January 26, 2022

Commercial Leasing in Massachusetts: Contractual Limitation of Liability Provisions Unenforceable for Willful or Knowing Violations of Chapter 93A, Section 11

The Massachusetts Supreme Judicial Court on January 24 issued an important decision impacting commercial landlords’ potential exposure to liability for multiple damages under Chapter 93A in H1 Lincoln, Inc. vs. South Washington Street, LLC, et. al., No. SJC-13088 (Jan. 24, 2022). The case concerned the enforceability of contractual provisions in a commercial lease that purported to waive “any speculative or consequential damages caused by [the] Landlord’s failure to perform its obligations under [the] Lease.” The Court ruled in a unanimous, 46-page decision that “a limitation of liability provision provides no protection for defendants who willfully or knowingly engage in unfair or deceptive conduct in violation of” Chapter 93A, Section 11.

The case arose out of a commercial lease in North Attleborough, Massachusetts. Plaintiff was a car dealership which leased certain real property from defendants with plans to develop and operate a car dealership on that property. After multiple trial phases, defendants were found to have “willfully and knowingly strung [Plaintiff] along” to create leverage and “obtain unwarranted concessions” through the resulting delay to plaintiff’s permitting process. After an initial trial and a subsequent, reopened trial, the trial judge awarded two rounds of delay damages, each of which he doubled as “willful or knowing” violations of Chapter 93A. Defendants appealed to argue that (1) the trial court erred in finding the conduct at issue sufficient, as a matter of law, to violate the statute and (2) that the liability limitation provision in the lease precluded recovery of the delay damages.

In its ruling, the Supreme Judicial Court first upheld the trial court’s ruling on the merits, holding that the conduct at issue “was squarely within an established category of unfair conduct under G.L. c. 93A, § 11, namely, ‘commercial extortion,’” relying on and finding a close resemblance to the facts at issue in Anthony's Pier Four, Inc. v. HBC Associates, 411 Mass. 451, 474 (1991). The Court further upheld the trial court’s doubling of damages on the basis that this same unfair conduct was permissibly found by the trial judge to be knowing and willful.

The Court roundly rejected the defendants’ argument that the liability waiver in the Lease precluded Plaintiff’s recovery, notwithstanding the findings of knowing and willful misconduct in violation of Chapter 93A. The Court’s opinion first considers whether the delay damages awarded by the trial court fall within the scope of the limitation of liability provision, which applied only to consequential damages based on a failure to perform Lease obligations.[1] The Court held that the delay damages are consequential damages, designed as they were “to compensate [Plaintiff] for lost profits that were a foreseeable consequence of delays [that] resulted from the defendants' unfair and deceptive conduct,” but might not have been entirely caused by defendants’ failure to perform Lease obligations (for example, fraudulent misrepresentations, use of pretextual reasons to terminate the lease, and use of stringing along tactics are not failures to perform contractual obligations). However, the Court found no need to unravel this distinction, instead holding the limitation of liability provision unenforceable as a matter of public policy, given the nature of the conduct at issue.

In short, the Court held that “willful and knowing misconduct is not entitled to contractual protection” through a liability limitation provision. The Court reached this conclusion by acknowledging that there are circumstances in which limitation of liability clauses can be enforced to bar recovery under Chapter 93A, Section 11, but only “when the waiver would not frustrate the public policies of the statute.” The Court expressly disapproved prior Massachusetts Appeals Court decisions drawing a distinction between Chapter 93A, Section 11 claims “founded on a contract theory,” and those that “are analogous to a tort-based recovery,” and allowing limitation of liability provisions to immunize against the former but not the latter. See, e.g., Standard Register Co. v. Bolton-Emerson, Inc., 38 Mass. App. Ct. 545, 549 (2018). The Court noted that because a simple breach of contract is not a c. 93A violation, this distinction is not useful. The Court acknowledged that “so-called relatively innocent violations” of the statute — of the kind that would not give rise to multiple damages — do not raise public policy concerns. However, the Court reasoned, “enforcement of a limitation of liability provision that would allow a defendant in a c. 93A, § 11, action 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.” Thus, where the violative conduct is sufficiently “callous and intentional” to give rise to multiple damages, courts will not enforce contractual waivers of liability.

* * * *

Goodwin’s Leasing practice is broad-based in scope, with specialists who have devoted their careers to representing clients in leasing and related transactions efficiently and cost-effectively. Clients count on Goodwin’s insight into how leasing transactions fit in the broader context of real estate investment and corporate operations. Goodwin lawyers negotiate on your behalf at all stages of the leasing process, from early planning at the letter of intent stage through work letter negotiations to final document execution and beyond. Goodwin’s litigators have unparalleled expertise involving real property interests, both keeping clients out of disputes and resolving disputes. Our litigators work closely with members of our core real estate transaction teams spanning numerous industries and practices, including leasing, to serve our clients’ needs in a seamless manner.

[1] The Court set aside the provision’s preclusion of speculative damages “because speculative damages cannot be recovered in any action.”