What specific agreement was the subject of the arbitration between Benihana of Tokyo, LLC and Benihana, Inc.?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
4 (filed January 13, 2014). On January 13, 2014, BOT filed a demand for arbitration with the American Arbitration Association, seeking a declaratory judgment that prior noticed defaults of the Hawaii License Agreement between BOT and Benihana, Inc. ("BI") were not defaults, and, if they were, requesting additional time to cure the defaults. On February 5, 2014, BI served its answer and counterclaims, seeking a declaratory judgment that the prior noticed defaults were defaults under the Hawaii License Agreement, that the defaults satisfied the contractual standard for termination of the
agreement, and that a February 5, 2014, notice of termination served on BOT was reasonable. An evidentiary hearing was held before a three-member arbitral panel on June 2-6, 2015, in New York City, and the parties submitted post hearing briefs. The arbitration panel issued a split decision. Although the majority declined to terminate the Hawaii License Agreement, the entire panel found that BI was the "prevailing party," awarded BI more than $1.1 million in attorneys' fees, and ordered that a Southern District of New York preliminary injunction should be permanent. BOT paid the attorneys' fees and did not challenge the permanent injunction. BI challenged the denial of termination in the Southern District of New York, as discussed below.
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- Benihana, Inc. v. Benihana of Tokyo, LLC, Case No. 15-cv-07428-PAE (United States District Court, Southern District of New York). In 2015, BI filed a petition to partially confirm and partially vacate the arbitration award. BI moved to confirm the award of $1.1 million in attorney's fees and the permanent injunction, which BOT did not oppose. BI also moved to vacate the arbitrators' decision to not terminate the Hawaii License Agreement. After several months of briefing and oral argument, the federal court entered an order on July 15, 2016, confirming the award to BI of $1.1 million in attorney's fees. The court also entered a permanent injunction prohibiting BOT from selling unauthorized food items or using unauthorized advertisements in connection with the Hawaii restaurant that was the subject of the Hawaii License Agreement. On January 9, 2017, BI filed a motion seeking to hold BOT in civil contempt for multiple violations of the permanent injunction. After a two-day evidentiary hearing, the Court granted BI's motion, and, on June 14, 2017, the court issued an opinion from the bench that found BOT in contempt.
Source: Item 3 — LITIGATION (FDD pages 14–16)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, there were two arbitrations between Benihana of Tokyo, LLC (BOT) and Benihana, Inc. (BI) concerning the Hawaii License Agreement. The first arbitration, filed on January 13, 2014, by BOT, sought a declaratory judgment regarding prior defaults of the Hawaii License Agreement, requesting the defaults be deemed invalid or additional time to cure them. BI counterclaimed, seeking a declaration that the defaults were valid and justified termination of the agreement, serving a notice of termination on February 5, 2014. Although the arbitration panel declined to terminate the Hawaii License Agreement, they found BI to be the prevailing party and awarded them over $1.1 million in attorneys' fees.
The second arbitration, filed on April 13, 2016, by BOT, alleged that BI breached the Hawaii License Agreement by unreasonably withholding approval for BOT's menu and advertisements for the Hawaii restaurant. BI denied the claims and subsequently issued a Notice of Termination of the Hawaii License Agreement on February 27, 2017, based on BOT's alleged breaches. BOT then amended their demand to include a claim that BI failed to approve their request to open a second restaurant in Hawaii. The arbitration panel ruled in favor of BI, upholding the termination of the Hawaii License Agreement, which was later confirmed by the United States District Court for the Southern District of New York in January 2019.
These arbitrations highlight the critical importance of adhering to the terms and conditions outlined in the Hawaii License Agreement. For a prospective Benihana franchisee, this underscores the necessity of understanding and complying with all contractual obligations, particularly those related to defaults, menu and advertising approvals, and expansion plans. Failure to do so can lead to costly legal disputes, potential termination of the franchise agreement, and significant financial penalties, as demonstrated by the $1.1 million in attorneys' fees awarded to Benihana, Inc. in the first arbitration.