Plaintiffs' Causes Of Action Are Not Time Barred by Application of the Statute of Limitations

Aggressive argues that Brenda Old's claims alleging Defendants' violations of M.G.L. c.

93A, M.G.L. c. 140D and Civil RICO as well as her claims alleging fraud, misrepresentation, and negligence are barred by the applicable statutes of limitations. Likewise, Aggressive alleges that the claims of fraud, misrepresentation and negligence raised by plaintiff Donna Smith are time barred. Aggressive does not seek dismissal of Donna Smith's claims alleging violation's of M.G.L. c. 93A, M.G.L. c. 140D, or Civil RICO on the grounds that they are barred by the statute of limitations.

Aggressive's assertion that certain claims of Brenda Old are barred by the statute of limitations is apparently based upon the assumption that the limitations period began to run against the plaintiffs as of the signing of the original loan documents. Aggressive's argument must fail as to Brenda Old's 93A and RICO claims, because pursuant to Massachusetts and Federal law, these claims did not accrue until Ms. Old was injured, upon repayment by entering into the third party loan. This occurred within the four year limitations period. The balance of the claims for which Aggressive seeks dismissal on limitations grounds are within the statute of limitations based upon the discovery rule and/or due to tolling based on fraudulent concealment.

²⁴ Aggressive does not contend that Ms. Smith's claims for UDAP and RICO are barred by the four year statute of limitations. For Ms. Smith, both the initial Aggressive loan and the third party refinancing occurred within four years prior to commencement of the suit.

A. The Four Year Limitations Period on Ms. Old's UDAP and RICO Claims Runs from May 26, 1989;

the Action Was Timely Filed on May 21, 1993

The heart of the plaintiffs' case under 93A and RICO is that the defendants made a series of misrepresentations and committed a series of unfair and deceptive practices in order to set up the plaintiffs for the coup de grace - that is, a third party loan arranged by the defendants so that they could realize their profits and leave the plaintiffs holding the bag. Although each act was directed individually at inflating the proceeds of the third party refinancing, the significant unfair trade practice and the RICO injuries were caused by arranging for the plaintiffs to obtain a third party loan to pay the defendants. For Brenda Old, this did not occur until May 26, 1989, within the four year statute of limitations for UDAP and RICO.²⁴

B. The Balance of the Claims Are Timely by Virtue of the

Discovery Rule, Tolling Based on Defendants' Fraudulent Concealment of Their Misdeeds and/or the Separate Accrual Rule

Aggressive argues that all causes of action accrued when the first set of loan documents were signed. They rely on Lynch v. Signal Finance Co. of Quincy, 367 Mass. 503 (1975). There are several reasons why the Lynch case is distinguishable from the case at bar. First, the Lynch court carefully narrowed its decision to exclude the question of limitations in rescission cases.

The Lynch court dealt solely with the limitations based on Truth-in-Lending statutory damages.

Second, the Lynch court found no fiduciary duty or positive acts of fraudulent concealment. In the case at bar, both have been pled and must be assumed to exist for the purposes of this motion.

For example, the broker who was allegedly working for the plaintiffs was an agent of Aggressive.

This and other information was fraudulently withheld from the plaintiffs. Third, the Lynch case is distinguishable because in that case apparently the "nondisclosures" could have been

discovered by "...mathematical computations from the known data..." Id. at 508. As is spelled out in detail below, this is not true in the case at bar.

Massachusetts and Federal law provide for exceptions to the usual statute of limitations in three situations. In the first situation, under the "discovery rule," the limitations period does not commence until the facts forming the basis of a cause of action can be discovered by the plaintiff.

In the second situation, the fraudulent concealment exception, the statute of limitations is tolled when the wrongdoer has concealed the relevant facts from the plaintiff. See Puritan Medical Center, Inc. v. Cashman, 413 Mass. 167, 596 N.E. 2d 1004 (1992) (discussing both the Massachusetts Discovery Rule and fraudulent concealment exceptions). The third exception is the rule of "separate accrual." This rule provides that a separate cause of action accrues for each illegal act at the time when the claimant discovered or should have discovered than she had been injured. See Rodriguez v. Banco Central, 917 F.2d. 664 (1st Cir. 1990). These three exceptions frequently overlap, as in the present case, where the injuries to plaintiffs Old and Smith did not happen until months after the initial loan documents were signed, they could not have discovered their injury until that time, and the defendants, including Aggressive, fraudulently concealed the causes of action from the plaintiffs thereby tolling the statutes of limitations.

1. The Discovery Rule as Applied to This Case

Massachusetts has long recognized that "[w]hile the Legislature has established a time limit within which tort actions must be brought, it has left for judicial determination the time when [sq]the cause of action accrues.'" Cannon v. Sears, Roebuck & Co., 374 Mass. 739 (1978), quoting Hendrickson v. Sears, 365 Mass. 83, 88 (1974). In determining when the cause of action accrues, Massachusetts courts have adopted the Discovery Rule which recognizes that where a cause of action is "inherently unknowable" the statue of limitations does not begin to run until "a plaintiff knows or reasonably should have known that he has been injured as a result of conduct

of the defendant." Errichiello v. Eli Lilly & Co., 618 F. Supp. 484 (D. Mass. 1985); see also International Mobiles Corp. v. Corroon, 29 Mass. App. Ct. 215, 560 N.E. 2d 122 (1990). A plaintiff is required to use "reasonable diligence" or the diligence exercised by a "reasonably prudent person" to determine whether or not a cause of action exists. Prescott v. Morton Intern., Inc., 769 F. Supp. 404, 408 (D. Mass. 1990), quoting 2 Milgrim § 7.04[2], 7-62. See also

Pessotti v. Eagle Mfg. Co., 774 F. Supp. 669 (D. Mass. 1990).

Even before applying this rule to the facts in the instant case, we must consider the nature of the action, and some of the facts surrounding the transactions. Ms. Old entered into the loan transaction by signing several documents of which she was not even provided copies to take away from the loan closing. [See Am. Complaint ¶83.] This act alone violates the

Massachusetts and federal law but more importantly it deprived Ms. Old of the ability to discover her injury or her causes of action against Aggressive Mortgage Co. In Ms. Smith's case, she was provided with copies of the disclosures at the time of closing. However, several days after the loan closing she was presented with a different set of disclosures which were backdated and which reduced the amount of money which in the transaction for her benefit. [See Am.

Complaint ¶126.] Even if Ms. Old and Ms. Smith had been provided with accurate documents as required by law, the disclosure sheets presented figures which require the use of a financial calculator or actuarial table to determine accuracy. In the off chance that Ms. Old, Ms. Smith or a "reasonably prudent person" had come armed with such technical devices and had the

wherewithal to understand how to use them, only some of the misdisclosures could have been discovered because of fraudulent concealment of relevant facts as discussed below.

In addition, a large number of the disclosures made require knowledge which goes beyond the disclosure document. For example, Aggressive included a $28.00 fee for recording the mortgage although the cost of recording a mortgage is only $20.50. Similarly, there was a

$20.00 fee for releasing attachments, although attaching creditors release their own attachments so that Aggressive paid nothing. To charge a `reasonably prudent person' with the ability to know the aforementioned subtleties of financial transactions would be an unbearable burden.

²⁵ In instances where a loan is sold on the secondary market charging up to two points may be legitimate. Commissioner on Banks and Banking Administrative Bulletin 13-5.

²⁶ See Franklin v. Albert, 381 Mass. 611 (1980). In that case the court held that the statute of limitations on a medical malpractice case did not begin to run until the plaintiff discovered the Unlike the situation in Lynch supra at 508, "...mathematical computations from the known data...," without knowledge of the technicalities of the relevant disclosure laws, would not have uncovered these irregularities in the loans. Given the complex, detailed numerical transactions at issue in this case, the causes of action were "inherently unknowable" to Ms. Old, Ms. Smith and any "reasonably prudent person."

Furthermore, many of the unfair trade practices in the transactions could not have been discovered until after Aggressive was paid off within the four year limitation period applicable to claims under M.G.L. 93A. For example, two points were charged at the outset of the loans, likewise in Ms. Smith's loan there was an assignment fee and a reassignment fee and a four month tax escrow charged at the outset of the loan. Assuming, arguendo, that these charges could be legitimately charged in certain circumstances, for example if the loan was sold on the secondary market²⁵ or if the loan was assigned and reassigned, or if the loan were held for four months, the charges were not legitimate in these situations because the acts required to legitimize the charges never happened. To require a [sq]reasonably prudent person' to have the ability to possess this knowledge is nothing less than requiring her to see into the future. As such, the statutes of limitations for Ms. Old's 93A claims did not begin to run until May 26, 1989, and this action was filed on May 21, 1993 which is within the four year statute of limitations. For these reasons and others set out below, Ms. Old's causes of action are within the applicable stautes of limitations.

The causes of action asserted by Ms. Old and Ms. Smith against defendant Aggressive did not accrue until they "knew or reasonably should have known that they had been injured as a result of conduct of the defendant." See Errichiello v. Eli Lilly & Co. supra. In the instant case, the plaintiffs could not have known of their injuries until they consulted a professional with legal expertise in this area.²⁶ Prior to consulting a professional, the plaintiffs had no way of knowing

injury. In making this discission the court overruled a prior decision in Capucci v. Barone 266 Mass. 578 (1929), which held the limitations period began to run at the time that the malpractice occurred, stating; "[n]o suggestion was offered as to how an injured plaintiff could pursue his theoretical right of action before he had a chance to discover he had been injured." Franklin at 614.

²⁷. Both Ms. Smith and Ms. Old sought assistance in late 1992 or early 1993. They both went to a social service agency knowledgeable in loan transactions, for reasons unrelated to the

Aggressive loans. The exact dates that they first sought assistance is not clear at this time, as both were referred for legal assistance from that social services agency.

²⁸. If a fiduciary relationship exists between the parties, however, mere silence may be

sufficient. See Connelly v. Bartlett, 286 Mass. 311 (1934); see also Stetson v. French, 321 Mass.

195 (1947).

that they had been injured by defendant Aggressive.²⁷ That time is well within even the applicable three year statute of limitations for fraud.

2. Application of the Fraudulent Concealment Doctrine to This Case

Massachusetts General Law chapter 260 § 12 states in full:

If a person liable to a personal action fraudulently conceals the cause of such action from the knowledge of the person entitled to bring it, the period prior to the discovery of his cause of action by the person so entitled shall be excluded in determining the time limited for the commencement of the action.

The test set out by Massachusetts courts for a finding of fraudulent concealment requires some positive step by the defendants; mere silence is not enough.²⁸ See Tagliente v. Himmer, 949 F.2d 1 (1st Cir. 1991). Positive acts leading to a finding of fraudulent concealment have been

interpreted by several courts to include: false representations made negligently or with the intent to mislead, see Nash v. Trustees of Boston University, 776 F. Supp. 73 (D.R.I. 1990); submission of false assessor's plans, see Kozdras v.Land/Vest Properties, Inc., 413 N.E. 2d 1105 (1980);

partial and ambiguous statements, see V.S.H. Realty, Inc. v. Texaco, Inc., 757 F.2d 411 (1st Cir.

1985); submitting misleading sales records, Blanchette v. Cataldo, 734 F.2d. 869 (1st Cir. 1984);

and half truths, Maxwell v. Ratcliffe, 254 N.E. 2d 250 (1969).

Aggressive knew or should have known when it presented the loan documents to Ms.

Smith and the Olds that the loans were not in compliance with state and federal laws.

Aggressive's positive actions included preparing the documents, or the information which went onto the documents, in such a way to as to fraudulently conceal the true interest rate, finance charges, and other fees and charges from the plaintiffs. [Am. Complaint ¶¶81-90 and 95-109 as to plaintiff Brenda Old and Am. Complaint ¶¶124-139 as to plaintiff Donna Smith]. In Ms. Old's case, she was not even provided a copy of the documents to take away with her to scrutinize for compliance with the law. In the case of Donna Smith, Aggressive required that she execute a waiver of her right to rescind. [Am. Complaint ¶¶141, 143, 144.] In doing so, Aggressive fraudulently concealed the availability of Ms. Smith's rights.

Furthermore, Aggressive and its agents Fast Talking Mortgage Corp, Henry Michaels, and David Stevens actively misrepresented and fraudulently concealed their financial interest and business relationship with one another. [Am. Complaint ¶¶77-79, 81, 96-98, 123, 134-136.] It is of special importance that information about the agency relationship between Aggressive and Fast Talking was fraudulently concealed. That information was material for two reasons. First, since the "broker" was working for Aggressive rather than the plaintiff, it was illegal to include its fees in the principal of the loan as if it were a payment arranged between Fast Talking and the borrower. More importantly, absent agency, Aggressive could not be sued based on Fast

Talking's actions. Fraudulent concealment of the agency relationship hid all of the causes of action against Aggressive until multiple plaintiffs came forward so as to indicate the pattern of activities and relationships between the defendants. These positive acts by the defendants to conceal material elements of their scheme tolled the statute of limitations. No plaintiff could have independently discovered the relationships and pattern of activities which establish Defendants' fraudulent conduct.

Finally, it should be pointed out that the court in Wise v. Hubbard, 769 F.2d 1 (1st Cir.

1985), relied on the Lynch decision to determining whether "positive acts" had been taken in the context of fraudulent concealment. The Wise court held that the defendant applying for a patent using his name as the sole inventor was not a positive act sufficient to sustain a cause of action for fraudulent concealment. Similarly, the Wise court found no fiduciary relationship existed between the parties as to require disclosure without inquiry. In the case at bench, there were sufficient positive acts, and a fiduciary duty did exist between the plaintiffs and Fast Talking, the entity which, by its misrepresentation, was claiming to act as a loan broker on the plaintiff's behalf. Ironically, it is this fiduciary duty which was grossly violated by failure to disclose an agency relationship with Aggressive. Moreover, unlike, the Wise case where "there were no material disputed issues of fact," the facts giving rise to Plaintiffs claims of fraudulent concealment have been pled and must be accepted as true for the purposes of this motion.

3. Application of the Separate Accrual Rule to This Case

The First Circuit Court of Appeals has adopted the Second Circuit's "separate accrual"

rule. See Rodriguez v. Banco Central, 917 F.2d 664 (1st Cir. 1990). As applied to RICO cases this rule provides

each time a plaintiff suffers an injury caused by a violation of 18 U.S.C. § 1962, a cause of action to recover damages based on that injury accrues to plaintiff at the time he discovered or should have discovered the injury.

Id. at 665-666, quoting Bankers Trust Co. v. Rhoades, 859 F 2d. 1096 at 1102 (2nd Cir. 1988).

Application of this rule to the facts of this case yields Ms. Old a four year limitations period which expired on May 26, 1993.

These limitation periods are based on the dates that the Aggressive scheme was completed, or when Aggressive was paid off by third party lenders. It was at this time that

Aggressive also collected large prepayment penalties. It was upon this payment to Aggressive that Ms. Old and Ms. Smith "realized" their injuries. Examples of these injuries included the four month tax escrow which was withheld from the funds of Ms. Smith's loan, the assignment and reassignments fees, and, as to both Ms. Smith and Ms. Old's loans, the points paid. A full discussion of these charges and their impact on the plaintiffs' ability to discover their injuries is set out above.

If the injuries could not have been realized until the scheme was complete and Aggressive was paid off, pursuant to the "separate accrual" rule, the limitations period could not begin to run until May 26, 1989 for Brenda Old and or October 26, 1989 for Ms. Donna Smith.

V. Payment of the Loans Does Not Terminate the Consumer's Right to Rescind Under the