In Real Estate Webmasters Inc. v. Rodeo Realty, Inc., Justice Richard Platkin of the Albany County Commercial Division granted plaintiff’s motion to strike Rodeo’s jury demand in connection with Real Estate Webmasters Inc.’s (“REW”) complaint against Rodeo for anticipatory breach of contract.[1]  The Court held that Rodeo waived its right to a jury trial by interposing an equitable defense of rescission and related counterclaim for fraudulent inducement arising from the same transaction underlying REW’s complaint. 

REW filed a single-count complaint to recover damages for Rodeo’s alleged anticipatory repudiation of the parties’ contract, which set forth the terms of Rodeo’s engagement of REW to develop Rodeo’s website.[2]  As an affirmative defense in its answer, Rodeo alleged that it was entitled to rescission of the contract “due to [REW’s] own fraud and/or misrepresentations,” and Rodeo also asserted a counterclaim for fraudulent inducement, among other affirmative defenses and counterclaims.[3]

Following discovery, REW moved for partial summary judgment seeking to dismiss Rodeo’s affirmative defenses and counterclaims.[4]  After dismissing most of the defenses and counterclaims at issue, the Court held that Rodeo had raised triable issues of fact as to its affirmative defense seeking rescission and as to its counterclaim for fraudulent inducement.[5]  When REW filed a note of issue requesting a bench trial, Rodeo responded by serving a jury demand.  REW then moved to strike Rodeo’s jury demand.

The Court began its analysis of REW’s motion to strike by explaining that 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.”[6]  Under New York law, a defendant waives the 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.”[7]  The Court noted that claims for rescission are equitable in nature.[8] 

Applying that legal standard, the Court held that Rodeo waived its right to a jury trial by asserting an affirmative defense of rescission to unwind the same transaction underlying REW’s complaint.  Justice Platkin reasoned that Rodeo did not deny repudiating the parties’ agreement.  Rather, Rodeo contended that the repudiation was not wrongful because it possessed “a valid rescission defense based on fraud.”[9]

The Court also found that because Rodeo chose to defend against REW’s claim of anticipatory breach by asserting the equitable defense of rescission, Rodeo’s counterclaim for money damages for fraudulent inducement of the same contract was also “equitable in nature.”[10]  Justice Platkin explained that while claims for money damages ordinarily constitute “legal” relief, restitution damages awarded incidental to equitable relief are not legal in nature.[11]  Here, he concluded that the only damages identified in Rodeo’s counterclaim—the return of money paid under the parties’ contract—was “restitutionary in nature and incidental to the equitable remedy of rescission.”[12]  Having asserted the equitable defense of rescission and a counterclaim for fraudulent inducement incidental to that equitable defense, the Court held that Rodeo was not entitled to maintain a claim at law for fraud damages and waived its right to a jury trial.

The Court’s decision underscores that a party may waive its right to a jury trial by interposing an equitable affirmative defense such as rescission of a contract.  Even where a defendant pursues a counterclaim for money damages for alleged fraudulent inducement to enter into a contract, the right to a jury trial may still be waived if the alleged damages are incidental to rescission.