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Massachusetts Appeals Court Rules on Intentional Interference with Contractual Relations

Posted on Feb 29th, 2024

A recent Massachusetts appeals court ruling provides guidance on the required elements of a claim for intentional interference with contractual relations (IICR).   IICR claims are very common in commercial litigation cases and often arise in the context of a contract dispute.  Unlike a contract claim, IICR claims provide a potential for more extensive damage claims and offer a plaintiff a different legal argument outside the terms of a particular contract that may be in dispute.  However, the law is that IICR claims have to be based on more than just a breach of contract.  There has to be more nefarious conduct that would justify this level of liability.  This case addresses the requirements for that standard.  The key finding here is that negligence or even gross negligence is not sufficient – the conduct has to be intentional.

In the case of Cutting Edge Homes, Inc. v. Alan J. Mayer, the Appeals Court affirmed a summary judgment dismissing Cutting Edge’s claim for intentional interference with contractual or advantageous business relations against Alan J. Mayer. Cutting Edge, a general contractor, had contracted with homeowners Rory and Sharon Shapiro for a renovation project. The Shapiros hired Mayer to perform architectural services and review Cutting Edge’s work and invoices. Mayer regularly criticized Cutting Edge’s invoices, alleging overbilling by hundreds of thousands of dollars. Eventually, the Shapiros terminated their contract with Cutting Edge based on Mayer’s advice and engaged a different contractor.

The central question was whether Mayer’s conduct was “improper in motive or means.”  The improper means or motive required to support a claim for intentional interference is “actual malice” or “a spiteful, malignant purpose, unrelated to the legitimate corporate interest” The motivation of personal gain, including financial gain, however, generally is not enough” to constitute improper motive

The court ruled that Cutting Edge failed to provide sufficient evidence to support this claim. While Mayer may have been critical of Cutting Edge’s billing practices, the evidence did not show deceit or intentional misrepresentation. Mayer’s actions were seen as fulfilling his professional obligations as requested by the Shapiros. Therefore, the court found that negligent or even grossly negligent conduct was insufficient to meet the standard of “improper means.”

The key legal points in this case include:

  1. Elements of Tortious Interference: To establish a claim of intentional interference with contractual relations, Cutting Edge needed to demonstrate four elements: (a) the existence of a contract between Cutting Edge and the Shapiros, (b) Mayer’s knowledge of this contract, (c) Mayer’s intentional inducement of the Shapiros to breach the contract, and (d) Mayer’s interference being improper in motive or means.
  2. “Improper” Conduct Requirement: A crucial aspect of the case is determining whether Mayer’s conduct was “improper” as required by law. This involves assessing whether Mayer acted with deceit, dishonesty, or other wrongful motives or means beyond mere negligence.
  3. Standard for “Improper Means”: The court discussed the legal standard for “improper means,” emphasizing that negligence or even gross negligence is insufficient to establish improper conduct. Instead, the plaintiff must show conduct amounting to deceit or dishonesty.
  4. Good Faith Requirement: The court examined whether Mayer acted in good faith in providing his advice to the Shapiros regarding Cutting Edge’s invoices. Good faith is crucial in determining whether Mayer’s actions were improper.
  5. Burden of Proof: Cutting Edge had the burden of proving that Mayer’s actions met the legal standard for intentional interference with contractual relations. This requires presenting sufficient evidence to establish each element of the claim.

When is a liquidated damages clause enforceable?

Posted on Sep 25th, 2023

In the case of Cummings Properties, LLC vs. Darryl C. Hines, the Massachusetts Supreme Judicial Court considered the enforceability of a liquidated damages clause in a commercial lease agreement. The court upheld the clause and ruled in favor of Cummings Properties, LLC.  https://www.mass.gov/files/documents/2023/09/25/p13406.pdf

 

Here are the key points from the summary:

  1. Background: The case involved a commercial lease between Cummings Properties and Massachusetts Constable’s Office, Inc. (MCO), with Darryl C. Hines as the personal guarantor. The lease had a provision for liquidated damages in case of rent default.
  2. Liquidated Damages Clause: The liquidated damages clause allowed Cummings Properties to terminate the lease and collect the entire balance of rent due as liquidated damages if MCO failed to pay rent after a ten-day grace period.
  3. Default and Lawsuit: MCO failed to pay rent shortly after the lease took effect, leading Cummings Properties to initiate legal action. MCO vacated the premises, and Cummings Properties subsequently leased the space to a new tenant.
  4. Enforceability of Liquidated Damages Clause: The central issue was whether the liquidated damages clause was enforceable. The court applied the “single look” approach, which focuses on the circumstances at the time of contract formation.
  5. Two-Prong Test: To enforce a liquidated damages clause, two conditions had to be met: (a) actual damages at the time of contract formation were difficult to ascertain, and (b) the sum agreed upon as liquidated damages represented a reasonable forecast of damages in case of a breach.
  6. Burden of Proof: Hines, as the party seeking to invalidate the clause, had the burden of proving that either actual damages were easily ascertainable at the time of contract formation or that the damages specified in the clause were disproportionate.
  7. Court’s Findings: The court found that Hines failed to provide evidence to support his claims that actual damages were easily ascertainable or that the damages specified in the clause were disproportionate.
  8. Mitigation Not Required: The court emphasized that under the single look approach, mitigation of damages, such as rent collected from a new tenant, was not a consideration in determining the enforceability of the liquidated damages clause.
  9. Sophistication: Hines argued that he was not a sophisticated party and should not be bound by the clause. The court found that Hines demonstrated some business acumen and sophistication, making him accountable for the contract terms.
  10. Judgment: The court affirmed the judgment of the Superior Court, upholding the enforceability of the liquidated damages clause and ruling in favor of Cummings Properties.

In summary, the court upheld the liquidated damages clause in the commercial lease, emphasizing that it was enforceable because it represented a reasonable forecast of damages at the time of contract formation. The court also considered Hines to be sufficiently sophisticated to be held accountable for the contract terms.


Federal Court Holds Uber’s “Sign-In-Wrap” Online Agreement Enforceable under Massachusetts Law

Posted on Sep 12th, 2016

By: Richard Gauthier

In a recent consumer class action case brought against Uber Technologies, the Massachusetts U.S. District Court held that the binding arbitration clause in Uber’s Terms and Conditions (“Terms”) was enforceable and prevented the consumers from seeking a class action in a court of law.  This decision is noteworthy because along with the ruling on arbitration clauses, it provides a thorough summary of the Massachusetts case law on the enforceability of online agreements.  It also highlights that Massachusetts law is favorable for the enforcement of such online agreements, perhaps more so than New York.

The plaintiffs in this case alleged that Uber overcharged them by imposing fictitious fees hidden in charges for legitimate local tolls. They sought class action relief for unfair and deceptive practices pursuant to Chapter 93A and common law claims for unjust enrichment. Uber moved to enforce the arbitration clause in the Terms pursuant to the FAA, and the Court agreed.

The Terms contained the following provision related to arbitration:

“[You] agree that any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof or the use of the Service or Application (collectively, “Disputes”) will be settled by binding arbitration, except that each party retains the right to bring an individual action in small claims court. . . . You acknowledge and agree that you and Company are each waiving the right to a trial by jury or to participate as a plaintiff or class User in any purported class action or representative proceeding. Further, unless both you and Company otherwise agree in writing, the arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of any class or representative proceeding.”

The Court began by analyzing whether the Terms were valid under general Massachusetts contract law principles.  A significant portion of this discussion relies on Ajemian v. Yahoo!, Inc.,  a 2013 Massachusetts court decision that we previously discussed here.  In this analysis, the Court provided a very helpful summary of Massachusetts law on the various types of online agreements:

  • Adhesion Contracts:  Massachusetts law applies the same general analysis as other jurisdictions with respect to the enforceability of online adhesion contracts.  Such agreements will be enforced provided they have been “reasonably communicated and accepted” and “it is reasonable to enforce the provision at issue.”

The Court then compared the different types of online agreements, which evolved from shrinkwrap software licenses that have come into use since the computer era:

  • A “Browsewrap” agreement is where the user “does not see the contract at all but in which the license terms provide that using a Web site constitutes agreement to a contract whether the user knows it or not”, or “[w]here the link to a website’s terms of use is buried at the bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it.”
  • A “Clickwrap” agreement is an online contract “in which website users are required to click on an “I agree” box after being presented with a list of terms and conditions of use.
    • The Court commented that Clickwraps are more enforceable than Browsewraps because they “permit courts to infer that the user was at least on inquiry notice of the terms of the agreement, and has outwardly manifested consent by clicking a box.”
  • A “Sign-In-Wrap” Agreement (a term coined in a 2015 decision by Judge Weinstein of the EDNY) is somewhat of a hybrid between the Browsewrap and Clickwrap.  A “Sign-In-Wrap” Agreement does not have an “I accept” button and the user is not required to view the terms and conditions to use the related web service.  These agreements typically make terms and conditions available by link and provide that by registering for an account, or signing into an account, the user agrees to those terms and conditions.

In this case, the Court adopted the “Sign-In-Wrap” terminology and held that such agreements may be enforceable under Massachusetts law.  Here, the Court found that Uber’s Terms were a Sign-In-Wrap agreement.  The Court then summarized Massachusetts law on the enforceability of online agreements in general, as follows:

  • Online consumer agreements “will be enforced provided they have been reasonably communicated and accepted and if, considering all the circumstances, it is reasonable to enforce the provision at issue.”
  • The party seeking to enforce the contract has “the burden of establishing, on undisputed facts, that the provisions of the online agreement were reasonably communicated and accepted, which requires “[r]easonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms by consumers.” 

Reasonably Conspicuous Notice

  • The Court held that Massachusetts law does not require proof of actual notice of the terms of the Agreement.  All that is required is that the users have reasonable notice.  Uber’s language on the final screen of the account registration process (“By creating an Uber account, you agree to the Terms of Service & Privacy Policy”) was found sufficient. 
  • While the dispute resolution/arbitration clause did not appear until the user scrolled down to the 8th/9th page, the Court was satisfied that the user had reasonable notice because the heading for the clause was in bold and much larger than other non-heading text.
  • Notably, the Court refused to adopt the four-step process used by the EDNY Court that first coined the Sign-In-Wrap phrase, which would have required a factual analysis of the actual notice to the user.  The Court held that such an analysis would be impractical and make online agreements much more difficult to enforce, which this Court was unwilling to do.

Manifestation of Assent

  • The Court adopted a similar reasonable test for determining whether the user’s assent can be found.  Specifically, the Court held that the “Done” button on Uber’s website (as opposed to “I accept” or other similar buttons) was sufficient for finding that the user understood that by clicking this button it has consummated account registration and was bound by the Terms.

Having found that the Terms were enforceable, the Court quickly made its way to conclude that the binding arbitration clause and the waiver of class action remedies too were enforceable.  The Court noted that this standard favors arbitration and that the only exception would be where the arbitration itself would be an “illusory remedy.” Here, as Uber offered to pick up the arbitration costs for any claims up to $75,000, arbitration would not be illusory and that the clause should be binding.

 

 


Recent Massachusetts Cases Rule on Contract Enforceability

Posted on Mar 13th, 2016

By: Ryan Carroll

The main purpose of a contract is to establish an agreement between parties to express their rights and obligations.  However, just because you may agree to something, in writing or verbally, does not mean that it will be enforceable if a legal dispute is to arise.  Two recent Massachusetts Appeals Court cases are examples of how this can work in practice.

In Goddard v. Goucher, a Massachusetts Appeals Court recently held that parties may not stipulate to legal conclusions (as opposed to factual) and that courts are not bound by these stipulations.  In this case, the parties sought to enforce a purchase and sale agreement to sell a parcel of land; never having been a final signed version of the purchase and sale agreement, they entered into pretrial stipulations that this purchase and sale agreement was a valid and enforceable contract.  At trial, the trial judge rejected the stipulation that a valid and enforceable contract was created, and the appellate court agreed.  Because the issue of whether the contract was valid is a question of law, as opposed to whether it was actually signed by parties or there was a meeting of the minds, which are factual issues that a party can stipulate to, the Court concluded that the trial judge was within his authority to reject the stipulation.

In Downey v. Chutehall Construction Co., Ltd., a Massachusetts Appeals Court recently concluded that a waiver of statutory requirements by an individual homeowner did not preclude a contractor, who violated the statute, from being liable.  In this case, the contractor alleged that the homeowner did not allow the contract to comply with state’s building code requirements relating to roofing – specifically, the contractor argued that the homeowner did not wish for the contractor to strip the existing roof materials, which was required by the code.  The contract claimed that this was a waiver by the homeowner and it was a defense to claims under Chapter 93A.  The Court concluded that the waiver did not preclude the contractor from being held liable of violations of the building code and resulting 93A violations, especially because the violation carried potential public safety concerns.  While the court did acknowledge that a statutory right or remedy may be waived if it would not frustrate the public policies of the statute, it did state that such right may not be disclaimed if the waiver could do violence to the public policy underlying the legislative enactment.

These recent cases are just examples.  There is a plethora of past cases that illustrate instances in which, despite the parties’ intents and agreements, a court could deem an entire agreement or terms contained therein, unenforceable.  That is why it is always a good idea to have legal counsel review your contracts, especially if big stakes are involved.