Last week, the Business Litigation Session of the Superior Court, in ABCD Holdings LLC v. Hannon, et al., Docket No. SUCV2015-1367-BLS2 (January 17, 2017)(Sanders, J.), applied the doctrine that a limitation in a personal guaranty does not insulate guarantor from liability under a tort–based theory of recovery.

In ABCD Holdings, defendant executed a personal guaranty in connection with a loan to a business controlled by defendant. Included in the guaranty was the following limitation: “the liability of Guarantor under this Guaranty is limited to the repayment of…no more than $109,879.00 of the Guaranteed Obligations…” In response to plaintiff’s complaint, defendant made a motion to dismiss the complaint to the extent that plaintiff sought damages in excess of $109,879.00 plus costs of collection as provided in the guaranty. The Court initially observed that defendant’s argument as to the cap “has some superficial appeal” and that if plaintiff had alleged only breach of the limited guaranty “then this would be the end of the story.”

However, the Court observed that plaintiff’s complaint alleged more than a breach of that contractual obligation, alleging, among other things, that defendant drained assets from the underlying obligors rendering the obligors “empty shells saddled only with debt.” The Court observed that that allegation was sufficient to state a claim against defendant pursuant to G.L. c. 93A § 2.

In analyzing defendant’s argument that the cap in the guaranty precluded 93A liability in excess of the cap, the Court observed that while the case “involved” a contract with a limitation of liability provision, that cap would not necessarily bar a broader recovery under Chapter 93A. The Court stated that if the 93A claim depended entirely on the breach of contract claim, said claim would be subject to the limitation, but when the conduct at issue is “more tortious in nature”, it would not, citing, for example, VMark Software, Inc. v. EMC Corp., 37 Mass. Appt. Ct. 610 (1994). Upon concluding that the conduct giving rise to the 93A claim sounded “more in tort”, the Court denied defendant’s motion to dismiss.

In effect, then, the Court makes clear that, notwithstanding the clear language limiting guarantor’s liability under the guaranty, guarantor would remain liable for any tort-based theory of recovery even if the conduct giving rise to such claim arose principally out of conduct in connection with the underlying loan transaction for which the guaranty was issued.