ALGEN DESIGN SERVICES, INC v. CIENA CORPORATION

NOT FOR PUBLICATION WITHOUT THE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-4758-15T2

ALGEN DESIGN SERVICES, INC.,

        Plaintiff-Respondent,

v.

CIENA CORPORATION,

     Defendant-Appellant.
_____________________________

              Argued telephonically April 13, 2018 –
              Decided April 30, 2018

              Before Judges Currier and Geiger.

              On appeal from Superior Court of New Jersey,
              Law Division, Ocean County, Docket No. L-1279-
              16.

              Marshall D. Bilder argued the cause for
              appellant (Eckert Seamans Cherin & Mellott,
              LLC, attorneys; Marshall D. Bilder and
              Christopher E. Torkelson, of counsel and on
              the briefs).

              David A. Dorey argued the cause for respondent
              (Blank Rome LLP, attorneys; David A. Dorey,
              on the brief).

PER CURIAM

        In this commercial matter pertaining to an agreement entered

into by the parties, plaintiff, Algen Design Services, Inc.,
alleged claims of breach of contract and fraud against defendant

Ciena Corporation.        Following a multi-day arbitration hearing, an

award was rendered in favor of plaintiff.              Defendant appeals the

subsequent Law Division orders of May 27, 2016, confirming the

award and denying its motion to vacate.                After a review of the

contentions in light of the record and applicable principles of

law, we affirm.

       The parties entered into a manufacturing services agreement

(the MSA), under which plaintiff would manufacture, assemble, and

package electronic assemblies for defendant.                  The MSA did not

provide for exclusivity, but defendant was required to provide a

forecast of the quantity of products it anticipated purchasing and

desired delivery dates.          Plaintiff responded with a feasibility

analysis and build schedule, indicating its ability to satisfy

defendant's needs.        The parties operated under this agreement for

two years.

       Defendant terminated the MSA in October 2006.                 Plaintiff

instituted suit in September 2007, alleging that defendant had

engaged in a "pattern of deception" whereby it was representing

to   plaintiff   that     it   would   continue   to   honor   the   MSA   while

simultaneously securing a new manufacturer.              Plaintiff contended

that   it   relied   on    defendant's      forecast    and    representations

regarding future demand and invested $2 million in equipment in

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order to assure it could meet defendant's demands.                 Shortly after

the    installation    of   the    manufacturing        equipment,     defendant

cancelled the anticipated orders.

       Defendant removed the action to federal court and later moved

to    compel   arbitration.       The   parties    executed    an    arbitration

agreement engaging an arbitrator in 2010, and the arbitration

hearings took place over several days in September 2015.                      The

arbitrator issued a May 10, 2016 award and supporting opinion.

        The award denied plaintiff's application for "single source"

damages, as the arbitrator concluded there was no "'single-source'

provision in the [MSA]."          In considering plaintiff's claim for

breach    of   contract,    the   arbitrator       found   "that     [defendant]

breached both the notice of termination provisions in the [MSA]

and the obligation to provide Demand Forecasts." He also concluded

that    "[defendant]   violated     the     duty   of   good   faith   and   fair

dealing," when it engaged in a "pattern of deception" prior to

terminating the MSA.        This pattern began in December 2005 with

defendant's representation that a "huge ramp" in production would

be forthcoming, leading plaintiff to purchase $2 million worth of

new equipment to meet defendant's increased production needs.

       Noting defendant's internal January 2006 emails indicating

it had already made a decision to move production from plaintiff

to a new manufacturing source, and stating that "[a] decision to

                                        3                                A-4758-15T2
move manufacturers was not a decision made lightly [because] [i]t

involved significant expense and typically took months to complete

the change[,]" the arbitrator reasoned that it was "impossible

that [defendant] did not know it was switching providers during

December of 2005" when plaintiff bought and installed the new

equipment.         The    arbitrator    further    concluded    that   defendant

continued to deceive plaintiff in January 2006, in its reassurances

that "there is lots of opportunity for all" and even threatening

"liquidated     damages      if   [plaintiff]      took    on   customers    that

threatened    [defendant's]       continuing      supply   of   product."     The

arbitrator found that "[t]he evidence shows that [defendant] did

this in order to keep a steady supply while it was getting [the

new source] ready to take over" production.

     Therefore, the arbitrator concluded:

            [Defendant] willfully misled [plaintiff] to
            believe that the business relationship would
            continue when, in fact, it had plans to
            terminate the relationship.      [Plaintiff]
            relied on those misrepresentations to its
            detriment when it bought the manufacturing
            equipment in anticipation of significantly
            more demand. Consequently, [plaintiff] is
            entitled to $2 million in reliance damages
            compensation.

     In awarding these damages, the arbitrator noted that while

Paragraph     20     of    the    MSA   imposed     a   limitation     excluding

consequential        damages,      Paragraph      22.11,    entitled     "Entire


                                         4                               A-4758-15T2
Agreement," was applicable to plaintiff's claims and did not

exclude damages for fraud or willful misrepresentation.      Paragraph

22.11 provides that "[t]his section is not intended, nor shall be

construed, to preclude claims by either Party based on fraud or

willful misrepresentation."      The arbitrator reasoned that relief

was available under this provision because defendant knowingly

engaged in a pattern of deception prior to the termination of the

MSA.    Plaintiff was awarded $2 million on its breach of contract

claim plus prejudgment interest from the date of the filing of the

complaint.

       Plaintiff   filed   a   subsequent   motion   to   confirm   the

arbitration award, and defendant filed a cross-motion to vacate

the award.    The Law Division judge granted plaintiff's motion to

confirm the arbitration award in the amount of $2,625,591.00 1 and

denied defendant's motion to vacate, reasoning that "N.J.S.A.

[2A:23b-25(a)] requires a Court to enter Judgment in conformity

with the Arbitrator's award."

       On appeal, defendant argues that the court erred in confirming

the arbitration award because the arbitrator exceeded the scope

of power accorded to him in the arbitration agreement in his award

of consequential damages, and the award is not supported by either


1
   This award was comprised of $2,000,000 in damages and $625,591
in prejudgment interest.

                                   5                           A-4758-15T2
the presented evidence or applicable law.          Defendant also contests

the award of prejudgment interest, arguing it should be calculated

from the date the matter was submitted to arbitration, not the

date of the filing of the complaint.              We are not persuaded by

these arguments.

      The decision to confirm or vacate an arbitration award is

reviewed de novo.     Bound Brook Bd. of Educ. v. Ciripompa, 442 N.J.

Super, 515, 520 (App. Div. 2015).              We are mindful that "[t]he

public policy of this State favors arbitration as a means of

settling disputes that otherwise would be litigated in court."

Badiali v. N.J. Mfrs. Ins. Grp., 
220 N.J. 544, 556 (2015) (citing

Cty. Coll. of Morris Staff v. Cty. Coll. of Morris Staff Ass'n,


100 N.J. 383, 390 (1985)).          "[T]o ensure finality, as well as to

secure arbitration's speedy and inexpensive nature, there exists

a   strong    preference   for   judicial     confirmation   of   arbitration

awards."     Borough of E. Rutherford v. E. Rutherford PBA Local 275,


213 N.J. 190, 201 (2013) (quoting Middletown Twp. PBA Local 124

v. Twp. of Middletown, 
193 N.J. 1, 10 (2007)).

      Under    the   New   Jersey   Uniform    Arbitration   Act,    
N.J.S.A.

2A:23B-1 to -32, a court may only vacate an arbitration award

under specific narrow grounds.             
N.J.S.A. 2A:23B-23.      Defendant

contends that Section 20 of the MSA limited the type and scope of

damages that a party could claim in the event of its breach, and

                                       6                              A-4758-15T2
that the arbitrator failed to comply with that provision.              As a

result, defendant argues that the arbitrator exceeded his powers,

a ground under which an award may be vacated.

      Whether or not the arbitrator exceeded his authority "entails

a two-part inquiry: (1) whether the agreement authorized the award,

and   (2)   whether   the   arbitrator's    action   is   consistent    with

applicable law."      E. Rutherford PBA Local 275, 
213 N.J. at 212.

"[A]n arbitrator may not disregard the terms of the parties'

agreement, nor may he rewrite the contract for the parties."            Cty.

Coll. of Morris, 
100 N.J. at 391 (citations omitted).             Moreover,

"the arbitrator may not contradict the express language of the

contract."    Linden Bd. of Educ. v. Linden Educ. Ass'n ex rel:

Mizichko, 
202 N.J. 268, 276 (2010).        As such, "courts have vacated

arbitration awards as not reasonably debatable when arbitrators

have, for example, added new terms to an agreement or ignored its

clear language."      Policemen's Benevolent Ass'n v. City of Trenton,


205 N.J. 422, 429 (2011) (citations omitted).

      Defendant    contends   that   Section   20    of   the   arbitration

agreement does not permit the arbitrator's award of consequential

damages.    However, the award was not premised on Section 20.           The

arbitrator specifically noted the limitation on damages clause

under Section 20, but advised that his award was grounded on a

different clause, Section 22.11, which states that: "This section

                                     7                              A-4758-15T2
is not intended, nor shall be construed, to preclude claims by

either Party based on fraud or willful misrepresentation."

      The arbitrator found that defendant had willfully misled

plaintiff in their continuing business relationship in providing

a significantly higher demand for its product.           Plaintiff had

relied on those willful misrepresentations to its detriment and

incurred substantial expense in its purchase of manufacturing

equipment to meet the anticipated demand.       The arbitrator found

that "[defendant] violated the duty of good faith and fair dealing"

owed to plaintiff.      Consequently, plaintiff was awarded the $2

million it expended to purchase the new equipment under Section

22.11.      This decision was within the scope of the MSA, which

limited damages in some instances, but did not explicitly impose

a   limit     on   damages   resulting   from   "fraud    or   willful

misrepresentation" by a party.

     Here, the arbitrator did not ignore the unambiguous meaning

of any provision of the MSA, he did not attempt to rewrite the

agreement or insert additional contract provisions, nor did he

disregard any essential conditions of the MSA.       See, e.g., Cty.

Coll. of Morris, 
100 N.J. at 389-90 (reversing an arbitration

award where the arbitrator ignored the unambiguous meaning of a

clause and added an extra term); City Ass'n of Supervisors & Adm'rs

v. State Operated Sch. Dist., 
311 N.J. Super. 300, 308 (App. Div.

                                   8                           A-4758-15T2
1998)   (reversing       an   arbitration     award   where   the    arbitrator

"ignor[ed] the clear language of the agreement"); PBA Local 160

v. Twp. of New Brunswick, 
272 N.J. Super. 467, 475 (App. Div.

1994) (reversing the confirmation of an award that disregarded a

term of the agreement and essentially "rewrote the agreement").

Instead,    he    concluded    that    Section   22.11   afforded    relief       to

plaintiff for damages incurred by defendant's breach of the implied

covenant    of    good   faith   and   fair   dealing    intrinsic    to     every

contract.    We are satisfied that the arbitrator did not exceed the

scope of his authority in his interpretation of the parties'

agreement.

     We also disagree that the award was not premised on sufficient

evidence.        Defendant argues that plaintiff never claimed the

manufacturing equipment was an element of damages.2             We find this


2
  In support of this assertion, defendant points to the following
testimony from plaintiff's president at the hearing:

Question: "[H]ow much money did you lay out for test equipment
special to the products you manufactured for . . . Ciena?"
(emphasis added).

Defense counsel objected to the question, stating that no
documentation had been produced on that issue and those costs were
not part of the damages calculation.          Plaintiff's counsel
concurred, stating: "We are not making this a damage calculation."
When plaintiff's president was again asked how much he spent for
the test equipment to manufacture products, he replied "millions
of dollars." The president was asked several minutes later about
the specialized equipment he had purchased following the receipt


                                         9                                 A-4758-15T2
argument disingenuous.     Prior to arbitration, in a deposition,

plaintiff's president testified to the investment of $2 million

in equipment to enable "significant manufacturing capacity to be

able to build [the] product in a really timely way."          The damage

claim was raised throughout the parties' respective briefs for and

in opposition to summary judgment.

        At the hearing, plaintiff presented witnesses and testimony

regarding the cost of the new manufacturing equipment it purchased

in reliance on defendant's demand.          Plaintiff also presented

testimony that defendant was aware of the purchase as its employees

were   continuously   present   at   plaintiff's   facility   during   the

equipment's installation.       Defendant cross-examined plaintiff's

witnesses and questioned its own witness on the equipment claim.

       At the close of plaintiff's case, defendant renewed its motion

for a directed verdict and discussed the $2 million damage claim.

Plaintiff responded that it was seeking damages for defendant's

fraudulent actions, which had caused it to purchase equipment it

otherwise did not need.    We are satisfied that defendant was aware

of this specific claim for damages at all times during this

litigation.


of substantial purchase orders and demand forecasts. There was
no objection to this question nor to his answer that the company
expended $2 million for that equipment. These questions clearly
referred to two different categories of equipment.

                                     10                          A-4758-15T2
     We also conclude that defendant's reliance on McHugh, Inc.

v. Soldo Constr. Co., Inc., 
238 N.J. Super. 141 (App. Div. 1990)

is misplaced.    In McHugh, we found there was no evidence presented

to support a portion of the arbitration award.        Id. at 144.     As a

result, we stated that the arbitrators had exceeded their powers

and the objectionable portion of the arbitration award should be

vacated.     Id. at 148.     In contrast, the award here was based on

sufficient evidence in the record and was not the result of fraud,

corruption or similar wrongdoing on the part of the arbitrator.

See Tretina v. Fitzpatrick & Assocs., 
135 N.J. 349, 358 (1994)

(holding that an arbitration award "may be vacated only for fraud,

corruption, or similar wrongdoing on the part of the arbitrators")

(quoting Perini Corp. v. Greate Bay Hotel & Casino, Inc., 
129 N.J.
 479, 548-49 (1992)).

     We turn to defendant's argument that prejudgment interest

should only have been awarded from the date the case was submitted

to arbitration, and not from the date of the filing of the

complaint.     Defendant provides no authoritative support for its

argument.    Plaintiff argues that defendant delayed in readying its

case for arbitration.

     "[T]he     award   of   prejudgment   interest   on   contract   and

equitable claims is based on equitable principles."        Cty. of Essex

v. First Union Nat. Bank, 
186 N.J. 46, 61 (2006).          Generally, an

                                   11                            A-4758-15T2
award for prejudgment interest is addressed to the sound discretion

of the trial judge.   Litton Indus., Inc. v. IMO Indus., Inc., 
200 N.J. 372, 390 (2009).      "Unless the allowance of prejudgment

interest 'represents a manifest denial of justice, an appellate

court should not interfere.'"   Ibid. (quoting Cty. of Essex, 
186 N.J. at 61).

          The   primary   consideration   in   awarding
          prejudgment interest is that "the defendant
          has had the use, and the plaintiff has not,
          of the amount in question; and the interest
          factor simply covers the value of the sum
          awarded for the prejudgment period during
          which the defendant had the benefit of monies
          to which the plaintiff is found to have been
          earlier entitled."

          [Musto v. Vidas, 
333 N.J. Super. 52, 74 (App.
          Div. 2000) (quoting Rova Farms Resort, Inc.
          v. Inv'rs Ins. Co. of Am., 
65 N.J. 474, 506
          (1974)).]

     We discern no manifest injustice in the award of prejudgment

interest commencing on the complaint filing date.

     Affirmed.




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