A federal district court upheld an arbitration panel’s decision to deny attorneys’ fees to Benihana, even though Benihana won a dispute with its licensee. The licensee started arbitration claiming Benihana breached the parties’ license agreement. The licensee claimed Benihana unreasonably withheld approval of menus, advertisements, coupons, and signs and prevented the licensee from opening a restaurant in Hawaii. Benihana counterclaimed for breach by the licensee for refusing to comply with brand standards governing menus, advertisements, coupons, and signs.

The arbitral panel denied the licensee’s claims and found Benihana had good cause to terminate the agreement. Benihana requested attorneys’ fees and costs pursuant the license agreement. However, the arbitration panel declined to award Benihana attorneys’ fees and costs on the grounds that Benihana sought to terminate the license agreement, not to enforce it.

Benihana tried to vacate the part of the award that denied its request for attorneys’ fees. The court found support for Benihana’s claim that termination was one method for contractual enforcement. But while the arbitration panel’s reasoning was questionable, the court was obligated to confirm the award if there was “even a barely colorable justification for the outcome reached.” The court concluded that because deference to the panel was required, the award had to be upheld, including denial of attorneys’ fees.

This case illustrates a risk parties take by choosing arbitration to solve disputes. Although arbitration provisions are common in franchise agreements, and have some benefits, the case serves as a warning that arbitration can result in an unsatisfactory construction and application of the agreement.

Benihana Inc. v. Benihana of Tokyo, LLC, No. 18 Civ. 7506 (PAE) (S.D.N.Y. Jan. 17, 2019)