Can You Contract Away Chapter 93A Liability?

While many cases have held that a mere breach of contract alone is not to invoke Chapter 93A liability, other cases have held that leveraging a business partner into a concession – even if there is no breach of a contractual obligation – is actionable under Chapter 93A.

In light of this, it should come as no surprise that for years transactional attorneys have been trying to insulate their clients from the reach of Chapter 93A by using limitation of liability clauses. Unfortunately, the law as to the enforceability of a limitation of liability clause in the Chapter 93A context has been murky. Essentially, precedent set by the Appeals Court held that such provisions could be enforced if the alleged deceptive or unfair conduct arose out of contractual conduct but could not be enforced where the conduct at issue was tort-based (as in the case when fraud was at issue). Recently, however, through the Supreme Judicial Court’s decision in H1 Lincoln, LLC v. South Washington Street, LLC, a bit more clarity has emerged.

In H1 Lincoln, the plaintiff rented property from the defendants and eventually sued them after they sought to terminate the parties’ lease agreement. Among other allegations, the plaintiff claimed they were entitled to multiple damages because the defendants had knowingly and willfully engaged in deceptive and unfair acts and practices in violation of Chapter 93A, §§ 2 and 11 (applicable when one business sues another business).

The trial court agreed with the plaintiff, awarded multiple damages, and the defendants appealed. In that appeal, the defendants argued that the judgment must be overturned because the damages awarded were “consequential damages,” and the lease expressly precluded the recovery of “any speculative or consequential damages caused by [the] Landlord’s failure to perform its obligations under [the] Lease.”

While the Supreme Judicial Court acknowledged the existing Appeals Court precedent supported the defendants’ position, the SJC made clear that it never had affirmed that precedent and took the opportunity to refocus the analysis on:

The fundamental principle that a waiver of statutory rights should not be given effect where enforcement of the particular waiver would do violence to the public policy underlying the legislative enactment.

 

Because multiple damages under c. 93A serve the twin goals of punishment and deterrence, 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. Such willful and knowing misconduct is not entitled to contractual protection from c. 93A, § 11, liability.

In other words, in this type of situation, a limitation of liability provision would not be enforceable, and the defendants were liable for multiple damages.

While H1 Lincoln should not deter in-house counsel from using limitation of liability clauses in an effort to limit Chapter 93A damages, it is important for them to understand the nuances of when they are and are not enforceable so that they can advise their internal business clients appropriately. Indeed, the last thing any in-house counsel wants to do is provide advice that leads to unrealistic expectations or, even worse, avoidable malevolent conduct.