Dynell and Annabel Latson, residents of Massachusetts, filed a lawsuit against Plaza Home Mortgage, Inc., claiming violations of state common law and statutory law in connection with two mortgage loans. The U.S. District Court for Massachusetts dismissed their claims for failing to state a valid cause of action, leading to this appeal. The First Circuit reviewed the case de novo, affirming the dismissal based on the conclusion that the Latsons' allegations did not present a plausible case for relief.
The Latsons purchased a three-family property in Dorchester in March 2006, financing it with two loans from Plaza: one for $367,500 at an adjustable rate and another for $157,500 at a fixed rate. In August 2011, after hiring an attorney, they sent a demand letter to Plaza alleging inadequate disclosure of loan terms, as required under the Massachusetts consumer protection statute. They sought damages exceeding $100,000 and claimed Plaza breached the implied covenant of good faith and fair dealing and violated the consumer protection statute by failing to provide necessary documentation and allowing insufficient review time prior to closing.
Plaza's motion to dismiss argued that the Latsons did not demonstrate any breach of the covenant or violation of the statute, also asserting that the statute of limitations had expired for the statutory claim. The district court agreed and dismissed without further argument from the Latsons, who later requested reconsideration, which was denied. The court noted that under Massachusetts law, the covenant of good faith and fair dealing is inherent in contracts, requiring parties to avoid actions that undermine the mutual benefits of the agreement.
The covenant in question applies only to conduct of parties after a contract is formed, and cannot be used to establish rights or duties outside the existing contractual relationship. In the case at hand, the Latsons received the loan funds per the terms of their contracts without any claims of violation. Their allegations of wrongful conduct occurred prior to contract formation and pertain to contract preparation, not performance. The claim of good faith and fair dealing was appropriately dismissed.
Regarding the Massachusetts consumer protection statute, the Latsons failed to adequately plead that Plaza engaged in unfair or deceptive practices and did not demonstrate a causal link between any alleged unfair acts and their claimed damages. However, the statute of limitations provides a clearer basis for dismissal. The limitations period for such claims is four years from the date of injury, which the Latsons identified as the signing of the mortgage agreements in March 2006. Their demand letter was sent in August 2011, exceeding the limitations period.
The Latsons argued for tolling the limitations period under the discovery rule or fraud exception, but neither applied in this case. The discovery rule only applies when injuries are inherently unknowable at the time they occur, which was not the case here. The terms of the loan were clear at the time of signing, and the Latsons did not assert any facts indicating fraud by Plaza. Consequently, the chapter 93A claim is time-barred and was properly dismissed. The decision is affirmed.
