Leveraging Business Partners with Contractual Obligations May Be Illegal in Massachusetts

A recent Massachusetts Supreme Judicial Court case, Kattar v. Demoulas, may have firmly established that leveraging, in bad faith, one’s opposite party in a contract with the obligations of that contract may violate M.G.L. c. 93A, the Commonwealth’s unfair and deceptive business practices act. In Kattar, the defendants held mortgages on several of the plaintiff’s commercial property. The defendants wished the plaintiff to testify on the defendants’ behalf on another unrelated lawsuit, and offered forgiveness of the mortgage if he testified; the plaintiff was reluctant to do, as he was asked to testify as to matters that he apparently did not know and/or did not believe to be true. Defendants ultimately began foreclosure proceedings after plaintiff went into default, and again offered to forgive the mortgage and cease the foreclosure if plaintiff would testify. Plaintiff again refused, and the property was foreclosed, with defendants being the sole bidder at the foreclosure sale. The Supreme Judicial Court rejected defendants’ arguments that motive was irrelevant because they had a legal right to foreclose, and ruled that foreclosure of a mortgage, even of an actual default, conducted in bad faith to the detriment of the mortgagor gives rise to an action under c. 93A, and that legality of an underlying act is not a defense to c. 93A. Kattar illustrates that even a legal contractual right cannot be used to leverage a contract partner to force concessions. Of course, such leveraging must be done in bad faith and/or be unfair and deceptive to the other party to give rise to an action under c. 93A — what constitutes unfairness, deception, or bad faith can be a blurry line in certain circumstances. Does it constitute bad faith to waive a contractual right against a party in exchange for a more valuable right? Is bad faith necessary, or is inherent unfairness enough despite benevolent intentions? Perhaps the lesson of Kattar is to exercise extreme caution when leveraging a contractual right against a party for some exchange or concession — in Massachusetts, it may constitute an unfair or deceptive business act.

Leave a Reply

Your email address will not be published. Required fields are marked *