May 01, 2015 Practice Points

Court Should Not Limit Remedy Before Award Is Issued

By Michael S. Oberman

On April 28, 2015, the Second Circuit issued an interesting opinion on arbitrability in Benihana, Inc. v. Benihana of Tokyo, LLC Docket No. 14-841. The case arises from a license agreement to operate certain Benihana restaurants and to use the Benihana trademark. The license agreement had a broad arbitration clause, including a provision covering disputes over the “right of termination, or the reasonableness thereof” as well as “any other dispute” that arose between the parties with respect to the agreement.

A dispute arose, and in advance of an arbitration commenced by Benihana of Tokyo (the licensor), Benihana America (the licensee) sought an injunction enjoining Benihana of Tokyo from selling certain hamburgers in Hawaii (which it claimed was a breach of the license agreement) and from “arguing to the arbitration panel that it be permitted to cure any defaults if the arbitrators rule that [Benihana of Tokyo] breached the License Agreement.” The district court granted the requested injunction.

The Second Circuit affirmed those portions of the injunction that preserved the status quo pending arbitration. However, it vacated that portion of the injunction that would have prevented Benihana of Tokyo from arguing that an extended cure period could be found under the license agreement. The court saw the issue as being asked to determine whether arbitrators would exceed their power by deciding this issue under the agreement, a question normally reserved for review of an award. The court stated, “Tellingly, Benihana America has not cited, and we have not found, any precedent for a court holding that a particular remedy may not be awarded by an arbitrator before the arbitrator has actually awarded that remedy. On the contrary, courts that have determined that a remedy exceeded the scope of an arbitrator’s power have done so exclusively after the arbitrator’s ruling.”

Given the broad arbitration clause, the court held that it was for the arbitrators in the first instance to rule on whether an extended cure period could be found under the agreement.

Keywords: alternative dispute resolution, litigation,injunction, enjoin, pre-award limit on remedy, remedies

Michael S. Oberman is with Kramer Levin Naftalis & Frankel LLP in New York, New York.

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