A new decision of the New York Appellate Division, Second Department, has taken a rather rigid and exacting view of a contract’s arbitration clause, ruling that subjecting all “legal” clams to mandatory arbitration does not encompass “equitable” claims, and that a claim for constructive fraud—albeit seeking only money damages—constitutes an equitable claim: Kinzler v Ascend Learning, Inc., 2026 NY Slip Op 05014 (2d Dep’t Decided Aug. 19, 2026).
“Legal” or “Equitable”
The question of whether a claim is deemed “legal” or “equitable” is not always straightforward. Like many issues in legal jurisprudence, the answer often boils down to “it depends.” While some causes of action have originated through the court’s exercise of its inherent powers to do “equity” or promote a fair and just result, even those claims could be deemed “legal” instead of “equitable” for certain purposes. For example, courts have long recognized that claims traditionally born in “equity” can be deemed “legal” for purposes of determining whether they are adjudicated by a jury or judge.
The concept was rather cogently explained by the court in Fedoryszyn v. Weiss, 62 Misc. 2d 889, 310 N.Y.S.2d 55 (Sup. Ct. Nassau 1970). Weiss involved a fraud claim otherwise cognizable in equity — a shareholder’s derivative suit for fraudulently misappropriated corporate funds — where the plaintiff sought only a money judgment. The court held the claim was an action at law triable by jury, and it did so by expressly contrasting equity’s unique fraud remedies (including the constructive trust):
Here plaintiff does not request the unique remedies afforded by equity for fraud such as rescission, reformation, accounting or a constructive trust. His interest lies in securing a money judgment based upon fraudulent conduct and is therefore an action at law triable by jury (see CPLR 4101(1)).
The court rather eloquently observed that because the plaintiff sought a sum of money only, the claim was “an action at law which is not converted ‘magically’ into equity.” The claim was therefore entitled to be tried by a jury under CPLR 4101(1) and NY Constitution article I, § 2. The court added: “The existence in the complaint of a request for equitable relief does not destroy the right to a trial by jury where judgment for a sum of money is sought.”
The same analysis applies to the claim of quantum meruit: See TY Elec. Corp. v Delmonte, 101 AD3d 1626 [4th Dept 2012] (“Defendant contends that City Court did not have subject matter jurisdiction pursuant to UCCA 202 because quantum meruit is an equitable doctrine. Under the circumstances of this case, we reject that contention. ‘Generally, the determinant as to whether a claim is at law or at equity is the nature of the relief which, under the facts alleged, could fairly compensate the party bringing the claim . . . If money damages alone could achieve that end, the action is generally at law’ (Hudson View II Assoc. v Gooden, 222 AD2d 163, 168 [1996]).”).
There are other circumstances where the “legal” and “equitable” nature of claims can be debated, such as statute of limitations periods or available defenses, such as unclean hands. Suffice it to say that whether a claim is deemed “legal” or “equitable” certainly falls under the category of “it depends.”
Second Department Decides “Constructive Fraud” is Equitable Not Subject to Arbitration of Legal Claims
In Kinzler, the plaintiffs entered into an agreement with defendant under which the plaintiffs were to provide consulting and real estate services. The contract contained the following provision concerning arbitration of disputes:
Any legal claims arising out of this agreement shall be subject to arbitration and to mandatory mediation as a condition precedent to arbitration, and must be commenced within 60 days of the date of the occurrence of the claim, with all costs to be shared equally by the parties.
When the relationship broke down, plaintiffs sued in Supreme Court, Nassau County, asserting causes of action that included breach of contract, quantum meruit, and constructive fraud. Defendant moved, pursuant to CPLR 3211(a), to dismiss the complaint and to compel arbitration. The lower court ruled in a short and crisp decision that the entire case must be resolved in arbitration:
This Court finds that the plain language of all of the terms in the arbitration provision are unambiguous and that any claim arising out of the Agreement was to be arbitrated and sent for mandatory mediation prior to arbitration. [See Record on Appeal, linked here.]
On appeal, the Second Department modified the decision below, agreeing that the contract claims belonged in arbitration, but it reinstated the quantum meruit and constructive fraud claims, holding that the arbitration provision did not reach them.
“Legal” Claims Versus “All” Claims
Interestingly, the plaintiff had not even argued the distinction between “legal” and “equitable” claims in opposing the motion in the lower court. Nevertheless, the Second Department deemed it within its authority to hear and determine that “pure question of law” on appeal. As noted above, the arbitration provision, by its terms, required arbitration of “legal” claims—not “all” claims. Treating constructive fraud and quantum meruit as equitable causes of action, the court read the clause’s limiting language to leave those claims outside its scope. As the court explained:
Since the plain language of the arbitration provision required arbitration of “legal claims” (emphasis added), rather than “all claims,” the Supreme Court should have denied those branches of the defendants’ motion which were pursuant to CPLR 3211(a) to dismiss the causes of action alleging quantum meruit and constructive fraud and to compel arbitration of those causes of action.
Commentary
The Kinzler decision is quite thought-provoking. First, the lesson for counsel drafting arbitration provisions—be mindful of each and every word used. At least from plaintiff’s perspective, it did not intend for the word “legal” to be a definitive limitation of the types of disputes that would be subject to arbitration. Even the defendant apparently had not considered that word to have such a meaning when the contract was entered into, as its counsel had not even made that argument in the court below. We often see broad language in releases as to what type of claims are encompassed—using language such as all claims and causes of action, whether legal or equitable. At the very least, in contractual arbitration provisions, no limiting words should be used if no limitations are intended. (It is highly unlikely that the parties wanted to break apart “equitable” claims arising from and related to the very same contract, forcing the parties to resolve their dispute in two separate forums.)
As to the Second Department’s ultimate determination, it was not an optimal result. The Court appears to have gone out of its way to impose an entirely inefficient and impractical outcome. Without even citing what it considered to be any governing law definitively deeming constructive fraud or quantum meruit strictly as claims that could not be considered a “legal claim,” the Second Department applied an interpretation to the contract that resulted in splitting the parties’ dispute into two entirely separate forums—even though the issues concerned the same operative facts and circumstances. Given the rather gray area in which it was considering the issues, the Court would appear to have had some leeway here to render a practical and efficient result.