SJC Rejects Contractual Liability Waivers for ‘Intentional or Knowing’ Section 93A Violations | Sullivan and Worcester
On January 24, 2022, the Massachusetts Supreme Judicial Court (SJC) issued a unanimous decision directly limiting the applicability of limitation of liability provisions in the context of willful or knowing violations of Chapter 93A, Section 11 of the Massachusetts General Law (“Chapter 93A”). . In a decision with potentially significant implications for the Massachusetts business community, the SJC concluded in H1 Lincoln, Inc. vs. S.Wash. St., LLC (“lincoln“) that, as a matter of public policy, “limitation of liability provisions shall not be applied to protect defendants who willfully or knowingly engage in 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 was leasing property for the purpose of developing and operating a car dealership. The tenant eventually brought a Chapter 93A action and other actions against the landlord (along with certain other entities named in the lease), after the landlord sought to terminate the lease.
In its recent decision, the SJC upheld the trial judge’s finding that the owner had engaged in commercial extortion amounting to unfair and deceptive conduct in violation of Section 93A. Further, the Court upheld the finding that the owner’s conduct was deliberatejustifying an award of double damages under the act’s multiple damages provision for “willful or knowing” violations.
The commercial lease at issue, however, contained a limitation of liability clause which sought to exempt the landlord from liability for “any speculative or consequential damages caused by the failure of the landlord to perform its obligations under [the] Lease. The landlord argued that even if he was otherwise liable for Chapter 93A damages, the lease’s limitation of liability clause insulated him from that liability and barred the tenant from recovering. But the SJC rejected that argument, saying deciding instead to establish a hard contract and a fast rule that exposes commercial owners and other businesses to multiple damages for what may be considered willful and knowing violations of Section 93 A. The parties may not, in no event prospectively disclaim such liability.
No contractual protection for willful or knowing violations of Section 93A
As a preliminary matter, the SJC determined that the “actual” damages available under Section 93A include “all foreseeable and consequential damages resulting from conduct that violates the law.” lincoln489 mass at 22 years old.
The SJC then turned to the central issue in the case: the applicability of the limitation of liability provisions in the context of Section 93A. First, the SJC rejected the test for applicability developed by the Massachusetts Court of Appeals, which distinguished between Chapter 93A claims based 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 law and the distinctions drawn within the statutory scheme…”.
Here, the SJC specifically focused on the policies underlying the multiple damages provision of Section 93A. Since multiple damages “serve the dual purpose of punishment and deterrence”, the Court held that allowing a defendant “to immunize himself in advance against liability for unfair or deceptive conduct committed voluntarily or knowingly would violate the public order protected by law.” Accordingly, the SJC held that defendants who commit willful or knowing violations of Section 93A are not entitled to contractual liability protection.
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 Section 93A must be deterred and punished. According to the CJS, “[t]this legislative determination controls and cannot be overridden by private contractual arrangements. lincoln489 Mass. at 26. The SJC pointed out that this legislative policy applies “even in the fiercely competitive business-to-business marketplace.” Identifier.
Uncertainty Remaining Regarding “Relatively Innocent Violations” of Section 93A
While the SJC has taken a strong stance with respect to willful and knowing violations of Section 93A, it remains to be seen whether the provisions that seek to limit liability for “relatively innocent violations” of Section 93A will continue to apply.
The decision of the CJS in Channel Elec. Co. v. Westinghouse Elec. Corp., 406 Mass. 369 (1990) remains the leading case in which the Court applied a limitation of liability clause in a trade agreement to bar collection of a Section 93A claim. But many subsequent CJS decisions, now including the lincoln decision, limited or qualified much of the analysis in Channel. 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 it is freely negotiated, if to do so would “violate the public order which underlies the legislative enactment”. lincoln489 mass at age 25.
As it would no doubt be “doing violence to the [underlying] public order” to allow the prospective waiver any liability of Section 93A (even for “relatively innocent violations” of Section 93A), the lincoln decision may well affect the willingness of Massachusetts courts to give effect to these provisions.