On December 19, 2024, the First Department issued a decision in International Business Machs. Corp. v. GlobalFoundries U.S. Inc., 2024 NY Slip Op. 06425, holding that a fraudulent inducement claim seeking contract-based damages does not defeat a contract’s jury waiver, explaining:
While the New York Constitution provides for a right of trial by jury, it is nevertheless well settled that jury waiver provisions are valid and enforceable. Freedom of contract prevails in an arm’s length transaction between sophisticated parties. The jury waivers to which these sophisticated parties agreed can only be described as very broad. The parties waived a jury “to the fullest extent permitted by applicable law” and not just for claims at law but for all claims “now existing or hereafter arising . . . whether in contract, tort, equity or otherwise.” The parties were crystal clear in their intent that there would be no jury in any legal proceeding directly or indirectly arising out of, under or in connection with this agreement or any of the transactions. As an initial matter, there is little debate that the contractual jury waivers here are broad enough by their terms to include IBM’s fraud claim.
However, where a claim of fraudulent inducement challenges the validity of the agreement, a provision waiving the right to a jury trial in litigation arising out of the agreement may not apply. This Court has taken care to distinguish between actions where the primary claim is fraudulent inducement and the validity of the entire contract is clearly being challenged, and actions that do not challenge the validity of the contract but rather seek to enforce the underlying contract by obtaining damages for fraudulent inducement. The present case falls into the latter category.
The brief discussion of jury waiver in the identical, and simultaneously decided decisions in Ambac and MBIA, specifically indicates that the complaint in each case alleges repeatedly that the agreement was obtained through various types of fraud, making it clear that fraudulent inducement is plaintiff’s primary claim. In each of these cases, and the singular other authority that they rely upon, Wells Fargo, the invalidity of the contract at hand as a result of the fraud perpetrated was the central premise of the party’s position. In Wells Fargo, a rent recovery action, this Court held that a jury waiver does not apply to a sufficiently pleaded defense that amounts to a claim of fraudulent inducement challenging the validity of the agreement. Where fraudulent inducement is asserted as a defense to a breach of contract action, New York courts have been quicker to infer an inherent challenge to the validity of the contract. Where a defense challenges the validity of the writing wherein the jury waiver clause appears the party resisting the contract should be afforded the privilege of a preliminary trial by jury on the defense of fraud.
Where fraudulent inducement is the plaintiff’s primary claim, it is of no consequence that the complaint does not contain the word recission or expressly state that it challenges the validity of the insurance agreement if it is otherwise demonstrated that it is the party’s intent. Both Ambac and MBIA involved numerous material misrepresentations allegedly made to insurers concerning the origination and quality of hundreds of millions of dollars of mortgage loans underlying the securitizations they insured. These misrepresentations were the central issue in both actions, and plaintiffs alleged breach of various representations and warranties only in the alternative to their fraudulent inducement claim. This Court determined that fraudulent inducement was plaintiffs’ primary claim and the extent of the fraud pleaded in the complaints allowed plaintiffs’ challenge to the validity of the insurance agreements to be inferred. Countrywide (179 AD3d 518) involves the same factual scenario.
It is clear from IBM’s complaint that its primary claim is not fraudulent inducement but rather breach of the agreements. While we have previously determined that IBM sufficiently states a cause of action for fraudulent inducement, separate and distinct from its claims of breach of contract for the purposes of pleading, its single allegation that GlobalFoundries gave a pre-contractual representation and assurance that it had made a long-term strategic and financial commitment to the development of high-performance chips when, upon information and belief, GlobalFoundries had internal deliberations prior to the July 2015 closing about not proceeding with the development of the 10nm chip is distinguishable from the multiple allegations of fraud in cases such as Ambac and MBIA.
When alleging fraudulent inducement, a party may elect to either disaffirm the contract by a prompt recission or stand on the contract and thereafter maintain an action at law for damages attributable to the fraud. Here, IBM has chosen to affirm the agreements and maintain an action at law for compensatory and consequential damages on the theory that the defendant’s fraud resulted in a subsisting contract which, on account of the falsity of the representations, is detrimental to them. Under these circumstances, the plaintiffs are not in a position to contend, as they might perhaps contend in an action for recission, that the stipulation waiving a jury trial perished with all the other rights and obligations under the agreement.
While a party alleging fraudulent inducement that elects to bring an action for damages, as opposed to opting for recission, may, under certain circumstances, still challenge the validity of the underlying agreement in a way that renders the contractual jury waiver provision in that agreement inapplicable to the fraudulent inducement cause of action, that is simply not the situation present here. IBM has repeatedly elected to affirm or stand on the contract after it knew or should have known of GlobalFoundries’ alleged fraud. In its complaint, IBM specifically alleges that by September 2015, a mere two months after the closing, GlobalFoundries began to indicate that it did not intend to develop, manufacture or supply the 10nm High Performance chip and that by December 2015, just five months after the closing, GlobalFoundries declared for certain that it would not develop, manufacture or supply the 10nm High Performance chip.
In IBM’s own words, making such a major shift in corporate priorities, and a major change in the allocation of billions of dollars in corporate resources, could not have happened entirely in the few months after the closing It is not plausible that discussions and decision-making about such a material change in GlobalFoundries’ strategic and technological direction only began for the first time after July 1, 2o15. Yet, IBM continued to perform under the agreements, and accept delivery of the 14nm chips, and in March 2016 agreed to amend the TCA, FSA, and both the 10HP SOW and the 14HPSOW. IBM’s claim that what occurred in 2015 and 2016 gave it only notice of a breach but not notice of fraud on the part of GlobalFoundries, which was not revealed until on or about August 2018, is disingenuous. In this scenario, plaintiff merely seeks to enforce the underlying agreements by obtaining damages for fraudulent inducement, rather than rescind the agreements, and does not challenge the validity of the agreements in any manner other than by making factual allegations of fraud in the inducement. In Ambac, MBIA, and Countrywide there was nothing to indicate that the plaintiffs elected to affirm the underlying contracts after discovering defendants’ massive fraud.
IBM’s promissory estoppel claim falls squarely within the broad jury waiver in the agreements, and thus that part of the note of issue seeking a jury trial on that claim was also properly stricken.
IBM did not otherwise waive its right to a jury trial by joining equitable and legal claims. Its claim for an accounting was solely in aid of its breach of contract claim concerning permitted expenditures under the contract, and thus was not equitable.
IBM’s previously dismissed unjust enrichment claim sought money damages, and these would have been sufficient to make it whole. As such, that claim was also not equitable.
Accordingly, the order of the Supreme Court, New York County, entered May 14, 2024, which granted defendant’s motion to strike the jury demand with regard to plaintiff IBM’s claims for fraudulent inducement and promissory estoppel should be affirmed, without costs.
(Internal quotations and citations omitted).