Exercising Contractual Rights Can be Risky if it is for an Ulterior Purpose

As I discussed in “Be Cautions When Tempted to Leverage Another into an Agreement,” exerting leverage to force a business partner into settling a dispute could constitute deceptive or unfair acts or practices in violation of M.G.L. c. 93A – which allows for awards of multiple damages and attorneys’ fees. But can validly exercising one’s contractual rights also expose a company to Chapter 93A liability? According to the Massachusetts Supreme Judicial Court, it can.

In Kattar v. Demoulas, a case related to the now infamous Demoulas family saga, the defendants loaned George Kattar money that was secured by various real estate Kattar owned. Several years later, after the Demoulas v. Demoulas litigation erupted, the side of the family that had made the loan to Kattar wanted him to testify on their behalf. When Kattar refused to cooperate, the defendants reminded him that he was in default on his loan, and they threatened to exercise their right to foreclose if he did not change his mind. When Kattar refused to relent, the defendants followed through on their threat and foreclosed on Kattar’s property.

Ultimately, Kattar sued, alleging, among other things, that the defendants’ conduct was deceptive or unfair in violation of Chapter 93A. The defendants argued that because they were permitted to foreclose, and their motive in deciding to foreclose was irrelevant to a claim for wrongful foreclosure under common law, they could not be deemed to have violated Chapter 93A. The Massachusetts Supreme Judicial Court disagreed, however, holding that even if the defendants had the contrctual right to foreclose, their “conduct occasioning foreclosure as retribution for Kattar’s refusal to testify qualifies as actionable conduct under [Chapter 93A].”  By way of further explanation, the SJC went on to say that:

Chapter 93A is a statute of broad impact which creates new substantive rights and provides new procedure devices for enforcement of those rights. The relief available under c. 93A is … not subject to the traditional limitations of preexisting causes of action. It makes conduct unlawful which was not unlawful under the common law or any prior statute. … Legality of underlying conduct is not necessarily a defense to a claim under c. 93A. [Emphasis added.]

As noted above, Chapter 93A prohibits deceptive or unfair acts or practices in the course of trade or commerce. In this connection, a “practice is ‘unfair’ if it is ‘within at least the penumbra of some common-law, statutory, or other established concept of unfairness’” (Chroniak v. Golden Investment Corp.), and an “act or practice is deceptive if it possesses ‘a tendency to deceive.’” Leardi v. Brown. As Kattar suggests, in-house counsel need to keep in mind for themselves, and apprise their internal clients, that whether conduct is technically permitted is not the only issue. Why conduct may be undertaken also has to be considered.  Failing to do so can lead to unanticipated and expensive consequences.

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