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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: March 3, 2018

Jury Demand Struck; Allegations of Fraudulent Inducement Insufficient to Avoid Contract’s Jury Waiver

On February 27, 2018, the First Department issued a decision in Zohar CDO 2003-1 Ltd. v. Xinhua Sports & Entertainment Ltd., 2018 NY Slip Op. 01294, affirming the dismissal of a jury demand, explaining:

The court properly granted the motion to strike plaintiffs’ demand for a jury trial. While a party alleging fraudulent inducement that elects to bring an action for damages, as opposed to opting for rescission, may, under certain circumstances, still challenge the validity of the underlying agreement in a way that renders the contractual jury waiver provision in that agreement inapplicable to the fraudulent inducement cause of action, such circumstances are not present in this case. Plaintiffs merely seek to enforce the underlying agreements by obtaining damages for fraudulent inducement, rather than rescind the agreements, and do not challenge the validity of the agreements in any manner other than by making factual allegations of fraud in the inducement.

(Internal citations omitted).

This decision illustrates the general rule that dispute resolution provisions in a contract, such as a waiver of a right to a jury trial or a requirement that a dispute be arbitrated, will be enforced even when there is a claim for breach of the contract or that the plaintiff was induced to enter into the contract (but not the dispute resolution provision itself) by fraud. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the enforceability of a contractual dispute resolution provision.

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