New England Biz Law Update
A coherent body of caselaw on matters affecting the business community is an essential ingredient for a vibrant economy. Clear precedents help businesses structure their transactions consistently with the law, thereby reducing their exposure to liability.
Unfortunately, the courts do not always succeed in providing businesses with a road map to guide their conduct.
Consider the puzzling route taken by the Massachusetts Supreme Judicial Court in interpreting the state’s consumer protection statute, G.L.c. 93A. Remarkably, the issue of whether a company doing business in Massachusetts can be held liable under 93A for damages and attorneys’ fees, even when the company has not caused the consumer plaintiff to suffer any identifiable injury or loss, remains a hotly litigated and unresolved one.
Although 93A, by its express terms, applies only to consumers who have been “injured” by a business’s unfair or deceptive conduct, the statute does not define this key term, and the SJC’s recent decisions interpreting this requirement have been far from clear.
In the seminal case of Hershenow v. Enterprise Rent-A-Car Company, 445 Mass. 790 (2006), the court did clarify in no uncertain terms that liability under 93A can be established only when the plaintiff proves that a business’s unfair or deceptive conduct has caused him to suffer a loss of money or property or a personal injury. That is, 93A requires proof of three essential elements: an unfair or deceptive act; causation; and injury.
The court in Hershenow accordingly dismissed the plaintiffs’ 93A claims, which challenged the facial validity of damage collision waiver provisions in the defendant’s auto rental agreement because neither the plaintiffs nor the defendant ever invoked or enforced those provisions.
Compounding contrariness
One might have concluded optimistically that Hershenow ended the confusion over 93A’s injury requirement once and for all by requiring actual injury to establish liability under 93A. Unfortunately, the confusion remains and continues to generate litigation, in large part because the court in Hershenow insisted on preserving its contrary prior decision in Leardi v. Brown, 394 Mass. 151 (1985).
In Leardi, a case arising in the landlord-tenant context, the court had apparently held that the mere “invasion of a legally protected interest” — in that case, illegal lease provisions that the plaintiffs had not read and the landlord had not enforced — was alone sufficient to establish liability for statutory damages ($25) and reasonable attorneys’ fees under 93A.
The court’s actual injury requirement in Hershenow clearly departed from its holding in Leardi. And yet, rather than simply overruling Leardi as being incompatible with Hershenow’s actual injury requirement, the SJC instead sought to harmonize Leardi with Hershenow.
In particular, the court in Hershenow held that, despite plain language in Leardi to the contrary, that case did not hold that the invasion of a legally protected interest was sufficient by itself to establish liability under 93A. The court explained that Leardi was in fact consistent with Hershenow because it also required the plaintiff to prove that the invasion caused an actual injury. In other words, the invasion of a legally protected interest only establishes an unfair or deceptive act, but the plaintiff must still prove causation and injury.
However, the court in Hershenow took a strange detour when it concluded that the facts of Leardi did establish causation and injury. The court stated for the first time that the offending lease clauses injured the tenants by deterring them from exercising their legal rights: “Stated differently, the illegal lease terms acted as a powerful obstacle to a tenant’s exercise of his legal rights.”
By contrast, the court in Hershenow concluded that the statutorily non-compliant terms of
the car rental agreement did not deter the plaintiffs from asserting any legal rights because the plaintiffs’ rental vehicles were not damaged. Therefore, the court reasoned that there was no injury in Hershenow.
The ‘deterrence’ theory of injury
Thus, the court in Hershenow apparently teased out of Leardi a new “deterrence” theory of
injury. This theory is, however, troublesome.
Most strikingly, the theory appears unsupported by the facts of Leardi because, as the Hershenow court itself acknowledged, the Leardi tenants had not read the offending lease clauses and the landlord had not enforced them. Thus, the plaintiffs admittedly did not know of the illegal lease clauses, and those clauses therefore could not have deterred the tenants from asserting their rights.
The Hershenow court seemingly dismissed this glaring factual defect as raising only an issue of reliance, which is not a required element under 93A, as opposed to an issue of causation, which 93A does require. But this is not a persuasive distinction because the tenants’ lack of knowledge defeats both causation and reliance.
In fact, there is no meaningful way to distinguish Leardi from Hershenow, as both Justice
Judith A. Cowin in her concurrence and Justice John M. Greaney in his dissent in Hershenow concluded. After all, both cases involved allegations of the same kind of abstract, theoretical injury arising from an unlawful but unexercised contract term. And yet Leardi still yields a result opposite to Hershenow by recognizing injury where Hershenow does not.
In her insightful concurrence, Cowin stated not only that Leardi and Hershenow are factually indistinguishable but also that Leardi ought to be overruled to avoid continuing confusion in this area of law.
“I write separately because the court fails to overrule expressly the contrary holding of Leardi.,” she wrote. “Insofar as the court suggests today that Leardi … remains a viable precedent … its opinion can only engender confusion among those who rely on our decisions for guidance. I believe the time has arrived to put the Leardi decision to rest.”
Confusion ensues
As Cowin predicted, the SJC’s decision in Hershenow not to overrule Leardi has indeed engendered confusion in the courts and at the bar. The most recent case in point: Herman v. Admit One Ticket Agency, now awaiting a decision by the SJC after oral argument.
In that case, the plaintiff alleged that he suffered injury under 93A when he inquired at the last minute about the price of loge seating for various Boston Red Sox games and Admit
One, a licensed ticket reseller, quoted him ticket prices that were substantially higher than the tickets’ face value.
Despite the fact that he did not purchase any tickets from Admit One — and therefore could not allege that he had overpaid for the tickets — the plaintiff nevertheless sued under 93A, alleging that the quoted prices were unlawful under the Massachusetts Anti-Scalping Statute, G. L.c. 140, § 185D, and therefore injured him under 93A.
The plaintiff prevailed in the Massachusetts District Court, but the Appellate Division of that court reversed on the ground that he had no standing to sue under the Anti-Scalping Statute, which requires an actual ticket purchase to establish a violation. The Appellate Division did not address the plaintiff’s 93A claim.
The Admit One case dramatically illustrates the considerable confusion that currently exists at all levels of the judiciary and within the bar as to what survives from Leardi after Hershenow. Both the plaintiff and the trial court relied heavily on Leardi to conclude erroneously that Admit One’s high price quotes — that is, the invasion of his legal rights — were sufficient to establish liability under 93A despite Hershenow’s clear language that any such invasion must cause an injury to warrant liability.
At oral argument, the SJC invoked Leardi and apparently focused on Admit One’s price quotes as potentially establishing 93A liability even though the plaintiff did not purchase any tickets and had suffered no financial loss.
In short, the judiciary and the bar are apparently reverting to a pre-Hershenow version of
Leardi, in which liability under 93A could arguably be established even where the plaintiff has not suffered any actual injury.
Ticket to clarification
For the sake of clarity, consistency and predictability in this important area of the law, the SJC will hopefully use the Admit One case as an opportunity to clarify whether and how Leardi survives Hershenow.
At minimum, the court should clarify that Hershenow establishes that a defendant’s proven invasion of a legally protected interest can only give rise to liability under 93A if the invasion causes injury by deterring the plaintiff from exercising a legal right.
Since there is no legal right to attend a baseball game, the plaintiff cannot satisfy this standard and his 93A claim should be dismissed. Otherwise put, whatever survives from Leardi must satisfy the three essential elements of 93A liability as set forth in Hershenow: an unfair or deceptive act, causation, and injury.
Consistent with Hershenow, an invasion of a legal right satisfies only the first element and cannot establish liability unless it causes some ascertainable injury or loss.
But more importantly, the Admit One case strongly suggests that the time has come for the SJC finally to overrule Leardi because that case is simply irreconcilable with Hershenow and its continued survival can only generate decisional confusion.
The strained preservation of Leardi in Hershenow gives rise to the mistaken view that the violation of a consumer’s legal rights can, by itself, establish liability under 93A. Hershenow expressly rejected any such reading of 93A and emphasized the causation and injury requirements under that statute.
And yet Hershenow’s treatment of Leardi has preserved the very source of the ongoing decisional confusion under 93A’s injury requirement. Leardi departed from bedrock principles of causation and injury. While Hershenow took significant steps to reinstate these basic elements of liability, has not the time come, at long last, to pay our final respects to Leardi and, in so doing, pave the way for doctrinal clarity under 93A?
