On January 24, 2022, Justice Platkin of the Albany County Commercial Division issued a decision in Real Estate Webmasters Inc. v. Rodeo Realty, Inc., 2022 NY Slip Op. 50037(U), holding that a defendant waived the right to a jury trial by pleading equitable defenses, explaining:
As is relevant here, CPLR 4101 provides that issues of fact shall be tried by a jury unless a jury trial is waived except that equitable defenses and equitable counterclaims shall be tried by the court.
Settled law holds that a defendant waives its right to a jury trial when it asserts equitable counterclaims which relate to and emanate from the same set of facts as does the main claim. The test of relatedness is not whether the equitable counterclaims are inconsistent with plaintiffs’ claims, but rather, whether they arise from the same alleged wrong as the legal claims.
Rodeo’s remaining affirmative defense and counterclaim allege that REW induced the execution of the Service Agreement through fraudulent misrepresentations of fact. A contract induced by fraudulent representation is voidable, and the defrauded party has several remedies. It may elect to either disaffirm the contract by a prompt rescission or stand on the contract and thereafter maintain an action at law for damages attributable to the fraud. A party may disaffirm a contract by setting forth the fraud and rescission as a defense to an action on the contract.
Rescission claims, of course, are equitable in nature.
Here, Rodeo unequivocally elected to disaffirm the Service Agreement after allegedly learning of the falsity of certain pre-contractual representations made by REW. Thus, in opposing REW’s motion for summary judgment, Rodeo’s principal, Syd Leibovitch, represented: “Upon learning that [REW’s] representations were false and that Rodeo had entered into the Agreement under false pretenses, the Agreement was rescinded”. Leibovitch further averred that he personally terminated Rodeo’s relationship with REW due to its false representations and lying.
Rodeo’s disaffirmance also played a prominent role in its memorandum of law in opposition to the motion and the accompanying affirmation of counsel. Rodeo did not deny REW’s allegation that it had repudiated the Service Agreement, but argued that the repudiation was not wrongful because it possessed a valid rescission defense based on fraud. To similar effect was defense counsel’s affirmation that Rodeo justifiably rescinded the Service Agreement based upon fraudulent misrepresentations.
Having elected to disaffirm the Service Agreement and defend against REW’s claim of anticipatory repudiation on the basis of the equitable defense of rescission, it follows that Rodeo’s counterclaim for fraudulent inducement also is equitable in nature.
While a claim for money damages ordinarily constitutes legal relief, for such relief was the traditional form of relief offered in the courts of law, this is not always true. Restitution damages, for example, and money awarded incidental to the grant of equitable relief are not legal in nature.
Here, the only damages identified in Rodeo’s counterclaim is the sum of $21,160, which represents the initial payment made by Rodeo to REW under the Service Agreement. Clearly, Rodeo’s claim for the return of monies paid under the Service Agreement is restitutionary in nature and incidental to the equitable remedy of rescission sought under its remaining affirmative defense.
More fundamentally, given Rodeo’s election to disaffirm the Agreement, it cannot maintain a claim at law for fraud damages. A common-law claim of fraudulent inducement proceeds upon an affirmance of the contract. In other words, the party claiming to have been fraudulently induced to contract necessarily affirms the contract’s existence and maintains the action on the theory that the counter-party’s fraud resulted in a subsisting contract which, on account of the falsity of the representations, is detrimental.
Thus, following its binding election to disaffirm the Agreement, Rodeo is limited to pursuing damages incidental or collateral to its equitable defense of rescission, including the recovery of the funds necessary to unwind the transaction and restore the parties to the status quo. This is a claim of an equitable nature.
Finally, the Court has no hesitation in concluding that the primary character of the case is equitable. Rodeo’s only remaining defense to liability is that it was justified in rescinding the Service Agreement due to REW’s fraud, and this equitable defense shall be tried by the court. And following Rodeo’s disaffirmance of the Agreement, the only damages recoverable on its counterclaim are those incidental to rescission, including restitution awarded as an incident to the grant of equitable relief. Viewed in its entirety, the primary character of the case remaining after summary judgment]is equitable.
The Court therefore concludes that Rodeo waived its right to a jury trial by interposing a defense and counterclaim of an equitable nature arising from the same transaction as REW’s claim of anticipatory repudiation.
(Internal quotations and citations omitted).