Fraud Claim Seeking Equitable Remedy Bars Jury Trial Even Though Contractual Jury Waiver Provision was Ineffective
Many contracts have provisions in which the parties agree to waive the right to trial by jury of any issues or disputes relating to the contract. These jury waivers are frequently contained in both consumer and complex commercial contracts. Claims of fraud relating to the contracts present rather perplexing issues for the courts. And the decisions show that the courts have struggled to find the right path when tasked with determining whether to allow a jury trial when species of fraud is alleged in the face of a contractual jury waiver.
I have written often about the way the courts have weaved in and out of these challenging issues—not with the most consistent results. See, e.g., Contractual Jury Waiver Provision Enforced Because Party Seeking Jury Primarily Claimed Breach of that Contract Rather Than Fraudulent Inducement.
I have observed that the analysis applied by the courts actually presents a rather catch-22 for those trying to avoid the jury waiver provision and secure a trial by jury. In fact, the analysis is somewhat circular. Here is how it goes: A contract contains a jury waiver. One of the parties asserts some sort of fraud claim against the other party to the contract, either affirmatively or in defense. The party asserting fraud wants a jury trial and seeks to avoid the contractual jury waiver. Before the actual fraud claim is even adjudicated, courts allow the party claiming fraud to dispense with the jury waiver and obtain a trial by jury if that party is seeking to rescind or nullify the contract based upon fraud as opposed to ratifying it in any way or seeking monetary damages relating to the alleged fraud. But that lands the party seeking rescission in another dilemma—rescission is an equitable remedy for which no jury trial is available. The courts have not always recognized this circular result.
A recent decision of the Appellate Division, First Department, glides through these issues and ultimately arrives at the end result that I have observed: Penske v National Holding Corp., 2026 NY Slip Op 00978 (1st Dep’t Decided Feb. 19, 2026).
Penske Decision
Plaintiffs sued defendants for money allegedly owed under a Stock Purchase Agreement (SPA), which contained the following jury waiver provision:
EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
In their answer, defendants asserted a counterclaim for costs and reasonable attorneys’ fees under the SPA, should they prevail. After discovery, defendants moved for leave to amend their answer to add counterclaims for fraudulent inducement to enter the SPA, fraud in connection with a separate side letter agreement between the parties, non-occurrence of a condition precedent in the SPA and side letter, and breach of the SPA/breach of the covenant of good faith and fair dealing. Defendants sought, among other relief, rescission of the SPA and side letter, respectively, or “[i]n the alternative,” compensatory and punitive damages. The Commercial Division granted the motion to amend.
While defendants’ motion for leave to amend was pending, plaintiffs filed a note of issue, and defendants subsequently filed a demand for jury trial. Plaintiffs moved to strike defendants’ jury demand, arguing that defendants expressly waived a jury trial as part of the SPA. The Commercial Division denied plaintiffs’ motion to strike, finding that the SPA’s waiver provision did not apply because defendants’ counterclaim challenged the very existence of the contract, and “they seek rescission, not contractual damages, for their fraudulent inducement.”
On appeal, the First Department agreed with Commercial Division that the contractual jury waiver was not binding in light of the fraud claim:
Initially, based on the allegations supporting defendants’ counterclaims, the SPA’s waiver of the right to a jury trial is not applicable to defendants’ fraud-based counterclaims. “[I]n cases where [] fraudulent inducement allegations, if proved, would void the agreement, including the jury waiver clause, the party is entitled to a jury trial on the claim” (J.P. Morgan Sec. Inc. v Ader, 127 AD3d 506, 507 [1st Dept 2015]). Here, a close review of the counterclaims establishes that “the primary claim is fraudulent inducement and the validity of the contract is clearly being challenged” (International Bus. Machs. Corp. v GlobalFoundries U.S. Inc., 235 AD3d 22, 26 [1st Dept 2024]; see also Ader, 127 AD3d at 507; MBIA Ins. Corp. v Credit Suisse Sec. [USA], LLC, 102 AD3d 488, 488 [1st Dept 2013]; Ambac Assur. Corp. v DLJ Mtge. Capital, Inc., 102 AD3d 487, 487-488 [1st Dept 2013]).
But then, in an enlightening twist, the First Department acknowledged the circular dilemma I have repeatedly observed: Even though the contractual jury waiver did not apply, the claim of rescission is equitable in nature and does not give rise to a jury trial anyway:
Here … defendants’ counterclaims seek rescission of the contract and side letter agreement, with damages only sought in the alternative. As the Court of Appeals has held, “[a]ll issues pertaining to [an] equitable defense and counterclaim, whether matters of fact or law, [are] to be determined by the court under CPLR 4101” (Mercantile & Gen. Reins. Co. v Colonial Assur. Co., 82 NY2d 248, 253 [1993]; see also CPLR 4101) and “[r]escission claims, of course, are equitable in nature” (Mercantile & Gen. Reins. Co., 82 NY2d at 251; see also Board of Mgrs. of the Sounding Condominium v Foerster, 138 AD3d 160, 164 [1st Dept 2016]). Accordingly, defendants’ counterclaims must be tried by the court, not a jury, by virtue of the equitable relief they seek.
Commentary
The First Department in Penske came to the inevitable and logical conclusion that has escaped courts before—that the path to avoiding a contractual jury waiver provision leads to a legal dead end. While seeking rescission is the way to circumvent a contractual jury waiver, a jury is still unattainable for the adjudication of the rescission claim since it is equitable in nature and must be tried by a judge.