 475, 477 (7th Cir. 1999) (citing Celotex Corp. v. Catrett, 477 U.S. 317 (1986)). In determining whether a genuine issue of material fact exists, we must construe all facts in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. See Senner v. Northcentral Technical C., 113 F.3d 750, 754 (7th Cir....