Valley National Bank v. Encore Led Lighting, LLC ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0391-23
VALLEY NATIONAL BANK,
Plaintiff,
v.
ENCORE LED LIGHTING, LLC,
Defendant-Appellant,
and
WILLIAM DATO,
Defendant,
and
ENEL X WAY USA, LLC,
Defendant-Respondent.
____________________________
Submitted June 3, 2024 – Decided July 26, 2024
Before Judges Gilson and Berdote Byrne.
On appeal from the Superior Court of New Jersey, Law
Division, Passaic County, Docket No. L-1202-23.
James M. Cutler, attorney for appellant.
Colella Zefutie LLC, attorneys for respondent Enel X
Way USA, LLC (Anthony J. Laura and John J. Zefutie,
of counsel and on the brief).
PER CURIAM
The issue on this appeal is whether the Law Division correctly compelled
arbitration of crossclaims between two defendants. Defendant Encore LED
Lighting, LLC (Encore) appeals from a provision in an August 25, 2023 order
compelling to arbitration Encore's crossclaims against defendant Enel X Way
USA, LLC (Enel).
Encore and Enel are parties to a distribution agreement that contains an
arbitration provision. Encore does not dispute that the arbitration provision is
valid. Nor does Encore dispute that its claims against Enel fall within the ambit
of the arbitration provision. Instead, it argues that the arbitration provision
should not be enforced because there are overlapping claims between it and its
bank, Valley National Bank (VN Bank), and between VN Bank and Enel. So,
Encore contends it would violate the public policy against piecemeal litigation
to enforce the arbitration provision given those other claims.
We reject Encore's argument because it is inconsistent with the governing
Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16. The FAA is clear in
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mandating that arbitration provisions should be enforced and non-arbitrable
claims should either be stayed or proceed separately. We, therefore, affirm the
provision of the August 25, 2023 order compelling Encore's crossclaims against
Enel to arbitration. We remand, however, and direct the Law Division to enter
an amended order staying the crossclaims and all non-arbitrable claims pending
the completion of the arbitration.
I.
The Law Division action involves disputes among Encore, Enel, and VN
Bank. All those disputes arise out of Encore's purchases of products from Enel
and its attempt to distribute those products. We discern the relevant facts from
the record developed on motions and cross-motions filed by the three parties.
Encore is a New Jersey limited liability company that sells and installs
LED lighting systems. Encore, doing business as Encore Energy Group, also
sells and distributes charging equipment for electric vehicles. William Dato is
Encore's sole and managing member.
Enel is a provider of "electric vehicle supply equipment[,] . . . services,
and technology" to "both residential and commercial customers." Enel is a
Delaware corporation with its principal place of business in California.
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In June 2021, Dato, on behalf of Encore, applied for a $250,000 line of
credit with VN Bank. VN Bank offered Encore a line of credit in the amount of
$150,000, and Encore accepted. VN Bank and Encore then executed a
"Commercial Revolving Line of Credit Note and Agreement" (the Credit
Agreement). VN Bank and Encore also executed a Security Agreement in
connection with the line of credit. Under the Security Agreement, Encore
granted VN Bank a security interest in all its assets and pledged those assets as
collateral for any loans taken under the line of credit. VN Bank and Dato also
signed an "Unlimited Guaranty," under which Dato personally guaranteed all of
Encore's obligations to VN Bank. The Unlimited Guaranty also contained an
indemnity clause, stating that Dato agreed to:
[I]ndemnify and hold [VN Bank] . . . harmless from and
against all claims, obligations, demands and liabilities,
by whomsoever asserted, and against all losses in any
way suffered, incurred or paid as a result of or in any
way arising out of or following or consequential to
transactions with [Encore], except for any claim arising
out of the gross negligence or willful misconduct of
[VN Bank].
The Unlimited Guaranty also stated that it would apply to all future agreements
between Encore and VN Bank.
In September 2021, Encore contacted Enel seeking to establish a business
relationship, through which it would purchase and then distribute Enel's electric
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vehicle service equipment. Enel required prospective distributors to establish a
credit limit with Enel before they could begin submitting purchase orders for
Enel's equipment. Accordingly, Dato, on behalf of Encore, applied for
commercial credit with Enel, seeking credit for Encore in the amount of
$500,000. The application required a bank reference, and Dato provided the
information for his contact at VN Bank. Enel approved an initial credit limit of
$100,000, and, thereafter, Encore began purchasing Enel's electric vehicle
charging equipment. In a relatively short period of time, Encore exceeded its
credit limit, and Enel refused to fulfill additional orders until it approved an
increase in Encore's credit limit.
In December 2021, Dato sent a text message to his contact at VN Bank
asking for a letter stating that Encore had a line of credit with VN Bank in the
amount of $650,000 or $700,000. Specifically, that message read:
I'm trying to secure this deal to get the [electric vehicle]
rates [sic] for Florida. Since we already have a
$150,000 line of credit and [another representative at
VN Bank] is opening up at [sic] $500,000 account
maybe you could send us a letter that basically says
Encore LED [L]ighting has a 650 or $700,000 line of
credit? It's just a letter it's not going to be used in any
binding capacity at all. Just helping me buy the rights
to Florida. Thanks.
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VN Bank supplied Dato with the requested letter, which Dato then submitted to
Enel.1
In January 2022, Dato, on behalf of Encore, applied to VN Bank to
increase Encore's line of credit from $150,000 to $250,000. VN Bank approved
the application and increased Encore's line of credit to $250,000. In connection
with that increase, Encore and VN Bank executed a Modification Agreement.
The Modification Agreement stated that Encore agreed to "indemnify, defend
and hold [VN Bank] . . . harmless against any claim brought or threatened"
against VN Bank "on account of [VN Bank's] relationship with [Encore] . . .
except for any claim arising out of the gross negligence or willful misconduct
of [VN Bank]." Encore also granted VN Bank a continuing lien and security
interest in all deposits Encore had with VN Bank and the right to set off Encore's
deposits if necessary to satisfy Encore's obligations to VN Bank.
Meanwhile, on April 1, 2022, Encore and Enel entered into a Distribution
Agreement, under which Encore could purchase electric vehicle charging
stations, software, and services from Enel and then distribute them. The
Distribution Agreement stated that it was governed by Massachusetts law.
1
VN Bank now contends that Dato engaged in fraud to obtain this letter.
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The Distribution Agreement also included an arbitration provision, which
stated that any disputes between Encore and Enel arising out of or relating to the
Distribution Agreement would be resolved by binding arbitration. In that
regard, the arbitration provision stated:
Except for disputes relating to intellectual property
infringement, and without limiting the rights of either
Party to seek injunctive relief in a court of law, any
disputes between the Parties arising out of or relating
to this [Distribution] Agreement shall be resolved by a
single arbitrator in binding arbitration in accordance
with the then-current Commercial Arbitration Rules of
the American Arbitration Association. . . . The
arbitration shall take place in Boston, Massachusetts, or
another location as mutually agreed upon by the Parties.
. . . The decision rendered by the arbitrator shall be final
and binding on the Parties, and judgment may be
entered in conformity with the decision in any court
having jurisdiction. The agreement to arbitrate shall be
specifically enforceable under the prevailing arbitration
law.
Later that same month, Dato asked his contact at VN Bank to provide him
with a letter stating that Encore had a line of credit with VN Bank in the amount
of $1.5 million. On April 19, 2022, VN Bank supplied the requested letter to
Dato, who then provided the letter to Enel. 2
2
VN Bank also contends that Dato engaged in fraud to obtain this letter.
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A year later, on April 26, 2023, VN Bank sent Encore and Dato a letter
stating that it was terminating Encore's line of credit, effective that day. VN
Bank informed Encore and Dato that any provision of the parties' agreements
that permitted further borrowing were also canceled, and that VN Bank reserved
all its rights and remedies, as well as its security interest in all assets grant ed as
collateral.
Shortly thereafter, on May 2, 2023, Enel sent a letter to VN Bank asserting
that Encore had failed to pay almost $1.4 million that it owed to Enel. Enel
contended that it had extended credit to Encore based on the letters VN Bank
had provided, and that it was prepared to pursue claims against VN Bank for the
bank's "fraudulent conduct" if the debt was not paid by May 9, 2023.
That same day, VN Bank sent a letter to Encore demanding that Encore
indemnify VN Bank against Enel's claims and any litigation Enel might initiate.
VN Bank also demanded that Dato indemnify VN Bank if Encore failed to do
so. The next day, Encore sent a letter in response to VN Bank and rejected VN
Bank's request for indemnification.
On May 3, 2023, VN Bank filed a complaint in the Law Division against
Enel, Encore, and Dato. VN Bank asserted claims of breach of contract against
Encore and Dato, and it sought specific performance of the Modification
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Agreement and the Unlimited Guaranty. VN Bank also sought declaratory
judgments that (1) Encore and Dato were required to indemnify VN Bank
against claims by Enel; (2) Encore's failure to indemnify VN Bank was a breach
of the Modification Agreement; (3) Dato's failure to indemnify VN Bank was a
breach of the Unlimited Guaranty; and (4) VN Bank had the right to set off the
funds in Encore's deposit accounts "in an amount sufficient to indemnify and
defend [VN Bank] against the claims threatened by Enel."
In response to that complaint, Encore and Dato applied for an order to
show cause with temporary restraints seeking to compel VN Bank to allow them
to access their accounts and line of credit at VN Bank. The Law Division denied
that request for temporary restraints shortly after it was filed.
In June 2023, Encore and Dato filed an answer and asserted counterclaims
against VN Bank and crossclaims against Enel. In their crossclaims, Encore and
Dato sought specific performance of an alleged "Settlement Agreement."
According to Encore and Dato, Enel had agreed to allow Encore to return
approximately half of the $1.3 million it had in unsold products it had purchased
from Enel. Encore and Dato also alleged claims against Enel for breach of the
implied covenant of good faith and fair dealing and misrepresentations.
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That same month, on June 27, 2023, Enel filed a complaint against VN
Bank in federal court in the United States District Court for the District of New
Jersey. In its federal action, Enel asserted that VN Bank had engaged in fraud,
negligent misrepresentation, civil conspiracy, and aiding and abetting fraud.
The day after filing that federal action, Enel moved in the Law Division
to dismiss VN Bank's complaint. It also moved to either dismiss Encore and
Dato's crossclaims or stay the crossclaims while they were compelled to
arbitration under the Distribution Agreement.
Shortly thereafter, on July 5, 2023, VN Bank filed a cross-motion seeking
to amend its complaint to add an additional claim against Dato and to add claims
for additional declaratory judgment relief.
After hearing oral argument on those motions, on August 25, 2023, the
Law Division entered an order that (1) granted Enel's motion and dismissed
without prejudice the complaint against Enel; and (2) compelled Encore's
crossclaims against Enel to arbitration. In support of that order, the court issued
a written statement of reasons, where it ruled that VN Bank's complaint did not
state a basis for declaratory judgment relief against Enel. The court, therefore,
explained that VN Bank's claims against Enel were being dismissed "without
prejudice." The court also ruled that the claims between Enel and Encore had
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to be arbitrated in accordance with the arbitration provision in the Distribution
Agreement. Finally, although the court did not include it in its order, the court
granted in part VN Bank's motion to amend its complaint against Dato. Shortly
thereafter, VN Bank filed an amended complaint adding an additional claim
against Dato. The Law Division order did not stay the claims by VN Bank
against Encore and Dato pending the arbitration of Encore's crossclaims against
Enel.
As permitted by Rule 2:2-3(b)(8), Encore now appeals from the provision
in the August 25, 2023 order compelling its crossclaims against Enel to
arbitration. VN Bank has not sought leave to appeal from the provision of the
order that dismissed its claims against Enel.
II.
On appeal, Encore argues that the order compelling arbitration of its
crossclaims against Enel violates the public policy against piecemeal litigation.
In that regard, it contends that the claims to be arbitrated, the remaining claims
in the Law Division, and the claims in the federal action all concern overlapping
or similar factual and legal issues. Accordingly, Encore contends that the
arbitration could result in inconsistent findings and rulings, and, therefore, the
arbitration provision should not be enforced. Encore also argues that staying
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the remainder of the claims in the Law Division until the arbitration is complete
is not a viable solution because it would delay a determination of whether VN
Bank is liable to Enel and could lead to additional delays and expenses.
A.
We review orders compelling or denying arbitration de novo "because the
validity of an arbitration agreement presents a question of law." Ogunyemi v.
Garden State Med. Ctr., 478 N.J. Super. 310, 315 (App. Div. 2024); see also
Antonucci v. Curvature Newco, Inc., 470 N.J. Super. 553, 560 (App. Div. 2022)
(explaining that "[t]he interpretation of an arbitration agreement and its
enforceability are questions of law" that are reviewed de novo). Where only
some claims in a lawsuit are compelled to arbitration, the decision on whether
to stay the remainder of the proceedings pending arbitration is generally "a
matter of discretion." Elizabethtown Water Co. v. Watchung Square Assocs.,
LLC, 376 N.J. Super. 571, 577 (App. Div. 2005).
B.
In their Distribution Agreement, Encore and Enel agreed to arbitrate all
disputes related to the Distribution Agreement. The Distribution Agreement
involves business and transactions affecting interstate commerce, and, therefore,
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it is governed by the FAA. 9 U.S.C. §§ 1, 2; see also McInnes v. LPL Fin., LLC,
994 N.E.2d. 790, 794 (Mass. 2013). Section two of the FAA states:
A written provision in any . . . contract evidencing a
transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract or
transaction, or the refusal to perform the whole or any
part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid,
irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any
contract . . . .
[9 U.S.C. § 2.]
The transactions between Encore and Enel involve interstate commerce.
Encore is based in New Jersey, and Enel is a Delaware corporation with its
principal place of business in California. Moreover, the Distribution Agreement
expressly states that Encore's territory to distribute Enel's products is the entire
United States.
Although the Distribution Agreement states that Massachusetts law
governs, the FAA still applies to the arbitration provision included in the
Distribution Agreement. See Mastrobuono v. Shearson Lehman Hutton, Inc.,
514 U.S. 52, 58-59 (1995). In Mastrobuono, the United States Supreme Court
held that a generic choice of law clause that provides that a certain state's law
governs the entire contract does not displace the FAA. Ibid. In that regard, "the
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FAA protects arbitration agreements involving interstate commerce."
Antonucci, 470 N.J. Super. at 564 (citing Volt Info. Scis., Inc. v. Bd. of Trs. of
the Leland Stanford Junior Univ., 489 U.S. 468, 476 (1989)).
Under the FAA, arbitration is a creature of contract. 9 U.S.C. § 2; Rent-
A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). In determining whether
a matter should be submitted to arbitration, a court must evaluate (1) whether a
valid agreement to arbitrate exists, and (2) whether the dispute falls within the
scope of the agreement. See AT & T Techs., Inc. v. Commc'ns Workers of Am.,
475 U.S. 643, 649-50 (1986).
Encore does not dispute that the arbitration clause in the Distribution
Agreement is valid. Encore also does not dispute that its crossclaims against
Enel arise out of or relate to the Distribution Agreement. Indeed, a review of
the crossclaims makes it clear that Encore is complaining about its purchases of
equipment from Enel, and those purchases were made under the Distribution
Agreement. In short, the arbitration clause applies to Encore's crossclaims
against Enel.
As already noted, Encore argues that because the issues raised in its
crossclaims against Enel overlap with claims raised by VN Bank in the Law
Division and the claims raised by Enel in the federal action, it was an error for
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the trial court to compel arbitration. We disagree. Where an arbitration clause
is enforceable and claims are sent to arbitration, the FAA requires the court to
stay the legal action pending arbitration. 9 U.S.C. § 3. If that legal action
"presents multiple claims, some arbitrable and some not," the United States
Supreme Court has held that "the former must be sent to arbitration even if this
will lead to piecemeal litigation." KPMG LLP v. Cocchi, 565 U.S. 18, 19
(2011). We have also held that a stay of claims between parties to a litigation
where other claims are compelled to arbitration is warranted where there is
"significant overlap . . . between parties and issues." Perez v. Sky Zone LLC,
472 N.J. Super. 240, 251 (App. Div. 2022). In that regard, we explained:
Although not mandatory, when significant overlap
exists between parties and issues, claims against parties
who have not agreed to arbitrate should be stayed
pending the arbitration. In other words, the arbitration
agreement must be enforced notwithstanding the
presence of other persons who are not parties to the
[a]greement.
[Ibid. (citations omitted).]
In summary, Encore and Enel have a valid and enforceable arbitration
agreement, so it must be enforced notwithstanding the presence of other entities
who are not parties to the arbitration agreement. Consequently, the Law
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Division was correct in compelling arbitration of Encore's crossclaims against
Enel.
The Law Division did err in failing to stay Encore's crossclaims against
Enel. The FAA provides that a party may request a stay of a court action that
has been commenced if that action involves "any issue referable to arbitration
under an agreement in writing for such arbitration." 9 U.S.C. § 3; see also
Alfano v. BDO Seidman, LLP, 393 N.J. Super. 560, 566, 577 (App. Div. 2007)
(holding that "[u]nder [9 U.S.C. § 3] the court must stay an arbitrable action
pending its arbitration" after one of the parties applied for a stay). Accordingly,
we remand with direction that the trial court enter an amended order staying the
crossclaims pending the resolution of the arbitration proceedings. We also
direct that the claims between Encore and VN Bank in the Law Division be
stayed pending the arbitration because they substantially relate to the claims
between Encore and Enel. We obviously make no ruling concerning staying the
federal action between Enel and VN Bank, as that is a matter for the federal
court to decide. Finally, because the dismissal of VN Bank's claims against Enel
is not before us, we do not address the provision of the order that dismissed
those claims without prejudice.
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Affirmed in part and remanded for the entry of an amended order
consistent with this opinion. We do not retain jurisdiction.
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