Bad Faith Can Render Limitation of Liability Provisions Unenforceable

04/11/2023

by Kevin A. Robinson

In H1 Lincoln, Inc. v. South Washington Street, LLC, the Massachusetts Supreme Judicial Court held that limitation of liability provisions do not provide protection for a party which has violated Chapter 93A, §11 “willfully or knowingly.”

The case arose from a lengthy dispute over a commercial lease in which the tenant was granted the use of two adjacent parcels for the operation of an automotive dealership. In pursuit of additional space, the tenant purchased a parcel of land adjoining the leased premises for $800,000. Angered by the tenant’s ability to purchase the adjoining parcel, which the Landlord had unsuccessfully tried to acquire for many years, the Landlord made numerous pretextual objections to the tenant’s proposed site plan. Under the threat of termination, the tenant conceded to the Landlord’s extortionate demands and agreed to sell the adjoining parcel to the Landlord for merely $1.00. Despite the tenant’s concessions, the Landlord announced it would terminate the lease.

The tenant then commenced the underlying action and brought a claim against the Landlord for violations of Chapter 93A, §11. The Superior Court found multiple violations and held the tenant was entitled to specific performance of the lease. Instead of cooperating with the tenant’s attempted enforcement of the lease, however, the Landlord chose to misrepresent which entity actually owned the leased land, thereby derailing the tenant’s attempts to obtain necessary construction permits. Instead of resolving the title issue, the Landlord attempted to utilize it as an additional form of commercial extortion. The tenant subsequently moved for additional damages, which were allowed by the Superior Court.

On appeal, the Landlord asserted that even if its conduct was in violation of Chapter 93A, §11, the tenant was unable to recover damages because it had waived its claims to such compensation pursuant to a limitation of liability provision in the lease. The Supreme Judicial Court held that limitation of liability provisions are enforceable where the Chapter 93A, §11 claim is merely duplicative of a breach of contract.

However, the court held that limitation of liability provisions may be rendered unenforceable when the claim is based on a party’s willful and knowing engagement in unfair and deceptive acts.

Take away: Where a party does not act in good faith, a limitation of liability provision in the parties’ agreement may be nullified by a court, exposing the bad actor to multiple damages.