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Benihana Drama in the 2nd Circuit

By Mark Wilson, Esq. | Last updated on

This is a case about Benihana, burgers, and contracts. Benihana was founded in 1963 by Rocky Aoki, who would have been a serious contender for the title "Most Interesting Man in the World."

Unfortunately, the case doesn't really involve the considerable family drama surrounding the company after Aoki's death in 2008, which pitted Aoki's six children against his third (much younger) wife, who also happened to be the CEO of Benihana of Tokyo at the time. This case is about a 1994 agreement splitting the company into two entities.

Burgers and Fries? Not Here!

Per the agreement, Benihana of America would operate restaurants in the United States, Central America, South America, and the Caribbean. Benihana of Tokyo would operate them everywhere else -- except Hawaii, where Benihana of Tokyo operated restaurants under a license from Benihana of America (a subsidiary of Benihana, Inc.). The license required the Hawaiian restaurant to operate under standards approved by Benihana of America, including the menu.

In 2012, Benihana of America was purchased by an investment firm called Angelo Gordon. Angelo Gordon got quite upset when it learned the Hawaiian restaurant was selling something called "BeniBurgers," a food Benihana of America never authorized and something Angelo Gordon thought offensive to the idea of a Japanese restaurant. Benihana of America sent a letter saying the Hawaiian restaurant had 30 days to remove the BeniBurgers.

Benihana of Tokyo sued for an injunction stayed the 30-day period. It wanted to go to arbitration to determine whether the BeniBurgers really did violate the license agreement. The Hawaiian restaurant didn't dispute that it sold the burgers, but claimed Benihana of America had waived its right to object by failing to monitor the restaurant for many years.

The district court disagreed and denied the motion. The companies eventually agreed that the Hawaiian restaurant would stop selling BeniBurgers. Of course, it didn't, instead marketing them under different names. Benihana of America again went to court to get an injunction, which it received. Benihana of Tokyo instead wanted to petition an arbitration panel to extend the cure period -- which the district court also denied.

An Arbitration Temporal Paradox

The Second Circuit upheld the injunction, finding that Hawaiian restaurant was "blatantly not complying with the license agreement" even after it acknowledged it wasn't allowed to sell burgers and even after it agreed not to. The court was just as unimpressed with the restaurant's reasoning as the district court: That is "Beni Pandas" weren't burgers because they contained rice and the buns were shaped like panda ears.

The Second Circuit did, however, reverse the district court's decision not to allow an arbitrator to extend the arbitration period. It found that the arbitration agreement grants to an arbitrator "questions of arbitrability, including whether Benihana of Tokyo's claim for an extended cure period in lieu of termination, is arbitrable."

Curiously, this is the court's reasoning in light of the fact that, even if submitted to arbitration, the arbitrator couldn't extend the cure period because the agreement doesn't give the arbitrator that power. That may be true, the court said, but the correct sequence of events is for the case to go to arbitration, then the arbitrator does something, then the parties dispute whether that power existed.

Now, it's time for dinner.

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