Massachusetts Court Holds Limitations of Liability Clauses Will Not Immunize Parties for Willful Violations of Unfair Trade Statute

The opinion can be found here.

Background

Mass. Gen. L. c. 93A, § 2 "makes unlawful 'unfair or deceptive acts or practices' in the conduct of 'any trade or commerce,' while § 11 applies these prohibitions to dealings between those 'engaged in trade or commerce,' giving a private right of action to businesses harmed by another business's unlawful conduct under § 2." [2] Courts typically look to three factors when determining whether conduct constitutes an "unfair" act or practice: "(1) whether the conduct is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; and (3) whether it causes substantial injury to consumers or other business." [3]  

In H1 Lincoln, Inc., a commercial tenant entered into a commercial lease with two realty trusts with the stated purpose of opening a car dealership. 

The lease contained a limitation of liability clause that limited damages against the landlords from "any speculative or consequential damages caused by the Landlord's failure to perform its obligations under [the] Lease." After signing the lease agreement, but before the tenant was able to commence construction of its car dealership, the principal of the two LLC landlords initiated efforts to prevent the tenant from erecting the car dealership, ultimately coercing the tenant into selling an adjacent parcel of land for virtually no consideration and extracting new and better terms in a revised lease agreement. Despite the tenant's acquiescence to the landlord's increasingly unreasonable demands, the landlord ultimately sought to terminate the lease agreement, and the tenant sued, alleging violation of c. 93A § 11, among other claims. 

In a jury-waived trial, the trial judge found for the tenant. The trial judge further determined that the landlords' conduct was a "willful and knowing" violation of c. 93A, awarding the tenant double damages and specific performance relief. Following further obstructionist behavior by the landlord post-trial, the trial court re-opened the trial and found that the landlord had committed further willful or knowing violations of Section 11, issuing double damages yet again.

Analysis

Much of the damages plaintiff sought to recover were on account of delay. The defendants argued that such damages fell squarely within the limitation of liability provision in the lease, which provided for the waiver of "any speculative or consequential damages caused by [the] Landlord's failure to perform its obligations under [the] Lease." [4] Plaintiff countered that the damages it sought fell outside the specific limitation language, and the SJC agreed, noting that the existing limitation language did not apply to all consequential damages, but "rather covered only consequential damages caused by the defendants' failure to perform lease obligations." [5] Not content to leave its analysis there, however, the SJC went further, examining whether such a limitation of liability was even enforceable.[6]  

The Court began its analysis by revisiting its 1990 decision, Canal Electric Company v. Westinghouse Electric Corporation.[7] In Canal, the SJC answered a certified question of whether, in an action alleging breach of warranty and a violation of c. 93 § 11, a limitation of liability clause could bar recovery, concluding that the limitation of liability in that case barred recovery on the c. 93A § 11 claim.

Subsequent decisions by the Massachusetts Appeals Court interpreting Canal distinguished between c. 93A cases "founded on a contract theory" and those that are "analogous to tort claims." These decisions enforced limitation of liability clauses with respect to c. 93A claims based upon contractual breaches, but not in tort based claims.[8] In H1 Lincoln, the SJC rejected this distinction. Instead, it held that "the enforcement of limitation of liability provisions in the context of G. L. c. 93A, § 11, should be refocused on the policies underlying the statute and the distinctions drawn within the statutory scheme, not on the difference between tort and contract." [9]

The Court noted that multiple damages under c. 93A serve the twin goals of punishment and deterrence. 

As a result, enforcement of a limitation of liability provision that would allow a defendant in a Section 11 action to be immunized from liability for knowing and willful conduct would "do violence to the public policy protected by the statute . . . ." [10] The SJC noted that its holding only applied to knowing or willful violations of the statute. Limitation of liability clauses, when properly drafted, may still protect defendants against damage claims for unfair or deceptive conduct that does not rise to that level.[11]

Key Takeaway

The Supreme Judicial Court's ruling has a potentially significant impact on future c. 93A § 11 litigation. Plaintiffs who believe they have been injured by knowing or willful violations of c.93A will be undeterred by a limitation of liability clause in an underlying commercial contract. Parties to such Massachusetts contracts should be aware of this loophole and their potential exposure. The SJC has made clear, however, that limitations of liability provisions will be enforced with respect to violations of the statute that are not knowing or willful.

[1] H1 Lincoln, Inc. v. South Washington Street LLC, SJC 13088, 2022 WL 200807, at *14 (Mass. Jan. 24, 2022).

[2] H1 Lincoln, Inc., 2022 WL 200807 at *7.

[3] Id. at *8 (citing PMP Assocs., Inc. v. Globe Newspaper Co., 366 Mass. 593, 596 (1975)).

[4] Id. at *12.

[5] Id.

[6] Id.  Before the S.J.C. proceeded to the enforceability of such a limitation of liability provision, it noted in passing that separating consequential damages based on a breach of a lease from damages arising from unfair and deceptive conduct would be difficult.  Because the S.J.C. found that the particular limitation of liability in this case was void as against public policy, however, it did not need to undertake this fact-laden exercise.  Id.

[7] 406 Mass. 369 (1990).

[8] See e.g., Standard Register Co. v. Bolton-Emerson, 38 Mass. App. Ct. 545, 549 (1995).

[9] H1 Lincoln, 2022 WL 200807, at *14 (citing Spence v. Reeder, 382 Mass. 398, 413 (1981).

[10] H1 Lincoln, 2022 WL 200807, at *14.

[11] See id. at *14 n. 16 (noting that “[e]nforcement of limitation of liability provisions for so-called relatively innocent violations of the statute does not raise the same public policy concerns as would enforcement of liability waivers for willful or knowing violations”).