Commercial Division Blog

Posted: November 22, 2023 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Seth D. Allen, Joshua Wurtzel, Channing J. Turner / Categories Default Judgment, Rescission

Court Denies Motion for Default Judgment Seeking Rescission

On October 24, 2023, Justice Andrea Masley, of the New York County Commercial Division issued a decision in Abad v. Iaero Group Holdco 2 LLC, Index No. 652510/2022, denying plaintiff’s request for issuance of a default judgment awarding plaintiff rescission as an award on her cause of action for fraud.  The Court explained the motion must be denied because plaintiff failed to allege a claim for rescission in her complaint, because rescission cannot be awarded absent notice and the appearance of all parties to the underlying agreement, and because the affidavit relied upon for default was inadequate to support a default judgment.  The court explained:

Plaintiff did not bring an action for rescission; in fact, the amended complaint is completely devoid of the word rescission. There is also no indication from the amended complaint or plaintiff's affidavit that she did rescind the Operating Agreement. Plaintiff elected to sue for breach of contract and fraud, among her other causes of action, seeking monetary damages. She cannot simply state in an affidavit that she now elects rescission on her fraud claim without pleading such. Plaintiff provides no support justifying the election of this remedy at this late stage. Notice or its equivalent is required in cases of rescission. (E. Heller & Bro. v Cont. Mills, 196 AD 7, 13 [1st Dept 1921.])

Further, "in an action for rescission, all parties to the agreement must be brought before the court." (Frymer v Bell, 99 AD2d 91, 95 [1st Dept 1984] [citations omitted].) Mario Abad is a party to the Operating Agreement, albeit to only certain provisions, but since plaintiff appears to want the entire Operating Agreement rescinded, he would have to be a party to this action.

Plaintiff's affidavit is also woefully inadequate to support entry of a default judgment. Plaintiff fails to provide firsthand confirmation of the facts to support her claims against these defendants. Plaintiff does not affirm how she was defrauded or how these defendants have breached the Operating Agreement. Absent adequate proof of facts comprising the claim, the court cannot grant this default judgment motion.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning motions for default judgment, rescission or rescissory damages.