Valley Nat'l Bank v. Encore Led Lighting, LLC

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VALLEY NATIONAL BANK, Plaintiff, v. ENCORE LED LIGHTING, LLC, Defendant-Appellant, and WILLIAM DATO, Defendant, and ENEL X WAY USA, LLC, Defendant-Respondent.

No. A-0391-23

Superior Court of New Jersey, Appellate Division

July 26, 2024

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.

Submitted June 3, 2024

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).

Before Judges Gilson and Berdote Byrne.

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 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.

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 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.

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.

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] 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 granted 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...