The Franchise Memorandum

A New York federal district court upheld an arbitral award that denied attorneys’ fees to Benihana in a dispute with its licensee, Benihana of Tokyo (“BOT”). Benihana Inc. v. Benihana of Tokyo, LLC, 2019 WL 251729 (S.D.N.Y. Jan. 17, 2019). BOT had initiated an arbitration against Benihana for breach of the parties’ license agreement, and Benihana counterclaimed for breach of the agreement and requested that the arbitrator uphold its earlier termination of the agreement. In conjunction with its counterclaim, Benihana sought to recover attorneys’ fees pursuant to the license agreement, under which BOT had agreed to pay attorneys’ fees incurred by Benihana “in connection with the enforcement” of certain sections of the agreement. Although the arbitrator found in favor of Benihana on the merits of the dispute, the arbitrator declined to award attorneys’ fees on the grounds that Benihana had sought to terminate the license agreement—and therefore had not sought to “enforce” it.

Benihana then sought to vacate the portion of the award that denied its request for attorneys’ fees. The court noted that it was obligated to confirm the arbitral award if there was “even a barely colorable justification for the outcome reached.” The court found support for Benihana’s argument that, because the license agreement provided for termination as a remedy for certain breaches, termination was one mechanism for contractual enforcement. Given the level of deference to which the arbitrator was entitled, however, the court concluded that it was obligated to uphold the award in full.