"Constructive Fraud” Deemed “Equitable” Claim Outside Scope of Arbitration Provision Directing All “Legal” Claims to Arbitration

A new decision of the New York Appellate Division, Second Department, has taken a rather rigid and exacting view of a contract’s arbitration clause, ruling that subjecting all “legal” clams to mandatory arbitration does not encompass “equitable” claims, and that a claim for constructive fraud—albeit seeking only money damages—constitutes an equitable claim: Kinzler v Ascend Learning, Inc., 2026 NY Slip Op 05014 (2d Dep’t Decided Aug. 19, 2026).

“Legal” or “Equitable”

The question of whether a claim is deemed “legal” or “equitable” is not always straightforward. Like many issues in legal jurisprudence, the answer often boils down to “it depends.” While some causes of action have originated through the court’s exercise of its inherent powers to do “equity” or promote a fair and just result, even those claims could be deemed “legal” instead of “equitable” for certain purposes. For example, courts have long recognized that claims traditionally born in “equity” can be deemed “legal” for purposes of determining whether they are adjudicated by a jury or judge.

The concept was rather cogently explained by the court in Fedoryszyn v. Weiss, 62 Misc. 2d 889, 310 N.Y.S.2d 55 (Sup. Ct. Nassau 1970). Weiss involved a fraud claim otherwise cognizable in equity — a shareholder’s derivative suit for fraudulently misappropriated corporate funds — where the plaintiff sought only a money judgment. The court held the claim was an action at law triable by jury, and it did so by expressly contrasting equity’s unique fraud remedies (including the constructive trust):

Here plaintiff does not request the unique remedies afforded by equity for fraud such as rescission, reformation, accounting or a constructive trust. His interest lies in securing a money judgment based upon fraudulent conduct and is therefore an action at law triable by jury (see CPLR 4101(1)).

Read the full blog post here.