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Current Developments in the Commercial Divisions of the
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Posted: April 27, 2014

Contractual Jury Waiver Enforceable Even When Plaintiff Alleges Fraudulent Inducement

On April 15, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in J.P. Morgan Securities Inc. v. Ader, 2014 NY Slip Op. 31017(U), enforcing a contractual jury waiver.

In J.P. Morgan Securities, the plaintiff moved to strike the defendant’s jury demand based on a contractual jury waiver. The court granted the motion, explaining:

In both the RSA and an Investment Agreement, the parties expressly agreed to “waive all right to trial by jury in any action or proceeding to enforce or defend any rights under this Agreement.” . . .

A contractual jury waiver will be deemed inapplicable to a fraudulent inducement claim only where the validity of the transaction is challenged. Under New York law, a party alleging fraudulent inducement 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. A party who has signed an agreement may not simultaneously rely upon it as the foundation of the claim for damages and repudiate a provision contained therein to the effect that the right to a trial by jury is waived.

[The defendant] contends that it challenges the validity of the RSA because it alleges the entire agreement itself was procured through fraud. But contrary to this assertion, [the defendant] seeks monetary damages and reformation of the RSA, not rescission. . . . While it may be true that the RSA was fraudulently induced, the form of relief sought by [the defendant] – reformation – clearly confirms that [the defendant] has since elected to stand on the contract and not challenge its validity. . . .

Asserting a claim for fraudulent inducement is insufficient to strike a contractual jury waiver unless the agreement containing the waiver is challenged as invalid. [The defendant] has not challenged the validity of the RSA but has instead elected to stand on the contract, seeking first an amendment in 2005, and now damages and reformation. For the foregoing reasons, the court finds that [the defendant] has waived its right to a jury trial with respect to its counterclaim for fraudulent inducement.

(Internal quotations and citations omitted) (emphasis added).

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