When Does a Competitive Business Practice Become Actionable under Chapter 93A, § 11?

Chapter 93A, § 11 provides a right of action to persons engaged in business who suffer a loss of money or property as a result of unfair methods of competition, or unfair or deceptive acts or practices, used by another business in Massachusetts. An aggrieved business may recover its actual damages, plus double or treble damages, attorney’s fees and costs. To avoid potential exposure for multiple damages and attorney’s fees, a responding party may tender with its Answer to the Complaint filed in any such action a written offer of settlement for single damages. If the settlement offer is rejected by the aggrieved party, and if the court finds that the tendered relief was reasonable in relation to the actual injury suffered by the aggrieved party, the court shall not award more than single damages. G. L. c. 93A, § 11.
What Constitutes an Unfair Method of Competition or an Unfair or Deceptive Act or Practice Under Section 11?

Unfair methods of competition and unfair or deceptive acts or practices are not defined under Chapter 93A. The Supreme Judicial Court has provided some guidance, holding that in a case involving two businesses, a practice is unfair if it is “within . . . the penumbra of some common-law, statutory, or other established concept of unfairness; . . . is immoral, unethical, oppressive, or unscrupulous; [and] . . . causes substantial injury to [another business].” Linkage Corp. v. Trustees of Boston University, 425 Mass. 1, 27 (1997). Recently, the Massachusetts Appeals Court provided a more concrete example of an unfair or deceptive business practice in Exhibit Source, Inc. v. Wells Ave. Bus. Ctr., LLC. 94 Mass. App. Ct. 497 (2018). Exhibit Source involved a dispute between a commercial landlord and tenant. The dispute arose when the defendant landlord retained the majority of the plaintiff tenant’s nearly $16,000 security deposit following the termination of the tenancy. The lease expressly required the defendant landlord to return the security deposit within thirty days of the lease termination, but it allowed the landlord to keep the deposit, if the tenant did not cure, within twenty days of notice, damages caused by the tenant’s failure to fulfill its obligations under the lease. Id. at 498. The tenant vacated the premises on August 31, 2013, and a walkthrough of the premises was conducted on September 4, 2013. The landlord’s representative did not raise any issues regarding the condition of the premises at that time. Id. Over the next seven months, in response to the tenant’s requests, the landlord’s representative repeatedly stated that the full deposit would be returned. Eventually, on April 1, 2014, the landlord returned only a small fraction of the deposit, claiming that the balance of the security deposit was for damages caused by the tenant’s removal of shelving and signage upon vacating the premises seven months earlier. In finding for the plaintiff on its Chapter 93A claim, the trial judge held that the defendant landlord:

“had absolutely no intention of returning the security deposit to plaintiff. After months of stringing plaintiff along under false representations that the security deposit will be paid to plaintiff, [landlord] manufactured a reason to keep the security deposit by claiming damage to the property — a reason that did not exist when [landlord’s representative] conducted the walk-through inspection on September 4, 2013 ….”

Id. at 499.

On appeal, the defendant landlord argued that its conduct amounted to nothing more than a good faith dispute over the amount due under a commercial lease, and that any misrepresentations that it may have made about returning the deposit were irrelevant because it had not tried to extort any concessions from the plaintiff. Id. at 500-01. The Appeals Court rejected this argument, noting that the trial judge’s findings, which were not contested, “went well beyond recognized concepts of unfairness.” Id. at 501. It explained that the defendant, knowing that its actions would require the plaintiff to hire a lawyer and incur fees, intended to discourage the plaintiff from pursing the deposit further. Id. The Appeals Court held that “this was not a dispute over the application of a contract, but rather was a considered and intentional exercise of control over the plaintiff’s property – a strategy employed in the hope that the property could be, ultimately, taken by the defendant without right to do so.” Id. As such, the Appeals Court affirmed the trial court’s finding of liability under Chapter 93A, § 11.

Multiple Damages and Attorney’s Fees Applied Despite Contractual Limitation

The Appeals Court also upheld the trial court’s award of treble damages and attorney’s fees. In doing so, the Appeals Court rejected the defendant landlord’s argument that a limitation of liability clause in the lease precluded such damages. The Appeals Court held that the limitation of liability clause did not apply because the plaintiff’s claim was not founded on a contract theory. Rather, the Appeals Court held that the plaintiff’s claim sounded predominantly in tort because it was based upon the defendant’s course of action, over a seven-month period, that was designed to result in the wrongful conversion of the plaintiff’s property. As the Appeals Court held, “those actions violate well established legal norms that are independent of the parties’ contract.” Id. at 502.

Multiple Damages and Attorney’s Fees Applied Despite Settlement Offers

The Appeals Court also rejected the defendant landlord’s argument that multiple damages and attorney’s fees should not apply because it made reasonable offers of settlement. Although the defendant had not tendered a settlement offer at the time it answered plaintiff’s Complaint, it made three separate settlement offers as follows: 1) it offered less than half the value of the retained portion of the security deposit at the time the plaintiff filed its Complaint; 2) it offered exactly the value of the retained portion of the security deposit twenty days after filing its Answer to the Complaint; and 3) it offered roughly one and a half times the value of the retained portion of the security deposit a couple of months after filing its Answer to the Complaint. The plaintiff rejected all three offers.

The Appeals Court did not spend time addressing the initial offer, noting that the trial court found it unreasonable. As to the latter two offers, the Appeals Court pointed out that neither offer was made at the time the defendant filed its Answer to the Complaint, as required under Chapter 93A, § 11. Therefore, the trial judge was not required to consider those offers at all. Nevertheless, the Appeals Court held that the trial judge was within his discretion to consider the offers, noting that the trial judge concluded that neither was reasonable at the time it was made. Although the offers increased in value, they “always fell short of providing the plaintiff with the relief it was reasonably likely to achieve by continuing on with the litigation it had been forced to bring, and had tried to avoid.” Id. at 504. In deciding that the trial judge’s award of treble damages and fees did not constitute an abuse of discretion, the Appeals Court held that “[i]n this context, once litigation had commenced in earnest and the plaintiff had been forced to incur significant attorney’s fees, there was no error in considering that the settlement offers did not provide for reimbursement of attorney’s fees incurred as a result of the defendant’s unfair practices.” Id.

Appeals Process Increasing Exposure

The Appeals Court affirmed the underlying judgment in favor of the plaintiff. In doing so, it left in place an award of approximately $30,000 in additional attorney’s fees that the Appellate Division of the Boston Municipal Court had previously awarded to the plaintiff for having to respond to the defendant’s initial appeal to that court. Id. at 499-500. And in a footnote, the Appeals Court also allowed the plaintiff to file an application for further fees and costs incurred on the defendant’s second appeal to the Appeals Court.

Exhibit Source illustrates how actual damages (in this case approximately $15,000) can quickly balloon into a total exposure in excess of $135,000 under G. L. c. 93A. To avoid this outcome, a business defendant with c. 93A exposure that misses its deadline for tendering a settlement offer under the statute might consider factoring into any settlement offer an amount to reimburse the plaintiff for fees incurred up to the date of the offer. In addition, Exhibit Source serves as a cautionary tale for businesses that may seek to use or rely on leases and other contracts to limit tort-based liability under c. 93A.

JOHANNA L. MATLOFF

Posts by Johanna

JULIE L. MARTIN

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