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REAL ESTATE WEBMASTERS INC., Plaintiff, v. RODEO REALTY, INC., Defendant.
Plaintiff Real Estate Webmasters Inc. (“REW”) moves for an order striking the jury demand served by defendant Rodeo Realty, Inc. (“Rodeo”). Rodeo opposes the motion.
REW commenced this commercial action on July 25, 2018, seeking to recover damages for Rodeo's alleged anticipatory breach of an agreement (see NYSCEF Doc No. 3 [“Service Agreement” or “Agreement”]) by which it was engaged to develop a custom website for Rodeo (see NYSCEF Doc No. 2 [“Complaint”]).
Following joinder of issue, REW moved under CPLR 3212 (e) for partial summary judgment as to Rodeo's liability on the sole claim alleged in the Complaint: that Rodeo anticipatorily “repudiated the Service Agreement by advising REW in writing that Rodeo ․ did not intend to comply with its obligations” (id., ¶ 18; see also NYSCEF Doc No. 10). The motion further sought to establish REW's entitlement to dismissal of the affirmative defenses bearing on liability and Rodeo's four counterclaims seeking affirmative relief (see NYSCEF Doc No. 22 [“Answer”]).
In its Decision & Order dated May 14, 2020 (see NYSCEF Doc No. 59 [“SJ Decision”]), the Court first determined that REW had “met its initial burden of establishing its entitlement to summary judgment as to liability ․, as well as the dismissal of Rodeo's affirmative defenses and counterclaims” (id., p. 10).
The Court further concluded that Rodeo had raised triable issues of fact as to its affirmative defense alleging an “entitle[ment] to rescission and/or restitution due to [REW's] own fraud and/or misrepresentations” (Answer, ¶ 33) and as to the counterclaim for fraudulent inducement (see SJ Decision, p. 17; see also Answer, Counterclaims, ¶¶ 15-21). However, the Court dismissed all of the other affirmative defenses bearing on liability and Rodeo's counterclaims for negligent misrepresentation, breach of contract and unjust enrichment (see SJ Decision, pp. 17-18).
Following the completion of discovery, REW filed a note of issue requesting a trial without jury (see NYSCEF Doc No. 78). Rodeo responded by serving a jury demand (see NYSCEF Doc No. 79 [“Jury Demand”]), and the instant motion practice ensued.
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 “assert[s] equitable counterclaims which relate to and emanate from the same set of facts as does the main claim” (Hickland v Hickland, 100 AD2d 643, 644 [3d Dept 1984], appeal dismissed 63 NY2d 951 ; see Nationscredit Fin. Servs. Corp. v Turcios, 55 AD3d 806, 806 [2d Dept 2008]; Hudson View II Assoc. v Gooden, 222 AD2d 163, 167 [1st Dept 1996] [“where a plaintiff brings a claim triable by jury and the defendant interposes both equitable defenses and counterclaims arising from the same transaction, the defendant waives a jury even on the main, legal, claim”]; Compact Electra Corp. v Connell, 46 AD2d 649, 650 [2d Dept 1974]; but see Pittsford Canalside Props., LLC v Pittsford Vil. Green, 154 AD3d 1303, 1305 [4th Dept 2017]). “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” (Cannon Point N., Inc. v City of New York, 87 AD3d 861, 865 [1st Dept 2011]).
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” (VisionChina Media Inc. v Shareholder Representative Servs., LLC, 109 AD3d 49, 56 [1st Dept 2013]). 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’ ” (Sabby Healthcare Master Fund Ltd. v Microbot Med. Inc., 180 AD3d 529, 530 [1st Dept 2020], quoting Big Apple Car v City of New York, 204 AD2d 109, 110-111 [1st Dept 1994]). A party may disaffirm a contract by “setting forth the fraud and rescission as a defense” to an action on the contract (VisionChina, 109 AD3d at 56, quoting Wood v Dudley, 188 App Div 136, 140 [1st Dept 1919]).
“Rescission claims, of course, are equitable in nature” (Mercantile & Gen. Reins. Co. v Colonial Assur. Co., 82 NY2d 248, 251 ; see Tober v Schenectady Sav. Bank, 54 AD2d 1049, 1050 [3d Dept 1976] [defense of material misrepresentation “is really asking for a rescission of the ․ contract,” which “is clearly 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” (NYSCEF Doc No. 36, ¶ 11). Leibovitch further averred that he personally “terminated Rodeo's relationship with [REW]” due to its “false representations” and “lying” (id., ¶ 119; see also NYSCEF Doc No. 51).
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” (NYSCEF Doc No. 53, p. 9; see also id., p. 16 [“In sum, Rodeo has demonstrated ․ lawful rescission based upon fraud and, therefore, (REW's) repudiation claim is legally deficient.”]). To similar effect was defense counsel's affirmation that Rodeo “justifiably rescinded the [Service] Agreement based upon fraudulent misrepresentations” (NYSCEF Doc No. 29 [affirmation of Linda J. Clark, Esq.], ¶ 9; see id., ¶ 33).
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” (Merex A.G. v Fairchild Weston Sys., 29 F3d 821, 825 [2d Cir 1994] [internal quotation marks and citations omitted], cert denied 513 US 1084 ; see Motor Veh. Mfrs. Assn. of U.S. v State of New York, 75 NY2d 175, 183  [“The Lemon Law refund remedy is an action seeking a rescission and restoration of the status quo ante, similar to an action for restitution, and is equitable in nature.”]).
Here, the only damages identified in Rodeo's counterclaim is the sum of $21,160 (see Answer, Counterclaims, ¶ 21), which represents the initial payment made by Rodeo to REW under the Service Agreement (see Complaint, ¶ 10 [a]).1 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” (Goldsmith v National Container Corp., 287 NY 438, 443  [internal quotation marks and citation omitted; emphasis added]; see Clearview Concrete Prods. Corp. v S. Charles Gherardi, Inc., 88 AD2d 461, 467 [2d Dept 1982]). In other words, the party claiming to have been fraudulently induced to contract “necessarily affirm[s the contract's] existence and maintain[s] 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” (Leav v Weitzner, 268 App Div 466, 468 [1st Dept 1944]; see Huntington Vil. Dental, PC v Rathbauer, 45 Misc 3d 1212[A], 2014 NY Slip Op 51545[U], *4 [Sup Ct, Suffolk County 2014] [“Although the recovery of damages collateral to the recission is ․ lost by an affirmance, such affirmance does not effect a waiver of recovery of fraud damages or deprive the defrauded party of the ability to recover compensation for the aftermath of the fraud, as the common law action for damages based on fraud proceeds upon an affirmance of the contract.”]).
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 (see Motor Vehicle Mfrs., 75 NY2d at 183).
Finally, the Court has no hesitation in concluding that the primary character of the case is equitable (see Moser v Devine Real Estate, Inc. [Florida], 42 AD3d 731, 736-737 [3d Dept 2007]). 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” (CPLR 4101; see Tober, 54 AD2d at 1050). 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. “[V]iewed in its entirety, the primary character of the case [remaining after summary judgment] is ․ equitable” (Cadwalader Wickersham & Taft v Spinale, 177 AD2d 315, 316 [1st Dept 1991]).
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.
Based on the foregoing, it is
ORDERED that plaintiff's motion is granted, and the Jury Demand is hereby stricken; and it is further
ORDERED that counsel shall appear for a remote conference on February 15, 2022 at 11:00 a.m., and the parties shall confer in advance of such conference regarding (1) mutually-agreeable dates for trial in Spring 2022, and (2) the parties’ willingness to resume mediation/ADR.
This constitutes the Decision & Order of the Court, the original of which is being uploaded to NYSCEF for filing and entry by the Albany County Clerk. Upon such entry, counsel for plaintiff shall promptly serve notice of entry on all parties entitled to notice.
NYSCEF Doc Nos. 81-83, 86-87.
1. Rodeo asserts that the counterclaim is not limited to recovery of the down payment (see NYSCEF Doc No. 86, p. 5), but it has not identified any other damages resulting from the alleged fraud.
2. The Court takes judicial notice of the prior filings in this action (see Casson v Casson, 107 AD2d 342, 344 [1st Dept 1985], appeal dismissed 65 NY2d 637 ; see also CPLR 2214 [c]).
Richard M. Platkin, J.
Response sent, thank you
Docket No: Index No. 904779-18
Decided: January 24, 2022
Court: Supreme Court, Albany County, New York.
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