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Benihana, Inc. V. Benihana of Tokyo, LLC

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Benihana, Inc. V. Benihana of Tokyo, LLC 15 Civ. 7428 (PAE) UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK Benihana, Inc. v. Benihana of Tokyo, LLC Decided Jul 15, 2016 15 Civ. 7428 (PAE) The arbitral award ("Award") arises out of BI's termination of a license agreement ("License 07-15-2016 Agreement") governing BOT's operation of a BENIHANA, INC., as successor to BENIHANA "Benihana" restaurant in Hawaii, based on BOT's NATIONAL CORP., Petitioner, v. BENIHANA alleged breaches of the License Agreement OF TOKYO, LLC, as successor to BENIHANA governing its conduct as licensee. The arbitral OF TOKYO, INC., Respondent. panel found that BOT had indeed committed 2 various breaches. Nevertheless, by a 2-1 *2 vote, PAUL A. ENGELMAYER, District Judge the panel overturned BI's termination of the License Agreement. Construing the License OPINION & ORDER Agreement to permit termination only when : reasonable, the majority found the termination here, on balance, not reasonable, citing various Before the Court is a petition by Benihana Inc. factors. It instead awarded BI the lesser remedy of ("BI") to confirm in part and vacate in part an a permanent injunction against the breaching arbitral award, Dkt. 1 ("Petition" or "Pet."), and a practices at issue, and attorneys' fees. In a strongly cross-petition by respondent Benihana of Tokyo, worded dissent, the third arbitrator contended that LLC ("BOT") to confirm the same award in its BOT's established material breaches necessarily entirety, Dkt. 21 ("Cross-Petition").1 BOT also made termination of the license reasonable, and seeks sanctions against BI under Federal Rule of argued that the panel majority's subjective and Civil Procedure 11, arguing that BI's petition to broad-ranging assessment of reasonableness partially vacate the arbitral award is frivolous. effectively rewrote the agreement's terms. Dkt. 32. BI's petition to vacate the aspect of the panel's 1 Although BOT styled its filing as a "cross- ruling finding termination unreasonable presents a motion," the Court construes it as a petition closer question than do most challenges to arbitral to confirm, as it meets the notice awards. The dissenting arbitrator's analysis is far requirements and requests the relief appropriate for such a petition. See the more persuasive. Nevertheless, for the Trustees of N.Y.C. Dist. Council of following reasons, and largely due to the limited Carpenters Pension Fund, Welfare Fund, scope of judicial review of arbitral decisions, the Annuity Fund, & Apprenticeship, Court denies BI's petition to vacate. The Court Journeyman Retraining, Educ. & Indus. therefore confirms the Award in its entirety, enters Fund v. All. Workroom Corp., No. 13 Civ. a permanent injunction against BOT's breaching 5096 (KPF), 2013 WL 6498165, at *1 n.1 practices as provided by the Award, enters (S.D.N.Y. Dec. 11, 2013). judgment in favor of BI for $1,130,643.80 in attorneys' fees, awards BI reasonable attorneys' 1 Benihana, Inc. v. Benihana of Tokyo, LLC 15 Civ. 7428 (PAE) (S.D.N.Y. Jul. 15, 2016) fees associated with this Petition in an amount to In addition to BOT, Rocky also founded BI (a/k/a be determined, and denies BOT's motion for Benihana America) in 1994. Id. ¶ 3. Although sanctions. Rocky initially owned and controlled both BOT and BI, BI came to have various outside investors, I. Background while BOT has remained controlled by the Aoki 3 A. Factual Background 2 *3 family (including through a trust). Rocky died in 2008. Id. ¶¶ 3-4. 2 These facts are drawn principally from the Award, Pet., Ex. 2 ("Award"), the License In 1995, BI and BOT (or their predecessor Agreement, Pet., Ex. 1, the Petition, and entities) entered into two agreements pertinent the exhibits attached to the various here. The first, an Amended and Restated declarations filed by the parties. See Dkt. Agreement and Plan of Reorganization (the 17 ("Munn Decl."); Dkt. 23 ("Manson "ARA") divided up the rights to operate Benihana Decl."); Dkt. 28 ("Munn Reply Decl."). restaurants and to use Benihana trademarks, Many exhibits were filed by both parties; granting BI those rights in the United States, Latin the Court, for ease of reference, cites only to one. In addition, BOT filed, under seal, America, and the Caribbean, and BOT those rights all joint and individual arbitration hearing for all other territories. Id. ¶ 5 (citing J-1, the exhibits that were presented to the arbitral "ARA"). The sole exception to that territorial panel, labeled J-1 through J-9, C-1 through division is Hawaii; the ARA provides that BI C-106 (BOT's exhibits), and R-1 through would grant BOT a license to continue operating R-358 (BI's exhibits). See Manson Decl. ¶ in Hawaii. Id. 1. Unless otherwise specified, the Court refers directly to those exhibits as labeled The second, the License Agreement, controls here. before the panel. The Court refers to the It gives BOT a perpetual, royalty-free license, transcript of the arbitration proceedings, subject to its terms, to operate Benihana Munn Decl., Ex. 3 ("Arb. Tr."), by citation restaurants in Hawaii. The Honolulu restaurant is to the original page numbers of the the only such restaurant. Id. ¶¶ 2, 6; License transcript. Agreement, Arts. 1.1, 3.4. 1. History of Benihana and Key Provisions of In its opening "Whereas" clauses, the License the License Agreement Agreement recites that BI and BOT entered into it "in consideration of the transfer by [BOT] to [BI] The Benihana enterprise is the brainchild of 4 of certain assets of [BOT's] *4 pursuant to" the Hiraoki "Rocky" Aoki. Award ¶ 1. It was founded ARA. These clauses further recite that BI "has in 1964 by BOT's predecessor, with a restaurant created and developed a unique and distinctive on West 56th Street in Manhattan. Id. The system of high-quality restaurants"; that BI "is the restaurants offer teppanyaki cooking, first sole and exclusive owner of all proprietary and introduced in the United States by BOT, which "is other property rights and interests in and to certain a style of Japanese cuisine that uses an iron trade names, service marks, logos, emblems, and griddle to cook"; Benihana "place[s] an emphasis indicia of origin, including . 'Benihana', on the chef performing a show for the diners" 'Benihana of Tokyo', and the 'flower' symbol" (the while preparing food. Id. The Honolulu restaurant, "Marks"); that BI develops, uses, and controls at issue here, is located at the Hilton Hawaiian these Marks "to represent the System's high Village. Id. ¶ 2. It was established in 1971, and standards of quality, appearance and service"; and constructed from a farmhouse transported from that BOT "acknowledges the importance of [BI's] Japan. Id. high standards of quality, cleanliness, appearance 2 Benihana, Inc. v. Benihana of Tokyo, LLC 15 Civ. 7428 (PAE) (S.D.N.Y. Jul. 15, 2016) and service and the necessity of operating the As to defaults, the License Agreement provides business franchised hereunder in conformity with that "any failure to comply with the covenants and [BI's] standards and specifications." Award ¶ 7; agreements in this Article 8, or with covenants and License Agreement at 2-3. agreements in Article 5 hereof with respect to the Marks . , shall constitute a material event of The License Agreement then sets out detailed default under this Agreement." Id., Art. 8.4 provisions governing BOT's operation of the (emphasis added). It further provides that any Honolulu restaurant and related subjects, including failure to comply with Articles 5 and 8 "would BOT's advertising, food sales, and insurance result in irreparable injury to [BI] for which no coverage; BI's rights to terminate the agreement; adequate remedy at law may be available, and, dispute resolution; and choice of law (New York). therefore, [BI] shall be entitled, in addition to any Award ¶¶ 6-9; License Agreement, Arts. 5-8, 12- other remedies which it may have hereunder, at 13, 17.7. law or in equity, to obtain specific performance of, The following provisions are most central here. or an injunction against the violation of, the requirements of [Article 5 and 8], without the Article 5 covers BOT's use of the Benihana necessity of showing actual or threatened service marks and trade names. It provides that " damage." Id. In addition, "[BOT] agrees to pay all [a]ny and all advertising, publicity, signs, costs and expenses (including, without limitation, decorations, furnishings, equipment or other reasonable attorneys' fees) incurred by [BI] in matter employing in any way whatsoever the connection with enforcement of this Article 8 or of words 'Benihana', 'Benihana of Tokyo' or the Article 5 provided that [BOT] is determined to be 'flower' symbol shall be submitted to [BI] for its the breaching party." Id., Art. 8.5. approval prior to publication or use. [BI] shall not unreasonably withhold approval for any such As to BI's right to terminate the License publication or use." License Agreement, Art. 5.2. Agreement—central here—Article 12, titled "Default; Termination," lists nine events "the Article 6 covers BOT's duty "to diligently operate occurrence of [which] shall constitute good cause the Restaurants in strict compliance" with the for [BI], at its option and without prejudice to any Benihana "System," including "menu selection." 6 other rights or remedies provided for *6 hereunder Id., Art. 6.2. Article 6.3 states that BOT "shall sell or by law or equity, to terminate [the License] or offer for sale only such products and services as Agreement." Id., Art. 12.1. Relevant here, BOT 5 have been expressly *5 approved for sale in has good cause to terminate: writing by [BI] (such approval shall not be unreasonably withheld)." Id., Art.
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