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Can Massachusetts Businesses Contractually Shield Themselves from Liability for Unfair Trade Practices?

Posted by David Katz | Feb 03, 2022 | 0 Comments

A recent ruling by the Supreme Judicial Court of Massachusetts changes when businesses can effectively limit their liability from unfair trade practice claims filed by other businesses. The case should make companies in the state review their contracts for these provisions and potentially alter their conduct accordingly.

Landlord Pressures Commercial Tenant to Sell Parcel of Land

The case, H1 Lincoln, Inc. v. South Washington Street, LLC, centers on a car dealership at 865 South Washington Street, in North Attleborough, Massachusetts. The dealership agreed to a commercial lease with the property owners, and then bought an adjoining parcel of land. This piece of land, though, was one that the landlords had been trying to purchase for years and led to numerous commercial lease disputes.

Over the next few years, the landlord misrepresented which of its corporate entities actually owned the property, raised pretextual objections to the dealership's development plans, did not cooperate in the permitting process, and threatened to terminate the lease, all in an attempt to get the dealership to sell them the parcel of land they had bought.

When the dealership sued, claiming that the conduct amounted to an unfair trade practice under Massachusetts G. L. c. 93A, §11, the landlords pointed to a provision in the lease in which the dealership agreed to waive its right to “any speculative or consequential damages,” including those for unfair trade practices.

SJC Changes When Liability Limitations are Effective

The use of these liability limitation provisions in business-to-business contracts is not new, and they have been used to defend against Chapter 93A complaints, before. As early as 1990, the Supreme Judicial Court (SJC) held that these provisions were effective against 93A claims when “the waiver would not frustrate the public policies” of the unfair trade practices law.

Since then, the Massachusetts Appeals Court has consistently held that, when businesses are dealing with one another, the public policy of unfair trade practice law is not frustrated when the conduct was contractual. For example, in Standard Register Co. v. Bolton-Emerson, Inc., the Appeals Court refused to enforce a clause limiting liability because the unfair trade practice was based on the tort of fraudulent misrepresentation, not a breach of contract.

The SJC had seemed to follow along, enforcing provisions that limit liability under Chapter 93A, § 11 when the claim was contractual, like when it was based on breach of warranty, in Knapp Shoes, Inc. v. Sylvania Shoe Mfg. Corp.

However, in this new case, the SJC shifted back to its original focus on the public policy of unfair trade practice law, rather than on the rigid distinction between tort and contract law. Noting how the damage multipliers in Chapter 93A claims served to deter unfair trade practices and punish those who do them, the SJC stated that the proper test was whether the conduct was willfully and knowingly done.

Massachusetts Business and Contract Lawyers at the Katz Law Group

The SJC's new decision is a significant expansion to unfair trade practice law involving business contracts. Under H1 Lincoln, it no longer matters whether the conduct was tortious or contractual: Businesses can no longer insulate themselves from the severe sanctions that come with a Chapter 93A, § 11 claim with a simple contractual provision if their conduct was willful and done knowingly.

The court decision should make business owners review the contracts that they have with other businesses, or call the business and contract litigation lawyers at the Katz Law Office at (508) 480-8202, or contact them online, for help. They represent businesses in Norfolk and Middlesex Counties, as well as in Worcester, Framingham, and Marlborough.

About the Author

David Katz

Attorney David S.Katz is the founder and managing partner of the Katz Law Group, P.C., located in Westborough, Massachusetts...

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