SJC Rejects Contractual Liability Waivers for “Willful or Knowing” Violations of Chapter 93A
On January 24, 2022, the Massachusetts Supreme Judicial Court (SJC) issued a unanimous decision directly curtailing the enforceability of limitation of liability provisions in the context of willful or knowing violations of Massachusetts General Law Chapter 93A, Section 11 ("Chapter 93A"). In a decision with potentially significant implications for the Massachusetts business community, the SJC concluded in H1 Lincoln, Inc. v. S. Wash. St., LLC ("Lincoln") that, as a matter of public policy, "limitation of liability provisions will not be enforced to protect defendants who willfully or knowingly engage in the unfair or deceptive conduct prohibited by [Chapter 93A]." 489 Mass. 1, 2-3 (2022).
The case involved a bitter dispute between a commercial landlord and a tenant who rented property with plans to develop and operate a car dealership. The tenant ultimately brought a Chapter 93A claim and other claims against the landlord (as well as certain other entities named in the lease), after the landlord sought to terminate the lease.
In its recent decision, the SJC affirmed the trial judge’s conclusion that the landlord engaged in commercial extortion that amounted to unfair and deceptive conduct in violation of Chapter 93A. Moreover, the Court affirmed the finding that the landlord’s conduct was willful, justifying the award of double damages under the statute’s multiple damages provision for "willful or knowing" violations.
The commercial lease at issue, however, contained a limitation of liability provision that purported to waive the landlord’s liability for "any speculative or consequential damages caused by the Landlord’s failure to perform its obligations under [the] Lease." The landlord argued that even if it was otherwise liable for the Chapter 93A damages, the lease’s limitation of liability provision insulated it from such liability and barred the tenant from recovery. But the SJC rejected this argument, deciding instead to establish a hard and fast rule that leaves commercial landlords and other businesses susceptible to multiple damages for what may be found to be willful and knowing violations of Chapter 93A. Parties cannot, under any circumstances, prospectively disclaim such liability.
No contractual protection for willful or knowing violations of Chapter 93A
As a threshold matter, the SJC determined that "actual" damages available under Chapter 93A are comprised of "all foreseeable and consequential damages arising out of conduct which violates the statute." Lincoln, 489 Mass. at 22.
The SJC then turned to the primary issue in the case: the enforceability of limitation of liability provisions in the context of Chapter 93A. First, the SJC rejected the enforceability test developed by the Massachusetts Appeals Court, which drew a distinction between Chapter 93A claims founded on contract theory and those analogous to tort claims. Standard Register Co. v. Bolton-Emerson, Inc., 38 Mass. App. Ct. 545, 549 (1995). Instead, the SJC concluded that enforcement "should be refocused on the policies underlying the statute and the distinctions drawn within the statutory scheme …."
Here, the SJC specifically focused on the policies underlying the multiple damages provision in Chapter 93A. Because multiple damages "serve the twin goals of punishment and deterrence," the Court reasoned that allowing a defendant "to immunize itself in advance from liability for unfair or deceptive conduct that is done willfully or knowingly would do violence to the public policy protected by the statute." Accordingly, the SJC held that defendants who commit willful or knowing violations of Chapter 93A are not entitled to contractual protection from liability.
Although courts generally avoid interfering with the consensual allocation of risk among commercially sophisticated parties, the Legislature has determined that willful or knowing violations of Chapter 93A must be deterred and punished. According to the SJC, "[t]hat legislative determination controls and may not be overridden by private contractual arrangements." Lincoln, 489 Mass. at 26. The SJC emphasized that this legislative policy applies "even in the fiercely competitive business-to-business marketplace." Id.
Remaining uncertainty regarding "relatively innocent violations" of Chapter 93A
Although the SJC took a strong position with respect to willful and knowing violations of Chapter 93A, it remains to be seen whether provisions that purport to limit liability for "relatively innocent violations" of Chapter 93A will remain enforceable.
The SJC’s decision in Canal Elec. Co. v. Westinghouse Elec. Corp., 406 Mass. 369 (1990) remains the primary case in which the Court enforced a limitation of liability clause in a commercial agreement to bar recovery on a Chapter 93A claim. But many subsequent SJC decisions, now including the Lincoln decision, have limited or qualified much of the analysis in Canal. Instead of broadly protecting the right of commercial parties to allocate risk as they see fit, the SJC has "refocused" its approach to reflect the fundamental principle that a waiver of statutory rights should not be enforced, even if freely negotiated, if to do so "would do violence to the public policy underlying the legislative enactment." Lincoln, 489 Mass. at 25.
As it arguably would "do violence to the [underlying] public policy" to allow for the prospective waiver of any Chapter 93A liability (even for "relatively innocent violations" of Chapter 93A), the Lincoln decision may well impact the willingness of Massachusetts courts to give effect to these provisions at all.
* * *
For more information about this decision or the scope of Chapter 93A liability more generally, please be sure to contact Nathaniel R.B. Koslof or another member of the litigation department at Sullivan.