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February 11, 2022

Legal Update
John G. O'Neill

Contractual Limitations of Liability Are Not Enforceable Against Willful or Knowing Violations of Chapter 93A, Supreme Judicial Court Says

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Commercial leases and other contracts often contain limitation of liability provisions intended to shield parties from certain claims or the recovery of specific types of damages. As between commercially sophisticated parties, these provisions are enforceable and may even preclude liability for certain types of claims under the Massachusetts Unfair Trade Practices Statute, Chapter 93A. But the Massachusetts Supreme Judicial Court has ruled that these provisions will not be enforced to protect defendants found to have committed willful or knowing violations of the statute.

The case, H1 Lincoln, Inc. v. South Washington Street, LLC, involved a bitter lease dispute between a car dealership and the lessor of the property. Based on a plethora of acts taken by the lessor that prevented the dealership from taking possession of the property and opening for business, the dealership sued the lessor claiming that it violated G. L. c. 93A, § 11, which makes “unfair or deceptive act[s] or practice[s]” between businesses unlawful.

The trial court ruled in favor of the dealership, finding that the lessor’s conduct violated the statute and that its violations were “willful and knowing,” and awarded double damages for the delay caused by the lessor, as well as additional relief. On appeal, the lessor argued, among other things, that the dealership had waived any right to recover delay damages under a limitation of liability provision in the lease, which precluded recovery “for any speculative or consequential damages caused by [the] Landlord’s failure to perform its obligations under [the] Lease.”

Focusing On The Culpability Of The Defendant’s Conduct Rather Than The Nature Of The Claim

The Supreme Judicial Court rejected the lessor’s arguments. After affirming the trial court’s finding that the lessor willfully and knowingly engaged in unfair and deceptive conduct, the Court considered whether the lessor could enforce the limitation provision waiving consequential damages to prevent an award of delay damages under the statute. The Court noted that the Appeals Court had previously held that such limitations are enforceable against Chapter 93A claims “founded on a contract theory” but not for Chapter 93A claims “analogous to a tort-based recovery.”

The Court declined to adopt this approach, however, ruling instead that enforcement “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.” The statute’s multiple damages provisions, the Court observed, were intended by the Legislature to severely punish and deter defendants who engage in willful or knowing violations of the statute. Thus, the Court reasoned that permitting a defendant to insulate itself from this statutory scheme through a contractual limitations provision is contrary to public policy. Accordingly, the Court ruled that contractual limitations of liability provisions will not be enforced to enable a defendant to escape the consequences of willful or knowing violations of Chapter 93A.

Practical Effects: Summary Judgment Becomes Less Likely

In addition to redrawing the battle lines for many Chapter 93A litigants, the H1 Lincoln decision will likely impact the way courts resolve contractual limitations defenses. Because enforceability now rests upon the inherently fact-based determination of a defendant’s culpability, i.e., whether the misconduct rises to the level of a willful or knowing violation, it is less likely that this defense can be adjudicated on summary judgment. Defendants seeking to invoke such provisions will likely have to await a decision after a full trial on the merits.

If you have questions about this decision and how it could impact your business, please contact one of the business dispute attorneys at Sugarman Rogers today.